As filed with the Securities and Exchange Commission
on December 15, 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 GE CAPITAL MORTGAGE
SERVICES, INC. FUNDING CORPORATION
(Exact name of registrant as (Exact name of registrant as
specified in its charter) specified in its charter)
New Jersey Delaware
(State or other jurisdiction (State or other jurisdiction
of incorporation or of incorporation or
organization) organization)
21-0627285 52-2134173
(I.R.S. Employer (I.R.S. Employer
Identification No.) Identification No.)
Three Executive Campus Three Executive Campus
Cherry Hill, New Jersey 08002 Cherry Hill, New Jersey 08002
(609) 661-6100 (609) 661-6100
(Address and telephone number (Address and telephone number
of principal executive of principal executive
offices) offices)
-------------------
Charles E. Rhodes, Esq., Vice President and Senior Counsel
GE Capital Mortgage Services, Inc.
Three Executive Campus
Cherry Hill, New Jersey 08002 (609) 661-6950
(Name, address and telephone number of agent for service)
-------------------
COPIES TO:
Andrea G. Podolsky, Esq. Kathryn E. Kelbaugh,
David L. Sugerman, Esq. Vice President
Cleary, Gottlieb, Steen GE Capital Mortgage
& Hamilton Services, Inc.
One Liberty Plaza Three Executive Campus
New York, New York 10006 Cherry Hill, New Jersey 08002
-------------------
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. |_|
-------------------
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 $278
=================================================================
* 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 registration statement No. 333-51151 on
Form S-3 of Co-Registrant GE Capital Mortgage Services, Inc. In
the event any of such previously registered Pass-Through
Certificates are offered by such Co-Registrant prior to the
effective date of this Registration Statement, they will not be
included in any prospectus hereunder.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON
SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE
DATE UNTIL THE REGISTRANTS 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>
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR +
+ AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE +
+ SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE +
+ COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS +
+ TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION +
+ STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT +
+ CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER +
+ TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY +
+ STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+ UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE +
+ SECURITIES LAWS OF ANY SUCH STATE. +
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DECEMBER 15, 1998
PROSPECTUS SUPPLEMENT
(To Prospectus dated , 199 )
$
(Approximate)
[GE Capital Mortgage Funding Corporation
Depositor]
GE Capital Mortgage Services, Inc.
[Depositor and] Servicer
REMIC [Multi-Class] [Home Equity Loan] [Mortgage]
Pass-Through Certificates, Series 199 -
Principal and interest payable monthly, beginning , 199 .
---------------------------------
All of the certificates comprising the series of certificates
described in this Prospectus Supplement (the "Certificates")
represent ownership interests in a trust fund. The trust fund
consists primarily of a pool of conventional, fixed-rate, first-
[and second] lien, fully-amortizing, one- to four- family
residential mortgage loans with maturities of to years.
[GE Capital Mortgage Services, Inc. ("GECMSI")] [GE Capital
Mortgage Funding Corporation ("Funding")] is depositing the
mortgage loans in the trust fund. [Funding has acquired the
mortgage loans from GE Capital Mortgage Services, Inc.
("GECMSI"), its affiliate.]
-------------------------
Neither the Certificates described in this Prospectus
Supplement nor the underlying mortgage loans are insured or
guaranteed by any governmental agency or instrumentality.
-------------------------
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
Prospectus Supplement or the accompanying Prospectus. Any
representation to the contrary is a criminal offense.
Class Certificate Certificate
Principal Interest Rate
Balance(1)
[Classes of
Certificates]
- -----------
(1) Approximate, subject to the adjustment described in this
Prospectus Supplement.
-------------------------
[Certain types of investors are not permitted to purchase or
hold the Class Certificates, the Junior Certificates or the
Class R [or Class RL] Certificates. For more information on these
restrictions, you should refer to "ERISA Considerations" and
"Description of the Certificates--Restrictions on Transfer of the
Residual Certificates" in this Prospectus Supplement.]
[The [Senior] Certificates offered by this Prospectus
Supplement will be purchased by [and the Junior Certificates
offered by this Prospectus Supplement will be purchased by ],
and are being offered by it [them] from time to time to the public
in negotiated transactions or otherwise at varying prices to be
determined at the time of sale. [GECMSI] [Funding] will receive
proceeds from the sale of such Certificates of approximately %
of their total initial principal balance, plus accrued interest
from [the Cut-off Date], 199 to but excluding the initial issuance
date, before deducting expenses payable by [GECMSI] [Funding].
You should refer to "Plan of Distribution" herein.]
[On or about , 199 , delivery of the Certificates offered
by this Prospectus Supplement [, except for the Class
Certificates,] will be made through the book-entry facilities of
The Depository Trust Company [,and delivery of the Class
Certificates will be made at the offices of New York, New
York].]
-------------------------
[Underwriter(s)]
-------------------------
The date of this Prospectus Supplement is 199 .
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
We provide information to you about the Certificates
offered by this Prospectus Supplement in two separate documents:
(1) the accompanying Prospectus, which provides general
information, some of which may not apply to your Certificates,
and (2) this Prospectus Supplement, which describes the specific
terms of your Certificates.
If the information varies between this Prospectus
Supplement and the accompanying Prospectus, you should rely on
the information in this Prospectus Supplement.
<PAGE>
SUMMARY OF TERMS
This summary highlights selected information from this
document and does not contain all of the information that you
need to consider in making your investment decision. You should
read carefully the entire Prospectus and Prospectus Supplement to
understand fully the terms of the Certificates offered by this
Prospectus Supplement. All of the information contained in this
summary is qualified by the more detailed explanation described
in other parts of this Prospectus Supplement and the accompanying
Prospectus. While this summary contains an overview of certain
allocation concepts and other information to aid your
understanding, you should read carefully the full description of
these allocation concepts and other information in this
Prospectus Supplement and the accompanying Prospectus before
making any investment decision.
You can find a listing of capitalized terms used in this
Prospectus Supplement, and the pages on which they are defined,
under the caption "Index of Certain Prospectus Supplement
Definitions" beginning on page S- of this Prospectus Supplement.
Any capitalized terms that are not defined in the Prospectus
Supplement are defined in the accompanying Prospectus.
Securities Offered
------------------
The underwriter[s] is [are] offering the Certificates
offered by this Prospectus Supplement in the classes and total
original principal balances that are specified on the cover,
subject to the possible adjustment described below. The total
original principal balance of the Certificates will be
approximately $ . Depending on the final composition of the
underlying pool of mortgage loans, the principal balance of each
class may increase or decrease from the amount listed on the
cover. The total original principal balance of the Certificates
will not be less than $ or greater than $ .
[Description of senior and subordinate Certificates and any
classes not being offered by this Prospectus Supplement, if
applicable.]
Unless you are purchasing [a Class Certificate or a
Class R or Class RL] Certificate, you will not have the right to
receive physical certificates evidencing your ownership except under
certain limited circumstances. Instead, the trust fund will issue
the Certificates in the form of global certificates, which will
be held by The Depository Trust Company or its nominee. Financial
institutions that are direct or indirect participants in The
Depository Trust Company will record beneficial ownership of a
Certificate by individual investors in the following minimum
denominations and, in each case, in integral multiples of $1,000
in excess of those denominations:
Certificate Minimum Denomination
----------- --------------------
[Classes of $
Certificates]
S-1
<PAGE>
[The Class R [and Class RL] Certificates will be issued in
certificated form as a single certificate representing the entire
principal balance of that class.]
Trust Fund
----------
The Certificates will represent the entire beneficial
ownership interest in the trust fund. Holders of the Certificates
will be paid out of the cash flow produced by the trust fund's
assets. The assets of the trust fund will consist primarily of a
pool of fixed-rate, fully-amortizing, conventional mortgage loans
that are secured by first [and second] liens on one- to four-
family residential properties. [Description of proportion, if
any, of Home Equity Loans included in the mortgage pool.] [GECMSI
has originated or acquired each mortgage loan included in a trust
fund. Funding has acquired the related mortgage loans from GECMSI
pursuant to an asset purchase agreement.] The mortgage loans
expected to be included in the trust fund have the following
characteristics as of [the Cut-off Date], 199 :
Total original principal balance (1) $
Original terms to maturity to years
Weighted average maturity between and months
Weighted average annual interest rate between % and %
(1) Approximate, after deducting payments of principal due on
or before [the Cut-off Date], 199 and subject to the
variance described in this Prospectus Supplement.
[In addition, [GECMSI] [Funding] expects that up to
approximately %, in terms of total principal balance as of [the
Cut-off Date], 199 , of the mortgage loans included in the trust
fund will be located in ].
[For more information on Funding, you should refer to "GE
Capital Mortgage Funding Corporation" in the Prospectus.]
Servicer
--------
GECMSI will act as servicer of the mortgage loans. [For
certain mortgage loans contained in the trust fund, the seller of
the mortgage loan to GECMSI will remain the primary servicer
while GECMSI will supervise such servicing duties and remain
directly liable to the trust fund for such servicing duties.] As
servicer, GECMSI will be responsible for making reasonable
efforts to collect payments due on the mortgage loans and
performing other administrative functions. [GECMSI will be
obligated, as servicer, to advance delinquent payments on the
mortgage loans included in the mortgage pool under certain
circumstances.] [In addition, GECMSI will reduce its servicing
compensation, within certain limits, to reimburse holders of
Certificates for shortfalls of interest payments resulting from
voluntary prepayments on the mortgage loans.] For more
information on GECMSI, you should refer to "GE Capital Mortgage
Services, Inc." in this Prospectus Supplement. For more
information on the servicing of the mortgage loans, you should
refer to "The Pooling and Servicing Agreement--Servicing
Arrangement with Respect to the Mortgage Loans" and "--Servicing
Compensation, Compensating Interest and Payment of Expenses" in
this Prospectus Supplement.
S-2
<PAGE>
Distributions on the Certificates
---------------------------------
The Certificates will be issued under a pooling and
servicing agreement, which will be dated as of [the Cut-off
Date], 199 , between GECMSI as [depositor and] servicer[,
Funding, as depositor] and , as trustee. The pooling and
servicing agreement will provide that distributions will be made
on the Certificates on the 25th day of each month, beginning in
, 199 . If such 25th day is not a business day, then
distributions will be made on the next business day after the
25th of the month. These distributions will be made to the
holders of record of the Certificates on the close of business on
the last business day of the calendar month preceding any
distribution date. The first distribution date will be , 199 .
[Description of priorities of distribution as between
senior and subordinate Certificates, if applicable.]
Interest Payments
- Interest will accrue on each class of Certificates
offered by this Prospectus Supplement [, other than
the Class Certificates,] at the respective fixed
interest rates specified on the cover of this
Prospectus Supplement during each applicable interest
accrual period. [The Class Certificates are
principal-only Certificates and will not accrue
interest.]
[- Interest will accrue on the Class Certificates at
the applicable floating interest rates described in
this Prospectus Supplement during each applicable
interest accrual period. These rates are determined by
reference to the London Interbank Offered Rate, known
as LIBOR. The Class Certificates have a floating
interest rate which moves in the opposite direction of
LIBOR. Consequently, higher than expected levels of
LIBOR could result in (i) lower yields on the Class
Certificates and (ii) interest rates on those
Certificates falling as low as 0%.]
- On each distribution date, interest will be
distributable from the available funds on each class
of Certificates [other than the Class Certificates]
in a total amount based on the current accrued interest
for such class, plus any accrued interest remaining
undistributed from previous distribution dates.
- The amount of interest actually distributed to you
on any distribution date may be less than the interest
accrued on your Certificate if one or more mortgage
loans prepay, go into default and produce a loss, or
have their interest rates reduced by federal law
because the borrower is on active military duty. You
should refer to "Description of the Certificates--
Distributions on the Certificates--Interest" and
"Description of the Certificates--Allocation of
Realized Losses on the Certificates" in this
Prospectus Supplement for a description of how any such
S-3
<PAGE>
event may produce a shortfall or loss and how
shortfalls or losses of interest are allocated among
the Certificates.
- Interest will be calculated on the Certificates on
the basis of a 360-day year consisting of twelve
30-day months.
Principal Payments
[- Principal will be paid on each class of Senior
Certificates after interest has been paid on all
classes of Senior Certificates. Principal will be paid
on each class of Junior Certificates after (i)
interest and principal has been paid on all classes of
Senior Certificates and each higher ranking class of
Junior Certificates and (ii) interest has been paid on
such class of Junior Certificates.]
- The amount of principal distributable on the
Certificates is a function of (i) formulas that
allocate portions of the principal payments received,
or expected to be received, on the mortgage loans
among the different classes and (ii) the funds
actually received from the trust fund's assets that
are available to make distributions on each
Certificate according to its allocation. Funds
actually received may consist of expected, scheduled
mortgage loan payments and unexpected, unscheduled
payments due to prepayments, defaults by mortgagors or
certain other events. You should refer to "Prepayment
and Yield Considerations" in this summary for more
details about types of unexpected payments.
[- The key allocation concept for the Senior
Certificates, other than the Class PO Certificates, is
the Senior Optimal Principal Amount which defined on
at page S- . The key allocation concept for the Class
PO Certificates is the Class PO Principal Distribution
Amount which is defined on page S- . The key
allocation concept for the Junior Certificates is the
Junior Optimal Principal Amount which is located at
page S- . The amount determined by each of these
definitions is allocated among the different classes
of Certificates based upon the priority of payments
described in detail under "Description of the
Certificates-- Distribution on the Certificates--
Allocation of Available Funds" in this Prospectus
Supplement.]
[- One of the main effects of the allocation formulas
is to allocate to the Senior Certificates other than
the Class PO Certificates, as a group, more than their
proportionate share of most of the unexpected mortgage
loan payments for at least the first nine years after
initial issuance of the Certificates. This results in
an acceleration of the repayment of the Senior
Certificates, as a group, relative to the Junior
Certificates. Unexpected payments distributable to
holders of Junior Certificates will generally be paid
in a manner designed to maintain the relative levels
of subordination among the various classes of Junior
Certificates. You should refer to "Description of the
Certificates--Distribution on the Certificates--
S-4
<PAGE>
Allocation of Available Funds--Class Prepayment
Distribution Trigger" in this Prospectus Supplement.]
[- As discussed in more detail below, losses on the
underlying mortgage loans are first allocated to the
Junior Certificates. Losses due to certain types of
defaults, including those resulting from bankruptcies
of mortgagors, fraud in the origination process, or
uninsured physical damage to the mortgaged properties,
are allocated exclusively to the Junior Certificates
in varying degrees until these losses reach specified
levels. You should refer to "Description of the
Certificates--Allocation of Realized Losses on the
Certificates" in this Prospectus Supplement.]
