As filed with the Securities and Exchange Commission on March 8, 1999
Registration No. 333-68951
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
AMENDMENT NO. 2
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. |_|
-------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================== ====================== ====================== ====================== ======================
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
======================== ====================== ====================== ====================== ======================
<S> <C> <C> <C> <C>
Pass-Through Certificates $15,000,000,000 100% $15,000,000,000* $4,170,000**
======================== ====================== ====================== ====================== ======================
</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.
** $278 was 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, MARCH 8, 1999
PROSPECTUS SUPPLEMENT
(To prospectus dated )
GE Capital Mortgage [Services, Inc.] [Funding Corporation] _____ Trust
Issuer
GE Capital Mortgage [Services, Inc.] [Funding Corporation]
Depositor [and Servicer]
$
(Approximate)
[REMIC] Mortgage Pass-Through Certificates, Series
Principal and interest payable monthly, beginning
The trust will issue:
o _____ classes of senior certificates;
o _____ classes of junior certificates; and
o _____ classes of residual certificates.
For a description of the classes of certificates offered by this prospectus
supplement, see "Securities Offered" on page .
The assets of the trust will include a pool of conventional, fixed-rate,
first-lien, fully-amortizing, one- to four-family residential mortgage loans.
The stated maturities of the mortgage loans will range from ____ to ____ years.
----------------------------
Consider carefully the risk factors beginning on page S- of this prospectus
supplement.
----------------------------
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. Any representation to the
contrary is a criminal offense.
______ will purchase the senior certificates [and will purchase the junior
certificates] offered by this prospectus supplement. ______ will sell the
certificates to investors at varying prices determined at the time of sale. The
certificates will be available for delivery to investors on or about ______.
[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 in two separate documents: (1)
the accompanying prospectus, which provides general information, some of which
may not apply to your certificates or trust, and (2) this prospectus supplement,
which describes the specific terms of your certificates and the assets in your
trust. You should read both of these documents together.
This prospectus supplement will supplement and enhance the disclosure 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. This summary contains an overview of certain concepts and
other information to aid your understanding. 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.
The Issuer
The issuer of the certificates will be GE Capital Mortgage [Services,
Inc.] [Funding Corporation] [ ] Trust. The trust was created for the sole
purpose of issuing the certificates.
[We will sell the mortgage loans underlying the certificates to the trust.]
[We will acquire these mortgage loans from GE Capital Mortgage Services, Inc.
and sell them to the trust.]
Securities Offered
The total original principal balance of the certificates will be
approximately $ . The following table shows the approximate initial principal
balance and annual certificate interest rate of each class of certificates:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Class Certificate Principal
Class Balance Certificate Interest Rate
----- ------- -------------------------
[Class] $ %[(1)]
------------------
[(1) [Describe variations in interest rate].]
</TABLE>
[Description of senior and subordinate certificates and any classes not
being offered by this prospectus supplement, if applicable.]
[The Class ___ Certificates are [interest-only] [principal-only]
certificates and will receive no payments of [principal][interest]. In addition,
the yield on these certificates will be particularly sensitive to the rate of
prepayments on the mortgage loans in the trust. See the risk factor relating to
these certificates on page S- and "Yield and Weighted Average Life
Considerations -- Class Certificates" in this prospectus supplement.]
Depending on the final composition of the pool of mortgage loans sold to
the trust, the principal balance of each class of certificates may increase or
decrease from the amount listed above. The total original principal balance of
the certificates will not be less than $ or greater than $ .
The trust will issue the certificates in the following minimum
denominations:
Class Minimum Denomination
----- --------------------
$
Certificates with principal balances in excess of these amounts will be
issued in multiples of $1,000 above the minimum denomination. The Class R [and
Class RL] Certificates will [each] be issued as a single certificate.
The Mortgage Loans
[GE Capital Mortgage Services, Inc.][We] originated or acquired all of the
mortgage loans. The mortgage loans expected to be sold to the trust have the
following characteristics as of:
<TABLE>
<CAPTION>
<S> <C> <C>
o Total original principal balance (1): $
o Original terms to maturity: to years
o Weighted average maturity: between and months
o Weighted average annual interest rate: between % and %
o Largest geographic concentration: [ % of the mortgage loans are secured by
property located in ]
</TABLE>
(1) Approximate, after deducting payments of principal due on or before , and
subject to the variance described in this prospectus supplement.
The Servicer
[GE Capital Mortgage Services, Inc.][We] will directly service [all of] the
mortgage loans in the trust [and will supervise the servicing of approximately %
of the mortgage loans by third party servicers].
As servicer, [GE Capital Mortgage Services, Inc.][we] must make reasonable
efforts to collect payments due on the mortgage loans. [In addition, it must
advance delinquent payments on mortgage loans to the extent described in this
prospectus supplement.] [In addition, it will reduce its servicing compensation,
to the extent described in this prospectus supplement, to reimburse
certificateholders for shortfalls of interest payments.]
You should refer to "GE Capital Mortgage Services, Inc." and "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
We will make distributions on the certificates on the 25th day of each
month. If the 25th is not a business day, we will make distributions on the next
business day. The first distribution date will be .
[Description of priorities of distribution between senior and junior
certificates, if applicable.]
Interest Payments
o The actual amount of interest you receive on your certificates on each
distribution date will depend on:
-- the amount of interest accrued on your certificates;
-- the total amount of funds available for distribution; and
-- the amount of any accrued interest not paid on earlier
distribution dates.
o [If you are the holder of a senior certificate, the amount of interest
payable to you will be in proportion to the interest payable on all of
the senior certificates together. All of the senior certificates will
receive interest payments at the same time.]
o [If you are the holder of a junior certificate, you will receive
interest payments only after we have paid interest and principal to:
-- all of the senior certificates; and
-- each class of junior certificates that ranks higher to your
certificates.]
o We will calculate interest on the basis of a 360-day year consisting
of twelve 30-day months.
Principal Payments
o [After interest payments have been made on all senior certificates,
each class of senior certificates -- other than the Class Certificates
-- will also receive a payment of principal. You should refer to
"Description of the Certificates--Distributions on the Certificates"
for a description of the amount of principal payable to you and the
priority in which it will be paid.]
o The amount of principal you receive on your certificates will depend
on:
-- the various formulas described in this prospectus supplement that
determine the allocation of principal payments to your
certificates; and
-- the amounts actually available for distribution as principal.
o [Because of the principal allocation formulas described in this
prospectus supplement, the senior certificates -- other than the Class
PO and the Class Certificates -- will receive principal payments at a
faster rate than the junior certificates. The Class Certificates will
not benefit from this accelerated repayment. You should refer to
"Description of the Certificates--Distributions on the
Certificates--Allocation of Available Funds."]
o [Description of any classes with special payment features, such as
planned amortization or targeted amortization certificates.]
[Credit Enhancement
Your certificates will benefit from credit enhancement in the form of
[describe credit enhancement, such as subordination, mortgage pool insurance
policy, special hazard insurance policy, or a limited guarantee.]
We have obtained this credit enhancement on your certificates to protect
you against some losses and to increase the likelihood that you will receive all
payments due on your certificates. For a description, see "Description of the
Mortgage Pool and the Mortgaged Properties--General" and "The Pooling and
Servicing Agreement--Voting Rights" in this prospectus supplement. You should
keep in mind that credit enhancements offer only limited protection against
losses of your investment. See the applicable risk factor on page S- .]
Federal Income Tax Consequences
[The trust will be treated as a [single] [double] REMIC for federal income
tax purposes. As a result, the certificates other than the Class R [and Class
RL] Certificates will be treated as regular interests in the REMIC, and the
Class R [and Class RL] Certificates will be treated as residual interests in the
REMIC. All of the regular interest certificates will be treated as debt for tax
purposes. In addition, unless you are the holder of the Class R [and Class RL]
Certificates, you will be required to report income on your certificates under
the accrual method of accounting.]
[The particular federal income tax consequences of your investment will
depend upon the class of certificates you buy. You should consider carefully the
tax consequences of an investment in the following classes of certificates:
o the Class Certificates, which will be issued at a price lower than
their face amount;
o the Class R [and Class RL] Certificates, which will be subject to
special rules that could significantly reduce their after-tax yield;
and
o the junior certificates, whose reported income may exceed the amount
of cash actually received.]
You should refer to "Federal Income Tax Consequences" in this prospectus
supplement and "Federal Income Tax Consequences -- REMIC Certificates" in the
accompanying prospectus to determine the tax consequences to you of an
investment in the certificates.
Legal Investment
The Class ____ Certificates offered by this prospectus supplement will be
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984. [No other certificates will be mortgage related
securities.] You should consult your own legal advisors to determine whether,
and to what extent, you can invest in Class ____ Certificates. See "Legal
Investment Matters" for important information concerning possible restrictions
on the ownership of the certificates by regulated institutions.
ERISA Considerations
If you are investing the assets of an employee benefit plan that is subject
to ERISA or to Section 4975 of the federal income tax code, you may not acquire
the [Class Certificates]. In addition, you should consider carefully the
information presented in "ERISA Considerations."
Certificate Ratings
The certificates must receive the ratings indicated under "Certificate
Ratings" ____ from and/or ____ at the time of their initial issuance. You should
refer to "Certificate Ratings" in this prospectus supplement to learn more about
the significance and limitation of ratings.
<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.
Losses and delinquent payments
on the mortgage loans will reduce
the yield on your certificates ....Payments on the mortgage loans will not be
insured by the government or any other
person. [Moreover, [GE Capital Mortgage
Services, Inc.][we], as servicer, [has][have]
a limited obligation to make advances for
delinquent installments of principal or
interest, as described in "The Pooling and
Servicing Agreement--Advances."]
Consequently, the certificates will absorb
the losses resulting from delinquent
payments, and the yield on your certificates
could be lower than you expect.
[In addition, if you are buying 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 experiences losses as a
result of losses or interest defaults on the
underlying mortgage loans. This is because
losses are first allocated to junior
certificates, as described in "Description of
the Certificates--Allocation of Realized
Losses on the Certificates" and
"--Distributions on the
Certificates--Allocation of Available Funds"
in this prospectus supplement. ]
We cannot guarantee you regular
payments on your certificates .....The amounts you receive on your certificates
will depend on the amount of the payments
borrowers make on the mortgage loans. Because
we cannot predict the rate at which borrowers
will repay their loans, you may receive
distributions on your certificates in amounts
that are larger or smaller than you expect.
In addition, your certificates may mature
more slowly or quickly than anticipated.
Because of this, we cannot guarantee that you
will receive distributions at any specific
future date or in any specific amount.
Prepayment rates that are faster
or slower than you expect will
reduce the yield on
your certificates .................The yield to maturity on your certificates
will depend primarily on the purchase price
of your certificates and the rate of
principal payments on the mortgage loans in
the trust. Unexpected changes in prepayment
rates could have the following negative
effects:
o [Unless you are the holder of Class
Certificates,] the yield on your
certificates will drop if principal
payments occur at a rate faster than you
expect. This is because interest will
accrue on a smaller principal balance than
anticipated, and for a shorter period of
time.
o [If you are the holder of Class
Certificates, faster than expected
prepayment rates will have an especially
severe effect on yield. The Class
Certificates receive only distributions of
interest, which we will calculate based
upon the actual principal balance
outstanding on other certificates. You
will have no entitlement, however, to any
payments of principal. If prepayments are
significantly faster than expected, you
could potentially lose your entire
investment.]
o [If you are the holder of Class
Certificates, you will receive only
distributions of principal. If prepayments
occur at a rate slower than expected, the
payments on your certificates will
likewise occur at a rate slower than
expected. Consequently, the yield on your
certificates could drop significantly.]
o If faster than expected prepayments occur
early in the life of your certificates,
the yield on your certificates could drop
even if the prepayment rate later returns
to an expected rate or is slower than
expected.
For a more detailed discussion of the
sensitivity of certain classes to prepayment
rates and a description of the 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.
You may be unable to reinvest
distributions from the certificates
in comparable investments .........Rapid prepayment rates on the mortgage loans
are likely to coincide with periods of low
prevailing interest rates. During these
periods, the yield 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
prepayment rates on the mortgage loans are
likely to coincide with periods of high
interest rates. During these periods, the
amount of payments available to you for
reinvestment at 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 for
more discussion of the effect of prepayments.
Prepayments may cause
reductions in interest
distributions on your
certificates ......................The actual interest rate on your certificate
may be less than the interest rate stated in
this prospectus supplement. [Unless you are
the holder of the Class Certificates, which
pay only principal,] your certificates will
be allocated any interest shortfalls that we
do not compensate for as described in this
prospectus supplement. The circumstances
under which these interest shortfalls will
occur are described in "Description of the
Certificates--Distributions on the
Certificates" in this prospectus supplement.
The concentration of mortgage
loans in specific geographic
areas may increase the risk of
loss on those mortgage loans and
reduce the yield on your
certificates ......................A significant number of the mortgage loans in
the trust are secured by properties located
in _____ and _____. Any deterioration in the
real estate market or economy of any of these
states could result in higher rates of loss
and delinquency than expected on the mortgage
loans. In addition, these states or regions
may experience natural disasters, such as
earthquakes, fires, floods and hurricanes,
which not be fully insured against and which
may result in property damage and losses on
the mortgage loans. These events may in turn
have a disproportionate impact on funds
available to the trust, which will reduce the
yield on your certificates.
See "Description of the Mortgage Pool and the
Mortgaged Properties" for more information on
the location of the mortgage loans.
Losses on the mortgage loans
may be higher than expected,
which will lower the yield on
your certificates .................A decline in real estate values or in
economic conditions generally could increase
the rates of delinquencies, foreclosures and
losses on the mortgage loans to a level that
is significantly higher than those
experienced currently. This in turn will
reduce the yield on your certificates, if the
credit enhancements described in this
prospectus supplement are not enough to cover
these losses.
[The subordination provided by
the junior certificates may not
be adequate to protect the senior
certificates from all losses] ....[As described in "Description of the
Certificates--Allocation of Realized Losses,"
losses will be allocated first to the junior
certificates. Losses may be severe enough,
however, to reduce the aggregate principal
balance of the Class [M] and Class [B]
Certificates to zero. If that occurs, the
senior certificates will bear their share of
losses thereafter.]
If we exercise our option to
terminate the trust, the yield
on your certificates could be
lower than expected ...............We may, at our option, terminate the trust
under the circumstances described in "The
Pooling and Servicing
Agreement--Termination." If the proceeds
realized upon termination are less than the
outstanding principal balance on the
certificates, your certificates will bear
their share of the resulting shortfall. In
addition, termination of the trust will
result in the early retirement of your
certificates, which will shorten the average
life of the certificates and potentially
lower their yield. [A shorter than expected
average life on the certificates will
especially affect the Class Certificates,
which pay only interest.]
You should refer to "The Pooling and
Servicing Agreement--Termination" for a
discussion of additional consequence of the
trust's early termination.
You may not be able to resell
your certificates .................The certificates will not be listed on any
securities exchange, and a resale market for
the certificates may not develop. [Although
the underwriter of this offering intends to
create a resale market for the certificates,
it has no obligation to do so.] If a market
for the certificates does develop, it may not
continue. Moreover, this market may not be
liquid enough to allow you to resell your
certificates or to resell them at a good
price to you.
You will not receive physical
certificates, which can cause
delays in distributions and
hamper their ability to be
pledged or resold .................Unless you are the purchaser of the Class R
[and Class RL] Certificates, your ownership
of the certificates will be registered
electronically with DTC. The lack of physical
certificates could:
o result in payment delays on the
certificates because the trustee will be
sending distributions on the certificates
to DTC instead of directly to you;
o make it difficult for you to pledge your
certificates if physical certificates are
required by the party demanding the
pledge; and
o could hinder your ability to resell the
certificates because some investors are
unwilling to buy certificates that are not
in physical form.
Our failure to be year 2000
computer ready could disrupt the
distributions on your
certificates ......................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.
We have developed a plan, which is described
in "Year 2000 Computer Readiness" in the
prospectus, to become year 2000 compliant by
mid-1999. We cannot guarantee, however, that
our efforts to achieve year 2000 readiness
will be fully effective. Moreover, we cannot
guarantee that any of our third-party service
providers, such as trustees, borrowers'
banks, loan servicers and DTC, will be year
2000 ready. We also cannot assure you that
any future developments in connection with
our year 2000 readiness or the readiness of
third parties will be those that we have
anticipated.
Our failure, or the failure of our
third-party servicers, to become fully year
2000 ready could disrupt, at least
temporarily, our ability to carry out the
servicing duties described in this prospectus
supplement, including the calculation of
amounts distributable to you and the timely
transfer of funds to the trustee for your
benefit. Your investment in the certificates
could consequently suffer.
Index of Definitions
You can find a list 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.
Description of the Mortgage Pool and the Mortgage 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 (the "Trust"). The assets of the Trust 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. [GECMSI] [Funding], acting in this capacity, is referred to as the
"Depositor").
Certain data with respect to the Mortgage Loans expected to be included in
the Trust 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 SEC
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- 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 Pooling and
Servicing Agreement 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.
We expect that the Mortgage Loans will have been originated under the
following documentation programs:
o 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.
o 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.
o 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.
o 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.
o 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.
o 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 Trusts--The Mortgage Loans--Loan Underwriting Policies" in the
accompanying prospectus for a description of these documentation programs.]
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 Trusts--The Mortgage Loans--Loan Underwriting Policies"
in the prospectus.
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:
o 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 $_____.
o 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 _____%.
o 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.
o 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.
o 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.
o No more than _____% of such Mortgage Loans will be secured by
Mortgaged Properties located in any one postal zip code area.
o 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 .
o 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.
o At least _____% of such Mortgage Loans will be secured by
single-family, detached residences.
o [No more than _____% of such Mortgage Loans will be secured by
condominiums.]
o [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
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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
----------------- -------------- ---------------- -------------------
$ $ %
</TABLE>
Mortgage Rates as of the Cut-off Date
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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
------------- -------------- ---------------- -------------------
% $ %
</TABLE>
Geographic Distribution of Mortgaged Properties as of the Cut-off Date
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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
----- -------------- ---------------- -------------------
$ %
</TABLE>
Years of Origination as of the Cut-off Date
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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
------------------- -------------- ---------------- -------------------
$ %
</TABLE>
Year of Maturity as of the Cut-off Date
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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
---------------- -------------- ---------------- -------------------
$ %
$ %
</TABLE>
Types of Mortgaged Properties as of the Cut-off Date
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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
---------------- -------------- ---------------- -------------------
$ %
</TABLE>
Occupancy Status of Mortgaged Properties as of the Cut-off Date
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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
--------- -------------- ---------------- -------------------
$ %
</TABLE>
Purpose of the Mortgage Loans as of the Cut-off Date
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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
------------------- -------------- ---------------- -------------------
$ %
</TABLE>
Loan-to-value Ratios as of the Cut-off Date
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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
-------------- -------------- ---------------- -------------------
$ %
</TABLE>
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.
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 (the "Cut-off Date"), between GECMSI, as [Depositor and]
Servicer [, Funding, as Depositor,] and _____, as trustee (the "Trustee"). See
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, which is known as DTC. For purposes of this discussion, the term
DTC also refers to any successor depository selected by DTC. Beneficial
interests in the Book-Entry Certificates will be held by investors through the
book-entry facilities of DTC, as described herein. The Depositor has been
informed by DTC 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 DTC (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 DTC, 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.
DTC, which is a New York-chartered limited purpose trust company, performs
services for its Participants, some of which (and/or their representatives) own
DTC. In accordance with its normal procedures, DTC 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 DTC 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 DTC. DTC will be
responsible for crediting the amount of such payments to the accounts of the
applicable Participants in accordance with DTC'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 DTC
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 DTC 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.
DTC has advised the Depositor and the Trustee that, unless and until
Definitive Certificates are issued, DTC 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 DTC
accounts the Book-Entry Certificates are credited. DTC 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 DTC, only if (a) DTC
or the Depositor advises the Trustee in writing that DTC 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 DTC; 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 DTC
through the Financial Intermediaries in writing that the continuation of a
book-entry system through DTC(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 DTC of
Definitive Certificates. Upon surrender by DTC 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 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:
o 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
o such Certificate's share of any allocable Net Interest Shortfall (as
defined below), less
o the interest portion of any Excess Losses (as defined herein)
allocable to Certificateholders through the Cross-Over Date, less
o 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:
(1) 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;
(2) any partial prepayment of principal on such Mortgage Loan by the
Mortgagor during the month preceding such Distribution Date; or
(3) 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 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
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 a Bankruptcy Loss (as
defined below) or 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").
o A "Bankruptcy Loss" with respect to any Mortgage Loan is a Deficient
Valuation or Debt Service Reduction.
o A "Fraud Loss" is any Realized Loss attributable to fraud in the
origination of the related Mortgage Loan.
o 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,
o the holders of the Class R Certificates will be entitled to receive:
-- 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
-- the proceeds, if any, of the assets of the Trust 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
o the holders of the Class RL Certificates will be entitled to receive:
-- 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
-- the proceeds, if any, of the assets of the Trust 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
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. You should refer to
"Yield, Maturity and Weighted Average Life Considerations" in the prospectus for
a discussion of the factors that could affect the yield of your Certificates.
[Description of yield sensitivity of any interest-only, principal-only,
floating-rate or subordinated classes of Certificates, if applicable.]
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. Mortgagors are
permitted to prepay the Mortgage Loans, in whole or in part, at any time without
penalty. See "Yield, Maturity and Weighted Average Life Considerations" in the
prospectus for a discussion of the factors that may influence prepayment rates.
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.]
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 (1), (3) through (6), (8) and (9) of the Modeling
Assumptions (as defined herein), and the additional assumptions that (1) each
Mortgage Loan has an original and remaining term to maturity of 360 months, (2)
each such Mortgage Loan has a Mortgage Rate of % and Net Mortgage Rate of %, and
(3) 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:
o 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;
o summing the results; and
o 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:
[(1) the distributions in respect of the Certificates are made and received
in cash on the 25th day of each month commencing in _____, ;
(2) such Mortgage Loans prepay at the specified constant percentages of
the Prepayment Assumption;
(3) the aggregate outstanding principal balance of such Mortgage Loans as
of the Cut-off Date is $_____ ;
(4) 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;
(5) [GECMSI] does not exercise its option to repurchase all the Mortgage
Loans in the Trust as described under the caption "The Pooling and
Servicing Agreement--Termination" herein;
(6) 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;
(7) 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;
(8) 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;
(9) 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;
(10) the date of the initial issuance of the Certificates is _____, _____;
(11) the amount distributable to Certificateholders is not reduced by the
incurrence of any expenses by the Trust; and
(12) 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>
Aggregate Stated
Scheduled Remaining
Principal Net Term to
[Mortgage Loan Balance as of the Mortgage Mortgage Age Maturity
Group] 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 (1), (3) through (6) and (8) through (10) of the preceding sentence
and the additional assumptions that:
o each Mortgage Loan has an original and remaining term to maturity of
_____ months;
o each such Mortgage Loan bears interest at a rate of _____% per annum;
and
o 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 GEMSCI
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 with interim period numbers.]
<TABLE>
<CAPTION>
As of December 31, As of December 31, As of December 31,
1996 1997 1998
--------------------- ---------------------- ----------------------
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 portfolio.................... 785,928 $88,188,662 726,869 $83,535,531 622,179 $75,039,774
======= =========== ======= =========== ======= ===========
Period of delinquency(1)...........
30 to 59 days................... 3,362 $ 353,209 2,687 $ 281,657 2,314 $ 242,342
60 to 89 days................... 1,177 135,668 632 71,245 526 56,889
90 days or more(2).............. 6,867 892,643 5,442 662,342 4,561 512,734
--------- ------------- --------- ------------- --------- -------------
Total delinquent loans............. 11,406 $ 1,381,520 8,761 $ 1,051,244 7,401 $ 811,965
========= ============= ========= ============= ========= =============
Percent of portfolio............... 1.45% 1.57% 1.21% 1.22% 1.19% 1.08%
</TABLE>
- ------
(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.
<TABLE>
<CAPTION>
As of December 31,
------------------------------------------
1996 1997 1998
---- ---- ----
(Dollar amounts in thousands)
<S> <C> <C> <C>
Total portfolio...................................... $88,188,662 $83,535,531 $75,039,774
Foreclosures(1)...................................... 372,800 271,046 189,421
Foreclosure ratio.................................... 0.42% 0.32% 0.25%
</TABLE>
- ------
(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.
GECMSI is not currently aware of specific trends that have affected its
recent delinquency and loss experience, nor is it currently aware of any trends
that are likely to affect the future performance of GECMSI's loan portfolio.
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 the material provisions of the Agreement that are unique to
this offering of Certificates. 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, those provisions or terms are as specified in the Agreement.
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:
o 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];
o 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");
o 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;
o 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
o 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. See "Servicing of the
Mortgage Loans and Contracts -- Advances" in the accompanying prospectus for
more information.
[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.]
[As a result of the subordination of the Junior Certificates, the effect of
reimbursements to GECMSI or the Trustee 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.]
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 (1) and (2) 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 1/12 of 0.125% of the Pool Scheduled
Principal Balance for such Distribution Date and 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 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 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 [and the REMIC constituted
by the Trust] 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. Under the Agreement, the
Trustee will provide notice to Certificateholders of this final distribution.
[[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 to a tax on prohibited transactions or result in the failure of such Trust
to qualify as a REMIC.]
In accordance with the Agreement, any such repurchase by [GECMSI] of the
assets included in the Trust will be at a price equal to the sum of:
(1) 100% of the unpaid principal balance of each Mortgage Loan in the
Trust (other than a Mortgage Loan described in clause (2)) 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
(2) 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:
o 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
o 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. See "Servicing of the Mortgage Loans and Contracts--Unanticipated
Recoveries of Losses on the Mortgage Loans" in the prospectus.
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
The following discussion, insofar as it states conclusions of law,
represents the opinion of Cleary, Gottlieb, Steen & Hamilton, special counsel to
GE Capital Mortgage [Services, Inc.] [Funding Corporation].
[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] [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 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:
o the Underwriter is the sole underwriter or the manager or co-manager
of the underwriting syndicate, for such Certificates;
o 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;
o 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;
o the Certificates are not subordinated to other certificates issued by
the Trust in respect of the Mortgage Pool;
o 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;
o 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;
o the Trustee is not an affiliate of any member of the "Restricted
Group" (as defined below); and
o 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):
o GECMSI [or Funding];
o the Underwriter;
o the Trustee;
o any entity that provides insurance or other credit enhancement to the
Trust in respect of the relevant Mortgage Pool; or
o 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, 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.............................................................
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........................................................
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.................................................................
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 Trusts..............................................................
Credit Enhancement......................................................
Yield, Maturity and Weighted Average Life Considerations................
Servicing of the Mortgage Loans.........................................
The Pooling and Servicing Agreement.....................................
GE Capital Mortgage Services, Inc.......................................
GE Capital Mortgage Funding
Corporation.............................................................
The Guarantor...........................................................
Certain Legal Aspects of the Mortgage Loans.............................
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 [Services, Inc.][Funding Corporation]____ Trust
Issuer
GE Capital Mortgage [Services, Inc.][Funding Corporation]
[Depositor and] Servicer
$
(Approximate)
[REMIC] Mortgage Pass-Through Certificates,
Series
-------
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, MARCH 8, 1999
PROSPECTUS SUPPLEMENT
(To prospectus dated__________)
GE Capital Mortgage [Services, Inc.] [Funding Corporation] _____ Trust
Issuer
GE Capital Mortgage [Services, Inc.] [Funding Corporation]
Depositor [and Servicer]
$
(Approximate)
[REMIC] Home Equity Mortgage Pass-Through Certificates, Series HE-
Principal and interest payable monthly, beginning_____
The trust will issue:
o _____ classes of senior certificates;
o _____ classes of junior certificates; and
o _____ classes of residual certificates.
For a description of the classes of certificates offered by this prospectus
supplement, see "Securities Offered" on page . The classes of certificates
listed in the following table will be offered at the price to public shown.
<TABLE>
<CAPTION>
------------ --------- -------------------- ------------------------------ -----------------------------
Class Price to Public Underwriting Discounts Proceeds to Depositor
------------ --------- -------------------- ------------------------------ -----------------------------
<S> <C> <C> <C> <C>
$ $ $
------------ --------- -------------------- ------------------------------ -----------------------------
Total $ $ $
------------ --------- -------------------- ------------------------------ -----------------------------
</TABLE>
The assets of the trust will include a pool of closed-end, fixed-rate, first [or
second] lien, one- to four-family residential mortgage loans. The stated
maturities of the mortgage loans will range from_____to_____years.
----------------------------
Consider carefully the risk factors beginning on page S-_____of this prospectus
supplement.
----------------------------
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. Any representation to the
contrary is a criminal offense.
_____ will purchase the senior certificates [and_____will purchase the junior
certificates] offered by this prospectus supplement._____ will sell the [junior]
certificates and the residual certificates to investors at varying prices
determined at the time of sale. The certificates will be available for delivery
to investors on or about_____ .
[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 in two separate documents: (1)
the accompanying prospectus, which provides general information, some of which
may not apply to your certificates or trust, and (2) this prospectus supplement,
which describes the specific terms of your certificates and the assets in your
trust. You should read both of these documents together.
This prospectus supplement will supplement and enhance the disclosure 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. This summary contains an overview of certain concepts and
other information to aid your understanding. 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.
The Issuer
The issuer of the certificates will be GE Capital Mortgage [Services,
Inc.] [Funding Corporation] [_____ ] Trust. The trust was created for the sole
purpose of issuing the certificates.
[We] will sell the mortgage loans underlying the certificates to the trust.
[We will acquire these mortgage loans from GE Capital Mortgage Services, Inc.
and sell them to the trust.]
Securities Offered
The total original principal balance of the certificates will be
approximately $ . The following table shows the approximate initial principal
balance and annual certificate interest rate of each class of certificates:
<TABLE>
<CAPTION>
Class Certificate Price to Underwriting Proceeds to
Class Principal Balance Certificate Interest Public Discount the Issuer
Rate
<S> <C> <C> <C> <C> <C>
[Class] $ %[(1)]
------------------
</TABLE>
[(1) [Describe variations in interest rate].]
[(2) [Price to be determined at time of sale].]
[Description of senior and subordinate certificates and any classes not
being offered by this prospectus supplement, if applicable.]
[The Class Certificates are [interest-only] [principal-only] certificates
and will receive no payments of [principal][interest]. In addition, the yield on
these certificates will be particularly sensitive to the rate of prepayments on
the mortgage loans in the trust. See the risk factor relating to these
certificates on page and "Yield and Weighted Average Life Considerations--The
Class_____ Certificates" in this prospectus supplement.]
Depending on the final composition of the pool of mortgage loans sold to
the trust, the principal balance of each class of certificates 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 $_____.
The trust will issue the certificates in the following minimum
denominations:
Class Minimum Denomination
----- --------------------
$
Certificates with principal balances in excess of these amounts will be
issued in multiples of $1,000 above the minimum denomination. The Class R [and
Class RL] Certificates will [each] be issued as a single certificate.
The Mortgage Loans
[GE Capital Mortgage Services, Inc.] [We] originated or acquired all of
the mortgage loans.] The mortgage loans expected to be sold to the trust have
the following characteristics as of_____ :
<TABLE>
<CAPTION>
<S> <C>
o Total original principal balance (1): $
o Original terms to maturity: _____ to_____ years
o Weighted average maturity: between and months
o Weighted average annual interest rate:
between % and_____%
o Largest geographic concentration: [_____ % of the mortgage loans are secured by
property located in_____ ]
o [Percentage of mortgage loans that are secured
by second-priority mortgages:
----- %]
o [Percentage of mortgage loans that accrue interest
on a simple interest basis:
----- %]
o [Percentage of mortgage loans that are balloon
loans: _____ %]
</TABLE>
(1) Approximate, after deducting payments of principal due on or before ,
and subject to the variance described in this prospectus supplement.
The Servicer
[GE Capital Mortgage Services, Inc.] [We] will directly service [all of]
the mortgage loans in the trust [and will supervise the servicing of
approximately % of the mortgage loans by third party servicers].
As servicer, [GE Capital Mortgage Services, Inc.] [we] must make reasonable
efforts to collect payments due on the mortgage loans. [In addition, it must
advance delinquent payments of interest on mortgage loans to the extent
described in this prospectus supplement.] [In addition, it will reduce its
servicing compensation, to the extent described in this prospectus supplement,
to reimburse certificateholders for shortfalls of interest payments.]
You should refer to "GE Capital Mortgage Services, Inc." and "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
We will make distributions on the certificates on the 25th day of each
month. If the 25th is not a business day, we will make distributions on the next
business day. The first distribution date will be_____.
[Description of priorities of distribution between senior and junior
certificates, if applicable.]
Interest Payments
o The actual amount of interest you receive on your certificates on each
distribution date will depend on:
-- the amount of interest accrued on your certificates;
-- the total amount of interest funds available for distribution;
and
-- the amount of any accrued interest not paid on earlier
distribution dates.
o [If you are the holder of a senior certificate, the amount of interest
payable to you will be in proportion to the interest payable on all of
the senior certificates together. All of the senior certificates will
receive interest payments at the same time.]
o [If you are the holder of a junior certificate, you will receive
interest payments only after we have paid interest to:
-- all of the senior certificates; and
-- each class of junior certificates that ranks higher to your
certificates.]
o We will calculate interest on the basis of a 360-day year consisting
of twelve 30-day months.
Principal Payments
o [We will distribute principal on each class of certificates --other
than the Class_____ Certificates -- from available principal funds in
the manner described in this prospectus supplement. You should refer
to "Description of the Certificates--Distributions on the
Certificates" for a description of the amount of principal payable to
you and the priority in which it will be paid.]
<PAGE>
o The amount of principal you receive on your certificates will depend
on:
-- the various formulas described in this prospectus supplement that
determine the allocation of principal payments to your
certificates; and
-- the amounts actually available for distribution as principal.
o [Because of the principal allocation formulas described in this
prospectus supplement, the senior certificates--other than the Class
Certificates--will receive principal payments at a faster rate than
the junior certificates. The Clas1s Certificates will not benefit from
this accelerated repayment. You should refer to "Description of the
Certificates--Distributions on the Certificates--Allocation of
Available Funds."]
o [Description of any classes with special payment features, such as
planned amortization or targeted amortization certificates.]
[Credit Enhancement
Your certificates will benefit from credit enhancement in the form of
[describe credit enhancement, such as subordination, mortgage pool insurance
policy, special hazard insurance policy, or a limited guarantee.]
We have obtained this credit enhancement on your certificates to protect
you against some losses and to increase the likelihood that you will receive all
payments due on your certificates. For a description, see "Description of the
Mortgage Pool and the Mortgaged Properties--General" and "The Pooling and
Servicing Agreement--Voting Rights" in this prospectus supplement. You should
keep in mind that credit enhancements offer only limited protection against
losses of your investment. See the applicable risk factor on page S- .]
Federal Income Tax Consequences
[The trust will be treated as a [single] [double] REMIC for federal income
tax purposes. As a result, the certificates other than the Class R [and Class
RL] Certificates will be treated as regular interests in the REMIC, and the
Class R [and Class RL] Certificates will be treated as residual interests in the
REMIC. All of the regular interest certificates will be treated as debt for tax
purposes. In addition, unless you are the holder of the Class R [and Class RL]
Certificates, you will be required to report income on your certificates under
the accrual method of accounting.]
[The particular federal income tax consequences of your investment will
depend upon the class of certificates you buy. You should consider carefully the
tax consequences of an investment in the following classes of certificates:
o the Class Certificates, which will be issued at a price lower than
their face amount;
o the Class R [and Class RL] Certificates, which will be subject to
special rules that could significantly reduce their after-tax yield;
and
o the junior certificates, whose reported income may exceed the amount
of cash actually received.
You should refer to "Federal Income Tax Consequences" in this prospectus
supplement and "Federal Income Tax Consequences -- REMIC Certificates" in the
accompanying prospectus to determine the tax consequences to you of an
investment in the certificates.
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. You should consult your own legal
advisors to determine whether, and to what extent, you can invest in Class_____
Certificates. See "Legal Investment Matters" for important information
concerning possible restrictions on the ownership of the certificates by
regulated institutions.
ERISA Considerations
If you are investing the assets of an employee benefit plan that is subject
to ERISA or to Section 4975 of the federal income tax code, you may not acquire
the [Class Certificates]. In addition, you should consider carefully the
information presented in "ERISA Considerations."
Certificate Ratings
The certificates must receive the ratings indicated under "Certificate
Ratings" from_____ and/or_____ at the time of their initial issuance. You should
refer to "Certificate Ratings" in this prospectus supplement to learn more about
the significance and limitation of ratings.
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.
Losses and delinquent payments
on the mortgage loans will reduce
the yield on your
certificates ......................Payments on the mortgage loans will not be
insured by the government or any other
person. [Moreover, [GE Capital Mortgage
Services, Inc.] [we], as servicer, [has]
[have] a limited obligation to make advances
for delinquent installments of principal or
interest, as described in "The Pooling and
Servicing Agreement--Advances."]
Consequently, the certificates will absorb
the losses resulting from delinquent
payments, and the yield on your certificates
could be lower than you expect. You should
refer to "Description of the Mortgage Pool
and the Mortgaged Properties--The Mortgage
Loans" for information about the percentage
of mortgage loans in the pool that have been
delinquent for more than 30 days as of .
[In addition, if you are buying 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 experiences losses as a
result of losses or interest defaults on the
underlying mortgage loans. This is because
losses are first allocated to junior
certificates, as described in "Description of
the Certificates--Allocation of Realized
Losses on the Certificates" and
"--Distributions on the
Certificates--Allocation of Available Funds"
in this prospectus supplement. ]
Some of the loans in the
mortgage pool are more likely
to default than others, and
higher than expected defaults
on these loans could reduce
the yield on your certificates ....The payment schedules for most of the
mortgage loans in the pool require the
borrower to pay off the principal balance of
the loan gradually over the life of the loan.
Some of the mortgage loans in the pool,
however, have payment schedules under which
the borrower makes relatively small payments
of principal over the life of the loan, and
then must make a final payment that pays off
the entire principal balance outstanding.
This final payment is usually 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 risk of default is greater than
on other types of loans. High rates of
default on these types of loans in the pool
will result in greater losses on your
certificates.
The ability of a borrower to refinance the
type of loan described above or sell the
mortgaged property will depend upon a number
of factors, including:
o the level of mortgage interest rates;
o the borrower's equity in the mortgaged
property;
o general economic conditions; and
o the availability of credit.
We cannot predict how these factors will
affect the default rate of these mortgage
loans in the pool. You should refer to
"Description of the Mortgage Pool and the
Mortgaged Properties--The Mortgage Loans" for
information on the percentage of loans in the
mortgage loan pool that consist of these
loans.
We may not be able to recover
amounts owed on
second-priority mortgages in
the pool, which will reduce
the yield on your certificates ....Many of the mortgage loans in the pool owned
by the trust are junior to other mortgages on
the same property. These other mortgages are
not owned by the trust. If the holder of a
senior mortgage forecloses, the holder of the
junior mortgage will receive only those
amounts that are left over from the sale of
the mortgaged property after the senior
mortgage is fully paid off. This remaining
amount may not be enough to pay off the
junior mortgage, and your certificates may
bear the resulting loss. Although we have the
option of advancing money to a senior lender,
as described in "The Pooling and Servicing
Agreement--Servicing Arrangements with
Respect to the Mortgage Loans," we have no
obligation to do so.
We cannot guarantee you regular
payments on your certificates .....The amounts you receive on your certificates
will depend on the amount of the payments
borrowers make on the mortgage loans. Because
we cannot predict the rate at which borrowers
will repay their loans, you may receive
distributions on your certificates in amounts
that are larger or smaller than you expect.
In addition, your certificates may mature
more slowly or quickly than anticipated.
Because of this, we cannot guarantee that you
will receive distributions at any specific
future date or in any specific amount.
<PAGE>
Prepayment rates that are
faster or slower than you
expect will reduce the yield
on your certificates ..............The yield to maturity on your certificates
will depend primarily on the purchase price
of your certificates and the rate of
principal payments on the mortgage loans in
the trust. Unexpected changes in prepayment
rates could have the following negative
effects:
o [Unless you are the holder of Class
Certificates,] the yield on your
certificates will drop if principal
payments occur at a rate faster than you
expect. This is because interest will
accrue on a smaller principal balance than
anticipated, and for a shorter period of
time.
o [If you are the holder of Class
Certificates, faster than expected
prepayment rates will have an especially
severe effect on yield. The Class
Certificates receive only distributions of
interest, which we will calculate based
upon the actual principal balance
outstanding on other certificates. You
will have no entitlement, however, to any
payments of principal. If prepayments are
significantly faster than expected, you
could potentially lose your entire
investment.]
o [If you are the holder of Class
Certificates, you will receive only
distributions of principal. If prepayments
occur at a rate slower than expected, the
payments on your certificates will
likewise occur at a rate slower than
expected. Consequently, the yield on your
certificates could drop significantly.]
o If faster than expected prepayments occur
early in the life of your certificates,
the yield on your certificates could drop
even if the prepayment rate later returns
to an expected rate or is slower than
expected.
For a more detailed discussion of the
sensitivity of certain classes to prepayment
rates and a description of the 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.
You may be unable to reinvest
distributions from the certificates
in comparable investments .........Rapid prepayment rates on the mortgage loans
are likely to coincide with periods of low
prevailing interest rates. During these
periods, the yield 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
prepayment rates on the mortgage loans are
likely to coincide with periods of high
interest rates. During these periods, the
amount of payments available to you for
reinvestment at 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 for
more discussion of the effect of prepayments.
<PAGE>
Prepayments may cause reductions
in interest distributions on
your certificates .................The actual interest rate on your certificate
may be less than the interest rate stated in
this prospectus supplement. [Unless you are
the holder of the Class Certificates, which
pay only principal,] your certificates will
be allocated any interest shortfalls that we
do not compensate for as described in this
prospectus supplement. The circumstances
under which these interest shortfalls will
occur are described in "Description of the
Certificates--Distributions on the
Certificates" in this prospectus supplement.
The concentration of mortgage
loans in specific geographic
areas may increase the risk of
loss on those mortgage loans
and reduce the yield on your
certificates ......................A significant number of the mortgage loans in
the trust are secured by properties located
in and . Any deterioration in the real estate
market or economy of any of these states
could result in higher rates of loss and
delinquency than expected on the mortgage
loans. In addition, these states or regions
may experience natural disasters, such as
earthquakes, fires, floods and hurricanes,
which not be fully insured against and which
may result in property damage and losses on
the mortgage loans. These events may in turn
have a disproportionate impact on funds
available to the trust, which will reduce the
yield on your certificates.
See "Description of the Mortgage Pool and the
Mortgaged Properties" for more information on
the location of the mortgage loans.
Losses on the mortgage loans
may be higher than expected,
which will lower the yield on
your certificates .................A decline in real estate values or in
economic conditions generally could increase
the rates of delinquencies, foreclosures and
losses on the mortgage loans to a level that
is significantly higher than those
experienced currently. This in turn will
reduce the yield on your certificates, if the
credit enhancements described in this
prospectus supplement are not enough to cover
these losses.
[The subordination provided by
the junior certificates may
not be adequate to protect the
senior certificates from all
losses] ...........................As described in "Description of the
Certificates--Allocation of Realized Losses,"
losses will be allocated first to the junior
certificates. Losses may be severe enough,
however, to reduce the aggregate principal
balance of the Class [M] and Class [B]
Certificates to zero. If that occurs, the
senior certificates will bear their share of
losses thereafter.
If we exercise our option to
terminate the trust, the yield
on your certificates could be
lower than expected ...............We may, at our option, terminate the trust
under the circumstances described in "The
Pooling and Servicing
Agreement--Termination." If the proceeds
realized upon the termination are less than
the outstanding principal balance on the
certificates, your certificates will bear
their share of the resulting shortfall. In
addition, termination of the trust will
result in the early retirement of your
certificates, which will shorten the average
life of the certificates and potentially
lower their yield. [A shorter than expected
average life on the certificates will
especially affect the Class Certificates,
which pay only interest.]
You should refer to "The Pooling and
Servicing Agreement--Termination" for a
discussion of additional consequence of the
trust's early termination.
You may not be able to resell
your certificates .................The certificates will not be listed on any
securities exchange, and a resale market for
the certificates may not develop. [Although
the underwriter of this offering intends to
create a resale market for the certificates,
it has no obligation to do so.] If a market
for the certificates does develop, it may not
continue. Moreover, this market may not be
liquid enough to allow you to resell your
certificates or to resell them at a good
price to you.
You will not receive physical
certificates, which can cause
delays in distributions and
hamper their ability to be
pledged or resold .................Unless you are the purchaser of the Class R
[and Class RL] Certificates, your ownership
of the certificates will be registered
electronically with DTC. The lack of physical
certificates could:
o result in payment delays on the
certificates because the trustee will be
sending distributions on the certificates
to DTC instead of directly to you;
o make it difficult for you to pledge your
certificates if physical certificates are
required by the party demanding the
pledge; and
o could hinder your ability to resell the
certificates because some investors are
unwilling to buy certificates that are not
in physical form.
Our failure to be year 2000
computer ready could disrupt
the distributions on your
certificates ......................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.
We have developed a plan, which is described
in "Year 2000 Computer Readiness" in the
prospectus, to become year 2000 compliant by
mid-1999. We cannot guarantee, however, that
our efforts to achieve year 2000 readiness
will be fully effective. Moreover, we cannot
guarantee that any of our third-party service
providers, such as trustees, borrowers'
banks, loan servicers and DTC, will be year
2000 ready. We also cannot assure you that
any future developments in connection with
our year 2000 readiness or the readiness of
third parties will be those that we have
anticipated.
Our failure, or the failure of our
third-party servicers, to become fully year
2000 ready could disrupt, at least
temporarily, our ability to carry out the
servicing duties described in this prospectus
supplement, including the calculation of
amounts distributable to you and the timely
transfer of funds to the trustee for your
benefit. Your investment in the certificates
could consequently suffer.
Index of Definitions
You can find a list of capitalized terms used in this prospectus
supplement, and the pages on which they are defined, under the caption "Index of
Certain Prospectus Supplement Definitions" beginning on page S- of this
prospectus supplement. Any capitalized terms that are not defined in the
prospectus supplement are defined in the accompanying prospectus. See "Index of
Certain Prospectus Definitions" on page of the accompanying prospectus.
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 (the "Trust"). The assets of the Trust 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. [GECMSI] [Funding], acting in this capacity, is
referred to as the "Depositor").
Certain data with respect to the Mortgage Loans expected to be included in
the Trust 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 SEC
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 Pooling and
Servicing Agreement 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,
in the case of a Self-Amortizing Mortgage Loan (as defined herein), 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"). In the case of a Simple Interest Mortgage
Loan (as defined herein), the "Principal Balance" will be 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 $__________ .
o 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.
o 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.
o 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_____
.
o All of the Mortgage Loans will have original terms to maturity of
_____ to __________ years.
o 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.
o 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").
o The weighted average remaining term to stated maturity of the Balloon
Loans is expected to be approximately _____ months.
o 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 _____%.
o 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 _____%.
o 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.
o 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).
o 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.
o 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.
o 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.
[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
_____%.]
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>
Percentage of
Range of Cut-off Date Number of Cut-off Date Cut-off Date Aggregate
Principal Balance Mortgage Loans Principal Balance Principal Balance
----------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
$ $ %
</TABLE>
Mortgage Rates
<TABLE>
<CAPTION>
Percentage of
Range of Cut-off Date Number of Cut-off Date Cut-off Date Aggregate
Principal Balance Mortgage Loans Principal Balance Principal Balance
----------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
% $ %
</TABLE>
Geographic Distribution of Mortgaged Properties
<TABLE>
<CAPTION>
Percentage of
Number of Cut-off Date Cut-off Date Aggregate
State Mortgage Loans Principal Balance Principal Balance
----- -------------- ----------------- -----------------
<S> <C> <C> <C>
$ %
</TABLE>
Priority of Mortgage Loans
<TABLE>
<CAPTION>
Percentage of
Number of Cut-off Date Cut-off Date Aggregate
Priority Mortgage Loans Principal Balance Principal Balance
-------- -------------- ----------------- -----------------
<S> <C> <C> <C>
First-priority
Second priority $ %
__________ Total
</TABLE>
Year of Origination
<TABLE>
<CAPTION>
Percentage of
Number of Cut-off Date Cut-off Date Aggregate
Year of Origination Mortgage Loans Principal Balance Principal Balance
------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
$ %
</TABLE>
Months Remaining to Stated Maturity as of the Cut-off Date
<TABLE>
<CAPTION>
Number of Months Percentage of
Remaining Number of Cut-off Date Cut-off Date Aggregate
in Stated maturity Mortgage Loans Principal Balance Principal Balance
------------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
%
$
</TABLE>
Types of Mortgaged Properties[(1)]
<TABLE>
<CAPTION>
Percentage of
Number of Cut-off Date Cut-off Date Aggregate
Property Type Mortgage Loans Principal Balance Principal Balance
------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
$ %
</TABLE>
[(1) Approximately_____% of the single-family detached units will be
manufactured homes.]
Use of Mortgaged Properties(1)
<TABLE>
<CAPTION>
Percentage of
Number of Cut-off Date Cut-off Date Aggregate
Priority Mortgage Loans Principal Balance Principal Balance
-------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Primary residence
Non-primary residence[(2)] $ %
Total
</TABLE>
(1) Based on information supplied by the Mortgagor in the loan application.
<PAGE>
[(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]
<TABLE>
<CAPTION>
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
<S> <C> <C> <C>
% $ %
</TABLE>
[(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)
<TABLE>
<CAPTION>
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
-------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
% $ %
</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.
Home Equity Loan Ratio(1)(2)
(for second-lien Mortgage Loans)
<TABLE>
<CAPTION>
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
----------- -------------------- ----------------- -----------------
<S> <C> <C> <C>
% $ %
</TABLE>
(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
<TABLE>
<CAPTION>
Percentage of
Number of Cut-off Date Cut-off Date Aggregate
Type Mortgage Loans Principal Balance Principal Balance
---- -------------- ----------------- -----------------
<S> <C> <C> <C>
Fully amortizing $ %
Balloon
_____ Total_____
</TABLE>
Months Remaining to Stated Maturity as of the Cut-off Date
(for Balloon Loans)
<TABLE>
<CAPTION>
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
------------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
----- $ %
</TABLE>
<PAGE>
The following describes certain delinquency characteristics as of the
Cut-off Date of the Mortgage Loans expected to comprise the Mortgage Pool:
o None of the Mortgage Loans is _____ days or more delinquent in payment
as of the Cut-off Date.
o [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
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 .
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 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.
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 (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, which is known as DTC. For purposes of this discussion, the term
DTC also refers to any successor depository selected by DTC. Beneficial
interests in the Book-Entry Certificates will be held by investors through the
book-entry facilities of DTC, as described herein. The Depositor has been
informed by DTC 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 DTC (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 DTC, 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.
DTC, which is a New York-chartered limited purpose trust company, performs
services for its Participants, some of which (and/or their representatives) own
DTC. In accordance with its normal procedures, DTC 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 DTC 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 DTC. DTC will be
responsible for crediting the amount of such payments to the accounts of the
applicable Participants in accordance with the DTC'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 DTC
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 DTC 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.
DTC has advised the Depositor and the Trustee that, unless and until
Definitive Certificates are issued, DTC 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 DTC
accounts the Book-Entry Certificates are credited. DTC 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 DTC, only if (a) DTC
or the Depositor advises the Trustee in writing that DTC 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 DTC; 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 DTC
through the Financial Intermediaries in writing that the continuation of a
book-entry system through DTC (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 DTC of
Definitive Certificates. Upon surrender by DTC 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 (as defined herein) 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 (as defined in this
prospectus supplement) 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 (as
defined in this prospectus supplement) 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 (as defined in this prospectus supplement) 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:
o all amounts distributed on previous Distribution Dates on such
Certificate on account of principal;
o the principal portion of all Realized Losses (as defined in this
prospectus supplement) in respect of the Mortgage Loans in the related
Mortgage Pool previously allocated to such Certificate; and
o in the case of certain subordinated Certificates (the "Junior
Certificates"), 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 (1) 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 (2) 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 (2) of the preceding sentence over the amount set forth in clause (1) 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 to
include any advances of interest made by GECMSI as servicer in such month in
respect of such Simple Interest Mortgage Loans, and 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).
The "Unpaid Net Simple Interest Shortfall" for any Distribution Date will
be equal to the excess, if any, of any Net Simple Interest Shortfall for such
Distribution Date, over 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 (1) 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 (2) 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 one
month's interest at the Net Mortgage Rate on the Principal Balance of such
Mortgage Loan, and 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 (1) a Bankruptcy Loss
(as defined below) or (2) 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
<PAGE>
In addition to distributions of principal and interest,
o the holders of the Class R Certificates will be entitled to receive:
-- 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
-- the proceeds, if any, of the assets of the Trust 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
o the holders of the Class RL Certificates will be entitled to receive:
-- 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
-- the proceeds, if any, of the assets of the Trust 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
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.
You should refer to "Yield, Maturity and Weighted Average Life
Considerations" in the prospectus for a discussion of the factors that could
affect the yield of your Certificates.
[Description of yield sensivity of any interest-only, principal-only,
floating-rate or subordinated classes of Certificates, if applicable.]
[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.
<PAGE>
[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.
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 maturities, 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.
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 (1) pays more than
one installment at a time and (2) 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."
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 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:
o 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,
o summing the results, and
o 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:
(1) the distributions in respect of the Certificates are made and received
in cash on the 25th day of each month commencing in__________ ;
(2) such Mortgage Loans prepay at the specified constant percentages of
the Prepayment Assumption;
(3) the aggregate outstanding principal balance of such Mortgage Loans as
of the Cut-off Date is $__________ ;
(4) 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;
(5) [GECMSI] does not exercise its option to repurchase all the Mortgage
Loans in the Trust as described under the caption "The Pooling and
Servicing Agreement--Termination" herein;
(6) 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;
(7) 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;
(8) 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);
(9) 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;
(10) 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;
(11) the date of the initial issuance of the Certificates is_____ ;
(12) the amount distributable to Certificateholders is not reduced by the
incurrence of any expenses by the Trust;
(13) the Mortgage Pool consists of_____ Mortgage Loans having the
characteristics set forth below;
(14) the Net Mortgage Rate of each Mortgage Loan equals the Mortgage Rate
for such Mortgage Loan, less % per annum; and
(15) 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>
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)
<S> <C> <C> <C> <C> <C> <C>
</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 (1), (3) through (6) and (8) through (11) of the preceding sentence
and the additional assumptions that:
o each Mortgage Loan has an original and remaining term to maturity
of_____months;
o each such Mortgage Loan bears interest at a rate of_____ % per annum;
and
o 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.]
Percent of Original Class Certificate Principal Balance
Outstanding of the Certificates
<TABLE>
<CAPTION>
Class Class Class Class
Prepayment Assumption Prepayment Assumption Prepayment Assumption Prepayment Assumption
Distribution 0% % % % % 0% % % % % 0% % % % % 0% % % % %
- ------------- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
Date
- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
Percentage
</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.
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--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,
1996 1997 1998
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 portfolio ..... 40,130 $2,626,039 48,826 $2,975,681 49,256 $3,112,845
====== ========== ====== ========== ====== ==========
Period of Delinquency(1)............
One payment(2)................... 751 $40,502 783 $45,052 649 $36,849
Two payments(2).................. 169 9,643 278 16,911 231 12,976
Three payments or more(3)........ 760 47,918 1,234 80,319 1,530 104,290
--- ------ ----- ------ ----- -------
Total delinquent loans.............. 1,680 $97,883 2,295 $142,282 2,410 $154,115
===== ======= ===== ======== ===== ========
Percent of portfolio................ 4.19% 3.73% 4.70% 4.78% 4.89% 4.95%
</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.
<TABLE>
<CAPTION>
As of December 31,
1996 1997 1998
---- ---- ----
(Dollar amounts in thousands)
<S> <C> <C> <C>
Total Home Equity Loan portfolio.......... $2,626,039 $2,975,681 $3,112,845
Foreclosed loans (Real estate owned ("REO")
properties(1)........................ $ 9,189 $ 5,505 $ 9,104
Foreclosure ratio......................... 0.35% 0.18% 0.29%
</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.
GECMSI is not currently aware of specific trends that have affected its
recent delinquency and loss experience, nor is it currently aware of any trends
that are likely to affect the future performance of its portfolio.
<PAGE>
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.
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1997 1998
---- ---- ----
(Dollar amounts in thousands)
<S> <C> <C> <C>
Number of Home Equity Loans serviced...... 40,130 48,826 49,256
Aggregate loan balance of Home Equity Loans
serviced............................. $2,626,039 $2,975,681 $3,112,845
Net losses(2):
By dollar amount....................... $8,756 $8,210 $11,499
Percentage(3).......................... 0.33% 0.28% 0.37%
</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, 1996,
December 31, 1997 and December 31, 1998 approximately 32%, 23% and 20%
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 the material provisions of the Agreement that are unique to
this offering of Certificates. 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, those provisions or terms are as specified in the Agreement.
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:
o 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];
o 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");
o 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;
o 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
o 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. See "Servicing of the Mortgage Loans and Contracts--Advances" in the
accompanying prospectus for more information.
[As a result of the subordination of the Junior Certificates, the effect of
reimbursements to GECMSI or the Trustee 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.]
<PAGE>
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 (1) and (2) 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 1/12 of 0.125% of the aggregate Principal
Balance of the Mortgage Loans for such Distribution Date and 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 on a Self-Amortizing Mortgage Loan (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.
<PAGE>
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 [and the REMIC constituted
by the Trust] 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. Under the Agreement, the Trustee will provide notice to
Certificateholders of this final distribution. [[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 to a tax on prohibited
transactions or result in the failure of such Trust to qualify as a REMIC.]
