As filed with the Securities and Exchange Commission
on April 28, 1998
Registration No. 333-
=================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------
GE CAPITAL MORTGAGE SERVICES, INC.
(Exact name of registrant as specified in governing instruments)
-------------
Three Executive Campus
Cherry Hill,
New Jersey 08002
New Jersey (609) 661-6100 21-0627285
(State or other (Address and telephone (I.R.S. Employer
jurisdiction of number of Identification
incorporation or principal executive Number)
organization) offices)
Michael P. Paolillo, Esq.,
Vice President and Senior Counsel,
GE Capital Mortgage Services, Inc.
Three Executive Campus,
Cherry Hill, New Jersey 08002
(609) 661-7695
(Name, address and telephone number of agent for service)
-------------
Copies to:
Andrea G. Podolsky, Esq. Walter P. Buczynski,
Cleary, Gottlieb, Senior Vice President
Steen & Hamilton GE Capital Mortgage
One Liberty Plaza Services, Inc.
New York, New York 10006 Three Executive Campus
Cherry Hill, New Jersey 08002
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APPROXIMATE DATE OF COMMENCEMENT
OF PROPOSED SALE TO PUBLIC:
FROM TIME TO TIME AFTER THIS REGISTRATION STATEMENT
BECOMES EFFECTIVE.
-------------
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans,
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 reinvestment plans,
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, 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, check the following box. |_|
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CALCULATION OF REGISTRATION FEE
==================================================================
Proposed Proposed Amount
Title of Maximum Maximum of
Securities Amount Offering Aggregate Regis-
to be to be Price Offering tration
Registered Registered Per Unit* Price* Fee
- ------------------------------------------------------------------
Pass-Through
Certificates $1,000,000 100% $1,000,000 $295
==================================================================
* Estimated solely for purposes of calculating the registration
fee.
Pursuant to Rule 429 under the Securities Act of 1933, the
Prospectus included in this Registration Statement is a combined
prospectus and also relates to the Pass-Through Certificates
registered pursuant to the Registrant's registration statement
No. 333-43755 on Form S-3. In the event any of such previously
registered Pass-Through Certificates are offered prior to the
effective date of this Registration Statement, they will not be
included in any prospectus hereunder.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON
SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE
DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
=================================================================
<PAGE>
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
X Information contained herein is subject to completion X
X or amendment. A registration statement relating to these X
X securities has been filed with the Securities and Exchange X
X Commission. These securities may not be sold nor may offers to X
X buy be accepted prior to the time the registration statement X
X becomes effective. This prospectus shall not constitute an offer X
X to sell or the solicitation of an offer to buy nor shall there be X
X any sale of these securities in any State in which such offer, X
X solicitation or sale would be unlawful prior to registration or X
X qualification under the securities laws of any such State. X
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
SUBJECT TO COMPLETION, APRIL 28, 1998
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED , 199
GE Capital Mortgage Services, Inc.
(Seller and Servicer)
$ (Approximate)
[REMIC Multi-Class] [Home Equity Loan] [Mortgage]
Pass-Through Certificates, Series
199 -
Principal and interest payable on the 25th day
of each month beginning in 199 .
---------
The [REMIC Multi-Class] [Home Equity Loan] [Mortgage]
Pass-Through Certificates, Series 199__ (the "Certificates") will
evidence beneficial ownership interests in a trust fund (the
"Trust Fund").1 The assets of the Trust Fund will consist
primarily of [a pool (the "Mortgage Pool") of fixed-rate, first-
[and second-] lien, fully-amortizing, conventional, one- to
four-family mortgage loans having original terms to maturity of
to years (the "Mortgage Loans")] and sold by GE Capital
Mortgage Services, Inc. (the "Company").
See "Description of the Mortgage Pool and the Mortgaged
Properties" herein.
[Description of subordination of classes, if applicable.]
---------
NEITHER THESE CERTIFICATES NOR THE UNDERLYING MORTGAGE
LOANS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY
OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
---------
- --------
1 [If the Series is comprised of more than one Trust Fund,
appropriate revisions will be made in the Prospectus
Supplement.]
<PAGE>
Class [Scheduled
Certificate Certificate Final
Principal Interest Distribution
Balance(1) Rate Date(2)]
----------- ----------- ------------
[Classes of
Certificates]
- --------
(1) Approximate, subject to adjustment as described herein.
[(2) Determined on the basis of the assumptions set forth under
"Yield and Weighted Average Life Considerations--Final
Payment Considerations [and Scheduled Final Distribution
Dates] of the Certificates" herein.]
---------
[DESCRIPTIONS OF MATERIAL TRANSFER RESTRICTIONS ON CERTAIN
CLASSES OF CERTIFICATES.] [THE CLASS R [AND CLASS RL]
CERTIFICATES ([TOGETHER,] THE "RESIDUAL CERTIFICATES") MAY NOT BE
PURCHASED BY OR TRANSFERRED TO (I) A DISQUALIFIED ORGANIZATION OR
BOOK-ENTRY NOMINEE (AS DEFINED IN THE ACCOMPANYING PROSPECTUS),
(II) EXCEPT UNDER LIMITED CIRCUMSTANCES, A PERSON WHO IS NOT A
U.S. PERSON (AS DEFINED IN THE ACCOMPANYING PROSPECTUS), (III) AN
ERISA PLAN OR (IV) ANY PERSON OR ENTITY WHO THE TRANSFEROR HAS
REASON TO BELIEVE INTENDS TO IMPEDE THE ASSESSMENT OR COLLECTION
OF ANY FEDERAL, STATE OR LOCAL TAXES LEGALLY REQUIRED TO BE PAID
WITH RESPECT THERETO. SEE "ERISA CONSIDERATIONS" AND "DESCRIPTION
OF THE CERTIFICATES--RESTRICTIONS ON TRANSFER OF THE RESIDUAL
CERTIFICATES" HEREIN.]
There is currently no secondary market for the Certificates
offered hereby and there can be no assurance that such a market
will develop. [ (the "Underwriter") has indicated its intention
to make a market in the Certificates offered hereby, but it is
not obligated to do so. There is no assurance that any such
market, if established, will continue.] See "Summary of
Terms--Liquidity Considerations."
[The Certificates offered hereby will be purchased by the
Underwriter from the Company and are being offered by the
Underwriter from time to time to the public in negotiated
transactions or otherwise at varying prices to be determined at
the time of sale. See "Plan of Distribution" herein. Proceeds to
the Company from the sale of the Certificates will be % of the
aggregate Scheduled Principal Balance of the Mortgage Loans as of
the Cut-off Date, plus accrued interest thereon from the Cut-off
Date, before deducting issuance expenses payable by the Company.]
[The Certificates offered hereby are offered by the
Underwriter, as specified herein, subject to receipt and
acceptance thereof and subject to its right to reject any order
in whole or in part. It is expected that delivery of the Certifi-
cates offered hereby [(other than the Class Certificates)]
will be made through the book-entry facilities of [The Depository
Trust Company], and that delivery of the Class Certificates in
definitive, fully-registered form will be made at the offices of
the Underwriter, New York, New York, on or about , 199 .]
[UNDERWRITER]
The date of this Prospectus Supplement is , 199 .
<PAGE>
The Certificates offered hereby will be issued in the
classes (each, a "Class") and with the characteristics set forth
on the cover hereof. Interest will accrue on each Class of the
Certificates offered hereby [other than the Class Certificates]
at the respective Certificate Interest Rates set forth on the
cover hereof. Principal and interest will be distributable on the
Certificates on each Distribution Date (as defined herein)
commencing in 199 . On each Distribution Date, to the extent
funds are available therefor, the amount of interest
distributable on each Certificate offered hereby [other than the
Class Certificates] will equal 30 days of interest at the
applicable Certificate Interest Rate on the Certificate Principal
Balance thereof immediately prior to such Distribution Date, less
such Certificate's share of any Net Interest Shortfall[, the
interest portion of any Excess Losses allocable to
Certificateholders through the Cross-Over Date and, after the
Cross-Over Date, the interest portion of any Realized Losses
(each as defined herein) allocable to Certificateholders] with
respect to the Mortgage Loans. Principal of the Certificates
offered hereby [other than the Class Certificates] will be
distributable monthly on each Distribution Date to the extent and
in the manner described herein.
---------
The yields to maturity on the Certificates will be
affected, in varying degrees, by the rate and timing of principal
payments (including prepayments) on the Mortgage Loans included
in the related Mortgage Pool, which may be prepaid at any time
without penalty. [A rapid rate of principal prepayments will have
a material negative effect on the yield of the Class Certifi-
cates and could result in the failure of investors in the Class
Certificates to fully recover their investment.]
[Beneficial interests in the Certificates offered hereby,
other than the Residual Certificates [and the Class
Certificates], will be held by investors only through the
book-entry facilities of the Depository (as defined herein).
Distributions on such Classes of Certificates, and transfers of
beneficial interests therein, will be made as described herein.
No person will be entitled to receive a physical certificate
representing such Certificates except under the limited
circumstances described herein. See "Description of the
Certificates--Book-Entry Certificates" herein.]
---------
[For federal income tax purposes, an election will be made
to treat the Trust Fund as a "real estate mortgage investment
conduit" (a "REMIC"). Each Class of the Certificates other than
the Residual Certificates (the "Regular Certificates") will be
designated as regular interests in the REMIC and generally will
be treated as debt instruments for federal income tax purposes.
The Residual Certificates will be designated as the residual
interests in the REMIC. Prospective investors are cautioned that
the Residual Certificateholders' REMIC taxable income and the tax
liability thereon may exceed cash distributions to such holders
during certain periods, in which event such holders must have
sufficient alternative sources of funds to pay such tax
liability. See
<PAGE>
"Summary of Terms--Certain Federal Income Tax Consequences" and
"Certain Federal Income Tax Consequences" herein and "Certain
Federal Income Tax Consequences" in the Prospectus.]
---------
THE CERTIFICATES OFFERED HEREBY CONSTITUTE A PART OF A
SERIES OF PASS-THROUGH CERTIFICATES BEING OFFERED BY THE COMPANY
FROM TIME TO TIME PURSUANT TO ITS PROSPECTUS DATED , 199 OF
WHICH THIS PROSPECTUS SUPPLEMENT IS A PART. THIS PROSPECTUS SUP-
PLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE OFFERING
OF THE CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS AND PURCHASERS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE CERTIFICATES
MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
---------
Until 90 days after the date of this Prospectus Supplement,
all dealers effecting transactions in the Certificates offered
hereby, whether or not participating in this distribution, may be
required to deliver a Prospectus Supplement and Prospectus to
which it relates. This is in addition to the obligation of
dealers to deliver a Prospectus Supplement and Prospectus when
acting as underwriters and with respect to their unsold
allotments or subscriptions.
S-2
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference
to the detailed information appearing elsewhere herein and in the
Prospectus. Capitalized terms used herein and not otherwise
defined have the meanings assigned in the Prospectus.
Securities Offered [REMIC Multi-Class] [Home Equity Loan]
Pass-Through Certificates, Series 199
- (the "Certificates"), in the Classes
and aggregate original Certificate
Principal Balances, subject to
adjustment as described herein (each,
a "Class Certificate Principal
Balance"), set forth on the cover
hereof. The aggregate original
Certificate Principal Balance of the
Certificates will be approximately
$ , subject to a permitted vari-
ance such that the aggregate original
Certificate Principal Balance will not
be less than $ or greater than
$ .]
[Description of senior and subordinate
Certificates, if applicable.]
The Classes of Certificates offered
hereby[, other than the Class
Certificates and the Residual
Certificates,] will each be registered
as a single certificate held by a
nominee of [The Depository Trust
Company] (the "Depository"), and
beneficial interests therein will be
held by investors through the
book-entry facilities of the
Depository, as described herein, in
minimum denominations in Certificate
Principal Balance of $ and integral
multiples of $1,000 in excess thereof.
[The Class Certificates will be
issued in certificated form, in mini-
mum denominations of $ and integral
multiples of $1,000 in excess
thereof.] The Class R [and Class RL]
Certificates ([together,] the
"Residual Certificates") will be
issued in certificated form, as a
single Certificate representing the
entire Class Certificate Principal
Balance thereof.
Seller and Servicer GE Capital Mortgage Services, Inc., a
New Jersey corporation (the
"Company"). See "GE Capital Mortgage
Services, Inc." [and "The Pooling and
Servicing Agreement--Servicing
Arrangement with Respect to the
Mortgage Loans" herein.]
S-3
Trustee (the "Trustee"). See "The Pooling
and Servicing Agreement--Trustee"
herein.
Cut-off Date 1, 199 .
Closing Date On or about , 199 .
Mortgage Pool The Certificates will represent the
entire beneficial ownership interest
in a trust fund (the "Trust Fund").
The assets of the Trust Fund will
consist primarily of a pool (the
"Mortgage Pool") of fixed-rate,
fully-amortizing, conventional
Mortgage Loans secured by first [and
second] liens on one- to four-family
residential properties (the "Mortgaged
Properties"). The Mortgage Loans will
have original terms to maturity of to
years. The Mortgage Loans will have an
aggregate Scheduled Principal Balance
(as defined herein) as of the Cut-off
Date, after deducting payments of
principal due on or before such date,
of approximately $ , subject to
the variance described herein.
[Description of proportion, if any, of
Home Equity Loans included in Mortgage
Pool.] See "Description of the
Mortgage Pool and the Mortgaged
Properties" herein.
[Double REMIC
Structure Two separate REMIC elections will be
made with respect to the assets
underlying the Certificates. The
Certificates, other than the Class RL
Certificates, will represent interests
in an "Upper-Tier REMIC" the assets of
which will consist of all the "regular
interests" in a Lower-Tier REMIC. The
"Lower-Tier REMIC" will consist of the
Mortgage Loans and the related assets
described herein. The Certificates
other than the Class R and Class RL
Certificates will be designated as
"regular interests," and the Class R
Certificates will be designated as the
"residual interest" in the Upper-Tier
REMIC. The Class RL Certificates will
be designated as the "residual
interest" in the Lower-Tier REMIC. See
"Certain Federal Income Tax
Consequences" herein.]
Description of the
Certificates The Certificates will be issued
pursuant to a Pooling and Servicing
Agreement, to be dated as of the
Cut-off Date (the "Agreement"),
between the Company and the Trustee.
To the
S-4
<PAGE>
extent funds are available therefor in
the Certificate Account (as defined
herein), distributions on the
Certificates will be made on the 25th
day of each month or, if such 25th day
is not a business day, on the
succeeding business day (each, a
"Distribution Date"), commencing in
199 , to holders of record on the
close of business on the last business
day of the month preceding the month
of such Distribution Date (the "Record
Date").
Distributions on the
Certificates
[General. Description of priorities of
distribution as between senior and
subordinate Certificates, if
applicable.]
Interest. Interest will accrue on the
Certificates offered hereby [(other
than the Class Certificates)] at the
respective fixed Certificate Interest
Rates set forth on the cover hereof
during each applicable Interest
Accrual Period (as defined below).
[Interest will accrue on the Class
Certificates at the applicable
floating Certificate Interest Rates
set forth or described on the cover
hereof during each applicable Interest
Accrual Period.] [The Class
Certificates are principal-only
Certificates and will not accrue
interest.]
On each Distribution Date, interest
will be distributable on each Class of
the Certificates [(other than the
Class Certificates)] from the
Available Funds (as defined herein)
for such Distribution Date in an
aggregate amount equal to the Accrued
Certificate Interest for such Class on
such Distribution Date, plus any
Accrued Certificate Interest thereon
remaining undistributed from previous
Distribution Dates.
The "Interest Accrual Period" for each
Class of Certificates entitled to
distribution of interest [other than
the Class Certificates] will be the
one-month period ending on the last
day of the month preceding the month
in which a Distribution Date occurs.
[For the Class Certificates, the
"Interest Accrual Period" will be the
one-month period commencing on the
day of the month preceding the
month in which a Distribution Date
occurs and ending on the day of the
month of such Distribution Date.]
S-5
<PAGE>
The "Accrued Certificate Interest" for
any Certificate [(other than a Class
Certificate)] for any Distribution
Date will equal the interest accrued
during the related Interest Accrual
Period at the applicable Certificate
Interest Rate on the Certificate
Principal Balance [(or, in the case of
a Class Certificate, the Notional
Principal Balance)] of such
Certificate immediately prior to such
Distribution Date, less such
Certificate's share of any Net
Interest Shortfall[, the interest
portion of any Excess Losses allocable
to Certificateholders through the
Cross-Over Date and, after the
Cross-Over Date, the interest interest
portion of any Realized Losses (as
each such term is defined herein)
allocable to Certificateholders] in
respect of the Mortgage Pool. Such
shortfall or losses will be allocated
among the related Certificates in
proportion to the amount of Accrued
Certificate Interest that would have
been allocated thereto in the absence
of such shortfall or losses[, and will
be allocated without regard to the
relative priority of the
Certificates]. Interest will be
calculated on the Certificates on the
basis of a 360-day year consisting of
twelve 30-day months. [Description of
floating-rate interest formula, if
applicable.] See "Description of the
Certificates--Distributions on the
Certificates--Interest" herein.
Principal. Principal will be
distributable monthly on the
Certificates [(other than the Class
Certificates)] on each Distribution
Date in an aggregate amount (the
"Principal Distribution Amount") equal
to the Available Funds (as defined
herein) in respect of the Mortgage
Pool remaining in the Certificate
Account after the distribution of
Interest on the Certificates on such
Distribution Date. Subject to such
limitation, the Principal Distribution
Amount will be allocated among the
Classes of Certificates in the manner
described herein. Distributions of
principal of a Class of Certificates
will be made on a pro rata basis among
all outstanding Certificates of such
Class. See "Description of the
Certificates--Distributions on the
Certificates" herein.
S-6
<PAGE>
[Description of any Classes with
special payment features, such as
planned amortization or targeted
amortization class Certificates.]
[Additional Rights
of the Residual
Certificateholders In addition to distributions of
principal and interest payable out
of the Available Funds, [(a)] the
holders of the Class R Certificates
will be entitled to receive (i) the
amount, if any, of Available Funds
remaining in the [Upper-Tier REMIC]
[Certificate Account] on any
Distribution Date after distributions
of principal and interest are made on
the Certificates on such date and (ii)
the proceeds, if any, of the assets of
the Trust Fund remaining in the
[Upper-Tier] REMIC after the Class
Certificate Principal Balances of all
Classes of Certificates have been
reduced to zero and [(b) the holders
of the Class RL Certificates will be
entitled to receive (i) the amount, if
any, of Available Funds remaining on
the Lower-Tier REMIC on any
Distribution Date, after distributions
of principal and interest on the
Lower-Tier regular interests and the
Class RL Certificates are made on such
date and (ii) the proceeds, if any, of
the assets of the Trust Fund remaining
in the Lower-Tier REMIC after the
regular interests in the Lower-Tier
REMIC and the Class Certificate
Principal Balance of the Class RL
Certificates have been reduced to
zero. It is not anticipated that any
material assets will be remaining for
such distributions at any such time.
See "Description of the Certificates--
Additional Rights of the Residual
Certificateholders" herein.]
[Advances The Company will be obligated to
advance delinquent installments of
principal and interest (net of the
related Servicing Fees) on the
Mortgage Loans included in each
Mortgage Pool under certain
circumstances. See "The Pooling and
Servicing Agreement--Advances"
herein.]
[Credit Enhancement The forms of credit enhancement
described below will be employed in
order to enhance the likelihood of
regular receipt by Certificateholders
of the scheduled amounts due them and
to afford such Certificate limited
protection against losses. See
" " herein.
S-7
<PAGE>
[Description of applicable credit
enhancement, such as subordination,
mortgage pool insurance policy,
special hazard insurance policy or
limited guarantee.]
The amount of coverage under the
foregoing forms of credit enhancement
is limited, and payment thereunder is
subject to certain conditions and
limitations. In the event losses occur
which are not covered by such credit
enhancement, or losses occur in
amounts exceeding the coverage
provided thereby, shortfalls in
distributions to Certificateholders
will occur.]
Prepayment and Yield
Considerations The rate of principal distributions on
the Certificates, the aggregate amount
of each interest distribution on the
Certificates and the yield to maturity
of the Certificates are related to the
rate of principal payments on or in
respect of the Mortgage Loans.
Mortgage principal payments may be in
the form of scheduled principal
payments, voluntary prepayments by the
mortgagors (such as, for example,
prepayments in full due to
refinancings, including refinancings
made by the Company in the ordinary
course of conducting its mortgage
banking business, some of which
refinancings may be solicited by the
Company, or prepayments in connection
with biweekly payment programs,
participation in which may be
solicited by the Company) and
prepayments resulting from default,
foreclosure, casualty, condemnation
and similar events and certain
repurchases by the Company of the
Mortgage Loans under the circumstances
described herein. See "Yield, Maturity
and Weighted Average Life
Considerations" in the Prospectus.
Mortgagors are permitted to prepay the
Mortgage Loans, in whole or in part,
at any time without penalty. Mortgage
prepayment rates are likely to
fluctuate significantly. In general,
when prevailing mortgage interest
rates decline significantly below the
interest rates on the Mortgage Loans,
the prepayment rate on such Mortgage
Loans is likely to increase, and when
prevailing mortgage interest rates
rise significantly above the interest
rates on the Mortgage Loans, the
prepayment rate on such Mortgage Loans
is likely to decrease, although other
economic, geographic and social
factors also may influence the
S-8
<PAGE>
prepayment rate. See "Yield and
Weighted Average Life Considerations--
Prepayments."
Voluntary prepayments of principal in
full on the Mortgage Loans received,
and any modifications and repurchases
by the Company in lieu of refinancings
that occur, from the sixteenth day
(or, in the case of the month of the
Cut-off Date, from the Cut-off Date)
through the last day of each month,
and any voluntary partial prepayments
of principal on the Mortgage Loans in
each month will reduce the amount of
interest available for distribution to
Certificateholders in the following
month from the amount which would have
been available in the absence of such
prepayments. Any shortfalls in
interest as a result of such early
receipt of principal, to the extent
not offset by a Compensating Interest
Payment (as defined herein), generally
will produce a lower yield on such
Certificates than would otherwise be
the case, although such early receipt
of principal by holders of Classes of
Certificates purchased at a discount
may offset the yield reduction for
such Classes. The interest
distributable on the Certificates will
also be reduced by the amount of the
interest portion of Realized Losses in
respect of the Mortgage Pool.
The yields to investors will be
sensitive in varying degrees to the
rate and timing of Mortgage Loan
prepayments (including unscheduled
recoveries of principal). The extent
to which the yield to maturity of a
Certificate is sensitive to
prepayments and other unscheduled
receipts of principal will depend upon
the degree to which it is purchased at
a discount or premium. In the case of
Certificates purchased at a premium,
faster than anticipated rates of
principal payments on the Mortgage
Loans could result in actual yields to
such investors that are lower than the
anticipated yields and could result in
a reduction of the weighted average
lives of such Certificates. In the
case of Certificates purchased at a
discount, slower than anticipated
rates of principal payments could
result in actual yields to investors
that are lower than the anticipated
yields and could result in an
extension of the weighted average
lives of such Certificates.
S-9
<PAGE>
Rapid rates of prepayments on the
Mortgage Loans are likely to coincide
with periods of low prevailing
interest rates. During such periods,
the yields at which an investor in the
Certificates may be able to reinvest
amounts received as payments on the
investor's Certificates may be lower
than the yield on such Certificates.
Conversely, slow rates of prepayments
on the Mortgage Loans are likely to
coincide with periods of high
prevailing interest rates. During such
periods, the amount of payments
available to an investor for
reinvestment at such high rates may be
relatively low.
The Certificates offered hereby were
structured on the basis of, among
other things, a prepayment assumption
of % of the Prepayment Assumption
(as defined herein) and corresponding
weighted average lives as described
herein. The weighted average lives of
the Certificates offered hereby at %
of the Prepayment Assumption, based on
the assumptions described under "Yield
and Weighted Average Life
Considerations--Weighted Average Lives
of the Certificates--Table of Class
Certificate Principal Balances" are
set forth in the table that appears
herein under such heading. The
Mortgage Loans are not likely to
prepay at a constant rate of % of
the Prepayment Assumption or any other
constant rate, and the actual weighted
average lives of the related
Certificates are likely to differ from
those shown in such tables.
The prepayment, yield, loss and other
assumptions to be used for pricing
purposes for the respective Classes of
Certificates may vary as determined at
the time of sale. Each prospective
investor is urged to make an
investment decision with respect to
the Certificates proposed to be
purchased by such investor based upon
a comparison of the desired yield to
the anticipated yield on such
Certificates resulting from the price
to be paid by such investor for such
Certificates and such investor's own
determination as to the anticipated
rate of prepayments, defaults and
losses on the related Mortgage Pool.
[Principal distributions on the
Certificates will be made by reference
to principal balance schedules, as
described herein.] The weighted
average lives of all Classes of the
Certificates will
S-10
<PAGE>
be affected in part by the prepayment
experience of the Mortgage Loans and
the resulting allocation of principal
payments on the Certificates.
[Optional Termination The Company may, at its option,
repurchase from the Trust Fund all of
the Mortgage Loans remaining in the
Trust Fund, and thereby effect the
early retirement of the Certificates,
on any Distribution Date if the
aggregate Scheduled Principal Balance
of the Mortgage Loans in the Trust
Fund is less than 10% of the aggregate
Scheduled Principal Balance thereof as
of the Cut-off Date. If the proceeds
realized upon such early retirement
are less than the aggregate Class
Certificate Principal Balance of all
outstanding Certificates plus accrued
and unpaid interest thereon, the
resulting shortfall will be allocated
as described herein. See "The Pooling
and Servicing Agreement-- Termination"
herein.]
[Scheduled] Final
Distribution Dates The rate of payment of principal of
the Certificates will depend on the
rate of payment of principal of the
related Mortgage Loans which, in turn,
will depend on the characteristics of
such Mortgage Loans, the level of
prevailing interest rates and other
economic, geographic and social
factors. No assurance can be given as
to the actual payment experience of
the Mortgage Loans. [The Scheduled
Final Distribution Date for each Class
of the Certificates offered hereby is
the date months after the date on
which the Class Certificate Principal
Balance thereof would be reduced to
zero based on certain assumptions
regarding the characteristics of the
Mortgage Loans and other assumptions
described herein. Because certain
Mortgage Loans will have remaining
terms to maturity that are shorter and
Mortgage Rates that are lower than
those assumed in calculating the
Scheduled Final Distribution Dates of
such Certificates, the Class
Certificate Principal Balances of the
Certificates may be reduced to zero
prior to their respective Scheduled
Final Distribution Dates. In addition,
delinquencies could result in
distributions after the respective
Scheduled Final Distribution Dates
except to the extent offset by any
advances made by the Company and the
forms of credit enhancement described
herein.
S-11
<PAGE>
As a result, the Class Certificate
Principal Balance of each Class of the
Certificates offered hereby may be
reduced to zero significantly earlier
or later than its respective Scheduled
Final Distribution Date.]
Certain Federal
Income Tax
Consequences
[The Certificates other than the Class
R [and Class RL] Certificates (the
"Regular Certificates") will be
treated as regular interests in the
[Upper-Tier] REMIC and generally will
be treated as debt instruments issued
by such REMIC for federal income tax
purposes. Certain Classes of the
Regular Certificates may be [and the
Class Certificates will be] issued
with original issue discount. The
prepayment assumption that will be
used in determining the rate of
accrual of any original issue discount
on the Regular Certificates for
federal income tax purposes (and
whether such original issue discount
is de minimis), and that may be used
by a holder of a Regular Certificate
to amortize premium, will be % of
the Prepayment Assumption. No
representation is made that the
Mortgage Loans will prepay at such
rate or at any other rate.]
[The holders of the Residual
Certificates will be subject to
special federal income tax rules that
may significantly reduce the after-tax
yield of such Certificates. Further,
significant restrictions apply to the
transfer of the Residual Certificates.
See "Description of the Certificates--
Restrictions on Transfer of the
Residual Certificates" herein.] [The
amount of income reported by a holder
of a Junior Certificate may exceed
cash distributions as a result of the
preferential right of other Classes of
Regular Certificates to receive cash
distributions in the event of losses
or delinquencies on the Mortgage
Loans.]
[See "Certain Federal Income Tax
Consequences" herein and "Certain
Federal Income Tax Consequences--REMIC
Certificates" in the Prospectus.]
Legal Investment
The [Class ] Certificates offered
hereby [will] constitute "mortgage
related securities" for purposes of
the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA").
However, institutions whose investment
activities are subject to
S-12
<PAGE>
legal investment laws and regulations
or review by certain regulatory
authorities may be subject to
restrictions on investment in the
Certificates. [Reference to
Certificates that will not constitute
"mortgage related securities," if
applicable]. See "Legal Investment
Matters" herein.
ERISA Considerations Fiduciaries of employee benefit plans
subject to the Employee Retirement
Income Security Act of 1974, as
amended ("ERISA"), or plans subject to
Section 4975 of the Internal Revenue
Code of 1986 (the "Code") should
carefully review with their legal
advisors whether the purchase or
holding of the Certificates offered
hereby could give rise to a
transaction prohibited or not other-
wise permissible under ERISA or the
Code. The [Class Certificates and
the] Residual Certificates may not be
acquired by an ERISA Plan and transfer
thereof is subject to the restrictions
described herein. See "ERISA
Considerations" herein.
Certificate Ratings It is a condition of issuance of the
Certificates that the Certificates
offered hereby [(other than the Class
Certificates)] be rated " " by [and
" " by ] [and that the Class Cer-
tificates be rated " " by ]. The
ratings of the 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 agency. The
ratings do not address the possibility
that Certificateholders may suffer a
lower than anticipated yield. See
"Certificate Ratings" herein.
Liquidity Considerations There is currently no secondary market
for the Certificates offered hereby,
and there can be no assurance that
such a market will develop.
[Underwriter] has indicated its
intention to make a secondary market
in the Certificates offered hereby,
but it is not obligated to do so.
There can be no assurance that a
secondary market for such Certificates
will develop, or if it does develop,
will continue for the life of the
Certificates, or provide investors
with liquidity of investment. In
addition, there can be no assurance
that an investor in a Certificate will
be able to sell
S-13
<PAGE>
such Certificate at a price that is
equal to or greater than the price at
which such investor purchased such
Certificate.
Information available to investors
that desire to sell their Certificates
in the secondary market may be
limited. In particular, price
quotations regarding specific Classes
of the Certificates are not currently
available in any newspaper or other
source that is widely available to
investors.
The Company believes that a number of
dealers that engage in the
mortgage-backed securities markets
currently offer price quotations for
the Company's mortgage pass-through
certificates to investors that desire
to buy or sell such certificates.
However, there is no assurance that
such dealers will continue to provide
such a service or that any such dealer
will offer a price quotation for any
particular series or class of the
Company's certificates. In addition,
there is no assurance that any such
dealer will offer a price quotation to
any particular investor, and
non-institutional investors in
particular may not have access to such
quotations. The lack of availability
of price information concerning the
Certificates offered hereby may affect
their liquidity.
The Company currently maintains an
electronic bulletin board (the
"Bulletin Board") which provides
certain loan-level information about
loans included in various series of
mortgage pass-through securities which
have been publicly offered by the
Company. The Company intends to make
information about the Mortgage Loans
available on the Bulletin Board as of
the first Distribution Date and
thereafter while the Bulletin Board is
maintained. The loan-level information
appearing on the Bulletin Board is
accessible by computer modem. The
Company makes no representation or
warranty that such information will be
suitable for any particular purpose
and the Company assumes no
responsibility for the accuracy or
completeness of any information that
is generated therefrom. The Company
has no obligation to maintain the
Bulletin Board and may cease to do so
at any time. For further information
concerning the Bulletin Board, please
call 800-544-3466, extension 5515.
S-14
<PAGE>
Use of Proceeds The net proceeds from the sale of the
Certificates offered hereby will be
used for general corporate purposes,
including the acquisition of
residential mortgage loans and
servicing rights.
S-15
<PAGE>
DESCRIPTION OF THE MORTGAGE POOL
AND THE MORTGAGED PROPERTIES
General
The Certificates will represent the entire beneficial
ownership interest in a trust fund (the "Trust Fund"). The assets
of the Trust Fund will consist primarily of a pool (the "Mortgage
Pool") of conventional, fixed-rate, fully-amortizing mortgage
loans (the "Mortgage Loans"). The Mortgage Loans are secured by
mortgages, deeds of trust or other security instruments (each, a
"Mortgage") creating first [and second] liens on one- to
four-family residential properties (the "Mortgaged Properties").
Certain data with respect to the Mortgage Loans are set
forth below. A detailed description of the Mortgage Pool on a
Current Report on Form 8-K (the "Detailed Description") will be
available to purchasers of the Certificates at or before, and
will be filed with the Securities and Exchange Commission within
fifteen days after, the initial delivery of the Certificates
offered hereby. The Detailed Description will specify the precise
aggregate Scheduled Principal Balance (as defined herein) of the
Mortgage Loans as of the Cut-off Date and will also include the
following information regarding the Mortgage Loans: the years of
origination, the mortgage interest rates borne by the Mortgage
Loans (the "Mortgage Rates"), the original loan-to-value ratios,
the types of properties securing the Mortgage Loans and the
geographical distribution of the Mortgage Loans by state. The
Detailed Description also will specify the original Class
Certificate Principal Balance (or, in the case of the Class
Certificates, the Notional Principal Balance) of each Class of
Certificates on the date of issuance of the Certificates, and
[information regarding exact amount of any forms of credit
enhancement]. The Agreement (as defined herein) and its exhibits
will be filed as an exhibit to the Detailed Description.
The "Scheduled Principal Balance" of a Mortgage Loan as of
any Distribution Date is the unpaid principal balance of such
Mortgage Loan as specified in the amortization schedule at the
time relating thereto (before any adjustment to such schedule by
reason of bankruptcy or similar proceeding or any moratorium or
similar waiver or grace period) as of the first day of the month
preceding the month of such Distribution Date, after giving
effect to any previously applied partial principal prepayments,
the payment of principal due on such first day of the month and
Deficient Valuations occurring after the Bankruptcy Coverage
Termination Date (as such terms are defined herein), irrespective
of any delinquency in payment by the related borrower (the
"Mortgagor"). The "Pool Scheduled Principal Balance" as of any
Distribution Date is equal to the aggregate Scheduled Principal
Balances of all of the Mortgage Loans that were Outstanding
Mortgage Loans on the first day of the month preceding the month
of such Distribution Date (or such other date as is specified).
An "Outstanding Mortgage Loan" is any Mortgage Loan which
S-16
<PAGE>
has not been prepaid in full, has not become a Liquidated
Mortgage Loan and has not been repurchased.
[It is expected that at least % (by Scheduled Principal
Balance as of the Cut-off Date) of the Mortgage Loans (and
substantially all of the Mortgage Loans with loan-to-value ratios
in excess of 80%) will have been originated under the Company's
full or alternative documentation program or other full or
alternative documentation programs acceptable to the Company,
that no more than % (by Scheduled Principal Balance as of the
Cut-off Date) of the Mortgage Loans will have been originated
under the Company's "No Income Verification Program" or other no
income verification programs acceptable to the Company, that no
more than % of the Mortgage Loans will have been originated under
the Company's "Enhanced Streamlined Refinance Program" or other
streamlined finance programs acceptable to the Company, that no
more than % of the Mortgage Loans will have been originated
under the Company's "No Ratio Program" or other no ratio programs
acceptable to the Company and that no more than % of the
Mortgage Loans will have been originated under the Company's "No
Income, No Asset Verification Program" or other no income, no
asset verification programs acceptable to the Company. See "The
Trust Fund--The Mortgage Loans--Loan Underwriting Policies" in
the accompanying Prospectus.]
Each Mortgage Loan is required to be covered by a standard
hazard insurance policy. Each Mortgage Loan [other than the Home
Equity Loans] which had a loan-to-value ratio at origination in
excess of 80% also will be covered by a private mortgage
insurance policy. See "Servicing of the Mortgage Loans and
Contracts--Hazard Insurance" and "--Private Mortgage Insurance"
in the Prospectus.
All payments due on each Mortgage Loan on which at least
one payment of principal and interest was due prior to the
Cut-off Date will have been paid through the first day of the
month preceding the Cut-off Date.
[No more than % (by Scheduled Principal Balance as of the
Cut-off Date) will be Relocation Loans.]
For a description of the underwriting standards generally
applicable to the Mortgage Loans, see "The Trust Fund--The
Mortgage Loans--Loan Underwriting Policies" in the Prospectus.
[Material variations, if any, to be described.]
The Mortgage Loans
[Description of any Home Equity Loans, if applicable.]
S-17
<PAGE>
The Mortgage Loans will have an aggregate Scheduled
Principal Balance as of the Cut-off Date, after deducting
payments of principal due on or before such date, of
approximately $ . This amount is subject to a permitted
variance such that the aggregate Scheduled Principal Balance
thereof will not be less than $ or greater than $ .
The Mortgage Rates borne by the Mortgage Loans are expected
to range from % to % per annum, and the weighted average
Mortgage Rate as of the Cut-off Date of such Mortgage Loans is
expected to be between % and % per annum. The original
principal balances of the Mortgage Loans are expected to range
from $ to $ and, as of the Cut-off Date, the average
Scheduled Principal Balance of the Mortgage Loans is not expected
to exceed $ after application of payments due on or before
the Cut-off Date. It is expected that the month and year of the
earliest origination date of any Mortgage Loan will be ,
and the month and year of the latest scheduled maturity date of
any such Mortgage Loan will be . All of the Mortgage Loans
will have original terms to maturity of to years, and it is
expected that the weighted average scheduled remaining term to
maturity of the Mortgage Loans will be between and months
as of the Cut-off Date.
The Mortgage Loans are expected to have the following
additional characteristics (by Scheduled Principal Balance of all
the Mortgage Loans) as of the Cut-off Date:
No more than % of such Mortgage Loans will have a
Scheduled Principal Balance of more than $ and up to and
including $ . No more than % of such Mortgage Loans will
have a Scheduled Principal Balance of more than $ and up to
and including $ . No more than % of such Mortgage Loans
will have a Scheduled Principal Balance of more than $ .
No more than % of such Mortgage Loans will have a
[combined] loan-to-value ratio at origination in excess of %,
no more than % of such Mortgage Loans will have a [combined]
loan-to-value ratio at origination in excess of %, and none of
such Mortgage Loans will have a [combined] loan-to-value ratio at
origination in excess of %. As of the Cut-off Date, the
weighted average [combined] loan-to-value ratio at origination of
such Mortgage Loans is expected to be between % and %.
No more than % of such Mortgage Loans had a [combined]
loan-to-value ratio at origination calculated based on an
appraisal conducted more than one year before the origination
date thereof.
The proceeds of at least % of such Mortgage Loans will
have been used to acquire the related Mortgaged Property. The
proceeds of the remainder of such Mortgage Loans will have
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<PAGE>
been used to refinance an existing loan. No more than % of such
Mortgage Loans will have been the subject of "cash-out"
refinancings.
No more than % of such Mortgage Loans will be temporary
buy-down Mortgage Loans. The portion of the interest rate paid by
the related Mortgagor will not increase by more than one
percentage point for each six month period. No Mortgage Rate may
exceed the "bought down" rate by more than percentage points, and
no buy-down period will exceed years.
[Comparable disclosure to above to be included for Home
Equity Loans, if applicable.]
No more than % of such Mortgage Loans will be secured by
Mortgaged Properties located in any one postal zip code area.
No more than % of such Mortgage Loans will be secured by
Mortgaged Properties located in . The majority of the Mortgage
Loans will be secured by Mortgaged Properties located in ,
, and . No more than % of such Mortgage Loans will be
secured by Mortgaged Properties located in any one state except
.
At least % of such Mortgage Loans will be secured by
Mortgaged Properties determined by the Company to be the primary
residence of the Mortgagor. The basis for such determination will
be the making of a representation by the Mortgagor at origination
that the underlying property will be used as the Mortgagor's
primary residence.
At least % of such Mortgage Loans will be secured by
single-family, detached residences.
[No more than % of such Mortgage Loans will be secured by
condominiums.]
[No more than % of such Mortgage Loans will be secured by
shares of stock in cooperative housing corporations and
assignments of the proprietary leases to cooperative apartment
units therein.]
[Additional description of Mortgaged Properties to be
added, if applicable.]
S-19
<PAGE>
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued pursuant to a Pooling and
Servicing Agreement to be dated as of the Cut-off Date (the
"Agreement"), between the Company, as seller and servicer, and
the Trustee. Reference is made to the Prospectus for important
additional information regarding the terms and conditions of the
Agreement and the Certificates. The Certificates will be issued
in the Classes offered hereby[, together with the Class
Certificates, none of which are offered hereby,] and in the
aggregate original Certificate Principal Balance of approximately
$ subject to a permitted variance such that the aggregate
Certificate Principal Balance thereof will not be less than
$ or greater than $ . Any such variance will be allocated
so as to approximate the material characteristics of the Classes
of Certificates described herein.
As described below, [each Class of the Certificates offered
hereby [other than the [Class Certificates and the] Class R [and
Class RL] Certificates ([together,] the "Residual
Certificates")]] will be issued in book-entry form, and
beneficial interests therein will be held by investors through
the book-entry facilities of the Depository (as defined below),
in minimum denominations in Certificate Principal Balance [or
Notional Principal Balance, as the case may be,] of $ and in
integral multiples of $1,000 in excess thereof. [The Class
Certificates will be issued in certificated form in minimum
denominations of $ and integral multiples of $1,000 in excess
thereof.] [The Residual Certificates will [each] be issued in
certificated form as a single Certificate representing the entire
Class Certificate Principal Balance thereof.] Notwithstanding
the minimum denominations of the Certificates described herein,
one Certificate of each Class other than the Residual Certifi-
cates may be issued in a lower amount. Notwithstanding the
minimum denominations of the Certificates described herein, one
Certificate of each Class [other than the Residual Certificates]
may evidence an additional amount equal to the remaining Class
Certificate Principal Balance [or Notional Principal Balance]
thereof.
[Book-Entry Certificates
Each Class of the Certificates offered hereby [other than
the [Class Certificates and the] Residual Certificates]
(collectively, the "Book-Entry Certificates") will be registered
as a single certificate held by a nominee of The Depository Trust
Company (together with any successor depository selected by the
Company, the "Depository"). Beneficial interests in the
Book-Entry Certificates will be held by investors through the
book-entry facilities of the Depository, as described herein. The
Company has been informed by the Depository that its nominee will
be Cede & Co. ("Cede"). Accordingly, Cede is expected to be the
holder of record of the Book-
S-20
<PAGE>
Entry Certificates. Except as described below, no person
acquiring a Book-Entry Certificate (each, a "beneficial owner")
will be entitled to receive a physical certificate representing
such Certificate (a "Definitive Certificate").
The beneficial owner's ownership of a Book-Entry
Certificate will be recorded on the records of the brokerage
firm, bank, thrift institution or other financial intermediary
(each, a "Financial Intermediary") that maintains the beneficial
owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be
recorded on the records of the Depository (or of a participating
firm that acts as agent for the Financial Intermediary (each, a
"Participant"), whose interest will in turn be recorded on the
records of the Depository, if the beneficial owner's Financial
Intermediary is not a Participant). Therefore, the beneficial
owner must rely on the foregoing procedures to evidence its
beneficial ownership of a Book-Entry Certificate. Beneficial
ownership of a Book-Entry Certificate may only be transferred by
compliance with the procedures of such Financial Intermediaries
and Participants.
The Depository, which is a New York-chartered limited
purpose trust company, performs services for its Participants,
some of which (and/or their representatives) own the Depository.
In accordance with its normal procedures, the Depository is
expected to record the positions held by each Participant in the
Book-Entry Certificates, whether held for its own account or as a
nominee for another person. In general, beneficial ownership of
Book-Entry Certificates will be subject to the rules, regulations
and procedures governing the Depository and Participants as in
effect from time to time.
Distributions of principal of and interest on the
Book-Entry Certificates will be made on each Distribution Date by
the Trustee to the Depository. The Depository will be responsible
for crediting the amount of such payments to the accounts of the
applicable Participants in accordance with the Depository's
normal procedures. Each Participant will be responsible for
disbursing such payments to the beneficial owners of the
Book-Entry Certificates that it represents and to each Financial
Intermediary for which it acts as agent. Each such Financial
Intermediary will be responsible for disbursing funds to the
beneficial owners of the Book-Entry Certificates that it
represents.
As a result, under a book-entry format, beneficial owners
of the Book-Entry Certificates may experience some delay in their
receipt of payments. Because the Depository can only act on
behalf of Financial Intermediaries, the ability of a beneficial
owner to pledge Book-Entry Certificates to persons or entities
that do not participate in the Depository system, or otherwise
take actions in respect of such Book-Entry Certificates, may be
limited due to the lack of physical certificates for such
Book-Entry Certificates. In addition, issuance of the Book-Entry
Certificates in book-entry form may reduce the liquidity of such
Certificates in the secondary market since
S-21
<PAGE>
certain potential investors may be unwilling to purchase
Certificates for which they cannot obtain physical certificates.
The Depository has advised the Company and the Trustee
that, unless and until Definitive Certificates are issued, the
Depository will take any action permitted to be taken by a
Certificateholder under the Agreement only at the direction of
one or more Financial Intermediaries to whose Depository accounts
the Book-Entry Certificates are credited. The Depository may take
conflicting actions with respect to other Book-Entry Certificates
to the extent that such actions are taken on behalf of Financial
Intermediaries whose holdings include such Book-Entry
Certificates.
Definitive Certificates will be issued to beneficial owners
of the related Book-Entry Certificates, or their nominees, rather
than to the Depository, only if (a) the Depository or the Company
advises the Trustee in writing that the Depository is no longer
willing, qualified or able to discharge properly its
responsibilities as nominee and depository with respect to the
Certificates and the Company or the Trustee is unable to locate a
qualified successor; (b) the Company, at its sole option, elects
to terminate the book-entry system through the Depository; or (c)
after the occurrence of an Event of Default (as described in the
accompanying Prospectus) beneficial owners of the Book-Entry
Certificates aggregating not less than 51% of the aggregate
voting rights allocated thereto advise the Trustee and the
Depository through the Financial Intermediaries in writing that
the continuation of a book-entry system through the Depository
(or a successor thereto) is no longer in the best interests of
beneficial owners of the Certificates.
Upon the occurrence of any of the events described in the
immediately preceding paragraph, the Trustee will be required to
notify all beneficial owners of the occurrence of such event and
the availability through the Depository of Definitive
Certificates. Upon surrender by the Depository of the global
certificate or certificates representing the Certificates and
instructions for re-registration, the Trustee will issue the
Definitive Certificates, and thereafter the Trustee will
recognize the holders of such Definitive Certificates as
Certificateholders under the Agreement. Following the issuance of
Definitive Certificates, distribution of principal and interest
on the Certificates will be made by the Trustee directly to
holders of Definitive Certificates in accordance with the
procedures set forth in the Agreement.
[Description of transfer restrictions applicable to
Definitive Certificates issued in respect of ERISA restricted
Classes]].
[The Non-Book-Entry Certificates
The [Class Certificates and the] Residual Certificates
([together,] the "Non-Book-Entry Certificates") will be issued in
fully-registered, certificated form. The Non-Book-Entry
S-22
<PAGE>
Certificates will be transferable and exchangeable on a
Certificate Register to be maintained at the corporate trust
office in the city in which the Trustee is located or such other
office or agency maintained for such purposes by the Trustee in
New York City. Under the Agreement, the Trustee will initially be
appointed as the Certificate Registrar. No service charge will be
made for any registration of transfer or exchange of the Residual
Certificates, but payment of a sum sufficient to cover any tax or
other governmental charge may be required by the Trustee. The
Residual Certificates will be subject to certain restrictions on
transfer. See "--Restrictions on Transfer of the Residual
Certificates" herein.
Distributions of principal and interest, if any, on each
Distribution Date on the Non-Book-Entry Certificates will be made
to the persons in whose names such Certificates are registered at
the close of business on the last business day of the month
immediately preceding the month of such Distribution Date.
Distributions will be made by check or money order mailed to the
person entitled thereto at the address appearing in the
Certificate Register or, upon written request by the
Certificateholder to the Trustee, by wire transfer to a United
States depository institution designated by such
Certificateholder and acceptable to the Trustee or by such other
means of payment as such Certificateholder and the Trustee may
agree; provided, however, that the final distribution in
retirement of the Non-Book-Entry Certificates will be made only
upon presentation and surrender of such Certificates at the
office or agency of the Trustee specified in the notice to the
Certificateholders thereof of such final distribution.]
Available Funds
The amount of funds ("Available Funds") in respect of the
Mortgage Pool that will be available for distribution to holders
of the Certificates on each Distribution Date is as described in
the accompanying Prospectus under "Servicing of the Mortgage
Loans and Contracts--Loan Payment Record." [Any variations to be
specified.]
Distributions on the Certificates
Allocation of Available Funds. Interest and principal on
the Certificates will be distributed monthly on each Distribution
Date commencing in 199 in an aggregate amount equal to the
Available Funds for such Distribution Date.
[Description of priority of distribution among Classes].
Interest. Interest will accrue on the Certificates offered
hereby [(other than the Class Certificates)] at the respective
fixed Certificate Interest Rates set forth on the cover hereof
during each applicable Interest Accrual Period.
S-23
<PAGE>
The "Interest Accrual Period" for each Class of
Certificates entitled to distributions of interest [other than
the Class Certificates] will be the one-month period ending on
the last day of the month preceding the month in which a
Distribution Date occurs. [The "Interest Accrual Period" for the
Class Certificates will be the one-month period commencing on
the day of the month preceding the month in which a
Distribution Date occurs and ending on the day of the month
of such Distribution Date.] Interest will be calculated on the
basis of a 360-day year consisting of twelve 30-day months.
[Description of interest rate on floating-rate Certificates
and other Certificates, if applicable.]
The "Accrued Certificate Interest" for any Certificate
[(other than a Class Certificate)] for any Distribution Date
will equal the interest accrued during the related Interest
Accrual Period at the applicable Certificate Interest Rate on the
Certificate Principal Balance [(or, in the case of a Class
Certificate, the Notional Principal Balance)] of such Certificate
immediately prior to such Distribution Date, less such
Certificate's share of any allocable Net Interest Shortfall (as
defined below)[, the interest portion of any Excess Losses (as
defined herein) allocable to Certificateholders through the
Cross-Over Date and, after the Cross-Over Date, the interest
portion of Realized Losses allocable to Certificateholders
including Excess Losses] in respect of the Mortgage Loans with
respect to such Distribution Date.
The "Certificate Principal Balance" of any Certificate as
of any Distribution Date will equal such Certificate's
Certificate Principal Balance on the Closing Date as reduced by
(a) all amounts distributed on previous Distribution Dates on
such Certificate on account of principal and (b) the principal
portion of all Realized Losses in respect of the Mortgage Loans
in the related Mortgage Pool previously allocated to such
Certificate.
[Description of Notional Principal Balances of relevant
Classes of Certificates, if applicable].
With respect to any Distribution Date, the "Net Interest
Shortfall" [allocable to Certificateholders] will equal the
excess of the aggregate Interest Shortfalls with respect to such
Distribution Date over the Compensating Interest Payment (as
defined under "The Pooling and Servicing Agreement--Servicing
Compensation, Compensating Interest and Payment of Expenses"
herein), if any, for such Distribution Date. [For purpose of
making the foregoing determinations, any Interest Shortfalls will
be allocated on each Distribution Date between the outstanding
Certificates (other than the Class PO Certificates) and the
Company in respect of its Supplemental Servicing Fees (as defined
herein) in proportion to the aggregate amount of Accrued
Certificate Interest and Supplemental Servicing Fees,
respectively, that would have been allocated thereto in the
absence of such Interest Shortfalls.]
S-24
<PAGE>
With respect to any Distribution Date, an "Interest
Shortfall" in respect of a Mortgage Loan will result from (i) any
voluntary prepayment of principal in full on such Mortgage Loan
received from the sixteenth day (or, in the case of the first
Distribution Date, from the Cut-off Date) through the last day of
the month preceding such Distribution Date; (ii) any partial
prepayment of principal on such Mortgage Loan by the Mortgagor
during the month preceding such Distribution Date; (iii) any
modification and repurchase of such Mortgage Loan by the Company
in lieu of a refinancing (as described under "The Pooling and
Servicing Agreement--Certain Modifications and Refinancings" in
the accompanying Prospectus) during the period described in
clause (i) above or (iv) a reduction in the interest rate on such
Mortgage Loan due to the application of the Soldiers' and
Sailors' Civil Relief Act of 1940 whereby, in general, members of
the Armed Forces who entered into mortgages prior to the
commencement of military service may have the interest rates on
those mortgage loans reduced for the duration of their active
military service. See "Certain Legal Aspects of the Mortgage
Loans and Contracts--The Mortgage Loans--Soldiers' and Sailors'
Civil Relief Act" in the Prospectus. As to any Distribution Date
and any Mortgage Loan with respect to which a prepayment in full
or a modification and repurchase has occurred as described above,
the resulting "Interest Shortfall" generally will equal the
difference between (a) one month's interest at the Mortgage Rate
net of the applicable Servicing Fee (as defined herein) (the "Net
Mortgage Rate") on the Scheduled Principal Balance of such
Mortgage Loan, and (b) the amount of interest at the Net Mortgage
Rate actually received with respect to such Mortgage Loan. In the
case of a partial prepayment, the resulting "Interest Shortfall"
will equal one month's interest at the applicable Net Mortgage
Rate on the amount of such prepayment.
Any Net Interest Shortfall [allocable to Certificate-
holders, the interest portion of any Excess Losses allocable to
Certificateholders through the Cross-Over Date and, after the
CrossOver Date, the interest portion of any Realized Losses
allocable to Certificateholders (see "--Allocation of Losses on
the Certificates")] will, on each Distribution Date, be allocated
among all the outstanding Certificates in proportion to the
amount of Accrued Certificate Interest that would have been
allocated thereto in the absence of such shortfall and losses.
[If the Available Funds are insufficient on any
Distribution Date to distribute the aggregate Accrued Certificate
Interest on the [Senior] Certificates to such Certificateholders,
any shortfall in available amounts will be allocated among the
Classes of [Senior] Certificates in proportion to the amounts of
Accrued Certificate Interest otherwise distributable thereon. The
amount of any such undistributed Accrued Certificate Interest
will be added to the amount to be distributed in respect of
interest on the [Senior] Certificates on subsequent Distribution
Dates. No interest will accrue on any Accrued Certificate
Interest remaining undistributed from previous Distribution
Dates.]
S-25
<PAGE>
[Description of determination of interest rate index for
floating-rate Certificates, if applicable].
Principal. Distributions in reduction of the Class
Certificate Principal Balance of each Certificate will be made on
each Distribution Date. Principal will be distributed monthly on
each Distribution Date in the manner described below in an
aggregate amount equal to the Available Funds remaining in the
Certificate Account after the payment of interest on the
Certificates on such Distribution Date (the "Principal
Distribution Amount").
