<PAGE> 1
As Filed Pursuant to Rule 424(b)(5)
Registration No. 333-68951
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 22, 1999)
GE CAPITAL MORTGAGE SERVICES, INC. 1999-HE2 TRUST
Issuer
GE CAPITAL MORTGAGE SERVICES, INC.
Depositor and Servicer
$257,052,000
(Approximate)
REMIC HOME EQUITY LOAN PASS-THROUGH CERTIFICATES, SERIES 1999-HE2
PRINCIPAL AND INTEREST PAYABLE MONTHLY, BEGINNING JULY 26, 1999
THE TRUST WILL ISSUE:
- nine classes of senior certificates; and
- six classes of junior certificates.
For a description of the classes of certificates offered by this prospectus
supplement, see "Securities Offered" on page S-3. Some of these classes are
listed in the table below.
The assets of the trust will include a pool of closed-end, fixed-rate, first or
second lien, one- to four-family residential home equity mortgage loans. The
stated maturities of the mortgage loans will range from 5 to 30 years.
-------------------------
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-8 OF THIS PROSPECTUS
SUPPLEMENT.
-------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT DEPOSITOR
--------- -------- ---------
<S> <C> <C> <C>
Class A1 Certificates........................ 100.000000% 0.225% 99.775000%
Class A2 Certificates........................ 100.000000 0.225 99.775000
Class A3 Certificates........................ 100.000000 0.225 99.775000
Class A4 Certificates........................ 100.000000 0.225 99.775000
Class A5 Certificates........................ 100.000000 0.225 99.775000
Class A6 Certificates........................ 100.000000 0.225 99.775000
Class M Certificates......................... 100.000000 0.225 99.775000
Class B1 Certificates........................ 100.000000 0.225 99.775000
Class B2 Certificates........................ 99.015625 0.225 98.790625
- --------------------
</TABLE>
(1) Plus interest accrued from June 1, 1999.
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.
-------------------------
The certificates offered by this prospectus supplement other than the residual
certificates will be purchased by both underwriters. The residual certificates
will be purchased by Prudential Securities Incorporated, who will sell them to
investors at varying prices determined at the time of sale. The proceeds to the
depositor from the sale of the offered certificates will be approximately
99.754164% of the total principal balance of those certificates plus accrued
interest, before deducting expenses. Each underwriter's commission will be the
difference between the price it pays for the certificates and the amount it
receives from their sale to the public. You should refer to "Plan of
Distribution" in this prospectus supplement for a further description of
underwriting commissions. The certificates will be available for delivery to
investors on or about June 25, 1999.
PRUDENTIAL SECURITIES LEHMAN BROTHERS
The date of this prospectus supplement is June 23, 1999.
<PAGE> 2
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.
S-2
<PAGE> 3
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.
1999-HE2 Trust. The trust was created by us for the sole purpose of issuing the
certificates.
We will sell the mortgage loans underlying the certificates to the trust.
SECURITIES OFFERED
The total original principal balance of the certificates will be
approximately $272,015,350. The following table shows the approximate initial
principal balance, annual certificate interest rate and minimum denomination of
each class of certificates offered by this prospectus supplement:
<TABLE>
<CAPTION>
CLASS CERTIFICATE CERTIFICATE MINIMUM
PRINCIPAL BALANCE(1) INTEREST RATE DENOMINATION
-------------------- ------------- -------------
<S> <C> <C> <C>
SENIOR CERTIFICATES
Class A1...................... $77,000,000 6.380% $ 25,000
Class A2...................... 31,000,000 6.655 25,000
Class A3...................... 53,000,000 6.820 25,000
Class A4...................... 32,000,000 7.270 25,000
Class A5...................... 13,847,000 7.510(2) 25,000
Class A6...................... 23,000,000 7.295 25,000
Class R1...................... 500 (3) (4)
Class R2...................... 500 (3) (4)
JUNIOR CERTIFICATES
Class M....................... 14,962,000 7.560(2) 100,000
Class B1...................... 6,801,000 7.905(2) 100,000
Class B2...................... 5,441,000 9.165(5) 100,000
</TABLE>
- -------------------------
(1) Approximate, subject to adjustment as described in this prospectus
supplement.