Any such repurchase by [GECMSI] of the assets included in the Trust will be
at a price equal to the sum of (1) 100% of the unpaid principal balance of each
Mortgage Loan in the Trust (other than a Mortgage Loan described in clause (2))
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 (2) 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. See "Servicing of the Mortgage Loans and Contracts -- Unanticipated
Recoveries of Losses on the Mortgage Loans" in the prospectus.
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
The following discussion, insofar as it states conclusions of law,
represents the opinion of Cleary, Gottlieb, Steen & Hamilton, special counsel to
GE Capital Mortgage [Services, Inc.][Funding Corporation].
[An election will be made to treat [the Trust] [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 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:
o the Underwriter is the sole underwriter or the manager or co-manager
of the underwriting syndicate, for such Certificates;
o 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;
o 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;
o the Certificates are not subordinated to other certificates issued by
the Trust in respect of the Mortgage Pool;
o 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;
o 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;
o the Trustee is not an affiliate of any member of the "Restricted
Group" (as defined below); and
o 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):
o GECMSI [or Funding];
o the Underwriter;
o the Trustee;
o any entity that provides insurance or other credit enhancement to the
Trust in respect of the relevant Mortgage Pool; or
o 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, 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 Class_____ Certificates
offered hereby 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_____ 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.........................................
Advance..............................................................
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............................................................
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................................................................
Trustee..............................................................
Underwriters.........................................................
Unpaid Net Simple Interest Shortfall.................................
[Upper-Tier REMIC]...................................................
Weighted Average Net Mortgage Rate...................................
<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 Trusts..................................................................
Credit Enhancement..........................................................
Yield, Maturity and Weighted Average Life Considerations....................
Servicing of the Mortgage Loans.............................................
The Pooling and Servicing Agreement.........................................
GE Capital Mortgage Services, Inc...........................................
GE Capital Mortgage Funding
Corporation.................................................................
The Guarantor...............................................................
Certain Legal Aspects of the Mortgage Loans.................................
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>
1
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 [Services, Inc.] [Funding Corporation] _____ Trust
Issuer
GE Capital Mortgage [Services, Inc.] [Funding Corporation]
[Depositor and] Servicer
$----------
(Approximate)
[REMIC] Home Equity Mortgage 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, MARCH 8, 1999
[OBJECT OMITTED]
PROSPECTUS
GE Capital Mortgage Services, Inc.
GE Capital Mortgage Funding Corporation
(Depositors)
Mortgage Pass-Through Certificates
(Issuable in series by separate trusts)
Each series of certificates:
o will consist of one or more classes of mortgage pass-through
certificates representing interests in the assets of a trust;
o will receive principal and interest only from payments collected on
the assets of the related trust; and
o will not be insured or guaranteed by any government agency or
instrumentality and will not be obligations of GE Capital Mortgage
Services, Inc., GE Capital Mortgage Funding Corporation or any related
companies.
Each trust:
o will own a pool of mortgage loans sold to the trust by either GE
Capital Mortgage Services, Inc. or GE Capital Mortgage Funding
Corporation.
o will be serviced by GE Capital Mortgage Services, Inc. and
o will include mortgage loans secured by first or second liens on:
-- one- to four-family residential properties; and
-- rights to own and occupy apartments in cooperative buildings.
----------------------------
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.
The date of this prospectus is .
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Caption Page
<S> <C>
Description of the Certificates...................................................................................1
The Agreements.................................................................................................1
Form of Certificate............................................................................................2
Classes of Certificates........................................................................................2
Distributions of Principal and Interest........................................................................4
Example of Distributions.......................................................................................7
Optional Termination of a Trust................................................................................8
The Trusts........................................................................................................9
The Mortgage Loans............................................................................................11
Credit Enhancement...............................................................................................20
Types of Enhancements.........................................................................................20
Subordination.................................................................................................21
Purchase of Liquidating Loans.................................................................................22
Limited Guarantee of the Guarantor............................................................................24
Cross-Support.................................................................................................24
Pool Insurance................................................................................................25
Special Hazard Insurance......................................................................................26
Bankruptcy Bond...............................................................................................27
Repurchase Bond...............................................................................................27
Guaranteed Investment Contracts...............................................................................27
Reserve Accounts..............................................................................................27
Other Insurance, Guarantees and Similar Instruments or Agreements.............................................28
Yield, Maturity And Weighted Average Life Considerations.........................................................29
General.......................................................................................................29
Effective Interest Rate.......................................................................................32
Servicing Of The Mortgage Loans..................................................................................32
Collection and Other Servicing Procedures.....................................................................33
Private Mortgage Insurance....................................................................................37
Hazard Insurance..............................................................................................38
Unanticipated Recoveries of Losses on the Mortgage Loans......................................................39
Advances......................................................................................................40
Loan Payment Record...........................................................................................41
Servicing and Other Compensation and Payment of Expenses......................................................44
Resignation, Succession and Indemnification of GECMSI, as Servicer, and the Depositor.........................44
The Pooling and Servicing Agreement..............................................................................46
Assignment of Mortgage Loans..................................................................................46
Repurchase or Substitution....................................................................................49
Certain Refinancings..........................................................................................51
Evidence as to Compliance.....................................................................................51
List of Certificateholders....................................................................................52
The Trustee...................................................................................................52
Administration of the Certificate Account.....................................................................53
Reports to Certificateholders.................................................................................54
Events of Default.............................................................................................55
Rights Upon Event of Default..................................................................................55
Amendment.....................................................................................................56
Termination...................................................................................................57
Governing Law.................................................................................................58
GE Capital Mortgage Services, Inc................................................................................58
Delinquency and Foreclosure Experience........................................................................58
Year 2000 Computer Readiness..................................................................................58
Legal Proceedings.............................................................................................59
GE Capital Mortgage Funding Corporation..........................................................................59
Risk of Recharacterization....................................................................................60
Where You Can Find More Information About GE Capital Mortgage Services, Inc. and GE Capital Mortgage
Funding Corporation...........................................................................................61
The Guarantor....................................................................................................61
Certain Legal Aspects of the Mortgage Loans......................................................................62
The Mortgage Loans............................................................................................62
General....................................................................................................62
Foreclosure................................................................................................63
Junior Mortgages; Rights of Senior Mortgagees..............................................................66
Right of Redemption........................................................................................67
Anti-Deficiency Legislation and Other Limitations on Lenders...............................................67
Enforceability of Certain Provisions.......................................................................68
Applicability of Usury Laws................................................................................69
Soldiers' and Sailors' Civil Relief Act....................................................................70
Environmental Considerations...............................................................................70
Legal Investment Matters.........................................................................................71
ERISA Considerations.............................................................................................72
Federal Income Tax Consequences..................................................................................74
General.......................................................................................................74
REMIC Elections...............................................................................................74
REMIC Certificates............................................................................................75
Non-REMIC Certificates........................................................................................88
Backup Withholding............................................................................................92
Plan of Distribution.............................................................................................92
Use of Proceeds..................................................................................................93
Legal Matters....................................................................................................93
Financial Information............................................................................................94
Index of Certain Prospectus Definitions..........................................................................95
</TABLE>
<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 (the "Trust"). A series of Certificates will be issued under 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 (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 Agreements
The provisions of each Agreement will vary depending upon the nature of the
Certificates to be issued and the nature of the related Trust. This prospectus
summarizes the material provisions which may appear in each Agreement. The
prospectus supplement for a series of Certificates will describe any other
material provision of the Agreement relating to such series. GECMSI will provide
Certificateholders, without charge, on written request, a copy of the Agreement
for any series. Requests should be addressed to GE Capital Mortgage Services,
Inc., Three Executive Campus, Cherry Hill, New Jersey 08002, Attention: General
Counsel. The Agreement relating to a series of Certificates will be filed by the
applicable Depositor with the SEC within 15 days after the date of issuance of
such series of Certificates (the "Issue Date").
Source of Funds for Payment
The Certificates of a series will be entitled to payment only from the
proceeds from the assets included in the Trust issuing such series. You will not
be entitled to payments from the assets included in any other Trust established
by GECMSI or Funding. The Certificates are not 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. 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.
Unless otherwise stated in the prospectus supplement:
o The Depositor's obligations will be limited to repurchasing mortgage
loans or cooperative apartment loans in the Trust if the Depositor
breaches its representations and warranties concerning the loans.
o The only obligations of GECMSI as Servicer for the Trust will be 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 borrower fails to make any payment of interest or,
except in the case of a home equity loan, 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 the payment that GECMSI reasonably believes will
not be recoverable to it 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--Advances" in this prospectus.
The Mortgage Loans will not be insured or guaranteed by any governmental
entity or, except as specified in the prospectus supplement, by any other
person. You may experience delays in distributions on your Certificates or
losses on your Certificates if delinquent payments or losses on defaulted
Mortgage Loans are not advanced by the Servicer or another person or paid from
any credit enhancement arrangement in your Trust.
Form of Certificates
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 stated in the
prospectus supplement, interest distributions 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. You will not receive the
Notional Principal Balance of your Certificate.
Except for global Certificates described in the next paragraph, you may
transfer and exchange your Certificates on a Certificate Register to be
maintained at the corporate trust office of the Trustee or an office or agency
maintained for such purposes by the Trustee in New York City. Unless otherwise
stated in the prospectus supplement, the Trustee will initially act as the
Certificate Registrar. Unless otherwise stated 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. Before a Certificate is properly presented
for transfer, GECMSI, the Trustee, the Certificate Registrar and any of their
agents may treat the person in whose name a 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 specified in the applicable prospectus
supplement, investors will not have the right to receive physical certificates
evidencing their ownership except under limited circumstances. Instead, the
Trust will issue the Certificates in the form of global certificates, which will
be held by The Depository Trust Company (known as DTC) or its nominee. Financial
institutions that are direct or indirect participants in DTC 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 be entitled to receive:
o any distributions from the assets of the Trust that are allocable to
principal, in the aggregate amount of the original Certificate
Principal Balance, if any, of such class of Certificates; and
o any distributions from the assets of the Trust that are allocable to
interest on the Certificate Principal Balance or Notional Principal
Balance of such Certificates at the Certificate Interest Rate, if any,
of such class of Certificates.
If stated in the prospectus supplement, one or more classes of a series of
Certificates may group be entitled to receive all amounts payable on a specific
group of assets in the related Trust.
If stated 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 as of the close of business on the first
day of the month of creation of the Trust (the "Cut-off Date") after deducting
payments of principal due on or before, and prepayments of principal received
before, the Cut-off Date. The Certificates 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 minus GECMSI's
servicing fee as described herein, the servicing fee of any third party servicer
of the Mortgage Loans and such other amounts (including fees payable to GECMSI
as master servicer, if applicable) as are stated in the prospectus supplement.
If stated 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.
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 a
widely published 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 stated 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:
o allocable to interest;
o allocable to principal (and allocable as between scheduled payments of
principal and Principal Prepayments, as defined below); or
o 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:
o on the basis of collections from designated portions of the assets of
the Trust;
o in accordance with a schedule or formula,
o in relation to the occurrence of events or
o otherwise, in each case as stated in the prospectus supplement.
The timing and amounts of such distributions may vary among classes, over time
or otherwise, in each case as stated in the prospectus supplement.
The taking of action with respect to certain amendments to the Agreement
will require the consent of the holders of the Certificates. Consent is required
of Certificateholders evidencing interests aggregating either not less than 66%
of all interests in the related Trust or not less than 66% of all interests of
each Class that would be adversely affected by the amendment. Every
Certificateholder must consent to an amendment that would reduce the amount of,
or delay the timing of, distributions on the Certificates or collection of
payments on mortgage loans. 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 Certificate Principal Balance or a
Notional 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 out of
funds available on the dates specified in the prospectus supplement (each, a
"Distribution Date"). Distribution Dates may be monthly, quarterly, semiannually
or at another interval 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 last business day of the preceding month (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. 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. All distributions on global certificates held by DTC will be made
to DTC, which will credit the accounts of its direct participants. If you hold
an interest in a global certificate, you will have to rely on your financial
intermediary to forward you the payments.
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").
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 stated in the prospectus supplement, distributions
to any class of Certificates will be made pro rata to all Certificateholders of
that class. If stated in the prospectus supplement, the amounts received by the
Trustee as described below under "The Trusts" 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 stated in the prospectus supplement, interest will accrue
on 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. Interest will accrue on the
aggregate Certificate Principal Balance of your Certificate, or if your
Certificate is an interest-only class, interest will accrue on its Notional
Principal Balance. To the extent funds are available therefor, interest accrued
during each Interest Accrual Period 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 interest-only classes, until the aggregate Notional Principal
Balance of such Certificates is reduced to zero. Unless otherwise stated 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 stated in the prospectus supplement,
prior to such time, the aggregate Certificate Principal Balance of such class of
Accrual Certificates will increase on each Distribution Date by the amount of
interest that would have been distributed on such class 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 stated.
Distributions of Principal
Unless otherwise stated in the prospectus supplement, the aggregate
Certificate Principal Balance of any class of Certificates entitled to
distributions of principal will be:
o the aggregate original Certificate Principal Balance of such class of
Certificates; minus
o all distributions made to the holders of such Certificates as
allocable to principal; minus
o all realized losses allocated to such class; and plus
o in the case of Accrual Certificates, unless otherwise stated in the
prospectus supplement, all interest accrued less its allocable share
of shortfalls, 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 stated in the prospectus supplement, one or more classes of 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. Classes entitled to their distributions
are referred to as Senior Certificates. Any such allocation of Principal
Prepayments to senior classes will have the effect of accelerating the principal
reductions on the classes while increasing the interest in the Trust held by the
other classes, or subordinate, classes. This payment method is intended to
increase the benefit of senior classes by making the subordinate classes a
larger portion of the Trust. See "Credit Enhancement--Subordination."
Unscheduled Distribution
If stated in the prospectus supplement, the Trustee will make unscheduled
distributions of principal on the Certificates at the time on and in the amount
specified if 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 stated] 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 stated 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. 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, Certificateholders, Mortgage Loans, Loan Payment Record and Certificate
Account refer to those related to such series of Certificates. We have assumed
that all dates are business days. 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. These deducted principal payments
and Principal Prepayments will be retained by
Funding or GECMSI and will not be included in
the Trust 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.
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
March.
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 April 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
April. Payments received from Mortgagors
after May 15 will be subject to a late charge
in accordance with the terms of the related
mortgage instruments. These late charges will
be 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 a Trust
If stated 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,
on any Distribution Date after the time specified in the prospectus supplement,
by purchasing all of the Certificates or the assets in the Trust at a price and
in accordance with the procedures specified in the prospectus supplement. The
proceeds of this sale will be applied on such Distribution Date to the
distribution in full of the Certificate Principal Balance of each outstanding
Certificate entitled to distributions allocable to principal and to accrued
interest at the applicable Certificate Interest Rate to the date specified in
the prospectus supplement on each Certificate entitled to distributions
allocable to interest, or to such other amount as is specified in the prospectus
supplement. Notice of such optional termination will be given by the Trustee
prior to such Distribution Date. The proceeds realized upon an early termination
may be less than the total principal balance of all outstanding Certificates
plus accrued and unpaid interest. In this case, the resulting shortfall will be
allocated among the Certificates as described in the prospectus supplement.
It is anticipated that GECMSI, Funding or the holders of designated classes
of Certificates that can exercise an early termination option will buy the
assets in the Trust for a price equal to the sum of the following:
o the unpaid principal balance of each Mortgage Loan on the first day of
the month of repurchase, plus accrued interest to such date at the
Remittance Rate for the Certificates issued by the Trust; plus
o the appraised value of any mortgaged properties acquired by the Trust,
as determined by an appraiser mutually agreed upon with the Trustee;
minus
o the Servicer's good faith estimate of liquidation expenses that would
be incurred in disposing of these mortgaged properties; and minus
o unreimbursed Monthly Advances by the Servicer if it is the person
exercising the early termination option.
The assets will be sold by the Trust in connection with any early
termination without representation or warranty, except as to the Trust's 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. See "Unanticipated Recoveries of Losses on the Mortgage Loans" in this
prospectus.
The Trusts
The Trust issuing a series of Certificates may include the following
assets:
o the Mortgage Loans subject to the Agreement from time to time;
o all payments (subject, if specified in the prospectus supplement, to
certain exclusions) in respect of such Mortgage Loans, adjusted for
the applicable Remittance Rates;
o if specified in the prospectus supplement, reinvestment income on such
payments;
o all property acquired by foreclosure or deed in lieu of foreclosure
with respect to any Mortgage Loan;
o 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; if Funding acts as Depositor, its
rights and remedies under the Loan Sale Agreement; and
o if so specified in the prospectus supplement, one or more of the
following:
-- any Reserve Accounts;
-- any loan as to which either (A) liquidation proceedings have been
commenced and any equitable or statutory right to reinstate such
Mortgage Loan has expired or (B) 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 stated in the prospectus supplement, one
month's interest thereon at the applicable Remittance Rate (a
"Liquidating Loan");
-- an Advance;
-- a guarantee that deposits will be made to the Certificate Account
(a "Deposit Guarantee"); or
-- any pool insurance, special hazard insurance or other insurance,
guarantee or similar instruments or agreements.
GECMSI will have originated or acquired each Mortgage Loan included in a
Trust. If Funding acts as the Depositor, it will have acquired the related
Mortgage Loans from GECMSI pursuant to a loan sale agreement (a "Loan Sale
Agreement").
The following is a brief description of the Mortgage Loans expected to be
included in the Trusts. If definitive information respecting the final pool of
Mortgage Loans 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:
o the precise aggregate Scheduled Principal Balance (as defined in the
prospectus supplement) of the Mortgage Loans as of the Cut-off Date;
o years of origination;
o mortgage interest rates borne by the Mortgage Loans (the "Mortgage
Rates");
o original loan-to-value ratios;
o types of properties securing the Mortgage Loans; and
o 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.
The aggregate principal balance of the final pool will be within 5% of the
amount stated in the prospectus supplement. 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 Mortgage Loans 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"). The Mortgages
create the following liens:
o first liens on residential properties (the "Mortgaged Properties");
o first or second liens on Mortgaged Properties securing closed-end home
equity loans; ("Home Equity Loans"); or
o first liens on long-term leases of Mortgaged Properties.
The Mortgage Loans will be within the broad classification of one- to
four-family mortgage loans. These are defined generally as (1) loans secured by
mortgages on residences housing one to four families, (2) apartments loans
secured by mortgages on condominium units and (3) 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 (each, a "Cooperative") and in the
related proprietary leases or occupancy agreements granting exclusive rights to
owners occupy specific apartments, in a Cooperative building.
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 from among those originated or acquired by GECMSI in the ordinary course
of its mortgage lending activities, including newly originated loans.
Unless otherwise stated 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 stated 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 stated in the prospectus supplement, all or a portion of the Mortgage
Loans included in a Trust may be Home Equity Loans. The Home Equity Loan portion
of any Trust may consist of loans secured by first liens or by first and second
liens. Unless otherwise stated 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 stated 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 -- i.e., principal reduction -- 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 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 known as 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 in his or her loan application
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 stated 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:
o in the case of a purchase money Mortgage Loan, the lesser of the value
of the Mortgaged Property, based on an appraisal thereof acceptable to
GECMSI, and the selling price; and
o in the case of any non-purchase money Mortgage Loan, the value of the
Mortgaged Property, based on either the appraised value determined in
an appraisal obtained at the time of refinancing or origination of
such loan or, if no such appraisal has been obtained, the value of the
related Mortgaged Property. In the latter case, the 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.
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 in various ways:
o by purchasing mortgage loans originated or otherwise acquired by its
approved correspondents or other approved third parties;
o by closing mortgage loans originated through loan brokers eligible to
refer applications to GECMSI;
o by refinancing mortgage loans in its own servicing portfolio; and
o 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.
Loan Underwriting Policies
The Mortgage Loans in a Trust 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
significant portion of the Mortgage Loans included in any Trust 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
Freddie Mac or Fannie Mae 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.
The following paragraphs describe some of GECMSI's loan documentation
programs.
1. Full or Alternative Documentation
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.
2. Limited Documentation
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.
3. Relocation Loans
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.
4. No Income Verification Program
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 stated in the prospectus supplement, in order to
qualify for the No Income Verification program, the related borrower generally
must have (1) no delinquent mortgage or rental payments during the preceding 24
months, (2) a minimum of two months' principal, interest, tax and insurance
payments in reserves after the closing of the related loan and (3) acceptable
credit scores.
5. No Ratio Program
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 stated
in the prospectus supplement, in order to qualify for the No Ratio program, the
related borrower generally must have (1) no delinquent mortgage or rental
payments during the preceding 24 months, (2) a minimum of six months' principal,
interest, tax and insurance payments in reserves after the closing of the
related loan and (3) strong credit scores.
6. No Income No Asset Verification Program
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 stated in the prospectus supplement, in order to qualify for
the No Income No Asset Verification program, the related borrower generally must
have (1) no delinquent mortgage or rental payments during the preceding 24
months, (2) a stated minimum of six months' principal, interest, tax and
insurance payments in reserves after the closing of the related loan and (3)
strong credit scores.
7. Enhanced Streamlined Refinance Program
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.
Appraisals
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 a Trust 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 stated 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--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, the related prospectus supplement will describe in further
detail the underwriting standards applicable to the Home Equity Loans.
Credit Enhancement
Types of Enhancements
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.
Credit enhancement may be in one or more of the following forms:
o the limited obligation of GECMSI as Servicer to purchase Liquidating
Loans;
o a limited financial guarantee policy;
o a 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;
o the subordination of one or more classes of the Certificates of such
series;
o the establishment of one or more reserve accounts;
o the use of a cross-support feature;
o a pool insurance policy;
o a bankruptcy bond;
o a special hazard insurance policy;
o a repurchase bond;
o a guaranteed investment contract; or
o another method of credit enhancement described in the related
prospectus supplement.
Unless otherwise stated 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 states 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") 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 stated 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
stated in the prospectus supplement, delays in receipt of scheduled payments on
the Mortgage Loans and losses on defaulted Mortgage Loans 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 over the
lives of the Certificates or at any time, the aggregate losses in respect of
defaulted Mortgage Loans 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 aggregate losses in respect of such
Mortgage Loans 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 stated 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 stated 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 stated 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 stated 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 stated 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 (1)
in the order of their scheduled final distribution dates, (2) in accordance with
a schedule or formula, (3) in relation to the occurrence of events or (4)
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 stated 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. See "Servicing of the Mortgage
Loans--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 (1) liquidation proceedings have been commenced and any
equitable or statutory right to reinstate such Mortgage Loan has expired or (2)
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 stated 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 stated 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 stated 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--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 stated 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 stated cified 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 stated in the prospectus supplement, the beneficial ownership of
separate groups of assets included in a Trust 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. 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 stated in the prospectus supplement, the coverage provided by one or
more forms of credit enhancement may apply concurrently to two or more separate
Trusts. If applicable, the prospectus supplement will identify the Trusts to
which such credit enhancement relates and the manner of determining the amount
of the coverage provided thereby and the application of such coverage to the
identified Trusts.
Pool Insurance
In order to decrease the likelihood that Certificateholders will experience
losses in respect of the Mortgage Loans, if stated 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 Definitive 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 stated 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.
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 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. It also protects holders from 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 (1) the cost of repair or
replacement of such property or (2) 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 (1) 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 (2)
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.
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--Enforceability of Certain Provisions." If so stated 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 stated 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.
Repurchase Bond
If so stated in the related prospectus supplement, GECMSI, as Servicer,
will be obligated to repurchase any Mortgage Loan 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. 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 stated in the prospectus supplement, on or prior to the Issue Date,
the Trustee will enter into a guaranteed investment contract 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 guaranteed investment contract will pay to the Trustee interest at an agreed
rate per annum with respect to the amounts so invested.
Reserve Accounts
If stated 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, to pay the expenses of the Trust 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 stated 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 stated 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 stated in the prospectus supplement, the related Trust may also include
insurance, guarantees, letters of credit or similar arrangements for the purpose
of:
o maintaining timely payments or providing additional protection against
losses on the assets included in such Trust;
o paying administrative expenses; or
o 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. See "Servicing of Mortgage Loans--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 included in the related Trust. 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 (including amounts paid by
insurers under applicable insurance policies), 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), 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 in certain circumstances. See "Description of the
Certificates--Optional Termination of a Trust." 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.
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. 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.
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. 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 those Certificates. 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. 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 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 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 stated 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 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 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
With respect to each series of Certificates, the related Mortgage Loans
will be serviced either by GECMSI as primary servicer, by GECMSI as master
servicer, by another institution as primary servicer or 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 (1)
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 (2) 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 stated 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 stated 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 Fannie Mae or Freddie Mae.
Collection and Other Servicing Procedures
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, (1) waive any late payment charge and (2) 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 foreclose
against such property and proceed for the deficiency against the appropriate
person. See "Certain Legal Aspects of the Mortgage Loans--Anti-Deficiency
Legislation and Other Limitations on Lenders" for a description of the limited
availability of deficiency judgments. 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. This amount 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 (1) 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 (2) 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, 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 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 stated 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 stated in the prospectus supplement, if a series of
Certificates includes one or more classes of subordinate Certificates, the
Agreement may permit GECMSI, at its option, to grant to the holders of certain
classes of subordinate Certificates (the "Loss Certificates") certain rights in
connection with the foreclosure of defaulted Mortgage Loans in the related
Trust. 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.
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" 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's ability to sell and realize the value of those
shares.
In general, a "tenant-stockholder" (as defined in Section 216(b)(2) of the
Internal Revenue Code of 1986, as amended (the "Code")) 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--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.
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 stated 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. 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
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 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 (1) 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 (2) 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. The hazard insurance will consist of extended coverage
in an amount which is at least equal to the lesser of (1) the maximum insurable
value from time to time of the improvements which are a part of such property or
(2) 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 apartment 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 apartment or such Cooperative's building
could significantly reduce the value of the collateral securing such Cooperative
Loan.
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 (a "Realized Loss"). Unless otherwise stated
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. See "The Pooling and Servicing
Agreement--Termination" in this prospectus.
Advances
Unless otherwise stated 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, 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 stated 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.
GECMSI, or the applicable servicer, 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, unless otherwise stated 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 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 from any other assets of the Trust, 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. 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 stated 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 included in the related Trust:
o 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;
o 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;
o all amounts received by GECMSI, or the applicable servicer, in
connection with the liquidation of any Mortgaged Property, and the
purchase price including applicable interest thereon, of any Mortgage
Loan purchased by GECMSI pursuant to the applicable Agreement or any
amount paid in connection with the substitution of a Mortgage Loan;
o 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, other than
proceeds to be applied to the restoration or repair of the property
subject to the related Mortgage or released to the borrower in
accordance with the normal servicing procedures of GECMSI;
o all proceeds received in respect of any Mortgaged Property acquired on
behalf of the Trustee;
o unanticipated Recoveries; and
o if the Trust 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 that has been previously released from the Trust, 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 stated in the prospectus supplement, GECMSI, as Servicer,
may, from time to time, make debits to the Loan Payment Record for the following
purposes:
o 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, 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 plus one month's interest
thereon at the applicable Remittance Rate, to pay to GECMSI such
excess as additional servicing compensation;
o 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;
o 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;
o to pay to GECMSI amounts received in respect of any Mortgage Loan
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 stated 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;
o 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 to the extent of recoveries, including
late payments and liquidation proceeds, on such Mortgage Loan;
o 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;
o to reimburse GECMSI, or, if applicable, the Trustee, the Guarantor or
any other entity, for any Nonrecoverable Advance;
o to make deposits into the Certificate Account; and
o to deduct any amount credited to the Loan Payment Record in error.
In addition, if specified in the prospectus supplement relating to a Trust
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 stated in the
prospectus supplement, GECMSI as Servicer, will transfer to the Certificate
Account the payments in respect of the Mortgage Loans 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 (1)
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 (2)
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 stated in the prospectus supplement,
GECMSI will transfer to the Certificate Account (1) 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 (2) 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 stated 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 stated in the prospectus supplement, prior
to transferring such funds, GECMSI may commingle payments received in respect of
the Mortgage Loans 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 stated 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, of all or a portion of the
difference between the Mortgage Rate for such Mortgage Loan 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 stated 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 stated in the prospectus supplement, GECMSI will be
responsible for paying all expenses incurred in connection with the servicing of
the Mortgage Loans, 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 and payment of expenses incurred in connection with distributions and
reports to Certificateholders. Unless otherwise stated 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 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 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, 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, 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 (1) 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 (2) 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 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 stated 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 stated 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 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
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 stated 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 Loan Sale Agreement.
Unless otherwise stated in the prospectus supplement, the applicable
Depositor may refrain from recording the assignments of the Mortgage Loans to
the Trustee unless GECMSI or the Trustee obtains actual notice or knowledge of
the occurrence of any one or more of the following:
o 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;
o the long-term senior unsecured rating of GE Capital is downgraded by
the applicable rating agency below its two highest long-term rating
categories or such rating is withdrawn;
o 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 stated therein,
or that such support agreement, including any amendment thereto, has
been breached, terminated or otherwise held to be unenforceable; or
o such support agreement, including any amendment thereto, is amended or
modified (each such event described in the preceding four paragraphs
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 Funding or the Trustee will
be deemed to have knowledge of any such downgrading if, in the exercise of
reasonable diligence, GECMSI Funding 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, if
applicable, as described in the preceding paragraph.
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 in the 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, 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 stated 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 Loan Sale Agreement.
Unless otherwise stated in the related prospectus supplement, GECMSI
generally will represent and warrant, among other things, that:
o 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;
o 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;
o 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;
o 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;
o 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;
o 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
o 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:
o it had good title to and was the sole owner of such Mortgage Loans
immediately prior to the assignment thereof to the Trustee; and
o 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.
Repurchase or Substitution
The Trustee will review the documents delivered to it with respect to the
assets of the related Trust. Unless otherwise stated in the prospectus
supplement, if any document is not delivered or is found to be defective in any
material respect and GECMSI 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 from the Trust and substitute one
or more other mortgage loans therefor or (b) repurchase the Mortgage Loan 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.
Unless otherwise stated in the prospectus supplement, GECMSI and Funding,
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") 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 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 from the Trust and substitute
one or more other mortgage loans 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
stated 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 is substituted for another Mortgage Loan as described
above, the new mortgage loan will, unless otherwise stated in the prospectus
supplement:
o have a Principal Balance (together with any other new mortgage loan 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 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);
o have a Mortgage Rate not less than, and not more than one percentage
point greater than, that of the removed Mortgage Loan;
o have a Remittance Rate equal to that of the removed Mortgage Loan;
o 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;
o have a current loan to Original Value not greater than that of the
removed Mortgage Loan; and
o in the reasonable determination of GECMSI, be of the same type,
quality and character as the removed Mortgage Loan (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, 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 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 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 and is continuing, 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: (1) 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; (2) be authorized under such laws to exercise
corporate trust powers; (3) have a combined capital and surplus of at least
$50,000,000; and (4) 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:
o 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;
o 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 ("SAIF") of the FDIC;
o 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;
o 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
o an account that will not cause any of the rating agencies that rates
the Certificates to downgrade or withdraw their 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
stated 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:
o 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;
o 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;
o 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;
o 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;
o the effective rate of interest applicable to each class of
Certificates taking into account any shortfalls in interest;
o 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;
o the aggregate Principal Balance and number of the Mortgage Loans
included in the related Trust after giving effect to distributions of
principal made on such Distribution Date;
o 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;
o the principal balance of any defective Mortgage Loan replaced by
GECMSI;
o 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
o 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
sufficient to permit such associations to comply with applicable regulations of
the Office of Thrift Supervision (the "OTS").
Events of Default
Events of Default under the Agreement will consist of:
o 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;
o 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;
o 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; or
o 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 as to which
a REMIC election has been made, to avoid or minimize the risk of the imposition
of any tax on the Trust pursuant to the Internal Revenue Code of 1986, as
amended (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 stated 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 or not less than 66% of
all interests of each class of Certificates 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
(1) 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, (2)
adversely affect in any material respect the interests of the holders of any
class of Certificates in any manner other than as described in (1), without the
consent of the holders of Certificates of such class evidencing at least 66% of
the interests of such class or (3) 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
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 to tax or cause
such Trust 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 (1) the maturity or other liquidation of the last Mortgage
Loan subject thereto or the disposition of all property acquired upon
foreclosure of any such Mortgage Loan or (2) the repurchase from the Trust by
the person specified in the prospectus supplement of all the outstanding
Certificates or all remaining assets in the Trust. The Agreement will establish
the repurchase price for the assets in the Trust and the allocation of such
purchase price among the classes of Certificates. Unless otherwise stated 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,
there may be additional conditions to the termination of such Trust 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, and the other assets of the Trust in the
event that payments in respect thereto are insufficient to make payments
required in the Agreement. The assets of the Trust 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.
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 Trusts--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
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
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 complete all four
phases 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. 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, DTC, 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
Funding is a Delaware corporation organized on December 9, 1998 for the
specific purpose of acquiring Mortgage Loans, forming Trusts, 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, 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--referred to in this section as the
"Trust Assets"--from GECMSI prior to transferring them to the Trust. The
transfer of the Trust Assets from GECMSI to Funding and from Funding to the
Trust will be structured as, and is intended to be, an absolute and
unconditional sale of the Trust Assets to the Trust. 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 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 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.
Where You Can Find More Information about GE Capital Mortgage Services, Inc. and
GE Capital Mortgage Funding Corporation
We will file reports and other information with the SEC about the trust
issuing 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 their public reference rooms.
The SEC allows us to incorporate by reference the information we file with
them about the trust issuing your certificates. This 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 issuing your
certificates will automatically update and supersede this information. You may
request a copy of our filings at no cost by writing or telephoning either of 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, we will provide you with reports annually and as to each
distribution date containing information about the trust issuing your
certificates.
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
The following discussion contains summaries of certain legal aspects of
mortgage loans 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 is situated. The summaries are qualified in
their entirety by reference to the applicable federal and state laws governing
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 apartments 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 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 . 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 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--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--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 Code 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 OTS, 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 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 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 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--Collection and Other Servicing Procedures."
Legal Investment Matters
Unless otherwise stated 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, 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, known as
ERISA, and 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 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: (1) 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; (2) the existence of a pool trustee who is
not an affiliate of the pool sponsor; and (3) 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'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 stated 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 stated, the term "Owner"
will refer to the beneficial owner of a Certificate.
REMIC Elections
Under the Code, an election may be made to treat each Trust related to a
Series of Certificates (or segregated pools of assets within the Trust) 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
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, or each portion thereof that is
treated as a separate REMIC, will be referred to as a "REMIC Pool." If a Trust
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 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.
The rules described in the two preceding paragraphs will be applied to a
Trust consisting of two REMIC Pools as if the Trust 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 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 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 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. 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 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 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 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
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
(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, 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 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 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 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 may be required to withhold tax on gain realized upon a disposition of
such real property by the Trust 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 stated in the prospectus supplement,
GECMSI intends to use such proceeds for general corporate purposes, including
the acquisition of servicing rights, Mortgage Loans. If Funding acquires the
related Mortgage Loans 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 will be formed with respect to each series of Certificates. No
Trust will have any assets or obligations prior to the issuance of the related
series of Certificates. No Trust will engage in any activities other than those
described herein or in the prospectus supplement. Accordingly, no financial
statement with respect to any Trust is included in this prospectus or will be
included in the prospectus supplement.
<PAGE>
Index of Certain Prospectus Definitions
Page
Accrual Certificates.................................................. 3
adjusted issue price.................................................. 78
Advance Guarantee..................................................... 24
Affected Party........................................................ 60
Agreement............................................................. 1
Available Funds....................................................... 43
bankruptcy bond....................................................... 44
BIF................................................................... 53
Book-Entry Nominee.................................................... 85
Certificate Account................................................... 5
Cleanup Costs......................................................... 71
Code.................................................................. 36
Collection Account.................................................... 35
Confirmatory Mortgage Note............................................ 47
Cooperative Loans..................................................... 11
Cooperative........................................................... 11
Cut-off Date.......................................................... 3
Defective Mortgage Loan............................................... 50
Delinquent Mortgage Loan.............................................. 23
denomination.......................................................... 2
Deposit Date.......................................................... 43
Deposit Guarantee..................................................... 10
Depositor............................................................. 1
Definitive Description................................................ 10
Determination Date.................................................... 43
Direct Master Servicing Arrangement................................... 33
disqualified organization............................................. 85
Distribution Date..................................................... 4
DOL................................................................... 73
FDIC.................................................................. 53
Funding............................................................... 1
Garn-St Germain Act................................................... 69
GECMC................................................................. 58
GECMSI................................................................ 1
Guarantor............................................................. 20
Home Equity Loans..................................................... 11
Interest Accrual Period............................................... 5
Interest Only Certificate............................................. 77
Issue Date............................................................ 1
Limited Guarantee..................................................... 20
Liquidating Loan...................................................... 10
Liquidating Loan Guarantee............................................ 24
Loan Sale Agreement................................................... 10
Loss Certificates..................................................... 35
Lower-Tier REMIC...................................................... 75
Mortgage Notes........................................................ 11
Mortgage Rates........................................................ 10
Mortgaged Properties.................................................. 11
Mortgages............................................................. 11
non-U.S. person....................................................... 84
Nonrecoverable Advance................................................ 40
OID Regulations....................................................... 76
Original Value........................................................ 14
OTS................................................................... 55
Parties in Interest................................................... 73
pass-thru entity...................................................... 86
Plans................................................................. 73
Policy Statement...................................................... 72
Principal Balance..................................................... 13
Principal Prepayments................................................. 6
PTE 83-1.............................................................. 73
Record Date........................................................... 4
Regular Certificates.................................................. 75
regular interests..................................................... 75
Relief Act............................................................ 70
REMIC................................................................. 75
REMIC Pool............................................................ 75
REMIC Regulations..................................................... 82
Reserve Account....................................................... 22
Residual Certificates................................................. 75
residual interest..................................................... 75
Residual Owners....................................................... 81
SAIF.................................................................. 53
Securities Act........................................................ 93
Senior Certificates................................................... 21
Servicer.............................................................. 1
Simple Interest Payment............................................... 32
Simple Interest Shortfall............................................. 31
SMMEA................................................................. 71
stated redemption price at maturity................................... 76
subordinated Certificates............................................. 21
Superlien............................................................. 71
Supervisory Master Servicing Arrangement.............................. 33
Title V............................................................... 70
Trust Assets.......................................................... 60
Trust................................................................. 1
Trustee............................................................... 1
UCC................................................................... 66
Upper-Tier REMIC...................................................... 75
USAP.................................................................. 51
VRDIs................................................................. 80
<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.................. $4,170,000
Legal Fees and Expenses................................ 1,500,000
Accounting Fees and Expenses........................... 375,000
Trustee's Fees and Expenses (including counsel fees)... 675,000
Printing and Engraving Fees............................ 1,200,000
Rating Agency Fees..................................... 7,500,000
Miscellaneous.......................................... 300,000
-----------------
Total........................................... $15,720,000
- -----------------
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) -- Powers of Attorney of GE Capital Mortgage Services, Inc.
24.(2) -- Power of Attorney of GE Capital Mortgage Funding Corporation
99.1(2) -- Representative Forms of Mortgage Notes (other than for Home Equity
Loans).
99.2(2) -- Representative Forms of Mortgages (other than for Home Equity Loans)
(together with representative forms of condominium, 1-4 family,
planned unit development and adjustable rate riders).
99.3(4) -- Representative Forms of Mortgage Notes for Home Equity Loans.
99.4(4) -- Representative Forms of Mortgages for Home Equity Loans (together
with representative form of balloon note rider).
99.5(2) -- Specimen of Special Hazard Insurance Policy.
99.6(2) -- Specimen of Supplemental Agreement relating to Bankruptcy Support.
99.7(6) -- Specimen of Mortgage Pool Insurance Policy.
- -------------
1 To be filed by Form 8-K subsequent to the effectiveness hereof in
connection with each series.
2 Filed as exhibit to GECMSI's Registration Statement (No. 33-46742) on Form
S-11 and incorporated herein by reference.
3 Filed as exhibit to GECMSI's Registration Statement (No. 33-53624) on Form
S-11 and incorporated herein by reference.
4 Filed as exhibit to GECMSI's Registration Statement (No. 33-69362) on Form
S-11 and incorporated herein by reference.
5 Filed as exhibit to GECMSI's Registration Statement (No. 33-73358) on Form
S-11 and incorporated herein by reference.
6 Filed as exhibit to GECMSI's Registration Statement (No. 333-3038) on Form
S-3 and incorporated herein by reference.
+ Filed herewith.
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. 2 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 8th day of March, 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. 2 to the Registration Statement has been signed by the following persons in
the capacities indicated on March 8, 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. 2 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 8th day of March, 1999.
GE CAPITAL MORTGAGE SERVICES
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. 2 to the Registration Statement has been signed by the following
persons in the capacities indicated on March 8, 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) -- Powers of Attorney of GE Capital Mortgage Services, Inc.
24.(2) -- Power of Attorney of GE Capital Mortgage Funding Corporation
99.1(2) -- Representative Forms of Mortgage Notes (other than for Home Equity
Loans).
99.2(2) -- Representative Forms of Mortgages (other than for Home Equity Loans)
(together with representative forms of condominium, 1-4 family,
planned unit development and adjustable rate riders).
99.3(4) -- Representative Forms of Mortgage Notes for Home Equity Loans.
99.4(4) -- Representative Forms of Mortgages for Home Equity Loans (together
with representative form of balloon note rider).
99.5(2) -- Specimen of Special Hazard Insurance Policy.
99.6(2) -- Specimen of Supplemental Agreement relating to Bankruptcy Support.
99.7(6) -- Specimen of Mortgage Pool Insurance Policy.
- -------------
1 To be filed by Form 8-K subsequent to the effectiveness hereof in
connection with each series.
2 Filed as exhibit to GECMSI's Registration Statement (No. 33-46742) on Form
S-11 and incorporated herein by reference.
3 Filed as exhibit to GECMSI's Registration Statement (No. 33-53624) on Form
S-11 and incorporated herein by reference.
4 Filed as exhibit to GECMSI's Registration Statement (No. 33-69362) on Form
S-11 and incorporated herein by reference.
5 Filed as exhibit to GECMSI's Registration Statement (No. 33-73358) on Form
S-11 and incorporated herein by reference.
6 Filed as exhibit to GECMSI's Registration Statement (No. 333-3038) on Form
S-3 and incorporated herein by reference.
+ Filed herewith.
EXHIBIT 4.6
Form of Pooling and Servicing Agreement
for Senior/Subordinate Certificates
- --------------------------------------------------------------------------------
[GE CAPITAL MORTGAGE FUNDING CORPORATION,]
[Depositor]
GE CAPITAL MORTGAGE SERVICES, INC.,
[Depositor and] Servicer
and
---------------,
Trustee
----------------------------------------------
POOLING AND SERVICING AGREEMENT
Dated as of _____
----------------------------------------------
REMIC Multi-Class Pass-Through Certificates,
Series _____
- --------------------------------------------------------------------------------
<PAGE>
[EXPLANATORY NOTE]
This Agreement is one of several forms (the "Forms") of Pooling and
Servicing Agreements that have been filed as an exhibit to the related
Registration Statement. The actual form of Pooling and Servicing Agreement that
will be used with respect to a particular series of Pass-Through Certificates
registered under the Registration Statement may include provisions substantially
similar to those included in one or more of the Forms, together with such other
provisions as may be appropriate to reflect the terms of the related series
described in a Prospectus Supplement. In addition, to the extent particular
provisions herein are not applicable to a series of Pass-Through Certificates,
such provisions will be omitted from the actual Pooling and Servicing Agreement
for such series.
The actual form of Pooling and Servicing Agreement that will be used with
respect to a particular series of Pass-Through Certificates will be filed by the
Depositor with the Commission as an exhibit to a Current Report on Form 8-K
within fifteen days after the issuance of the related series.
<PAGE>
<TABLE>
<CAPTION>
Page
ARTICLE I
DEFINITIONS
<S> <C>
Section 1.01. Definitions......................................................................1
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS; ORIGINAL ISSUANCE OF CERTIFICATES
Section 2.01. Conveyance of Mortgage Loans; [Assignment of Loan Sale Agreement................35
Section 2.02. Acceptance by Trustee...........................................................38
Section 2.03. Representations and Warranties of the Company; Mortgage Loan Repurchase.........40
Section 2.04. Execution of Certificates.......................................................47
Section 2.05. Designations under the REMIC Provisions.........................................47
Section 2.05. The REMICs......................................................................47
Section 2.07. Designations under the REMIC Provisions.........................................48
ARTICLE III
ADMINISTRATION AND SERVICING OF MORTGAGE LOANS
Section 3.01. Company to Act as Servicer......................................................49
Section 3.02. Collection of Certain Mortgage Loan Payments; Mortgage Loan Payment
Record; Certificate Account.................................................53
Section 3.03. Collection of Taxes, Assessments and Other Items................................56
Section 3.04. Permitted Debits to the Mortgage Loan Payment Record............................56
Section 3.05. Maintenance of the Primary Insurance Policies...................................58
Section 3.06. Maintenance of Hazard Insurance.................................................58
Section 3.07. Assumption and Modification Agreements..........................................59
Section 3.08. Realization Upon Defaulted Mortgage Loans.......................................60
Section 3.09. Trustee to Cooperate; Release of Mortgage Files.................................63
Section 3.10. Servicing Compensation; Payment of Certain Expenses by the Servicer.............63
Section 3.11. Reports to the Trustee; Certificate Account Statements..........................64
Section 3.12. Annual Statement as to Compliance...............................................64
Section 3.13. Annual Independent Public Accountants' Servicing Report.........................64
Section 3.14. Access to Certain Documentation and Information Regarding the Mortgage Loans....65
Section 3.15. Maintenance of Certain Servicing Policies.......................................65
Section 3.16. Optional Purchase of Defaulted Mortgage Loans...................................66
ARTICLE IV
PAYMENTS AND STATEMENTS
Section 4.01. Distributions...................................................................66
Section 4.02. Method of Distribution..........................................................68
Section 4.03. Allocation of Losses............................................................69
Section 4.04. Monthly Advances; Purchases of Defaulted Mortgage Loans.........................71
Section 4.05. Statements to Certificateholders................................................72
Section 4.06. Servicer's Certificate..........................................................74
Section 4.07. Reports of Foreclosures and Abandonments of Mortgaged Property..................74
Section 4.08. Reduction of [Base] Servicing Fees by Compensating Interest Payments............74
ARTICLE V
THE CERTIFICATES
Section 5.01. The Certificates................................................................74
Section 5.02. Registration of Transfer and Exchange of Certificates...........................76
Section 5.03. Mutilated, Destroyed, Lost or Stolen Certificates...............................81
Section 5.04. Persons Deemed Owners...........................................................82
Section 5.05. Access to List of Certificateholders' Names and Addresses.......................82
Section 5.06. Representation of Certain Certificateholders....................................82
Section 5.07. Determination of COFI...........................................................82
Section 5.08. Determination of LIBOR..........................................................83
ARTICLE VI
DEPOSITOR AND THE SERVICER
Section 6.01. Liability of the Depositor and the Servicer each................................85
Section 6.02. Merger or Consolidation of, or Assumption of the Obligations of, the Company....85
Section 6.03. Assignment......................................................................85
Section 6.04. Limitation on Liability of the Depositor, the Servicer and Others...............85
Section 6.05. The Company Not to Resign.......................................................86
ARTICLE VII
DEFAULT
Section 7.01. Events of Default...............................................................86
Section 7.02. Trustee to Act; Appointment of Successor........................................88
Section 7.03. Notification to Certificateholders..............................................89
ARTICLE VIII
THE TRUSTEE
Section 8.01. Duties of Trustee...............................................................89
Section 8.02. Certain Matters Affecting the Trustee...........................................90
Section 8.03. Trustee Not Liable for Certificates or Mortgage Loans...........................91
Section 8.04. Trustee May Own Certificates....................................................92
Section 8.05. The Depositor to Pay Trustee's Fees and Expenses................................92
Section 8.06. Eligibility Requirements for Trustee............................................92
Section 8.07. Resignation or Removal of Trustee...............................................93
Section 8.08. Successor Trustee...............................................................93
Section 8.09. Merger or Consolidation of Trustee..............................................94
Section 8.10. Appointment of Co-Trustee or Separate Trustee...................................94
Section 8.11. Compliance with REMIC Provisions; Tax Returns...................................95
ARTICLE IX
TERMINATION
Section 9.01. Termination upon Repurchase by the Company or Liquidation of All Mortgage Loans.96
Section 9.02. Additional Termination Requirements.............................................97
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.01. Amendment......................................................................98
Section 10.02. Recordation of Agreement.......................................................99
Section 10.03. Limitation on Rights of Certificateholders.....................................99
Section 10.04. Governing Law.................................................................100
Section 10.05. Notices.......................................................................100
Section 10.06. Notices to the Rating Agencies................................................100
Section 10.07. Severability of Provisions....................................................101
Section 10.08. Certificates Nonassessable and Fully Paid.....................................101
</TABLE>
<PAGE>
Exhibits
EXHIBIT A Forms of Certificates
EXHIBIT B Principal Balance Schedules
EXHIBIT C Mortgage Loans (including list of Cooperative Loans)
EXHIBIT D Form of Servicer's Certificate
EXHIBIT E Form of Transfer Certificate as to ERISA Matters for Definitive
ERISA-Restricted Certificates
EXHIBIT F Form of Residual Certificate Transferee Affidavit
EXHIBIT G Form of Residual Certificate Transferor Letter
EXHIBIT H Additional Servicer Compensation
EXHIBIT I Form of Investment Letter for Definitive Restricted Certificates
EXHIBIT J Form of Distribution Date Statement
EXHIBIT K Form of Special Servicing and Collateral Fund Agreement
EXHIBIT L Form of Lost Note Affidavit and Agreement
EXHIBIT M Schedule of Designated Loans
EXHIBIT N Loan Sale Agreement
EXHIBIT O Senior Principal Priorities
<PAGE>
THIS POOLING AND SERVICING AGREEMENT, dated as of _____, between GE CAPITAL
MORTGAGE SERVICES, INC., a corporation organized and existing under the laws of
the State of New Jersey, [GE CAPITAL MORTGAGE FUNDING CORPORATION, a corporation
organized and existing under the laws of the State of Delaware,] and _____, as
Trustee.
W I T N E S S E T H T H A T :
-------------------------------
In consideration of the mutual agreements herein contained, GE Capital
Mortgage Services, Inc. and _____ agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. Whenever used in this Agreement, the following
words and phrases, unless the context otherwise requires, shall have the
following meanings:
Accretion Directed Certificate: [ ].
Accretion Directed Component: [ ].
Accretion Termination Date: [ ].
Accrual Amount: As to any Class of Accrual Certificates and any
Accrual Component and each Distribution Date through the related Accretion
Termination Date, the sum of (x) any amount of Accrued Certificate Interest
allocable to such Class or Component pursuant to Section 4.01(a)(i) on such
Distribution Date and (y) any amount of Unpaid Class Interest Shortfall
allocable to such Class or Component pursuant to Section 4.01(a)(ii) on
such Distribution Date, to the extent that such amounts are distributed to
any Accretion Directed Certificates and any Accretion Directed Components
pursuant to Section 4.01(e). As to any Class of Accrual Certificates and
any Accrual Component and each Distribution Date after the related
Accretion Termination Date, zero.
Accrual Certificates: [ ].
Accrual Component: [ ].
Accrued Certificate Interest: As to any Distribution Date and any
Class of Certificates (other than any Class of Principal Only Certificates
and any Class of Certificates consisting of Specified Components), interest
accrued during the related Interest Accrual Period at the applicable
Certificate Interest Rate on the Class Certificate Principal Balance (or,
in the case of any Class of Notional Certificates, on the aggregate
Notional Principal Balance) thereof immediately prior to such Distribution
Date, calculated on the basis of a 360-day year consisting of twelve 30-day
months. As to any Distribution Date and any Specified Component (other than
any Principal Only Component), interest accrued during the related Interest
Accrual Period at the applicable Component Interest Rate on the Component
Principal Balance (or Notional Component Principal Balance) thereof
immediately prior to such Distribution Date, calculated on the basis of a
360-day year consisting of twelve 30-day months. As to any Distribution
Date and any Class of Certificates consisting of Specified Components, the
aggregate of Accrued Certificate Interest on such Specified Components for
such Distribution Date.
Accrued Certificate Interest on each Class of Certificates (other than
any Class of Principal Only Certificates and any Class of Certificates
consisting of Specified Components) and any Specified Component (other than
any Principal Only Component) shall be reduced by such Class's or Specified
Component's share of the amount of any Net Interest Shortfall and
Certificate Interest Losses for such Distribution Date. Any Net Interest
Shortfall and Certificate Interest Losses shall be allocated among (x) the
Classes of Certificates (other than any Class of Principal Only
Certificates and any Class of Certificates consisting of Specified
Components) and (y) the Specified Components (other than any Principal Only
Component) of any Component Certificate in proportion to the respective
amounts of Accrued Certificate Interest that would have resulted absent
such shortfall or losses.
Agreement: This Pooling and Servicing Agreement and all amendments
hereof and supplements hereto.
Allocable Share: (a) As to any Distribution Date and amounts
distributable pursuant to clauses (i) and (iii) of the definition of Junior
Optimal Principal Amount, and as to each Class of Junior Certificates, the
fraction, expressed as a percentage, the numerator of which is the Class
Certificate Principal Balance of such Class and the denominator of which is
the aggregate Class Certificate Principal Balance of the Junior
Certificates.
(b) As to any Distribution Date and amounts distributable pursuant to
clauses (ii), (iv) and (v) of the definition of Junior Optimal Principal
Amount, and as to the Class M Certificates and each Class of Class B
Certificates for which the related Prepayment Distribution Trigger has been
satisfied on such Distribution Date, the fraction, expressed as a
percentage, the numerator of which is the Class Certificate Principal
Balance of such Class and the denominator of which is the aggregate Class
Certificate Principal Balance of all such Classes. As to any Distribution
Date and each Class of Class B Certificates for which the related
Prepayment Distribution Trigger has not been satisfied on such Distribution
Date, 0%.
Amortization Payment: As to any REO Mortgage Loan and any month, the
payment of principal and accrued interest due in such month in accordance
with the terms of the related Mortgage Note as contemplated by Section
3.08(b).
Amount Held for Future Distribution: As to each Distribution Date, the
total of all amounts credited to the Mortgage Loan Payment Record as of the
preceding Determination Date on account of (i) Principal Prepayments,
Insurance Proceeds and Liquidation Proceeds received subsequent to the
preceding Prepayment Period applicable to such receipts, and (ii) monthly
payments of principal and interest due subsequent to the preceding Due
Date.
Anniversary Determination Date: The Determination Date occurring in
_____ of each year that the Certificates are outstanding, commencing in
_____.
Assignment of Proprietary Lease: With respect to a Cooperative Loan,
the assignment of the related Proprietary Lease from the Mortgagor to the
originator of the Cooperative Loan.
Assumed Monthly Payment Reduction: As of any Anniversary Determination
Date and as to any Non-Primary Residence Loan remaining in the Mortgage
Pool whose original principal balance was 80% or greater of the Original
Value thereof, the excess of (i) the Monthly Payment thereof calculated on
the assumption that the Mortgage Rate thereon was equal to the weighted
average (by principal balance) of the Remittance Rates of all Outstanding
Mortgage Loans (the "Weighted Average Rate") as of such Anniversary
Determination Date over (ii) the Monthly Payment thereof calculated on the
assumption that the Remittance Rate thereon was equal to the Weighted
Average Rate less 1.25% per annum.
Available Funds: As to each Distribution Date, an amount equal to the
sum of (i) all amounts credited to the Mortgage Loan Payment Record
pursuant to Section 3.02 as of the preceding Determination Date, (ii) any
Monthly Advance and any Compensating Interest Payment for such Distribution
Date, (iii) the Purchase Price of any Defective Mortgage Loans and
Defaulted Mortgage Loans deposited in the Certificate Account on the
Business Day preceding such Distribution Date (including any amounts
deposited in the Certificate Account in connection with any substitution of
a Mortgage Loan as specified in Section 2.03(b)), and (iv) the purchase
price of any defaulted Mortgage Loan purchased under an agreement entered
into pursuant to Section 3.08(e) as of the end of the preceding Prepayment
Period less the sum of (x) the Amount Held for Future Distribution, (y) the
amount of any Unanticipated Recovery credited to the Mortgage Loan Payment
Record pursuant to clause (vi) of Section 3.02(b), and (z) amounts
permitted to be debited from the Mortgage Loan Payment Record pursuant to
clauses (i) through (vii) and (ix) of Section 3.04.
Bankruptcy Coverage Termination Date: The Distribution Date upon which
the Bankruptcy Loss Amount has been reduced to zero or a negative number
(or the Cross-Over Date, if earlier).
Bankruptcy Loss Amount: As of any Determination Date prior to the
first Anniversary Determination Date, the Bankruptcy Loss Amount shall
equal $ , as reduced by the aggregate amount of Deficient Valuations and
Debt Service Reductions since the Cut-off Date. As of any Determination
Date after the first Anniversary Determination Date, other than an
Anniversary Determination Date, the Bankruptcy Loss Amount shall equal the
Bankruptcy Loss Amount on the immediately preceding Anniversary
Determination Date as reduced by the aggregate amount of Deficient
Valuations and Debt Service Reductions since such preceding Anniversary
Determination Date. As of any Anniversary Determination Date, the
Bankruptcy Loss Amount shall equal the lesser of (x) the Bankruptcy Loss
Amount as of the preceding Determination Date as reduced by any Deficient
Valuations and Debt Service Reductions for the preceding Distribution Date,
and (y) the greater of (i) the Fitch Formula Amount for such Anniversary
Determination Date and (ii) the Formula Amount for such Anniversary
Determination Date.