[Description of the manner of allocation of principal among
the Classes.]
Example of Distributions. For an example of hypothetical
distributions on the Certificates for a particular Distribution
Date, see "Description of the Certificates--Example of
Distributions" in the accompanying Prospectus.
Allocation of Realized Losses on the Certificates.
A "Realized Loss" with respect to a Mortgage Loan is (i) a
Bankruptcy Loss (as defined below) or (ii) as to any Liquidated
Mortgage Loan the unpaid principal balance thereof plus accrued
and unpaid interest thereon at the Net Mortgage Rate through the
last day of the month of liquidation less the net proceeds from
the liquidation of, and any insurance proceeds from, such
Mortgage Loan and the related Mortgaged Property. A "Liquidated
Mortgage Loan" is any defaulted Mortgage Loan as to which the
Company has determined that all amounts which it expects to
recover from or on account of such Mortgage Loan have been
recovered.
In the event of a personal bankruptcy of a Mortgagor, the
bankruptcy court may establish the value of the Mortgaged
Property at an amount less than the then outstanding principal
balance of the Mortgage Loan secured by such Mortgaged Property
and could reduce the secured debt to such value. In such case,
the holder of such Mortgage Loan would become an unsecured
creditor to the extent of the difference between the outstanding
principal balance of such Mortgage Loan and such reduced secured
debt (such difference, a "Deficient Valuation"). In addition,
certain other modifications of the terms of a Mortgage Loan can
result from a bankruptcy proceeding, including the reduction of
the amount of the monthly payment on the related Mortgage Loan (a
"Debt Service Reduction").
A "Bankruptcy Loss" with respect to any Mortgage Loan is a
Deficient Valuation or Debt Service Reduction.
A "Fraud Loss" is any Realized Loss attributable to fraud
in the origination of the related Mortgage Loan.
S-26
<PAGE>
A "Special Hazard Loss" is a Realized Loss attributable to
damage or a direct physical loss suffered by a Mortgaged Property
(including any Realized Loss due to the presence or suspected
presence of hazardous wastes or substances on a Mortgaged
Property) other than any such damage or loss covered by a hazard
policy or a flood insurance policy required to be maintained in
respect of such Mortgaged Property under the Agreement or any
loss due to normal wear and tear or certain other causes.
[Description of allocation of losses among Certificates.]
All allocations of Realized Losses with respect to the
Mortgage Loans will be accomplished on a Distribution Date by
reducing the applicable Class Certificate Principal Balance by
the appropriate pro rata share of any such losses occurring
during the month preceding the month of such Distribution Date
and, accordingly, will be taken into account in determining the
distributions of principal and interest on the Certificates
commencing on the following Distribution Date.
[The interest portion of all Realized Losses will be
allocated among the outstanding Classes of Certificates to the
extent described under "--Distributions on the
Certificates--Interest" above.] [For purposes of making certain
calculations under the Agreement, the interest portion of any
Realized Loss in respect of a Mortgage Loan will be allocated
among the Base Servicing Fee, the Supplemental Servicing Fee and
interest at the excess of the Mortgage Rate over the sum of the
Base Servicing Fee and the Supplemental Servicing Fee in
proportion to the amount of accrued interest in respect of such
Mortgage Loan that would have been so allocated in the absence of
any such shortfall.]
[Additional Rights of the Residual Certificateholders
In addition to distributions of principal and interest,
[(a)] the holders of the Class R Certificates will be entitled to
receive (i) the amount, if any, of Available Funds remaining in
the [Certificate Account] [Upper-Tier REMIC] on any Distribution
Date after distributions of principal and interest are made on
the Certificates on such date and (ii) the proceeds, if any, of
the assets of the Trust Fund remaining in the Upper-Tier REMIC on
the final Distribution Date for the Certificates, after the Class
Certificate Principal Balances of all Classes of the Certificates
[(other than the Class RL Certificates)] have been reduced to
zero [and (b) the holders of the Class RL Certificates will be
entitled to receive (i) the amount, if any, of Available Funds
remaining in the Lower-Tier REMIC on any Distribution Date after
distributions of principal and interest on the Lower-Tier regular
interests and the Class RL Certificates are made on such date and
(ii) the proceeds, if any, of the assets of the Trust Fund
remaining in the Lower-Tier REMIC after the regular interests in
the Lower-Tier REMIC and the Class Certificate Principal Balance
of the Class RL Certificates have been reduced to zero.] It is
not anticipated that any material
S-27
<PAGE>
assets will be remaining in the Trust Fund for such distributions
at any such time. See "Certain Federal Income Tax
Consequences--Residual Certificates" herein.]
[Subordination
[Description of subordination of certain Classes of
Certificates, if applicable.]]
[Restrictions on Transfer of the Residual Certificates
The Residual Certificates will be subject to the
restrictions on transfer described in the Prospectus under
"Certain Federal Income Tax Consequences--REMIC Certificates--
Transfers of Residual Certificates--Disqualified Organizations,"
"--Foreign Investors" and "--Noneconomic Residual Interests." In
addition, the Agreement provides that the Residual Certificates
may not be acquired by an ERISA Plan. The Residual Certificates
will contain a legend describing the foregoing restrictions.]
YIELD AND WEIGHTED AVERAGE LIFE CONSIDERATIONS
Yield
The effective yield on the Certificates will depend upon,
among other things, the price at which the Certificates are
purchased and the rate and timing of payments of principal
(including both scheduled and unscheduled payments) of the
Mortgage Loans underlying the Certificates.
The yields to investors will be sensitive in varying
degrees to the rate of prepayments on the Mortgage Loans. The
extent to which the yield to maturity of a Certificate is
sensitive to prepayments will depend upon the degree to which it
is purchased at a discount or premium. In the case of
Certificates purchased at a premium, faster than anticipated
rates of principal payments on the Mortgage Loans could result in
actual yields to investors that are lower than the anticipated
yields. In the case of Certificates purchased at a discount,
slower than anticipated rates of principal payments on the
Mortgage Loans could result in actual yields to investors that
are lower than the anticipated yields.
Rapid rates of prepayments on the Mortgage Loans are likely
to coincide with periods of low prevailing interest rates. During
such periods, the yields at which an investor in the Certificates
may be able to reinvest amounts received as payments on the
investor's Certificates may be lower than the yield on such
Certificates. Conversely, slow rates of prepayments on the
Mortgage Loans are likely to coincide with periods of high rates.
During such periods, the amount of payments available to an
investor for reinvestment at such high rates may be relatively
low.
S-28
<PAGE>
The Mortgage Loans will not prepay at any constant rate,
nor will all of the Mortgage Loans prepay at the same rate at any
one time. The timing of changes in the rate of prepayments may
affect the actual yield to an investor, even if the average rate
of principal prepayments is consistent with the investor's
expectation. In general, the earlier a prepayment of principal on
a Mortgage Loan, the greater the effect on the yield to an
investor in the Certificates. As a result, the effect on the
yield of principal prepayments on the Mortgage Loans occurring at
a rate higher (or lower) than the rate anticipated by the
investor during the period immediately following the issuance of
the Certificates is not likely to be offset by a later equivalent
reduction (or increase) in the rate of principal prepayments.
The Mortgage Loans will bear interest at fixed Mortgage
Rates, payable in arrears. [Each monthly interest payment on a
Mortgage Loan is calculated as 1/12th of the applicable Mortgage
Rate times the outstanding principal balance of such Mortgage
Loan on the first day of the month.]
The effective yield to holders of Certificates [(other than
the Class Certificates)] will be lower than the yield otherwise
produced by the applicable Certificate Interest Rate and the
applicable purchase prices thereof because, while interest will
accrue from the first day of each month, the distribution of such
interest will not be made until the 25th day (or if such day is
not a business day, the immediately following business day) of
the month following the month of accrual. In addition, the
effective yield on the Certificates will be affected by any Net
Interest Shortfall and the interest portion of certain losses.
See "Description of the Certificates" herein.
Prepayments
The rate of distribution of principal of the Certificates
[(and the aggregate amount of interest payable on the Class
Certificates)] will be affected primarily by the amount and
timing of principal payments received on or in respect of the
related Mortgage Loans. Such principal payments will include
scheduled payments as well as voluntary prepayments by borrowers
(such as, for example, prepayments in full due to refinancings,
including refinancings made by the Company in the ordinary course
of conducting its mortgage banking business, some of which
refinancings may be solicited by the Company, or prepayments in
connection with biweekly payment programs, participation in which
may be solicited by the Company) and prepayments resulting from
foreclosure, condemnation and other dispositions of the Mortgaged
Properties, from repurchase by the Company of any Mortgage Loan
as to which there has been a material breach of warranty or
defect in documentation (or deposit of certain amounts in respect
of delivery of a substitute Mortgage Loan therefor), from a
repurchase by the Company of certain Mortgage Loans modified at
the request of the Mortgagor, and from an exercise by the Company
of its option to repurchase a Defaulted Mortgage Loan. See
"Yield, Maturity and Weighted
S-29
<PAGE>
Average Life Considerations" in the Prospectus. Mortgagors are
permitted to prepay the Mortgage Loans, in whole or in part, at
any time without penalty.
A number of social, economic, tax, geographic, demographic,
legal and other factors may influence prepayments of the Mortgage
Loans. These factors may include the age of such Mortgage Loans,
the geographic distribution of the Mortgaged Properties, the
payment terms of such Mortgage Loans, the characteristics of the
borrowers, homeowner mobility, economic conditions generally and
in the geographic area in which the Mortgaged Properties are
located, enforceability of due-on-sale clauses, prevailing
interest rates in relation to the interest rates on such Mortgage
Loans, the availability of mortgage funds, the use of second or
"home equity" mortgage loans by mortgagors, the use of the
properties as second or vacation homes, the extent of the
mortgagors' net equity in the Mortgaged Properties, tax-related
considerations and, where investment properties are securing such
Mortgage Loans, the availability of other investments. The rate
of principal payment may also be subject to seasonal variations.
The rate of principal prepayments on pools of conventional
mortgage loans has fluctuated significantly in recent years.
Generally, if prevailing interest rates were to fall
significantly below the interest rates on the Mortgage Loans, the
Mortgage Loans would be expected to prepay at higher rates than
if prevailing rates were to remain at or above the interest rates
on the Mortgage Loans. Conversely, if interest rates were to rise
significantly above the interest rates on the Mortgage Loans, the
Mortgage Loans would be expected to prepay at lower rates than if
prevailing rates were to remain at or below the interest rates on
the Mortgage Loans.
Voluntary prepayments in full of principal on the Mortgage
Loans received by the Company (or, in the case of Mortgage Loans
master-serviced by the Company, of which the Company receives
notice) and payments by the Company in connection with the
purchase of certain modified Mortgage Loans from the first day
through the fifteenth day of each month (other than the month of
the Cut-off Date) are passed through to the Certificateholders in
the month of receipt or payment. Voluntary prepayments of
principal in full received and payments made in connection with
the purchase of certain modified Mortgage Loans from the
sixteenth day (or, in the case of the month of the Cut-off Date,
from the Cut-off Date) through the last day of each month, and
all voluntary partial prepayments of principal on the Mortgage
Loans are passed through to the Certificateholders in the month
following the month of receipt or payment. Any prepayment of a
Mortgage Loan or liquidation of a Mortgage Loan (by foreclosure
proceedings or by virtue of the purchase of a Mortgage Loan in
advance of its stated maturity as required or permitted by the
Agreement) will generally have the effect of passing through to
the Certificateholders principal amounts [(or, in the case of the
Class Certificates, reducing the Notional Component Principal
Balance or the Notional Principal Balance thereof, as the case
may be)] which would otherwise be passed through (or reduced) in
amortized increments over the remaining term of such Mortgage
Loan.
S-30
<PAGE>
When a full prepayment is made on a Mortgage Loan, the
Mortgagor is charged interest ("Prepayment Interest") on the days
in the month actually elapsed up to the date of such prepayment,
at a daily interest rate (determined by dividing the Mortgage
Rate by 360) which is applied to the principal amount of the loan
so prepaid. When such a prepayment is made during the period from
the sixteenth day through the last day of any month (and, in the
case of the month of the Cut-off Date, from the Cut-off Date
through the fifteenth day of the month of the Cut-off Date), such
Prepayment Interest is passed through to the Certificateholders
[(other than the holders of the Class Certificates)] in the month
following its receipt and the amount of interest thus distributed
to Certificateholders, to the extent not offset by a Compensating
Interest Payment (as defined herein), will be less than the
amount which would have been distributed in the absence of such
prepayment. The Company's purchase of certain modified Mortgage
Loans from the Trust Fund during the period from the sixteenth
day through the last day of any month (and, in the case of the
month of the Cut-off Date, from the Cut-off Date through the
fifteenth day of the month of the Cut-off Date) may similarly
reduce the amounts distributed. See "The Pooling and Servicing
Agreement--Certain Modifications and Refinancings" in the
Prospectus. The payment of a claim under certain insurance
policies or the purchase of a defaulted Mortgage Loan by a
private mortgage insurer may also cause a reduction in the amount
of interest passed through. Shortfalls described in this
paragraph will be borne by Certificateholders to the extent
described herein. See "Description of the
Certificates--Distributions on the Certificates--Interest"
herein.
[Any partial prepayment will be applied to the balance of
the related Mortgage Loan as of the first day of the month of
receipt, will be passed through to the Certificateholders in the
following month and, to the extent not offset by a Compensating
Interest Payment, will reduce the aggregate amount of interest
distributable to the Certificateholders in such month in an
amount equal to 30 days of interest at the related Net Mortgage
Rate on the amount of such prepayment.]
[Discussion of yield considerations relative to Home Equity
Loans, if applicable.]
[Description of yield sensitivity of any interest-only,
principal-only, floating-rate or subordinated Classes of
Certificates, if applicable.]
The yield on certain Classes of the Certificates also may
be affected by any repurchase by the Company of the Mortgage
Loans as described under "The Pooling and Servicing
Agreement--Termination" herein.
S-31
<PAGE>
Final Payment Considerations [and Scheduled Final Distribution
Dates of the Certificates]
The rate of payment of principal of the Certificates will
depend on the rate of payment of principal of the related
Mortgage Loans (including prepayments, defaults, delinquencies
and liquidations) which, in turn, will depend on the
characteristics of such Mortgage Loans, the level of prevailing
interest rates and other economic, geographic, social and other
factors, and no assurance can be given as to the actual payment
experience. As of the Cut-off Date, the month and year of the
latest scheduled maturity of a Mortgage Loan is expected to be .
In addition, to the extent delinquencies and defaults are not
covered by advances made by the Company [or offset by the effect
of the subordination of the Junior Certificates], delinquencies
and defaults could affect the actual maturity of the Certificates
offered hereby. [The hypothetical scenario discussed below
includes assumptions about the characteristics of the Mortgage
Loans which will differ from the actual characteristics thereof.]
[The Scheduled Final Distribution Date for each Class of
the Certificates offered hereby is the date which is months after
the date on which the Class Certificate Principal Balance thereof
would be reduced to zero on the basis of the assumptions in
clauses (i), (iii) through (vi), (viii) and (ix) of the Modeling
Assumptions (as defined herein), and the additional assumptions
that (i) each Mortgage Loan has an original and remaining term to
maturity of 360 months, (ii) each such Mortgage Loan has a
Mortgage Rate of % and Net Mortgage Rate of %, and (iii) no
prepayments of the Mortgage Loans occur. Notwithstanding the
foregoing, the Scheduled Final Distribution Date for the Class R
Certificates is the latest Scheduled Final Distribution Date of
the other Classes of Certificates. Because certain Mortgage Loans
will have remaining terms to stated maturity that are shorter and
Mortgage Rates that are lower than those assumed in calculating
the Scheduled Final Distribution Dates of the Certificates
offered hereby, the Class Certificate Principal Balances thereof
may be reduced to zero prior to their Scheduled Final
Distribution Dates. In addition, to the extent delinquencies and
defaults are not offset by any advances made by the Company and
the forms of credit enhancement described herein, delinquencies
and defaults could result in distributions after the respective
Scheduled Final Distribution Dates of the Certificates. As a
result, the Class Certificate Principal Balance of each Class of
the Certificates may be reduced to zero significantly earlier or
later than its respective Scheduled Final Distribution Date.]
Weighted Average Lives of the Certificates
The weighted average life of a Certificate is determined by
(a) multiplying the reduction, if any, in the Certificate
Principal Balance thereof on each Distribution Date by the number
of years from the date of issuance to such Distribution Date, (b)
summing the results and (c) dividing the sum by the aggregate
reductions in the Certificate Principal Balance of such
Certificate.
S-32
<PAGE>
The weighted average lives of the Certificates will be
affected, to varying degrees, by the rate of principal payments
on the related Mortgage Loans, the timing of changes in such rate
of payments and the priority sequence of distributions of
principal of such Certificates. The interaction of the foregoing
factors may have different effects on the various Classes of the
Certificates and the effects on any Class may vary at different
times during the life of such Class. Further, to the extent the
prices of a Class of Certificates represent discounts or premiums
to their respective original Class Certificate Principal
Balances, variability in the weighted average lives of such
Classes of Certificates could result in variability in the
related yields to maturity.
[Prepayments on mortgage loans are commonly measured
relative to a prepayment standard or model. The model used in
this Prospectus Supplement (the "Prepayment Assumption")
represents an assumed rate of prepayment each month relative to
the then outstanding principal balance of a pool of mortgage
loans. The Prepayment Assumption does not purport to be either a
historical description of the prepayment experience of any pool
of mortgage loans or a prediction of the anticipated rate of
prepayment of any pool of mortgage loans, including the Mortgage
Loans in the Mortgage Pool. A prepayment assumption of 100% of
the Prepayment Assumption assumes prepayment rates of 0.2% per
annum of the then outstanding principal balance of such mortgage
loans in the first month of the life of the mortgage loans and
increasing by 0.2% per annum in each month thereafter until the
thirtieth month. Beginning in the thirtieth month and in each
month thereafter during the life of the mortgage loans, 100% of
the Prepayment Assumption assumes a constant prepayment rate of
6.0% per annum.]
[Discussion of yield considerations relating to planned
amortization class, targeted amortization class or other
scheduled balance Certificates, if applicable.]
Table of Certificate Principal Balances. The following
table sets forth the percentages of the initial Class Certificate
Principal Balance of each Class of Certificates offered hereby
that would be outstanding after each of the dates shown at the
specified constant percentages of the Prepayment Assumption and
the corresponding weighted average life of each such Class of
Certificates. [The figures in the table are based on the actual
characteristics of the Mortgage Loans expected to be included in
the Mortgage Pool. The Mortgage Loans are expected to have a
weighted average Mortgage Rate of approximately % per annum and
a weighted average scheduled remaining term to maturity of
approximately months as of the Cut-off Date, with a weighted
average Mortgage Loan age of approximately months.] For pur-
poses of calculations under the columns at the indicated percent-
ages of the Prepayment Assumption [(other than 0% of the Prepayment
Assumption)] set forth in the table, it is assumed with respect
to the Mortgage Loans (the "Modeling Assumptions") that [(i) the
distributions in respect of the Certificates are made and
received in cash on the 25th day of each month commencing in
199 , (ii) such Mortgage Loans prepay at the specified
constant percentages of the Prepayment Assumption,
S-33
<PAGE>
(iii) the aggregate outstanding principal balance of such
Mortgage Loans as of the Cut-off Date is $ , (iv) no defaults
or delinquencies in the payment by Mortgagors of principal of and
interest on such Mortgage Loans are experienced and the Company
does not repurchase any such Mortgage Loans as permitted or
required by the Agreement, (v) the Company does not exercise its
option to repurchase all the Mortgage Loans in the Trust Fund as
described under the caption "The Pooling and Servicing
Agreement--Termination" herein, (vi) scheduled monthly payments
on such Mortgage Loans are received on the first day of each
month commencing in 199 , and are computed prior to giving
effect to prepayments received in the prior month, (vii) prepay-
ments representing payment in full of individual Mortgage Loans
are received on the last day of each month (commencing , 199 )
and include 30 days' interest thereon, and no Interest Shortfalls
occur in respect of the Mortgage Loans, (viii) the scheduled
monthly payment for each such Mortgage Loan has been calculated
based on its outstanding balance, interest rate and remaining
term to maturity such that such Mortgage Loan will amortize in
amounts sufficient to repay the remaining balance of such
Mortgage Loan by its remaining term to maturity, (ix) the initial
Class Certificate Principal Balance and Certificate Interest Rate
for each Class of Certificates offered hereby are as indicated on
the cover page hereof, (x) the date of the initial issuance of
the Certificates is , 199 , (xi) the amount distributable to
Certificateholders is not reduced by the incurrence of any
expenses by the Trust Fund, and (xii) the Mortgage Loans [are
divided into groups (each, a "Mortgage Loan Group") and the
Mortgage Loans in each Mortgage Loan Group] have the respective
characteristics described below:
Aggregate Stated
Scheduled Remaining
Principal Net Term to
[Mortgage Loan Balance as of Mortgage Mortgage Age Maturity
Group] the Cut-off Date Rate Rate (Months) (Months)
------ ---------------- ---- ---- -------- --------
Discount.........
Non-Discount..... ]
[The information under the columns set forth in the table
at 0% of the Prepayment Assumption was calculated on the basis of
the assumptions set forth in clauses (i), (iii) through (vi) and
(viii) through (x) of the preceding sentence and the additional
assumptions that (i) each Mortgage Loan has an original and
remaining term to maturity of months, (ii) each such Mortgage
Loan bears interest at a rate of % per annum, and (iii) no
prepayments are experienced on such Mortgage Loans.]
S-34
<PAGE>
It is not likely that the Mortgage Loans will prepay at a
constant level of the Prepayment Assumption. [In addition,
because certain of such Mortgage Loans will have remaining terms
to maturity and will bear interest at rates that are different
from those assumed, the actual Class Certificate Principal
Balance of each Class of Certificates outstanding at any time and
the actual weighted average life of each Class of such
Certificates may differ from the corresponding information in the
table for each indicated percentage of the Prepayment Assumption.
Furthermore, even if all the Mortgage Loans prepay at the
indicated percentages of the Prepayment Assumption and the
weighted average mortgage interest rate and weighted average
remaining term to maturity of such Mortgage Loans were to equal
the weighted average mortgage interest rate and weighted average
remaining term to maturity of the assumed Mortgage Loans, due to
the actual distribution of remaining terms to maturity and
interest rates among the Mortgage Loans, the actual Class
Certificate Principal Balance of each Class of Certificates
outstanding at any time and the actual weighted average life of
each Class of such Certificates would differ (which difference
could be material) from the corresponding information set forth
in the following table.] [In addition, if the actual
characteristics of the Mortgage Loans included in the Mortgage
Pool differ from those used in calculating the percentages set
forth in the tables, the actual Class Certificate Principal
Balance of each Class of Certificates outstanding at any time and
the actual weighted average life of each Class of Certificates
would differ (which difference would be material) from the
corresponding information in the tables for each indicated
percentage of the Prepayment Assumption.]
S-35
<PAGE>
<TABLE>
<CAPTION>
Percent of Original Class Certificate Principal Balance
Outstanding of the Certificates
Class Class Class Class
----------------------- ----------------------- ----------------------- -----------------------
Prepayment Assumption Prepayment Assumption Prepayment Assumption Prepayment Assumption
----------------------- ----------------------- ----------------------- -----------------------
Distribution 0% % % % % 0% % % % % 0% % % % % 0% % % % %
Date --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
Percentage
[Annual Distribution Dates]
Weighted Average Life
(in years)(1)
</TABLE>
(1) The weighted average life of a Certificate is determined by
(a) multiplying the reduction, if any, in the Certificate
Principal Balance thereof on each Distribution Date by the
number of years from the date of issuance to such
Distribution Date, (b) summing the results and (c) dividing
the sum by the initial Certificate Principal Balance of such
Certificate.
[Discussion of prepayment factors affecting Home
Equity Loans to be furnished, if applicable.]
S-36
<PAGE>
GE CAPITAL MORTGAGE SERVICES, INC.
The Company, a wholly-owned subsidiary of GE Capital
Mortgage Corporation, is a New Jersey corporation originally
incorporated in 1949. The principal executive office of the
Company is located at Three Executive Campus, Cherry Hill, New
Jersey 08002, telephone (609) 661-6100. For a general description
of the Company and its activities, see "GE Capital Mortgage
Services, Inc." in the accompanying Prospectus.
DELINQUENCY AND FORECLOSURE EXPERIENCE OF THE COMPANY
The following delinquency tables set forth certain
information concerning the delinquency and foreclosure experience
on one- to four-family conventional residential mortgage loans
serviced directly by the Company, excluding Home Equity Loans (as
defined in the Prospectus) and special loan portfolios which,
upon the Company's commencement of servicing responsibilities,
consisted of significant numbers of mortgage loans that were
seriously delinquent or in foreclosure (the "Servicing
Portfolio"). The Servicing Portfolio does not include mortgage
loans that were serviced or sub-serviced by others. [Dates as of
which data are given to be updated periodically as necessary,
including interim period numbers. Comparable disclosure to be
included for Home Equity Loans, if applicable.]
<TABLE>
<CAPTION>
As of December 31, As of December 31, As of December 31,
1995 1996 1997
---------------------- ---------------------- ----------------------
By No. By Dollar By No. By Dollar By No. By Dollar
of Amount of of Amount of of Amount of
Loans Loans Loans Loans Loans Loans
----- --------- ----- --------- ----- ---------
(Dollar amount in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total portfolio ........ 821,839 $91,977,411 785,928 $88,188,66 726,869 $83,535,531
======== =========== ======== =========== ======== ===========
Period of delinquency(1)
30 to 59 days ........ 3,813 $ 408,131 3,362 $ 353,209 2,687 $ 281,657
60 to 89 days ........ 1,788 202,503 1,177 135,668 632 71,245
90 days or more(2) ... 6,437 919,526 6,867 892,643 5,442 662,342
-------- ----------- -------- ----------- -------- -----------
Total delinquent loans . 12,038 $ 1,530,160 11,406 $ 1,381,520 8,761 $ 1,051,244
-------- ----------- -------- ----------- -------- -----------
Percent of portfolio ... 1.46% 1.66% 1.45% 1.57% 1.21% 1.22%
</TABLE>
S-37
<PAGE>
As of [ ], As of [ ]
1997 1998
-------------------- --------------------
By No. By Dollar By No. By Dollar
of Amount of of Amount of
Loans Loans Loans Loans
----- --------- ----- ---------
(Dollar amounts in thousands)
Total portfolio............ $ $
Period of delinquency(1)...
30 to 59 days........... $ $
60 to 89 days...........
90 days or more(2)......
----- --------- ----- ---------
Total delinquent loans..... $ $
----- --------- ----- ---------
Percent of portfolio....... % % % %
- ----------
(1) The indicated periods of delinquency are based on the number
of days past due on a contractual basis, based on a 30-day
month. No mortgage loan is considered delinquent for these
purposes until the monthly anniversary of its contractual due
date (e.g., a mortgage loan with a payment due on January 1st
would first be considered delinquent on February 1st). The
delinquencies reported above were determined as of the dates
indicated.
(2) Includes pending foreclosures.
As of December 31,
---------------------------------
1995 1996 1997
---- ---- ----
(Dollar amounts in thousands)
Total portfolio .... $91,977,411 $88,188,662 $83,535,531
Foreclosures(1) ... 268,478 372,800 271,046
Foreclosure ratio . 0.29% 0.42% 0.32%
As of [ ],
--------------------
1997 1998
---- ----
(Dollar amounts in thousands)
Total portfolio .... $ $
Foreclosures(1) ...
Foreclosure ratio . % %
- ----------
(1) Foreclosures represents the principal balance of mortgage
loans secured by mortgaged properties, the title to which
has been acquired by the Company, by investors or by an
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<PAGE>
insurer following foreclosure or delivery of a deed in lieu
of foreclosure and which had not been liquidated at the end
of the period indicated. The length of time necessary to
complete the liquidation of such mortgaged properties may be
affected by prevailing economic conditions and the
marketability of the mortgaged properties.
The delinquency and foreclosure experience set forth above
is historical and is based on the servicing of mortgage loans
that may not be representative of the Mortgage Loans in the
Mortgage Pool. Consequently, there can be no assurance that the
delinquency and foreclosure experience on the Mortgage Loans in
the Mortgage Pool will be consistent with the data set forth
above. The Servicing Portfolio, for example, includes mortgage
loans having a wide variety of payment characteristics (e.g.,
fixed-rate mortgage loans, adjustable rate mortgage loans and
graduated payment mortgage loans) and mortgage loans secured by
mortgage properties in geographic locations that may not be
representative of the geographic locations of the Mortgage Loans
in the Mortgage Pool. The Servicing Portfolio also includes
mortgage loans originated in accordance with the Company's
then-applicable underwriting policies as well as mortgage loans
not originated in accordance with such policies but as to which
the Company had acquired the related servicing rights.
The Servicing Portfolio includes many mortgage loans which
have not been outstanding long enough to have seasoned to a point
where delinquencies would be fully reflected. In the absence of
such substantial continuous additions of servicing for recently
originated mortgage loans to the Servicing Portfolio, it is
possible that the delinquency and foreclosure percentages
experienced in the future could be significantly higher than
those indicated in the table above.
THE POOLING AND SERVICING AGREEMENT
The Certificates will be issued pursuant to the Agreement.
The following summaries describe certain provisions of the
Agreement. See "The Pooling and Servicing Agreement" in the
accompanying Prospectus for summaries of certain other provisions
of the Agreement. The summaries below do not purport to be
complete and are subject to, and qualified in their entirety by
reference to, the provisions of the Agreement. Where particular
provisions or terms used in the Agreement are referred to, such
provisions or terms are as specified in the Agreement.
Assignment of Mortgage Loans
At the time of issuance of the Certificates, the Company
will assign the Mortgage Loans in the Mortgage Pool to the
Trustee, together with all principal and interest received by the
Company on or with respect to such Mortgage Loans on or after the
Cut-off Date other than principal and interest due and payable on
or before the Cut-off Date. The Trustee will, concurrently with
such assignment, execute, countersign and deliver the
Certificates to the
S-39
<PAGE>
Company in exchange for the Mortgage Loans. Each Mortgage Loan
will be identified in a schedule appearing as an exhibit to the
Agreement. Any substitute Mortgage Loan will be identified in an
amended schedule maintained by the Trustee. See "The Pooling and
Servicing Agreement--Repurchase or Substitution" in the
Prospectus.
In addition, at the time of issuance of the Certificates,
the Company will deliver to the Trustee, as to each Mortgage
Loan, the related Mortgage Note (or a lost-note affidavit), any
related assumption and modification agreement and an assignment
of Mortgage to the Trustee in recordable form (other than in
respect of unavailable recording information). The Company will
also deliver originals of the recorded Mortgages, any intervening
assignments of the Mortgages and title insurance policies with
respect to the Mortgage Loans, as promptly as practicable, and in
any case within thirty days, after receiving all such documents
from the applicable recording offices and title insurance
companies. Pending such delivery, the Company will retain and
furnish to the Trustee upon request copies of the Mortgages and
intervening assignments of Mortgage delivered for recording and
the evidence of title insurance issued at origination of the
Mortgage Loans. The Company will retain and furnish to the
Trustee upon request any applicable evidence of primary mortgage
insurance (any policy with respect to such insurance being
referred to herein as a "Primary Mortgage Insurance Policy") so
long as such insurance remains in force. See "The Pooling and
Servicing Agreement--Assignment of Assets" in the Prospectus.
[Description of documents to be delivered for Cooperative Loans
to be added.]
The Company may refrain from recording the assignments of
Mortgage to the Trustee unless the Company or the Trustee obtains
actual notice or knowledge of the occurrence of any one or more
of the following: (i) the Company is not a wholly-owned direct or
indirect subsidiary of General Electric Company or General
Electric Capital Corporation ("GE Capital") does not own
(directly or indirectly) at least two-thirds of the voting shares
of the capital stock of the Company, (ii) the long-term senior
unsecured rating of GE Capital is downgraded by [or ] below
[their] two highest long-term rating categories or such rating is
withdrawn, (iii) GE Capital is no longer obligated pursuant to
the terms of a support agreement to maintain the Company's net
worth or liquidity (as such terms are defined in such support
agreement) at the levels specified therein, or that such support
agreement, including any amendment thereto, has been breached,
terminated or otherwise held to be unenforceable or (iv) such
support agreement, including any amendment thereto, is amended or
modified (each such event described in (i), (ii), (iii) and (iv)
is referred to herein as a "Trigger Event"); provided, however,
that such recording will not be required if the Company delivers
to the Trustee a letter from each rating agency which originally
rated the Certificates to the effect that the failure to take
such action would not cause such rating agency to withdraw or
reduce its then current ratings of such Certificates. For
purposes of the foregoing, the Company will be deemed to have
knowledge of any such downgrading if, in the exercise of
reasonable diligence, the Company has
S-40
<PAGE>
or should have had knowledge thereof. [If a Trigger Event occurs,
the Company will also promptly furnish to the Trustee the
documents retained by the Company as described in the preceding
paragraph.]
Although recordation of the assignments of Mortgage to the
Trustee is not necessary to make the assignment of the Mortgage
Loans to the Trustee effective, if the Company were to make a
sale, assignment, satisfaction or discharge of any Mortgage Loan
prior to recording or filing the assignments to the Trustee, the
other parties to such sale, assignment, satisfaction or discharge
might have rights superior to those of the Trustee. If the
Company were to do so without authority under the Agreement, it
would be liable to the Certificateholders. Moreover, if
insolvency proceedings relating to the Company were commenced
prior to such recording or filing, creditors of the
trustee-in-bankruptcy may be able to assert rights in the
affected Mortgage Loans superior to those of the Trustee.
[Servicing Arrangement with Respect to the Mortgage Loans
It is expected that the Company will directly service
approximately % (by aggregate Scheduled Principal Balance as of
the Cut-off Date) of the Mortgage Loans and will function as
master servicer with respect to the remaining Mortgage Loans
pursuant to a Direct Master Servicing Arrangement (as defined in
the accompanying Prospectus). Such master-serviced loans will be
directly serviced by the entities which originated or acquired
those loans and sold them to the Company. The Agreement permits
the Company to use other primary servicing agents from time to
time. See "Servicing of the Mortgage Loans and Contracts" in the
accompanying Prospectus.
The Agreement may permit the Company, as its option, to
grant certain rights in connection with the foreclosure of
defaulted Mortgage Loans to the holders of the Class B- [and
Class B- ] Certificates [and, when such Certificates are no
longer outstanding, to the holders of the Class B- Certificates].
The initial Class Certificate Principal Balance[s] of the Class
B-__ and Class B- ] Certificates is [are] expected to equal
approximately ___% [and __%, respectively,] of the initial
Certificate Principal Balance of all of the Certificates. See
"Servicing of the Mortgage Loans--Collection and Other Servicing
Procedures" in the Prospectus.]
S-41
<PAGE>
Collection Account
The Agreement provides that if the Company or the Trustee
obtains actual notice or knowledge of the occurrence of a Trigger
Event or the downgrade by of GE Capital's short term unsecured
rating below , the Company will, in lieu of each Loan Payment
Record described under the caption "Servicing of the Mortgage
Loans and Contracts--Loan Payment Record" in the accompanying
Prospectus, establish and maintain or cause to be established and
maintained a separate account (the "Collection Account") for the
Certificates relating to each Mortgage Pool for the collection of
payments on the Mortgage Loans included in such Mortgage Pool;
provided, however, that such action will not be required if the
Company delivers to the Trustee a letter from each rating agency
which originally rated the Certificates to the effect that the
failure to take such action would not cause such rating agency to
withdraw or reduce its then current rating of such Certificates.
If established, such Collection Accounts would be (i) maintained
with a depository institution the debt obligations of which are,
at the time of any deposit therein, rated by [each of [and
]] in one of its two highest long-term rating categories
[and by in its highest short-term rating category], (ii) an
account or accounts the deposits in which are fully insured by
either the Bank Insurance Fund (the "BIF") of the Federal Deposit
Insurance Corporation (the "FDIC") or the Savings Association
Insurance Fund (as successor to the Federal Savings and Loan
Insurance Corporation) of the FDIC (the "SAIF"), (iii) an account
or accounts with a depository institution, which accounts are
insured by the BIF or SAIF (to the limits established by the
FDIC), and which uninsured deposits are invested in United States
government securities or other high quality investments, or are
otherwise secured to the extent required by [and ] such
that, as evidenced by an opinion of counsel, the holders of the
related Certificates have a claim with respect to the funds in
the account or a perfected first security interest against any
collateral securing such funds that is superior to claims of any
other depositors or creditors of the depository institution with
which the account is maintained, (iv) a trust account maintained
with the corporate trust department of a federal or state
chartered depository institution or trust company with trust
powers and acting in its fiduciary capacity for the benefit of
the Trustee or (v) an account as will not cause [either or
] to downgrade or withdraw its then-current ratings
assigned to the Certificates. If a Collection Account is
established for the Certificates relating to a Mortgage Pool, all
amounts credited or debited to the related Loan Payment Record in
the manner described under the caption "Servicing of the Mortgage
Loans and Contracts--Loan Payment Record" will instead be
deposited or withdrawn from the related Collection Account. See
"Servicing of the Mortgage Loans and Contracts--Loan Payment
Record" in the accompanying Prospectus.
Prior to the occurrence of a Trigger Event, the Company
will transfer to the Certificate Account the Available Funds for
the related Distribution Date on the business day immediately
preceding such Distribution Date.
S-42
<PAGE>
[Advances
In the event that any Mortgagor fails to make any payment
of principal or interest required under the terms of a Mortgage
Loan, the Company will advance the entire amount of such payment,
net of the applicable Servicing Fee, less the amount of any such
payment that the Company reasonably believes will not be
recoverable out of liquidation proceeds or otherwise. The amount
of any scheduled payment required to be advanced by the Company
will not be affected by any agreement between the Company and a
Mortgagor providing for the postponement or modification of the
due date or amount of such scheduled payment. The Company will be
entitled to reimbursement for any such advance from related late
payments on the Mortgage Loan as to which such advance was made.
Furthermore, in the event that any Mortgage Loan as to which such
an advance has been made is foreclosed while in the Trust Fund,
the Company will be entitled to reimbursement for such advance
from related liquidation proceeds or insurance proceeds prior to
payment to Certificateholders of the related Mortgage Pool of the
Scheduled Principal Balance of such Mortgage Loan plus accrued
interest at the Mortgage Rate, net of the Servicing Fee.
If the Company makes a good faith judgment that all or any
portion of any advance of delinquent principal and interest made
by it with respect to any Mortgage Loan may not ultimately be
recoverable from related liquidation or insurance proceeds or
other collections on such Mortgage Loan (a "Nonrecoverable
Advance"), the Company will so notify the Trustee and the Company
will be entitled to reimbursement for such Nonrecoverable Advance
from recoveries on all other unrelated Mortgage Loans included in
the related Mortgage Pool. The Company's judgment that it has
made a Nonrecoverable Advance with respect to any Mortgage Loan
will be based upon its assessment of the value of the related
Mortgaged Property and such other facts and circumstances as it
may deem appropriate in evaluating the likelihood of receiving
liquidation proceeds, net of expenses, equal to or greater than
the aggregate amount of unreimbursed advances made with respect
to such Mortgage Loan.]
[As a result of the subordination of the Junior
Certificates, the effect of reimbursements to the Company of
previous advances from liquidation or insurance proceeds and of
Nonrecoverable Advances will generally be borne by the holders of
the Junior Certificates (to the extent then outstanding) in
inverse order of priority before they are borne by holders of the
Senior Certificates.]
[The Trustee will make advances of delinquent principal and
interest payments in the event of a failure by the Company to
perform its obligation to do so, provided that the Trustee will
not make such advance to the extent that it reasonably believes
the payment will not be recoverable to it out of related
liquidation or insurance proceeds or otherwise. The Trustee will
be entitled to reimbursement for advances in a manner similar to
the Company's entitlement.]
S-43
<PAGE>
Purchases of Defaulted Mortgage Loans
Under the Agreement, the Company will have the option (but
not the obligation) to purchase any Mortgage Loan as to which the
Mortgagor has failed to make unexcused payment in full of three
or more scheduled payments of principal and interest (a
"Defaulted Mortgage Loan"). Any such purchase will be for a price
equal to 100% of the outstanding principal balance of such
Mortgage Loan, plus accrued and unpaid interest thereon at the
Net Mortgage Rate [minus the Supplemental Servicing Fee Rate (as
defined below)] (less any amounts representing previously
unreimbursed advances). The purchase price for any Defaulted
Mortgage Loan will be deposited in the Certificate Account on the
business day prior to the Distribution Date on which the proceeds
of such purchase are to be distributed to the Certificateholders.
Servicing Compensation, Compensating Interest and Payment of
Expenses
The Company's primary compensation for its servicing
activities will come from the payment to it, with respect to each
interest payment on any Mortgage Loan, of the "Servicing Fee"
[equal to the sum of a base fee (the "Base Servicing Fee") and a
supplemental fee, if any (the "Supplemental Servicing Fee")] at
the rate described below. As to each Mortgage Loan, the Servicing
Fee [the rate at which the Base Servicing Fee is payable (the
"Base Servicing Fee")] will be a fixed rate per annum of the
outstanding principal balance of such Mortgage Loan, expected to
range from % to %, with an anticipated initial weighted aver-
age rate of between approximately % and %. [As to each Mort-
gage Loan, the rate at which the Supplemental Servicing Fee is
payable (the "Supplemental Servicing Fee Rate") will be a fixed
rate per annum of the outstanding principal balance of the Mort-
gage Loan equal to the excess, if any, of the Net Mortgage Rate
over %. The supplemental Servicing Fee Rate is expected to
range from % to approximately %, with an anticipated initial
weighted average rate of between % and %.] The aggregate ser-
vicing compensation to the Company could vary depending on the
prepayment experience of the Mortgage Loans. The servicing com-
pensation of any direct servicer of any Mortgage Loan will be
paid out of the related Servicing Fee, and the Company will re-
tain the balance as part of its servicing compensation (subject
to its obligation to make Compensating Interest Payments, as
described below).
To the extent any voluntary prepayment results in an
Interest Shortfall (as described in clauses (i), (ii) and (iii)
of the definition thereof) with respect to any Distribution Date,
the Company will be obligated to remit an amount sufficient to
pass through to Certificateholders the full amount of interest to
which they would have been entitled in the absence of such
prepayments, but in no event greater than the lesser of (a) 1/12
of 0.125% of the Pool Scheduled Principal Balance for such
Distribution Date and (b) the aggregate amount received by the
Company on account of its [Base] Servicing Fees (net of any
servicing compensation paid to any direct servicer) in connection
with such Distribution Date (such amount, a "Compensating
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<PAGE>
Interest Payment"). Because the net amount received by the
Company on account of its [Base] Servicing Fees is generally less
in the case of Mortgage Loans master-serviced by the Company than
in the case of Mortgage Loans the Company services directly, the
amounts available for any Compensating Interest Payment with
respect to any Distribution Date will generally decrease to the
extent the proportion of Outstanding Mortgage Loans
master-serviced by the Company increases, and increase to the
extent the proportion of such Mortgage Loans decreases. It is
expected that no more than % of the Mortgage Loans (by aggregate
Scheduled Principal Balance) as of the Cut-off Date will be
master-serviced by the Company. This percentage could vary over
time, however, if Mortgage Loans directly serviced by the Company
experience a disproportionately high or low level of prepayments
or defaults relative to Mortgage Loans master-serviced by the
Company. In addition, the proportion of master-serviced Mortgage
Loans could be affected as a result of (i) the exercise by the
Company of its right under the Agreement to contract with third
parties to directly service Mortgage Loans, with the Company
becoming the master servicer of such Mortgage Loans, or (ii) the
substitution of any Mortgage Loans under the Agreement.
The Company will retain, as additional servicing
compensation, amounts in respect of interest paid by borrowers in
connection with any principal prepayment in full received by the
Company (or, with respect to Mortgage Loans master-serviced by
the Company, of which the Company receives notice) from the first
day through the fifteenth day of each month, other than the month
of the Cut-off Date.
The Company will pay expenses incurred in connection with
its responsibilities under the Agreement, subject to limited
reimbursement as described herein and in the accompanying
Prospectus. See "Servicing of the Mortgage Loans and
Contracts--Servicing and Other Compensation and Payment of
Expenses" in the accompanying Prospectus for information
regarding other possible compensation to the Company.
Trustee
The Trustee for the Certificates offered hereby will be
. The Corporate Trust Office of the Trustee is
located at .
Termination
[The Company may, at its option, repurchase all of the
Mortgage Loans underlying the Certificates and thereby effect the
early retirement of the Certificates and cause the termination of
the Trust Fund [and the REMIC constituted by the Trust Fund] on
any Distribution Date after the aggregate Scheduled Principal
Balance of the Mortgage Loans in the Trust Fund is less than
[10]% of the aggregate Scheduled Principal Balance thereof as of
the Cut-off Date. [The
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<PAGE>
Company may not exercise the foregoing option unless the Trustee
has received an opinion of counsel that the exercise of such
option will not subject the Trust Fund to a tax on prohibited
transactions or result in the failure of such Trust Fund to
qualify as a REMIC.]
Any such repurchase by the Company of the assets included
in the Trust Fund will be at a price equal to the sum of (a) 100%
of the unpaid principal balance of each Mortgage Loan in the
Trust Fund (other than a Mortgage Loan described in clause (b))
as of such date, plus accrued and unpaid interest thereon at the
related Net Mortgage Rate [minus the Supplemental Servicing Fee
Rate] (less any amounts representing previously unreimbursed
advances) and (b) the appraised value of any property acquired in
respect of a related Mortgage Loan (less any amounts representing
previously unreimbursed advances in respect thereof and a good
faith estimate of liquidation expenses). If the related Available
Funds on the final Distribution Date are less than the aggregate
Certificate Principal Balance of all outstanding Certificates
plus accrued and unpaid interest thereon, then such shortfall
will be allocated on the final Distribution Date to each Class of
Certificates of the related Mortgage Pool in accordance with the
priorities described under "Description of the Certificates--
Distributions on the Certificates--Allocation of Available
Funds."]
In no event will the Trust Fund created by the Agreement
continue beyond the expiration of 21 years from the death of the
last survivor of a certain person named in such Agreement.
[Voting Rights
The Class Certificates will be allocated % of the
votes, and the other Classes of Certificates in the aggregate
will be allocated % of the votes, eligible to be cast in con-
nection with any vote of all Certificateholders under the Agree-
ment. Votes allocated to the Certificates other than the Class
Certificates will be allocated among such Classes (and among the
Certificates within each such Class) in proportion to their Class
Certificate Principal Balances (or Certificate Principal
Balances, as the case may be). Votes allocated to the Class
Certificates will be allocated among such Certificates in propor-
tion to their Notional Principal Balances.]
[Description of credit enhancement and credit enhancement
providers, if applicable.]
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
[An election will be made to treat [the Trust Fund] [each
of the Upper-Tier REMIC and the Lower-Tier REMIC] as a REMIC for
federal income tax purposes.
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<PAGE>
[The Certificates other than the Residual Certificates will
be designated as "regular interests" in the REMIC and the
Residual Certificates will be designated as the "residual
interest" in the REMIC.] [The Certificates other than the Class
RL Certificates will represent interests in the Upper-Tier REMIC,
the assets of which will consist of all the "regular interests"
in the Lower-Tier REMIC. The Lower-Tier REMIC will consist of the
Mortgage Loans and related Trust Fund assets described herein.
The Regular Certificates will be designated as "regular
interests" and the Class R Certificates will be designated as the
"residual interest" in the Upper-Tier REMIC. The Class RL
Certificates will be designated as the "residual interest" in the
Lower-Tier REMIC.]
Regular Certificates. The Regular Certificates generally
will be treated as debt instruments issued by the [Upper-Tier]
REMIC for federal income tax purposes. Income on Regular
Certificates must be reported under an accrual method of
accounting. Certain Classes of Regular Certificates [(other than
the Class Certificates)] may be issued with original issue
discount in an amount equal to the excess of their initial
respective Class Certificate Principal Balances (plus accrued
interest from the last day preceding the issue date corresponding
to a Distribution Date through the issue date) over their issue
prices (including all accrued interest). [The Class Certificates
will be issued with original issue discount in an amount equal to
[to be specified].] The prepayment assumption that is to be used
in determining the rate of accrual of original issue discount and
whether the original issue discount is considered de minimis, and
that may be used by a holder of a Regular Certificate to amortize
premium, will be % of the Prepayment Assumption. No
representation is made as to the actual rate at which the
Mortgage Loans will prepay. See "Certain Federal Income Tax
Consequences--REMIC Certificates--Income from Regular
Certificates" in the accompanying Prospectus.
[The requirement to report income on a Regular Certificate
under an accrual method may result in the inclusion of amounts in
income that are not currently distributed in cash. In the case of
a Junior Certificate, accrued income may exceed cash
distributions as a result of the preferential right of Classes of
Senior Certificates to receive cash distributions in the event of
losses or delinquencies on Mortgage Loans. Prospective purchasers
of Junior Certificates should consult their tax advisors
regarding the timing of income from those Certificates and the
timing and character of any deductions that may be available with
respect to principal or accrued interest that is not paid. See
"Certain Federal Income Tax Consequences--REMIC
Certificates--Income from Regular Certificates" in the
accompanying Prospectus.]
Residual Certificates. The holders of the Class R [and
Class RL] Certificates must include the taxable income of the
[Upper-Tier REMIC and Lower-Tier] REMIC[, respectively,] in their
federal taxable income. The resulting tax liability of the
holders may exceed cash distributions to such holders during
certain periods. All or a portion of the taxable income from a
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<PAGE>
Residual Certificate recognized by a holder may be treated as
"excess inclusion" income, which with limited exceptions is
subject to U.S. federal income tax in all events.
Under Treasury regulations, each Class of the Residual
Certificates may be considered to be a "noneconomic residual
interest" at the time it is issued, in which even certain
transfers thereof would be disregarded for federal income tax
purposes.
Prospective purchasers of a Residual Certificate should
consider carefully the tax consequences of an investment in
Residual Certificates discussed in the Prospectus and should
consult their own tax advisors with respect to those
consequences. See "Certain Federal Income Tax Consequences--REMIC
Certificates--Income from Residual Certificates;--Taxation of
Certain Foreign Investors;--Servicing Compensation and Other
REMIC Pool Expense;--Transfers of Residual Certificates."]
ERISA CONSIDERATIONS
As described in the Prospectus under "ERISA
Considerations," the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and the Code impose certain duties
and restrictions on any person which is an employee benefit plan
within the meaning of Section 3(3) of ERISA or a plan subject to
Section 4975 of the Code or any person utilizing the assets of
such employee benefit plan or other plan (an "ERISA Plan") and
certain persons who perform services for ERISA Plans. For
example, unless exempted, an investment by an ERISA Plan in the
Certificates offered hereby may constitute or give rise to a
prohibited transaction under ERISA or Section 4975 of the Code.
[The United States Department of Labor (the "DOL") has issued
certain such exemptions from these prohibitions which might be
applicable in connection with an ERISA Plan's purchase of certain
of the Certificates offered hereby, including Prohibited
Transaction Class Exemption 83-1 ("PTE 83-1"). [In particular,
the exemptive relief provided by PTE 83-1 may be available with
respect to the initial acquisition and holding of certain Classes
of Certificates offered hereby, provided that the conditions
specified in PTE 83-1 are satisfied.] See "ERISA Considerations"
in the accompanying Prospectus.]
[The DOL has issued to (the "Underwriter") an indi-
vidual administrative exemption, Prohibited Transaction Exemption
( Fed. Reg. , , ), as amended (the "Exemption"),
from certain of the prohibited transaction provisions of ERISA
with respect to the initial purchase, the holding, and the subse-
quent resale by an ERISA Plan of certificates in pass-through
trusts that meet the conditions and requirements of the Exemption.
The Exemption might apply to the acquisition, holding and resale
of the Certificates offered hereby [(other than the Class Cer-
tificates)] by an ERISA Plan, provided that specified conditions
are met.]
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<PAGE>
[Among the conditions which would have to be satisfied for
the Exemption to apply to the acquisition by an ERISA Plan of the
Certificates offered hereby [(other than the Class Certificates)]
are the following: (i) the Underwriter is the sole underwriter or
the manager or co-manager of the underwriting syndicate, for such
Certificates, (ii) the Certificates are rated in one of the three
highest generic rating categories by or at the time of
the acquisition of such Certificates by the ERISA Plan, (iii) the
Certificates represent a beneficial ownership interest in, among
other things, obligations that bear interest or are purchased at
a discount and which are secured by single-family residential,
multifamily residential or commercial real property (including
obligations secured by leasehold interests on commercial real
property), or fractional undivided interests in such obligations,
(iv) the Certificates are not subordinated to other certificates
issued by the Trust Fund in respect of the Mortgage Pool, (v) the
ERISA Plan investing in such Certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act of
1933, (vi) the acquisition of the Certificates is 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 third party, (vii)
the Trustee is not an affiliate of any member of the "Restricted
Group" (as defined below) and (viii) the compensation to the
Underwriter represents not more than reasonable compensation for
underwriting the Certificates, the proceeds to the Company
pursuant to the assignment of the related Mortgage Loans (or
interests therein) to the Trustee represent not more than the
fair market value of such Mortgage Loans (or interests) and the
sum of all payments made to and retained by the Company
represents not more than reasonable compensation for the
Company's services under the Agreement and reimbursement of the
Company's reasonable expenses in connection therewith.]
[In addition, if certain additional conditions specified in
the Exemption are satisfied, the Exemption may provide an
exemption from the prohibited transaction provisions of ERISA
relating to possible self-dealing transactions by fiduciaries who
have discretionary authority, or render investment advice, with
respect to ERISA Plan assets used to purchase the [Senior]
Certificates offered hereby if the fiduciary (or its affiliate)
is an obligor on any of the Mortgage Loans held in the Mortgage
Pool.]
[The Exemption would not be available with respect to ERISA
Plans sponsored by any of the following entities (or any
affiliate of any such entity): (i) the Company, (ii) the
Underwriter, (iii) the Trustee, (iv) any entity that provides
insurance or other credit support to the Trust Fund in respect of
the relevant Mortgage Pool or (v) any obligor with respect to
Mortgage Loans included in the Mortgage Pool constituting more
than five percent of the aggregate unamortized principal balance
of the assets in such Mortgage Pool (the "Restricted Group").
Before purchasing any Certificate offered hereby, a fiduciary of
an ERISA Plan should make its own determination as to the
availability of the exemptive relief provided in the Exemption or
the
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<PAGE>
availability of any other prohibited transaction exemptions, and
whether the conditions of any such exemption will be applicable
to such Certificate.]
[The Exemption does not apply to the initial purchase, the
holding or the subsequent resale of the [Class A- ,] Class M,
Class B1 and Class B2 Certificates because such Certificates are
subordinate to certain other Classes of Certificates.