(2) Interest will accrue on these certificates at the rate shown above for the
accrual period relating to the first distribution date. Thereafter, interest
will accrue on these certificates at a rate that is the lesser of (a) the
rate shown above and (b) the weighted average annual interest rate of the
mortgage loans in the pool, net of servicing fees.
(3) This class of certificates pays only principal and will not accrue interest.
(4) This class of certificates will be issued as a single certificate in
definitive physical form.
(5) Interest will accrue on these certificates at the rate shown above for the
accrual period relating to the first distribution date. Thereafter, interest
will accrue on these certificates at the weighted average annual interest
rate of the mortgage loans in the pool, net of servicing fees.
S-3
<PAGE> 4
The Class A1 through Class A6 Certificates, the Class S Certificates and
the residual certificates are the senior certificates. The Class R1 and the
Class R2 Certificates are the residual certificates. The Class M and the Class
B1 through Class B5 Certificates are the junior certificates.
The Class S, Class B3, Class B4 and Class B5 Certificates are not offered
by this prospectus supplement. We will initially retain the Class S Certificates
but may transfer them later.
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 page S-3. The total original principal
balance of the certificates will not be less than $258,414,582 or greater than
$285,616,117.
Certificates with principal balances in excess of the minimum denominations
shown above will be issued in multiples of $1,000 above the minimum
denomination.
THE MORTGAGE LOANS
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 June
1, 1999:
<TABLE>
<S> <C>
- Total outstanding principal balance (1): $272,015,350
- Original terms to maturity: 5 to 30 years
- Weighted average maturity: 247 months
- Weighted average annual interest rate: 9.67%
- Largest geographic concentration: 10.12% of the mortgage loans
are secured by properties
located in New York.
- Percentage of mortgage loans that are secured by 12.47%
second-priority mortgages:
- Percentage of mortgage loans that accrue 0.16%
interest on a simple interest basis:
- Percentage of mortgage loans that are balloon 36.07%
loans:
</TABLE>
- -------------------------
(1) Approximate, after deducting payments of principal due on or before June 1,
1999, and subject to the variance described in this prospectus supplement.
THE SERVICER
We will directly service all of the mortgage loans in the trust.
As servicer, we must make reasonable efforts to collect payments due on the
mortgage loans. In addition, we must advance delinquent payments of interest on
the mortgage loans to the extent described in this prospectus supplement and
will reduce our 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.
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DISTRIBUTIONS ON THE CERTIFICATES
The trustee will make distributions on the certificates on the 25th day of
each month. If the 25th is not a business day, the trustee will make
distributions on the next business day. The first distribution date will be July
26, 1999.
On each distribution date, we will first pay interest to the senior
certificates from funds available for distribution as interest. We will then pay
interest to the junior certificates from available interest funds in the order
of priority described below. In addition, on each distribution date, we will pay
principal on all certificates from the funds available for that purpose.
Interest Payments
- The actual amount of interest you receive on your certificates on each
distribution date if your certificates are entitled to interest, will
depend on:
-- the amount of interest accrued on your certificates;
-- the total amount of funds available for interest distributions; and
-- the amount of any accrued interest not paid on your certificates on
earlier distribution dates.
- If you are the holder of a senior certificate entitled to interest
payments, 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 entitled to interest payments will receive these
payments at the same time.
- If you are the holder of a junior certificate, you will receive interest
payments only after the trustee has paid interest to:
-- all of the senior certificates; and
-- each class of junior certificates that ranks higher than your
certificates.
- The trustee will calculate interest on the basis of a 360-day year
consisting of twelve 30-day months.
Principal Payments
- The trustee will distribute principal on each class of
certificates -- other than the Class S 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.