The Bankruptcy Loss Amount may be further reduced by the Company
(including accelerating the manner in which such coverage is reduced)
provided that prior to any such reduction, the Company shall obtain written
confirmation from each Rating Agency that such reduction shall not
adversely affect the then-current rating assigned to the related Classes of
Certificates by such Rating Agency and shall provide a copy of such written
confirmation to the Trustee.
[Base] Servicing Fee: As to any Mortgage Loan and Distribution Date,
an amount equal to the product of (i) the Scheduled Principal Balance of
such Mortgage Loan as of the Due Date in the preceding calendar month and
(ii) the Base Servicing Fee Rate for such Mortgage Loan. The [Base]
Servicing Fee for any Distribution Date is subject to adjustment pursuant
to Section 3.08(d) (with respect to a Realized Loss) or the definition of
Interest Loss (with respect to the interest portion of a Debt Service
Reduction).
[Base] Servicing Fee Rate: As to any Mortgage Loan, the per annum rate
identified as such for such Mortgage Loan and set forth in the Mortgage
Loan Schedule.
BBA: The British Bankers' Association.
BIF: The Bank Insurance Fund of the FDIC, or its successor in
interest.
Book-Entry Certificate: Any Certificate registered in the name of the
Depository or its nominee, ownership of which is reflected on the books of
the Depository or on the books of a person maintaining an account with such
Depository (directly or as an indirect participant in accordance with the
rules of such Depository). As of the Closing Date, each Class of
Certificates, other than the Class R [,Class RL] and Class Certificates,
constitutes a Class of Book-Entry Certificates.
Book-Entry Nominee: As defined in Section 5.02(b).
Business Day: Any day other than a Saturday or a Sunday, or a day on
which banking institutions in New York City or the city in which the
Corporate Trust Office is located are authorized or obligated by law or
executive order to be closed.
Buydown Funds: Funds contributed by the Mortgagor or another source in
order to reduce the interest payments required from the Mortgagor for a
specified period in specified amounts.
Buydown Mortgage Loan: Any Mortgage Loan as to which the Mortgagor
pays less than the full monthly payment specified in the Mortgage Note
during the Buydown Period and the difference between the amount paid by the
Mortgagor and the amount specified in the Mortgage Note is paid from the
related Buydown Funds.
Buydown Period: The period during which Buydown Funds are required to
be applied to the related Buydown Mortgage Loan.
Certificate: Any one of the certificates signed and countersigned by
the Trustee in substantially the forms attached hereto as Exhibit A.
Certificate Account: The trust account or accounts created and
maintained with the Trustee pursuant to Section 3.02 and which must be an
Eligible Account.
Certificate Interest Loss: (i) On or prior to the Cross-Over Date, any
Interest Loss in respect of an Excess Loss and (ii) after the Cross-Over
Date, any Interest Loss, in each case to the extent such Interest Loss is
allocable to the Certificates in accordance with Section 3.08(d) (with
respect to a Realized Loss) or the definition of Interest Loss (with
respect to the interest portion of a Debt Service Reduction).
Certificate Interest Rate: With respect to any Class of Certificates,
other than any LIBOR Certificates, and as of any Distribution Date, the per
annum fixed rate specified in Section 5.01(b). With respect to any Class of
LIBOR Certificates, the per annum variable rate at any time at which
interest accrues on the Certificates of such Class, as determined pursuant
to Section 5.01(e).
Certificate Owner: With respect to any Book-Entry Certificate, the
person who is the beneficial owner thereof.
Certificate Principal Balance: As to any Certificate other than a
Notional Certificate, and as of any Distribution Date, the Initial
Certificate Principal Balance of such Certificate (plus, in the case of any
Accrual Certificate, its Percentage Interest of any related Accrual Amount
for each previous Distribution Date) less the sum of (i) all amounts
distributed with respect to such Certificate in reduction of the
Certificate Principal Balance thereof on previous Distribution Dates
pursuant to Section 4.01, (ii) any Realized Losses allocated to such
Certificate on previous Distribution Dates pursuant to Section 4.03(b) and
(c), and (iii) in the case of a Subordinate Certificate, such Certificate's
Percentage Interest of the Subordinate Certificate Writedown Amount
allocated to such Certificate on previous Distribution Dates. The Notional
Certificates are issued without Certificate Principal Balances.
Certificate Register and Certificate Registrar: The register
maintained and the registrar appointed pursuant to Section 5.02.
Certificateholder or Holder: The person in whose name a Certificate is
registered in the Certificate Register, except that, solely for the
purposes of giving any consent pursuant to this Agreement, a Certificate of
any Class to the extent that the Company or any affiliate is the
Certificate Owner or Holder thereof (except to the extent the Company or
any affiliate thereof shall be the Certificate Owner or Holder of all
Certificates of such Class), shall be deemed not to be outstanding and the
Percentage Interest (or Voting Rights) evidenced thereby shall not be taken
into account in determining whether the requisite amount of Percentage
Interests (or Voting Rights) necessary to effect any such consent has been
obtained; provided, however, that in determining whether the Trustee shall
be protected in relying on such consent only the Certificates that the
Trustee knows to be so held shall be so disregarded.
Class: All Certificates bearing the same class designation or any
Lower-Tier Interest.
Class B Certificate: Any Class [B1, Class B2, Class B3, Class B4 or
Class B5] Certificate.
Class Certificate Principal Balance: As to any Class of Certificates,
other than any Class of Notional Certificates, and as of any date of
determination, the aggregate of the Certificate Principal Balances of all
Certificates of such Class. The Class Certificate Principal Balance of each
such Class of Certificates as of the Closing Date is specified in Section
5.01(b).
Class Interest Shortfall: As to any Distribution Date and any Class of
Certificates (other than any Class of Principal Only Certificates or any
Class consisting of Specified Components) or any Specified Component, any
amount by which the amount distributed to Holders of such Class of
Certificates or in respect of such Specified Component (or added to the
Class Certificate Principal Balance of any Class of Accrual Certificates or
to the Component Principal Balance of any Accrual Component constituting a
Specified Component) on such Distribution Date is less than the Accrued
Certificate Interest thereon or in respect thereof for such Distribution
Date. As to any Distribution Date and any Class of Certificates consisting
of Specified Components, the sum of the Class Interest Shortfalls for such
Components on such date.
Class PO Deferred Amount: As to any Distribution Date on or prior to
the Cross-Over Date, the aggregate of the applicable PO Percentage of the
principal portion of each Realized Loss, other than any Excess Loss, to be
allocated to the Class PO Certificates on such Distribution Date or
previously allocated to the Class PO Certificates and not yet paid to the
Holders of the Class PO Certificates pursuant to Section 4.01(a)(iv).
Closing Date: _____.
Code: The Internal Revenue Code of 1986, as it may be amended from
time to time, any successor statutes thereto, and applicable U.S.
Department of the Treasury temporary or final regulations promulgated
thereunder.
COFI: The monthly weighted average cost of funds for savings
institutions the home offices of which are located in Arizona, California,
or Nevada that are member institutions of the Eleventh Federal Home Loan
Bank District, as computed from statistics tabulated and published by the
Federal Home Loan Bank of San Francisco in its monthly Information
Bulletin.
COFI Certificates: [ ].
COFI Determination Date: As to each Interest Accrual Period for any
COFI Certificates, the last Business Day of the calendar month preceding
the commencement of such Interest Accrual Period.
Compensating Interest Payment: With respect to any Distribution Date,
an amount equal to the aggregate of the Interest Shortfalls described in
clauses (a) and (b) of the definition thereof with respect to such
Distribution Date; provided, however, that such amount shall not exceed the
lesser of (i) an amount equal to the product of (x) the Pool Scheduled
Principal Balance with respect to such Distribution Date and (y)
one-twelfth of 0.125%, and (ii) the aggregate of the [Base] Servicing Fees
that the Company would be entitled to retain on such Distribution Date
(less any portion thereof paid as servicing compensation to any Primary
Servicer) without giving effect to any Compensating Interest Payment.
Component: Any of the components of a Class of Component Certificates
having the designations and the initial Component Principal Balances as
follows:
Initial Component
Designation Principal Balance
[ ] [ ]
-------------- ------------------
Component Certificate: [ ].
Component Interest Rate: [ ].
Component Principal Balance: As of any Distribution Date, and with
respect to any Component, other than any Notional Component, the initial
Component Principal Balance thereof (as set forth, as applicable, in the
definition of Component) (plus, in the case of any Accrual Component, any
related Accrual Amount for each previous Distribution Date) less the sum of
(x) all amounts distributed in reduction thereof on previous Distribution
Dates pursuant to Section 4.01 and (y) the amount of all Realized Losses
allocated thereto pursuant to Section 4.03(d).
Confirmatory Mortgage Note: With respect to any Mortgage Loan, a note
or other evidence of indebtedness executed by the Mortgagor confirming its
obligation under the note or other evidence of indebtedness previously
executed by the Mortgagor upon the origination of the related Mortgage
Loan.
Cooperative: A private, cooperative housing corporation organized in
accordance with applicable state laws which owns or leases land and all or
part of a building or buildings located in the relevant state, including
apartments, spaces used for commercial purposes and common areas therein
and whose board of directors authorizes, among other things, the sale of
Cooperative Stock.
Cooperative Apartment: A dwelling unit in a multi-dwelling building
owned or leased by a Cooperative, which unit the Mortgagor has an exclusive
right to occupy pursuant to the terms of one or more Proprietary Leases.
Cooperative Loans: Any of the Mortgage Loans made in respect of a
Cooperative Apartment, evidenced by a Mortgage Note and secured by (i) a
Security Agreement, (ii) the related Cooperative Stock Certificate(s),
(iii) an assignment of the Proprietary Lease(s), (iv) financing statements
and (v) a stock power (or other similar instrument), and in addition
thereto, a recognition agreement between the Cooperative and the originator
of the Cooperative Loan, each of which was transferred and assigned to the
Trustee pursuant to Section 2.01 and are from time to time held as part of
the Trust Fund. The Mortgage Loans identified in Exhibit C hereto are
Cooperative Loans.
Cooperative Stock: With respect to a Cooperative Loan, the single
outstanding class of stock, partnership interest or other ownership
instrument in the related Cooperative.
Cooperative Stock Certificate: With respect to a Cooperative Loan, the
stock certificate(s) or other instrument evidencing the related Cooperative
Stock.
Corporate Trust Office: The principal office of the Trustee at which
at any particular time its corporate trust business shall be administered,
which office at the date of the execution of this instrument is located at
_____.
[Corresponding Class: With respect to any Class of Lower-Tier
Interests, the Class or Classes of Certificates, and with respect to any
Class of Certificates, the Class or Classes of Lower-Tier Interests,
appearing opposite such Class of Lower-Tier Interests or Certificates in
the table included in Section 2.05(a).]
[Corresponding Component: With respect to any Class of Lower-Tier
Interests, the Component or Components of a Class of Certificates, and with
respect to any Component or Components of a Class of Certificates, the
Class or Classes of Lower-Tier Interests, appearing opposite such Class of
Lower-Tier Interests or Components in the table included in Section
2.05(a).]
Cross-Over Date: The first Distribution Date on which the aggregate
Class Certificate Principal Balance of the Junior Certificates has been
reduced to zero (giving effect to all distributions on such Distribution
Date).
Cut-off Date: _____.
Debt Service Reduction: As to any Mortgage Loan and any Determination
Date, the excess of (a) the then current Monthly Payment for such Mortgage
Loan over (b) the amount of the monthly payment of principal and interest
required to be paid by the Mortgagor as established by a court of competent
jurisdiction as a result of a proceeding initiated by or against the
related Mortgagor under the Bankruptcy Code, as amended from time to time
(11 U.S.C.).
Defaulted Mortgage Loan: With respect to any Determination Date, a
Mortgage Loan as to which the related Mortgagor has failed to make
unexcused payment in full of a total of three or more consecutive
installments of principal and interest, and as to which such delinquent
installments have not been paid, as of the close of business on the last
Business Day of the month next preceding the month of such Determination
Date.
Defective Mortgage Loan: Any Mortgage Loan which is required to be
purchased by the Company (or which the Company may replace with a
substitute Mortgage Loan) pursuant to Section 2.02 or 2.03(a).
Deficient Valuation: As to any Mortgage Loan and any Determination
Date, the excess of (a) the then outstanding indebtedness under such
Mortgage Loan over (b) the valuation by a court of competent jurisdiction
of the related Mortgaged Property as a result of a proceeding initiated by
or against the related Mortgagor under the Bankruptcy Code, as amended from
time to time (11 U.S.C.), pursuant to which such Mortgagor retained such
Mortgaged Property.
Definitive Certificate: Any Certificate, other than a Book-Entry
Certificate, issued in definitive, fully registered form.
Definitive Restricted Junior Certificate: Any Restricted Junior
Certificate that is in the form of a Definitive Certificate.
Depositor: [GECMSI] [GE Capital Mortgage Funding Corporation, a
Delaware corporation, and its successors.]
Depository: The initial Depository shall be The Depository Trust
Company, the nominee of which is CEDE & Co. The Depository shall at all
times be a "clearing corporation" as defined in Section 8-102(a)(5) of the
Uniform Commercial Code of the State of New York, as amended, or any
successor provisions thereto.
Depository Participant: A broker, dealer, bank or other financial
institution or other Person for which, from time to time, the Depository
effects book-entry transfers and pledges of securities deposited with such
Depository.
Designated Loan Closing Documents: With respect to any Designated
Loan, a Lost Note Affidavit substantially in the form of Exhibit L, and an
assignment of the related Mortgage to the Trustee in recordable form
(except for the omission therein of recording information concerning such
Mortgage).
Designated Loans: The Mortgage Loans, if any, listed on Exhibit M
hereto.
Designated Telerate Page: The Dow Jones Telerate Service page 3750 (or
such other page as may replace page 3750 on that service or such other
service as may be nominated by the BBA for the purpose of displaying the
Interest Settlement Rates).
Determination Date: With respect to any Distribution Date, the fifth
Business Day prior thereto.
Discount Mortgage Loan: Any Mortgage Loan with a Net Mortgage Rate
less than _____% per annum.
Disqualified Organization: Any of the following: (i) the United
States, any State or political subdivision thereof, or any agency or
instrumentality of any of the foregoing (including but not limited to state
pension organizations); (ii) a foreign government, International
Organization or any agency or instrumentality of either of the foregoing;
(iii) an organization (except certain farmers' cooperatives described in
Code section 521) which is exempt from tax imposed by Chapter 1 of the Code
(including the tax imposed by section 511 of the Code on unrelated business
taxable income); and (iv) a rural electric and telephone cooperative
described in Code section 1381(a)(2)(C). The terms "United States," "State"
and "International Organization" shall have the meanings set forth in Code
section 7701 or successor provisions. A corporation will not be treated as
an instrumentality of the United States or of any State or political
subdivision thereof for these purposes if all of its activities are subject
to tax and a majority of its board of directors is not selected by such
governmental unit.
Distribution Date: The 25th day of each calendar month after the month
of initial issuance of the Certificates, or, if such 25th day is not a
Business Day, the next succeeding Business Day.
Distribution Date Statement: The statement referred to in Section
4.05(a).
Document File: As defined in Section 2.01.
Due Date: The first day of the month of the related Distribution Date.
Eligible Account: An account that is either (i) maintained with a
depository institution the debt obligations of which have been rated by
each Rating Agency in one of its two highest long-term rating categories
and has been assigned by S&P its highest short-term rating, (ii) an account
or accounts the deposits in which are fully insured by either the BIF or
the SAIF, (iii) an account or accounts, in a depository institution in
which such accounts are insured by the BIF or the SAIF (to the limits
established by the FDIC), the uninsured deposits in which accounts are
either invested in Permitted Investments or are otherwise secured to the
extent required by the Rating Agencies such that, as evidenced by an
Opinion of Counsel delivered to the Trustee, the Certificateholders have a
claim with respect to the funds in such account or a perfected first
security interest against any collateral (which shall be limited to
Permitted Investments) securing such funds that is superior to claims of
any other depositors or creditors of the depository institution with which
such account is maintained, (iv) a trust account maintained with the
corporate trust department of a federal or state chartered depository
institution or of a trust company with trust powers and acting in its
fiduciary capacity for the benefit of the Trustee hereunder or (v) such
account as will not cause either Rating Agency to downgrade or withdraw its
then-current rating assigned to the Certificates, as evidenced in writing
by the Rating Agencies.
ERISA: The Employee Retirement Income Security Act of 1974, as
amended.
ERISA-Restricted Certificate: Any Junior Certificate.
Event of Default: An event described in Section 7.01.
Excess Bankruptcy Loss: Any Deficient Valuation or Debt Service
Reduction, or portion thereof, (i) occurring after the Bankruptcy Coverage
Termination Date or (ii) if on such date, in excess of the then-applicable
Bankruptcy Loss Amount.
Excess Fraud Loss: Any Fraud Loss, or portion thereof, (i) occurring
after the Fraud Coverage Termination Date or (ii) if on such date, in
excess of the then-applicable Fraud Loss Amount.
Excess Loss: Any Excess Bankruptcy Loss, Excess Fraud Loss or Excess
Special Hazard Loss.
Excess Special Hazard Loss: Any Special Hazard Loss, or portion
thereof, (i) occurring after the Special Hazard Termination Date or (ii) if
on such date, in excess of the then-applicable Special Hazard Loss Amount.
FDIC: The Federal Deposit Insurance Corporation, or its successor in
interest.
FHLMC: The Federal Home Loan Mortgage Corporation or its successor in
interest.
Financial Intermediary: A broker, dealer, bank or other financial
institution or other Person that clears through or maintains a custodial
relationship with a Depository Participant.
Fitch: Fitch IBCA, Inc. and its successors.
Fitch Formula Amount: As to each Anniversary Determination Date, the
greater of (i) $50,000 and (ii) the product of (x) the greatest Assumed
Monthly Payment Reduction for any Non-Primary Residence Loan whose original
principal balance was 80% or greater of the Original Value thereof, (y) the
weighted average remaining term to maturity (expressed in months) of all
the Non-Primary Residence Loans remaining in the Mortgage Pool as of such
Anniversary Determination Date, and (z) the sum of (A) one plus (B) the
number of all remaining Non-Primary Residence Loans divided by the total
number of Outstanding Mortgage Loans as of such Anniversary Determination
Date.
FNMA: The Federal National Mortgage Association or its successor in
interest.
Formula Amount: As to each Anniversary Determination Date, the greater
of (i) $100,000 and (ii) the product of (x) 0.06% and (y) the Scheduled
Principal Balance of each Mortgage Loan remaining in the Mortgage Pool
whose original principal balance was 75% or greater of the Original Value
thereof.
Fraud Coverage Termination Date: The Distribution Date upon which the
related Fraud Loss Amount has been reduced to zero or a negative number (or
the Cross-Over Date, if earlier).
Fraud Loss: Any Realized Loss attributable to fraud in the origination
of the related Mortgage Loan.
Fraud Loss Amount: As of any Distribution Date after the Cut-off Date,
(x) prior to the first anniversary of the Cut-off Date, an amount equal to
$_____ minus the aggregate amount of Fraud Losses that would have been
allocated to the Junior Certificates in accordance with Section 4.03 in the
absence of the Loss Allocation Limitation since the Cut-off Date, and (y)
from the first to the fifth anniversary of the Cut-off Date, an amount
equal to (1) the lesser of (a) the Fraud Loss Amount as of the most recent
anniversary of the Cut-off Date and (b) 1% (from the first to but excluding
the third anniversaries of the Cut-off Date) or 0.5% (from and including
the third to but excluding the fifth anniversaries of the Cut-off Date) of
the aggregate outstanding principal balance of all of the Mortgage Loans as
of the most recent anniversary of the Cut-off Date minus (2) the Fraud
Losses that would have been allocated to the Junior Certificates in
accordance with Section 4.03 in the absence of the Loss Allocation
Limitation since the most recent anniversary of the Cut-off Date. On or
after the fifth anniversary of the Cut-off Date the Fraud Loss Amount shall
be zero.
GECC: General Electric Capital Corporation, a corporation incorporated
under the provisions of the New York Banking Law applicable to investment
companies, or any corporation into which GECC may be merged or
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which GECC shall be a party, or any corporation succeeding
to the business of GECC.
GECMSI: GE Capital Mortgage Services, Inc., a corporation organized
and existing under the laws of the State of New Jersey, or its successor in
interest.
Group I Final Distribution Date: The Distribution Date on which the
aggregate Certificate Principal Balance of the Group I Senior Certificates
is reduced to zero.
[Group I Senior Certificate: Any Class _____, or Class R [or Class RL]
Certificate.]
Group II Senior Certificate: Any Class _____ Certificate.]
[Group II Senior Percentage: With respect to any Distribution Date,
the percentage (carried to six decimal places) obtained by dividing (x) the
aggregate Certificate Principal Balance of the Group II Senior Certificates
immediately preceding such Distribution Date, by (y) the aggregate
Certificate Principal Balance of all the Certificates (other than the Class
PO Certificates) immediately preceding such Distribution Date.]
[Group II Senior Prepayment Distribution Percentage: 0% through the
Distribution Date in _____; 30% thereafter through the Distribution Date in
_____; 40% thereafter through the Distribution Date in _____; 60%
thereafter through the Distribution Date in _____; 80% thereafter through
the Distribution Date in _____; and 100% thereafter.]
[Group II Senior Principal Distribution Amount: With respect to any
Distribution Date, the sum of (a) the total of the amounts described in
clauses (i) and (iii) of the definition of Senior Optimal Principal Amount
(without application of the Senior Percentage or the Senior Prepayment
Percentage) for such date multiplied by the Group II Senior Percentage for
such date and (b) the total of the amounts described in clauses (ii), (iv)
and (v) of the definition of Senior Optimal Principal Amount (without
application of the Senior Prepayment Percentage) for such date multiplied
by the product of (x) the Group II Senior Percentage for such date and (y)
the Group II Senior Prepayment Distribution Percentage for such date;
provided, however, that (i) on the Group I Final Distribution Date, the
Group II Senior Principal Distribution Amount will be increased by any
portion of the Senior Optimal Principal Amount remaining after
distributions of principal have been made on the Group I Senior
Certificates and (ii) following the Group I Final Distribution Date, the
Group II Senior Principal Distribution Amount will equal the Senior Optimal
Principal Amount.]
Initial Certificate Principal Balance: With respect to any
Certificate, other than a Notional Certificate, the Certificate Principal
Balance of such Certificate or any predecessor Certificate on the Closing
Date.
[Initial LIBOR Rate: _____%.]
Insurance Proceeds: Proceeds paid pursuant to the Primary Insurance
Policies, if any, and amounts paid by any insurer pursuant to any other
insurance policy covering a Mortgage Loan.
Insured Expenses: Expenses covered by the Primary Insurance Policies,
if any, or any other insurance policy or policies applicable to the
Mortgage Loans.
Interest Accrual Period: With respect to any Distribution Date and any
Class of Certificates [(other than the LIBOR Certificates] and any Class of
Principal Only Certificates) or Component, the one-month period ending on
the last day of the month preceding the month in which such Distribution
Date occurs. [With respect to any Distribution Date and the LIBOR
Certificates, the one-month period commencing on the 25th day of the
preceding month and ending on the 24th day of the month in which such
Distribution Date occurs.] [The Interest Accrual Period for each Class of
Lower-Tier Interests shall be the Interest Accrual Period for such Class of
Lower-Tier Interest's Corresponding Class (or Classes).]
Interest Loss: (i) With respect to any Realized Loss, the excess of
accrued and unpaid interest due on the related Mortgage Loan over the
amount allocated to interest thereon in accordance with Section 3.08(d),
and (ii) with respect to any Debt Service Reduction and any calendar month,
the reduction in the amount of interest due on the related Mortgage Loan
during such month as a result of the relevant bankruptcy proceeding.
The amount of any Interest Loss described in clause (i) of the
preceding paragraph will be allocated among the Base Servicing Fee, the
Supplemental Servicing Fee and the Certificates in accordance with Section
3.08(d). [The amount of any Interest Loss described in clause (ii) of the
preceding paragraph will be allocated among the Base Servicing Fee, the
Supplemental Servicing Fee and the Certificates in proportion to the amount
of interest that would have been allocated to the Base Servicing Fee at the
Base Servicing Fee Rate, the Supplemental Servicing Fee at the Supplemental
Servicing Fee Rate and interest at the Remittance Rate, respectively, in
the absence of the Debt Service Reduction.]
Interest Settlement Rate: With respect to any Interest Accrual Period,
the rate (expressed as a percentage per annum) for one-month U.S. Dollar
deposits reported by the BBA at 11:00 a.m. London time on the related LIBOR
Determination Date and as it appears on the Designated Telerate Page.
Interest Shortfall: With respect to any Distribution Date and each
Mortgage Loan that during the related Prepayment Period was the subject of
a Voluntary Principal Prepayment or constitutes a Relief Act Mortgage Loan,
an amount determined as follows:
(A) partial principal prepayments: one month's interest at the
applicable Net Mortgage Rate on the amount of such prepayment;
(B) principal prepayments in full received on or after the
sixteenth day of the month preceding the month of such Distribution
Date (or, in the case of the first Distribution Date, on or after the
Cut-off Date) but on or before the last day of the month preceding the
month of such Distribution Date, the difference between (i) one
month's interest at the applicable Net Mortgage Rate on the Scheduled
Principal Balance of such Mortgage Loan immediately prior to such
prepayment and (ii) the amount of interest for the calendar month of
such prepayment (adjusted to the applicable Net Mortgage Rate)
received at the time of such prepayment;
(C) principal prepayments in full received by the Company (or of
which the Company receives notice, in the case of a Mortgage Loan
serviced by a Primary Servicer) on or after the first day but on or
before the fifteenth day of the month of such Distribution Date: none;
and
(D) Relief Act Mortgage Loans: As to any Relief Act Mortgage
Loan, the excess of (i) 30 days' interest (or, in the case of a
Principal Prepayment in full, interest to the date of prepayment) on
the Scheduled Principal Balance thereof (or, in the case of a
Principal Prepayment in part, on the amount so prepaid) at the related
Net Mortgage Rate over (ii) 30 days' interest (or, in the case of a
Principal Prepayment in full, interest to the date of prepayment) on
such Scheduled Principal Balance (or, in the case of a Principal
Prepayment in part, on the amount so prepaid) at the Net Mortgage Rate
required to be paid by the Mortgagor as limited by application of the
Relief Act.
[For purposes of the definitions of Net Interest Shortfall and
Supplemental Servicing Fee, the amount of any Interest Shortfall shall
be allocated between the Certificates and the Supplemental Servicing
Fee in proportion to the amount of interest that would have been
allocated to the Certificates (at the Remittance Rate) and the
Supplemental Servicing Fee (at the Supplemental Servicing Fee Rate),
respectively, in the absence of such Interest Shortfall.]
Junior Certificate: Any Class [M or Class B] Certificate.
Junior Optimal Principal Amount: As to any Distribution Date, an
amount equal to the sum of the following (but in no event greater than the
aggregate Certificate Principal Balance of the Junior Certificates
immediately prior to such Distribution Date):
(i) the Junior Percentage of the applicable Non-PO Percentage of the
principal portion of each Monthly Payment due on the related Due Date on
each Outstanding Mortgage Loan as of such Due Date as specified in the
amortization schedule at the time applicable thereto (after adjustment for
previous Principal Prepayments and the principal portion of Debt Service
Reductions subsequent to the Bankruptcy Coverage Termination Date but
before any adjustment to such amortization schedule by reason of any
bankruptcy (other than as aforesaid) or similar proceeding or any
moratorium or similar waiver or grace period);
(ii) the Junior Prepayment Percentage of the applicable Non-PO
Percentage of all principal prepayments in part received during the related
Prepayment Period, and 100% of any Senior Optimal Principal Amount not
distributed to the Senior Certificates on such Distribution Date, together
with the Junior Prepayment Percentage of the applicable Non-PO Percentage
of the Scheduled Principal Balance of each Mortgage Loan which was the
subject of a Voluntary Principal Prepayment in full during the related
Prepayment Period;
(iii) the excess, if any, of (x) the applicable Non-PO Percentage of
the sum of (A) all Net Liquidation Proceeds allocable to principal received
during the related Prepayment Period (other than in respect of Mortgage
Loans described in clause (B)) and (B) the principal balance of each
Mortgage Loan that was purchased by an insurer from the Trustee during the
related Prepayment Period pursuant to the related Primary Insurance Policy,
over (y) the amount distributable pursuant to clause (iii) of the
definition of Senior Optimal Principal Amount on such Distribution Date;
(iv) the Junior Prepayment Percentage of the applicable Non-PO
Percentage of the Scheduled Principal Balance of each Mortgage Loan which
was purchased on such Distribution Date pursuant to Section 2.02, 2.03(a)
or 3.16; and
(v) the Junior Prepayment Percentage of the applicable Non-PO
Percentage of the Substitution Amount for any Mortgage Loan substituted
during the month of such Distribution Date.
For purposes of clause (ii) above, a Voluntary Principal Prepayment in
full with respect to a Mortgage Loan serviced by a Primary Servicer shall
be deemed to have been received when the Company, as servicer, receives
notice thereof.
After the Class Certificate Principal Balances of the Junior
Certificates have been reduced to zero, the Junior Optimal Principal Amount
shall be zero.
Junior Percentage: As to any Distribution Date, the excess of 100%
over the Senior Percentage for such Distribution Date.
Junior Prepayment Percentage: As to any Distribution Date, the excess
of 100% over the Senior Prepayment Percentage for such Distribution Date,
except that (i) after the aggregate Certificate Principal Balance of the
Senior Certificates other than the Class PO Certificates has been reduced
to zero, the Junior Prepayment Percentage shall be 100%, and (ii) after the
Cross-Over Date, the Junior Prepayment Percentage shall be zero.
Latest Possible Maturity Date: _____.
LIBOR: With respect to any Interest Accrual Period, the per annum rate
determined, pursuant to Section 5.08, on the basis of the Interest
Settlement Rate or as otherwise provided in such Section.
LIBOR Certificate: [Any Class _____ Certificate.]
LIBOR Determination Date: The second London Banking Day immediately
preceding the commencement of each Interest Accrual Period for any LIBOR
Certificates.
Liquidated Mortgage Loan: Any defaulted Mortgage Loan as to which the
Servicer has determined that all amounts which it expects to recover on
behalf of the Trust Fund from or on account of such Mortgage Loan have been
recovered, including any Mortgage Loan with respect to which the Servicer
determines not to foreclose upon the related Mortgaged Property based on
its belief that such Mortgaged Property may be contaminated with or
affected by hazardous or toxic wastes, materials or substances.
Liquidation Expenses: Expenses which are incurred by the Servicer in
connection with the liquidation of any defaulted Mortgage Loan and not
recovered by the Servicer under any Primary Insurance Policy for reasons
other than the Servicer's failure to comply with Section 3.05, such
expenses including, without limitation, legal fees and expenses, and,
regardless of when incurred, any unreimbursed amount expended by the
Servicer pursuant to Section 3.03 or Section 3.06 respecting the related
Mortgage Loan and any related and unreimbursed Property Protection
Expenses.
Liquidation Proceeds: Cash (other than Insurance Proceeds) received in
connection with the liquidation of any defaulted Mortgage Loan whether
through judicial foreclosure or otherwise.
[Loan Sale Agreement: the Loan Sale Agreement, dated as of the date
hereof, between the Depositor and GECMSI, a copy of which is attached
hereto as Exhibit N.]
Loan-to-Value Ratio: With respect to each Mortgage Loan, the original
principal amount of such Mortgage Loan, divided by the Original Value of
the related Mortgaged Property.
London Banking Day: Any day on which banks are open for dealing in
foreign currency and exchange in London, England.
Loss Allocation Limitation: As defined in Section 4.03(g).
[Lower-Tier Balance: As to each Class of Lower-Tier Interests and any
Distribution Date, the initial Lower-Tier Balance thereof set forth or
specified in Section 2.05(a) (plus, in the case of any Class of Lower-Tier
Interests as to which the Corresponding Class is a Class of Accrual
Certificates or includes one or more Accrual Components, an amount equal to
the Accrual Amount for such Corresponding Class or each such Accrual
Component for each previous Distribution Date) less the sum of (i) the
aggregate amount of principal allocable thereto on previous Distribution
Dates pursuant to Section 2.05(c) and (ii) any Realized Losses or
Subordinate Certificate Writedown Amount allocated thereto on previous
Distribution Dates.]
[Lower-Tier Interest: Any one of the Classes of regular interests in
the Lower-Tier REMIC described as such in Section 2.05(a).]
[Lower-Tier Interest Rate: As to each Lower-Tier Interest, the
applicable "Lower-Tier Interest Rate," if any, set forth in Section
2.05(a).]
[Lower-Tier REMIC: One of the two separate REMICs comprising the Trust
Fund, the assets of which consist of the assets and rights specified in
clauses (i) through (viii) and (x) of the definition of the term Trust
Fund.]
Monthly Advance: With respect to any Distribution Date, the aggregate
of the advances required to be made by the Servicer pursuant to Section
4.04(a) (or by the Trustee pursuant to Section 4.04(b)) on such
Distribution Date, the amount of any such Monthly Advance being equal to
(a) the aggregate of payments of principal and interest (adjusted to the
related Remittance Rate) on the Mortgage Loans that were due on the related
Due Date, without regard to any arrangements entered into by the Servicer
with the related Mortgagors pursuant to Section 3.02(a)(ii), and delinquent
as of the close of business on the Business Day next preceding the related
Determination Date, less (b) the amount of any such payments which the
Servicer or the Trustee, as applicable, in its reasonable judgment believes
will not be ultimately recoverable by it either out of late payments by the
Mortgagor, Net Liquidation Proceeds, Insurance Proceeds, REO Proceeds or
otherwise. With respect to any Mortgage Loan, the portion of any such
advance or advances made with respect thereto.
Monthly Payment: The scheduled monthly payment on a Mortgage Loan for
any month allocable to principal or interest on such Mortgage Loan.
Moody's: Moody's Investors Service, Inc. and its successors.
Mortgage: The mortgage or deed of trust creating a first lien on a fee
simple interest or leasehold estate in real property securing a Mortgage
Note.
Mortgage File: The mortgage documents listed in Section 2.01
pertaining to a particular Mortgage Loan and any additional documents
required to be added to such documents pursuant to this Agreement.
Mortgage Loan Payment Record: The record maintained by the Company
pursuant to Section 3.02(b).
Mortgage Loan Schedule: As of any date of determination, the schedule
of Mortgage Loans included in the Trust Fund. The initial schedule of
Mortgage Loans as of the Cut-off Date is attached hereto as Exhibit C.
Mortgage Loans: As of any date of determination, each of the mortgage
loans identified on the Mortgage Loan Schedule (as amended pursuant to
Section 2.03(b)) delivered and assigned to the Trustee pursuant to Section
2.01 or 2.03(b), and not theretofore released from the Trust Fund by the
Trustee.
Mortgage Loan Seller: GECMSI.
Mortgage Note: With respect to any Mortgage Loan, the note or other
evidence of indebtedness (which may consist of a Confirmatory Mortgage
Note) evidencing the indebtedness of a Mortgagor under such Mortgage Loan.
Mortgage Pool: The aggregate of the Mortgage Loans identified in the
Mortgage Loan Schedule.
Mortgage Rate: The per annum rate of interest borne by a Mortgage Loan
as set forth in the related Mortgage Note.
Mortgaged Property: The underlying real property securing the Mortgage
Loan, or with respect to a Cooperative Loan, the related Proprietary Lease
and Cooperative Stock.
Mortgagor: With respect to any Mortgage Loan, each obligor on the
related Mortgage Note.
Net Interest Shortfall: With respect to any Distribution Date, the
excess, if any, of the aggregate Interest Shortfalls allocable to the
Certificates (as determined in accordance with the definition of Interest
Shortfall) for such Distribution Date over any Compensating Interest
Payment for such date.
Net Liquidation Proceeds: As to any Liquidated Mortgage Loan, the sum
of (i) any Liquidation Proceeds therefor less the related Liquidation
Expenses, and (ii) any Insurance Proceeds therefor, other than any such
Insurance Proceeds applied to the restoration of the related Mortgaged
Property.
Net Mortgage Rate: With respect to any Mortgage Loan, the related
Mortgage Rate less the applicable Base Servicing Fee Rate.
Non-Book-Entry Certificate: Any Certificate other than a Book-Entry
Certificate.
Non-Credit Loss: Any Fraud Loss, Special Hazard Loss or Deficient
Valuation.
Non-Discount Mortgage Loan: Any Mortgage Loan with a Net Mortgage Rate
greater than or equal to ______% per annum.
Non-permitted Foreign Holder: As defined in Section 5.02(b).
Non-PO Percentage: As to any Discount Mortgage Loan, a fraction
(expressed as a percentage), the numerator of which is the Net Mortgage
Rate of such Discount Mortgage Loan and the denominator of which is _____%.
As to any Non-Discount Mortgage Loan, 100%.
Non-Primary Residence Loan: Any Mortgage Loan secured by a Mortgaged
Property that is (on the basis of representations made by the Mortgagors at
origination) a second home or investor-owned property.
Nonrecoverable Advance: All or any portion of any Monthly Advance or
Monthly Advances previously made by the Servicer (or the Trustee) which, in
the reasonable judgment of the Servicer (or, as applicable, the Trustee)
will not be ultimately recoverable from related Net Liquidation Proceeds,
Insurance Proceeds, REO Proceeds or otherwise. The determination by the
Company that it has made a Nonrecoverable Advance or that any advance, if
made, would constitute a Nonrecoverable Advance, shall be evidenced by an
Officer's Certificate of the Servicer delivered to the Trustee and
detailing the reasons for such determination.
Non-U.S. Person: As defined in Section 4.02(c).
Notional Certificate: [ ].
Notional Component: [ ].
Notional Component Balance: [ ].
Notional Principal Balance: As to any Distribution Date and the Class
_____ Certificates, the Class Certificate Principal Balance of the Class
_____ Certificates for such Distribution Date. As to any Distribution Date
and any Notional Certificate, such Notional Certificate's Percentage
Interest of the aggregate Notional Principal Balance of the Notional
Certificates of the same Class for such Distribution Date.
Officer's Certificate: A certificate signed by the President, a Senior
Vice President or a Vice President of the Servicer or the Depositor, as
applicable, and delivered to the Trustee.
Opinion of Counsel: A written opinion of counsel, who may be counsel
for the Servicer or the Depositor; provided, however, that any Opinion of
Counsel with respect to the interpretation or application of the REMIC
Provisions or the status of an account as an Eligible Account shall be the
opinion of independent counsel satisfactory to the Trustee.
Original Subordinate Principal Balance: As set forth in the definition
of Senior Prepayment Percentage.
Original Value: The value of the property underlying a Mortgage Loan
based, in the case of the purchase of the underlying Mortgaged Property, on
the lower of an appraisal satisfactory to the Mortgage Loan Seller or the
sales price of such property or, in the case of a refinancing, on an
appraisal satisfactory to the Mortgage Loan Seller.
Outstanding Mortgage Loan: With respect to any Due Date, a Mortgage
Loan which, prior to such Due Date, was not the subject of a Principal
Prepayment in full, did not become a Liquidated Mortgage Loan and was not
purchased pursuant to Section 2.02, 2.03(a) or 3.16 or replaced pursuant to
Section 2.03(b).
Outstanding Non-Discount Mortgage Loan: Any Outstanding Mortgage Loan
that is a Non-Discount Mortgage Loan.
PAC Balance: As to any Distribution Date and any Class of PAC
Certificates and any PAC Component, the balance designated as such for such
Distribution Date and such Class or Component as set forth in the Principal
Balance Schedules.
PAC Certificate: [ ].
PAC Component: [ ].
Pay-out Rate: With respect to any Class of Certificates (other than
any Class of Principal Only Certificates) and any Distribution Date, the
rate at which interest is distributed on such Class on such Distribution
Date and which is equal to a fraction (expressed as an annualized
percentage) the numerator of which is the Accrued Certificate Interest for
such Class and Distribution Date, and the denominator of which is the Class
Certificate Principal Balance (or, in the case of the Notional
Certificates, the Notional Principal Balance) of such Class immediately
prior to such Distribution Date.
Percentage Interest: With respect to any Certificate, the percentage
interest in the undivided beneficial ownership interest in the Trust Fund
evidenced by Certificates of the same Class as such Certificate. With
respect to any Certificate, the Percentage Interest evidenced thereby shall
equal the Initial Certificate Principal Balance (or, in the case of a
Notional Certificate, the initial Notional Principal Balance) thereof
divided by the aggregate Initial Certificate Principal Balance (or, in the
case of a Notional Certificate, the aggregate initial Notional Principal
Balance) of all Certificates of the same Class.
Permitted Investments: One or more of the following; provided,
however, that no such Permitted Investment may mature later than the
Business Day preceding the Distribution Date after such investment except
as otherwise provided in Section 3.02(e) hereof, provided, further, that
such investments qualify as "cash flow investments" as defined in section
860G(a)(6) of the Code:
(i) 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;
(ii) repurchase agreements on obligations specified in clause (i)
provided that the unsecured obligations of the party agreeing to repurchase
such obligations are at the time rated by each Rating Agency in the highest
long-term rating category;
(iii) 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;
(iv) 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
(v) other obligations or securities that are acceptable to each Rating
Agency as a Permitted Investment hereunder and will not, as evidenced in
writing, result in a reduction or withdrawal in the then current rating of
the Certificates.
Notwithstanding the foregoing, Permitted Investments shall not include
"stripped securities" and investments which contractually may return less
than the purchase price therefor.
Person: Any legal person, including any individual, corporation,
partnership, limited liability company, joint venture, association,
joint-stock company, trust, unincorporated organization or government or
any agency or political subdivision thereof.
Plan: Any Person which is an employee benefit plan subject to ERISA or
a plan subject to section 4975 of the Code.
PO Percentage: As to any Discount Mortgage Loan, a fraction (expressed
as a percentage), the numerator of which is the excess of _____% over the
Net Mortgage Rate of such Discount Mortgage Loan and the denominator of
which is _____%. As to any Non-Discount Mortgage Loan, 0%.
PO Principal Distribution Amount: As to any Distribution Date, an
amount equal to the sum of the applicable PO Percentage of:
(i) the principal portion of each Monthly Payment due on the related
Due Date on each Outstanding Mortgage Loan as of such Due Date as specified
in the amortization schedule at the time applicable thereto (after
adjustments for previous Principal Prepayments and the principal portion of
Debt Service Reductions subsequent to the Bankruptcy Coverage Termination
Date but before any adjustment to such amortization schedule by reason of
any bankruptcy (except as aforesaid) or similar proceeding or any
moratorium or similar waiver or grace period);
(ii) all principal prepayments in part received during the related
Prepayment Period, together with the Scheduled Principal Balance (as
reduced by any Deficient Valuation occurring on or prior to the Bankruptcy
Coverage Termination Date) of each Mortgage Loan which was the subject of a
Voluntary Principal Prepayment in full during the related Prepayment
Period;
(iii) the sum of (A) all Net Liquidation Proceeds allocable to
principal received in respect of each Mortgage Loan that became a
Liquidated Mortgage Loan during the related Prepayment Period (other than
Mortgage Loans described in clause (B)) and (B) the principal balance of
each Mortgage Loan purchased by an insurer from the Trustee pursuant to the
related Primary Insurance Policy, in each case during the related
Prepayment Period;
(iv) the Scheduled Principal Balance (as reduced by any Deficient
Valuation occurring on or prior to the Bankruptcy Coverage Termination
Date) of each Mortgage Loan which was purchased on such Distribution Date
pursuant to Section 2.02, 2.03(a) or 3.16; and
(v) the Substitution Amount for any Mortgage Loan substituted during
the month of such Distribution Date; for purposes of this clause (v), the
definition of "Substitution Amount" shall be modified to reduce the
Scheduled Principal Balance of the Mortgage Loan that is substituted for by
any Deficient Valuation occurring on or prior to the Bankruptcy Coverage
Termination Date.
For purposes of clause (ii) above, a Voluntary Principal Prepayment in
full with respect to a Mortgage Loan serviced by a Primary Servicer shall
be deemed to have been received when the Company, as servicer, receives
notice thereof.
Pool Scheduled Principal Balance: With respect to any Distribution
Date, the aggregate Scheduled Principal Balance of all the Mortgage Loans
that were Outstanding Mortgage Loans on the Due Date in the month next
preceding the month of such Distribution Date (or, in the case of the first
Distribution Date, the Cut-off Date; or, if so specified, such other date).
Prepayment Assumption: The assumed fixed schedule of prepayments on a
pool of new mortgage loans with such schedule given as a monthly sequence
of prepayment rates, expressed as annualized percent values. These values
start at 0.2% per year in the first month, increase by 0.2% per year in
each succeeding month until month 30, ending at 6.0% per year. At such
time, the rate remains constant at 6.0% per year for the balance of the
remaining term. Multiples of the Prepayment Assumption are calculated from
this prepayment rate series.
Prepayment Assumption Multiple: _____% of the Prepayment Assumption.
Prepayment Distribution Trigger: As of any Distribution Date and as to
each Class of Class [B] Certificates, the related Prepayment Distribution
Trigger is satisfied if (x) the fraction, expressed as a percentage, the
numerator of which is the aggregate Class Certificate Principal Balance of
such Class and each Class subordinate thereto, if any, on such Distribution
Date, and the denominator of which is the Pool Scheduled Principal Balance
for such Distribution Date, equals or exceeds (y) such percentage
calculated as of the Closing Date.
Prepayment Interest Excess: As to any Voluntary Principal Prepayment
in full received from the first day through the fifteenth day of any
calendar month (other than the calendar month in which the Cut-off Date
occurs), all amounts paid in respect of interest on such Principal
Prepayment. For purposes of determining the amount of Prepayment Interest
Excess for any month, a Voluntary Principal Prepayment in full with respect
to a Mortgage Loan serviced by a Primary Servicer shall be deemed to have
been received when the Company, as servicer, receives notice thereof. All
Prepayment Interest Excess shall be retained by the Company, as servicer,
as additional servicing compensation.
Prepayment Period: With respect to any Distribution Date and any
Voluntary Principal Prepayment in part or other Principal Prepayment other
than a Voluntary Principal Prepayment in full, the calendar month preceding
the month of such Distribution Date; with respect to any Distribution Date
and any Voluntary Principal Prepayment in full, the period beginning on the
sixteenth day of the calendar month preceding the month of such
Distribution Date (or, in the case of the first Distribution Date,
beginning on the Cut-off Date) and ending on the fifteenth day of the month
in which such Distribution Date occurs.
Primary Insurance Policy: The certificate of private mortgage
insurance relating to a particular Mortgage Loan, or an electronic screen
print setting forth the information contained in such certificate of
private mortgage insurance, including, without limitation, information
relating to the name of the mortgage insurance carrier, the certificate
number, the loan amount, the property address, the effective date of
coverage, the amount of coverage and the expiration date of the policy.
Each such policy covers defaults by the Mortgagor, which coverage shall
equal the portion of the unpaid principal balance of the related Mortgage
Loan that exceeds 75% (or such lesser coverage required or permitted by
FNMA or FHLMC) of the Original Value of the underlying Mortgaged Property.
Primary Servicer: Any servicer with which the Servicer has entered
into a servicing agreement, as described in Section 3.01(f).
Principal Balance Schedules: Any principal balance schedules attached
hereto, if applicable, as Exhibit B, setting forth the PAC Balances of any
PAC Certificates and PAC Components, the TAC Balances of any TAC
Certificates and TAC Components and the Scheduled Balances of any Scheduled
Certificates and Scheduled Components.
Principal Only Certificate: [Any Class PO Certificate and any Class
Certificate.]
Principal Only Component: [ ].
Principal Prepayment: Any payment or other recovery of principal on a
Mortgage Loan (including, for this purpose, any refinancing permitted by
Section 3.01 and any REO Proceeds treated as such pursuant to Section
3.08(b)) which is received in advance of its scheduled Due Date and is not
accompanied by an amount of interest representing scheduled interest for
any month subsequent to the month of prepayment.
[Private Placement Memorandum: The private placement memorandum
relating to the Restricted Junior Certificates dated _____.]
Prohibited Transaction Exemption: U.S. Department of Labor Prohibited
Transaction Exemption _____.
Property Protection Expenses: With respect to any Mortgage Loan,
expenses paid or incurred by or for the account of the Servicer in
accordance with the related Mortgage for (a) real estate property taxes and
property repair, replacement, protection and preservation expenses and (b)
similar expenses reasonably paid or incurred to preserve or protect the
value of such Mortgage to the extent the Servicer is not reimbursed
therefor pursuant to the Primary Insurance Policy, if any, or any other
insurance policy with respect thereto.
Proprietary Lease: With respect to a Cooperative Loan, the proprietary
lease(s) or occupancy agreement with respect to the Cooperative Apartment
occupied by the Mortgagor and relating to the related Cooperative Stock,
which lease or agreement confers an exclusive right to the holder of such
Cooperative Stock to occupy such apartment.
Purchase Price: With respect to any Mortgage Loan required or
permitted to be purchased hereunder from the Trust Fund, an amount equal to
100% of the unpaid principal balance thereof plus interest thereon at the
applicable Mortgage Rate from the date to which interest was last paid to
the first day of the month in which such purchase price is to be
distributed; provided, however, that [in the case of a Mortgage Loan to be
repurchased by the Mortgage Loan Seller,] if the Mortgage Loan Seller is
the Servicer hereunder, such purchase price shall be net of unreimbursed
Monthly Advances with respect to such Mortgage Loan, and the interest
component of the Purchase Price may be computed on the basis of the
Remittance Rate for such Mortgage Loan.
QIB: A "qualified institutional buyer" as defined in Rule 144A under
the Securities Act of 1933, as amended.
Rating Agency: Any statistical credit rating agency, or its successor,
that rated any of the Certificates at the request of the Depositor at the
time of the initial issuance of the Certificates. If such agency or a
successor is no longer in existence, "Rating Agency" shall be such
statistical credit rating agency, or other comparable Person, designated by
the Depositor, notice of which designation shall be given to the Trustee.
References herein to the two highest long-term rating categories of a
Rating Agency shall mean such ratings without any modifiers. As of the date
of the initial issuance of the Certificates, the Rating Agencies are _____
and _____; except that for purposes of the Junior Certificates, other than
the Class [B5] Certificates, _____ shall be the sole Rating Agency. The
Class [B5] Certificates are issued without ratings.
Realized Loss: Any (i) Deficient Valuation or (ii) as to any
Liquidated Mortgage Loan, (x) the unpaid principal balance of such
Liquidated Mortgage Loan plus accrued and unpaid interest thereon at the
Net Mortgage Rate through the last day of the month of such liquidation
less (y) the related Liquidation Proceeds and Insurance Proceeds (as
reduced by the related Liquidation Expenses).
Record Date: The last Business Day of the month immediately preceding
the month of the related Distribution Date.
Reference Banks: As defined in Section 5.08.
Relief Act: The Soldiers' and Sailors' Civil Relief Act of 1940, as
amended.
Relief Act Mortgage Loan: Any Mortgage Loan as to which the Monthly
Payment thereof has been reduced due to the application of the Relief Act.
REMIC: A "real estate mortgage investment conduit" within the meaning
of section 860D of the Code.
REMIC Provisions: Provisions of the federal income tax law relating to
real estate mortgage investment conduits, which appear at sections 860A
through 860G of Part IV of Subchapter M of Chapter 1 of the Code, and
related provisions, and U.S. Office of the Treasury temporary or final
regulations promulgated thereunder, as the foregoing may be in effect from
time to time, as well as provisions of applicable state laws.
Remittance Rate: With respect to any Mortgage Loan, the related
Mortgage Rate less the [sum of the applicable Base] Servicing Fee Rate [and
the Supplemental Servicing Fee Rate].
REO Mortgage Loan: Any Mortgage Loan which is not a Liquidated
Mortgage Loan and as to which the related Mortgaged Property is held as
part of the Trust Fund.
REO Proceeds: Proceeds, net of any related expenses of the Servicer,
received in respect of any REO Mortgage Loan (including, without
limitation, proceeds from the rental of the related Mortgaged Property).
Reserve Fund: [ ].
Reserve Interest Rate: As defined in Section 5.08.
Residual Certificate: Any Class R [or Class RL] Certificate.
Responsible Officer: When used with respect to the Trustee, any
officer or assistant officer assigned to and working in the Corporate Trust
Department of the Trustee and, also, with respect to a particular matter,
any other officer to whom such matter is referred because of such officer's
knowledge of and familiarity with the particular subject.
Restricted Certificate: Any Restricted Junior Certificate or Class PO
Certificate.
Restricted Junior Certificate: Any Class [B3, Class B4 or Class B5]
Certificate.
S&P: Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc., and its successors.
SAIF: The Savings Association Insurance Fund of the FDIC, or its
successor in interest.
Scheduled Balance: As to any Distribution Date and any Class of
Scheduled Certificates and any Scheduled Component, the balance designated
as such for such Distribution Date and such Class or Component as set forth
in the Principal Balance Schedules.
Scheduled Certificate: [ ].
Scheduled Component: [ ].
Scheduled Principal Balance: As to any Mortgage Loan and Distribution
Date, the principal balance of such Mortgage Loan as of the Due Date in the
month next preceding the month of such Distribution Date (or, if so
specified, such other date) as specified in the amortization schedule at
the time relating to such Mortgage Loan (before any adjustment to such
amortization schedule by reason of any bankruptcy or similar proceeding or
any moratorium or similar waiver or grace period) after giving effect to
any previous Principal Prepayments, Deficient Valuations incurred
subsequent to the Bankruptcy Coverage Termination Date, adjustments due to
the application of the Relief Act and the payment of principal due on such
Due Date, irrespective of any delinquency in payment by the related
Mortgagor. As to any Mortgage Loan and the Cut-off Date, the "unpaid
balance" thereof specified in the initial Mortgage Loan Schedule.
Security Agreement: With respect to a Cooperative Loan, the agreement
creating a security interest in favor of the originator in the related
Cooperative Stock and Proprietary Lease.
Senior Certificate: Any Certificate other than a Junior Certificate.
Senior Certificate Principal Balance: As of any Distribution Date, an
amount equal to the sum of the Certificate Principal Balances of the Senior
Certificates (other than any Class PO Certificates).
Senior Optimal Principal Amount: As to any Distribution Date, an
amount equal to the sum of:
(i) the Senior Percentage of the applicable Non-PO Percentage of the
principal portion of each Monthly Payment due on the related Due Date on
each Outstanding Mortgage Loan as of such Due Date as specified in the
amortization schedule at the time applicable thereto (after adjustments for
previous Principal Prepayments and the principal portion of Debt Service
Reductions subsequent to the Bankruptcy Coverage Termination Date but
before any adjustment to such amortization schedule by reason of any
bankruptcy (except as aforesaid) or similar proceeding or any moratorium or
similar waiver or grace period);
(ii) the Senior Prepayment Percentage of the applicable Non-PO
Percentage of all principal prepayments in part received during the related
Prepayment Period, together with the Senior Prepayment Percentage of the
applicable Non-PO Percentage of the Scheduled Principal Balance of each
Mortgage Loan which was the subject of a Voluntary Principal Prepayment in
full during the related Prepayment Period;
(iii) the lesser of (x) the Senior Percentage of the applicable Non-PO
Percentage of the sum of (A) the Scheduled Principal Balance of each
Mortgage Loan that became a Liquidated Mortgage Loan (other than Mortgage
Loans described in clause (B)) during the related Prepayment Period and (B)
the Scheduled Principal Balance of each Mortgage Loan that was purchased by
an insurer from the Trustee during the related Prepayment Period pursuant
to the related Primary Insurance Policy, as reduced in each case by the
Senior Percentage of the applicable Non-PO Percentage of the principal
portion of any Excess Losses (other than Excess Bankruptcy Losses
attributable to Debt Service Reductions), and (y) the Senior Prepayment
Percentage of the applicable Non-PO Percentage of the sum of (A) all Net
Liquidation Proceeds allocable to principal received in respect of each
such Liquidated Mortgage Loan (other than Mortgage Loans described in
clause (B)) and (B) the principal balance of each such Mortgage Loan
purchased by an insurer from the Trustee pursuant to the related Primary
Insurance Policy, in each case during the related Prepayment Period;
(iv) the Senior Prepayment Percentage of the applicable Non-PO
Percentage of the Scheduled Principal Balance of each Mortgage Loan which
was purchased on such Distribution Date pursuant to Section 2.02, 2.03(a)
or 3.16; and
(v) the Senior Prepayment Percentage of the applicable Non-PO
Percentage of the Substitution Amount for any Mortgage Loan substituted
during the month of such Distribution Date.
For purposes of clause (ii) above, a Voluntary Principal Prepayment in
full with respect to a Mortgage Loan serviced by a Primary Servicer shall
be deemed to have been received when the Company, as servicer, receives
notice thereof.
Senior Percentage: As to any Distribution Date, the lesser of (i) 100%
and (ii) the percentage (carried to six places rounded up) obtained by
dividing the Senior Certificate Principal Balance immediately prior to such
Distribution Date by an amount equal to the sum of the Certificate
Principal Balances of all the Certificates other than any Class PO
Certificates immediately prior to such Distribution Date.
Senior Prepayment Percentage: For any Distribution Date occurring
prior to the fifth anniversary of the first Distribution Date, 100%. For
any Distribution Date occurring on or after the fifth anniversary of the
first Distribution Date, an amount as follows:
(i) for any Distribution Date subsequent to _____ to and including the
Distribution Date in _____, the Senior Percentage for such Distribution
Date plus 70% of the Junior Percentage for such Distribution Date;
(ii) for any Distribution Date subsequent to _____ to and including
the Distribution Date in _____, the Senior Percentage for such Distribution
Date plus 60% of the Junior Percentage for such Distribution Date;
(iii) for any Distribution Date subsequent to _____ to and including
the Distribution Date in _____, the Senior Percentage for such Distribution
Date plus 40% of the Junior Percentage for such Distribution Date;
(iv) for any Distribution Date subsequent to _____ to and including
the Distribution Date in _____, the Senior Percentage for such Distribution
Date plus 20% of the Junior Percentage for such Distribution Date; and
(v) for any Distribution Date thereafter, the Senior Percentage for
such Distribution Date.