[- This series of Certificates includes a class of
Senior Certificates, the Class Certificates, that does
not benefit from accelerated repayment in the same
manner as the other Senior Certificates. The Class
Certificates will not receive any distribution of
[certain unexpected] payments of principal on the
mortgage loans for the first five years after initial
issuance of the Certificates, unless (i) [the]
[certain] other classes of Senior Certificates have
been paid off or (ii) the total principal balance of
the Junior Certificates have been reduced to zero as a
result of principal distributions and the allocation
of losses to such Certificates.]
[- Despite the priority of payments, all distributions
of principal on the outstanding Senior Certificates,
other than the Class PO Certificates, will be made on
a pro rata basis among such Certificates on each
distribution date after the date on which the total
principal balance of the Junior Certificates has been
reduced to zero as a result of principal distributions
and the allocation of losses to such Certificates. You
should refer to "Description of the
Certificates--Distributions on the
Certificates--Principal" in this Prospectus
Supplement.]
- The rate of distribution of principal on the
Certificates will depend on the rate of payment of
principal on the mortgage loans which, in turn, will
depend on the characteristics of the mortgage loans,
the level of prevailing interest rates and other
economic, geographic and social factors. [GECMSI]
[Funding] cannot predict or assure you as to the
actual rate of payment of principal on the mortgage
loans.
[- Description of any Classes with special payment
features, such as planned amortization or targeted
amortization Certificates.]
[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 the Certificate[s] limited protection against losses. See
"Description of the Mortgage Pool
S-5
<PAGE>
and the Mortgaged Properties--General" and "The Pooling and
Servicing Agreement--Voting Rights" in this Prospectus
Supplement.
[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 total amount of each interest distribution on the
Certificates and the yield to maturity of the Certificates are
related to the rate of principal collections on the mortgage
loans. Principal collections on the mortgage loans may be in the
form of expected, scheduled principal payments and unexpected,
unscheduled principal payments. Unexpected payments consist of:
- voluntary prepayments by the mortgagors such as
prepayments in full due to refinancings. These may
include refinancings made, and possibly solicited, by
GECMSI in the ordinary course of conducting its
mortgage banking business;
- prepayments resulting from default, foreclosure,
casualty, condemnation and similar events, and
repurchases by GECMSI [or Funding] of the mortgage
loans under certain circumstances described in this
Prospectus Supplement; and
- prepayments made during participation by mortgagors,
which may be solicited by GECMSI, in biweekly payment
programs.
Expected payments and unexpected payments of principal are
allocated between the Certificates according to special rules.
You should refer to "Distributions on the Certificates--
Principal Payments" in this summary and "Description of the
Certificates--Distributions on the Certificates" and
"--Allocation of Realized Losses on the Certificates" below.
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 in
the trust fund, the prepayment rate on the mortgage loans is
likely to increase. Conversely, when prevailing mortgage interest
rates rise significantly above the interest rates on the
underlying mortgage loans, the prepayment rate on the mortgage
loans is likely to decrease. Other economic, geographic and
social factors also may influence the prepayment rate. Because
rapid rates of prepayments on the mortgage loans are likely to
occur when prevailing interest rates are lower than those on the
mortgage loans, the yields at which you may be able to reinvest
amounts received as payments on your Certificates may be lower
than the yield on your Certificates. Conversely, because slow
rates of prepayments on the mortgage loans are likely to
S-6
<PAGE>
occur when prevailing interest rates are higher than those on the
mortgage loans, the amount of payments available to you for
reinvestment at such high rates may be relatively low.
In addition, the yields to maturity on the Certificates
themselves will be sensitive, in varying degrees, to the rate and
timing of mortgage loan prepayments. The extent to which the
yield to maturity of a Certificate is sensitive to prepayments
will depend upon whether it is purchased for an amount greater
than or less than the Certificate's then outstanding principal
balance. In the case of Certificates purchased for an amount
greater than their then outstanding principal balance, (i) faster
than anticipated rates of principal prepayments on the mortgage
loans could result in actual yields to you that are lower than
the anticipated yields and (ii) could result in a reduction in
the amount of time such Certificates are outstanding. In the case
of Certificates purchased for an amount less than their then
outstanding principal balance, (i) slower than anticipated rates
of principal prepayments on the mortgage loans could result in
actual yields to you that are lower than the anticipated yields
and (ii) could result in an extension of the amount of time such
Certificates are outstanding.
Voluntary prepayments of principal on the mortgage loans
may reduce the amount of interest available for distribution to
holders of Certificates. Any resulting shortfalls in interest,
unless offset by a reduction in servicing compensation of GECMSI,
generally will produce a lower yield on the Certificates than
would otherwise be the case. The interest distributable on the
Certificates offered by this Prospectus Supplement will also be
reduced under certain loss scenarios and this will also produce a
lower yield. You should refer to "Description of the
Certificates--Allocation of Realized Losses on the Certificates"
in this Prospectus Supplement.
Because of the effects of prepayments, the Certificates
offered by this Prospectus Supplement were structured on the
basis of several things, including (i) an assumed rate of
prepayments on the mortgage loans of % of the prepayment model
described under " Yield and Weighted Average Life Considerations
- -- Weighted Average Lives of the Certificates" and (ii)
corresponding weighted average lives as described in this
Prospectus Supplement. The weighted average lives of the
Certificates offered by this Prospectus Supplement at % of the
prepayment model, based on the assumptions described under "Yield
and Weighted Average Life Considerations--Weighted Average Lives
of the Certificates--Tables of Class Certificate Principal
Balances", are set forth in the tables that appear under such
heading on pages S- through S- . The mortgage loans are not
likely to prepay at a constant rate of % of the prepayment model
or at any other constant rate, and the actual weighted average
lives of the Certificates are likely to differ from those shown
in such tables. The weighted average lives of all classes of the
Certificates will be affected in part by the rate of principal
payments on the mortgage loans and the resulting allocation of
principal payments on the Certificates.
[Because the Class Certificates have floating interest
rates determined by reference to the London Interbank Offered
Rate, known as LIBOR, an increase or decrease in the London
Interbank Offered Rate, depending on the interest rate formula,
can reduce the yields on these Certificates. For example, the
Class Certificates have a floating interest rate which moves in
the opposite direction of LIBOR. Consequently, an increase in
LIBOR will result in a lower interest rate on the Class
Certificates and thus, lower yields on those Certificates. You
should
S-7
<PAGE>
refer to "Yield and Weighted Average Life Considerations--
Sensitivity of the LIBOR Certificates" in this Prospectus
Supplement.]
[The yields on the Class M, Class B1 and Class B2
Certificates will be sensitive, in varying degrees, to the
liquidation of, and any subsequent loss experience on, the
mortgage loans and to the timing of any such losses. Among these
Certificates, such yield sensitivity will generally be greatest
among the Class B2 Certificates relative to the Class M and Class
B1 Certificates, greater among the Class B1 Certificates than the
Class M Certificates and greater among the Class M Certificates
than the Senior Certificates. Because of the special allocation
of losses to the Junior Certificates, investors in the Class M,
Class B1 and Class B2 Certificates may not fully recover their
investment. You should refer to "Yield and Weighted Average Life
Considerations--The Class M, Class B1 and Class B2 Certificates"
in this Prospectus Supplement.]
[Principal distributions on the Certificates will be
made by reference to the principal balance schedules described in
this Prospectus Supplement.]
You are urged to make an investment decision with respect
to the Certificates you propose to purchase based upon your own
determination as to the anticipated rate of prepayments, defaults
and losses on the underlying mortgage loans and anticipated yield
on the Certificates.
[Foregoing discussion to be revised for Certificates backed
by Home Equity Loans, if applicable.]
You should refer to "Yield, Maturity and Weighted Average
Life Considerations" in the Prospectus.
[Optional Termination of the Trust Fund
--------------------------------------
[GECMSI] [Funding] may, at its option, repurchase from the
trust fund all of the mortgage loans underlying the Certificates
on any distribution date after the total unpaid principal balance
of the mortgage loans is less than 10% of the total unpaid
principal balance of the mortgage loans as of [the Cut-off Date],
199 . This repurchase would result in the early retirement of the
Certificates. If the proceeds realized upon such early retirement
are less than the total principal balance of all outstanding
Certificates plus accrued and unpaid interest, the resulting
shortfall will be allocated among the Certificates as described
in this Prospectus Supplement.]
Certain Federal Income Tax Consequences
---------------------------------------
[The Certificates, other than the Class R Certificates [and
Class RL Certificates], will be treated as debt instruments
issued by [a] [two] real estate mortgage investment conduit[s]
([a "REMIC"] [each a "REMIC," or the "Lower-Tier REMIC" and the
"Upper-Tier REMIC," as the case may be]) for income tax purposes.
The Class R Certificates will be treated as a "residual
S-8
<PAGE>
interest" in the [Upper-Tier] REMIC [while the Class RL
Certificates will be treated as a "residual interest" in the
Lower-Tier REMIC].]
[The particular federal income tax consequences of your
investment will depend upon the class of Certificates you buy.
These consequences may include the following:
- You will be required to report income on your
Certificates [(other than the Class R [and Class RL]
Certificates)] in accordance with the accrual method of
accounting.
- Certain classes of the Certificates may be issued with
original issue discount.
- [The holders of the Class R [and Class RL] 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 Class R [and Class RL] Certificates.
You should refer to "Description of the Certificates--
Restrictions on Transfer of the Residual Certificates"
for further information on those restrictions.]
- The amount of income reported by a holder of a Junior
Certificate may exceed the cash distributions actually
received by that holder due to the preferential right of
other classes of Certificates to receive cash
distributions in the event of losses on the mortgage
loans.]
You should refer to "Certain Federal Income Tax
Consequences" in this Prospectus Supplement and "Certain Federal
Income Tax Consequences -- REMIC Certificates" in the
accompanying Prospectus.
Legal Investment
----------------
The Class Certificates offered by this Prospectus
Supplement will constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of
1984. Certain institutions, however, may be subject to
restrictions on investment in such Certificates. [Reference to
securities that will not constitute "mortgage related
securities," if applicable.] All investors whose investment
authority is subject to legal restrictions should consult their
own legal advisors to determine whether, and to what extent, they
can invest in Class Certificates.
ERISA Considerations
--------------------
If you are a fiduciary of an employee benefit plan that is
subject to the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), or a plan subject to Section 4975 of the
Internal Revenue Code of 1986 (the "Code") you should carefully
review with your legal advisors whether the purchase or holding
of the Certificates offered by this Prospectus Supplement could
give rise to a transaction prohibited or not otherwise
permissible under ERISA or the Code. The [Class Certificates
and the Residual Certificates] may not be acquired by an employee
benefit plan that is subject to ERISA or a plan subject to
Section 4975 of the Code.
S-9
<PAGE>
The transfer of those classes of Certificates is subject to
certain restrictions described in "ERISA Considerations" in this
Prospectus Supplement.
Certificate Ratings
-------------------
[GECMSI] [Funding] must obtain the following ratings for the
Certificates from and/or at the time the Certificates
are initially issued:
Certificate [ ] Rating [ ] Rating
[Classes of Certificates]
A 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 of the
Certificates should be evaluated independently of any other
rating. The ratings do not address the possibility that a holder
of a Certificate may suffer a lower than anticipated yield. You
should refer to "Certificate Ratings" in this Prospectus
Supplement.
Liquidity Considerations
------------------------
At this time, a secondary market does not exist for the
Certificates, and [GECMSI] [Funding] does not know whether such a
market will develop or, if it does develop, whether it will
permit an investor to readily sell its Certificates.
[Underwriter[s]] intend[s] to make a market for the purchase and
sale of the Certificates after their issuance, but is not
obligated to do so. In addition, [GECMSI] [Funding] cannot assure
you that you will be able to sell your Certificate at a price
that is equal to or greater than the price at which you purchased
your Certificate.
Information available to you should you desire to sell your
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.
[GECMSI] [Funding] believes that a number of dealers that
engage in the mortgage-backed securities markets currently offer
price quotations for [GECMSI's] [Funding's] mortgage pass-through
certificates to investors that desire to buy or sell such
certificates. However, we cannot assure you 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 [GECMSI's] [Funding's] certificates. In addition, we cannot
assure you 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 may
affect liquidity.
GECMSI currently maintains an electronic bulletin board,
accessible by computer modem, which provides certain information
about loans included in various series of mortgage pass-through
securities which have been publicly offered by GECMSI [and
Funding]. GECMSI [and Funding] make[s] no representation or
warranty that such information will be suitable for
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<PAGE>
any particular purpose and GECMSI [and Funding] assume[s] no
responsibility for the accuracy or completeness of any
information that is generated by others using such information.
GECMSI has no obligation to maintain the bulletin board and may
stop maintaining it at any time. For further information
concerning the bulletin board, you should call 800-544-3466,
extension 5515.
S-11
<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").
[GECMSI] [Funding] is depositing the assets in the Trust Fund
([GECMSI] [Funding] in such capacity, the "Depositor").
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 has not
been prepaid in full, has not become a Liquidated Mortgage Loan
and has not been repurchased.
<PAGE>
[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 GECMSI's full
or alternative documentation program or other full or alternative
documentation programs acceptable to GECMSI, that no more than %
(by Scheduled Principal Balance as of the Cut-off Date) of the
Mortgage Loans will have been originated under GECMSI's "No
Income Verification Program" or other no income verification
programs acceptable to GECMSI, that no more than % of the
Mortgage Loans will have been originated under GECMSI's "Enhanced
Streamlined Refinance Program" or other streamlined finance
programs acceptable to GECMSI, that no more than % of the
Mortgage Loans will have been originated under GECMSI's "No Ratio
Program" or other no ratio programs acceptable to GECMSI, that no
more than % of the Mortgage Loans will have been originated under
GECMSI's "No Income, No Asset Verification Program" or other no
income, no asset verification programs acceptable to GECMSI, and
that no more than % (by Scheduled Principal Balance as of the
Cut-off Date) of the Mortgage Loans will have been acquired under
GECMSI's "Relocation Loan" program or other relocation programs
acceptable to GECMSI. See "The Trust Fund--The Mortgage
Loans--Loan Underwriting Policies" in the accompanying
Prospectus.]
Each Mortgage Loan [other than a Cooperative Loan] is
required to be covered by a standard hazard insurance policy.
Each Mortgage Loan [other than a Cooperative 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. [The Mortgage Pool will include
a substantial number of recently originated loans on which the
first monthly payments are not due until the Cut-off Date or on a
date subsequent to the initial issuance of the Certificates.]
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.]
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
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<PAGE>
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
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
S-3
<PAGE>
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 GECMSI 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-4
<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 GECMSI, as [Depositor and] servicer
[, Funding, as Depositor,] and , as trustee (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 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 per Class 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 Certificates may be issued in a lower amount.
Notwithstanding the integral multiple requirements described
above, 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] (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
Depositor, 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
Depositor 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-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
S-5
<PAGE>
"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 (each, a
"Participant") that acts as agent for the Financial Intermediary,
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 certain potential
investors may be unwilling to purchase Certificates for which
they cannot obtain physical certificates.