- The amount and timing of principal you receive on your certificates will
depend on:
-- the various priorities and 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.
- Because of the principal allocation formulas described in this
prospectus supplement, the senior certificates entitled to principal
distributions will receive principal payments at a faster rate than the
junior certificates for at least the first nine years after the issuance
of the certificates. The Class A6 Certificates,
S-5
<PAGE> 6
however, will not benefit from this accelerated repayment. You should
refer to "Description of the Certificates -- Distributions on the
Certificates -- Allocation of Available Funds."
OPTIONAL TERMINATION
We will have the option to repurchase all the mortgage loans and thereby
effect the early retirement of the certificates when the aggregate principal
balance of the mortgage loans is less than 10% of the aggregate principal
balance of the mortgage loans as of June 1, 1999. See "The Pooling and Servicing
Agreement -- Optional Termination" in this prospectus supplement.
CREDIT ENHANCEMENT
The senior certificates will benefit from the credit enhancement provided
by the subordination of the junior certificates.
This subordination will benefit the senior certificates in two ways:
- The senior certificates will have a preferential right over the junior
certificates to receive funds available for interest distributions.
- The junior certificates will absorb all losses on the mortgage loans up
to the level described in this prospectus supplement.
If you are the holder of a senior certificate, you should keep in mind,
however, that the subordination of the junior certificates offers only limited
protection against the loss of your investment. See the related risk factor on
page S-11.
FEDERAL INCOME TAX CONSEQUENCES
The trust will be treated as a two-tier REMIC for federal income tax
purposes. The certificates other than the Class R1 and Class R2 Certificates
will be treated as regular interests in the upper-tier REMIC. The Class R1
Certificates will be treated as the residual interest in the lower-tier REMIC,
and the Class R2 Certificates will be treated as the residual interest in the
upper-tier REMIC.
All of the regular interest certificates will be treated as debt for tax
purposes. In addition, unless you are a holder of the residual certificates, you
will be required to report income on your certificates under the accrual method
of accounting. Under the accrual method of accounting, you may be required to
report income for federal income tax purposes in advance of receiving a
corresponding cash distribution.
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:
- certain classes of certificates, which may be issued with original issue
discount;
- the residual certificates, which will be subject to special rules that
could significantly reduce their after-tax yield; and
- 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
S-6
<PAGE> 7
accompanying prospectus to determine the tax consequences to you of an
investment in the certificates.
LEGAL INVESTMENT
The certificates offered by this prospectus 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 the certificates. See "Legal Investment
Matters" in this prospectus supplement 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 M, Class B1, Class B2, Class R1 or Class R2 Certificates. In addition,
you should consider carefully the information presented in "ERISA
Considerations" in this prospectus supplement and in the accompanying
prospectus.
CERTIFICATE RATINGS
The certificates must receive the ratings indicated under "Certificate
Ratings" in this prospectus supplement from Fitch IBCA, Inc. and/or Moody's
Investors Service, Inc. at the time of their initial issuance. You should refer
to "Certificate Ratings" to learn more about the significance and limitation of
ratings.
S-7
<PAGE> 8
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 MAY REDUCE THE YIELD
ON YOUR CERTIFICATES Payments on the mortgage loans will not be
insured by the government or any other person.
Moreover, we, as servicer, have only a limited
obligation to make advances for delinquent
installments of 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 has been
delinquent for more than 30 days as of June 1,
1999.
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
yours to experience losses as a result of
interest defaults or liquidation losses on the
underlying mortgage loans. This is because
interest defaults and liquidation 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
S-8
<PAGE> 9
over the life of the loan, and then must make
a large final payment at maturity 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:
- the level of mortgage interest rates;
- the borrower's equity in the mortgaged
property;
- general economic conditions; and
- 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 consists of these
loans.