Notwithstanding the foregoing, if on any Distribution Date the Senior
Percentage exceeds the Senior Percentage as of the Closing Date, the Senior
Prepayment Percentage for such Distribution Date will equal 100%.
In addition, notwithstanding the foregoing, no reduction of the Senior
Prepayment Percentage below the level in effect for the most recent prior
period as set forth in clauses (i) through (iv) above shall be effective on
any Distribution Date unless at least one of the following two tests is
satisfied:
Test I: If, as of the last day of the month preceding such
Distribution Date, (i) the aggregate Scheduled Principal Balance of
Mortgage Loans delinquent 60 days or more (including for this purpose any
Mortgage Loans in foreclosure and REO Mortgage Loans) as a percentage of
the aggregate Class Certificate Principal Balance of the Junior
Certificates as of such date, does not exceed 50%, and (ii) cumulative
Realized Losses with respect to the Mortgage Loans do not exceed (a) 30% of
the aggregate Class Certificate Principal Balance of the Junior
Certificates as of the Closing Date (the "Original Subordinate Principal
Balance") if such Distribution Date occurs between and including _____ and
_____, (b) 35% of the Original Subordinate Principal Balance if such
Distribution Date occurs between and including _____ and _____, (c) 40% of
the Original Subordinate Principal Balance if such Distribution Date occurs
between and including _____ and _____, (d) 45% of the Original Subordinate
Principal Balance if such Distribution Date occurs between and including
_____ and _____ and (e) 50% of the Original Subordinate Principal Balance
if such Distribution Date occurs during or after _____; or
Test II: If, as of the last day of the month preceding such
Distribution Date, (i) the aggregate Scheduled Principal Balance of
Mortgage Loans delinquent 60 days or more (including for this purpose any
Mortgage Loans in foreclosure and REO Mortgage Loans) averaged over the
last three months, as a percentage of the aggregate Scheduled Principal
Balance of Mortgage Loans averaged over the last three months, does not
exceed 4%, and (ii) cumulative Realized Losses with respect to the Mortgage
Loans do not exceed (a) 10% of the Original Subordinate Principal Balance
if such Distribution Date occurs between and including _____ and _____, (b)
15% of the Original Subordinate Principal Balance if such Distribution Date
occurs between and including _____ and _____, (c) 20% of the Original
Subordinate Principal Balance if such Distribution Date occurs between and
including _____ and _____, (d) 25% of the Original Subordinate Principal
Balance if such Distribution Date occurs between and including _____ and
_____, and (e) 30% of the Original Subordinate Principal Balance if such
Distribution Date occurs during or after _____.
Servicer: GECMSI, or, if any successor to GECMSI is appointed as, or
becomes, servicer pursuant to Section 6.02, 6.03 or 7.02, the such
successor.
Servicer's Certificate: A certificate, completed by and executed on
behalf of the Servicer by a Servicing Officer in accordance with Section
4.06, substantially in the form of Exhibit D hereto or in such other form
as the Company and the Trustee shall agree.
Servicing Fee: As to any Mortgage Loan and Distribution Date, the [sum
of (a) the Base Servicing Fee and (b) the Supplemental Servicing Fee].
Servicing Officer: Any officer of the Servicer involved in, or
responsible for, the administration and servicing of the Mortgage Loans
whose name appears on a list of servicing officers attached to an Officer's
Certificate furnished to the Trustee by the Servicer, as such list may from
time to time be amended.
Single Certificate: A Certificate with an Initial Certificate
Principal Balance, or initial Notional Principal Balance, of $1,000 or, in
the case of a Class of Certificates issued with an initial Class
Certificate Principal Balance or initial Notional Principal Balance of less
than $1,000, such lesser amount.
Special Hazard Loss: (i) A Realized Loss suffered by a Mortgaged
Property on account of direct physical loss, exclusive of (a) any loss
covered by a hazard policy or a flood insurance policy required to be
maintained in respect of such Mortgaged Property under Section 3.06 and (b)
any loss caused by or resulting from:
(A) normal wear and tear;
(B) conversion or other dishonest act on the part of the Trustee,
the Company or any of their agents or employees; or
(C) errors in design, faulty workmanship or faulty materials,
unless the collapse of the property or a part thereof ensues;
or (ii) any Realized Loss suffered by the Trust Fund arising from or
related to the presence or suspected presence of hazardous wastes or
hazardous substances on a Mortgaged Property unless such loss to a
Mortgaged Property is covered by a hazard policy or a flood insurance
policy required to be maintained in respect of such Mortgaged Property
under Section 3.06.
Special Hazard Loss Amount: As of any Distribution Date, an amount
equal to $_____ minus the sum of (i) the aggregate amount of Special Hazard
Losses that would have been allocated to the Junior Certificates in
accordance with Section 4.03 in the absence of the Loss Allocation
Limitation and (ii) the Adjustment Amount (as defined below) as most
recently calculated. On each anniversary of the Cut-off Date, the
"Adjustment Amount" shall be equal to the amount, if any, by which the
amount calculated in accordance with the preceding sentence (without giving
effect to the deduction of the Adjustment Amount for such anniversary)
exceeds the lesser of (x) the greater of (A) the product of the Special
Hazard Percentage for such anniversary multiplied by the outstanding
principal balance of all the Mortgage Loans on the Distribution Date
immediately preceding such anniversary and (B) twice the outstanding
principal balance of the Mortgage Loan which has the largest outstanding
principal balance on the Distribution Date immediately preceding such
anniversary, and (y) an amount calculated by the Company and approved by
each Rating Agency, which amount shall not be less than $500,000.
Special Hazard Percentage: As of each anniversary of the Cut-off Date,
the greater of (i) 1.00% and (ii) the largest percentage obtained by
dividing (x) the aggregate outstanding principal balance (as of the
immediately preceding Distribution Date) of the Mortgage Loans secured by
Mortgaged Properties located in a single, five-digit zip code area in the
State of _____ by (y) the outstanding principal balance of all the Mortgage
Loans as of the immediately preceding Distribution Date.
Special Hazard Termination Date: The Distribution Date upon which the
Special Hazard Loss Amount has been reduced to zero or a negative number
(or the Cross-Over Date, if earlier).
Specified Component: [ ].
Startup Day: As defined in Section 2.06(c).
Subordinate Certificates: The Class [M and Class B] Certificates.
Subordinate Certificate Writedown Amount: As to any Distribution Date,
first, any amount distributed to the Class PO Certificates on such
Distribution Date pursuant to Section 4.01(a)(iv) and second, after giving
effect to the application of clause first above, the amount by which (i)
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 related Certificates on such Distribution Date) exceeds (ii) the Pool
Scheduled Principal Balance on the first day of the month of such
Distribution Date less any Deficient Valuations occurring on or prior to
the Bankruptcy Coverage Termination Date.
Substitution Amount: With respect to any Mortgage Loan substituted
pursuant to Section 2.03(b), the excess of (x) the Scheduled Principal
Balance of the Mortgage Loan that is substituted for, over (y) the
Scheduled Principal Balance of the related substitute Mortgage Loan, each
balance being determined as of the date of substitution.
[Supplemental Servicing Fee: As to any Mortgage Loan and Distribution
Date, an amount equal to the product of (i) the Scheduled Principal Balance
of such Mortgage Loan as of the Due Date in the preceding calendar month
and (ii) the Supplemental Servicing Fee Rate for such Mortgage Loan. The
Supplemental Servicing Fee for any Distribution Date shall be reduced by
its allocable share of Interest Shortfalls (as provided in the definition
thereof) and any Interest Losses (in accordance with Section 3.08(d)).]
[Supplemental Servicing Fee Rate: As to any Mortgage Loan and
Distribution Date, a fixed rate per annum equal to the excess, if any, of
the Net Mortgage Rate thereof over _____%.]
Surety: _____, or its successors in interest.
Surety Bond: The Limited Purpose Surety Bond (Policy No. _____), dated
_____, issued by the Surety for the benefit of certain beneficiaries,
including the Trustee for the benefit of the Holders of the Certificates,
but only to the extent that such Limited Purpose Surety Bond covers any
Pledged Asset Mortgage Loans.
TAC Balance: As to any Distribution Date and any Class of TAC
Certificates and any TAC Component, the balance designated as such for such
Distribution Date and such Class or Component as set forth in the Principal
Balance Schedules attached as Exhibit B hereto.
TAC Certificates: [ ].
TAC Component: [ ].
Trigger Event: Any one or more of the following: (i) if GECMSI is not
a wholly-owned direct or indirect subsidiary of General Electric Company or
if GECC shall not own (directly or indirectly) at least two-thirds of the
voting shares of the capital stock of GECMSI, (ii) if the long-term senior
unsecured rating of GECC is downgraded or withdrawn by _____ or _____ below
their two highest rating categories, (iii) if GECC is no longer obligated
pursuant to the terms of the support agreement, dated as of October 1,
1990, between GECC and GECMSI, to maintain GECMSI's net worth or liquidity
(as such terms are defined therein) at the levels specified therein, or if
such support agreement, including any amendment thereto, has been breached,
terminated or otherwise held to be unenforceable and (iv) if such support
agreement, including any amendment thereto, is amended or modified.
Trust Fund: The corpus of the trust created by this Agreement
evidenced by the Certificates and consisting of:
(i) the Mortgage Loans;
(ii) all payments on or collections in respect of such Mortgage Loans,
except as otherwise described in the first paragraph of Section 2.01,
including the proceeds from the liquidation of any Additional Collateral
for any Pledged Asset Mortgage Loan;
(iii) the obligation of the Company to deposit in the Certificate
Account the amounts required by Sections 3.02(d), 3.02(e) and 4.04(a), and
the obligation of the Trustee to deposit in the Certificate Account any
amount required pursuant to Section 4.04(b);
(iv) the obligation of the Company to purchase or replace any
Defective Mortgage Loan pursuant to Section 2.02 or 2.03;
(v) all property acquired by foreclosure or deed in lieu of
foreclosure with respect to any REO Mortgage Loan;
(vi) the proceeds of the Primary Insurance Policies, if any, and the
hazard insurance policies required by Section 3.06, in each case, in
respect of the Mortgage Loans, and the Company's interest in the Surety
Bond transferred to the Trustee pursuant to Section 2.01;
(vii) the Certificate Account established pursuant to Section 3.02(d);
(viii) the Eligible Account or Accounts, if any, established pursuant
to Section 3.02(e);
(ix) any collateral funds established to secure the obligations of the
Holder of the Class [B4] and Class [B5] Certificates, respectively, under
any agreements entered into between such holder and the Company pursuant to
Section 3.08(e) (which collateral funds will not constitute a part of any
REMIC established hereunder)[.][; and]
(x) the rights and remedies under the Loan Sale Agreement, other than
the right to receive the purchase for the Mortgage Loans payable by the
Depositor to the Mortgage Loan Seller.
Trustee: The institution executing this Agreement as Trustee, or its
successor in interest, or if any successor trustee is appointed as herein
provided, then such successor trustee so appointed.
Unanticipated Recovery: As defined in Section 4.01(f) herein.
Uninsured Cause: Any cause of damage to property subject to a Mortgage
such that the complete restoration of the property is not fully
reimbursable by the hazard insurance policies required to be maintained
pursuant to Section 3.06.
Unpaid Class Interest Shortfall: As to any Distribution Date and any
Class of Certificates (other than any Class of Principal Only Certificates
and any Class consisting of Specified Components) or any Specified
Component (other than any Principal Only Component), the amount, if any, by
which the aggregate of the Class Interest Shortfalls for such Class or in
respect of such Specified Component for prior Distribution Dates is in
excess of the aggregate amounts distributed on prior Distribution Dates to
Holders of such Class of Certificates or in respect of such Specified
Component (or added to the Class Certificate Principal Balance of any Class
of Accrual Certificates, or to the Component Principal Balance of any
Accrual Component constituting a Specified Component) pursuant to [a
description of the Pooling and Servicing Agreement explanatory sections and
a listing of the corresponding Senior or Junior Certificates].
[Upper-Tier REMIC: One of the two separate REMICs comprising the Trust
Fund, the assets of which consist of the Lower-Tier Interests.]
Voluntary Principal Prepayment: With respect to any Distribution Date,
any prepayment of principal received from the related Mortgagor on a
Mortgage Loan.
Voting Rights: The portion of the voting rights of all the
Certificates that is allocated to any Certificate for purposes of the
voting provisions of Section 10.01. At all times during the term of this
Agreement, 99% of all Voting Rights shall be allocated to the Classes of
Certificates (other than the Class _____ Certificates), and 1% shall be
allocated to Class _____ Certificates. Voting Rights shall be allocated
among the Classes (other than the Class _____ Certificates) (and among the
Certificates within each Class of Certificates) in proportion to their
Class Certificate Principal Balances (or Certificate Principal Balances or
Notional Principal Balances), as the case may be.
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS; ORIGINAL ISSUANCE OF CERTIFICATES
Section 2.01. Conveyance of Mortgage Loans [;Assignment of Loan Sale
Agreement]. (a) The Depositor, concurrently with the execution and delivery of
this Agreement, does hereby transfer, assign, set-over and otherwise convey to
the Trustee without recourse (except as provided herein) all the right, title
and interest of the Depositor in and to the Mortgage Loans, including all
interest and principal received by the Depositor [or the Mortgage Loan Seller]
on or with respect to the Mortgage Loans (other than payments of principal and
interest due and payable on the Mortgage Loans on or before, and all Principal
Prepayments received before, the Cut-off Date). [The Depositor, concurrently
with execution and delivery hereof, does also hereby transfer, assign, set over
and otherwise convey to the Trustee without recourse (except to the extent
provided herein) all the right, title and interest of the Depositor in, to and
under the Loan Sale Agreement.]
(b) The Depositor acknowledges it has transferred, assigned, set-over and
otherwise conveyed all right, title and interest in and to the Mortgage Loans to
the Trustee to the extent provided above and that retention of record title of
Mortgages (subject to Section 2.01(d) of this Agreement) by the [Depositor]
[Mortgage Loan Seller] is for convenience only and that the [Depositor]
[Mortgage Loan Seller] holds record title in its capacity as Servicer solely as
custodian for the Trustee for benefit of the Certificateholders. The [Depositor]
[Mortgage Loan Seller] agrees that it will take no action inconsistent with
ownership of the Mortgage Loans by the Trustee and will not deliver any
instrument of satisfaction or conveyance with respect to a Mortgage or a
Mortgage Loan, or convey or purport to convey any interest in a Mortgage Loan,
except in accordance with the terms and the intent of this Agreement.
(c) In connection with such transfer and assignment, the Depositor does
hereby deliver to the Trustee the following documents or instruments with
respect to:
(1) Each Mortgage Loan (other than any Cooperative Loan or Designated
Loan) so transferred and assigned:
(i) The Mortgage Note, endorsed without recourse in blank by the
Mortgage Loan Seller, including all intervening endorsements showing a
complete chain of endorsement from the originator to the Trustee;
provided, however, that if such Mortgage Note is a Confirmatory
Mortgage Note, such Confirmatory Mortgage Note may be payable directly
to the Trustee or may show a complete chain of endorsement from the
named payee to the Trustee;
(ii) Any assumption and modification agreement;
(iii) An assignment in recordable form (which may be included in
a blanket assignment or assignments) of the Mortgage to the Trustee;
and
(2) Each Cooperative Loan (other than a Designated Loan) so
transferred and assigned:
(i) The Mortgage Note, endorsed without recourse in blank by the
Mortgage Loan Seller and showing an unbroken chain of endorsements
from the originator to the Trustee; provided, however, that if such
Mortgage Note is a Confirmatory Mortgage Note, such Confirmatory
Mortgage Note may be payable directly to the Trustee or may show a
complete chain of endorsement from the named payee to the Trustee;
(ii) A counterpart of the Proprietary Lease and the Assignment of
Proprietary Lease executed in blank or to the originator of the
Cooperative Loan;
(iii) The related Cooperative Stock Certificate, together with an
undated stock power (or other similar instrument) executed in blank;
(iv) A counterpart of the recognition agreement by the
Cooperative of the interests of the mortgagee with respect to the
related Cooperative Loan;
(v) The Security Agreement;
(vi) Copies of the original UCC-1 financing statement, and any
continuation statements, filed by the originator of such Cooperative
Loan as secured party, each with evidence of recording thereof,
evidencing the interest of the originator in the Cooperative Stock and
the Proprietary Lease;
(vii) If applicable, copies of the UCC-3 assignments of the
security interest described in clause (vi) above, sent to the
appropriate public office for filing, showing an unbroken chain of
title from the originator to the Trustee, evidencing the security
interest of the originator in the Cooperative Stock and the
Proprietary Lease;
(viii) An executed assignment (which may be a blanket assignment
for all Cooperative Loans) of the interest of the Mortgage Loan Seller
in the Security Agreement, Assignment of Proprietary Lease and the
recognition agreement described in clause (iv) above, showing an
unbroken chain of title from the originator to the Trustee; and (ix) A
UCC-3 assignment from the [Mortgage Loan Seller] to the Trustee of the
security interest described in clause (vi) above, in form suitable for
filing, otherwise complete except for filing information regarding the
original UCC-1 if unavailable (which may be included in a blanket
assignment to the Trustee).
In instances where a completed assignment of the Mortgage in recordable
form cannot be delivered by the Depositor to the Trustee in accordance with
Section 2.01(b)(1)(iii) prior to or concurrently with the execution and delivery
of this Agreement, due to a delay in connection with recording of the Mortgage,
the Depositor may, in lieu of delivering the completed assignment in recordable
form, deliver to the Trustee the assignment in such form, otherwise complete
except for recording information.
(3) With respect to each Designated Loan, the Depositor does hereby
deliver to the Trustee the Designated Loan Closing Documents.
(d) In connection with each Mortgage Loan transferred and assigned to the
Trustee, the Depositor shall deliver to the Trustee the following documents or
instruments as promptly as practicable, but in any event within 30 days, after
receipt by the Depositor [or the Mortgage Loan Seller on its behalf pursuant to
the Loan Sale Agreement] of all such documents and instruments for all of the
outstanding Mortgage Loans:
(i) the Mortgage with evidence of recording indicated thereon
(other than with respect to a Cooperative Loan);
(ii) a copy of the title insurance policy (other than with
respect to a Cooperative Loan);
(iii) with respect to any Mortgage that has been assigned to the
Company, the related recorded intervening assignment or assignments of
Mortgage, showing a complete chain of assignment from the originator
to the Company (other than with respect to a Cooperative Loan); and
(iv) with respect to any Cooperative Loan that has been assigned
to the Depositor, the related filed intervening UCC-3 financing
statements (not previously delivered pursuant to Section
2.01(b)(2)(vii)), showing a complete chain of assignment from the
named originator to the Mortgage Loan Seller.
Pending such delivery, the Servicer shall retain in its files (a) copies of the
documents described in clauses (i) and (iii) of the preceding sentence, without
evidence of recording thereon, and (b) title insurance binders with respect to
the Mortgage Loans (other than with respect to a Cooperative Loan). The Servicer
shall also retain in its files evidence of any Primary Mortgage Insurance
relating to the Mortgage Loans during the period when the related insurance is
in force. (The copies of the Mortgage, intervening assignments of Mortgage, if
any, title insurance binder and the Primary Insurance Policy, if any, described
in the two preceding sentences are collectively referred to herein as the
"Document File" with respect to each Mortgage Loan.) The Servicer shall advise
the Trustee in writing if such delivery to the Trustee shall not have occurred
on or before the first anniversary of the Closing Date. The Servicer shall
promptly furnish to the Trustee the documents included in the Document Files
(other than any such documents previously delivered to the Trustee as originals
or copies) either (a) upon the written request of the Trustee or (b) when the
Company or the Trustee obtains actual notice or knowledge of a Trigger Event.
The Trustee shall have no obligation to request delivery of the Document Files
unless a Responsible Officer of the Trustee has actual notice or knowledge of
the occurrence of a Trigger Event.
In the case of Mortgage Loans which have been prepaid in full after the
Cut-off Date and prior to the date of execution and delivery of this Agreement,
the Depositor, in lieu of delivering the above documents to the Trustee,
herewith delivers to the Trustee a certification of a Servicing Officer of the
nature set forth in Section 3.09.
(e) The Depositor shall not be required to record the assignments of the
Mortgages referred to in Section 2.01(b)(1)(iii) or file the UCC-3 assignments
referred to in Section 2.01(b)(2)(ix) to the Trustee unless the Mortgage Loan
Seller or the Trustee obtains actual notice or knowledge of the occurrence of
any Trigger Event; provided, however, that such recording or filing shall not be
required if the Mortgage Loan Seller delivers to the Trustee a letter from each
Rating Agency to the effect that the failure to take such action will not cause
such Rating Agency to reduce or withdraw its then current ratings of the
Certificates. The party obtaining actual notice or knowledge of any of such
events shall give the other party prompt written notice thereof. For purposes of
the foregoing (as well as for purposes of determining whether the Mortgage Loan
Seller shall be required to deliver the Document Files to the Trustee following
the occurrence of a Trigger Event), the Mortgage Loan Seller shall be deemed to
have knowledge of any such downgrading referred to in the definition of Trigger
Event if, in the exercise of reasonable diligence, the Mortgage Loan Seller has
or should have had knowledge thereof. As promptly as practicable subsequent to
the Mortgage Loan Seller's delivery or receipt of such written notice, as the
case may be, the Mortgage Loan Seller shall insert the recording or filing
information in the assignments of the Mortgages or UCC-3 assignments to the
Trustee and shall cause the same to be recorded or filed, at the Mortgage Loan
Seller's expense, in the appropriate public office for real property records or
UCC financing statements, except that the Mortgage Loan Seller need not cause to
be so completed and recorded any assignment of mortgage which relates to a
Mortgage Loan secured by property in a jurisdiction under the laws of which, on
the basis of an Opinion of Counsel reasonably satisfactory to the Trustee and
satisfactory to each Rating Agency (as evidenced in writing), recordation of
such assignment is not necessary to protect the Trustee against discharge of
such Mortgage Loan by the Mortgage Loan Seller [or the Depositor] or any valid
assertion that any Person other than the Trustee has title to or any rights in
such Mortgage Loan. In the event that the Mortgage Loan Seller fails or refuses
to record or file the assignment of Mortgages or UCC-3 financing statement in
the circumstances provided above, the Trustee shall record or cause to be
recorded or filed such assignment or UCC-3 financing statement at the expense of
the Mortgage Loan Seller. In connection with any such recording or filing, the
Mortgage Loan Seller shall furnish such documents as may be reasonably necessary
to accomplish such recording or filing. Notwithstanding the foregoing, at any
time the Mortgage Loan Seller may record or file, or cause to be recorded or
filed, the assignments of Mortgages or UCC-3 financing statement at the expense
of the Mortgage Loan Seller.
Section 2.02. Acceptance by Trustee. Subject to the examination hereinafter
provided, the Trustee acknowledges receipt of the Mortgage Notes, the
assignments of the Mortgages to the Trustee, the assumption and modification
agreements, if any, the documents specified in Section 2.01(b)(2) (subject to
any permitted delayed delivery of the documents described in Section
2.01(c)(iv)), and the Designated Loan Closing Documents, if any, delivered
pursuant to Section 2.01, and declares that the Trustee holds and will hold such
documents and each other document delivered to it pursuant to Section 2.01 in
trust, upon the trusts herein set forth, for the use and benefit of all present
and future Certificateholders. The Trustee agrees, for the benefit of
Certificateholders, to review each Mortgage File within 45 days after (i) the
execution and delivery of this Agreement, in the case of the Mortgage Notes, the
assignments of the Mortgages to the Trustee, the assumption and modification
agreements, if any, the documents specified in Section 2.01(b)(2) (subject to
any permitted delayed delivery of the documents described in Section
2.01(c)(iv)), and the Designated Loan Closing Documents, if any, (ii) delivery
to the Trustee after the Closing Date of the Mortgage Notes and the assumption
and modification agreements, if any, with respect to each Designated Loan, and
(iii) delivery of the recorded Mortgages, title insurance policies, recorded
intervening assignments of Mortgage, if any, and filed intervening UCC-3
financing statements, if any, with respect to any Cooperative Loan to ascertain
that all required documents set forth in Section 2.01 have been executed,
received and recorded, if applicable, and that such documents relate to the
Mortgage Loans identified in Exhibit C hereto. In performing such examination,
the Trustee may conclusively assume the due execution and genuineness of any
such document and the genuineness of any signature thereon. It is understood
that the scope of the Trustee's examination of the Mortgage Files is limited
solely to confirming, after receipt of the documents listed in Section 2.01,
that such documents have been executed, received and recorded, if applicable,
and relate to the Mortgage Loans identified in Exhibit C to this Agreement. If
in the course of such review the Trustee finds (1) that any document required to
be delivered as aforesaid has not been delivered, or (2) any such document has
been mutilated, defaced or physically altered without the borrower's
authorization or approval, or (3) based upon its examination of such documents,
the information with respect to any Mortgage Loan set forth on Exhibit C is not
accurate, the Trustee shall promptly so notify the Mortgage Loan Seller in
writing, which shall have a period of 60 days after receipt of such notice to
correct or cure any such defect. The Mortgage Loan Seller hereby covenants and
agrees that, if any such material defect cannot be corrected or cured, the
Mortgage Loan Seller will on a Distribution Date which is not later than the
first Distribution Date which is more than ten days after the end of such 60-day
period repurchase the related Mortgage Loan from the Trustee at the Purchase
Price therefor or replace such Mortgage Loan pursuant to Section 2.03(b);
provided, however, that if the defect (or breach pursuant to Section 2.03(a)) is
one that, had it been discovered before the Startup Day, would have prevented
the Mortgage Loan from being a "qualified mortgage" within the meaning of the
REMIC Provisions, such defect or breach shall be cured, or the related Mortgage
Loan shall be repurchased or replaced, on a Distribution Date which falls within
90 days of the date of discovery of such defect or breach. The Purchase Price
for the repurchased Mortgage Loan, or any amount required in respect of a
substitution pursuant to Section 2.03(b), shall be deposited by the Company in
the Certificate Account pursuant to Section 3.02(d) on the Business Day prior to
the applicable Distribution Date and, upon receipt by the Trustee of written
notification of such deposit signed by a Servicing Officer, the Trustee shall
release or cause to be released to the Mortgage Loan Seller the related Mortgage
File and shall execute and deliver or cause to be executed and delivered such
instruments of transfer or assignment, in each case without recourse, as shall
be necessary to vest in the Mortgage Loan seller any Mortgage Loan released
pursuant hereto. It is understood and agreed that the obligation of the Mortgage
Loan Seller to repurchase or replace any Mortgage Loan as to which a material
defect in a constituent document exists shall constitute the sole remedy
respecting such defect available to Certificateholders or the Trustee on behalf
of Certificateholders.
Upon receipt by the Trustee of the Mortgage Note with respect to a
Designated Loan that is not defective in accordance with the fifth sentence of
the preceding paragraph, the related Lost Note Affidavit delivered pursuant to
Section 2.01 shall be void and the Trustee shall return it to the Depositor.
Section 2.03. Representations and Warranties of the Company; Mortgage Loan
Repurchase. (a) The Depositor hereby represents and warrants to the Trustee
that (1):
- --------
(1) Note: If Funding is acting as Depositor, (A) its representations and
warranties will be limited to those set forth in subparagraphs (iii) and
(vii) below, in the latter case insofar as results from any action taken by
Funding, and (B) the remainder of the following representations and
warranties will, to the extent applicable, be made by the Mortgage Loan
Seller in the Loan Sale Agreement.
<PAGE>
(i) The information set forth in Exhibit C hereto was true and
correct in all material respects at the date or dates respecting which
such information is furnished;
(ii) As of the date of the initial issuance of the Certificates,
other than with respect to Cooperative Loans, each Mortgage is a valid
and enforceable first lien on the property securing the related
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 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 in connection with
the origination of the related Mortgage Loan obtained by the Depositor
and (c) 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;
(iii) Immediately prior to the transfer and assignment herein
contemplated, the Depositor had good title to, and was the sole owner
of, each Mortgage Loan and all action had been taken to obtain good
record title to each related Mortgage. Each Mortgage Loan has been
transferred free and clear of any liens, claims and encumbrances;
(iv) As of the date of the initial issuance of the Certificates,
no payment of principal of or interest on or in respect of any
Mortgage Loan is 30 or more days past due and none of the Mortgage
Loans have been past due 30 or more days more than once during the
preceding 12 months;
(v) As of the date of the initial issuance of the Certificates,
other than with respect to Cooperative Loans, there is no mechanics'
lien or claim for work, labor or material affecting the premises
subject to any Mortgage which is or may be a lien prior to, or equal
or coordinate with, the lien of such Mortgage except those which are
insured against by the title insurance policy referred to in (x)
below;
(vi) As of the date of the initial issuance of the Certificates,
other than with respect to Cooperative Loans, there is no delinquent
tax or assessment lien against the property subject to any Mortgage;
(vii) As of the date of the initial issuance of the Certificates,
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;
(viii) As of the date of the initial issuance of the
Certificates, the physical property subject to any Mortgage (or, in
the case of a Cooperative Loan, the related Cooperative Apartment) is
free of material damage and is in good repair;
(ix) 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;
(x) Other than with respect to Cooperative Loans, a lender's
title insurance policy or binder, or other assurance of title
insurance customary in the relevant jurisdiction therefor was issued
on the date of the origination of each Mortgage Loan and each such
policy or binder is valid and remains in full force and effect;
(xi) The Loan-to-Value Ratio of each Mortgage Loan was not more
than _____%. As of the Cut-off Date, no more than _____% of the
Mortgage Loans by Scheduled Principal Balance had Loan-to-Value Ratios
of more than _____% and each such Mortgage Loan is covered by a
Primary Insurance Policy so long as its then outstanding principal
amount exceeds _____% of the greater of (a) the Original Value and (b)
the then current value of the related Mortgaged Property as evidenced
by an appraisal thereof satisfactory to the Depositor. Each Primary
Insurance Policy is issued by a private mortgage insurer acceptable to
FNMA or FHLMC;
(xii) Each Mortgage Note is payable on the first day of each
month in self-amortizing monthly installments of principal and
interest, with interest payable in arrears, over an original term of
not more than thirty years. The Mortgage Rate of each Mortgage Note of
the related Mortgage Loan was not less than _____% per annum and not
greater than _____% per annum. The Mortgage Rate of each Mortgage Note
is fixed for the life of the related Mortgage Loan;
(xiii) Other than with respect to Cooperative Loans, the
improvements on the Mortgaged Properties are insured against loss
under a hazard insurance policy with extended coverage and conforming
to the requirements of Section 3.06 hereof. As of the date of initial
issuance of the Certificates, all such insurance policies are in full
force and effect;
(xiv) As of the Cut-off Date, (i) no more than _____% of the
Mortgage Loans by Scheduled Principal Balance had a Scheduled
Principal Balance of more than $_____ and up to and including $_____;
(ii) no more than _____% of the Mortgage Loans by Scheduled Principal
Balance had a Scheduled Principal Balance of more than $_____ and up
to and including $_____; and (iii) no more than _____% of the Mortgage
Loans by Scheduled Principal Balance had a Scheduled Principal Balance
of more than $_____;
(xv) As of the Cut-off Date, no more than _____% of the Mortgage
Loans by Scheduled Principal Balance are secured by Mortgaged
Properties located in any one postal zip code area;
(xvi) As of the Cut-off Date, at least _____% of the Mortgage
Loans by Scheduled Principal Balance are secured by Mortgaged
Properties determined by the Depositor to be the primary residence of
the Mortgagor. The basis for such determination is the making of a
representation by the Mortgagor at origination that he or she intends
to occupy the underlying property;
(xvii) As of the Cut-off Date, at least _____% of the Mortgage
Loans by Scheduled Principal Balance are secured by one-family
detached residences;
(xviii) As of the Cut-off Date, no more than _____% of the
Mortgage Loans by Scheduled Principal Balance are secured by
condominiums and, as of the Cut-off Date, no more than _____% of the
Mortgage Loans by Scheduled Principal Balance are secured by two- to
four-family residential properties. As to each condominium or related
Mortgage Loan, (a) the related condominium is in a project that is on
the FNMA or FHLMC approved list, (b) the related condominium is in a
project that, upon submission of appropriate application, could be so
approved by either FNMA or FHLMC, (c) the related Mortgage Loan meets
the requirements for purchase by FNMA or FHLMC, (d) the related
Mortgage Loan is of the type that could be approved for purchase by
FNMA or FHLMC but for the principal balance of the related Mortgage
Loan or the pre-sale requirements or (e) the related Mortgage Loan has
been approved by a nationally recognized mortgage pool insurance
company for coverage under a mortgage pool insurance policy issued by
such insurer. As of the Cut-off Date, no more than _____% of the
Mortgage Loans by Scheduled Principal Balance are secured by
condominiums located in any one postal zip code area;
(xix) Other than with respect to Cooperative Loans, no Mortgage
Loan is secured by a leasehold interest in the related Mortgaged
Property and each Mortgagor holds fee title to the related Mortgaged
Property;
(xx) As of the Cut-off Date, no more than _____% of the Mortgage
Loans by Scheduled Principal Balance constituted Buydown Mortgage
Loans. The maximum Buydown Period for any Buydown Mortgage Loan is
_____ years, and the maximum difference between the stated Mortgage
Rate of any Buydown Mortgage Loan and the rate paid by the related
Mortgagor is _____ percentage points. The portion of the interest rate
paid by the related Mortgagor will not increase by more than _____
percentage point[s] for each _____ period;
(xxi) The original principal balances of the Mortgage Loans range
from $_____ to $_____;
(xxii) As of the Cut-off Date, no more than _____% of the
Mortgage Loans by Scheduled Principal Balance are secured by second
homes and no more than _____% of the Mortgage Loans by Scheduled
Principal Balance are secured by investor-owned properties;
(xxiii) All appraisals have been prepared substantially in
accordance with the description contained under the caption "The Trust
Fund - The Mortgage Loans" in the Depositor's prospectus dated _____
accompanying the Prospectus Supplement dated _____ pursuant to which
certain classes of the Certificates were publicly offered;
(xxiv) No selection procedures, other than those necessary to
comply with the representations and warranties set forth herein or the
description of the Mortgage Loans made in any disclosure document
delivered to prospective investors in the Certificates, have been
utilized in selecting the Mortgage Loans from the Depositor's
portfolio which would be adverse to the interests of the
Certificateholders;
(xxv) Other than with respect to Cooperative Loans, to the best
of the Depositor's knowledge, at origination no improvement located on
or being part of a Mortgaged Property was in violation of any
applicable zoning and subdivision laws and ordinances;
(xxvi) None of the Mortgage Loans is a temporary construction
loan. With respect to any Mortgaged Property which constitutes new
construction, the related construction has been completed
substantially in accordance with the specifications therefor and any
incomplete aspect of such construction shall not be material or
interfere with the habitability or legal occupancy of the Mortgaged
Property. Mortgage Loan amounts sufficient to effect any such
completion are in escrow for release upon or in connection with such
completion or a performance bond or completion bond is in place to
provide funds for this purpose and such completion shall be
accomplished within 120 days after weather conditions permit the
commencement thereof;
(xxvii) As of the Closing Date, each Mortgage Loan is a
"qualified mortgage" as defined in Section 860G(a)(3) of the Code;
(xxviii) As of the Closing Date, the Depositor possesses the
Document File with respect to each Mortgage Loan, and, other than with
respect to Cooperative Loans, the related Mortgages and intervening
assignment or assignments of Mortgages, if any, have been delivered to
a title insurance company for recording;
(xxix) As of the Cut-Off Date, [_____%] of the Mortgage Loans are
Cooperative Loans. With respect to each Cooperative Loan:
(A) The Security Agreement creates a first lien in the stock
ownership and leasehold rights associated with the related
Cooperative Apartment;
(B) The lien created by the related Security Agreement is a
valid, enforceable and subsisting first priority security
interest in the related Cooperative Stock securing the related
Mortgage Note, subject only to (a) liens of the Cooperative for
unpaid assessments representing the Mortgagor's pro rata share of
the Cooperative's payments for its blanket mortgage, current and
future real property taxes, insurance premiums, maintenance fees
and other assessments to which like collateral is commonly
subject and (b) other matters to which like collateral is
commonly subject which do not materially interfere with the
benefits of the security intended to be provided by the Security
Agreement. There are no liens against or security interest in the
Cooperative Stock relating to such Cooperative Loan (except for
unpaid maintenance, assessments and other amounts owed to the
related Cooperative which individually or in the aggregate do not
have a material adverse effect on such Cooperative Loan), which
have priority over the Trustee's security interest in such
Cooperative Stock;
(C) The Cooperative Stock that is pledged as security for
the Mortgage Loan is held by a person as a "tenant-stockholder"
within the meaning of section 216 of the Code, the related
Cooperative that owns title to the related cooperative apartment
building is a "cooperative housing corporation" within the
meaning of section 216 of the Code, and such Cooperative is in
material compliance with applicable federal, state and local laws
which, if not complied with, could have a material adverse effect
on the Mortgaged Property; and
(D) There is no prohibition against pledging the Cooperative
Stock or assigning the Proprietary Lease; and
(xxx) With respect to each Mortgage Loan identified on Exhibit C
as having been originated or acquired under the Depositor's Enhanced
Streamlined Refinance program, the value of the related Mortgaged
Property, as of the date of such origination or acquisition under the
Company's Enhanced Streamlined Refinance program, is no less than the
value thereof established at the time the mortgage loan that is the
subject of the refinancing was originated.
It is understood and agreed that the representations and warranties set
forth in this Section 2.03(a) shall survive delivery of the respective Mortgage
Files to the Trustee. Upon discovery by either the Depositor, the Servicer or
the Trustee of a breach of any of the foregoing representations and warranties
or a breach of any representation or warranty of the Mortgage Loan Seller in the
Loan Sale Agreement with respect to any Mortgage Loan, in either case which
materially and adversely affects the interests of the Certificateholders in the
related Mortgage Loan, the party discovering such breach shall give prompt
written notice to the others. Subject to the following sentence, within 60 days
of its discovery or its receipt of notice of breach, or, with the prior written
consent of a Responsible Officer of the Trustee, such longer period specified in
such consent, the Depositor [if such representation and warranty was made by it
in this Section 2.03, and the Mortgage Loan Seller, if such representation and
warranty was made by it in the Loan Sale Agreement] shall cure such breach in
all material respects or shall repurchase such Mortgage Loan from the Trustee or
replace such Mortgage Loan pursuant to Section 2.03(b). Any such repurchase by
the Depositor shall be accomplished in the manner set forth in Section 2.02,
subject to the proviso of the third-to-last sentence thereof, and at the
Purchase Price [, and any such repurchase by the Mortgage Loan Seller shall be
accomplished in the manner set forth in the Loan Sale Agreement, with the
repurchase price credited to the Mortgage Loan Payment Record]. It is understood
and agreed that the obligation of the Depositor or the Mortgage Loan Seller, as
the case may be to repurchase or replace any Mortgage Loan as to which a breach
occurred and is continuing shall constitute the sole remedy respecting such
breach available to Certificateholders or the Trustee on behalf of
Certificateholders and such obligation of the Mortgage Loan Seller to repurchase
or replace any such Mortgage Loan shall not be assumed by any Person which may
succeed GECMSI as Servicer hereunder, but shall continue as an obligation of
GECMSI. Notwithstanding the preceding sentence, if a breach of the
representation and warranty of the Depositor contained in Section 2.03(a)(ix)
[Section [ ] of the Loan Sale Agreement] occurs as a result of a violation of
the federal Truth in Lending Act, 15 U.S.C. ss. 1601 et seq., as amended
("TILA") or any state truth-in lending or similar statute, and the Trustee or
the Trust Fund is named as a defendant in a TILA suit or a suit under any such
statutes in respect of such violation and liability in respect thereof is
imposed upon the Trustee or the Trust Fund as assignees of the related Mortgage
Loan pursuant to Section 1641 of TILA, or any analogous provision of any such
statute, the [Depositor] [Mortgage Loan Seller pursuant to the Loan Sale
Agreement] shall indemnify the Trustee and the Trust Fund from, and hold them
harmless against, any and all losses, liabilities, damages, claims or expenses
(including reasonable attorneys' fees) to which the Trustee and the Trust Fund,
or either of them, become subject pursuant to TILA or any such statute, insofar
as such losses, damages, claims or expenses (including reasonable attorneys'
fees) result from such violation. The Mortgage Loan Seller's obligations under
the preceding sentence shall not impair or derogate from the Servicer's
obligations to the Trustee under Section 8.05.
(b) If the [Depositor][Mortgage Loan Seller] is required to repurchase any
Mortgage Loan pursuant to Section 2.02 or 2.03(a) or the Loan Sale Agreement, as
applicable, the [Depositor] [Mortgage Loan Seller] may, at its option, within
the applicable time period specified in such respective Sections, remove such
Defective Mortgage Loan from the terms of this Agreement and substitute one or
more other mortgage loans for such Defective Mortgage Loan, in lieu of
repurchasing such Defective Mortgage Loan, provided that no such substitution
shall occur more than two years after the Closing Date. Any substitute Mortgage
Loan shall (a) have a Scheduled Principal Balance (together with that of any
other Mortgage Loan substituted for the same Defective Mortgage Loan) as of the
first Distribution Date following the month of substitution not in excess of the
Scheduled Principal Balance of the Defective Mortgage Loan as of such date (the
amount of any difference, plus one month's interest thereon at the respective
Remittance Rate, to be deposited by the Depositor [or Mortgage Loan Seller] in
the Certificate Account pursuant to Section 2.02 or the Loan Sale Agreement, as
applicable), (b) have a Mortgage Rate not less than, and not more than one
percentage point greater than, the Mortgage Rate of the Defective Mortgage Loan,
(c) have the same Net Mortgage Rate as the Defective Mortgage Loan, (d) 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 Defective Mortgage Loan,
(e) be, in the reasonable determination of the Depositor [or Mortgage Loan
Seller], of the same type, quality and character as the Defective Mortgage Loan
as if the defect or breach had not occurred, (f) have a ratio of its current
principal amount to its Original Value not greater than that of the removed
Mortgage Loan and (g) be, in the reasonable determination of the Depositor [or
Mortgage Loan Seller], in compliance with the representations and warranties
contained in Section 2.03(a) as of the date of substitution.
The Servicer shall amend the Mortgage Loan Schedule to reflect the
withdrawal of any Defective Mortgage Loan and the substitution of a substitute
Mortgage Loan therefor. Upon such amendment, the Depositor [and the Mortgage
Loan Seller] shall be deemed to have made as to such substitute Mortgage Loan
the representations and warranties set forth in Section 2.03(a) [Section __ of
the Loan Sale Agreement] as of the date of such substitution, which shall be
continuing as long as any Certificate shall be outstanding or this Agreement has
not been terminated, and the remedies for breach of any such representation or
warranty shall be as set forth in Section 2.03(a). Upon such amendment, the
Trustee shall review the Mortgage File delivered to it relating to the
substitute Mortgage Loan, within the time and in the manner and with the
remedies specified in Section 2.02, except that for purposes of this Section
2.03(b) (other than the two-year period specified in the first sentence of the
preceding paragraph of this Section 2.03(b)), such time shall be measured from
the date of the applicable substitution.
Section 2.04. Execution of Certificates. The Trustee has caused to be
executed, countersigned and delivered to or upon the order of the Depositor, in
exchange for the Mortgage Loans, the Certificates in authorized denominations
evidencing the entire ownership of the Trust Fund.
[Section 2.05. Designations under the REMIC Provisions. (a) The Depositor
hereby designates the Classes of Certificates identified in Section 5.01(b),
other than the Residual Certificates, as "regular interests," and the Class R
Certificate as the single class of "residual interests," in the REMIC
established hereunder for purposes of the REMIC Provisions.
(b) The Closing Date will be the "Startup Day" for the REMIC established
hereunder for purposes of the REMIC Provisions.
(c) The "tax matters person" with respect to the REMIC established
hereunder for purposes of the REMIC Provisions shall be (i) the Servicer, if the
Servicer is the owner of a Class R Certificate, or (ii) in any other case, the
beneficial owner of the Class R Certificate having the largest Percentage
Interest of such Class; provided, however, that such largest beneficial owner
and, to the extent relevant, each other holder of a Class R Certificate, by its
acceptance thereof irrevocably appoints the Servicer as its agent and
attorney-in-fact to act as "tax matters person" with respect to the REMIC
established hereunder for purposes of the REMIC Provisions.
(d) The "latest possible maturity date" of the regular interests in the
REMIC established hereunder is the Latest Possible Maturity Date for purposes of
section 860G(a)(1) of the Code.
(e) In the event that the Servicing Fee exceeds the amount reasonable for
such services (within the meaning of Treasury Regulation 1.860D-1(b)(1)(ii)),
the portion or portions of such fee that can be measured as a fixed number of
basis points on some or all of the Mortgage Loans and can be treated as one or
more stripped coupons within the meaning of Treasury Regulation
1.860D-1(b)(2)(iii) shall be treated as such stripped coupons and shall not be
treated as a REMIC asset.]
[Section 2.05. The REMICs. (a) For federal income tax purposes, the Trust
Fund shall consist of two REMICs, the Lower-Tier REMIC and the Upper-Tier REMIC.
The Certificates, other than the Class RL Certificate, shall be issued by the
Upper-Tier REMIC, and the Class RL Certificate shall be issued by the Lower-Tier
REMIC. The Lower-Tier REMIC shall be evidenced by the Class RL Certificate and
the regular interests having the characteristics and terms set forth in the
following table, which interests (other than the Class RL Certificate) shall be
issued by the Lower-Tier REMIC to the Trustee. The Lower-Tier Interests and the
proceeds thereof shall be assets of the Upper-Tier REMIC. Principal of and
interest on the Lower-Tier Interests shall be allocated to the Corresponding
Classes of Certificates (or Components) in the manner set forth in the following
table.
<TABLE>
<CAPTION>
Corresponding Class
of Certificates(1)
---------------------------------
<S> <C> <C> <C> <C>
Lower-Tier Allocation Allocation
Lower-Tier Initial Lower Interest of of
Interest Tier Balance Rate Principal Interest
-------- ------------ ---- --------- --------
[ ] [ ] [ ] [ ] [ ]
</TABLE>
- --------------------------
(1) Unless otherwise indicated, the amount of interest and principal allocable
from a Lower-Tier Interest to its Corresponding Class or Classes of
Certificates on any Distribution Date shall be 100%.
(2) On each Distribution Date, interest accrued on Lower-Tier Interest _____
for the applicable Interest Accrual Period shall be allocated as follows:
(x) an amount equal to the Accrued Certificate Interest on the
Corresponding Class shall be allocated to such Class; and (y) the excess of
such amount shall be allocated to the Class _____ Certificates.
(3) The Certificate Interest Rates of Lower-Tier Interests _____ Certificates
for each Interest Accrual Period shall equal such rates for the Class _____
Certificates, respectively.
<PAGE>
(b) The Lower-Tier Interests shall be issued as non-certificated interests.
The Class RL Certificate shall be issued in fully registered certificated form
and shall be executed and countersigned as provided in Section 5.01 hereof.
(c) For purposes of further identifying the terms of the Lower-Tier
Interests, distributions of principal and interest on each Class of Lower-Tier
Interests shall be considered to correspond, in timing and aggregate amount, to
the distributions of principal and interest, respectively, made under Section
4.01 on the Corresponding Classes of Certificates or Components, and allocations
of losses on each Class of Lower-Tier Interests shall be considered to
correspond, in timing and aggregate amount, to the allocations of losses made
under Section 4.03 on the Corresponding Classes of Certificates or Components.
(d) On each Distribution Date, in addition to amounts otherwise
distributable thereon pursuant to Section 4.01, the Trustee shall distribute to
the holder of the Class RL Certificate any amounts (other than the amounts
described in clauses (x) and (y) of the definition of Available Funds) remaining
in the Lower-Tier REMIC after all amounts required to be applied pursuant to
Section 2.05(c) have been so applied. Any distributions pursuant to this clause
(d) shall not reduce the Class Certificate Principal Balance of the Class RL
Certificate.]
[Section 2.06. Designations under the REMIC Provisions. (a) The Depositor
hereby designates the Lower-Tier Interests identified in Section 2.05(a) above
as "regular interests," and the Class RL Certificate as the single class of
"residual interests," in the Lower-Tier REMIC for purposes of the REMIC
Provisions.
(b) The Depositor hereby designates the Classes of Certificates identified
in Section 5.01(b), other than the Residual Certificates, as "regular
interests," and the Class R Certificate as the single class of "residual
interests," in the Upper-Tier REMIC for purposes of the REMIC Provisions.
(c) The Closing Date will be the "Startup Day" for each of the Upper-Tier
REMIC and Lower-Tier REMIC for purposes of the REMIC Provisions.
(d) The "tax matters person" with respect to the Upper-Tier REMIC for
purposes of the REMIC Provisions shall be (i) the Servicer, if the Servicer is
the owner of a Class R Certificate, or (ii) in any other case, the beneficial
owner of the Class R Certificate having the largest Percentage Interest of such
Class; provided, however, that such largest beneficial owner and, to the extent
relevant, each other holder of a Class R Certificate, by its acceptance thereof
irrevocably appoints the Servicer as its agent and attorney-in-fact to act as
"tax matters person" with respect to the Upper-Tier REMIC for purposes of the
REMIC Provisions.
The "tax matters person" with respect to the Lower-Tier REMIC for purposes
of the REMIC Provisions shall be (i) the Servicer, if the Servicer is the owner
of a Class RL Certificate, or (ii) in any other case, the beneficial owner of
the Class RL Certificate having the largest Percentage Interest of such Class;
provided, however, that such largest beneficial owner and, to the extent
relevant, each other holder of a Class RL Certificate, by its acceptance thereof
irrevocably appoints the Servicer as its agent and attorney-in-fact to act as
"tax matters person" with respect to the Lower-Tier REMIC for purposes of the
REMIC Provisions.
(e) The "latest possible maturity date" of the regular interests in the
Upper-Tier REMIC and Lower-Tier REMIC is the Latest Possible Maturity Date for
purposes of section 860G(a)(1) of the Code.
(f) In the event that the Servicing Fee exceeds the amount reasonable for
such services (within the meaning of Treasury Regulation 1.860D-1(b)(1)(ii)),
the portion or portions of such fee that can be measured as a fixed number of
basis points on some or all of the Mortgage Loans and can be treated as one or
more stripped coupons within the meaning of Treasury Regulation
1.860D-1(b)(2)(iii) shall be treated as such stripped coupons and shall not be
treated as a REMIC asset.]
ARTICLE III
ADMINISTRATION AND SERVICING OF MORTGAGE LOANS
Section 3.01. GECMSI to Act as Servicer. (a) It is intended that [each of]
the [Upper-Tier REMIC and the Lower-Tier] REMIC established hereunder shall
constitute, and that the affairs of the REMIC[s] shall be conducted so as to
qualify [the Trust Fund] [each of the Upper-Tier REMIC and the Lower-Tier REMIC]
(other than any collateral fund established under the agreement referred to in
Section 3.08(e)), as a "real estate mortgage investment conduit" as defined in
and in accordance with the REMIC Provisions. In furtherance of such intention,
the Servicer covenants and agrees that it shall act as agent (and the Company is
hereby appointed to act as agent) on behalf of [the Trust Fund] [each of the
Upper-Tier REMIC and the Lower-Tier REMIC] established hereunder and the
[respective] Holders of the Residual Certificates and that in such capacity it
shall:
(i) prepare and file, or cause to be prepared and filed, in a
timely manner, a U.S. Real Estate Mortgage Investment Conduit Income
Tax Return (Form 1066) and prepare and file or cause to be prepared
and filed with the Internal Revenue Service and applicable state or
local tax authorities income tax or information returns for each
taxable year with respect to [each of] the [Upper-Tier REMIC and the
Lower-Tier] REMIC established hereunder, using the calendar year as
the taxable year and the accrual method of accounting, containing such
information and at the times and in the manner as may be required by
the Code or state or local tax laws, regulations, or rules, and shall
furnish or cause to be furnished to Certificateholders the schedules,
statements or information at such times and in such manner as may be
required thereby;
(ii) within thirty days of the Closing Date, shall furnish or
cause to be furnished to the Internal Revenue Service, on Form 8811 or
as otherwise may be required by the Code, the name, title, address,
and telephone number of the person that the holders of the
Certificates may contact for tax information relating thereto (and the
Company shall act as the representative of [each of] the [Upper-Tier
REMIC and the Lower-Tier] REMIC established hereunder for this
purpose), together with such additional information as may be required
by such Form, and shall update such information at the time or times
and in the manner required by the Code;
(iii) make or cause to be made an election, on behalf of [each
of] the [Upper-Tier REMIC and the Lower-Tier] REMIC established
hereunder, to be treated as a REMIC, and make the appropriate
designations, if applicable, in accordance with Section 2.06 hereof on
the federal tax return of the Trust Fund for its first taxable year
(and, if necessary, under applicable state law);
(iv) prepare and forward, or cause to be prepared and forwarded,
to the Certificateholders and to the Internal Revenue Service and, if
necessary, state tax authorities, all information returns or reports,
or furnish or cause to be furnished by telephone, mail, publication or
other appropriate method such information, as and when required to be
provided to them in accordance with the REMIC Provisions, including
without limitation, the calculation of any original issue discount
using the Prepayment Assumption Multiple;
(v) provide information necessary for the computation of tax
imposed on the transfer of a Residual Certificate to a Disqualified
Organization, or an agent (including a broker, nominee or other
middleman) of a Disqualified Organization, or a pass-through entity in
which a Disqualified Organization is the record holder of an interest
(the reasonable cost of computing and furnishing such information may
be charged to the Person liable for such tax);
(vi) use its best reasonable efforts to conduct the affairs of
[each of] the [Upper-Tier REMIC and the Lower-Tier] REMIC established
hereunder at all times that any Certificates are outstanding so as to
maintain the status thereof as a REMIC under the REMIC Provisions;
(vii) not knowingly or intentionally take any action or omit to
take any action that would cause the termination of the REMIC status
of the REMIC [either of the Upper-Tier REMIC or the Lower-Tier REMIC]
or that would subject the Trust Fund to tax;
(viii) exercise reasonable care not to allow the creation of any
"interests" in the REMIC [(A) in the Upper-Tier REMIC] within the
meaning of section 860D(a)(2) of the Code other than [in addition to]
the interests represented by the Classes of Certificates identified in
Section 5.01(b) [other than the Class RL Certificate, and (B) in the
Lower-Tier REMIC within the meaning of Section 860D(a)(2) of the Code
in addition to the interests represented by the Lower-Tier Interests
identified in Section 2.05(a) and the Class RL Certificate];
(ix) exercise reasonable care not to allow the occurrence of any
"prohibited transactions" within the meaning of section 860F of the
Code, unless the Company shall have provided an Opinion of Counsel to
the Trustee that such occurrence would not (a) result in a taxable
gain, (b) otherwise subject the Trust Fund to tax, or (c) cause the
REMIC [either of the Upper-Tier REMIC or the Lower-Tier REMIC]
established hereunder to fail to qualify as a REMIC;
(x) exercise reasonable care not to allow the Trust Fund to
receive income from the performance of services or from assets not
permitted under the REMIC Provisions to be held by a REMIC;
(xi) pay the amount of any federal or state tax, including
prohibited transaction taxes, taxes on certain contributions to the
REMIC [the Upper-Tier REMIC or Lower-Tier REMIC] after the Startup
Day, and taxes on net income from foreclosure property, imposed on the
Trust Fund when and as the same shall be due and payable (but such
obligation shall not prevent the Company or any other appropriate
Person from contesting any such tax in appropriate proceedings and
shall not prevent the Company from withholding payment of such tax, if
permitted by law, pending the outcome of such proceedings);
(xii) ensure that federal, state or local income tax or
information returns shall be signed by the Trustee or such other
person as may be required to sign such returns by the Code or state or
local laws, regulations or rules; and
(xiii) maintain such records relating to [each of] the
[Upper-Tier REMIC and the Lower-Tier] REMIC established hereunder,
including but not limited to the income, expenses, individual Mortgage
Loans (including Mortgaged Property), other assets and liabilities
thereof, and the fair market value and adjusted basis of the property
of each determined at such intervals as may be required by the Code,
as may be necessary to prepare the foregoing returns, schedules,
statements or information.
The Servicer shall be entitled to be reimbursed pursuant to Section 3.04
for any federal income taxes paid by it pursuant to clause (xi) of the preceding
sentence, except to the extent that such taxes are imposed as a result of the
bad faith, misfeasance or negligence of the Servicer in the performance of its
obligations hereunder. With respect to any reimbursement of prohibited
transaction taxes, the Servicer shall inform the Trustee of the circumstances
under which such taxes were incurred.