The Depository has advised the Depositor 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.
S-6
<PAGE>
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
Depositor 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 Depositor or the Trustee is unable to locate
a qualified successor; (b) the Depositor, 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
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
S-7
<PAGE>
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
holders 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. 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.
[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
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<PAGE>
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 [allocable to
Certificateholders] 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 purposes 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 GECMSI 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.]
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; or (iii) 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 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 [Base] 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
Certificateholders, 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, other than the
Class PO Certificates, in proportion to the amount of Accrued
Certificate Interest that would have been allocated thereto in
the absence of such shortfall and losses.
S-9
<PAGE>
[If Available Funds are insufficient on any Distribution
Date to distribute the aggregate Accrued Certificate Interest on
the [Senior] Certificates other than the Class PO Certificates to
their Certificateholders, any shortfall in available amounts will
be allocated among such 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 other than the Class PO Certificates on subsequent
Distribution Dates in accordance with priority second under
"--Allocation of Available Funds" above. No interest will accrue
on any Accrued Certificate Interest remaining undistributed from
previous Distribution Dates.]
[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 GECMSI
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").
S-10
<PAGE>
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.
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 interest and principal 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-11
<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, [and especially in the case
of the Class Certificates,] 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 and could result in an extension of the
weighted average lives of such Certificates.
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.
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
S-12
<PAGE>
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 GECMSI in the ordinary course of
conducting its mortgage banking business, some of which
refinancings may be solicited by GECMSI, or prepayments in
connection with biweekly payment programs, participation in which
may be solicited by GECMSI) and prepayments resulting from
foreclosure, condemnation and other dispositions of the Mortgaged
Properties, from repurchase by GECMSI 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 GECMSI of certain Mortgage Loans modified at the
request of the Mortgagor, and from an exercise by GECMSI of its
option to repurchase a Defaulted Mortgage Loan. 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.
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"
S-13
<PAGE>
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 GECMSI (or, in the case of Mortgage Loans
master-serviced by GECMSI, of which GECMSI receives notice) 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 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.
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 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 supplemented 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 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.
S-14
<PAGE>
[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 [GECMSI] of Mortgage Loans as
described under "The Pooling and Servicing Agreement--
Termination" herein.
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 GECMSI [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 GECMSI and the
forms of credit enhancement described herein, delinquencies and
defaults could result in distributions after the respective
Scheduled Final Distribution Dates
S-15
<PAGE>
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.
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
S-16
<PAGE>
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 purposes of calculations under the
columns at the indicated percentages 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,
(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 GECMSI does
not repurchase any such Mortgage Loans as permitted or required
by the Agreement, (v) [GECMSI] 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) prepayments
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........ ]
[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-17
<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-18
<PAGE>
Percent of Original Class Certificate Principal Balance
Outstanding of the Certificates
Class Class
------------------------------- -------------------------------
Prepayment Assumption Prepayment Assumption
------------------------------- -------------------------------
Distribution 0% % % % % 0% % % % %
- ------------ --- --- --- --- --- --- --- --- --- ---
Date
- ----
Initial 100 100 100 100 100 100 100 100 100 100
Percentage
Class Class
- ------------------------------- -------------------------------
Prepayment Assumption Prepayment Assumption
- ------------------------------- -------------------------------
0% % % % % 0% % % % %
- --- --- --- --- --- --- --- --- --- ---
100 100 100 100 100 100 100 100 100 100
[Annual Distribution Dates]
Weighted Average Life
(in years)(1)
(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-19
<PAGE>
GE CAPITAL MORTGAGE SERVICES, INC.
GECMSI, a wholly-owned subsidiary of GE Capital Mortgage
Corporation, is a New Jersey corporation originally incorporated
in 1949. The principal executive office of GECMSI is located at
Three Executive Campus, Cherry Hill, New Jersey 08002, telephone
(609) 661-6100. For a general description of GECMSI and its
activities, see "GE Capital Mortgage Services, Inc." in the
accompanying Prospectus.
DELINQUENCY AND FORECLOSURE EXPERIENCE OF GECMSI
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 GECMSI, excluding Home Equity Loans
(as defined in the Prospectus) and special loan portfolios which,
upon GECMSI'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>
<S> <C> <C> <C> <C> <C> <C>
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 amounts in thousands)
Total portfolio ........ 821,839 $91,977,411 785,928 $88,188,662 726,869 $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-20
<PAGE>
As of September 30, As of September 30,
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............ 741,395 $84,554,200 662,871 $79,153,364
======= =========== ======= ===========
Period of delinquency(1)...
30 to 59 days........... 2,473 $ 260,046 2,524 $ 260,849
60 to 89 days........... 578 62,722 510 55,853
90 days or more(2)...... 5,991 749,726 4,603 522,525
-------- ------------- ------- -----------
Total delinquent loans..... 9,042 $ 1,072,494 7,637 $ 839,227
======== ============= ======= ===========
Percent of portfolio....... 1.22% 1.27% 1.15% 1.06%
- ------
(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 1
would first be considered delinquent on February 1). 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 September 30,
---------------------
1997 1998
---- ----
(Dollar amounts in thousands)
Total portfolio....... $84,554,200 $79,153,364
Foreclosures(1)....... 273,407 214,027
Foreclosure ratio..... 0.32% 0.27%
------
(1) Foreclosures represent the principal balance of mortgage
loans secured by mortgaged properties, the title to which
has been acquired by GECMSI, by investors or by an 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
S-21
<PAGE>
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
mortgaged 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 GECMSI's
then-applicable underwriting policies as well as mortgage loans
not originated in accordance with such policies but as to which
GECMSI's 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 tables above.
[GE CAPITAL MORTGAGE FUNDING CORPORATION
Funding, a wholly-owned subsidiary of GECSMI, is a limited
purpose corporation organized under Delaware law on December 9,
1998. Funding maintains its principal executive office at Three
Executive Campus, Cherry Hill, New Jersey 08002. Its telephone
number is (609) 661-6100.
It is anticipated that Funding will [not] retain any
subordinated Classes of Certificates. For more information about
Funding[, including the possible consequences to
Certificateholders of Funding's retention of subordinate Classes
of Certificates], see "GE Capital Mortgage Funding Corporation"
in the accompanying Prospectus.]
USE OF PROCEEDS
The net proceeds from the sale of the Certificates offered
hereby will be general funds used by [GECMSI for general
corporate purposes, including the acquisition of residential
mortgage loans and servicing rights] [Funding to purchase the
Mortgage Loans from GECMSI].
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
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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 Depositor
will assign the Mortgage Loans to the Trustee, together with all
principal and interest received by GECMSI as servicer on or with
respect to the 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 Depositor 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 Depositor 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 Depositor 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, GECMSI[, on behalf of the
Depositor] 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. GECMSI[, on behalf
of the Depositor] 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 Depositor may refrain from recording the assignments of
Mortgage to the Trustee unless GECMSI[, the Depositor] or the
Trustee obtains actual notice or knowledge of the occurrence of
any one or more of the following: (i) GECMSI 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 GECMSI, (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 GECMSI'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
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will not be required if GECMSI 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,
GECMSI[, the Depositor] or the Trustee will be deemed to have
knowledge of any such downgrading if, in the exercise of
reasonable diligence, GECMSI[, the Depositor] or the Trustee has
or should have had knowledge thereof. If a Trigger Event occurs,
GECMSI will also promptly furnish to the Trustee the documents
retained by GECMSI [on behalf of Funding] as described in the
preceding paragraph.
Although the 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 GECMSI were to make a
sale, assignment, satisfaction or discharge of any Mortgage Loan
prior to recording the assignments to [Funding or to] the
Trustee, the other parties to such sale, assignment, satisfaction
or discharge might have rights superior to those of [Funding or]
the Trustee. If GECMSI were to do so without authority under the
Agreement, it would be liable to the Trustee on behalf of the
Certificateholders. Moreover, if insolvency proceedings relating
to the Depositor were commenced prior to such recording or
filing, creditors or the trustee-in-bankruptcy may be able to
assert rights in the affected Mortgage Loans superior to those of
[Funding or] the Trustee.
Servicing Arrangement with Respect to the Mortgage Loans
It is expected that GECMSI will directly service approx-
imately % (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. Such master-serviced loans
will be directly serviced by the entities which originated or
acquired those loans and sold them to GECMSI. The Agreement
permits GECMSI 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 GECMSI, as Servicer, at 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]. See "Servicing of the Mortgage
Loans--Collection and Other Servicing Procedures" in the
Prospectus.]
Collection Account
The Agreement provides that if GECMSI 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 , GECMSI will, in lieu of the 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 GECMSI delivers to the Trustee a letter from
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<PAGE>
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, GECMSI will
transfer to the Certificate Account, in next day funds, the
Available Funds for the related Distribution Date on the business
day immediately preceding such Distribution Date.
[Advances
In the event that any Mortgagor fails to make any payment
of principal or interest required under the terms of a Mortgage
Loan, GECMSI will advance the entire amount of such payment, net
of the applicable Servicing Fee, less the amount of any such
payment that GECMSI reasonably believes will not be recoverable
out of liquidation proceeds or otherwise. The amount of any
scheduled payment required to be advanced by GECMSI will not be
affected by any agreement between GECMSI and a Mortgagor
providing for the postponement or modification of the due date or
amount of such scheduled payment. GECMSI 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, GECMSI 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.
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<PAGE>
If GECMSI 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"), GECMSI will so notify the Trustee and GECMSI will be
entitled to reimbursement for such Nonrecoverable Advance from
recoveries on all other unrelated Mortgage Loans included in the
related Mortgage Pool. GECMSI'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 GECMSI 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 GECMSI 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 GECMSI's
entitlement.]
Purchases of Defaulted Mortgage Loans
Under the Agreement, GECMSI 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
GECMSI'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 a servicing fee (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 average rate of
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between approximately % and %. [As to each Mortgage 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 Mortgage 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 servicing compensa-
tion to GECMSI could vary depending on the prepayment experience
of the Mortgage Loans. The servicing compensation of any direct
servicer of any Mortgage Loan will be paid out of the related
[Base] Servicing Fee, and GECMSI will retain 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) and (ii) of the
definition thereof) allocable to Certificateholders with respect
to any Distribution Date, GECMSI will be obligated to remit an
amount (such amount, a "Compensating Interest Payment")
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
GECMSI on account of its [Base] Servicing Fees (net of any
servicing compensation paid to any direct servicer) in connection
with such Distribution Date. Because the net amount received by
GECMSI on account of its [Base] Servicing Fee is generally less
in the case of Mortgage Loans master-serviced by GECMSI than in
the case of Mortgage Loans GECMSI 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
GECMSI 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
GECMSI. This percentage could vary over time, however, if
Mortgage Loans directly serviced by GECMSI experience a
disproportionately high or low level of prepayments or defaults
relative to Mortgage Loans master-serviced by GECMSI. In
addition, the proportion of master-serviced Mortgage Loans could
be affected as a result of (i) the exercise by GECMSI of its
right under the Agreement to contract with third parties to
directly service Mortgage Loans, with GECMSI becoming the master
servicer of such Mortgage Loans, or (ii) the substitution of any
Mortgage Loans under the Agreement.
GECMSI will retain, as additional servicing compensation,
amounts in respect of interest paid by borrowers in connection
with any principal prepayment in full received by GECMSI (or,
with respect to Mortgage Loans master-serviced by GECMSI, of
which GECMSI receives notice) from the first day through the
fifteenth day of each month, other than the month of the Cut-off
Date.
GECMSI 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
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<PAGE>
Compensation and Payment of Expenses" in the accompanying
Prospectus for information regarding other possible compensation
to GECMSI.
Trustee
The Trustee for the Certificates offered hereby will be
. The Corporate Trust Office of the Trustee is located
at .
Termination
[GECMSI] 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 is less than [10]% of the aggregate
Scheduled Principal Balance thereof as of the Cut-off Date.
[[GECMSI] 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 [GECMSI] 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
the first day of the month of such repurchase, plus accrued and
unpaid interest thereon to the first day of the month of such
repurchase 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). The Available Funds on the final Distribution Date
will be allocated to each Class of Certificates in accordance
with the priorities described under "Description of the
Certificates-- Distributions on the Certificates--Allocation of
Available Funds." Accordingly, if the 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 in the event that such
Distribution Date occurs (x) prior to the [date when credit
enhancement is depleted], the resulting shortfall will be borne
by the Certificates in inverse order of their related payment
priorities, and (y) on or after the [date when credit enhancement
is depleted], such shortfall will be borne pro rata among such
Certificates.
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
connection with any vote of all Certificateholders under the
Agreement.] Votes allocated to the Certificates [other than the
Class Certificates] will be allocated among such Classes (and
among the
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<PAGE>
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
proportion 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.
[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 Certifi-
cates 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
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<PAGE>
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
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 event 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 United States Department of Labor (the "DOL") has
issued to (the "Underwriter") an individual 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 subsequent 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
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<PAGE>
Certificates offered hereby [(other than the Class Certifi-
cates)] by an ERISA Plan, provided that specified conditions are
met.]
[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 Certifi-
cates)] 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 Depositor 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 GECMSI represents not more than
reasonable compensation for GECMSI's services under the Agreement
and reimbursement of GECMSI'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.]
[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) GECMSI [or Funding], (ii) the
Underwriter, (iii) the Trustee, (iv) any entity that provides
insurance or other credit enhancement 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 availability of any other
prohibited transaction exemptions, and whether the conditions of
any such exemption will be applicable to such Certificate.]
S-31
<PAGE>
[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.
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
S-32
<PAGE>
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 Depositor 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 Certifi-
cates.]
PLAN OF DISTRIBUTION
[Subject to the terms and conditions set forth in the
Underwriting Agreement between the Depositor and the Underwriter,
the Certificates offered hereby are being purchased from the
Depositor 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
Depositor from the sale of the Certificates will be % of the
aggregate initial Class 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 Depositor. In
connection with the purchase and sale of the Certificates offered
hereby, the Underwriter may be deemed to have received
compensation from the Depositor in the form of underwriting
discounts.
The Depositor 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.]
S-33
<PAGE>
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 Depositor has not requested a rating of the
Certificates offered hereby by any rating agency other than
and the Depositor 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 GECMSI [and Funding] by Cleary, Gottlieb,
Steen & Hamilton, New York, New York, and for the Underwriter[s]
by Brown & Wood LLP, Washington, D.C.
S-34
<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.......................................
Compensating Interest Payment............................
Debt Service Reduction...................................
Defaulted Mortgage Loan..................................
Deficient Valuation......................................
Depositor................................................
Definitive Certificate...................................
Depository...............................................
Detailed Description.....................................
Distribution Date........................................
DOL......................................................
[Double REMIC]...........................................
ERISA....................................................
ERISA Plan...............................................
