As filed with the Securities and Exchange Commission on February 16, 1999
Registration No. 333-68951
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
AMENDMENT NO. 1
to
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
-------------------------
<TABLE>
<CAPTION>
<S> <C>
GE CAPITAL MORTGAGE SERVICES, INC. GE CAPITAL MORTGAGE FUNDING CORPORATION
(Exact name of registrant as specified in its charter) (Exact name of registrant as specified in its charter)
New Jersey Delaware
(State or other jurisdiction of incorporation or (State or other jurisdiction of incorporation or
organization) organization)
21-0627285 52-2134173
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
Three Executive Campus Three Executive Campus, Suite W. 602
Cherry Hill, New Jersey 08002 Cherry Hill, New Jersey 08002
(609) 661-6100 (609) 661-5881
(Address and telephone number of principal executive (Address and telephone number of principal executive
offices) offices)
-------------------
</TABLE>
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, Vice President
David L. Sugerman, Esq. GE Capital Mortgage Services, Inc.
Cleary, Gottlieb, Steen & Three Executive Campus
Hamilton Cherry Hill, New Jersey 08002
One Liberty Plaza
New York, New York 10006
-------------------
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. |_|
-------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
======================== ---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Title of Securities to Amount to be Proposed Maximum Proposed Maximum Amount of
be Registered Registered Offering Price Per Aggregate Offering Registration Fee
Unit* Price*
======================== ====================== ====================== ====================== ======================
Pass-Through $1,000,000 100% $1,000,000 $278**
Certificates
======================== ====================== ====================== ====================== ======================
</TABLE>
* Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933 and based upon the maximum
aggregate offering price of the securities.
** Previously paid.
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. 333-68951 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>
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
X Information contained herein is subject to completion X
X or amendment. A registration statement relating to these X
X securities has been filed with the Securities and Exchange X
X Commission. These securities may not be sold nor may offers to X
X buy be accepted prior to the time the registration statement X
X becomes effective. This prospectus shall not constitute an offer X
X to sell or the solicitation of an offer to buy nor shall there be X
X any sale of these securities in any State in which such offer, X
X solicitation or sale would be unlawful prior to registration or X
X qualification under the securities laws of any such State. X
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
SUBJECT TO COMPLETION, FEBRUARY 16, 1999
PROSPECTUS SUPPLEMENT
(To prospectus dated)
[GE Capital Mortgage Funding Corporation
Depositor]
GE Capital Mortgage Services, Inc.
[Depositor and] Servicer
$
(Approximate)
REMIC [Multi-Class] Mortgage Pass-Through Certificates, Series
Principal and interest payable monthly, beginning .
---------------------------------
All of the certificates comprising the series of certificates described in
this prospectus supplement represent ownership interests in a trust fund. The
trust fund consists of a pool of conventional, fixed-rate, first-lien,
fully-amortizing, one- to four- family residential mortgage loans with
maturities of to years. [The trust fund [also] contains borrowers' interests in
cooperative apartment buildings and the right to occupy apartments in such
buildings.]
---------------------------------
Consider carefully the risk factors beginning on page S-12 of this
prospectus supplement and page 12 of the accompanying prospectus.
---------------------------------
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.]
_____________________________________ will purchase the senior certificates
offered by this prospectus supplement [and will purchase the junior certificates
offered by this prospectus supplement]. will offer these certificates from time
to time to the public in negotiated transactions or otherwise at varying prices
to be determined at the time of sale. [GE Capital Mortgage Services, Inc.] [GE
Capital Mortgage Funding Corporation] will receive proceeds from the sale of
such certificates of approximately % of their total initial principal balance,
plus accrued interest from [ ], to but excluding the initial issuance date,
before deducting expenses payable by [GE Capital Mortgage Services, Inc.] [GE
Capital Mortgage Funding Corporation]. You should refer to "Plan of
Distribution" in this prospectus supplement.] [On or about , [GE Capital
Mortgage Services, Inc.][GE Capital Mortgage Funding Corporation] will deliver
the certificates offered by this prospectus supplement [, except for the Class
Certificates,] through the book-entry facilities of The Depository Trust Company
[,and will deliver the Class Certificates at the offices of New York, New
York].]
---------------------------------
[Underwriter(s)]
---------------------------------
The date of this prospectus supplement is .
<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 and the underlying trust fund in two separate documents:
(1) the accompanying prospectus, which provides general information, some of
which may not apply to your certificates or trust fund, and (2) this prospectus
supplement, which describes the specific terms of your certificates and assets
in your trust fund. You should read both of these documents together.
This prospectus supplement will supplement and enhance, and may vary, the
disclosure set forth in the prospectus for purposes of your certificates.
<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, including the risk factors on page S-12, 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-57 of this
prospectus supplement. Any capitalized terms that are not defined in the
prospectus supplement are defined in the accompanying prospectus. See "Index of
Certain Prospectus Definitions" on page 120 of 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 The Depository Trust Company or its nominee will hold. 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]
[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
that the trust fund's assets produces. 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 liens on one- to four- family residential properties.
[The trust fund [also] contains cooperative apartment loans secured by security
interests in shares issued by private, non-profit cooperative housing
corporations and the related proprietary leases or occupancy agreements granting
exclusive rights to occupy specific dwelling units in the cooperative housing
corporations' buildings.] [The trust fund contains certain other assets, as
described in this prospectus supplement.] [GE Capital Mortgage Services, Inc.
has originated or acquired each mortgage loan included in a trust fund. GE
Capital Mortgage Funding Corporation has acquired the related mortgage loans
from GE Capital Mortgage Services, Inc. pursuant to an asset purchase
agreement.] The mortgage loans expected to be included in the trust fund have
the following characteristics as of :
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 , and
subject to the variance described in this prospectus supplement.
[In addition, [GE Capital Mortgage Services, Inc.] [GE Capital Mortgage
Funding Corporation] expects that up to approximately %, in terms of total
principal balance as of , , of the mortgage loans included in the trust fund
will be located in .]
[For more information on GE Capital Mortgage Funding Corporation, you
should refer to "GE Capital Mortgage Funding Corporation" in the prospectus.]
Servicer
--------
GE Capital Mortgage Services, Inc. will act as servicer of the mortgage
loans. [For certain mortgage loans contained in the trust fund, the seller of
the mortgage loan to GE Capital Mortgage Services, Inc. will remain the primary
servicer while GE Capital Mortgage Services, Inc. will supervise such servicing
duties and remain directly liable to the trust fund for such servicing duties.]
As servicer, GE Capital Mortgage Services, Inc. will be responsible for making
reasonable efforts to collect payments due on the mortgage loans and performing
other administrative functions. [GE Capital Mortgage Services, Inc. will be
obligated, as servicer, to advance delinquent payments on the mortgage loans
included in the mortgage pool net of servicing fees, less the amount of such
payments GE Capital Mortgage Services, Inc. reasonably believes will not be
recoverable out of liquidation proceeds or otherwise.] [In addition, GE Capital
Mortgage Services, Inc. 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 GE Capital Mortgage Services, Inc., 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.
Distributions on the Certificates
---------------------------------
The certificates will be issued under a pooling and servicing agreement,
which will be dated as of , between GE Capital Mortgage Services, Inc. as
[depositor and] servicer[, GE Capital Mortgage Funding Corporation, 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 . 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 the
related distribution date. The first distribution date will be .
[Description of priorities of distribution as between senior and
subordinate certificates, if applicable.]
Interest Payments
o 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.]
[o 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 (1) lower yields on the Class
Certificates and (2) interest rates on those certificates
falling as low as 0%.]
o 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.
o The amount of interest the trustee distributes 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 event may produce a shortfall or
loss and how shortfalls or losses of interest are allocated
among the certificates.
[o Interest will be paid on the classes of senior certificates
on a pro-rata basis. Interest will be paid on each class of
junior certificates after interest and principal have been
paid on (1) the senior certificates and (2) each higher
ranking class of junior certificates.]
o Interest will be calculated on the certificates on the basis
of a 360-day year consisting of twelve 30-day months.
Principal Payments
[o Principal will be paid on each class of senior certificates
(other than the Class Certificates and the Class PO
Certificates) after interest has been paid on all classes of
senior certificates. Principal will be paid on each class of
junior certificates after (1) interest and principal have been
paid on all classes of senior certificates and each higher
ranking class of junior certificates and (2) interest has been
paid on such class of junior certificates.] [The Class
Certificates are interest-only certificates and will not be
entitled to distributions of principal.]
o The amount of principal distributable on the certificates is
a function of (1) formulas that allocate portions of the
principal payments received, or expected to be received, on
the mortgage loans among the different classes and (2) 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.
[o Principal 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.]
[o One of the main effects of the allocation formulas
described in this prospectus supplement 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--Allocation of Available Funds--Class Prepayment
Distribution Trigger" in this prospectus supplement.]
[o 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.]
[o 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 (1) [the] [certain] other
classes of senior certificates have been paid off or (2) 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.]
[o Despite the priority of payments, the trustee will make all
distributions of principal on the outstanding senior
certificates, other than the Class and Class PO Certificates,
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.]
o 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. [GE Capital Mortgage Services, Inc.] [GE Capital
Mortgage Funding Corporation] cannot predict or assure you as
to the actual rate of payment of principal on the mortgage
loans.
[o 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 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 preceding 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:
o voluntary prepayments by the mortgagors such as
prepayments in full due to refinancings. These may include
refinancings made, and possibly solicited, by GE Capital
Mortgage Services, Inc. in the ordinary course of conducting
its mortgage banking business;
o prepayments resulting from default, foreclosure, casualty,
condemnation and similar events, and repurchases by GE Capital
Mortgage Services, Inc. [or GE Capital Mortgage Funding
Corporation] of the mortgage loans under certain circumstances
described in this prospectus supplement; and
o prepayments made during participation by mortgagors, which
may be solicited by GE Capital Mortgage Services, Inc., 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 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 you purchase it for an amount
greater than or less than the certificate's then outstanding principal balance.
In the case of certificates you purchase for an amount greater than their then
outstanding principal balance, faster than anticipated rates of principal
prepayments on the mortgage loans (1) could result in actual yields to you that
are lower than the anticipated yields and (2) could result in a reduction in the
amount of time such certificates are outstanding. In the case of certificates
you purchase for an amount less than their then outstanding principal balance,
slower than anticipated rates of principal prepayments on the mortgage loans (1)
could result in actual yields to you that are lower than the anticipated yields
and (2) 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 GE Capital Mortgage Services, Inc., 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
(1) 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 (2) 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", appear in the tables under such
heading on pages S-24 through S-26. 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.
Investors in certain classes of certificates should also be aware of the
yield considerations described below:
[o Class Certificates: Because the Class Certificates are interest-only
certificates on which interest will accrue on the aggregate notional principal
balance described in this prospectus supplement, investors in the Class
Certificates should consider the risk that rapid rates of principal payments
could result in the failure of such investors to recover their investments
fully. You should refer to "Yield and Weighted Average Life
Considerations--Sensitivity of the Class Certificates" in this prospectus
supplement.]
[o Class 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 LIBOR, 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 refer to "Yield and Weighted Average Life Considerations--Sensitivity of
the LIBOR Certificates" in this prospectus supplement.]
[o Class M, Class B1 and Class B2 Certificates: 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.]
[o Class Certificates: The trustee will make principal distributions on the
Certificates 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.
You should refer to "Yield, Maturity and Weighted Average Life
Considerations" in the prospectus.
[Optional Termination of the Trust Fund
---------------------------------------
[GE Capital Mortgage Services, Inc.] [GE Capital Mortgage Funding
Corporation] 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 [ ]% of the
total unpaid principal balance of the mortgage loans as of . 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.]
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] for income tax purposes. The Class R
Certificates [and Class RL Certificates each] will be treated as a "residual
interest" in the [related] real estate mortgage investment conduit.]
[The particular federal income tax consequences of your investment will
depend upon the class of certificates you buy. These consequences may include
the following:
o 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.
o Certain classes of the certificates may be, and the Class
Certificates will be, issued with original issue discount.
o [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.]
o The amount of income a holder of a junior certificate reports may
exceed the cash distributions that holder receives 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 "Federal Income Tax Consequences" in this prospectus
supplement and "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. An
employee benefit plan that is subject to ERISA or a plan subject to Section 4975
of the Code may not acquire the [Class Certificates and the Residual
Certificates]. The transfer of those classes of certificates is subject to
certain restrictions described in "ERISA Considerations" in this prospectus
supplement.
Certificate Ratings
-------------------
[GE Capital Mortgage Services, Inc.] [GE Capital Mortgage Funding
Corporation] 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
[GE Capital Mortgage Services, Inc.] [GE Capital Mortgage Funding Corporation]
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, [GE Capital Mortgage
Services, Inc.] [GE Capital Mortgage Funding Corporation] 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.
[GE Capital Mortgage Services, Inc.] [GE Capital Mortgage Funding
Corporation] believes that a number of dealers that engage in the
mortgage-backed securities markets currently offer price quotations for [GE
Capital Mortgage Services, Inc.'s] [GE Capital Mortgage Funding Corporation'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 [GE Capital Mortgage Services, Inc.'s] [GE
Capital Mortgage Funding Corporation'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.
GE Capital Mortgage Services, Inc. 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 that
GE Capital Mortgage Services, Inc. [and GE Capital Mortgage Funding Corporation]
[have] [has] publicly offered. GE Capital Mortgage Services, Inc. [and GE
Capital Mortgage Funding Corporation] make[s] no representation or warranty that
such information will be suitable for any particular purpose and GE Capital
Mortgage Services, Inc. [and GE Capital Mortgage Funding Corporation] assume[s]
no responsibility for the accuracy or completeness of any information that is
generated by others using such information. GE Capital Mortgage Services, Inc.
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.
<PAGE>
RISK FACTORS
------------
AN INVESTMENT IN THE CERTIFICATES MAY
NOT BE SUITABLE FOR YOU The certificates are not suitable
investments for all investors. In
particular, you should not purchase
any class of offered certificates
unless you understand the prepayment,
credit, liquidity and market risks
associated with that class.
The certificates are complex securities.
You should possess, either alone or together
with an investment advisor, the expertise
necessary to evaluate the information
contained in this prospectus supplement and
the accompanying prospectus in the context of
your financial situation and tolerance for
risk.
You should carefully consider, among
other things, the factors described below
before purchasing the certificates.
PAYMENTS MADE ON THE UNDERLYING The certificates will receive
LOANS ARE THE ONLY SOURCE distributions only from the proceeds from the
OF DISTRIBUTIONS ON assets included in the trust fund and will
YOUR CERTIFICATES have no entitlement to payments from assets
included in any other trust fund established
by [GE Capital Mortgage Services, Inc.] [GE
Capital Mortgage Funding Corporation].
The certificates will not represent
obligations of General Electric Company,
General Electric Capital Corporation, GE
Capital Mortgage Corporation, General
Electric Mortgage Insurance Corporation, GE
Capital Mortgage Services, Inc., GE Capital
Mortgage Funding Corporation or any other
affiliate of GE Capital Mortgage Services,
Inc. or GE Capital Mortgage Funding
Corporation. Moreover, the Certificates will
not be guaranteed [or insured] by any
governmental agency or any other person.
[GE Capital Mortgage Services, Inc.][GE
Capital Mortgage Funding Corporation] will
have limited obligations to the trust fund as
the depositor of assets into the trust fund.
[As the depositor, GE Capital Mortgage
Services, Inc.'s sole obligation will be to
repurchase the mortgage loans in the trust
fund in the event of a breach of certain
representations and warranties made by it in
the pooling and servicing agreement.] [GE
Capital Mortgage Funding Corporation will
assign to the trustee the benefit of the
representations and warranties it receives
from GE Capital Mortgage Services, Inc. when
it acquires the trust assets. However, the
sole obligation of GE Capital Mortgage
Services, Inc. in the event of a breach of
these representations and warranties will be
to repurchase the mortgage loans in the trust
fund giving rise to such breach.] [Describe
variations, if any.]
The only obligations of GE Capital Mort-
gage Services, Inc. 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 certificates.
You should refer to "The Pooling and
Servicing Agreement--Assignment of Mortgage
Loans," ["--Advances"] and "--Purchase of
Defaulted Mortgage Loans" in this prospectus
supplement.
The mortgage loans will not be insured
or guaranteed by any governmental entity or,
except as described in this prospectus
supplement, by any other person. To the
extent that delinquent payments on or losses
in respect of defaulted mortgage loans are
not advanced by the servicer or any other
entity [or paid from [describe applicable
credit enhancement arrangement], the holders
of one or more classes of certificates may
experience delays in the distribution of
payments. Further, the holders of one or more
classes of certificates will bear the losses
resulting from such delinquencies.]
THERE IS NO GUARANTEE You will receive distributions on your
THAT YOU WILL RECEIVE certificates after borrowers make payments of
PRINCIPAL DISTRIBUTIONS interest and principal on the mortgage rate
ON YOUR CERTIFICATES or on loans in the trust fund. Because the
AT ANY SPECIFIC RATE OR borrowers are free to make those any specific
ON ANY SPECIFIC DATES payments faster than scheduled, you may
receive distributions faster than you
expected. There is no guarantee that you will
receive principal distributions on your
certificates at any specific rate or on any
specific dates.
THE YIELD ON YOUR The yield on your certificates will The
CERTIFICATES WILL yield to maturity on your certificates
DEPEND ON A NUMBER depends depend on a number of factors
OF FACTORS primarily on the purchase price of your
certificate and the rate of principal
payments on the mortgage loans in the trust
fund. The yield on some classes of
certificates[, such as the Class Certificates
that receive only distributions of interest,]
is particularly sensitive to prepayment
rates.
Principal payments on the mortgage loans
may be in the following forms:
o scheduled payments;
o voluntary prepayments by borrowers
(such as, for example, prepayments in full
due to refinancings, including refinancings
made by GE Capital Mortgage Services, Inc. in
the ordinary course of conducting its
mortgage banking business, or prepayments in
connection with biweekly payment programs,
participation in which may also be solicited
by GE Capital Mortgage Services, Inc.);
o prepayments resulting from
foreclosure, condemnation and other
dispositions of the properties underlying the
mortgage loans; and
o payments resulting from repurchases by
GE Capital Mortgage Services, Inc. under the
circumstances described under the heading
"The Pooling and Servicing Agreement" in this
prospectus supplement and in the prospectus.
A number of social, economic, tax,
geographic, demographic, legal and other
factors may influence the rate of
prepayments. One of the most significant
factors is the prevailing interest rate.
Generally, if prevailing interest rates were
to fall significantly below the interest
rates on the mortgage loans, the prepayment
rate may increase. Conversely, if interest
rates were to rise significantly above the
interest rates on the mortgage loans, the
prepayment rate may decline. For a
description of other factors that may
influence prepayments, see "Yield and
Weighted Average Life Considerations" herein
and "Yield, Maturity and Weighted Average
Life Considerations" in the prospectus.
The mortgage loans in the trust fund
will not prepay at any constant rate, nor
will all of the mortgage loans prepay at the
same rate at any one time. Moreover, the
timing of changes in the rate of prepayments
may significantly affect your actual yield to
maturity, even if the average rate of
principal payments is consistent with your
expectation. In general, the earlier a
prepayment of principal the greater the
effect on your yield to maturity. As a
result, the effect on your yield caused by
principal payments occurring at a rate higher
(or lower) than the rate anticipated by you
during the period immediately following the
issuance of the certificates will not be
offset by a subsequent like reduction (or
increase) in the rate of principal payments.
See "Yield and Weighted Average Life
Considerations" herein and "Yield, Maturity
and Weighted Average Life Considerations" in
the prospectus.
[RAPID PREPAYMENTS [If you are the holder of a class
WILL REDUCE THE YIELD certificate, you will receive only have
ON CERTAIN CERTIFICATES distributions of interest. Although you have
no entitlement to principal distributions,
your certificate will have a "notional"
principal balance, which will be used to
calculate the interest payable to you.
Because prepayments on the underlying
mortgage loans will reduce the notional
principal balance on your certificate, the
yield on your certificate is especially
sensitive to prepayment rates. If prepayments
occur at a rate faster than anticipated, the
yield on your certificate could be
significantly lower than expected and, in
some cases, you may be unable to recover your
investment. Before purchasing a Class
Certificate, you should fully consider the
risks associated with such an investment. See
"Yield and Weighted Average Life
Considerations--Yield of the Class
Certificates" in this prospectus supplement.]
[SLOW PREPAYMENTS WILL REDUCE THE
YIELD ON CERTAIN CERTIFICATES] [If you are the holder of a Class
Certificate, you will receive only
distributions of principal, including your
allocable share of principal prepayments. For
this reason, the yield on your certificate is
especially sensitive to prepayment rates. If
prepayments occur at a rate slower than
anticipated, the yield on your certificate
could be significantly lower than expected.
Before purchasing a Class Certificate, you
should fully consider the risks associated
with such an investment. See "Yield and
Weighted Average Life Considerations--Yield
of the Class Certificates" in this prospectus
supplement.]
[CERTIFICATES BOUGHT AT PREMIUMS [The effect of an increase or decrease
AND DISCOUNTS MAY RECEIVE A in the prepayment rate on the yield of your
LOWER YIELD THAN EXPECTED] certificate will depend upon the degree to
which your certificate was purchased at a
discount or premium. If you purchase a
certificate at a premium over its original
principal balance, [and especially in the
case of the Class Certificates,] faster than
anticipated rates of principal payments on
the underlying mortgage loans could result in
an actual yield to you that is lower than the
anticipated yield. Conversely, if you
purchase a certificate at a discount from its
original principal balance, slower than
anticipated rates of principal payments on
the underlying mortgage loans could result in
an actual yield to you that is lower than the
anticipated yield and could result in an
extension of the life of your certificate.
See "Yield and Weighted Average Life
Considerations" in this prospectus supplement
and "Yield, Maturity and Weighted Average
Life Considerations" in the prospectus.]
YOU MAY BE UNABLE TO
REINVEST DISTRIBUTIONS FROM
THE CERTIFICATES IN
COMPARABLE INVESTMENTS 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 you
may be able to reinvest amounts received as
payments on your certificates may be lower
than the yield on your 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 you for
reinvestment at such high rates may be
relatively low. See "Yield and Weighted
Average Life Considerations" in this
prospectus supplement and "Yield, Maturity
and Weighted Average Life Considerations" in
the prospectus.
PREPAYMENTS MAY CAUSE The actual interest rate on your
REDUCTIONS IN INTEREST certificate may be less interest
DISTRIBUTIONS ON YOUR distributions on your than the interest rate
CERTIFICATES stated on the cover page of this prospectus
certificates supplement. Unless you are the
holder of a certificate that pays only
principal, your certificate will be allocated
certain shortfalls in interest payments on
the underlying mortgage loans to the extent
that GE Capital Mortgage Services, Inc. is
not obligated to cover such shortfalls with
compensating interest payments. Reductions in
interest distributions to you will occur in
the following circumstances:
o Prepayments in full. When a mortgage
loan is prepaid in full, the borrower pays
interest only up to the date on which payment
is made, rather than for an entire month. If
a prepayment in full occurs in the period
from the sixteenth day through the last day
of the month, there will be a reduction in
the following month's distribution of
interest to you.
o Partial prepayments. Borrowers may
also prepay a portion of the principal owed
on their mortgage loans. The method by which
those prepayments are credited to the
outstanding balance of the mortgage loans
will result in a shortfall in interest equal
to one month's net interest on the prepaid
amount and a reduction in interest
distributions on the certificates. See "Yield
and Weighted Average Life
Considerations--Prepayments" in this
prospectus supplement.
o Reduction of interest rates on
mortgage loans. Some borrowers who enter
military service will be entitled to a
reduction of interest rates on their mortgage
loans under federal law. The result will be a
shortfall in interest equal to the difference
in the amounts payable at the original and
reduced interest rates, which will reduce the
interest distributions on the certificates.
See "Description of the
Certificates--Distributions on the
Certificates" in this prospectus supplement.
[GE CAPITAL MORTGAGE SERVICES, INC. [If any borrower is delinquent in its
HAS A LIMITED OBLIGATION payment of principal or interest on a
TO MAKE ADVANCES FOR BORROWER mortgage loan included in the mortgage pool,
DEFAULTS] GE Capital Mortgage Services, Inc. will be
obligated to advance to the trust fund
amounts to cover such shortfalls. However,
the amount of any such advance will not
include amounts that GE Capital Mortgage
Services, Inc. determines are unrecoverable
from liquidation or insurance proceeds or
other future collections on the delinquent
loan. In addition, if GE Capital Mortgage
Services, Inc. makes an advance and later
determines in good faith that such advance
will be unrecoverable, GE Capital Mortgage
Services, Inc. will receive reimbursement for
such advance from collections received from
unrelated mortgage loans included in the
mortgage pool. See "The Pooling and Servicing
Agreement--Advances" in this prospectus
supplement.
Your certificates may bear losses to the
extent that delinquencies and defaults are
not covered by advances made by GE Capital
Mortgage Services, Inc., and to the extent
that payments on the mortgage loans are
reduced by amounts reimbursed to GE Capital
Mortgage Services, Inc. for prior
unrecoverable advances. Such losses could
affect the actual yield to maturity on your
certificates.]
GEOGRAPHIC CONCENTRATION The geographic concentration of the
MAY AFFECT THE RISK OF LOSS mortgaged properties risk of loss on the
ON THE UNDERLYING MORTGAGE underlying mortgage securing the mortgage
LOANS loans in the trust fund may affect the yield
to loans maturity of your certificates.
Certain geographic regions of the United
States will experience from time to time
weaker regional economic conditions and
housing markets and, consequently, will
experience higher rates of loss and
delinquency on mortgage loans generally. In
addition, certain states or regions may
experience natural disasters, such as
earthquakes, fires, floods and hurricanes,
which may not be fully insured against and
which may result in damage to the properties
underlying the mortgage loans.
Any deterioration in the real estate
market or economy of any of the states in
which a significant concentration of
mortgaged properties is located may have a
disproportionate impact on payments in
respect of the mortgage loans in the trust
fund. The resulting losses may reduce the
yield to maturity on your certificates. The
states where there are significant
concentrations of mortgaged properties are
identified under "Description Of The Mortgage
Pool And The Mortgaged Properties--The
Mortgage Loans."
[INVESTORS IN THE [If you are the holder of a junior
JUNIOR CERTIFICATES certificate, the distributions of interest
FACE A HIGHER and principal payable to you will be
RISK OF LOSSES] subordinate to the distributions payable to
the senior certificates and to any class of
junior certificates that ranks higher than
your certificate. In addition, losses on the
underlying mortgage loans will be first
allocated to the junior certificates, in
inverse order of priority, beginning with the
Class B 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 inverse order of priority
until these losses reach specified levels.
If you hold a class of certificates that
ranks junior to another class of
certificates, you will be more likely than
the holder of a certificate senior to you to
experience losses as a result of losses or
interest defaults on the underlying mortgage
loans. You should refer to "Description of
the Certificates--Allocation of Realized
Losses on the Certificates" and
"--Distribution on the
Certificates--Allocation of Available Funds"
in this prospectus supplement.]
[SUBORDINATION MAY [The subordination provided by the Class
NOT BE ADEQUATE TO Certificates will provide credit enhancement
COVER ALL LOSSES] for the certificates senior to such classes
that are offered hereby. However, any credit
enhancement will not provide protection
against all risks of loss or all types of
losses and will not guarantee repayment of
the entire principal balance of and interest
on the certificates.