WE MAY NOT BE ABLE TO RECOVER
AMOUNTS OWED ON SECOND-
PRIORITY MORTGAGES IN THE
POOL, WHICH MAY 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 trust, as 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 and timing 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, the life of your
certificates may be longer or shorter than
anticipated. Because of
S-9
<PAGE> 10
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 MAY 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:
- If you bought your certificates for more
than their face amount, the yield on your
certificates will drop if principal
payments occur at a rate faster than you
expect.
- If you bought your certificates for less
than their face amount, the yield on your
certificates will drop if principal
payments occur at a rate slower than you
expect.
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. 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.
S-10
<PAGE> 11
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
New York, Florida, North Carolina, California,
Ohio, Illinois and Maryland. 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 may not be fully insured against and
which may result in property damage and losses
on the mortgage loans. These events may
adversely affect the funds available to make
payments on your certificates, which may in
turn reduce the yield on your certificates.
See "Description of the Mortgage Pool and the
Mortgaged Properties" in this prospectus
supplement for more information on the
location of the mortgage loans.
LOSSES ON THE MORTGAGE LOANS
MAY BE HIGHER THAN EXPECTED,
WHICH MAY 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
enhancement described in this prospectus
supplement is not enough to protect your
certificates from 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 first be allocated to the
junior certificates, in inverse order of
priority. Losses may be severe enough,
however, to reduce the aggregate principal
balance of the junior certificates to zero. If
this occurs, the senior certificates will bear
their share of losses thereafter.
In addition, certain types of losses -- referred
to in this prospectus supplement as "Excess
Losses" -- will be borne pro rata by the
senior certificates and the junior
certificates after a specified amount of these
losses are borne solely by the junior
certificates.
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 -- Optional
Termination" in this prospectus supplement. If
the proceeds realized upon the trust's
termination are less than the outstanding
principal balance on the certificates and
accrued interest thereon, your certificates
may bear their share of the resulting
shortfall. As a result, you may not fully
recover your investment and could potentially
S-11
<PAGE> 12
suffer losses. 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.
You should refer to "The Pooling and Servicing
Agreement -- Optional Termination" for a
discussion of additional consequences 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
underwriters of this offering intend to create
a resale market for the certificates offered
by them, they have 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 the
price you desire.
YOU WILL NOT RECEIVE PHYSICAL
CERTIFICATES, WHICH CAN
CAUSE DELAYS IN DISTRIBUTIONS
AND HAMPER YOUR ABILITY TO
PLEDGE OR RESELL YOUR
CERTIFICATES Unless you are the purchaser of a residual
certificate, your ownership of the
certificates will be registered electronically
with DTC. The lack of physical certificates
could:
- result in payment delays on the
certificates because the trustee will be
sending distributions on the certificates
to DTC instead of directly to you;
- make it difficult for you to pledge your
certificates if physical certificates are
required by the party demanding the pledge;
and
- could hinder your ability to resell the
certificates because some investors may be
unwilling to buy certificates that are not
in physical form.
OUR FAILURE OR THE FAILURE OF
THIRD PARTIES 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 are implementing 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
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<PAGE> 13
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.
S-13
<PAGE> 14
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-72 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 91 of the accompanying prospectus.
DESCRIPTION OF THE MORTGAGE POOL AND THE MORTGAGED PROPERTIES
GENERAL
The certificates described in this prospectus supplement will represent the
entire beneficial ownership interest in the trust that is issuing these
certificates. The assets of the trust will consist primarily of a pool of
closed-end, fixed-rate, home equity mortgage loans. The mortgage loans are
secured by mortgages, deeds of trust or other security instruments creating
first or second liens on one- to four-family residential properties. GE Capital
Mortgage Services, Inc. ("GECMSI") is depositing the mortgage loans in the
trust.