Exemption................................................
FDIC.....................................................
Financial Intermediary...................................
[Funding]................................................
GE Capital...............................................
GECMSI...................................................
[Home Equity Loans]......................................
Interest Accrual Period..................................
Interest Shortfall.......................................
Liquidated Mortgage Loan.................................
[Lower-Tier REMIC].......................................
Mortgage.................................................
Mortgage Loans...........................................
Mortgage Pool ...........................................
S-35
<PAGE>
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-36
<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 PROSPECTUS. ANY INFORMATION OR REPRESENTATIONS
GIVEN OR MADE OUTSIDE OF THIS PROSPECTUS SUPPLEMENT AND
PROSPECTUS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
THIS PROSPECTUS SUPPLEMENT AND 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 A SOLICITATION OF AN OFFER TO
BUY IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. THE INFORMATION CONTAINED IN THE PROSPECTUS SUPPLEMENT
AND PROSPECTUS IS CORRECT ONLY AS OF THE DATE RELATING TO SUCH
INFORMATION; DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR
PROSPECTUS, OR ANY SALE MADE THEREUNDER, SUBSEQUENT TO THE DATE
OF THIS PROSPECTUS SUPPLEMENT SHALL NOT, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THE INFORMATION IS CORRECT AS OF THAT
SUBSEQUENT DATE.
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 GECMSI..........
[GE Capital Mortgage Funding Corporation.................. ]
Use of Proceeds...........................................
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 Enhancement........................................
Yield, Maturity and Weighted Average Life
Considerations...........................................
Servicing of the Mortgage Loans and Contracts.............
The Pooling and Servicing Agreement.......................
GE Capital Mortgage Services, Inc.........................
GE Capital Mortgage Funding Corporation...................
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...........................................
Legal Matters.............................................
Financial Information.....................................
<PAGE>
Until , all dealers that effect transactions in these
securities, whether or not participating in this offering, may be
required to deliver a Prospectus Supplement and Prospectus. 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 Funding Corporation
Depositor]
GE Capital Mortgage
Services, Inc.
[Depositor and] Servicer
$
(Approximate)
[REMIC Multi-Class] [Home Equity Loan] [Mortgage]
Pass-Through Certificates,
Series 199 -
-------
PROSPECTUS SUPPLEMENT
-------
[Underwriter[s]]
, 199
<PAGE>
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR +
+ AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE +
+ SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE +
+ COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS +
+ TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION +
+ STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT +
+ CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER +
+ TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY +
+ STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+ UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE +
+ SECURITIES LAWS OF ANY SUCH STATE. +
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DECEMBER 15, 1998
PROSPECTUS
Pass-Through Certificates (Issuable in Series)
GE Capital Mortgage Services, Inc.
GE Capital Mortgage Funding Corporation
Depositors
GE Capital Mortgage Services, Inc.
Servicer
-------------
The Certificates offered by this Prospectus and a particular
Prospectus Supplement represent beneficial interests in a
separate trust fund that will consist primarily of any of the
following assets:
- 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 these
loans (the "Mortgage Loans");
- conditional sales contracts and installment sales or loan
agreements that are secured by new or used manufactured
homes, as well as participation interests in these contracts
and agreements (the "Contracts");
- mortgage pass-through securities that have been issued or
guaranteed by either the Government National Mortgage
Association, the Federal National Mortgage Association or the
Federal Home Loan Mortgage Corporation (together, the "Agency
Securities").
The Certificates backed by a trust fund will comprise a series
of Certificates, and each series may include one or more classes
of Certificates. Payments on a series of Certificates will be
made solely from amounts collected on the assets in the trust
fund backing that series.
Each trust fund will be created by either GE Capital Mortgage
Services, Inc. ("GECMSI") or GE Capital Mortgage Funding
Corporation ("Funding"), as depositor of the assets in the
related trust fund. If Funding acts as depositor of a trust fund
comprised of Mortgage Loans or Contracts, it will have acquired
these assets from GECMSI, its affiliate.
GECMSI will act as servicer or master servicer of the assets
in a trust fund. Although GECMSI will have certain
responsibilities to the trust fund in this capacity, the
Certificates will not be obligations of GECMSI, Funding or any of
their affiliates.
-------------
THE CERTIFICATES ARE NEITHER INSURED NOR GUARANTEED BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
-------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE
SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
-------------
Unless otherwise specified in the Prospectus Supplement,
neither General Electric Company, General Electric Capital
Corporation, GE Capital Mortgage Corporation, General Electric
Mortgage Insurance Corporation nor any other affiliate of GECMSI
or Funding will have any obligations with respect to the
Certificates or the trust fund.
The date of this Prospectus is , 199 .
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS
AND IN THE ACCOMPANYING PROSPECTUS SUPPLEMENT
GECMSI and Funding ("we") provide information to you about
the Certificates in two separate documents: (1) this Prospectus,
which provides general information, some of which may not apply
to your Certificates, and (2) the accompanying Prospectus
Supplement, which describes the specific terms of your
Certificates. This Prospectus may not be used to consummate sales
of Certificates unless accompanied by a Prospectus Supplement.
IF THE INFORMATION VARIES BETWEEN THIS PROSPECTUS AND THE
ACCOMPANYING PROSPECTUS SUPPLEMENT, YOU SHOULD RELY ON THE
INFORMATION IN THE PROSPECTUS SUPPLEMENT.
This Prospectus is part of a registration statement that we
filed with the Securities and Exchange Commission ("SEC") using a
"shelf" registration process. Under this shelf process, we may
sell any combination of the securities described in this
Prospectus in one or more offerings from time to time. If you
would like to read and copy our registration statement, you may
do so by visiting a SEC public reference room as described under
the heading "Where You Can Find More Information."
WHERE YOU CAN FIND MORE INFORMATION
We will file reports and other information with the SEC
about the trust fund for your Certificates. Our SEC filings are
available to the public over the Internet at the SEC's web site
at http://www.sec.gov. You may also read and copy any document we
file at the SEC's public reference rooms in Washington, D.C., New
York, New York, and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for further information on the public reference
rooms.
The SEC allows us to "incorporate by reference" the
information we file with them about the trust fund for your
Certificates, which means that we can disclose important
information to you by referring you to these documents. The
information incorporated by reference is an important part of
this Prospectus, and information that we file later with the SEC
about the trust fund for your Certificates will automatically
update and supersede this information. You may request a copy of
our filings at no cost by writing or telephoning us at the
following address:
Corporate Secretary
GE Capital Mortgage Services, Inc.
Three Executive Campus
Cherry Hill, New Jersey 08002
(609) 661-6512
Corporate Secretary
GE Capital Mortgage Funding Corporation
Three Executive Campus
Cherry Hill, New Jersey 08002
(609) 661-6100
In addition, the applicable depositor will provide you with
reports annually and with respect to each distribution date
containing information about the trust fund for your
Certificates.
You should rely only on the information provided in this
Prospectus and the accompanying Prospectus Supplement, including
the information incorporated by reference. We have not authorized
anyone to provide you with different information. We are not
offering the Certificates in
2
<PAGE>
any state where their offer is prohibited. We do not claim the
accuracy of the information in this Prospectus or the
accompanying Prospectus Supplement as of any date other than the
dates stated on their respective covers.
3
<PAGE>
TABLE OF CONTENTS
Caption Page
- ------- ----
Important Notice About Information Presented In This
Prospectus And In The Accompanying Prospectus
Supplement...................................................2
Where You Can Find More Information............................2
Prospectus Summary.............................................7
Description of the Certificates...............................13
General.....................................................14
Classes of Certificates.....................................14
Distributions of Principal and Interest.....................15
Example of Distributions....................................18
Optional Termination of the Trust Fund......................19
The Trust Fund................................................20
The Mortgage Loans..........................................21
The Agency Securities.......................................29
Contracts...................................................34
Credit Enhancement............................................35
General.....................................................35
Subordination...............................................36
Purchase of Liquidating Loans...............................37
Limited Guarantee of the Guarantor..........................38
Cross-Support...............................................39
Pool Insurance..............................................39
Special Hazard Insurance....................................40
Bankruptcy Bond.............................................41
Repurchase Bond.............................................42
Guaranteed Investment Contracts.............................42
Reserve Accounts............................................42
Other Insurance, Guarantees and Similar
Instruments or Agreements.................................43
Yield, Maturity and Weighted Average Life Considerations......43
Servicing of the Mortgage Loans and Contracts.................46
Collection and Other Servicing Procedures...................47
Private Mortgage Insurance..................................51
Hazard Insurance............................................52
Unanticipated Recoveries of Losses on the Mortgage
Loans.....................................................54
Advances....................................................54
Loan Payment Record.........................................55
Servicing and Other Compensation and Payment of
Expenses..................................................58
Resignation, Succession and Indemnification of GECMSI,
as Servicer, and the Depositor............................59
The Pooling and Servicing Agreement...........................60
Assignment of Assets........................................60
Repurchase or Substitution..................................64
Certain Refinancings........................................65
Evidence as to Compliance...................................65
4
<PAGE>
List of Certificateholders..................................66
The Trustee.................................................66
Administration of the Certificate Account...................67
Reports to Certificateholders...............................67
Events of Default...........................................68
Rights Upon Event of Default................................69
Amendment...................................................70
Termination.................................................70
GE Capital Mortgage Services, Inc.............................71
General.....................................................71
Delinquency and Foreclosure Experience......................71
Year 2000 Computer Readiness................................71
GE Capital Mortgage Funding Corporation.......................73
General.....................................................73
Risk of Recharacterization..................................73
The Guarantor.................................................74
Certain Legal Aspects of the Mortgage Loans and Contracts.....74
The Mortgage Loans..........................................74
General...................................................74
Foreclosure...............................................76
Junior Mortgages; Rights of Senior Mortgagees.............78
Right of Redemption.......................................80
Anti-Deficiency Legislation and Other Limitations
on Lenders..............................................80
Enforceability of Certain Provisions......................81
Applicability of Usury Laws...............................82
Soldiers' and Sailors' Civil Relief Act...................82
Environmental Considerations..............................83
The Contracts...............................................83
General...................................................83
Security Interests in the Manufactured Homes..............84
Enforcement of Security Interests in Manufactured
Homes...................................................86
Consumer Protection Laws..................................86
Transfers of Manufactured Homes; Enforceability of
"Due-on-Sale" Clauses...................................87
Applicability of Usury Laws...............................87
Soldiers' and Sailors' Civil Relief Act...................87
Legal Investment Matters......................................88
ERISA Considerations..........................................89
Certain Federal Income Tax Consequences.......................91
General.....................................................91
REMIC Elections.............................................91
REMIC Certificates..........................................92
Non-REMIC Certificates.....................................105
Backup Withholding.........................................108
Plan of Distribution.........................................109
Use of Proceeds..............................................110
5
<PAGE>
Legal Matters................................................110
Financial Information........................................110
6
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information from this
document but does not contain all of the information that you
need to consider in making your investment decision. You should
carefully read this entire document and the accompanying
Prospectus Supplement to understand fully all of the terms of an
offering of Certificates.
All of the information contained in this summary is
qualified by the more detailed explanation provided in other
parts of this Prospectus and the accompanying Prospectus
Supplement. This summary contains an overview of the types of
assets that may be included in a trust fund and the way in which
distributions may be made on the Certificates comprising a series
to aid your understanding. However, before making an investment
decision, you should carefully read the full description
contained in this Prospectus and the precise description
pertaining to your Certificates contained in the Prospectus
Supplement.
The Certificates and the Trust Funds
The Certificates offered by this Prospectus and a
particular Prospectus Supplement represent beneficial ownership
interests in a separate trust fund (a "Trust Fund") that will
consist of specified assets. The assets will be conveyed to a
Trust Fund either by GE Capital Mortgage Services, Inc.
("GECMSI") or its affiliate, GE Capital Mortgage Funding
Corporation ("Funding"), acting as depositor (the "Depositor").
The Certificates backed by a Trust Fund will comprise a
separate series of Certificates. Payments on a series will be
made solely from amounts collected on the assets in the Trust
Fund backing that series.
Each Trust Fund will be created under a pooling and
servicing agreement (an "Agreement") between the Depositor,
GECMSI acting as servicer of the assets (the "Servicer"), and a
commercial bank or trust company acting as trustee for the
benefit of Certificateholders of the related series (the
"Trustee").
Depositors
Either GECMSI or Funding, as specified in the Prospectus
Supplement, will deposit the assets in the Trust Fund backing the
related series of Certificates. If Funding conveys the assets to
a Trust Fund, it will have acquired the assets from GECMSI,
unless otherwise stated in the related Prospectus Supplement.
Both GECMSI and Funding are indirect, wholly-owned
subsidiaries of General Electric Capital Corporation. Funding is
a direct, wholly-owned subsidiary of GECMSI, and was formed in
December 1998 for the limited purpose of acquiring Mortgage
Loans, Contracts and Agency Securities, depositing them in Trust
Funds and acquiring and selling Certificates.
7
<PAGE>
For more information, you should refer to "GE Capital
Mortgage Services, Inc." and "GE Capital Mortgage Funding
Corporation" in this Prospectus.
The Servicer
GECMSI will act as servicer of the assets in a Trust Fund
(in such capacity, the "Servicer"). As Servicer, GECMSI will be
responsible for making reasonable efforts to collect payments due
on the assets in the Trust Fund and performing other
administrative functions. If specified in the Prospectus
Supplement, for certain Mortgage Loans or Contracts contained in
the Trust Fund, the seller of those assets to GECMSI will remain
the primary servicer while GECMSI will supervise such servicing
duties as "master servicer" and remain directly liable to the
Trust Fund for such servicing duties. In addition, GECMSI
generally will be obligated, as Servicer, to advance delinquent
payments on the Mortgage Loans or Contracts included in the Trust
Fund under certain circumstances. However, this obligation may be
limited, as specified in the Prospectus Supplement. For more
information, you should refer to "Servicing of the Mortgage Loans
and Contracts" in this Prospectus.
The Trust Assets
The assets in each Trust Fund will consist primarily of
either Mortgage Loans, Contracts or Agency Securities, as
described below.
Mortgage Loans
- a pool of Mortgage Loans will consist of conventional
Mortgage Loans that GECMSI has originated or acquired and
that are secured by liens on one-to-four family
residential properties located in the United States or
the District of Columbia. These liens may be first liens
or, if the Prospectus Supplement so specifies, all or a
portion of the Mortgage Loans in a Trust Fund may be home
equity loans secured by first or second liens on
one-to-four family residential properties ("Home Equity
Loans").
- the Mortgage Loans may include cooperative apartment
loans secured by security interests in shares that
private, non-profit, cooperative housing corporations
("Cooperatives") issue. Related proprietary leases or
occupancy agreements granting exclusive rights to occupy
specific dwelling units in the Cooperatives' buildings
may also secure the loans. The Mortgage Loans may also
include loans secured by mortgages on residential
long-term leases of real property.