If losses occur which reduce the
aggregate principal balance of the Class [M]
and Class [B] Certificates to zero, the
senior certificates will bear their allocable
share of deficiencies. See "Description of
the Certificates--Allocation of Realized
Losses on the Certificates" in this
prospectus supplement.
OPTIONAL TERMINATION [GE Capital Mortgage Services, Inc.] [GE
OF THE TRUST FUND Capital Mortgage Funding Corporation] may, at
MAY AFFECT THE YIELD ON its option, repurchase from the trust fund
YOUR CERTIFICATES 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 [ ]% of the total
unpaid principal balance of the mortgage
loans as of the date of initial issuance of
the certificates. 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.
Because early retirement of the
certificates will shorten the average life of
the certificates, your yield may be less than
anticipated [and may be significantly lower
than expected if you own the Class
Certificates, which pay only interest.]
THE LACK OF A SECONDARY The certificates will not be listed on
MARKET MAY LIMIT YOUR any securities exchange, and a secondary
ABILITY TO RESELL YOUR market for the may not develop. certificates
CERTIFICATES [Although the underwriter of this offering
intends to create a secondary market for the
certificates, it has no obligation to do so.]
If a secondary market does develop, it may
not continue or it may not be liquid enough
to allow you to resell your certificates or
to resell them at a price that will realize
the desired yield.
THE LACK OF PHYSICAL You will not receive physical
CERTIFICATES MAY certificates for any of the certificates
CAUSE DELAYS IN offered hereby except the Class [R]
DISTRIBUTIONS AND Certificates, your interest in these
AND HINDER LIQUIDITY certificates will instead be held in
book-entry form through DTC and its direct
and indirect participants and intermediaries.
As a result of the book-entry format,
you may experience some delay in your receipt
of payments because the trustee will not send
distributions directly to you. All
distributions will instead be sent to DTC,
which will credit those distributions to its
participants and intermediaries, who will in
turn credit your account.
Moreover, because DTC can only act on
behalf of its direct and indirect
participants and intermediaries, the lack of
physical certificates may limit your ability
to pledge your certificates to persons or
entities that do not participate in the DTC
system. The lack of physical certificates may
also reduce the liquidity of your
certificates in the secondary market because
some investors may be unwilling to purchase
certificates which they cannot obtain in
physical form.
YEAR 2000 COMPUTER READINESS 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 and malfunction.
GE Capital Mortgage Services, Inc. has
developed a plan, which is described in "Year
2000 Computer Readiness" in the prospectus,
to become year 2000 compliant by mid-1999. GE
Capital Mortgage Services, Inc. cannot
guarantee, however, that its efforts to
achieve year 2000 readiness will be fully
effective. Moreover, it cannot guarantee that
any of its third-party service providers,
such as trustees, borrowers' banks, loan
servicers and DTC, will be year 2000 ready.
The failure of GE Capital Mortgage
Services, Inc. or its third-party service
providers to become fully year 2000 ready
could disrupt, at least temporarily, the
ability of GE Capital Mortgage Services, Inc.
to carry out the servicing duties described
in this prospectus supplement, including the
calculation of amounts distributable on your
certificates and the timely transfer of funds
to the trustee for your benefit. This could
adversely affect your investment in the
certificates. See "Year 2000 Computer
Readiness" in the prospectus for a more
detailed discussion of this issue.
<PAGE>
DESCRIPTION OF THE MORTGAGE POOL AND THE MORTGAGED PROPERTIES
General
The certificates comprising the series of certificates described in this
prospectus supplement (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 liens on one- to four-family residential
properties (the "Mortgaged Properties"). [GE Capital Mortgage Services, Inc.
("GECMSI")] [GE Capital Mortgage Funding Corporation ("Funding")] is depositing
the assets in the Trust Fund ([GECMSI] [Funding] in such capacity, the
"Depositor").
Certain data with respect to the Mortgage Loans expected to be included in
the Trust Fund are set forth below. A description of the final Mortgage Pool on
a Current Report on Form 8-K (the "Definitive 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 Definitive 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 statistical data
relating to the final Mortgage Loans comparable in scope to that set forth with
respect to the expected Mortgage Pool on pages S-24 through S-26 of this
prospectus supplement. The Definitive 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 the exact amount of any
forms of credit enhancement]. The Agreement (as defined herein) and its exhibits
will be filed as an exhibit to the Definitive 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.
[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] 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
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 interest rates borne by the Mortgage Loans (the "Mortgage Rates") are
expected to range from % to % per annum, and the weighted average Mortgage Rate
as of the Cut-off Date of such Mortgage Loans is expected to be between % and %
per annum. The original principal balances of the Mortgage Loans are expected to
range from $ to $ and, as of the Cut-off Date, the average Scheduled Principal
Balance of the Mortgage Loans is not expected to exceed $ after application of
payments due on or before the Cut-off Date. It is expected that the month and
year of the earliest origination date of any Mortgage Loan will be , and the
month and year of the latest scheduled maturity date of any such Mortgage Loan
will be . All of the Mortgage Loans will have original terms to maturity of to
years, and it is expected that the weighted average scheduled remaining term to
maturity of the Mortgage Loans will be between and months as of the Cut-off
Date.
The Mortgage Loans are expected to have the following additional
characteristics (by Scheduled Principal Balance of all the Mortgage Loans) as of
the Cut-off Date:
No more than % of such Mortgage Loans will have a Scheduled Principal
Balance of more than $ and up to and including $ . No more than % of such
Mortgage Loans will have a Scheduled Principal Balance of more than $ and up to
and including $ . No more than % of such Mortgage Loans will have a Scheduled
Principal Balance of more than $ .
No more than % of such Mortgage Loans will have a [combined] loan-to-value
ratio at origination in excess of %, no more than % of such Mortgage Loans will
have a [combined] loan-to-value ratio at origination in excess of %, and none of
such Mortgage Loans will have a [combined] loan-to-value ratio at origination in
excess of %. As of the Cut-off Date, the weighted average [combined]
loan-to-value ratio at origination of such Mortgage Loans is expected to be
between % and %.
No more than % of such Mortgage Loans had a [combined] loan-to-value ratio
at origination calculated based on an appraisal conducted more than one year
before the origination date thereof.
The proceeds of at least % of such Mortgage Loans will have been used to
acquire the related Mortgaged Property. The proceeds of the remainder of such
Mortgage Loans will have 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.
No more than % of such Mortgage Loans will be secured by Mortgaged
Properties located in any one postal zip code area.
No more than % of such Mortgage Loans will be secured by Mortgaged
Properties located in . The majority of the Mortgage Loans will be secured by
Mortgaged Properties located in , , and . No more than % of such Mortgage Loans
will be secured by Mortgaged Properties located in any one state except .
At least % of such Mortgage Loans will be secured by Mortgaged Properties
determined by 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.]
Set forth below is a description of certain additional characteristics of
the Mortgage Pool and the Mortgage Loans expected to be included therein,
subject to the variance described herein (the sum of the balances may not equal
100% due to rounding):
Original Principal Balances as of the Cut-off Date
Percentage of Pool by
Aggregate Principal Aggregate
Range of Original Number of Balance as of Principal Balance as
Principal Balance Mortgage Loans the Cut-off Date of the Cut-off Date
- ----------------- -------------- ---------------- -------------------
$ $ %
Mortgage Rates as of the Cut-off Date
Percentage of Pool by
Aggregate Principal Aggregate
Number of Balance as of Principal Balance as
Mortgage Rate Mortgage Loans the Cut-off Date of the Cut-off Date
------------- -------------- ---------------- -------------------
% $ %
Geographic Distribution of Mortgaged Properties as of the Cut-off Date
Percentage of Pool by
Aggregate Principal Aggregate
Number of Balance as of Principal Balance as
State Mortgage Loans the Cut-off Date of the Cut-off Date
- ----- -------------- ---------------- -------------------
$ %
Years of Origination as of the Cut-off Date
Percentage of Pool by
Aggregate Principal Aggregate
Number of Balance as of Principal Balance as
Year of Origination Mortgage Loans the Cut-off Date of the Cut-off Date
------------------- -------------- ---------------- -------------------
$ %
Year of Maturity as of the Cut-off Date
Percentage of Pool by
Aggregate Principal Aggregate
Number of Balance as of Principal Balance as
Year of Maturity Mortgage Loans the Cut-off Date of the Cut-off Date
---------------- -------------- ---------------- -------------------
$ %
Types of Mortgaged Properties as of the Cut-off Date
Percentage of Pool by
Aggregate Principal Aggregate
Number of Balance as of Principal Balance as
Type of Dwelling Mortgage Loans the Cut-off Date of the Cut-off Date
---------------- -------------- ---------------- -------------------
$ %
Occupancy Status of Mortgaged Properties as of the Cut-off Date
Percentage of Pool by
Aggregate Principal Aggregate
Number of Balance as of Principal Balance as
Occupancy Mortgage Loans the Cut-off Date of the Cut-off Date
- --------- -------------- ---------------- -------------------
$ %
Purpose of the Mortgage Loans as of the Cut-off Date
Percentage of Pool by
Aggregate Principal Aggregate
Number of Balance as of Principal Balance as
Purpose of the Loan Mortgage Loans the Cut-off Date of the Cut-off Date
------------------- -------------- ---------------- -------------------
$ %
Loan-to-value Ratios as of the Cut-off Date
Percentage of Pool by
Aggregate Principal Aggregate
Loan-to-value Ratio Number of Balance as of Principal Balance as
at Origination Mortgage Loans the Cut-off Date of the Cut-off Date
- -------------- -------------- ---------------- -------------------
$ %
<PAGE>
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement (the "Agreement") to be dated as of the first day of the month of
creation of the Trust Fund (the "Cut-off Date"), 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 "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 holder of a Certificate (a "Certificateholder") under
the Agreement only at the direction of one or more Financial Intermediaries to
whose Depository accounts the Book-Entry Certificates are credited. The
Depository may take conflicting actions with respect to other Book-Entry
Certificates to the extent that such actions are taken on behalf of Financial
Intermediaries whose holdings include such Book-Entry Certificates.
Definitive Certificates will be issued to beneficial owners of the related
Book-Entry Certificates, or their nominees, rather than to the Depository, only
if (a) the Depository or the 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 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 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 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 Cross-Over 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.
[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 (other than the Class and Class PO Certificates)
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").
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.]
[Because the aggregate Notional Principal Balance of the Class Certificates
will be equal to the Class Certificate Principal Balance from time to time of
the Class Certificates, any Realized Losses that are applied to reduce the Class
Certificate Principal Balance of the Class Certificates will also reduce by an
equivalent amount the Notional Principal Balance of the Class Certificates. As a
result, the amount of interest distributable on the Class Certificates would be
reduced.]
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.]
[For a discussion of the allocation of certain unanticipated recoveries in
respect of principal of a Mortgage Loan which had previously been allocated as a
loss to any class of Certificates, see "Servicing of the Mortgage Loans and
Contracts--Unanticipated Recoveries of Losses on the Mortgage Loans" in the
accompanying prospectus.]
[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, together with any unanticipated recoveries
received by GECMSI in the calendar month preceding the month of such
Distribution Date and not otherwise allocated to the other classes of
Certificates as described in "Servicing of the Mortgage Loans and
Contracts--Unanticipated Recoveries of Losses on the Mortgage Loans" in the
accompanying prospectus, 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 assets will be
remaining in the Trust Fund for such distributions at any such time. See
"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 "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
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" 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.
[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.]
[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 certain Certificates (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 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 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 , , (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 , , 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 , ) 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 , , (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:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Stated
Remaining
Aggregate Scheduled Net Term to
[Mortgage Loan Principal Balance as Mortgage Mortgage Age Maturity
Group] of the Cut-off Date Rate Rate (Months) (Months)
------ ------------------- ---- ---- -------- --------
[Discount....................
Non-Discount.................
]
</TABLE>
[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.]
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.]
<PAGE>
Percent of Original Class Certificate Principal Balance
Outstanding of the Certificates
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Class Class Class Class
Prepayment Assumption Prepayment Assumption Prepayment Assumption Prepayment Assumption
--------------------- --------------------- --------------------- ---------------------
Distribution 0% % % % % 0% % % % % 0% % % % % 0% % % % %
- ------------- -- - - - - -- - - -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
Date
- ----
Initial 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
Percentage
</TABLE>
[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.
<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.
<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>
<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
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
[Investors should further note that a number of social, economic, tax,
geographic, demographic, legal and other factors may adversely affect the timely
payment by borrowers of scheduled payments of principal and interest on the
mortgage loans in the Servicing Portfolio, which could, in turn, cause an
increase in delinquency and foreclosure rates. These factors include economic
conditions, either nationally or in geographic areas where GECMSI's Servicing
Portfolio tends to be concentrated, the age of the Mortgage Loans, the
geographic distribution of the Mortgaged Properties, the payment terms of the
Mortgages, the characteristics of the mortgagors, enforceability of due-on-sale
clauses and servicing decisions].
[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, Suite W. 602, Cherry
Hill, New Jersey 08002. Its telephone number is (609) 661-5881.
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 material provisions of the Agreement. See "The
Pooling and Servicing Agreement" in the accompanying prospectus for summaries of
the other material provisions of the Agreement. The summaries below do not
purport to be complete and are subject to, and qualified in their entirety by
reference to, the provisions of the Agreement. Where particular provisions or
terms used in the Agreement are referred to, such provisions or terms are as
specified in the Agreement.
Assignment of Mortgage Loans
At the time of issuance of the Certificates, the 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 if applicable.]
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 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. GECMSI
will acknowledge in the [Asset Purchase] Agreement 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 and for] the Trustee upon transfer of the
Mortgage Loans to the Trustee.
Servicing Arrangement with Respect to the Mortgage Loans
It is expected that GECMSI will directly service approximately % (by
aggregate Scheduled Principal Balance as of the Cut-off Date) of the Mortgage
Loans and will function as master servicer with respect to the remaining
Mortgage Loans pursuant to a Direct Master Servicing Arrangement. 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.
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 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.
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 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 compensation
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 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.
No holder of any Certificates will be entitled to any unanticipated
recoveries received with respect to any Mortgage Loan after the termination of
the Trust Fund. See "Servicing of the Mortgage Loans and
Contracts--Unanticipated Recoveries of Losses on the Mortgage Loans" in the
prospectus.
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 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.]
FEDERAL INCOME TAX CONSEQUENCES
[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]) will issue the Certificates for federal income tax purposes. [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 Certificates will be issued
with original issue discount in an amount equal to [to be specified].] The
prepayment assumption that is to be used in determining the rate of accrual of
original issue discount and whether the original issue discount is considered de
minimis, and that may be used by a holder of a Regular Certificate to amortize
premium, will be % of the Prepayment Assumption. No representation is made as to
the actual rate at which the Mortgage Loans will prepay. See "Federal Income Tax
Consequences--REMIC Certificates--Income from Regular Certificates" in the
accompanying prospectus.
[The requirement to report income on a Regular Certificate under an accrual
method may result in the inclusion of amounts in income that are not currently
distributed in cash. In the case of a Junior Certificate, accrued income may
exceed cash distributions as a result of the preferential right of classes of
Senior Certificates to receive cash distributions in the event of losses or
delinquencies on Mortgage Loans. Prospective purchasers of Junior Certificates
should consult their tax advisors regarding the timing of income from those
Certificates and the timing and character of any deductions that may be
available with respect to principal or accrued interest that is not paid. See
"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 "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
Certificates offered hereby [(other than the Class Certificates)] 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 Certificates)] are the following: (i) the Underwriter is
the sole underwriter or the manager or co-manager of the underwriting syndicate,
for such Certificates, (ii) the Certificates are rated in one of the three
highest generic rating categories by or at the time of the acquisition of such
Certificates by the ERISA Plan, (iii) the Certificates represent a beneficial
ownership interest in, among other things, obligations that bear interest or are
purchased at a discount and which are secured by single-family residential,
multifamily residential or commercial real property (including obligations
secured by leasehold interests on commercial real property), or fractional
undivided interests in such obligations, (iv) the Certificates are not
subordinated to other certificates issued by the Trust Fund in respect of the
Mortgage Pool, (v) the ERISA Plan investing in such Certificates is an
"accredited investor" as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act of 1933, (vi) the
acquisition of the Certificates is on terms that are at least as favorable to
the ERISA Plan as they would be in an arm's length transaction with an unrelated
third party, (vii) the Trustee is not an affiliate of any member of the
"Restricted Group" (as defined below) and (viii) the compensation to the
Underwriter represents not more than reasonable compensation for underwriting
the Certificates, the proceeds to the 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.]
[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 "Federal Income Tax Consequences--Residual Certificates" herein and
"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 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
Certificates) may adversely affect the liquidity of the Class Certificates.]
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.]
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.
<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 Certificate Principal Balance....................................
Code...................................................................
Collection Account.....................................................
Compensating Interest Payment..........................................
Cut-off Date...........................................................
Debt Service Reduction.................................................
Defaulted Mortgage Loan................................................
Deficient Valuation....................................................
Definitive Certificate.................................................
Definitive Description.................................................
Depositor..............................................................
Depository.............................................................
Distribution Date......................................................
DOL....................................................................
ERISA..................................................................
ERISA Plan.............................................................
Exemption..............................................................
FDIC...................................................................
Financial Intermediary.................................................
[Funding]..............................................................
GE Capital.............................................................
GECMSI.................................................................
Interest Accrual Period................................................
Interest Shortfall.....................................................
Junior Certificates
Liquidated Mortgage Loan...............................................
[Lower-Tier REMIC].....................................................
Mortgage...............................................................
Mortgage Loans.........................................................
Mortgage Pool .........................................................
Mortgage Rates.........................................................
mortgage related securities............................................
Mortgaged Properties...................................................
Mortgagor..............................................................
Net Interest Shortfall.................................................
Net Mortgage Rate......................................................
[Non-Book-Entry Certificates]..........................................
Nonrecoverable Advance.................................................
Notional Principal Balance.............................................
Outstanding Mortgage Loan..............................................
Pool Scheduled Principal Balance.......................................
Prepayment Assumption..................................................
Prepayment Period......................................................
Primary Mortgage Insurance Policy......................................
Realized Loss..........................................................
Record Date............................................................
Regular Certificates...................................................
regular interests......................................................
[REMIC]................................................................
Residual Certificates..................................................
residual interests.....................................................
Restricted Group.......................................................
SAIF...................................................................
Scheduled Principal Balance............................................
Servicing Fee..........................................................
Servicing Portfolio....................................................
SMMEA..................................................................
[Supplemental Servicing Fee]...........................................
Tax-Exempt Investor....................................................
Trigger Event..........................................................
Trust Fund.............................................................
Trustee................................................................
Underwriters...........................................................
[Upper-Tier REMIC].....................................................
<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........................................................
Risk Factors............................................................
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.....................................................
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......................................................
Risk Factors............................................................
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.............................................................
The Guarantor...........................................................
Certain Legal Aspects of
the Mortgage Loans and Contracts........................................
Legal Investment Matters................................................
ERISA Considerations....................................................
Federal Income Tax
Consequences............................................................
Plan of Distribution...................................................
Use of Proceeds.........................................................
Legal Matters...........................................................
Financial Information...................................................
Index of Certain
Prospectus Definitions..................................................
<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] Mortgage
Pass-Through Certificates,
Series
-------
PROSPECTUS SUPPLEMENT
-------
[Underwriter[s]]
[Date]
<PAGE>
<PAGE>
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
X Information contained herein is subject to completion X
X or amendment. A registration statement relating to these X
X securities has been filed with the Securities and Exchange X
X Commission. These securities may not be sold nor may offers to X
X buy be accepted prior to the time the registration statement X
X becomes effective. This prospectus shall not constitute an offer X
X to sell or the solicitation of an offer to buy nor shall there be X
X any sale of these securities in any State in which such offer, X
X solicitation or sale would be unlawful prior to registration or X
X qualification under the securities laws of any such State. X
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
SUBJECT TO COMPLETION, FEBRUARY 16, 1999
PROSPECTUS SUPPLEMENT
(To prospectus dated )
[GE Capital Mortgage Funding Corporation
Depositor]
GE Capital Mortgage Services, Inc.
[Depositor and] Servicer
$
(Approximate)
REMIC Home Equity Loan Pass-Through Certificates, Series HE-
Principal and interest payable monthly, beginning
.
---------------------------------
All of the certificates comprising the series of certificates described in
this Prospectus Supplement represent ownership interests in a trust fund. The
trust fund consists of a pool of closed-end, fixed-rate home equity mortgage
loans secured by first [or second] liens on one-to-four-family residential
properties, having maturities of to years.
---------------------------------
Consider carefully the risk factors beginning on page S-11 of this
prospectus supplement and page 12 of the accompanying prospectus.
---------------------------------
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
[Class Certificate Certificate Price to Underwriting Proceeds to
Principal Interest Rate Public (2) Discount the Issuer
Balance(1)
[classes of $ % % % %]
certificates]
</TABLE>
- ---------
(1) Approximate, subject to the adjustment described in this prospectus
supplement.
(2) Plus interest accrued at the applicable certificate interest rate accrued
from [ ] to but excluding the initial issuance date, before deducting
expenses payable by [GE Capital Mortgage Services, Inc.] [GE Capital
Mortgage Funding Corporation].
[(3) The Class R, Class RL, Class M, Class B1 and Class B2 Certificates offered
hereby will be acquired by [ ] from [GE Capital Mortgage Services, Inc.]
[GE Capital Mortgage Funding Corporation], and such certificates are being
offered by [ ] from time to time in negotiated transactions or otherwise at
varying prices to be determined at the time of sale.]
---------------------------------
[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.]
[ will purchase the senior certificates offered by this prospectus
supplement [and will purchase the junior certificates offered by this prospectus
supplement]. will offer these certificates from time to time to the public in
negotiated transactions or otherwise at varying prices to be determined at the
time of sale.] [GE Capital Mortgage Services, Inc.] [GE Capital Mortgage Funding
Corporation] will receive proceeds from the sale of such certificates of
approximately % of their total initial principal balance, plus accrued interest
from [ to but excluding the initial issuance date, before deducting expenses
payable by [GE Capital Mortgage Services, Inc.] [GE Capital Mortgage Funding
Corporation]. You should refer to "Plan of Distribution" in this prospectus
supplement.]
[On or about , [GE Capital Mortgage Services, Inc.][GE Capital Mortgage
Funding Corporation] will deliver the certificates offered by this prospectus
supplement[, except for the Class Certificates,] through the book-entry
facilities of The Depository Trust Company [, and will deliver the Class
Certificates at the offices of New York, New York].]
---------------------------------
[Underwriter(s)]
---------------------------------
The date of this prospectus supplement is .
<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 and the underlying trust fund in two separate documents:
(1) the accompanying prospectus, which provides general information, some of
which may not apply to your certificates or trust fund, and (2) this prospectus
supplement, which describes the specific terms of your certificates and assets
in your trust fund. You should read both of these documents together.
This prospectus supplement will supplement and enhance, and may vary, the
disclosure set forth in the prospectus for purposes of your certificates.
The underwriter may engage in transactions that stabilize, maintain or
otherwise affect the price of the Class Certificates. Such transactions may
include stabilizing and the purchase of such certificates to cover the
underwriter's short positions. For a description of these activities, see "Plan
of Distribution."
<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, including the risk factors on page S-11, 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-62 of this
prospectus supplement. Any capitalized terms that are not defined in the
prospectus supplement are defined in the accompanying prospectus. See "Index of
Certain Prospectus Definitions" on page 120 of 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 The Depository Trust Company or its nominee will hold. 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]
[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
that the trust fund's assets produce. The assets of the trust fund will consist
primarily of a pool of closed-end, fixed-rate home equity loans that are secured
by first [or second] liens on one- to four- family residential properties. [The
trust fund also contains certain other assets, as described in this prospectus
supplement.] [GE Capital Mortgage Services, Inc. has originated or acquired each
mortgage loan included in a trust fund. GE Capital Mortgage Funding Corporation
has acquired the related mortgage loans from GE Capital Mortgage Services, Inc.
pursuant to an asset purchase agreement.] The mortgage loans expected to be
included in the trust fund have the following characteristics as of :
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 , and
subject to the variance described in this prospectus supplement.
[In addition, [GE Capital Mortgage Services, Inc.] [GE Capital Mortgage
Funding Corporation] expects that up to approximately %, in terms of total
principal balance as of , of the mortgage loans included in the trust fund will
be secured by second-priority mortgages, approximately % of the mortgage loans
will be loans that accrue interest on a simple interest basis, and approximately
% of the mortgage loans will be "balloon loans," as described herein.]
[For more information on GE Capital Mortgage Funding Corporation, you
should refer to "GE Capital Mortgage Funding Corporation" in the prospectus.]
Servicer
--------
GE Capital Mortgage Services, Inc. will act as servicer of the mortgage
loans. [For certain mortgage loans contained in the trust fund, the seller of
the mortgage loan to GE Capital Mortgage Services, Inc. will remain the primary
servicer while GE Capital Mortgage Services, Inc. will supervise such servicing
duties and remain directly liable to the trust fund for such servicing duties.]
As servicer, GE Capital Mortgage Services, Inc. will be responsible for making
reasonable efforts to collect payments due on the mortgage loans and performing
other administrative functions. [GE Capital Mortgage Services, Inc. will be
obligated, as servicer, to advance delinquent payments of interest on the
mortgage loans included in the mortgage pool net of servicing fees, less the
amount of such payments GE Capital Mortgage Services, Inc. reasonably believes
will not be recoverable out of liquidation proceeds or otherwise.] [In addition,
GE Capital Mortgage Services, Inc. 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 or
from early monthly payments on simple interest loans.] For more information on
GE Capital Mortgage Services, Inc., 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.
Distributions on the Certificates
---------------------------------
The certificates will be issued under a pooling and servicing agreement,
which will be dated as of , between GE Capital Mortgage Services, Inc. as
[depositor and] servicer[, GE Capital Mortgage Funding Corporation, 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 . 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 the
related distribution date. The first distribution date will be .
[Description of priorities of distribution as between senior and
subordinate certificates, if applicable.]
Interest Payments
o 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.]
[o 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 (1) lower yields on the Class
Certificates and (2) interest rates on those certificates
falling as low as 0%.]
o On each distribution date, interest will be distributable
from the available interest 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.
o The amount of interest the trustee distributes to you on any
distribution date may be less than the interest accrued on
your certificate. This could occur 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[, or if disproportionately
high early monthly payments are made on simple interest
loans]. 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 event may produce a shortfall or
loss and how shortfalls or losses of interest are allocated
among the certificates.
[o Interest will be paid on the classes of senior certificates
on a pro-rata basis. Interest will be paid on each class of
junior certificates after interest has been paid on (1) the
senior certificates and (2) each higher ranking class of
junior certificates.]
o Interest will be calculated on the certificates on the basis
of a 360-day year consisting of twelve 30-day months.
Principal Payments
[o Principal will be paid on each class of certificates [other
than the Class Certificates] from available principal funds in
the manner described herein.]
o The amount of principal distributable on the certificates is
a function of (1) formulas that allocate portions of the
principal payments received, or expected to be received, on
the mortgage loans among the different classes and (2) the
funds actually received from the trust fund's assets that are
available to make distributions of principal 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.