(b) The Servicer shall service and administer the Mortgage Loans and shall
have full power and authority, acting alone or through one or more Primary
Servicers, to do any and all things in connection with such servicing and
administration which it may deem necessary or desirable. Without limiting the
generality of the foregoing, the Servicer shall continue, and is hereby
authorized and empowered by the Trustee, to execute and deliver, or file, as
appropriate, on behalf of itself, the Certificateholders and the Trustee or any
of them, any and all continuation statements, termination statements,
instruments of satisfaction or cancellation, or of partial or full release or
discharge and all other comparable instruments, with respect to the Mortgage
Loans and with respect to the properties subject to the Mortgages. Without
limitation of the foregoing, if the Company in its individual capacity agrees to
refinance any Mortgage Loan upon the request of the related Mortgagor, the
Servicer may execute an instrument of assignment in customary form to the
Servicer in its individual capacity. In connection with any such refinancing,
the Trustee shall, upon certification of a Servicing Officer to the effect that
an amount equal to the principal balance of the related Mortgage Loan together
with accrued and unpaid interest thereon at the applicable Remittance Rate to
the date of such certification has been credited to the Mortgage Loan Payment
Record, release the related Mortgage File to the Servicer whereupon the Servicer
may cancel the related Mortgage Note. Upon request by the Servicer after the
execution and delivery of this Agreement, the Trustee shall furnish the Servicer
with any powers of attorney and other documents necessary or appropriate to
enable the Servicer to carry out its servicing and administrative duties
hereunder. Except as otherwise provided herein, the Servicer shall maintain
servicing standards substantially equivalent to those required for approval by
FNMA or FHLMC. The Servicer shall not agree to any modification of the material
terms of any Mortgage Loan except as provided in the second sentence of Section
3.02(a) and in Section 3.07. The Servicer shall not release any portion of any
Mortgaged Property from the lien of the related Mortgage unless the related
Mortgage Loan would be a "qualified mortgage" within the meaning of the REMIC
Provisions following such release.
(c) [Intentionally Omitted.]
(d) The relationship of the Servicer to the Trustee under this Agreement is
intended by the parties to be that of an independent contractor and not that of
a joint venturer, partner or agent.
(e) All costs incurred by the Servicer in effecting the timely payment of
taxes and assessments on the properties subject to the Mortgage Loans shall not,
for the purpose of calculating monthly distributions to Certificateholders, be
added to the amount owing under the related Mortgage Loans, notwithstanding that
the terms of such Mortgage Loans so permit, and such costs shall be recoverable
by the Servicer to the extent permitted by Section 3.04. The Servicer shall
collect such amounts from the Mortgagor and shall credit the Mortgage Loan
Payment Record accordingly.
(f) If the Servicer enters into a servicing agreement with any servicer (a
"Primary Servicer") pursuant to which such Primary Servicer shall directly
service certain Mortgage Loans and the Company shall perform master servicing
with respect thereto, the Servicer shall not be released from its obligations to
the Trustee and Certificateholders with respect to the servicing and
administration of the Mortgage Loans in accordance with the provisions of
Article III hereof and such obligations shall not be diminished by virtue of any
such servicing agreement or arrangement and the Servicer shall be obligated to
the same extent and under the same terms and conditions as if the Servicer alone
were servicing and administering the Mortgage Loans. Any amounts received by a
Primary Servicer in respect of a Mortgage Loan shall be deemed to have been
received by the Servicer whether or not actually received by it. Any servicing
agreement that may be entered into and any transactions or services relating to
the Mortgage Loans involving a Primary Servicer in its capacity as such shall be
deemed to be between the Company and the Primary Servicer alone, and the Trustee
and the Certificateholders shall have no claims, obligations, duties or
liabilities with respect thereto. Notwithstanding the foregoing, in the event
the Servicer has been removed as the Servicer hereunder pursuant to Section 6.04
or Section 7.01, the Trustee or any successor Servicer appointed pursuant to
Section 7.02 shall succeed to all of the Servicer's rights and interests (but
not to any obligations or liabilities of the Servicer arising prior to the date
of succession) under any servicing agreement with any Primary Servicer in
respect of the Mortgage Loans, subject to the limitation on the Trustee's
responsibilities under Section 7.02.
(g) In no event shall any collateral fund established under the agreement
referred to in Section 3.08(e) constitute an asset of any REMIC established
hereunder.
Section 3.02. Collection of Certain Mortgage Loan Payments; Mortgage Loan
Payment Record; Certificate Account. (a) The Servicer shall make reasonable
efforts to collect all payments called for under the terms and provisions of the
Mortgage Loans, and shall, to the extent such procedures shall be consistent
with this Agreement, follow such collection procedures as it follows with
respect to mortgage loans comparable to the Mortgage Loans in its servicing
portfolio. Consistent with the foregoing, the Servicer may in its discretion (i)
waive any late payment charge or any assumption fees or other fees which may be
collected in the ordinary course of servicing such Mortgage Loan and (ii) if a
default on the Mortgage Loan has occurred or is reasonably foreseeable, arrange
at any time prior to foreclosure with a Mortgagor a schedule for the payment of
due and unpaid principal and interest for a period extending not longer than two
years after the date that such schedule is arranged. Any arrangement of the sort
described in clause (ii) above shall not affect the amount or timing of the
Servicer's obligation to make Monthly Advances with respect to any Mortgage Loan
which Monthly Advances shall be made pursuant to the original amortization
schedule applicable to such Mortgage Loan.
(b) The Servicer shall establish and maintain a Mortgage Loan Payment
Record in which the following payments on and collections in respect of each
Mortgage Loan shall as promptly as practicable be credited by the Servicer for
the account of the Holders of the Certificates:
(i) All payments on account of principal, including Principal
Prepayments (other than (A) payments of principal due and payable on
the Mortgage Loans on or before, and all Principal Prepayments
received before, the Cut-off Date, (B) in the case of a substitute
Mortgage Loan, payments of principal due and payable on such Mortgage
Loan on or before the Determination Date in the month of substitution,
and all Principal Prepayments received before the first day of the
month of substitution, and (C) in the case of a replaced Mortgage
Loan, payments of principal due and payable on such Mortgage Loan
after the Determination Date in the month of substitution, and all
Principal Prepayments received in the month of substitution);
(ii) All payments (other than (A) those due and payable on or
before the Cut-off Date, (B) in the case of a substitute Mortgage
Loan, those due and payable on such Mortgage Loan on or before the
Determination Date in the month of substitution, and (C) in the case
of a replaced Mortgage Loan, those due and payable on such Mortgage
Loan after the Determination Date in the month of substitution) on
account of interest at the applicable Remittance Rate on the Mortgage
Loan received from the related Mortgagor, including any Buydown Funds
applied with respect to interest at the applicable Remittance Rate on
any Buydown Mortgage Loan;
(iii) All Liquidation Proceeds received by the Servicer with
respect to such Mortgage Loan and the Purchase Price for any Mortgage
Loan purchased by the Servicer pursuant to Sections 2.02, 2.03 and
3.16 (including any amounts received in respect of a substitution of a
Mortgage Loan);
(iv) All Insurance Proceeds (including, for this purpose, any
amounts required to be credited by the Servicer pursuant to the last
sentence of Section 3.06) received by the Servicer for the benefit of
the Trust Fund, other than proceeds to be applied to the restoration
or repair of the property subject to the related Mortgage or released,
or to be released, to the related Mortgagor in accordance with the
normal servicing procedures of the Servicer;
(v) All REO Proceeds;
(vi) All Unanticipated Recoveries; and
(vii) All amounts received by the Servicer with respect to any
Pledged Asset Mortgage Loan pursuant to the liquidation of any
Additional Collateral or pursuant to any recovery under the Surety
Bond in accordance with Section 4.09.
The foregoing requirements respecting credits to the Mortgage Loan Payment
Record are exclusive, it being understood that, without limiting the generality
of the foregoing, the Servicer need not enter in the Mortgage Loan Payment
Record collections, Liquidation Proceeds or Insurance Proceeds in respect of
Mortgage Loans which have been previously released from the terms of this
Agreement, amounts representing fees or late charge penalties payable by
Mortgagors, or amounts received by the Servicer for the account of Mortgagors
for application towards the payment of taxes, insurance premiums, assessments
and similar items.
(c) Subject to subsection (e) below, until the Business Day prior to each
Distribution Date on which amounts are required to be transferred to the
Certificate Account pursuant to subsection (d) of this Section 3.02, the
Servicer may retain and commingle such amounts with its own funds and shall be
entitled to retain for its own account any gain or investment income thereon,
and any such investment income shall not be subject to any claim of the Trustee
or Certificateholders. To the extent that the Servicer realizes any net loss on
any such investments, the Servicer shall deposit in the Certificate Account an
amount equal to such net loss at the time the Servicer is required to deposit
amounts in the Certificate Account pursuant to subsection (d) of this section
3.02. Any such deposit shall not increase the Servicer's obligation under said
subsection (d).
(d) The Trustee shall establish and maintain with the Trustee in its
corporate trust department a single separate trust account designated in the
name of the Trustee for the benefit of the Holders of the Certificates issued
hereunder (the "Certificate Account") into which the Servicer shall transfer,
not later than 11:00 a.m. New York time on the Business Day prior to each
Distribution Date, an amount in next day funds equal to the sum of Available
Funds for such Distribution Date and any Unanticipated Recoveries received in
the calendar month preceding the month of such Distribution Date. If the Trustee
does not receive such transfer by 2:00 p.m. on such Business Day, it shall give
the Servicer written notice thereof.
(e) If the Servicer or a Responsible Officer of the Trustee obtains actual
notice of or knowledge of the occurrence of either (x) any Trigger Event or (y)
the downgrade by _____ of GECC's short-term senior unsecured debt rating below
A-1+ then, notwithstanding subsection (c) above, the Servicer shall promptly
establish, and thereafter maintain, one or more Eligible Accounts in the name of
the Trustee and bearing a designation indicating that amounts therein are held
for the benefit of the Trustee and the Certificateholders, into which the
Servicer and any Primary Servicer shall deposit within two Business Days after
receipt, all amounts otherwise required to be credited to the Mortgage Loan
Payment Record pursuant to Section 3.02(b); provided, however, that such action
shall not be required if the Servicer delivers to the Trustee a letter from each
Rating Agency to the effect that the failure to take such action will not cause
such Rating Agency to withdraw or reduce its then current ratings of the
Certificates. All amounts so deposited shall be held in trust for the benefit of
Certificateholders. Amounts so deposited may be invested at the written
instruction of the Servicer in Permitted Investments in the name of the Trustee
maturing no later than the Business Day preceding the Distribution Date
following the date of such investment; provided, however, that any such
Permitted Investment which is an obligation of State Street Bank and Trust
Company, in its individual capacity and not in its capacity as Trustee, may
mature on such Distribution Date; and, provided further, that no such Permitted
Investment shall be sold before the maturity thereof if the sale thereof would
result in the realization of gain prior to maturity unless the Servicer has
obtained an Opinion of Counsel that such sale or disposition will not cause the
Trust Fund to be subject to the tax on prohibited transactions under section
860F of the Code, or otherwise subject the Trust Fund to tax or cause the REMIC
[either of the Upper-Tier REMIC or the Lower-Tier REMIC] established hereunder
to fail to qualify as a REMIC. The Trustee shall maintain physical possession of
all Permitted Investments, other than Permitted Investments maintained in
book-entry form. The Servicer shall be entitled to retain for its own account
any gain or other income from Permitted Investments, and neither the Trustee nor
Certificateholders shall have any right or claim with respect to such income.
The Servicer shall deposit an amount equal to any loss realized on any Permitted
Investment as soon as any such loss is realized. If the provisions in this
subsection (e) become operable, references in this Agreement to the Mortgage
Loan Payment Record and credits and debits to such Record shall be deemed to
refer to Eligible Accounts and transfers to and withdrawals from such Eligible
Accounts. Any action which may be necessary to establish the terms of an account
pursuant to this Section 3.02(e) may be taken by an amendment or supplement to
this Agreement or pursuant to a written order of the Company, which amendment,
supplement or order shall not require the consent of Certificateholders,
provided that the Servicer has delivered to the Trustee a letter from each
Rating Agency to the effect that such amendment, supplement or order will not
cause such Rating Agency to withdraw or reduce its then current ratings of the
Certificates.
Section 3.03. Collection of Taxes, Assessments and Other Items. Other than
with respect to any Cooperative Loan, the Servicer shall establish and maintain
with one or more depository institutions one or more accounts into which it
shall deposit all collections of taxes, assessments, private mortgage or hazard
insurance premiums or comparable items for the account of the Mortgagors. As
servicer, the Servicer shall effect the timely payment of all such items for the
account of Mortgagors. Withdrawals from such account or accounts may be made
only to effect payment of taxes, assessments, private mortgage or standard
hazard insurance premiums or comparable items, to reimburse the Servicer out of
related collections for any payments made regarding taxes and assessments or for
any payments made pursuant to Section 3.05 regarding premiums on Primary
Insurance Policies and Section 3.06 regarding premiums on standard hazard
insurance policies, to refund to any Mortgagors any sums determined to be
overages, or to pay interest owed to Mortgagors to the extent required by law.
Section 3.04. Permitted Debits to the Mortgage Loan Payment Record. The
Servicer (or any successor servicer pursuant to Section 7.02) may, from time to
time, make debits to the Mortgage Loan Payment Record for the following
purposes:
(i) To reimburse the Servicer or the applicable Primary Servicer
for Liquidation Expenses theretofore incurred in respect of any
Mortgage Loan in an amount not to exceed the amount of the related
Liquidation Proceeds credited to the Mortgage Loan Payment Record
pursuant to Section 3.02(b)(iii); provided that the Servicer or the
applicable Primary Servicer shall not be entitled to reimbursement for
Liquidation Expenses incurred after the initiation of foreclosure
proceedings in respect of any Defaulted Mortgage Loan that is
repurchased pursuant to Section 3.16;
(ii) To reimburse the Servicer or the applicable Primary Servicer
for Insured Expenses and amounts expended by it pursuant to Section
3.08 in good faith in connection with the restoration of property
damaged by an Uninsured Cause, in an amount not to exceed the amount
of the related Insurance Proceeds and Liquidation Proceeds (net of any
debits pursuant to clause (i) above) and amounts representing proceeds
of other insurance policies covering the property subject to the
related Mortgage credited to the Mortgage Loan Payment Record pursuant
to Section 3.02(b) (iii) and (iv);
(iii) To reimburse the Servicer to the extent permitted by
Sections 3.01(a) and 6.04;
(iv) To pay to the Servicer amounts received in respect of any
Defective Mortgage Loan or Defaulted Mortgage Loan purchased by the
Company 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 of any
such Mortgage Loan on such Distribution Date greater than the Purchase
Price therefor, net of any unreimbursed Monthly Advances made by the
Servicer;
(v) To reimburse the Servicer (or the Trustee, as applicable) for
Monthly Advances theretofore made in respect of any Mortgage Loan to
the extent of late payments, REO Proceeds, Insurance Proceeds and
Liquidation Proceeds in respect of such Mortgage Loan;
(vi) To reimburse the Servicer from any Mortgagor payment of
interest or other recovery with respect to a particular Mortgage Loan,
to the extent not previously retained by the Servicer, for unpaid
Servicing Fees with respect to such Mortgage Loan, subject to Section
3.08(d);
(vii) To reimburse the Servicer (or the Trustee, as applicable)
for any Nonrecoverable Advance (which right of reimbursement of the
Trustee pursuant to this clause shall be prior to such right of the
Servicer);
(viii) To make transfers of funds to the Certificate Account
pursuant to Section 3.02(d); and
(ix) To deduct any amount credited to the Mortgage Loan Payment
Record in error.
The Servicer shall keep and maintain separate accounting records, on a
Mortgage Loan by Mortgage Loan basis, for the purpose of accounting for debits
to the Mortgage Loan Payment Record pursuant to clauses (i), (ii), (iv), (v) and
(vi) of this Section 3.04; provided, however, that it is understood and agreed
that the records of such accounting need not be retained by the Servicer for a
period longer than the five most recent fiscal years.
Section 3.05. Maintenance of the Primary Insurance Policies. (a) The
Servicer shall not take any action which would result in non-coverage under any
applicable Primary Insurance Policy of any loss which, but for the actions of
the Servicer, would have been covered thereunder. To the extent coverage is
available, the Servicer shall keep or cause to be kept in full force and effect
each such Primary Insurance Policy until the principal balance of the related
Mortgage Note is 80% or less of the greater of (i) the related Original Value
and (ii) the then current value of the property underlying the related Mortgage
Note as evidenced by an appraisal thereof satisfactory to the Servicer; provided
that no such Primary Insurance Policy need be kept in effect if doing so would
violate applicable law. The Servicer shall not cancel or refuse to renew any
such Primary Insurance Policy applicable to a Mortgage Loan that is in effect at
the Closing Date and is required to be kept in force hereunder unless the
replacement Primary Insurance Policy for such canceled or non-renewed policy is
maintained with an insurer whose claims-paying ability is acceptable to each
Rating Agency for mortgage pass-through certificates having ratings equal to or
better than the ratings then assigned to the Certificates by such Rating Agency.
The Servicer agrees to effect the timely payment of the premium on each Primary
Insurance Policy, and such costs not otherwise recoverable shall be recoverable
by the Servicer from related Insurance Proceeds and Liquidation Proceeds
pursuant to Section 3.04.
(b) In connection with its activities as administrator and servicer of the
Mortgage Loans, the Servicer agrees to present, on behalf of itself, the Trustee
and the Certificateholders, claims to the insurer under each Primary Insurance
Policy and, in this regard, to take such reasonable action as shall be necessary
to permit recovery under any Primary Insurance Policy respecting a related
defaulted Mortgage Loan. To the extent provided in Section 3.02(b), any amounts
collected by the Servicer under any Primary Insurance Policy in respect of the
Mortgage Loans (including, without limitation, a Mortgage Loan purchased by a
related insurer) shall be credited to the Mortgage Loan Payment Record.
Section 3.06. Maintenance of Hazard Insurance. The Servicer shall cause to
be maintained for each Mortgage Loan, other than a Cooperative Loan, hazard
insurance with a standard mortgagee clause and with extended coverage in an
amount which is at least equal to the maximum insurable value of the
improvements securing such Mortgage Loan from time to time or the principal
balance owing on such Mortgage Loan from time to time, whichever is less. The
Servicer shall also maintain on property (other than Cooperative Apartments)
acquired upon foreclosure, or by deed in lieu of foreclosure, 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 such Mortgage Loan
at the time of such foreclosure or deed in lieu of foreclosure plus accrued
interest and the good-faith estimate of the Servicer of related Liquidation
Expenses to be incurred in connection therewith. To the extent provided in
Section 3.02(b)(iv), amounts collected by the Servicer under any such policies
in respect of the Mortgage Loans shall be credited to the Mortgage Loan Payment
Record. Such costs shall be recoverable by the Servicer pursuant to Sections
3.03 and 3.04. In cases in which property securing any Mortgage Loan other than
a Cooperative Loan is located in a federally designated flood area, the hazard
insurance to be maintained for such Mortgage Loan shall include flood insurance.
All such flood insurance shall be in such amounts as are required under
applicable guidelines of FNMA. The Servicer shall be under no obligation to
require that any Mortgagor maintain earthquake or other additional insurance and
shall be under no obligation itself to maintain any such additional insurance on
property acquired in respect of a Mortgage Loan, other than pursuant to such
applicable laws and regulations as shall at any time be in force and as shall
require such additional insurance. If the Servicer shall obtain and maintain a
blanket policy insuring against hazard losses on all of the Mortgage Loans
(whether or not including Cooperative Loans), it shall conclusively be deemed to
have satisfied its obligations as set forth in the first sentence of this
Section 3.06, it being understood and agreed that such policy may contain a
deductible clause, in which case the Servicer shall, in the event that there
shall not have been maintained on the related Mortgaged Property a policy
complying with the first sentence of this Section 3.06, and there shall have
been a loss which would have been covered by such policy, credit to the Mortgage
Loan Payment Record the amount not otherwise payable under the blanket policy
because of such deductible clause.
Section 3.07. Assumption and Modification Agreements. (a) In any case in
which property subject to a Mortgage has been or is about to be conveyed by the
Mortgagor, the Servicer shall exercise its right to accelerate the maturity of
such Mortgage Loan under any "due-on-sale" clause applicable thereto, unless in
the reasonable discretion of the Servicer, such exercise would adversely affect
or jeopardize coverage under the related Primary Insurance Policy, if any;
provided, however, that if the Servicer is prevented, as provided in Section
3.07(b), from enforcing any such clause, the Servicer is authorized to make or
enter into an assumption and modification agreement from or 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 and the Mortgagor remains liable
thereon. In connection with any such assumption and modification agreement, the
Servicer shall apply its then current underwriting standards to such Person. The
Servicer shall not make or enter into any such assumption and modification
agreement, however, unless (to the extent practicable in the circumstances) it
shall have received confirmation of the continued effectiveness of any
applicable Primary Insurance Policy and hazard insurance policy. The Servicer
shall notify the Trustee that any assumption and modification agreement has been
completed by forwarding to the Trustee the original copy thereof, which copy
shall be added by the Trustee to the related Mortgage File and shall, for all
purposes, be considered a part of such Mortgage File to the same extent as all
other documents and instruments constituting a part thereof. In connection with
any such agreement, the Mortgage Rate, mortgage term and any other material term
of such Mortgage Loan shall not be changed. Any fee collected by the Servicer
for entering into any such agreement will be retained by the Company as
additional servicing compensation.
(b) Notwithstanding Section 3.07(a) or any other provision of this
Agreement, the Servicer shall not be deemed to be in default, breach or any
other violation of its obligations hereunder by reason of any assumption of a
Mortgage Loan, or transfer of the property subject to a Mortgage without the
assumption thereof, by operation of law or any assumption or transfer which the
Servicer reasonably believes it may be restricted by law from preventing, for
any reason whatsoever.
Section 3.08. Realization Upon Defaulted Mortgage Loans. (a) The Servicer
shall foreclose upon or otherwise comparably convert the ownership of properties
securing such of the Mortgage Loans as come into and continue in default and as
to which no satisfactory arrangements can be made for collection of delinquent
payments pursuant to Section 3.02. In connection with such foreclosure or other
conversion the Servicer shall, consistent with Section 3.05, follow such
practices and procedures as it shall deem necessary or advisable and as shall be
normal and usual in its general mortgage servicing activities. The foregoing is
subject to the proviso that the Servicer shall not be required to expend its own
funds in connection with any foreclosure or towards the restoration of any
property unless it shall determine (i) that such restoration or foreclosure will
increase the proceeds of liquidation of the Mortgage 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.
Notwithstanding the foregoing, the Servicer shall not be entitled to recover
legal expenses incurred in connection with foreclosure proceedings where the
Mortgage Loan is reinstated and such foreclosure proceedings are terminated
prior to completion, other than sums received from the Mortgagor for such
expenses.
Notwithstanding anything to the contrary contained herein, the Servicer
shall be under no obligation to foreclose upon or otherwise convert the
ownership of any Mortgaged Property which it believes may be contaminated with
or affected by hazardous or toxic wastes, materials or substances. The Servicer
may, but shall not be obligated to, make such determination on the basis of a
Phase I environmental assessment with respect to the related Mortgaged Property.
Neither the Trustee nor the Company shall be liable to the Trust Fund or the
Certificateholders if, based on the Servicer's belief that such contamination or
effect exists, the Servicer does not foreclose upon or otherwise convert the
ownership of a Mortgaged Property. In addition, neither the Trustee nor the
Servicer shall be liable to the Trust Fund or the Certificateholders if, based
on the Servicer's belief that no such contamination or effect exists, the
Servicer forecloses upon a Mortgaged Property and the Trustee or its nominee on
behalf of the Trust Fund takes title to such Mortgaged Property, and thereafter
such Mortgaged Property is determined to be so contaminated or affected.
(b) In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall be issued to the Trustee, or to its nominee on behalf of the Trust Fund.
Notwithstanding any such acquisition of title and cancellation of the related
Mortgage Loan, such Mortgage Loan shall (except for purposes of Section 9.01) be
considered to be an Outstanding Mortgage Loan until such time as the Mortgaged
Property shall be sold and such Mortgage Loan becomes a Liquidated Mortgage
Loan. Consistent with the foregoing, for purposes of all calculations hereunder
so long as such Mortgage Loan shall be considered to be an Outstanding Mortgage
Loan, it shall be assumed that the related Mortgage Note and its amortization
schedule in effect on and after such acquisition of title (after giving effect
to any previous Principal Prepayments and Deficient Valuations incurred
subsequent to the related Bankruptcy Coverage Termination Date and before any
adjustment thereto by reason of any bankruptcy (other than as aforesaid) or any
similar proceeding or any moratorium or similar waiver or grace period) remain
in effect (notwithstanding that the indebtedness evidenced by such Mortgage Note
shall have been discharged), subject to adjustment to reflect the application of
REO Proceeds received in any month. REO Proceeds received in any month shall be
applied to the payment of the installments of principal due and interest accrued
on the related REO Mortgage Loan in accordance with the terms of such Mortgage
Note. REO Proceeds received in any month in excess of the Amortization Payment
for such month due on an REO Mortgage Loan shall be treated as a Principal
Prepayment received in respect of such Mortgage Loan.
(c) In the event that the Trust Fund acquires any Mortgaged Property as
aforesaid or otherwise in connection with a default or imminent default on a
Mortgage Loan, the Servicer shall dispose of such Mortgaged Property prior to
the close of the third calendar year after the year of its acquisition by the
Trust Fund unless (a) the Trustee shall have been supplied with an Opinion of
Counsel to the effect that the holding by the Trust Fund of such Mortgaged
Property subsequent to such period (and specifying the period beyond such period
for which the Mortgaged Property may be held) will not result in the imposition
of taxes on "prohibited transactions" of the Trust Fund as defined in section
860F of the Code, or cause the REMIC [either of the Upper-Tier REMIC or the
Lower-Tier REMIC] established hereunder to fail to qualify as a REMIC at any
time that any Certificates are outstanding, in which case the Trust Fund may
continue to hold such Mortgaged Property (subject to any conditions contained in
such Opinion of Counsel), or (b) the Trustee (at the Depositor's expense) or the
Servicer shall have applied for, not later than 61 days prior to the expiration
of such period, an extension of such period in the manner contemplated by
section 856(e)(3) of the Code, in which case such period shall be extended by
the time period permitted by section 856(e)(3) of the Code. Notwithstanding any
other provision of this Agreement, no Mortgaged Property acquired by the Trust
Fund shall be rented (or allowed to continue to be rented) or otherwise used for
the production of income by or on behalf of the Trust Fund or sold in such a
manner or pursuant to any terms that would (1) cause such Mortgaged Property to
fail to qualify at any time as "foreclosure property" within the meaning of
section 860G(a)(8) of the Code, (ii) subject the Trust Fund to the imposition of
any federal or state income taxes on "net income from foreclosure property" with
respect to such Mortgaged Property within the meaning of section 860G(c) of the
Code, or (iii) cause the sale of such Mortgaged Property to result in the
receipt by the Trust Fund of any income from non-permitted assets as described
in section 860F(a)(2)(B) of the Code, unless the Servicer has agreed to
indemnify and hold harmless the Trust Fund with respect to the imposition of any
such taxes.
(d) Any collection of Insurance Proceeds or Liquidation Proceeds will be
applied in the following order of priority: first, to reimburse the Servicer for
any related unreimbursed Liquidation Expenses and to reimburse the Servicer or
the Trustee, as applicable, for any related unreimbursed Monthly Advances;
second, to accrued and unpaid interest on the Mortgage Loan at the Mortgage Rate
from the date to which interest was last paid or advanced to the Due Date prior
to the Distribution Date on which such amounts are to be distributed; and third,
as a recovery of principal of the Mortgage Loan. If the amount so allocated to
interest is less than the full amount of accrued and unpaid interest due on such
Mortgage Loan, the amount of such recovery will be allocated among the [Base
Servicing Fee at the Base Servicing Fee Rate, the Supplemental Servicing Fee at
the Supplemental Servicing Fee Rate] and interest at the Remittance Rate in
proportion to the amount of such accrued interest which would have been
allocated to each such category in the absence of any shortfall. The resulting
Interest Loss shall be allocated among each such category in the same proportion
as described in the preceding sentence. The portion so allocated to interest at
the Remittance Rate shall be allocated to the Certificates for purposes of
making the allocation specified in the definition of Certificate Interest Loss.
(e) Notwithstanding anything to the contrary contained herein, the Servicer
shall have the right to enter into an agreement substantially in the form of
Exhibit K hereto with any Person that is the Holder of 100% of the Class _____
Certificates (provided that such form may be revised to delete the option on the
part of such Person to purchase a defaulted Mortgage Loan as set forth in
Section 2.02(f) thereof). Prior to entering into any such agreement with any
Person, the Servicer shall obtain a certification from such Person to the effect
that (ii) such Person is not an "affiliate" (within the meaning of the
Prohibited Transaction Exemption) of the Trustee and (ii) such Person will not
purchase any Certificates if such purchase would cause such Person to hold more
than a ten percent interest in the Mortgage Pool. It is understood that the
right of the Servicer to be reimbursed for Monthly Advances and Nonrecoverable
Advances under this Agreement shall not be affected in any way by the provisions
of any such agreement. The Trustee hereby agrees to perform such obligations as
may be expressly required of it pursuant to the provisions of such agreement and
to promptly notify each party to such agreement if a Responsible Officer of the
Trustee (with direct responsibility for administration of this Agreement)
becomes aware of any discussions, plans or events that might lead to the
Trustee's becoming an "affiliate" (within the meaning of the Prohibited
Transaction Exemption) of any Person with which the Servicer has entered into
such agreement, provided that the contents of any such notification shall be
kept confidential by the parties to such agreement. The Servicer agrees to
promptly notify the Trustee upon entering into any such agreement. In addition,
the Servicer shall provide the Trustee with such information as may be necessary
for the Trustee to perform its obligations thereunder, including written
instructions, clearly identifying the source, amount and application of funds to
be deposited or withdrawn from the Collateral Fund (as defined in such
agreement). The Trustee shall provide the Servicer with such information
concerning credits and debits to the Collateral Fund on account of income, gains
and losses realized from Collateral Fund Permitted Investments (as defined in
such agreement), and costs associated with the purchase and sale thereof, as the
Servicer may request in order to prepare the instructions described in the
preceding sentence.
In addition, subject to the provisions of the preceding paragraph, the
Servicer shall have the right to enter into an agreement substantially in the
form of Exhibit K hereto with the Person that is the Holder of 100% of the Class
_____ Certificates, provided that (i) such Person is also the Holder of 100% of
the Class _____ Certificates, (ii) such Person shall have no rights under such
agreement until the date on which the Class Certificate Principal Balance of the
Class _____ Certificates has been reduced to zero, and (iii) any rights of such
Person under such agreement shall terminate in the event that such Person
transfers, directly or indirectly, the Class _____ Certificates to any other
Person.
Section 3.09. Trustee to Cooperate; Release of Mortgage Files. Upon the
payment in full of any Mortgage Loan, the Servicer will immediately notify the
Trustee by a certification (which certification shall include a statement to the
effect that all amounts received in connection with such payment which are
required to be credited to the Mortgage Loan Payment Record pursuant to Section
3.02 have been so credited) of a Servicing Officer and shall request delivery to
it of the Mortgage File. If a Buydown Mortgage Loan is the subject of a
Principal Prepayment in full during the related Buydown Period, the related
Buydown Funds will be applied or returned to the Person entitled thereto in
accordance with the terms of such Buydown Mortgage Loan. Upon receipt of such
certification and request in form satisfactory to the Trustee, the Trustee shall
promptly, but in any event within five Business Days, release the related
Mortgage File to the Servicer; provided, that the Trustee shall not be
responsible for any delay in the release of a Mortgage File resulting from acts
beyond its control, including without limitation, acts of God, strikes,
lockouts, riots, acts of war or terrorism, epidemics, nationalization,
governmental regulations imposed after the fact, fire, communication line
failures, computer viruses, power failures, earthquakes or other disasters. Upon
any such payment in full, the Servicer is authorized to execute, pursuant to the
authorization contained in Section 3.01, an instrument of satisfaction regarding
such Mortgage, which instrument of satisfaction shall be recorded by the
Servicer if required by applicable law and be delivered to the Person entitled
thereto, it being understood and agreed that no expenses incurred in connection
with such instrument of satisfaction shall be reimbursed from amounts at the
time credited to the Mortgage Loan Payment Record. From time to time and as
appropriate for the servicing or foreclosure of any Mortgage Loan (including,
without limitation, collection under any Primary Insurance Policy), the Trustee
shall, upon request of the Servicer and delivery to the Trustee of a receipt
signed by a Servicing Officer, release the related Mortgage File to the Servicer
and shall execute such documents as shall be necessary to the prosecution of any
such proceedings. Such receipt shall obligate the Servicer to return the
Mortgage File to the Trustee when the need therefor by the Servicer no longer
exists unless the Mortgage Loan shall be liquidated, in which case, upon receipt
of a certificate of a Servicing Officer similar to that hereinabove specified,
the receipt shall be released by the Trustee to the Servicer.
Section 3.10. Servicing Compensation; Payment of Certain Expenses by the
Servicer. (a) As compensation for its activities and obligations hereunder, the
Servicer shall be entitled to withhold and pay to itself out of each payment
received by it on account of interest on each Mortgage Loan (including the
portion of any Buydown Funds applied to the related Buydown Mortgage Loan for
the applicable period) an amount equal to the Servicing Fee. The aggregate of
the Servicing Fees payable to the Servicer on any Distribution Date shall be
reduced by the amount of any Compensating Interest Payment for such Distribution
Date. Additional servicing compensation in the form of Prepayment Interest
Excess, assumption fees, modification fees, late payment charges, interest
income or gain with respect to amounts deposited in the Certificate Account and
invested by the Servicer or otherwise shall be retained by the Company, subject
to Section 3.10(b), if applicable. The Servicer shall be required to pay all
expenses incurred by it in connection with its activities hereunder (including
payment of Trustee fees and all other fees and expenses not expressly stated
hereunder to be for the account of the Certificateholders) and shall not be
entitled to reimbursement therefor except as provided in Sections 3.01, 3.03,
3.04 and 3.08.
(b) The Servicer may, as a condition to granting any request by a Mortgagor
for any consent, modification, waiver or amendment or any other matter or thing,
the granting of which is in the Servicer's discretion pursuant to the terms of
the instruments evidencing or securing the related Mortgage Loan and is
permitted by other sections of this Agreement, require (to the extent permitted
by applicable law) that such Mortgagor pay to it a reasonable or customary fee
in accordance with the schedule set forth as Exhibit H (which may be amended
from time to time by provision of a revised schedule of such fees to the
Trustee, whereupon such revised schedule shall be deemed to be Exhibit H
hereunder) for the additional services performed in connection with such
request, together with any related costs and expenses incurred by it. Such fees
shall be additional servicing compensation to the Servicer.
Section 3.11. Reports to the Trustee; Certificate Account Statements. Not
later than 15 days after each Distribution Date, the Servicer shall forward to
the Trustee a statement, certified by a Servicing Officer, setting forth the
status of the Mortgage Loan Payment Record as of the close of business on such
Distribution Date and showing, for the period covered by such statement, the
aggregate of credits to the Mortgage Loan Payment Record for each category of
credit specified in Section 3.02 and each category of debit specified in Section
3.04.
Section 3.12. Annual Statement as to Compliance. The Servicer will deliver
to the Trustee, on or before March 31 of each year, beginning with March 31, ,
an Officer's Certificate stating that (a) a review of the activities of the
Servicer during the preceding calendar year and of its performance under this
Agreement has been made under such Officer's supervision and (b) to the best of
such Officer's knowledge, based on such review, the Servicer has fulfilled all
its material obligations under this Agreement throughout such year, or, if there
has been a default in the fulfillment of any such obligation, specifying each
such default known to such Officer and the nature and status thereof.
Section 3.13. Annual Independent Public Accountants' Servicing Report. On
or before March 31 of each year, beginning with March 31, _____, the Servicer
shall:
(a) furnish to a firm of independent public accountants (which may also
render other services to the Servicer) a statement substantially to the effect
that the Servicer has complied in all material respects with the minimum
servicing standards set forth in the Uniform Single Attestation Program for
Mortgage Bankers (the "Minimum Servicing Standards") with respect to the
mortgage loans in the Servicer's servicing portfolio (which may exclude home
equity loans) or, if there has been material noncompliance with such servicing
standards, containing a description of such noncompliance; and
(b) at its expense cause such firm of independent public accountants to
furnish a report to the Trustee stating its opinion as to the Servicer's
assertion contained in the statement delivered pursuant to Section 3.13(a),
which opinion shall be based on an examination conducted by such firm in
accordance with the standards established by the American Institute of Certified
Public Accountants, including examining, on a test basis, evidence about the
Servicer's compliance with the Minimum Servicing Standards. Such opinion shall
be to the effect that the Servicer has complied in all material respects with
the Minimum Servicing Standards with respect to the mortgage loan portfolio
described in the Company's statement delivered pursuant to Section 3.13(a)
hereof or if there has been material noncompliance with the Minimum Servicing
Standards, shall contain a description of such noncompliance in accordance with
applicable accounting standards. In rendering such report, such firm may rely,
as to matters relating to direct servicing of Mortgage Loans by any primary
servicer, upon comparable reports of independent public accountants with respect
to such primary servicer.
Section 3.14. Access to Certain Documentation and Information Regarding the
Mortgage Loans. To the extent permitted by applicable law, the Servicer shall
provide to the Trustee, Certificateholders which are regulated insurance
entities and the applicable insurance regulatory agencies thereof,
Certificateholders which are federally insured savings and loan associations,
the Office of Thrift Supervision, the FDIC and the supervisory agents and
examiners thereof access to the documentation regarding the Mortgage Loans
required by applicable regulations of the Office of Thrift Supervision or of
such insurance regulatory agencies, as the case may be, such access being
afforded without charge but only upon reasonable request and during normal
business hours at the offices of the Servicer. Nothing in this Section 3.14
shall derogate from the obligation of the Servicer to observe any applicable law
prohibiting disclosure of information regarding the Mortgagors and the failure
of the Servicer to provide access as provided in this Section 3.14 as a result
of such obligation shall not constitute a breach of this Section 3.14.
Section 3.15. Maintenance of Certain Servicing Policies. The Servicer shall
during the term of its service as servicer maintain in force (i) a policy or
policies of insurance covering errors and omissions in the performance of its
obligations as servicer hereunder and (ii) a fidelity bond in respect of its
officers, employees or agents. Each such policy or policies and bond shall,
together, comply with the requirements from time to time of FNMA for persons
performing servicing for mortgage loans purchased by such association.
Section 3.16. Optional Purchase of Defaulted Mortgage Loans. The Servicer
shall have the right, but not the obligation, to purchase any Defaulted Mortgage
Loan for a price equal to the Purchase Price therefor. Any such purchase shall
be accomplished as provided in Section 4.04(a) hereof.
ARTICLE IV
PAYMENTS AND STATEMENTS
Section 4.01. Distributions. (a) On each Distribution Date, the Trustee
shall withdraw the Available Funds from the Certificate Account and shall make
distributions to Holders of the Certificates as of the preceding Record Date in
the following order of priority, to the extent of the remaining Available Funds:
(i) to each Class of Senior Certificates (other than any Class of
Principal Only Certificates), the Accrued Certificate Interest thereon
for such Distribution Date; provided, however, that any shortfall in
available amounts shall be allocated among such Classes in proportion
to the amount of Accrued Certificate Interest that would otherwise be
distributable thereto;
(ii) to each Class of Senior Certificates (other than any Class
of Principal Only Certificates), any related Unpaid Class Interest
Shortfall for such Distribution Date; provided, however, that any
shortfall in available amounts shall be allocated among such Classes
in proportion to the Unpaid Class Interest Shortfall for each such
Class on such Distribution Date;
(iii) to the Classes of Senior Certificates in reduction of the
Class Certificate Principal Balances thereof, as set forth in Exhibit
O hereto;
[(iv) to the Class PO Certificates, any Class PO Deferred Amount
for such Distribution Date, up to an amount not to exceed the Junior
Optimal Principal Amount for such Distribution Date, until the Class
Certificate Principal Balance of such Class has been reduced to zero;
provided, that any such amounts distributed to the Class PO
Certificates pursuant to this clause (iv) shall not reduce the Class
Certificate Principal Balance thereof;]
[description of distributions of interest and principal on Junior
Certificates.]
[Notwithstanding the foregoing, amounts otherwise distributable pursuant to
clauses [Junior Certificate distributions of principal] shall be reduced, in
inverse order of priority, by any amount distributed pursuant to clause (iv) on
such date, such that such amount distributed pursuant to clause (iv) on such
date shall be applied [in inverse order of priority among Junior Classes].]
(b) On each Distribution Date, the Trustee shall distribute to the holder
of the Class R Certificate any remaining Available Funds [amounts in the
Upper-Tier REMIC] for such Distribution Date after application of all amounts
described in clause (a) of this Section 4.01, together with any Unanticipated
Recoveries received by the Company in the calendar month preceding the month of
such Distribution Date and not distributed on such Distribution Date to the
holders of outstanding Certificates of any other Class pursuant to Section
4.01(f). Any distributions pursuant to this clause (b) shall not reduce the
Class Certificate Principal Balance of the Class R Certificate.
(c) If on any Distribution Date the Class Certificate Principal Balances of
the Junior Certificates have each been reduced to zero, the amount distributable
to the Senior Certificates other than the Class PO Certificates pursuant to
Section 4.01(a)(iii) for such Distribution Date and each succeeding Distribution
Date shall be allocated among such Classes of Senior Certificates, pro rata, on
the basis of their respective Class Certificate Principal Balances immediately
prior to such Distribution Date, regardless of the priorities and amounts set
forth in Section 4.01(a)(iii).
(d) If on any Distribution Date (i) the Class Certificate Principal Balance
of the Class _____ Certificates or any Class of Class _____ Certificates for
which the related Prepayment Distribution Trigger was satisfied on such
Distribution Date is reduced to zero and (ii) amounts distributable pursuant to
clauses (ii), (iv) and (v) of the Junior Optimal Principal Amount remain
undistributed on such Distribution Date after all amounts otherwise
distributable on such date pursuant to clauses (iv) through (xxii) of Section
4.01(a) have been distributed, such amounts shall be distributed on such
Distribution Date to the remaining Classes of Junior Certificates in order of
priority, such that no such distribution shall be made to any Class of Junior
Certificates while a prior such Class is outstanding.
(e) [Description of distributions on any Accrual Certificates or Accrual
Components.]
(f) In the event that in any calendar month the Servicer recovers an amount
(an "Unanticipated Recovery") in respect of principal of a Mortgage Loan which
had previously been allocated as a Realized Loss to any Class of Certificates
pursuant to Section 4.03, on the Distribution Date in the next succeeding
calendar month the Trustee shall withdraw from the Certificate Account and
distribute to the holders of each outstanding Class to which such Realized Loss
had previously been allocated its share (determined as described in the
succeeding paragraph) of such Unanticipated Recovery in an amount not to exceed
the amount of such Realized Loss previously allocated to such Class. When the
Class Certificate Principal Balance of a Class of Certificates has been reduced
to zero, the holders of such Class shall not be entitled to any share of an
Unanticipated Recovery, and such Unanticipated Recovery shall be allocated among
all outstanding Classes of Certificates entitled thereto in accordance with the
preceding sentence, subject to the remainder of this subsection (f). In the
event that (1) any Unanticipated Recovery remains undistributed in accordance
with the preceding sentence or (ii) the amount of an Unanticipated Recovery
exceeds the amount of the Realized Loss previously allocated to any outstanding
Classes with respect to the related Mortgage Loan, on the applicable
Distribution Date the Trustee shall distribute to the holders of all outstanding
Classes of the related Certificates to which Realized Losses had previously been
allocated and not reimbursed their pro rata share (determined as described
below) of such excess in an amount not to exceed the aggregate amount of any
Realized Loss previously allocated to such Class with respect to any other
Mortgage Loan that has not been recovered in accordance with this subsection
(f). Any distributions made pursuant to this subsection (f) shall not reduce the
Class Certificate Principal Balance of the related Certificate.
For purposes of the preceding paragraph, the share of an Unanticipated
Recovery allocable to any Class of Certificates with respect to a Mortgage Loan
shall be (i) with respect to the Class PO Certificates, based on the applicable
PO Percentage of the principal portion of the Realized Loss previously allocated
thereto with respect to such Mortgage Loan (or all Mortgage Loans for purposes
of the next to last sentence of the preceding paragraph), and (ii) with respect
to any other Class of Certificates, based on its pro rata share (in proportion
to the Class Certificate Principal Balances thereof with respect to such
Distribution Date) of the applicable Non-PO Percentage of the principal portion
of any such Realized Loss previously allocated with respect to such Mortgage
Loan (or Loans); provided, however, that (i) the share of an Unanticipated
Recovery allocable to a Class PO Certificate with respect to any Mortgage Loan
(or Loans) shall be reduced by the aggregate amount previously distributed to
such Class on account of the applicable Class PO Deferred Amount in respect of
such Mortgage Loan (or Loans) and (ii) the amount by which the distributions to
the Class PO Certificates have been so reduced shall be distributed to the
Classes of Certificates described in clause (ii) of the preceding paragraph in
the same proportion as described in such clause (ii). For purposes of the
preceding sentence, any Class PO Deferred Amount distributed to a Class PO
Certificate on previous Distribution Dates shall be deemed to have been
allocated in respect of the Mortgage Loans as to which the applicable PO
Percentage of the principal portion of Realized Losses has previously been
allocated to such Class on a pro rata basis (based on the amount of Realized
Losses so allocated).
Section 4.02. Method of Distribution. (a) All distributions with respect to
each Class of Certificates on each Distribution Date shall be made pro rata
among the outstanding Certificates of such Class, based on the Percentage
Interest in such Class represented by each Certificate. Payments to the
Certificateholders on each Distribution Date will be made by the Trustee to the
Certificateholders of record on the related Record Date (other than as provided
in Section 9.01 respecting the final distribution) by check or money order
mailed to a Certificateholder at the address appearing in the Certificate
Register, or upon written request by such Certificateholder to the Trustee made
not later than the applicable Record Date, by wire transfer to a U.S. depository
institution acceptable to the Trustee, or by such other means of payment as such
Certificateholder and the Trustee shall agree.
(b) Each distribution with respect to a Book-Entry Certificate shall be
paid to the Depository, which shall credit the amount of such distribution to
the accounts of its Depository Participants in accordance with its normal
procedures. Each Depository Participant shall be responsible for disbursing such
distribution to the Certificate Owners that it represents and to each Financial
Intermediary for which it acts as agent. Each Financial Intermediary shall be
responsible for disbursing funds to the Certificate Owners that it represents.
All such credits and disbursements with respect to a Book-Entry Certificate are
to be made by the Depository and the Depository Participants in accordance with
the provisions of the applicable Certificates. Neither the Trustee nor the
Company shall have any responsibility therefor except as otherwise provided by
applicable law.
(c) The Trustee shall withhold or cause to be withheld such amounts as it
reasonably determines are required by the Code (giving full effect to any
exemptions from withholding and related certifications required to be furnished
by Certificateholders or Certificate Owners and any reductions to withholding by
virtue of any bilateral tax treaties and any applicable certification required
to be furnished by Certificateholders or Certificate Owners with respect
thereto) from distributions to be made to Non-U.S. Persons. If the Trustee
reasonably determines that a more accurate determination of the amount required
to be withheld for a distribution can be made within a reasonable period after
the scheduled date for such distribution, it may hold such distribution in trust
for a holder of a Residual Certificate until such determination can be made. For
the purposes of this paragraph, a "Non-U.S. Person" is (i) an individual other
than a citizen or resident of the United States, (ii) a partnership, corporation
or entity treated as a partnership or corporation for U.S. federal income tax
purposes not formed under the laws of the United States, any state thereof or
the District of Columbia (unless, in the case of a partnership, Treasury
regulations provide otherwise), (iii) any estate, the income of which is not
subject to U.S. federal income taxation, regardless of source, and (iv) any
trust, other than a trust that a court within the United States is able to
exercise primary supervision over the administration of the trust and one or
more U.S. Persons have the authority to control all substantial decisions of the
trust.
Section 4.03. Allocation of Losses. (a) On or prior to each Determination
Date, the Servicer shall determine the amount of any Realized Loss in respect of
each Mortgage Loan that occurred during the immediately preceding calendar
month.
(b) With respect to any Distribution Date, the principal portion of each
Realized Loss (other than any Excess Loss) shall be allocated as follows:
(i) the applicable PO Percentage of the principal portion of any
such Realized Loss shall be allocated to the Class PO Certificates
until the Class Certificate Principal Balance thereof has been reduced
to zero; and
(ii) the applicable Non-PO Percentage of the principal portion of
any such Realized Loss shall be allocated in the following order of
priority:
first, [to the Junior Classes in inverse order of priority];
second, to the Classes of Senior Certificates other than the
Class PO Certificates, pro rata, in accordance with their Class
Certificate Principal Balances; provided, that any such loss allocated
to any Class of Accrual Certificates (and any Accrual Component) shall
be allocated (subject to Section 4.03(d)) on the basis of the lesser
of (x) the Class Certificate Principal Balance (or Component Principal
Balance) thereof immediately prior to the applicable Distribution Date
and (y) the Class Certificate Principal Balance (or Component
Principal Balance) thereof on the Closing Date (as reduced by any
Realized Losses previously allocated thereto).
(c) With respect to any Distribution Date, the principal portion of any
Excess Loss (other than Excess Bankruptcy Losses attributable to Debt Service
Reductions) shall be allocated as follows: (1) the PO Percentage of any such
loss shall be allocated to the Class PO Certificates, and (2) the Non-PO
Percentage of any such loss shall be allocated to each Class of Certificates
other than the Class PO Certificates, pro rata, based on the respective Class
Certificate Principal Balances thereof; provided, that any such loss allocated
to any Class of Accrual Certificates (and any Accrual Component) shall be
allocated (subject to Section 4.03(d)) on the basis of the lesser of (x) the
Class Certificate Principal Balance (or Component Principal Balance) thereof
immediately prior to the applicable Distribution Date and (y) the Class
Certificate Principal Balance (or Component Principal Balance) thereof on the
Closing Date (as reduced by any Realized Losses previously allocated thereto).
(d) Any Realized Losses allocated to a Class of Certificates pursuant to
Section 4.03(b) or (c) shall be allocated among the Certificates of such Class
in proportion to their respective Certificate Principal Balances. In addition,
any Realized Losses allocated to any Class of Component Certificates on a
Distribution Date shall be allocated in reduction of the Component Principal
Balances of the related Components (other than any Notional Component) in
proportion to their respective Component Principal Balances immediately prior to
such Distribution Date. Any allocation of Realized Losses pursuant to this
paragraph (d) shall be accomplished by reducing the Certificate Principal
Balance (or, in the case of any Component, the Component Principal Balance) of
the related Certificates (or Components) on the related Distribution Date in
accordance with Section 4.03(e).
(e) Realized Losses allocated in accordance with this Section 4.03 shall be
allocated on the Distribution Date in the month following the month in which
such loss was incurred and, in the case of the principal portion thereof, after
giving effect to distributions made on such Distribution Date, except that the
aggregate amount of Realized Losses to be allocated to the Class PO Certificates
on such Distribution Date will be taken into account in determining
distributions in respect of any Class PO Deferred Amount for such date.
(f) On each Distribution Date, the Servicer shall determine the Subordinate
Certificate Writedown Amount, if any. Any such Subordinate Certificate Writedown
Amount shall effect a corresponding reduction in the Certificate Principal
Balance of the Subordinate Certificates, which reduction shall occur on such
Distribution Date after giving effect to distributions made on such Distribution
Date.
(g) Notwithstanding the foregoing, no such allocation of any Realized Loss
shall be made on a Distribution Date to a Class of Certificates to the extent
that such allocation would result in the reduction of the aggregate Certificate
Principal Balances of all the Certificates as of such Distribution Date, after
giving effect to all distributions and prior allocations of Realized Losses on
such date, to an amount less than the aggregate Scheduled Principal Balance of
the Mortgage Loans as of the first day of the month of such Distribution Date,
less any Deficient Valuations occurring on or prior to the Bankruptcy Coverage
Termination Date (such limitation, the "Loss Allocation Limitation").
[(h)Any allocation of a Realized Loss to a Class of Certificates (or
Component), or of any Subordinate Certificate Writedown Amount to a Class of
Subordinate Certificates, pursuant to this Section 4.03 shall effect a
corresponding allocation thereof to the corresponding Class of Lower-Tier
Interests and, in the case of the principal portion of any such Realized Loss
and any such Subordinate Certificate Writedown Amount, a corresponding reduction
in the related Lower-Tier Balance thereof.]
Section 4.04. Monthly Advances; Purchases of Defaulted Mortgage Loans. (a)
The Servicer shall be required to make Monthly Advances in the manner and to the
extent provided herein. Prior to the close of business on each Determination
Date, the Servicer shall determine (i) the amount of the Monthly Advance which
it is required to make on the related Distribution Date and (ii) whether it has
elected to purchase any Defaulted Mortgage Loan or Loans on such Distribution
Date. If the Servicer so elects to purchase any Defaulted Mortgage Loans (or is
required to purchase any Mortgage Loan pursuant to Section 2.02 or 2.03(a)), no
Monthly Advance shall be required with respect thereto for the month in which
such purchase occurs. The Servicer shall include information as to each of such
determinations in the Servicer's Certificate furnished by it to the Trustee in
accordance with Section 4.06 and shall be obligated to transfer to the
Certificate Account pursuant to Section 3.02(d) on or before 11:00 a.m. New York
time on the Business Day next preceding the following Distribution Date in
next-day funds the respective amounts applicable to such determinations
appearing in such Servicer's Certificate. Upon receipt by the Trustee of written
notification signed by a Servicing Officer of any such deposit relating to the
purchase by the Servicer of such a Mortgage Loan, the Trustee shall release to
the Servicer the related Mortgage File and shall execute and deliver such
instruments of transfer or assignment, in each case without recourse, as shall
be necessary to vest in the Servicer any Mortgage Loan released pursuant hereto.
(b) In the event that the Servicer transfers or expects to transfer less
than the Available Funds required to be deposited by it pursuant to Section
3.02(d), the Servicer shall so notify the Trustee no later than 9:00 a.m. on the
Business Day preceding the related Distribution Date, and the amount so
transferred, if any, shall be deemed to have been transferred first pursuant to
clause (i) of the definition of Available Funds, second pursuant to clause (iii)
of the definition of Available Funds, and third pursuant to clause (ii) of the
definition of Available Funds. Such notice shall specify each Mortgage Loan
delinquent as of the preceding Determination Date. In such event, the Trustee
shall make any Monthly Advance required to be made hereunder, in the manner and
to the extent required; provided, the Trustee shall not be so obligated if
prohibited by applicable law.
(c) In the event that the Servicer is succeeded hereunder as servicer, the
obligation to make Monthly Advances in the manner and to the extent required by
Section 4.04(a) shall be assumed by the successor servicer (subject to Section
7.02).
Section 4.05. Statements to Certificateholders. Each month, at least two
Business Days prior to each Distribution Date, the Servicer shall deliver to the
Trustee for mailing to each Certificateholder, and the Trustee shall mail to
each Certificateholder on such Distribution Date, a statement (each, a
"Distribution Date Statement") substantially in the form of Exhibit J hereto,
setting forth:
(i) The amount of such distribution to the Certificateholders of
each Class (and in respect of any Component), other than any Notional
Certificates (and any Notional Component), allocable to principal,
separately identifying the aggregate amount of any Principal
Prepayments included therein (including, for this purpose, the
Scheduled Principal Balances of all Defaulted Mortgage Loans and
Defective Mortgage Loans purchased pursuant to Section 2.02, 2.03(b)
or 3.16, respectively, and any amounts deposited pursuant to Section
2.03(b) in connection with the substitution of any Mortgage Loans
pursuant to Section 2.02 or 2.03(a), the proceeds of which purchases
or substitutions are being distributed on such Distribution Date);
(ii) The amount of such distribution to the Certificateholders of
each Class (other than any Class of Principal Only Certificates)
allocable to interest, including any Accrual Amount added to the Class
Certificate Principal Balance or Component Principal Balance of any
Class of Accrual Certificates or any Accrual Components;
(iii) The amount of servicing compensation paid to the Company
during the month preceding the month of distribution in respect of the
Mortgage Loans and such other customary information as the Company
deems necessary or desirable to enable Certificateholders to prepare
their tax returns;
(iv) The Pool Scheduled Principal Balance and the aggregate
number of the Mortgage Loans on the preceding Due Date after giving
effect to all distributions allocable to principal made on such
Distribution Date;
(v) The Class Certificate Principal Balance (or Notional
Principal Balance) of each Class, the Component Principal Balance of
each Component and the Certificate Principal Balance (or Notional
Principal Balance) of a Single Certificate of each Class after giving
effect to (i) all distributions allocable to principal (or reductions
in the Notional Principal Balance, in the case of the Notional
Certificates, or the addition of any Accrual Amount, in the case of
any Class of Accrual Certificates) made on such Distribution Date and
(ii) the allocation of any Realized Losses and any Subordinate
Certificate Writedown Amount for such Distribution Date;
(vi) The Pay-out Rate applicable to each Class of Certificates;
(vii) 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 or otherwise, of any REO
Mortgage Loan, and the number of the related Mortgage Loans;
(viii) The aggregate Scheduled Principal Balances and number of
Mortgage Loans which, as of the close of business on the last day of
the month preceding the related Distribution Date, were (a) delinquent
as to a total of (x) 30-59 days, (y) 60-89 days and (z) 90 days or
more, and (b) in foreclosure;
(ix) The Scheduled Principal Balance of any Mortgage Loan
replaced pursuant to Section 2.03(b);
(x) The Certificate Interest Rates of any LIBOR Certificates and
any COFI Certificates applicable to the Interest Accrual Period
relating to such Distribution Date and such Class;
(xi) The Senior Percentage, [the Group II Senior Percentage, the
Group II Senior Scheduled Distribution Percentage] and the Junior
Percentage for such Distribution Date;
(xii) The Senior Prepayment Percentage, the Group II Senior
Prepayment Distribution Percentage and the Junior Prepayment
Percentage for such Distribution Date; and
(xiii) The amount of such distribution to the Certificateholders
of each Class allocable to Unanticipated Recoveries.