- the Mortgage Loans will bear interest at fixed or
adjustable rates, and will be closed-end loans that have
a fixed term and do not permit the borrower to obtain new
funds over the life of the loan.
For information on the payment terms of the Mortgage
Loans, you should refer to "The Trust Fund--The Mortgage
Loans" in this Prospectus.
8
<PAGE>
Contracts
- Contracts will consist of conditional sales contracts and
installment sales or loan agreements that are secured by
new or used manufactured homes, as well as participation
interests in these contracts and agreements. For
information on what constitutes a manufactured home, you
should refer to "The Trust Fund--Contracts" in this
Prospectus.
- Contracts may be conventional, insured by the Federal
Housing Authority ("FHA"), or partially guaranteed by the
Veterans Administration ("VA").
- Each Contract will be fully amortizing and will bear
interest at a fixed annual percentage rate ("APR"),
unless the Prospectus Supplement states otherwise.
Agency Securities
A Trust Fund may contain any of the following Agency
Securities:
- Mortgage participation certificates that FHLMC issues and
guarantees as to timely payment of interest and, unless
otherwise specified in the related Prospectus Supplement,
ultimate payment of principal;
- Mortgage pass-through certificates that FNMA issues and
guarantees as to timely payment of principal and
interest;
- "Fully modified pass-through" mortgage-backed
certificates that GNMA guarantees as to timely payment of
principal and interest;
- Stripped mortgage-backed securities that represent an
undivided interest in all or a 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. These securities are guaranteed to the
same extent as the underlying securities, unless the
Prospectus Supplement indicates otherwise;
- A combination of the Agency Securities detailed above.
A Trust Fund may also contain:
- 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. Adjustable, fixed or variable rate mortgage
loans, or graduated payment mortgage loans may back these
securities.
The full faith and credit of the United States backs
all GNMA Certificates. The full faith and credit of the
United States does not back directly, or indirectly, any
FHLMC or FNMA Certificates.
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Description of the Securities
Within each series, you may be able to buy one or more
classes of Certificates:
- that receive distributions only from the Trust Fund's
cash flow allocable to principal, or only from the Trust
Fund's cash flow allocable to interest, or from a
combination of both;
- that receive distributions resulting from scheduled
principal payments or principal prepayments on the
underlying assets (or both) before other classes of
Certificates, after other classes of Certificates, or
only after the occurrence of events specified in the
Prospectus Supplement;
- that receive distributions according to a schedule or
formula, or on the basis of specific collections
received on the assets in the Trust Fund;
- that may be entitled to receive interest at a fixed rate
or at a rate that is subject to change from time to time;
- that may be entitled to receive interest payments only
after the occurrence of specified events and until such
events occur, may accrue interest that will be added to
the principal balance of these Certificates; or
- that may be subordinated in the right to receive
distributions to one or more other classes of
Certificates.
The Certificates of a series may have other payment
characteristics as described in the related Prospectus
Supplement.
Distributions on the Certificates
The Trustee will generally distribute payments to holders
of the Certificates entitled to such payments on the 25th day of
each month, beginning in the month following the month in which
the related series of Certificates is issued. If such 25th day is
not a business day, then the Trustee will make distributions on
the next business day after the 25th of the month.
If specified in the applicable Prospectus Supplement, the
Trustee may make distributions on Certificates on a different day
of the month or an interval other than monthly, such as quarterly
or semiannually.
For more information, you should refer to "Description of
the Certificates--Distributions of Principal and Interest" in
this Prospectus.
Credit Enhancement
Each series of Certificates, or certain classes within each
series of Certificates, may be entitled to credit enhancement.
Credit enhancement provides additional payment protection to
investors in a series or class that has the benefit of credit
enhancement.
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Credit enhancement for the Certificates of any series or
class may take the form of one or more of the following:
- Some classes of Certificates may be subordinate to other
classes of Certificates. Subordination can take different
forms. For example, the holders of the Certificates
benefiting from subordination (the "Senior Certificates")
may have the right to receive distributions due them
before distributions are made to holders of the
subordinate Certificates. The principal balance of the
subordinate Certificates may also be reduced by
allocating to them losses on the assets in the Trust Fund
before losses are allocated to the senior Certificates;
- GECMSI, as Servicer, may be obligated to purchase certain
types of defaulted Mortgage Loans, and a limited
guarantee from a third party might cover some of these
obligations;
- the Depositor may purchase mortgage pool insurance
covering losses caused by borrowers' defaults, or special
hazard insurance covering losses not insured under the
standard form of hazard insurance;
- a class within a series may represent an ownership
interest in specific assets of the trust fund and may be
cross-supported by a class in the same series that
represents ownership interests in other assets of the
Trust Fund;
- the Trust Fund may include reserve accounts, other
insurance, guarantees and similar instruments and
agreements intended to decrease the likelihood that you
will experience losses or delays in the distribution of
scheduled payments.
Federal Income Tax Consequences
The federal income tax consequences to Certificateholders
will depend on, among other factors, whether an election is made
to treat the Trust Fund or specified portions thereof as a "real
estate mortgage investment conduit" (a "REMIC"). The applicable
Prospectus Supplement will specify whether a REMIC election will
be made. For more information, you should refer to "Certain
Federal Income Tax Consequences" in this Prospectus.
ERISA Considerations
If you are a fiduciary of an employee benefit plan that is
subject to the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), or a plan subject to Section 4975 of the
Internal Revenue Code of 1986 (the "Code"), you should carefully
review with your legal advisors whether the purchase or holding
of any classes of Certificates offered by a Prospectus Supplement
could give rise to a transaction that ERISA or the Code prohibits
or does not otherwise permit. For more information, you should
refer to "ERISA Considerations" in this Prospectus.
Legal Investment Matters
The applicable Prospectus Supplement will specify whether
any classes of Certificates of the related series will constitute
"mortgage related securities" under the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"). If a Certificate is a mortgage
related security, it will be a
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legal investment for certain types of institutional investors to
the extent provided in SMMEA, but will be subject to any other
restrictions on investment by such investors. For more
information, you should refer to "Legal Investment Matters" in
this Prospectus.
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DESCRIPTION OF THE CERTIFICATES
Each series of Certificates will represent the entire
beneficial ownership interest in a distinct Trust Fund. Each
series of Certificates will be issued pursuant to a separate
Agreement entered into between GECMSI or Funding, as Depositor of
the assets in the Trust Fund, GECMSI, as Servicer, and the
Trustee. 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. GECMSI 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 by the
applicable Depositor with the Securities and Exchange Commission
within 15 days after the date of issuance of such series of
Certificates (the "Issue 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 GECMSI or Funding. The Certificates will not
represent obligations of General Electric Company, General
Electric Capital Corporation, GE Capital Mortgage Corporation,
General Electric Mortgage Insurance Corporation, GECMSI, Funding
or any other affiliate of GECMSI or Funding and will not be
guaranteed by any governmental agency or any other person. The
Depositor and the Servicer will have limited obligations to the
Trust Fund. Unless otherwise specified in the Prospectus
Supplement, the Depositor's obligations will be limited to
repurchasing the Mortgage Loans, Contracts or Agency Securities
in the Trust Fund in the event of a breach of certain
representations and warranties made by it in the Agreement.
Unless otherwise specified in the Prospectus Supplement, the only
obligations of GECMSI as Servicer with respect to the
Certificates will consist of its contractual servicing and/or
master servicing obligations, including any obligation under
certain limited circumstances to make advances of delinquent
installments of principal, interest or both, adjusted in the case
of interest to the weighted average rate at which interest
accrues on the related series of Certificates. You should refer
to "The Pooling and Servicing Agreement--Assignment of Assets"
and "--Repurchase or Substitution" and Servicing of the Mortgage
Loans and Contracts--Advances" in this Prospectus.
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
Servicer or any other entity or paid from any applicable credit
enhancement arrangement, such delinquencies may result in delays
in the distribution 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.
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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.
For certain classes of Certificates as specified in the
applicable Prospectus Supplement, investors will not have the
right to receive physical certificates evidencing their ownership
except under certain limited circumstances. Instead, the Trust
Fund will issue the Certificates in the form of global
certificates, which will be held by The Depository Trust Company
or its nominee. Financial institutions that are direct or
indirect participants in The Depository Trust Company will record
beneficial ownership of a Certificate by individual investors in
the authorized denominations.
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
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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
GECMSI's servicing fee as described herein, the servicing fee of
any third party servicer of the Mortgage Loans or Contracts and
such other amounts (including fees payable to GECMSI 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 entitled thereto at the
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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.
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
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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 Enhancement--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 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.
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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 1999, assuming such
Certificates are issued during January 1999. 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 Funding or GECMSI 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 Servicer (or, in
the case of Mortgage Loans
master-serviced by the Servicer, of
which the Servicer 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
(assuming such date is a business
day).
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 Servicer
receives (or, in the case of Mortgage
Loans master-serviced by the
Servicer, receives notice of) any
voluntary principal prepayments in
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
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for distribution to the related
Certificateholders on March 25.
Through March 17, the Servicer
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 Servicer).
March 18............. Determination Date. On the fifth
business day preceding the
Distribution Date, GECMSI determines
the aggregate amount of distributions
to be made on the Certificates on the
following Distribution Date.
March 23............. GECMSI 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,
GECMSI 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 GECMSI on March 23. If
a payment due March 1 is received
from a Mortgagor on or after the
Determination Date and the Servicer
has advanced funds in the amount of
such payment to the
Certificateholders, such late payment
will be paid to GECMSI. 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
GECMSI, Funding or the holders of one or more classes of
Certificates specified in the Prospectus Supplement may, at its
or their option, 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
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<PAGE>
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 related to 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
Depositor 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 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) GECMSI,
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 (a "Liquidating Loan"), Advance, or
guarantee that deposits will be made to the Certificate Account
(a "Deposit Guarantee"); 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 related Trust Fund and will not be entitled to
payments in respect of the assets of any other Trust Fund
established by GECMSI or Funding. The primary assets of any trust
fund will consist of Mortgage Loans, Agency Securities or
Contracts but not a combination thereof.
GECMSI will have originated or acquired each Mortgage Loan
and Contract included in a Trust Fund. If Funding acts as the
Depositor, it will have acquired the related Mortgage Loans and
Contracts from GECMSI pursuant to an asset purchase agreement (an
"Asset Purchase Agreement"). The applicable Depositor will have
acquired any Agency Securities included in a Trust Fund.
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 (a "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 Depositor for inclusion in
a Trust Fund from among those originated or acquired by GECMSI in
the ordinary course of GECMSI'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 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
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are applied first to interest accrued to the date payment is
received, then to principal. See "Yield, Maturity and Weighted
Average Life Considerations."
GECMSI 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 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
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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
GECMSI.
It is anticipated that the Mortgage Loans will consist
primarily of Mortgage Loans secured by Mortgaged Properties
determined by GECMSI to be the primary residences of the
borrowers. The basis for such determination will be the making of
a representation by the borrower that he or she intends to use
the underlying property as his or her 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. 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 GECMSI, 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.
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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 GECMSI,
the values used in calculating loan-to-value ratios may no longer
be accurate valuations of the Mortgaged Properties. Under
GECMSI's underwriting standards, a correspondent or other
third-party seller is generally permitted to provide secondary
financing (or subordinate existing secondary financing) to, or
obtain such secondary financing for, a mortgagor
contemporaneously with the origination of a Mortgage Loan,
provided that the combined loan-to-value ratio does not exceed
GECMSI'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. GECMSI 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 GECMSI, by refinancing mortgage loans in its own
servicing portfolio and by originating loans with borrowers who
currently have mortgage loans serviced by GECMSI. GECMSI 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.
GECMSI's mortgage loan correspondents and loan brokers are
certain lending institutions that satisfy GECMSI's financial and
operational criteria, demonstrate experience in originating
mortgage loans and follow GECMSI's loan underwriting standards or
other loan underwriting standards approved by GECMSI. Except as
described below, GECMSI generally reviews each mortgage loan for
compliance with its underwriting standards before accepting
delivery from its correspondents. Under GECMSI's "delegated
underwriting" program, however, GECMSI delegates all underwriting
functions to certain approved correspondents. In such cases,
GECMSI 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 GECMSI or, to a lesser extent,
closed in the name of GECMSI. Mortgage loans originated by GECMSI
through loan brokers are generally underwritten by GECMSI,
processed by the broker on behalf of GECMSI as well as by GECMSI,
and closed in GECMSI's name.
GECMSI purchases portfolios of loans from other third-party
sellers in negotiated transactions. Before making such purchases,
GECMSI generally determines that such sellers satisfy GECMSI's
financial and operational criteria, have demonstrated experience
in originating or
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acquiring single-family mortgage loans and have followed loan
underwriting standards acceptable to GECMSI.
Loans acquired from GECMSI's correspondents and brokers
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 GECMSI 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 GECMSI, GECMSI 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 GECMSI under
materially different standards from those described herein, the
related Prospectus Supplement will describe such standards.
The underwriting standards applied by GECMSI in acquiring
or originating mortgage loans are intended to evaluate the
prospective borrower'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,
GECMSI must be satisfied that the value of the property being
financed supports, and will continue to support, the outstanding
loan balance. GECMSI 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 GECMSI.
In such cases (as well as in cases of loans originated under
GECMSI'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,
GECMSI follows procedures established to comply with applicable
federal and state laws and regulations. In applying for a loan, a
prospective borrower 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 borrower's assets and
liabilities and income and expenses. GECMSI 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. GECMSI may, as part
of its overall evaluation of the prospective borrower'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 borrower and an assessment of specific mortgage
loan characteristics, including loan-to-value ratio,
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type of loan product and geographic location. GECMSI expects to
place greater reliance on a prospective mortgagor's credit and/or
mortgage scores in the underwriting process.
The extensiveness of the documentation that GECMSI requires
in connection with the verification of a prospective borrower's
employment status, income, assets and adequacy of funds to close
varies from full documentation to limited documentation, as
further described below. GECMSI 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, GECMSI
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 borrower's
employment status and current salary is obtained from records
prepared by the employer or by other means satisfactory to
GECMSI. Each prospective borrower 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, GECMSI
also generally requires verification that the borrower has
adequate funds to close the mortgage loan. A prospective borrower
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 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 GECMSI'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 GECMSI'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 GECMSI, 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 GECMSI's No
Income Verification program, pursuant to which GECMSI generally
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will not verify any self-employment or other 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 GECMSI's No
Ratio program, pursuant to which GECMSI 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 GECMSI's No
Income No Asset Verification program, pursuant to which GECMSI
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 GECMSI. 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 stated 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 GECMSI's
Enhanced Streamlined Refinance program. Under this program, if
GECMSI is currently the servicer of a borrower's first-lien
mortgage loan, GECMSI 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, GECMSI generally will not verify any income
or assets of the borrower, and no new appraisal will be required.