[o Principal 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.]
[o One of the main effects of the allocation formulas
described in this prospectus supplement is to allocate to the
senior certificates other than the Class Certificates, as a
group, more than their proportionate share of most of the
unexpected mortgage loan payments for at least the first 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--Allocation of
Available Funds--Class Prepayment Distribution Trigger" in
this prospectus supplement.]
[o 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.]
[o 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 years after initial
issuance of the certificates, unless (1) [the] [certain] other
classes of senior certificates have been paid off or (2) 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.]
[o Despite the priority of payments, the trustee will make all
distributions of principal on the outstanding senior
certificates, other than the Class Certificates, 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.]
o 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. [In addition, the rate of distribution of principal
on the certificates will depend on the timing of receipt of
monthly payments on simple interest mortgage loans.] [GE
Capital Mortgage Services, Inc.] [GE Capital Mortgage Funding
Corporation] cannot predict or assure you as to the actual
rate of payment of principal on the mortgage loans.
[o 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 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 preceding 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:
o voluntary prepayments by the mortgagors such as
prepayments in full due to refinancings. These may include
refinancings made, and possibly solicited, by GE Capital
Mortgage Services, Inc. in the ordinary course of conducting
its mortgage banking business;
o prepayments resulting from default, foreclosure, casualty,
condemnation and similar events, and repurchases by GE Capital
Mortgage Services, Inc. [or GE Capital Mortgage Funding
Corporation] of the mortgage loans under certain circumstances
described in this prospectus supplement; and
o prepayments made during participation by mortgagors, which
may be solicited by GE Capital Mortgage Services, Inc., 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, although approximately % of the mortgage loans require the
mortgagors to pay prepayment penalties, which may make prepayments less likely
on these loans. Almost all of these prepayment penalties will have expired by .
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 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 you purchase it for an amount
greater than or less than the certificate's then outstanding principal balance.
In the case of certificates you purchase for an amount greater than their then
outstanding principal balance, faster than anticipated rates of principal
prepayments on the mortgage loans (1) could result in actual yields to you that
are lower than the anticipated yields and (2) could result in a reduction in the
amount of time such certificates are outstanding. In the case of certificates
you purchase for an amount less than their then outstanding principal balance,
slower than anticipated rates of principal prepayments on the mortgage loans (1)
could result in actual yields to you that are lower than the anticipated yields
and (2) could result in an extension of the amount of time such certificates are
outstanding.
Voluntary prepayments of principal on the mortgage loans, as well as
disproportionately high early monthly payments on simple interest 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 GE Capital Mortgage Services, Inc.,
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.
[Approximately % of the mortgage loans will be loans that accrue interest
on a simple interest basis. The amount of interest accrued on these loans
depends on the number of days elapsed since the last payment on the loans. Thus,
a borrower who makes a payment less than 30 days after the last payment on such
a loan will owe less than 30 days' interest. Conversely, a borrower who makes a
payment more than 30 days after the last payment will owe more than 30 days'
interest. Any shortfalls in interest, if they are not offset by a reduction in
servicing compensation of GE Capital Mortgage Services, Inc. may reduce the
yield on your certificates. In addition, the extent to which borrowers on simple
interest mortgage loans are early or late with their payments will affect the
amount of principal distributable on the certificates.]
Because of the effects of prepayments, the certificates offered by this
prospectus supplement were structured on the basis of several things, including
(1) 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 (2) 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", appear 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.
Investors in certain classes of certificates should also be aware of the
yield considerations described below:
[o Class Certificates: Because the certificate interest rate applicable
to the Class Certificates on any Distribution Date will not be
permitted to exceed the weighted average of the mortgage rates, net of
the servicing fee rate, on the mortgage loans as of the first day of
[the prior month], payments of principal (both scheduled and
unscheduled) of mortgage loans with net mortgage rates that exceed the
weighted average of the net mortgage rates may reduce the yield on each
such certificate.]
[o Class 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.]
[o Class M, Class B1 and Class B2 Certificates: 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.]
[o Class Certificates: Because the Class Certificates are interest-only
certificates on which interest will accrue on the aggregate notional
principal balance described in this prospectus supplement, investors in
the Class Certificates should consider the risk that rapid rates of
principal payments could result in the failure of such investors to
fully recover their investments.]
[o Class Certificates: The trustee will make principal distributions
on the Certificates 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.
You should refer to "Yield and Weighted Average Life Considerations" in
this prospectus supplement and "Yield, Maturity and Weighted Average Life
Considerations" in the prospectus.
[Optional Termination of the Trust Fund
---------------------------------------
[GE Capital Mortgage Services, Inc.] [GE Capital Mortgage Funding
Corporation] 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 % of the total
unpaid principal balance of the mortgage loans as of . 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.]
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] for income tax purposes. The Class R
Certificates [and Class RL Certificates each] will be treated as a "residual
interest" in the [related] real estate mortgage investment conduit.]
[The particular federal income tax consequences of your investment will
depend upon the class of certificates you buy. These consequences may include
the following:
o 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.
o Certain classes of the certificates may be, and the Class
Certificates will be, issued with original issue discount.
o [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.]
o The amount of income a holder of a junior certificate reports may
exceed the cash distributions that holder receives 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 "Federal Income Tax Consequences" in this prospectus
supplement and "Federal Income Tax Consequences -- REMIC Certificates" in the
accompanying prospectus.
Legal Investment
----------------
The Class Certificates offered by this prospectus supplement will [not]
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. 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. An
employee benefit plan that is subject to ERISA or a plan subject to Section 4975
of the Code may not acquire the [Class Certificates and the Residual
Certificates]. The transfer of those classes of certificates is subject to
certain restrictions described in "ERISA Considerations" in this prospectus
supplement.
Certificate Ratings
-------------------
[GE Capital Mortgage Services, Inc.] [GE Capital Mortgage Funding
Corporation] 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
[GE Capital Mortgage Services, Inc.] [GE Capital Mortgage Funding Corporation]
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, [GE Capital Mortgage
Services, Inc.] [GE Capital Mortgage Funding Corporation] 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.
[GE Capital Mortgage Services, Inc.] [GE Capital Mortgage Funding
Corporation] believes that a number of dealers that engage in the
mortgage-backed securities markets currently offer price quotations for [GE
Capital Mortgage Services, Inc.'s] [GE Capital Mortgage Funding Corporation's]
home equity 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 [GE Capital Mortgage Services, Inc.'s] [GE
Capital Mortgage Funding Corporation'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.
GE Capital Mortgage Services, Inc. currently maintains an electronic
bulletin board, accessible by computer modem, which provides certain information
about loans included in various series of home equity pass-through securities
that GE Capital Mortgage Services, Inc. [and GE Capital Mortgage Funding
Corporation] [have] [has] publicly offered. GE Capital Mortgage Services, Inc.
[and GE Capital Mortgage Funding Corporation] make[s] no representation or
warranty that such information will be suitable for any particular purpose and
GE Capital Mortgage Services, Inc. [and GE Capital Mortgage Funding Corporation]
assume[s] no responsibility for the accuracy or completeness of any information
that is generated by others using such information. GE Capital Mortgage
Services, Inc. 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.
<PAGE>
RISK FACTORS
An investment in the The certificates are not suitable
certificates may not investments for all investors. In particular,
be suitable for you you should not purchase any class of offered
certificates unless you understand the
prepayment, credit, liquidity and market
risks associated with that class.
The certificates are complex securities.
You should possess, either alone or together
with an investment advisor, the expertise
necessary to evaluate the information
contained in this prospectus supplement and
the accompanying prospectus in the context of
your financial situation and tolerance for
risk.
You should carefully consider, among
other things, the factors described below
before purchasing the certificates.
Payments made on the The certificates will receive
underlying loans are distributions only from the proceeds from the
the only source of assets included in the trust fund and will
distributions on your have no entitlement to payments from assets
certificate included in any other trust fund established
by [GE Capital Mortgage Services, Inc.][GE
Capital Mortgage Funding Corporation].
The certificates will not represent
obligations of General Electric Company,
General Electric Capital Corporation, GE
Capital Mortgage Corporation, General
Electric Mortgage Insurance Corporation, GE
Capital Mortgage Services, Inc., GE Capital
Mortgage Funding Corporation or any other
affiliate of GE Capital Mortgage Services,
Inc. or GE Capital Mortgage Funding
Corporation. Moreover, the Certificates will
not be guaranteed [or insured] by any
governmental agency or any other person.
[GE Capital Mortgage Services, Inc.][GE
Capital Mortgage Funding Corporation] will
have limited obligations to the trust fund as
the depositor of assets into the trust fund.
[As the depositor, GE Capital Mortgage
Services, Inc.'s sole obligation will be to
repurchase the mortgage loans in the trust
fund in the event of a breach of certain
representations and warranties made by it in
the pooling and servicing agreement.] [GE
Capital Mortgage Funding Corporation will
assign to the trustee the benefit of the
representations and warranties it receives
from GE Capital Mortgage Services, Inc. when
it acquires the trust assets. However, the
sole obligation of GE Capital Mortgage
Services, Inc. in the event of a breach of
these representations and warranties will be
to repurchase the mortgage loans in the trust
fund giving rise to such breach.] [Describe
variations, if any.]
[The only obligations of GE Capital
Mortgage Services, Inc. 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 interest, adjusted to the
weighted average rate at which interest
accrues on certificates. You should refer to
"The Pooling and Servicing
Agreement--Assignment of Mortgage Loans,"
"--Advances" and "--Purchase of Defaulted
Mortgage Loans" in this prospectus
supplement.]
The mortgage loans will not be insured
or guaranteed by any governmental entity or,
except as described in this prospectus
supplement, by any other person. To the
extent that delinquent payments on or losses
in respect of defaulted mortgage loans are
not advanced by the servicer or any other
entity [or paid from [describe applicable
credit enhancement arrangement], the holders
of one or more classes of certificates may
experience delays in the distribution of
payments. Further, the holders of one or more
classes of certificates will bear the losses
resulting from such delinquencies.]
There is no guarantee You will receive distributions on your
that you will receive certificates after borrowers make payments of
distributions on your interest and principal on the mortgage loans
certificates at any in the trust fund. Because the borrowers are
specific rate or on any free to make those payments faster than
specific dates scheduled, you may receive distributions
faster than you expected. [In addition,
borrowers on simple interest mortgage loans
may make monthly payments earlier or later
than the scheduled due date, which will
result in slower or faster principal
distributions to you.] There is no guarantee
that you will receive principal distributions
on your certificates at any specific rate or
on any specific dates.
A number of the mortgage Approximately % of the mortgage loans
loans are second-priority (by aggregate principal balance as of ) will
mortgages be junior to a senior mortgage on the related
property not held by the trust fund. If the
holder of the senior mortgage forecloses on
such a loan, the holder of the junior
mortgage will receive only those amounts that
are left over from the sale proceeds of the
related property after paying off the senior
mortgage in full. GE Capital Mortgage
Services, Inc., as servicer, has the option
of advancing the amount necessary to satisfy
a defaulted senior mortgage and prevent
foreclosure, but it has no obligation to do
so and will not do so if it believes in good
faith that the amount of any such advance
will not be recoverable. In addition, in most
states, the senior lender does not have to
notify the junior lender of defaults on the
senior loan, and in many states does not have
to provide notice of the foreclosure
proceeding. Your certificates will bear their
allocable share of any losses arising from
shortfalls in the sale proceeds of foreclosed
properties.
[Balloon loans in the [Approximately % of the mortgage loans
mortgage pool are more (by aggregate principal balance as of )
likely to default] included in the trust fund are mortgage loans
that do not fully amortize over their terms.
These loans are sometimes called "balloon
loans" because they require a final payment
on the maturity date that is typically much
larger than the previous monthly payments.
Because the borrower's ability to make this
final payment usually depends on the ability
to refinance the loan or sell the underlying
property, the degree of risk involved is
greater. The ability of a borrower to
refinance the loan or sell the related
mortgaged property will depend upon a number
of factors, including:
o the level of available mortgage
interest rates at the time of the refinancing
or sale;
o the borrower's equity in the related
mortgaged property;
o prevailing general economic
conditions; and
o the availability of credit for one- to
four-family residential real properties
generally.
The trustee [and][,] GE Capital Mortgage
Services, Inc. [and GE Capital Mortgage
Funding Corporation] have no obligation to
refinance any mortgage loan, and your
certificates will bear any loss on a balloon
loan that results from a mortgagor's
inability to refinance such loan.
The yield on your certificates
will depend on a number of The yield to maturity on your
factors certificates depends primarily on the
purchase price of your certificate and the
rate of principal payments on the mortgage
loans in the trust fund. The yield on some
classes of certificates[, such as the Class
Certificates, which receive only
distributions of interest,] is particularly
sensitive to prepayment rates. [In addition,
the yield on the Class Certificates, which
receive only distributions of principal, is
particularly sensitive to the effect of late
monthly payments on simple interest mortgage
loans.]
Principal payments on the mortgage loans
may be in the following forms:
o scheduled payments;
o voluntary prepayments by borrowers
(such as, for example, prepayments in full
due to refinancings, including refinancings
made by GE Capital Mortgage Services, Inc. in
the ordinary course of conducting its
mortgage banking business, or prepayments in
connection with biweekly payment programs,
participation in which may also be solicited
by GE Capital Mortgage Services, Inc.);
o prepayments resulting from
foreclosure, condemnation and other
dispositions of the properties underlying the
mortgage loans; and
o payments resulting from repurchases by
GE Capital Mortgage Services, Inc. under the
circumstances described under the heading
"The Pooling and Servicing Agreement" in this
prospectus supplement and in the prospectus.
Approximately % of the mortgage loans
will be subject to a prepayment penalty,
which may make prepayments on these loans
less likely. However, [substantially all] of
the prepayment penalties are scheduled to
expire by . The servicer will retain
prepayment penalties as part of its
compensation.
A number of social, economic, tax,
geographic, demographic, legal and other
factors may influence the rate of
prepayments. One of the most significant
factors is the prevailing interest rate.
Generally, if prevailing interest rates were
to fall significantly below the interest
rates on the mortgage loans, the prepayment
rate may increase. Conversely, if interest
rates were to rise significantly above the
interest rates on the mortgage loans, the
prepayment rate may decline. For a
description of other factors that may
influence prepayments, see "Yield and
Weighted Average Life Considerations" in this
prospectus supplement and "Yield, Maturity
and Weighted Average Life Considerations" in
the prospectus.
Although extensive data is available on
the prepayment behavior of first-priority,
one- to four-family purchase money mortgage
loans, no equivalent data is available on the
prepayment behavior of closed-end home equity
loans, which are the type of mortgage loans
underlying the certificates offered hereby. A
number of factors suggest that the prepayment
behavior of home equity loans is
significantly different from that of other
types of mortgage loans with equivalent
interest rates and maturities, although these
factors could give rise to prepayments on
home equity loans at either a faster or
slower rate than on first-priority, purchase
money loans.
The mortgage loans in the trust fund
will not prepay at any constant rate, nor
will all of the mortgage loans prepay at the
same rate at any one time. Moreover, the
timing of changes in the rate of prepayments
may significantly affect your actual yield to
maturity, even if the average rate of
principal payments is consistent with your
expectation. In general, the earlier a
prepayment of principal the greater the
effect on your yield to maturity. As a
result, the effect on your yield caused by
principal payments occurring at a rate higher
(or lower) than the rate anticipated by you
during the period immediately following the
issuance of the certificates will not be
offset by a subsequent like reduction (or
increase) in the rate of principal payments.
See "Yield and Weighted Average Life
Considerations" herein and "Yield, Maturity
and Weighted Average Life Considerations" in
the prospectus.
Delinquencies on the mortgage [None] of the mortgage loans [is] 30
loans could affect your yield days or more delinquent in payment as of .
However, approximate % of the mortgage loans
had been 30 days or more delinquent (but less
than 60 days delinquent) in payment more than
once during the 12 months preceding . See
"Description of the Mortgage Pool and the
Mortgaged Properties--The Mortgage Loans."
The amount of future delinquent payments of
interest on the mortgage loans (if they are
not offset by advances from GE Capital
Mortgage Services, Inc. may reduce the
amounts distributable on your certificates.
[Rapid prepayments will [If you are the holder of a Class
reduce the yield on Certificate, you will receive only
certain certificates distributions of interest. Although you have
no entitlement to principal distributions,
your certificate will have a "notional"
principal balance, which will be used to
calculate the interest payable to you.
Because prepayments on the underlying
mortgage loans will reduce the notional
principal balance on your certificate, the
yield on your certificate is especially
sensitive to prepayment rates. If
prepayments, or early monthly payments on
simple interest mortgage loans not offset by
a reduction in the servicing compensation of
GE Capital Mortgage Services, Inc., occur at
a rate faster than anticipated, the yield on
your certificate could be significantly lower
than expected and, in some cases, you may be
unable to recover your investment. Before
purchasing a Class Certificate, you should
fully consider the risks associated with such
an investment. See "Yield and Weighted
Average Life Considerations--Yield of the
Class Certificates" in this prospectus
supplement.]
[Slow prepayments will reduce the [If you are the holder of a Class
yield on certain certificates] Certificate, you will receive only
distributions of principal, including your
allocable share of principal prepayments. For
this reason, the yield on your certificate is
especially sensitive to prepayment rates and
late monthly payments on simple interest
mortgage loans. If prepayments occur at a
rate slower than anticipated or late monthly
payments on simple interest mortgage loans
occur at a rate faster than anticipated, the
yield on your certificate could be
significantly lower than expected. Before
purchasing a Class Certificate, you should
fully consider the risks associated with such
an investment. See "Yield and Weighted
Average Life Considerations--Yield of the
Class Certificates" in this prospectus
supplement.]
[Certificates bought [The effect of an increase or decrease
at premiums and in the payment rate on the yield of your
discounts may receive certificate will depend upon the degree to
a lower yield than which your certificate was purchased at a
expected] discount or premium. If you purchase a
certificate at a premium over its original
principal balance, [and especially in the
case of the Class Certificates,] faster than
anticipated rates of principal payments on
the underlying mortgage loans could result in
an actual yield to you that is lower than the
anticipated yield. Conversely, if you
purchase a certificate at a discount from its
original principal balance, slower than
anticipated rates of principal payments on
the underlying mortgage loans could result in
an actual yield to you that is lower than the
anticipated yield and could result in an
extension of the life of your certificate.
See "Yield and Weighted Average Life
Considerations" in this prospectus supplement
and "Yield, Maturity and Weighted Average
Life Considerations" in the prospectus.]
You may be unable to reinvest
distributions from the Rapid rates of prepayments on the
certificates in comparable mortgage loans are likely to coincide with
investments periods of low prevailing interest rates.
During such periods, 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, 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 you for
reinvestment at such high rates may be
relatively low. See "Yield and Weighted
Average Life Considerations" in this
prospectus supplement and "Yield, Maturity
and Weighted Average Life Considerations" in
the prospectus.
Prepayments may cause reductions The actual interest rate on your
in interest distributions on certificate may be less than the interest
your certificates rate stated on the cover page of this
prospectus supplement. Unless you are the
holder of a certificate that pays only
principal, your certificate will be allocated
certain shortfalls in interest payments on
the underlying mortgage loans to the extent
that GE Capital Mortgage Services, Inc. is
not obligated to cover such shortfalls with
compensating interest payments. Reductions in
interest distributions to you will occur in
the following circumstances:
o Prepayments in full. When a
self-amortizing mortgage loan is prepaid in
full, the borrower pays interest only up to
the date on which payment is made, rather
than for an entire month. If a prepayment in
full occurs in the period from the sixteenth
day through the last day of the month, there
will be a reduction in the following month's
distribution of interest to you.
o Partial prepayments. Borrowers may
also prepay a portion of the principal owed
on self-amortizing mortgage loans. The method
by which those prepayments are credited to
the outstanding balance of the mortgage loans
will result in a shortfall in interest equal
to one month's net interest on the prepaid
amount and a reduction in interest
distributions on the certificates. See "Yield
and Weighted Average Life
Considerations--Prepayments."
o Reduction of interest rates on
mortgage loans. Some borrowers who enter
military service will be entitled to a
reduction of interest rates on their mortgage
loans under federal law. The result will be a
shortfall in interest equal to the difference
in the amounts payable at the original and
reduced interest rates, which will reduce the
interest distributions on the certificates.
o Simple interest loans. Approximately %
of the mortgage loans will be loans that
accrue interest on a simple interest basis.
The interest accrued on these loans depends
on the number of days elapsed since the last
payment on the loans. Thus, a borrower who
makes a payment less than 30 days after the
last payment on such a loan will owe less
than 30 days' interest. Such shortfalls in
interest, if they are not offset by a
reduction in servicing compensation to GE
Capital Mortgage Services, Inc. or by later
collections on the mortgage loans, may reduce
the yield of the certificates. In addition,
the extent to which borrowers are early or
late with their payments will affect the
amount of principal distributable on the
certificates.
See "Description of the
Certificates--Distributions on the
Certificates."
[GE Capital Mortgage Services, [If any borrower is delinquent in its
Inc. has a limited obligation payment of interest on a mortgage loan
to make advances for borrower included in the mortgage pool, GE Capital
Mortgage Services, Inc. will be obligated to
defaults]advance to the trust fund amounts to
cover such shortfall. However, the amount of
any such advance will not include amounts
that GE Capital Mortgage Services, Inc.
determines are unrecoverable from liquidation
or insurance proceeds or other future
collections on the delinquent loan. In
addition, if GE Capital Mortgage Services,
Inc. makes an advance and later determines in
good faith that such advance will be
unrecoverable, GE Capital Mortgage Services,
Inc. will receive reimbursement for such
advance from collections received from
unrelated mortgage loans included in the
mortgage pool. See "The Pooling and Servicing
Agreement--Advances."
GE Capital Mortgage Services, Inc. will
not be obligated to advance delinquent
installments of principal.
Your certificates may bear losses to the
extent that delinquencies and defaults are
not covered by advances made by GE Capital
Mortgage Services, Inc., and to the extent
that payments on the mortgage loans are
reduced by amounts reimbursed to GE Capital
Mortgage Services, Inc. for prior
unrecoverable advances. Such losses could
affect the actual yield to maturity on your
certificates.]
Geographic concentration The geographic concentration of the
may affect the risk of mortgaged properties securing the mortgage
loss on the underlying loans in the trust fund may affect the yield
mortgage loans to maturity of your certificates. Certain
geographic regions of the United States will
experience from time to time weaker regional
economic conditions and housing markets and,
consequently, will experience higher rates of
loss and delinquency on mortgage loans
generally. In addition, certain states or
regions may experience natural disasters,
such as earthquakes, fires, floods and
hurricanes, which may not be fully insured
against and which may result in damage to the
properties underlying the mortgage loans.
Any deterioration in the real estate
market or economy of any of the states in
which a significant concentration of
mortgaged properties is located may have a
disproportionate impact on payments in
respect of the mortgage loans in the trust
fund. The resulting losses may reduce the
yield to maturity on your certificates. The
states where there are significant
concentrations of mortgaged properties are
identified under "Description Of The Mortgage
Pool And The Mortgaged Properties--The
Mortgage Loans."
[Investors in the [If you are the holder of a junior
junior certificates face a certificate, the distributions of interest
higher risk of losses] payable to you will be subordinate to the
interest distributions payable to the senior
certificates and to any class of junior
certificates that ranks higher than your
certificate. In addition, the principal
portion of losses on the underlying mortgage
loans will be first allocated to the junior
certificates, in inverse order of priority,
beginning with the Class B 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
inverse order of priority until these losses
reach specified levels.
If you hold a class of certificates that
ranks junior to another class of
certificates, you will be more likely than
the holder of a certificate senior to you to
experience losses as a result of losses or
interest defaults on the underlying mortgage
loans. You should refer to "Description of
the Certificates--Allocation of Realized
Losses on the Certificates" and
"--Distribution on the
Certificates--Allocation of Available
Funds."]
[Subordination may not be
adequate to cover all losses] [The subordination provided by the Class
Certificates will provide credit enhancement
for the certificates senior to such classes
that are offered hereby. However, any credit
enhancement will not provide protection
against all risks of loss or all types of
losses and will not guarantee repayment of
the entire principal balance of and interest
on the certificates.
Although the senior certificates will
have priority over the junior certificates
with respect to interest distributions,
principal distributions will depend on the
actual amount of principal received on the
mortgage loans in the month prior to the
month of such distribution and not on any
schedule of principal distributions in
respect of either the senior certificates or
the mortgage loans. Accordingly, the junior
certificates will receive principal
distributions even if there are defaults or
delinquencies on the mortgage loans. The
entitlement of the junior certificates to
receive principal distributions will be
reduced only to the extent of realized losses
on the mortgage losses that are first
allocated to the junior certificates.
If losses occur which reduce the
aggregate principal balance of the Class [M]
and Class [B] Certificates to zero, the
senior certificates will bear their allocable
share of deficiencies. See "Description of
the Certificates--Allocation of Realized
Losses on the Certificates."
Optional termination of [GE Capital Mortgage Services, Inc.] [GE
the trust fund may Capital Mortgage Funding Corporation] may, at
affect the yield on its option, repurchase from the trust fund
your certificates 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 [ ]% of the total
unpaid principal balance of the mortgage
loans as of the date of initial issuance of
the certificates. 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.
Because early retirement of the
certificates will shorten the average life of
the certificates, your yield may be less than
anticipated [and may be significantly lower
than expected if you own the Class
Certificates, which pay only interest.]
The lack of a secondary The certificates will not be listed on
market may limit any securities exchange, and a secondary
your ability to resell market for the certificates may not develop.
your certificates [Although the underwriter of this offering
intends to create a secondary market for the
certificates, it has no obligation to do so.]
If a secondary market does develop, it may
not continue or it may not be liquid enough
to allow you to resell your certificates or
to resell them at a price that will realize
the desired yield.
The lack of physical You will not receive physical
certificates may cause certificates for any of the certificates
delays in distributions offered hereby except the Class [R]
and hinder liquidity Certificates, and your interest in these
certificates will instead be held in
book-entry form through DTC and its direct
and indirect participants and intermediaries.
As a result of the book-entry format,
you may experience some delay in your receipt
of payments because the trustee will not send
distributions directly to you. All
distributions will instead be sent to DTC,
which will credit those distributions to its
participants and intermediaries, who will in
turn credit your account.
Moreover, because DTC can only act on
behalf of its direct and indirect
participants and intermediaries, the lack of
physical certificates may limit your ability
to pledge your certificates to persons or
entities that do not participate in the DTC
system. The lack of physical certificates may
also reduce the liquidity of your
certificates in the secondary market because
some investors may be unwilling to purchase
certificates which they cannot obtain in
physical form.
Year 2000 computer readiness 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 and malfunction.
GE Capital Mortgage Services, Inc. has
developed a plan, which is described in "Year
2000 Computer Readiness" in the prospectus,
to become year 2000 compliant by mid-1999. GE
Capital Mortgage Services, Inc. cannot
guarantee, however, that its efforts to
achieve year 2000 readiness will be fully
effective. Moreover, it cannot guarantee that
any of its third-party service providers,
such as trustees, borrowers' banks, loan
servicers and DTC, will be year 2000 ready.