In the case of information furnished pursuant to clauses (i) through (iii)
above, the amounts shall be expressed as a dollar amount per Single Certificate.
In connection with any proposed transfer of a Certificate that is purported
to be made in reliance on Rule 144A under the Securities Act, the Depositor
shall be responsible for furnishing such information as may be required
thereunder to a proposed transferee. In furtherance of the Depositor's
obligations hereunder, the Depositor hereby instructs the Trustee, at the
Depositor's expense and on its behalf, and the Trustee agrees, to promptly make
available to the proposed transferee, upon request of the holder, (i) all
statements furnished to Certificateholders pursuant to this Section 4.05(a) on
previous Distribution Dates, (ii) all certificates furnished to the Trustee
pursuant to Section 4.06 in prior months, (iii) Officer's Certificates furnished
to the Trustee pursuant to Section 3.12 for the two years preceding such
request, (iv) reports of independent accountants furnished to the Trustee
pursuant to Section 3.13 for the two years preceding such request, (v) a copy of
the Private Placement Memorandum relating to such Certificate, together with any
amendments or supplements thereto issued by the Company (which copy shall be
furnished to the Trustee by the Depositor), and (vi) the Company's Current
Report on Form 8-K, dated the Closing Date, relating to the Mortgage Loans;
provided, however, that the Trustee shall in no event be required to make
available such statements or certificates pursuant to clauses (i) and (ii) above
relating to Distribution Dates occurring more than twenty-four months preceding
the month in which such request was received; provided, further, however, that
notwithstanding the Trustee's agreement as aforesaid to provide such materials
to a proposed transferee, the Trustee does not assume, and shall not thereby be
deemed to have assumed, any responsibility for compliance by the Depositor with
Rule 144A (subject to the Trustee's agreement set forth in the second sentence
of this paragraph) and shall be entitled to include a notice with such
statements or certificates to the effect that such materials have not been
prepared or assembled by the Trustee and that the Trustee assumes no
responsibility for the adequacy, sufficiency or contents thereof. In connection
with any such proposed transfer, the Depositor shall make available to the
proposed holder, at the request of the related transferor, such additional
information, if any, as may be required to be delivered pursuant to Rule
144A(d)(4).
Section 4.06. Servicer's Certificate. Each month, not later than the second
Business Day next preceding each Distribution Date, the Servicer shall deliver
to the Trustee a completed Servicer's Certificate.
Section 4.07. Reports of Foreclosures and Abandonments of Mortgaged
Property. The Trustee (or the Servicer on behalf of the Trustee) shall, in each
year beginning after December 31, _____ make the reports of foreclosures and
abandonments of any Mortgaged Property as required by section 6050J of the Code.
In order to facilitate this reporting process, the Servicer, on or before
January 15th of each year, shall provide to the Trustee reports relating to each
instance occurring during the previous calendar year in which the Servicer (i)
on behalf of the Trustee acquires an interest in a Mortgaged Property through
foreclosure or other comparable conversion in full or partial satisfaction of a
Mortgage Loan, or (ii) knows or has reason to know that a Mortgaged Property has
been abandoned. Reports from the Servicer shall be in form and substance
sufficient to meet the reporting requirements imposed by section 6050J of the
Code.
Section 4.08. Reduction of [Base] Servicing Fees by Compensating Interest
Payments. The aggregate amount of the [Base] Servicing Fees subject to retention
by the Servicer as servicer in respect of any Distribution Date shall be reduced
by the amount of any Compensating Interest Payment for such Distribution Date.
ARTICLE V
THE CERTIFICATES
Section 5.01. The Certificates. (a) The Certificates shall be substantially
in the forms set forth in Exhibit A hereto, as applicable, and shall, on
original issue, be executed by the Trustee, not in its individual capacity but
solely as Trustee, and countersigned and delivered by the Trustee to or upon the
order of the Company as provided in Article II.
(b) The Certificates shall be issued in an aggregate Initial Certificate
Principal Balance of $_____. Such aggregate original principal balance shall be
divided among the Classes having the designations, Class Certificate Principal
Balances, Certificate Interest Rates and minimum denominations as follows:
<TABLE>
<CAPTION>
Initial Class
Certificate Certificate
Principal Interest Minimum
Designation Balance Rate Denominations
----------- ------- ---- -------------
<S> <C> <C> <C> <C>
[ ] [ ] [ ] [ ]
</TABLE>
- ----------------------
[(1) The Class _____ Certificates are issued with an initial Notional Principal
Balance of $_____.]
[(2) The Certificate Interest Rates of the Class _____ Certificates for each
Interest Accrual Period shall be determined as provided in Section
5.01(e).]
(3) The Class PO Certificates will be issued as a single Certificate evidencing
the entire Class Certificate Principal Balance of such class.
(c) The Certificates shall be issuable in registered form only. The
Book-Entry Certificates will be evidenced by one or more certificates,
beneficial ownership of which will be held in the minimum dollar denominations
in Certificate Principal Balance or Notional Principal Balance, as applicable,
specified in Section 5.01(b), and integral multiples of $1,000 in excess
thereof. The Non-Book-Entry Certificates other than each Class of the Residual
Certificates shall each be issued in the minimum dollar denominations in
Certificate Principal Balance or Notional Principal Balance, as applicable,
specified in Section 5.01(b), and integral multiples of $1,000 in excess thereof
(and, if necessary, in the amount of the remaining Class Certificate Principal
Balance or Notional Principal Balance, as applicable, of each Class, in the case
of one Certificate of such Class). The [each Class of the] Residual
Certificate[s] shall be issued as a single certificate evidencing the entire
Class Certificate Principal Balance of such Class and having a Percentage
Interest of 100%. If necessary, one Certificate of each Class of Book-Entry
Certificates may evidence an additional amount equal to the remainder of the
Class Certificate Principal Balance (or Notional Principal Balance) of such
Class.
(d) The Certificates shall be executed by manual or facsimile signature on
behalf of the Trustee by an authorized officer under its seal, which may be in
facsimile form and be imprinted or otherwise reproduced thereon. Certificates
bearing the manual or facsimile signatures of individuals who were, at the time
when such signatures were affixed, authorized to sign on behalf of the Trustee
shall bind the Trustee, notwithstanding that such individuals or any of them
have ceased to be so authorized prior to the authentication and delivery of such
Certificates or did not hold such offices at the date of such Certificate. No
Certificate shall be entitled to any benefit under this Agreement, or be valid
for any purpose, unless such Certificate shall have been manually countersigned
by the Trustee substantially in the forms set forth in Exhibit A hereto, and
such countersignature upon any Certificate shall be conclusive evidence, and the
only evidence, that such Certificate has been duly executed and delivered
hereunder. All Certificates issued on the Closing Date shall be dated the
Closing Date; all Certificates issued thereafter shall be dated the date of
their countersignature.
[(e)During the first Interest Accrual Period, the Certificate Interest Rate
of the Class _____ Certificates shall be _____% per annum. For each subsequent
Interest Accrual Period, the Certificate Interest Rate of the Class _____
Certificates shall be a per annum rate equal to the lesser of (i) _____% plus
LIBOR and (ii) _____%, subject to a minimum rate of _____%.]
[During the first Interest Accrual Period, the Certificate Interest Rate of
the Class _____ Certificates shall be _____% per annum. For each subsequent
Interest Accrual Period, the Certificate Interest Rate of the Class _____
Certificates shall be a per annum rate equal to the lesser of (i) _____% minus
the product of _____ and LIBOR, and (ii) _____%, subject to a minimum rate of
_____%.]
Section 5.02. Registration of Transfer and Exchange of Certificates. (a)
The Trustee shall cause to be kept at an office or agency in the city in which
the Corporate Trust Office of the Trustee is located or in the City of New York,
New York a Certificate Register in which, subject to such reasonable regulations
as it may prescribe, the Trustee shall provide for the registration of
Certificates and of transfers and exchanges of Certificates as herein provided.
The Trustee shall initially serve as Certificate Registrar for the purpose of
registering Certificates and transfers and exchanges of Certificates as herein
provided.
Subject to Sections 5.02(b) and 5.02(c), upon surrender for registration of
transfer of any Certificate at the Corporate Trust Office, the Trustee shall
execute, authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Certificates of the same Class in authorized
denominations of a like Percentage Interest.
At the option of a Certificateholder, Certificates may be exchanged for
other Certificates of authorized denominations of a like Class and Percentage
Interest, upon surrender of the Certificates to be exchanged at any such office
or agency. Whenever any Certificates are so surrendered for exchange the Trustee
shall execute, countersign and deliver the Certificates which the
Certificateholder making the exchange is entitled to receive. Every Certificate
presented or surrendered for registration of transfer or exchange shall be
accompanied by a written instrument of transfer in form satisfactory to the
Trustee and the Certificate Registrar duly executed by the Holder thereof or his
attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Certificates, but the Trustee may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Certificates.
All Certificates surrendered for registration of transfer and exchange
shall be canceled and subsequently destroyed by the Trustee and a certificate of
destruction shall be delivered by the Trustee to the Depositor.
(b) No legal or beneficial interest in all or any portion of the Residual
Certificates may be transferred directly or indirectly to (i) Disqualified
Organization or an agent of a Disqualified Organization (including a broker,
nominee, or middleman), (ii) an entity 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 (a
"Book-Entry Nominee"), or (iii) an individual, corporation, partnership or other
person unless such transferee (A) is not a Non-U.S. Person or (B) is a Non-U.S.
Person that holds a Residual Certificate in connection with the conduct of a
trade or business within the United States and has furnished the transferor and
the Trustee with an effective Internal Revenue Service Form 4224 or (C) is a
Non-U.S. Person that has delivered to both the transferor and the Trustee an
opinion of a nationally recognized tax counsel to the effect that the transfer
of a Residual Certificate to it is in accordance with the requirements of the
Code and the regulations promulgated thereunder and that such transfer of a
Residual Certificate will not be disregarded for federal income tax purposes
(any such person who is not covered by clause (A), (B) or (C) above being
referred to herein as a "Non-permitted Foreign Holder"), and any such purported
transfer shall be void and have no effect. The Trustee shall not execute, and
shall not authenticate and deliver, a Residual Certificate in connection with
any transfer thereof unless the transferor shall have provided to the Trustee an
affidavit, substantially in the form attached as Exhibit F hereto, signed by the
transferee, to the effect that the transferee is not such a Disqualified
Organization, an agent (including a broker, nominee, or middleman) for any
entity as to which the transferee has not received a substantially similar
affidavit, a Book-Entry Nominee or a Non-permitted Foreign Holder, which
affidavit shall contain the consent of the transferee to any such amendments of
this Agreement as may be required to further effectuate the foregoing
restrictions on transfer of the Residual Certificates to Disqualified
Organizations, Book-Entry Nominees or Non-permitted Foreign Holders, and an
agreement by the Transferee that it will not transfer a Residual Certificate
without providing to the Trustee an affidavit substantially in the form attached
as Exhibit F hereto and a letter substantially in the form attached as Exhibit G
hereto. Such affidavit shall also contain the statement of the transferee that
(i) it does not have the intention to impede the assessment or collection of any
federal, state or local taxes legally required to be paid with respect to the
Residual Certificates and (ii) it understands that it may incur tax liabilities
in excess of cash flows generated by a Residual Certificate and that it intends
to pay taxes associated with holding a Residual Certificate as they become due.
The affidavit described in the preceding paragraph, if not executed in
connection with the initial issuance of the Residual Certificates, shall be
accompanied by a written statement in the form attached as Exhibit G hereto,
signed by the transferor, to the effect that as of the time of the transfer, the
transferor has (i) no actual knowledge that the transferee is a Disqualified
Organization, Book-Entry Nominee or Non-permitted Foreign Holder, (ii) no reason
to believe that the transferee has the intention to impede the assessment or
collection of any federal, state or local taxes legally required to be paid with
respect to a Residual Certificate, and (iii) conducted a reasonable
investigation 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. The Residual Certificates
shall bear a legend referring to the foregoing restrictions contained in this
paragraph and the preceding paragraph.
Upon notice to the Servicer that any legal or beneficial interest in any
portion of the Residual Certificates has been transferred, directly or
indirectly, to a Disqualified Organization or agent thereof (including a broker,
nominee, or middleman) in contravention of the foregoing restrictions, (i) such
transferee shall be deemed to hold the Residual Certificate in constructive
trust for the last transferor who was not a Disqualified Organization or agent
thereof, and such transferor shall be restored as the owner of such Residual
Certificate as completely as if such transfer had never occurred, provided that
the Company may, but is not required to, recover any distributions made to such
transferee with respect to the Residual Certificate and return such recovery to
the transferor, and (ii) the Servicer agrees to furnish to the Internal Revenue
Service and to any transferor of the Residual Certificate or such agent (within
60 days of the request therefor by the transferor or agent) such information
necessary to the application of section 860E(e) of the Code as may be required
by the Code, including but not limited to the present value of the total
anticipated excess inclusions with respect to the Residual Certificate (or
portion thereof) for periods after such transfer. At the election of the
Servicer, the cost to the Servicer of computing and furnishing such information
may be charged to the transferor or such agent referred to above; however, the
Company shall in no event be excused from furnishing such information.
The restrictions on transfers of the Residual Certificates set forth in the
preceding three paragraphs shall cease to apply to transfers (and the applicable
portions of the legend to the Residual Certificates may be deleted) after
delivery to the Trustee of an Opinion of Counsel to the effect that the
elimination of such restrictions will not cause the REMIC [either of the
Upper-Tier REMIC or the Lower-Tier REMIC] established hereunder to fail to
qualify as a REMIC at any time that the Certificates are outstanding.
No transfer of a Restricted Certificate shall be made unless such transfer
is made pursuant to an effective registration statement under the Securities Act
of 1933, as amended (the "Act"), and any applicable state securities laws, in
each case as evidenced by an Officer's Certificate, or is exempt from the
registration requirements of the Act and any applicable state securities laws.
In the event of such registration, any restrictive legends set forth in the form
of the relevant Restricted Certificate in Exhibit A hereto with respect to the
Act and state securities law restrictions shall be removed by the Trustee upon
request of the Holder thereof and automatically upon exchange or registration of
transfer thereof. As a condition to any transfer that is to be made in reliance
upon an exemption from the Act and such laws of a (i) Class PO Certificate or
(ii) Restricted Junior Certificate to any person other than a QIB (as certified
by the proposed transferee in the form of assignment attached to the related
Certificate), either (x) the Trustee shall require the transferee to execute an
investment letter in the form substantially as set forth in Exhibit I hereto or
in such other form as may be acceptable to the Trustee, certifying as to the
facts surrounding such transfer, or (y) in lieu of such investment letter, the
Trustee may accept a written Opinion of Counsel (in form and substance
acceptable to the Trustee) that such proposed transfer may be made pursuant to
an exemption from the Act. As an additional condition to any transfer of a
Restricted Certificate, either (i) the transferor and the transferee shall
complete the form of assignment attached to the Certificate proposed to be
transferred, or (ii) the Trustee shall have received the above-referenced
Opinion of Counsel. The holder of any Restricted Certificate desiring to effect
the transfer thereof to a person other than a QIB shall, and hereby agrees to,
comply with any applicable conditions set forth in the preceding two sentences
and indemnify the Trustee and the Company against any liability that may result
if the transfer thereof is not so exempt or is not made in accordance with such
federal and state laws. Such agreement to so indemnify the Trustee and the
Company shall survive the termination of this Agreement. Notwithstanding the
foregoing, no Opinion of Counsel or investment letter shall be required upon the
original issuance of (i) the Restricted Junior Certificates to the Initial
Purchaser (as defined in the Private Placement Memorandum) or its nominee and
(ii) the Class PO Certificates to the Company or upon any subsequent transfer of
any Class PO Certificate by the Company, provided that if any Restricted Junior
Certificates are, at the request of the Initial Purchaser, registered in the
name of its nominee, the Initial Purchaser shall be deemed to acknowledge and
agree with the Company and the Trustee that no transfer of a beneficial interest
in such Certificates will be made without registering such Certificates in the
name of the transferee, which shall be a Person other than such nominee. Any
opinion or letter required pursuant to this paragraph shall not be at the
expense of the Trust Fund or the Trustee.
(c) (i) No transfer of an ERISA-Restricted Certificate in the form of a
Definitive Certificate shall be made to any Person unless the Trustee has
received (A) a certificate (substantially in the form of Exhibit E or such other
form as is acceptable to the Company and the Trustee) from such transferee to
the effect that such transferee (i) is not a Plan or a Person that is using the
assets of a Plan to acquire such ERISA-Restricted Certificate or (ii) is an
insurance company investing assets of its general account and the exemptions
provided by Section III(a) of Department of Labor Prohibited Transaction Class
Exemption 95-60, 60 Fed. Reg. 35925 (July 12, 1995) (the "Exemptions") apply to
the transferee's acquisition and holding of any ERISA-Restricted Certificate or
(B) an opinion of counsel satisfactory to the Trustee and the Company to the
effect that the purchase and holding of such a Certificate will not constitute
or result in the assets of the Trust Fund being deemed to be "plan assets"
subject to the prohibited transactions provisions of ERISA or Section 4975 of
the Code and will not subject the Trustee or the Company to any obligation in
addition to those undertaken in the Agreement; provided, however, that the
Trustee will not require such certificate or opinion in the event that, as a
result of a change of law or otherwise, counsel satisfactory to the Trustee has
rendered an opinion to the effect that the purchase and holding of an
ERISA-Restricted Certificate by a Plan or a Person that is purchasing or holding
such a Certificate with the assets of a Plan will not constitute or result in a
prohibited transaction under ERISA or Section 4975 of the Code. The preparation
and delivery of the certificate and opinions referred to above shall not be an
expense of the Trust Fund, the Trustee or the Company. Notwithstanding the
foregoing, no opinion or certificate shall be required for the initial issuance
of the ERISA-Restricted Certificates.
(ii) No transfer of a Residual Certificate shall be made to any
Person unless the Trustee has received a certification (substantially
in the form of paragraph 4 of Exhibit F) from such transferee to the
effect that, among other things, such transferee is not a Plan or a
Person that is using the assets of a Plan to acquire any such
Certificate. The preparation and delivery of such certificate shall
not be an expense of the Trust Fund, the Trustee or the Company.
(d) Subject to Section 8.01(i) hereof, the Trustee may conclusively rely
upon any certificate, affidavit or opinion delivered pursuant to Section 5.02(b)
or (c). Any certificate or affidavit required to be delivered by a transferee
under this Section 5.02 may be executed and delivered in the name of such
transferee by its attorney-in-fact duly authorized in writing in form and
substance satisfactory to the Trustee.
(e) Except as to any additional Certificate of any Class of Book-Entry
Certificates held in physical certificated form pursuant to Section 5.02(g) or
any Restricted Junior Certificate of any Class of Book-Entry Certificates that
is transferred to an entity other than a QIB, the Book-Entry Certificates shall,
subject to Section 5.02(f), at all times remain registered in the name of the
Depository or its nominee and at all times: (i) registration thereof may not be
transferred by the Trustee except to another Depository; (ii) the Depository
shall maintain book-entry records with respect to the Certificate Owners and
with respect to ownership and transfers of such Certificates; (iii) ownership
and transfers of registration of the Certificates issued in book-entry form on
the books of the Depository shall be governed by applicable rules established by
the Depository and the rights of Certificate Owners with respect to Book-Entry
Certificates shall be governed by applicable law and agreements between such
Certificate Owners and the Depository, Depository Participants, and indirect
participating firms; (iv) the Depository may collect its usual and customary
fees, charges and expenses from its Depository Participants; (v) the Trustee
shall deal with the Depository, Depository Participants and indirect
participating firms as authorized representatives of the Certificate Owners of
the Certificates issued in book-entry form for all purposes including the making
of payments due on the Book-Entry Certificates and exercising the rights of
Holders under this Agreement, and requests and directions for and votes of such
representatives shall not be deemed to be inconsistent if they are made with
respect to different Certificate Owners; (vi) the Trustee may rely and shall be
fully protected in relying upon information furnished by the Depository with
respect to its Depository Participants and furnished by the Depository
Participants with respect to indirect participating firms and persons shown on
the books of such indirect participating firms as direct or indirect Certificate
Owners; (vii) Certificate Owners shall not be entitled to certificates for the
Book-Entry Certificates and (viii) the Trustee may establish a reasonable record
date in connection with solicitations of consents from or voting by
Certificateholders and give notice to the Depository of such record date.
All transfers by Certificate Owners of Book-Entry Certificates shall be
made in accordance with the procedures established by the Depository Participant
or brokerage firm representing such Certificate Owner. Each Depository
Participant shall only transfer Book-Entry Certificates of Certificate Owners it
represents or of brokerage firms for which it acts as agent in accordance with
the Depository's normal procedures. Except as provided herein, the Trustee shall
have no duty to monitor or restrict the transfer of Certificates or interests
therein, and shall have no liability for any transfer, including any transfer
made through the book-entry facilities of the Depository or between or among
Depository Participants or Certificate Owners, made in violation of applicable
restrictions set forth herein, except in the event of the failure of the Trustee
to perform its duties and fulfill its obligations under this Agreement.
(f) If (x)(i) the Servicer or the Depository advises the Trustee in writing
that the Depository is no longer willing, qualified or able to properly
discharge its responsibilities as Depository, and (ii) the Trustee or the
Company is unable to locate a qualified successor, (y) the Company at its option
advises the Trustee in writing that it elects to terminate the book-entry system
through the Depository or (z) after the occurrence of an Event of Default,
Certificate Owners representing not less than 51% of the aggregate Voting Rights
allocated to the Book-Entry Certificates together advise the Trustee and the
Depository through the Depository Participants in writing that the continuation
of a book-entry system through the Depository is no longer in the best interests
of the Certificate Owners, the Trustee shall notify all Certificate Owners,
through the Depository, of the occurrence of any such event and of the
availability of Definitive Certificates to Certificate Owners requesting the
same. Upon surrender to the Trustee of such Certificates by the Depository,
accompanied by registration instructions from the Depository for registration,
the Trustee shall issue the Definitive Certificates. Neither the Servicer nor
the Trustee shall be liable for any delay in delivery of such instructions and
may conclusively rely on, and shall be protected in relying on, such
instructions. Upon the issuance of Definitive Certificates all references herein
to obligations imposed upon or to be performed by the Depository shall be deemed
to be imposed upon and performed by the Trustee, to the extent applicable with
respect to such Definitive Certificates and the Trustee shall recognize the
Holders of the Definitive Certificates as Certificateholders hereunder.
(g) On or prior to the Closing Date, there shall be delivered to the
Depository (or to _____________________ acting as custodian for the Depository
pursuant to the Depository's procedures) one certificate for each Class of
Book-Entry Certificates registered in the name of the Depository's nominee, Cede
& Co. The face amount of each such Certificate shall represent 100% of the
initial Class Certificate Principal Balance thereof, except for such amount that
does not constitute an acceptable denomination to the Depository. An additional
Certificate of each Class of Book-Entry Certificates may be issued evidencing
such remainder and, if so issued, will be held in physical certificated form by
the Holders thereof. Each Certificate issued in book-entry form shall bear the
following legend:
"Unless this Certificate is presented by an authorized representative of
The Depository Trust Company, a New York corporation ("DTC"), to Issuer or its
agent for registration of transfer, exchange, or payment, and any certificate
issued is registered in the name of Cede & Co. or in such other name as
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein."
Section 5.03. Mutilated, Destroyed, Lost or Stolen Certificates. If (a) any
mutilated Certificate is surrendered to the Certificate Registrar, or the
Certificate Registrar receives evidence to its satisfaction of the destruction,
loss or theft of any Certificate and (b) there is delivered to the Depositor,
the Certificate Registrar and the Trustee such security or indemnity as may be
required by them to save each of them harmless, then, in the absence of notice
to the Certificate Registrar or the Trustee that such Certificate has been
acquired by a bona fide purchaser, the Trustee shall execute, countersign and
deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or
stolen Certificate, a new Certificate of like tenor, Class and Percentage
Interest. In connection with the issuance of any new Certificate under this
Section 5.03, the Trustee may require the payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in relation thereto and
any other expenses (including the fees and expenses of the Trustee and the
Certificate Registrar) connected therewith. Any duplicate Certificate issued
pursuant to this Section 5.03 shall constitute complete and indefeasible
evidence of ownership in the Trust Fund, as if originally issued, whether or not
the lost, stolen or destroyed Certificate shall be found at any time.
Section 5.04. Persons Deemed Owners. Prior to due presentation of a
Certificate for registration of transfer, the Depositor, the Servicer, the
Trustee, the Certificate Registrar and any agent of the Depositor, the Servicer,
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 pursuant to Section 4.01 and for all other purposes
whatsoever, and neither the Depositor, the Servicer, the Trustee, the
Certificate Registrar nor any agent of the Depositor, the Servicer, the Trustee
or the Certificate Registrar shall be affected by any notice to the contrary.
Section 5.05. Access to List of Certificateholders' Names and Addresses.
The Certificate Registrar will furnish or cause to be furnished to the Company,
within 15 days after receipt by the Certificate Registrar of request therefor
from the Company in writing, a list, in such form as the Company may reasonably
require, of the names and addresses of the Certificateholders as of the most
recent Record Date for payment of distributions to Certificateholders. If three
or more Certificateholders (hereinafter referred to as "applicants") apply in
writing to the Trustee, and such application states that the applicants desire
to communicate with other Certificateholders with respect to their rights under
this Agreement or under the Certificates and is accompanied by a copy of the
communication which such applicants propose to transmit, then the Trustee shall,
within five Business Days after the receipt of such application, afford such
applicants access during normal business hours to the most recent list of
Certificateholders held by the Trustee. If such list is as of a date more than
90 days prior to the date of receipt of such applicants' request, the Trustee
shall promptly request from the Certificate Registrar a current list as provided
above, and shall afford such applicants access to such list promptly upon
receipt. Every Certificateholder, by receiving and holding a Certificate, agrees
with the Certificate Registrar and the Trustee that neither the Certificate
Registrar nor the Trustee shall be held accountable by reason of the disclosure
of any such information as to the names and addresses of the Certificateholders
hereunder, regardless of the source from which such information was derived.
Section 5.06. Representation of Certain Certificateholders. The fiduciary
of any Plan which becomes a Holder of a Certificate, by virtue of its acceptance
of such Certificate, will be deemed to have represented and warranted to the
Trustee and the Company that such Plan is an "accredited investor" as defined in
Rule 501(a)(1) of Regulation D promulgated by the Securities and Exchange
Commission under the Securities Act of 1933.
Section 5.07. Determination of COFI. (a) If the outstanding Certificates
include any COFI Certificates, then on each COFI Determination Date the Trustee
shall determine the value of COFI on the basis of the most recently available
Information Bulletin referred to in the definition of "COFI". The establishment
of COFI by the Trustee and the Trustee's subsequent calculation of the rates of
interest applicable to the COFI Certificates for each Interest Accrual Period
shall (in the absence of manifest error) be final and binding. During each
Interest Accrual Period, the Certificate Interest Rate for the COFI Certificates
for the current and immediately preceding Interest Accrual Period shall be made
available by the Trustee to Certificate Owners and Certificateholders at the
following telephone number: (617) 664-5500.
(b) The failure by the Federal Home Loan Bank of San Francisco to publish
COFI for a period of 65 calendar days will constitute an "Alternative Rate
Event" for purposes hereof. Upon the occurrence of an Alternative Rate Event,
the Servicer will calculate the Certificate Interest Rates for the COFI
Certificates for the subsequent Interest Accrual Periods by using, in place of
COFI, (i) the replacement index, if any, published or designated by the Federal
Home Loan Bank of San Francisco or (ii) if no replacement index is so published
or designated, an alternative index to be selected by the Company that has
performed, or that the Company expects to perform, in a manner substantially
similar to COFI. At the time an alternative index is first selected by the
Company, the Servicer shall determine the average number of basis points, if
any, by which the alternative index differed from COFI for such period as the
Servicer, in its sole discretion, reasonably determines to reflect fairly the
long-term difference between COFI and the alternative index, and shall adjust
the alternative index by such average. The Servicer shall select a particular
index as an alternative only if it receives an Opinion of Counsel to the effect
that the selection of such index will not cause any REMIC established hereunder
to fail to qualify as a REMIC for federal income tax purposes. In the absence of
manifest error, the selection of any alternative index as provided by this
Section 5.07(b) shall be final and binding for each subsequent Interest Accrual
Period. Upon the occurrence of an Alternative Rate Event, the Trustee shall have
no responsibility for the determination of any alternative index or the
calculation of the Certificate Interest Rates for the COFI Certificates.
(c) If at any time after the occurrence of an Alternative Rate Event the
Federal Home Loan Bank of San Francisco resumes publication of COFI, the
Certificate Interest Rates for the COFI Certificates for each Interest Accrual
Period commencing thereafter will be calculated by reference to COFI.
Section 5.08. Determination of LIBOR. (a) If the outstanding Certificates
include any LIBOR Certificates, then on each LIBOR Determination Date the
Trustee shall determine LIBOR for the related Interest Accrual Period as such
rate equal to the Interest Settlement Rate. If such rate does not appear on the
Designated Telerate Page as of 11:00 a.m., London time, on the applicable LIBOR
Determination Date:
(i) The Trustee will request the principal London office of each
Reference Bank (as defined in Section 5.08(e)) to provide such bank's
offered quotation (expressed as a percentage per annum) to prime banks
in the London interbank market for one-month U.S. Dollar deposits as
of 11:00 a.m., London time, on the applicable LIBOR Determination
Date.
(ii) If on any LIBOR Determination Date, two or more of the
Reference Banks provide such offered quotations, LIBOR for the next
Interest Accrual Period will be the arithmetic mean of such offered
quotations (rounding such arithmetic mean upwards, if necessary, to
the nearest whole multiple of 1/16%). If on any LIBOR Determination
Date only one or none of the Reference Banks provide such offered
quotations, LIBOR for the next Interest Accrual Period will be the
rate per annum the Trustee determines to be the arithmetic mean
(rounding such arithmetic mean upwards, if necessary, to the nearest
whole multiple of 1/16%) of the one-month Eurodollar lending rate that
three major banks in New York City selected by the Trustee are quoting
as of approximately 11:00 a.m., New York City time, on the first day
of the applicable Interest Accrual Period.
(iii) If on any LIBOR Determination Date the Trustee is required
but unable to determine LIBOR in the manner provided in subparagraph
(ii) of this Section 5.08(a), LIBOR for the next Interest Accrual
Period will be LIBOR as determined on the previous LIBOR Determination
Date, or, in the case of the first LIBOR Determination Date, the
Initial LIBOR Rate.
(b) The establishment of LIBOR by the Trustee and the Trustee's subsequent
calculation of the Certificate Interest Rates applicable to the LIBOR
Certificates for the relevant Interest Accrual Period, in the absence of
manifest error, will be final and binding.
(c) Within five Business Days of the Trustee's calculation of the
Certificate Interest Rates of the LIBOR Certificates, the Trustee shall furnish
to the Servicer by telecopy (or by such other means as the Trustee and the
Servicer may agree from time to time) such Certificate Interest Rates.
(d) The Trustee shall provide to Certificateholders who inquire of it by
telephone the Certificate Interest Rates of the LIBOR Certificates for the
current and immediately preceding Interest Accrual Period.
(e) As used herein, "Reference Banks" shall mean no more than four leading
banks engaged in transactions in Eurodollar deposits in the international
Eurocurrency market (i) with an established place of business in London,
England, (ii) whose quotations appear on the display designated "LIBO" on the
Reuters Monitor Money Rates Service (the "Reuters Screen LIBO Page") on the
applicable LIBOR Determination Date and (iii) which have been designated as such
by the Trustee and are able and willing to provide such quotations to the
Trustee on each LIBOR Determination Date. The Reference Banks initially shall
be: [Barclay's plc, Bank of Tokyo, National Westminster Bank and Trust Company
and Bankers Trust Company]. If any of the initial Reference Banks should be
removed from the Reuters Screen LIBO Page or in any other way fail to meet the
qualifications of a Reference Bank, or if such page is no longer published, the
Trustee, after consultation with the Servicer, shall use its best efforts to
designate alternate Reference Banks.
ARTICLE VI
THE DEPOSITOR AND THE SERVICER
Section 6.01. Liability of the Depositor and the Servicer. The Depositer
and the Servicer each shall be liable in accordance herewith only to the extent
of the obligations specifically imposed upon and undertaken by it herein.
Section 6.02. Merger or Consolidation of, or Assumption of the Obligations
of, the Depositor or the Servicer. Any corporation into which the Depositor or
the Servicer may be merged or consolidated, or any corporation resulting from
any merger, conversion or consolidation to which the Depositor or the Servicer
shall be a party, or any corporation succeeding to the business of the Depositor
or the Servicer, or (in the case of the Depositor and, so long as GECMSI is the
Servicer, GECMSI) any corporation, more than 50% of the voting stock of which
is, directly or indirectly, owned by General Electric Company, or any limited
partnership, the sole general partner of which is either the Depositor or the
Servicer or a corporation, more than 50% of the voting stock of which is owned,
directly or indirectly, by General Electric Company, which executes an agreement
of assumption to perform every obligation of the Depositor or the Servicer
hereunder, shall be the successor of the Depositor or the Servicer hereunder,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto, anything herein to the contrary notwithstanding.
Section 6.03. Assignment. The Servicer may assign its rights and delegate
its duties and obligations as servicer under this Agreement; 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 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 GECMSI
as Servicer hereunder from and after the date of such agreement and (ii) each
Rating Agency's rating of any Classes of Certificates in effect immediately
prior to such assignment or delegation would not be qualified, downgraded or
withdrawn as a result thereof. In the case of any such assignment or delegation,
the Servicer will be released from its obligations as servicer hereunder except
for liabilities and obligations as servicer incurred prior to such assignment or
delegation.
Section 6.04. Limitation on Liability of the Depositor, the Servicer and
Others. Neither the Depositor, the Servicer nor any of the directors or officers
or employees or agents of the Depositor or the Servicer shall be under any
liability to the Trust Fund or the Certificateholders for any action taken or
for refraining from the taking of any action by the Depositor or the Servicer
pursuant to this Agreement, or for errors in judgment; provided, however, that
this provision shall not protect the Depositor or the Servicer or any such
person against any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or gross negligence in the performance of duties
of the Depositor or the Servicer or by reason of reckless disregard of
obligations and duties of the Depositor or the Servicer hereunder. The Depositor
and the Servicer and any director or officer or employee or agent of the Company
may rely in good faith on any document of any kind prima facie properly executed
and submitted by any Person respecting any matters arising hereunder. The
Depositor and the Servicer and any director or officer or employee or agent of
the Depositor or the Servicer shall be indemnified by the Trust Fund and held
harmless against any loss, liability or expense incurred in connection with any
legal action relating to this Agreement or the Certificates, other than any
loss, liability or expense related to any specific Mortgage Loan or Mortgage
Loans (except as any such loss, liability or expense shall be otherwise
reimbursable pursuant to this Agreement) and any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties hereunder or by reason of reckless disregard of
obligations and duties hereunder. The Servicer shall be under no obligation to
appear in, prosecute or defend any legal action which is not incidental to its
duties to service the Mortgage Loans in accordance with this Agreement and which
in its opinion may involve it in any expense or liability; provided, however,
that the Servicer may in its sole discretion undertake any such action which it
may deem necessary or desirable in respect of this Agreement, and the rights and
duties of the parties hereto and the interests of the Certificateholders
hereunder. In such event, the legal expenses and costs of such action and any
liability resulting therefrom shall be expenses, costs and liabilities of the
Trust Fund and the Servicer shall be entitled to be reimbursed therefor from
amounts credited to the Mortgage Loan Payment Record as provided by Section
3.04.
Section 6.05. The Servicer Not to Resign. Subject to the provisions of
Sections 6.02 and 6.03, the Servicer shall not resign from the obligations and
duties hereby imposed on it except upon determination that the performance of
its duties hereunder is no longer permissible under applicable law. Any such
determination permitting the resignation of the Servicer shall be evidenced by
an Opinion of Counsel to such effect delivered to the Trustee. No such
resignation shall become effective until the Trustee or a successor servicer
shall have assumed the responsibilities and obligations of the Servicer in
accordance with Section 7.02.
ARTICLE VII
DEFAULT
Section 7.01. Events of Default. If any one of the following events
("Events of Default") shall occur and be continuing:
(i) Any failure by the Servicer to make any payment to the
Trustee of funds pursuant to Section 3.02(d) out of which
distributions to Certificateholders of any Class are required to be
made under the terms of the Certificates and this Agreement which
failure continues unremedied for a period of three Business Days after
the date upon which written notice of such failure shall have been
given to the Servicer by the Trustee or to the Servicer and the
Trustee by Holders of Certificates of each Class affected thereby
evidencing, as to each such Class, Percentage Interests aggregating
not less than 25%; or
(ii) Failure on the part of the Company duly to observe or
perform in any material respect any other covenants or agreements of
the Servicer set forth in the Certificates or in this Agreement, which
covenants and agreements (A) materially affect the rights of
Certificateholders and (B) continue unremedied for a period of 60 days
after the date on which written notice of such failure, requiring the
same to be remedied, shall have been given to the Servicer by the
Trustee, or to the Company and the Trustee by the Holders of
Certificates of each Class affected thereby evidencing, as to each
such Class, Percentage Interests aggregating not less than 25%; or
(iii) The entry of a decree or order by a court or agency or
supervisory authority having jurisdiction in the premises for the
appointment of a conservator, receiver or liquidator in any
insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings of or relating to the Servicer , or
for the winding up or liquidation of the Servicer 's affairs, and the
continuance of any such decree or order unstayed and in effect for a
period of 60 consecutive days; or
(iv) The consent by the Servicer to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment
of debt, marshalling of assets and liabilities or similar proceedings
of or relating to the Servicer or of or relating to substantially all
of its property; or the Servicer shall admit in writing its inability
to pay its debts generally as they become due, file a petition to take
advantage of any applicable insolvency or reorganization statute, make
an assignment for the benefit of its creditors, or voluntarily suspend
payment of its obligations;
then, and in each and every such case, so long as an Event of Default shall not
have been remedied by the Company, either the Trustee, or the Holders of
Certificates of each Class affected thereby evidencing, as to each such Class,
Percentage Interests aggregating not less than 51%, by notice then given in
writing to the Servicer (and to the Trustee if given by the Certificateholders)
may terminate all of the rights and obligations of the Servicer under this
Agreement. On or after the receipt by the Servicer of such written notice, all
authority and power of the Servicer under this Agreement, whether with respect
to the Certificates or the Mortgage Loans or otherwise, shall pass to and be
vested in the Trustee pursuant to and under this Section 7.01; and, without
limitation, the Trustee is hereby authorized and empowered to execute and
deliver, on behalf of the Servicer, as attorney-in-fact or otherwise, any and
all documents and other instruments, and to do or accomplish all other acts or
things necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the transfer and endorsement of the Mortgage
Loans and related documents, or otherwise, including, without limitation, the
recordation of the assignments of the Mortgage Loans to it. The Servicer agrees
to cooperate with the Trustee in effecting the termination of the
responsibilities and rights of the Servicer hereunder, including, without
limitation, the transfer to the Trustee for the administration by it of all cash
amounts that shall at the time be held by the Servicer and that have been or
should have been credited by it to the Mortgage Loan Payment Record, or that
have been deposited by the Servicer in the Certificate Account or are thereafter
received by the Servicer with respect to the Mortgage Loans. In addition to any
other amounts which are then, or, notwithstanding the termination of its
activities as servicer, may become, payable to the Servicer under this
Agreement, the Servicer shall be entitled to receive out of any delinquent
payment on account of interest on a Mortgage Loan, due during the period prior
to the notice pursuant to this Section 7.01 which terminates the obligation and
rights of the Company hereunder and received after such notice, that portion of
such payment which it would have been entitled to retain pursuant to Section
3.04(vi) if such notice had not been given.
Section 7.02. Trustee to Act; Appointment of Successor. (a) On and after
the time the Servicer receives a notice of termination pursuant to Section 7.01,
the Trustee shall be the successor in all respects to the Servicer in its
capacity as servicer under this Agreement and the transactions set forth or
provided for herein and shall succeed to all the rights of and be subject to all
the responsibilities, duties and liabilities relating thereto placed on the
Servicer in its capacity as servicer by the terms and provisions hereof;
provided, however, that the responsibilities and duties of the Servicer pursuant
to Sections 2.02 and 2.03(a) and, if the Trustee is prohibited by law or
regulation from making Monthly Advances, the responsibility to make Monthly
Advances pursuant to Section 4.04, shall not be the responsibilities, duties or
obligations of the Trustee; and provided further, that any failure of the
Trustee to perform such duties and responsibilities that is caused by the
Servicer's failure to cooperate with the Trustee as required by Section 7.01
shall not be considered a default by the Trustee hereunder. As compensation
therefor, the Trustee shall, except as provided in Section 7.01, be entitled to
such compensation as the Servicer would have been entitled to hereunder if no
such notice of termination had been given. Notwithstanding the above, the
Trustee may, if it shall be unwilling so to act, or shall, if it is legally
unable so to act, appoint, or petition a court of competent jurisdiction to
appoint, any established housing and home finance institution approved to
service mortgage loans for either FNMA or FHLMC, having a net worth of not less
than $10,000,000, as the successor to the Servicer hereunder in the assumption
of all or any part of the responsibilities, duties or liabilities of the
Servicer hereunder. Pending appointment of a successor to the Servicer pursuant
to this Article VII, unless the Trustee is prohibited by law from so acting, the
Trustee shall act in such capacity as hereinabove provided. In connection with
such appointment and assumption, the Trustee may make such arrangements for the
compensation of such successor out of payments on Mortgage Loans as it and such
successor shall agree; provided, however, that no such compensation shall be in
excess of that permitted the Servicer hereunder. The Trustee and such successor
shall take such action, consistent with this Agreement, as shall be necessary to
effectuate any such succession.
(b) Any successor, including the Trustee, to the Servicer as servicer
pursuant to this Article VII shall during the term of its service as servicer
maintain in force (i) a policy or policies of insurance covering errors and
omissions in the performance of its obligations as servicer hereunder, and (ii)
a fidelity bond in respect of its officers, employees and agents to the same
extent as the Servicer is so required pursuant to Section 3.15.
Section 7.03. Notification to Certificateholders. Upon any termination or
appointment of a successor to the Servicer pursuant to this Article VII, the
Trustee shall give prompt written notice thereof to Certificateholders at their
respective addresses appearing in the Certificate Register.
ARTICLE VIII
THE TRUSTEE
Section 8.01. Duties of Trustee. The Trustee, prior to the occurrence of an
Event of Default and after the curing of all Events of Default which may have
occurred, undertakes to perform such duties and only such duties as are
specifically set forth in this Agreement. If an Event of Default has occurred
(which has not been cured), the Trustee shall exercise such of the rights and
powers vested in it by this 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.
The Trustee, upon receipt of all resolutions, certificates, statements,
opinions, reports, documents, orders or other instruments furnished to the
Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they
conform to the requirements of this Agreement.
No provision of this Agreement shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act or
its own misconduct; provided, however, that:
(i) Prior to the occurrence of an Event of Default, and after the
curing of all such Events of Default which may have occurred, the
duties and obligations of the Trustee shall be determined solely by
the express provisions of this Agreement, the Trustee shall not be
liable except for the performance of such duties and obligations as
are specifically set forth in this Agreement, no implied covenants or
obligations shall be read into this Agreement against the Trustee and,
in the absence of bad faith on the part of the Trustee, the Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any certificates
or opinions furnished to the Trustee and conforming to the
requirements of this Agreement;
(ii) The Trustee shall not be personally liable for an error of
judgment made in good faith by a Responsible Officer of the Trustee,
unless it shall be proved that the Trustee was negligent in performing
its duties in accordance with the terms of this Agreement;
(iii) The Trustee shall not be personally liable with respect to
any action taken, suffered or omitted to be taken by it in good faith
in accordance with the direction of the Holders of Certificates of
each Class affected thereby evidencing, as to each such Class,
Percentage Interests aggregating not less than 25%, relating to the
time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred
upon the Trustee, under this Agreement; and
(iv) The Trustee shall not be charged with knowledge of (A) any
failure by the Servicer to comply with the obligations of the Company
referred to in clauses (i) and (ii) of Section 7.01, (B) the rating
downgrade referred to in the definition of "Trigger Event" or (C) any
failure by the Servicer to comply with the obligations of the Servicer
to record the assignments of Mortgages referred to in Section 2.01
unless a Responsible Officer of the Trustee at the Corporate Trust
Office obtains actual knowledge of such failures, occurrence or
downgrade or the Trustee receives written notice of such failures,
occurrence or downgrade from the Servicer or the Holders of
Certificates of each Class affected thereby evidencing, as to each
such Class, Percentage Interests aggregating not less than 25%.
Subject to any obligation of the Trustee to make Monthly Advances as
provided herein, the Trustee shall not be required to expend or risk its own
funds or otherwise incur financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights or powers, if there is
reasonable ground for believing that the repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it, and
none of the provisions contained in this Agreement shall in any event require
the Trustee to perform, or be responsible for the manner of performance of, any
of the obligations of the Servicer under this Agreement, except during such
time, if any, as the Trustee shall be the successor to, and be vested with the
rights, duties, powers and privileges of, the Servicer in accordance with the
terms of this Agreement.
Section 8.02. Certain Matters Affecting the Trustee. Except as otherwise
provided in Section 8.01:
(i) The Trustee may conclusively rely and shall be protected in
acting or refraining from acting upon any resolution, Officer's
Certificate, certificate of auditors or any other certificate,
statement, instrument, opinion, report, notice, request, consent,
order, appraisal, bond or other paper or document believed by it to be
genuine and to have been signed or presented by the proper party or
parties;
(ii) The Trustee may consult with counsel and any Opinion of
Counsel shall be full and complete authorization and protection in
respect of any action taken or suffered or omitted by it hereunder in
good faith and in accordance with such Opinion of Counsel;
(iii) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Agreement, or to institute,
conduct or defend any litigation hereunder or in relation hereto, at
the request, order or direction of any of the Certificateholders,
pursuant to the provisions of this Agreement, unless such
Certificateholders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby; nothing contained herein
shall, however, relieve the Trustee of the obligations, upon the
occurrence of an Event of Default (which has not been cured), to
exercise such of the rights and powers vested in it by this Agreement,
and to 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;
(iv) The Trustee shall not be personally liable for any action
taken, suffered or omitted by it in good faith and believed by it to
be authorized or within the discretion or rights or powers conferred
upon it by this Agreement;
(v) Prior to the occurrence of an Event of Default and after the
curing of all Events of Default which may have occurred, the Trustee
shall not be bound to make any investigation into the facts or matters
stated in any resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, approval, bond or other paper
or documents, unless requested in writing so to do by Holders of
Certificates of each Class affected thereby evidencing, as to each
such Class, Percentage Interests aggregating not less than 25%;
provided, however, that if the payment within a reasonable time to the
Trustee of the costs, expenses or liabilities likely to be incurred by
it in the making of such investigation is, in the opinion of the
Trustee, not reasonably assured to the Trustee by the security
afforded to it by the terms of this Agreement, the Trustee may require
reasonable indemnity against such cost, expense or liability as a
condition to such proceeding. The reasonable expense of every such
investigation shall be paid by the Depositor or, if paid by the
Trustee, shall be reimbursed by the Depositor upon demand. Nothing in
this clause (v) shall derogate from the obligation of the Depositor to
observe any applicable law prohibiting disclosure of information
regarding the Mortgagors; and
(vi) The Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys or a custodian.
Section 8.03. Trustee Not Liable for Certificates or Mortgage Loans. The
recitals contained herein and in the Certificates (other than the signature and
countersignature of the Trustee on the Certificates) shall be taken as the
statements of the Depositor , and the Trustee assumes no responsibility for the
correctness of the same. The Trustee makes no representations as to the validity
or sufficiency of this Agreement or of the Certificates (other than the
signature and countersignature of the Trustee on the Certificates) or of any
Mortgage Loan or related document. The Trustee shall not be accountable for the
use or application by the Depositor of any of the Certificates or of the
proceeds of such Certificates, or for the use or application of any funds paid
to the Servicer in respect of the Mortgage Loans or deposited in or withdrawn
from the Certificate Account by the Servicer.
Section 8.04. Trustee May Own Certificates. The Trustee 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.
Section 8.05. The Depositor to Pay Trustee's Fees and Expenses. The
Depositor covenants and agrees to pay to the Trustee from time to time, and the
Trustee shall be entitled to, reasonable compensation (which shall not be
limited by any provision of law in regard to the compensation of a trustee of an
express trust) for all services rendered by it in the execution of the trusts
hereby created and in the exercise and performance of any of the powers and
duties hereunder of the Trustee, and the Depositor will pay or reimburse the
Trustee upon its request for all reasonable expenses, disbursements and advances
(including any Monthly Advances of the Trustee not previously reimbursed thereto
pursuant to Section 3.04) incurred or made by the Trustee in accordance with any
of the provisions of this Agreement (including the reasonable compensation and
the expenses and disbursements of its counsel and of all persons not regularly
in its employ) except any such expense, disbursement or advance as may arise
from its negligence or bad faith or which is the responsibility of
Certificateholders hereunder. In addition, the Depositor covenants and agrees to
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. From time to time, the Trustee may
request that the Servicer debit the Mortgage Loan Payment Record pursuant to
Section 3.04 to reimburse the Trustee for any Monthly Advances and
Nonrecoverable Advances.
Section 8.06. Eligibility Requirements for Trustee. The Trustee hereunder
shall at all times be a corporation having its principal office either in the
State of New York or in the same state as that in which the initial Trustee
under this Agreement has its principal office and organized and doing business
under the laws of such State or the United States of America, authorized under
such laws to exercise corporate trust powers, having a combined capital and
surplus of at least $50,000,000 and subject to supervision or examination by
federal or state authority. If such corporation publishes reports of condition
at least annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purposes of this Section 8.06,
the combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. The Trustee shall not be an affiliate of the Depositor or the
Servicer. In case at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section 8.06, the Trustee shall resign
immediately in the manner and with the effect specified in Section 8.07.
Section 8.07. Resignation or Removal of Trustee. The Trustee may at any
time resign and be discharged from the trusts hereby created by giving written
notice thereof to the Servicer. Upon receiving such notice of resignation, the
Servicer shall promptly appoint a successor Trustee by written instrument, in
duplicate, one copy of which instrument shall be delivered to the resigning
Trustee and one copy to the successor Trustee. If no successor Trustee shall
have been so appointed and having accepted appointment within 30 days after the
giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
If the conditions in any of the following clauses (i), (ii) or (iii) shall
occur at any time, the Servicer may remove the Trustee: (i) the Trustee shall
cease to be eligible in accordance with the provisions of Section 8.06 and shall
fail to resign after written request therefor by the Servicer; (ii) the Trustee
shall be legally unable to act, or shall be adjudged a bankrupt or insolvent, or
a receiver of the Trustee or of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation; or (iii)
the replacement of the Trustee with a successor Trustee will enable the Servicer
to avoid (and should, based on the information included in the notice referred
to below, result in the avoidance of) a downgrading of the ratings assigned to
the Certificates by the Rating Agencies (whether or not other actions could
avoid such downgrading) and no Event of Default, as provided by Section 7.01
hereof, shall have occurred or be continuing; provided, however, that no action
shall be taken pursuant to this clause (iii) unless reasonable notice shall have
been provided to the Trustee, which notice shall set forth the basis for any
rating downgrade as contemplated by the Rating Agencies and shall also indicate
the manner in which such proposed action is intended to avoid such downgrade. If
it removes the Trustee under the authority of the immediately preceding
sentence, the Servicer shall promptly appoint a successor trustee by written
instrument, in duplicate, one copy of which instrument shall be delivered to the
Trustee so removed and one copy to the successor trustee.
Any resignation or removal of the Trustee and appointment of a successor
Trustee pursuant to any of the provisions of this Section 8.07 shall not become
effective until acceptance of appointment by the successor Trustee as provided
in Section 8.08.
Section 8.08. Successor Trustee. Any successor Trustee appointed as
provided in Section 8.07 shall execute, acknowledge and deliver to the Company
and to its predecessor Trustee an instrument accepting such appointment
hereunder, and thereupon the resignation or removal of the predecessor Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with like effect as if originally
named as Trustee. The predecessor Trustee shall deliver to the successor Trustee
all Mortgage Files and related documents and statements held by it hereunder;
and the Servicer, the Depositor and the predecessor Trustee shall execute and
deliver such instruments and do such other things as may reasonably be required
for fully and certainly vesting and confirming in the successor Trustee all such
rights, powers, duties and obligations.
No successor Trustee shall accept appointment as provided in this Section
8.08 unless at the time of such acceptance such successor Trustee shall be
eligible under the provisions of Section 8.06.
Upon acceptance of appointment by a successor Trustee as provided in this
Section 8.08, the Servicer shall mail notice of the succession of such Trustee
hereunder to all holders of Certificates at their addresses as shown in the
Certificate Register. If the Servicer fails to mail such notice within 10 days
after acceptance of appointment by the successor Trustee, the successor Trustee
shall cause such notice to be mailed at the expense of the Servicer.
Section 8.09. Merger or Consolidation of Trustee. Any corporation into
which the Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation
succeeding to the corporate trust business of the Trustee, shall be the
successor of the Trustee hereunder, provided that such corporation shall be
eligible under the provisions of Section 8.06, without the execution or filing
of any paper or any further act on the part of any of the parties hereto,
anything herein to the contrary notwithstanding.
Section 8.10. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust Fund or property securing any Mortgage Note may at the time be
located, the Servicer, the Depositor and the Trustee acting jointly shall have
the power and shall execute and deliver all instruments to appoint one or more
Persons approved by the Trustee to act as co-trustee or co-trustees, jointly
with the Trustee, of all or any part of the Trust Fund, or separate trustee or
separate trustees of any part of the Trust Fund, and to vest in such Person or
Persons, in such capacity and for the benefit of the Certificateholders, such
title to the Trust Fund, or any part thereof, and, subject to the other
provisions of this Section 8.10, such powers, duties, obligations, rights and
trusts as the Servicer, the Depositor and the Trustee may consider necessary or
desirable. If the Servicer or the Depositor shall not have joined in such
appointment within 15 days after the receipt by it of a request so to do, or in
case an Event of Default shall have occurred and be continuing, the Trustee
alone shall have the power to make such appointment. No co-trustee or separate
trustee hereunder shall be required to meet the terms of eligibility as a
successor trustee under Section 8.06 and no notice to Certificateholders of the
appointment of any co-trustee or separate trustee shall be required under
Section 8.08.
Every separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(i) All rights, powers, duties and obligations conferred or
imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or
co-trustee jointly (it being understood that such separate trustee or
co-trustee is not authorized to act separately without the Trustee
joining in such act), except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be performed
(whether as Trustee hereunder or as successor to the Servicer
hereunder), the Trustee shall be incompetent or unqualified to perform
such act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the Trust Fund or any
portion thereof in any such jurisdiction) shall be exercised and
performed singly by such separate trustee or co-trustee, but solely at
the direction of the Trustee;
(ii) No trustee hereunder shall be held personally liable by
reason of any act or omission of any other trustee hereunder; and
(iii) The Servicer and the Trustee acting jointly may at any time
accept the resignation of or remove any separate trustee or
co-trustee.
Any notice, request or other writing given to the Trustee shall be deemed
to have been given to each of the then separate trustees and co-trustees, as
effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article VIII. Each separate trustee and co-trustee, upon its acceptance
of the trusts conferred, shall be vested with the estates or property specified
in its instrument of appointment, either jointly with the Trustee or separately,
as may be provided therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Every
such instrument shall be filed with the Trustee and a copy thereof given to the
Servicer and the Depositor.
Any separate trustee or co-trustee may, at any time, constitute the
Trustee, its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor trustee.
Section 8.11. Compliance with REMIC Provisions; Tax Returns. The Trustee
shall at all times act in such a manner in the performance of its duties
hereunder as shall be necessary to prevent [the Trust Fund] [each of the
Upper-Tier REMIC and the Lower-Tier REMIC] from failing to qualify as a REMIC
and to prevent the imposition of a tax on the Trust Fund or the REMIC[s]
established hereunder. The Trustee, upon request, will furnish the Servicer with
all such information within its possession as may be reasonably required in
connection with the preparation of all tax returns of the Trust Fund and any
Reserve Fund, and shall, upon request, execute such returns.
ARTICLE IX
TERMINATION
Section 9.01. Termination upon Repurchase by the [Depositor] [Servicer] or
Liquidation of All Mortgage Loans. Subject to Section 9.02, the respective
obligations and responsibilities of the Depositor, the Servicer and the Trustee
created hereby (other than the obligation of the Trustee to make certain
payments to Certificateholders after the final Distribution Date and the
obligation of the Trustee to send certain notices as hereinafter set forth)
shall terminate upon the last action required to be taken by the Trustee on the
final Distribution Date pursuant to this Article IX following the earlier of (a)
the repurchase by the [Depositor] [Servicer] of all Mortgage Loans and all REO
Mortgage Loans remaining in the Trust Fund at a price equal to the sum of (x)
100% of the unpaid principal balance of each Mortgage Loan (other than any REO
Mortgage Loans described in the following clause) plus accrued and unpaid
interest thereon at the applicable Remittance Rate (less any amounts
constituting previously unreimbursed Monthly Advances) to the first day of the
month in which such purchase price is to be distributed to Certificateholders
and (y) the appraised value of any REO Mortgage Loan (less the good faith
estimate of the [Depositor] [Servicer] of Liquidation Expenses to be incurred in
connection with its disposal thereof), such appraisal to be conducted by an
appraiser mutually agreed upon by the [Depositor] [Servicer] and the Trustee,
and (b) the later of the final payment or other liquidation (or any Monthly
Advance with respect thereto) of the last Mortgage Loan remaining in the Trust
Fund or the disposition of all property acquired upon foreclosure or by deed in
lieu of foreclosure of any Mortgage Loan; provided, however, that in no event
shall the Trust Fund created hereby continue beyond the expiration of 21 years
from the death of the last survivor of the descendants of Joseph P. Kennedy, the
late ambassador of the United States of America to the Court of St. James's,
living on the date of this Agreement. The right of the [Depositor] [Servicer] to
repurchase all Mortgage Loans pursuant to clause (a) above shall be conditioned
upon the aggregate of the Scheduled Principal Balance of the Outstanding
Mortgage Loans, at the time of any such repurchase, aggregating less than [10]
percent of the aggregate of the Scheduled Principal Balance of the Mortgage
Loans as of the Cut-off Date.