ACCORDINGLY, ERISA PLANS MAY NOT PURCHASE THE CLASS M, CLASS B1
OR CLASS B2 CERTIFICATES, except that any insurance company may
purchase such Certificates with assets of its general account if
the exemptive relief granted by the Department of Labor for
transactions involving insurance company general accounts in
Prohibited Transaction Exemption 95-60, 60 Fed. Reg. 35925 (July
12, 1995) is available with respect to such investment. Any
insurance company proposing to purchase such Certificates for its
general account should consider whether such relief would be
available.]
Any fiduciary of an ERISA Plan considering whether to
purchase any Certificate offered hereby should not only consider
the applicability of exemptive relief, but should also carefully
review with its own legal advisors the applicability of the
fiduciary duty and prohibited transaction provisions of ERISA and
the Code to such investment. See "ERISA Considerations" in the
accompanying Prospectus.
A qualified pension plan or other entity that is exempt
from federal income taxation pursuant to Section 501 of the Code
(a "Tax-Exempt Investor") nonetheless 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
Code. The Residual Certificates constitute the residual interest
in the REMIC constituted by the Trust Fund, and all "excess
inclusions" allocated to the Residual Certificates, if held by a
Tax-Exempt Investor, will be considered "unrelated business
taxable income" and thus will be subject to federal income tax.
See "Certain Federal Income Tax Consequences--Residual
Certificates" herein and "Certain Federal Income Tax
Consequences--Federal Income Tax Consequences for REMIC
Certificates--Taxation of Residual Certificates" in the
Prospectus.
[The Agreement will contain certain restrictions on the
transferability of the Class Certificates. See "Description of
the Certificates--Book-Entry Certificates" herein.] The Agreement
provides that the Residual Certificates may not be acquired by or
transferred to an ERISA Plan. See "Description of the
Certificates--Restrictions on Transfer of the Residual
Certificates" herein.
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<PAGE>
LEGAL INVESTMENT MATTERS
The Senior Certificates offered hereby [and the Class
Certificates] will constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984
("SMMEA"), and, as such, are legal investments for certain
entities to the extent provided in SMMEA. However, institutions
subject to the jurisdiction of the Office of the Comptroller of
the Currency, the Board of Governors of the Federal Reserve
System, the Federal Deposit Insurance Corporation, the Office of
Thrift Supervision, the National Credit Union Administration or
state banking or insurance authorities should review applicable
rules, supervisory policies and guidelines of these agencies
before purchasing any of the Certificates, as certain Classes may
be deemed to be unsuitable investments under one or more of these
rules, policies and guidelines and certain restrictions may apply
to investments in other Classes. It should also be noted that
certain states have enacted legislation limiting to varying
extents the ability of certain entities (in particular insurance
companies) to invest in mortgage related securities. Investors
should consult with their own legal advisors in determining
whether and to what extent the Certificates constitute legal
investments for such investors. See "Legal Investment Matters" in
the accompanying Prospectus.
[The Class Certificates will not constitute "mortgage
related securities" under SMMEA. The appropriate characterization
of the Class Certificates under various legal investment
restrictions, and thus the ability of investors subject to these
restrictions to purchase Class Certificates, may be subject to
significant interpretive uncertainties. All investors whose
investment authority is subject to legal restrictions should
consult their own legal advisors to determine whether, and to
what extent, the Class Certificates will constitute legal
investments for them.
The Company makes no representation as to the proper
characterization of the Class Certificates for legal investment
or financial institution regulatory purposes, or as to the
ability of particular investors to purchase the Class
Certificates under applicable legal investment restrictions. The
uncertainties described above (and any unfavorable future
determinations concerning legal investment or financial
institution regulatory characteristics of the Class Certifi-
cates) may adversely affect the liquidity of the Class Certi-
ficates.]
PLAN OF DISTRIBUTION
[Subject to the terms and conditions set forth in the
Underwriting Agreement between the Company and the Underwriter,
the Certificates offered hereby are being purchased from the
Company by the Underwriter upon issuance. Distribution of the
Certificates offered hereby will be made by the Underwriter from
time to time in negotiated transactions or otherwise at varying
prices to be determined at the time of sale. Proceeds to the
Company from the sale of the
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<PAGE>
Certificates will be % of the aggregate initial Certificate
Principal Balance of the Certificates offered hereby as of the
Cut-off Date, plus accrued interest thereon from the Cut-off Date
to the Closing Date, but before deducting issuance expenses
payable by the Company. In connection with the purchase and sale
of the Certificates offered hereby, the Underwriter may be deemed
to have received compensation from the Company in the form of
underwriting discounts.
The Company has agreed to indemnify the Underwriter
against, or make contributions to the Underwriter with respect
to, certain liabilities, including liabilities under the
Securities Act of 1933, as amended.]
CERTIFICATE RATINGS
It is a condition of issuance of the Certificates that the
Certificates offered hereby be rated " " by [and " "
by ].
[Description of rating criteria of each rating agency.]
The ratings of the 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 agency.
The Company has not requested a rating of the Certificates
offered hereby by any rating agency other than and the Com-
pany has not provided information relating to the Certificates
offered hereby or the Mortgage Loans to any rating agency other
than . However, there can be no assurance as to whether any
other rating agency will rate the Certificates offered hereby or,
if another rating agency rates such Certificates, what rating
would be assigned to such Certificates by such rating agency. Any
such unsolicited rating assigned by another rating agency to the
Certificates offered hereby may be lower than the rating assigned
to such Certificates by .
LEGAL MATTERS
Certain legal matters in respect of the Certificates will
be passed upon for the Company by Cleary, Gottlieb, Steen &
Hamilton, New York, New York, and for the Underwriter by Brown &
Wood LLP, Washington, D.C.
S-52
<PAGE>
INDEX OF CERTAIN PROSPECTUS SUPPLEMENT DEFINITIONS
Defined Term Page
- ------------
Accrued Certificate Interest.............................
Agreement................................................
Available Funds..........................................
Bankruptcy Loss..........................................
[Base Servicing Fee].....................................
beneficial owner.........................................
BIF......................................................
Book-Entry Certificates..................................
Cede.....................................................
Certificate Principal Balance............................
Certificates.............................................
Class....................................................
Class Certificate Principal Balance......................
Code.....................................................
Collection Account.......................................
Company..................................................
Compensating Interest Payment............................
Debt Service Reduction...................................
Defaulted Mortgage Loan..................................
Deficient Valuation......................................
Definitive Certificate...................................
Depository...............................................
Detailed Description.....................................
Distribution Date........................................
DOL......................................................
[Double REMIC]...........................................
ERISA....................................................
ERISA Plan...............................................
Exemption................................................
FDIC.....................................................
Financial Intermediary...................................
GE Capital...............................................
[Home Equity Loans]......................................
Interest Accrual Period..................................
Interest Shortfall.......................................
Liquidated Mortgage Loan.................................
[Lower-Tier REMIC].......................................
Mortgage.................................................
S-53
<PAGE>
Mortgage Loans...........................................
Mortgage Pool ...........................................
Mortgage Rates...........................................
mortgage related securities..............................
Mortgaged Properties.....................................
Mortgagor................................................
Net Interest Shortfall...................................
Net Mortgage Rate........................................
[Non-Book-Entry Certificates]............................
Nonrecoverable Advance...................................
Notional Principal Balance...............................
Outstanding Mortgage Loan................................
Pool Scheduled Principal Balance.........................
Prepayment Assumption....................................
Prepayment Period........................................
Primary Mortgage Insurance Policy........................
Realized Loss............................................
Record Date..............................................
Regular Certificates.....................................
regular interests........................................
[REMIC]..................................................
Residual Certificates....................................
residual interests.......................................
Restricted Group.........................................
SAIF.....................................................
Scheduled Principal Balance..............................
Servicing Fee............................................
Servicing Portfolio......................................
SMMEA....................................................
[Supplemental Servicing Fee].............................
Tax-Exempt Investor......................................
Trigger Event............................................
Trust Fund...............................................
Trustee..................................................
Underwriters.............................................
[Upper-Tier REMIC].......................................
S-54
<PAGE>
[Back cover page]
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS
PROSPECTUS SUPPLEMENT OR AN OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE
THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Page
Summary of Terms...................................................
Description of the Mortgage Pool and the Mortgaged Properties......
Description of the Certificates....................................
Yield and Weighted Average Life Considerations.....................
GE Capital Mortgage Services, Inc..................................
Delinquency and Foreclosure Experience of the Company..............
The Pooling and Servicing Agreement................................
Certain Federal Income Tax Consequences............................
ERISA Considerations...............................................
Legal Investment Matters...........................................
Plan of Distribution...............................................
Certificate Ratings................................................
Legal Matters......................................................
Index of Certain Prospectus Supplement Definitions.................
PROSPECTUS
Available Information..............................................
Incorporation of Certain Documents by Reference....................
Reports to Certificateholders......................................
Prospectus Summary.................................................
Description of the Certificates....................................
The Trust Fund.....................................................
Credit Support.....................................................
Yield, Maturity and Weighted Average Life Considerations...........
Servicing of the Mortgage Loans and Contracts......................
The Pooling and Servicing Agreement................................
GE Capital Mortgage Services, Inc..................................
The Guarantor......................................................
Certain Legal Aspects of the Mortgage Loans and Contracts..........
Legal Investment Matters...........................................
ERISA Considerations...............................................
Certain Federal Income Tax Consequences............................
Plan of Distribution..............................................
Use of Proceeds....................................................
S-55
<PAGE>
Legal Matters......................................................
Financial Information..............................................
S-56
<PAGE>
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT,
ALL DEALERS EFFECTING TRANSACTIONS IN THE CERTIFICATES OFFERED
HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS TO
WHICH IT RELATES. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
GE Capital Mortgage
Services, Inc.
(Seller and Servicer)
$
(Approximate)
[REMIC Multi-Class] [Home Equity Loan] [Mortgage]
Pass-Through Certificates,
Series 199 -
-------
PROSPECTUS SUPPLEMENT
-------
[Underwriter]
, 199
<PAGE>
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
X Information contained herein is subject to completion X
X or amendment. A registration statement relating to these X
X securities has been filed with the Securities and Exchange X
X Commission. These securities may not be sold nor may offers to X
X buy be accepted prior to the time the registration statement X
X becomes effective. This prospectus shall not constitute an offer X
X to sell or the solicitation of an offer to buy nor shall there be X
X any sale of these securities in any State in which such offer, X
X solicitation or sale would be unlawful prior to registration or X
X qualification under the securities laws of any such State. X
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
SUBJECT TO COMPLETION, APRIL 28, 1998
PROSPECTUS
Pass-Through Certificates (Issuable in Series)
Seller and Servicer:
GE Capital Mortgage Services, Inc.
Each Certificate offered hereby will evidence a beneficial
ownership interest in one of a number of trust funds (each, a
"Trust Fund") created by GE Capital Mortgage Services, Inc. (the
"Company") from time to time. As specified in the related
Prospectus Supplement, the assets of a Trust Fund may consist of
(i) a pool of mortgage loans secured by first liens, or a
combination of first and second liens, on one- to four-family
residential properties or participation interests in such loans
(the "Mortgage Loans") originated or acquired by the Company,
(ii) mortgage pass-through securities (the "Agency Securities")
issued or guaranteed by the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association
("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC")
or (iii) conditional sales contracts and installment sales or
loan agreements or participation interests therein secured by
manufactured housing (the "Contracts"). If specified in the
related Prospectus Supplement, a Trust Fund may also include one
or more of the following: reinvestment income, reserve accounts
and insurance, guarantees or similar instruments or agreements.
The Certificates may be sold from time to time in one or
more series on terms determined at the time of sale and specified
in the Prospectus Supplement relating to such series. Each series
of Certificates will be issued in a single class or in two or
more classes. The Certificates of each class will evidence the
beneficial ownership of (i) any distributions in respect of the
assets of the related Trust Fund that are allocable to principal
of the Certificates in the amount of the aggregate original
principal balance, if any, of such class of Certificates as
specified in the related Prospectus Supplement and (ii) any
distributions in respect of the assets of the related Trust Fund
that are allocable to interest on the principal balance or
notional principal balance of such Certificates at the interest
rate, if any, applicable to such class of Certificates as
specified in the related Prospectus Supplement. One or more
classes of each series (i) may be entitled to receive
distributions allocable to principal, principal prepayments,
interest or any combination thereof prior to one or more other
classes of Certificates of such series or after the occurrence of
certain events and (ii) may be subordinated in the right to
receive such distributions on such Certificates to one or more
senior classes of Certificates, in each case as specified in the
related Prospectus Supplement. Interest on each class of
Certificates entitled to distributions allocable to interest will
accrue at a fixed rate or at a rate that is subject to change
from time to time as specified in the related Prospectus
Supplement on an actual or notional principal amount, may
represent a specified portion of interest received on some or all
of the assets of the related Trust Fund or may otherwise be
determined as specified in the related Prospectus Supplement. The
Company may retain or hold for sale from time to time one or more
classes of a series of Certificates.
Distributions on the Certificates of a series will be made
only from the proceeds from the assets of the related Trust Fund.
The Certificates of any series will not be insured or guaranteed
by any governmental entity or by any other person. Unless
otherwise specified in the related Prospectus Supplement, the
Company's only obligations with respect to a series of
Certificates will consist of its contractual servicing
obligations, including any obligation it may have to advance
delinquent payments on the Mortgage Loans or Contracts included
in the related Trust Fund, and its obligations pursuant to
certain representations and warranties made by it. Unless
otherwise specified in the Prospectus Supplement relating to a
series, none of General Electric Company, General Electric
Capital Corporation, GE Capital Mortgage Corporation, General
Electric Mortgage Insurance Corporation or any other affiliate of
the Company will have any obligations with respect to the
Certificates or the related Trust Fund.
The yield on each class of Certificates of a series will be
affected by the rate of payment of principal (including
prepayments) on the assets in the related Trust Fund and the
timing of receipt of such payments as described herein and in the
related Prospectus Supplement. Each series of Certificates may be
subject to early termination only under the circumstances
described herein and in the related Prospectus Supplement.
If specified in a Prospectus Supplement, an election will
be made to treat the related Trust Fund as a "real estate
mortgage investment conduit" ("REMIC") for federal income tax
purposes, or two REMIC elections may be made with respect to the
related Trust Fund. See "Certain Federal Income Tax
Consequences".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Offers of the Certificates may be made through one or more
different methods, including offerings through underwriters, as
more fully described under "Plan of Distribution" herein and in
the related Prospectus Supplement.
There will have been no public market for any series of
Certificates prior to the offering thereof. There can be no
assurance that a secondary market will develop for the
Certificates of any series or, if it does develop, that such
market will continue.
Retain this Prospectus for future reference. This
Prospectus may not be used to consummate sales of Certificates
unless accompanied by a Prospectus Supplement.
The date of this Prospectus is , 199 .
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a series of
Certificates being offered hereby will, among other things, set
forth with respect to such series of Certificates (i) information
as to the assets comprising the Trust Fund, including the
characteristics of the Mortgage Loans, Agency Securities or
Contracts included therein and, if applicable, the insurance,
guarantees or other instruments or agreements included in the
Trust Fund and the amount and source of any reserve accounts;
(ii) the aggregate original principal balance of each class of
Certificates entitled to distributions allocable to principal
and, if a fixed rate of interest, the interest rate for each
class of such Certificates entitled to distributions allocable to
interest; (iii) information as to any class of Certificates that
has a rate of interest that is subject to change from time to
time and the basis on which such interest rate will be
determined; (iv) information as to any class of Certificates on
which interest will accrue and be added to the principal or, if
applicable, the notional principal balance thereof; (v)
information as to the method used to calculate the amount of
interest to be paid on any class entitled to distributions of
interest only; (vi) information as to the nature and extent of
subordination with respect to any class of Certificates that is
subordinate in right of payment to any other class; (vii) the
circumstances, if any, under which the Trust Fund is subject to
early termination; (viii) if applicable, the final distribution
date and the first mandatory principal distribution date of each
class of such Certificates; (ix) the method used to calculate the
aggregate amounts of principal and interest required to be
distributed on each distribution date in respect of each class of
such Certificates and, with respect to any series consisting of
more than one class, the basis on which such amounts will be
allocated among the classes of such series; (x) the distribution
date for each class of the Certificates, the date on which
payments received in respect of the assets included in the Trust
Fund during the related period will be deposited in the
certificate account and, if applicable, the assumed reinvestment
rate applicable to payments received in respect of such assets
and the date on which such payments are assumed to be received
for such series of Certificates; (xi) the name of the trustee of
the Trust Fund; (xii) information with respect to the
administrator, if any, of the Trust Fund; (xiii) whether an
election will be made to treat all or a portion of the Trust Fund
as a REMIC or whether two REMIC elections will be made with
respect to the Trust Fund and, if such election is made, the
designation of the regular interests and residual interests
therein; and (xiv) information with respect to the plan of
distribution of such Certificates.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act") with respect to the series of Certificates offered hereby
and by the related Prospectus Supplement, and in accordance
therewith files reports and other information with the Securities
and Exchange Commission (the "Commission"). Such reports and
other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices at Seven World Trade Center, Suite
1300, New York, New York 10048, and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of
2
<PAGE>
such material can be obtained upon written request addressed to
the Commission, Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
The Company has filed with the Commission a Registration
Statement under the Securities Act of 1933, as amended, with
respect to the Certificates. This Prospectus, which forms a part
of the Registration Statement, omits certain information
contained in such Registration Statement pursuant to the rules
and regulations of the Commission. The Registration Statement can
be inspected and copied at prescribed rates at the public
reference facilities maintained by the Commission as described in
the preceding paragraph.
The Commission maintains a Web site at http://www.sec.gov
containing reports, proxy and information statements and other
information regarding registrants that file electronically with
the Commission, including the Company.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act with respect to a
series of Certificates prior to the termination of the offering
of such series of Certificates shall be deemed to be incorporated
by reference in this Prospectus as supplemented by the related
Prospectus Supplement. If so specified in any such document, such
document shall also be deemed to be incorporated by reference in
the Registration Statement of which this Prospectus forms a part.
Any statement contained herein or in a Prospectus
Supplement for a series of Certificates or in a document
incorporated or deemed to be incorporated by reference herein or
therein shall be deemed to be modified or superseded for purposes
of this Prospectus and such Prospectus Supplement and, if
applicable, the Registration Statement to the extent that a
statement contained herein or therein or in any subsequently
filed document which also is or is deemed to be incorporated by
reference herein or therein modifies or supersedes such
statement, except to the extent that such subsequently filed
document expressly states otherwise. Any such statement so
modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus or the
related Prospectus Supplement or, if applicable, the Registration
Statement.
The Company will provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus
and the related Prospectus Supplement is delivered, on the
written or oral request of any such person, a copy of any and all
of the documents incorporated herein by reference, except the
exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Written requests
for such copies should be directed to the Corporate Secretary, GE
Capital Mortgage Services, Inc., Three Executive Campus, Cherry
Hill, N.J. 08002. Telephone requests for such copies should be
directed to the Corporate Secretary at (609) 661-6512.
--------------
3
<PAGE>
UNTIL 90 DAYS AFTER THE DATE OF EACH PROSPECTUS SUPPLEMENT,
ALL DEALERS EFFECTING TRANSACTIONS IN THE SERIES OF CERTIFICATES
COVERED BY SUCH PROSPECTUS SUPPLEMENT, WHETHER OR NOT
PARTICIPATING IN THE DISTRIBUTION THEREOF, MAY BE REQUIRED TO
DELIVER SUCH PROSPECTUS SUPPLEMENT AND THIS PROSPECTUS. THIS IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS OF THE
SERIES OF CERTIFICATES COVERED BY SUCH PROSPECTUS SUPPLEMENT AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT WITH RESPECT HERETO AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS AND ANY
PROSPECTUS SUPPLEMENT WITH RESPECT HERETO DO NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE CERTIFICATES OFFERED HEREBY AND THEREBY NOR AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE
CERTIFICATES TO ANY PERSON IN ANY STATE OR OTHER JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT WITH
RESPECT HERETO NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
--------------
REPORTS TO CERTIFICATEHOLDERS
The Company will provide to Certificateholders, annually
and with respect to each Distribution Date, reports concerning
the Trust Fund related to such Certificates. See "The Pooling and
Servicing Agreement--Reports to Certificateholders".
--------------
4
<PAGE>
TABLE OF CONTENTS
Caption Page
Prospectus Supplement.............................................2
Available Information.............................................2
Incorporation of Certain Documents by Reference...................3
Reports to Certificateholders.....................................4
Prospectus Summary................................................7
Description of the Certificates..................................21
General........................................................22
Classes of Certificates........................................22
Distributions of Principal and Interest........................23
Example of Distributions.......................................26
Optional Termination of the Trust Fund.........................28
The Trust Fund...................................................28
The Mortgage Loans.............................................29
The Agency Securities..........................................38
Contracts......................................................43
Credit Support...................................................44
General........................................................44
Purchase of Liquidating Loans..................................45
Limited Guarantee of Guarantor.................................46
Subordination..................................................47
Cross-Support..................................................48
Pool Insurance.................................................49
Special Hazard Insurance.......................................50
Bankruptcy Bond................................................51
Repurchase Bond................................................52
Guaranteed Investment Contracts................................52
Reserve Accounts...............................................52
Other Insurance, Guarantees and Similar Instruments
or Agreements..................................................53
Yield, Maturity and Weighted Average Life Considerations.........53
Servicing of the Mortgage Loans and Contracts....................56
Collection and Other Servicing Procedures......................57
Private Mortgage Insurance.....................................62
Hazard Insurance...............................................62
Unanticipated Recoveries of Losses on the Mortgage Loans.......65
Advances.......................................................65
Loan Payment Record............................................66
Servicing and Other Compensation and Payment of Expenses.......69
Resignation, Succession and Indemnification of the Company.....70
The Pooling and Servicing Agreement..............................71
Assignment of Assets...........................................71
Repurchase or Substitution.....................................75
5
<PAGE>
Caption Page
Certain Refinancings...........................................76
Evidence as to Compliance......................................76
List of Certificateholders.....................................77
The Trustee....................................................77
Administration of the Certificate Account......................78
Reports to Certificateholders..................................78
Events of Default..............................................80
Rights Upon Event of Default...................................80
Amendment......................................................81
Termination....................................................82
GE Capital Mortgage Services, Inc................................82
General........................................................82
Delinquency and Foreclosure Experience.........................83
The Guarantor....................................................83
Certain Legal Aspects of the Mortgage Loans and Contracts........83
The Mortgage Loans.............................................83
General......................................................84
Foreclosure..................................................85
Junior Mortgages; Rights of Senior Mortgagees................88
Right of Redemption..........................................89
Anti-Deficiency Legislation and Other Limitations
on Lenders...................................................90
Enforceability of Certain Provisions.........................91
Applicability of Usury Laws..................................92
Soldiers' and Sailors' Civil Relief Act......................92
Environmental Considerations.................................93
The Contracts..................................................93
General......................................................93
Security Interests in the Manufactured Homes.................94
Enforcement of Security Interests in Manufactured Homes......96
Consumer Protection Laws.....................................96
Transfers of Manufactured Homes; Enforceability
of "Due-on-Sale" Clauses.....................................97
Applicability of Usury Laws..................................97
Soldiers' and Sailors' Civil Relief Act......................98
Legal Investment Matters.........................................98
ERISA Considerations.............................................99
Certain Federal Income Tax Consequences.........................101
General.......................................................102
REMIC Elections...............................................102
REMIC Certificates............................................102
Non-REMIC Certificates........................................116
Backup Withholding............................................120
Plan of Distribution............................................120
Use of Proceeds.................................................121
Legal Matters...................................................121
Financial Information...........................................121
6
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by
reference to the detailed information appearing elsewhere in this
Prospectus and by reference to the Prospectus Supplement relating
to a particular series of Certificates. Unless otherwise
specified, capitalized terms used and not defined in this Summary
of Prospectus have the meanings given to them in this Prospectus
and in the related Prospectus Supplement.
Title of Securities ...... Pass-Through Certificates, issuable in
series, as described in the Prospectus
Supplement.
The Company .............. GE Capital Mortgage Services, Inc.
(the "Company"), a wholly-owned
subsidiary of GE Capital Mortgage
Corporation. The Company will be the
seller of the Mortgage Loans, Agency
Securities or Contracts included in a
Trust Fund. Unless otherwise specified
in the Prospectus Supplement, the
Company will service, and may act as
master servicer with respect to, the
Mortgage Loans or Contracts included
in the related Trust Fund.
Description of
Securities ............... Each Certificate will represent a
beneficial ownership interest in a
Trust Fund created by the Company from
time to time pursuant to a pooling and
servicing agreement (each, an
"Agreement") between the Company and
the commercial bank or trust company
acting as trustee specified in the
Prospectus Supplement. The assets of a
Trust Fund may consist of (i) a pool
of mortgage loans secured by first
liens or a combination of first and
second liens on one-to four-family
residential properties, or
participation interests in such loans
(the "Mortgage Loans"), originated or
acquired by the Company, (ii) mortgage
pass- through securities (the "Agency
Securities") issued or guaranteed by
the Government National Mortgage
Association ("GNMA"), the Federal
National Mortgage Association ("FNMA")
or the Federal Home Loan Mortgage
Corporation ("FHLMC") or (iii)
conditional sales contracts and
installment sales or loan agreements
or participation interests therein
secured by manufactured housing (the
"Contracts"). If the pool of Mortgage
Loans
7
<PAGE>
included in any Trust Fund consists of
a combination of first- and
second-lien mortgage loans, the
second-lien mortgage loans will be
Home Equity Loans (as defined herein).
The portion of any mortgage pool
consisting of first-lien Mortgage
Loans may be comprised of first-lien
Home Equity Loans and/or other
first-lien mortgage loans. If
specified in the related Prospectus
Supplement, a Trust Fund may also
include one or more of the following:
reinvestment income, reserve accounts
and insurance, guarantees or similar
instruments or agreements intended to
decrease the likelihood that
Certificateholders will experience
delays in distributions of scheduled
payments on, or losses in respect of,
the assets in such Trust Fund. The
Certificates of any series will be
entitled to payment only from the
proceeds from the assets of the
related Trust Fund.
The Certificates of any series may be
issued in a single class or in two or
more classes, as specified in the
Prospectus Supplement. One or more
classes of Certificates of each series
(i) may be entitled to receive
distributions allocable only to
principal, only to interest or to any
combination thereof; (ii) may be
entitled to receive distributions only
of prepayments of principal throughout
the lives of the Certificates or
during specified periods; (iii) may be
subordinated in the right to receive
distributions of scheduled payments of
principal, prepayments of principal,
interest or any combination thereof to
one or more other classes of
Certificates of such series throughout
the lives of the Certificates or
during specified periods; (iv) may be
entitled to receive such distributions
only after the occurrence of events
specified in the Prospectus
Supplement; (v) may be entitled to
receive distributions in accordance
with a schedule or formula or on the
basis of collections from designated
portions of the assets in the Trust
Fund; (vi) as to Certificates entitled
to distributions allocable to
interest, may be entitled to receive
interest at a fixed rate or a rate
that is subject to change from time to
time;
8
<PAGE>
and (vii) as to Certificates entitled
to distributions allocable to
interest, may be entitled to
distributions allocable to interest
only after the occurrence of events
specified in the Prospectus Supplement
and may accrue interest until such
events occur, in each case as
specified in the Prospectus
Supplement. The timing and amounts of
such distributions may vary among
classes, over time, or otherwise as
specified in the related Prospectus
Supplement. More than one Trust Fund
may underlie the Certificates of a
series, in which case specified
Certificates of such series will
evidence the entire beneficial
interest in each such Trust Fund.
The Company may retain or hold for
sale from time to time one or more
classes of a series of Certificates.
Unless otherwise specified in the
related Prospectus Supplement, the
Certificates will be offered in fully
registered form only in the
denominations specified in the
Prospectus Supplement. The
Certificates will not be guaranteed or
insured by any governmental agency or
instrumentality or any other issuer
and, except as described in the
Prospectus Supplement, the Mortgage
Loans or Contracts included in the
related Trust Fund will not be
guaranteed or insured by any
governmental agency or instrumentality
or any other person.
Distributions on the
Certificates ............. Distributions on the Certificates
entitled thereto will be made monthly,
quarterly, semiannually or at such
other intervals and on the dates
specified in the Prospectus Supplement
solely out of the payments received in
respect of the assets of the related
Trust Fund. The amount allocable to
payments of principal and interest on
any distribution date will be
determined as specified in the
Prospectus Supplement. Unless
otherwise specified in the Prospectus
Supplement, all distributions will be
made pro rata to Certificateholders of
the class entitled thereto based on
such class's outstanding principal
9
<PAGE>
balance.
The aggregate original principal
balance of the Certificates will equal
the aggregate distributions allocable
to principal that such Certificates
will be entitled to receive. If
specified in the Prospectus
Supplement, the Certificates will have
an aggregate original principal
balance equal to the aggregate unpaid
principal balance of the Mortgage
Loans, Agency Securities or Contracts
as of the first day of the month of
creation of the Trust Fund and will
bear interest in the aggregate at a
rate equal to the weighted average
interest rate borne by the underlying
Mortgage Loans, Agency Securities or
Contracts, net of servicing fees
payable to the Company and any primary
or sub-servicers of the Mortgage Loans
or Contracts and any other amounts
(including fees payable to the Company
as master servicer, if applicable)
specified in the Prospectus Supplement
(as to each Mortgage Loan, the
"Remittance Rate"). If specified in
the Prospectus Supplement, the
aggregate original principal balance
of the Certificates and interest rates
on the classes of Certificates will be
determined based on the cash flow on
the Mortgage Loans, Agency Securities
or Contracts, as the case may be.
The rate at which interest will be
passed through to holders of
Certificates entitled thereto may be a
fixed rate or a rate that is subject
to change from time to time from the
time and for the periods, in each case
as specified in the Prospectus
Supplement. Any such rate may be
calculated on a loan-by-loan, weighted
average or other basis, in each case
as described in the Prospectus
Supplement.
Trust Fund Assets ........ The Trust Fund will include the
Mortgage Loans Agency Securities or
Contracts, payments in respect of such
assets and certain accounts,
obligations or agreements, in each
case as specified in the Prospectus
Supplement.
<PAGE>
A. The Mortgage Loans .... Unless otherwise specified in the
Prospectus Supplement, each pool of
Mortgage Loans will consist of
conventional Mortgage Loans originated
or acquired by the Company and secured
by first liens or Home Equity Loans
secured by first liens or a
combination of first and second liens
on one- to four-family residential
properties located in one or more
states of the United States or the
District of Columbia. If the pool of
Mortgage Loans included in any Trust
Fund consists of a combination of
first- and second-lien mortgage Loans,
the second-lien mortgage loans will be
Home Equity Loans (as defined herein).
Any first lien Mortgage Loan in any
mortgage pool will be either a
first-lien Home Equity Loan and/or
other first-lien mortgage loan. If so
specified in the Prospectus
Supplement, the Mortgage Loans may
include cooperative apartment loans
secured by security interests in
shares issued by private, non-profit,
cooperative housing corporations
("Cooperatives") and in the related
proprietary leases or occupancy
agreements granting exclusive rights
to occupy specific dwelling units in
such Cooperatives' buildings. If so
specified in the Prospectus
Supplement, the Mortgage Loans may
include loans secured by mortgages on
residential long-term leases of real
property. Unless otherwise specified
in the Prospectus Supplement, the
principal balance of each Mortgage
Loan at origination will not exceed
$1,000,000. Unless otherwise specified
in the Prospectus Supplement, the
Mortgage Loans (other than Home Equity
Loans) in the Trust Fund will all have
original maturities of 10 to 30 years.
If specified in the Prospectus
Supplement, all or a portion of the
Mortgage Loans in the Trust Fund may
be closed-end, home equity loans
secured by first or second liens on
Mortgaged Properties ("Home Equity
Loans").
The payment terms of the Mortgage
Loans to be included in a Trust Fund
will be described in the related
Prospectus Supplement and may include
any of the following features or
combinations
11
<PAGE>
thereof or other features described in
the related Prospectus Supplement:
(a) Interest may be payable at a fixed
rate, a rate adjustable from time
to time in relation to an index, a
rate that is fixed for a period of
time or under certain
circumstances and is followed by
an adjustable rate, a rate that
otherwise varies from time to
time, or a rate that is
convertible from an adjustable
rate to a fixed rate. Changes to
an adjustable rate may be subject
to periodic limitations, maximum
rates, minimum rates or a
combination of such limitations.
Accrued interest may be deferred
and added to the principal of a
loan for such periods and under
such circumstances as may be
specified in the related
Prospectus Supplement. Mortgage
Loans may provide for the payment
of interest at a rate lower than
the specified mortgage rate for a
period of time or for the life of
the loan with the amount of any
difference contributed from funds
supplied by the seller of the
mortgaged property or another
source.
(b) Principal may be payable on a
level-debt-service basis which
fully amortizes the loan over its
term, may be calculated on the
basis of an assumed amortization
schedule that is significantly
longer than the original term to
maturity or on an interest rate
that is different from the
interest rate on the Mortgage Loan
or may not be amortized during all
or a portion of the original term.
Payment of all or a substantial
portion of the principal may be
due on maturity. Principal may
include interest that has been
deferred and added to the
principal balance of the Mortgage
Loan. In the case of Home Equity
Loans which are "simple interest"
loans, payments are applied first
to interest accrued to the date
payment is received, then to
principal.
(c) Monthly payments of principal and
interest may be fixed for the life
of the loan, may increase over a
specified period of time or may
change from period to period.
Mortgage Loans may
12
<PAGE>
include limits on periodic
increases or decreases in the
amount of monthly payments and may
include maximum or minimum amounts
of monthly payments.
(d) Prepayments of principal may be
subject to a prepayment fee, which
may be fixed for the life of the
loan or may decline over time, and
may be prohibited for the life of
the loan or for certain periods
("lockout periods"). Certain loans
may permit prepayments after
expiration of the applicable
lockout period and may require the
payment of a prepayment fee in
connection with any such
subsequent prepayment. Other loans
may permit prepayments without
payment of any prepayment fee and
others may require the payment of
a fee if the prepayment occurs
during specified time periods. The
loans may include "due-on-sale"
clauses which permit the mortgagee
to demand payment of the entire
mortgage loan in connection with
the sale or certain transfers of
the related mortgaged property.
Other loans may be assumable by
persons meeting the then
applicable underwriting standards
of the Company.
B. The Agency
Securities ............ The Agency Securities evidenced by a
series of Certificates will consist of
(i) mortgage participation
certificates issued and guaranteed as
to timely payment of interest and,
unless otherwise specified in the
related Prospectus Supplement,
ultimate payment of principal by the
Federal Home Loan Mortgage Corporation
("FHLMC Certificates"), (ii)
guaranteed mortgage pass-through
certificates issued and guaranteed as
to timely payment of principal and
interest by the Federal National
Mortgage Association ("FNMA
Certificates"), (iii) "fully modified
pass-through" mortgage-backed
certificates guaranteed as to timely
payment of principal and interest by
the Government National Mortgage
Association ("GNMA Certificates"),
(iv) stripped mortgage-backed
securities representing an undivided
interest in all or a part of either
the principal distributions (but not
the
13
<PAGE>
interest distributions) or the
interest distributions (but not the
principal distributions) or in some
specified portion of the principal and
interest distributions (but not all of
such distributions) on certain FHLMC,
FNMA or GNMA Certificates and, unless
otherwise specified in the Prospectus
Supplement, guaranteed to the same
extent as the underlying securities,
or (v) a combination of such Agency
Securities. All GNMA Certificates will
be backed by the full faith and credit
of the United States. No FHLMC or FNMA
Certificates will be backed, directly
or indirectly, by the full faith and
credit of the United States.
The Agency Securities may consist of
pass-through securities issued under
FHLMC's Cash or Guarantor Program, the
GNMA I Program, the GNMA II Program or
another program specified in the
Prospectus Supplement. Agency
Securities may be backed by
adjustable, fixed or variable rate
mortgage loans or graduated payment
mortgage loans.
C. Contracts ............ Contracts will consist of conditional
sales contracts and installment sales
or loan agreements or participation
interests therein secured by new or
used Manufactured Homes (as defined
herein). Contracts may be
conventional, insured by the Federal
Housing Authority ("FHA") or partially
guaranteed by the Veterans
Administration ("VA"), as specified in
the related Prospectus Supplement.
Unless otherwise specified in the
related Prospectus Supplement, each
Contract will be fully amortizing and
will bear interest at a fixed
percentage rate ("APR"). Unless
otherwise specified in the related
Prospectus Supplement, Contracts will
have had individual principal balances
at origination of not less than
$10,000 and not more than $1,000,000
and original terms to stated maturity
of 5 to 30 years.
Certificate Account ...... With respect to each Trust Fund, the
Company, as servicer or master
servicer, will be obligated to
establish an account with the trustee
into which it will deposit on the
dates specified in the related
14
<PAGE>
Prospectus Supplement payments
received in respect of the assets in
such Trust Fund. If specified in the
Prospectus Supplement, such payments
will be invested for the benefit of
Certificateholders for the periods and
in the investments specified in the
Prospectus Supplement.
Advances ................. Unless otherwise specified in the
Prospectus Supplement, the Company, as
servicer or master servicer of the
Mortgage Loans or Contracts, will be
obligated to advance delinquent
installments of principal and interest
(the latter adjusted to the applicable
Remittance Rate) on the Mortgage Loans
or Contracts in a Trust Fund. Any such
obligation to make advances may be
limited to amounts due holders of
senior Certificates of the related
series, to amounts deemed to be
recoverable from late payments or
liquidation proceeds, for specified
periods or any combination thereof, in
each case as specified in the related
Prospectus Supplement. Any such
advance will be recoverable by the
Company as specified in the related
Prospectus Supplement.
Credit Support ........... If specified in the Prospectus
Supplement, a series of Certificates,
or certain classes within such series,
may have the benefit of one or more of
the following types of credit support.
The protection against losses afforded
by any such credit support will be
limited.
A. Purchase of
Liquidating
Loans ................. If so specified in the Prospectus
Supplement, the Company will have a
limited obligation to cover losses due
to defaults with respect to the
Mortgage Loans by purchasing any
Mortgage Loan (a "Liquidating Loan")
as to which either (i) liquidation
proceedings have been commenced and
any equitable or statutory right to
reinstate such Mortgage Loan has
expired or (ii) the Company has agreed
to accept a deed in lieu of
foreclosure. Unless otherwise
specified in the Prospectus
Supplement, the purchase price for any
Liquidating Loan will be the Principal
Balance thereof plus one month's
interest thereon
15
<PAGE>
at the Remittance Rate.
The Company's maximum liability to
purchase Liquidating Loans will be
limited as specified in the Prospectus
Supplement and, unless otherwise
specified in the Prospectus
Supplement, will be reduced by all
unreimbursed payments previously made
by the Company with respect to
Delinquent Mortgage Loans (as defined
below) and Liquidating Loans. In the
event that at any time the Company's
maximum liability to purchase
Liquidating Loans is exhausted with
respect to a Trust Fund, all further
losses on the Mortgage Loans will be
borne by the holders of one or more
classes of the Certificates of the
related series, unless the amount of
the Company's liability is
subsequently restored as a result of
recoveries in respect of Liquidating
Loans or Delinquent Mortgage Loans
previously purchased by the Company.
Unless otherwise specified in the
Prospectus Supplement, in connection
with its obligation to purchase
Liquidating Loans, the Company will
have the option to purchase any
Mortgage Loan as to which the
mortgagor has failed to make unexcused
payment in full of three or more
scheduled payments of principal and
interest (a "Delinquent Mortgage
Loan"). If the Company exercises this
option with respect to any Delinquent
Mortgage Loan, unless otherwise
specified in the Prospectus
Supplement, the Company will purchase
such Delinquent Mortgage Loan for a
price equal to 100% of its Principal
Balance plus interest thereon at the
applicable Remittance Rate from the
date on which interest was last paid
to the first day of the month in which
such purchase price is to be
distributed, net of any unreimbursed
advances of principal and interest
thereon made by the Company as
servicer.
B. Limited Guarantee ..... If specified in the Prospectus
Supplement, certain obligations of the
Company under the related Agreement,
including obligations of the Company
16
<PAGE>
to cover certain deficiencies in
principal or interest payments on the
Mortgage Loans resulting from the
bankruptcy of the related borrower,
may be covered by a financial
guarantee policy, limited guarantee or
other similar instrument (the "Limited
Guarantee"), limited in scope and
amount, issued by an entity named in
the Prospectus Supplement, which may
be an affiliate of the Company (the
"Guarantor"). If so specified, the
Guarantor may be obligated to take one
or more of the following actions in
the event the Company fails to do so:
make deposits to the Certificate
Account (a "Deposit Guarantee"), make
advances (an "Advance Guarantee"), or
purchase Liquidating Loans (a
"Liquidating Loan Guarantee"). Any
such Limited Guarantee will be limited
in amount and a portion of the
coverage of any such Limited Guarantee
may be separately allocated to certain
events. For example, a portion of the
aggregate amount of a Liquidating Loan
Guarantee may be separately allocated
to Liquidating Loans due to special
hazards not covered by standard hazard
insurance policies, Liquidating Loans
due to the bankruptcy of a mortgagor,
and other Liquidating Loans. The
scope, amount and, if applicable, the
allocation of any Limited Guarantee
will be described in the related
Prospectus Supplement.
C. Subordination ......... A series of Certificates may include
one or more classes that are
subordinate in the right to receive
distributions on such Certificates to
one or more senior classes of
Certificates of the same series, but
only to the extent described in the
related Prospectus Supplement. If so
specified in the related Prospectus
Supplement, the same class of
Certificates may constitute senior
Certificates with respect to certain
types of payments or certain losses
and subordinated Certificates with
respect to other types of payments or
losses. If so specified in the related
Prospectus Supplement, subordination
may apply only in the event of certain
types of losses not covered by other
forms of credit support, such as
hazard losses not covered by standard
hazard insurance policies or
17
<PAGE>
losses resulting from the bankruptcy
of the borrower.
If specified in the Prospectus
Supplement, a reserve fund may be
established and maintained by the
deposit therein of distributions
allocable to the holders of
subordinate Certificates until a
specified level is reached. The
related Prospectus Supplement will set
forth information concerning the
amount of subordination of a class or
classes of subordinate Certificates in
a series, the circumstances in which
such subordination will be applicable,
the manner, if any, in which the
amount of subordination will decrease
over time, the manner of funding the
related reserve fund, if any, and the
conditions under which amounts in any
such reserve fund will be used to make
distributions to holders of senior
Certificates or released from the
related Trust Fund.
D. Cross-Support......... If specified in the Prospectus
Supplement, the beneficial ownership
of separate groups of assets included
in a Trust Fund may be evidenced by
separate classes of the related series
of Certificates. In such case, and if
so specified, credit support may be
provided by a cross-support feature
which requires that distributions be
made with respect to Certificates
evidencing beneficial ownership of one
or more asset groups prior to
distributions to subordinate
Certificates evidencing a beneficial
ownership interest in other asset
groups within the same Trust Fund.
If specified in the Prospectus
Supplement, the coverage provided by
one or more forms of credit support
may apply concurrently to two or more
separate Trust Funds. If applicable,
the Prospectus Supplement will
identify the Trust Funds to which such
credit support relates and the manner
of determining the amount of the
coverage provided thereby and of the
application of such coverage to the
identified Trust Funds.
E. Pool and Special
Hazard Insurance ...... In order to decrease the likelihood
that Certificateholders will
experience losses in
18
<PAGE>
respect of the Mortgage Loans or
Contracts, if specified in the
Prospectus Supplement, the Company
will obtain one or more insurance
policies to cover (i) losses by reason
of defaults by borrowers (a "Mortgage
Pool Insurance Policy") and (ii)
losses by reason of hazards not
covered under the standard form of
hazard insurance, in each case up to
the amounts, for the periods and
subject to the conditions specified in
the Prospectus Supplement. See "Credit
Support--Pool Insurance".
F. Reserve Accounts,
Other Insurance,
Guarantees and
Similar Instruments
and Agreements ........ In order to decrease the likelihood
that Certificateholders will
experience delays in the receipt of
scheduled payments on, and losses in
respect of, the assets in a Trust
Fund, if specified in the related
Prospectus Supplement, such Trust Fund
may also include reserve accounts,
other insurance, guarantees and
similar instruments and agreements
entered into with the entities, in the
amounts, for the purposes and subject
to the conditions specified in the
Prospectus Supplement.
Certain Federal
Income Tax
Consequences ............. The federal income tax consequences to
Certificateholders will depend on,
among other factors, whether an
election is made to treat each Trust
Fund or specified portions thereof as
a "real estate mortgage investment
conduit" ("REMIC") under the
provisions of the Internal Revenue
Code of 1986, as amended (the "Code").
See "Certain Federal Income Tax
Consequences".
ERISA Considerations ..... A fiduciary of any employee benefit
plan subject to the Employee
Retirement Income Security Act of
1974, as amended ("ERISA"), or a plan
subject to Section 4975 of the Code
should carefully review with its own
legal advisors whether the purchase or
holding of Certificates could give
rise to a transaction prohibited or
otherwise impermissible under ERISA or
Section 4975 of the Code. See "ERISA
Considerations".
Legal Investment
Matters .................. Unless otherwise specified in the
Prospectus Supplement, Certificates of
each series offered by
19
<PAGE>
this Prospectus and the related
Prospectus Supplement will constitute
"mortgage related securities" under
the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA") and,
as such, will be legal investments for
certain types of institutional
investors to the extent provided in
SMMEA, subject, in any case, to any
other regulations which may govern
investments by such institutional
investors. If so specified in the
Prospectus Supplement, all or certain
classes of the Certificates of the
related series may not constitute
"mortgage related securities" under
SMMEA. See "Legal Investment Matters".
20
<PAGE>
DESCRIPTION OF THE CERTIFICATES
Each series of Certificates will be issued pursuant to a
separate pooling and servicing agreement (each, an "Agreement")
entered into between the Company, as seller, and a commercial
bank or trust company named in the Prospectus Supplement, as
trustee (the "Trustee") for the benefit of holders of
Certificates of that series. More than one Trust Fund may
underlie the Certificates of a series, in which case specified
Certificates of such series will evidence the entire beneficial
interest in one of such Trust Funds. The provisions of each
Agreement will vary depending upon the nature of the Certificates
to be issued thereunder and the nature of the related Trust Fund.
The Agreement will be substantially in one of the forms filed as
an exhibit to the Registration Statement of which this Prospectus
is a part, or in such similar form as will reflect the terms of a
series of Certificates described in the Prospectus Supplement.
The following summaries describe certain provisions which may
appear in each Agreement. The Prospectus Supplement for a series
of Certificates will describe any provision of the Agreement
relating to such series that materially differs from the
description thereof contained in this Prospectus. The summaries
do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all of the
provisions of the Agreement for each series of Certificates and
the applicable Prospectus Supplement. The Company will provide
Certificateholders, without charge, on written request a copy of
the Agreement for any series. Requests should be addressed to GE
Capital Mortgage Services, Inc., Three Executive Campus, Cherry
Hill, New Jersey 08002, Attention: General Counsel. The Agreement
relating to a series of Certificates will be filed with the
Securities and Exchange Commission within 15 days after the date
of issuance of such series of Certificates (the "Delivery Date").
The Certificates of a series will be entitled to payment
only from the proceeds from the assets included in the Trust Fund
related to such series and will not be entitled to payments in
respect of the assets included in any other trust fund
established by the Company. The Certificates will not represent
obligations of General Electric Company, General Electric Capital
Corporation, GE Capital Mortgage Corporation, General Electric
Mortgage Insurance Corporation, the Company or any affiliate of
the Company and will not be guaranteed by any governmental agency
or any other person. Unless otherwise specified in the Prospectus
Supplement, the Company's only obligations with respect to the
Certificates will consist of its contractual servicing and/or
master servicing obligations, including any obligation to make
advances under certain limited circumstances specified herein of
delinquent installments of principal and interest (adjusted to
the applicable Remittance Rate), its obligations pursuant to
certain representations and warranties made by it and its
obligations to cover certain deficiencies in principal and
interest payments on the Mortgage Loans resulting from the
bankruptcy of the related borrower. See "The Trust Fund" herein.
The Mortgage Loans will not be, and the Contracts may not
be, insured or guaranteed by any governmental entity or, except
as specified in the Prospectus Supplement, by any other person.
To the extent that delinquent payments on or losses in respect of
defaulted Mortgage Loans or Contracts are not advanced by the
Company or any other entity or paid from any applicable credit
support arrangement, such delinquencies may result in delays in
the distribution
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of payments to the holders of one or more classes of
Certificates, and such losses will be borne by the holders of one
or more classes of Certificates.
General
Unless otherwise specified in the Prospectus Supplement,
the Certificates of each series will be issued in
fully-registered form only. The minimum original Certificate
Principal Balance or Notional Principal Balance that may be
represented by a Certificate (the "denomination") will be
specified in the Prospectus Supplement. The original Certificate
Principal Balance of each Certificate will equal the aggregate
distributions allocable to principal to which such Certificate is
entitled. Unless otherwise specified in the Prospectus
Supplement, distributions allocable to interest on each
Certificate that is not entitled to distributions allocable to
principal will be calculated based on the Notional Principal
Balance of such Certificate. The Notional Principal Balance of a
Certificate will not evidence an interest in or entitlement to
distributions allocable to principal but will be used solely for
convenience in expressing the calculation of interest and for
certain other purposes.
The Certificates will be transferable and exchangeable on a
Certificate Register to be maintained at the corporate trust
office of the Trustee or such other office or agency maintained
for such purposes by the Trustee in New York City. Unless
otherwise specified in the Prospectus Supplement, under each
Agreement, the Trustee will initially be appointed as the
Certificate Registrar. Unless otherwise specified in the
Prospectus Supplement, no service charge will be made for any
registration of transfer or exchange of Certificates, but payment
of a sum sufficient to cover any tax or other governmental charge
may be required.
Classes of Certificates
Each series of Certificates will be issued in a single
class or in two or more classes. The Certificates of each class
will evidence the beneficial ownership of (i) any distributions
in respect of the assets of the Trust Fund that are allocable to
principal, in the aggregate amount of the original Certificate
Principal Balance, if any, of such class of Certificates as
specified in the Prospectus Supplement and (ii) any distributions
in respect of the assets of the Trust Fund that are allocable to
interest on the Certificate Principal Balance or Notional
Principal Balance of such Certificates from time to time at the
Certificate Interest Rate, if any, applicable to such class of
Certificates as specified in the Prospectus Supplement. If
specified in the Prospectus Supplement, one or more classes of a
series of Certificates may evidence beneficial ownership
interests in separate groups of assets included in the related
Trust Fund.
If specified in the Prospectus Supplement, the Certificates
will have an aggregate original Certificate Principal Balance
equal to the aggregate unpaid principal balance of the Mortgage
Loans, Agency Securities or Contracts as of the close of business
on the first day of the month of creation of the Trust Fund (the
"Cut-off Date") after deducting payments of principal due on or
before, and prepayments of principal received before, the Cut-off
Date and will bear interest in the aggregate equal to the
weighted average of the Remittance Rates. The Remittance Rate
will equal the rate of interest payable on each Mortgage Loan or
Contract minus the Company's servicing fee as described herein,
the servicing fee of any third party servicer of the Mortgage
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Loans or Contracts and such other amounts (including fees payable
to the Company as master servicer, if applicable) as are
specified in the Prospectus Supplement. If specified in the
Prospectus Supplement, the original Certificate Principal Balance
of the Certificates and the interest rate on the classes of
Certificates will be determined based on the cash flow on the
Mortgage Loans, Agency Securities or Contracts, as the case may
be. The Certificates may have an original Certificate Principal
Balance as determined in the manner specified in the Prospectus
Supplement.
Each class of Certificates that is entitled to
distributions allocable to interest will bear interest at a fixed
rate or a rate that is subject to change from time to time (a) in
accordance with a schedule, (b) in reference to an index, or (c)
otherwise (each, a "Certificate Interest Rate"), in each case as
specified in the Prospectus Supplement. One or more classes of
Certificates may provide for interest that accrues, but is not
currently payable ("Accrual Certificates"). With respect to any
class of Accrual Certificates, if specified in the Prospectus
Supplement, any interest that has accrued but is not paid on a
given Distribution Date (as defined below under "Distributions of
Principal and Interest") will be added to the aggregate
Certificate Principal Balance of such class of Certificates on
that Distribution Date.
A series of Certificates may include one or more classes
entitled only to distributions (i) allocable to interest, (ii)
allocable to principal (and allocable as between scheduled
payments of principal and Principal Prepayments, as defined
below) or (iii) allocable to both principal (and allocable as
between scheduled payments of principal and Principal
Prepayments) and interest. A series of Certificates may consist
of one or more classes as to which distributions will be
allocated (i) on the basis of collections from designated
portions of the assets of the Trust Fund, (ii) in accordance with
a schedule or formula, (iii) in relation to the occurrence of
events, or (iv) otherwise, in each case as specified in the
Prospectus Supplement. The timing and amounts of such
distributions may vary among classes, over time or otherwise, in
each case as specified in the Prospectus Supplement.
The taking of action with respect to certain matters under
the Agreement, including certain amendments thereto, will require
the consent of the holders of the Certificates. The voting rights
allocated to each class of Certificates will be specified in the
Prospectus Supplement. Votes may be allocated in different
proportions among classes of Certificates depending on whether
the Certificates of a class have a Notional Principal Balance or
a Certificate Principal Balance.
Distributions of Principal and Interest
General. Distributions of principal and interest at the
applicable Certificate Interest Rate (if any) on the Certificates
will be made by the Trustee to the extent of funds available on
the dates specified in the Prospectus Supplement (each, a
"Distribution Date") and may be made monthly, quarterly,
semiannually or at such other intervals as are specified in the
Prospectus Supplement. Distributions will be made to the persons
in whose names the Certificates are registered at the close of
business on the dates specified in the Prospectus Supplement
(each, a "Record Date"). Distributions will be made by check or
money order mailed to the person
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entitled thereto at the address appearing in the Certificate
Register or, if specified in the Prospectus Supplement, in the
case of Certificates that are of a certain minimum denomination
as specified in the Prospectus Supplement, upon written request
by the Certificateholder, by wire transfer or by such other means
as are agreed upon with the person entitled thereto; provided,
however, that the final distribution in retirement of the
Certificates will be made only upon presentation and surrender of
the Certificates at the office or agency of the Trustee specified
in the notice to Certificateholders of such final distribution.
Distributions allocable to principal and interest on the
Certificates will be made by the Trustee out of, and only to the
extent of, funds in a separate account established and maintained
under the Agreement for the benefit of holders of the
Certificates of the related series (the "Certificate Account"),
including any funds transferred from any Reserve Account. As
between Certificates of different classes and as between
distributions of principal (and, if applicable, between
distributions of Principal Prepayments and scheduled payments of
principal) and interest, distributions made on any Distribution
Date will be applied as specified in the Prospectus Supplement.