The failure of GE Capital Mortgage
Services, Inc. or its third-party service
providers to become fully year 2000 ready
could disrupt, at least temporarily, the
ability of GE Capital Mortgage Services, Inc.
to carry out the servicing duties described
in this prospectus supplement, including the
calculation of amounts distributable on your
certificates and the timely transfer of funds
to the trustee for your benefit. This could
adversely affect your investment in the
certificates. See "Year 2000 Computer
Readiness" in the prospectus for a more
detailed discussion of this issue.
<PAGE>
DESCRIPTION OF THE MORTGAGE POOL AND THE MORTGAGED PROPERTIES
General
The certificates comprising the series of certificates described in this
prospectus supplement (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 closed-end,
fixed-rate, home equity mortgage loans (the "Mortgage Loans"). The Mortgage
Loans are secured by mortgages, deeds of trust or other security instruments
(each, a "Mortgage") creating first [or second] liens on one- to four-family
residential properties (the "Mortgaged Properties"). [GE Capital Mortgage
Services, Inc. ("GECMSI")] [GE Capital Mortgage Funding Corporation ("Funding")]
is depositing the assets in the Trust Fund ([GECMSI] [Funding] in such capacity,
the "Depositor").
Certain data with respect to the Mortgage Loans expected to be included in
the Trust Fund are set forth below. A description of the final Mortgage Pool on
a Current Report on Form 8-K (the "Definitive 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 Definitive Description will
indicate the extent to which the characteristics of the Mortgage Loans vary from
those set forth herein. The Definitive Description will specify the precise
aggregate Principal Balance (as defined herein) of the Mortgage Loans as of the
Cut-off Date and will also include statistical data relating to the final
Mortgage Loans comparable in scope to that set forth with respect to the
expected Mortgage Pool on pages S- through S- of this prospectus supplement. The
Definitive 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 the exact amount of any forms of credit
enhancement]. The Agreement (as defined herein) and its exhibits will be filed
as an exhibit to the Definitive Description.
The "Principal Balance" of a Mortgage Loan as of any Distribution Date is
(a) in the case of a Self-Amortizing Mortgage Loan, the unpaid principal balance
of such Mortgage Loan as specified in the amortization schedule at the time
relating thereto as of the month preceding the month of such Distribution Date,
before giving effect to any scheduled payments of principal due in such month
and after giving effect to any principal prepayments in full received through
and including the 15th day of such month from the related borrower (the
"Mortgagor"), and (b) in the case of a Simple Interest Mortgage Loan, the unpaid
principal balance thereof as of the calendar month preceding the month of such
Distribution Date, before giving effect to the regularly scheduled payment due
in such month and after giving effect to any principal prepayments in full
received through and including the 15th day of such month from the Mortgagor.
The Principal Balance of any Mortgage Loan as of the Cut-off Date will be the
unpaid principal balance thereof as of such date. The "Due Date" for a Mortgage
Loan is the date during any month on which a payment is first due.
[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 Home Equity Loan Program" herein.
The Mortgage Loans
The Mortgage Loans will have an aggregate Principal Balance as of the
Cut-off Date, after application of payments of principal due on or before such
date, of approximately $ . This amount is subject to a permitted variance such
that the aggregate Principal Balance thereof will not be less than $ or greater
than $ .
The interest rates borne by the Mortgage Loans (the "Mortgage Rates") are
expected to range % to % per annum, and the weighted average Mortgage Rate as of
the Cut-off Date of such Mortgage Loans is expected to be between % and % per
annum. The original principal balances of the Mortgage Loans are expected to
range from $ to $ and, as of the Cut-off Date, the average Principal Balance of
the Mortgage Loans is expected to be approximately $ 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.
The remaining months to stated maturity for the Mortgage Loans as of the Cut-off
Date are expected to range from approximately months to months, and the weighted
average remaining months to stated maturity of the Mortgage Loans as of the
Cut-off Date is expected to be approximately months. It is expected that
approximately % of the Mortgage Loans (by Principal Balance as of the Cut-off
Date) will be loans that have original terms to maturity that are shorter than
their amortization schedules, leaving final payments ("Balloon Payments") due on
the maturity dates that are significantly larger than other monthly payments
(such loans, "Balloon Loans"). The weighted average remaining term to stated
maturity of the Balloon Loans is expected to be approximately months. The Home
Equity Loan-to-Value Ratios (as defined herein) of the Mortgage Loans at
origination are expected to range from approximately % to %, and the weighted
average of the Home Equity Loan-to-Value Ratios of the Mortgage Loans at
origination is expected to be approximately %. The Second-Lien Combined
Loan-to-Value Ratio (as defined herein) of the second-lien Mortgage Loans at
origination is expected to range from approximately % to %, and the weighted
average of the Second-Lien Combined Loan-to-Value Ratios of such Mortgage Loans
at origination is expected to be approximately %.
No more than approximately % of the Mortgage Loans (by Principal Balance as
of the Cut-off Date) will be secured by Mortgaged Properties located in any one
postal zip code area.
No more than approximately % of the Mortgage Loans (by Principal Balance as
of the Cut-off Date) are expected to have been originated under the NIV program
(as described herein). Approximately % of the Mortgage Loans (by Principal
Balance as of the Cut-off Date) will be "Consumer Direct" loans (as described
herein) originated by GECMSI with borrowers who currently have loans serviced by
GECMSI. In addition, no more than approximately % of the Mortgage Loans (by
Principal Balance as of the Cut-off Date) are expected to have been originated
under the Streamlined Portfolio program (as described herein). See "The Home
Equity Loan Program--Underwriting Procedures Relating to Home Equity Loans"
herein.
[At the time that GECMSI originated or acquired approximately % of the
first-lien Mortgage Loans (by Principal Balance as of the Cut-off Date) expected
to be included in the Mortgage Pool, GECMSI also originated or acquired
second-lien mortgage loans secured by the same Mortgaged Properties. These
second-lien mortgage loans are not included in the Mortgage Pool. The weighted
average Home Equity Loan-to-Value Ratio of these first-lien Mortgage Loans is
expected to be approximately %. The weighted average total combined
loan-to-value ratio (the "Total Combined Loan-to-Value Ratio") of these
first-lien Mortgage Loans (representing the ratio of the sum of the original
principal balance of each such Mortgage Loan and the related second-lien
mortgage loan to the appraised value of the related Mortgaged Property taken
into account at the time of origination) is expected to be approximately %.]
Approximately % of the Mortgage Loans (by Principal Balance as of the
Cut-off Date) are expected to be purchase-money loans used by the borrowers to
acquire the related Mortgaged Properties.
Set forth below is a description of certain additional characteristics of
the Mortgage Pool and the Mortgage Loans expected to be included therein,
subject to the variance described herein (the sum of the balances may not equal
100% due to rounding):
Cut-off Date Principal Balances
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Percentage of
Range of Cut-off Date Number of Cut-off Date Cut-off Date Aggregate
Principal Balance Mortgage Loans Principal Balance Principal Balance
----------------- -------------- ----------------- -----------------
$ $ %
Mortgage Rates
Percentage of
Range of Cut-off Date Number of Cut-off Date Cut-off Date Aggregate
Principal Balance Mortgage Loans Principal Balance Principal Balance
----------------- -------------- ----------------- -----------------
% $ %
Geographic Distribution of Mortgaged Properties
Percentage of
Number of Cut-off Date Cut-off Date Aggregate
State Mortgage Loans Principal Balance Principal Balance
----- -------------- ----------------- -----------------
$ %
Priority of Mortgage Loans
Percentage of
Number of Cut-off Date Cut-off Date Aggregate
Priority Mortgage Loans Principal Balance Principal Balance
-------- -------------- ----------------- -----------------
First-priority
Second priority $ %
Total
Year of Origination
Percentage of
Number of Cut-off Date Cut-off Date Aggregate
Year of Origination Mortgage Loans Principal Balance Principal Balance
------------------- -------------- ----------------- -----------------
$ %
Months Remaining to Stated Maturity as of the Cut-off Date
Number of Months Percentage of
Remaining Number of Cut-off Date Cut-off Date Aggregate
in Stated maturity Mortgage Loans Principal Balance Principal Balance
------------------ -------------- ----------------- -----------------
$ %
Types of Mortgaged Properties[(1)]
Percentage of
Number of Cut-off Date Cut-off Date Aggregate
Property Type Mortgage Loans Principal Balance Principal Balance
$ %
[(1) Approximately % of the single-family detached units will be manufactured homes.]
Use of Mortgaged Properties(1)
Percentage of
Number of Cut-off Date Cut-off Date Aggregate
Priority Mortgage Loans Principal Balance Principal Balance
-------- -------------- ----------------- -----------------
Primary residence
Non-primary residence[(2)] $ %
Total
(1) Based on information supplied by the Mortgagor in the loan application.
[(2) GECMSI believes that the majority of the non-primary residences are investment properties.]
[Second-Lien Combined Loan-to-Value Ratio(1)(2)
(for second-lien Mortgage Loans)
Mortgage Rates]
Percentage of
Range of Second-Lien Number of Cut-off Date Cut-off Date Aggregate
Combined Loan-to-Value Ratios Mortgage Loans Principal Balance Principal Balance
----------------------------- -------------- ----------------- -----------------
% $ %
[(1) The "Second-Lien Combined Loan-to-Value Ratio" of a second-lien
Mortgage Loan is the ratio (expressed as a percentage) that the sum of the
original principal balance of such Mortgage Loan and the then current
principal balance of the related first-lien mortgage loan, bears to the
appraised value of the related Mortgaged Property at the time such Mortgage
Loan was originated (or if the proceeds of such Mortgage Loan were used to
refinance an existing mortgage, the appraised value based on a recent
appraisal).]
[(2) The weighted average of the Second-Lien Combined Loan-to-Value Ratio
of the second-lien Mortgage Loans is expected to be approximately %.]
<PAGE>
Home Equity Loan-to-Value Ratio(1)(2)
Percentage of
Range of Home-Equity Number of Cut-off Date Cut-off Date Aggregate
Loan-to-Value Ratios Mortgage Loans Principal Balance Principal Balance
-------------------- -------------- ----------------- -----------------
% $ %
</TABLE>
(1) The "Home Equity Loan-to-Value Ratio" of a Mortgage Loan is the ratio
(expressed as a percentage) that the original principal balance of such
Mortgage Loan bears to the appraised value [(or, with respect to
approximately % of the Mortgage Loans, the lesser of (i) the appraised
value or (ii) the selling price)] of the related Mortgaged Property at the
time such Mortgage Loan was originated (or if the proceeds of such Mortgage
Loan were used to refinance an existing mortgage, the appraised value based
on a recent appraisal).
(2) The weighted average of the Home Equity Loan-to-Value Ratios of the
Mortgage Loans is expected to be approximately %. The weighted average of
the Home Equity Loan-to-Value Ratios for the first-lien Mortgage Loans and
the second-lien Mortgage Loans is expected to be approximately % and %,
respectively.
<TABLE>
<CAPTION>
Home Equity Loan Ratio(1)(2)
(for second-lien Mortgage Loans)
<S> <C> <C> <C> <C>
Number of Percentage of
Range of Home-Equity Mortgage Loans in a Cut-off Date Cut-off Date Aggregate
Loan Ratios Second-Lien Position Principal Balance Principal Balance
----------- -------------------- ----------------- -----------------
% $ %
(1) The "Home Equity Loan Ratio" of a second-lien Mortgage Loan is the
ratio (expressed as a percentage) that the original principal balance of
such Mortgage Loan bears to the total of the original principal balance of
such Mortgage Loan plus the outstanding amount of the related first-lien
mortgage loan at the time such Mortgage Loan was originated.
(2) The weighted average of the Home Equity Loan Ratios of the second-lien
Mortgage Loans is expected to be approximately %.
Loan Type
Percentage of
Number of Cut-off Date Cut-off Date Aggregate
Type Mortgage Loans Principal Balance Principal Balance
---- -------------- ----------------- -----------------
Fully amortizing $ %
Balloon
Total
Months Remaining to Stated Maturity as of the Cut-off Date
(for Balloon Loans)
Number of Months Remaining Number of Percentage of
to Stated Maturity Balloon Cut-off Date Cut-off Date Aggregate
as of Cut-off Date Mortgage Loans Principal Balance Principal Balance
------------------ -------------- ----------------- -----------------
$ %
</TABLE>
The following describes certain delinquency characteristics as of the
Cut-off Date of the Mortgage Loans expected to comprise the Mortgage Pool:
None of the Mortgage Loans is days or more delinquent in payment as of the
Cut-off Date.
[During the 12 months preceding the Cut-off Date, Mortgage Loans, with an
aggregate Principal Balance as of the Cut-off Date of approximately $ and
comprising approximately % of the Mortgage Pool (by Principal Balance as of the
Cut-off Date), had been delinquent in payment for a period of at least 30 days
(but less than 60 days) two or more times.] See "Delinquency, Foreclosure and
Loan Loss Experience of GECMSI's Home Equity Loan Servicing Portfolio" herein.
Terms of the Mortgage Loans
The Mortgage Loans accrue interest on a simple interest basis ("Simple
Interest Mortgage Loans") or a self-amortizing basis ("Self-Amortizing Mortgage
Loans"). Approximately % of the Mortgage Loans are expected to be
Self-Amortizing Mortgage Loans, and approximately % of the Mortgage Loans are
expected to be Simple Interest Mortgage Loans, in each case by Principal Balance
as of the Cut-off Date.
For Simple Interest Mortgage Loans, the amount of the loan is amortized
over a series of equal monthly payments. Each monthly interest payment is
calculated by multiplying the outstanding principal balance of the loan by the
stated interest rate. Such product is then multiplied by a fraction, the
numerator of which is the number of days elapsed since the preceding payment of
interest was made and the denominator of which is either 365 or 360, depending
on applicable state law. Payments received on a Simple Interest Mortgage Loan
are applied first to interest accrued to the date payment is received and second
to reduce the unpaid principal balance of the Mortgage Loan. Accordingly, if a
Mortgagor makes a payment on the Mortgage Loan less than 30 days after the
previous payment, the interest collected for the period since the preceding
payment was made will be less than 30 days' interest, and the amount of
principal repaid in such month will be correspondingly greater. Conversely, if a
Mortgagor makes a payment on the Mortgage Loan more than 30 days after the
previous payment, the interest collected for the period since the preceding
payment was made will be greater than 30 days' interest, and the amount of
principal repaid in the month will be correspondingly reduced. As a result,
based on the payment characteristics of a particular Mortgagor, the principal
due on the final Due Date of a Simple Interest Mortgage Loan may vary from the
principal payment that would be made if payments for such Mortgage Loan were
always made on their Due Dates.
For Self-Amortizing Mortgage Loans, interest will be calculated based on a
360-day year of twelve 30-day months. When a full prepayment of principal is
made on a Self-Amortizing 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
Self-Amortizing Mortgage Loan (other than an Early Installment as defined
herein) during a month, the Mortgagor generally is not charged interest on the
amount of the partial prepayment during the month in which such prepayment is
made.
If a Mortgagor pays more than one installment on a Simple Interest Mortgage
Loan at a time, the regular installment will be treated as described above.
However, the entire amount of the additional installment will be treated as a
receipt of one or more regular principal payments and applied to reduce the
principal balance of the related Mortgage Loan. Although each such Mortgagor
will not be required to make the next monthly installment, interest will
continue to accrue on the principal balance of such Mortgage Loan, as reduced by
the application of the early installment. As a result, when such Mortgagor pays
the next required installment on a Simple Interest Mortgage Loan, such payment
may be insufficient to cover the interest that has accrued since the last
payment by the Mortgagor. Notwithstanding such insufficiency, such Mortgage Loan
would be considered to be current. This situation would continue until the
monthly installments are once again sufficient to cover all accrued interest and
to reduce the principal balance of such Mortgage Loan. Depending on the
principal balance and interest rate of the related Mortgage Loan and on the
number of installments paid early, there may be extended periods of time during
which Simple Interest Mortgage Loans in respect of which such additional
installments have been made are not amortizing and are considered current.
It is expected that approximately % of the Mortgage Loans will be Balloon
Loans. Upon the maturity of a Balloon Loan, the Mortgagor will be required to
make a Balloon Payment, which will be significantly larger than such Mortgagor's
previous monthly payments. The ability of a Mortgagor to make the Balloon
Payment and to repay such a Mortgage Loan at maturity frequently will depend on
such Mortgagor's ability to refinance such Mortgage Loan. Any loss on a Balloon
Loan as a result of the Mortgagor's inability to refinance such loan will be
borne by Certificateholders.
The various Mortgage Loans have different Due Dates throughout each month
based on their respective loan closing dates. The monthly Due Date for each
Mortgage Loan is fixed at loan closing, except that all Mortgagors who are
current in their loan payments have one opportunity during the life of their
loans to change their respective monthly Due Dates to a date up to fifteen days
later than their respective original Due Dates. GECMSI will service Mortgage
Loans whose Due Dates have been so moved based on the new Due Dates and will
require the Mortgagors to pay a one-time interest charge, which GECMSI will
retain as servicing compensation, for the number of days that the Due Date has
been extended. However, GECMSI, as servicer, will advance interest to the Trust
Fund based on the original payment Due Dates for the life of any Mortgage Loans
that have become subject to such a change in Due Date, subject to any
determination by GECMSI that an advance made on such a Mortgage Loan is a
Nonrecoverable Advance (as defined herein). See "The Pooling and Servicing
Agreement--Advances" herein.
Borrowers may prepay their loans, in whole or in part, at any time. It is
expected that no more than approximately % of the Mortgage Loans, by Principal
Balance as of the Cut-off Date, required the Mortgagor to pay a prepayment
premium that had not expired as of the Cut-off Date. Prepayment premiums are
generally expected to range from % to % of the principal amount prepaid and
substantially all of the prepayment premiums are scheduled to expire by the end
of .
<PAGE>
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement (the "Agreement") to be dated as of the first day of the month of
creation of the Trust Fund (the "Cut-off Date"), 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 "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 holder of a Certificate (a "Certificateholder") under
the Agreement only at the direction of one or more Financial Intermediaries to
whose Depository accounts the Book-Entry Certificates are credited. The
Depository may take conflicting actions with respect to other Book-Entry
Certificates to the extent that such actions are taken on behalf of Financial
Intermediaries whose holdings include such Book-Entry Certificates.
Definitive Certificates will be issued to beneficial owners of the related
Book-Entry Certificates, or their nominees, rather than to the Depository, only
if (a) the Depository or the 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 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," except as
described below.
The portion of Available Funds for any Distribution Date representing
payments received on account of principal of the Mortgage Loans is the
"Available Principal Funds," and the portion of Available Funds for any
Distribution Date representing payments received on account of interest on the
Mortgage Loans is the "Available Interest Funds."
Notwithstanding the foregoing:
o any Simple Interest Payment or any advance by GECMSI in respect
of delinquent interest payments on a Mortgage Loan as described
herein relating to a Distribution Date will be included in the
Available Interest Funds for such Distribution Date;
o any Nonrecoverable Advances (as defined herein) reimbursed to
GECMSI will be deducted from Available Interest Funds; and
o the Available Principal Funds for any Distribution Date will
include principal payments in respect of the Mortgage Loans that
are actually received by GECMSI as servicer during the calendar
month immediately preceding such Distribution Date, except that
principal prepayments in full with respect to any Mortgage Loan
will be included in the Available Principal Funds as provided
under "Servicing of the Mortgage Loans and Contracts--Loan
Payment Record" in the Prospectus.
Distributions on the Certificates
Interest. Interest on the Certificates will be distributed monthly on
each Distribution Date commencing in in an aggregate amount equal to the
Available Interest Funds for such Distribution Date.
[Description of priority of interest distribution among classes].
The "Simple Interest Shortfall Percentage" is, with respect to any Class of
Certificates and any Distribution Date, the ratio (expressed as a decimal
carried to six places) of the Accrued Certificate Interest for such Class to the
Accrued Certificate Interest for all Classes, in each case with respect to such
Distribution Date.
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 "Weighted Average Net Mortgage Rate" for any Interest Accrual Period is
the weighted average (by Principal Balance) of the Net Mortgage Rates on the
Mortgage Loans as of the first day of such Interest Accrual Period as determined
by GECMSI as servicer. Any Mortgage Loans which have been prepaid in full (or,
in the case of a Mortgage Loan master-serviced by GECMSI, of which GECMSI
receives notice) on or prior to the fifteenth day of the month in which such
Interest Accrual Period occurs will not be included in the above calculation.
The "Net Mortgage Rate" of any Mortgage Loan equals the Mortgage Rate of such
Mortgage Loan net of the applicable Servicing Fee (as defined herein). See "The
Pooling and Servicing Agreement--Servicing Compensation, Compensating Interest
and Payment of Expenses" herein. The Weighted Average Net Mortgage Rate for the
first Interest Accrual Period will be the weighted average (by Principal
Balance) of the Net Mortgage Rates on the Mortgage Loans as of the Cut-off Date
and is expected to be approximately % per annum.
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, but not below zero, by (a) all amounts distributed
on previous Distribution Dates on such Certificate on account of principal, (b)
the principal portion of all Realized Losses in respect of the Mortgage Loans in
the related Mortgage Pool previously allocated to such Certificate and (c) in
the case of a Junior Certificate, such Certificate's pro rata share, if any, of
the Junior Certificate Writedown Amount for previous Distribution Dates. As of
any Distribution Date, the "Junior Certificate Writedown Amount" will equal the
amount by which the sum of the Class Certificate Principal Balances of all the
Certificates (after giving effect to the distribution of principal and the
application of Realized Losses in reduction of the Certificate Principal
Balances of the Certificates on such Distribution Date) exceeds the aggregate
Principal Balance of the Mortgage Loans on the first day of the month of such
Distribution Date.]
[Description of Notional Principal Balances of relevant classes of
Certificates, if applicable].
The "Net Simple Interest Shortfall" for any Distribution Date will be equal
to the excess, if any, of (i) 30 days' interest at the weighted average of the
Net Mortgage Rates of the Simple Interest Mortgage Loans as of the first day of
the applicable Interest Accrual Period, as determined by GECMSI, as servicer, on
an amount equal to the aggregate Principal Balance of the Simple Interest
Mortgage Loans with respect to such Distribution Date, calculated on the basis
of a 360-day year consisting of twelve 30-day months, over (ii) the amount of
interest received by GECMSI as servicer in the month preceding the month in
which such Distribution Date occurs in respect of such Simple Interest Mortgage
Loans, net of the related Servicing Fees. The "Net Simple Interest Excess" for
any Distribution Date will be the excess, if any, of the amount set forth in
clause (ii) of the preceding sentence over the amount set forth in clause (i) of
the preceding sentence. For this purpose, the amount of interest received in
respect of the Simple Interest Mortgage Loans in any month shall be deemed (a)
to include any advances of interest made by GECMSI as servicer in such month in
respect of such Simple Interest Mortgage Loans, and (b) to be reduced by any
amounts paid to GECMSI as servicer in such month in reimbursement of advances
previously made by GECMSI in respect of such Simple Interest Mortgage Loans
(including Simple Interest Mortgage Loans that, at the time of reimbursement,
are no longer part of the Trust Fund).
The "Unpaid Net Simple Interest Shortfall" for any Distribution Date will
be equal to the excess, if any, of (i) any Net Simple Interest Shortfall for
such Distribution Date, over (ii) any Simple Interest Payment (as defined under
"The Pooling and Servicing Agreement--Simple Interest Payments" herein) for such
Distribution Date.
With respect to any Distribution Date, the "Net Interest Shortfall" will
equal the excess of the aggregate Interest Shortfalls with respect to such
Distribution Date over the Compensating Interest Payment (as defined under "The
Pooling and Servicing Agreement--Servicing Compensation, Compensating Interest
and Payment of Expenses" herein), if any, for such Distribution Date.
With respect to any Distribution Date, an "Interest Shortfall" in respect
of a Self-Amortizing 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 and (ii) any partial
prepayment of principal on such Mortgage Loan by the Mortgagor during the month
preceding such Distribution Date. With respect to any Distribution Date, an
"Interest Shortfall" in respect of either a Self-Amortizing Mortgage Loan or a
Simple Interest Mortgage Loan will result from 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 Self-Amortizing 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 Net Mortgage Rate on the 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
in respect of a Self-Amortizing Mortgage Loan, 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, the interest portion of any Excess Losses
through the Cross-Over Date and, after the Cross-Over Date, the interest portion
of any Realized Losses (see "--Allocation of Losses on the Certificates")] will,
on each Distribution Date, be allocated among all the outstanding Certificates,
other than the Class Certificates, in proportion to the amount of Accrued
Certificate Interest that would have been allocated thereto in the absence of
such shortfall and losses.
[If Available Funds are insufficient on any Distribution Date to distribute
the aggregate Accrued Certificate Interest on the [Senior] Certificates, the
interest portion of any Realized Losses (other than Excess Losses) occurring
prior to the Cross-Over Date will not be allocated among any Certificates, but
will reduce the amount of Available Interest Funds on the related Distribution
Date. As a result of the subordination of the Junior Certificates in right of
distribution, such losses will be borne first by the Junior Certificates (to the
extent then outstanding) in inverse order of priority.]
If the Available Interest Funds are insufficient on any Distribution Date
to distribute the aggregate Accrued Certificate Interest on the Senior
Certificates (after taking into account any related Unpaid Net Simple Interest
Shortfall), any shortfall in available amounts will be allocated among the
Classes of Senior Certificates in proportion to the amounts of Accrued
Certificate Interest otherwise distributable thereon. The amount of any such
undistributed Accrued Certificate Interest (including any related Unpaid Net
Simple Interest Shortfalls) will be added to the amount to be distributed in
respect of interest on the Senior Certificates on subsequent Distribution Dates
in accordance with priority second under "--Interest" above. No interest will
accrue on any Accrued Certificate Interest remaining undistributed from previous
Distribution Dates.
Principal. Principal on the Certificates will be distributed monthly on
each Distribution Date commencing in in an aggregate amount equal to the
Available Principal Funds for such Distribution Date.
[Description of determination of interest rate index for floating-rate
Certificates, if applicable].
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").
A "Bankruptcy Loss" with respect to any Mortgage Loan is a Deficient
Valuation.
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.]
[Because the aggregate Notional Principal Balance of the Class Certificates
will be equal to the Class Certificate Principal Balance from time to time of
the Class Certificates, any Realized Losses that are applied to reduce the Class
Certificate Principal Balance of the Class Certificates will also reduce by an
equivalent amount the Notional Principal Balance of the Class Certificates. As a
result, the amount of interest distributable on the Class Certificates would be
reduced.]
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 a discussion of the allocation of certain unanticipated recoveries in
respect of principal of a Mortgage Loan which had previously been allocated as a
loss to any class of Certificates, see "Servicing of the Mortgage Loans and
Contracts -- Unanticipated Recoveries of Losses on the Mortgage Loans" in the
accompanying prospectus.]
[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, together with any unanticipated
recoveries received by GECMSI in the calendar month preceding the month of such
Distribution Date and not otherwise allocated to the other classes of
Certificates as described in "Servicing of the Mortgage Loans and
Contracts--Unanticipated Recoveries of Losses on the Mortgage Loans" in the
accompanying prospectus, 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 assets will be
remaining in the Trust Fund for such distributions at any such time. See
"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 "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
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. [Describe allocation of
principal payments.]