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 loan pool on
a Current Report on From 8-K will be available to purchasers of the certificates
at or before, and will be filed by GECMSI with the SEC within fifteen days
after, the initial delivery of the certificates offered hereby. This definitive
description will indicate the extent to which the characteristics of the
mortgage loans vary from those set forth in this prospectus supplement. It will
specify the precise aggregate principal balance of the mortgage loans as of the
first day of the month of the creation of the trust (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 loan pool on
pages S-16 through S-24 of this prospectus supplement. The definitive
description also will specify the original principal balance of each class of
certificates, the notional principal balance of the Class S Certificates and the
Class A6 Certificate Percentage on the date of issuance of the certificates. The
Pooling and Servicing Agreement under which the certificates will be issued and
its exhibits will be filed as an exhibit to the definitive description of the
final mortgage loan pool.
The "Principal Balance" of a mortgage loan as of any Distribution Date (as
defined herein) is, in the case of a self-amortizing mortgage loan, the unpaid
principal balance of such mortgage loan as specified in the amortization
schedule at the time relating thereto as of the month preceding the month of
such Distribution Date, before giving effect to any scheduled payments of
principal due in such month and after giving effect to any principal prepayments
in full received through and including the 15th day of such month from the
related borrower. In the case of a simple interest mortgage loan, 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.
Each mortgage loan is required to be covered by a standard hazard insurance
policy. See "Servicing of the Mortgage Loans -- Hazard Insurance" in the
Prospectus.
S-14
<PAGE> 15
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 $272,015,350. This amount is subject to a permitted
variance such that the aggregate principal balance will not be less than
$258,414,582 or greater than $285,616,117.
Prior to issuance of the certificates, we will not remove from the expected
mortgage pool more than 5% of the mortgage loans, measured by Principal Balance
as of the Cut-off Date, unless a revised prospectus supplement is delivered to
prospective investors. In addition, prior to issuance of the certificates, we
will not add mortgage loans to the mortgage pool if this would result in more
than a 5% increase in the size of the mortgage pool, measured by Principal
Balance as of the Cut-off Date, unless a revised prospectus supplement is
delivered to prospective investors.
The mortgage loans in the trust are expected to have the following
characteristics (by Principal Balance of all the mortgage loans) as of the
Cut-off Date:
- The interest rates borne by the mortgage loans are expected to range from
approximately 6.75% to 14.49% per annum, and the weighted average
mortgage rate as of the Cut-off Date of the mortgage loans is expected to
be approximately 9.67% per annum.
- The principal balances of the mortgage loans are expected to range from
approximately $7,450 to $450,000 and, as of the Cut-off Date, the average
principal balance of the mortgage loans is expected to be approximately
$74,771 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 April 1992, and the month and year of the
latest scheduled maturity date of any such mortgage loan will be June
2029.
- All of the mortgage loans will have original terms to maturity of
approximately 5 years to 30 years.
- The remaining months to stated maturity for the mortgage loans as of the
Cut-off Date are expected to range from approximately 50 months to 360
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
247 months.
- It is expected that approximately 36.07% of the mortgage loans will be
loans that have original terms to maturity that are shorter than their
amortization schedules, leaving final payments ("Balloon Payments") due
on the maturity dates that are significantly larger than other monthly
payments (such loans, "Balloon Loans").
- The weighted average remaining term to stated maturity of the Balloon
Loans is expected to be approximately 179 months.
- The Home Equity Loan-to-Value Ratios (as defined herein) of the mortgage
loans at origination are expected to range from approximately 4.93% to
90.00%, and the weighted average of the Home Equity Loan-to-Value Ratios
of the mortgage loans at origination is expected to be approximately
70.69%.
S-15
<PAGE> 16
- 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 15.09% to 115.71%, and the weighted average of the
Second-Lien Combined Loan-to-Value Ratios of the second-lien mortgage
loans at origination is expected to be approximately 85.49%.
- Approximately 13.36% of the mortgage loans are expected to be
purchase-money loans used by the borrowers to acquire the related
mortgaged properties.
- No more than approximately 0.50% of the mortgage loans will be secured by
mortgaged properties located in any one postal zip code area.