Unless otherwise specified in the Prospectus Supplement,
distributions to any class of Certificates will be made pro rata
to all Certificateholders of that class. If so specified in the
Prospectus Supplement, the amounts received by the Trustee as
described below under "The Trust Fund" will be invested in the
eligible investments specified herein and in the Prospectus
Supplement and all income or other gain from such investments
will be deposited in the Certificate Account and will be
available to make payments on the Certificates on the next
succeeding Distribution Date in the manner specified in the
Prospectus Supplement.
Distributions of Interest. Unless otherwise specified in
the Prospectus Supplement, interest will accrue on the aggregate
Certificate Principal Balance (or, in the case of Certificates
entitled only to distributions allocable to interest, the
aggregate Notional Principal Balance) of each class of
Certificates entitled to interest from the date, at the
Certificate Interest Rate and for the periods (each, an "Interest
Accrual Period") specified in the Prospectus Supplement. To the
extent funds are available therefor, interest accrued during each
Interest Accrual Period on each class of Certificates entitled to
interest (other than a class of Accrual Certificates) will be
distributable on the Distribution Dates specified in the
Prospectus Supplement until the aggregate Certificate Principal
Balance of the Certificates of such class has been distributed in
full or, in the case of Certificates entitled only to
distributions allocable to interest, until the aggregate Notional
Principal Balance of such Certificates is reduced to zero or for
the period of time designated in the Prospectus Supplement.
Unless otherwise specified in the Prospectus Supplement,
distributions of interest on each class of Accrual Certificates
will commence only after the occurrence of the events specified
in the Prospectus Supplement. Unless otherwise specified in the
Prospectus Supplement, prior to such time, the beneficial
ownership interest of such class of Accrual Certificates in the
Trust Fund, as reflected in the aggregate Certificate Principal
Balance of such class of Accrual Certificates, will increase on
each Distribution Date by the amount of interest that accrued on
such class of Accrual Certificates during the preceding Interest
Accrual Period but that was not required to be distributed to
such class on such Distribution Date. Any such class of Accrual
Certificates will thereafter accrue interest on its outstanding
Certificate Principal Balance as so adjusted.
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Distributions of Principal. Unless otherwise specified in
the Prospectus Supplement, the aggregate Certificate Principal
Balance of any class of Certificates entitled to distributions of
principal will be the aggregate original Certificate Principal
Balance of such class of Certificates specified in the Prospectus
Supplement, reduced by all distributions reported to the holders
of such Certificates as allocable to principal, and, in the case
of Accrual Certificates, unless otherwise specified in the
Prospectus Supplement, increased by all interest accrued but not
then distributable on such Accrual Certificates. The Prospectus
Supplement will specify the method by which the amount of
principal to be distributed on the Certificates on each
Distribution Date will be calculated and the manner in which such
amount will be allocated among the classes of Certificates
entitled to distributions of principal.
If so provided in the Prospectus Supplement, one or more
classes of senior Certificates will be entitled to receive all or
a disproportionate percentage of the payments or other recoveries
of principal on a Mortgage Loan which are received in advance of
their scheduled due dates and not accompanied by amounts of
interest representing scheduled interest due after the month of
such payments ("Principal Prepayments") in the percentages and
under the circumstances or for the periods specified in the
Prospectus Supplement. Any such allocation of Principal
Prepayments to such class or classes of Certificateholders will
have the effect of accelerating the amortization of such senior
Certificates while increasing the interests evidenced by the
subordinated Certificates in the Trust Fund. Increasing the
interests of the subordinated Certificates relative to that of
the senior Certificates is intended to preserve the availability
of the subordination provided by the subordinated Certificates.
See "Credit Support--Subordination".
Unscheduled Distributions. If specified in the Prospectus
Supplement, the Certificates will be subject to receipt of
distributions before the next scheduled Distribution Date under
the circumstances and in the manner described below and in the
Prospectus Supplement. If applicable, the Trustee will be
required to make such unscheduled distributions on the day and in
the amount specified in the Prospectus Supplement if, due to
substantial payments of principal (including Principal
Prepayments) on the Mortgage Loans, Agency Securities or
Contracts, low rates then available for reinvestment of such
payments or both, the Trustee determines, based on the
assumptions specified in the Agreement, that the amount
anticipated to be on deposit in the Certificate Account on the
next Distribution Date, together with, if applicable, any amounts
available to be withdrawn from any Reserve Account, may be
insufficient to make required distributions on the Certificates
on such Distribution Date. Unless otherwise specified in the
Prospectus Supplement, the amount of any such unscheduled
distribution that is allocable to principal will not exceed the
amount that would otherwise have been required to be distributed
as principal on the Certificates on the next Distribution Date.
Unless otherwise specified in the Prospectus Supplement, all
unscheduled distributions will include interest at the applicable
Certificate Interest Rate (if any) on the amount of the
unscheduled distribution allocable to principal for the period
and to the date specified in the Prospectus Supplement.
Unless otherwise specified in the Prospectus Supplement,
all distributions allocable to principal in any unscheduled
distribution will be made in the same priority and manner as
distributions of principal on the Certificates would have been
made on the next Distribution Date, and with respect to
Certificates of the same class, unscheduled distributions of
principal
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will be made on a pro rata basis. Notice of any unscheduled
distribution will be given by the Trustee prior to the date of
such distribution.
Example of Distributions
The following chart sets forth an example of hypothetical
distributions on a series of the Certificates for the
Distribution Date occurring in March 1998, assuming such
Certificates are issued during January 1998. All references to
the Trust Fund, Certificateholders, Mortgage Loans, Loan Payment
Record and Certificate Account refer to those related to such
series of Certificates. The following discussion of the
allocation of Mortgage Loan payments as between principal and
interest would not necessarily apply to simple-interest Home
Equity Loans or Mortgage Loans that do not provide for payments
of principal and interest in arrears on a monthly basis, and if a
series of Certificates is backed by a material amount of such
Mortgage Loans, the Prospectus Supplement will describe the
allocation of such payments and the manner in which distributions
thereof will be made to Certificateholders.
January 1............ Cut-off Date. The aggregate unpaid
principal balance of the Mortgage Loans
after deducting principal payments due
and payable on or before January 1 and
Principal Prepayments received before
January 1 will be included in the Trust
Fund. These deducted principal payments
and Principal Prepayments will be
retained by the Company and will not be
included in the Trust Fund or passed
through to Certificateholders.
February 1-28........ Voluntary principal prepayments in full
(and interest thereon to the date of
prepayment) received from February 16
through February 28 will be passed
through to the related Certificateholders
on March 25, 1998. (Voluntary principal
prepayments in full received by the
Company (or, in the case of Mortgage
Loans master-serviced by the Company, of
which the Company receives notice) from
February 1 through February 15 will be
passed through to the Certificateholders
(net of any interest thereon) in the
month of their receipt.) Other
unscheduled prepayments received at any
time during the month will be passed
through to the related Certificateholders
on March 25.
February 28.......... Record Date. Distributions on March 25
will be made to Certificateholders of
record at the close of business on the
last business day of the month
immediately preceding the month of
distribution.
March 1-17........... Through March 15, the Company receives
(or, in the case of Mortgage Loans
master-serviced by the Company, receives
notice of) any voluntary principal
prepayments in
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full and interest thereon to the date of
prepayment. Such principal prepayments
(net of any interest) will be credited to
the Loan Payment Record and deposited
into the Certificate Account for
distribution to the related
Certificateholders on March 25. Through
March 17, the Company receives interest
on February 1 principal balances plus
principal due March 1. Payments due on
March 1 from Mortgagors will be credited
to the Loan Payment Record as received.
Such payments will include the scheduled
principal payments received, plus one
month's interest on the February 1
principal balances, less interest to the
extent described above on the prepaid
amount of any Mortgage Loan prepaid
during February. Payments received from
Mortgagors after March 15 will be subject
to a late charge in accordance with the
terms of the related mortgage instruments
(with such late charges being retained by
the Company).
March 18............. Determination Date. On the fifth business
day preceding the Distribution Date, the
Company determines the aggregate amount
of distributions to be made on the
Certificates on the following
Distribution Date.
March 23............. The Company furnishes notice of the
distribution amount to the Trustee on the
second business day preceding the
Distribution Date.
March 24............. Deposit Date. On the business day
preceding the Distribution Date, the
Company transfers amounts to be
distributed to Certificateholders in the
Certificate Account.
March 25............. Distribution Date. On March 25, the
Trustee will distribute to
Certificateholders the aggregate amounts
set forth in the notice it received from
the Company on March 23. If a payment due
March 1 is received from a Mortgagor on
or after the Determination Date and the
Company, as servicer, has advanced funds
in the amount of such payment to the
Certificateholders, such late payment
will be paid to the Company. If no such
advance has been made, such late payment
will be passed through to such
Certificateholders at the time of the
next distribution.
Optional Termination of the Trust Fund
If so specified in the Prospectus Supplement, either the
Company or the holders of one or more classes of Certificates
specified in the Prospectus Supplement may, at its or their
option,
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effect early termination of the Trust Fund, on any Distribution
Date after the time specified in the Prospectus Supplement, by
purchasing all of the Certificates or the assets in the Trust
Fund at a price and in accordance with the procedures specified
in the Prospectus Supplement. The proceeds of such sale will be
applied on such Distribution Date to the distribution in full of
the Certificate Principal Balance of each outstanding Certificate
entitled to distributions allocable to principal and to accrued
interest at the applicable Certificate Interest Rate to the date
specified in the Prospectus Supplement on each Certificate
entitled to distributions allocable to interest, or to such other
amount as is specified in the Prospectus Supplement. Notice of
such optional termination will be given by the Trustee prior to
such Distribution Date.
THE TRUST FUND
The Trust Fund for a series of Certificates may consist of
(i) the Mortgage Loans, Agency Securities or Contracts, as the
case may be, subject to the Agreement from time to time (subject,
if specified in the Prospectus Supplement, to certain
exclusions); (ii) all payments (subject, if specified in the
Prospectus Supplement, to certain exclusions) in respect of such
assets adjusted in the case of interest payments on Mortgage
Loans or Contracts, to the applicable Remittance Rates; (iii) if
specified in the Prospectus Supplement, reinvestment income on
such payments; (iv) all property acquired by foreclosure or deed
in lieu of foreclosure with respect to any Mortgage Loan or by
repossession with respect to any Contract; (v) all rights of the
Company under any private mortgage insurance policies and any
other insurance policies required to be maintained in respect of
the Mortgage Loans or Contracts; and (vi) if so specified in the
Prospectus Supplement, one or more of the following: (1) any
Reserve Accounts; (2) any Liquidating Loan, Advance or Deposit
Guarantees (as defined herein); and (3) any pool insurance,
special hazard insurance or other insurance, guarantee or similar
instruments or agreements.
The Certificates will be entitled to payment only from the
assets of the Trust Fund and will not be entitled to payments in
respect of the assets of any other trust fund established by the
Company. The primary assets of any trust fund will consist of
Mortgage Loans, Agency Securities or Contracts but not a
combination thereof.
Mortgage Loans, Agency Securities and Contracts will be
originated or acquired by the Company. The following is a brief
description of the Mortgage Loans, Agency Securities and
Contracts expected to be included in the Trust Funds. If specific
information respecting the Mortgage Loans, Agency Securities and
Contracts is not known at the time the related series of
Certificates initially are offered, more general information of
the nature described below will be provided in the Prospectus
Supplement, and specific information will be set forth in a
report on Form 8-K to be filed with the Securities and Exchange
Commission within fifteen days after the initial issuance of such
Certificates (the "Detailed Description"). A copy of the
Agreement with respect to each series of Certificates will be
attached to the Form 8-K and will be available for inspection at
the corporate trust office of the Trustee specified in the
related Prospectus Supplement. A schedule of the Agency
Securities, Mortgage Loans or Contracts, as appropriate, relating
to such series, will be attached to the Agreement delivered to
the Trustee upon delivery of the Certificates.
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The Mortgage Loans
Description of the Mortgage Loans. The Mortgage Loans will
be evidenced by promissory notes (the "Mortgage Notes") secured
by mortgages or deeds of trust (the "Mortgages") creating first
liens, or, in the case of Home Equity Loans (as defined below),
first or second liens, on residential properties (the "Mortgaged
Properties") or first liens on long-term leases of such
properties. Such Mortgage Loans will be within the broad
classification of one- to four-family mortgage loans, defined
generally as loans secured by mortgages on residences containing
one to four dwelling units, loans secured by mortgages on
condominium units and loans secured by mortgages on leasehold
estates. The Mortgage Loans may include cooperative apartment
loans ("Cooperative Loans") secured by security interests in
shares issued by private, non-profit, cooperative housing
corporations ("Cooperatives") and in the related proprietary
leases or occupancy agreements granting exclusive rights to
occupy specific dwelling units in such Cooperatives' buildings.
The Mortgage Loans will be "conventional" mortgage loans; i.e.,
they will not be insured or guaranteed by any governmental
agency. The Mortgaged Properties securing the Mortgage Loans will
be located in one or more states in the United States, the
District of Columbia, Puerto Rico, Guam, the U.S. Virgin Islands
and other territories of the United States and may include
investment properties and vacation and second homes. Each
Mortgage Loan will be selected by the Company for inclusion in
the Trust Fund from among those originated or acquired by the
Company in the ordinary course of the Company's mortgage lending
activities, including newly originated loans.
Unless otherwise specified in the Prospectus Supplement,
the Mortgage Loans (other than Home Equity Loans) will have
initial principal balances of not less than the minimum amount
permitted under the laws of the state where the related mortgaged
property is located and not more than $1,000,000 and will have
original maturities of 10 to 30 years. Unless otherwise specified
in the Prospectus Supplement, principal and interest on the
Mortgage Loans (other than Home Equity Loans that employ the
simple interest method) will be payable on the first day of each
month, and interest will be calculated based on a 360-day year of
twelve 30-day months. When a full payment of principal is made on
a Mortgage Loan during a month, the mortgagor is charged interest
only on the days of the month actually elapsed up to the date of
such prepayment, at a daily interest rate that is applied to the
principal amount of the loan so prepaid. When a partial
prepayment of principal is made on a Mortgage Loan (other than a
Home Equity Loan) during a month, the mortgagor generally will
not be charged interest on the amount of the partial prepayment
during the month in which such prepayment is made.
If specified in the Prospectus Supplement, all or a portion
of the Mortgage Loans included in a Trust Fund may be closed-end
home equity loans secured by first or second liens on Mortgaged
Properties ("Home Equity Loans"). The Home Equity Loan portion of
any Trust Fund may consist of loans secured by first liens or by
first and second liens. Unless otherwise specified in the
Prospectus Supplement, Home Equity Loans will have initial
principal balances within the ranges permitted under the laws of
the state where the related mortgaged property is located and
will have original maturities of 5 to 30 years. Interest on Home
Equity Loans will be calculated on the basis of either a 360-day
year or 365-day year, depending on applicable state law. As
specified in the Prospectus Supplement, interest on Home Equity
Loans will accrue on a
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simple interest basis or on a fully-amortizing basis. Under the
simple interest method, regularly scheduled payments (which are
based on the amortization of the loan over a series of equal
monthly payments) and other payments are applied first to
interest accrued to the date payment is received, then to
principal. See "Yield, Maturity and Weighted Average Life
Considerations".
The Company also originates and acquires "balloon loans."
If specified in the Prospectus Supplement, the Home Equity Loans
may include balloon loans. Such loans may be originated with a
stated maturity of 15 years but may on occasion be originated
with a shorter stated maturity. Notwithstanding the 15-year
maturity, level monthly payments on such a balloon loan would
typically be calculated on an amortization schedule based on a
30-year maturity. As a result, upon the maturity of a balloon
loan, the borrower will be required to make a "balloon" payment,
which will be significantly larger than such borrower's previous
monthly payments. The ability of such borrower to repay the
balloon loan at maturity frequently will depend on such
borrower's ability to refinance the loan.
The Mortgage Loans may be purchase-money loans used by the
borrowers to acquire the related Mortgaged Properties or may be
loans used by the borrowers to refinance existing mortgage loans.
A refinancing may be a "cash-out" loan, the Principal Balance of
which exceeds the sum of the amount needed to repay the loan
being refinanced plus closing costs and "points" associated with
the new mortgage loan, or may be a "non-cash-out" or "rate-and-
term" refinancing in which the borrower refinances the loan
solely to change the interest rate or term of the mortgage loan.
The payment terms of the Mortgage Loans to be included in a
Trust Fund will be described in the related Prospectus Supplement
and may include any of the following features or combinations
thereof or other features described in the related Prospectus
Supplement:
(a) Interest may be payable at a fixed rate, a rate
adjustable from time to time in relation to an index, a
rate that is fixed for a period of time or under certain
circumstances and is followed by an adjustable rate, a rate
that otherwise varies from time to time, or a rate that is
convertible from an adjustable rate to a fixed rate.
Changes to an adjustable rate may be subject to periodic
limitations, maximum rates, minimum rates or a combination
of such limitations. Accrued interest may be deferred and
added to the principal of a loan for such periods and under
such circumstances as may be specified in the related
Prospectus Supplement. Mortgage Loans may provide for the
payment of interest at a rate lower than the specified
mortgage rate for a period of time or for the life of the
loan with the amount of any difference contributed from
funds supplied by the seller of the mortgaged property or
another source
(b) Principal may be payable on a level debt service
basis to fully amortize the loan over its term, may be
calculated on the basis of an amortization schedule that is
significantly longer than the original term to maturity or
on an interest rate that is different from the interest
rate on the Mortgage Loan or may not be amortized during
all or a portion of the original term. Payment of all or a
substantial portion of the principal may be due on
maturity. Principal may include interest that has been
deferred and added
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to the principal balance of the Mortgage Loan. In the case
of Home Equity Loans, payments are applied first to
interest accrued to the date payment is received, then to
principal.
(c) Monthly payments of principal and interest may be
fixed for the life of the loan, may increase over a
specified period of time or may change from period to
period. Mortgage Loans may include limits on periodic
increases or decreases in the amount of monthly payments
and may include maximum or minimum amounts of monthly
payments.
(d) Prepayments of principal may be subject to a
prepayment fee, which may be fixed for the life of the loan
or may decline over time, and may be prohibited for the
life of the loan or for certain periods ("lockout
periods"). Certain loans may permit prepayments after
expiration of the applicable lockout period and may require
the payment of a prepayment fee in connection with any such
subsequent prepayment. Other loans may permit prepayments
without payment of a fee unless the prepayment occurs
during specified time periods. The loans may include
"due-on-sale" clauses which permit the mortgagee to demand
payment of the entire mortgage loan in connection with the
sale or certain transfers of the related mortgaged
property. Other Mortgage Loans may be assumable by persons
meeting the then applicable underwriting standards of the
Company.
It is anticipated that the Mortgage Loans will consist
primarily of Mortgage Loans secured by Mortgaged Properties
determined by the Company to be the primary residences of the
mortgagors. The basis for such determination will be the making
of a representation by the mortgagor that he intends to use the
underlying property as his primary residence.
The Prospectus Supplement will contain information
regarding the interest rates (the "Mortgage Rates"), the average
Principal Balance and the aggregate Principal Balance of the
Mortgage Loans as of the related Cut-off Date, the years of
origination and original principal balances and the original
loan-to-value ratios of the Mortgage Loans. The "Principal
Balance" of any Mortgage Loan (other than a Home Equity Loan)
will be the unpaid principal balance of such Mortgage Loan as of
the Cut-off Date, after deducting any principal payments due on
or before the Cut-off Date, reduced by all principal payments,
including principal payments advanced pursuant to the Agreement,
previously distributed to Certificateholders with respect to such
Mortgage Loan and reported to them as allocable to principal. The
"Principal Balance" of any Home Equity Loan as of the Cut-off
Date will be the unpaid principal balance thereof as of such
date. The Prospectus Supplement will also contain information
regarding the geographic distribution and nature of the Mortgaged
Properties securing the Mortgage Loans.
Unless otherwise specified in the Prospectus Supplement,
the loan-to-value ratio of any Mortgage Loan will be determined
by dividing the amount of such loan (without taking into account
any secondary financing) by the "Original Value" of the related
Mortgaged Property. The principal amount of the "loan," for
purposes of computation of the loan-to-value ratio of any
Mortgage Loan, will include any part of an origination fee that
has been financed. In some
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instances, it may also include amounts which the seller or some
other party to the transaction has paid to the mortgagor, such as
minor reductions in the purchase price made at the closing. The
"Original Value" of a Mortgaged Property is (a) in the case of a
purchase money Mortgage Loan, the lesser of (i) the value of the
Mortgaged Property, based on an appraisal thereof acceptable to
the Company, and (ii) the selling price, and (b) in the case of
any non-purchase money Mortgage Loan, the value of the Mortgaged
Property, based on either (i) the appraised value determined in
an appraisal obtained at the time of refinancing or origination
of such loan or (ii) if no such appraisal has been obtained, the
value of the related Mortgaged Property which value generally
will be supported by either (1) a representation by the related
correspondent as to such value, (2) a broker's price opinion,
automated appraisal, drive-by appraisal or other certification of
value, (3) an appraisal obtained within twelve months prior to
such refinancing or origination or (4) the sales price, if the
Mortgaged Property was purchased within the previous twelve
months.
There can be no assurance that the Original Value will
reflect actual real estate values during the term of a Mortgage
Loan. If the residential real estate market should experience an
overall decline in property values such that the outstanding
principal balances of the Mortgage Loans become equal to or
greater than the values of the Mortgaged Properties, the actual
rates of delinquencies, foreclosures and losses could be
significantly higher than those now generally experienced in the
mortgage lending industry. In addition, adverse economic
conditions (which may or may not affect real estate values) may
affect the timely and ultimate payment by mortgagors of scheduled
payments of principal and interest on the Mortgage Loans and,
accordingly, the actual rates of delinquencies, foreclosures and
losses with respect to the Mortgage Loans.
In the case of seasoned Mortgage Loans acquired by the
Company, the values used in calculating loan-to-value ratios may
no longer be accurate valuations of the Mortgaged Properties.
Under the Company's underwriting standards, a correspondent or
other third-party seller is generally permitted to provide
secondary financing (or subordinate existing secondary financing)
to a mortgagor contemporaneously with the origination of a
Mortgage Loan, provided that the combined loan-to-value ratio
does not exceed the Company's underwriting guidelines for the
specific loan program. Secondary financing is readily available
and may be obtained by a Mortgagor from a variety of lenders,
including the related correspondent or other third-party seller,
at any time (including at origination of the Mortgage Loan).
Loan Production Sources. The Company acquires the mortgage
loans that may underlie a series of Certificates by purchasing
mortgage loans originated or otherwise acquired by its approved
correspondents or other approved third parties, by closing
mortgage loans originated through loan brokers eligible to refer
applications to the Company, by refinancing mortgage loans in its
own servicing portfolio and by originating loans with borrowers
who currently have mortgage loans serviced by the Company. The
Company may purchase loans from correspondents or other third
parties either for contemporaneous delivery or for delivery in
one or more pools on a "forward-delivery" basis at some future
date.
The Company's mortgage loan correspondents are certain
lending institutions that satisfy the Company's financial and
operational criteria, demonstrate experience in originating
mortgage
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loans and follow the Company's loan underwriting standards or
other loan underwriting standards approved by the Company. Except
as described below, the Company reviews each mortgage loan for
compliance with its underwriting standards before accepting
delivery from its correspondents. Under the Company's "delegated
underwriting" program, however, the Company delegates all
underwriting functions to certain approved correspondents. In
such cases, the Company will not perform any underwriting
functions prior to its acquisition of the loans, instead relying
on the representations and warranties of its correspondents and
on post-purchase reviews of the material loan documents and
samplings of the loans for compliance with applicable
underwriting standards. Mortgage loans originated by a
correspondent may be closed in the name of such correspondent and
acquired by the Company or, to a lesser extent, closed in the
name of the Company. Mortgage loans originated by the Company
through loan brokers are generally underwritten by the Company,
processed by the broker on behalf of the Company as well as by
the Company, and closed in the Company's name.
The Company purchases portfolios of loans from other
third-party sellers in negotiated transactions. Before making
such purchases, the Company generally determines that such
sellers satisfy the Company's financial and operational criteria,
have demonstrated experience in originating or acquiring
single-family mortgage loans and have followed loan underwriting
standards acceptable to the Company.
Loans acquired from the Company's correspondents will
generally have been recently originated. Loans acquired in bulk
whole loan sales from correspondents and from other third parties
in negotiated transactions are more likely to include loans that
have been outstanding for a period of time. The Prospectus
Supplement will provide information with respect to the
origination dates and the remaining terms to maturity of the
Mortgage Loans included in the related Trust Fund.
Loan Underwriting Policies. The Mortgage Loans underlying a
series of Certificates will generally have been originated in
accordance with the underwriting standards described below. In
the case of mortgage loans sold to the Company by certain
approved correspondents who have exhibited strong financial
performance and have delinquency and foreclosure rates with
respect to their conventional loan portfolios acceptable to the
Company, the Company may vary some of the generally acceptable
underwriting standards and program criteria described herein,
such as required documentation levels, loan-to-value ratios and
the mortgagors' debt and income ratios. If a material portion of
the Mortgage Loans included in any Trust Fund have been
originated or acquired by the Company under materially different
standards from those described herein, the related Prospectus
Supplement will describe such standards.
The underwriting standards applied by the Company in
acquiring or originating mortgage loans are intended to evaluate
the prospective mortgagor's credit standing and ability to repay
the loan and the value and adequacy of the underlying mortgaged
property as collateral for the loan. In applying these standards,
the Company must be satisfied that the value of the property
being financed supports, and will continue to support, the
outstanding loan balance. The Company may require that mortgage
loans that are not eligible for purchase by FHLMC or FNMA be
underwritten by a nationally-recognized third-party underwriter
approved by the Company. In
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such cases (as well as in cases of loans originated under the
Company's delegated underwriting program, as described above in
"--Loan Production Sources" and in the case of loans sold by
certain third-party sellers), the determination of a mortgage
loan's compliance with the underwriting standards described
herein will be made by the related underwriter.
In acquiring or originating residential mortgage loans, the
Company follows procedures established to comply with applicable
federal and state laws and regulations. In applying for a loan, a
prospective mortgagor is generally required to supply detailed
information for a loan application designed to provide pertinent
credit information about the prospective mortgagor, the property
to be purchased or that will serve as the security for the loan,
and the type of loan desired. The application generally includes
a description of the prospective mortgagor's assets and
liabilities and income and expenses. The Company also usually
requires a credit report that summarizes the prospective
mortgagor's credit with merchants and lenders and, in the case of
second-lien Home Equity Loans, a written or telephonic
verification of the first mortgage balance and payment history.
The Company may, as part of its overall evaluation of the
prospective mortgagor's creditworthiness, use a credit scoring
model and/or mortgage scoring model to evaluate in a statistical
manner the expected performance of a mortgage loan based on the
pertinent credit information concerning the prospective mortgagor
supplied through national credit bureaus, certain other
information provided by the prospective mortgagor and an
assessment of specific mortgage loan characteristics, including
loan-to-value ratio, type of loan product and geographic
location. The Company expects to place greater reliance on a
prospective mortgagor's credit and/or mortgage scores for the
purpose of determining the type of underwriting process to be
used, the level of underwriter expertise that is required to
review the loan file and the appropriate levels of documentation
and appropriate underwriting criteria (e.g., debt and income
ratios, loan-to-value ratios) to be applied.
The extensiveness of the documentation that the Company
requires in connection with the verification of a prospective
mortgagor's employment status, income, assets and adequacy of
funds to close varies from full documentation to limited
documentation. The Company may raise or lower its documentation
requirements depending upon such factors as the net worth and
financial performance of the correspondent or other third party
selling the mortgage loans and the performance of such
correspondent's mortgage loan portfolio. In addition, the Company
will take into account the performance of those mortgage loans
previously sold to it by such correspondent or third party
seller, as well as factors particular to a mortgage loan such as
the credit history of the individual borrower, the loan-to-value
ratio of the loan and the prospective mortgagor's credit and/or
mortgage scores.
Under a typical full or alternative documentation loan
approval process, verification of the prospective mortgagor's
employment status and current salary is obtained from records
prepared by the employer or by other means satisfactory to the
Company. Each prospective mortgagor who is self-employed is
generally required to submit a copy of his or her federal income
tax returns. In the case of purchase money mortgage loans, the
Company also generally requires verification that the mortgagor
has adequate funds to close the mortgage loan. A prospective
mortgagor may be eligible for a loan approval process permitting
limited documentation if the amount of the Mortgage Loan,
together with, in the case of a second-lien
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Home Equity Loan, the unpaid principal balance of the senior
mortgage loan, would not exceed a certain percentage of the
Original Value of the related Mortgaged Property and certain
other requirements are satisfied. The limited documentation
process differs from the full or alternative documentation
process primarily in that it does not require a verification of
the borrower's employment, income and/or assets or, in certain
circumstances, verification of funds to close, and generally
places greater reliance on a prospective mortgagor's credit
and/or mortgage scores. Certain of the Company's programs that
utilize the limited documentation loan approval process are
described below. A loan application and credit report and, when
applicable, a mortgage or rental reference are usually obtained.
A current appraisal is also generally obtained, except as
described below.
Certain of the Mortgage Loans (other than Home Equity
Loans) may have been originated or acquired under the Company's
Relocation Loan program. Under the Relocation Loan program, the
related borrower must be a relocating employee, the Relocation
Loan must be secured by the related borrower's primary residence
and the employer generally must have paid all or a substantial
portion of the relocating employee's closing costs. A relocating
employee may be either an employee transferring from one location
to another, a new hire or a participant in a group relocation.
Loan documentation for a Relocation Loan will generally be
similar to that required for other mortgage loans originated or
acquired by the Company, except with respect to the treatment of
the income of the spouse of the relocating employee. If the
spouse confirms an intention to seek employment at the new
location, under certain circumstances, a portion of such spouse's
income at the old location may be counted for qualifying for a
Relocation Loan. Generally, for all Relocation Loans, the
spouse's income at the old location must also be verified.
Certain of the Mortgage Loans (other than Home Equity
Loans) may have been originated or acquired under the Company's
No Income Verification program, pursuant to which the Company
will not verify any self-employment or other non-salaried income
of the borrower. Unless otherwise specified in the Prospectus
Supplement, in order to qualify for the No Income Verification
program, the related borrower generally must have (i) no
delinquent mortgage or rental payments during the preceding 24
months, (ii) a minimum of two months' principal, interest, tax
and insurance payments in reserves after the closing of the
related loan and (iii) acceptable credit scores.
Certain of the Mortgage Loans (other than Home Equity
Loans) may have been originated or acquired under the Company's
No Ratio program, pursuant to which the Company will verify the
assets of the borrower but will not require the borrower to
either complete the income section on the loan application or
satisfy any qualifying housing-to-income or debt-to-income
ratios. Unless otherwise specified in the Prospectus Supplement,
in order to qualify for the No Ratio program, the related
borrower generally must have (i) no delinquent mortgage or rental
payments during the preceding 24 months, (ii) a minimum of six
months' principal, interest, tax and insurance payments in
reserves after the closing of the related loan and (iii) strong
credit scores.
Certain of the Mortgage Loans (other than Home Equity
Loans) may have been originated or acquired under the Company's
No Income No Asset Verification program, pursuant
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to which the Company will not verify any income or assets of the
borrower. This program is only available to certain approved
correspondents who have exhibited strong financial performance
and have delinquency and foreclosure rates with respect to their
conventional loan portfolios acceptable to the Company. Unless
otherwise specified in the Prospectus Supplement, in order to
qualify for the No Income No Asset Verification program, the
related borrower generally must have (i) no delinquent mortgage
or rental payments during the preceding 24 months, (ii) a minimum
of six months' principal, interest, tax and insurance payments in
reserves after the closing of the related loan and (iii) strong
credit scores.
Certain of the Mortgage Loans (other than Home Equity
Loans) may have been originated or acquired under the Company's
Enhanced Streamlined Refinance program. Under this program, if
the Company is currently the servicer of a borrower's first-lien
mortgage loan, the Company may originate a rate-and-term (rather
than "cash-out") refinance loan which pays off the existing
mortgage loan so long as the existing mortgage loan is current,
and the borrower has no more than one 30-day delinquent mortgage
payment on the existing mortgage loan during the preceding 12
months. Under this program the Company will not verify any income
or assets of the borrower, and no new appraisal will be required.
The Company will, however, represent and warrant in the Agreement
that the value of the related mortgaged property is no less than
the value established at the time the existing mortgage loan was
originated.
Upon receipt of appropriate verification, where required,
the credit report, and, in certain cases, the prospective
mortgagor's credit score or mortgage score, the Company (or the
delegated underwriter) makes a determination as to whether the
prospective mortgagor has sufficient monthly income to meet the
monthly payment obligations on the proposed mortgage loan
(including real estate taxes and insurance on the subject
property), plus other financial obligations not expected to be
fully repaid within the next ten months and normal monthly living
expenses. In the case of a mortgage loan with more than one
borrower where all the borrowers intend to occupy the mortgaged
property, the combined gross income of all such borrowers is
considered for the above computation. However, the Company may
depart from a strict application of its guidelines in favor of
other credit considerations, and may permit such a departure in
the case of loans acquired from certain of its approved
correspondents and other third-party sellers. In its evaluation
of seasoned mortgage loans which have 24 or more months of
payment experience, the Company generally places greater emphasis
on payment history and may take into account market and other
economic trends while placing less emphasis on underwriting
factors generally applied to newly originated mortgage loans.
In assessing the adequacy of properties as collateral for
mortgage loans, an independent appraisal is generally used with
respect to each property considered for financing. Such appraisal
generally entails physical inspection of the property as well as
a verification that the property is in good condition. The
appraiser estimates the value of the property based on market
values of comparable homes and the cost of replacing the
property.
No assurance can be given that values of the Mortgaged
Properties have remained or will remain at the levels which
existed on the dates of appraisal of such Mortgaged Properties.
The appraisal of any Mortgaged Property reflects the individual
appraiser's judgment as to value,
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based on the market value of comparable homes sold within the
recent past in comparable nearby locations and on the estimated
replacement cost. Because of the unique locations and special
features of certain Mortgaged Properties, identifying comparable
properties in nearby locations may be difficult. The appraised
values of such Mortgaged Properties will be based to a greater
extent on adjustments made by the appraisers to the appraised
values of reasonably similar properties. If residential real
estate values generally or in particular geographic areas decline
such that the outstanding principal balances of the Mortgage
Loans and any secondary financing on the Mortgaged Properties
become equal to or greater than the values of the related
Mortgaged Properties, the actual rates of delinquencies,
foreclosures and losses could be significantly higher than those
now generally experienced in the mortgage lending industry and
those now experienced on the Company's servicing portfolios. To
the extent that such losses are not covered by any of the credit
enhancement features described herein, they will be borne by the
holders of the related Certificates.
The Company may not require a current appraisal in
connection with certain purchase money mortgage loans, certain
refinancings and certain home equity loan programs. The
percentage of Mortgage Loans representing such purchase money
mortgage loans, refinancings and home equity loans (by Principal
Balance of all of the Mortgage Loans included in the related
Trust Fund as of the Cut-off Date) where an appraisal dated
within the past year has not been obtained will be specified in
the related Prospectus Supplement, if material. In addition, the
percentage of Mortgage Loans in respect of which no appraisal has
been obtained will be specified in the related Prospectus
Supplement, if material. Generally, appraisals in connection with
a Home Equity Loan will be dated within six months prior to the
origination of the mortgage loan. In the event that there has
been a decline in value of the mortgaged properties with respect
to mortgage loans originated without current appraisals, the use
of other methods in establishing the "Original Value" of a
Mortgaged Property and in calculating the loan-to-value ratios of
such mortgage loans may result in substantially lower
loan-to-value ratios than would be the case if new appraisals
were obtained at the time of refinancing. This may be
particularly true in geographic areas where there has been a
substantial decline in property values since the date of
origination of the refinanced mortgage loans. In addition, the
use of methods other than a current appraisal to establish the
Original Value of a Mortgaged Property (e.g., a broker's price
opinion, an automated appraisal or a drive-by appraisal) may not
provide as thorough a review or as accurate an assessment of the
value of the related Mortgaged Property. In certain
circumstances, the Company may require a current appraisal where,
as a result of deterioration in conditions in the local real
estate market since the date of origination of the refinanced
mortgage loan, there is a greater probability that the original
appraisal may not accurately reflect the current market value of
the mortgaged property.
Generally, mortgage loans that the Company originates or
acquires do not have loan-to-value ratios in excess of 95% of the
Original Value. In certain cases, secondary financing (or
subordination of existing secondary financing) is permitted,
provided that the combined loan-to-value ratio does not exceed
the Company's underwriting guidelines for the specific loan
program. Unless otherwise specified in the Prospectus Supplement,
mortgage loans (other than Home Equity Loans) that the Company
acquires or originates which have an original principal amount
exceeding 80% of Original Value will have private mortgage
insurance. The Company
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generally requires such coverage to continue until the
loan-to-value ratio is 80% or less. See "Servicing of the
Mortgage Loans and Contracts--Private Mortgage Insurance" below.
The Company does not require private mortgage insurance with
respect to Home Equity Loans.
If Home Equity Loans constitute a material portion of the
Mortgage Loans included in a Trust Fund with respect to a series
of Certificates, the related Prospectus Supplement will describe
in further detail the underwriting standards applicable to the
Home Equity Loans.
The Agency Securities
Government National Mortgage Association. GNMA is a
wholly-owned corporate instrumentality of the United States
within the United States Department of Housing and Urban
Development. Section 306(g) of Title III of the National Housing
Act of 1934, as amended (the "Housing Act"), authorizes GNMA to
guarantee the timely payment of the principal of and interest on
certificates which represent an interest in a pool of mortgage
loans insured by FHA under the Housing Act, or Title V of the
Housing Act of 1949 ("FHA Loans"), or partially guaranteed by the
VA under the Servicemen's Readjustment Act of 1944, as amended,
or Chapter 37 of Title 38, United States Code ("VA Loans").
Section 306(g) of the Housing Act provides that "the full
faith and credit of the United States is pledged to the payment
of all amounts which may be required to be paid under any
guarantee under this subsection." In order to meet its
obligations under any such guarantee, GNMA may, under Section
306(d) of the Housing Act, borrow from the United States Treasury
in an amount which is at any time sufficient to enable GNMA, with
no limitations as to amount, to perform its obligations under its
guarantee.
GNMA Certificates. Each GNMA Certificate relating to a
series (which may be issued under either the GNMA I program or
the GNMA II program) will be a "fully modified pass-through"
mortgage-backed certificate issued and serviced by a mortgage
banking company or other financial concern ("GNMA Issuer")
approved by GNMA or approved by FNMA as a seller-servicer of FHA
Loans and/or VA Loans. The mortgage loans underlying the GNMA
Certificates will consist of FHA Loans and/or VA Loans. GNMA will
approve the issuance of each such GNMA Certificate in accordance
with a guarantee agreement (a "Guaranty Agreement") between GNMA
and the GNMA Issuer. Pursuant to its Guaranty Agreement, a GNMA
Issuer will be required to advance its own funds in order to make
timely payments of all amounts due on each such GNMA Certificate,
even if the payments received by the GNMA Issuer on the FHA Loans
or VA Loans underlying each such GNMA Certificate are less than
the amounts due on each such GNMA Certificate.
The full and timely payment of principal of and interest on
each GNMA Certificate will be guaranteed by GNMA, which
obligation is backed by the full faith and credit of the United
States. Each such GNMA Certificate will have an original maturity
of not more than 30 years (but may have original maturities of
substantially less than 30 years). Each such GNMA Certificate
will be based on and backed by a pool of FHA Loans or VA Loans
secured by one- to four-family residential property and will
provide for the payment by or on behalf of the GNMA Issuer to the
registered holder of such GNMA Certificate of scheduled monthly
payments of
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principal and interest equal to the registered holder's
proportionate interest in the aggregate amount of the monthly
principal and interest payment on each FHA Loan or VA Loan
underlying such GNMA Certificate, less the applicable servicing
and guarantee fee which together equal the difference between the
interest on the FHA Loan or VA Loan and the pass-through rate on
the GNMA Certificate. In addition, each payment will include
proportionate pass-through payments of any prepayments of
principal on the FHA Loans or VA Loans underlying such GNMA
Certificate and liquidation proceeds in the event of a
foreclosure or other disposition of any such FHA Loans or VA
Loans.
If a GNMA Issuer is unable to make the payments on a GNMA
Certificate as it becomes due, it must promptly notify GNMA and
request GNMA to make such payment. Upon notification and request,
GNMA will make such payments directly to the registered holder of
such GNMA Certificate. In the event no payment is made by a GNMA
Issuer and the GNMA Issuer fails to notify and request GNMA to
make such payment, the holder of such GNMA Certificate will have
recourse only against GNMA to obtain such payment. The Trustee or
its nominee, as registered holder of the GNMA Certificates
relating to a series, will have the right to proceed directly
against GNMA under the terms of the Guaranty Agreements relating
to such GNMA Certificates for any amounts that are not paid when
due.
Regular monthly installment payments on each GNMA
Certificate relating to a series will be comprised of interest
due as specified on such GNMA Certificate plus the scheduled
principal payments on the FHA Loans or VA Loans underlying such
GNMA Certificate due on the first day of the month in which the
scheduled monthly installment on such GNMA Certificate is due.
Such regular monthly installments on each such GNMA Certificate
are required to be paid to the Trustee as registered holder by
the 15th day of each month in the case of a GNMA I Certificate
and are required to be mailed to the Trustee by the 20th day of
each month in the case of a GNMA II Certificate. Any principal
prepayments on any FHA Loans or VA Loans underlying a GNMA
Certificate relating to a series or any other early recovery of
principal on such loan will be passed through to the Trustee as
the registered holder of such GNMA Certificate.
GNMA Certificates may be backed by graduated payment
mortgage loans or by "buydown" mortgage loans for which funds
will have been provided (and deposited into escrow accounts) for
application to the payment of a portion of the borrowers' monthly
payments during the early years of such mortgage loan. Payments
due the registered holders of GNMA Certificates backed by pools
containing "buydown" mortgage loans will be computed in the same
manner as payments derived from non-"buydown" GNMA Certificates
and will include amounts to be collected from both the borrower
and the related escrow account. The graduated payment mortgage
loans will provide for graduated interest payments that, during
the early years of such mortgage loans, will be less than the
amount of stated interest on such mortgage loans. The interest
not so paid will be added to the principal of such graduated
payment mortgage loans and, together with interest thereon, will
be paid in subsequent years. The obligations of GNMA and of a
GNMA Issuer will be the same irrespective of whether the GNMA
Certificates relating to a series of Certificates are backed by
graduated payment mortgage loans or "buydown" mortgage loans. No
statistics comparable to the FHA's prepayment experience on level
payment,
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non-"buydown" mortgage loans are available in respect of
graduated payment or "buydown" mortgages. GNMA Certificates
related to a series of Certificates may be held in book-entry
form.
Federal Home Loan Mortgage Corporation. FHLMC is a
publicly-held government-sponsored enterprise created pursuant to
Title III of the Emergency Home Finance Act of 1970, as amended
(the "FHLMC Act"). FHLMC was established primarily for the
purpose of increasing the availability of mortgage credit for the
financing of urgently needed housing. It seeks to provide an
enhanced degree of liquidity for residential mortgage investments
primarily by assisting in the development of secondary markets
for conventional mortgages. The principal activity of FHLMC
currently consists of the purchase of first lien conventional
mortgage loans or participation interests in such mortgage loans
and the sale of the mortgage loans or participations so purchased
in the form of mortgage securities, primarily FHLMC Certificates.
FHLMC is confined to purchasing, so far as practicable, mortgage
loans that it deems to be of such quality, type and class as to
meet generally the purchase standards imposed by private
institutional mortgage investors.
FHLMC Certificates. Each FHLMC Certificate represents an
undivided interest in a pool of mortgage loans that may consist
of first lien conventional loans, FHA Loans or VA Loans (a "FHLMC
Certificate group"). FHLMC Certificates are sold under the terms
of a Mortgage Participation Certificate Agreement. A FHLMC
Certificate may be issued under either FHLMC's Cash Program or
Guarantor Program.
Mortgage loans underlying the FHLMC Certificates relating
to a series will consist of residential mortgage loans secured by
one- to four-family dwellings. Each such mortgage loan must meet
the applicable standards set forth in the FHLMC Act. A FHLMC
Certificate group may include whole loans, participation
interests in whole loans and undivided interests in whole loans
and/or participations comprising another FHLMC Certificate group.
Under the Guarantor Program any such FHLMC Certificate group may
include only whole loans or participation interests in whole
loans.
FHLMC guarantees to each registered holder of a FHLMC
Certificate the timely payment of interest on the underlying
mortgage loans to the extent of the applicable Certificate rate
on the registered holder's pro rata share of the unpaid principal
balance outstanding on the underlying mortgage loans in the FHLMC
Certificate group represented by such FHLMC Certificate, whether
or not received. FHLMC also guarantees to each registered holder
of a FHLMC Certificate collection by such holder of all principal
on the underlying mortgage loans, without any offset or
deduction, to the extent of such holder's pro rata share thereof,
but does not, except if and to the extent specified in the
Prospectus Supplement for a series, guarantee the timely payment
of scheduled principal. Pursuant to its guarantees, FHLMC
indemnifies holders of FHLMC Certificates against any diminution
in principal by reason of charges for property repairs,
maintenance and foreclosure. FHLMC may remit the amount due on
account of its guarantee of collection of principal at any time
after default on an underlying mortgage loan, but not later than
(i) 30 days following foreclosure sale, (ii) 30 days following
payment of the claim by any mortgage insurer, or (iii) 30 days
following the expiration of any right of redemption, whichever
occurs later, but in any event no later than one year after
demand has been made upon
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the mortgagor for accelerated payment of principal. In taking
actions regarding the collection of principal after default on
the mortgage loans underlying FHLMC Certificates, including the
timing of demand for acceleration, FHLMC reserves the right to
exercise its judgment with respect to the mortgage loans in the
same manner as for mortgage loans which it has purchased but not
sold. The length of time necessary for FHLMC to determine that a
mortgage loan should be accelerated varies with the particular
circumstances of each mortgagor, and FHLMC has not adopted
standards which require that the demand be made within any
specified period.
FHLMC Certificates are not guaranteed by the United States
and do not constitute debts or obligations of the United States
or any instrumentality of the United States other than FHLMC. The
obligations of FHLMC under its guarantee are obligations solely
of FHLMC and are not backed by, nor entitled to, the full faith
and credit of the United States. If FHLMC were unable to satisfy
such obligations, distributions to holders of FHLMC Certificates
would consist solely of payments and other recoveries on the
underlying mortgage loans and, accordingly, monthly distributions
to holders of FHLMC Certificates would be affected by delinquent
payments and defaults on such mortgage loans.
Registered holders of FHLMC Certificates are entitled to
receive their monthly pro rata share of all principal payments on
the underlying mortgage loans received by FHLMC, including any
scheduled principal payments, full and partial repayments of
principal and principal received by FHLMC by virtue of
condemnation, insurance, liquidation or foreclosure, and
repurchases of the mortgage loans by FHLMC or the seller thereof.
FHLMC is required to remit each registered FHLMC
Certificateholder's pro rata share of principal payments on the
underlying mortgage loans, interest at the FHLMC pass-through
rate and any other sums such as prepayment fees, within 60 days
of the date on which such payments are deemed to have been
received by FHLMC.
Under FHLMC's Cash Program, interest rates on the mortgage
loans underlying a FHLMC Certificate may exceed the pass-through
rate on the FHLMC Certificate by 50 to 100 basis points. Under
FHLMC's Guarantor Program, interest rates on the mortgage loans
underlying a FHLMC Certificate may range from the pass-through
rate (plus a minimum servicing fee) to 250 basis points higher
than such rate.
FHLMC Certificates duly presented for registration of
ownership on or before the last business day of a month are
registered effective as of the first day of the month. The first
remittance to a registered holder of a FHLMC Certificate will be
distributed so as to be received normally by the 15th day of the
month following the month in which the purchaser became a
registered holder of the FHLMC Certificates. Thereafter, such
remittance will be distributed monthly to the registered holder
so as to be received normally by the 15th day of each month. The
Federal Reserve Bank of New York maintains book-entry accounts
with respect to FHLMC Certificates sold by FHLMC on or after
January 2, 1985, and makes payments of principal and interest
each month to the registered holders thereof in accordance with
such holders' instructions.
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Federal National Mortgage Association. FNMA is a
federally-chartered and privately-owned corporation organized and
existing under the Federal National Mortgage Association Charter
Act (the "Charter Act"). FNMA was originally established in 1938
as a United States government agency to provide supplemental
liquidity to the mortgage market and was transformed into a
stockholder-owned and privately-managed corporation by
legislation enacted in 1968.
FNMA provides funds to the mortgage market primarily by
purchasing mortgage loans from lenders, thereby replenishing
their funds for additional lending. FNMA acquires funds to
purchase mortgage loans from many capital market investors that
may not ordinarily invest in mortgages, thereby expanding the
total amount of funds available for housing. Operating
nationwide, FNMA helps to redistribute mortgage funds from
capital-surplus to capital-short areas.
FNMA Certificates. FNMA Certificates are Guaranteed
Mortgage Pass-Through Certificates representing fractional
undivided interests in a pool of mortgage loans formed by FNMA.
Each mortgage loan must meet the applicable standards of the FNMA
purchase program. Mortgage loans comprising a pool are either
provided by FNMA from its own portfolio or purchased pursuant to
the criteria of the FNMA purchase program.
Mortgage loans underlying FNMA Certificates relating to a
series will consist of conventional mortgage loans, FHA Loans or
VA Loans. Original maturities of substantially all of the
conventional, level payment mortgage loans underlying a FNMA
Certificate are expected to be between either 8 to 15 years or 20
to 30 years. The original maturities of substantially all of the
fixed rate level payment FHA Loans or VA Loans are expected to be
30 years.
Mortgage loans underlying a FNMA Certificate may have
annual interest rates that vary by as much as two percentage
points from each other. The rate of interest payable on a FNMA
Certificate is equal to the lowest interest rate of any mortgage
loan in the related pool, less a specified minimum annual
percentage representing servicing compensation and FNMA's
guaranty fee. Under a regular servicing option (pursuant to which
the mortgagee or other servicer assumes the entire risk of
foreclosure losses), the annual interest rates on the mortgage
loans underlying a FNMA Certificate will be between 50 basis
points and 250 basis points greater than in its annual
pass-through rate and under a special servicing option (pursuant
to which FNMA assumes the entire risk for foreclosure losses),
the annual interest rates on the mortgage loans underlying a FNMA
Certificate will generally be between 55 basis points and 255
basis points greater than the annual FNMA Certificate
pass-through rate. If specified in the Prospectus Supplement,
FNMA Certificates may be backed by adjustable rate mortgages.
FNMA guarantees to each registered holder of a FNMA
Certificate that it will distribute amounts representing such
holder's proportionate share of scheduled principal and interest
payments at the applicable pass-through rate provided for by such
FNMA Certificate on the underlying mortgage loans, whether or not
received, and such holder's proportionate share of the full
principal amount of any foreclosed or other finally liquidated
mortgage loan, whether or not such principal amount is actually
recovered. The obligations of FNMA under its guarantees are
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obligations solely of FNMA and are not backed by, nor entitled
to, the full faith and credit of the United States. Although the
Secretary of the Treasury of the United States has discretionary
authority to lend FNMA up to $2.25 billion outstanding at any
time, neither the United States nor any agency thereof is
obligated to finance FNMA's operations or to assist FNMA in any
other manner. If FNMA were unable to satisfy its obligations,
distributions to holders of FNMA Certificates would consist
solely of payments and other recoveries on the underlying
mortgage loans and, accordingly, monthly distributions to holders
of FNMA Certificates would be affected by delinquent payments and
defaults on such mortgage loans.
FNMA Certificates evidencing interests in pools of mortgage
loans formed on or after May 1, 1985 (other than FNMA
Certificates backed by pools containing graduated payment
mortgage loans or mortgage loans secured by multifamily projects)
are available in book-entry form only. Distributions of principal
and interest on each FNMA Certificate will be made by FNMA on the
25th day of each month to the persons in whose name the FNMA
Certificate is entered in the books of the Federal Reserve Banks
(or registered on the FNMA Certificate register in the case of
fully registered FNMA Certificates) as of the close of business
on the last day of the preceding month. With respect to FNMA
Certificates issued in book-entry form, distributions thereon
will be made by wire, and with respect to fully registered FNMA
Certificates, distributions thereon will be made by check.
Stripped Mortgage-Backed Securities. Agency Securities may
consist of one or more stripped mortgage-backed securities, each
as described herein and in the related Prospectus Supplement.
Each such Agency Security will represent an undivided interest in
all or part of either the principal distributions (but not the
interest distributions) or the interest distributions (but not
the principal distributions), or in some specified portion of the
principal and interest distributions (but not all of such
distributions) on certain FHLMC, FNMA or GNMA Certificates. The
underlying securities will be held under a trust agreement by
FHLMC, FNMA or GNMA each as trustee, or by another trustee named
in the related Prospectus Supplement. FHLMC, FNMA or GNMA will
guarantee each stripped Agency Security to the same extent as
such entity guarantees the underlying securities backing such
stripped Agency Security, unless otherwise specified in the
related Prospectus Supplement.
Contracts
Each pool of Contracts with respect to a series of
Certificates (the "Contract Pool") will consist of manufactured
housing conditional sales contracts and installment loan
agreements or participation interests therein (collectively, the
"Contracts") originated by the Company or acquired from one or
more manufactured housing dealers in the ordinary course of
business. The Contracts may be conventional manufactured housing
contracts or contracts insured by the FHA or partially guaranteed
by the VA. Each Contract is secured by a Manufactured Home (as
defined below). Unless otherwise specified in the Prospectus
Supplement, the Contracts will be fully amortizing and will bear
interest at a fixed annual percentage rate ("APR").
The Manufactured Homes securing the Contracts consist of
manufactured homes within the meaning of 42 United States Code,
Section 5402(6), which defines a "manufactured home"
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as "a structure, transportable in one or more sections, which, in
the traveling mode, is eight body feet or more in width or forty
body feet or more in length, or, when erected on site, is three
hundred twenty or more square feet, and which is built on a
permanent chassis and designed to be used as a dwelling with or
without a permanent foundation when connected to the required
utilities, and includes the plumbing, heating, air-conditioning,
and electrical systems contained therein; except that such term
shall include any structure which meets all the requirements of
this paragraph except the size requirements and with respect to
which the manufacturer voluntarily files a certification required
by the Secretary of Housing and Urban Development and complies
with the standards established under this chapter." Moreover, if
an election is made to treat the Trust Fund as a REMIC as
described in "Certain Federal Income Tax Consequences--REMIC
Certificates", Manufactured Homes will have a minimum of 400
square feet of living space and a minimum width in excess of 102
inches.