GECMSI 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
borrower's credit score or mortgage score, GECMSI (or the
delegated underwriter) makes a determination as to whether the
prospective borrower 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, GECMSI 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
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approved correspondents and other third-party sellers. In its
evaluation of seasoned mortgage loans which have 24 or more
months of payment experience, GECMSI 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, to a lesser extent, 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, 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 such 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 GECMSI'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.
GECMSI 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 such
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, GECMSI 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
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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 GECMSI 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
GECMSI's underwriting guidelines for the specific loan program.
Unless otherwise specified in the Prospectus Supplement, mortgage
loans (other than Home Equity Loans) that GECMSI acquires or
originates which have an original principal amount exceeding 80%
of Original Value will have private mortgage insurance. GECMSI
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.
GECMSI 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.
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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 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
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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, 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 the mortgagor for accelerated payment
of principal. In taking actions regarding the collection of
principal after default on the mortgage loans
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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.
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.
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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
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.
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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 GECMSI or acquired by it 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" 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 real estate
investment conduit (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.
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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 ENHANCEMENT
General
Credit enhancement 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 enhancement may be in
the form of the limited obligation of GECMSI as Servicer 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
GECMSI, 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 insurance policy, bankruptcy bond, special hazard insurance
policy, repurchase bond, guaranteed investment contract or
another method of credit enhancement described in the related
Prospectus Supplement, or any combination of the foregoing.
Unless otherwise specified in the Prospectus Supplement, any
credit enhancement 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 enhancement or which
are not covered by the credit enhancement, Certificateholders
will bear their allocable share of deficiencies.
If the Prospectus Supplement for a series provides that an
institution other than GECMSI will act as sole servicer or master
servicer of the related Mortgage Loans, or that GECMSI 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
enhancement arrangements described below in lieu of GECMSI. In
such event, all references to GECMSI as Servicer under the
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description of such credit enhancement set forth below should be
read to refer to such other master servicer or servicers, as the
case may be.
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 (a "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 specified in the Prospectus Supplement. If so
specified in the Prospectus Supplement, amounts on deposit in the
Reserve Account may be released to the Depositor 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
enhancement 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
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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 Servicer, 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."
Purchase of Liquidating Loans
GECMSI, 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) GECMSI,
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 GECMSI, as
Servicer, may be limited as specified in the Prospectus
Supplement. In particular, the aggregate losses from the purchase
of Liquidating Loans that GECMSI is obligated to bear (measured
as the difference between the aggregate payments made by GECMSI
into the Certificate Account in respect of Liquidating Loans and
the aggregate net proceeds received by GECMSI 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 GECMSI, unless
such amount has been restored as described below.
If so specified in the Prospectus Supplement, GECMSI, 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 GECMSI as
Servicer. The purchase price for any Delinquent Mortgage Loan
will be deposited in the Certificate Account on the next Deposit
Date (as defined under "Servicing of the Mortgage Loans and
Contracts--Loan Payment Record").
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The purchase by GECMSI, as Servicer, of a Delinquent
Mortgage Loan may result in the diminution of the amount of
GECMSI'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 GECMSI 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 GECMSI
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 GECMSI'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
GECMSI, any related decrease in the amount of GECMSI'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 GECMSI
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,
GECMSI 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 GECMSI of any Liquidating Loan or
Delinquent Mortgage Loan as described above, and the payment by
GECMSI of the purchase price therefor, GECMSI will be entitled to
receive an assignment by the Trustee of such Mortgage Loan, and
GECMSI 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 GECMSI, 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 GECMSI 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, 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 GECMSI under the related Agreement as described herein.
Any Limited Guarantee issued by the Guarantor will be limited in
amount or duration as specified in
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the Prospectus Supplement and may not guarantee the full extent
of GECMSI'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 GECMSI's obligations with respect to which such
Limited Guarantee was issued.
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 enhancement 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.
If specified in the Prospectus Supplement, the coverage
provided by one or more forms of credit enhancement may apply
concurrently to two or more separate Trust Funds. If applicable,
the Prospectus Supplement will identify the Trust Funds to which
such credit enhancement 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 Depositor will obtain
one or more pool insurance policies. Any such policies may be in
lieu of or in addition to any obligations of GECMSI 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. GECMSI, 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 Certificate-
holders. 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 GECMSI 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."
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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 GECMSI as Servicer 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 Insurance" below. As a result,
certain hazard risks will not be insured against and will
therefore be borne by Certificateholders, unless otherwise
assumed by GECMSI as Servicer 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 Depositor 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 GECMSI 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 Cut-off 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
Servicer.
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
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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 Servicer, 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 Servicer 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 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 Depositor 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.
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In lieu of a bankruptcy bond, the Depositor 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.
Repurchase Bond
If so specified in the related Prospectus Supplement,
GECMSI, 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 GECMSI.
Guaranteed Investment Contracts
If so specified in the Prospectus Supplement, on or prior
to the Issue 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 Depositor on the
Issue 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 Depositor 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
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Certificates. Additional information with respect to such
instruments deposited in the Reserve Accounts will be set forth
in the Prospectus Supplement.
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 Servicer 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
GECMSI) 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 GECMSI 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 GECMSI, the Guarantor or any other entity of
any Liquidating Loan or Delinquent Mortgage Loan, if applicable,
and from the repurchase by Servicer 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 GECMSI 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 Mortgage Loan on the
first business day of the succeeding month and will not result in
interest shortfalls.
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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
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
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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, GECMSI 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.
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.
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SERVICING OF THE MORTGAGE LOANS AND CONTRACTS
With respect to each series of Certificates, the related
Mortgage Loans will be serviced either (i) by GECMSI as primary
servicer, (ii) by GECMSI as master servicer, (iii) by another
institution as primary servicer or (iv) by another institution as
master servicer. If an institution other than GECMSI acts as
primary servicer or as master servicer for a series, GECMSI may
have no servicing obligations with respect to such series. If
GECMSI 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 GECMSI, 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 GECMSI is acting as master servicer under a Direct
Master Servicing Arrangement, the servicing agreement entered
into between GECMSI and the direct servicer will be deemed to be
between GECMSI 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 GECMSI 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 GECMSI acts as master servicer for a
series under a Direct Master Servicing Arrangement, all
references herein to GECMSI as Servicer should be read to refer
to GECMSI as master servicer, as appropriate. If GECMSI 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
GECMSI as master servicer. If an institution other than GECMSI
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 GECMSI as servicer should be read to refer
to such institution as primary or master servicer, as
appropriate. If an institution other than GECMSI 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. GECMSI, 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,
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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, GECMSI, 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 GECMSI 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.
GECMSI, 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, GECMSI, 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 GECMSI, 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 GECMSI as additional servicing
compensation. GECMSI will not be required to expend its own funds
in connection with any foreclosure or towards the restoration of
any Mortgaged Property unless it 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.
GECMSI, 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." GECMSI 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 GECMSI 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,
GECMSI will not be liable to the Certificateholders if, based on
its belief that no such contamination or effect exists, GECMSI
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.
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Unless otherwise specified in the Prospectus Supplement
relating to a series of Certificates, if GECMSI determines that
all amounts which it expects to recover from or on account of
such a Mortgage Loan have been recovered, GECMSI'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.
GECMSI 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, GECMSI 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 GECMSI has initiated its foreclosure action, GECMSI
may advance funds to keep the senior mortgage current until such
time as GECMSI satisfies such senior mortgage. In the event
foreclosure proceedings have been instituted on any senior
mortgage prior to the initiation of GECMSI's foreclosure action,
GECMSI 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. GECMSI 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 GECMSI, 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
holders of the Loss Certificates. These rights would include,
among other things, the right to receive notice from GECMSI that
foreclosure of a defaulted Mortgage Loan is imminent and the
right to instruct GECMSI to delay the commencement of foreclosure
proceedings for up to six months after the Mortgage Loan has
become delinquent. GECMSI 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 GECMSI 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
GECMSI to make any advances of delinquent Mortgage Loan payments
specified in the Prospectus Supplement. Any such advances made by
GECMSI after the date foreclosure is
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delayed will be recoverable by GECMSI from amounts on deposit in
the reserve fund. GECMSI 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 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, GECMSI, 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
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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, GECMSI 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 GECMSI for entering into an assumption agreement
will be retained by GECMSI as additional servicing compensation.
For a description of circumstances in which GECMSI 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.
GECMSI, 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 GECMSI, or the 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 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,
GECMSI, and any successor to GECMSI appointed as Servicer
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, GECMSI, as Servicer,
will service and administer the Contracts assigned to the Trustee
as more fully set forth below. GECMSI, either directly or through
servicers subject to general supervision by GECMSI, 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. GECMSI, 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 GECMSI 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,
GECMSI, 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 GECMSI reasonably believes it is unable to
enforce such "due-on-sale" clause under applicable law. In such
case, GECMSI 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.
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Under the Agreement, GECMSI, 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, GECMSI will follow such
practices and procedures as it deems necessary or advisable and
as shall be normal and usual in its general servicing activities.
GECMSI, 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 GECMSI originates or
acquires do not have loan-to-value ratios in excess of 95% of
their Original Value (as defined above). Unless otherwise
specified in the Prospectus Supplement, Mortgage Loans (other
than Home Equity Loans) that GECMSI originates or acquires that
have an original principal amount exceeding 80% of Original Value
usually will have private mortgage insurance. GECMSI 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
GECMSI. Private mortgage insurance policies may be provided by
General Electric Mortgage Insurance Corporation, an affiliate of
GECMSI and Funding. Any mortgage insurance relating to a pool of
Contracts will be described in the related Prospectus Supplement.
GECMSI 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 GECMSI 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. GECMSI, 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 GECMSI 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
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mortgagor in accordance with GECMSI'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 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 Depositor
may also purchase special hazard insurance against certain of the
uninsured risks described above. See "Credit Enhancement--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 GECMSI 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.
GECMSI, 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 GECMSI of related
liquidation expenses to be incurred in connection therewith.
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GECMSI, 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. GECMSI
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.
GECMSI 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 enhancement.
Contracts. The terms of the Agreement will require the
Servicer 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, GECMSI 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.
GECMSI, 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. GECMSI 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.
GECMSI, as Servicer, 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, GECMSI will pay any such delinquent tax
or charge. Any such payment made by GECMSI will be reimbursable
to GECMSI as described under "--Loan Payment Record" below.
If GECMSI repossesses a Manufactured Home on behalf of the
Trustee, GECMSI 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 Servicer 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, GECMSI, 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 Enhancement--Purchases of
Liquidating Loans," this obligation to advance will be limited to
amounts which GECMSI reasonably believes will be recoverable by
it out of liquidation proceeds or otherwise in respect of such
Mortgage Loan or Contract. GECMSI, 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, GECMSI, 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 GECMSI, 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
GECMSI 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 GECMSI will not
be affected by any agreement between GECMSI 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 GECMSI, as Servicer, to perform such obligation.
Unless otherwise specified in the Prospectus Supplement,
until any obligation of GECMSI as Servicer to purchase
Liquidating Loans is exhausted, GECMSI will advance delinquent
installments 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 GECMSI believes any
such advance will be recoverable.
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GECMSI'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 GECMSI as Servicer
to purchase Liquidating Loans. In the event that GECMSI 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.
GECMSI, 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
GECMSI or the applicable servicer to guarantee or insure against
losses.
Loan Payment Record
The Agreement will require that GECMSI, as Servicer,
establish and maintain a Loan Payment Record to which will be
credited the following payments received by GECMSI 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 GECMSI, 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 GECMSI pursuant to the applicable Agreement or any
amount paid in connection with the substitution of a Mortgage
Loan;
(iv) All proceeds received by GECMSI, 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 GECMSI;
(v) All proceeds received in respect of any Mortgaged
Property acquired on behalf of the Trustee; and
(vi) Unanticipated Recoveries.
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GECMSI 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 GECMSI 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,
GECMSI, as Servicer, may, from time to time, make debits to the
Loan Payment Record for the following purposes:
(i) To reimburse GECMSI, 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 GECMSI such excess as additional servicing compensation;
(ii) To reimburse GECMSI, or the applicable servicer, for
expenses reimbursable under any insurance policy covering a
Mortgage Loan and amounts expended by GECMSI 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 GECMSI or Funding for certain expenses
relating to the Agreement as to which GECMSI or Funding is
entitled to indemnification or reimbursement pursuant to the
Agreement;
(iv) To pay to GECMSI amounts received in respect of any
Mortgage Loan or Contract purchased by GECMSI 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 GECMSI;
(v) To reimburse GECMSI (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 recoveries, including late payments and
liquidation proceeds, on such Mortgage Loan or Contract;
(vi) To reimburse GECMSI from any borrower payment of
interest or other recovery with respect to a particular Mortgage
Loan, to the extent not previously retained by GECMSI, for unpaid
servicing fees with respect to such Mortgage Loan, subject to
certain limitations;
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(vii) To reimburse GECMSI (or, if applicable, the Trustee,
the Guarantor or any other entity) for any Nonrecoverable
Advance;
(viii) To make deposits into the Certificate Account;
(ix) To pay to GECMSI amounts received in respect of any
Mortgage Loan or Contract repurchased by GECMSI pursuant to its
optional repurchase right, if any, under the Agreement, to the
extent that the distribution of any such amounts on the final
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 one
month's interest thereon at the applicable Remittance Rate, net
of any unreimbursed advances of delinquent installments of
principal and interest made by GECMSI; and
(x) 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, GECMSI, as Servicer, 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, GECMSI as
Servicer, 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, GECMSI will transfer to the
Certificate Account (i) the amount of any voluntary prepayment in
full (net of any interest thereon) received by GECMSI (or, in the
case of a Mortgage Loan master-serviced by GECMSI, of which
GECMSI receives notice) during the period from the first day
through the fifteenth day of the month of such Distribution Date
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 GECMSI 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 such funds, GECMSI 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 GECMSI
as additional servicing compensation.
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As a result of GECMSI'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 GECMSI may be able to
assert rights in such payments superior to those of the Trustee.
If specified in the Prospectus Supplement, GECMSI 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,
GECMSI'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, GECMSI 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 GECMSI 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,
GECMSI 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, GECMSI 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 GECMSI, as
Servicer, and the Depositor
The Agreement will provide that, except as described in the
second and third succeeding paragraphs, GECMSI may not resign
from its obligations and duties as servicer or master servicer
thereunder, except upon determination that GECMSI'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 GECMSI'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.
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The Agreement will provide that none of GECMSI, Funding, if
applicable, or the Guarantor, if applicable, 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 none of GECMSI, Funding, or
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 GECMSI,
Funding, if applicable, and, the Guarantor, if applicable, 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 none of GECMSI, Funding, if
applicable, the Guarantor, if applicable, is under any obligation
to appear in, prosecute or defend any legal action which is not
incidental to GECMSI'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
GECMSI 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
GECMSI and, if applicable, the Guarantor, will be entitled to be
reimbursed therefor from amounts credited to the Loan Payment
Record.