- No more than approximately 1.00% of the mortgage loans are expected to
have been originated under GECMSI's no income verification programs, as
described under "The Home Equity Loans -- Underwriting Procedures
Relating to Home Equity Loans" in this prospectus supplement.
Set forth below is a description of certain characteristics of the mortgage
pool and the mortgage loans expected to be included therein, subject to the
variance described herein. The sum of the percentages may not equal 100% due to
rounding.
CUT-OFF DATE PRINCIPAL BALANCES
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
RANGE OF CUT-OFF DATE NUMBER OF CUT-OFF DATE AGGREGATE
PRINCIPAL BALANCES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
--------------------- -------------- ----------------- ----------------------
<S> <C> <C> <C>
$ 0.00 - 10,000.00..... 28 $ 266,927.77 0.10%
10,000.01 - 20,000.00..... 282 4,485,231.82 1.65
20,000.01 - 30,000.00..... 375 9,563,898.36 3.52
30,000.01 - 40,000.00..... 360 12,776,141.05 4.70
40,000.01 - 50,000.00..... 376 17,089,237.96 6.28
50,000.01 - 60,000.00..... 390 21,661,009.45 7.96
60,000.01 - 75,000.00..... 464 31,251,554.86 11.49
75,000.01 - 100,000.00..... 547 47,450,011.45 17.44
100,000.01 - 150,000.00..... 523 63,378,977.18 23.30
150,000.01 - 200,000.00..... 154 26,398,615.32 9.70
200,000.01 - 250,000.00..... 73 16,346,570.23 6.01
250,000.01 - 300,000.00..... 30 8,318,264.47 3.06
300,000.01 - 350,000.00..... 17 5,483,906.57 2.02
350,000.01 - 400,000.00..... 15 5,777,252.29 2.12
400,000.01 - 450,000.00..... 4 1,767,751.45 0.65
----- --------------- ------
Total.............. 3,638 $272,015,350.23 100.00%
===== =============== ======
</TABLE>
S-16
<PAGE> 17
MORTGAGE RATES
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
NUMBER OF CUT-OFF DATE AGGREGATE
RANGE OF MORTGAGE RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
0.000 - 7.500%.................. 15 $ 1,485,612.76 0.55%
7.501 - 8.000................... 218 18,421,278.90 6.77
8.001 - 8.500................... 342 27,691,707.96 10.18
8.501 - 9.000................... 544 48,328,773.39 17.77
9.001 - 9.500................... 466 39,032,208.20 14.35
9.501 - 10.000................... 640 51,641,167.05 18.98
10.001 - 10.500................... 380 27,660,654.89 10.17
10.501 - 11.000................... 380 26,355,921.25 9.69
11.001 - 11.500................... 235 13,095,658.14 4.81
11.501 - 12.000................... 208 9,415,220.36 3.46
12.001 - 12.500................... 76 4,109,117.67 1.51
12.501 - 13.000................... 70 2,839,870.37 1.04
13.001 - 13.500................... 40 1,395,653.49 0.51
13.501 - 14.000................... 21 479,013.68 0.18
14.001 - 14.500................... 3 63,492.12 0.02
----- --------------- ------
Total................... 3,638 $272,015,350.23 100.00%
===== =============== ======
</TABLE>
S-17
<PAGE> 18
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>
Alabama........................ 56 $ 3,490,308.62 1.28%
Arizona........................ 10 1,261,728.02 0.46
Arkansas....................... 14 1,234,822.27 0.45
California..................... 146 18,081,066.78 6.65
Colorado....................... 73 5,167,164.82 1.90
Connecticut.................... 57 5,906,197.06 2.17
Delaware....................... 23 1,493,470.44 0.55
District of Columbia........... 34 3,873,238.11 1.42
Florida........................ 330 20,874,788.81 7.67
Georgia........................ 103 7,319,613.56 2.70
Idaho.......................... 6 400,594.88 0.15
Illinois....................... 197 16,794,443.55 6.17