Unless otherwise specified in the related Prospectus
Supplement, for purposes of calculating the loan-to-value ratio
of a Contract relating to a new Manufactured Home, the
"Collateral Value" is no greater than the sum of a fixed
percentage of the list price of the unit actually billed by the
manufacturer to the dealer (exclusive of freight to the dealer
site) including "accessories" identified in the invoice (the
"Manufacturer's Invoice Price"), plus the actual cost of any
accessories purchased from the dealer, a delivery and set-up
allowance depending on the size of the unit and the cost of state
and local taxes, filing fees and up to three years prepaid hazard
insurance premiums. Unless otherwise specified in the related
Prospectus Supplement, the Collateral Value of a used
Manufactured Home is the least of the sales price, the appraised
value, and the National Automobile Dealer's Association book
value plus prepaid taxes and hazard insurance premiums. The
appraised value of a Manufactured Home is based upon the age and
condition of the manufactured housing unit and the quality and
condition of the mobile home park in which it is situated, if
applicable.
The related Prospectus Supplement will specify for the
Contracts contained in the related Contract Pool, among other
things, the date of origination of the Contracts; the APRs on the
Contracts; the Contract loan-to-value ratios; the minimum and
maximum outstanding principal balances as of the Cut-off Date and
the average outstanding principal balance; the outstanding
principal balances of the Contracts included in the Contract
Pool; and the original maturities of the Contracts and the last
maturity date of any Contract.
CREDIT SUPPORT
General
Credit support may be provided with respect to one or more
classes of a series of Certificates or with respect to the assets
in the related Trust Fund. Credit support may be in the form of
the limited obligation of the Company to purchase Liquidating
Loans, a limited financial guarantee policy, limited guarantee or
other similar instrument (a "Limited Guarantee") issued by an
entity named in the Prospectus Supplement (the "Guarantor"),
which may be an affiliate of the Company, the subordination of
one or more classes of the Certificates of such series, the
establishment of one or more reserve accounts, the use of a
cross-support feature, use of a pool
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insurance policy, bankruptcy bond, special hazard insurance
policy, repurchase bond, guaranteed investment contract or
another method of credit support described in the related
Prospectus Supplement, or any combination of the foregoing.
Unless otherwise specified in the Prospectus Supplement, any
credit support will not provide protection against all risks of
loss and will not guarantee repayment of the entire principal
balance of the Certificates and interest thereon. If losses occur
which exceed the amount covered by credit support or which are
not covered by the credit support, Certificateholders will bear
their allocable share of deficiencies.
If the Prospectus Supplement for a series provides that an
institution other than the Company will act as sole servicer or
master servicer of the related Mortgage Loans, or that the
Company will act as master servicer of such Mortgage Loans under
a Supervisory Master Servicing Arrangement (as defined under
"Servicing of the Mortgage Loans and Contracts") whereby other
servicers will be directly obligated to perform certain servicing
duties, if so specified in such Prospectus Supplement, such other
master servicers or servicers may provide certain of the credit
support arrangements described below in lieu of the Company. In
such event, all references to the Company as servicer under the
description of such credit support set forth below should be read
to refer to such other master servicer or servicers, as the case
may be.
Purchase of Liquidating Loans
The Company, as servicer, may be obligated, if and to the
extent described in the Prospectus Supplement, to purchase any
Mortgage Loan (a "Liquidating Loan") as to which either (i)
liquidation proceedings have been commenced and any equitable or
statutory right to reinstate such Mortgage Loan has expired or
(ii) the Company, as servicer, has agreed to accept a deed in
lieu of foreclosure, in each case for a price equal to 100% of
the Principal Balance of such Mortgage Loan plus, unless
otherwise specified in the Prospectus Supplement, one month's
interest thereon at the applicable Remittance Rate. Any such
obligation of the Company, as servicer, may be limited as
specified in the Prospectus Supplement. In particular, the
aggregate losses from the purchase of Liquidating Loans that the
Company is obligated to bear (measured as the difference between
the aggregate payments made by the Company into the Certificate
Account in respect of Liquidating Loans and the aggregate net
proceeds received by the Company from the disposition of such
Loans) may be limited to an amount specified in the Prospectus
Supplement. After this amount is exhausted, no further
Liquidating Loans will be purchased by the Company, unless such
amount has been restored as described below.
If so specified in the Prospectus Supplement, the Company,
as servicer, will have the option (but not the obligation) to
purchase any Mortgage Loan as to which the mortgagor has failed
to make unexcused payment in full of three or more scheduled
payments of principal and interest (a "Delinquent Mortgage
Loan"). Unless otherwise specified in the Prospectus Supplement,
any such purchase will be for a price equal to 100% of the
Principal Balance of such Mortgage Loan plus interest thereon at
the applicable Remittance Rate from the date on which interest
was last paid to the first day of the month in which such
purchase price is to be distributed, net of any unreimbursed
advances of principal and interest thereon made by the Company as
servicer. The purchase price for any Delinquent Mortgage Loan
will be deposited in
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the Certificate Account on the next Deposit Date (as defined
under "Servicing of the Mortgage Loans and Contracts--Loan
Payment Record").
The purchase by the Company, as servicer, of a Delinquent
Mortgage Loan may result in the diminution of the amount of the
Company's obligations, as servicer, to purchase Liquidating
Loans, to the extent that net recoveries upon the liquidation of
such Delinquent Mortgage Loan are, or are estimated by the
Company on the date of such purchase to be, less than the sum of
the purchase price for such Delinquent Mortgage Loan and any
previous unreimbursed advances of delinquent installments of
principal and interest (adjusted to the related Remittance Rate)
made by the Company with respect thereto. To the extent that
actual recoveries, net of related expenses, upon the final
liquidation of such Delinquent Mortgage Loan differ from the
estimated amount thereof, the amount of the Company's remaining
obligation to purchase Liquidating Loans will be adjusted up or
down accordingly. If a Delinquent Mortgage Loan becomes current
after its purchase by the Company, any related decrease in the
amount of the Company's obligation to purchase Liquidating Loans
will be reversed in its entirety. Liquidation proceeds in
connection with the liquidation of any Mortgaged Property may not
be deemed for this purpose to include the entire principal
balance of any mortgage loan made by the Company to facilitate
such sale at a rate less than then prevailing market rates. In
estimating the net amount of proceeds recoverable upon the
liquidation of any Delinquent Mortgage Loan, the Company may
treat as related liquidation expenses certain costs associated
with the protection of the Mortgaged Property, property sales
expenses and foreclosure or other similar costs.
Following the purchase by the Company of any Liquidating
Loan or Delinquent Mortgage Loan as described above, and the
payment by the Company of the purchase price therefor, the
Company will be entitled to receive an assignment by the Trustee
of such Mortgage Loan, and the Company will thereafter own such
Mortgage Loan free of any further obligation to the Trustee or
the Certificateholders with respect thereto.
Limited Guarantee of the Guarantor
If specified in the Prospectus Supplement, certain
obligations of the Company, as servicer, under the related
Agreement may be covered by a Limited Guarantee, limited in scope
and amount, issued by the Guarantor. If so specified, the
Guarantor may be obligated to take one or more of the following
actions in the event the Company fails to do so: make deposits to
the Certificate Account (a "Deposit Guarantee"); make advances
(an "Advance Guarantee"); or purchase Liquidating Loans (a
"Liquidating Loan Guarantee"). Any such Limited Guarantee will be
limited in amount and a portion of the coverage of any such
Limited Guarantee may be separately allocated to certain events.
For example, a portion of the aggregate amount of a Liquidating
Loan Guarantee may be separately allocated to Liquidating Loans
due to special hazards not covered by standard hazard insurance
policies, Liquidating Loans due to the bankruptcy of a mortgagor,
and other Liquidating Loans. The scope, amount and, if
applicable, the allocation of any Limited Guarantee will be
described in the related Prospectus Supplement.
If and to the extent that the Guarantor is required to make
payments under any such Limited Guarantee, unless otherwise
specified in the Prospectus Supplement, the Guarantor,
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upon notice from the Trustee, will be obligated to deposit the
amount of such payments in same-day funds in the Certificate
Account on the day after the Deposit Date, all as set forth more
specifically in such Limited Guarantee. If the Guarantor is
required to make any payment under a Limited Guarantee, the
Guarantor will be subrogated, to the extent of such payment, to
the rights of holders of the Certificates and shall have all
rights of the Company under the related Agreement as described
herein. Any Limited Guarantee issued by the Guarantor will be
limited in amount or duration as specified in the Prospectus
Supplement and may not guarantee the full extent of the Company's
obligations with respect to which such Limited Guarantee was
issued. As described in the Prospectus Supplement, if applicable,
the amount of any Limited Guarantee will be reduced by amounts
distributed by the Guarantor, and not recovered by it, under all
Limited Guarantees issued by the Guarantor with respect to the
same series of Certificates and by any reduction in the Company's
obligations with respect to which such Limited Guarantee was
issued.
Subordination
If so specified in the Prospectus Supplement, distributions
in respect of scheduled principal, Principal Prepayments,
interest or any combination thereof that otherwise would have
been payable to one or more classes of Certificates of a series
(the "subordinated Certificates") will instead be payable to
holders of one or more other classes of such series (the "senior
Certificates") under the circumstances and to the extent
specified in the Prospectus Supplement. If specified in the
Prospectus Supplement, delays in receipt of scheduled payments on
the Mortgage Loans or Contracts and losses on defaulted Mortgage
Loans or Contracts will be borne first by the various classes of
subordinated Certificates and thereafter by the various classes
of senior Certificates, in each case under the circumstances and
subject to the limitations specified in the Prospectus
Supplement. The aggregate distributions in respect of delinquent
payments on the Mortgage Loans or Contracts over the lives of the
Certificates or at any time, the aggregate losses in respect of
defaulted Mortgage Loans or Contracts which must be borne by the
subordinated Certificates by virtue of subordination and the
amount of the distributions otherwise distributable to the
subordinated Certificateholders that will be distributable to
senior Certificateholders on any Distribution Date may be limited
as specified in the Prospectus Supplement. If aggregate
distributions in respect of delinquent payments on the Mortgage
Loans or Contracts or aggregate losses in respect of such
Mortgage Loans or Contracts were to exceed the total amounts
payable and available for distribution to holders of subordinated
Certificates or, if applicable, were to exceed the specified
maximum amount, holders of senior Certificates could experience
losses on the Certificates.
In addition to or in lieu of the foregoing, if so specified
in the Prospectus Supplement, all or any portion of distributions
otherwise payable to holders of subordinated Certificates on any
Distribution Date may instead be deposited into one or more
reserve accounts (the "Reserve Account") established by the
Trustee. If so specified in the Prospectus Supplement, such
deposits may be made on each Distribution Date, on each
Distribution Date for specified periods or until the balance in
the Reserve Account has reached a specified amount and, following
payments from the Reserve Account to holders of senior
Certificates or otherwise, thereafter to the extent necessary to
restore the balance in the Reserve Account to required levels, in
each case as
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specified in the Prospectus Supplement. If so specified in the
Prospectus Supplement, amounts on deposit in the Reserve Account
may be released to the Company or the holders of any class of
Certificates at the times and under the circumstances specified
in the Prospectus Supplement.
If specified in the Prospectus Supplement, one or more
classes of Certificates may bear the risk of certain losses on
defaulted Mortgage Loans not covered by other forms of credit
support prior to other classes of Certificates. Such
subordination might be effected by reducing the Certificate
Principal Balance of the subordinated Certificates on account of
such losses, thereby decreasing the proportionate share of
distributions allocable to such Certificates, or by another means
specified in the Prospectus Supplement.
If specified in the Prospectus Supplement, various classes
of senior Certificates and subordinated Certificates may
themselves be subordinate in their right to receive certain
distributions to other classes of senior and subordinated
Certificates, respectively, through a cross-support mechanism or
otherwise.
If so specified in the Prospectus Supplement, the same
class of Certificates may constitute senior Certificates with
respect to certain types of payments or certain losses and
subordinated Certificates with respect to other types of payments
or losses.
As between classes of senior Certificates and as between
classes of subordinated Certificates, distributions may be
allocated among such classes (i) in the order of their scheduled
final distribution dates, (ii) in accordance with a schedule or
formula, (iii) in relation to the occurrence of events, or (iv)
otherwise, in each case as specified in the Prospectus
Supplement. As between classes of subordinated Certificates,
payments to holders of senior Certificates on account of
delinquencies or losses and payments to any Reserve Account will
be allocated as specified in the Prospectus Supplement.
Unless otherwise specified in the Prospectus Supplement,
the Agreement may permit the Company, at its option, to grant to
the holders of certain classes of subordinated Certificates
certain rights in connection with the foreclosure of defaulted
Mortgage Loans in the related Trust Fund. See "Servicing of the
Mortgage Loans and Contracts--Collection and Other Servicing
Procedures".
Cross-Support
If specified in the Prospectus Supplement, the beneficial
ownership of separate groups of assets included in a Trust Fund
may be evidenced by separate classes of the related series of
Certificates. In such case, credit support may be provided by a
cross-support feature which may require that distributions be
made with respect to Certificates evidencing beneficial ownership
of one or more asset groups prior to distributions to
subordinated Certificates evidencing a beneficial ownership
interest in other asset groups within the same Trust Fund. The
Prospectus Supplement for a series which includes a cross-support
feature will describe the manner and conditions for applying such
cross-support feature.
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If specified in the Prospectus Supplement, the coverage
provided by one or more forms of credit support may apply
concurrently to two or more separate Trust Funds. If applicable,
the Prospectus Supplement will identify the Trust Funds to which
such credit support relates and the manner of determining the
amount of the coverage provided thereby and of the application of
such coverage to the identified Trust Funds.
Pool Insurance
In order to decrease the likelihood that Certificateholders
will experience losses in respect of the Mortgage Loans, if
specified in the Prospectus Supplement, the Company will obtain
one or more pool insurance policies. Any such policies may be in
lieu of or in addition to any obligations of the Company in
respect of the Mortgage Loans. Such pool insurance policy will,
subject to the limitations described in the Prospectus
Supplement, cover loss by reason of default in payments on the
Mortgage Loans up to the amounts specified in the Prospectus
Supplement or the Detailed Description and for the periods
specified in the Prospectus Supplement. The Company, as servicer,
will agree to use its best reasonable efforts to maintain in
effect any such pool insurance policy and to present claims
thereunder to the pool insurer on behalf of itself, the Trustee
and the Certificateholders. The pool insurance policy, however,
is not a blanket policy against loss, since claims thereunder may
only be made respecting particular defaulted Mortgage Loans and
only upon satisfaction of certain conditions precedent described
below. The pool insurance policy, if any, will not cover losses
due to a failure to pay or denial of a claim under a primary
mortgage insurance policy, irrespective of the reason therefor.
Unless otherwise specified in the Prospectus Supplement,
the original amount of coverage under any pool insurance policy
will be reduced over the life of the related series of
Certificates by the aggregate dollar amount of claims paid less
the aggregate of the net amounts realized by the pool insurer
upon disposition of all foreclosed properties. The amount of
claims paid will include certain expenses incurred by the Company
as well as accrued interest on delinquent Mortgage Loans to the
date of payment of the claim. See "Certain Legal Aspects of the
Mortgage Loans--Foreclosure". Accordingly, if aggregate net
claims paid under any pool insurance policy reach the original
policy limit, coverage under that pool insurance policy will be
exhausted and any further losses will be borne by one or more
classes of Certificateholders unless assumed by the Company or
the Guarantor under any obligations they may have in respect of
Liquidating Loans or by some other entity, if and to the extent
specified in the Prospectus Supplement.
Since any mortgage pool insurance policy may require that
the property subject to a defaulted Mortgage Loan be restored to
its original condition prior to claiming against the pool
insurer, such policy may not provide coverage against hazard
losses. As described under "Servicing of the Mortgage
Loans--Hazard Insurance", the hazard policies concerning the
Mortgage Loans typically exclude from coverage physical damage
resulting from a number of causes and even when the damage is
covered, may afford recoveries which are significantly less than
the full replacement cost of such losses. Even if special hazard
insurance is applicable as specified in the Prospectus
Supplement, no coverage in respect of special hazard losses will
cover all risks, and the amount of any such coverage will be
limited. See "Special Hazard
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Insurance" below. As a result, certain hazard risks will not be
insured against and will therefore be borne by
Certificateholders, unless otherwise assumed by the Company or
the Guarantor under any obligations they may have in respect of
Liquidating Loans or by some other entity, as specified in the
Prospectus Supplement.
The terms of any pool insurance policy relating to a pool
of Contracts will be described in the related Prospectus
Supplement.
Special Hazard Insurance
In order to decrease the likelihood that Certificateholders
will experience losses in respect of the Mortgage Loans, if
specified in the Prospectus Supplement, the Company will obtain
one or more special hazard insurance policies with respect to the
Mortgage Loans. Any such policies may be in lieu of or in
addition to any obligations of the Company to advance delinquent
payments in respect of the Mortgage Loans. Such a special hazard
insurance policy will, subject to limitations described below and
in the Prospectus Supplement, protect holders of Certificates
from (i) loss by reason of damage to Mortgaged Properties caused
by certain hazards (including earthquakes and, to a limited
extent, tidal waves and related water damage) not covered by the
standard form of hazard insurance policy for the respective
states in which the Mortgaged Properties are located or under
flood insurance policies, if any, covering the Mortgaged
Properties, and (ii) loss from partial damage caused by reason of
the application of the co-insurance clause contained in hazard
insurance policies. Any special hazard insurance policy may not
cover losses occasioned by war, civil insurrection, certain
governmental actions, errors in design, faulty workmanship or
materials (except under certain circumstances), nuclear reaction,
flood (if the Mortgaged Property is located in a federally
designated flood area), chemical contamination and certain other
risks. Aggregate claims under each special hazard insurance
policy may be limited to a specified percentage of the aggregate
principal balance as of the Cutoff Date of the Mortgage Loans.
Any special hazard insurance policy may also provide that no
claim may be paid unless hazard and, if applicable, flood
insurance on the Mortgaged Property has been kept in force and
other protection and preservation expenses have been paid by the
Company.
Subject to the foregoing limitations, any special hazard
insurance policy may provide that, where there has been damage to
property securing a foreclosed Mortgage Loan (title to which has
been acquired by the insured) and to the extent such damage is
not covered by the hazard insurance policy or flood insurance
policy, if any, maintained by the mortgagor or the Company, the
special hazard insurer will pay the lesser of (i) the cost of
repair or replacement of such property or (ii) upon transfer of
the property to the special hazard insurer, the unpaid principal
balance of such Mortgage Loan at the time of acquisition of such
property by foreclosure or deed in lieu of foreclosure, plus
accrued interest to the date of claim settlement and certain
expenses incurred by the Company with respect to such property.
If the unpaid principal balance plus accrued interest and certain
expenses is paid by the insurer, the amount of further coverage
under the related special hazard insurance policy will be reduced
by such amount less any net proceeds from the sale of the
property. Any amount paid as the cost of repair or replacement of
the property will also reduce coverage by such amount.
Restoration of the
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property with the proceeds described under clause (i) above will
satisfy the condition under any pool insurance policy that the
property be restored before a claim under such pool insurance
policy may be validly presented with respect to the defaulted
Mortgage Loan secured by such property. The payment described
under clause (ii) above will render unnecessary presentation of a
claim in respect of such Mortgage Loan under the related pool
insurance policy. Therefore, so long as a pool insurance policy
remains in effect, the payment by the insurer under a special
hazard insurance policy of the cost of repair or replacement or
the unpaid principal balance of the Mortgage Loan plus accrued
interest and certain expenses will not affect the total insurance
proceeds paid to Certificateholders, but will affect the relative
amounts of coverage remaining under the related special hazard
insurance policy and pool insurance policy.
The terms of any special hazard policy relating to a pool
of Contracts will be described in the related Prospectus
Supplement.
Bankruptcy Bond
In the event of a bankruptcy of a borrower, the bankruptcy
court may establish the value of the Mortgaged Property securing
the related Mortgage Loan at an amount less than the then
outstanding principal balance of such Mortgage Loan secured by
such Mortgaged Property and could reduce the secured debt to such
value. In such case, the holder of such Mortgage Loan would
become an unsecured creditor to the extent of the difference
between the outstanding principal balance of such Mortgage Loan
and such reduced secured debt. In addition, certain other
modifications of the terms of a Mortgage Loan can result from a
bankruptcy proceeding, including the reduction in monthly
payments required to be made by the borrower. See "Certain Legal
Aspects of the Mortgage Loans and Contracts--Enforceability of
Certain Provisions". If so provided in the related Prospectus
Supplement, the Company will obtain a bankruptcy bond or similar
insurance contract (the "bankruptcy bond") for proceedings with
respect to borrowers under the Bankruptcy Code. The bankruptcy
bond will cover certain losses resulting from a reduction by a
bankruptcy court of scheduled payments of principal of and
interest on a Mortgage Loan or a reduction by such court of the
principal amount of a Mortgage Loan and will cover certain unpaid
interest on the amount of such a principal reduction from the
date of the filing of a bankruptcy petition.
The bankruptcy bond will provide coverage in the aggregate
amount specified in the related Prospectus Supplement. Such
amount will be reduced by payments made under such bankruptcy
bond in respect of the related Mortgage Loans, unless otherwise
specified in the related Prospectus Supplement, and will not be
restored.
In lieu of a bankruptcy bond, the Company may obtain a
Limited Guarantee to cover such bankruptcy-related losses.
The terms of any bankruptcy bond (or Limited Guarantee in
lieu thereof) relating to a pool of Contracts will be described
in the related Prospectus Supplement.
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Repurchase Bond
If so specified in the related Prospectus Supplement, the
Company, as servicer, will be obligated to repurchase any
Mortgage Loan or Contract (up to an aggregate dollar amount
specified in the related Prospectus Supplement) for which
insurance coverage is denied due to dishonesty, misrepresentation
or fraud in connection with the origination or sale of such
Mortgage Loan or Contract. Such obligation may be secured by a
surety bond or other instrument or mechanism guaranteeing payment
of the amount to be paid by the Company.
Guaranteed Investment Contracts
If so specified in the Prospectus Supplement, on or prior
to the Delivery Date, the Trustee will enter into a guaranteed
investment contract (a "GIC") pursuant to which all amounts
deposited in the Certificate Account, and if so specified the
Reserve Accounts, will be invested by the Trustee and under which
the issuer of the GIC will pay to the Trustee interest at an
agreed rate per annum with respect to the amounts so invested.
Reserve Accounts
If specified in the Prospectus Supplement, cash, U.S.
Treasury securities, instruments evidencing ownership of
principal or interest payments thereon, letters of credit, demand
notes, certificates of deposit, other instruments or obligations
or a combination thereof in the aggregate amount specified in the
Prospectus Supplement will be deposited by the Company on the
Delivery Date in one or more accounts (each, a "Reserve Account")
established by the Trustee. Such cash and the principal and
interest payments on such other instruments will be used to
enhance the likelihood of timely payment of principal of, and
interest on, or, if so specified in the Prospectus Supplement, to
provide additional protection against losses in respect of, the
assets in the related Trust Fund, to pay the expenses of the
Trust Fund or for such other purposes specified in the Prospectus
Supplement. Whether or not the Company has any obligation to make
such a deposit, certain amounts to which the subordinated
Certificateholders, if any, will otherwise be entitled may
instead be deposited into the Reserve Account from time to time
and in the amounts as specified in the Prospectus Supplement. Any
cash in the Reserve Account and the proceeds of any other
instrument upon maturity will be invested in Eligible
Investments, which, unless otherwise specified in the Prospectus
Supplement, will include obligations of the United States and
certain agencies thereof, certificates of deposit, certain
commercial paper, time deposits and bankers acceptances sold by
eligible commercial banks and certain repurchase agreements of
United States government securities with eligible commercial
banks. If a letter of credit is deposited with the Trustee, such
letter of credit will be irrevocable. Unless otherwise specified
in the Prospectus Supplement, any instrument deposited therein
will name the Trustee, in its capacity as trustee for the holders
of the Certificates, as beneficiary and will be issued by an
entity acceptable to each rating agency that rates the
Certificates. Additional information with respect to such
instruments deposited in the Reserve Accounts will be set forth
in the Prospectus Supplement.
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Any amounts so deposited and payments on instruments so
deposited will be available for withdrawal from the Reserve
Account for distribution to the holders of Certificates for the
purposes, in the manner and at the times specified in the
Prospectus Supplement.
Other Insurance, Guarantees and Similar Instruments or Agreements
If specified in the Prospectus Supplement, the related
Trust Fund may also include insurance, guarantees, letters of
credit or similar arrangements for the purpose of (i) maintaining
timely payments or providing additional protection against losses
on the assets included in such Trust Fund, (ii) paying
administrative expenses or (iii) establishing a minimum
reinvestment rate on the payments made in respect of such assets
or principal payment rate on such assets. Such arrangements may
include agreements under which Certificateholders are entitled to
receive amounts deposited in various accounts held by the Trustee
upon the terms specified in the Prospectus Supplement. Such
arrangements may be in lieu of any obligation of the Company to
advance delinquent installments in respect of the Mortgage Loans
or Contracts. See "Servicing of Mortgage Loans and
Contracts--Advances".
YIELD, MATURITY AND WEIGHTED AVERAGE LIFE CONSIDERATIONS
The yields to maturity and weighted average lives of the
Certificates will be affected primarily by the rate and timing of
principal payments received on or in respect of the Mortgage
Loans, Agency Securities or Contracts included in the related
Trust Fund. Such principal payments will include scheduled
payments as well as Principal Prepayments (including
refinancings, some of which refinancings may be solicited by the
Company) and prepayments resulting from foreclosure, condemnation
and other dispositions of the Mortgaged Properties or
Manufactured Homes (including amounts paid by insurers under
applicable insurance policies), from repurchase by the Company of
any Mortgage Loan or Contract as to which there has been a
material breach of warranty or defect in documentation (or
deposit of certain amounts in respect of delivery of a substitute
Mortgage Loan), repurchase by the Company of Mortgage Loans
modified by it in lieu of refinancing thereof, repurchase by the
Company, the Guarantor or any other entity of any Liquidating
Loan or Delinquent Mortgage Loan, if applicable, and from the
repurchase by the Company of all of the Certificates or all of
the Mortgage Loans, Agency Securities or Contracts in certain
circumstances. See "Description of the Certificates--Optional
Termination of Trust Fund". The yield to maturity and weighted
average lives of the Certificates may also be affected by the
amount and timing of delinquencies and losses on the Mortgage
Loans or Contracts.
After origination of the related Mortgage Loans, certain of
the borrowers may be solicited by the Company to participate in
its biweekly payment programs, under which payments equal to
one-half of one full monthly payment are made in respect of the
related Mortgage Loan on a biweekly basis. In contrast to a
Mortgage Loan in respect of which payments are received once
every month, a Mortgage Loan involved in a biweekly payment
program will produce thirteen full monthly payments per calendar
year, resulting in additional prepayments of principal over the
life of the Mortgage Loan. All payments of principal received
during a month in respect of a Mortgage Loan in a biweekly
payment program will be applied to the principal balance of such
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Mortgage Loan on the first business day of the succeeding month
and will not result in interest shortfalls.
A number of social, economic, tax, geographic, demographic,
legal and other factors may influence prepayments, delinquencies
and losses. For a Trust Fund comprised of Mortgage Loans, these
factors may include the age of the Mortgage Loans, the geographic
distribution of the Mortgaged Properties, the payment terms of
the Mortgages, the characteristics of the mortgagors, homeowner
mobility, economic conditions generally and in the geographic
area in which the Mortgaged Properties are located,
enforceability of due-on-sale clauses, servicing decisions,
prevailing mortgage market interest rates in relation to the
interest rates on the Mortgage Loans, the availability of
mortgage funds, the use of second or "home equity" mortgage loans
by mortgagors, the availability of refinancing opportunities, the
use of the properties as second or vacation homes, the extent of
the mortgagors' net equity in the Mortgaged Properties and, where
investment properties are securing the Mortgage Loans,
tax-related considerations and the availability of other
investments. The rate of principal payment may also be subject to
seasonal variations. The prepayment experience on Home Equity
Loans may differ from those of other Mortgage Loans and may
differ between first-priority and second-priority Home Equity
Loans. Similar types of factors may affect the rate of
prepayments, delinquencies and losses on Contracts.
The rate of principal prepayments on pools of conventional
housing loans has fluctuated significantly in recent years.
Generally, if prevailing interest rates were to fall
significantly below the interest rates on the Mortgage Loans, the
Mortgage Loans would be expected to prepay at higher rates than
if prevailing rates were to remain at or above the interest rates
on the Mortgage Loans. Conversely, if interest rates were to rise
above the interest rates on the Mortgage Loans, the Mortgage
Loans would be expected to prepay at lower rates than if
prevailing rates were to remain at or below interest rates on the
Mortgage Loans. The timing of changes in the rate of prepayments
may significantly affect a Certificateholder's actual yield to
maturity, even if the average rate of principal payments is
consistent with a Certificateholder's expectation. In general,
the earlier a prepayment of principal the greater the effect on a
Certificateholder's yield to maturity. As a result, the effect on
a Certificateholder's yield of principal payments occurring at a
rate higher (or lower) than the rate anticipated by the investor
during the period immediately following the issuance of the
related series of Certificates will not be offset by a subsequent
like reduction (or increase) in the rate of principal payments.
When a Mortgage Loan or Contract prepays in full, the
borrower will generally be required to pay interest on the amount
of prepayment only to the prepayment date. When a partial
prepayment of principal is made on a Mortgage Loan (other than a
simple interest Home Equity Loan), the borrower generally will
not be required to pay interest on the amount of the partial
prepayment during the month in which such prepayment is made. In
addition, unless otherwise specified in the related Prospectus
Supplement, a full or partial prepayment will not be required to
be passed through to Certificateholders until the month following
receipt.
Unless otherwise specified in the Prospectus Supplement,
interest with respect to Home Equity Loans accrues on a simple
interest basis. Under the simple interest method, regularly
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scheduled payments (which are based on the amortization of the
loan over a series of equal monthly payments) and other payments
are applied first to interest accrued to the date payment is
received and then to reduce the unpaid principal balance of the
related loan. Each regularly scheduled monthly interest payment
is calculated by multiplying the outstanding principal balance of
the loan by the stated interest rate. Such product is then
multiplied by a fraction, the numerator of which is the number of
days elapsed since the preceding payment of interest was made and
the denominator of which is either 365 or 360, depending on
applicable state law.
As a result of the payment terms of simple interest Home
Equity Loans, the making of a scheduled payment on, or the
prepayment of, such a Home Equity Loan prior to its scheduled due
date may result in the collection of less than one month's
interest on such Home Equity Loan for the period since the
preceding payment was made. Conversely, if the scheduled payment
on such a Home Equity Loan is made after its scheduled payment
date or the Home Equity Loan is prepaid after the scheduled due
date, the collection of interest on such Home Equity Loan for
such period may be greater than one month's interest on such Home
Equity Loan. In addition, the extent to which simple interest
Home Equity Loans experience early payment or late payment of
scheduled payments will correspondingly change the amount of
principal received during a monthly period and, accordingly, the
amount of principal to be distributed on the related Distribution
Date and the amount of unpaid principal due at the stated
maturity of such Home Equity Loans. To the extent shortfalls
attributable to prepayments or the early receipt of a scheduled
payment on Home Equity Loans are not compensated for by any forms
of credit enhancement described in the Prospectus Supplement, the
Certificateholders will experience delays or losses in amounts
due them.
If a Mortgagor pays more than one scheduled installment on
a simple interest Home Equity Loan at a time, the entire amount
of the additional installment will be treated as a principal
prepayment and passed through to Certificateholders in the month
following the month of receipt. In such case, although the
Mortgagor will not be required to make the next regularly
scheduled installment, interest will continue to accrue on the
principal balance of the Home Equity Loan, as reduced by the
application of the early installment. As a result, when the
Mortgagor pays the next required installment, the installment so
paid may be insufficient to cover the interest that has accrued
since the last payment by the Mortgagor. Notwithstanding such
insufficiency, the Mortgagor's Home Equity Loan would be
considered to be current. If specified in the Prospectus
Supplement, the Company will be required to advance the amount of
such insufficiency. This insufficiency will continue until the
installment payments received are once again sufficient to cover
all accrued interest and to reduce the principal balance of the
Home Equity Loan. Depending on the principal balance and interest
rate of the related Home Equity Loan and on the number of
installments that were paid early, there may be extended periods
of time during which Home Equity Loans that are current are not
amortizing.
Factors other than those identified herein and in the
Prospectus Supplement could significantly affect principal
prepayments at any time and over the lives of the Certificates.
The relative contribution of the various factors affecting
prepayment may also vary from time to time. There can be no
assurance as to the rate of payment of principal of the Mortgage
Loans, Agency Securities or Contracts at any time or over the
lives of the Certificates.
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The Prospectus Supplement relating to a series of
Certificates will discuss in greater detail the effect of the
rate and timing of principal payments (including prepayments),
delinquencies and losses on the yield, weighted average lives and
maturities of such Certificates. If a series of Certificates is
backed by a pool of Mortgage Loans that includes Home Equity
Loans providing for balloon payments at maturity, the Prospectus
Supplement will contain information regarding the potential
effect of such Mortgage Loans on the weighted average lives of
such Certificates.
SERVICING OF THE MORTGAGE LOANS AND CONTRACTS
With respect to each series of Certificates, the related
Mortgage Loans will be serviced either (i) by the Company as
primary servicer, (ii) by the Company as master servicer, (iii)
by another institution as primary servicer or (iv) by another
institution as master servicer. If an institution other than the
Company acts as primary servicer or as master servicer for a
series, the Company may have no servicing obligations with
respect to such series. If the Company or another institution
acts as master servicer with respect to a series, the related
Agreement may provide either (i) that the master servicer may
delegate all or a portion of the servicing duties described below
to other servicers but shall remain directly liable for all such
servicing duties (a "Direct Master Servicing Arrangement"), or
(ii) that certain of the servicing duties described below may be
performed directly by other servicers, pursuant to servicing
agreements entered into between such servicers and the Company,
as seller, and assigned to the Trustee, in which event the master
servicer will be obligated to supervise such servicers'
performance but will not itself be obligated to perform such
duties (a "Supervisory Master Servicing Arrangement"). Unless
otherwise specified in the Prospectus Supplement, if the Company
is acting as master servicer under a Direct Master Servicing
Arrangement, the servicing agreement entered into between the
Company and the direct servicer will be deemed to be between the
Company and the direct servicer alone, and the Trustee and the
Certificateholders will have no claims, obligations, duties or
liabilities with respect thereto. Each master servicer will have
the ability to terminate any such other servicer upon terms that
will be agreed to at or before the time the related series of
Certificates is issued. Unless otherwise specified in the
Prospectus Supplement, in the event that the master servicer is
no longer acting as such for the series, the Trustee or a
successor master servicer shall succeed to the master servicer's
rights under the servicing agreement with the primary servicer.
The Prospectus Supplement for each series will specify
whether the Company or another institution will act as primary
servicer or master servicer for such series, and if there is a
master servicer, whether the master servicing arrangement is a
Direct Master Servicing Arrangement or a Supervisory Master
Servicing Arrangement. If the Company acts as master servicer for
a series under a Direct Master Servicing Arrangement, all
references herein to the Company as servicer should be read to
refer to the Company as master servicer, as appropriate. If the
Company acts as master servicer for a series under a Supervisory
Master Servicing Arrangement, such references should be read to
refer to the direct servicers of such series, acting under the
supervision of the Company as master servicer. If an institution
other than the Company acts as primary servicer for a series, or
acts as master servicer for such series under a Direct Master
Servicing Arrangement, all references herein to the Company as
servicer should be read to refer to such institution as
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primary or master servicer, as appropriate. If an institution
other than the Company acts as master servicer with respect to a
series under a Supervisory Master Servicing Arrangement, such
references should be read to refer to the direct servicers of
such series, acting under the supervision of such institution as
master servicer.
With respect to each series of Certificates, except to the
extent the Agreement specifically prescribes other servicing
standards, the related Mortgage Loans will be serviced under
servicing standards substantially equivalent to those required
for approval by FNMA or FHLMC.
Collection and Other Servicing Procedures
Mortgage Loans. The Company, as servicer, will be
responsible for making reasonable efforts to collect all payments
called for under the Mortgage Loans and shall, consistent with
each Agreement, follow such collection procedures as it follows
with respect to mortgage loans in its servicing portfolio which
are comparable to the Mortgage Loans. Consistent with the above,
the Company, as servicer, may, in its discretion, (i) waive any
late payment charge and (ii) if a default on the related Mortgage
Loan has occurred or is reasonably foreseeable, arrange with the
mortgagor, at any time prior to foreclosure, a schedule for the
payment of principal and interest due and unpaid for a period of
up to two years after the date upon which the arrangement with
the mortgagor is entered into (generally, the arrangement period
will not be more than eighteen months). In the event of any such
arrangement the Company will be responsible for distributing
funds with respect to such Mortgage Loan during the scheduled
period in accordance with the original amortization schedule
thereof and without regard to the temporary modification thereof.
The Company, as servicer, will be obligated to follow such
normal practices and procedures as it deems necessary or
advisable to realize upon a defaulted Mortgage Loan. In this
regard, the Company, as servicer, may (directly or through a
local assignee) sell the property at a foreclosure or trustee's
sale, negotiate with the mortgagor for a deed in lieu of
foreclosure or, in the event a deficiency judgment is available
against the mortgagor or other person (see "Certain Legal Aspects
of the Mortgage Loans and Contracts--Anti-Deficiency Legislation
and Other Limitations on Lenders" for a description of the
limited availability of deficiency judgments), foreclose against
such property and proceed for the deficiency against the
appropriate person. The amount of the ultimate net recovery
(including the proceeds of any pool insurance or other
guarantee), after reimbursement to the Company, as servicer, of
its expenses incurred in connection with the liquidation of any
such defaulted Mortgage Loan (including those described in the
next paragraph in the case of second-lien Home Equity Loans) and
prior unreimbursed advances of principal and interest, delinquent
taxes, assessments, insurance premiums and comparable items and
property protection expenses with respect thereto, will be
credited to the Loan Payment Record when realized, and will be
distributed to Certificateholders on the next Distribution Date
following the month of receipt. If specified in the Prospectus
Supplement, if such net recovery exceeds the Principal Balance of
such Mortgage Loan plus one month's interest thereon at the
Remittance Rate, the excess will be paid to the Company as
additional servicing compensation. The Company will not be
required to expend its own funds in connection with any
foreclosure or towards the restoration of any Mortgaged Property
unless it
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shall determine (i) that such restoration or foreclosure will
increase the proceeds of liquidation of the Mortgaged Loan to
Certificateholders after reimbursement to itself for such
expenses and (ii) that such expenses will be recoverable to it
either through liquidation proceeds or insurance proceeds in
respect of the related Mortgage Loan.
The Company, as servicer, will not be obligated to
foreclose on any Mortgaged Property which it believes may be
contaminated with or affected by hazardous or toxic wastes,
materials or substances. See "Certain Legal Aspects of the
Mortgage Loans--Environmental Considerations". The Company will
not be liable to the Certificateholders of a series if it fails
to foreclose on a Mortgaged Property securing a Mortgage Loan in
the related Trust Fund which it believes may be so contaminated
or affected, even if such Mortgaged Property is, in fact, not so
contaminated or affected. If the Company does not foreclose on
such a Mortgaged Property, the Certificateholders of the related
series may experience a loss on the related Mortgage Loan. In
addition, the Company will not be liable to the
Certificateholders if, based on its belief that no such
contamination or effect exists, the Company forecloses on a
Mortgaged Property and takes title to such Mortgaged Property on
behalf of the related Trustee, and thereafter such Mortgaged
Property is determined to be so contaminated or affected.
Unless otherwise specified in the Prospectus Supplement
relating to a series of Certificates, if the Company determines
that all amounts which it expects to recover from or on account
of such a Mortgage Loan have been recovered, the Company's
obligation, if any, to advance delinquent installments of
principal and interest on such Mortgage Loan will cease and the
Principal Balance of such Mortgage Loan will be allocated in
reduction of the Certificate Principal Balance of the
Certificates of the related series in the manner in which losses
are allocated as specified in such Prospectus Supplement.
The Company may not foreclose on any Mortgaged Property
securing a Home Equity Loan unless it forecloses subject to any
senior mortgage on such Mortgaged Property and any outstanding
property taxes. In the event of such foreclosure, the Company
generally will pay, subject to the final sentence of this
paragraph, the entire amount due on such senior mortgage loan to
the senior mortgagee at or prior to the foreclosure sale. If any
senior mortgage is in default after the Company has initiated its
foreclosure action, the Company may advance funds to keep the
senior mortgage current until such time as the Company satisfies
such senior mortgage. In the event foreclosure proceedings have
been instituted on any senior mortgage prior to the initiation of
the Company's foreclosure action, the Company may satisfy the
senior mortgage at the time of the foreclosure sale or take other
action to protect its interest in the related Mortgaged Property.
The Company will take or refrain from taking any such action
based upon the standards and considerations described in the
preceding paragraph.
Unless otherwise specified in the Prospectus Supplement, if
a series of Certificates includes one or more classes of
subordinated Certificates, the Agreement may permit the Company,
at its option, to grant to the holders of certain classes of
subordinated Certificates (the "Loss Certificates") certain
rights in connection with the foreclosure of defaulted Mortgage
Loans in the related Trust Fund. Such rights may be granted on
the date of initial issuance of such series of Certificates or
thereafter and may or may not inure to the benefit of successive
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holders of the Loss Certificates. These rights would include,
among other things, the right to receive notice from the Company
that foreclosure of a defaulted Mortgage Loan is imminent and the
right to instruct the Company to delay the commencement of
foreclosure proceedings for up to six months after the Mortgage
Loan has become delinquent. The Company may also grant the
holders of the Loss Certificates the option to purchase a
defaulted Mortgage Loan at the conclusion of such six-month
period, at a purchase price equal to its unpaid principal balance
plus accrued interest. The proceeds of such purchase would be
deposited in the related Collection Account as liquidation
proceeds. It will be a condition to the exercise of these latter
rights that a reserve fund for the benefit of holders of the
other classes of Certificates of such series and the Company as
servicer be established. An amount equal to 125% of the greater
of the Scheduled Principal Balance (as defined in the related
Prospectus Supplement) of the defaulted Mortgage Loan and the
then current appraised value of the underlying Mortgaged
Property, together with interest at the applicable Mortgage Rate
for the period that foreclosure is delayed, must be deposited
into such reserve fund. The principal purpose of the reserve fund
would be to protect holders of the other classes of Certificates
of such series from any diminution in value of the underlying
Mortgaged Property attributable to the delay in foreclosure.
Amounts on deposit in the reserve fund may be invested in certain
specific investments acceptable to each of the rating agencies
that are rating such Certificates.
The exercise by holders of the Loss Certificates of the
right to delay foreclosure will not alter the obligation of the
Company to make any advances of delinquent Mortgage Loan payments
specified in the Prospectus Supplement. Any such advances made by
the Company after the date foreclosure is delayed will be
recoverable by the Company from amounts on deposit in the reserve
fund. The Company will continue to be entitled to reimbursement
for Nonrecoverable Advances out of the assets of the related
Trust Fund.
The exercise by the holders of the Loss Certificates of any
right to delay commencement of foreclosure proceedings as
described above could affect the amount recovered upon the
liquidation of the related Mortgaged Property and could also
affect the extent of any losses recognized thereon if the amounts
available in the reserve fund are not sufficient to make up the
difference between the net liquidation proceeds and the unpaid
principal balance of the related defaulted Mortgage Loan. There
can be no assurance that this situation would not arise under
circumstances in which it could be in the interest of other
classes of Certificates to proceed promptly to pursue remedies
against the mortgagor and Mortgaged Property in order to expedite
recovery on a defaulted Mortgage Loan. Any right to delay
commencement of foreclosure proceedings granted to the holders of
the Loss Certificates would terminate in certain specified
circumstances, including when such Class's Certificate Principal
Balance had been reduced to zero.
With respect to Cooperative Loans, any prospective
purchaser will generally have to obtain the approval of the board
of directors of the relevant Cooperative before purchasing the
shares and acquiring rights under the related proprietary lease
or occupancy agreement. See "Certain Legal Aspects of the
Mortgage Loans and Contracts" herein. This approval is usually
based on the purchaser's income and net worth and numerous other
factors. Although the Cooperative's approval is unlikely to be
unreasonably withheld or delayed, the necessity of
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acquiring such approval could limit the number of potential
purchasers for those shares and otherwise limit the Trust Fund's
ability to sell and realize the value of those shares.
In general, a "tenant-stockholder" (as defined in Code
Section 216(b)(2)) of a corporation that qualifies as a
"cooperative housing corporation" within the meaning of Code
Section 216(b)(1) is allowed a deduction for amounts paid or
accrued within his taxable year to the corporation representing
his proportionate share of certain interest expenses and certain
real estate taxes allowable as a deduction under Code Section
216(a) to the corporation under Code Sections 163 and 164. In
order for a corporation to qualify under Code Section 216(b)(1)
for its taxable year in which such items are allowable as a
deduction to the corporation, such Section requires, among other
things, that at least 80% of the gross income of the corporation
be derived from its tenant-stockholders (as defined in Code
Section 216(b)(2)). By virtue of this requirement, the status of
a corporation for purposes of Code Section 216(b)(1) must be
determined on a year-to-year basis. Consequently, there can be no
assurance that Cooperatives relating to the Cooperative Loans
will qualify under such Section for any particular year. In the
event that such a Cooperative fails to qualify for one or more
years, the value of the collateral securing any related
Cooperative Loans could be significantly impaired because no
deduction would be allowable to tenant-stockholders under Code
Section 216(a) with respect to those years. In view of the
significance of the tax benefits accorded tenant-stockholders of
a corporation that qualifies under Code Section 216(b)(1), the
likelihood that such a failure would be permitted to continue
over a period of years appears remote.
If a Mortgaged Property has been or is about to be conveyed
by the mortgagor, the Company, as servicer, will be obligated to
accelerate the maturity of the Mortgage Loan, unless it
reasonably believes it is unable to enforce that Mortgage Loan's
"due-on-sale" clause under applicable law or such enforcement
would adversely affect or jeopardize coverage under any related
primary mortgage insurance policy or pool insurance policy. If it
reasonably believes it may be restricted by law, for any reason,
from enforcing such a "due-on-sale" clause, the Company may enter
into an assumption and modification agreement with the person to
whom such property has been or is about to be conveyed, pursuant
to which such person becomes liable under the Mortgage Note. Any
fee collected by the Company for entering into an assumption
agreement will be retained by the Company as additional servicing
compensation. For a description of circumstances in which the
Company may be unable to enforce "due-on-sale" clauses, see
"Certain Legal Aspects of the Mortgage Loans and
Contracts--Enforceability of Certain Provisions". In connection
with any such assumption, the Mortgage Rate borne by the related
Mortgage Note may not be decreased.
The Company, as servicer, will maintain with one or more
depository institutions one or more accounts into which it will
deposit all payments of taxes, insurance premiums, assessments or
comparable items received for the account of the mortgagors.
Withdrawals from such account or accounts may be made only to
effect payment of taxes, insurance premiums, assessments or
comparable items, to reimburse the Company, or applicable
servicer, out of related collections for any cost incurred in
paying taxes, insurance premiums and assessments or otherwise
preserving or protecting the value of the Mortgages, to refund to
mortgagors any amounts
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determined to be overages and to pay interest to mortgagors on
balances in such account or accounts to the extent required by
law.
So long as it acts as servicer of the Mortgage Loans, the
Company, and any successor to the Company appointed following an
Event of Default, will be required to maintain certain insurance
covering errors and omissions in the performance of its
obligations as servicer and certain fidelity bond coverage
ensuring against losses through wrongdoing of its officers,
employees and agents.
Contracts. Pursuant to the Agreement, the Company, as
servicer, will service and administer the Contracts assigned to
the Trustee as more fully set forth below. The Company, either
directly or through servicers subject to general supervision by
the Company, will perform diligently all services and duties
specified in each Agreement, in the same manner as prudent
lending institutions servicing manufactured housing installment
sales contracts of the same type as the Contracts in those
jurisdictions where the related Manufactured Homes are located.
The Company, as servicer, will monitor the performance of each
other servicer, if any, and, unless the related Prospectus
Supplement states that a Supervisory Master Servicing Arrangement
will be in effect, will remain liable for the servicing of the
Contracts in accordance with the terms of the Agreement. The
duties to be performed by the Company will include collection and
remittance of principal and interest payments, collection of
insurance claims and, if necessary, repossession.
The Agreement will provide that, when any Manufactured Home
securing a Contract is about to be conveyed by the borrower, the
Company, as servicer, to the extent it has knowledge of such
prospective conveyance and prior to the time of the consummation
of such conveyance, may exercise its rights to accelerate the
maturity of such Contract under the applicable "due-on-sale"
clause, if any, unless the Company reasonably believes it is
unable to enforce such "due-on-sale" clause under applicable law.
In such case, the Company is authorized to take or enter into an
assumption agreement from or with the person to whom such
Manufactured Home has been or is about to be conveyed, pursuant
to which such person becomes liable under the Contract.
Under the Agreement, the Company, as servicer, will
repossess or otherwise comparably convert the ownership of
properties securing such of the related Contracts as come into
and continue in default and as to which no satisfactory
arrangements can be made for collection of delinquent payments.
In connection with such repossession or other conversion, the
Company will follow such practices and procedures as it deems
necessary or advisable and as shall be normal and usual in its
general servicing activities. The Company, however, will not be
required to expend its own funds in connection with any
repossession or towards the restoration of any property unless it
determines (i) that such restoration or repossession will
increase the proceeds of liquidation of the related Contract to
the Certificateholders after reimbursement to itself for such
expenses and (ii) that such expenses will be recoverable to it
either through liquidation proceeds or through insurance
proceeds.
Private Mortgage Insurance
Generally, Mortgage Loans that the Company originates or
acquires do not have loan-to-value ratios in excess of 95% of
their Original Value (as defined above). Unless otherwise
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specified in the Prospectus Supplement, Mortgage Loans (other
than Home Equity Loans) that the Company originates or acquires
that have an original principal amount exceeding 80% of Original
Value usually will have private mortgage insurance. The Company
generally requires such coverage to continue until the
outstanding principal amount equals or is less than 80% of the
greater of the Original Value and, if permitted under any pool
insurance policy obtained with respect to a series, the then
current value of the property as evidenced by an appraisal
thereof satisfactory to the Company. Private mortgage insurance
policies may be provided by General Electric Mortgage Insurance
Corporation, an affiliate of the Company. Any mortgage insurance
relating to a pool of Contracts will be described in the related
Prospectus Supplement. The Company does not require private
mortgage insurance policies on Home Equity Loans. A private
mortgage insurance policy may provide that, as an alternative to
paying a claim thereunder, the mortgage insurer will have the
right to purchase the Mortgage Loan following the receipt of a
notice of default, at a purchase price equal to the sum of the
principal balance of the Mortgage Loan, accrued interest thereon
and the amount of certain advances made by the Company as
servicer with respect to the Mortgage Loan. The mortgage insurer
may have such purchase right after the borrower has failed to
make three scheduled monthly payments (or one payment if it is
the first payment due on the Mortgage Loan) or after any
foreclosure or other proceeding affecting the Mortgage Loan or
the Mortgaged Property has been commenced. The proceeds of any
such purchase will be distributed to Certificateholders on the
applicable Distribution Date. A mortgage insurer may be more
likely to exercise such purchase option when prevailing interest
rates are low relative to the interest rate borne by the
defaulted Mortgage Loan, in order to reduce the aggregate amount
of accrued interest that the insurer would be obligated to pay
upon payment of a claim.
Hazard Insurance
Mortgage Loans. The Company, as servicer, will cause to be
maintained for each Mortgaged Property a hazard insurance policy.
The coverage of such policy is required to be in an amount not
less than the maximum insurable value of the improvements
securing the related Mortgage Loan from time to time or the
principal balance owing on such Mortgage Loan from time to time,
whichever is less. All amounts collected by the Company for the
benefit of the related Trust Fund under any hazard policy (except
for amounts to be applied to the restoration or repair of
property subject to the related Mortgage or property acquired by
foreclosure or amounts released to the related mortgagor in
accordance with the Company's normal servicing procedures) will
be credited to the related Loan Payment Record and deposited in
the applicable Certificate Account at the times and in the manner
described under "Loan Payment Record" below.
In general, the standard form of fire and extended coverage
policy covers physical damage to or destruction of the
improvements on the property by fire, lightning, explosion,
smoke, windstorm and hail, riot, strike and civil commotion,
subject to the conditions and exclusions particularized in each
policy. Although the policies relating to the Mortgage Loans will
be underwritten by different insurers and, therefore, will not
contain identical terms and conditions, the basic terms thereof
are dictated by state law. Such policies typically do not cover
any physical damage resulting from the following: war,
revolution, governmental actions, floods
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and other water-related causes, earth movement (including
earthquakes, landslides and mud flow), nuclear reactions,
pollution, wet or dry rot, vermin, rodents, insects or domestic
animals, theft and, in certain cases, vandalism. The foregoing
list is merely indicative of certain kinds of uninsured risks and
is not intended to be all-inclusive. If the property securing a
Mortgage Loan is located in a federally designated flood area,
the Agreement will require that flood insurance be maintained in
such amounts as would be required by the Federal National
Mortgage Association in connection with its mortgage loan
purchase program. The Company may also purchase special hazard
insurance against certain of the uninsured risks described above.
See "Credit Support--Special Hazard Insurance".
Most of the properties securing the Mortgage Loans will be
covered by homeowners' insurance policies, which, in addition to
the standard form of fire and extended coverage, provide coverage
for certain other risks. These homeowners' policies typically
contain a "coinsurance" clause which in effect requires the
insured at all times to carry insurance of a specified percentage
(generally 80% to 90%) of the full replacement value of the
improvements on the property in order to recover the full amount
of any partial loss. If the insured's coverage falls below this
specified percentage, then the insurer's liability in the event
of partial loss will not exceed the lesser of (i) the actual cash
value (generally defined as replacement cost at the time and
place of loss, less physical depreciation) of the improvements
damaged or destroyed, or (ii) such proportion of the loss as the
amount of insurance carried bears to the specified percentage of
the full replacement cost of such improvements.
Since the amount of hazard insurance the Company is
required to cause to be maintained on the improvements securing
the Mortgage Loans declines as the principal balances owing
thereon decrease, if the residential properties securing the
Mortgage Loans appreciate in value over time, the effect of
coinsurance in the event of partial loss may be that hazard
insurance proceeds will be insufficient to restore fully the
damaged property.
The Company, as servicer, will cause to be maintained on
any Mortgaged Property acquired upon foreclosure, or by deed in
lieu of foreclosure, on behalf of the Trustee hazard insurance
with extended coverage in an amount which is at least equal to
the lesser of (i) the maximum insurable value from time to time
of the improvements which are a part of such property or (ii) the
unpaid principal balance of the related Mortgage Loan, plus, in
the case of a second priority Home Equity Loan, the unpaid
principal balance of any senior mortgage loan, at the time of
such foreclosure or deed in lieu of foreclosure, plus accrued
interest and the good-faith estimate of the Company of related
liquidation expenses to be incurred in connection therewith.