Any corporation into which GECMSI or Funding may be merged
or consolidated or any corporation resulting from any merger,
conversion or consolidation to which GECMSI or Funding is a
party, or any corporation succeeding to the business of GECMSI or
Funding, 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 GECMSI 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 GECMSI or
Funding, will be the successor of GECMSI or Funding under each
Agreement.
GECMSI 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, GECMSI will be released from its obligations as
servicer under the Agreement except for liabilities and
obligations incurred prior to such assignment or delegation.
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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.
Assignment of Assets
Assignment of the Mortgage Loans. At the time of issuance
of a series of Certificates, the applicable Depositor, 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 Servicer 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 Depositor 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 Depositor, 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 Depositor 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
applicable recording offices and title insurance companies.
Pending such delivery, GECMSI on behalf of the Depositor 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. GECMSI on behalf of the
Depositor 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 Depositor 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
Depositor instead delivers to the Trustee an affidavit certifying
that the Depositor was the sole owner of the indebtedness
evidenced by such note and the original thereof has been lost or
destroyed and the Depositor indemnifies the Trust Fund against
any loss, liability, damage, claim or expense resulting from the
Depositor's failure to have delivered the original Mortgage Note
or Confirmatory Mortgage Note. Such indemnification will be
terminated if the Depositor subsequently delivers to the Trustee
the original Mortgage Note or a Confirmatory Mortgage Note.
Unless otherwise
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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 Depositor has failed to deliver
the original Mortgage Note or Confirmatory Mortgage Note. In the
case of Mortgage Loans purchased by Funding from GECMSI without
the original Mortgage Note or Confirmatory Mortgage Note,
Funding, as Depositor, may assign to the Trustee the benefit of
an affidavit and indemnification to the foregoing effect received
from GECMSI as seller under the Asset Purchase Agreement.
Unless otherwise specified in the Prospectus Supplement,
the applicable Depositor 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 from GECMSI to Funding or from the applicable
Depositor to the Trustee effective, if GECMSI were to make a
sale, assignment, satisfaction or discharge of any Mortgage Loan
prior to recording or filing the assignments to Funding or to the
Trustee, the other parties to such sale, assignment, satisfaction
or discharge might have rights superior to those of Funding or
the Trustee, as the case may be. If GECMSI were to do so without
authority under the Agreement, it would be liable to the Trustee
on behalf of the related Certificateholders. Moreover, if
insolvency proceedings relating to GECMSI or Funding were
commenced prior to such recording or filing, creditors of GECMSI
or Funding may be able to assert rights in the affected Mortgage
Loans superior to those of Funding or the Trustee.
GECMSI will acknowledge either in the Agreement (when
acting as Depositor) or in the Asset Purchase Agreement (when
selling Mortgage Loans to Funding) that its retention of record
title to the Mortgages is for convenience only and that it is
holding record title solely as custodian for Funding, if
applicable, and for the Trustee upon transfer of the Mortgage
Loans to the Trustee.
With respect to any Mortgage Loans which are Cooperative
Loans, the Depositor, 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 Depositor 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, the Agreement will provide the Trustee with the
benefit of certain representations and warranties relating to the
Mortgage Loans. These representations and warranties will be made
by GECMSI in the Agreement if it is acting as Depositor. If
Funding acts as Depositor with respect to Mortgage Loans acquired
from GECMSI, Funding will assign to the Trustee in the Agreement
the benefit of the representations and warranties (together with
the remedies for a breach thereof) made by GECMSI in the related
Asset Purchase Agreement.
Unless otherwise specified in the related Prospectus
Supplement, GECMSI generally will represent and warrant, among
other things, that (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
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(other than a Cooperative Loan) was issued on the date of
origination thereof and each such policy or binder assurance is
valid and remains in full force and effect at the Issue Date;
(iii) at the date of initial issuance of the Certificates, GECMSI
has good title to and under the sole owner of the Mortgage Loans
and the Mortgage Loans are being transferred free and clear of
any liens, claims and encumbrances; (iv) at the Issue Date, each
Mortgage is a valid and enforceable 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 GECMSI, (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 Issue Date, no Mortgage Loan is 30 or
more days delinquent and none of the Mortgage Loans have been
past due 30 or more days more than once during the preceding
twelve months, and there are no delinquent tax or assessment
liens against the property covered by the related Mortgage; (vi)
at the Issue Date, 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; (vii) at the Issue
Date, there is no valid offset, defense or counterclaim to any
Mortgage Note or Mortgage, including the obligation of the
Mortgagor to pay the unpaid principal and interest on such
Mortgage Note; and (viii) 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 addition to the foregoing, if
Funding acts as Depositor, it will also represent and warrant
that (i) it had good title to and was the sole owner of such
Mortgage Loans immediately prior to the assignment thereof to the
Trustee and (ii) no valid offset, defense or counterclaim to the
Mortgage or Mortgage Note exists as of the Issue Date as a result
of any action taken by Funding.
In the event that the Depositor has acquired the Mortgage
Loans for a series from a third party, if so specified in the
related Prospectus Supplement, the Depositor may, in lieu of
making the representations described in the preceding paragraph,
cause the entity from which the Depositor acquired such Mortgage
Loans to make such representations (other than those regarding
the Depositor's title to the Mortgage Loans, which will in all
events be made by the Depositor), 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 Depositor'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 Depositor, 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. GECMSI, in the Agreement or in the Asset
Purchase Agreement, as applicable, will represent and warrant to
the Trustee, among other things, that the information contained
in the Agency Securities schedule is true and correct, and the
Depositor will represent and
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warrant to the Trustee that immediately prior to the transfer of
the Agency Securities to the Trustee, the Depositor had good
title to, and was the sole owner of, each Agency Security.
Assignment of Contracts. The Depositor, 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 Cutoff 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 Depositor
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
Depositor 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 GECMSI to
the Trustee or from GECMSI to Funding 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."
GECMSI, in the Agreement or in the Asset Purchase
Agreement, as applicable, 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, GECMSI had good title to, and was
sole owner of, each such Contract (which representation will also
be made by Funding if it is the Depositor); 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
GECMSI (pursuant to the Agreement or the Asset Purchase
Agreement, as applicable) 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), GECMSI 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 which such purchase price is to be
distributed, net of any unreimbursed advances of principal and
interest thereon made by GECMSI as Servicer.
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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 GECMSI or Funding for a material
defect in a document relating to a Mortgage Loan or Contract.
Unless otherwise specified in the Prospectus Supplement,
GECMSI (pursuant to the Agreement or the Asset Purchase
Agreement, as applicable) and Funding (pursuant to the
Agreement), if acting as Depositor, will agree to either (a) cure
in all material respects any breach of any representation or
warranty set forth in such 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 GECMSI or Funding, as the case may be,
or its receipt of notice thereof from the Trustee or Funding, (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 GECMSI 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 Depositor has acquired the related Mortgage Loans from
a third party, in lieu of agreeing to repurchase or substitute
Mortgage Loans as described above, the Depositor 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 Depositor 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 GECMSI,
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
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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 GECMSI in its individual
capacity agrees to refinance any Mortgage Loan upon the request
of the related Mortgagor, such Mortgage Loan will be assigned to
GECMSI 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 GECMSI 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 GECMSI's
servicing portfolio. In connection with the preparation of such
report, GECMSI will provide to such firm of independent public
accountants a statement signed by an officer of GECMSI to the
effect that GECMSI 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 GECMSI'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 GECMSI, as Servicer, to the effect that GECMSI, 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 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
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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 GECMSI. In addition, the
Depositor 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 GECMSI or Funding of any funds paid to them 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 Depositor 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, GECMSI 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.
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
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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, GECMSI, 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, GECMSI,
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 GECMSI) 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
GECMSI in respect of the Mortgage Loans during the month
preceding the month of the Distribution Date, and such other
customary information as GECMSI deems necessary or desirable to
enable Certificateholders to prepare their tax returns;
(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 GECMSI's remaining
obligations with respect to the purchase of Liquidating Loans,
after giving effect to any charges or adjustments thereto in
respect of
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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.
GECMSI will also furnish annually customary information
deemed necessary for Certificateholders to prepare their tax
returns.
GECMSI, 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 GECMSI, 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 GECMSI by the Trustee, or to GECMSI and
the Trustee by the holders of Certificates evidencing interests
aggregating not less than 25% of each affected class; (ii) any
failure by GECMSI, 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 GECMSI by the Trustee, or to
GECMSI and the Trustee by the holders of Certificates evidencing
interests aggregating not less than 25% of each affected class;
(iii) any failure by GECMSI, 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 GECMSI 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
assets and liabilities or similar proceedings and certain actions
by GECMSI 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 GECMSI, 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 GECMSI as Servicer under the Agreement,
whereupon the Trustee will succeed to all the responsibilities,
duties and liabilities of GECMSI 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 GECMSI, as Servicer, to
do so, or if the Trustee
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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 GECMSI. GECMSI, 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 GECMSI, 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 GECMSI, 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 GECMSI 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
GECMSI 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
security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby.
Amendment
The Agreement may be amended by the Depositor, as seller,
GECMSI, 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 the
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 Depositor, as seller, GECMSI, 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
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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 Depositor, as seller, GECMSI, 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 from the Trust
Fund by the person specified in the Prospectus Supplement 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 such person'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 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
GECMSI, 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.
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GECMSI was acquired by GECMC, effective October 1, 1990, and
thereafter changed its name to GE Capital Mortgage Services, Inc.
GECMSI 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. GECMSI 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, GECMSI 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
GECMSI'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 GECMSI's Home Equity Loan portfolio if the
related Trust Fund includes a material amount of Home Equity
Loans. There can be no assurance that GECMSI's experience with
respect to the Mortgage Loans included in any Trust Fund will be
similar to that historically experienced by GECMSI.
Year 2000 Computer Readiness
GECMSI is aware of the issues associated with the
programming code in existing computer systems as the year 2000
approaches. Many computer systems and microprocessors with data
functions (including those in non-information technology
equipment and systems) use only two digits to identify a year in
the date field with the assumption that the first two digits of
the year are always "19." Consequently, on January 1, 2000
computers that are not year 2000 compliant may read the year as
1900. Systems that calculate, compare or sort using the incorrect
date may malfunction.
GECMSI has developed a written plan to review and, as
necessary, modify or replace existing mission critical software
and hardware. Assessment and testing of its computer systems is
being carried out by GECMSI personnel with the assistance of
external consultants. GECMSI's plan has four phases: (1) a define
and measure phase, to identify and inventory possible sources of
year 2000 issues; (2) an analysis phase, to determine the nature
and extent of year 2000 issues and develop project plans to
address those issues; (3) an improve phase, in which project
plans are executed and a majority of the testing is performed;
and (4) a control phase, to complete testing, continue monitoring
readiness and, where necessary, complete contingency plans.
GECMSI expects to have completed the first three phases of the
program for substantially all mission critical systems by the end
of 1998 and to have completed the control phase by mid-1999.
GECMSI estimates that the total cost of implementing its
year 2000 program will be approximately $2,500,000, of which
approximately 7.5% is expected to be spent by the end of 1998.
GECMSI cannot assure you that its estimates about the cost and
timing of completing its program will be accurate or that its
efforts to achieve year 2000 readiness will be effective.
In addition to its own systems, GECMSI depends upon the
proper functioning of third-party computer and non-information
technology systems. These parties include loan sellers, loan
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servicers, trustees for GECMSI's mortgage-backed securities,
borrowers' banks and providers of telecommunications services and
other utilities. GECMSI has initiated communications with third
parties with whom it has important financial or operational
relationships to determine their year 2000 readiness. GECMSI does
not yet have sufficient information from these parties to assess
their remediation and compliance efforts. GECMSI expects to
obtain this information during the first quarter of 1999 and will
conduct system testing with third parties throughout 1999. GECMSI
does not have control of these third parties and cannot assure
you that they will in fact be year 2000 ready.
If the computer systems of GECMSI or the third parties
mentioned above are not fully year 2000 ready, the failure could
have an adverse effect, at least temporarily, on GECMSI's ability
to carry out its servicing duties described in this prospectus
supplement, which include calculating and remitting to the
Trustee amounts distributable to investors on their Certificates.
Disruptions in the collection or distribution of receipts on the
mortgage loans underlying the Certificates could materially and
adversely affect your investment.
This discussion of the year 2000 issue and GECMSI's plan to
address the issue and the estimated costs of doing so are
forward-looking in nature and are based upon numerous assumptions
relating to future events. GECMSI makes no assurances that future
developments affecting GECMSI and third parties will be those
anticipated by management.
GE CAPITAL MORTGAGE FUNDING CORPORATION
General
Funding is a Delaware corporation organized on December 9,
1998 for the specific purpose of acquiring Mortgage Loans,
Contracts and Agency Securities, forming Trust Funds, acquiring,
holding and selling Certificates and engaging in related
transactions. Funding is a wholly-owned subsidiary of GECMSI.
Funding maintains its principal executive office at Three
Executive Campus, Cherry Hill, New Jersey 08002. Its telephone
number is (609) 661-6100.
Funding anticipates that it will use the net proceeds of
the sale of a series of Certificates to pay a portion of the
purchase price of the Mortgage Loans, Contracts or Agency
Securities and accordingly, it does not anticipate having any
significant assets after the issuance of any Certificates, but
may retain certain classes of Certificates.
Risk of Recharacterization
Funding may acquire Mortgage Loans or Contracts (referred
to in this section as the "Trust Assets") from GECMSI prior to
transferring them to the Trust Fund. The transfer of the Trust
Assets from GECMSI to Funding and from Funding to the Trust Fund
will be structured as, and is intended to be, an absolute and
unconditional sale of the Trust Assets to the Trust Fund.
However, if GECMSI or Funding becomes subject to a bankruptcy,
insolvency or similar proceeding (a "Proceeding," and the party
subject to such Proceeding, an "Affected Party"), a receiver,
conservator, liquidator, trustee or similar party might attempt
to convince the relevant court to recharacterize the direct or
indirect transfer of the Trust Assets by the Affected Party to
the Trust Fund as a pledge to secure a borrowing evidenced by the
Certificates, rather than a sale of the Trust Assets.
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An argument in favor of recharacterization might arise if
Funding initially retains a significant subordinated interest in
the related Trust Fund (and, accordingly, in the Trust Assets).
If Funding is the Affected Party, a bankruptcy trustee or similar
party might argue that Funding has not parted with the risks of
ownership of the Trust Assets as a result of its retention of
such Certificates. The prospectus supplement will specify if
Funding retains such an interest.