Indiana........................ 119 6,095,311.64 2.24
Iowa........................... 10 616,190.87 0.23
Kansas......................... 5 342,616.68 0.12
Kentucky....................... 51 3,261,471.80 1.20
Louisiana...................... 29 1,501,460.66 0.55
Maine.......................... 1 151,904.06 0.06
Maryland....................... 176 14,328,016.46 5.27
Massachusetts.................. 125 11,723,036.37 4.31
Michigan....................... 120 8,945,982.05 3.29
Minnesota...................... 9 489,043.29 0.18
Mississippi.................... 23 1,183,285.97 0.44
Missouri....................... 49 2,923,619.51 1.07
Montana........................ 1 261,559.33 0.10
Nebraska....................... 43 2,400,933.40 0.88
Nevada......................... 8 449,155.04 0.17
New Hampshire.................. 19 1,200,030.81 0.44
New Jersey..................... 137 12,440,320.63 4.57
New Mexico..................... 11 691,051.21 0.25
New York....................... 317 27,516,407.70 10.12
North Carolina................. 261 18,349,958.79 6.75
Ohio........................... 288 17,009,303.21 6.25
Oklahoma....................... 10 984,733.03 0.36
Oregon......................... 36 4,044,169.38 1.49
Pennsylvania................... 201 12,490,193.17 4.59
Rhode Island................... 28 1,501,171.88 0.55
South Carolina................. 175 10,887,275.15 4.00
South Dakota................... 5 363,202.89 0.13
Tennessee...................... 118 7,397,982.64 2.72
Texas.......................... 13 1,252,285.80 0.46
Utah........................... 15 1,185,010.31 0.44
Vermont........................ 12 812,649.76 0.30
Virginia....................... 76 5,228,847.80 1.92
Washington..................... 56 5,184,909.26 1.91
West Virginia.................. 19 1,411,541.04 0.52
Wisconsin...................... 20 1,300,909.56 0.48
Wyoming........................ 3 192,372.16 0.07
----- --------------- ------
Total................ 3,638 $272,015,350.23 100.00%
===== =============== ======
</TABLE>
S-18
<PAGE> 19
PRIORITY OF MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
AGGREGATE
NUMBER OF CUT-OFF DATE PRINCIPAL
PRIORITY MORTGAGE LOANS PRINCIPAL BALANCE BALANCE
-------- -------------- ----------------- -------------
<S> <C> <C> <C>
First-priority....................... 2,718 $238,087,358.56 87.53%
Second-priority...................... 920 33,927,991.67 12.47
----- --------------- ------
Total...................... 3,638 $272,015,350.23 100.00%
===== =============== ======
</TABLE>
YEAR OF ORIGINATION
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
AGGREGATE
NUMBER OF CUT-OFF DATE PRINCIPAL
YEAR OF ORIGINATION MORTGAGE LOANS PRINCIPAL BALANCE BALANCE
------------------- -------------- ----------------- -------------
<S> <C> <C> <C>
1992................................. 1 $ 274,400.00 0.10%
1997................................. 10 656,603.83 0.24
1998................................. 324 23,825,286.98 8.76
1999................................. 3,303 247,259,059.42 90.90
----- --------------- ------
Total...................... 3,638 $272,015,350.23 100.00%
===== =============== ======
</TABLE>
MONTHS REMAINING TO STATED MATURITY AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
NUMBER OF MONTHS AGGREGATE
REMAINING NUMBER OF CUT-OFF DATE PRINCIPAL
TO STATED MATURITY MORTGAGE LOANS PRINCIPAL BALANCE BALANCE
------------------ -------------- ----------------- -------------
<S> <C> <C> <C>
36 - 59............................ 9 $ 232,735.88 0.09%
60 - 83............................ 11 322,169.60 0.12
84 - 107............................ 1 15,626.58 0.01