The yields on the Certificates will be adversely affected if any Unpaid Net
Simple Interest Shortfalls occur in respect of the related Mortgage Loans. See
"Description of the Certificates--Distributions on the Certificates--Interest"
herein.
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.
[The Class Certificates
The Certificate Interest Rate for the Class Certificates on any
Distribution Date other than the first Distribution Date will equal the lesser
of (a) % per annum and (b) the Weighted Average Net Mortgage Rate on the
Mortgage Loans. As a result, payments of principal (including prepayments) of
the Mortgage Loans having Net Mortgage Rates which exceed the Weighted Average
Net Mortgage Rate on the Mortgage Loans may reduce the Certificate Interest Rate
and yield on the Class Certificates. The Net Mortgage Rates of such Mortgage
Loans are expected to range from approximately % to % per annum initially, and
under certain scenarios it is likely that principal payments will be
concentrated among Mortgage Loans with higher Net Mortgage Rates, thus
potentially reducing the Certificate Interest Rate on the Class Certificates.
The Weighted Average Net Mortgage Rate on the Mortgage Loans as of the Cut-off
Date is expected to be approximately % per annum.]
Principal Distributions; 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 and disproportionately high principal payments arising from
early payments of monthly installments on Simple Interest Mortgage Loans 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, and 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).
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. It is expected that no more than approximately % of the
Mortgage Loans, by Principal Balance as of the Cut-off Date, required the
Mortgagor to pay a prepayment premium that had not expired as of the Cut-off
Date. Substantially all of the prepayment premiums are scheduled to expire by
the end of . Any prepayment premiums received by GECMSI will be retained as
servicing compensation.
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 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.
GECMSI is not aware of any publicly available studies relating to the
prepayment of home equity mortgage loans substantially similar to the Mortgage
Loans. A number of factors suggest that the prepayment behavior of a pool of
closed-end home equity loans may be significantly different from that of a pool
of first-priority, one- to four-family, purchase money mortgage loans with
equivalent interest rates and maturates, although these factors could give rise
to prepayments on home equity loans at either a faster or slower rate than
prepayments on first-priority, purchase money mortgage loans. No assurance can
be given as to the rate at which prepayments will be made on the Mortgage Loans.
The yields on and the weighted average lives of the Certificates will depend in
part on the rate of principal payments, including prepayments, received in
respect of the Mortgage Loans. See "Risk Factors--The Mortgage Loans--Prepayment
Considerations" herein.
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 Self-Amortizing
Mortgage Loans (including the principal portion of Early Installments (as
defined below)) 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.
[Describe allocation of prepayments among the classes of certificates.]
If a Mortgagor on a Self-Amortizing Mortgage Loan both (x) pays more than
one installment at a time and (y) designates such additional installment as an
advance installment of a scheduled principal and interest payment (an "Early
Installment"), the principal portion of such Early Installment will also be
passed through as principal in reduction of the Certificate Principal of such
Certificates on the Distribution Date immediately following the calendar month
in which such payment was received. A portion of each Early Installment equal to
the aggregate amount of interest due in each month (other than the month of
payment) covered by such Early Installment will be retained by GECMSI, as
servicer, pending payment to Certificateholders. An amount equal to the interest
due in each month covered by such Early Installment will be passed through to
Certificateholders on the Distribution Date immediately following such month.
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 offset by a
Compensating Interest Payment or a Simple Interest Payment (each 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.
[Any partial prepayment of a Self-Amortizing Mortgage Loan 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.]
Payments on Simple Interest Mortgage Loans
Approximately % of the Mortgage Loans (by Principal Balance as of the
Cut-off Date) are expected to be Simple Interest Mortgage Loans. In addition to
principal prepayments in full, the making of a payment on a Simple Interest
Mortgage Loan in any month less than 30 days after the previous payment may
result in the collection of less than 30 days' interest on such Mortgage Loan in
such month. Conversely, if a payment on a Simple Interest Mortgage Loan in any
month is made more than 30 days after the previous payment, the collection of
interest on such Mortgage Loan for such month may be greater than 30 days'
interest on such Mortgage Loan. In the event that a Mortgagor makes a monthly
payment prior to its Due Date, GECMSI will be required to make a Simple Interest
Payment (up to the amount of its Servicing Fee, less any Compensating Interest
Payments and certain other amounts described herein) to compensate for any
resulting Net Simple Interest Shortfall. See "The Pooling and Servicing
Agreement--Simple Interest Payments" herein. Any shortfalls in interest
attributable to the receipt of payments on Simple Interest Mortgage Loans less
than 30 days after the previous payment, to the extent not offset by a Simple
Interest Payment or excess interest received with respect to Simple Interest
Mortgage Loans which pay more than 30 days after the previous payment, will
produce a lower yield on the related Certificates than would otherwise be the
case. In addition, the extent to which Simple Interest Mortgage Loans experience
early or late payments will correspondingly change the amount of principal
received during a month and accordingly may change the amount of principal to be
distributed on the related Distribution Date.
If a Mortgagor on a Simple Interest Mortgage Loan pays more than one
installment at a time, the entire amount of the additional installment will be
treated as a regular principal payment and will be passed through as principal
on the related Certificates on the Distribution Date immediately following the
calendar month in which such payment was received. Because each such Mortgagor
will not be required to make the next regularly scheduled installment, interest
will continue to accrue on the principal balance of the related Mortgage Loan,
as reduced by the application of the early installment. As a result, when such
Mortgagor on a Simple Interest Mortgage pays the next required installment, the
installment so paid may be insufficient to cover the interest that has accrued
since the last payment by such Mortgagor. Notwithstanding such insufficiency,
the related Mortgage Loan would be considered to be current (although GECMSI may
be required to make a Simple Interest Payment, to the limited extent described
herein). In addition, other than its obligation to make any required Simple
Interest Payment, GECMSI will not be required to advance the amount of such
insufficiency. This situation will continue until the installments are once
again sufficient to cover all accrued interest and to reduce the Principal
Balance of such Mortgage Loan. Depending on the Principal Balance and Mortgage
Rate of the Simple Interest Mortgage Loans that pay early and on the number of
installments that are paid early, there may be extended periods of time during
which such Mortgage Loans that are not amortizing are nonetheless considered
current. See "Description of the Mortgage Pool and the Mortgaged
Properties--Terms of the Mortgage Loans."
[Description of yield sensitivity of any interest-only, principal-only,
floating-rate or subordinated classes of Certificates, if applicable.]
Final Payment Considerations
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 certain Certificates (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.]
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.
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 Classes 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.
The model used in this Prospectus Supplement is the prepayment assumption
(the "Prepayment Assumption") which represents an assumed, variable annualized
rate of prepayment each month relative to the then outstanding principal balance
of a pool of mortgage loans for the life of such mortgage loans. The model 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. The
Prepayment Assumption assumes that a pool of loans prepays in the first month at
a constant prepayment rate that corresponds to one-tenth of the percentage rate
that applies in the tenth month and increases by an additional one-tenth each
month thereafter until the tenth month. A [20]% Prepayment Assumption assumes
constant prepayment rates of [2.0]% per annum of the then outstanding principal
balance of the Mortgage Loans in the first month following the origination of
such Mortgage Loans and an additional [2.0]% per annum in each month thereafter
until the tenth month. Beginning in the tenth month and in each month thereafter
during the life of such mortgage loans, a [20]% Prepayment Assumption assumes a
constant prepayment rate of [20]% per annum each month.
As used in the table below, 0% Prepayment Assumption assumes prepayment
rates equal to a 0% of the Prepayment Assumption, i.e., no prepayments.
Prepayment Assumptions of %, %, % and % represent assumed, variable rates of
prepayments determined on the same basis as a [20]% Prepayment Assumption, with
%, %, % and % and %, %, % and %, as applicable, substituted for [20]% and
[2.0]%, respectively, in the calculation. The model 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.
[Discussion of yield considerations relating to planned amortization class,
targeted amortization class or other scheduled balance Certificates, if
applicable.]
Table of Certificate Principal Balances. The following table sets forth the
percentages of the initial Class Certificate Principal Balance of each class of
Certificates offered hereby that would be outstanding after each of the dates
shown at the specified constant percentages of the Prepayment Assumption and the
corresponding weighted average life of each such class of Certificates. [The
figures in the table are based on the actual characteristics of the Mortgage
Loans expected to be included in the Mortgage Pool. The Mortgage Loans are
expected to have a weighted average Mortgage Rate of approximately % per annum
and a weighted average scheduled remaining term to maturity of approximately
months as of the Cut-off Date, with a weighted average Mortgage Loan age of
approximately months.] For 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 , (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 Due Dates in each month, 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 ) 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
(except with respect to Balloon Payments), (ix) if the Mortgage Loan is a
Balloon Loan, the last payment made on such Mortgage Loan is made on its Due
Date together with 30 days' interest thereon and, therefore, no Interest
Shortfall results from such final payment, (x) 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, (xi) the date of the
initial issuance of the Certificates is , (xii) the amount distributable to
Certificateholders is not reduced by the incurrence of any expenses by the Trust
Fund, (xiii) the Mortgage Pool consists of Mortgage Loans having the
characteristics set forth below, (xiv) the Net Mortgage Rate of each Mortgage
Loan equals the Mortgage Rate for such Mortgage Loan, less % per annum, and (xv)
no Net Simple Interest Shortfalls or Net Simple Interest Excesses occur with
respect to the Simple Interest Loans.
For purposes of the tables on the following pages it is also assumed that
the Mortgage Pool consists of Mortgage Loans having the following
characteristics:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Original Remaining
Amortization Net Amortization Remaining Term
Term to Current Mortgage Term to Maturity Age
Amortization Type Maturity (in Balance Rate (in months) (in months) (in months)
months)
</TABLE>
[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 (xi) 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.]
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.]
<PAGE>
Percent of Original Class Certificate Principal Balance
Outstanding of the Certificates
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Class Class Class Class
Prepayment Assumption Prepayment Assumption Prepayment Assumption Prepayment Assumption
Distribution 0% % % % % 0% % % % % 0% % % % % 0% % % % %
-- - - - - -- - - -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
Date
Initial 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
Percentage
</TABLE>
[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.
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.
THE HOME EQUITY LOAN PROGRAM
General
GECMSI is engaged in the business of acquiring and servicing residential
mortgage loans secured by liens on one- to four-family homes. GECMSI originates,
acquires and services closed-end, fixed rate and adjustable rate, first-and
second-lien home equity mortgage loans ("Home Equity Loans"). GECMSI originates
Home Equity Loans through its retail lending program and acquires Home Equity
Loans through its wholesale program. "Retail loans" are generally originated
through mortgage brokers eligible to refer Home Equity Loan applications to
GECMSI. Such loans are generally underwritten by GECMSI and processed primarily
by the mortgage broker and closed by GECMSI in GECMSI's name. It is expected
that approximately % of the Mortgage Loans (by Principal Balance as of the
Cut-off Date) will be retail loans that were originated by GECMSI. "Wholesale
loans" are purchased from approved correspondent lenders, and in negotiated
transactions from other third parties. Home Equity Loans acquired from
correspondent lenders are generally closed in the name of the applicable
correspondent lenders and are subsequently sold and assigned to GECMSI.
Correspondent lenders selling Home Equity Loans to GECMSI are generally required
to follow GECMSI's loan underwriting policies, which are described below, or,
with respect to Home Equity Loans acquired by GECMSI from correspondent lenders
in negotiated transactions, GECMSI underwrites such Home Equity Loans in
accordance with GECMSI's loan underwriting policies before acquiring them. It is
expected that approximately % of the Mortgage Loans by Principal Balance as of
the Cut-off Date will be wholesale loans that will have been originated by
correspondent lenders. It is expected that the remaining Mortgage Loans
(approximately % by Principal Balance as of the Cut-off Date) will be "Consumer
Direct" loans originated by GECMSI with borrowers who currently have loans
serviced by GECMSI. [It is expected that % (by Principal Balance as of the
Cut-off Date) of the Mortgage Loans will have been acquired from other third
parties in negotiated transactions.]
Underwriting Procedures Relating to Home Equity Loans
GECMSI's underwriting procedures are intended to evaluate the prospective
mortgagor's credit standing and ability to repay the Home Equity Loan, as well
as the value and adequacy of the underlying mortgaged property that serves as
collateral for the Home Equity Loan.
All Home Equity Loan applications received by GECMSI are subject to a
credit investigation. As part of such investigation, GECMSI (i) reviews at least
two independent credit bureau reports (which may consist of a merged report),
(ii) obtains verification of employment, which generally includes a current pay
stub and the borrower's most recent W-2 form or federal tax return (or, for
self-employed individuals, tax returns from the previous two years), (iii)
conducts a title search and (iv) obtains an independent appraisal of the
property, as described further below. In addition, GECMSI generally obtains a
written or telephone verification of the current first-lien mortgage loan
balance and payment history.
After the investigation is completed, a decision is made to accept or
reject the loan application. Generally, borrowers must have a debt-to-income
ratio not greater than 60% for their application to be approved.
GECMSI generally has not made first-lien Home Equity Loans with a Home
Equity Loan-to-Value Ratio exceeding 90%. However, the Total Combined
Loan-to-Value Ratio may exceed 90% in cases where GECMSI substantially
simultaneously made or acquired a second-lien Home Equity Loan secured by the
related Mortgaged Property to certain borrowers with high credit ratings, as in
the case of certain first-lien Mortgage Loans included in the Mortgage Pool, as
described under "Description of the Mortgage Pool and the Mortgaged
Properties--The Mortgage Loans" herein. GECMSI also generally has not made
second-lien Home Equity Loans when the Second-Lien Combined Loan-to-Value Ratio
has exceeded 85%, except in connection with its "High LTV" program, under which
GECMSI has originated or acquired second-lien Home Equity Loans with Second-Lien
Combined Loan-to-Value Ratios of up to 100%. Under the High LTV program, certain
borrowers with high credit ratings have been permitted to borrow up to $50,000
under second-lien mortgage loans with Second-Lien Combined Loan-to-Value Ratios
not exceeding 90% and up to an amount generally not exceeding $35,000 under
second-lien mortgage loans with Second-Lien Combined Loan-to-Value Ratios not
exceeding 100%. It is expected that no more than approximately % of the Mortgage
Loans as of the Cut-off Date will have been originated under the High LTV
program. GECMSI's determination of an acceptable Total Combined Loan-to-Value
Ratio or Second-Lien Combined Loan-to-Value Ratio, as the case may be, for a
particular Home Equity Loan application is based on the credit rating of the
borrower, the quality, condition and appreciation history of the related
property and prospective market conditions with regard to such property.
GECMSI classifies Home Equity Loans on the basis of the credit histories of
the borrowers. At origination, the credit histories of the borrowers with
respect to approximately % of the Mortgage Loans (by Principal Balance as of the
Cut-off Date) did not satisfy GECMSI's criteria for classification in its
highest generic category. Mortgage Loans classified in lower categories may
experience a higher rate of payment default than Mortgage Loans classified in
the highest category.
Certain Home Equity Loans may be originated under GECMSI's No Income
Verification ("NIV") program. In order to qualify for the NIV program, a
borrower generally must have a debt-to-income ratio of no greater than 50%, a
Total Combined Loan-to-Value Ratio or Second-Lien Combined Loan-to-Value Ratio,
as the case may be, of no greater than 80% and a high credit rating. The credit
investigation of an applicant for a loan under the NIV program is generally the
same as described above, except that the income of the borrower will not be
verified.
Certain Home Equity Loans (approximately % by Principal Balance as of the
Cut-off Date) which are Consumer Direct Loans may be originated under GECMSI's
streamlined portfolio ("Streamlined Portfolio") program. Under the Streamlined
Portfolio program, if GECMSI is currently the servicer of a borrower's
first-lien mortgage loan, GECMSI may originate a second-lien Home Equity Loan
that requires only a title search and a title bring-down to determine such Home
Equity Loan's lien position at the time of closing. No new title insurance will
be required to close such second-lien Home Equity Loans. No more than
approximately % (by aggregate Principal Balance as of the Cut-off Date) of the
Mortgage Loans will be second-lien Home Equity Loans originated without new
title insurance under the Streamlined Portfolio program. With respect to
appraisals under the Streamlined Portfolio program, if GECMSI is currently the
servicer of a borrower's first-lien mortgage loan which is being refinanced by a
first-lien Home Equity Loan and the original appraisal is less than twelve
months old, generally either a copy of the original appraisal and a
recertification of value or a "drive-by" appraisal will be required to close
such first-lien Home Equity Loan. In the case of a second-lien Home Equity Loan
with a principal balance not in excess of $100,000, if GECMSI is currently the
servicer of a borrower's first-lien mortgage loan, generally only a "drive-by"
appraisal with comparable photos will be required to close such second-lien Home
Equity Loan. Notwithstanding the two preceding sentences, a Home Equity Loan
under the Streamlined Portfolio program will not be eligible for a "drive-by"
appraisal if the mortgaged property underlying such Home Equity Loan is in a
geographical area designated as a soft housing market, as determined by GECMSI
in its sole discretion, from time to time. None of the Mortgage Loans will be
second-lien Home Equity Loans originated with a "drive-by" appraisal under the
Streamlined Portfolio program.
For further information respecting the underwriting standards applicable to
Home Equity Loans, see "The Trust Fund--The Mortgage Loans--Loan Underwriting
Policies" in the Prospectus.
<PAGE>
DELINQUENCY, FORECLOSURE AND LOAN LOSS EXPERIENCE OF GECMSI'S
HOME EQUITY LOAN SERVICING PORTFOLIO
The following tables set forth certain information concerning the
delinquency and foreclosure (including pending foreclosures) experience on Home
Equity Loans included in GECMSI's servicing portfolio (the "Servicing
Portfolio").
<TABLE>
<CAPTION>
As of December 31, As of December 31, As of December 31,
1995 1996 1997
By No. By Dollar By No. By Dollar By No. By Dollar
of Amount of of Amount of of Amount of
Loans Loans Loans Loans Loans Loans
(dollar amounts in
thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Home Equity Loan 36,154 $2,080,928 40,130 $2,626,039 48,826 $2,975,681
====== ========== ====== ========== ====== ==========
portfolio....
Period of Delinquency(1)...............
One payment(2)...................... 491 $25,631 751 $40,502 783 $45,052
Two payments(2)......................118. 5,883 169 9,643 278 16,911
Three payments or more(3)........... 562 35,483 760 47,918 1,234 80,319
--- ------ --- ------ ----- ------
Total delinquent loans................1,171 $66,997 1,680 $97,883 2,295 $142,282
===== ======= ===== ======= ===== ========
Percent of portfolio....................3.24% 3.22% 4.19% 3.73% 4.70% 4.78%
</TABLE>
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C>
Total Home Equity Loan portfolio.... $ $
Period of Delinquency(1)............
One payment(2)................... $ $
Two payments(2)..................
Three payments or more(3)........
Total delinquent loans.............. $ $
Percent of portfolio................ % % % %
</TABLE>
(1) The indicated periods of delinquency are based on the number of days
past due on a contractual basis. No Home Equity Loan is considered
delinquent for these purposes until after the monthly anniversary of its
contractual due date (e.g., a mortgage loan with a payment due on January
1st would first be considered one payment delinquent after February 1st).
The delinquencies reported above were determined as of the dates indicated.
(2) Includes loans for which the borrowers are in bankruptcy.
(3) Includes all loans in foreclosure and loans for which the borrowers are
in bankruptcy.
<PAGE>
<TABLE>
<CAPTION>
As of December 31,
1995 1996 1997
---- ---- ----
(Dollar amounts in thousands)
<S> <C> <C> <C>
Total Home Equity Loan portfolio.......... $2,080,928 $2,626,039 $2,975,681
Foreclosed loans (Real estate owned ("REO")
properties(1)........................ $ 7,732 $ 9,189 $ 5,505
Foreclosure ratio......................... 0.37% 0.35% 0.18%
As of September 30,
1997 1998
---- ----
(Dollar amounts in thousands)
Total Home Equity Loan portfolio................................. $ $
Foreclosed loans (Real estate owned ("REO") properties(1)........ $ $
Foreclosure ratio................................................ % %
</TABLE>
(1) Foreclosed loans represent the amount of funds invested by GECMSI or an
investor, in properties, the title to each of which has been acquired by
GECMSI or investors following foreclosure or delivery of a deed in lieu of
foreclosure, and which have not been liquidated at the end of the period
indicated. The amount of funds invested by GECMSI for a property includes
the principal balance of the related Home Equity Loan, interest paid to
investors through the date of the repurchase of such loan from an investor
pool and expenses associated with foreclosing on such loan, and maintaining
and selling the related property. The length of time necessary to complete
the liquidation of such mortgaged properties may be affected by prevailing
economic conditions and the marketability of the mortgaged properties.
The following tables set forth certain information concerning net loan loss
experience of GECMSI for the indicated periods, with respect to Home Equity
Loans included in its Servicing Portfolio. Net Losses for each period below have
been calculated to equal (a) with respect to second-lien mortgage loans written
off as uncollectible, the principal amount of such loan, net of any subsequent
recoveries, together with legal and other fees and expenses associated with
monitoring the foreclosure of the related first lien, which expenses were
incurred prior to GECMSI's decision to write off such second-lien mortgage loan
as uncollectible, and (b) with respect to foreclosed properties liquidated
during the period, the principal amount of the related mortgage loans less the
net proceeds of the sale of the related properties, together with expenses
associated with maintaining, repairing and selling such properties. Net Losses
also include the amount of interest paid to investors through the date of
repurchase of the mortgage loans referred to in (a) and (b) above from an
investor pool.
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1996 1997
---- ---- ----
(Dollar amounts in thousands)
<S> <C> <C> <C>
Number of Home Equity Loans serviced...... 36,154 40,130 48,826
Aggregate loan balance of Home Equity Loans
serviced............................. $2,080,928 $2,626,039 $2,975,681
Net losses(2):
By dollar amount....................... $9,734 $8,756 $8,210
Percentage(3).......................... 0.47% 0.33% 0.28%
Nine Months Ended September 30,
1997 1998
---- ----
Number of Home Equity Loans serviced.............................
Aggregate loan balance of Home Equity Loans serviced............. $ $
Net losses(2):...................................................
By dollar amount $ $
Percentage(1) % %
</TABLE>
(1) As of the end of the indicated period.
(2) Net loss data is given with respect to Home Equity Loans serviced by GECMSI,
other than Home Equity Loans as to which certain third-party investors, pursuant
to contractual arrangement, assume responsibility for the liquidation and
ultimate disposition of the Mortgaged Properties securing such Home Equity Loans
generally after the foreclosure process is completed. As of December 31, 1995,
December 31, 1996 and December 31, 1997 approximately 30%, 32% and 23%,
respectively (by aggregate loan balance), of GECMSI's Home Equity Loan servicing
portfolio included loans subject to these arrangements.
(3) As a percentage of aggregate year-end balance.
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., simple interest mortgage loans,
self-amortizing mortgage loans and balloon loans), mortgage loans secured by
first and second liens on mortgaged properties 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
[Investors should further note that a number of social, economic, tax,
geographic, demographic, legal and other factors may adversely affect the timely
payment by borrowers of scheduled payments of principal and interest on the
mortgage loans in the Servicing Portfolio, which could, in turn, cause an
increase in delinquency and foreclosure rates. These factors include economic
conditions, either nationally or in geographic areas where GECMSI's Servicing
Portfolio tends to be concentrated, the age of the Mortgage Loans, the
geographic distribution of the Mortgaged Properties, the payment terms of the
Mortgages, the characteristics of the mortgagors, enforceability of due-on-sale
clauses and servicing decisions].
[GE CAPITAL MORTGAGE FUNDING CORPORATION
Funding, a wholly-owned subsidiary of GECMSI, 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 material provisions of the Agreement. See "The
Pooling and Servicing Agreement" in the accompanying prospectus for summaries of
the other material provisions of the Agreement. The summaries below do not
purport to be complete and are subject to, and qualified in their entirety by
reference to, the provisions of the Agreement. Where particular provisions or
terms used in the Agreement are referred to, such provisions or terms are as
specified in the Agreement.
Assignment of Mortgage Loans
At the time of issuance of the Certificates, the 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.
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 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. GECMSI
will acknowledge in the [Asset Purchase] Agreement 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 and for] the Trustee upon transfer of the
Mortgage Loans to the Trustee.
Servicing Arrangement with Respect to the Mortgage Loans
[It is expected that GECMSI initially will directly service all of the
Mortgage Loans.] 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.
GECMSI, in its capacity as servicer and acting as agent for the Trustee,
will not consent to the placement of a subsequent senior mortgage or deed of
trust on any Mortgaged Property, except in the case of a Permitted Senior Loan
(as defined below). If, notwithstanding the foregoing, any mortgage loan (other
than a Permitted Senior Loan) secured by a lien or liens ranking senior to that
of a Mortgage Loan is consented to by GECMSI, the Agreement will require that
GECMSI purchase such Mortgage Loan at the Purchase Price therefor, but only in
the event that foreclosure proceedings are commenced in respect of such Mortgage
Loan. The Agreement will further provide that such purchase obligation will be
the sole remedy available to holders of the Certificates or the Trustee against
GECMSI respecting such breach. Under the Agreement, a "Permitted Senior Loan" is
a mortgage loan (i) as to which the proceeds therefrom were used to refinance an
existing mortgage loan ranking senior to a Mortgage Loan and (ii) as to which
certain conditions described in the Agreement have been satisfied.
Subject to applicable law, all legal expenses in connection with
foreclosure proceedings initiated by GECMSI are assessed to, and become the
responsibility of, the related Mortgagor.
GECMSI may not foreclose on any property securing a Mortgage Loan unless it
forecloses subject to any senior mortgage and any outstanding property taxes.
GECMSI generally will pay 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 monitor the foreclosure proceedings, institute
its own foreclosure proceedings, satisfy the senior mortgage at the time of the
foreclosure sale or take other action to protect its interest in the related
property, including bidding on the property at the time of any foreclosure sale.
GECMSI will be reimbursed for any expenses incurred or advances made in
connection with the liquidation of a defaulted Mortgage Loan out of liquidation
proceeds or insurance proceeds on such defaulted Mortgage Loan. GECMSI will not
be under any obligation to make any such advance, and in any event GECMSI will
refrain from taking any such action based upon its determination that any
amounts so paid will not be recoverable from proceeds from the disposition of
the related Mortgaged Property. See "Servicing of the Mortgage Loan and
Contracts--Collection and Other Servicing Procedures--The Mortgage Loans" 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 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 interest
required under the terms of a Mortgage Loan, GECMSI, as servicer, will advance
the entire amount of such payment (in the amount that would be due on the
related Due Date, in the case of a Simple Interest Mortgage Loan), 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 interest payment required to be advanced
by GECMSI will not be affected by any agreement by any agreement between GECMSI
and a Mortgagor providing for the postponement or modification of the Due Date
or amount of such scheduled interest payment. GECMSI will be entitled to
reimbursement for any such advance from related late interest payments on the
Mortgage Loan as to which such Advance was made. Furthermore, in the event that
any Mortgage Loan as to which 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 such proceeds. GECMSI will not advance delinquent
principal in respect of any Mortgage Loan.