Notice of any termination, specifying the Distribution Date upon which the
Certificateholders may surrender their Certificates to the Trustee for payment
of the final distribution and cancellation, shall be given promptly by the
Trustee by letter to Certificateholders mailed not earlier than the 15th day and
not later than the 25th day of the month next preceding the month of such final
distribution specifying (A) the Distribution Date upon which final payment of
the Certificates will be made upon presentation and surrender of the
Certificates at the office of the Trustee therein designated, (B) the amount of
any such final payment and (C) that the Record Date otherwise applicable to such
Distribution Date is not applicable, payments being made only upon presentation
and surrender of the Certificates at the office of the Trustee therein
specified. The Trustee shall give such notice to the Certificate Registrar at
the time such notice is given to Certificateholders. In the event such notice is
given in connection with the exercise by the [Depositor] [Servicer] of its right
of repurchase, the Company shall deposit in the Certificate Account not later
than 11:00 a.m. on the Business Day prior to the final Distribution Date in
next-day funds an amount equal to the price described above. Upon presentation
and surrender of the Certificates, the Trustee shall cause to be distributed to
Certificateholders an amount equal to the price calculated as above provided,
any such repurchase being in lieu of the distribution otherwise required to be
made on the Distribution Date upon which the repurchase is effected. Upon
certification to the Trustee by a Servicing Officer following such final
deposit, the Trustee shall promptly release to the [Depositor] [Servicer] the
Mortgage Files for the repurchased Mortgage Loans.
On the final Distribution Date, the Trustee shall distribute amounts on
deposit in the Certificate Account in accordance with the applicable priorities
provided by Section 4.01. Distributions on each Certificate shall be made on the
final Distribution Date in the manner specified in Section 4.02 but only upon
presentation and surrender of the Certificates.
In the event that all of the Certificateholders shall not surrender their
Certificates for cancellation within six months after the date specified in the
above-mentioned written notice, the Trustee shall give a second written notice
to the remaining Certificateholders to surrender their Certificates for
cancellation and receive the final distribution with respect thereto. If within
one year after the second notice all the Certificates shall not have been
surrendered for cancellation, the Trustee may take appropriate steps, or may
appoint an agent to take appropriate steps, to contact the remaining
Certificateholders concerning surrender of their Certificates, and the cost
thereof shall be paid out of the funds and other assets which remain subject
hereto.
Section 9.02. Additional Termination Requirements. (a) In the event the
[Depositor] [Servicer] exercises its purchase option as provided in Section
9.01, the Trust Fund and [each of] the [Upper-Tier REMIC and the Lower-Tier]
REMIC established hereunder shall be terminated in accordance with the following
additional requirements, unless the Trustee has been supplied with an Opinion of
Counsel to the effect that the failure to comply with the requirements of this
Section 9.02 will not (i) result in the imposition of taxes on "prohibited
transactions" of the REMIC [either of the Upper-Tier REMIC or the Lower-Tier
REMIC] as defined in section 860F of the Code, or (ii) cause the Trust Fund
[either of the Upper-Tier REMIC or the Lower-Tier REMIC] to fail to qualify as a
REMIC at any time that any Certificates are outstanding:
(i) Within 90 days prior to the final Distribution Date set forth
in the notice given by the Trustee under Section 9.01, the Servicer
shall prepare and the Trustee shall execute and adopt a plan of
complete liquidation for [each of] the [Upper-Tier REMIC and the
Lower-Tier] REMIC within the meaning of section 860F(a)(4)(A)(i) of
the Code, which shall be evidenced by such notice; and
(ii) Within 90 days after the time of adoption of such a plan of
complete liquidation, the Trustee shall sell all of the assets of the
Trust Fund to the [Depositor] [Servicer] for cash in accordance with
Section 9.01.
(b) By their acceptance of the Residual Certificates, the Holders thereof
hereby authorize the Trustee to adopt such a plan of complete liquidation which
authorization shall be binding on all successor Holders of the Residual
Certificates.
(c) On the final federal income tax return for [each of] the [Upper-Tier
REMIC and the Lower-Tier] REMIC established hereunder, the Trustee will attach a
statement specifying the date of the adoption of the plan of liquidation.
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.01. Amendment. This Agreement may be amended from time to time
by the Depositor, the Servicer and the Trustee, without the consent of any of
the Certificateholders, to cure any ambiguity, to correct or supplement any
provisions herein or therein which may be defective or inconsistent with any
other provisions herein, or to surrender any right or power herein conferred
upon the Depositor or the Servicer, or to add any other provisions with respect
to matters or questions arising under this Agreement, which shall not be
materially inconsistent with the provisions of this Agreement; provided,
however, that such action shall not, as evidenced by an Opinion of Counsel,
adversely affect in any material respect the interests of any Certificateholder.
Notwithstanding the foregoing, without the consent of the Certificateholders,
the Trustee and the Company may at any time and from time to time amend this
Agreement to modify, eliminate or add to any of its provisions to such extent as
shall be necessary or appropriate to maintain the qualification of [the Trust
Fund] [each of the Upper-Tier REMIC and the Lower-Tier REMIC] as a REMIC under
the Code or to avoid or minimize the risk of the imposition of any tax on the
Trust Fund pursuant to the Code that would be a claim against the Trust Fund at
any time prior to the final redemption of the Certificates, provided that the
Trustee has obtained an opinion of independent counsel (which opinion also shall
be addressed to the Depositor and Servicer) to the effect that such action is
necessary or appropriate to maintain such qualification or to avoid or minimize
the risk of the imposition of such a tax.
This Agreement may also be amended from time to time by the Depositor, the
Servicer and the Trustee with the consent of Holders of Certificates evidencing
(i) not less than 66% of the Voting Rights of all the Certificates or (ii)
Percentage Interests aggregating not less than 66% 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 this Agreement, or of modifying
in any manner the rights of the Holders of Certificates; provided, however, that
no such amendment shall (a) reduce in any manner the amount of, or delay the
timing of, collections of payments on the Mortgage Loans or distributions which
are required to be made on any Certificate without the consent of the Holder of
such Certificate, (b) adversely affect in any material respects the interests of
the Holders of any Class of Certificates in any manner other than as described
in (a), without the consent of the Holders of Certificates evidencing Percentage
Interests aggregating not less than 66% of such Class, or (c) reduce the
aforesaid percentages of Certificates of any Class required to consent to any
such amendment, without the consent of the Holders of all Certificates of such
Class then outstanding. For purposes of this paragraph, references to "Holder"
or "Holders" shall be deemed to include, in the case of any Class of Book-Entry
Certificates, the related Certificate Owners.
Notwithstanding any contrary provision of this Agreement, the Trustee shall
not consent to any amendment to this Agreement unless it shall have first
received an Opinion of Counsel to the effect that such amendment will not
subject the Trust Fund to tax or cause [the Trust Fund] [either of the
Upper-Tier REMIC or the Lower-Tier REMIC] to fail to qualify as a REMIC at any
time that any Certificates are outstanding.
Promptly after the execution of any such amendment or consent the Trustee
shall furnish written notification of the substance of such amendment to each
Certificateholder.
It shall not be necessary for the consent of Certificateholders under this
Section 10.01 to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents and of evidencing the authorization of the
execution thereof by Certificateholders shall be subject to such reasonable
requirements as the Trustee may prescribe.
Section 10.02. Recordation of Agreement. This Agreement is subject to
recordation in all appropriate public offices for real property records in all
the counties or other comparable jurisdictions in which any or all of the
properties subject to the Mortgages are situated, and in any other appropriate
public recording office or elsewhere, such recordation to be effected by the
Company and at its expense on direction by the Trustee, but only upon direction
of the Trustee accompanied by an Opinion of Counsel to the effect that such
recordation materially and beneficially affects the interests of
Certificateholders.
For the purpose of facilitating the recordation of this Agreement as herein
provided and for other purposes, this Agreement may be executed simultaneously
in any number of counterparts, each of which counterparts shall be deemed to be
an original, and such counterparts shall constitute but one and the same
instrument.
Section 10.03. Limitation on Rights of Certificateholders. The death or
incapacity of any Certificateholder shall not operate to terminate this
Agreement or the Trust Fund, nor entitle such Certificateholder's legal
representatives or heirs to claim an accounting or to take any action or
commence any proceeding in any court for a partition or winding up of the Trust
Fund, nor otherwise affect the rights, obligations and liabilities of the
parties hereto or any of them.
No Certificateholder shall have any right to vote (except as provided in
Section 10.01) or in any manner otherwise control the operation and management
of the Trust Fund, or the obligations of the parties hereto, nor shall anything
herein set forth, or contained in the terms of the Certificates, be construed so
as to constitute the Certificateholders from time to time as partners or members
of an association; nor shall any Certificateholder be under any liability to any
third person by reason of any action taken by the parties to this Agreement
pursuant to any provision hereof.
No Certificateholder shall have any right by virtue or by availing itself
of any provisions of this Agreement to institute any suit, action or proceeding
in equity or at law upon or under or with respect to this Agreement, unless such
Holder previously shall have given to the Trustee a written notice of default
and of the continuance thereof, as hereinbefore provided, and unless also the
Holders of Certificates of each Class affected thereby evidencing, as to each
such Class, Percentage Interests aggregating not less than 25% shall have made
written request upon the Trustee to institute such action, suit or proceeding in
its own name as Trustee hereunder and shall have offered to the Trustee such
reasonable indemnity as it may require against the costs, expenses and
liabilities to be incurred therein or thereby, and the Trustee, for 60 days
after its receipt of such notice, request and offer of indemnity, shall have
neglected or refused to institute any such action, suit or proceeding; it being
understood and intended, and being expressly covenanted by each
Certificateholder with every other Certificateholder and the Trustee, that no
one or more Holders of Certificates shall have any right in any manner whatever
by virtue or by availing itself or themselves of any provisions of this
Agreement to affect, disturb or prejudice the rights of the Holders of any other
of the Certificates, or to obtain or seek to obtain priority over or preference
to any other such Holder, or to enforce any right under this Agreement, except
in the manner herein provided and for the equal, ratable and common benefit of
all Certificateholders. For the protection and enforcement of the provisions of
this Section 10.03, each and every Certificateholder and the Trustee shall be
entitled to such relief as can be given either at law or in equity.
Section 10.04. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH
SUCH LAWS.
Section 10.05. Notices. All demands, notices and communications hereunder
shall be in writing and shall be deemed to have been duly given if personally
delivered at or mailed by certified mail, return receipt requested, (a) in the
case of GEMCSI, to GE Capital Mortgage Services, Inc., Three Executive Campus,
Cherry Hill, New Jersey 08002, Attention: General Counsel, [(b) in the case of
the Funding, to GE Capital Mortgage Funding Corporation, Three Executive Campus,
Suite W. 602, Cherry Hill, New Jersey, 08002 , Attention: _________ (c) in the
case of _____, to _____ and, (d) in the case of _____, to _____, or, as to each
such Person, at such other address as shall be designated by such Person in a
written notice to each other named Person. Any notice required or permitted to
be mailed to a Certificateholder shall be given by first class mail, postage
prepaid, at the address of such Holder as shown in the Certificate Register. Any
notice so mailed within the time prescribed in this Agreement shall be
conclusively presumed to have been duly given, whether or not the
Certificateholder receives such notice.
Section 10.06. Notices to the Rating Agencies. The Servicer shall deliver
written notice of the following events to each Rating Agency promptly following
the occurrence thereof: material amendment to this Agreement; any Event of
Default; any Trigger Event; change in or termination of the Trustee; removal of
the Servicer; repurchase or replacement of any Defective Mortgage Loan pursuant
to Section 2.03; and final payment to Certificateholders. In addition, the
Servicer shall deliver copies of the following documents to each Rating Agency
at the time such documents are required to be delivered pursuant to this
Agreement: monthly statements to Certificateholders pursuant to Section 4.05,
annual report of independent accountants pursuant to Section 3.13 and annual
servicer compliance report pursuant to Section 3.12. Notwithstanding the
foregoing, the failure to deliver such notices or copies shall not constitute an
Event of Default under this Agreement.
Section 10.07. Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then to the extent permitted by law such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the other provisions of this
Agreement or of the Certificates or the rights of the Holders thereof.
Section 10.08. Certificates Nonassessable and Fully Paid. It is the
intention of the Trustee that Certificateholders shall not be personally liable
for obligations of the Trust Fund, that the beneficial ownership interests
represented by the Certificates shall be nonassessable for any losses or
expenses of the Trust Fund or for any reason whatsoever, and that Certificates
upon execution, countersignature and delivery thereof by the Trustee are and
shall be deemed fully paid.
* * *
<PAGE>
IN WITNESS WHEREOF, the Depositor, the Servicer and the Trustee have caused
this Agreement to be duly executed by their respective officers and their
respective seals, duly attested, to be hereunto affixed, all as of the day and
year first above written.
GE CAPITAL MORTGAGE FUNDING
CORPORATION
By:_____________________________
Name:
Title:
GE CAPITAL MORTGAGE SERVICES, INC.
By:_____________________________
Name:
Title:
[SEAL]
Attest:
By:_______________________________
Name:
Title:
By:_____________________________
as Trustee
Name:
Title:
Attest:
By:______________________________
Name:
Title:
<PAGE>
State of New Jersey )
) ss.:
County of Camden )
On the ____ day of _____ before me, a notary public in and for the State of
New Jersey, personally appeared _______________________, known to me who, being
by me duly sworn, did depose and say that he/she resides at
________________________ _____________________________; that he/she is a(n)
_________________________ of GE Capital Mortgage Funding Corporation, Inc., a
corporation formed under the laws of the State of New Jersey, one of the parties
that executed the foregoing instrument; that he/she knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by order of the Board of Directors of said corporation;
and that he/she signed his/her name thereto by like order.
----------------------------------
Notary Public
[Notarial Seal]
<PAGE>
)
) ss.:
)
On the _____ day of _____ before me, a notary public in and for ,
personally appeared ____________________, known to me who, being by me duly
sworn, did depose and say that he/she resides at __________________
_____________________________________________________________; that he/she is
a(n) __________________________________ of ___________________________________,
one of the parties that executed the foregoing instrument; that he/she knows the
seal of said Bank; that the seal affixed to said instrument is such corporate
seal; that it was so affixed by order of the Board of Directors of said Bank;
and that he/she signed his/her name thereto by order of the Board of Directors
of said Bank.
----------------------------------
Notary Public
[Notarial Seal]
<PAGE>
EXHIBIT A
FORMS OF CERTIFICATES
<PAGE>
FORM OF SENIOR CERTIFICATE
PRINCIPAL IN RESPECT OF THIS CERTIFICATE IS DISTRIBUTABLE AS SET FORTH IN THE
AGREEMENT (AS DEFINED HEREIN). ACCORDINGLY, THE CERTIFICATE PRINCIPAL BALANCE OF
THIS CERTIFICATE AT ANY TIME MAY BE LESS THAN THE INITIAL CERTIFICATE PRINCIPAL
BALANCE OF THIS CERTIFICATE AS SET FORTH HEREON. THIS CERTIFICATE DOES NOT
REPRESENT AN INTEREST IN OR OBLIGATION OF GE CAPITAL MORTGAGE SERVICES, INC. [,
GE CAPITAL MORTGAGE FUNDING CORPORATION] OR THE TRUSTEE (AS DEFINED HEREIN).
THIS CERTIFICATE IS A "REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT
CONDUIT" ("REMIC") (AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS
860G(a)(1) AND 860D OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED).
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
<PAGE>
REMIC MULTI-CLASS PASS-THROUGH CERTIFICATE, SERIES _____
evidencing a beneficial ownership interest in a
trust fund which consists primarily of a pool of
conventional, fixed rate, one- to four-family
mortgage loans sold and serviced by
GE CAPITAL MORTGAGE [SERVICES, INC.] [FUNDING CORPORATION]
No. R Initial Class A_ Certificate
Principal Balance:
Class A_ $_____
Certificate Interest Initial Certificate Principal Rate
_____% per annum Balance of this Certificate:
_____
Cut-off Date:
_____
First Distribution Date: CUSIP:_____
_____
<PAGE>
THIS CERTIFIES THAT _____
is the registered owner of the Percentage Interest evidenced by this Certificate
(obtained by dividing the initial Certificate Principal Balance of this
Certificate by the aggregate initial Certificate Principal Balance of all Class
A_ Certificates, both as specified above) in certain distributions with respect
to the Trust Fund, consisting primarily of a pool (the "Pool") of conventional,
fixed rate, one- to four-family mortgage loans (the "Mortgage Loans"), sold [by
GE Capital Mortgage Funding Corporation, a Delaware corporation (the
"Depositor")] and serviced by GE Capital Mortgage Services, Inc., a corporation
organized and existing under the laws of the State of New Jersey (the
"Servicer"). The Trust Fund was created pursuant to a Pooling and Servicing
Agreement dated as of _____ (the "Agreement"), between the Depositor, the
Servicer and _____, as trustee (the "Trustee"), a summary of certain of the
pertinent provisions of which is set forth herein below. To the extent not
defined herein, the terms used herein have the meanings assigned in the
Agreement. This Certificate is issued under and is subject to the terms,
provisions and conditions of the Agreement, to which Agreement the Holder of
this Certificate by virtue of the acceptance hereof assents and by which such
Holder is bound.
The Agreement requires the distribution on the 25th day of each month or,
if such 25th day is not a Business Day, the Business Day immediately following
(the "Distribution Date"), commencing in _____, to the Person in whose name this
Certificate is registered at the close of business on the last Business Day of
the month immediately preceding the month of such distribution (the "Record
Date"), of an amount equal to the product of the Percentage Interest evidenced
by this Certificate and the aggregate amount required to be distributed to
Holders of Certificates of the same Class as this Certificate pursuant to the
Agreement.
Distributions on this Certificate will be made by the Trustee 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, by
such other means of payment as such Person and the Trustee shall agree. Except
as otherwise provided in the Agreement, the final distribution on this
Certificate will be made in the applicable manner described above, after due
notice by the Trustee of the pendency of such distribution and only upon
presentation and surrender of this Certificate at the office or agency
maintained for that purpose by the Trustee in _____.
This Certificate is one of a duly authorized issue of Certificates
designated as REMIC Multi-Class Pass-Through Certificates, Series _____, issued
in _____ Classes (Class [_____, Class R, [Class RL,] Class PO, Class M Class B1,
Class B2, Class B3, Class B4 and Class B5], herein called the "Certificates").
The Certificates are limited in right of payment to certain payments on and
collections in respect of the Mortgage Loans, all as more specifically set forth
in the Agreement. The Certificateholder, by its acceptance of this Certificate,
agrees that it will look solely to the funds on deposit in the Certificate
Account for payment hereunder and that the Trustee in its individual capacity is
not personally liable to the Certificateholders for any amount payable under
this Certificate or the Agreement or, except as expressly provided in the
Agreement, subject to any liability under the Agreement.
As provided in the Agreement and with certain exceptions therein provided,
certain losses on the Mortgage Loans resulting from defaults by Mortgagors will
be borne by the Holders of the Class [M, Class B1, Class B2, Class B3, Class B4
and Class B5] Certificates before such losses will be borne by the Holders of
the other Classes of the Certificates.
This Certificate does not purport to summarize the Agreement and reference
is made to the Agreement for the interests, rights and limitations of rights,
benefits, obligations and duties evidenced hereby, and the rights, duties and
immunities of the Trustee.
The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Depositor, the Servicer and the rights of the Certificateholders under the
Agreement at any time by the Depositor, the Servicer and the Trustee with the
consent of the Holders of Certificates evidencing not less than 66% of all the
Voting Rights as defined in the Agreement. Any such consent by the Holder of
this Certificate shall be conclusive and binding on such Holder and upon all
future Holders of this Certificate and of any Certificate issued upon the
transfer hereof or in exchange herefor or in lieu hereof whether or not notation
of such consent is made upon this Certificate. The Agreement also permits the
amendment thereof, in certain limited circumstances, without the consent of the
Holders of any of the Certificates.
No transfer of any Class [M, Class B1, Class B2, Class B3, Class B4 or
Class B5] Certificate which is in the form of a Definitive Certificate shall be
made to any Person unless the Trustee has received (i) a certificate from such
transferee to the effect that such transferee (x) is not an employee benefit
plan subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA") or a plan subject to Section 4975 of the Internal Revenue Code of
1986, as amended ("Section 4975") (a "Plan") or a Person that is using the
assets of a Plan to acquire such Certificate or (y) is an insurance company
investing assets of its general account and the exemption provided by Section
III(a) of Department of Labor Prohibited Transaction Exemption 95-60, 60 Fed.
Reg. 35925 (July 12, 1995) (the "Exemption") applies to such transferee's
acquisition and holding of such Certificate, or (ii) an opinion of counsel
satisfactory to the Trustee, which opinion shall not be an expense of the
Trustee, the Depositor or the Servicer, to the effect that the purchase and
holding of such Certificate will not constitute or result in the assets of the
Trust Fund being deemed to be "plan assets" and subject to the prohibited
transaction provisions of ERISA or Section 4975 and will not subject the Trustee
or the Servicer to any obligation in addition to those undertaken in the
Agreement; provided, however, that the Trustee will not require such certificate
or opinion in the event that, as a result of a change of law or otherwise,
counsel satisfactory to the Trustee has rendered an opinion to the effect that
the purchase and holding of a Class [M, Class B1, Class B2, Class B3, Class B4
or Class B5] Certificate by a Plan or a Person that is purchasing or holding
such Certificate with the assets of a Plan will not constitute or result in a
prohibited transaction under ERISA or Section 4975.
No transfer of any Class R [or Class RL] Certificate shall be made to any
Person unless the Trustee has received a certificate from such transferee to the
effect that, among other things, such transferee (x) is not an employee benefit
plan subject to ERISA or a Plan or a Person that is using the assets of a Plan
to acquire any such Class R [or Class RL] Certificate or (y) is an insurance
company investing assets of its general account and the Exemption applies to
such transferee's acquisition and holding of any such Class R [or Class RL]
Certificate.
As provided in the Agreement, and subject to certain limitations therein
set forth, the transfer of this Certificate is registerable in the Certificate
Register of the Trustee upon surrender of this Certificate for registration of
transfer at the office or agency maintained by the Trustee in the city in which
the Corporate Trust Office of the Trustee is located or in the City of New York,
accompanied by a written instrument of transfer in form satisfactory to the
Company, the Trustee, and the Certificate Registrar duly executed by the Holder
hereof or such Holder's attorney duly authorized in writing, and thereupon one
or more new Certificates of the same Class of authorized denominations
evidencing the same aggregate Percentage Interest will be issued to the
designated transferee or transferees.
The Certificates are issuable only as registered Certificates without
coupons in denominations specified in the Agreement. As provided in the
Agreement and subject to certain limitations therein set forth, Certificates are
exchangeable for new Certificates of the same Class of authorized denominations
evidencing the same aggregate Percentage Interest as requested by the Holder
surrendering the same.
No service charge will be made for any such registration of transfer or
exchange, but the Trustee may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
The Trustee and the Certificate Registrar and any agent of the Trustee or
the Certificate Registrar may treat the Person in whose name this Certificate is
registered as the owner hereof for all purposes, and neither the Trustee, the
Certificate Registrar nor any such agent shall be affected by any notice to the
contrary.
The obligations and responsibilities created by the Agreement, and the
Trust Fund created thereby shall terminate upon payment to the
Certificateholders, or provision therefor, in accordance with the Agreement
following the earlier of (a) the repurchase by the [Depositor] [Servicer] of all
Mortgage Loans and all property acquired in respect of any Mortgage Loan
remaining in the Trust Fund at a price equal to the sum of (x) 100% of the
unpaid principal balance of each Mortgage Loan (other than a Mortgage Loan
described in clause (y)) plus accrued and unpaid interest thereon at the rate
provided for in the Agreement (less any amounts representing previously
unreimbursed Monthly Advances) and (y) the appraised value of any property
acquired in respect of a Mortgage Loan determined as provided in the Agreement,
and (b) the later of the final payment or other liquidation (or any Monthly
Advance with respect thereto) of the last Mortgage Loan remaining in the Trust
Fund and the disposition of all property acquired upon foreclosure or by deed in
lieu of foreclosure of any Mortgage Loan. The right of the [Depositor]
[Servicer] to repurchase all the Mortgage Loans and property in respect of
Mortgage Loans is subject to the Pool Scheduled Principal Balance at the time of
repurchase being less than 10 percent of the Pool Scheduled Principal Balance as
of the Cut-off Date. The [Depositor] [Servicer]'s exercise of such right will
result in early retirement of the Certificates.
Unless this Certificate has been countersigned by the Trustee, by manual
signature, this Certificate shall not be entitled to any benefit under the
Agreement or be valid for any purpose.
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed under its official seal.
-----------------------,
not in its individual capacity
but solely as Trustee
(SEAL)
By: _______________________
Name:
Title:
Countersigned:
By_______________________
Authorized Signatory of
________________________,
not in its individual capacity but
solely as Trustee
Dated:
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and
transfer(s) unto
Please insert social security
or other identifying number of assignee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please print or typewrite name and address
including postal zip code of assignee)
- --------------------------------------------------------------------------------
this Certificate evidencing a Percentage Interest in certain distributions with
respect to the Trust Fund and hereby authorizes the transfer of registration of
such interest to assignee on the Certificate Register of said Trust Fund.
I (we) further direct the Certificate Registrar to issue a new Certificate
of like Class and Percentage Interest, to the above named assignee and deliver
such Certificate to the following address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated:________________
______________________________________
Signature by or on behalf of assignor
______________________________________
*Signature Guaranteed*
*The signature hereon must be guaranteed by a bank, trust company or broker of
the signatory who is a member of a signature guarantee medallion program.
<PAGE>
FORM OF RESIDUAL CERTIFICATE
[PRINCIPAL IN RESPECT OF THIS CERTIFICATE IS DISTRIBUTABLE AS SET FORTH IN THE
AGREEMENT (AS DEFINED HEREIN). ACCORDINGLY, THE CERTIFICATE PRINCIPAL BALANCE OF
THIS CERTIFICATE AT ANY TIME MAY BE LESS THAN THE INITIAL CERTIFICATE PRINCIPAL
BALANCE OF THIS CERTIFICATE AS SET FORTH HEREON.] THIS CERTIFICATE DOES NOT
REPRESENT AN INTEREST IN OR OBLIGATION OF GE CAPITAL MORTGAGE SERVICES, INC.,
[GE CAPITAL MORTGAGE FUNDING CORPORATION] OR THE TRUSTEE (AS DEFINED HEREIN).
TRANSFER OF THIS CERTIFICATE IS RESTRICTED AS PROVIDED IN SECTION 5.02 OF THE
AGREEMENT.
FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS THE "RESIDUAL
INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT" ("REMIC") AS THOSE
TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G(a)(2) AND 860D OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED (THE "CODE"). A TRANSFEREE OF THIS CERTIFICATE,
BY ACCEPTANCE HEREOF, IS DEEMED TO HAVE ACCEPTED THIS CERTIFICATE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFERABILITY AS SET FORTH IN THE AGREEMENT, AND SHALL
BE REQUIRED TO FURNISH AN AFFIDAVIT TO THE TRANSFEROR AND THE TRUSTEE TO THE
EFFECT THAT IT IS NOT A DISQUALIFIED ORGANIZATION, AS SUCH TERM IS DEFINED IN
CODE SECTION 860E(e)(5), AN AGENT (INCLUDING A BROKER, NOMINEE OR OTHER
MIDDLEMAN) FOR SUCH DISQUALIFIED ORGANIZATION, OR AN ENTITY THAT HOLDS REMIC
RESIDUAL SECURITIES AS NOMINEE TO FACILITATE THE CLEARANCE AND SETTLEMENT OF
SUCH SECURITIES THROUGH BOOK-ENTRY CHANGES IN ACCOUNTS OF PARTICIPATING
ORGANIZATIONS (A "BOOK-ENTRY NOMINEE") AND TO HAVE AGREED TO SUCH AMENDMENTS TO
THE AGREEMENT AS MAY BE REQUIRED TO FURTHER EFFECTUATE THE RESTRICTIONS ON
TRANSFERS TO DISQUALIFIED ORGANIZATIONS, AGENTS THEREOF OR BOOK-ENTRY NOMINEES.
THE HOLDER OF THIS CLASS R CERTIFICATE, BY ACCEPTANCE HEREOF, IS DEEMED TO HAVE
IRREVOCABLY APPOINTED THE SERVICER (AS DEFINED HEREIN) AS ITS AGENT AND
ATTORNEY-IN-FACT TO ACT AS "TAX MATTERS PERSON" OF THE UPPER-TIER REMIC TO
PERFORM THE FUNCTIONS OF A "TAX MATTERS PARTNER" FOR PURPOSES OF SUBCHAPTER C OF
CHAPTER 63 OF SUBTITLE F OF THE CODE, WITH RESPECT TO THE TRUST FUND.
<PAGE>
THIS CERTIFICATE MAY NOT BE PURCHASED BY OR TRANSFERRED TO ANY DISQUALIFIED
ORGANIZATION, BOOK-ENTRY NOMINEE OR NON-PERMITTED FOREIGN HOLDER, AS DEFINED IN
THE AGREEMENT OR TO ANY EMPLOYEE BENEFIT PLAN SUBJECT TO THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA") OR A PLAN SUBJECT TO SECTION
4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED ("SECTION 4975") (A
"PLAN") OR A PERSON THAT IS USING THE ASSETS OF A PLAN TO ACQUIRE THIS
CERTIFICATE, EXCEPT AS DESCRIBED HEREIN. THE TRANSFER OF THIS CERTIFICATE IS
SUBJECT TO CERTAIN OTHER RESTRICTIONS AS SET FORTH HEREIN.
<PAGE>
REMIC MULTI-CLASS PASS-THROUGH CERTIFICATE, SERIES _____
evidencing a beneficial ownership interest in a
trust fund which consists primarily of a pool of
conventional, fixed rate, one- to four-family
mortgage loans sold and serviced by
GE CAPITAL MORTGAGE [SERVICES, INC.] [FUNDING CORPORATION]
No. R Initial Class R Certificate
Principal Balance:
Class R [$100]
Certificate Interest Initial Certificate Principal Rate
_____% per annum: Balance of this Certificate:
-----
Cut-off Date:
_____
First Distribution Date: CUSIP: _____
_____
<PAGE>
THIS CERTIFIES THAT _____
is the registered owner of the Percentage Interest evidenced by this Certificate
(obtained by dividing the initial Certificate Principal Balance of this
Certificate by the aggregate initial Certificate Principal Balance of all Class
R Certificates, both as specified above) in certain distributions with respect
to the Trust Fund, consisting primarily of a pool (the "Pool") of conventional,
fixed rate, one- to four-family mortgage loans (the "Mortgage Loans"), sold [by
GE Capital Mortgage Funding Corporation, a Delaware corporation (the
"Depositor")] and serviced by GE Capital Mortgage Services, Inc., a corporation
organized and existing under the laws of the State of New Jersey (the
"Servicer"). The Trust Fund was created pursuant to a Pooling and Servicing
Agreement dated as of _____ (the "Agreement"), between the Depositor, the
Servicer and _____, as trustee (the "Trustee"), a summary of certain of the
pertinent provisions of which is set forth herein below. To the extent not
defined herein, the terms used herein have the meanings assigned in the
Agreement. This Certificate is issued under and is subject to the terms,
provisions and conditions of the Agreement, to which Agreement the Holder of
this Certificate by virtue of the acceptance hereof assents and by which such
Holder is bound.
The Agreement requires the distribution on the 25th day of each month or,
if such 25th day is not a Business Day, the Business Day immediately following
(the "Distribution Date"), commencing in _____, to the Person in whose name this
Certificate is registered at the close of business on the last Business Day of
the month immediately preceding the month of such distribution (the "Record
Date"), of an amount equal to the product of the Percentage Interest evidenced
by this Certificate and the aggregate amount required to be distributed to
Holders of Certificates of the same Class as this Certificate pursuant to the
Agreement.
Distributions on this Certificate will be made by the Trustee 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, by
such other means of payment as such Person and the Trustee shall agree. Except
as otherwise provided in the Agreement, the final distribution on this
Certificate will be made in the applicable manner described above, after due
notice by the Trustee of the pendency of such distribution and only upon
presentation and surrender of this Certificate at the office or agency
maintained for that purpose by the Trustee in _____.
This Certificate is one of a duly authorized issue of Certificates
designated as REMIC Multi-Class Pass-Through Certificates, Series _____, issued
in _____ Classes (Class [_____, Class R, [Class RL,] Class PO, Class M, Class
B1, Class B2, Class B3, Class B4 and Class B5,] herein called the
"Certificates").
The Certificates are limited in right of payment to certain payments on and
collections in respect of the Mortgage Loans, all as more specifically set forth
in the Agreement. The Certificateholder, by its acceptance of this Certificate,
agrees that it will look solely to the funds on deposit in the Certificate
Account for payment hereunder and that the Trustee in its individual capacity is
not personally liable to the Certificateholders for any amount payable under
this Certificate or the Agreement or, except as expressly provided in the
Agreement, subject to any liability under the Agreement.
As provided in the Agreement and with certain exceptions therein provided,
certain losses on the Mortgage Loans resulting from defaults by Mortgagors will
be borne by the Holders of the Class [M, Class B1, Class B2, Class B3, Class B4
and Class B5] Certificates before such losses will be borne by the Holders of
the other Classes of the Certificates.
This Certificate does not purport to summarize the Agreement and reference
is made to the Agreement for the interests, rights and limitations of rights,
benefits, obligations and duties evidenced hereby, and the rights, duties and
immunities of the Trustee.
The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Depositor, the Servicer and the rights of the Certificateholders under the
Agreement at any time by the Depositor, the Servicer and the Trustee with the
consent of the Holders of Certificates evidencing not less than 66% of all the
Voting Rights as defined in the Agreement. Any such consent by the Holder of
this Certificate shall be conclusive and binding on such Holder and upon all
future Holders of this Certificate and of any Certificate issued upon the
transfer hereof or in exchange herefor or in lieu hereof whether or not notation
of such consent is made upon this Certificate. The Agreement also permits the
amendment thereof, in certain limited circumstances, without the consent of the
Holders of any of the Certificates.
No transfer of any Class [M, Class B1, Class B2, Class B3, Class B4 or
Class B5] Certificate which is in the form of a Definitive Certificate shall be
made to any Person unless the Trustee has received (i) a certificate from such
transferee to the effect that such transferee (x) is not an employee benefit
plan subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA") or a plan subject to Section 4975 of the Internal Revenue Code of
1986, as amended ("Section 4975") (a "Plan") or a Person that is using the
assets of a Plan to acquire such Certificate or (y) is an insurance company
investing assets of its general account and the exemption provided by Section
III(a) of Department of Labor Prohibited Transaction Exemption 95-60, 60 Fed.
Reg. 35925 (July 12, 1995) (the "Exemption") applies to such transferee's
acquisition and holding of such Certificate, or (ii) an opinion of counsel
satisfactory to the Trustee, which opinion shall not be an expense of the
Trustee, the Depositor or the Servicer, to the effect that the purchase and
holding of such Certificate will not constitute or result in the assets of the
Trust Fund being deemed to be "plan assets" and subject to the prohibited
transaction provisions of ERISA or Section 4975 and will not subject the Trustee
or the Servicer to any obligation in addition to those undertaken in the
Agreement; provided, however, that the Trustee will not require such certificate
or opinion in the event that, as a result of a change of law or otherwise,
counsel satisfactory to the Trustee has rendered an opinion to the effect that
the purchase and holding of a Class [M, Class B1, Class B2, Class B3, Class B4
or Class B5] Certificate by a Plan or a Person that is purchasing or holding
such Certificate with the assets of a Plan will not constitute or result in a
prohibited transaction under ERISA or Section 4975.
No transfer of any Class R [or Class RL] Certificate shall be made to any
Person unless the Trustee has received a certificate from such transferee to the
effect that, among other things, such transferee (x) is not an employee benefit
plan subject to ERISA or a Plan or a Person that is using the assets of a Plan
to acquire any such Class R [or Class RL] Certificate or (y) is an insurance
company investing assets of its general account and the Exemption applies to
such transferee's acquisition and holding of any such Class R [or Class RL]
Certificate.
As provided in the Agreement, and subject to certain limitations therein
set forth, the transfer of this Certificate is registerable in the Certificate
Register of the Trustee upon surrender of this Certificate for registration of
transfer at the office or agency maintained by the Trustee in the city in which
the Corporate Trust Office of the Trustee is located or in the City of New York,
accompanied by a written instrument of transfer in form satisfactory to the
Company, the Trustee, and the Certificate Registrar duly executed by the Holder
hereof or such Holder's attorney duly authorized in writing, and thereupon one
or more new Certificates of the same Class of authorized denominations
evidencing the same aggregate Percentage Interest will be issued to the
designated transferee or transferees.
The Certificates are issuable only as registered Certificates without
coupons in denominations specified in the Agreement. As provided in the
Agreement and subject to certain limitations therein set forth, Certificates are
exchangeable for new Certificates of the same Class of authorized denominations
evidencing the same aggregate Percentage Interest as requested by the Holder
surrendering the same.
No service charge will be made for any such registration of transfer or
exchange, but the Trustee may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
The Trustee and the Certificate Registrar and any agent of the Trustee or
the Certificate Registrar may treat the Person in whose name this Certificate is
registered as the owner hereof for all purposes, and neither the Trustee, the
Certificate Registrar nor any such agent shall be affected by any notice to the
contrary.
The obligations and responsibilities created by the Agreement, and the
Trust Fund created thereby shall terminate upon payment to the
Certificateholders, or provision therefor, in accordance with the Agreement
following the earlier of (a) the repurchase by the [Depositor] [Servicer] of all
Mortgage Loans and all property acquired in respect of any Mortgage Loan
remaining in the Trust Fund at a price equal to the sum of (x) 100% of the
unpaid principal balance of each Mortgage Loan (other than a Mortgage Loan
described in clause (y)) plus accrued and unpaid interest thereon at the rate
provided for in the Agreement (less any amounts representing previously
unreimbursed Monthly Advances) and (y) the appraised value of any property
acquired in respect of a Mortgage Loan determined as provided in the Agreement,
and (b) the later of the final payment or other liquidation (or any Monthly
Advance with respect thereto) of the last Mortgage Loan remaining in the Trust
Fund and the disposition of all property acquired upon foreclosure or by deed in
lieu of foreclosure of any Mortgage Loan. The right of the [Depositor]
[Servicer] to repurchase all the Mortgage Loans and property in respect of
Mortgage Loans is subject to the Pool Scheduled Principal Balance at the time of
repurchase being less than 10 percent of the Pool Scheduled Principal Balance as
of the Cut-off Date. The [Depositor] [Servicer]'s exercise of such right will
result in early retirement of the Certificates.
Unless this Certificate has been countersigned by the Trustee, by manual
signature, this Certificate shall not be entitled to any benefit under the
Agreement or be valid for any purpose.
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed under its official seal.
_______________________________
not in its individual
capacity but solely as Trustee
(SEAL)
By: ___________________________
Name:
Title:
Countersigned:
By_____________________________
Authorized Signatory of
_______________________________
not in its individual capacity but
solely as Trustee
Dated:
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and
transfer(s) unto
Please insert social security
or other identifying number of assignee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please print or typewrite name and address
including postal zip code of assignee)
- --------------------------------------------------------------------------------
this Certificate evidencing a Percentage Interest in certain distributions with
respect to the Trust Fund and hereby authorizes the transfer of registration of
such interest to assignee on the Certificate Register of said Trust Fund.
I (we) further direct the Certificate Registrar to issue a new Certificate
of like Class and Percentage Interest, to the above named assignee and deliver
such Certificate to the following address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated:_______________
_____________________________________
Signature by or on behalf of assignor
______________________________________
*Signature Guaranteed*
* The signature hereon must be guaranteed by a bank, trust company or broker
of the signatory who is a member of a signature guarantee medallion
program.
<PAGE>
FORM OF JUNIOR CERTIFICATE
THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF DISTRIBUTION TO CERTAIN CLASSES OF
THE CERTIFICATES AS SET FORTH HEREIN AND IN THE AGREEMENT REFERRED TO HEREIN.
PRINCIPAL IN RESPECT OF THIS CERTIFICATE IS DISTRIBUTABLE AS SET FORTH IN THE
AGREEMENT (AS DEFINED HEREIN). ACCORDINGLY, THE CERTIFICATE PRINCIPAL BALANCE OF
THIS CERTIFICATE AT ANY TIME MAY BE LESS THAN THE INITIAL CERTIFICATE PRINCIPAL
BALANCE OF THIS CERTIFICATE AS SET FORTH HEREON. THIS CERTIFICATE DOES NOT
REPRESENT AN INTEREST IN OR OBLIGATION OF GE CAPITAL MORTGAGE SERVICES, INC. [,
GE CAPITAL MORTGAGE FUNDING CORPORATION] OR THE TRUSTEE (AS DEFINED HEREIN).
TRANSFER OF THIS CERTIFICATE IS RESTRICTED AS PROVIDED IN SECTION 5.02 OF THE
AGREEMENT.
THIS CERTIFICATE IS A "REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT
CONDUIT" ("REMIC") (AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS
860G(a)(1) AND 860D OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED).
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
THIS CERTIFICATE MAY NOT BE PURCHASED BY OR TRANSFERRED TO ANY EMPLOYEE BENEFIT
PLAN SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
("ERISA") OR A PLAN SUBJECT TO SECTION 4975 OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED ("SECTION 4975") (A "PLAN") OR A PERSON THAT IS USING THE
ASSETS OF A PLAN TO ACQUIRE THIS CERTIFICATE, EXCEPT AS DESCRIBED HEREIN. THE
TRANSFER OF THIS CERTIFICATE IS SUBJECT TO CERTAIN OTHER RESTRICTIONS AS SET
FORTH HEREIN.
<PAGE>
REMIC MULTI-CLASS PASS-THROUGH CERTIFICATE, SERIES _____
evidencing a beneficial ownership interest in a
trust fund which consists primarily of a pool of
conventional, fixed rate, one- to four-family
mortgage loans sold and serviced by
GE CAPITAL MORTGAGE [SERVICES, INC.] [FUNDING CORPORATION]
No. R Initial Class [M] Certificate
Principal Balance:
Class [M] $_____
Certificate Interest Initial Certificate Principal Rate
_____% per annum: Balance of this Certificate:
_____
Cut-off Date:
_____
First Distribution Date: CUSIP: __________
_____
<PAGE>
THIS CERTIFIES THAT _____
is the registered owner of the Percentage Interest evidenced by this Certificate
(obtained by dividing the initial Certificate Principal Balance of this
Certificate by the aggregate initial Certificate Principal Balance of all Class
[M] Certificates, both as specified above) in certain distributions with respect
to the Trust Fund, consisting primarily of a pool (the "Pool") of conventional,
fixed rate, one- to four-family mortgage loans (the "Mortgage Loans"), sold [by
GE Capital Mortgage Funding Corporation, a Delaware corporation (the
"Depositor") and serviced by GE Capital Mortgage Services, Inc., a corporation
organized and existing under the laws of the State of New Jersey (the "Servicer
"). The Trust Fund was created pursuant to a Pooling and Servicing Agreement
dated as of _____ (the "Agreement"), between the Depositor, the Servicer and
_____, as trustee (the "Trustee"), a summary of certain of the pertinent
provisions of which is set forth herein below. To the extent not defined herein,
the terms used herein have the meanings assigned in the Agreement. This
Certificate is issued under and is subject to the terms, provisions and
conditions of the Agreement, to which Agreement the Holder of this Certificate
by virtue of the acceptance hereof assents and by which such Holder is bound.
The Agreement requires the distribution on the 25th day of each month or,
if such 25th day is not a Business Day, the Business Day immediately following
(the "Distribution Date"), commencing in _____, to the Person in whose name this
Certificate is registered at the close of business on the last Business Day of
the month immediately preceding the month of such distribution (the "Record
Date"), of an amount equal to the product of the Percentage Interest evidenced
by this Certificate and the aggregate amount required to be distributed to
Holders of Certificates of the same Class as this Certificate pursuant to the
Agreement.
Distributions on this Certificate will be made by the Trustee 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, by
such other means of payment as such Person and the Trustee shall agree. Except
as otherwise provided in the Agreement, the final distribution on this
Certificate will be made in the applicable manner described above, after due
notice by the Trustee of the pendency of such distribution and only upon
presentation and surrender of this Certificate at the office or agency
maintained for that purpose by the Trustee _____.
This Certificate is one of a duly authorized issue of Certificates
designated as REMIC Multi-Class Pass-Through Certificates, Series _____, issued
in _____ Classes (Class [_____, Class R, [Class RL], Class PO, Class M, Class
B1, Class B2, Class B3, Class B4 and Class B5], herein called the
"Certificates").
The Certificates are limited in right of payment to certain payments on and
collections in respect of the Mortgage Loans, all as more specifically set forth
in the Agreement. The Certificateholder, by its acceptance of this Certificate,
agrees that it will look solely to the funds on deposit in the Certificate
Account for payment hereunder and that the Trustee in its individual capacity is
not personally liable to the Certificateholders for any amount payable under
this Certificate or the Agreement or, except as expressly provided in the
Agreement, subject to any liability under the Agreement.
As provided in the Agreement and with certain exceptions therein provided,
certain losses on the Mortgage Loans resulting from defaults by Mortgagors will
be borne by the Holders of the Class [M, Class B1, Class B2, Class B3, Class B4
and Class B5] Certificates before such losses will be borne by the Holders of
the other Classes of the Certificates.
This Certificate does not purport to summarize the Agreement and reference
is made to the Agreement for the interests, rights and limitations of rights,
benefits, obligations and duties evidenced hereby, and the rights, duties and
immunities of the Trustee.
The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Depositor, the Servicer and the rights of the Certificateholders under the
Agreement at any time by the Depositor, the Servicer and the Trustee with the
consent of the Holders of Certificates evidencing not less than 66% of all the
Voting Rights as defined in the Agreement. Any such consent by the Holder of
this Certificate shall be conclusive and binding on such Holder and upon all
future Holders of this Certificate and of any Certificate issued upon the
transfer hereof or in exchange herefor or in lieu hereof whether or not notation
of such consent is made upon this Certificate. The Agreement also permits the
amendment thereof, in certain limited circumstances, without the consent of the
Holders of any of the Certificates.
No transfer of any Class [M, Class B1, Class B2, Class B3, Class B4 or
Class B5] Certificate which is in the form of a Definitive Certificate shall be
made to any Person unless the Trustee has received (i) a certificate from such
transferee to the effect that such transferee (x) is not an employee benefit
plan subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA") or a plan subject to Section 4975 of the Internal Revenue Code of
1986, as amended ("Section 4975") (a "Plan") or a Person that is using the
assets of a Plan to acquire such Certificate or (y) is an insurance company
investing assets of its general account and the exemption provided by Section
III(a) of Department of Labor Prohibited Transaction Exemption 95-60, 60 Fed.
Reg. 35925 (July 12, 1995) (the "Exemption") applies to such transferee's
acquisition and holding of such Certificate, or (ii) an opinion of counsel
satisfactory to the Trustee, which opinion shall not be an expense of the
Trustee, the Depositor or the Servicer or, to the effect that the purchase and
holding of such Certificate will not constitute or result in the assets of the
Trust Fund being deemed to be "plan assets" and subject to the prohibited
transaction provisions of ERISA or Section 4975 and will not subject the Trustee
or the Servicer to any obligation in addition to those undertaken in the
Agreement; provided, however, that the Trustee will not require such certificate
or opinion in the event that, as a result of a change of law or otherwise,
counsel satisfactory to the Trustee has rendered an opinion to the effect that
the purchase and holding of a Class [M, Class B1, Class B2, Class B3, Class B4
or Class B5] Certificate by a Plan or a Person that is purchasing or holding
such Certificate with the assets of a Plan will not constitute or result in a
prohibited transaction under ERISA or Section 4975.
No transfer of any Class R [or Class RL] Certificate shall be made to any
Person unless the Trustee has received a certificate from such transferee to the
effect that, among other things, such transferee (x) is not an employee benefit
plan subject to ERISA or a Plan or a Person that is using the assets of a Plan
to acquire any such Class R [or Class RL] Certificate or (y) is an insurance
company investing assets of its general account and the Exemption applies to
such transferee's acquisition and holding of any such Class R [or Class RL]
Certificate.
As provided in the Agreement, and subject to certain limitations therein
set forth, the transfer of this Certificate is registerable in the Certificate
Register of the Trustee upon surrender of this Certificate for registration of
transfer at the office or agency maintained by the Trustee in the city in which
the Corporate Trust Office of the Trustee is located or in the City of New York,
accompanied by a written instrument of transfer in form satisfactory to the
Company, the Trustee, and the Certificate Registrar duly executed by the Holder
hereof or such Holder's attorney duly authorized in writing, and thereupon one
or more new Certificates of the same Class of authorized denominations
evidencing the same aggregate Percentage Interest will be issued to the
designated transferee or transferees.
The Certificates are issuable only as registered Certificates without
coupons in denominations specified in the Agreement. As provided in the
Agreement and subject to certain limitations therein set forth, Certificates are
exchangeable for new Certificates of the same Class of authorized denominations
evidencing the same aggregate Percentage Interest as requested by the Holder
surrendering the same.
No service charge will be made for any such registration of transfer or
exchange, but the Trustee may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
The Trustee and the Certificate Registrar and any agent of the Trustee or
the Certificate Registrar may treat the Person in whose name this Certificate is
registered as the owner hereof for all purposes, and neither the Trustee, the
Certificate Registrar nor any such agent shall be affected by any notice to the
contrary.
The obligations and responsibilities created by the Agreement, and the
Trust Fund created thereby shall terminate upon payment to the
Certificateholders, or provision therefor, in accordance with the Agreement
following the earlier of (a) the repurchase by the [Depositor] [Servicer] of all
Mortgage Loans and all property acquired in respect of any Mortgage Loan
remaining in the Trust Fund at a price equal to the sum of (x) 100% of the
unpaid principal balance of each Mortgage Loan (other than a Mortgage Loan
described in clause (y)) plus accrued and unpaid interest thereon at the rate
provided for in the Agreement (less any amounts representing previously
unreimbursed Monthly Advances) and (y) the appraised value of any property
acquired in respect of a Mortgage Loan determined as provided in the Agreement,
and (b) the later of the final payment or other liquidation (or any Monthly
Advance with respect thereto) of the last Mortgage Loan remaining in the Trust
Fund and the disposition of all property acquired upon foreclosure or by deed in
lieu of foreclosure of any Mortgage Loan. The right of the [Depositor]
[Servicer] to repurchase all the Mortgage Loans and property in respect of
Mortgage Loans is subject to the Pool Scheduled Principal Balance at the time of
repurchase being less than 10 percent of the Pool Scheduled Principal Balance as
of the Cut-off Date. The [Depositor] [Servicer]'s exercise of such right will
result in early retirement of the Certificates.
Unless this Certificate has been countersigned by the Trustee, by manual
signature, this Certificate shall not be entitled to any benefit under the
Agreement or be valid for any purpose.
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed under its official seal.
_______________________________
not in its individual
capacity but solely as Trustee
(SEAL)
By: ___________________________
Name:
Title:
Countersigned:
By_____________________________
Authorized Signatory of
_______________________________
not in its individual capacity but
solely as Trustee
Dated:
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and
transfer(s) unto
Please insert social security
or other identifying number of assignee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please print or typewrite name and address
including postal zip code of assignee)
- --------------------------------------------------------------------------------
this Certificate evidencing a Percentage Interest in certain distributions with
respect to the Trust Fund and hereby authorizes the transfer of registration of
such interest to assignee on the Certificate Register of said Trust Fund.
I (we) further direct the Certificate Registrar to issue a new Certificate
of like Class and Percentage Interest, to the above named assignee and deliver
such Certificate to the following address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated:_________________
_____________________________________
Signature by or on behalf of assignor
______________________________________
*Signature Guaranteed*
* The signature hereon must be guaranteed by a bank, trust company or broker
of the signatory who is a member of a signature guarantee medallion
program.
<PAGE>
EXHIBIT B
PRINCIPAL BALANCE SCHEDULES
<PAGE>
EXHIBIT C
MORTGAGE LOANS
[Each Mortgage Loan shall be identified by loan number, address of the
Mortgaged Property and name of the Mortgagor. The following details shall be set
forth as to each Mortgage Loan: (i) the principal balance at the time of its
origination, (ii) the Scheduled Principal Balance as of the Cut-off Date, (iii)
the interest rate borne by the Mortgage Note, (iv) the scheduled monthly level
payment of principal and interest, (v) the Loan-To-Value ratio, (vi) the
maturity date of the Mortgage Note and (vii) the Base Servicing Fee Rate for
such Mortgage Loan. Cooperative Loans and Enhanced Streamlined Refinance program
loans shall be designated as such.]
<PAGE>
EXHIBIT D
FORM OF SERVICER'S CERTIFICATE
----------------, ------
(month) (year)
GE CAPITAL MORTGAGE SERVICES, INC.
REMIC Multi-Class Pass-Through Certificates,
Series _____
Pursuant to the Pooling and Servicing Agreement dated as of _____ (the
"Agreement") between GE Capital Mortgage Services, Inc. (the "Company"), and
_____ (the "Trustee"), governing the Certificates referred to above, the Company
hereby certifies to the Trustee:
With respect to the Agreement and as of the Determination Date for this
month:
A. Mortgage Loan Information:
(1) Aggregate Scheduled Monthly Payments:
(a) Principal $________
(b) Interest $________
(c) Total $________
(2) Aggregate Monthly Payments received and Monthly Advances made this
Month:
(a) Principal $________
(b) Interest $________
(c) Total $________
(3) Aggregate Principal Prepayments in part received and applied in the
applicable Prepayment Period:
(a) Principal $________
(b) Interest $________
(c) Total $________
(4) Aggregate Principal Prepayments in full received in the applicable
Prepayment Period:
(a) Principal $________
(b) Interest $________
(c) Total $________
(5) Aggregate Insurance Proceeds (including purchases of
Mortgage Loans by primary mortgage insurers) for prior
month:
(a) Principal $________
(b) Interest $________
(c) Total $________
(6) Aggregate Liquidation Proceeds for prior month:
(a) Principal $________
(b) Interest $________
(c) Total $________
(7) Aggregate Purchase Prices for Defaulted Mortgage Loans:
(a) Principal $________
(b) Interest $________
(c) Total $________
(8) Aggregate Purchase Prices (and substitution adjustments) for Defective
Mortgage Loans:
(a) Principal $________
(b) Interest $________
(c) Total $________
(9) Pool Scheduled Principal Balance: $________
(10) Available Funds: $________
(11) Realized Losses for prior month: $________
(12) Aggregate Realized Losses and Debt Service Reductions:
(a) Deficient Valuations $________
(b) Special Hazard Losses $________
(c) Fraud Losses $________
(d) Excess Bankruptcy Losses $________
(e) Excess Special Hazard Losses $________
(f) Excess Fraud Losses $________
(g) Debt Service Reductions $________
(13) Compensating Interest Payment: $________
(14) Accrued Certificate Interest, Unpaid Class Interest
Shortfalls and Pay-out Rate:
[Classes of Certificates] $________ $________ __________%
(15) Accrual Amount:
[Class of Certificates] $________
(16) Principal distributable:
[Classes of Certificates] $________
(17) Additional distributions to the [Class RL Certificates
pursuant to Sections 2.05(d) and the] Class R Certificates
pursuant to Section 4.01(b):
[Class RL $________]
Class R $________
(18) Distributions Allocable to Unanticipated Recoveries:
[Classes of Certificates] $_____________
B. Other Amounts:
1. Senior Percentage for such Distribution Date: _____________%
2. Senior Prepayment Percentage for such
Distribution Date: _____________%
3. Junior Percentage for such Distribution Date: _____________%
4. Junior Prepayment Percentage for such
Distribution Date: _____________%
5. [Group II Senior Percentage for such
Distribution Date: _____________%]
6. [Group II Senior Scheduled Distribution
Percentage for such Distribution Date: _____________%]
7. [Group II Senior Prepayment Distribution
Percentage for such Distribution Date: _____________%]
8. Subordinate Certificate Writedown Amount for
such Distribution Date: $_____________
9. Prepayment Distribution Triggers satisfied: Yes No
--- --
[Classes of Junior Certificates, excepting Class M
Certificates]
10. Base Servicing Fee: _____________%
11. Supplemental Servicing Fee: $_____________
Capitalized terms used in this Certificate shall have the same meanings as
in the Agreement.
<PAGE>
EXHIBIT E
FORM OF TRANSFER CERTIFICATE AS TO ERISA MATTERS FOR
DEFINITIVE ERISA-RESTRICTED CERTIFICATES
[Name and address of Trustee]
[NAME OF OFFICER] ______________________ hereby certifies that:
1. That he [she] is [title of officer] ___________________________________
of [name of Investor] _______________________________________ (the "Investor"),
a __________ ______________________ [description of type of entity] duly
organized and existing under the laws of the [State of ____________] [United
States], on behalf of which he [she] makes this affidavit.