The Company, as servicer, may maintain, in lieu of causing
individual hazard insurance policies to be maintained with
respect to each Mortgage Loan, one or more blanket insurance
policies covering hazard losses on the Mortgage Loans. The
Company will pay the premium for such policy on the basis
described therein and will pay any deductible amount with respect
to claims under such policy relating to the Mortgage Loans.
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The Company will not require that a standard hazard or
flood insurance policy be maintained on the cooperative dwelling
relating to any Cooperative Loan. Generally, the Cooperative
itself is responsible for maintenance of hazard insurance for the
property owned by the Cooperative and the tenant-stockholders of
that Cooperative do not maintain individual hazard insurance
policies. To the extent, however, that a Cooperative and the
related borrower on a Cooperative Loan do not maintain such
insurance or do not maintain adequate coverage or any insurance
proceeds are not applied to the restoration of damaged property,
any damage to such borrower's cooperative dwelling or such
Cooperative's building could significantly reduce the value of
the collateral securing such Cooperative Loan to the extent not
covered by other credit support.
Contracts. The terms of the Agreement will require the
Company to cause to be maintained with respect to each Contract
one or more hazard insurance policies which provide, at a
minimum, the same coverage as a standard form fire and extended
coverage insurance policy that is customary for manufactured
housing, issued by a company authorized to issue such policies in
the state in which the Manufactured Home is located, and in an
amount which is not less than the maximum insurable value of such
Manufactured Home or the principal balance due from the borrower
on the related Contract, whichever is less. When a Manufactured
Home's location was, at the time of origination of the related
Contract, within a federally designated special flood hazard
area, the Company also shall cause such flood insurance to be
maintained, which coverage shall be at least equal to the minimum
amount specified in the preceding sentence or such lesser amount
as may be available under the federal flood insurance program.
The Company, as servicer, may maintain, in lieu of causing
individual hazard insurance policies to be maintained with
respect to each Manufactured Home, and shall maintain, to the
extent that the related Contract does not require the borrower to
maintain a hazard insurance policy with respect to the related
Manufactured Home, one or more blanket insurance policies
covering losses on the borrowers' interests in the Contracts
resulting from the absence or insufficiency of individual hazard
insurance policies. The Company will pay the premium for such
policy on the basis described therein and will pay any deductible
amount with respect to claims under such policy relating to the
Contracts.
The Company, to the extent practicable, will cause the
borrowers to pay all taxes and similar governmental charges when
and as due. To the extent that nonpayment of any taxes or charges
would result in the creation of a lien upon any Manufactured Home
having a priority equal or senior to the lien of the related
Contract, the Company will pay any such delinquent tax or charge.
Any such payment made by the Company will be reimbursable to the
Company as described under "--Loan Payment Record" below.
If the Company repossesses a Manufactured Home on behalf of
the Trustee, the Company will either (i) maintain at its expense
hazard insurance with respect to such Manufactured Home, or (ii)
indemnify the Trustee against any damage to such Manufactured
Home prior to resale or other disposition.
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Unanticipated Recoveries of Losses on the Mortgage Loans
Unless otherwise specified in the Prospectus Supplement, in
the event that in any calendar month the Company recovers an
amount (an "Unanticipated Recovery") as a result of events such
as an unanticipated insurance settlement, tax refund or mortgagor
bankruptcy distribution, in respect of principal of a Mortgage
Loan which had previously been allocated as a loss to any class
of Certificates, on the Distribution Date in the next succeeding
calendar month the Trustee shall distribute to the holders of
each outstanding class to which such loss had previously been
allocated its share of such Unanticipated Recovery in an amount
not to exceed the amount of such loss previously allocated to
such class, provided that following the Distribution Date on
which the Certificate Principal Balance of a class of
Certificates has been reduced to zero, the holders of such class
shall not be entitled to any share of an Unanticipated Recovery.
Any distributions of Unanticipated Recoveries will not reduce the
Certificate Principal Balances of the class of Certificates
receiving such recoveries.
Advances
Unless otherwise specified in the Prospectus Supplement, in
the event that any borrower fails to make any payment of
principal or interest required under the terms of a Mortgage Loan
or Contract, the Company, as servicer, will be obligated to
advance the entire amount of such payment adjusted in the case of
any delinquent interest payment to the applicable Remittance
Rate. Unless otherwise specified in the Prospectus Supplement and
except as described above under "Credit Support--Purchases of
Liquidating Loans", this obligation to advance will be limited to
amounts which the Company reasonably believes will be recoverable
by it out of liquidation proceeds or otherwise in respect of such
Mortgage Loan or Contract. The Company, or the applicable
servicer, will be entitled to reimbursement for any such advance
from related late payments on the Mortgage Loan or Contract as to
which such advance was made. Furthermore, unless otherwise
specified in the Prospectus Supplement, the Company, or the
applicable servicer, will be entitled to reimbursement for any
such advance (i) from liquidation proceeds or insurance proceeds
received if such Manufactured Home is repossessed or such
Mortgage Loan is foreclosed (and is not purchased by the Company,
as servicer, pursuant to any obligation it may have to purchase
Liquidating Loans) prior to any payment to Certificateholders in
respect of the repossession or foreclosure and (ii) from receipts
or recoveries on all other Mortgage Loans or Contracts or from
any other assets of the Trust Fund, for all or any portion of
such advance which the Company determines, in good faith, may not
be ultimately recoverable from such liquidation or insurance
proceeds (a "Nonrecoverable Advance"). Any Nonrecoverable Advance
will be reimbursable out of the assets of the Trust Fund. The
amount of any scheduled payment required to be advanced by the
Company will not be affected by any agreement between the Company
and a borrower providing for the postponement or modification of
the due date or amount of such scheduled payment. If specified in
the Prospectus Supplement, the Trustee for the related series
will make advances of delinquent payments of principal and
interest in the event of a failure by the Company, as servicer,
to perform such obligation.
Unless otherwise specified in the Prospectus Supplement,
until any Company obligation to purchase Liquidating Loans is
exhausted, the Company will advance delinquent installments
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of principal and interest (adjusted to the applicable Remittance
Rate) on the Mortgage Loans as described above in an aggregate
amount up to the amount of its remaining purchase obligation,
irrespective of whether the Company believes any such advance
will be recoverable. The Company's obligation to advance
delinquent installments of principal and interest (adjusted to
the applicable Remittance Rate) on the Mortgage Loans which it
deems recoverable will be unaffected by the exhaustion of any
obligation of the Company to purchase Liquidating Loans. In the
event that the Company has an obligation to purchase Liquidating
Loans, any outstanding unreimbursed advances may be charged
against the amount of such obligation, subject to reinstatement
on account of net recoveries on such Mortgage Loan.
Any such obligation to make advances may be limited to
amounts due holders of senior Certificates of the related series
or may be limited to specified periods or otherwise as specified
in the Prospectus Supplement.
The Company, or the applicable servicer, will make such
advances in order to maintain a regular flow of scheduled
interest and principal payments to holders of the relevant
classes of Certificates. Such advances do not represent an
obligation of the Company or the applicable servicer to guarantee
or insure against losses.
Loan Payment Record
The Agreement will require that the Company, as servicer,
establish and maintain a Loan Payment Record to which will be
credited the following payments received by the Company with
respect to the Mortgage Loans or Contracts included in the
related Trust Fund:
(i) All payments on account of principal, including
Principal Prepayments (other than principal payments due and
payable on or before, and Principal Prepayments received before,
the Cut-off Date), received from borrowers (excluding any amounts
specified in the Prospectus Supplement);
(ii) All payments (other than those due and payable on or
before the Cut-off Date) on account of interest received from
borrowers (adjusted to the applicable Remittance Rate) and
excluding any other amounts specified in the Prospectus
Supplement;
(iii) All amounts received by the Company, or the
applicable servicer, in connection with the liquidation of any
Mortgaged Property or Manufactured Home, and the purchase price
including applicable interest thereon, of any Mortgage Loan or
Contract purchased by the Company pursuant to the applicable
Agreement or any amount paid in connection with the substitution
of a Mortgage Loan;
(iv) All proceeds received by the Company, or the
applicable servicer, under any private mortgage insurance or any
title, hazard, special hazard, pool or other insurance policy
covering any Mortgage Loan or Contract, other than proceeds to be
applied to the restoration or repair of the property subject to
the related Mortgage or Contract or released to the borrower in
accordance with the normal servicing procedures of the Company;
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(v) All proceeds received in respect of any Mortgaged
Property acquired on behalf of the Trustee; and
(vi) Unanticipated Recoveries.
The Company will not be required to credit to the Loan
Payment Record payments on any Mortgage Loan or Contract that has
been previously released from the Trust Fund, amounts
representing fees or late charge penalties payable by borrowers
or amounts received by the Company for the account of borrowers
for application towards the payment of taxes, insurance premiums,
assessments and similar items.
Unless otherwise specified in the Prospectus Supplement,
the Company, as servicer, may, from time to time, make debits to
the Loan Payment Record for the following purposes:
(i) To reimburse the Company, or the applicable servicer,
for expenses incurred by it in connection with the liquidation of
any Mortgage Loan (including amounts advanced on any senior
mortgage loans) or Manufactured Home and prior unreimbursed
advances of delinquent installments of principal and interest,
delinquent taxes, assessments, insurance premiums and comparable
items and property protection expenses with respect thereto, in
an amount not to exceed the amount of the proceeds from any such
liquidation (including insurance proceeds) credited to the Loan
Payment Record, and, if specified in the Prospectus Supplement,
to the extent such proceeds, net of such expenses, exceed the
Principal Balance of such Mortgage Loan or Contract plus one
month's interest thereon at the applicable Remittance Rate, to
pay to the Company such excess as additional servicing
compensation;
(ii) To reimburse the Company, or the applicable servicer,
for expenses reimbursable under any insurance policy covering a
Mortgage Loan and amounts expended by the Company in good faith
in connection with the restoration of a Mortgaged Property
damaged by an uninsured cause, in an amount not to exceed the
proceeds from any insurance covering such Mortgage Loan and any
liquidation thereof credited to the Loan Payment Record;
(iii) To reimburse the Company for certain expenses
relating to the Agreement as to which the Company is entitled to
indemnification or reimbursement pursuant to the Agreement;
(iv) To pay to the Company amounts received in respect of
any Mortgage Loan or Contract purchased by the Company as
required by the Agreement to the extent that the distribution of
any such amounts on the Distribution Date upon which the proceeds
of such purchase are distributed would make the total amount
distributed in respect thereof greater than the Principal Balance
thereof plus, unless otherwise specified in the Prospectus
Supplement, one month's interest thereon at the applicable
Remittance Rate, net of any unreimbursed advances of delinquent
installments of principal and interest made by the Company;
(v) To reimburse the Company (or, if applicable, the
Guarantor or any other entity) for any previous advance of
delinquent installments of principal and interest (adjusted to
the applicable Remittance Rate) in respect of any Mortgage Loan
or Contract to the extent of
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recoveries, including late payments and liquidation proceeds, on
such Mortgage Loan or Contract;
(vi) To reimburse the Company from any borrower payment of
interest or other recovery with respect to a particular Mortgage
Loan, to the extent not previously retained by the Company, for
unpaid servicing fees with respect to such Mortgage Loan, subject
to certain limitations;
(vii) To reimburse the Company (or, if applicable, the
Trustee, the Guarantor or any other entity) for any
Nonrecoverable Advance;
(viii) To make deposits into the Certificate Account; and
(ix) To deduct any amount credited to the Loan Payment
Record in error.
In addition, if specified in the Prospectus Supplement
relating to a Trust Fund which includes second-priority Home
Equity Loans, the Company will be entitled to be reimbursed, out
of payments received on a second-priority Home Equity Loan, for
funds advanced to keep the related senior mortgages current.
On the date or dates specified in the Prospectus Supplement
(each, a "Deposit Date") prior to each Distribution Date, unless
otherwise specified in the Prospectus Supplement, the Company
will transfer to the Certificate Account the payments in respect
of the Mortgage Loans or Contracts described above, net of any
debits made thereto as described above, which were received by it
after the Cut-off Date and before the fifth business day next
preceding such Distribution Date (the "Determination Date"),
together with any required advances of delinquent principal and
interest payments to be made by it, except (i) Principal
Prepayments received during the month of such deposit (other than
as described in the next sentence) and all related payments of
interest representing interest for the month of deposit or any
portion thereof and (ii) payments which represent early receipt
of scheduled payments of principal and interest due on a date or
dates subsequent to the first day of the month of deposit. In
addition, unless otherwise specified in the Prospectus
Supplement, the Company will transfer to the Certificate Account
(i) the amount of any voluntary prepayment in full (net of any
interest thereon) received by the Company (or, in the case of a
Mortgage Loan master-serviced by the Company, of which the
Company receives notice) during the period from the first day
through the fifteenth day of the month of such Distribution Date
and any payment made by the Company in connection with the
repurchase of a Mortgage Loan that has been modified in lieu of
refinancing during such period and (ii) the amount of any
Compensating Interest Payment for such Distribution Date, as
described in the Prospectus Supplement. The net amounts described
in the two preceding sentences are the "Available Funds" for a
series of Certificates with respect to any Distribution Date,
provided that such Available Funds shall not include
Unanticipated Recoveries. Unless otherwise specified in the
Prospectus Supplement, all transfers by the Company to the
Certificate Account will be made by transfer of next-day funds.
Although such next-day funds may have been credited to the
Certificate Account, until such funds become available to the
Trustee under applicable law and procedures relating to such
transfers, such funds will not be available to
Certificateholders. Unless otherwise specified in the Prospectus
Supplement, prior to transferring
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such funds, the Company may commingle payments received in
respect of the Mortgage Loans or Contracts and may invest such
payments for its own account. Income realized on the investment
of such payments pending deposit into the Certificate Account
will be retained by the Company as additional servicing
compensation.
As a result of the Company's access to payments received in
respect of the Mortgage Loans prior to the time such payments
become available to the Trustee in the Certificate Account,
creditors or a trustee-in-bankruptcy for the Company may be able
to assert rights in such payments superior to those of the
Trustee.
If specified in the Prospectus Supplement, the Company may
establish, or provide for the establishment of, an account (the
"Collection Account") in lieu of the Loan Payment Record
described above. If so specified, all amounts to be credited or
debited to the Loan Payment Record will instead be deposited in
or withdrawn from the Collection Account.
Servicing and Other Compensation and Payment of Expenses
Unless otherwise specified in the Prospectus Supplement,
the Company's primary compensation for its servicing activities
will come from the payment to it, with respect to each interest
payment on a Mortgage Loan or Contract, of all or a portion of
the difference between the Mortgage Rate for such Mortgage Loan
or Contract and the related Remittance Rate. In addition to the
primary compensation, the Company will retain all assumption
fees, late payment charges and other miscellaneous charges, all
to the extent collected from borrowers and, unless otherwise
specified in the Prospectus Supplement, the investment income
described in the second preceding paragraph. In the event the
Company or another institution is acting as master servicer under
an Agreement, the master servicer will receive compensation with
respect to the performance of its activities as master servicer.
Unless otherwise specified in the Prospectus Supplement,
the Company will be responsible for paying all expenses incurred
in connection with the servicing of the Mortgage Loans or
Contracts (subject to limited reimbursement as described in "Loan
Payment Record" above), including, without limitation, payment of
any premium for any Advance Guarantee, Liquidating Loan
Guarantee, Deposit Guarantee, pool insurance policy, special
hazard policy, bankruptcy bond, repurchase bond or other
guarantee or surety, payment of the fees and the disbursements of
the Trustee, the Administrator (if any) and the independent
accountants, payment of the compensation of any direct servicers
of the Mortgage Loans, payment of all fees and expenses in
connection with the realization upon defaulted Mortgage Loans or
Contracts and payment of expenses incurred in connection with
distributions and reports to Certificateholders. Unless otherwise
specified in the Prospectus Supplement, the Company may assign
any of its primary servicing compensation in excess of that
amount customarily retained as servicing compensation for similar
assets.
Resignation, Succession and Indemnification of the Company
The Agreement will provide that, except as described in the
second and third succeeding paragraphs, the Company may not
resign from its obligations and duties as servicer or master
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servicer thereunder, except upon determination that the Company's
performance of such duties is no longer permissible under
applicable law or as provided in the last paragraph under this
heading. No such resignation will become effective until the
Trustee or a successor has assumed the Company's servicing
obligations and duties under such Agreement. The Guarantor's
obligations under any Advance Guarantee, Liquidating Loan
Guarantee or Deposit Guarantee will, upon issuance thereof, be
irrevocable, subject to certain limited rights of assignment as
described in the Prospectus Supplement if applicable.
The Agreement will provide that neither the Company nor, if
applicable, the Guarantor, nor any of their respective directors,
officers, employees or agents, shall be under any liability to
the Trust Fund or the Certificateholders of the related series
for taking any action or for refraining from taking any action
pursuant to such Agreement, or for errors in judgment; provided,
however, that neither the Company nor, if applicable, the
Guarantor, nor any such person, will be protected against any
liability which would otherwise be imposed by reason of willful
misfeasance, bad faith or gross negligence in the performance of
duties or by reason of reckless disregard of obligations and
duties thereunder. The Agreement will also provide that the
Company and, if applicable, the Guarantor and their respective
directors, officers, employees and agents are entitled to
indemnification by the related Trust Fund and will be held
harmless against any loss, liability or expense incurred in
connection with any legal action relating to the Agreement or the
Certificates, other than any loss, liability or expense related
to any specific Mortgage Loan or Contract (except as otherwise
reimbursable under the Agreement) or incurred by reason of
willful misfeasance, bad faith or gross negligence in the
performance of duties thereunder or by reason of reckless
disregard of obligations and duties thereunder. In addition, each
Agreement will provide that neither the Company nor, if
applicable, the Guarantor is under any obligation to appear in,
prosecute or defend any legal action which is not incidental to
the Company's servicing responsibilities under such Agreement or
the Guarantor's payment obligations under any Limited Guarantee,
respectively, and which in its respective opinion may involve it
in any expense or liability. Each of the Company and, if
applicable, the Guarantor may, however, in its respective
discretion undertake any such action which it may deem necessary
or desirable in respect of such Agreement and the rights and
duties of the parties thereto and the interests of the
Certificateholders thereunder. In such event, the legal expenses
and costs of such action and any liability resulting therefrom
will be expenses, costs and liabilities of the Trust Fund, and
the Company and, if applicable, the Guarantor, will be entitled
to be reimbursed therefor from amounts credited to the Loan
Payment Record.
Any corporation into which the Company may be merged or
consolidated or any corporation resulting from any merger,
conversion or consolidation to which the Company is a party, or
any corporation succeeding to the business of the Company, or any
corporation more than 50% of the voting stock of which is owned,
directly or indirectly, by General Electric Company, or any
limited partnership, the sole general partner of which is either
the Company or a corporation more than 50% of the voting stock of
which is owned, directly or indirectly, by General Electric
Company, which assumes the obligations of the Company, will be
the successor of the Company under each Agreement.
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The Company also has the right to assign its rights, and
delegate its duties and obligations, as servicer under the
Agreement for each series of Certificates; provided that (i) the
purchaser or transferee accepting such assignment or delegation
is qualified to service mortgage loans for FNMA or FHLMC, is
reasonably satisfactory to the Trustee for such series of
Certificates and executes and delivers to the Trustee an
agreement, in form and substance reasonably satisfactory to the
Trustee, which contains an assumption by such purchaser or
transferee of the due and punctual performance and observance of
each covenant and condition to be performed or observed by the
servicer under the Agreement from and after the date of such
agreement and (ii) each applicable Rating Agency's rating of any
Certificates of such series in effect immediately prior to such
assignment or delegation would not be qualified, downgraded or
withdrawn as a result thereof. In the case of any such assignment
or delegation, the Company will be released from its obligations
as servicer under the Agreement except for liabilities and
obligations incurred prior to such assignment or delegation.
THE POOLING AND SERVICING AGREEMENT
The following summaries describe certain provisions of the
Pooling and Servicing Agreements. The summaries do not purport to
be complete and are subject to, and qualified in their entirety
by reference to, the provisions of the Pooling and Servicing
Agreements. Where particular provisions or terms used in the
Pooling and Servicing Agreements are referred to, such provisions
or terms are as specified in the Pooling and Servicing
Agreements. Each of the Pooling and Servicing Agreements may
establish one or more Trust Funds.
Assignment of Assets
Assignment of the Mortgage Loans. At the time of issuance
of a series of Certificates, the Company, as seller, will assign
the related Mortgage Loans to the Trustee, together with all
principal and interest, subject to exclusions specified in the
Prospectus Supplement, received by the Company on or with respect
to such Mortgage Loans on or after the Cut-off Date other than
principal and interest due and payable on or before, and
Principal Prepayments received before, the Cut-off Date. The
Trustee will, concurrently with such assignment, execute,
countersign and deliver the Certificates to the Company in
exchange for the Mortgage Loans. Each Mortgage Loan will be
identified in a schedule appearing as an exhibit to the
Agreement. Such schedule will include information as to the
Principal Balance of each Mortgage Loan as of the Cut-off Date,
as well as information respecting the Mortgage Rate, the
scheduled monthly payment of principal and interest as of the
Cut-off Date and the maturity date of each Mortgage Note.
In addition, as to each Mortgage Loan, the Company, as
seller, will deliver to the Trustee, unless otherwise specified
in the Prospectus Supplement or as described below, the Mortgage
Note and Mortgage, any assumption and modification agreement and
an assignment of the Mortgage to the Trustee in recordable form
(other than in respect of unavailable recording information). In
addition, unless otherwise specified in the Prospectus
Supplement, the Company will also deliver to the Trustee
originals of the recorded Mortgages, any intervening assignments
of the Mortgages and title insurance policies with respect to the
Mortgage Loans, as promptly as practicable, and in any case
within thirty days, after receiving all such documents from the
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applicable recording offices and title insurance companies.
Pending such delivery, the Company will retain and furnish to the
Trustee upon request copies of the Mortgages and intervening
assignments of Mortgage delivered for recording and the evidence
of title insurance issued at origination of the Mortgage Loans.
The Company will retain and furnish to the Trustee upon request
any applicable evidence of primary mortgage insurance so long as
such insurance remains in force.
The Company may deliver to the Trustee, in lieu of the
original Mortgage Note, a new promissory note signed by the
borrower confirming its obligation under the original Mortgage
Note (a "Confirmatory Mortgage Note"). Furthermore, a Trust Fund
may include Mortgage Loans where the original Mortgage Note or a
Confirmatory Mortgage Note is not delivered to the Trustee if the
Company instead delivers to the Trustee an affidavit certifying
that the Company was the sole owner of the indebtedness evidenced
by such note and the original thereof has been lost or destroyed
and the Company indemnifies the Trust Fund against any loss,
liability, damage, claim or expense resulting from the Company's
failure to have delivered the original Mortgage Note or
Confirmatory Mortgage Note. Such indemnification will be
terminated if the Company subsequently delivers to the Trustee
the original Mortgage Note or a Confirmatory Mortgage Note.
Unless otherwise specified in the applicable Prospectus
Supplement, no more than 1% of the Mortgage Loans in any Mortgage
Pool, measured by Principal Balance as of the related Cut-Off
Date, may consist of Mortgage Loans as to which the Company has
failed to deliver the original Mortgage Note or Confirmatory
Mortgage Note.
Unless otherwise specified in the Prospectus Supplement,
the Company may refrain from recording the assignments of the
Mortgage Loans prior to the occurrence of certain events set
forth in the related Agreement. Although such recordation is not
necessary to make the assignment of the Mortgage Loans to the
Trustee effective, if the Company were to make a sale,
assignment, satisfaction or discharge of any Mortgage Loan prior
to recording or filing the assignments to the Trustee, the other
parties to such sale, assignment, satisfaction or discharge might
have rights superior to those of the Trustee. If the Company were
to do so without authority under the Agreement, it would be
liable to the related Certificateholders. Moreover, if insolvency
proceedings relating to the Company were commenced prior to such
recording or filing, creditors of the Company may be able to
assert rights in the affected Mortgage Loans superior to those of
the Trustee.
With respect to any Mortgage Loans which are Cooperative
Loans, the Company, as seller, will cause to be delivered to the
Trustee the related original cooperative note endorsed to the
order of the Trustee (or the lost-note affidavit and
indemnification described in the second preceding paragraph), the
original security agreement, the proprietary lease or occupancy
agreement, the recognition agreement, an executed financing
agreement and the relevant stock certificate and related blank
stock powers. The Company will file in the appropriate office an
assignment and a financing statement evidencing the Trustee's
security interest in each Cooperative Loan.
Unless otherwise specified in the related Prospectus
Supplement, in the Agreement the Company, as seller, generally
will represent and warrant to the Trustee, among other things,
that
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(i) the information set forth in the schedule of Mortgage Loans
attached thereto is correct in all material respects at the date
or dates respecting which such information is furnished; (ii) a
lender's title insurance policy or binder, or other assurance of
title insurance customary in the relevant jurisdiction therefor,
for each Mortgage Loan subject to the Agreement was issued on the
date of origination thereof and each such policy or binder
assurance is valid and remains in full force and effect; (iii) at
the date of initial issuance of the Certificates, the Company has
good title to the Mortgage Loans and the Mortgage Loans are free
of offsets, defenses or counterclaims; (iv) at the date of
initial issuance of the Certificates, each Mortgage is a valid
first or, in the case of a second priority Home Equity Loan,
second lien on the property securing the Mortgage Note (subject
only to (a) the lien of current real property taxes and
assessments, (b) covenants, conditions, and restrictions, rights
of way, easements and other matters of public record as of the
date of the recording of such Mortgage, such exceptions appearing
of record being acceptable to mortgage lending institutions
generally in the area wherein the property subject to the
Mortgage is located or specifically reflected in the appraisal
obtained by the Company, (c) in the case of a second-priority
Home Equity Loan, the lien of the related first mortgage, and (d)
other matters to which like properties are commonly subject which
do not materially interfere with the benefits of the security
intended to be provided by such Mortgage) and such property is
free of material damage and is in good repair; (v) at the date of
initial issuance of the Certificates, no Mortgage Loan is 30 or
more days delinquent and there are no delinquent tax or
assessment liens against the property covered by the related
Mortgage; (vi) at the date of initial issuance of the
Certificates, the portion of each Mortgage Loan, if any, which in
the circumstances set forth above under "Servicing of the
Mortgage Loans--Private Mortgage Insurance" should be insured
with a private mortgage insurer is so insured; and (vii) each
Mortgage Loan at the time it was made complied in all material
respects with applicable state and federal laws, including,
without limitation, usury, equal credit opportunity and
disclosure laws.
In the event that the Company has acquired the Mortgage
Loans for a series, if so specified in the related Prospectus
Supplement, the Company may, in lieu of making the
representations described in the preceding paragraph, cause the
entity from which the Company acquired such Mortgage Loans to
make such representations (other than those regarding the
Company's title to the Mortgage Loans, which will in all events
be made by the Company), in the sales agreement pursuant to which
such Mortgage Loans are acquired, or if such entity is acting as
a servicer, in its servicing agreement. In such event such
representations, and the Company's rights against such entity in
the event of a breach thereof, will be assigned to the Trustee
for the benefit of the holders of the Certificates of such
series.
Assignment of Agency Securities. The Company, as seller,
will cause the Agency Securities to be registered in the name of
the Trustee or its nominee, and the Trustee concurrently will
execute, countersign and deliver the Certificates. Each Agency
Security will be identified in a schedule appearing as an exhibit
to the Agreement, which will specify as to each Agency Security
the original principal amount and outstanding principal balance
as of the Cut-off Date, the annual pass-through rate (if any) and
the maturity date. The Company will represent and warrant to the
Trustee, among other things, that the information contained in
the Agency Securities schedule is true and correct and that
immediately prior to the transfer of the Agency
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Securities to the Trustee, the Company had good title to, and was
the sole owner of, each Agency Security.
Assignment of Contracts. The Company, as seller, will cause
the Contracts to be assigned to the Trustee, together with
principal and interest due on or with respect to the Contracts
after the Cut-off Date specified in the related Prospectus
Supplement. Each Contract will be identified in a loan schedule
appearing as an exhibit to the related Agreement. Such loan
schedule will specify, with respect to each Contract, among other
things: the original principal balance and the outstanding
principal balance as of the close of business on the Cut-off
Date; the interest rate; the current scheduled payment of
principal and interest; and the maturity date.
In addition, with respect to each Contract, the Company
will deliver or cause to be delivered to the Trustee, the
original Contract and copies of documents and instruments related
to each Contract and the security interest in the Manufactured
Home securing each Contract. To give notice of the right, title
and interest of the Certificateholders to the Contracts, the
Company will cause a UCC-1 financing statement to be filed
identifying the Trustee as the secured party and identifying all
Contracts as collateral. Unless otherwise specified in the
related Prospectus Supplement, the Contracts will not be stamped
or otherwise marked to reflect their assignment from the Company
to the Trustee. Therefore, if a subsequent purchaser were able to
take physical possession of the Contracts without notice of such
assignment, the interest of the Certificateholders in the
Contracts could be defeated. See "Certain Legal Aspects of the
Mortgage Loans and Contracts".
The Company, as seller, will provide limited
representations and warranties to the Trustee concerning the
Contracts. Such representations and warranties will include: (i)
that the information contained in the loan schedule provides an
accurate listing of the Contracts and that the information
respecting such Contracts set forth in such loan schedule is true
and correct in all material respects at the date or dates
respecting which such information is furnished; (ii) that,
immediately prior to the conveyance of the Contracts, the Company
had good title to, and was sole owner of, each such Contract; and
(iii) that there has been no other sale by it of such Contract
and that the Contract is not subject to any lien, charge,
security interest or other encumbrance.
Repurchase or Substitution
The Trustee will review the documents delivered to it with
respect to the assets of the related Trust Fund. Unless otherwise
specified in the Prospectus Supplement, if any document is not
delivered or is found to be defective in any material respect and
the Company cannot deliver such document or cure such defect
within 60 days after notice thereof (which the Trustee will
undertake to give within 45 days of the delivery of such
documents), the Company will, not later than the first
Distribution Date which is more than ten days after such 60-day
period, (a) remove the affected Mortgage Loan or Contract from
the Trust Fund and substitute one or more other mortgage loans or
contracts therefor or (b) repurchase the Mortgage Loan or
Contract from the Trustee for a price equal to 100% of its
Principal Balance plus interest thereon at the applicable
Remittance Rate from the date on which interest was last paid to
the first day of the month in
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which such purchase price is to be distributed, net of any
unreimbursed advances of principal and interest thereon made by
the Company as servicer. Such purchase price will be deposited in
the Certificate Account on the business day preceding such
Distribution Date. Unless otherwise provided in the Agreement,
this repurchase and substitution obligation will constitute the
sole remedy available to Certificateholders or the Trustee on
behalf of Certificateholders against the Company for a material
defect in a document relating to a Mortgage Loan or Contract.
Unless otherwise specified in the Prospectus Supplement,
the Company will agree to either (a) cure in all material
respects any breach of any representation or warranty set forth
in the related Agreement that materially and adversely affects
the interests of the Certificateholders in a Mortgage Loan (a
"Defective Mortgage Loan") or Contract within 60 days of its
discovery by the Company or its receipt of notice thereof from
the Trustee, (b) repurchase such Defective Mortgage Loan or
Contract not later than the first Distribution Date which is more
than ten days after such 60-day period for a price equal to 100%
of its Principal Balance plus interest thereon at the applicable
Remittance Rate from the date on which interest was last paid to
the first day of the month in which such purchase price is to be
distributed, net of any unreimbursed advances of principal and
interest thereon made by the Company as servicer, or (c) remove
the affected Mortgage Loan or Contract from the Trust Fund and
substitute one or more other mortgage loans or contracts
therefor. Such purchase price will be deposited in the
Certificate Account on the business day preceding such
Distribution Date. Unless otherwise provided in the Agreement,
this repurchase or substitution obligation will constitute the
sole remedy available to Certificateholders or the Trustee on
behalf of Certificateholders for any such breach.
If so specified in the Prospectus Supplement for a series
where the Company has acquired the related Mortgage Loans, in
lieu of agreeing to repurchase or substitute Mortgage Loans as
described above, the Company may obtain such an agreement from
the entity which sold such mortgage loans, which agreement will
be assigned to the Trustee for the benefit of the holders of the
Certificates of such series. In such event, unless otherwise
specified in the related Prospectus Supplement, the Company will
have no obligation to repurchase or substitute mortgage loans if
such entity defaults in its obligation to do so.
If a mortgage loan or contract is substituted for another
Mortgage Loan or Contract as described above, the new mortgage
loan or contract will, unless otherwise specified in the
Prospectus Supplement, (i) have a Principal Balance (together
with any other new mortgage loan or contract so substituted), as
of the first Distribution Date following the month of
substitution, after deduction of all payments due in the month of
substitution, not in excess of the Principal Balance of the
removed Mortgage Loan or Contract as of such Distribution Date
(the amount of any shortfall, plus one month's interest thereon
at the applicable Remittance Rate, to be deposited in the
Certificate Account on the business day prior to the applicable
Distribution Date), (ii) have a Mortgage Rate not less than, and
not more than one percentage point greater than, that of the
removed Mortgage Loan or Contract, (iii) have a Remittance Rate
equal to that of the removed Mortgage Loan or Contract, (iv) have
a remaining term to stated maturity not later than, and not more
than one year less than, the remaining term to stated maturity of
the removed Mortgage Loan or Contract, (v) have a current loan to
Original Value not greater than that of the removed Mortgage Loan
or Contract, and (vi) in the reasonable determination of the
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Company, be of the same type, quality and character as the
removed Mortgage Loan or Contract (as if the defect or breach
giving rise to the substitution had not occurred) and be, as of
the substitution date, in compliance with the representations and
warranties contained in the Agreement.
If a REMIC election is to be made with respect to all or a
portion of a Trust Fund, any such substitution will occur within
two years after the initial issuance of the related Certificates.
If no REMIC election is made, any substitution will be made
within 90 days after the initial issuance of the related
Certificates.
Certain Refinancings
The Agreement will provide that if the Company in its
individual capacity agrees to refinance any Mortgage Loan upon
the request of the related Mortgagor, such Mortgage Loan will be
assigned to the Company by the Trustee upon certification that
the Principal Balance of such Mortgage Loan and accrued and
unpaid interest thereon at the Remittance Rate has been credited
to the related Loan Payment Record.
Evidence as to Compliance
The Agreement will provide that a firm of independent
public accountants will furnish to the Trustee on or before March
31 of each year, beginning with March 31 in the year which begins
not less than three months after the date of the initial issue of
Certificates, a report as to compliance by the Company with the
minimum servicing standards set forth in the Uniform Single
Attestation Program for Mortgage Bankers ("USAP") with respect to
the mortgage loans (or, if the Agreement relates to Home Equity
Loans, with respect to the home equity loans) in the Company's
servicing portfolio. In connection with the preparation of such
report, the Company will provide to such firm of independent
public accountants a statement signed by an officer of the
Company to the effect that the Company has complied in all
material respects with the minimum servicing standards set forth
in the USAP with respect to the mortgage loans (or, if the
Agreement relates to Home Equity Loans, with respect to the home
equity loans) in the Company's servicing portfolio or, if there
has been material noncompliance with such servicing standards,
describing such noncompliance.
The Agreement will also provide for delivery to the Trustee
on or before March 31 of each year, beginning with March 31 in
the year which begins not less than three months after the date
of the initial issue of the Certificates, a statement signed by
an officer of the Company, as servicer, to the effect that the
Company, as servicer, has fulfilled its material obligations
under the Agreement throughout the preceding year or, if there
has been a default in the fulfillment of any such obligations,
describing each such default.
List of Certificateholders
Upon written request of the Trustee, or, if the Guarantor
has issued any Limited Guarantee with respect to such
Certificates, the Guarantor, the Certificate Registrar will
provide to the Trustee, or, if applicable, the Guarantor, within
fifteen days after receipt of such request, a
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list of the names and addresses of all Certificateholders of
record of a particular series as of the most recent Record Date
for payment of distributions to Certificateholders of that
series. Upon written request of three or more Certificateholders
of record of a series of Certificates for purposes of
communicating with other Certificateholders with respect to their
rights under the Agreement for such series, the Trustee will
afford, within five business days after the receipt of such
request, such Certificateholders access during business hours to
the most recent list of Certificateholders of that series held by
the Trustee. If such list is as of a date more than 90 days prior
to the date of receipt of a request from such Certificateholders,
the Trustee shall promptly request from the Certificate Registrar
a current list and will afford such requesting Certificateholders
access to such list promptly upon receipt.
The Agreement will not provide for the holding of any
annual or other meetings of Certificateholders.
The Trustee
Any commercial bank or trust company serving as Trustee may
have normal banking relationships with the Company. In addition,
the Company and the Trustee acting jointly will have the power
and the responsibility for appointing co-trustees or separate
trustees of all or any part of the Trust Fund relating to a
particular series of Certificates. In the event of such
appointment, all rights, powers, duties and obligations conferred
or imposed upon the Trustee by the Agreement shall be conferred
or imposed upon the Trustee and such separate trustee or
co-trustee jointly, or, in any jurisdiction in which the Trustee
shall be incompetent or unqualified to perform certain acts,
singly upon such separate trustee or co-trustee who shall
exercise and perform such rights, powers, duties and obligations
solely at the direction of the Trustee.
The Trustee will make no representations as to the validity
or sufficiency of the Agreement, the Certificates (other than the
signature and countersignature of the Trustee on the
Certificates) or of any Mortgage Loan, Agency Security, Contract
or related document, and will not be accountable for the use or
application by the Company of any funds paid to the Company in
respect of the Certificates or the related assets, or amounts
credited to the Loan Payment Record or deposited into the
Certificate Account. If no Event of Default has occurred, the
Trustee will be required to perform only those duties
specifically required of it under the Agreement. However, upon
receipt of the various certificates, reports or other instruments
required to be furnished to it, the Trustee will be required to
examine them to determine whether they conform to the
requirements of the Agreement.
The Trustee may resign at any time, and the Company may
remove the Trustee if the Trustee ceases to be eligible to
continue as such under the Agreement, if the Trustee becomes
insolvent or in such other instances, if any, as are set forth in
the Agreement. Following any resignation or removal of the
Trustee, the Company will be obligated to appoint a successor
Trustee, any such successor to be approved by the Guarantor if so
specified in the Prospectus Supplement in the event that the
Guarantor has issued any Limited Guarantee with respect to the
Certificates. Any resignation or removal of the Trustee and
appointment of a successor Trustee does not become effective
until acceptance of the appointment by the successor Trustee.
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Administration of the Certificate Account
The Agreement will require that the Certificate Account be
either (i) maintained with a depository institution the debt
obligations of which are, at the time of any deposit therein,
rated at least "AA" (or the equivalent) by each nationally
recognized statistical rating organization that rated the
Certificates, (ii) an account or accounts the deposits in which
are fully insured by either the Bank Insurance Fund (the "BIF")
of the Federal Deposit Insurance Corporation (the "FDIC") or the
Savings Association Insurance Fund (as successor to the Federal
Savings and Loan Insurance Corporation) ("SAIF") of the FDIC,
(iii) an account or accounts with a depository institution, which
accounts are insured by the BIF or SAIF (to the limits
established by the FDIC), and which uninsured deposits are
invested in United States government securities or other high
quality investments, or are otherwise secured to the extent
required by each rating agency that rates the Certificates such
that, as evidenced by an opinion of counsel, the holders of the
Certificates have a claim with respect to the funds in the
account or a perfected first security interest against any
collateral securing such funds that is superior to claims of any
other depositors or creditors of the depository institution with
which the account is maintained, (iv) a trust account maintained
with the corporate trust department of a federal or state
chartered depository institution or trust company with trust
powers and acting in its fiduciary capacity for the benefit of
the Trustee or (v) an account as will not cause any of the rating
agencies that rates the Certificates to downgrade or withdraw its
then-current rating assigned to the Certificates.
Not later than the second business day prior to each
Distribution Date, the Company, as servicer, will furnish a
separate statement to the Trustee for the Certificates setting
forth, among other things, the amount to be distributed with
respect to the Certificates on the next succeeding Distribution
Date to Certificateholders, with amounts allocable to principal
and to interest stated separately and, if applicable, information
relating to the amount available for the purchase of Liquidating
Loans.
Reports to Certificateholders
At least two Business Days before each Distribution Date,
unless otherwise specified in the Prospectus Supplement, the
Company, as servicer, will furnish to the Trustee for mailing to
Certificateholders on such Distribution Date, a statement
generally setting forth, to the extent applicable to any series,
among other things:
(i) The aggregate amount of such distribution allocable to
principal, separately identifying the amount allocable to each
class and the amount of Principal Prepayments (and Mortgage Loans
repurchased by the Company) included therein;
(ii) The amount of such distribution allocable to interest,
separately identifying the amount allocable to each class;
(iii) The amount of servicing compensation received by the
Company in respect of the Mortgage Loans during the month
preceding the month of the Distribution Date, and such other
customary information as the Company deems necessary or desirable
to enable Certificateholders to prepare their tax returns;
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(iv) The aggregate Certificate Principal Balance (or
Notional Principal Balance) of each class of Certificates after
giving effect to distributions and allocations, if any, of losses
on the Mortgage Loans on such Distribution Date;
(v) The aggregate Certificate Principal Balance of any
class of Accrual Certificates after giving effect to any increase
in such Certificate Principal Balance that results from the
accrual of interest that is not yet distributable thereon;
(vi) If applicable, the amount of the Company's remaining
obligations with respect to the purchase of Liquidating Loans,
after giving effect to any charges or adjustments thereto in
respect of the Distribution Date, expressed as a percentage of
the amount reported pursuant to clause (iv) and, if applicable,
(v) above;
(vii) The aggregate Principal Balance and number of the
Mortgage Loans included in the related Trust Fund after giving
effect to distributions of principal made on such Distribution
Date; and
(viii) The aggregate Principal Balance of Mortgage Loans
which were delinquent as to a total of one, two or three or more
installments of principal and interest or were in foreclosure as
of the end of the preceding calendar month.
The Company will also furnish annually customary
information deemed necessary for Certificateholders to prepare
their tax returns.
The Company, as servicer, will provide Certificateholders
which are federally insured savings and loan associations with
certain reports and with access to information and documentation
regarding the Mortgage Loans included in the Trust Fund
sufficient to permit such associations to comply with applicable
regulations of the Office of Thrift Supervision.
Events of Default
Events of Default under the Agreement will consist of: (i)
any failure by the Company, as servicer, to distribute to
Certificateholders any required payment, which failure continues
unremedied for three business days after the giving of written
notice of such failure to the Company by the Trustee, or to the
Company and the Trustee by the holders of Certificates evidencing
interests aggregating not less than 25% of each affected class;
(ii) any failure by the Company, as servicer, duly to observe or
perform in any material respect any other of its covenants or
agreements in such Agreement materially affecting the rights of
Certificateholders which continues unremedied for 60 days after
the giving of written notice of such failure to the Company by
the Trustee, or to the Company and the Trustee by the holders of
Certificates evidencing interests aggregating not less than 25%
of each affected class; (iii) any failure by the Company, as
servicer, to effect timely payment of the premium for a pool
insurance policy or a special hazard insurance policy or Limited
Guarantee, if any, which continues unremedied for 10 Business
Days after the giving of written notice of such failure by the
Trustee, or to the Company and the Trustee by the holders of
Certificates evidencing interests aggregating not less than 25%
of each affected class; and (iv) certain events of insolvency,
readjustment of debt, marshaling of
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assets and liabilities or similar proceedings and certain actions
by the Company indicating its insolvency, reorganization or
inability to pay its obligations.
Rights Upon Event of Default
As long as an Event of Default under the Agreement remains
unremedied by the Company, as servicer (or, if applicable, by the
Guarantor pursuant to any Limited Guarantee), the Trustee, or
holders of Certificates evidencing interests aggregating not less
than 51% of each affected class, may terminate all of the rights
and obligations of the Company as servicer under the Agreement,
whereupon the Trustee will succeed to all the responsibilities,
duties and liabilities of the Company as servicer under the
Agreement and will be entitled to similar compensation
arrangements, provided that if the Trustee had no obligation
under the Agreement to make advances of delinquent principal and
interest on the Mortgage Loans upon the failure of the Company,
as servicer, to do so, or if the Trustee had such obligation but
is prohibited by law or regulation from making such advances, the
Trustee will not be required to assume such obligation of the
Company. The Company, as servicer, shall be entitled to payment
of certain amounts payable to it under the Agreement,
notwithstanding the termination of its activities as servicer. No
such termination will affect in any manner the Guarantor's
obligations under any Limited Guarantee, except that the
obligation of the Company, as servicer, to make advances of
delinquent payments of principal and interest (adjusted to the
applicable Remittance Rate) and, if applicable, to purchase any
Liquidating Loan will become the direct obligations of the
Guarantor under the Advance Guarantee and the Liquidating Loan
Guarantee, respectively, if applicable, until a new servicer is
appointed. In the event that the Trustee is unwilling or unable
so to act, it may appoint, or petition a court of competent
jurisdiction for the appointment of, a housing and home finance
institution with a net worth of at least $10,000,000 and, if the
Guarantor has issued any Limited Guarantee with respect to the
Certificates, approved by the Guarantor, to act as successor to
the Company, as servicer, under such Agreement. In addition, if
the Guarantor has issued any Limited Guarantee with respect to
the related series of Certificates, the Guarantor will have the
right to replace any successor servicer to the Company with an
institution meeting the requirements described in the preceding
sentence. The Trustee and such successor may agree upon the
servicing compensation to be paid, which in no event may be
greater than the compensation to the Company under such
Agreement.
No holder of Certificates will have any right under the
Agreement to institute any proceeding with respect to the
Agreement, unless such holder previously has given to the Trustee
written notice of default and unless the holders of Certificates
of each affected class evidencing, in the aggregate, 25% or more
of the interests in such class have made written request to the
Trustee to institute such proceeding in its own name as Trustee
thereunder and have offered to the Trustee reasonable indemnity
and the Trustee for 60 days after receipt of such notice, request
and offer of indemnity has neglected or refused to institute any
such proceedings. However, the Trustee is under no obligation to
exercise any of the trusts or powers vested in it by the
Agreement or to make any investigation of matters arising
thereunder or to institute, conduct or defend any litigation
thereunder or in relation thereto at the request, order or
direction of any of the Certificateholders, unless such
Certificateholders have offered to the Trustee reasonable
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security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby.
Amendment
The Agreement may be amended by the Company, as seller, the
Company, as servicer, and the Trustee, and if the Guarantor has
issued any Limited Guarantee with respect to the Certificates,
with the consent of the Guarantor, but without Certificateholder
consent, to cure any ambiguity, to correct or supplement any
provision therein which may be inconsistent with any other
provision therein, to take any action necessary to maintain REMIC
status of any Trust Fund as to which a REMIC election has been
made, to avoid or minimize the risk of the imposition of any tax
on the Trust Fund pursuant to the Code or to make any other
provisions with respect to matters or questions arising under the
Agreement which are not materially inconsistent with the
provisions of the Agreement; provided that such action will not,
as evidenced by an opinion of counsel satisfactory to the
Trustee, adversely affect in any material respect the interests
of any Certificateholders of that series. Unless otherwise
specified in the Prospectus Supplement, the Agreement may also be
amended by the Company, as seller, the Company, as servicer, and
the Trustee with the consent of holders of Certificates
evidencing interests aggregating either not less than 66% of all
interests in the related Trust Fund or not less than 66% of all
interests of each Class affected by such amendment, for the
purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of such Agreement or of
modifying in any manner the rights of Certificateholders of that
series; provided, however, that no such amendment may (i) reduce
in any manner the amount of, or delay the timing of, payments
received on Mortgage Loans which are required to be distributed
in respect of any Certificate without the consent of the holder
of such Certificate, (ii) adversely affect in any material
respect the interests of the holders of any class of Certificates
in any manner other than as described in (i), without the consent
of the holders of Certificates of such class evidencing at least
66% of the interests of such class or (iii) reduce the aforesaid
percentage of Certificates, the holders of which are required to
consent to any such amendment, without the consent of the holders
of all Certificates of such affected class then outstanding.
Termination
The obligations of the Company, as seller, the Company, as
servicer, and the Trustee created by the Agreement will terminate
upon the last action required to be taken by the Trustee on the
final Distribution Date pursuant to the Agreement after the
earlier of (i) the maturity or other liquidation of the last
Mortgage Loan, Agency Security or Contract subject thereto or the
disposition of all property acquired upon foreclosure of any such
Mortgage Loan or Contract or (ii) the repurchase by the Company
from the Trust Fund of all the outstanding Certificates or all
remaining assets in the Trust Fund. The Agreement will establish
the repurchase price for the assets in the Trust Fund and the
allocation of such purchase price among the classes of
Certificates. The exercise of such right will effect early
retirement of the Certificates of that series, but the Company's
right so to repurchase will be subject to the conditions set
forth in the related Prospectus Supplement. If a REMIC election
is to be made with respect to all or a portion of a Trust Fund,
there may be additional conditions to the termination of such
Trust Fund which
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will be described in the related Prospectus Supplement. In no
event, however, will the trust created by the Agreement continue
beyond the expiration of 21 years from the death of the survivor
of certain persons named in the Agreement. The Trustee will give
written notice of termination of the Agreement to each
Certificateholder, and the final distribution will be made only
upon surrender and cancellation of the Certificates at an office
or agency of the Trustee specified in such notice of termination.
If specified in the Prospectus Supplement, the Agreement
will permit the Trustee to sell the Mortgage Loans, Agency
Securities or Contracts and the other assets of the Trust Fund in
the event that payments in respect thereto are insufficient to
make payments required in the Agreement. The assets of the Trust
Fund will be sold only under the circumstances and in the manner
specified in the Prospectus Supplement.
GE CAPITAL MORTGAGE SERVICES, INC.
General
The Company, a New Jersey corporation, is a wholly-owned
subsidiary of GE Capital Mortgage Corporation ("GECMC"). GECMC is
a wholly-owned subsidiary of General Electric Capital
Corporation, which, in turn, is a wholly-owned indirect
subsidiary of General Electric Company.
The Company was acquired by GECMC, effective October 1,
1990, and thereafter changed its name to GE Capital Mortgage
Services, Inc. On August 31, 1993, the Company acquired from
Shearson Holdings, Inc. all of the outstanding capital stock of
Shearson Lehman Hutton Mortgage Corporation, a California-based
mortgage company. Following such acquisition, the corporate name
of Shearson Lehman Hutton Mortgage Corporation was changed to GE
Capital Mortgage Services of California, Inc. On December 31,
1993, GE Capital Mortgage Services of California, Inc. and
General Electric Mortgage Securities Corporation, an affiliate of
the Company which has functioned primarily as an issuer and
master servicer of privately-placed mortgage-backed securities,
were merged with and into the Company.
The Company is engaged in the business of refinancing,
acquiring and servicing residential mortgage loans secured by
one- to four-family homes. It obtains servicing through the
acquisition and origination of mortgage loans, and the purchase
of servicing rights. The Company is also engaged in the home
equity business through its Home Equity Services unit. The Home
Equity Services unit acquires and services closed-end first and
second mortgage loans. From time to time, the Company may also
engage in sales of such mortgage loans and servicing rights. See
"The Trust Fund--The Mortgage Loans--Loan Production Sources" and
"--Loan Underwriting Policies".
Delinquency and Foreclosure Experience
The Company's delinquency and foreclosure experience on the
portfolio of one- to four-family residential mortgage loans that
it services as of a recent date will be summarized in the
Prospectus Supplement. Such summary will include or consist of
data with respect to the
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Company's Home Equity Loan portfolio if the related Trust Fund
includes a material amount of Home Equity Loans. There can be no
assurance that the Company's experience with respect to the
Mortgage Loans included in any Trust Fund will be similar to that
historically experienced by the Company.
THE GUARANTOR
If specified in the Prospectus Supplement, an entity
identified therein as the Guarantor will, to the limited extent
specified, issue a Limited Guarantee to guarantee certain of the
Company's limited obligations under the related Agreement. If the
Guarantor provides any such Limited Guarantee with respect to a
series of Certificates, the Prospectus Supplement will contain
additional information about the Guarantor.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND CONTRACTS
The following discussion contains summaries of certain
legal aspects of mortgage loans and manufactured housing
contracts which are general in nature. Because such legal aspects
are governed primarily by applicable state law (which laws may
differ substantially), the summaries do not purport to be
complete nor to reflect the laws of any particular state, nor to
encompass the laws of all states in which the security for the
Mortgage Loans or Contracts is situated. The summaries are
qualified in their entirety by reference to the applicable
federal and state laws governing the Mortgage Loans or Contracts.
The Mortgage Loans
General
Mortgages. The Mortgages will be either deeds of trust or
mortgages. A mortgage creates a lien upon the real property
encumbered by the mortgage. It is not prior to the lien for real
estate taxes and assessments. Priority between mortgages depends
on their terms and generally on the order of filing with a state
or county office. There are two parties to a mortgage: the
mortgagor, who is the borrower and homeowner or the land trustee
or the trustee of an inter vivos revocable trust (as described
below), and the mortgagee, who is the lender. Under the mortgage
instrument, the mortgagor delivers to the mortgagee a note or
bond and the mortgage. In the case of a land trust, there are
three parties because title to the property is held by a land
trustee under a land trust agreement of which the
borrower/homeowner is the beneficiary; at origination of a
mortgage loan, the borrower executes a separate undertaking to
make payments on the mortgage note. In the case of an inter vivos
revocable trust, there are three parties because title to the
property is held by the trustee under the trust instrument of
which the home occupant is the primary beneficiary; at
origination of a mortgage loan, the primary beneficiary and the
trustee execute a mortgage note and the trustee executes a
mortgage or deed of trust, with the primary beneficiary agreeing
to be bound by its terms. Although a deed of trust is similar to
a mortgage, a deed of trust formally has three parties, the
borrower-homeowner called the trustor (similar to a mortgagor), a
lender (similar to a mortgagee) called the beneficiary, and a
third-party grantee called the trustee. Under a deed of trust,
the borrower grants the property, irrevocably until the debt is
paid, in trust and generally with a power of sale, to the trustee
to
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secure payment of the obligation. The trustee's authority under a
deed of trust and the mortgagee's authority under a mortgage are
governed by law, the express provisions of the deed of trust or
mortgage and, in some cases, the directions of the beneficiary.