If GECMSI makes a good faith judgment that all or any portion of any
Advance 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. 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 Net Liquidation Proceeds 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 being borne by holders of the Senior Certificates.]
[Any failure by GECMSI to make an Advance as required under the Agreement
will constitute an Event of Default as defined thereunder, in which case the
Trustee, as successor to GECMSI in its capacity as servicer of the Mortgage
Loans, will be obligated to make any such Advance, in accordance with the terms
of the Agreement unless prohibited by applicable law from doing so.]
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 the "Servicing Fee" at the rate (the "Servicing Fee Rate") described below.
As to each Mortgage Loan, the Servicing Fee Rate will be a fixed rate per annum
of the outstanding principal balance of such Mortgage Loan. The Servicing Fee
Rate for each Mortgage Loan is expected to be %. The aggregate servicing
compensation 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 Servicing Fee, and GECMSI will
retain the balance as part of its servicing compensation (subject to its
obligation to make Compensating Interest Payments and Simple Interest Payments,
as described below).
To the extent any voluntary prepayment on a Self-Amortizing Mortgage Loan
results in an Interest Shortfall (as described in clauses (i) and (ii) of the
definition thereof) 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 aggregate
Principal Balance of the Mortgage Loans for such Distribution Date and (b) the
aggregate amount received by GECMSI on account of its Servicing Fees (net of any
servicing compensation paid to any direct servicer) in connection with such
Distribution Date.
There can be no assurance that the aggregate amount received by GECMSI on
account of its Servicing Fees (net of any servicing compensation paid to any
direct servicer) will be sufficient to pay any Compensating Interest Payments
and Simple Interest Payments that would otherwise be made if such payments were
not limited by the amount of GECMSI's servicing compensation.
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, as well as prepayment premiums, late charges and certain other fees
payable by Mortgagors on the Mortgage Loans.
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 Compensation and Payment of Expenses" in the
accompanying prospectus for information regarding other possible compensation to
GECMSI.
Simple Interest Payments
In the event that there is a Net Simple Interest Shortfall for any
Distribution Date, GECMSI will be obligated to remit to the Trustee on the
related Deposit Date an amount (a "Simple Interest Payment") equal to the lesser
of (i) the amount of such Net Simple Interest Shortfall and (ii) the sum of (a)
the aggregate amount received by GECMSI on account of its Servicing Fees (net of
any compensation paid to any direct servicer) in connection with such
Distribution Date, less any Compensating Interest Payment in respect of such
Distribution Date, and (b) the Simple Interest Excess Amount for such
Distribution Date.
In the event that there is a Net Simple Interest Excess on any Distribution
Date, such excess will be applied to the distribution of interest pursuant to
priority second under "Description of the Certificates--Distributions on the
Certificates--Interest" to the extent of Unpaid Net Simple Interest Shortfalls
for all prior Distribution Dates, less all amounts distributed pursuant to such
priority second in respect of Unpaid Net Simple Interest Shortfalls on such
prior Distribution Dates.
Any remaining Net Simple Interest Excess will be paid to GECMSI as
additional servicing compensation.
The "Simple Interest Excess Amount" for any Distribution Date will be equal
to the greater of (i) zero and (ii) the aggregate of any Net Simple Interest
Excess paid to GECMSI in connection with prior Distribution Dates, minus any
Simple Interest Payments made by GECMSI in connection with prior Distribution
Dates.
Trustee
The Trustee for the Certificates offered hereby will be . The Corporate
Trust Office of the Trustee is located at . The Trustee (or any of its
affiliates), in its individual or any other capacity, may become the owner or
pledgee of Certificates with the same rights as it would have if it were not
Trustee. In addition, GECMSI (and its affiliates) may maintain banking
relationships with the Trustee in the ordinary course of their respective
businesses.
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
Principal Balance of the Mortgage Loans is less than [10]% of the aggregate
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 such shortfall will be allocated on
the final Distribution Date to each Class of Certificates in accordance with the
priorities described under "Description of the Certificates--Distributions on
the Certificates--Allocation of Available Funds."
No holder of any Certificates will be entitled to any unanticipated
recoveries received with respect to any Mortgage Loan after the termination of
the Trust Fund. See "Servicing of the Mortgage Loans and Contracts --
Unanticipated Recoveries of Losses on the Mortgage Loans" in the prospectus.
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 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.]
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 Certificates will be issued
with original issue discount in an amount equal to [to be specified].] The
prepayment assumption that is to be used in determining the rate of accrual of
original issue discount and whether the original issue discount is considered de
minimis, and that may be used by a holder of a Regular Certificate to amortize
premium, will be % of the Prepayment Assumption. No representation is made as to
the actual rate at which the Mortgage Loans will prepay. See "Federal Income Tax
Consequences--REMIC Certificates--Income from Regular Certificates" in the
accompanying prospectus.
[The requirement to report income on a Regular Certificate under an accrual
method may result in the inclusion of amounts in income that are not currently
distributed in cash. In the case of a Junior Certificate, accrued income may
exceed cash distributions as a result of the preferential right of classes of
Senior Certificates to receive cash distributions in the event of losses or
delinquencies on Mortgage Loans. Prospective purchasers of Junior Certificates
should consult their tax advisors regarding the timing of income from those
Certificates and the timing and character of any deductions that may be
available with respect to principal or accrued interest that is not paid. See
"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 "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
Certificates offered hereby [(other than the Class Certificates)] 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 Certificates)] are the following: (i) the Underwriter is
the sole underwriter or the manager or co-manager of the underwriting syndicate,
for such Certificates, (ii) the Certificates are rated in one of the three
highest generic rating categories by or at the time of the acquisition of such
Certificates by the ERISA Plan, (iii) the Certificates represent a beneficial
ownership interest in, among other things, obligations that bear interest or are
purchased at a discount and which are secured by single-family residential,
multifamily residential or commercial real property (including obligations
secured by leasehold interests on commercial real property), or fractional
undivided interests in such obligations, (iv) the Certificates are not
subordinated to other certificates issued by the Trust Fund in respect of the
Mortgage Pool, (v) the ERISA Plan investing in such Certificates is an
"accredited investor" as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act of 1933, (vi) the
acquisition of the Certificates is on terms that are at least as favorable to
the ERISA Plan as they would be in an arm's length transaction with an unrelated
third party, (vii) the Trustee is not an affiliate of any member of the
"Restricted Group" (as defined below) and (viii) the compensation to the
Underwriter represents not more than reasonable compensation for underwriting
the Certificates, the proceeds to the 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.]
[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 "Federal Income Tax Consequences--Residual Certificates" herein and
"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 certificates offered hereby will not constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA").
The appropriate characterization of the certificates under various legal
investment restrictions, and thus the ability of investors subject to these
restrictions to purchase such 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 certificates offered hereby will constitute
legal investments for them.
The Depositor makes no representation as to the proper characterization of
the certificates for legal investment or financial institution regulatory
purposes, or as to the ability of particular investors to purchase the
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
certificates) may adversely affect the liquidity of the certificates.]
PLAN OF DISTRIBUTION
[Subject to the terms and conditions set forth in an Underwriting Agreement
between [GECMSI] [Funding] and the Underwriter, [GECMSI] [Funding] as seller,
has agreed to sell the Underwriter, and the Underwriter has agreed to purchase,
each Class of Certificates offered hereby upon issuance.
In the Underwriting Agreement, the Underwriter has agreed, subject to the
terms and conditions set forth therein, to purchase all of the Certificates
offered hereby, if any are purchased. [GECMSI] [Funding] has been advised by the
Underwriter that it proposes initially to offer the Classes of Senior
Certificates offered hereby (other than the Residual Certificates) to the public
at the respective offering prices set forth or described on the cover page
hereof.
[Until the distribution of the Certificates offered hereby is
completed, rules of the Securities and Exchange Commission may limit the ability
of the Underwriter to bid for and purchase such Certificates. As an exception to
these rules, the Underwriter is permitted to engage in certain transactions that
stabilize the price of the Class , Class , Class , Class , Class and Class
Certificates. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of such Certificates. If the
Underwriter creates a short position in any such Class of Certificates in
connection with the offering, i.e., if they sell more of any such Class than is
set forth on the cover page of this Prospectus Supplement, the Underwriter may
reduce that short position by purchasing such Certificates in the open market.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.
The Underwriter makes no representation or prediction as to the direction
or magnitude of any effect that the transactions described above may have on the
prices of such Certificates. In addition, the Underwriter makes no
representation that such Underwriter will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.]
Distribution of the [Class R, Class RL, Class M, Class B1 and Class B2]
Certificates 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.
[GECMSI] [Funding] 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.
has entered into an agreement with [GECMSI] [Funding] to purchase the
[Class B3, Class B4 and Class B5] Certificates simultaneously with the purchase
of the Certificates offered hereby, subject to certain conditions.]
CERTIFICATE RATINGS
It is a condition of issuance of the Certificates that the Certificates
offered hereby be rated " " by [and " " by ].
[Description of rating criteria of each rating agency.]
The ratings of the Certificates should be evaluated independently from
similar ratings on other types of securities. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision or
withdrawal at any time by the assigning rating agency.
The 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.
<PAGE>
INDEX OF CERTAIN PROSPECTUS SUPPLEMENT DEFINITIONS
Defined Term Page
- ------------ ----
Accrued Certificate Interest............................
Agreement...............................................
Available Interest Funds................................
Available Principal Funds...............................
Balloon Loans...........................................
Balloon Payments........................................
Bankruptcy Loss.........................................
beneficial owner........................................
BIF.....................................................
Book-Entry Certificates.................................
Cede....................................................
Certificate Principal Balance...........................
Certificates............................................
Class Certificate Principal Balance.....................
Code....................................................
Collection Account......................................
Compensating Interest Payment...........................
Consumer Direct.........................................
Cut-off Date............................................
Debt Service Reduction..................................
Defaulted Mortgage Loan.................................
Deficient Valuation.....................................
Definitive Certificate..................................
Definitive Description..................................
Depositor...............................................
Depository..............................................
Distribution Date.......................................
DOL.....................................................
[Double REMIC]..........................................
Early Installment.......................................
ERISA...................................................
ERISA Plan..............................................
Exemption...............................................
FDIC....................................................
Financial Intermediary..................................
[Funding]...............................................
GE Capital..............................................
GECMSI..................................................
Home Equity Loan Ratio..................................
Home Equity Loan-to-Value Ratio.........................
Home Equity Loans.......................................
Interest Accrual Period.................................
Interest Shortfall......................................
Junior Certificates
Liquidated Mortgage Loan................................
[Lower-Tier REMIC]......................................
Mortgage................................................
Mortgage Loans..........................................
Mortgage Pool ..........................................
Mortgage Rates..........................................
mortgage related securities.............................
Mortgaged Properties....................................
Mortgagor...............................................
NIV.....................................................
Net Interest Shortfall..................................
Net Mortgage Rate.......................................
[Non-Book-Entry Certificates]...........................
Nonrecoverable Advance..................................
Notional Principal Balance..............................
Outstanding Mortgage Loan...............................
Permitted Senior Lien...................................
Pool Principal Balance..................................
Prepayment Assumption...................................
Prepayment Period.......................................
Primary Mortgage Insurance Policy.......................
Principal Balance.......................................
Realized Loss...........................................
Record Date.............................................
Regular Certificates....................................
regular interests.......................................
[REMIC].................................................
Residual Certificates...................................
residual interests......................................
Restricted Group........................................
SAIF....................................................
Second-Lien Combined Loan-to-Value Ratio................
Self-Amortizing Mortgage Loans..........................
Servicing Fee...........................................
Servicing Portfolio.....................................
Simple Interest Excess Amount...........................
Simple Interest Mortgage Loans..........................
Simple Interest Payment.................................
Simple Interest Shortfall Percentage....................
SMMEA...................................................
Tax-Exempt Investor.....................................
Total Combined Loan-to-Value Rate.......................
Trigger Event...........................................
Trust Fund..............................................
Trustee.................................................
Underwriters............................................
Unpaid Not Simple Interest Shortfall....................
[Upper-Tier REMIC]......................................
Weighted Average Net Mortgage...........................
<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..................................................
Risk Factors......................................................
Description of the Mortgage Pool
and the Mortgaged Properties......................................
Description of the Certificates...................................
Yield and Weighted Average
Life Considerations...............................................
GE Capital Mortgage Services, Inc.................................
The Home Equity Loan Program......................................
Delinquency, Foreclosure and Loan Loss
Experience of GECMSI's Home Equity
Loan Servicing Portfolio.................
[GE Capital Mortgage Funding
Corporation]......................................................
Use of Proceeds...................................................
The Pooling and Servicing Agreement...............................
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................................................
Risk Factors......................................................
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.......................................................
The Guarantor.....................................................
Certain Legal Aspects of the Mortgage Loans and Contracts.........
Legal Investment Matters..........................................
ERISA Considerations..............................................
Federal Income Tax Consequences...................................
Plan of Distribution.............................................
Use of Proceeds...................................................
Legal Matters.....................................................
Financial Information.............................................
Index of Certain Prospectus Definitions...........................
<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
Pass-Through Certificates,
Series HE -
-------
PROSPECTUS SUPPLEMENT
-------
[Underwriter[s]]
[Date]
<PAGE>
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
X Information contained herein is subject to completion X
X or amendment. A registration statement relating to these X
X securities has been filed with the Securities and Exchange X
X Commission. These securities may not be sold nor may offers to X
X buy be accepted prior to the time the registration statement X
X becomes effective. This prospectus shall not constitute an offer X
X to sell or the solicitation of an offer to buy nor shall there be X
X any sale of these securities in any State in which such offer, X
X solicitation or sale would be unlawful prior to registration or X
X qualification under the securities laws of any such State. X
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
SUBJECT TO COMPLETION, FEBRUARY 16, 1999
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 comprised of
any of the following assets, in addition to other assets described in this
prospectus and the accompanying prospectus supplement:
o 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 borrowers' interests in cooperative apartment buildings and the
right to occupy apartments in such buildings;
o 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;
o 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.
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 come solely from amounts collected on
the assets in the trust fund backing that series.
Either GE Capital Mortgage Services, Inc. or GE Capital Mortgage Funding
Corporation will deposit assets into each trust fund issuing certificates. If GE
Capital Mortgage Funding Corporation acts as depositor of a trust fund comprised
of assets other than those issued or guaranteed by the Government National
Mortgage Association, the Federal National Mortgage Association or the Federal
Home Loan Mortgage Corporation, it will have acquired these assets from GE
Capital Mortgage Services, Inc., its affiliate.
GE Capital Mortgage Services, Inc. will act as servicer or master servicer
of the assets in a trust fund. Although GE Capital Mortgage Services, Inc. will
have certain responsibilities to the trust fund in this capacity, the
certificates will not be obligations of GE Capital Mortgage Services, Inc., GE
Capital Mortgage Funding Corporation or any of their affiliates.
---------------------------------
Consider carefully the risk factors beginning on page 12 of this
prospectus.
---------------------------------
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 accompanying prospectus supplement,
neither General Electric Company, General Electric Capital Corporation, GE
Capital Mortgage Corporation, General Electric Mortgage Insurance Corporation
nor any other affiliate of GE Capital Mortgage Services, Inc. or GE Capital
Mortgage Funding Corporation will have any obligations with respect to the
certificates or the trust fund.
The date of this prospectus is , .
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS AND IN THE
ACCOMPANYING PROSPECTUS SUPPLEMENT
GE Capital Mortgage Services, Inc. and GE Capital Mortgage Funding
Corporation ("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.
The prospectus supplement will supplement and enhance, and may vary, the
disclosure set forth in this prospectus for purposes of your certificates.
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 Corporate Secretary
GE Capital Mortgage Services, Inc. GE Capital Mortgage Funding Corporation
Three Executive Campus Three Executive Campus, Suite W. 602
Cherry Hill, New Jersey 08002 Cherry Hill, New Jersey 08002
(609) 661-6512 (609) 661-5881
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 any state where their offer
is prohibited. The information contained in the prospectus and the accompanying
prospectus supplement is correct only as of the date stated on their respective
covers.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Caption Page
- ------- ----
<S> <C>
Important Notice About Information Presented in This Prospectus and in
the Accompanying Prospectus Supplement..............................................................2
Where You Can Find More Information.....................................................................2
Prospectus Summary......................................................................................6
Risk Factors...........................................................................................12
Description of the Certificates........................................................................18
General.............................................................................................19
Classes of Certificates.............................................................................20
Distributions of Principal and Interest.............................................................21
Example of Distributions............................................................................24
Optional Termination of the Trust Fund..............................................................25
The Trust Fund.........................................................................................26
The Mortgage Loans..................................................................................27
The Agency Securities...............................................................................35
Contracts...........................................................................................40
Credit Enhancement.....................................................................................42
General.............................................................................................42
Subordination.......................................................................................42
Purchase of Liquidating Loans.......................................................................44
Limited Guarantee of the Guarantor..................................................................45
Cross-Support.......................................................................................45
Pool Insurance......................................................................................46
Special Hazard Insurance............................................................................47
Bankruptcy Bond.....................................................................................48
Repurchase Bond.....................................................................................48
Guaranteed Investment Contracts.....................................................................49
Reserve Accounts....................................................................................49
Other Insurance, Guarantees and Similar Instruments or Agreements...................................49
Yield, Maturity and Weighted Average Life Considerations...............................................50
General.............................................................................................50
Effective Interest Rate.............................................................................53
Servicing of the Mortgage Loans and Contracts..........................................................53
Collection and Other Servicing Procedures...........................................................54
Private Mortgage Insurance..........................................................................59
Hazard Insurance....................................................................................60
Unanticipated Recoveries of Losses on the Mortgage Loans............................................62
Advances............................................................................................62
Loan Payment Record.................................................................................63
Servicing and Other Compensation and Payment of Expenses............................................66
Resignation, Succession and Indemnification of GECMSI, as Servicer, and the Depositor...............67
The Pooling and Servicing Agreement....................................................................68
Assignment of Assets................................................................................68
Repurchase or Substitution..........................................................................72
Certain Refinancings................................................................................73
Evidence as to Compliance...........................................................................73
List of Certificateholders..........................................................................74
The Trustee.........................................................................................74
Administration of the Certificate Account...........................................................75
Reports to Certificateholders.......................................................................76
Events of Default...................................................................................77
Rights Upon Event of Default........................................................................77
Amendment...........................................................................................78
Termination.........................................................................................79
Governing Law.......................................................................................80
GE Capital Mortgage Services, Inc......................................................................80
General.............................................................................................80
Delinquency and Foreclosure Experience..............................................................80
Year 2000 Computer Readiness........................................................................80
Legal Proceedings...................................................................................81
GE Capital Mortgage Funding Corporation................................................................82
General.............................................................................................82
Risk of Recharacterization..........................................................................82
The Guarantor..........................................................................................83
Certain Legal Aspects of the Mortgage Loans and Contracts..............................................83
The Mortgage Loans..................................................................................83
General..........................................................................................83
Foreclosure......................................................................................85
Junior Mortgages; Rights of Senior Mortgagees....................................................87
Right of Redemption..............................................................................89
Anti-Deficiency Legislation and Other Limitations on Lenders.....................................89
Enforceability of Certain Provisions.............................................................90
Applicability of Usury Laws......................................................................91
Soldiers' and Sailors' Civil Relief Act..........................................................91
Environmental Considerations.....................................................................92
The Contracts.......................................................................................92
General..........................................................................................92
Security Interests in the Manufactured Homes.....................................................93
Enforcement of Security Interests in Manufactured Homes..........................................95
Consumer Protection Laws.........................................................................95
Transfers of Manufactured Homes; Enforceability of "Due-on-Sale" Clauses.........................96
Applicability of Usury Laws......................................................................96
Soldiers' and Sailors' Civil Relief Act..........................................................96
Legal Investment Matters...............................................................................97
ERISA Considerations...................................................................................98
Federal Income Tax Consequences.......................................................................100
General............................................................................................100
REMIC Elections....................................................................................100
REMIC Certificates.................................................................................101
Non-REMIC Certificates.............................................................................114
Backup Withholding.................................................................................117
Plan of Distribution..................................................................................118
Use of Proceeds.......................................................................................119
Legal Matters.........................................................................................119
Financial Information.................................................................................119
Index of Certain Prospectus Definitions...............................................................120
</TABLE>
<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.
You can find a listing of capitalized terms used in this prospectus, and
the pages on which they are defined, under the caption "Index of Certain
Prospectus Definitions" beginning on page 120 of this prospectus.
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
that will consist of specified assets. Either GE Capital Mortgage Services, Inc.
or its affiliate, GE Capital Mortgage Funding Corporation will convey these
assets to the trust fund, acting as depositor.
The certificates backed by a trust fund will comprise a separate series of
certificates. Payments on a series will come 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
between the depositor of the assets, GE Capital Mortgage Services, Inc. acting
as servicer of the assets, and a commercial bank or trust company acting as
trustee for the benefit of certificateholders of the related series.
Depositors
Either GE Capital Mortgage Services, Inc. or GE Capital Mortgage Funding
Corporation, as specified in the prospectus supplement, will deposit the assets
in the trust fund backing the related series of certificates. If GE Capital
Mortgage Funding Corporation conveys the assets to the trust fund, it will have
acquired the assets from GE Capital Mortgage Services, Inc. or the other parties
stated in the related prospectus supplement.
Both GE Capital Mortgage Services, Inc. and GE Capital Mortgage Funding
Corporation are indirect, wholly-owned subsidiaries of General Electric Capital
Corporation. GE Capital Mortgage Funding Corporation is a direct, wholly-owned
subsidiary of GE Capital Mortgage Services, Inc., and was formed in December
1998 for the limited purpose of acquiring assets described in "The Trust Fund"
in this prospectus, depositing them in trust funds and acquiring and selling
certificates.
For more information, you should refer to "GE Capital Mortgage Services,
Inc." and "GE Capital Mortgage Funding Corporation" in this prospectus.
The Servicer
GE Capital Mortgage Services, Inc. will act as servicer of the assets in a
trust fund backing a series of certificates. As servicer of the assets, GE
Capital Mortgage Services, Inc. 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, conditional sales contracts and installment sales or
loan agreements contained in a trust fund, the seller of those assets to GE
Capital Mortgage Services, Inc. will remain the primary servicer while GE
Capital Mortgage Services, Inc. will supervise such servicing duties as "master
servicer" and remain directly liable to the trust fund for such servicing
duties. In addition, GE Capital Mortgage Services, Inc. generally will be
obligated, as servicer of the assets, to advance delinquent payments on the
mortgage loans, conditional sales contracts and installment sales or loan
agreements included in a 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
A trust fund related to a series of certificates will consist of the
following assets, in addition to other assets described in this prospectus and
the accompanying prospectus supplement:
Mortgage Loans
o a pool of mortgage loans will consist of conventional mortgage loans
that GE Capital Mortgage Services, Inc. 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.
o the pool of mortgage loans may include cooperative apartment loans
secured by security interests in shares that private, non-profit,
cooperative housing corporations issue. Related proprietary leases or
occupancy agreements granting exclusive rights to occupy specific
dwelling units in the cooperative housing corporations' buildings may
also secure these loans. Loans secured by mortgages on residential
long-term leases of real property may also be included in the trust
fund.
o the mortgage loans in a pool 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 general information on the payment terms of the mortgage loans
that may be contained in a pool, you should refer to "The Trust Fund--The
Mortgage Loans" in this prospectus.
Contracts
o the trust fund may contain 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.
o these contracts, installment sales or loan agreements may be
conventional, insured by the Federal Housing Authority ("FHA") or
partially guaranteed by the Veterans Administration ("VA").
o these assets will be fully amortizing and will bear interest at a
fixed annual percentage rate, unless the prospectus supplement states
otherwise.
Agency Securities
A trust fund backing a series of certificates may contain any of the
following:
o mortgage participation certificates that the Federal Home Loan
Mortgage Corporation ("FHLMC") issues and guarantees as to timely
payment of interest and, unless otherwise specified in the related
prospectus supplement, ultimate payment of principal;
o mortgage pass-through certificates that the Federal National Mortgage
Association ("FNMA") issues and guarantees as to timely payment of
principal and interest;
o "fully modified pass-through" mortgage-backed certificates that the
Government National Mortgage Association ("GNMA") guarantees as to
timely payment of principal and interest;
o 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;
o a combination of the FHLMC, FNMA and GNMA securities detailed above.
A trust fund backing a series of certificates may also contain:
o pass-through securities issued under FHLMC's Cash or Guarantor
Program, the GNMA I Program, the GNMA II Program or another FHLMC,
FNMA or GNMA program. 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.
Description of the Securities
Within each series, you may be able to buy one or more classes of
certificates:
o that receive distributions only from the related trust fund's cash
flow allocable to principal, or only from the related trust fund's
cash flow allocable to interest, or from a combination of both;
o 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;
o that receive distributions according to a schedule or formula, or on
the basis of specific collections received on the assets in the
related trust fund;
o that may be entitled to receive interest at a fixed rate or at a rate
that is subject to change from time to time;
o 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
o 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 of the trust fund backing a series of certificates 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.
Credit enhancement for the certificates of any series or class may take the
form of one or more of the following:
o 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 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 related trust fund before losses are
allocated to the certificates that benefit from subordination;
o GE Capital Mortgage Services, Inc., as servicer of the assets in a
trust fund, 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;
o the depositor of assets in a trust fund 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;
o a class within a series may represent an ownership interest in
specific assets of the trust fund related to the series of
certificates and may be cross-supported by a class in the same series
that represents ownership interests in other assets of the trust fund;
o the trust fund backing a series of certificates 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 backing
a series of certificates 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 "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 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.
<PAGE>
RISK FACTORS
PAYMENTS MADE ON THE
UNDERLYING LOANS
ARE THE ONLY SOURCE OF
DISTRIBUTIONS ON
YOUR CERTIFICATES ................ The certificates of a series will receive
payments only from the proceeds from the
assets included in the trust fund related to
that series. The certificates will have no
entitlement to payments in respect of the
assets included in any other trust fund
established by GE Capital Mortgage Services,
Inc. or GE Capital Mortgage Funding
Corporation.
The certificates will not represent
obligations of General Electric Company,
General Electric Capital Corporation, GE
Capital Mortgage Corporation, General
Electric Mortgage Insurance Corporation, GE
Capital Mortgage Services, Inc., GE Capital
Mortgage Funding Corporation or any other
affiliate of GE Capital Mortgage Services,
Inc. or GE Capital Mortgage Funding
Corporation. Moreover, the certificates 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 sole obligation
will be to repurchase the mortgage loans,
manufactured home contracts or agency
securities in the trust fund in the event of
a breach of certain representations and
warranties made by it in the pooling and
servicing agreement. If GE Capital Mortgage
Funding Corporation is the depositor, it will
assign to the trustee the benefit of the
representations and warranties it receives
from GE Capital Mortgage Services, Inc. when
it acquires the trust assets. However, the
sole obligation of GE Capital Mortgage
Services, Inc. in the event of a breach of
these representations and warranties will be
to repurchase the mortgage loans in the trust
fund giving rise to such breach.
Unless otherwise specified in the prospectus
supplement, the only obligations of GE
Capital Mortgage Services, Inc. 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
manufactured-home 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 manufactured-home contracts are not
advanced by the servicer or any other entity
or paid from any applicable credit
enhancement arrangement, the holders of one
or more classes of certificates may
experience delays in the distribution of
payments. Further, the holders of one or more
classes of certificates will bear the losses
resulting from such delinquencies.