2. The Investor (i) is not, and on ________________ [insert date of
transfer of Certificate to Investor] will not be, and on such date will not be
investing the funds of, an employee benefit plan subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or a plan subject
to Section 4975 of the Code or (ii) is an insurance company investing assets of
its general account and the exemptions provided by Section III(a) of Department
of Labor Prohibited Transaction Class Exemption 95-60, 60 Fed. Reg. 35925 (July
12, 1995) (the "Exemptions") apply to the Investor's acquisition and holding or
any ERISA-Restricted Certificate.
3. The Investor hereby acknowledges that under the terms of the Pooling and
Servicing Agreement (the "Agreement") between __________________, as Trustee [,
GE Capital Mortgage Funding Corporation] and GE Capital Mortgage Services, Inc.,
dated as of __________________, no transfer of any ERISA-Restricted Certificate
shall be permitted to be made to any person unless the Trustee has received (i)
a certificate from such transferee to the effect that (x) such transferee is not
an employee benefit plan subject to ERISA or a plan subject to Section 4975 of
the Code (a "Plan") and is not using the assets of any such employee benefit or
other plan to acquire any such Certificate or (y) such transferee is an
insurance company investing assets of its general account and the Exemptions
apply to such transferee's acquisition and holding of any such Certificate or
(ii) an opinion of counsel satisfactory to the Trustee to the effect that the
purchase and holding of any such Certificate will not constitute or result in
the assets of the Trust Fund created by the Agreement being deemed to be "plan
assets" and subject to the prohibited transaction provisions of ERISA or Section
4975 of the Code and will not subject the Trustee or the Company to any
obligation in addition to those undertaken in the Agreement (provided, however,
that the Trustee will not require such certificate or opinion in the event that,
as a result of change of law or otherwise, counsel satisfactory to the Trustee
has rendered an opinion to the effect that the purchase and holding of any such
Certificate by a Plan or a Person that is purchasing or holding any such
Certificate with the assets of a Plan will not constitute or result in a
prohibited transaction under ERISA or Section 4975 of the Code).
<PAGE>
[4. The ERISA-Restricted Certificates shall be registered in the name of
______________________________________________ as nominee for the Investor.]
IN WITNESS WHEREOF, the Investor has caused this instrument to be executed
on its behalf, pursuant to authority of its Board of Directors, by its [title of
officer] __________________ and its corporate seal to be hereunder attached,
attested by its [Assistant] Secretary, this ____ day of _________, ___.
__________________________________
[name of Investor]
By: ______________________________
Name:
Title:
The undersigned
hereby acknowledges that
it is holding and will
hold the ERISA-Restricted
Certificates at the
exclusive direction of
and as nominee of the
Investor named above.
______________________________
[name of nominee]
By:___________________________
Name:
Title:
<PAGE>
EXHIBIT F
FORM OF RESIDUAL CERTIFICATE TRANSFEREE AFFIDAVIT
STATE OF )
) ss.:
COUNTY OF )
[NAME OF OFFICER], _________________ being first duly sworn, deposes and says:
1. That he [she] is [title of officer] ________________________ of [name of
Purchaser] _________________________________________ (the "Purchaser"), a
_________________ ____________________ [description of type of entity] duly
organized and existing under the laws of the [State of __________] [United
States], on behalf of which he [she] makes this affidavit.
2. That the Purchaser's Taxpayer Identification Number is [ ].
3. That the Purchaser is not a "disqualified organization" within the
meaning of Section 860E(e)(5) of the Internal Revenue Code of 1986, as amended
(the "Code") and will not be a "disqualified organization" as of [date of
transfer], and that the Purchaser is not acquiring a Residual Certificate (as
defined below) for the account of, or as agent (including a broker, nominee, or
other middleman) for, any person or entity from which it has not received an
affidavit substantially in the form of this affidavit. For these purposes, a
"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 (other than an instrumentality
if all of its activities are subject to tax and a majority of its board of
directors is not selected by such governmental entity), any cooperative
organization furnishing electric energy or providing telephone service to
persons in rural areas as described in Code Section 1381(a)(2)(C), or any
organization (other than a farmers' cooperative described in Code Section 521)
that is exempt from federal income tax unless such organization is subject to
the tax on unrelated business income imposed by Code Section 511. As used
herein, "Residual Certificate" means any Certificate designated as a "Class R
Certificate" [or "Class RL Certificate"] of GE Capital Mortgage [Services, Inc.]
[Funding Corporation]'s REMIC Multi-Class Pass-Through Certificates, Series
______.
4. That the Purchaser is not, and on __________ [insert date of transfer of
Residual Certificate to Purchaser] will not be, and is not and on such date will
not be investing the assets of, an employee benefit plan subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or a plan subject
to Code Section 4975 or a person or entity that is using the assets of any
employee benefit plan or other plan to acquire a Residual Certificate.
5. That the Purchaser hereby acknowledges that under the terms of the
Pooling and Servicing Agreement (the "Agreement") between __________, as
Trustee, and GE Capital Mortgage Services, Inc., dated as of __________, no
transfer of the Residual Certificates shall be permitted to be made to any
person unless the Trustee has received a certificate from such transferee to the
effect that such transferee is not an employee benefit plan subject to ERISA or
a plan subject to Section 4975 of the Code and is not using the assets of any
employee benefit plan or other plan to acquire Residual Certificates.
6. That the Purchaser does not hold REMIC residual securities as nominee to
facilitate the clearance and settlement of such securities through electronic
book-entry changes in accounts of participating organizations (such entity, a
"Book-Entry Nominee").
7. That the Purchaser does not have the intention to impede the assessment
or collection of any federal, state or local taxes legally required to be paid
with respect to such Residual Certificate.
8. That the Purchaser will not transfer a Residual Certificate to any
person or entity (i) as to which the Purchaser has actual knowledge that the
requirements set forth in paragraph 3, paragraph 6 or paragraph 10 hereof are
not satisfied or that the Purchaser has reason to believe does not satisfy the
requirements set forth in paragraph 7 hereof, and (ii) without obtaining from
the prospective Purchaser an affidavit substantially in this form and providing
to the Trustee a written statement substantially in the form of Exhibit G to the
Agreement.
9. That the Purchaser understands that, as the holder of a Residual
Certificate, the Purchaser may incur tax liabilities in excess of any cash flows
generated by the interest and that it intends to pay taxes associated with
holding such Residual Certificate as they become due.
10. That the Purchaser (i) is not a Non-U.S. Person or (ii) is a Non-U.S.
Person that holds a Residual Certificate in connection with the conduct of a
trade or business within the United States and has furnished the transferor and
the Trustee with an effective Internal Revenue Service Form 4224 or successor
form at the time and in the manner required by the Code or (iii) is a Non-U.S.
Person that has delivered to both the transferor and the Trustee an opinion of a
nationally recognized tax counsel to the effect that the transfer of such
Residual Certificate to it is in accordance with the requirements of the Code
and the regulations promulgated thereunder and that such transfer of a Residual
Certificate will not be disregarded for federal income tax purposes. "Non-U.S.
Person" means an individual, corporation, partnership or other person other than
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.
11. That the Purchaser agrees to such amendments of the Pooling and
Servicing Agreement as may be required to further effectuate the restrictions on
transfer of any Residual Certificate to such a "disqualified organization," an
agent thereof, a Book-Entry Nominee, or a person that does not satisfy the
requirements of paragraph 7 and paragraph 10 hereof.
12. That the Purchaser consents to the designation of the Company as its
agent to act as "tax matters person" of the Trust Fund [Upper-Tier REMIC or
Lower-Tier REMIC, as applicable,] pursuant to the Pooling and Servicing
Agreement.
IN WITNESS WHEREOF, the Purchaser has caused this instrument to be executed
on its behalf, pursuant to authority of its Board of Directors, by its [title of
officer] this _____ day of __________, __.
________________________________
[name of Purchaser]
By: ___________________________
Name:
Title:
Personally appeared before me the above-named [name of officer]
________________, known or proved to me to be the same person who executed the
foregoing instrument and to be the [title of officer] _________________ of the
Purchaser, and acknowledged to me that he [she] executed the same as his [her]
free act and deed and the free act and deed of the Purchaser.
Subscribed and sworn before me this _____ day of __________, __.
NOTARY PUBLIC
______________________________
COUNTY OF_____________________
STATE OF______________________
My commission expires the _____ day of __________, __.
<PAGE>
EXHIBIT G
[LETTER FROM TRANSFEROR OF RESIDUAL CERTIFICATE]
-------------------
Date
[Name and address of Trustee]
Re: GE Capital Mortgage [Services, Inc.] [Funding Corporation]
REMIC Multi-Class Pass-Through
Certificates, Series_____
Ladies and Gentlemen:
_______________________ (the "Transferor") has reviewed the attached
affidavit of _____________________________ (the "Transferee"), and has no actual
knowledge that such affidavit is not true and has no reason to believe that the
information contained in paragraph 7 thereof is not true, and has no reason to
believe that the Transferee has the intention to impede the assessment or
collection of any federal, state or local taxes legally required to be paid with
respect to a Residual Certificate. In addition, the Transferor has conducted a
reasonable investigation at the time of the transfer 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.
Very truly yours,
__________________________
Name:
Title:
<PAGE>
EXHIBIT H
ADDITIONAL SERVICER COMPENSATION
QUALIFIED ADMINISTRATIVE EXPENSES
(Conventional, Non-Conforming Loans)
Assumption Fees $[_______]
Late Charges Per Loan Documents
Appraisal/Inspection Fees Reasonable and Customary Charges
Partial Release Fees $[_______]
Easements $[_______]
Insufficient Funds Charges $[_______]
Document Requests (copies of loan file
documents, additional pay-off quotations,
amortization schedules, payment histories) $[_______]
Modification Fees Reasonable and Customary Charges
<PAGE>
EXHIBIT I
FORM OF INVESTMENT LETTER FOR
DEFINITIVE RESTRICTED CERTIFICATES
---------------------
Date
[Name and address of Trustee]
Re: GE Capital Mortgage [Services, Inc.] [Funding Corporation]
REMIC Multi-Class Pass Through
Certificates, Series
____________________
Ladies and Gentlemen:
1. The undersigned, a [title of officer] _______________ of [name of
Investor] ______________________________ (the "Investor"), a ______________
___________________ [description of type of entity] duly organized and existing
under the laws of the [State of __________________] [United States], hereby
certifies as follows:
2. The Investor hereby acknowledges that under the terms of the Pooling and
Servicing Agreement between __________, as Trustee, [GE Capital Mortgage Funding
Corporation (the "Depositor")] and GE Capital Mortgage Services, Inc. (the
"Depositor"), dated as of __________ (the "Agreement"), no transfer of a
Restricted Certificate may be made unless such transfer is exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and any applicable state securities laws, or is made in
accordance with the Securities Act and such laws.
3. The Investor understands that (a) the Restricted Certificates have not
been and will not be registered or qualified under the Securities Act, or the
securities laws of any state, (b) neither the Depositor nor the Trustee is
required, and neither intends, to so register or qualify the Restricted
Certificates, (c) the Restricted Certificates cannot be resold unless (i) they
are registered and qualified under the Securities Act and the applicable state
securities laws or (ii) such sale is exempt from the requirements of the
Securities Act, (d) the Agreement contains restrictions regarding the transfer
of the Restricted Certificates and (e) the Restricted Certificates will bear a
legend to the foregoing effect.
4. The Investor is acquiring the Restricted Certificates for its own
account for investment only and not with a view to or for sale or other transfer
in connection with any distribution of the Restricted Certificates in any manner
that would violate the Securities Act or any applicable state securities laws.
5. The Investor (a) is a substantial, sophisticated institutional investor
having such knowledge and experience in financial and business matters, and in
particular in such matters related to securities similar to the Restricted
Certificates, such that it is capable of evaluating the merits and risks of
investment in the Restricted Certificates, (b) is able to bear the economic
risks of such an investment and (c) is an "accredited investor" within the
meaning of Rule 501(a)(1), (2), (3) or (7) promulgated pursuant to the
Securities Act.
6. The Investor will not authorize nor has it authorized any person to (a)
offer, pledge, sell, dispose of or otherwise transfer any Restricted
Certificate, any interest in any Restricted Certificate or any other similar
security to any person in any manner, (b) solicit any offer to buy or to accept
a pledge, disposition or other transfer of any Restricted Certificate, any
interest in any Restricted Certificate or any other similar security from any
person in any manner, (c) otherwise approach or negotiate with respect to any
Restricted Certificate, any interest in any Restricted Certificate or any other
similar security with any person in any manner, (d) make any general
solicitation by means of general advertising or in any other manner, or (e) take
any other action that would constitute a distribution of any Restricted
Certificate under the Securities Act, that would render the disposition of any
Restricted Certificate a violation of Section 5 of the Securities Act or any
state securities law, or that could require registration or qualification
pursuant thereto. Neither the Investor nor anyone acting on its behalf has
offered the Restricted Certificates for sale or made any general solicitation by
means of general advertising or in any other manner with respect to the
Restricted Certificates. The Investor will not sell or otherwise transfer any of
the Restricted Certificates, except in compliance with the provisions of the
Agreement.
7. If an Investor in a Restricted Certificate sells or otherwise transfers
any such Certificate to a transferee other than a "qualified institutional
buyer" under Rule 144A of the Securities Act, such Investor will obtain (a) from
any subsequent purchaser the same certifications, representations, warranties
and covenants contained in the foregoing paragraphs and in this paragraph or (b)
an opinion of counsel in form and substance satisfactory to the Trustee pursuant
to the Agreement.
8. The Investor hereby indemnifies the Trustee and the Depositor against
any liability that may result if the Investor's transfer of a Restricted
Certificate (or any portion thereof) is not exempt from the registration
requirements of the Securities Act and any applicable state securities laws or
is not made in accordance with such federal and state laws. Such indemnification
of the Trustee and the Company shall survive the termination of the Agreement.
[9. The Restricted Certificates shall be registered in the name of
_____________________________ as nominee for the Investor.]
<PAGE>
IN WITNESS WHEREOF, the Investor has caused this instrument to be executed
on its behalf, pursuant to authority of its Board of Directors, by its [title of
officer] _____________ this _____ day of __________, __.
__________________________________
[name of Investor]
By: ______________________________
Name:
Title:
The undersigned
hereby acknowledges that
it is holding and will
hold the Restricted
Certificates at the
exclusive direction of
and as nominee of the
Investor named above.
______________________________
[name of nominee]
By:___________________________
Name:
Title:
<PAGE>
EXHIBIT J
FORM OF DISTRIBUTION DATE STATEMENT
-----------------, ------
(month) (year)
GE CAPITAL MORTGAGE SERVICES, INC.
REMIC Multi-Class Pass-Through Certificates,
Series
Pursuant to the Pooling and Servicing Agreement dated as of __________ (the
"Agreement") between GE Capital Mortgage Services, Inc. (the "Company"), and
__________ (the "Trustee"), governing the Certificates referred to above, the
Company hereby certifies to the Trustee:
With respect to the Agreement and as of the Determination Date for this
month:
The amounts below are for a Single Certificate of $1,000:
(1) Amount of distribution allocable to principal:
[Classes of Certificates] $__________
(2) Aggregate principal prepayments included in distribution:
[Classes of Certificates] $__________
(3) Amount of distribution allocable to interest; Pay-out Rate:
[Classes of Certificates] $__________ ____________%
(4) Accrual Amount:
[Classes of Certificates] $__________
(5) Amount of distribution allocable to Unanticipated Recoveries:
[Classes of Certificates] $__________ ____________%
(6) Servicing Compensation:
[Classes of Certificates] $__________
<PAGE>
The amounts below are for the aggregate of all Certificates:
(7) Pool Scheduled Principal Balance;
number of Mortgage Loans:
$__________
(8) Class Certificate Principal Balance (or Notional Principal Balance) of each
Class; Certificate Principal Balance (or Notional Principal Balance) of Single
Certificate of each Class:
Single Certificate
Class Balance Balance
----- ------- -------
[Classes of Certificates] $__________ $__________
(9) Book value of real estate acquired on
behalf of Certificate-holders; number of related
Mortgage Loans: $__________ __________
(10) Aggregate Scheduled Principal
Balance and number of delinquent
Mortgage Loans:
30-59 days delinquent $__________ __________
60-89 days delinquent $__________ __________
90 or more days delinquent $__________ __________
In foreclosure $__________ __________
(11) Aggregate Scheduled Principal Balance and number of
replaced Mortgage
Loans: $__________ __________
(12) Aggregate Scheduled Principal Balance and number of
modified Mortgage
Loans: $__________ __________
(13) Senior Percentage for such Distribution __________%
Date:
(14) Senior Prepayment Percentage for such __________%
Distribution Date:
(15) [Group II Senior Percentage for such __________%]
Distribution Date:
(16) [Group II Senior Scheduled Distribution __________%]
Percentage for such Distribution Date:
(17) [Group II Senior Prepayment Distribution __________%]
Percentage for such Distribution Date:
(18) Junior Percentage for such Distribution __________%
Date:
(19) Junior Prepayment Percentage for such __________%
Distribution Date:
Capitalized terms used in this Statement shall have the same meanings as in
the Agreement.
<PAGE>
EXHIBIT K
FORM OF SPECIAL SERVICING
AND COLLATERAL FUND AGREEMENT
This SPECIAL SERVICING AND COLLATERAL FUND AGREEMENT (the "Agreement") is
made and entered into as of ____________________, ____, between GE Capital
Mortgage Services, Inc. (the "Servicer") and _____________________________ (the
"Purchaser").
PRELIMINARY STATEMENT
___________________________ or an affiliate thereof is the holder of the
entire interest in REMIC Multi-Class Pass-Through Certificates, Series , Class
B_ (the "Class B_ Certificates"). The Class B_ Certificates were issued pursuant
to a Pooling and Servicing Agreement (the "Pooling and Servicing Agreement")
dated as of ________ 1, ___ between the Company (in its capacity as servicer
thereunder, the "Servicer") [GE Capital Mortgage Funding Corporation] and State
Street Bank and Trust Company as Trustee.
____________________________ or an affiliate thereof intends to resell all
of the Class B_ Certificates directly to the Purchaser on or promptly after the
date hereof.
In connection with such sale, the parties hereto have agreed that the
Servicer will engage in certain special servicing procedures relating to
foreclosures for the benefit of the Purchaser, and that the Purchaser will
deposit funds in a collateral fund to cover any losses attributable to such
procedures as well as all advances and costs in connection therewith, as set
forth herein.
[The parties hereto have further agreed that the Purchaser will have no
rights, and the Company will have no obligations under this Agreement until the
Class Certificate Principal Balance of the REMIC Multi-Class Pass-Through
Certificates, Series , Class B (the "Class B Certificates") has been reduced to
zero, and any Special Servicing and Collateral Fund Agreement in respect of such
Class between the Company and the Purchaser has been terminated.]
In consideration of the mutual agreements herein contained, the receipt and
sufficiency of which are hereby acknowledged, the Servicer and the Purchaser
agree that the following provisions shall become effective and shall be binding
on and enforceable by the Servicer and the Purchaser upon the acquisition by the
Purchaser of the Class B_ Certificates.
ARTICLE I
DEFINITIONS
Section 1.01. Defined Terms. Whenever used in this Agreement, the following
words and phrases, unless the context otherwise requires, shall have the
following meanings:
Business Day: Any day other than (i) a Saturday or a Sunday of (ii) a day
on which banking institutions in New York City or Boston, Massachusetts are
required or authorized by law or executive order to be closed.
Collateral Fund: The fund established and maintained pursuant to Section
3.01 hereof.
Collateral Fund Permitted Investments: Either (i) obligations of, or
obligations fully guaranteed as to principal and interest by, the United States,
or any agency or instrumentality thereof, provided such obligations are backed
by the full faith and credit of the United States, (ii) repurchase agreements on
obligations specified in clause (i) provided that the unsecured obligations of
the party agreeing to repurchase such obligations are at the time rated by each
Rating Agency in the highest long-term rating category, (iii) 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, (iv) 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 (v) other obligations or securities that are
acceptable to each Rating Agency as a Collateral Fund Permitted Investment
hereunder and will not, as evidenced in writing, result in a reduction or
withdrawal in the then current rating of the Certificates and, for each of the
preceding clauses, the maturity thereof shall be not later than the earlier to
occur of (A) 30 days from the date of the related investment and (B) the
Business Day preceding the next succeeding Distribution Date.
Commencement of Foreclosure: The first official action required under local
law in order to commence foreclosure proceedings or to schedule a trustee's sale
under a deed of trust, including (i) in the case of a mortgage, any filing or
service of process necessary to commence an action to foreclose, or (ii) in the
case of a deed of trust, the posting, publishing, filing or delivery of a notice
of sale, but not including in either case (x) any notice of default, notice of
intent to foreclose or sell or any other action prerequisite to the actions
specified in (i) or (ii) above and, upon the consent of the Purchaser which will
be deemed given unless expressly withheld within two Business Days of
notification, (y) the acceptance of a deed-in-lieu of foreclosure (whether in
connection with a sale of the related property or otherwise) or (z) initiation
and completion of a short pay-off.
Current Appraisal: With respect to any Mortgage Loan as to which the
Purchaser has made an Election to Delay Foreclosure, an appraisal of the related
Mortgaged Property obtained by the Purchaser as nearly contemporaneously as
practicable to the time of the Purchaser's election, prepared based on the
Servicer's customary requirements for such appraisals.
Election to Delay Foreclosure: Any election by the Purchaser to delay the
Commencement of Foreclosure, made in accordance with Section 2.02(b).
Election to Foreclose: Any election by the Purchaser to proceed with the
Commencement of Foreclosure, made in accordance with Section 2.03(a).
Required Collateral Fund Balance: As of any date of determination, an
amount equal to the aggregate of all amounts previously required to be deposited
in the Collateral Fund pursuant to Section 2.02(d) (after adjustments for all
withdrawals and deposits prior to such date pursuant to Section 2.02(e)) and
Section 2.03(b) (after adjustment for all withdrawals and deposits prior to such
date pursuant to Section 2.03(c)) and Section 3.02, reduced by all withdrawals
therefrom prior to such date pursuant to Section 2.02(g) and Section 2.03(d).
Section 1.02. Definitions Incorporated by Reference. All capitalized terms
not otherwise defined in this Agreement shall have the meanings assigned in the
Pooling and Servicing Agreement.
ARTICLE II
SPECIAL SERVICING PROCEDURES
Section 2.01. Reports and Notices.
(a) In connection with the performance of its duties under the Pooling and
Servicing Agreement relating to the realization upon defaulted Mortgage Loans,
the Servicer shall provide to the Purchaser the following notices and reports:
(i) Within five Business Days after each Distribution Date (or
included in or with the monthly statements to Certificateholders
pursuant to the Pooling and Servicing Agreement), the Servicer, shall
provide to the Purchaser a report, using the same methodology and
calculations in its standard servicing reports, indicating for the
Trust Fund the number of Mortgage Loans that are (A) thirty days, (B)
sixty days, (C) ninety days or more delinquent or (D) in foreclosure,
and indicating for each such Mortgage Loan the loan number and
outstanding principal balance.
(ii) Prior to the Commencement of Foreclosure in connection with
any Mortgage Loan, the Servicer shall provide the Purchaser with a
notice (sent by facsimile transmission) of such proposed and imminent
foreclosure, stating the loan number and the aggregate amount owing
under the Mortgage Loan. Such notice may be provided to the Purchaser
in the form of a copy of a referral letter from the Servicer to an
attorney requesting the institution of foreclosure or a copy of a
request to foreclose received by the Company from the related primary
servicer which has been approved by the Servicer.
(b) If requested by the Purchaser, the Servicer shall make its servicing
personnel available (during their normal business hours) to respond to
reasonable inquiries, in writing by facsimile transmission, by the Purchaser in
connection with any Mortgage Loan identified in a report under subsection (a)(i)
or (a)(ii) which has been given to the Purchaser, provided, that (1) the
Servicer shall only be required to provide information that is readily
accessible to its servicing personnel and is non-confidential and (2) the
Servicer shall respond within five Business Days orally or in writing by
facsimile transmission.
(c) In addition to the foregoing, the Servicer shall provide to the
Purchaser such information as the Purchaser may reasonably request concerning
each Mortgage Loan that is at least sixty days delinquent and each Mortgage Loan
which has become real estate owned, through the final liquidation thereof,
provided, that the Servicer shall only be required to provide information that
is readily accessible to its servicing personnel and is non-confidential.
Section 2.02. Purchaser's Election to Delay Foreclosure Proceedings.
(a) The Purchaser shall be deemed to direct the Servicer that in the event
that the Servicer does not receive written notice of the Purchaser's election
pursuant to subsection (b) below within 24 hours (exclusive of any intervening
non-Business Days) of transmission of the notice provided by the Servicer under
Section 2.01(a)(ii) subject to extension as set forth in Section 2.02(b), the
Servicer may proceed with the Commencement of Foreclosure in respect of such
Mortgage Loan in accordance with its normal foreclosure policies without further
notice to the Purchaser. Any foreclosure that has been initiated may be
discontinued (i) without notice to the Purchaser if the Mortgage Loan has been
brought current or if a refinancing or prepayment occurs with respect to the
Mortgage Loan (including by means of a short payoff approved by the Servicer) or
(ii) with notice to the Purchaser if the Servicer has reached the terms of a
forbearance agreement with the borrower. In such latter case the Servicer may
complete such forbearance agreement unless instructed otherwise by the Purchaser
within two Business Days of notification.
(b) In connection with any Mortgage Loan with respect to which a notice
under Section 2.01(a)(ii) has been given to the Purchaser, the Purchaser may
elect to instruct the Servicer to delay the Commencement of Foreclosure until
such time as the Purchaser determines that the Servicer may proceed with the
Commencement of Foreclosure. Such election must be evidenced by written notice
received within 24 hours (exclusive of any intervening non-Business Days) of
transmission of the notice provided by the Servicer under Section 2.01(a)(ii).
The Purchaser shall send a copy of such notice of election to each Rating Agency
as soon as practicable thereafter. Such 24-hour period shall be extended for no
longer than an additional four Business Days after the receipt of the
information if the Purchaser requests additional information related to such
foreclosure within such 24-hour period; provided, however, that the Purchaser
will have at least one Business Day to make such election following its receipt
of any requested additional information. Any such additional information shall
(i) not be confidential in nature and (ii) be obtainable by the Servicer from
existing reports, certificates or statements or otherwise be readily accessible
to its servicing personnel. The Purchaser agrees that it has no right to deal
with the mortgagor. However, if the Servicer's normal foreclosure policies
include acceptance of a deed-in-lieu of foreclosure or short payoff, the
Purchaser will be notified and given two Business Days to respond.
(c) With respect to any Mortgage Loan as to which the Purchaser has made an
Election to Delay Foreclosure, the Purchaser shall obtain a Current Appraisal as
soon as practicable, and shall provide the Servicer with a copy of such Current
Appraisal.
(d) Within two Business Days of making any Election to Delay Foreclosure,
the Purchaser shall remit by wire transfer to the Trustee, for deposit in the
Collateral Fund, an amount, as calculated by the Servicer, equal to the sum of
(i) 125% of the greater of the Scheduled Principal Balance of the Mortgage Loan
and the value shown in the Current Appraisal referred to in subsection (c) above
(or, if such Current Appraisal has not yet been obtained, the Servicer's
estimate thereof, in which case the required deposit under this subsection shall
be adjusted upon obtaining such Current Appraisal), and (ii) three months'
interest on the Mortgage Loan at the applicable Mortgage Rate. If any Election
to Delay Foreclosure extends for a period in excess of three months (such excess
period being referred to herein as the "Excess Period"), the Purchaser shall
remit by wire transfer in advance to the Trustee for deposit in the Collateral
Fund the amount of each additional month's interest, as calculated by the
Servicer, equal to interest on the Mortgage Loan as the applicable Mortgage Rate
for the Excess Period. The terms of this Agreement will no longer apply to the
servicing of any Mortgage Loan upon the failure of the Purchaser to deposit the
above amounts relating to the Mortgage Loan within two Business Days of (i) the
Election to Delay Foreclosure or (ii) the beginning of the related Excess
Period, as the case may be.
(e) With respect to any Mortgage Loan as to which the Purchaser has made an
Election to Delay Foreclosure, the Servicer or the Trustee may withdraw from the
Collateral Fund from time to time amounts necessary to reimburse the Servicer
for all related Monthly Advances and Liquidation Expenses thereafter made by the
Servicer as Servicer in accordance with the Pooling and Servicing Agreement. To
the extent that the amount of any such Liquidation Expense is determined by the
Servicer based on estimated costs, and the actual costs are subsequently
determined to be higher, the Servicer or the Trustee may withdraw the additional
amount from the Collateral Fund to reimburse the Company. In the event that the
Mortgage Loan is brought current by the mortgagor, the amounts so withdrawn from
the Collateral Fund shall be redeposited therein as and to the extent that
reimbursement therefor from amounts paid by the mortgagor is not prohibited
pursuant to the Pooling and Servicing Agreement as of the date hereof. Except as
provided in the preceding sentence, amounts withdrawn from the Collateral Fund
to cover Monthly Advances and Liquidation Expenses shall not be redeposited
therein or otherwise reimbursed to the Purchaser. If and when any such Mortgage
Loan is brought current by the mortgagor, all amounts remaining in the
Collateral Fund in respect of such Mortgage Loan (after adjustment for all
previous withdrawals and deposits pursuant to this subsection and after
reimbursement to the Servicer for all related Monthly Advances) shall be
released to the Purchaser.
(f) With respect to any Mortgage Loan as to which the Purchaser has made an
Election to Delay Foreclosure, the Servicer shall continue to service the
Mortgage Loan in accordance with its customary procedures (other than the delay
in Commencement of Foreclosure as provided herein). If and when, following such
election, the Purchaser shall notify the Company that it believes that it is
appropriate to do so, the Servicer shall proceed with the Commencement of
Foreclosure; provided that, in any event, if the Mortgage Loan is not brought
current by the mortgagor by the time the loan becomes 6 months delinquent, the
Purchaser's election shall no longer be effective, unless the Purchaser shall
have purchased the related Mortgage Loan promptly following (and in any event
not later than the third Business Day after) the end of such 6-month period in
the manner provided in the following two sentences, and the Servicer shall be
entitled to proceed with the Commencement of Foreclosure. Any purchase of such
Mortgage Loan by the Purchaser pursuant to the preceding sentence shall be at a
purchase price equal to the unpaid principal balance of the Mortgage Loan plus
accrued interest at the Mortgage Rate from the date last paid by the mortgagor.
Such purchase price shall be deposited by the Purchaser into the Collateral Fund
in immediately available funds on the Business Day which is the date of purchase
and the Purchaser shall instruct the Trustee (with notice to the Servicer) to
withdraw such amount therefrom on such Business Day and remit the same to the
Trust Fund for application as Liquidation Proceeds pursuant to the Pooling and
Servicing Agreement. Following such withdrawal, all amounts remaining in the
Collateral Fund in respect of such Mortgage Loan (after adjustment for all
previous withdrawals and deposits pursuant to this Agreement and after
reimbursement to the Servicer for all related Monthly Advances) shall be
released to the Purchaser.
(g) Upon the occurrence of a liquidation with respect to any Mortgage Loan
as to which the Purchaser made an Election to Delay Foreclosure and as to which
the Servicer proceeded with the Commencement of Foreclosure in accordance with
subsection (f) above, the Servicer shall calculate the amount, if any, by which
the value shown on the Current Appraisal obtained under subsection (c) exceeds
the actual sales price obtained for the related Mortgaged Property (net of
Liquidation Expenses and unreimbursed Monthly Advances related to the extended
foreclosure period), and the Servicer or the Trustee shall withdraw the amount
of such excess from the Collateral Fund and shall remit the same to the Trust
Fund for application as additional Liquidation Proceeds pursuant to the Pooling
and Servicing Agreement. After making such withdrawal, all amounts remaining in
the Collateral Fund in respect of such Mortgage Loan (after adjustment for all
withdrawals and deposits pursuant to subsection (e) and after reimbursement to
the Servicer for all related Monthly Advances) shall be released to the
Purchaser.
Section 2.03. Purchaser's Election to Commence Foreclosure Proceedings.
(a) In connection with any Mortgage Loan identified in a report under
Section 2.01(a)(i)(B), the Purchaser may elect to instruct the Servicer to
proceed with the Commencement of Foreclosure as soon as practicable. Such
election must be evidenced by written notice received by the Servicer by 5:00
p.m., New York City time, on the third Business Day following the delivery of
such report under Section 2.01(a)(i).
(b) Within two Business Days of making any Election to Foreclose, the
Purchaser shall remit to the Trustee, for deposit in the Collateral Fund, an
amount, as calculated by the Company, equal to 125% of the current Scheduled
Principal Balance of the Mortgage Loan and three months' interest on the
Mortgage Loan at the applicable Mortgage Rate. If and when any such Mortgage
Loan is brought current by the mortgagor, all amounts in the Collateral Fund in
respect of such Mortgage Loan (after adjustment for all withdrawals and deposits
pursuant to subsection (c) below) shall be released to the Purchaser. The terms
of this Agreement will no longer apply to the servicing of any Mortgage Loan
upon the failure of the Purchaser to deposit the above amounts relating to the
Mortgage Loan within two Business Days of the Election to Foreclose.
(c) With respect to any Mortgage Loan as to which the Purchaser has made an
Election to Foreclose, the Servicer shall continue to service the Mortgage Loan
in accordance with its customary procedures. In connection therewith, the
Servicer shall have the same rights to make withdrawals for Monthly Advances and
Liquidation Expenses from the Collateral Fund as are provided under Section
2.02(e), and the Servicer shall make reimbursements thereto to the limited
extent provided under such subsection. The Servicer shall not be required to
proceed with the Commencement of Foreclosure if (i) the same is stayed as a
result of the mortgagor's bankruptcy or is otherwise barred by applicable law,
or to the extent that all legal conditions precedent thereto have not yet been
complied with, or (ii) the Servicer believes there is a breach of
representations or warranties by the Servicer, which may result in a repurchase
or substitution of such Mortgage Loan, or (iii) the Servicer has or expects to
have the right under the Pooling and Servicing Agreement to purchase the
defaulted Mortgage Loan and intends to exercise such right or (iv) the Servicer
reasonably believes the Mortgaged Property may be contaminated with or affected
by hazardous wastes or hazardous substances (and the Servicer supplies the
Purchaser with information supporting such belief) or (v) the same is prohibited
by or is otherwise inconsistent with the provisions of the Pooling and Servicing
Agreement. Any foreclosure that has been initiated may be discontinued (i)
without notice to the Purchaser if the Mortgage Loan has been brought current or
if a refinancing or prepayment occurs with respect to the Mortgage Loan
(including by means of a short payoff approved by the Purchaser) or (ii) with
notice to the Purchaser if the Servicer has reached the terms of a forbearance
agreement unless instructed otherwise by the Purchaser within two Business Days
of notification.
(d) Upon the occurrence of a liquidation with respect to any Mortgage Loan
as to which the Purchaser made an Election to Foreclose and as to which the
Servicer proceeded with the Commencement of Foreclosure in accordance with
subsection (c) above, the Servicer shall calculate the amount, if any, by which
the Scheduled Principal Balance of the Mortgage Loan at the time of liquidation
(plus all unreimbursed Monthly Advances and Liquidation Expenses in connection
therewith other than those previously paid from the Collateral Fund) exceeds the
actual sales price obtained for the related Mortgaged Property, and the Company
or the Trustee shall withdraw the amount of such excess from the Collateral Fund
and shall remit the same to the Trust Fund for application as additional
Liquidation Proceeds pursuant to the Pooling and Servicing Agreement. After
making such withdrawal, all amounts remaining in the Collateral Fund (after
adjustment for all withdrawals and deposits pursuant to subsection (c) above and
after reimbursement to the Servicer for all related Monthly Advances) in respect
of such Mortgage Loan shall be released to the Purchaser.
Section 2.04. Termination.
(a) With respect to all Mortgage Loans included in the Trust Fund, the
Purchaser's right to make any Election to Delay Foreclosure or any Election to
Foreclose and the Company's obligations under Section 2.01 shall terminate on
the earliest to occur of the following: (i) at such time as the Class
Certificate Principal Balance of the Class B_ Certificates has been reduced to
zero, (ii) if the greater of (x) 43% (or such lower or higher percentage that
represents the Company's actual loss experience with respect to the Mortgage
Loans in the related pool) of the aggregate principal balance of all Mortgage
Loans that are in foreclosure or are more than 90 days delinquent on a
contractual basis and the aggregate book value of REO properties or (y) the
aggregate amount that the Servicer estimates through its normal servicing
practices will be required to be withdrawn from the Collateral Fund with respect
to Mortgage Loans as to which the Purchaser has made an Election to Delay
Foreclosure or an Election to Foreclose exceeds (z) the then-current Class
Certificate Principal Balance of the Class B_ Certificates, or (iii) upon any
transfer by the Purchaser of any interest (other than the minority interest
therein, but only if the transferee provides written acknowledgment to the
Servicer of the Purchaser's right hereunder and that such transferee will have
no rights hereunder) in the Class B_ Certificates [or in the Class B5
Certificates] (whether or not such transfer is registered under the Pooling and
Servicing Agreement), including any such transfer in connection with a
termination of the Trust Fund. Unless earlier terminated as set forth herein,
this Agreement and the respective rights, obligations and responsibilities of
the Purchaser and the Servicer hereunder shall terminate immediately upon (x)
the later to occur of (i) the final liquidation of the last Mortgage Loan as to
which the Purchaser made any Election to Delay Foreclosure or any Election to
Foreclose and the withdrawal of all remaining amounts in the Collateral Fund as
provided herein and (ii) ten (10) Business Days' notice or (y) the occurrence of
any event that results in the Purchaser becoming an "affiliate" of the Trustee
within the meaning of the Prohibited Transaction Exemption (as defined in the
Pooling and Servicing Agreement).
(b) The Purchaser's rights pursuant to Section 2.02 or 2.03 of this
Agreement shall terminate with respect to a Mortgage Loan as to which the
Purchaser has exercised its rights under Section 2.02 or 2.03 hereof, upon
Purchaser's failure to deposit any amounts required pursuant to Section 2.02(d)
or 2.03(b) after one Business Day's notice of such failure.
Section 2.05. Notification. The Purchaser shall promptly notify the Trustee
and the Servicer if such Purchaser becomes aware of any discussions, plans or
events that might lead to such Person's becoming an "affiliate" (within the
meaning of the Prohibited Transaction Exemption) of the Trustee, provided that
the contents of any such notification shall be kept confidential by the parties
to this Agreement.
ARTICLE III
COLLATERAL FUND; SECURITY INTEREST
Section 3.01. Collateral Fund. Upon payment by the Purchaser of the initial
amount required to be deposited in the Collateral Fund pursuant to Article II,
the Servicer shall request the Trustee to establish and maintain with the
Trustee a segregated account entitled "REMIC Multi-Class Pass-Through
Certificates 199_-__ Collateral Fund, for the benefit of GE Capital Mortgage
Services, Inc. and ____________________ on behalf of Certificateholders, as
secured parties" (the "Collateral Fund"). Amounts held in the Collateral Fund
shall continue to be the property of the Purchaser, subject to the first
priority security interest granted hereunder for the benefit of such secured
parties, until withdrawn from the Collateral Fund pursuant to the Section 2.02
or 2.03 hereof.
Upon the termination of this Agreement and the liquidation of all Mortgage
Loans as to which the Purchaser has made any Election to Delay Foreclosure or
any Election to Foreclose pursuant to Section 2.04 hereof, the Servicer shall
distribute to the Purchaser all amounts remaining in the Collateral Fund
together with any investment earnings thereon (after giving effect to all
withdrawals therefrom permitted under this Agreement).
The Purchaser shall not take or direct the Servicer or the Trustee to take
any action contrary to any provision of the Pooling and Servicing Agreement. In
no event shall the Purchaser (i) take or cause the Trustee or the Servicer to
take any action that could cause any REMIC established under the Pooling and
Servicing Agreement to fail to qualify as a REMIC or cause the imposition on any
such REMIC of any "prohibited transaction" or "prohibited contribution" taxes or
(ii) cause the Trustee or the Servicer to fail to take any action necessary to
maintain the status of any such REMIC as a REMIC.
Section 3.02. Collateral Fund Permitted Investments. The Servicer shall, at
the written direction of the Purchaser, direct the Trustee to invest the funds
in the Collateral Fund in the name of the Trustee in Collateral Fund Permitted
Investments. Such direction shall not be changed more frequently then quarterly.
In the absence of any direction, the Servicer shall direct the Trustee select
such investments in accordance with the definition of Collateral Fund Permitted
Investments in its discretion.
All income and gain realized from any investment as well as any interest
earned on deposits in the Collateral Fund (net of any losses on such
investments) and any payments of principal made in respect of any Collateral
Fund Permitted Investment shall be deposited in the Collateral Fund upon
receipt. All costs and realized losses associated with the purchase and sale of
Collateral Fund Permitted Investments shall be borne by the Purchaser and the
amount of net realized losses shall be promptly deposited by the Purchaser in
the Collateral Fund. The Company shall periodically (but not more frequently
than monthly) direct the Trustee to distribute to the Purchaser upon request an
amount of cash, to the extent cash is available therefor in the Collateral Fund,
equal to the amount by which the balance of the Collateral Fund, after giving
effect to all other distributions to be made from the Collateral Fund on such
date, exceeds the Required Collateral Fund Balance. Any amounts so distributed
shall be released from the lien and security interest of this Agreement.
Section 3.03. Grant of Security Interest. In order to secure the
obligations of the Purchaser hereunder to the Company and the Trustee for the
benefit of Certificateholders (other than its obligations under Section 4.10),
the Purchaser hereby grants to the Servicer and to the Trustee for the benefit
of the Certificateholders a security interest in and lien on all of the
Purchaser's right, title and interest, whether now owned or hereafter acquired,
in and to: (1) the Collateral Fund, (2) all amounts deposited in the Collateral
Fund and Collateral Fund Permitted Investments in which such amounts are
invested (and the distributions and proceeds of such investments) and (3) all
cash and non-cash proceeds of any of the foregoing, including proceeds of the
voluntary or involuntary conversion thereof (all of the foregoing collectively,
the "Collateral").
The Purchaser acknowledges the lien on and security interest in the
Collateral for the benefit of the Servicer and the Trustee on behalf of the
Certificateholders. The Purchaser shall take all actions requested by the
Company or the Trustee as may be reasonably necessary to perfect the security
interest created under this Agreement in the Collateral and cause it to be prior
to all other security interests and liens, including the execution and delivery
to the Company or at its direction the Trustee for filing of appropriate
financing statements in accordance with applicable law.
Section 3.04. Collateral Shortfalls. In the event that amounts on deposit
in the Collateral Fund at any time are insufficient to cover any withdrawals
therefrom that the Servicer or the Trustee is then entitled to make hereunder,
the Purchaser shall be obligated to pay such amounts to the Servicer or the
Trustee immediately upon demand. Such obligation shall constitute a general
corporate obligation of the Purchaser. The failure to pay such amounts within
two Business Days of such demand (except for amounts to cover interest on a
Mortgage Loan pursuant to Sections 2.02(d) and 2.03(b)), shall cause an
immediate termination of the Purchaser's right to make any Election to Delay
Foreclosure or Election to Foreclose and the Servicer's obligations under this
Agreement with respect to all Mortgage Loans to which such insufficiencies
relate, without the necessity of any further notice or demand on the part of the
Servicer.
ARTICLE IV
MISCELLANEOUS PROVISIONS
Section 4.01. Amendment. This Agreement may be amended from time to time by
the Servicer and the Purchaser by written agreement signed by the Servicer and
the Purchaser provided that no such amendment shall have a material adverse
effect on the holders of other Classes of Certificates.
Section 4.02. Counterparts. This Agreement may be executed simultaneously
in any number of counterparts, each of which counterparts shall be deemed to be
an original, and such counterparts shall constitute but one and the same
instrument.
Section 4.03. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of New York and the obligations, rights
and remedies of the parties hereunder shall be determined in accordance with
such laws.
Section 4.04. Notices. All demands, notices and direction hereunder shall
be in writing or by telecopy and shall be deemed effective upon receipt to:
(a) in the case of the Company, with respect to notices pursuant to
Sections 2.02 and 2.03 hereto,
GE Capital Mortgage Services, Inc.
4680 Hallmark Parkway
San Bernardino, California 92407
Attention: _____
Telephone: _____
Facsimile: _____
with respect to all other notices pursuant to this Agreement,
GE Capital Mortgage Services, Inc.
Three Executive Campus
Cherry Hill, New Jersey 08002
Attention: General Counsel
Telephone: (609) 661-6515
Facsimile: (609) 661-6875
or such other address as may hereafter be furnished in writing by the
Company, or
(b) in the case of the Purchaser, with respect to notices pursuant to
Section 2.01,
--------------------------------
--------------------------------
Attention:______________________
Telephone:______________________
Facsimile:______________________
with respect to all other notices pursuant to this Agreement,
--------------------------------
--------------------------------
Attention:______________________
Telephone:______________________
Facsimile:______________________
or such other address as may hereafter be furnished in writing by the
Purchaser, or
(c) in the case of the Trustee,
--------------------------------
--------------------------------
Attention:______________________
Telephone:______________________
Facsimile:______________________
Section 4.05. Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever, including regulatory, held invalid, then such covenants,
agreements, provisions or terms shall be deemed severable from the remaining
covenants, agreements, provisions or terms of this Agreement and shall in no way
affect the validity or enforceability of the other provisions of this Agreement.
Section 4.06. Successor and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and the
respective successors and assigns of the parties hereto; provided, however, that
the rights under this Agreement cannot be assigned by the Purchaser without the
consent of the Servicer.
Section 4.07. Article and Section Headings. The article and section
headings herein are for convenience of reference only and shall not limit or
otherwise affect the meaning hereof.
Section 4.08. Third Party Beneficiaries. The Trustee on behalf of
Certificateholders is the intended third party beneficiary of this Agreement.
Section 4.09. Confidentiality. The Purchaser agrees that all information
supplied by or on behalf of the Servicer pursuant to Section 2.01 or 2.02,
including individual account information, is the property of the Servicer and
the Purchaser agrees to use such information solely for the purposes set forth
in this Agreement and to hold such information confidential and not to disclose
such information.
Section 4.10. Indemnification. The Purchaser agrees to indemnify and hold
harmless the Company against any and all losses, claims, damages or liabilities
to which it may be subject, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
actions taken by the Servicer in accordance with the provisions of this
Agreement and which actions conflict or are alleged to conflict with the
Servicer's obligations under the Pooling and Servicing Agreement. The Purchaser
hereby agrees to reimburse the Servicer on demand for the reasonable legal or
other expenses incurred by it in connection with investigating or defending any
such loss, claim, damage, liability or action.
[Section 4.11. Delayed Effectiveness. The Purchaser agrees that,
notwithstanding any other provision of this Agreement, the Purchaser shall have
no rights hereunder, and the Company shall have no obligations hereunder, until
the Class Certificate Principal Balance of the Class B Certificates has been
reduced to zero and any Special Servicing and Collateral Fund Agreement between
the Servicer and the Purchaser relating to such Class B Certificates has been
terminated.]
<PAGE>
IN WITNESS WHEREOF, the Servicer and the Purchaser have caused their names
to be signed hereto by their respective officers thereunto duly authorized, all
as of the day and year first above written.
GE CAPITAL MORTGAGE SERVICES, INC.
By: _______________________________
Name:
Title:
[PURCHASER]
By: _______________________________
Name:
Title:
Acknowledged and agreed to:
[TRUSTEE]
By:___________________________________
Name:
Title:
<PAGE>
EXHIBIT L
FORM OF LOST NOTE AFFIDAVIT AND AGREEMENT
I, _________________________________________, being duly sworn, do hereby
state under oath that:
1. I am a duly elected ______________________ of GE Capital [Mortgage
Services,] Inc. [Funding Corporation] (the "Company") and am duly authorized to
make this affidavit.
2. This affidavit is being delivered in connection with the transfer of the
Mortgage Loan described in Paragraph 3 hereof by the Company pursuant to the
Pooling and Servicing Agreement dated as of [date] between [GE Capital Mortgage
Funding Corporation, as Depositor,] the [as Depositor,] the Company, as
[Depositor and Servicer] and ____, relating to the [Company]'s REMIC Multi-Class
Pass-Through Certificates, Series [____] ("Agreement").
Such Mortgage Loan constitutes a Designated Loan.
3. The Company is the payee under the following described Mortgage Note
("Mortgage Note") which evidences the obligation of the borrower(s) to repay the
Mortgage Loan:
Loan Number: __________________________________
Mortgage Note Date:_____________________________
Borrower(s): ___________________________________
Original Payee (if not the Company): ___________
Original Amount:________________________________
Mortgage Rate: _________________________________
Address of Mortgaged Property: _________________
------------------------------------------------
4. The Company is the lawful owner of the Mortgage Note and has not
canceled, altered, assigned or hypothecated the Mortgage Note. [Modify if sold
to Funding]
5. A thorough and diligent search for the executed original Mortgage Note
was undertaken and was unsuccessful.
6. Attached hereto is a true and correct copy of the Mortgage Note.
7. The Mortgage Note has not been endorsed by the Company in any manner
inconsistent with its transfer of the Mortgage Loan under the [Loan Sale]
Agreement.
8. Without limiting the generality of the rights and remedies of the
Trustee contained in the [Loan Sale] Agreement, the Company hereby confirms and
agrees that in the event the inability to produce the executed original Mortgage
Note results in a breach of the representations and warranties appearing in
Agreement subsections 2.03(a)(ii) (the validity and enforceability of the lien
created by the Mortgage Loan) or (x) (no valid offset, defense or counterclaim
to any Mortgage Note or Mortgage), the Company shall repurchase the Mortgage
Loan at the Purchase Price and otherwise in accordance with Section 2.03(b) of
the Agreement. In addition, the Company covenants and agrees to indemnify the
Trustee and the Trust Fund from and hold them harmless against any and all
losses, liabilities, damages, claims or expenses (other than those resulting
from negligence or bad faith of the Trustee) arising from the Company's failure
to have delivered the Mortgage Note to the Trustee, including without limitation
any such losses, liabilities, damages, claims or expenses arising from any
action to enforce the indebtedness evidenced by the Mortgage Note or any claim
by any third party who is the holder of such indebtedness by virtue of
possession of the Mortgage Note.
9. In the event that the Company locates the executed original Mortgage
Note, it shall promptly provide the Mortgage Note to the Trustee.
<PAGE>
10. Capitalized terms not otherwise defined herein shall have the meanings
given them in the Agreement.
Date: _______________________
________________________________
(signature)
________________________________
(print name)
________________________________
(print title)
<PAGE>
State of New Jersey )
) ss.:
)
On this ____________________day of ___________________, __, before me
appeared ____________________________, to me personally known, who acknowledged
the execution of the foregoing and who, having been duly sworn states that
he/she is a/the ______________________________of GE Capital Mortgage Services,
Inc., that any representations therein contained are true, that this Lost Note
Affidavit was signed and sealed on behalf of GE Capital Mortgage Services, Inc.
and that this Lost Note Affidavit is the free act and deed of GE Capital
Mortgage Services, Inc.
---------------------------------------
(Notary Public)
[Notarial Seal]
<PAGE>
EXHIBIT M
SCHEDULE OF DESIGNATED LOANS
<PAGE>
EXHIBIT N
[LOAN SALE AGREEMENT]
<PAGE>
EXHIBIT O
SENIOR PRINCIPAL PRIORITIES
[Distributions on the Certificates]
[Letterhead of Cleary, Gottlieb Steen and Hamilton]
Writer's Direct Dial: (212) 225-2890
March 8, 1999
GE Capital Mortgage Services, Inc.
Three Executive Campus
Cherry Hill, New Jersey 08002
GE Capital Mortgage Funding Corporation
Three Executive Campus, Suite W. 602
Cherry Hill, New Jersey 08002
Re: GE Capital Mortgage Services, Inc.
GE Capital Mortgage Funding Corporation
Registration Statement on Form S-3 (No. 333-68951)
--------------------------------------------------
Ladies and Gentlemen:
We have acted as your special counsel in connection with the
above-referenced Registration Statement filed with the Securities and Exchange
Commission on December 15, 1998, amended by filings on February 16, 1999 and
March 8, 1999 (as so amended, the "Registration Statement") pursuant to the
Securities Act of 1933, as amended (the "Act"), in respect of Mortgage
Pass-Through Certificates (the "Certificates") which you plan to offer in
series, each series to be issued under a separate pooling and servicing
agreement (a "Pooling and Servicing Agreement"), in all material respects
relevant hereto substantially in the form of Exhibit 4.1, 4.2, 4.3, 4.6 or 4.7
to the Registration Statement, among GE Capital Mortgage Services, Inc.
("GECMSI") or GE Capital Mortgage Funding Corporation ("Funding") as depositor
of the assets in the trust fund, GECMSI and/or any other servicer or master
servicer that may be identified as a party thereto in the prospectus supplement
for such series of Certificates (the "Servicer" for such series), and State
Street Bank and Trust Company or another trustee to be identified in the
prospectus supplement for such series of Certificates (the "Trustee" for such
series).
We have reviewed the originals or copies certified or otherwise identified
to our satisfaction of all such corporate records of GECMSI and Funding and such
other instruments and other certificates of public officials, officers and
representatives of GECMSI and Funding and such other persons, and we have made
such investigations of law, as we have deemed appropriate as a basis for the
opinions expressed below.
In rendering the opinions expressed below, we have assumed the authenticity
of all documents submitted to us as originals and the conformity to original
documents of all documents submitted to us as copies. In addition, we have
assumed and have not verified the accuracy as to factual matters of each
document we have reviewed (including, without limitation, the accuracy of the
representations and warranties of GECMSI or Funding, as applicable, in the
Pooling and Servicing Agreement).
Based on the foregoing and subject to the qualifications set forth below,
it is our opinion that:
1. When, in respect of a series of Certificates, a Pooling and
Servicing Agreement has been duly authorized by all necessary action of,
and duly executed and delivered by, GECMSI or Funding, as applicable, any
Servicer and the Trustee for such series, such Pooling and Servicing
Agreement will be a legal and valid obligation of GECMSI or Funding, as
applicable; and
2. When a Pooling and Servicing Agreement for a series of Certificates
has been duly authorized by all necessary action of, and duly executed and
delivered by, GECMSI or Funding, as applicable, the Servicer and the
Trustee for such series, and when the Certificates of such series have been
duly executed and countersigned in accordance with the terms of the Pooling
and Servicing Agreement and issued and sold as contemplated in the
Registration Statement and the prospectus with respect to such series
delivered pursuant to Section 5 of the Act, such Certificates will be
legally and validly issued and the holders of such Certificates will be
entitled to the benefits of such Pooling and Servicing Agreement.
Insofar as the foregoing opinions relate to the legality and validity of
any agreement or obligation of GECMSI or Funding, as applicable, (a) we have
assumed that GECMSI or Funding and each other party to such agreement or
obligation has satisfied those legal requirements that are applicable to it to
the extent necessary to make such agreement or obligation enforceable against it
and (b) such opinions are subject to applicable bankruptcy, insolvency and
similar laws affecting creditors' rights generally and to general principles of
equity.
Each form of Pooling and Servicing Agreement indicates that it is governed
by the laws of the State of New York. The foregoing opinions are limited to the
law of the State of New York.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to this firm in the Registration
Statement and the related prospectus under the heading "Legal Matters," without
admitting that we are "experts" within the meaning of the Act or the rules and
regulations of the Securities and Exchange Commission issued thereunder with
respect to any part of the Registration Statement, including this Exhibit.
Very truly yours,
CLEARY, GOTTLIEB, STEEN & HAMILTON
By /s/ David L. Sugerman
---------------------
David L. Sugerman, a Partner
[Letterhead of Cleary, Gottlieb Steen and Hamilton]
Writer's Direct Dial: (212) 225-2890
March 8, 1999
GE Capital Mortgage Services, Inc.
Three Executive Campus
Cherry Hill, New Jersey 08002
GE Capital Mortgage Funding Corporation
Three Executive Campus, Suite W. 602
Cherry Hill, New Jersey 08002
Re: GE Capital Mortgage Services, Inc.
GE Capital Mortgage Funding Corporation
Registration Statement on Form S-3 (No. 333-68951)
--------------------------------------------------
Ladies and Gentlemen:
We have acted as your special counsel in connection with the
above-referenced Registration Statement (the "Registration Statement") and the
related prospectus (the "Prospectus") filed pursuant to the Securities Act of
1933, as amended (the "Act"), with the Securities and Exchange Commission on
December 15, 1998, and amended by filings on February 16, 1999 and March 8,
1999, in respect of Mortgage Pass-Through Certificates (the "Certificates")
which you plan to offer in series. Our advice formed the basis for the
discussion of federal income tax consequences appearing in the Prospectus under
the heading "Federal Income Tax Consequences." Such discussion does not purport
to deal with all possible federal income tax consequences of an investment in
Certificates, but with respect to those tax consequences which are discussed, in
our opinion, the discussion is a fair and accurate summary of the matters
addressed therein under existing law and the assumptions stated therein.
We hereby consent to the filing of this letter as an Exhibit to the
Registration Statement and to the reference to this firm in the Registration
Statement and the Prospectus under the heading "Federal Income Tax
Consequences," without admitting that we are "experts" within the meaning of the
Act or the rules and regulations of the Securities and Exchange Commission
issued thereunder with respect to any part of the Registration Statement or the
Prospectus, including this Exhibit.
Very truly yours,
CLEARY, GOTTLIEB, STEEN & HAMILTON
By /s/ David L. Sugerman
----------------------
David L. Sugerman, a Partner