Cooperatives. Certain of the Mortgage Loans may be
Cooperative Loans. The private, non-profit, cooperative apartment
corporation owns all the real property that comprises the
project, including the land, separate dwelling units and all
common areas. The cooperative is directly responsible for project
management and, in most cases, payment of real estate taxes and
hazard and liability insurance. If there is a blanket mortgage on
the cooperative apartment building and/or underlying land, as is
generally the case, the cooperative, as project mortgagor, is
also responsible for meeting these mortgage obligations. A
blanket mortgage is ordinarily incurred by the cooperative in
connection with the construction or purchase of the cooperative's
apartment building. The interest of the occupant under
proprietary leases or occupancy agreements to which that
cooperative is a party are generally subordinate to the interest
of the holder of the blanket mortgage in that building. If the
cooperative is unable to meet the payment obligations arising
under its blanket mortgage, the mortgagee holding the blanket
mortgage could foreclose on that mortgage and terminate all
subordinate proprietary leases and occupancy agreements. In
addition, the blanket mortgage on a cooperative may provide
financing in the form of a mortgage that does not fully amortize
with a significant portion of principal being due in one lump sum
at final maturity. The inability of the cooperative to refinance
this mortgage and its consequent inability to make such final
payment could lead to foreclosure by the mortgagee providing the
financing. A foreclosure in either event by the holder of the
blanket mortgage could eliminate or significantly diminish the
value of any collateral held by the lender who financed the
purchase by an individual tenant-stockholder of cooperative
shares or, in the case of a Trust Fund including Cooperative
Loans, the collateral securing the Cooperative Loans.
The cooperative is owned by tenant-stockholders who,
through ownership of stock shares or membership certificates in
the corporation, receive proprietary leases or occupancy
agreements which confer exclusive rights to occupy specific
units. Generally, a tenant-stockholder of a cooperative must make
a monthly payment to the cooperative representing such
tenant-stockholder's pro rata share of the cooperative's payments
for its blanket mortgage, real property taxes, maintenance
expenses and other capital or ordinary expenses. An ownership
interest in a cooperative and accompanying occupancy rights is
financed through a cooperative share loan evidenced by a
promissory note and secured by a security interest in the
occupancy agreement or proprietary lease and in the related
cooperative shares. The lender takes possession of the share
certificate and a counterpart of the proprietary lease or
occupancy agreement and a financing statement covering the
proprietary lease or occupancy agreement and the cooperative
shares is filed in the appropriate state and local offices to
perfect the lender's interest in its collateral. Subject to the
limitations discussed below, upon default of the
tenant-stockholder, the lender may sue for judgment on the
promissory note, dispose of the collateral at a public or private
sale or otherwise proceed against the collateral or
tenant-stockholder as an individual as provided in the security
agreement covering the assignment of the proprietary lease or
occupancy agreement and the pledge of cooperative shares.
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Foreclosure
Mortgages. Foreclosure of a deed of trust is generally
accomplished by a non-judicial trustee's sale under a specific
provision in the deed of trust that authorizes the trustee to
sell the property to a third party upon any default by the
borrower under the terms of the note or deed of trust. In some
states, the trustee must record a notice of default and send a
copy to the borrower-trustor and any person who has recorded a
request for a copy of a notice of default and notice of sale. In
addition, the trustee must provide notice in some states to any
other individual having an interest in the real property,
including any junior lien holders. The borrower, or any other
person having a junior encumbrance on the real estate, may,
during a reinstatement period, cure the default by paying the
entire amount in arrears plus the costs and expenses incurred in
enforcing the obligation. Generally, state law controls the
amount of foreclosure expenses and costs, including attorney's
fees, which may be recovered by a lender. If the deed of trust is
not reinstated, a notice of sale must be posted in a public place
and, in most states, published for a specific period of time in
one or more newspapers. In addition, some state laws require that
a copy of the notice of sale be posted on the property and sent
to all parties having an interest in the real property.
Foreclosure of a mortgage is generally accomplished by
judicial action. The action is initiated by the service of legal
pleadings upon all parties having an interest in the real
property. Delays in completion of the foreclosure may
occasionally result from difficulties in locating necessary
parties defendant. Judicial foreclosure proceedings are often not
protested by any of the parties defendant. However, when the
mortgagee's right to foreclose is contested, the legal
proceedings necessary to resolve the issue can be time consuming.
After the completion of judicial foreclosure, the court generally
issues a judgment of foreclosure and appoints a referee or other
court officer to conduct the sale of the property.
A sale conducted in accordance with the terms of the power
of sale contained in a mortgage or deed of trust is generally
presumed to be conducted regularly and fairly, and a conveyance
of the real property by the referee confers absolute legal title
to the real property to the purchaser, free of all junior
mortgages and free of all other liens and claims subordinate to
the mortgage or deed of trust under which the sale is made (with
the exception of certain governmental liens and any redemption
rights that may be granted to borrowers pursuant to applicable
state law). The purchaser's title is, however, subject to all
senior liens, encumbrances and mortgages. Thus, if the mortgage
or deed of trust being foreclosed is a junior mortgage or deed of
trust, the referee or trustee will convey title to the property
to the purchaser, subject to the underlying first mortgage or
deed of trust and any other prior liens and claims. A foreclosure
under a junior mortgage or deed of trust generally will have no
effect on any senior mortgage or deed of trust, except that it
may trigger the right of a senior mortgagee or beneficiary to
accelerate its indebtedness under a "due-on-sale" clause or "due
on further encumbrance" clause contained in the senior mortgage.
In case of foreclosure under either a mortgage or a deed of
trust, the sale by the referee or other designated officer or by
the trustee is a public sale. However, because of the difficulty
a potential buyer at the sale would have in determining the exact
status of title and because the
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physical condition of the property may have deteriorated during
the foreclosure proceedings, it is uncommon for a third party to
purchase the property at the foreclosure sale. Rather, it is
common for the lender to purchase the property from the trustee
or referee for an amount equal to the principal amount of the
mortgage or deed of trust, accrued and unpaid interest and
expenses of foreclosure. Thereafter, the lender will assume the
burdens of ownership, including obtaining casualty insurance and
making such repairs at its own expense as are necessary to render
the property suitable for sale. The lender will commonly obtain
the services of a real estate broker and pay the broker's
commission in connection with the sale of the property. Depending
upon market conditions, the ultimate proceeds of the sale of the
property may not equal the lender's investment in the property.
Any loss may be reduced by the receipt of any mortgage insurance
proceeds.
Some courts have been faced with the issue of whether or
not federal or state constitutional provisions reflecting due
process concerns for adequate notice require that borrowers under
deeds of trust or mortgages receive notices in addition to the
statutorily prescribed minimum. For the most part, these cases
have upheld the notice provisions as being reasonable or have
found that the sale by a trustee under a deed of trust, or under
a mortgage having a power of sale, does not involve sufficient
state action to afford constitutional protections to the
borrower.
Cooperative Loans. The cooperative shares owned by the
tenant-stockholder and pledged to the lender are, in almost all
cases, subject to restrictions on transfer as set forth in the
cooperative's Certificate of Incorporation and Bylaws, as well as
the proprietary lease or occupancy agreement, and may be canceled
by the cooperative for failure by the tenant-stockholder to pay
rent or other obligations or charges owed by such
tenant-stockholder, including mechanics' liens against the
cooperative apartment building incurred by such
tenant-stockholder. The proprietary lease or occupancy agreement
generally permits the cooperative to terminate such lease or
agreement in the event an obligor fails to make payments or
defaults in the performance of covenants required thereunder.
Typically, the lender and the cooperative enter into a
recognition agreement which establishes the rights and
obligations of both parties in the event of a default by the
tenant-stockholder on its obligations under the proprietary lease
or occupancy agreement. A default by the tenant-stockholder under
the proprietary lease or occupancy agreement will usually
constitute a default under the security agreement between the
lender and the tenant-stockholder.
The recognition agreement generally provides that, in the
event that the tenant-stockholder has defaulted under the
proprietary lease or occupancy agreement, the cooperative will
take no action to terminate such lease or agreement until the
lender has been provided with an opportunity to cure the default.
The recognition agreement typically provides that if the
proprietary lease or occupancy agreement is terminated, the
cooperative will recognize the lender's lien against proceeds
from a sale of the cooperative apartment, subject, however, to
the cooperative's right to sums due under such proprietary lease
or occupancy agreement. The total amount owed to the cooperative
by the tenant-stockholder, which the lender generally cannot
restrict and does not monitor, could reduce the value of the
collateral below the outstanding principal balance of the
cooperative loan and accrued and unpaid interest thereon.
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Recognition agreements also provide that in the event of a
foreclosure on a cooperative loan, the lender must obtain the
approval or consent of the cooperative as required by the
proprietary lease before transferring the cooperative shares or
assigning the proprietary lease. Generally, the lender is not
limited in any rights it may have to dispossess the
tenant-stockholders. However, the requirement that the lender
obtain prior approval or consent of the cooperative before
transferring the cooperative shares or assigning the proprietary
lease may result in delays in completion of foreclosure on
cooperative shares and delays in receipt of foreclosure proceeds
by the related Trust Fund. See "--The Mortgage
Loans--General--Cooperatives" herein.
In some states, foreclosure on the cooperative shares is
accomplished by a sale in accordance with the provisions of
Article 9 of the Uniform Commercial Code (the "UCC") and the
security agreement relating to those shares. Article 9 of the UCC
requires that a sale be conducted in a "commercially reasonable"
manner. Whether a foreclosure sale has been conducted in a
"commercially reasonable" manner will depend on the facts in each
case. In determining commercial reasonableness, a court will look
to the notice given the debtor and the method, manner, time,
place and terms of the foreclosure. Generally, a sale conducted
according to the usual practice of banks selling similar
collateral will be considered reasonably conducted.
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. The 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 lease or occupancy agreement. If there are
proceeds remaining, the lender must account to the
tenant-stockholder for the surplus. Conversely, if a portion of
the indebtedness remains unpaid, the tenant-stockholder is
generally responsible for the deficiency. See "Anti-Deficiency
Legislation and Other Limitations on Lenders" below.
Junior Mortgages; Rights of Senior Mortgagees
Some of the Home Equity Loans included in a Trust Fund may
be secured by mortgages or deeds of trust that are junior to
other mortgages or deeds of trust held by the Company, other
lenders or institutional investors. The rights of the Trustee
(and therefore the Certificateholders) as mortgagee under a
junior mortgage or beneficiary under a junior deed of trust are
subordinate to those of the mortgagee under the senior mortgage
or beneficiary under the senior deed of trust, including the
prior rights of the senior mortgagee to receive hazard insurance
and condemnation proceeds and to cause the property securing the
Mortgage Loan to be sold upon default of the mortgagor or
trustor, thereby extinguishing the junior mortgagee's or junior
beneficiary's lien unless the junior mortgagee or junior
beneficiary asserts its subordinate interest in the property in
foreclosure litigation and, possibly, satisfies the defaulted
senior mortgage or deed of trust. As discussed more fully below,
a junior mortgagee or junior beneficiary may satisfy a defaulted
senior loan in full and, in some states, may cure such default
and bring the senior loan current, in either event adding the
amounts expended to the balance due on the junior loan. In most
states, no notice of default is required to be given to a junior
mortgagee or junior beneficiary, and junior mortgagees or junior
beneficiaries are seldom given notice of defaults on senior
mortgages. In
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order for a foreclosure action in some states to be effective
against a junior mortgagee or junior beneficiary, the junior
mortgagee or junior beneficiary must be named in any foreclosure
action, thus giving notice to junior lienors. See "Servicing of
the Mortgage Loans and Contracts--Collection and Other Servicing
Procedures".
The standard form of the mortgage or deed of trust used by
most institutional lenders (including the Company) confers on the
mortgagee or beneficiary the right under some circumstances both
to receive all proceeds collected under any hazard insurance
policy and all awards made in connection with any condemnation
proceedings, and to apply such proceeds and awards to any
indebtedness secured by the mortgage or deed of trust in such
order as the mortgagee or beneficiary may determine. Thus, in the
event improvements on the property are damaged or destroyed by
fire or other casualty, or in the event the property is taken by
condemnation, the mortgagee or beneficiary under any underlying
senior mortgages may have the prior right to collect any
insurance proceeds payable under a hazard insurance policy and
any award of damages in connection with the condemnation and to
apply the same to the indebtedness secured by the senior
mortgages or deeds of trust. Proceeds in excess of the amount of
senior mortgage indebtedness, in most cases, will be applied to
the indebtedness of a junior mortgage or trust deed.
A common form of mortgage or deed of trust used by
institutional lenders typically contains a "future advance"
clause which provides, in essence, that additional amounts
advanced to or on behalf of the mortgagor or trustor by the
mortgagee or beneficiary are to be secured by the mortgage or
deed of trust. While such a clause is valid under the laws of
most states, the priority of any advance made under the clause
depends, in some states, on whether the advance was an
"obligatory" or "optional" advance. If the mortgagee or
beneficiary is obligated to advance the additional amounts, the
advance is entitled to receive the same priority as amounts
initially loaned under the mortgage or deed of trust,
notwithstanding that there may be intervening junior mortgages or
deeds of trust and other liens at the time of the advance. Where
the mortgagee or beneficiary is not obligated to advance the
additional amounts (and, in some jurisdictions, has actual
knowledge of the intervening junior mortgages or deeds of trust
and other liens), the advance will be subordinate to such
intervening junior mortgages or deeds of trust and other liens.
Priority of advances under the clause rests, in many other
states, on state statutes giving priority to all advances made
under the loan agreement to a "credit limit" amount stated in the
recorded mortgage.
Other provisions sometimes included in the form of the
mortgage or deed of trust used by institutional lenders (and
included in some of the forms used by the Company) obligate the
mortgagor or trustor to pay, before delinquency, all taxes and
assessments on the property and, when due, all encumbrances,
charges and liens on the property which appear prior to the
mortgage or deed of trust, to provide and maintain fire insurance
on the property, to maintain and repair the property and not to
commit or permit any waste thereof, and to appear in and defend
any action or proceeding purporting to affect the property or the
rights of the mortgagee or beneficiary under the mortgage or deed
of trust. Upon a failure of the mortgagor or trustor to perform
any of these obligations, the mortgagee or beneficiary is given
the right under certain mortgages or deeds of trust to perform
the obligation itself, at its election, with the mortgagor or
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trustor agreeing to reimburse the mortgagee or beneficiary for
any sums expended by the mortgagee or beneficiary on behalf of
the mortgagor or trustor. All sums so expended by the mortgagee
or beneficiary become part of the indebtedness secured by the
mortgage or deed of trust. See "Servicing of the Mortgage Loans
and Contracts--Collection and Other Servicing Procedures".
Right of Redemption
In some states, after sale pursuant to a deed of trust or
foreclosure of a mortgage, the borrower and foreclosed junior
lienors are given a statutory period in which to redeem the
property from the foreclosure sale. In some states, redemption
may occur only upon payment of the entire principal balance of
the loan, accrued interest and expenses of foreclosure. In other
states, redemption may be authorized if the former borrower pays
only a portion of the sums due. The effect of a statutory right
of redemption is to diminish the ability of the lender to sell
the foreclosed property. The rights of redemption would defeat
the title of any purchaser from the lender subsequent to
foreclosure or sale under a deed of trust. Consequently, the
practical effect of the redemption right is to force the lender
to retain the property and pay the expenses of ownership until
the redemption period has run.
Anti-Deficiency Legislation and Other Limitations on Lenders
Certain states have imposed statutory prohibitions that
limit the remedies of a beneficiary under a deed of trust or a
mortgagee under a mortgage. In some states, statutes limit the
right of the beneficiary or mortgagee to obtain a deficiency
judgment against the borrower following foreclosure or sale under
a deed of trust. A deficiency judgment would be a personal
judgment against the former borrower equal in most cases 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 require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by
foreclosure in an attempt to satisfy the full debt before
bringing a personal action against the borrower. Finally, other
statutory provisions limit any deficiency judgment against the
former borrower following a judicial sale to the excess of the
outstanding debt over the fair market value of the property at
the time of the public sale. The purpose of these statutes is
generally to prevent a beneficiary or a mortgagee from obtaining
a large deficiency judgment against the former borrower as a
result of low or no bids at the judicial sale.
In addition to laws limiting or prohibiting deficiency
judgments, numerous other statutory provisions, including the
federal bankruptcy laws and state laws affording relief to
debtors, may interfere with or affect the ability of the secured
mortgage lender to realize upon collateral and/or enforce a
deficiency judgment. For example, with respect to federal
bankruptcy law, a court with federal bankruptcy jurisdiction may
permit a debtor through his or her Chapter 11 or Chapter 13
rehabilitative plan to cure a monetary default in respect of a
mortgage loan on a debtor's residence by paying arrearages within
a reasonable time period and reinstating the original mortgage
loan payment schedule even though the lender accelerated the
mortgage loan and final judgment of foreclosure had been entered
in state court (provided no sale of the residence had yet
occurred) prior to the filing of the debtor's petition. Some
courts with federal bankruptcy
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jurisdiction have approved plans, based on the particular facts
of the reorganization case, that effected the curing of a
mortgage loan default by paying arrearages over a number of
years.
Courts with federal bankruptcy jurisdiction have also
indicated that the terms of a mortgage loan secured by property
of the debtor may be modified. These courts have suggested that
such modifications may include reducing the amount of each
monthly payment, changing the rate of interest, altering the
repayment schedule and reducing the lender's security interest to
the value of the residence, thus leaving the lender a general
unsecured creditor for the difference between the value of the
residence and the outstanding balance of the loan.
The Internal Revenue Code of 1986, as amended, provides
priority to certain tax liens over the lien of the mortgage. In
addition, substantive requirements are imposed upon mortgage
lenders in connection with the origination and the servicing of
mortgage loans by numerous federal and some state consumer
protection laws. These laws include the federal Truth-in-Lending
Act, Real Estate Settlement Procedures Act, Equal Credit
Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting
Act, their related regulations and related statutes. These
federal laws impose specific statutory liabilities upon lenders
who originate mortgage loans and who fail to comply with the
provisions of the law. In some cases, this liability may affect
assignees of the mortgage loans.
Generally, Article 9 of the UCC governs foreclosure on
cooperative shares and the related proprietary lease or occupancy
agreement. Some courts have interpreted section 9-504 of the UCC
to prohibit a deficiency award unless the creditor establishes
that the sale of the collateral (which, in the case of a
Cooperative Loan, would be the shares of the cooperative and the
related proprietary lease or occupancy agreement) was conducted
in a commercially reasonable manner.
Enforceability of Certain Provisions
Unless the Prospectus Supplement indicates otherwise, all
of the Mortgage Loans will contain due-on-sale clauses. These
clauses permit the lender to accelerate the maturity of a loan if
the borrower sells, transfers, or conveys the property. The
enforceability of these clauses was the subject of legislation or
litigation in many states, and in some cases the enforceability
of these clauses was limited or denied. However, the Garn-St
Germain Depository Institutions Act of 1982 (the "Garn-St Germain
Act") preempts state constitutional, statutory and case law
prohibiting the enforcement of due-on-sale clauses and permits
lenders to enforce these clauses in accordance with their terms,
subject to certain limited exceptions. The Garn-St Germain Act
does "encourage" lenders to permit assumption of loans at the
original rate of interest or at some other rate less than the
average of the original rate and the market rate.
Due-on-sale clauses contained in mortgage loans originated
by federal savings and loan associations or federal savings banks
are fully enforceable pursuant to regulations of the Office of
Thrift Supervision (the "OTS"), as successor to the Federal Home
Loan Bank Board, which preempt state law restrictions on the
enforcement of due-on-sale clauses.
The Garn-St Germain Act also sets forth several specific
instances in which a mortgage lender covered by the Garn-St
Germain Act (including federal savings and loan associations and
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federal savings banks) may not exercise a due-on-sale clause,
notwithstanding the fact that a transfer of the property may have
occurred. These include intra-family transfers, certain transfers
by operation of law, leases of fewer than three years and the
creation of a junior encumbrance. Regulations promulgated under
the Garn-St Germain Act by the Federal Home Loan Bank Board as
succeeded by the OTS also prohibit the imposition of a prepayment
penalty upon the acceleration of a loan pursuant to a due-on-sale
clause. If interest rates were to rise above the interest rates
on the Mortgage Loans, then any inability of the Company to
enforce due-on-sale clauses may result in the Trust Fund
including a greater number of loans bearing below-market interest
rates than would otherwise be the case, since a transferee of the
property underlying a Mortgage Loan would have a greater
incentive in such circumstances to assume the transferor's
Mortgage Loan. Any inability of the Company to enforce
due-on-sale clauses may affect the average life of the Mortgage
Loans and the number of Mortgage Loans that may be outstanding
until maturity. See "Yield, Maturity and Weighted Average Life
Considerations".
Upon foreclosure, courts have imposed general equitable
principles. These equitable principles are generally designed to
relieve the borrower from the legal effect of his defaults under
the loan documents. Examples of judicial remedies that have been
fashioned include requirements that the lender undertake
affirmative and expensive actions to determine the causes for the
borrower's default and the likelihood that the borrower will be
able to reinstate the loan. In some cases, courts have
substituted their judgment for the lender's judgment and have
required that lenders reinstate loans or recast payment schedules
in order to accommodate borrowers who are suffering from
temporary financial disability. In other cases, courts have
limited the right of the lender to foreclose if the default under
the mortgage instrument is not monetary, such as the borrower
failing to adequately maintain the property or the borrower
executing a second mortgage or deed of trust affecting the
property.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and
Monetary Control Act of 1980, enacted in March 1980 ("Title V"),
provides that state usury limitations shall not apply to certain
types of residential first mortgage loans originated by certain
lenders after March 31, 1980. The OTS, as successor to the
Federal Home Loan Bank Board, is authorized to issue rules and
regulations and to publish interpretations governing
implementation of Title V. The statute authorized any state to
reimpose interest rate limits by adopting, before April 1, 1983,
a law or constitutional provision which expressly rejects
application of the federal law. In addition, even where Title V
is not so 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.
Under the Agreement for each series of Certificates, the
Company will represent and warrant to the Trustee that the
Mortgage Loans have been originated in compliance in all material
respects with applicable state laws, including usury laws.
Soldiers' and Sailors' Civil Relief Act
Generally, under the terms of the Soldiers' and Sailors'
Civil Relief Act of 1940, as amended (the "Relief Act"), a
borrower who enters military service after the origination of
such
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borrower's Mortgage Loan (including a borrower who is a member of
the National Guard or is in reserve status at the time of the
origination of the Mortgage Loan and is later called to active
duty) may not be charged interest above an annual rate of 6%
during the period of such borrower's active duty status, unless a
court orders otherwise upon application of the lender. It is
possible that such interest rate limitation could have an effect,
for an indeterminate period of time, on the ability of the
Company to collect full amounts of interest on certain of the
Mortgage Loans. In addition, the Relief Act imposes limitations
which would impair the ability of the Company to foreclose on an
affected Mortgage Loan during the borrower's period of active
duty status. Thus, in the event that such a Mortgage Loan goes
into default there may be delays and losses occasioned by the
inability to realize upon the Mortgaged Property in a timely
fashion.
Under the applicable Agreement, the Company will not be
required to make deposits to the Certificate Account for a series
of Certificates in respect of any Mortgage Loan as to which the
Relief Act has limited the amount of interest the related
borrower is required to pay each month, and Certificateholders
will bear such loss.
Environmental Considerations
Under the federal Comprehensive Environmental Response
Compensation and Liability Act, as amended, and under state law
in certain states, a secured party which takes a deed in lieu of
foreclosure, purchases a mortgaged property at a foreclosure sale
or operates a mortgaged property may become liable in certain
circumstances for the costs of remedial action ("Cleanup Costs")
if hazardous wastes or hazardous substances have been released or
disposed of on the property. Such Cleanup Costs may be
substantial. It is possible that such Cleanup Costs could reduce
the amounts otherwise distributable to the Certificateholders if
the related Trust Fund were deemed to be liable for such Cleanup
Costs and if such Cleanup Costs were incurred. Moreover, under
federal law and the law of certain states, a lien may be imposed
for any Cleanup Costs incurred by federal or state authorities on
the property that is the subject of such Cleanup Costs. All
subsequent liens on such property are subordinated to such lien
and, in several states, even prior recorded liens, including
those of existing mortgages, are subordinated to such liens (a
"Superlien"). In the latter states, the security interest of the
Trustee in a Mortgaged Property that is subject to such a
Superlien could be adversely affected.
Traditionally, residential mortgage lenders have not taken
steps to evaluate whether hazardous wastes or hazardous
substances are present with respect to any mortgaged property
prior to the origination of the mortgage loan or prior to
foreclosure or accepting a deed in lieu of foreclosure. The
Company does not make any representation or warranty or assume
any liability with respect to the absence or effect of hazardous
wastes or hazardous substances on any Mortgaged Property or any
casualty resulting from the presence or effect of hazardous
wastes or hazardous substances. See "Servicing of the Mortgage
Loans and Contracts--Collection and Other Servicing Procedures".
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THE CONTRACTS
General
As a result of the Company's assignment of the Contracts to
the Trustee, the Certificateholders will succeed collectively to
all of the rights (including the right to receive payment on the
Contracts) and will assume certain obligations of the Company.
Each Contract evidences both (a) the obligation of the obligor to
repay the loan evidenced thereby, and (b) the grant of a security
interest in the Manufactured Home to secure repayment of such
loan. Certain aspects of both features of the Contracts are
described more fully below.
The Contracts generally are "chattel paper" as defined in
the Uniform Commercial Code (the "UCC") in effect in the states
in which the Manufactured Homes initially were registered.
Pursuant to the UCC, the sale of chattel paper is treated in a
manner similar to perfection of a security interest in chattel
paper. Under the Agreement, the Company will transfer physical
possession of the Contracts to the Trustee or its custodian. In
addition, the Company will make an appropriate filing of a UCC-1
financing statement in the appropriate states to give notice of
the Trustee's ownership of the Contracts. Unless otherwise
specified in the related Prospectus Supplement, the Contracts
will not be stamped or marked otherwise to reflect their
assignment from the Company to the Trustee. Therefore, if a
subsequent purchaser were able to take physical possession of the
Contracts without notice of such assignment, the Trustee's
interest in the Contracts could be defeated.
Security Interests in the Manufactured Homes
The Manufactured Homes securing the Contracts may be
located in all 50 states. Security interests in manufactured
homes may be perfected either by notation of the secured party's
lien on the certificate of title or by delivery of the required
documents and payment of a fee to the state motor vehicle
authority, depending on state law. In some nontitle states,
perfection pursuant to the provisions of the UCC is required. The
Company may effect such notation or delivery of the required
documents and fees, and obtain possession of the certificate of
title, as appropriate under the laws of the state in which any
manufactured home securing a manufactured housing conditional
sales contract is registered. In the event the Company fails, due
to clerical errors, to effect such notation or delivery, or files
the security interest under the wrong law (for example, under a
motor vehicle title statute rather than under the UCC, in a few
states), the Certificateholders may not have a first priority
security interest in the Manufactured Home securing a contract.
As manufactured homes have become larger and often have been
attached to their sites without any apparent intention to move
them, courts in many states have held that manufactured homes,
under certain circumstances, may become subject to real estate
title and recording laws. As a result, a security interest in a
manufactured home could be rendered subordinate to the interests
of other parties claiming an interest in the home under
applicable state real estate law. In order to perfect a security
interest in a manufactured home under real estate laws, the
holder of the security interest must file either a "fixture
filing" under the provisions of the UCC or a real estate mortgage
under the real estate laws of the state where the home is
located. These filings must be made in the real estate records
office of the county where
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the home is located. Substantially all of the Contracts contain
provisions prohibiting the borrower from permanently attaching
the Manufactured Home to its site. So long as the borrower does
not violate this agreement, a security interest in the
Manufactured Home will be governed by the certificate of title
laws or the UCC, and the notation of the security interest on the
certificate of title or the filing of a UCC financing statement
will be effective to maintain the priority of the security
interest in the Manufactured Home. If, however, a Manufactured
Home is permanently attached to this site, other parties could
obtain an interest in the Manufactured Home which is prior to the
security interest transferred to the Trustee. With respect to a
series of Certificates and as described in the related Prospectus
Supplement, the Company may be required to perfect a security
interest in the Manufactured Home under applicable real estate
laws. If such real estate filings are not required and if any of
the foregoing events were to occur, the only recourse of the
Certificateholders would be against the Company pursuant to its
repurchase obligation for breach of warranties.
The Company will assign its security interest in the
Manufactured Homes to the Trustee on behalf of the
Certificateholders. Unless otherwise specified in the related
Prospectus Supplement, neither the Company nor the Trustee will
amend the certificates of title to identify the Trust Fund as the
new secured party. Accordingly, the Company will continue to be
named as the secured party on the certificates of title relating
to the Manufactured Homes. In most states, such assignment is an
effective conveyance of such security interest without amendment
of any lien noted on the related certificate of title and the new
secured party succeeds to the Company's rights as the secured
party. However, in some states there exists a risk that, in the
absence of an amendment to the certificate of title, such
assignment of the security interest might not be held effective
against creditors of the Company.
In the absence of fraud, forgery or permanent affixation of
the Manufactured Home to its site by the Manufactured Home owner,
or administrative error by state recording officials, the
notation of the lien of the Company on the certificate of title
or delivery of the required documents and fees will be sufficient
to protect the Certificateholders against the rights of
subsequent purchasers of a Manufactured Home or subsequent
lenders who take a security interest in the Manufactured Home. If
there are any Manufactured Homes as to which the security
interest assigned to the Company and the Certificateholders is
not perfected, such security interest would be subordinate to,
among others, subsequent purchasers for value of Manufactured
Homes and holders of perfected security interests. There also
exists a risk in not identifying the Certificateholders as the
new secured party on the certificate of title that, through fraud
or negligence, the security interest of the Certificateholders
could be released.
In the event that the owner of a Manufactured Home moves it
to a state other than the state in which such Manufactured Home
initially is registered under the laws of most states the
perfected security interest in the Manufactured Home would
continue for four months after such relocation and thereafter
only if and after the owner re-registers the Manufactured Home in
such state. If the owner were to relocate a Manufactured Home to
another state and not re-register the Manufactured Home in such
state, and if steps are not taken to re-perfect the Trustee's
security interest in such state, the security interest in the
Manufactured Home would cease to be perfected. A majority of
states generally require surrender of a certificate of title to
re-register a
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Manufactured Home; accordingly, the Trustee must surrender
possession if it holds the certificate of title to such
Manufactured Home or, in the case of Manufactured Homes
registered in states which provide for notation of lien, the
Trustee would receive notice of surrender if the security
interest in the Manufactured Home is noted on the certificate of
title. Accordingly, the Trustee would have the opportunity to
re-perfect its security interest in the Manufactured Home in the
state of relocation. In states which do not require a certificate
of title for registration of a manufactured home, re-registration
could defeat perfection. In the ordinary course of servicing the
manufactured housing conditional sales contracts, the Company
takes steps to effect such re-perfection upon receipt of notice
of re-registration or information from the obligor as to
relocation. Similarly, when an obligor under a manufactured
housing conditional sales contract sells a manufactured home, the
Trustee must surrender possession of the certificate of title or
will receive notice as a result of its lien noted thereon and
accordingly will have an opportunity to require satisfaction of
the related manufactured housing conditional sales contract
before release of the lien. Under the Agreement the Company is
obligated to take such steps, at the Company's expense, as are
necessary to maintain perfection of security interests in the
Manufactured Homes.
Under the laws of most states, liens for repairs performed
on a Manufactured Home take priority even over a perfected
security interest. The Company will represent in the Agreement
that it has no knowledge of any such liens with respect to any
Manufactured Home securing payment on any Contract. However, such
liens could arise at any time during the term of a Contract. No
notice will be given to the Trustee or Certificateholders in the
event such a lien arises.
Enforcement of Security Interests in Manufactured Homes
The Company on behalf of the Trustee, to the extent
required by the related Agreement, may take action to enforce the
Trustee's security interest with respect to Contracts in default
by repossession and resale of the Manufactured Homes securing
such Contracts in default. So long as the Manufactured Home has
not become subject to the real estate law, a creditor can
repossess a Manufactured Home securing a Contract by voluntary
surrender, by "self-help" repossession that is "peaceful" (i.e.,
without breach of the peace) or, in the absence of voluntary
surrender and the ability to repossess without breach of the
peace, by judicial process. The holder of a Contract must give
the debtor a number of days' notice, which varies from 10 to 30
days depending on the state, prior to commencement of any
repossession. The UCC and consumer protection laws in most states
place restrictions on repossession sales, including requiring
prior notice to the debtor and commercial reasonableness in
effecting such a sale. The law in most states also requires that
the debtor be given notice of any sale prior to resale of the
unit so that the debtor may redeem at or before such resale. In
the event of such repossession and resale of a Manufactured Home,
the Trustee would be entitled to be paid out of the sale proceeds
before such proceeds could be applied to the payment of the
claims of unsecured creditors or the holders of subsequently
perfected security interests or, thereafter, to the debtor.
Under the laws applicable in most states, a creditor is
entitled to obtain a deficiency judgment from a debtor for any
deficiency on repossession and resale of the manufactured home
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securing such debtor's loan. However, some states impose
prohibitions or limitations on deficiency judgments.
Certain other statutory provisions, including federal and
state bankruptcy and insolvency laws and general equitable
principles, may limit or delay the ability of a lender to
repossess and resell collateral or enforce a deficiency judgment.
Consumer Protection Laws
The so-called "Holder-in-Due-Course" rule of the Federal
Trade Commission is intended to defeat the ability of the
transferor of a consumer credit contract which is the seller of
goods which gave rise to the transaction (and certain related
lenders and assignees) to transfer such contract free of notice
of claims by the debtor thereunder. The effect of this rule is to
subject the assignee of such a contract to all claims and
defenses which the debtor could assert against the seller of
goods. Liability under this rule is limited to amounts paid under
a Contract; however, the obligor also may be able to assert the
rule to set off remaining amounts due as a defense against a
claim brought by the Trust Fund against such obligor. Numerous
other federal and state consumer protection laws impose
requirements applicable to the origination of and lending
pursuant to the Contracts, including the Truth-in-Lending Act,
the Federal Trade Commission Act, the Fair Credit Billing Act,
the Fair Credit Reporting Act, the Equal Credit Opportunity Act,
the Fair Debt Collection Practices Act and the Uniform Consumer
Credit Code. In the case of some of these laws, the failure to
comply with their provisions may affect the enforceability of the
related Contract.
Transfers of Manufactured Homes; Enforceability of "Due-on-Sale"
Clauses
The Contracts, in general, prohibit the sale or transfer of
the related Manufactured Homes without the consent of the Company
and permit the acceleration of the maturity of the Contracts by
the Company upon any such sale or transfer that is not consented
to. Unless otherwise specified in the related Prospectus
Supplement, the Company expects that it will permit most
transfers of Manufactured Homes and not accelerate the maturity
of the related Contracts. In certain cases, the transfer may be
made by a delinquent obligor in order to avoid a repossession
proceeding with respect to a Manufactured Home.
In the case of a transfer of a Manufactured Home after
which the Company desires to accelerate the maturity of the
related Contract, the Company's ability to do so will depend on
the enforceability under state law of the "due-on-sale" clause.
The Garn-St Germain Act preempts, subject to certain exceptions
and conditions, state laws prohibiting enforcement of
"due-on-sale" clauses applicable to the Manufactured Homes.
Consequently, in some states the Company may be prohibited from
enforcing a "due-on-sale" clause in respect of certain
Manufactured Homes.
Applicability of Usury Laws
Title V provides that, subject to the following conditions,
state usury limitations shall not apply to any loan which is
secured by a first lien on certain kinds of manufactured housing.
The Contracts would be covered if they satisfy certain
conditions, among other things, governing the
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terms of any prepayments, late charges and deferral fees and
requiring a 30-day notice period prior to instituting any action
leading to repossession of or foreclosure with respect to the
related unit.
Title V authorized any state to reimpose limitations on
interest rates and finance charges by adopting before April 1,
1983 a law or constitutional provision which expressly rejects
application of the federal law. Fifteen states adopted such a law
prior to the April 1, 1983 deadline. In addition, even where
Title V was not so rejected, any state is authorized by the law
to adopt a provision limiting discount points or other charges on
loans covered by Title V. In any state in which application of
Title V was expressly rejected or a provision limiting discount
points or other charges has been adopted, no Contract which
imposes finance charges or provides for discount points or
charges in excess of permitted levels will be included in a Trust
Fund. The Company will represent that all of the Contracts comply
with applicable usury law.
Soldiers' and Sailors' Civil Relief Act
Generally, under the terms of the Relief Act, a borrower
who enters military service after the origination of such
borrower's Contract (including a borrower who is a member of the
National Guard or is in reserve status at the time of the
origination of the Contract and is later called to active duty)
may not be charged interest above an annual rate of 6% during the
period of such borrower's active duty status, unless a court
orders otherwise upon application of the lender. It is possible
that such interest rate limitation could have an effect, for an
indeterminate period of time, on the ability of the Company to
collect full amounts of interest on certain of the Contracts. In
addition, the Relief Act imposes limitations which would impair
the ability of the Company to enforce the lien with respect to an
affected Contract during the borrower's period of active duty
status. Thus, in the event that such a Contract goes into
default, there may be delays and losses occasioned by the
inability to enforce the lien with respect to the Manufactured
Home in a timely fashion.
Under the applicable Agreement, the Company will not be
required to make deposits to the Certificate Account for a series
of Certificates in respect of any Contract as to which the Relief
Act has limited the amount of interest the related borrower is
required to pay each month, and Certificateholders will bear such
loss.
LEGAL INVESTMENT MATTERS
Unless otherwise specified in the Prospectus Supplement,
all of the classes of a series of Certificates offered thereby
will constitute "mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA"), so
long as they are rated in one of the two highest rating
categories by one or more nationally recognized statistical
rating organizations, and, as such, are legal investments for
persons, trusts, corporations, partnerships, associations,
business trusts and business entities (including, but not limited
to, state-chartered savings banks, commercial banks, savings and
loan associations and insurance companies, as well as trustees
and state government employee retirement systems) created
pursuant to or existing under the laws of the United States or of
any state (including the District of Columbia and Puerto Rico)
whose authorized investments are subject to state regulation to
the same extent
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that, under applicable law, obligations issued by or guaranteed
as to principal and interest by the United States or any agency
or instrumentality thereof constitute legal investments for such
entities. Pursuant to SMMEA, a number of states enacted
legislation, on or before the October 3, 1991 cut-off for such
enactments, limiting to varying extents the ability of certain
entities (in particular, insurance companies) to invest in
"mortgage related securities," in most cases by requiring the
affected investors to rely solely upon existing state law and not
SMMEA. Accordingly, the investors affected by such legislation
will be authorized to invest in the Certificates only to the
extent provided in such legislation.
SMMEA also amended the legal investment authority of
federally chartered depository institutions as follows: 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 thereby; 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
set forth in 12 U.S.C. Section 24 (Seventh), subject in each case
to such regulations as the applicable federal regulatory
authority may prescribe. In this connection, federal credit
unions should review National Credit Union Administration (the
"NCUA") Letter to Credit Unions No. 96, as modified by Letter to
Credit Unions No. 108, which includes guidelines to assist
federal credit unions in making investment decisions for mortgage
related securities. The NCUA has adopted rules, effective
December 2, 1991, which prohibit federal credit unions from
investing in certain mortgage related securities, possibly
including certain series or classes of Certificates, except under
limited circumstances.
If specified in the Prospectus Supplement, one or more
classes of a series of Certificates will not constitute "mortgage
related securities" for purposes of SMMEA. In such event, persons
whose investments are subject to state or federal regulation may
not be legally authorized to invest in such classes of
Certificates.
All depository institutions considering an investment in
the Certificates should review the "Supervisory Policy Statement
on Securities Activities" dated January 28, 1992 (the "Policy
Statement") of the Federal Financial Institutions Examination
Council. The Policy Statement, which has been adopted by the
Board of Governors of the Federal Reserve System, the FDIC, the
Comptroller of the Currency and the Office of Thrift Supervision,
effective February 10, 1992, and by the NCUA (with certain
modifications) effective June 26, 1992, prohibits depository
institutions from investing in certain "high-risk mortgage
securities" (including securities such as certain series and
classes of the Certificates), except under limited circumstances,
and sets forth certain investment practices deemed to be
unsuitable for regulated institutions.
Institutions whose investment activities are subject to
regulation by federal or state authorities should review rules,
policies and guidelines adopted from time to time by such
authorities before purchasing Certificates, as certain series or
classes thereof may be deemed unsuitable investments, or may
otherwise be restricted, under such rules, policies or
guidelines, in certain instances irrespective of SMMEA.
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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, provisions
which may restrict or prohibit investments in securities which
are not "interest-bearing" or "income-paying," and, with regard
to any Certificates issued in book-entry form, provisions which
may restrict or prohibit investments in securities which are
issued in book-entry form.
Investors should consult their own legal advisors in
determining whether and to what extent the Certificates
constitute legal investments for such investors.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and the Internal Revenue Code of 1986, as
amended (the "Code") impose requirements on employee benefit
plans (and on certain other retirement plans and arrangements,
including individual retirement accounts and annuities, Keogh
plans and collective investment funds and separate accounts in
which such plans, accounts or arrangements are invested) subject
to ERISA or Section 4975 of the Code (collectively, "Plans") and
on persons who are fiduciaries with respect to such Plans. Among
other things, ERISA requires that the assets of a Plan subject to
ERISA be held in trust and that the trustee, or other duly
authorized fiduciary, have exclusive authority and discretion to
manage and control the assets of such Plan. ERISA also imposes
certain duties on persons who are fiduciaries with respect to a
Plan. Under ERISA, any person who exercises any authority or
control respecting the management or disposition of the assets of
a Plan generally is considered to be a fiduciary of such Plan. In
addition to the imposition by ERISA of general fiduciary
standards of investment prudence and diversification, ERISA and
Section 4975 of the Code prohibit a broad range of transactions
involving Plan assets and persons ("Parties in Interest") having
certain specified relationships to a Plan and impose additional
prohibitions where Parties in Interest are fiduciaries with
respect to such Plan.
The United States Department of Labor (the "DOL") has
issued a regulation concerning the definition of what constitutes
the assets of a Plan (DOL Reg. Section 2510.3-101). Under this
regulation, the underlying assets and properties of corporations,
partnerships and certain other entities in which a Plan makes an
"equity" investment could be deemed for purposes of ERISA and
Section 4975 of the Code to be assets of the investing Plan in
certain circumstances. In such a case, the fiduciary making such
an investment for the Plan could be deemed to have delegated his
or her asset management responsibility, the underlying assets and
properties could be subject to ERISA's reporting and disclosure
requirements, and transactions involving the underlying assets
and properties could be subject to the fiduciary responsibility
requirements of ERISA and the prohibited transaction provisions
of Section 4975 of the Code. Certain exceptions to the regulation
may apply in the case of a Plan's investment in the Certificates,
but the Company cannot predict in advance whether any such
exceptions will apply due to the factual nature of the conditions
to be met. Accordingly, because the Mortgage Loans, Agency
Securities or Contracts may be deemed Plan assets of each Plan
that purchases Certificates, an investment in the Certificates by
a Plan might give rise to a prohibited transaction under ERISA
Sections 406 or
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407 and be subject to an excise tax under Code Section 4975
unless a statutory or administrative exemption applies.
DOL Prohibited Transaction Class Exemption 83-1 ("PTE
83-1") exempts from the prohibited transaction rules of ERISA and
Section 4975 of the Code certain transactions relating to the
operation of residential mortgage pool investment trusts and the
purchase, sale and holding of "mortgage pool pass-through
certificates" in the initial issuance of such certificates. PTE
83-1 permits, subject to certain conditions, transactions which
might otherwise be prohibited between Plans and Parties in
Interest with respect to those Plans involving the origination,
servicing, operation and termination of mortgage pools consisting
of mortgage loans secured by first or second mortgages or deeds
of trust on single-family residential property, and the
acquisition and holding of certain mortgage pool pass-through
certificates representing an interest in such mortgage pools by
Plans.
PTE 83-1 sets forth three general conditions which must be
satisfied for any transaction to be eligible for exemption: (i)
the maintenance of a system of insurance or other protection for
the pooled mortgage loans and property securing such loans, and
for indemnifying certificateholders against reductions in
pass-through payments due to property damage or defaults in loan
payments in an amount not less than the greater of one percent of
the aggregate principal balance of all covered pooled mortgage
loans or the principal balance of the largest covered pooled
mortgage loan; (ii) the existence of a pool trustee who is not an
affiliate of the pool sponsor; and (iii) a limitation on the
amount of the payments retained by the pool sponsor, together
with other funds inuring to its benefit, to not more than
adequate consideration for selling the mortgage loans plus
reasonable compensation for services provided by the pool sponsor
to the mortgage pool.
Although the Trustee for any series of Certificates will be
unaffiliated with the Company, there can be no assurance that the
system of insurance or subordination will meet the general or
specific conditions referred to above. In addition, the nature of
a Trust Fund's assets or the characteristics of one or more
classes of the related series of Certificates may not be included
within the scope of PTE 83-1 or any other class exemption under
ERISA. The Prospectus Supplement will provide additional
information with respect to the application of ERISA and Section
4975 of the Code to the related Certificates.
Several underwriters of mortgage-backed securities have
applied for and obtained individual ERISA prohibited transaction
exemptions which are in some respects broader than PTE 83-1. Such
exemptions only apply to mortgage-backed securities which, in
addition to satisfying other conditions, are sold in an offering
with respect to which such underwriter serves as the sole or a
managing underwriter, or as a selling or placement agent. If such
an exemption might be applicable to a series of Certificates, the
related Prospectus Supplement will refer to such possibility.
Each Plan fiduciary who is responsible for making the
investment decisions whether to purchase or commit to purchase
and to hold Certificates must make its own determination as to
whether the general and the specific conditions of PTE 83-1 have
been satisfied, or as to the
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availability of any other prohibited transaction exemptions. Each
Plan fiduciary should also determine whether, under the general
fiduciary standards of investment prudence and diversification,
an investment in the Certificates is appropriate for the Plan,
taking into account the overall investment policy of the Plan and
the composition of the Plan's investment portfolio.
Unless otherwise specified in the Prospectus Supplement,
the Agreement will provide that the Residual Certificates of any
series of Certificates with respect to which a REMIC election has
been made may not be acquired by a Plan.
Any Plan proposing to invest in Certificates should consult
with its counsel to confirm that such investment will not result
in a prohibited transaction and will satisfy the other
requirements of ERISA and the Code.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
The following generally describes the anticipated material
federal income tax consequences of purchasing, owning and
disposing of Certificates. It does not address special rules
which may apply to particular types of investors. The authorities
on which this discussion is based are subject to change or
differing interpretations, and any such change or interpretation
could apply retroactively. Investors should consult their own tax
advisors regarding the Certificates.
For purposes of this discussion, unless otherwise
specified, the term "Mortgage Loans" will be used to refer to
Mortgage Loans, Agency Securities and Contracts, and the term
"Owner" will refer to the beneficial owner of a Certificate.
REMIC Elections
Under the Internal Revenue Code of 1986 (the "Code"), an
election may be made to treat each Trust Fund related to a Series
of Certificates (or segregated pools of assets within the Trust
Fund) as a "real estate mortgage investment conduit" ("REMIC")
within the meaning of Section 860D(a) of the Code. If one or more
REMIC elections are made, the Certificates of any Class will be
either "regular interests" in a REMIC within the meaning of
Section 860G(a)(1) of the Code ("Regular Certificates") or
"residual interests" in a REMIC within the meaning of Section
860G(a)(2) of the Code ("Residual Certificates"). The Prospectus
Supplement for each Series of Certificates will indicate whether
an election will be made to treat each Trust Fund as one or more
REMICs, and if so, which Certificates will be Regular
Certificates and which will be Residual Certificates.
If a REMIC election is made, each Trust Fund, or each
portion thereof that is treated as a separate REMIC, will be
referred to as a "REMIC Pool". If a Trust Fund is comprised of
two REMIC Pools, one will be an "Upper-Tier REMIC" and one a
"Lower-Tier REMIC". The assets of the Lower-Tier REMIC will
consist of the Mortgage Loans and related Trust Fund assets. The
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assets of the Upper-Tier REMIC will consist of all of the regular
interests issued by the Lower-Tier REMIC.
The discussion below under the heading "REMIC Certificates"
considers Series for which a REMIC election will be made. Series
for which no such election will be made are addressed under
"Non-REMIC Certificates".
REMIC Certificates
The discussion in this section applies only to a Series of
Certificates for which a REMIC election is made.
Tax Opinion.
Qualification as a REMIC requires ongoing compliance with
certain conditions. Upon the issuance of each Series of
Certificates for which a REMIC election is made, Cleary,
Gottlieb, Steen & Hamilton, counsel to the Company, will deliver
its opinion generally to the effect that, with respect to each
such Series of Certificates, under then existing law and assuming
compliance by the Company, the Servicer and the Trustee for such
Series with all of the provisions of the related Agreement (and
such other agreements and representations as may be referred to
in such opinion), each REMIC Pool will be a REMIC, and the
Certificates of such Series will be treated as either Regular
Certificates or Residual Certificates.
Status of Certificates.
The Certificates will be:
o assets described in Code Section 7701(a)(19)(C); and
o "real estate assets" under Code Section 856(c)(4)(A),
to the extent the assets of the related REMIC Pool are so
treated. Interest on the Regular Certificates will be "interest
on obligations secured by mortgages on real property or on
interests in real property" within the meaning of Code Section
856(c)(3)(B) in the same proportion that the income of the REMIC
Pool is so treated. If at all times 95% or more of the assets or
income of the REMIC Pool qualifies under the foregoing Code
sections, the Certificates (and income thereon) will so qualify
in their entirety. The Regular Certificates will also qualify as
"permitted assets" under Section 860L(c) of the Code.
In the event the assets of the related REMIC Pool include
buy-down Mortgage Loans, it is unclear whether the related
buy-down funds would qualify under the foregoing Code sections.
Also, Contracts may be considered to qualify under the foregoing
sections only if the Manufactured Homes securing such Contracts
are considered to be "permanently fixed" or "permanently
installed". Contracts may limit the ability of a borrower to
permanently attach a Manufactured Home to its site.
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The rules described in the two preceding paragraphs will be
applied to a Trust Fund consisting of two REMIC Pools as if the
Trust Fund were a single REMIC holding the assets of the
Lower-Tier REMIC.
Income from Regular Certificates
General. Except as otherwise provided in this tax
discussion, Regular Certificates will be taxed as newly
originated debt instruments for federal income tax purposes.
Interest, original issue discount and market discount accrued on
a Regular Certificate will be ordinary income to the Owner. All
Owners must account for interest income under the accrual method
of accounting, which may result in the inclusion of amounts in
income that are not currently distributed in cash.
On January 27, 1994, the Internal Revenue Service adopted
regulations applying the original issue discount rules of the
Code (the "OID Regulations"). Except as otherwise noted, the
discussion below is based on the OID Regulations.
Original Issue Discount. Certain Regular Certificates may
have "original issue discount." An Owner must include original
issue discount in income as it accrues, without regard to the
timing of payments.
The total amount of original issue discount on a Regular
Certificate is the excess of its "stated redemption price at
maturity" over its "issue price." The issue price for any Regular
Certificate is the price (including any accrued interest) at
which a substantial portion of the Class of Certificates
including such Regular Certificate are first sold to the public.
In general, the stated redemption price at maturity is the sum of
all payments made on the Regular Certificate, other than payments
of interest that (i) are actually payable at least annually over
the entire life of the Certificates and (ii) are based on a
single fixed rate or variable rate (or certain combinations of
fixed and variable rates). The stated redemption price at
maturity of a Regular Certificate always includes its original
principal amount, but generally does not include distributions of
stated interest, except in the case of Accrual Certificates, and,
as discussed below, Interest Only Certificates. An "Interest Only
Certificate" is a Certificate entitled to receive distributions
of some or all of the interest on the Mortgage Loans or other
assets in a REMIC Pool and that has either a notional or nominal
principal amount. Special rules for Regular Certificates that
provide for interest based on a variable rate are discussed below
in "Income from Regular Certificates--Variable Rate Regular
Certificates".
With respect to an Interest Only Certificate, the stated
redemption price at maturity is likely to be the sum of all
payments thereon, determined in accordance with the Prepayment
Assumption (as defined below). In that event, Interest Only
Certificates would always have original issue discount.
Alternatively, in the case of an Interest Only Certificate with
some principal amount, the stated redemption price at maturity
might be determined under the general rules described in the
preceding paragraph. If, applying those rules, the stated
redemption price at maturity were considered to equal the
principal amount of such Certificate, then the rules described
below under "Premium" would apply. The Prepayment Assumption is
the assumed rate of prepayment of the Mortgage Loans used in
pricing the Regular Certificates. The Prepayment Assumption will
be set forth in the related Supplement.
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Under a de minimis rule, original issue discount on a
Regular Certificate will be considered zero if it is less than
0.25% of the Certificate's stated redemption price at maturity
multiplied by the Certificate's weighted average maturity. The
weighted average maturity of a Regular Certificate is computed
based on the number of full years (i.e., rounding down partial
years) each distribution of principal (or other amount included
in the stated redemption price at maturity) is scheduled to be
outstanding. The schedule of such distributions likely should be
determined in accordance with the Prepayment Assumption.
The Owner of a Regular Certificate generally must include
in income the original issue discount that accrues for each day
on which the Owner holds such Certificate, including the date of
purchase, but excluding the date of disposition. The original
issue discount accruing in any period equals:
PV End + Dist - PV Beg
Where:
PV End = present value of all remaining distributions to
be made as of the end of the period;
Dist = distributions made during the period includible
in the stated redemption price at maturity; and
PV Beg = present value of all remaining distributions as
of the beginning of the period.
The present value of the remaining distributions is calculated
based on (i) the original yield to maturity of the Regular
Certificate, (ii) events (including actual prepayments) that have
occurred prior to the end of the period and (iii) the Prepayment
Assumption. For these purposes, the original yield to maturity of
a Regular Certificate will be calculated based on its issue
price, assuming that the Certificate will be prepaid in all
periods in accordance with the Prepayment Assumption, and with
compounding at the end of each accrual period used in the
formula.
Assuming the Regular Certificates have monthly Distribution
Dates, discount would be computed under the formula generally for
the one-month periods (or shorter initial period) ending on each
Distribution Date. The original issue discount accruing during
any accrual period is divided by the number of days in the period
to determine the daily portion of original issue discount for
each day.
The daily portions of original issue discount generally
will increase if prepayments on the underlying Mortgage Loans
exceed the Prepayment Assumption and decrease if prepayments are
slower than the Prepayment Assumption (changes in the rate of
prepayments having the opposite effect in the case of an Interest
Only Certificate). If the relative principal payment priorities
of the Classes of Regular Certificates of a Series change, any
increase or decrease in the present value of the remaining
payments to be made on any such Class will affect the computation
of original issue discount for the period in which the change in
payment priority occurs.
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If original issue discount computed as described above is
negative for any period, the Owner generally will not be allowed
a current deduction for the negative amount but instead will be
entitled to offset such amount only against future positive
original issue discount from such Certificate. However, while not
free from doubt, such an Owner may be entitled to deduct
"negative original issue discount" to the extent the Owner's
adjusted basis (as defined in "Sale or Exchange of Certificates"
below) in the Certificate remaining after such deduction is not
less than the principal amount of the Certificate.