YOUR INVESTMENT IN THE
CERTIFICATES IS AN INVESTMENT
IN THE UNDERLYING LOANS ...........Your certificate represents an interest in
the pool of mortgage loans underlying the
certificates. Accordingly, a decline in real
estate values or the financial condition of
individual borrowers could have a negative
effect on your investment.
You should be aware that property values may
drop. If the outstanding balance of a
mortgage loan and any secondary financing on
the underlying property is greater than the
value of the property, the risk of
delinquency, foreclosure and losses will
increase. Moreover, if the residential real
estate market should experience an overall
decline in property values such that the
outstanding principal balances of mortgage
loans in the pool become equal to or greater
than the values of the underlying properties,
the actual rates of delinquencies,
foreclosures and losses could be
significantly higher than those now generally
experienced in the mortgage lending industry.
Adverse economic conditions (which may or may
not affect real estate values) may affect the
timely and ultimate payment by borrowers of
scheduled payments of principal and interest
on the mortgage loans and, accordingly, the
rate of delinquencies, foreclosures and
losses may increase. To the extent credit
enhancements do not cover the losses on the
loans, you will bear all of the risks
resulting from defaults by borrowers.
In addition, certain types of mortgage loans
have higher rates of default. The prospectus
supplement will specify whether the trust
fund related to your certificates includes
the following types of mortgage loans that
may pose this risk:
o Balloon loans. Mortgage loans that do not
fully amortize over their terms are sometimes
called "balloon loans." These loans require a
final payment on the maturity date that is
typically much larger than the monthly
payments. Because the borrower's ability to
make this final payment usually depends on
the ability to refinance the loan or sell the
underlying property, the degree of risk of
default involved is greater. Neither the
trustee nor GE Capital Mortgage Services,
Inc. has any obligation to refinance any
mortgage loan. Balloon loans included in the
trust fund related to any series of
certificates will typically be home equity
loans.
o Loans with variable payments. Some mortgage
loans may increase the monthly payments of
principal and interest due over the life of
the loan or vary the amount of payments from
period to period. These loans involve a
greater risk of default because the borrower
may have qualified for the loan based on the
ability to make the initial payments. The
risk of default increases as the payments
increase.
o Mortgage loans concentrated in certain
regions, states or ZIP codes. Some geographic
regions of the United States may from time to
time experience weak economic conditions or a
decline in the real estate market, which
could lead to a rise in delinquencies,
foreclosures and losses. A concentration of
mortgage loans secured by properties located
in these regions could have a
disproportionate impact on payments in
respect of these mortgage loans and, in turn,
the certificates. The prospectus supplement
will specify the states in which any such
concentration of mortgage loans exists.
THE CREDIT ENHANCEMENTS ON YOUR
CERTIFICATES ARE LIMITED ..........The prospectus supplement related to your
certificates may specify that credit
enhancements will provide some protection to
cover certain losses on the underlying
mortgage loans. See "Credit Enhancement" in
this prospectus for a description of the
available forms of credit enhancement.
Unless otherwise specified in the prospectus
supplement, any credit enhancement will not
provide protection against all risks of loss
or all types of losses and will not guarantee
repayment of the entire principal balance of
and interest on the certificates. If losses
occur which exceed the amount covered by
credit enhancement or which are not covered
by the credit enhancement, you will bear your
allocable share of deficiencies. You should
also bear in mind that the amount of credit
enhancement may be reduced over time, and
that credit enhancements may protect only
certain classes of certificates and not
others.
THE YIELD ON YOUR CERTIFICATES
WILL DEPEND ON A NUMBER
OF FACTORS ........................The yield to maturity on your certificates
depends primarily on the purchase price of
the certificates and the rate of principal
payments on the mortgage loans underlying the
related trust fund. The yield on some classes
of certificates, such as certificates that
receive only distributions of interest, is
particularly sensitive to prepayment rates.
Principal payments on the mortgage loans may
be in the following forms:
o scheduled payments;
o voluntary prepayments by borrowers (such
as, for example, prepayments in full due to
refinancings, including refinancings made by
GE Capital Mortgage Services, Inc. in the
ordinary course of conducting its mortgage
banking business, or prepayments in
connection with biweekly payment programs,
participation in which may also be solicited
by GE Capital Mortgage Services, Inc.);
o prepayments resulting from foreclosure,
condemnation and other dispositions of the
properties underlying the mortgage loans; and
o payments resulting from repurchases by GE
Capital Mortgage Services, Inc. under the
circumstances described in "The Pooling and
Servicing Agreement" in this prospectus and
in the applicable prospectus supplement.
A number of social, economic, tax,
geographic, demographic, legal and other
factors may influence the rate of
prepayments. One of the most significant
factors is the prevailing interest rate.
Generally, if prevailing interest rates were
to fall significantly below the interest
rates on the mortgage loans, the prepayment
rate may increase. Conversely, if interest
rates were to rise significantly above the
interest rates on the mortgage loans, the
prepayment rate may decline. For a
description of other factors that may
influence prepayments, see "Yield, Maturity
and Weighted Average Life Considerations" in
this prospectus and "Yield and Weighted
Average Life Considerations" in the
applicable prospectus supplement.
The mortgage loans in a trust fund will not
prepay at any constant rate, nor will all of
the mortgage loans prepay at the same rate at
any one time. Moreover, the timing of changes
in the rate of prepayments may significantly
affect your actual yield to maturity, even if
the average rate of principal payments is
consistent with your expectation. In general,
the earlier a prepayment of principal the
greater the effect on your yield to maturity.
As a result, the effect on your yield caused
by principal payments occurring at a rate
higher (or lower) than the rate anticipated
by you 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.
See the prospectus supplement for a
discussion of the specific prepayment risks
associated with your certificates and "Yield,
Maturity and Weighted Average Life
Considerations" in this prospectus.
EARLY RETIREMENT ON THE
CERTIFICATES WILL AFFECT THE
YIELD OF YOUR CERTIFICATES ........The pooling and servicing agreement related
particular series of certificates may permit
the early retirement of the certificates if
the aggregate outstanding principal balance
of the certificates falls below a certain
level.
If such an option is exercised, the
certificates will be repurchased at the price
and on the terms specified in the prospectus
supplement. However, because early retirement
of the certificates will shorten the average
life of the certificates, your yield may be
less than anticipated. Your yield may be
significantly lower than expected if your
certificates pay only interest.
THE LACK OF A SECONDARY MARKET
MAY LIMIT YOUR ABILITY TO
RESELL YOUR CERTIFICATES ..........The certificates will not be listed on any
securities exchange, and a secondary market
for the certificates may not develop. The
prospectus supplement may indicate that an
underwriter intends to create a secondary
market for a particular series of
certificates. However, that underwriter will
have no obligation to do so. If a secondary
market does develop, it may not continue or
it may not be liquid enough to allow you to
resell your certificates or to resell them at
a price that will realize the desired yield.
YEAR 2000 COMPUTER READINESS ......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 and
malfunction.
GE Capital Mortgage Services, Inc. has
developed a plan, which is described in "Year
2000 Computer Readiness," to become year 2000
compliant by mid-1999. GE Capital Mortgage
Services, Inc. cannot guarantee, however,
that its efforts to achieve year 2000
readiness will be fully effective. Moreover,
it cannot guarantee that any of its
third-party service providers, such as
trustees, borrowers' banks, loan servicers
and DTC, will be year 2000 ready.
The failure of GE Capital Mortgage Services,
Inc. or its third-party service providers to
become fully year 2000 ready could disrupt,
at least temporarily, the ability of GE
Capital Mortgage Services, Inc. to carry out
the servicing duties described in the
prospectus supplement, including the
calculation of amounts distributable on your
certificates and the timely transfer of funds
to the trustee for your benefit. This could
adversely affect your investment in the
certificates. See "Year 2000 Computer
Readiness" for a more detailed discussion of
this issue.
<PAGE>
DESCRIPTION OF THE CERTIFICATES
The certificates comprising each series of certificates (the
"Certificates") will represent the entire beneficial ownership interest in a
distinct trust fund (the "Trust Fund"). Each series of Certificates will be
issued pursuant to a separate pooling and servicing agreement (the "Agreement")
entered into between GE Capital Mortgage Services, Inc. ("GECMSI") or GE Capital
Mortgage Funding Corporation ("Funding"), as depositor of the assets in the
Trust Fund (in such capacity, the "Depositor"), GECMSI, 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"). 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
of the material provisions which may appear in each Agreement. The prospectus
supplement for a series of Certificates will describe any other provision of the
Agreement relating to such series. 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 holders of a Certificate
(the "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 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, or
cooperative apartment loans secured by security interests in shares that
private, non-profit cooperative housing corporations issue and the related
proprietary leases or occupancy agreements granting exclusive rights to occupy
specific dwelling units in the cooperative housing corporations' buildings (the
"Mortgage Loans"), the 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") or
the mortgage pass-through securities that GNMA, FNMA or FHLMC has issued or
guaranteed (together, the "Agency Securities") in the Trust Fund in the event of
a breach of certain representations and warranties made by it in the Agreement.
In the event that Funding acts as Depositor, the Asset Purchase Agreement will
provide that GECMSI will assume responsibility for the repurchase obligations
described in the preceding sentence. 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. This obligation will
arise when any Mortgagor fails to make any payment of interest or, except in the
case of a Home Equity Loan (as defined in this prospectus), principal required
under the terms of a Mortgage Loan. GECMSI will be obligated to 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. 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.
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
determining the interest payable on such Certificate, the denomination of the
Certificate and the voting rights of its holder.
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. Prior to due presentation of a Certificate for registration of
transfer, GECMSI, the Trustee, the Certificate Registrar and any agent of
GECMSI, the Trustee or the Certificate Registrar may treat the person in whose
name any Certificate is registered as the owner of such Certificate for the
purpose of receiving distributions of principal and interest and for all other
purposes under the Agreement.
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 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
interest rate index such as the London Interbank Offered Rate (LIBOR) 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.
See "The Pooling and Servicing Agreement--Amendment" in this prospectus.
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 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 in the manner 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 following, or in other investments specified in the
prospectus supplement (together, the "Eligible Investments"):
(1) obligations of, or guaranteed as to timely receipt of principal and
interest by, the United States or any agency or instrumentality
thereof when such obligations are backed by the full faith and credit
of the United States;
(2) repurchase agreements on obligations specified in clause (1) provided
that the unsecured obligations of the party agreeing to repurchase
such obligations are at the time rated by each rating agency rating
the Certificates (each, a "Rating Agency") in the highest long-term
rating category;
(3) federal funds, certificates of deposit, time deposits and banker's
acceptances, of any U.S. depository institution or trust company
incorporated under the laws of the United States or any state provided
that the debt obligations of such depository institution or trust
company at the date of acquisition thereof have been rated by each
Rating Agency in the highest long-term rating category;
(4) commercial paper of any corporation incorporated under the laws of the
United States or any state thereof which on the date of acquisition
has the highest short term rating of each Rating Agency; and
(5) other obligations or securities that are acceptable to each Rating
Agency as an Eligible Investment hereunder and will not, as evidenced
in writing, result in a reduction or withdrawal in the then current
rating of the Certificates.
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 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
Certificates (the "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.
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 May 1999,
assuming such Certificates are issued during March 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.
March 1............................Cut-off Date. The aggregate unpaid principal
balance of the Mortgage Loans after deducting
principal payments due and payable on or
before March 1 and Principal Prepayments
received before March 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.
April 1-30.........................Voluntary principal prepayments in full (and
interest thereon to the date of prepayment)
received from April 16 through April 30 will
be passed through to the related
Certificateholders on May 25, 1999.
(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 April 1 through April 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 May 25 (assuming such
date is a business day).
April 30...........................Record Date. Distributions on May 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.
May 1-17...........................Through May 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 for distribution to the
related Certificateholders on May 25. Through
May 17, the Servicer receives interest on
February 1 principal balances plus principal
due May 1. Payments due on May 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
April 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 May 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).
May 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.
May 23.............................GECMSI furnishes notice of the distribution
amount to the Trustee on the second business
day preceding the Distribution Date.
May 24.............................Deposit Date. On the business day preceding
the Distribution Date, GECMSI transfers
amounts to be distributed to
Certificateholders in the Certificate
Account.
May 25.............................Distribution Date. On May 25, the Trustee
will distribute to Certificateholders the
aggregate amounts set forth in the notice it
received from GECMSI on May 23. If a payment
due May 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 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. If the proceeds realized upon such
early termination 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 the prospectus supplement.
The assets will be sold by the Trust Fund in connection with any early
termination without representation or warranty, except as to title, and without
recourse. No holder of any class of Certificates will be entitled to any share
of unanticipated recoveries received after the termination of the Trust Fund.
See "Unanticipated Recoveries of Losses on the Mortgage Loans" in this
prospectus.
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
definitive information respecting the final pool of Mortgage Loans, Agency
Securities and Contracts is not known at the time the related series of
Certificates initially is offered, information of the nature described below
with respect to the anticipated pool will be provided in the prospectus
supplement, and definitive information with respect to the final pool 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 "Definitive Description"). The Definitive Description will specify the
precise aggregate Scheduled Principal Balance (as defined in the prospectus
supplement) of the Mortgage Loans as of the Cut-off Date and will also include
at least 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 Definitive Description also will specify the original Class
Certificate Principal Balance (as defined in the prospectus supplement), or, in
the case of interest-only certificates, the notional principal balance, of each
class of Certificates on the date of issuance of the Certificates, and
information regarding the exact amount of any forms of credit enhancement, if
applicable. A copy of the Agreement and its exhibits with respect to each series
of Certificates will be attached to the Definitive Description 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.
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 closed-end home
equity loans secured by first or second liens ("Home Equity Loans"), 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 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 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 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 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.
There can be no assurance that the Original Value will reflect actual real
estate values during the term of a Mortgage Loan. See "Risk Factors--Your
Investment in the Certificates is an Investment in the Underlying Loans" in this
prospectus. 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 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, 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 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 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
refinanced mortgage loan, there is a greater probability that the original
appraisal may not accurately reflect the current market value of the Mortgaged
Property.
The mortgage loans in a pool will not have loan-to-value ratios in excess
of 105% of Original Value. Generally, mortgage loans that GECMSI originates or
acquires do not have loan-to-value ratios in excess of 95% of the Original
Value. The prospectus supplement for a series will describe the extent to which
a pool includes mortgage loans with loan-to-value ratios exceeding 95%. 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.
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 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 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.
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.
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 "Federal Income Tax Consequences--REMIC Certificates,"
Manufactured Homes will have a minimum of 400 square feet of living space and a
minimum width in excess of 102 inches.
Unless otherwise specified in the related prospectus supplement, for
purposes of calculating the loan-to-value ratio of a Contract relating to a new
Manufactured Home, the "Collateral Value" is no greater than the sum of a fixed
percentage of the list price of the unit actually billed by the manufacturer to
the dealer (exclusive of freight to the dealer site) including "accessories"
identified in the invoice (the "Manufacturer's Invoice Price"), plus the actual
cost of any accessories purchased from the dealer, a delivery and set-up
allowance depending on the size of the unit and the cost of state and local
taxes, filing fees and up to three years prepaid hazard insurance premiums.
Unless otherwise specified in the related prospectus supplement, the Collateral
Value of a used Manufactured Home is the least of the sales price, the appraised
value, and the National Automobile Dealer's Association book value plus prepaid
taxes and hazard insurance premiums. The appraised value of a Manufactured Home
is based upon the age and condition of the manufactured housing unit and the
quality and condition of the mobile home park in which it is situated, if
applicable.
The related prospectus supplement will specify for the Contracts contained
in the related Contract Pool, among other things, the date of origination of the
Contracts; the APRs on the Contracts; the Contract loan-to-value ratios; the
minimum and maximum outstanding principal balances as of the Cut-off Date and
the average outstanding principal balance; the outstanding principal balances of
the Contracts included in the Contract Pool; and the original maturities of the
Contracts and the last maturity date of any Contract.
CREDIT 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
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 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").
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
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 Certificateholders. The pool insurance policy, however, is not a blanket
policy against loss, since claims thereunder may only be made respecting
particular defaulted Mortgage Loans and only upon satisfaction of certain
conditions precedent described below. The pool insurance policy, if any, will
not cover losses due to a failure to pay or denial of a claim under a primary
mortgage insurance policy, irrespective of the reason therefor.
Unless otherwise specified in the prospectus supplement, the original
amount of coverage under any pool insurance policy will be reduced over the life
of the related series of Certificates by the aggregate dollar amount of claims
paid less the aggregate of the net amounts realized by the pool insurer upon
disposition of all foreclosed properties. The amount of claims paid will include
expenses incurred by GECMSI on the foreclosed properties for hazard insurance
premiums and, to the extent approved by the pool insurer, amounts paid for
property taxes, the discharge of liens, expenses required to preserve and repair
the properties and foreclosure costs, as well as accrued interest on delinquent
Mortgage Loans to the date of payment of the claim. See "Certain Legal Aspects
of the Mortgage Loans--Foreclosure." Accordingly, if aggregate net claims paid
under any pool insurance policy reach the original policy limit, coverage under
that pool insurance policy will be exhausted and any further losses will be
borne by one or more classes of Certificateholders unless assumed by 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 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.
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 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
General
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. The yields to investors will be sensitive in varying
degrees to the rate of prepayments on the Mortgage Loans. The extent to which
the yield to maturity of a Certificate is sensitive to prepayments will depend
upon the degree to which it is purchased at a discount or premium. In the case
of Certificates purchased at a premium, faster than anticipated rates of
principal payments on the Mortgage Loans could result in actual yields to
investors that are lower than the anticipated yields, and in the case of certain
classes of such Certificates could result in a failure of investors to recover
their investments. 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.
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 the 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 the 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.
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.
The prospectus supplement will specify the extent to which interest on the
Home Equity Loans in the related Trust Fund 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 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 (a "Simple Interest Shortfall"). 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 or
servicer payments 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.
Effective Interest Rate
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.
Except as otherwise specified in the prospectus supplement, the effective
yield to holders of Certificates entitled to interest distributions 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 such Certificates will be affected by any
Net Interest Shortfall (as defined in the prospectus supplement) and the
interest portion of certain losses. See "Description of the
Certificates--Distributions on the Certificates" in the prospectus supplement.
The yield on Certificates backed by Home Equity Loans may be adversely affected
by the occurrence of Simple Interest Shortfalls.
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, or 365 in the case of certain simple interest Home
Equity Loans) 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
the Certificateholders 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 or a Simple Interest Payment (each as defined
and described in the prospectus supplement), 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. A reduction in the interest rate of any Mortgage Loan
due to the application of the Soldiers' and Sailors' Civil Relief Act of 1940
may also reduce the amount of interest passed through to Certificateholders.
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" in the prospectus supplement.
Any partial prepayment on a Mortgage Loan other than a simple interest Home
Equity Loan 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 supplemented 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.
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, 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. Such arrangement may
not benefit all Certificateholders to the same extent.
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.
If a REMIC election has been made with respect to all or any portion of a
Trust Fund, GECMSI will dispose of any property it acquires through foreclosure
of a related Mortgage Loan or otherwise before the end of the third calendar
year after the year of its acquisition unless it receives from qualified tax
counsel an opinion that it may hold such property for a longer period without
adverse tax consequences.
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.
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,
interest or both 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 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
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.
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. Notwithstanding the foregoing, GECMSI
will not be entitled to recover legal expenses, other than sums recovered for
that purpose from the mortgagor, that are incurred in connection with
foreclosure proceedings where the Mortgage Loan is reinstated and foreclosure
proceedings are terminated before completion.
Private Mortgage Insurance
The mortgage loans in a pool will not have loan-to-value ratios in excess
of 105% of Original Value. Generally, Mortgage Loans that GECMSI originates or
acquires do not have loan-to-value ratios in excess of 95% of their Original
Value. The prospectus supplement for a series will describe the extent to which
a pool includes mortgage loans with loan-to-value ratios exceeding 95%. 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 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.
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.
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.
Unanticipated Recoveries of Losses on the Mortgage Loans
To the extent and in the manner specified in the prospectus supplement, the
principal balance of classes of Certificates may be reduced by allocating to
them losses of principal that occur in connection with liquidation on the
Mortgage Loans in the related Trust Fund (a "Realized Loss"). Unless otherwise
specified in the prospectus supplement, holders of Certificates that had
previously been allocated a Realized Loss in respect of a Mortgage Loan (which
holders may, in the event of a transfer of any such Certificate, be different
than the holders at the time the Realized Loss was allocated) may receive
distributions if the Servicer subsequently recovers an amount (an "Unanticipated
Recovery") in respect of such Mortgage Loan as a result of events such as an
unanticipated insurance settlement, tax refund or mortgagor bankruptcy
distribution. In such event, the Trustee will distribute to the holders of each
outstanding class to which such Realized 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. This distribution will be made on
the Distribution Date in the calendar month following receipt of the
Unanticipated Recovery. Any distributions of Unanticipated Recoveries will not
reduce the Certificate Principal Balances of the class of Certificates receiving
such recoveries. If the Certificates include a class of principal-only
Certificates, such principal-only class will be allocated a percentage of any
Unanticipated Recovery equal to the percentage of the loss previously allocated
to it in respect of the related Mortgage Loans, and the other classes of
Certificates (other than interest-only Certificates) that were allocated a
portion of such loss will receive a pro rata share of the balance.
Notwithstanding the foregoing, no Certificateholder will be entitled to receive
any share of an Unanticipated Recovery following the Distribution Date on which
the Certificate Principal Balance of its Certificates has been reduced to zero,
including following the termination of the Trust Fund. See "The Pooling and
Servicing Agreement--Termination" in this prospectus.
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--Purchase 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.
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;
(vi) Unanticipated Recoveries; and
(vii) If the Trust Fund includes Mortgage Loans that are secured by other
collateral (such as securities) in addition to the related property, all amounts
received by GECMSI in connection with the liquidation of such additional
collateral.
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;
(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; and
(ix) To deduct any amount credited to the Loan Payment Record in error.
In addition, if specified in the prospectus supplement relating to a Trust
Fund which includes second-priority Home Equity Loans, 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. If GECMSI realizes any net losses on such investments, it shall
deposit in the Certificate Account an amount equal to such net loss before the
next Distribution Date.
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.
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.
THE POOLING AND SERVICING AGREEMENT
The following, together with the description of the Pooling and Servicing
Agreement in the prospectus supplement, describes all material provisions of the
Pooling and Servicing Agreement relating to the applicable series of
Certificates. 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 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 (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 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 Cut-off Date specified in the related
prospectus supplement. Each Contract will be identified in a loan schedule
appearing as an exhibit to the related Agreement. Such loan schedule will
specify, with respect to each Contract, among other things: the original
principal balance and the outstanding principal balance as of the close of
business on the Cut-off Date; the interest rate; the current scheduled payment
of principal and interest; and the maturity date.
In addition, with respect to each Contract, the 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. 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 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 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. If an Event of Default has
occurred (which has not been cured), the Trustee is required to exercise such of
the rights and powers vested in it by the Agreement, and use the same degree of
care and skill in their exercise, as a prudent person would exercise or use
under the circumstances in the conduct of his or her own affairs. 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. The Trustee (and any successor
Trustee) will at all times: (i) be a corporation organized under the laws of the
state of New York, the state in which the initial Trustee has its principal
office, or the United States of America; (ii) be authorized under such laws to
exercise corporate trust powers; (iii) have a combined capital and surplus of at
least $50,000,000; and (iv) be subject to the supervision of a state or federal
authority.
GECMSI will pay the fees and expenses of the Trustee incurred in connection
with the execution of its duties under the Agreement and will indemnify the
Trustee from, and hold it harmless against, any and all losses, liabilities,
damages, claims or expenses other than those resulting from the negligence or
bad faith of the 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 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 (including any
amounts added to the Certificate Principal Balance of any class of Accrual
Certificates resulting from the accrual of interest that is not yet
distributable thereon), 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
allocable to principal (or reductions in the Notional Principal Balance, if
applicable, or additions to the Certificate Principal Balance of Accrual
Certificates) and allocations, if any, of losses on the Mortgage Loans on such
Distribution Date;
(v) The effective rate of interest applicable to each class of Certificates
(taking into account any shortfalls in interest);
(vi) The book value and unpaid principal balance of any real estate
acquired on behalf of Certificateholders through foreclosure, or grant of a deed
in lieu of foreclosure, of any Mortgage Loan, and the number of the related
Mortgage Loans;
(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;
(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;
(ix) The principal balance of any defective Mortgage Loan replaced by
GECMSI;
(x) The Certificate Interest Rates of any Certificates for which the
interest rate is determined by reference to a widely published interest rate
index, such as LIBOR; and
(xi) The amount of such distribution allocable to Unanticipated Recoveries,
separately identifying the amount allocable to each class.
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 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 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.
If a REMIC election has been made for all or any portion of the Trust Fund
related to any series of Certificates, the Trustee may not consent to any
amendment to the Agreement unless it has received an opinion of qualified tax
counsel that such amendment will not subject the related Trust Fund to tax or
cause such Trust Fund to fail to qualify as a REMIC at any time that any
Certificates are 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. Unless otherwise specified in the Prospectus Supplement, if the
repurchase price, together with other funds available to make final
distributions, is less than the principal balance and accrued interest on the
Certificates, such shortfall will be borne by Certificateholders as specified in
the prospectus supplement. 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. Any sale of Certificates or assets by the Trustee in connection with
the exercise of such repurchase right shall be made without representation or
warranty (except as to title) and without recourse. 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.
Governing Law
The Agreement provides that it shall be construed in accordance with the
laws of the State of New York, and the obligations, rights and remedies of the
parties to the Agreement will be determined in accordance with such laws.
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. 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 originating, 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 and originates, acquires and services Home Equity 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 intends to participate in industry-wide, external systems and interface
tests to be organized by the Mortgage Bankers Association in the first quarter
of 1999.
GECMSI estimates that the total cost of implementing its year 2000 program
will be approximately $2,500,000, of which approximately 75% was expected to
have been 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 servicers, trustees for GECMSI's mortgage-backed
securities, The Depository Trust Company, 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.
Legal Proceedings
As a participant in the retail mortgage banking industry, GECMSI from
time to time is the subject of litigation in connection with its consumer
mortgage lending and servicing practices. GECMSI is not, however, presently the
subject of any such proceedings which it believes to be material, nor is it
party to any other material legal proceedings.
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, Suite W.
602, Cherry Hill, New Jersey 08002. Its telephone number is (609) 661-5881.
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.
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 are advised to 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.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND CONTRACTS
The following discussion contains summaries of certain legal aspects of
mortgage loans and manufactured housing contracts which are general in nature.
Because such legal aspects are governed primarily by applicable state law (which
laws may differ substantially), the summaries do not purport to be complete nor
to reflect the laws of any particular state, nor to encompass the laws of all
states in which the security for the Mortgage Loans or Contracts is situated.
The summaries are qualified in their entirety by reference to the applicable
federal and state laws governing the Mortgage Loans or Contracts.