GECMSI is not expected to retain any significant
subordinated interest in any Trust Assets that it sells to
Funding. However, if GECMSI is the Affected Party in respect of a
Proceeding, in order to recharacterize the transfer of the Trust
Assets by GECMSI as a secured loan, it is likely that a receiver
or similar party would have to argue that the assets and
liabilities of GECMSI and Funding should be consolidated, and
that accordingly such Certificates should therefore be viewed as
being held directly by GECMSI.
In the event that an attempt to recharacterize the transfer
of the Trust Assets as a secured loan were successful, the
Trustee, on behalf of the holders of the related series of
Certificates, would have a secured claim against the Affected
Party, but might be delayed or prohibited from exercising
remedies with respect to the Trust Assets or taking actions with
respect to the Affected Party absent court approval. In addition,
other collateral might be substituted for the Trust Assets and
collections on the Trust Assets or such other collateral might be
applied to make distributions of principal and interest on such
Certificates at times different from those required by the
Agreement, post-Proceeding interest might be limited, and payment
of the "loan" could be accelerated, with holders of Certificates
losing the right to future interest distributions. Even if such
an attempt were not successful, it is possible that distributions
on such Certificates would be subject to delays while the claim
was being resolved by a court.
Funding's Certificate of Incorporation limits the
activities in which Funding is permitted to engage in such manner
as is intended to make the likelihood of a Proceeding by or
against Funding remote, and Funding has been organized and is
designed to operate in a manner such that its separate existence
should be respected, notwithstanding a Proceeding in respect of
itself or GECMSI. However, neither Funding nor GECMSI makes any
representation as to the likelihood of the institution of a
bankruptcy proceeding by or in respect of Funding or whether a
court would order such a consolidation of the assets and
liabilities of GECMSI with those of Funding in the event of a
Proceeding.
The foregoing discussion does not purport to be
comprehensive. Prospective investors should consult their own
legal advisors as to the possible consequences of any Proceeding
instituted by or in respect of GECMSI or Funding.
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
GECMSI'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.
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CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND CONTRACTS
<PAGE>
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 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
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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.
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
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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 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
minimum prescribed by statute. 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
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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.
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.
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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 GECMSI, Funding, 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 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 GECMSI) 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
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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 GECMSI) 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
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.
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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 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.
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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
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 intrafamily 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 GECMSI or Funding 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 GECMSI 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.
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Pursuant to the Agreement for each series of Certificates,
GECMSI 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 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
GECMSI 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 GECMSI 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, GECMSI 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. Neither
GECMSI or Funding 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
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hazardous substances. See "Servicing of the Mortgage Loans and
Contracts--Collection and Other Servicing Procedures."
THE CONTRACTS
General
As a result of the Depositor'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
Depositor. 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 Depositor will transfer physical
possession of the Contracts to the Trustee or its custodian. In
addition, the Depositor 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 GECMSI or Funding 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.
GECMSI or Funding 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 GECMSI or
Funding 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 the home is located.
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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, GECMSI or Funding 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 GECMSI or Funding
pursuant to its repurchase obligation for breach of warranties.
The Depositor 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 Depositor nor the Trustee will
amend the certificates of title to identify the Trust Fund as the
new secured party. Accordingly, GECMSI 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 Depositor'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 GECMSI.
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 GECMSI 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
GECMSI 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 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
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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, GECMSI 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, GECMSI is obligated to take such steps, at GECMSI'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. GECMSI will represent pursuant to 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
GECMSI 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
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.
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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 GECMSI and
permit the acceleration of the maturity of the Contracts by
GECMSI upon any such sale or transfer that is not consented to.
Unless otherwise specified in the related Prospectus Supplement,
GECMSI 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 GECMSI or Funding desires to accelerate the maturity of the
related Contract, GECMSI's or Funding'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 GECMSI or Funding 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 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
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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. GECMSI 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 GECMSI to collect
full amounts of interest on certain of the Contracts. In
addition, the Relief Act imposes limitations which would impair
the ability of GECMSI 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, GECMSI 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 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
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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.
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
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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 GECMSI and Funding 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 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
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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 GECMSI and Funding, 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 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.
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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
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 GECMSI and Funding, 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 Depositor, 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:
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- assets described in Code Section 7701(a)(19)(C); and
- "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.
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
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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.
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
PVBeg = 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.
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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.
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
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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.
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.
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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 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. 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.
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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 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
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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 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.
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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 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.
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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 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.
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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 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.
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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,
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, GECMSI will act as
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the tax matters person for each REMIC Pool. Each Owner of a
Residual Certificate, by the acceptance of its Residual
Certificate, agrees that GECMSI 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 GECMSI and Funding, will
deliver its opinion to the effect that, under then current law,
assuming compliance by the applicable Depositor, 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 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:
- "real estate assets" under Code Section 856(c)(4)(A); and
- assets described in Section 7701(a)(19)(C) of the Code,
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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 Depositor, the
Servicer (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.
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
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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).
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
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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.
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.
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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 or the method by which such price will be determined and
the net proceeds to GECMSI or Funding from the sale of each such
series or 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 GECMSI or Funding with institutional
investors through dealers or agents; and
3. By direct placements by GECMSI or Funding 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 Depositor 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 GECMSI or
Funding 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
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amended (the "Securities Act"). The Prospectus Supplement will
describe any such compensation paid by the Depositor.
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 Depositor 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.
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 GECMSI or Funding and
purchasers of such Certificates.
USE OF PROCEEDS
The net proceeds from sales of Certificates will be added
to GECMSI's or Funding's general funds. Unless otherwise
specified in the Prospectus Supplement, GECMSI intends to use
such proceeds for general corporate purposes, including the
acquisition of servicing rights, Mortgage Loans, Agency
Securities and Contracts. If Funding acquires the related
Mortgage Loans, Agency Securities or Contracts from GECMSI, the
net proceeds from sales of the related Certificates will be paid
to GECMSI to acquire such assets.
LEGAL MATTERS
The legality of the Certificates offered hereby will be
passed upon for GECMSI or Funding by Cleary, Gottlieb, Steen &
Hamilton, New York, New York. Certain federal income tax matters
will be passed upon for GECMSI or Funding 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.. $278.00
$278.00 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.
1. GE Capital Mortgage Services, Inc. ("GECMSI")
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 or
her 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 or she 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 or her conduct was unlawful. Such Section also
provides that a New Jersey corporation shall have the power to
indemnify a corporate agent against his or her 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 or her being or having been such
corporate agent, if he or she acted in good faith and in a manner
he or she 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
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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 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 or she 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 or
her establishes that his or her acts or omissions were in breach
of his or her 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 or her by reason of his or her being or having been a
corporate agent, whether or not the corporation would have power
to indemnify him or her against such expenses and liabilities
under such Section.
GECMSI's By-laws provide that directors, officers and other
corporate agents of GECMSI will be indemnified to the full extent
permitted by the New Jersey Business Corporation Act. The By-laws
also provide that GECMSI 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 or
her.
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2. GE Capital Mortgage Funding Corporation ("Funding")
Funding's Certificate of Incorporation provides that
Funding shall indemnify each of its directors and officers who
was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative by
reason of the fact that he or she is or was a director or officer
of Funding other than an action by or in the right of Funding
(for which Funding may indemnify such persons under certain
circumstances).
Section 145 of the Delaware General Corporation Law (the
"GCL") provides as follows:
"(a) A corporation shall have power to indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) by reason
of the fact that the person is or was a director, officer,
employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust
or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by the person in connection with such
action, suit or proceeding if the person acted in good faith and
in a manner the person reasonably believed to be in or not
opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable
cause to believe the person's conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which the person
reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that the person's
conduct was unlawful.
(b) A corporation shall have power to indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by
reason of the fact that the person is or was a director, officer,
employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust
or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by the person in connection with
the defense or settlement of such action or suit if he or she
acted in good faith and in a manner the person reasonably
believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation unless
and only to the extent that the Court of Chancery or the court in
which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other court shall deem proper.
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(c) To the extent that a director or officer, present or
former of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred
to in subsections (a) and (b) of this section, or in defense of
any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of
this section (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a
determination that indemnification of the present or former
director, officer, employee or agent is proper in the
circumstances because the person has met the applicable standard
of conduct set forth in subsections (a) and (b) of this section.
Such determination shall be made, with respect to a person who is
a director or officer at the time of such determination, (1) by a
majority vote of the directors who are not parties to such
action, suit or proceeding, even though less than a quorum, or
(2) by a committee of such directors designated by majority vote
of such directors, even though less than a quorum, or (3) if
there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (4) by the
stockholders.
(e) Expenses (including attorneys' fees) incurred by an
officer or director in defending any civil, criminal,
administrative, or investigative action, suit or proceeding may
be paid by the corporation in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that such person is not
entitled to be indemnified by the corporation as authorized in
this section. Such expenses (including attorneys' fees) incurred
by former directors and officers or other employees and agents
may be so paid upon such terms and conditions, if any, as the
corporation deems appropriate.
(f) The indemnification and advancement of expenses
provided by, or granted pursuant to, the other subsections of
this section shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses
may be entitled under any bylaw, agreement, vote of stockholders
or disinterested directors or otherwise, both as to action in
such person's official capacity and as to action in another
capacity while holding such office.
(g) A corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted
against such person and incurred by such person in any such
capacity, or arising out of such person's status as such, whether
or not the corporation would have the power to indemnify such
person against such liability under this section.
(h) For purposes of this section, references to "the
corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have
had power and authority to indemnify its directors, officers, and
employees or agents, so that any
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person who is or was a director, officer, employee or agent for
such constituent corporation, or is or was serving at the request
of such constituent corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving
corporation as such person would have with respect to such
constituent corporation if its separate existence had continued.
(i) For purposes of this section, references to "other
enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving
at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit
plan, its participants, or beneficiaries; and a person who acted
in good faith and in a manner such person reasonably believed to
be in the interest of the participants and beneficiaries of an
employee benefit plan shall be deemed to have acted in a manner
"not opposed to the best interests of the corporation" as
referred to in this section.
(j) The indemnification and advancement of expenses
provided by, or granted pursuant to, this section shall, unless
otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive
jurisdiction to hear and determine all actions for advancement of
expenses or indemnification brought under this section or under
any bylaw, agreement, vote of stockholders or disinterested
directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses
(including attorneys' fees)."
The Certificate of Incorporation of Funding also limits the
personal liability of directors to Funding and its stockholders
for monetary damages resulting from certain breaches of the
directors' fiduciary duties. The Certificate of Incorporation of
Funding provides as follows:
"To the fullest extent permitted by the General Corporation
Law of the State of Delaware as it now exists or may hereafter be
amended, no director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages arising from
a breach of fiduciary duty owed to the Corporation or its
stockholders.
Any repeal or modification of the foregoing paragraph by
the stockholders of the Corporation shall not adversely affect
any right or protection of a director of the Corporation existing
at the time of such repeal or modification."
Item 16. Exhibits.
1.1 1 -- Form of Underwriting Agreement.
II-5
<PAGE>
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 -- 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.
+24.2 -- Power of Attorney of GE Capital Mortgage
Funding Corporation
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.
II-6
<PAGE>
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 GECMSI's Registration Statement
(No. 33-46742) on Form S-11 and incorporated herein by
reference.
3 Filed as exhibit to GECMSI's Registration Statement
(No. 33-53624) on Form S-11 and incorporated herein by
reference.
4 Filed as exhibit to GECMSI's Registration Statement (No.
33-69362) on Form S-11 and incorporated herein by
reference.
5 Filed as exhibit to GECMSI's Registration Statement (No.
33-73358) on Form S-11 and incorporated herein by
reference.
6 Filed as exhibit to GECMSI'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) Each of the undersigned Registrants 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 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.
II-7
<PAGE>
(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-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the undersigned 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 15th day of
December, 1998.
GE CAPITAL MORTGAGE SERVICES, INC.
By: /s/ Kathryn E. Kelbaugh
--------------------------------
Name: Kathryn E. Kelbaugh
Title: Vice President
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Syed W. Ali,
Kathryn E. Kelbaugh, Mary Kaplan and Glen Messina and each of
them, his or her true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for and in
his or her 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, on behalf of GE Capital Mortgage Services, Inc., 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 December 15, 1998.
Signature Title
--------- -----
/s/ Thomas H. Mann Director
----------------------- (Principal Executive Officer)
Thomas H. Mann
/s/ Glen Messina Director
-----------------------
Glen Messina
/s/ Gerhard A. Miller Director
-----------------------
Gerhard A. Miller
/s/ Terry Couto Vice President and CFO
----------------------- (Principal Financial and
Terry Couto Accounting Officer)
/s/ JoAnn B. Rabitz Director
-----------------------
JoAnn B. Rabitz
/s/ Theodore F. Weiland Director
-----------------------
Theodore F. Weiland
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the undersigned 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 15th day of
December, 1998.
GE CAPITAL MORTGAGE FUNDING CORPORATION
By: /s/ Kathryn E. Kelbaugh
--------------------------------
Name: Kathryn E. Kelbaugh
Title: Vice President
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Syed W. Ali,
Kathryn E. Kelbaugh, Mary Kaplan and Glen Messina and each of
them, his or her true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for and in
his or her 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, on behalf of GE Capital Mortgage Funding Corporation,
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 December 15, 1998.
Signature Title
--------- -----
/s/ Thomas H. Mann Director
----------------------- (Principal Executive Officer)
Thomas H. Mann
/s/ Glen Messina Director
-----------------------
Glen Messina
/s/ Gerhard A. Miller Director
-----------------------
Gerhard A. Miller
/s/ Terry Couto Vice President and CFO
----------------------- (Principal Financial and
Terry Couto Accounting Officer)
/s/ JoAnn B. Rabitz Director
-----------------------
JoAnn B. Rabitz
/s/ Theodore F. Weiland Director
-----------------------
Theodore F. Weiland
II-10
<PAGE>
EXHIBIT INDEX
Exhibits Description Page
- -------- ----------- ----
No.
---
1.1 1 - Form of Underwriting Agreement.
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 - 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.
+24.2 - Power of Attorney of GE Capital Mortgage Funding
Corporation
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-11
<PAGE>
- -----------------
1 To be filed by Form 8-K subsequent to the effectiveness
hereof.
2 Filed as exhibit to GECMSI's Registration Statement (No.
33-46742) on Form S-11 and incorporated herein by reference.
3 Filed as exhibit to GECMSI's Registration Statement (No.
33-53624) on Form S-11 and incorporated herein by reference.
4 Filed as exhibit to GECMSI's Registration Statement (No.
33-69362) on Form S-11 and incorporated herein by
reference.
5 Filed as exhibit to GECMSI's Registration Statement (No.
33-73358) on Form S-11 and incorporated herein by
reference.
6 Filed as exhibit to GECMSI's Registration Statement (No.
333-3038) on Form S-3 and incorporated herein by reference.
+ Filed herewith.
# To be filed by amendment.
II-12