Acquisition Premium. If an Owner of a Regular Certificate
acquires such Certificate at a price greater than its "adjusted
issue price," but less than its remaining stated redemption price
at maturity, the daily portion for any day (as computed above) is
reduced by an amount equal to the product of (i) such daily
portion and (ii) a fraction, the numerator of which is the amount
by which the price exceeds the adjusted issue price and the
denominator of which is the sum of the daily portions for such
Regular Certificate for all days on and after the date of
purchase. The adjusted issue price of a Regular Certificate on
any given day is its issue price, increased by all original issue
discount that has accrued on such Certificate and reduced by the
amount of all previous distributions on such Certificate of
amounts included in its stated redemption price at maturity.
Market Discount. A Regular Certificate may have market
discount (as defined in the Code). Market discount equals the
excess of the adjusted issue price of a Certificate over the
Owner's adjusted basis in the Certificate. The Owner of a
Certificate with market discount must report ordinary interest
income, as the Owner receives distributions on the Certificate of
principal or other amounts included in its stated redemption
price at maturity, equal to the lesser of (a) the excess of the
amount of those distributions over the amount, if any, of accrued
original issue discount on the Certificate or (b) the portion of
the market discount that has accrued and not previously been
included in income. Also, such Owner must treat gain from the
disposition of the Certificate as ordinary income to the extent
of any accrued, but unrecognized, market discount. Alternatively,
an Owner may elect in any taxable year to include market discount
in income currently as it accrues on all market discount
instruments acquired by the Owner in that year or thereafter. An
Owner may revoke such an election only with the consent of the
Internal Revenue Service.
In general terms, market discount on a Regular Certificate
may be treated, at the Owner's election, as accruing either (a)
on the basis of a constant yield (similar to the method described
above for accruing original issue discount) or (b) alternatively,
either (i) in the case of a Regular Certificate issued without
original issue discount, in the ratio of stated interest
distributable in the relevant period to the total stated interest
remaining to be distributed from the beginning of such period
(computed taking into account the Prepayment Assumption) or (ii)
in the case of a Regular Certificate issued with original issue
discount, in the ratio of the amount of original issue discount
accruing in the relevant period to the total remaining original
issue discount at the beginning of such period. An election to
accrue market discount on a Regular Certificate on a constant
yield basis is irrevocable with respect to that Certificate.
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An Owner may be required to defer a portion of the
deduction for interest expense on any indebtedness that the Owner
incurs or maintains in order to purchase or carry a Regular
Certificate that has market discount. The deferred amount would
not exceed the market discount that has accrued but not been
taken into income. Any such deferred interest expense is, in
general, allowed as a deduction not later than the year in which
the related market discount income is recognized.
Market discount with respect to a Regular Certificate will
be considered to be zero if such market discount is de minimis
under a rule similar to that described above in the fourth
paragraph under "Original Issue Discount". Owners should consult
their own tax advisors regarding the application of the market
discount rules as well as the advisability of making any election
with respect to market discount.
Discount on a Regular Certificate that is neither original
issue discount nor market discount, as defined above, must be
allocated ratably among the principal payments on the Certificate
and included in income (as gain from the sale or exchange of the
Certificate) as the related principal payments are made (whether
as scheduled payments or prepayments).
Premium. A Regular Certificate, other than an Accrual
Certificate or, as discussed above under "Original Issue
Discount", an Interest Only Certificate, purchased at a cost (net
of accrued interest) greater than its principal amount generally
is considered to be purchased at a premium. The Owner may elect
under Code Section 171 to amortize such premium under the
constant yield method, using the Prepayment Assumption. To the
extent the amortized premium is allocable to interest income from
the Regular Certificate, it is treated as an offset to such
interest rather than as a separate deduction. An election made by
an Owner would generally apply to all its debt instruments and
may not be revoked without the consent of the Internal Revenue
Service.
Special Election to Apply OID Rules. In lieu of the rules
described above with respect to de minimis discount, acquisition
premium, market discount and premium, an Owner of a Regular
Certificate may elect to accrue such discount, or adjust for such
premium, by applying the principles of the OID rules described
above. An election made by a taxpayer with respect to one
obligation can affect other obligations it holds. Owners should
consult with their tax advisors regarding the merits of making
this election.
Retail Regular Certificates. For purposes of the original
issue and market discount rules, a repayment in full of a Retail
Certificate that is subject to payment in units or other
increments, rather than on a pro rata basis with other Retail
Certificates, will be treated in the same manner as any other
prepayment.
Variable Rate Regular Certificates. The Regular
Certificates may provide for interest that varies based on an
interest rate index. The OID Regulations provide special rules
for calculating income from certain "variable rate debt
instruments" or "VRDIs." A debt instrument must meet certain
technical requirements to qualify as a VRDI, which are outlined
in the next paragraph. Under the regulations, income on a VRDI is
calculated by (1) creating a hypothetical debt instrument that
pays fixed interest at rates equivalent to the variable interest,
(2) applying the original issue discount rules of the Code to
that fixed rate instrument, and (3) adjusting the
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income accruing in any accrual period by the difference between
the assumed fixed interest amount and the actual amount for the
period. In general, where a variable rate on a debt instrument is
based on an interest rate index (such as LIBOR), a fixed rate
equivalent to a variable rate is determined based on the value of
the index as of the issue date of the debt instrument. In cases
where rates are reset at different intervals over the life of a
VRDI, adjustments are made to ensure that the equivalent fixed
rate for each accrual period is based on the same reset interval.
A debt instrument must meet a number of requirements in
order to qualify as a VRDI. A VRDI cannot be issued at a premium
above its principal amount that exceeds a specified percentage of
its principal amount (15%, or if less 1.5% times its weighted
average life). As a result, Interest Only Certificates will never
be VRDIs. Also, a debt instrument that pays interest based on a
multiple of an interest rate index is not a VRDI if the multiple
is less than or equal to 0.65 or greater than 1.35, unless, in
general, interest is paid based on a single formula that lasts
over the life of the instrument. A debt instrument is not a VRDI
if it is subject to caps and floors, unless they remain the same
over the life of the instrument or are not expected to change
significantly the yield on the instrument. Variable rate Regular
Certificates other than Interest Only Certificates may or may not
qualify as VRDIs depending on their terms.
In a case where a variable rate Regular Certificate does
not qualify as a VRDI, it will be treated under the OID
Regulations as a contingent payment debt instrument. The Internal
Revenue Service has issued final regulations addressing
contingent payment debt instruments, but such regulations are not
applicable by their terms to REMIC regular interests. Until
further guidance is forthcoming, one method of calculating income
on such a Regular Certificate that appears to be reasonable would
be to apply the principles governing VRDIs outlined above.
Subordinated Certificates. Certain Series of Certificates
may contain one or more Classes of subordinated Certificates. In
the event there are defaults or delinquencies on the related
Mortgage Loans, amounts that otherwise would be distributed on a
Class of subordinated Certificates may instead be distributed on
other more senior Classes of Certificates. Since Owners of
Regular Certificates are required to report income under an
accrual method, Owners of subordinated Certificates will be
required to report income without giving effect to delays and
reductions in distributions on such Certificates attributable to
defaults or delinquencies on the Mortgage Loans, except to the
extent that it can be established that amounts are uncollectible.
As a result, the amount of income reported by an Owner of a
subordinated Certificate in any period could significantly exceed
the amount of cash distributed to such Owner in that period. The
Owner will eventually be allowed a loss (or be allowed to report
a lesser amount of income) to the extent that the aggregate
amount of distributions on the subordinated Certificate is
reduced as a result of defaults and delinquencies on the Mortgage
Loans. Such a loss could in some circumstances be a capital loss.
Also, the timing and amount of such losses or reductions in
income are uncertain. Owners of subordinated Certificates should
consult their tax advisors on these points.
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Income from Residual Certificates.
Taxation of REMIC Income. Generally, Owners of Residual
Certificates in a REMIC Pool ("Residual Owners") must report
ordinary income or loss equal to their pro rata shares (based on
the portion of all Residual Certificates they own) of the taxable
income or net loss of the REMIC. Such income must be reported
regardless of the timing or amounts of distributions on the
Residual Certificates.
The taxable income of a REMIC Pool is generally determined
under the accrual method of accounting in the same manner as the
taxable income of an individual taxpayer. Taxable income is
generally gross income, including interest and original issue
discount income, if any, on the assets of the REMIC Pool and
income from the amortization of any premium on Regular
Certificates, minus deductions. Market discount (as defined in
the Code) with respect to Mortgage Loans held by a REMIC Pool is
recognized in the same fashion as if it were original issue
discount. Deductions include interest and original issue discount
expense on the Regular Certificates, reasonable servicing fees
attributable to the REMIC Pool, other administrative expenses and
amortization of any premium on assets of the REMIC Pool. As
previously discussed, the timing of recognition of "negative
original issue discount," if any, on a Regular Certificate is
uncertain; as a result, the timing of recognition of the
corresponding income to the REMIC Pool is also uncertain.
If the Trust Fund consists of an Upper-Tier REMIC and a
Lower-Tier REMIC, the OID Regulations provide that the regular
interests issued by the Lower-Tier REMIC to the Upper-Tier REMIC
will be treated as a single debt instrument for purposes of the
original issue discount provisions. A determination that these
regular interests are not treated as a single debt instrument
would have a material adverse effect on the Owners of Residual
Certificates issued by the Lower-Tier REMIC.
A Residual Owner may not amortize the cost of its Residual
Certificate. Taxable income of the REMIC Pool, however, will not
include cash received by the REMIC Pool that represents a
recovery of the REMIC Pool's initial basis in its assets, and
such basis will include the issue price of the Residual
Certificates (assuming the issue price is positive). Such
recovery of basis by the REMIC Pool will have the effect of
amortization of the issue price of the Residual Certificate over
its life. The period of time over which such issue price is
effectively amortized, however, may be longer than the economic
life of the Residual Certificate. The issue price of a Residual
Certificate is the price at which a substantial portion of the
Class of Certificates including the Residual Certificate are
first sold to the public (or if the Residual Certificate is not
publicly offered, the price paid by the first buyer).
A subsequent Residual Owner must report the same amounts of
taxable income or net loss attributable to the REMIC Pool as an
original Owner. No adjustments are made to reflect the purchase
price.
Losses. A Residual Owner that is allocated a net loss of
the REMIC Pool may not deduct such loss currently to the extent
it exceeds the Owner's adjusted basis (as defined in "Sale or
Exchange of Certificates" below) in its Residual Certificate. A
Residual Owner that is a U.S.
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person (as defined below in "Taxation of Certain Foreign
Investors"), however, may carry over any disallowed loss to
offset any taxable income generated by the same REMIC Pool.
Excess Inclusions. A portion of the taxable income
allocated to a Residual Certificate is subject to special tax
rules. That portion, referred to as an "excess inclusion," is
calculated for each calendar quarter and equals the excess of
such taxable income for the quarter over the daily accruals for
the quarter. The daily accruals equal the product of (i) 120% of
the federal long-term rate under Code Section 1274(d) for the
month which includes the Closing Date (determined on the basis of
quarterly compounding and properly adjusted for the length of the
quarter) and (ii) the adjusted issue price of the Certificate at
the beginning of such quarter. The adjusted issue price of a
Residual Certificate at the beginning of a quarter is the issue
price of the Certificate, plus the amount of daily accruals on
the Certificate for all prior quarters, decreased (but not below
zero) by any prior distributions on the Certificate. If the
aggregate value of the Residual Certificates is not considered to
be "significant," then to the extent provided in Treasury
regulations, a Residual Owner's entire share of REMIC taxable
income will be treated as an excess inclusion. The regulations
that have been adopted under Code Sections 860A through 860G (the
"REMIC Regulations") do not contain such a rule.
Excess inclusions generally may not be offset by unrelated
losses or loss carryforwards or carrybacks of a Residual Owner.
In addition, for all taxable years beginning after August 20,
1996, and unless a Residual Owner elects otherwise for all other
taxable years, the alternate minimum taxable income of a Residual
Owner for a taxable year may not be less than the Residual
Owner's excess inclusions for the taxable year and excess
inclusions are disregarded when calculating a Residual Owner's
alternate minimum tax net operating loss deduction.
Excess inclusions are treated as unrelated business taxable
income for an organization subject to the tax on unrelated
business income. In addition, under Treasury regulations yet to
be issued, if a real estate investment trust, regulated
investment company or certain other pass-through entities are
Residual Owners, a portion of the distributions made by such
entities may be treated as excess inclusions.
Distributions. Distributions on a Residual Certificate
(whether at their scheduled times or as a result of prepayments)
generally will not result in any taxable income or loss to the
Residual Owner. If the amount of any distribution exceeds a
Residual Owner's adjusted basis in its Residual Certificate,
however, the Residual Owner will recognize gain (treated as gain
from the sale or exchange of its Residual Certificate) to the
extent of such excess. See "Sale or Exchange of Certificates"
below.
Prohibited Transactions; Special Taxes. Net income
recognized by a REMIC Pool from "prohibited transactions" is
subject to a 100% tax and is disregarded in calculating the REMIC
Pool's taxable income. In addition, a REMIC Pool is subject to
federal income tax at the highest corporate rate on "net income
from foreclosure property" (which has a technical definition). A
100% tax also applies to certain contributions to a REMIC Pool
made after it is formed. It is not anticipated that any REMIC
Pool will (i) engage in prohibited transactions in which it
recognizes
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a significant amount of net income, (ii) receive contributions of
property that are subject to tax, or (iii) derive a significant
amount of net income from foreclosure property that is subject to
tax.
Negative Value Residual Certificates. The federal income
tax treatment of any consideration paid to a transferee on a
transfer of a Residual Certificate is unclear. Such a transferee
should consult its tax advisor. The preamble to the REMIC
Regulations indicates that the Internal Revenue Service may issue
future guidance on the tax treatment of such payments.
Mark to Market Rules. A REMIC residual interest that is
acquired on or after January 4, 1995 is not a "security" for the
purposes of Code Section 475, and thus is not subject to the mark
to market rules.
THE METHOD OF TAXATION OF RESIDUAL CERTIFICATES DESCRIBED
IN THIS SECTION CAN PRODUCE A SIGNIFICANTLY LESS FAVORABLE
AFTER-TAX RETURN FOR A RESIDUAL CERTIFICATE THAN WOULD BE THE
CASE IF THE CERTIFICATE WERE TAXABLE AS A DEBT INSTRUMENT. ALSO,
A RESIDUAL OWNER'S RETURN MAY BE ADVERSELY AFFECTED BY THE EXCESS
INCLUSIONS RULES DESCRIBED ABOVE. IN CERTAIN PERIODS, TAXABLE
INCOME AND THE RESULTING TAX LIABILITY FOR A RESIDUAL OWNER MAY
EXCEED ANY DISTRIBUTIONS IT RECEIVES. IN ADDITION, A SUBSTANTIAL
TAX MAY BE IMPOSED ON CERTAIN TRANSFERORS OF A RESIDUAL
CERTIFICATE AND CERTAIN RESIDUAL OWNERS THAT ARE "PASS-THRU"
ENTITIES. SEE "TRANSFERS OF RESIDUAL CERTIFICATES" BELOW.
INVESTORS SHOULD CONSULT THEIR TAX ADVISORS BEFORE PURCHASING A
RESIDUAL CERTIFICATE.
Sale or Exchange of Certificates.
An Owner generally will recognize gain or loss upon sale or
exchange of a Regular or Residual Certificate equal to the
difference between the amount realized and the Owner's adjusted
basis in the Certificate. The adjusted basis in a Certificate
generally will equal the cost of the Certificate, increased by
income previously recognized, and reduced (but not below zero) by
previous distributions, and by any amortized premium in the case
of a Regular Certificate, or net losses allowed as a deduction in
the case of a Residual Certificate.
Except as described below, any gain or loss on the sale or
exchange of a Certificate held as a capital asset will be capital
gain or loss and will be long-term or short-term depending on
whether the Certificate has been held for more than one year.
Such gain or loss will be ordinary income or loss (i) for a bank
or thrift institution, and (ii) in the case of a Regular
Certificate, (a) to the extent of any accrued, but unrecognized,
market discount, or (b) to the extent income recognized by the
Owner is less than the income that would have been recognized if
the yield on such Certificate were 110% of the applicable federal
rate under Code Section 1274(d).
A Residual Owner should be allowed a loss upon termination
of the REMIC Pool equal to the amount of the Owner's remaining
adjusted basis in its Residual Certificates. Whether the
termination will be treated as a sale or exchange (resulting in a
capital loss) is unclear.
Except as provided in Treasury regulations, the wash sale
rules of Code Section 1091 will apply to dispositions of a
Residual Certificate where the seller of the interest, during the
period beginning six months before the sale or disposition of the
interest and ending six months after
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such sale or disposition, acquires (or enters into any other
transaction that results in the application of Code Section 1091)
any REMIC residual interest, or any interest in a "taxable
mortgage pool" (such as a non-REMIC owner trust) that is
economically comparable to a residual interest.
Taxation of Certain Foreign Investors.
Regular Certificates. A Regular Certificate held by an
Owner that is a non-U.S. person (as defined below), and that has
no connection with the United States other than owning the
Certificate, will not be subject to U.S. withholding or income
tax with respect to the Certificate provided such Owner (i) is
not a "10-percent shareholder" within the meaning of Code Section
871(h)(3)(B) or a controlled foreign corporation described in
Code Section 881(c)(3)(C), and (ii) provides an appropriate
statement, signed under penalties of perjury, identifying the
Owner and stating, among other things, that the Owner is a
non-U.S. person. If these conditions are not met, a 30%
withholding tax will apply to interest (including original issue
discount) unless an income tax treaty reduces or eliminates such
tax or unless the interest is effectively connected with the
conduct of a trade or business within the United States by such
Owner. In the latter case, such Owner will be subject to United
States federal income tax with respect to all income from the
Certificate at regular rates then applicable to U.S. taxpayers
(and in the case of a corporation, possibly also the branch
profits tax).
The term "non-U.S. person" means any person other than a
U.S. person. A U.S. person is a citizen or resident of the United
States, a corporation, partnership or other entity created or
organized in or under the laws of the United States or any
political subdivision thereof, or an estate or trust that is
subject to U.S. federal income tax regardless of the source of
its income.
Residual Certificates. A Residual Owner that is a non-U.S.
person, and that has no connection with the United States other
than owning a Residual Certificate, will not be subject to U.S.
withholding or income tax with respect to the Certificate (other
than with respect to excess inclusions) provided that (i) the
conditions described in the second preceding paragraph with
respect to Regular Certificates are met and (ii) in the case of a
Residual Certificate in a REMIC Pool holding Mortgage Loans, the
Mortgage Loans were originated after July 18, 1984. Excess
inclusions are subject to a 30% withholding tax in all events
(notwithstanding any contrary tax treaty provisions) when
distributed to the Residual Owner (or when the Residual
Certificate is disposed of). The Code grants the Treasury
Department authority to issue regulations requiring excess
inclusions to be taken into account earlier if necessary to
prevent avoidance of tax. The REMIC Regulations do not contain
such a rule. The preamble thereto states that the Internal
Revenue Service is considering issuing regulations concerning
withholding on distributions to foreign holders of residual
interests to satisfy accrued tax liability due to excess
inclusions.
With respect to a Residual Certificate that has been held
at any time by a non-U.S. person, the Trustee (or its agent) will
be entitled to withhold (and to pay to the Internal Revenue
Service) any portion of any payment on such Residual Certificate
that the Trustee reasonably determines is required to be
withheld. If the Trustee (or its agent) reasonably determines
that a more accurate determination of the amount required to be
withheld from a distribution can be
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made within a reasonable period after the scheduled date for such
distribution, it may hold such distribution in trust for the
Residual Owner until such determination can be made.
Special tax rules and restrictions that apply to transfers
of Residual Certificates to and from non-U.S. persons are
discussed in the next section.
Transfers of Residual Certificates.
Special tax rules and restrictions apply to transfers of
Residual Certificates to disqualified organizations or foreign
investors, and to transfers of noneconomic Residual Certificates.
Disqualified Organizations. In order to comply with the
REMIC rules of the Code, the Agreement will provide that no legal
or beneficial interest in a Residual Certificate may be
transferred to, or registered in the name of, any person unless
(i) the proposed purchaser provides to the Trustee an "affidavit"
(within the meaning of the REMIC Regulations) to the effect that,
among other items, such transferee is not a "disqualified
organization" (as defined below), is not purchasing a Residual
Certificate as an agent for a disqualified organization (i.e., as
a broker, nominee, or other middleman) and is not an entity (a
"Book-Entry Nominee") that holds REMIC residual securities as
nominee to facilitate the clearance and settlement of such
securities through electronic book-entry changes in accounts of
participating organizations and (ii) the transferor states in
writing to the Trustee that it has no actual knowledge that such
affidavit is false.
If despite these restrictions a Residual Certificate is
transferred to a disqualified organization, the transfer may
result in a tax equal to the product of (i) the present value of
the total anticipated future excess inclusions with respect to
such Certificate and (ii) the highest corporate marginal federal
income tax rate. Such a tax generally is imposed on the
transferor, except that if the transfer is through an agent for a
disqualified organization, the agent is liable for the tax. A
transferor is not liable for such tax if the transferee furnishes
to the transferor an affidavit that the transferee is not a
disqualified organization and, as of the time of the transfer,
the transferor does not have actual knowledge that the affidavit
is false.
A disqualified organization may hold an interest in a REMIC
Certificate through a "pass-thru entity" (as defined below). In
that event, the pass-thru entity is subject to tax (at the
highest corporate marginal federal income tax rate) on excess
inclusions allocable to the disqualified organization. However,
such tax will not apply to the extent the pass-thru entity
receives affidavits from record holders of interests in the
entity stating that they are not disqualified organizations and
the entity does not have actual knowledge that the affidavits are
false.
For these purposes, (i) "disqualified organization" means
the United States, any state or political subdivision thereof,
any foreign government, any international organization, any
agency or instrumentality of any of the foregoing, certain
organizations that are exempt from taxation under the Code
(including tax on excess inclusions) and certain corporations
operating on a cooperative basis, and (ii) "pass-thru entity"
means any regulated investment company, real estate investment
trust, common trust fund, partnership, trust or estate and
certain corporations operating on a cooperative basis. Except as
may be provided in Treasury regulations, any person holding an
interest in a pass-thru entity as a nominee for another will,
with respect to that
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interest, be treated as a pass-thru entity. Certain additional
rules also apply to "electing large partnerships." If an electing
large partnership holds a Residual Certificate, all interests in
the electing large partnership are treated as held by
disqualified organizations for the purposes of the tax on
pass-through entities described above. The exception to this tax
described above for pass-through entities that collect affidavits
from their record holders is not available to electing large
partnerships.
Foreign Investors. Under the REMIC Regulations, a transfer
of a Residual Certificate to a non-U.S. person that will not hold
the Certificate in connection with a U.S. trade or business will
be disregarded for all federal tax purposes if the Certificate
has "tax avoidance potential." A Residual Certificate has tax
avoidance potential unless, at the time of transfer, the
transferor reasonably expects that:
(i) for each excess inclusion, the REMIC will distribute to
the transferee residual interest holder an amount that will equal
at least 30 percent of the excess inclusion, and
(ii) each such amount will be distributed at or after the
time at which the excess inclusion accrues and not later than the
close of the calendar year following the calendar year of
accrual.
A transferor has such reasonable expectation if the above test
would be met assuming that the REMIC's Mortgage Loans will prepay
at each rate between 50 percent and 200 percent of the Prepayment
Assumption.
The REMIC Regulations also provide that a transfer of a
Residual Certificate from a non- U.S. person to a U.S. person (or
to a non-U.S. person that will hold the Certificate in connection
with a U.S. trade or business) is disregarded if the transfer has
"the effect of allowing the transferor to avoid tax on accrued
excess inclusions."
In light of these provisions, the Agreement provides that a
Residual Certificate may not be purchased by or transferred to
any person that is not a U.S. person, unless (i) such person
holds the Certificate in connection with the conduct of a trade
or business within the United States and furnishes the transferor
and the Trustee with an effective Internal Revenue Service Form
4224, or (ii) the transferee delivers to both the transferor and
the Trustee an opinion of nationally recognized tax counsel to
the effect that such transfer is in accordance with the
requirements of the Code and the regulations promulgated
thereunder and that such transfer will not be disregarded for
federal income tax purposes.
Noneconomic Residual Certificates. Under the REMIC
Regulations, a transfer of a "noneconomic" Residual Certificate
will be disregarded for all federal income tax purposes if a
significant purpose of the transfer is to impede the assessment
or collection of tax. Such a purpose exists if the transferor, at
the time of the transfer, either knew or should have known that
the transferee would be unwilling or unable to pay taxes due on
its share of the taxable income of the REMIC. A transferor is
presumed to lack such knowledge if:
(i) the transferor conducted, at the time of the transfer,
a reasonable investigation of the financial condition of
the transferee and found that the transferee had
historically paid
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its debts as they came due and found no significant
evidence to indicate that the transferee will not continue
to pay its debts as they become due, and
(ii) the transferee represents to the transferor that it
understands that, as the holder of the noneconomic residual
interest, it may incur tax liabilities in excess of any
cash flows generated by the interest and that it intends to
pay taxes associated with holding the residual interest as
they become due.
A Residual Certificate (including a Certificate with significant
value at issuance) is noneconomic unless, at the time of the
transfer, (i) the present value of the expected future
distributions on the Certificate at least equals the product of
the present value of the anticipated excess inclusions and the
highest corporate income tax rate in effect for the year in which
the transfer occurs, and (ii) the transferor reasonably expects
that the transferee will receive distributions on the
Certificate, at or after the time at which taxes accrue, in an
amount sufficient to pay the taxes.
The Agreement will provide that no legal or beneficial
interest in a Residual Certificate may be transferred to, or
registered in the name of, any person unless the transferor
represents to the Trustee that it has conducted the investigation
of the transferee, and made the findings, described in the
preceding paragraph, and the proposed transferee provides to the
Trustee the transferee representations described in the preceding
paragraph, and agrees that it will not transfer the Certificate
to any person unless that person agrees to comply with the same
restrictions on future transfers.
Servicing Compensation and Other REMIC Pool Expenses.
Under Code Section 67, an individual, estate or trust is
allowed certain itemized deductions only to the extent that such
deductions, in the aggregate, exceed 2% of the Owner's adjusted
gross income, and such a person is not allowed such deductions to
any extent in computing its alternative minimum tax liability.
Under Treasury regulations, if such a person is an Owner of a
REMIC Certificate, the REMIC Pool is required to allocate to such
a person its share of the servicing fees and administrative
expenses paid by a REMIC together with an equal amount of income.
Those fees and expenses are deductible as an offset to the
additional income, but subject to the 2% floor.
In the case of a REMIC Pool that has multiple classes of
Regular Certificates with staggered maturities, fees and expenses
of the REMIC Pool would be allocated entirely to the Owners of
Residual Certificates. However, if the REMIC Pool were a
"single-class REMIC" as defined in applicable Treasury
regulations, such deductions would be allocated proportionately
among the Regular and Residual Certificates.
Reporting and Administrative Matters.
Annual reports will be made to the Internal Revenue
Service, and to Holders of record of Regular Certificates, and
Owners of Regular Certificates holding through a broker, nominee
or other middleman, that are not excepted from the reporting
requirements, of accrued interest, original issue discount,
information necessary to compute accruals of market discount,
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information regarding the percentage of the REMIC Pool's assets
meeting the qualified assets tests described above under "Status
of Certificates" and, where relevant, allocated amounts of
servicing fees and other Code Section 67 expenses. Holders not
receiving such reports may obtain such information from the
related REMIC by contacting the person designated in IRS
Publication 938. Quarterly reports will be made to Residual
Holders showing their allocable shares of income or loss from the
REMIC Pool, excess inclusions, and Code Section 67 expenses.
The Trustee will sign and file federal income tax returns
for each REMIC Pool. To the extent allowable, the Company will
act as the tax matters person for each REMIC Pool. Each Owner of
a Residual Certificate, by the acceptance of its Residual
Certificate, agrees that the Company will act as the Owner's
agent in the performance of any duties required of the Owner in
the event that the Owner is the tax matters person.
An Owner of a Residual Certificate is required to treat
items on its federal income tax return consistently with the
treatment of the items on the REMIC Pool's return, unless the
Owner owns 100% of the Residual Certificate for the entire
calendar year or the Owner either files a statement identifying
the inconsistency or establishes that the inconsistency resulted
from incorrect information received from the REMIC Pool. The
Internal Revenue Service may assess a deficiency resulting from a
failure to comply with the consistency requirement without
instituting an administrative proceeding at the REMIC level. Any
person that holds a Residual Certificate as a nominee for another
person may be required to furnish the REMIC Pool, in a manner to
be provided in Treasury regulations, the name and address of such
other person and other information.
Non-REMIC Certificates
The discussion in this Section applies only to a Series of
Certificates for which no REMIC election is made.
Trust Fund as Grantor Trust.
Upon issuance of each series of Certificates, Cleary,
Gottlieb, Steen & Hamilton, counsel to the Company, will deliver
its opinion to the effect that, under then current law, assuming
compliance by the Company, the Servicer and the Trustee with all
the provisions of the Agreement (and such other agreements and
representations as may be referred to in the opinion), the Trust
Fund will be classified for federal income tax purposes as a
grantor trust and not as an association taxable as a corporation.
Under the grantor trust rules of the Code, each Owner of a
Certificate will be treated for federal income tax purposes as
the owner of an undivided interest in the Mortgage Loans (and any
related assets) included in the Trust Fund. The Owner will
include in its gross income, gross income from the portion of the
Mortgage Loans allocable to the Certificate, and may deduct its
share of the expenses paid by the Trust Fund that are allocable
to the Certificate, at the same time and to the same extent as if
it had directly purchased and held such interest in the Mortgage
Loans and had directly received payments thereon and paid such
expenses. If an Owner is an
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individual, trust or estate, the Owner will be allowed deductions
for its share of Trust Fund expenses (including reasonable
servicing fees) only to the extent that the sum of those expenses
and the Owner's other miscellaneous itemized deductions exceeds
2% of adjusted gross income, and will not be allowed to deduct
such expenses for purposes of the alternative minimum tax.
Distributions on a Certificate will not be taxable to the Owner,
and the timing or amount of distributions will not affect the
timing or amount of income or deductions relating to a
Certificate.
Status of the Certificates.
The Certificates, other than Interest Only Certificates,
will be:
o "real estate assets" under Code Section 856(c)(4)(A); and
o assets described in Section 7701(a)(19)(C) of the Code,
to the extent the assets of the Trust Fund are so treated.
Interest income from such Certificates will be "interest on
obligations secured by mortgages on real property" under Code
Section 856(c)(3)(B) to the extent the income of the Trust Fund
qualifies under that section. An "Interest Only Certificate" is a
Certificate which is entitled to receive distributions of some or
all of the interest on the Mortgage Loans or other assets in a
REMIC Pool and that has either a notional or nominal principal
amount. Although not certain, Certificates that are Interest Only
Certificates should qualify under the foregoing Code sections to
the same extent as other Certificates.
Possible Application of Stripped Bond Rules.
The federal income tax treatment of Certificates will
depend on whether they are subject to the "stripped bond" rules
of Code Section 1286. In general, Certificates will be subject to
those rules in the hands of an Owner if (i) the Company (or
anyone else) retains rights to receive more than 100 basis points
of interest on any Mortgage Loans assigned to the Trust Fund
(disregarding rights to reasonable servicing compensation, but
including rights to fees in excess of reasonable compensation),
or (ii) Certificates are issued in two or more Classes
representing rights to non-pro rata shares of interest and
principal payments on the Mortgage Loans.
Notwithstanding the foregoing, a Certificate will not be
subject to the stripped bond rules in the hands of an Owner
unless, viewing the Certificate as a debt instrument issued by
the Trust Fund, it would have original issue discount. In
general, a Certificate will not have original issue discount if
it pays interest at a fixed rate, or a single variable rate,
monthly over its entire life, is issued within one month of the
first Distribution Date, and is issued with no more than a de
minimis amount of discount below its principal amount. Discount
is de minimis if the Certificate has an issue price (generally
the initial offering price at which a substantial amount of
Certificates are sold) that is not less than its principal amount
by more than .25% times the weighted average life of the
Certificate (calculated by rounding down the number of years to
each principal payment to the next lowest number). For a more
detailed discussion of the definition of original issue discount,
see "REMIC Certificates--Income from Regular
Certificates--Original Issue Discount" above.
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Taxation of Certificates if Stripped Bond Rules Do Not Apply.
If the stripped bond rules do not apply to a Certificate,
then the Owner will be required to include in income its share of
the interest payments on the Mortgage Loans held by the Trust
Fund in accordance with its tax accounting method. The Owner must
also account for discount or premium on the Mortgage Loans if it
is considered to have purchased its interest in the Mortgage
Loans at a discount or premium. An Owner will be considered to
have purchased an interest in each Mortgage Loan at a price
determined by allocating its purchase price for the Certificate
among the Mortgage Loans in proportion to their fair market
values at the time of purchase. It is likely that discount would
be considered to accrue and premium would be amortized, as
described below, based on an assumption that there will be no
future prepayments of the Mortgage Loans, and not based on a
reasonable prepayment assumption.
Discount. The treatment of any discount relating to a
Mortgage Loan will depend on whether the discount is original
issue discount or market discount. Discount at which a Mortgage
Loan is purchased will be original issue discount only if the
Mortgage Loan itself has original issue discount; the issuance of
Certificates is not considered a new issuance of a debt
instrument that can give rise to original issue discount. A
Mortgage Loan generally will be considered to have original issue
discount if the greater of the amount of points charged to the
borrower, or the amount of any interest foregone during any
initial teaser period, exceeds .167% of the principal amount of
the Mortgage Loan times the number of full years to maturity
(i.e., 5% of the principal amount for a 30 year loan), or if
interest is not paid at a fixed rate or a single variable rate
(disregarding any initial teaser rate) over the life of the
Mortgage Loan. It is not anticipated that the amount of original
issue discount, if any, accruing on the Mortgage Loans in each
month will be significant relative to the interest paid currently
on the Mortgage Loans, but there can be no assurance that this
will be the case.
In the case of a Mortgage Loan that is considered to have
been purchased with market discount that exceeds a de minimis
amount (generally, .167% of the principal amount times the number
of whole years to maturity remaining at the time of purchase),
the Owner will be required to include in income in each month the
amount of such discount that has accrued through such month and
not previously been included in income, but limited to the amount
of principal on the Mortgage Loan that is received by the Trust
Fund in that month. Because the Mortgage Loans will provide for
monthly principal payments, such discount may be required to be
included in income at a rate that is not significantly slower
than the rate at which such discount accrues. Any market discount
that has not previously been included in income will be
recognized as ordinary income if and when the Mortgage Loan is
prepaid in full. For a more detailed discussion of the market
discount rules of the Code, see "REMIC Certificates--Income from
Regular Certificates--Market Discount" above.
In the case of market discount that does not exceed a de
minimis amount, the Owner generally will be required to allocate
ratably the portion of such discount that is allocable to a
Mortgage Loan among the principal payments on the Mortgage Loan
and to include the discount in ordinary income as the related
principal payments are made (whether as scheduled payments or
prepayments).
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Premium. In the event that a Mortgage Loan is purchased at
a premium, the Owner may elect under Section 171 of the Code to
amortize such premium under a constant yield method based on the
yield of the Mortgage Loan to such Owner, provided that such
Mortgage Loan was originated after September 27, 1985. Premium
allocable to a Mortgage Loan originated on or before that date
should be allocated among the principal payments on the Mortgage
Loan and allowed as an ordinary deduction as principal payments
are made (whether as scheduled payments or prepayments).
Taxation of Certificates if Stripped Bond Rules Apply.
If the stripped bond rules apply to a Certificate, income
on the Certificate will be treated as original issue discount and
will be included in income as it accrues under a constant yield
method. More specifically, for purposes of applying the original
issue discount rules of the Code, the Owner will likely be taxed
as if it had purchased a newly issued, single debt instrument
providing for payments equal to the payments on the interests in
the Mortgage Loans allocable to the Certificate, and having
original issue discount equal to the excess of the sum of such
payments over the Owner's purchase price for the Certificate
(which would be treated as the issue price). The amount of
original issue discount income accruing in any taxable year will
be computed generally as described above under "REMIC
Certificates--Income from Regular Certificates--Original Issue
Discount". It is possible, however, that the calculation must be
made using as the Prepayment Assumption an assumption of zero
prepayments. If the calculation is made assuming no future
prepayments, then the Owner should be allowed to deduct currently
any negative amount of original issue discount produced by the
accrual formula.
Different approaches could be applied in calculating income
under the stripped bond rules. For example, a Certificate could
be viewed as a collection of separate debt instruments (one for
each payment allocable to the Certificate) rather than a single
debt instrument. Also, in the case of an Interest-Only
Certificate, it could be argued that certain proposed regulations
governing contingent payment debt obligations apply. Owners
should consult their own tax advisors regarding the calculation
of income under the stripped bond rules.
Sales of Certificates.
A Certificateholder that sells a Certificate will recognize
gain or loss equal to the difference between the amount realized
in the sale and its adjusted tax basis in the Certificate. In
general, such adjusted basis will equal the Certificateholder's
cost for the Certificate, increased by the amount of any income
previously reported with respect to the Certificate and decreased
(but not below zero) by the amount of any distributions received
thereon, the amount of any losses previously allowable to such
Owner with respect to such Certificate and any premium
amortization thereon. Any such gain or loss would be capital gain
or loss if the Certificate was held as a capital asset, subject
to the potential treatment of gain as ordinary income to the
extent of any accrued but unrecognized market discount under the
market discount rules of the Code, if applicable.
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Foreign Investors.
Except as described in the following paragraph, an Owner
that is not a U. S. person (as defined under "REMIC
Certificates--Taxation of Foreign Investors" above) and that is
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 a Certificate will not be subject to United States
income or withholding tax in respect of a Certificate (assuming
the underlying Mortgage Loans were originated after July 18,
1984), if the Owner provides an appropriate statement, signed
under penalties of perjury, identifying the Owner and stating,
among other things, that the Owner is not a U.S. person. If these
conditions are not met, a 30% withholding tax will apply to
interest (including original issue discount) unless an income tax
treaty reduces or eliminates such tax or unless the interest is
effectively connected with the conduct of a trade or business
within the United States by such Owner. Income effectively
connected with a U.S. trade or business will be subject to United
States federal income tax at regular rates then applicable to
U.S. taxpayers (and in the case of a corporation, possibly also
the branch profits tax).
In the event the Trust Fund acquires ownership of real
property located in the United States in connection with a
default on a Mortgage Loan, then any rental income from such
property allocable to an Owner that is not a U.S. person
generally will be subject to a 30% withholding tax. In addition,
any gain from the disposition of such real property allocable to
an Owner that is not a U.S. person may be treated as income that
is effectively connected with a U.S. trade or business under
special rules governing United States real property interests.
The Trust Fund may be required to withhold tax on gain realized
upon a disposition of such real property by the Trust Fund at a
35% rate.
Reporting.
Tax information will be reported annually to the Internal
Revenue Service and to Holders of Certificates that are not
excluded from the reporting requirements.
Backup Withholding
Distributions made on a Certificate and proceeds from the
sale of a Certificate to or through certain brokers may be
subject to a "backup" withholding tax of 31% unless, in general,
the Owner of the Certificate complies with certain procedures or
is a corporation or other person exempt from such withholding.
Any amounts so withheld from distributions on the Certificates
would be refunded by the Internal Revenue Service or allowed as a
credit against the Owner's federal income tax.
PLAN OF DISTRIBUTION
Certificates are being offered hereby in series or in one
or more classes of a series through one or more of the various
methods described below. The Prospectus Supplement will describe
the method of offering being utilized for the related series or
classes of Certificates and will state the public offering or
purchase price of each class of Certificates being offered
thereby
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or the method by which such price will be determined and
the net proceeds to the Company from the sale of each such class.
The Certificates of each series or class will be offered
through the following methods from time to time, and offerings
may be made concurrently through more than one of these methods
and an offering of a particular series or of one or more classes
of Certificates may be made through a combination of two or more
of these methods. Such methods are as follows:
1. By negotiated firm commitment underwriting and public
reoffering by underwriters;
2. By placements by the Company with institutional
investors through dealers or agents; and
3. By direct placements by the Company with
institutional investors.
If underwriters are used in a sale of any Certificates,
such Certificates will be acquired by the underwriters for their
own account and 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
a particular series or class of Certificates will be set forth on
the cover of the Prospectus Supplement relating to such series or
class and the members of the underwriting syndicate, if any, will
be named in such Prospectus Supplement.
In connection with the sale of the Certificates,
underwriters may receive compensation from the Company or from
purchasers of the Certificates in the form of discounts,
concessions or commissions. Underwriters and dealers
participating in the distribution of the Certificates may be
deemed to be underwriters in connection with such Certificates,
and any discounts or commissions received by them from the
Company and any profit on the resale of Certificates by them may
be deemed to be underwriting discounts and commissions under the
Securities Act of 1933, as amended (the "Securities Act"). The
Prospectus Supplement will describe any such compensation paid by
the Company.
It is anticipated that the underwriting agreement
pertaining to the sale of any series or class of Certificates
will provide that the obligations of the underwriters will be
subject to certain conditions precedent, that the underwriters
will be obligated to purchase all such Certificates if any are
purchased and that the Company will indemnify the underwriters
against certain civil liabilities, including liabilities under
the Securities Act or will contribute to payments required to be
made in respect thereof.
Purchasers of Certificates, including dealers,
institutional investors and sophisticated noninstitutional
investors, may, depending on the facts and circumstances of such
purchases, be deemed to be underwriters within the meaning of the
Securities Act, in connection with reoffers and sales by them of
Certificates. Holders of Certificates should consult with their
legal advisors in this regard prior to any such reoffer or sale.
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With respect to any series of Certificates offered other
than through underwriters, the Prospectus Supplement will contain
information regarding the nature of such offering and any
agreements to be entered into between the Company and purchasers
of such Certificates.
USE OF PROCEEDS
The net proceeds of sales of Certificates will be added to
the Company's general funds. Unless otherwise specified in the
Prospectus Supplement, the Company intends to use such proceeds
for general corporate purposes, including the acquisition of
servicing rights, Mortgage Loans, Agency Securities and
Contracts.
LEGAL MATTERS
The legality of the Certificates offered hereby will be
passed upon for the Company by Cleary, Gottlieb, Steen &
Hamilton, New York, New York. Certain federal income tax matters
will be passed upon for the Company by Cleary, Gottlieb, Steen &
Hamilton.
FINANCIAL INFORMATION
A Trust Fund will be formed with respect to each series of
Certificates. No Trust Fund will have any assets or obligations
prior to the issuance of the related series of Certificates. No
Trust Fund will engage in any activities other than those
described herein or in the Prospectus Supplement. Accordingly, no
financial statement with respect to any Trust Fund is included in
this Prospectus or will be included in the Prospectus Supplement.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses in
connection with the issuance and distribution of the
Certificates, other than underwriting discounts and commissions.
Item Amount
Filing Fee for Registration Statement............ $295.00
Legal Fees and Expenses.......................... *
Accounting Fees and Expenses..................... *
Trustee's Fees and Expenses (including
counsel fees).................................... *
Printing and Engraving Fees...................... *
Rating Agency Fees............................... *
Miscellaneous.................................... *
------------
Total..................................... $*
- -----------------
* To be completed by amendment.
Item 15. Indemnification of Directors and Officers.
Section 14A: 3-5 of the New Jersey Business Corporation Act
provides, in substance, that a New Jersey corporation has the
power to indemnify a director, officer, employee or agent (a
"corporate agent") in connection with actions, suits or
proceedings involving such corporate agent by reason of his being
or having been such a corporate agent, other than a proceeding by
or in right of the corporation, against expenses and liabilities
in connection with any such action, suit or proceeding, if such
corporate agent 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 proceeding, such
corporate agent had no reasonable cause to believe his conduct
was unlawful. Such Section also provides that a New Jersey
corporation shall have the power to indemnify a corporate agent
against his expenses in connection with any proceeding by or in
the right of the corporation to procure a judgment in its favor
which involves the corporate agent by reason of his being or
having been such corporate agent, 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; however, in such proceeding no
indemnification shall be provided in respect of any claim, issue
or matter as to which such corporate agent shall have been
adjudged liable to the corporation, unless and only to the extent
that the Superior Court or the court in which such proceeding was
brought shall determine that despite the adjudication of
liability such corporate agent is fairly and reasonably entitled
to indemnity for such expenses as such court shall deem proper.
The Section further provides that a New Jersey corporation shall
indemnify a corporate agent against
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expenses to the extent that such corporate agent has been
successful on the merits or otherwise in any proceeding of the
type referred to in the two preceding sentences or in defense of
any claim, issue or matter therein. The Section also provides
that any indemnification described in such two sentences, unless,
in the case of an indemnification described in the second such
sentence, ordered by a court, may be made by a corporation only
upon a determination that indemnification is proper because the
corporate agent met the applicable standard of care, which
determination shall be made, either (a) by the board of directors
or committee thereof acting by a majority vote of a quorum of
directors who were not involved in the applicable proceeding, or
(b) if such a quorum is not obtainable, or is obtainable and so
directs by a majority vote of disinterested directors, by a
written opinion of legal counsel designated by the board of
directors, or (c) by the shareholders, if the certificate of
incorporation or bylaws or a resolution of the board of directors
or shareholders so directs. The Section also provides that
expenses incurred by a corporate agent in connection with a
proceeding may be paid by a corporation in advance of final
disposition if authorized by the board of directors upon receipt
of an undertaking by or on behalf of the corporate agent to repay
such amount if it is determined that he is not entitled to be
indemnified. The indemnification and advancement of expenses
provided by or granted pursuant to such Section does not exclude
any other rights to which a corporate agent may be entitled;
provided that no indemnification shall be made to or on behalf of
a corporate agent if a judgment or other final adjudication
adverse to him establishes that his acts or omissions were in
breach of his duty of loyalty to the corporation or its
shareholders, were not in good faith or involved a knowing
violation of law, or resulted in receipt by the corporate agent
of an improper personal benefit. The Section also provides that a
New Jersey corporation shall have the power to purchase and
maintain insurance on behalf of any corporate agent against any
expenses incurred in any proceeding and any liabilities asserted
against him by reason of his being or having been a corporate
agent, whether or not the corporation would have power to
indemnify him against such expenses and liabilities under such
Section.
The Company's By-laws provide that directors, officers and
other corporate agents of the Company will be indemnified to the
full extent permitted by the New Jersey Business Corporation Act.
The By-laws also provide that the Company may, to the full extent
permitted by law, purchase and maintain insurance on behalf of
any corporate agent against any liability which may be asserted
against him.
Item 16. Exhibits.
1.1 1 -- Form of Underwriting Agreement.
3.1 5 -- Restated Certificate of Incorporation of GE Capital
Mortgage Services, Inc., together with the Certificate
of Merger of GE Capital Mortgage Services of
California, Inc. into GE Capital Mortgage Services,
Inc., effective December 31, 1993, the Certificate of
Merger of General Electric
II-2
<PAGE>
Mortgage Securities Corporation into GE Capital
Mortgage Services, Inc., effective December 31, 1993,
and the Certificate of Merger of Monogram Mortgage
Servicing Rights, Inc. into GE Capital Mortgage
Services, Inc., effective December 31, 1993.
3.2 2 -- Amended Bylaws of GE Capital Mortgage Services, Inc.
4.1 3 -- Form of non-REMIC Pooling and Servicing Agreement.
4.2 3 -- Form of two-tiered REMIC Pooling and Servicing
Agreement.
4.3 3 -- Form of REMIC Pooling and Servicing Agreement
(including planned amortization class certificates).
4.4 3 -- Form of Pass-Through Certificate (non-REMIC
residual).
4.5 3 -- Form of Pass-Through Certificate (REMIC residual).
4.6 3 -- Form of Pooling and Servicing Agreement for
senior/subordinate certificates.
4.7 6 -- Form of Pooling and Servicing Agreement for mortgage
loans backed by Mortgage Pool Insurance Policy, Special
Hazard Insurance Policy and Supplemental Agreement.
#5.1 -- Opinion of Cleary, Gottlieb, Steen & Hamilton
regarding the legality of the Certificates.
#8.1 -- Opinion of Cleary, Gottlieb, Steen & Hamilton
regarding tax matters.
#23.1 -- Consent of Cleary, Gottlieb, Steen & Hamilton
(included as part of Exhibits 5.1 and 8.1).
+24.1 -- Powers of Attorney of GE Capital Mortgage Services,
Inc.
99.1 2 -- Representative Forms of Mortgage Notes (other than
for Home Equity Loans).
99.2 2 -- Representative Forms of Mortgages (other than for
Home Equity Loans) (together with representative forms
of condominium, 1-4 family, planned unit development
and adjustable rate riders).
II-3
<PAGE>
99.3 4 -- Representative Forms of Mortgage Notes for Home
Equity Loans.
99.4 4 -- Representative Forms of Mortgages for Home Equity
Loans (together with representative form of balloon
note rider).
99.5 2 -- Specimen of Special Hazard Insurance Policy.
99.6 2 -- Specimen of Supplemental Agreement relating to
Bankruptcy Support.
99.7 6 -- Specimen of Mortgage Pool Insurance Policy.
- -------------
1 To be filed by Form 8-K subsequent to the effectiveness
hereof.
2 Filed as exhibit to the Company's Registration Statement
(No. 33-46742) on Form S-11 and incorporated herein by
reference.
3 Filed as exhibit to the Company's Registration Statement
(No. 33-53624) on Form S-11 and incorporated herein by
reference.
4 Filed as exhibit to the Company's Registration Statement
(No. 33-69362) on Form S-11 and incorporated herein by
reference.
5 Filed as exhibit to the Company's Registration Statement
(No. 33-73358) on Form S-11 and incorporated herein by
reference.
6 Filed as exhibit to the Company's Registration Statement
(No. 333-3038) on Form S-3 and incorporated herein by
reference.
+ Filed herewith.
# To be filed by amendment
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(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 this Registration Statement (or the more recent post-effective
amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in
this 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
II-4
<PAGE>
with or furnished to the Commission by the Registrant pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 that
are incorporated by reference in the 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.
(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) The undersigned Registrant hereby undertakes 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
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) 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.
II-5
<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, that it reasonably believes that the security rating
requirements set forth in Transaction Requirement B.5 will be met
by the time of sale of the registered securities and has duly
caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the Township of
Cherry Hill, State of New Jersey, on the 27th day of April, 1998.
GE CAPITAL MORTGAGE SERVICES, INC.
By: /s/ Walter P. Buczynski
----------------------------
Name: Walter P. Buczynski
Title: Senior Vice President
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Syed W. Ali,
Walter P. Buczynski, Mary Kaplan and Glen Messina and each of
them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for and in his name,
place and stead, in any and all capacities to sign any or all
amendments (including post-effective amendments) to this
Registration Statement and any or all other documents in
connection therewith, and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, 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 might or could
be done in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their
substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed by the following
persons in the capacities indicated on April 27, 1998.
Signature Title
/s/ Jenne K. Britell Director
---------------------------
Jenne K. Britell
/s/ Thomas H. Mann Director
--------------------------- (Principal Executive
Thomas H. Mann Officer)
/s/ Glen Messina Director
--------------------------- (Principal Financial and
Glen Messina Accounting Officer)
II-6
<PAGE>
/s/ Gerhard A. Miller Director
---------------------------
Gerhard A. Miller
/s/ JoAnn B. Rabitz Director
---------------------------
JoAnn B. Rabitz
/s/ Theodore F. Weiland Director
---------------------------
Theodore F. Weiland
II-7
<PAGE>
EXHIBIT INDEX
Page
Exhibits Description No.
- -------- ----------- ---
1.1 1 -- Form of Underwriting Agreement.
3.1 5 -- Restated Certificate of Incorporation of GE
Capital Mortgage Services, Inc., together with the
Certificate of Merger of GE Capital Mortgage Services
of California, Inc. into GE Capital Mortgage Services,
Inc., effective December 31, 1993, the Certificate of
Merger of General Electric Mortgage Securities
Corporation into GE Capital Mortgage Services, Inc.,
effective December 31, 1993, and the Certificate of
Merger of Monogram Mortgage Servicing Rights, Inc. into
GE Capital Mortgage Services, Inc., effective December
31, 1993.
3.2 2 -- Amended Bylaws of GE Capital Mortgage Services, Inc.
4.1 3 -- Form of non-REMIC Pooling and Servicing Agreement.
4.2 3 -- Form of two-tiered REMIC Pooling and Servicing
Agreement.
4.3 3 -- Form of REMIC Pooling and Servicing Agreement
(including planned amortization class certificates).
4.4 3 -- Form of Pass-Through Certificate (non-REMIC
residual).
4.5 3 -- Form of Pass-Through Certificate (REMIC residual).
4.6 3 -- Form of Pooling and Servicing Agreement for
senior/subordinate certificates.
4.7 6 -- Form of Pooling and Servicing Agreement for mortgage
loans backed by Mortgage Pool Insurance Policy, Special
Hazard Insurance Policy and Supplemental Agreement.
#5.1 -- Opinion of Cleary, Gottlieb, Steen & Hamilton
regarding the legality of the Certificates.
#8.1 -- Opinion of Cleary, Gottlieb, Steen & Hamilton
regarding tax matters.
#23.1 -- Consent of Cleary, Gottlieb, Steen & Hamilton
(included as part of Exhibits 5.1 and 8.1).
+24.1 -- Powers of Attorney of GE Capital Mortgage Services,
Inc.
99.1 2 -- Representative Forms of Mortgage Notes (other than
for Home Equity Loans).
99.2 2 -- Representative Forms of Mortgages (other than for
Home Equity Loans) (together with representative forms
of condominium, 1-4 family, planned unit development
and adjustable rate riders).
99.3 4 -- Representative Forms of Mortgage Notes for Home
Equity Loans.
99.4 4 -- Representative Forms of Mortgages for Home Equity
Loans (together with representative form of balloon
note rider).
99.5 2 -- Specimen of Special Hazard Insurance Policy.
99.6 2 -- Specimen of Supplemental Agreement relating to
Bankruptcy Support.
99.7 6 -- Specimen of Mortgage Pool Insurance Policy.
II-8
<PAGE>
- -------------
1 To be filed by Form 8-K subsequent to the effectiveness
hereof.
2 Filed as exhibit to the Company's Registration Statement
(No. 33-46742) on Form S-11 and incorporated herein by
reference.
3 Filed as exhibit to the Company's Registration Statement
(No. 33-53624) on Form S-11 and incorporated herein by
reference.
4 Filed as exhibit to the Company's Registration Statement
(No. 33-69362) on Form S-11 and incorporated herein by
reference.
5 Filed as exhibit to the Company's Registration Statement
(No. 33-73358) on Form S-11 and incorporated herein by
reference.
6 Filed as exhibit to the Company's Registration Statement
(No. 333-3038) on Form S-3 and incorporated herein by
reference.
+ Filed herewith.
# To be filed by amendment.
II-9