THE MORTGAGE LOANS
General
Mortgages. The Mortgages will be either deeds of trust or mortgages. A
mortgage creates a lien upon the real property encumbered by the mortgage. It is
not prior to the lien for real estate taxes and assessments. Priority between
mortgages depends on their terms and generally on the order of filing with a
state or county office. There are two parties to a mortgage: the mortgagor, who
is the borrower and homeowner or the land trustee or the trustee of an inter
vivos revocable trust (as described below), and the mortgagee, who is the
lender. Under the mortgage instrument, the mortgagor delivers to the mortgagee a
note or bond and the mortgage. In the case of a land trust, there are three
parties because title to the property is held by a land trustee under a land
trust agreement of which the borrower/homeowner is the beneficiary; at
origination of a mortgage loan, the borrower executes a separate undertaking to
make payments on the mortgage note. In the case of an inter vivos revocable
trust, there are three parties because title to the property is held by the
trustee under the trust instrument of which the home occupant is the primary
beneficiary; at origination of a mortgage loan, the primary beneficiary and the
trustee execute a mortgage note and the trustee executes a mortgage or deed of
trust, with the primary beneficiary agreeing to be bound by its terms. Although
a deed of trust is similar to a mortgage, a deed of trust formally has three
parties, the borrower-homeowner called the trustor (similar to a mortgagor), a
lender (similar to a mortgagee) called the beneficiary, and a third-party
grantee called the trustee. Under a deed of trust, the borrower grants the
property, irrevocably until the debt is paid, in trust and generally with a
power of sale, to the trustee to secure payment of the obligation. The trustee's
authority under a deed of trust and the mortgagee's authority under a mortgage
are governed by law, the express provisions of the deed of trust or mortgage
and, in some cases, the directions of the beneficiary.
Cooperatives. Certain of the Mortgage Loans may be Cooperative Loans. The
private, non-profit, cooperative apartment corporation owns all the real
property that comprises the project, including the land, separate dwelling units
and all common areas. The cooperative is directly responsible for project
management and, in most cases, payment of real estate taxes and hazard and
liability insurance. If there is a blanket mortgage on the cooperative apartment
building and/or underlying land, as is generally the case, the cooperative, as
project mortgagor, is also responsible for meeting these mortgage obligations. A
blanket mortgage is ordinarily incurred by the cooperative in connection with
the construction or purchase of the cooperative's apartment building. The
interest of the occupant under proprietary leases or occupancy agreements to
which that cooperative is a party are generally subordinate to the interest of
the holder of the blanket mortgage in that building. If the cooperative is
unable to meet the payment obligations arising under its blanket mortgage, the
mortgagee holding the blanket mortgage could foreclose on that mortgage and
terminate all subordinate proprietary leases and occupancy agreements. In
addition, the blanket mortgage on a cooperative may provide financing in the
form of a mortgage that does not fully amortize with a significant portion of
principal being due in one lump sum at final maturity. The inability of the
cooperative to refinance this mortgage and its consequent inability to make such
final payment could lead to foreclosure by the mortgagee providing the
financing. A foreclosure in either event by the holder of the blanket mortgage
could eliminate or significantly diminish the value of any collateral held by
the lender who financed the purchase by an individual tenant-stockholder of
cooperative shares or, in the case of a Trust Fund including Cooperative Loans,
the collateral securing the Cooperative Loans.
The cooperative is owned by tenant-stockholders who, through ownership of
stock shares or membership certificates in the corporation, receive proprietary
leases or occupancy agreements which confer exclusive rights to occupy specific
units. Generally, a tenant-stockholder of a cooperative must make a monthly
payment to the cooperative representing such tenant-stockholder's pro rata share
of the cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a cooperative and accompanying occupancy rights is financed through
a cooperative share loan evidenced by a promissory note and secured by a
security interest in the occupancy agreement or proprietary lease and in the
related cooperative shares. The lender takes possession of the share certificate
and a counterpart of the proprietary lease or occupancy agreement and a
financing statement covering the proprietary lease or occupancy agreement and
the cooperative shares is filed in the appropriate state and local offices to
perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as provided in the security agreement covering the assignment
of the proprietary lease or occupancy agreement and the pledge of cooperative
shares.
Foreclosure
Mortgages. Foreclosure of a deed of trust is generally accomplished by a
non-judicial trustee's sale under a specific provision in the deed of trust that
authorizes the trustee to sell the property to a third party upon any default by
the borrower under the terms of the note or deed of trust. In some states, the
trustee must record a notice of default and send a copy to the borrower-trustor
and any person who has recorded a request for a copy of a notice of default and
notice of sale. In addition, the trustee must provide notice in some states to
any other individual having an interest in the real property, including any
junior lien holders. The borrower, or any other person having a junior
encumbrance on the real estate, may, during a reinstatement period, cure the
default by paying the entire amount in arrears plus the costs and expenses
incurred in enforcing the obligation. Generally, state law controls the amount
of foreclosure expenses and costs, including attorney's fees, which may be
recovered by a lender. If the deed of trust is not reinstated, a notice of sale
must be posted in a public place and, in most states, published for a specific
period of time in one or more newspapers. In addition, some state laws require
that a copy of the notice of sale be posted on the property and sent to all
parties having an interest in the real property.
Foreclosure of a mortgage is generally accomplished by judicial action. The
action is initiated by the service of legal pleadings upon all parties having an
interest in the real property. Delays in completion of the foreclosure may
occasionally result from difficulties in locating necessary parties defendant.
Judicial foreclosure proceedings are often not protested by any of the parties
defendant. However, when the mortgagee's right to foreclose is contested, the
legal proceedings necessary to resolve the issue can be time consuming. After
the completion of judicial foreclosure, the court generally issues a judgment of
foreclosure and appoints a referee or other court officer to conduct the sale of
the property.
A sale conducted in accordance with the terms of the power of sale
contained in a mortgage or deed of trust is generally presumed to be conducted
regularly and fairly, and a conveyance of the real property by the referee
confers absolute legal title to the real property to the purchaser, free of all
junior mortgages and free of all other liens and claims subordinate to the
mortgage or deed of trust under which the sale is made (with the exception of
certain governmental liens and any redemption rights that may be granted to
borrowers pursuant to applicable state law). The purchaser's title is, however,
subject to all senior liens, encumbrances and mortgages. Thus, if the mortgage
or deed of trust being foreclosed is a junior mortgage or deed of trust, the
referee or trustee will convey title to the property to the purchaser, subject
to the underlying first mortgage or deed of trust and any other prior liens and
claims. A foreclosure under a junior mortgage or deed of trust generally will
have no effect on any senior mortgage or deed of trust, except that it may
trigger the right of a senior mortgagee or beneficiary to accelerate its
indebtedness under a "due-on-sale" clause or "due on further encumbrance" clause
contained in the senior mortgage.
In case of foreclosure under either a mortgage or a deed of trust, the sale
by the referee or other designated officer or by the trustee is a public sale.
However, because of the difficulty a potential buyer at the sale would have in
determining the exact status of title and because the 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 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.
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 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.
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.
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.
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 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.
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 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.
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 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 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 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 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.
FEDERAL INCOME TAX CONSEQUENCES
General
The discussion under the heading "Federal Income Tax Consequences" herein
and in the applicable prospectus supplement generally describes the material
federal income tax consequences of purchasing, owning and disposing of
Certificates. The summary does not purport to be a description of all tax
consequences that may be relevant to a potential investor, and assumes an
understanding of tax rules of general application. It does not address special
rules which may apply to investors based on their tax status, individual
circumstances or other factors unrelated to the Offering, including special
rules applicable to dealers in securities or currencies, traders in securities
electing to mark to market, banks, tax exempt investors, insurance companies,
pass-through entities, governmental organizations, or investors that will hold
Certificates as a position in a "straddle" or conversion transaction, or as part
of a "synthetic security" or other integrated financial transaction. 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 are encouraged to consult their own tax advisors
regarding the Certificates.
For purposes of this discussion, unless otherwise specified, the term
"Mortgage Loans" will be used to refer to Mortgage Loans, Agency Securities and
Contracts, and the term "Owner" will refer to the beneficial owner of a
Certificate.
REMIC Elections
Under the Internal Revenue Code of 1986 (the "Code"), an election may be
made to treat each Trust Fund related to a Series of Certificates (or segregated
pools of assets within the Trust Fund) as a "real estate mortgage investment
conduit" ("REMIC") within the meaning of Section 860D(a) of the Code. If one or
more REMIC elections are made, the Certificates of any Class will be either
"regular interests" in a REMIC within the meaning of Section 860G(a)(1) of the
Code ("Regular Certificates") or "residual interests" in a REMIC within the
meaning of Section 860G(a)(2) of the Code ("Residual Certificates"). The
prospectus supplement for each Series of Certificates will indicate whether an
election will be made to treat each Trust Fund as one or more REMICs, and if so,
which Certificates will be Regular Certificates and which will be Residual
Certificates.
If a REMIC election is made, each Trust Fund, or each portion thereof that
is treated as a separate REMIC, will be referred to as a "REMIC Pool." If a
Trust Fund is comprised of two REMIC Pools, one will be an "Upper-Tier REMIC"
and one a "Lower-Tier REMIC." The assets of the Lower-Tier REMIC will consist of
the Mortgage Loans and related Trust Fund assets. The 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:
o assets described in Code Section 7701(a)(19)(C); and
o "real estate assets" under Code Section 856(c)(4)(A),
to the extent the assets of the related REMIC Pool are so treated. Interest on
the Regular Certificates will be "interest on obligations secured by mortgages
on real property or on interests in real property" within the meaning of Code
Section 856(c)(3)(B) in the same proportion that the income of the REMIC Pool is
so treated. If at all times 95% or more of the assets or income of the REMIC
Pool qualifies under the foregoing Code sections, the Certificates (and income
thereon) will so qualify in their entirety. The Regular Certificates will also
qualify as "permitted assets" under Section 860L(c) of the Code.
In the event the assets of the related REMIC Pool include buy-down Mortgage
Loans, it is unclear whether the related buy-down funds would qualify under the
foregoing Code sections. Also, Contracts may be considered to qualify under the
foregoing sections only if the Manufactured Homes securing such Contracts are
considered to be "permanently fixed" or "permanently installed." Contracts may
limit the ability of a borrower to permanently attach a Manufactured Home to its
site.
The rules described in the two preceding paragraphs will be applied to a
Trust Fund consisting of two REMIC Pools as if the Trust Fund were a single
REMIC holding the assets of the Lower-Tier REMIC.
Income from Regular Certificates
General. Except as otherwise provided in this tax discussion, Regular
Certificates will be taxed as newly originated debt instruments for federal
income tax purposes. Interest, original issue discount and market discount
accrued on a Regular Certificate will be ordinary income to the Owner. All
Owners must account for interest income under the accrual method of accounting,
which may result in the inclusion of amounts in income that are not currently
distributed in cash.
On January 27, 1994, the Internal Revenue Service adopted regulations
applying the original issue discount rules of the Code (the "OID Regulations").
Except as otherwise noted, the discussion below is based on the OID Regulations.
Original Issue Discount. Certain Regular Certificates may have "original
issue discount." An Owner must include original issue discount in income as it
accrues, without regard to the timing of payments.
The total amount of original issue discount on a Regular Certificate is the
excess of its "stated redemption price at maturity" over its "issue price." The
issue price for any Regular Certificate is the price (including any accrued
interest) at which a substantial portion of the Class of Certificates including
such Regular Certificate are first sold to the public. In general, the stated
redemption price at maturity is the sum of all payments made on the Regular
Certificate, other than payments of interest that (i) are actually payable at
least annually over the entire life of the Certificates and (ii) are based on a
single fixed rate or variable rate (or certain combinations of fixed and
variable rates). The stated redemption price at maturity of a Regular
Certificate always includes its original principal amount, but generally does
not include distributions of stated interest, except in the case of Accrual
Certificates, and, as discussed below, Interest Only Certificates. An "Interest
Only Certificate" is a Certificate entitled to receive distributions of some or
all of the interest on the Mortgage Loans or other assets in a REMIC Pool and
that has either a notional or nominal principal amount. Special rules for
Regular Certificates that provide for interest based on a variable rate are
discussed below in "Income from Regular Certificates--Variable Rate Regular
Certificates."
With respect to an Interest Only Certificate, the stated redemption price
at maturity is likely to be the sum of all payments thereon, determined in
accordance with the Prepayment Assumption (as defined below). In that event,
Interest Only Certificates would always have original issue discount.
Alternatively, in the case of an Interest Only Certificate with some principal
amount, the stated redemption price at maturity might be determined under the
general rules described in the preceding paragraph. If, applying those rules,
the stated redemption price at maturity were considered to equal the principal
amount of such Certificate, then the rules described below under "Premium" would
apply. The Prepayment Assumption is the assumed rate of prepayment of the
Mortgage Loans used in pricing the Regular Certificates. The Prepayment
Assumption will be set forth in the related Supplement.
Under a de minimis rule, original issue discount on a Regular Certificate
will be considered zero if it is less than 0.25% of the Certificate's stated
redemption price at maturity multiplied by the Certificate's weighted average
maturity. The weighted average maturity of a Regular Certificate is computed
based on the number of full years (i.e., rounding down partial years) each
distribution of principal (or other amount included in the stated redemption
price at maturity) is scheduled to be outstanding. The schedule of such
distributions likely should be determined in accordance with the Prepayment
Assumption.
The Owner of a Regular Certificate generally must include in income the
original issue discount that accrues for each day on which the Owner holds such
Certificate, including the date of purchase, but excluding the date of
disposition. The original issue discount accruing in any period equals:
PV End + Dist - PV Beg
Where:
PV End = present value of all remaining distributions to be made as of the
end of the period;
Dist = distributions made during the period includible in the stated
redemption price at maturity; and
PV Beg = present value of all remaining distributions as of the beginning
of the period.
The present value of the remaining distributions is calculated based on (i) the
original yield to maturity of the Regular Certificate, (ii) events (including
actual prepayments) that have occurred prior to the end of the period and (iii)
the Prepayment Assumption. For these purposes, the original yield to maturity of
a Regular Certificate will be calculated based on its issue price, assuming that
the Certificate will be prepaid in all periods in accordance with the Prepayment
Assumption, and with compounding at the end of each accrual period used in the
formula.
Assuming the Regular Certificates have monthly Distribution Dates, discount
would be computed under the formula generally for the one-month periods (or
shorter initial period) ending on each Distribution Date. The original issue
discount accruing during any accrual period is divided by the number of days in
the period to determine the daily portion of original issue discount for each
day.
The daily portions of original issue discount generally will increase if
prepayments on the underlying Mortgage Loans exceed the Prepayment Assumption
and decrease if prepayments are slower than the Prepayment Assumption (changes
in the rate of prepayments having the opposite effect in the case of an Interest
Only Certificate). If the relative principal payment priorities of the Classes
of Regular Certificates of a Series change, any increase or decrease in the
present value of the remaining payments to be made on any such Class will affect
the computation of original issue discount for the period in which the change in
payment priority occurs.
If original issue discount computed as described above is negative for any
period, the Owner generally will not be allowed a current deduction for the
negative amount but instead will be entitled to offset such amount only against
future positive original issue discount from such Certificate. However, while
not free from doubt, such an Owner may be entitled to deduct "negative original
issue discount" to the extent the Owner's adjusted basis (as defined in "Sale or
Exchange of Certificates" below) in the Certificate remaining after such
deduction is not less than the principal amount of the Certificate.
Acquisition Premium. If an Owner of a Regular Certificate acquires such
Certificate at a price greater than its "adjusted issue price," but less than
its remaining stated redemption price at maturity, the daily portion for any day
(as computed above) is reduced by an amount equal to the product of (i) such
daily portion and (ii) a fraction, the numerator of which is the amount by which
the price exceeds the adjusted issue price and the denominator of which is the
sum of the daily portions for such Regular Certificate for all days on and after
the date of purchase. The adjusted issue price of a Regular Certificate on any
given day is its issue price, increased by all original issue discount that has
accrued on such Certificate and reduced by the amount of all previous
distributions on such Certificate of amounts included in its stated redemption
price at maturity.
Market Discount. A Regular Certificate may have market discount (as defined
in the Code). Market discount equals the excess of the adjusted issue price of a
Certificate over the Owner's adjusted basis in the Certificate. The Owner of a
Certificate with market discount must report ordinary interest income, as the
Owner receives distributions on the Certificate of principal or other amounts
included in its stated redemption price at maturity, equal to the lesser of (a)
the excess of the amount of those distributions over the amount, if any, of
accrued original issue discount on the Certificate or (b) the portion of the
market discount that has accrued and not previously been included in income.
Also, such Owner must treat gain from the disposition of the Certificate as
ordinary income to the extent of any accrued, but unrecognized, market discount.
Alternatively, an Owner may elect in any taxable year to include market discount
in income currently as it accrues on all market discount instruments acquired by
the Owner in that year or thereafter. An Owner may revoke such an election only
with the consent of the Internal Revenue Service.
In general terms, market discount on a Regular Certificate may be treated,
at the Owner's election, as accruing either (a) on the basis of a constant yield
(similar to the method described above for accruing original issue discount) or
(b) alternatively, either (i) in the case of a Regular Certificate issued
without original issue discount, in the ratio of stated interest distributable
in the relevant period to the total stated interest remaining to be distributed
from the beginning of such period (computed taking into account the Prepayment
Assumption) or (ii) in the case of a Regular Certificate issued with original
issue discount, in the ratio of the amount of original issue discount accruing
in the relevant period to the total remaining original issue discount at the
beginning of such period. An election to accrue market discount on a Regular
Certificate on a constant yield basis is irrevocable with respect to that
Certificate.
An Owner may be required to defer a portion of the deduction for interest
expense on any indebtedness that the Owner incurs or maintains in order to
purchase or carry a Regular Certificate that has market discount. The deferred
amount would not exceed the market discount that has accrued but not been taken
into income. Any such deferred interest expense is, in general, allowed as a
deduction not later than the year in which the related market discount income is
recognized.
Market discount with respect to a Regular Certificate will be considered to
be zero if such market discount is de minimis under a rule similar to that
described above in the fourth paragraph under "Original Issue Discount." Owners
should consult their own tax advisors regarding the application of the market
discount rules as well as the advisability of making any election with respect
to market discount.
Discount on a Regular Certificate that is neither original issue discount
nor market discount, as defined above, must be allocated ratably among the
principal payments on the Certificate and included in income (as gain from the
sale or exchange of the Certificate) as the related principal payments are made
(whether as scheduled payments or prepayments).
Premium. A Regular Certificate, other than an Accrual Certificate or, as
discussed above under "Original Issue Discount," an Interest Only Certificate,
purchased at a cost (net of accrued interest) greater than its principal amount
generally is considered to be purchased at a premium. The Owner may elect under
Code Section 171 to amortize such premium under the constant yield method, using
the Prepayment Assumption. To the extent the amortized premium is allocable to
interest income from the Regular Certificate, it is treated as an offset to such
interest rather than as a separate deduction. An election made by an Owner would
generally apply to all its debt instruments and may not be revoked without the
consent of the Internal Revenue Service.
Special Election to Apply OID Rules. In lieu of the rules described above
with respect to de minimis discount, acquisition premium, market discount and
premium, an Owner of a Regular Certificate may elect to accrue such discount, or
adjust for such premium, by applying the principles of the OID rules described
above. An election made by a taxpayer with respect to one obligation can affect
other obligations it holds. Owners should consult with their tax advisors
regarding the merits of making this election.
Retail Regular Certificates. For purposes of the original issue and market
discount rules, a repayment in full of a Retail Certificate that is subject to
payment in units or other increments, rather than on a pro rata basis with other
Retail Certificates, will be treated in the same manner as any other prepayment.
Variable Rate Regular Certificates. The Regular Certificates may provide
for interest that varies based on an interest rate index. The OID Regulations
provide special rules for calculating income from certain "variable rate debt
instruments" or "VRDIs." A debt instrument must meet certain technical
requirements to qualify as a VRDI, which are outlined in the next paragraph.
Under the regulations, income on a VRDI is calculated by (1) creating a
hypothetical debt instrument that pays fixed interest at rates equivalent to the
variable interest, (2) applying the original issue discount rules of the Code to
that fixed rate instrument, and (3) adjusting the 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.
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.
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 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-through"
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.
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.
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.
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.
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 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:
o "real estate assets" under Code Section 856(c)(4)(A); and
o assets described in Section 7701(a)(19)(C) of the Code,
to the extent the assets of the Trust Fund are so treated. Interest income from
such Certificates will be "interest on obligations secured by mortgages on real
property" under Code Section 856(c)(3)(B) to the extent the income of the Trust
Fund qualifies under that section. An "Interest Only Certificate" is a
Certificate which is entitled to receive distributions of some or all of the
interest on the Mortgage Loans or other assets in a REMIC Pool and that has
either a notional or nominal principal amount. Although not certain,
Certificates that are Interest Only Certificates should qualify under the
foregoing Code sections to the same extent as other Certificates.
Possible Application of Stripped Bond Rules
The federal income tax treatment of Certificates will depend on whether
they are subject to the "stripped bond" rules of Code Section 1286. In general,
Certificates will be subject to those rules in the hands of an Owner if (i) the
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 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 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.
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 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 non-institutional 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.
<PAGE>
INDEX OF CERTAIN PROSPECTUS DEFINITIONS
Page
Accrual Certificates.......................................... 20
adjusted issue price.......................................... 104
Advance Guarantee............................................. 45
Affected Party................................................ 82
Agency Securities............................................. 18
Agreement..................................................... 18
Asset Purchase Agreement...................................... 26
Available Funds............................................... 66
bankruptcy bond............................................... 48
BIF........................................................... 75
Book-Entry Nominee............................................ 110
Certificate Interest Rate..................................... 20
Certificate Account........................................... 21
Charter Act................................................... 39
Cleanup Costs................................................. 92
Code.......................................................... 10
Collateral Value.............................................. 41
Collection Account............................................ 66
Confirmatory Mortgage Note.................................... 69
Contract Pool................................................. 40
Contracts..................................................... 18
Cooperative Loans............................................. 27
Cooperatives.................................................. 27
Cut-off Date.................................................. 20
Defective Mortgage Loan....................................... 72
Delinquent Mortgage Loan...................................... 44
denomination.................................................. 19
Deposit Date.................................................. 65
Deposit Guarantee............................................. 26
Depositor..................................................... 18
Definitive Description........................................ 27
Determination Date............................................ 65
Direct Master Servicing Arrangement........................... 55
disqualified organization..................................... 110
Distribution Date............................................. 21
DOL........................................................... 98
ERISA......................................................... 10
FDIC.......................................................... 75
FHA Loans..................................................... 35
FHLMC Act..................................................... 37
FHLMC Certificate group....................................... 37
Funding....................................................... 18
Garn-St Germain Act........................................... 90
GECMC......................................................... 80
GECMSI........................................................ 18
GIC........................................................... 49
GNMA Issuer................................................... 36
Guarantor..................................................... 42
Guaranty Agreement............................................ 36
Home Equity Loans............................................. 27
Housing Act................................................... 35
Interest Accrual Period....................................... 22
Interest Only Certificate..................................... 102
Issue Date.................................................... 18
issue price................................................... 102
Limited Guarantee............................................. 42
Liquidating Loan.............................................. 44
Liquidating Loan Guarantee.................................... 45
lockout periods............................................... 29
Loss Certificates............................................. 56
Lower-Tier REMIC.............................................. 101
manufactured home............................................. 41
Manufacturer's Invoice Price.................................. 41
master servicer............................................... 7
Mortgage Loans................................................ 18
Mortgage Notes................................................ 27
Mortgage Rates................................................ 27
Mortgaged Properties.......................................... 27
Mortgages..................................................... 27
non-U.S. person............................................... 110
Nonrecoverable Advance........................................ 63
OID Regulations............................................... 102
Original Value................................................ 30
OTS........................................................... 90
Parties in Interest........................................... 98
pass-thru entity.............................................. 111
Plans......................................................... 98
Policy Statement.............................................. 97
Principal Balance............................................. 29
Principal Prepayments......................................... 23
Proceeding.................................................... 82
PTE 83-1...................................................... 99
Record Date................................................... 21
Regular Certificates.......................................... 100
regular interests............................................. 100
Relief Act.................................................... 91
REMIC......................................................... 10
REMIC Pool.................................................... 101
REMIC Regulations............................................. 108
Reserve Account............................................... 43
Residual Certificates......................................... 100
residual interest............................................. 100
Residual Owners............................................... 106
SAIF.......................................................... 75
Securities Act................................................ 118
Senior Certificates........................................... 23
Servicer...................................................... 18
Simple Interest Payment....................................... 53
Simple Interest Shortfall..................................... 52
SMMEA......................................................... 11
stated redemption price at maturity........................... 102
subordinated Certificates..................................... 42
Superlien..................................................... 92
Supervisory Master Servicing Agreement........................ 54
Title V....................................................... 91
Trust Assets.................................................. 82
Trust Fund.................................................... 18
Trustee....................................................... 18
UCC........................................................... 87
Upper-Tier REMIC.............................................. 101
USAP.......................................................... 73
VA Loans...................................................... 36
VRDIs......................................................... 105
we............................................................ 2
<PAGE>
<PAGE>
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
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
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.
<PAGE>
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.
(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 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.
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 7 -- Powers of Attorney of GE Capital Mortgage Services, Inc.
24.2 7 -- 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.
- -------------
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.
7 Previously filed.
# 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.
(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.
<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
Amendment No. 1 to the 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 10th day of February, 1999.
GE CAPITAL MORTGAGE SERVICES, INC.
By: /s/ Kathryn E. Kelbaugh
-----------------------
Name: Kathryn E. Kelbaugh
Title: Vice President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on February 10, 1999.
Signature Title
--------- -----
* Director
Thomas H. Mann (Principal Executive Officer)
* Director
Glen Messina
* Director
Gerhard A. Miller
* Vice President and CFO
Terry Couto (Principal Financial and
Accounting Officer)
* Director
JoAnn B. Rabitz
* Director
Theodore F. Weiland
- ------------
* Kathryn E. Kelbaugh, by signing her name hereto, does sign this document on
behalf of the person indicated above pursuant to a power of attorney duly
executed by such person and filed with the Securities and Exchange Commission.
/s/ Kathryn E. Kelbaugh
-----------------------
Kathryn E. Kelbaugh
Attorney-in-Fact
<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
Amendment No. 1 to the 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 10th day of February, 1999.
GE CAPITAL MORTGAGE FUNDING CORPORATION
By: /s/ Kathryn E. Kelbaugh
-----------------------
Name: Kathryn E. Kelbaugh
Title: Vice President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on February 10, 1999.
Signature Title
--------- -----
* Director
Thomas H. Mann (Principal Executive Officer)
* Director
Glen Messina
* Director
Gerhard A. Miller
* Vice President and CFO
Terry Couto (Principal Financial and
Accounting Officer)
* Director
JoAnn B. Rabitz
* Director
Theodore F. Weiland
- ------------
* Kathryn E. Kelbaugh, by signing her name hereto, does sign this document on
behalf of the person indicated above pursuant to a power of attorney duly
executed by such person and filed with the Securities and Exchange Commission.
/s/ Kathryn E. Kelbaugh
-----------------------
Kathryn E. Kelbaugh
Attorney-in-Fact
<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 7 - Powers of Attorney of GE Capital Mortgage Services, Inc.
24.2 7 -- 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.
- -----------------
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.
7 Previously filed.
# To be filed by amendment.