108 - 131............................ 160 5,250,696.03 1.93
132 - 155............................ 5 203,082.98 0.07
156 - 179............................ 1,368 98,249,406.87 36.12
180 - 239............................ 985 67,027,456.42 24.64
240 and above........................ 1,099 100,714,175.87 37.03
----- --------------- ------
Total...................... 3,638 $272,015,350.23 100.00%
===== =============== ======
</TABLE>
S-19
<PAGE> 20
TYPES OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
AGGREGATE
NUMBER OF CUT-OFF DATE PRINCIPAL
PROPERTY TYPE MORTGAGE LOANS PRINCIPAL BALANCE BALANCE
------------- -------------- ----------------- -------------
<S> <C> <C> <C>
Manufactured housing................. 123 $ 6,800,784.60 2.50%
2-4 family........................... 146 12,710,336.78 4.67
Condominiums......................... 63 4,108,294.55 1.51
Single-family detached............... 3,105 234,972,048.17 86.38
Single-family attached............... 201 13,423,886.13 4.93
----- --------------- ------
Total...................... 3,638 $272,015,350.23 100.00%
===== =============== ======
</TABLE>
USE OF MORTGAGED PROPERTIES(1)
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
AGGREGATE
NUMBER OF CUT-OFF DATE PRINCIPAL
USE MORTGAGE LOANS PRINCIPAL BALANCE BALANCE
--- -------------- ----------------- -------------
<S> <C> <C> <C>
Primary residence.................... 3,445 $257,857,210.59 94.80%
Non-primary residence(2)............. 193 14,158,139.64 5.20
----- --------------- ------
Total...................... 3,638 $272,015,350.23 100.00%
===== =============== ======
</TABLE>
- -------------------------
(1) Based on information supplied by the mortgagor in the loan application.
(2) We believe that the majority of the non-primary residences are investment
properties.
S-20
<PAGE> 21
SECOND-LIEN COMBINED LOAN-TO-VALUE RATIO(1)(2)
(FOR SECOND-LIEN MORTGAGE LOANS)
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
AGGREGATE
PRINCIPAL
NUMBER OF BALANCE OF
MORTGAGE LOANS MORTGAGE
IN A LOANS IN A
RANGE OF SECOND-LIEN SECOND-LIEN CUT-OFF DATE SECOND-LIEN
COMBINED LOAN-TO-VALUE RATIOS POSITION PRINCIPAL BALANCE POSITION
----------------------------- -------------- ----------------- -------------
<S> <C> <C> <C>
10.01 - 20.00.................... 9 $ 273,590.01 0.81%
20.01 - 30.00.................... 5 254,458.08 0.75
30.01 - 40.00.................... 10 322,672.08 0.95
40.01 - 50.00.................... 16 741,839.84 2.19
50.01 - 60.00.................... 24 1,354,754.16 3.99
60.01 - 70.00.................... 51 1,442,348.17 4.25
70.01 - 75.00.................... 42 2,276,042.48 6.71
75.01 - 80.00.................... 113 5,078,788.29 14.97
80.01 - 85.00.................... 96 3,189,870.82 9.40
85.01 - 90.00.................... 69 3,044,520.19 8.97
90.01 and above.................. 485 15,949,107.55 47.01
--- -------------- ------
Total.................. 920 $33,927,991.67 100.00%
=== ============== ======
</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 85.49%.
S-21
<PAGE> 22
HOME EQUITY LOAN-TO-VALUE RATIO(1)(2)
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
AGGREGATE
PRINCIPAL
CUT-OFF DATE BALANCE OF
RANGE OF HOME EQUITY NUMBER OF PRINCIPAL MORTGAGE
LOAN-TO-VALUE RATIOS MORTGAGE LOANS BALANCE LOANS
-------------------- -------------- --------------- -------------
<S> <C> <C> <C>
0.00 - 10.00%................... 72 $ 2,102,792.11 0.77%
10.01 - 20.00.................... 510 14,604,491.75 5.37
20.01 - 30.00.................... 269 12,014,189.75 4.42
30.01 - 40.00.................... 137 7,245,009.09 2.66
40.01 - 50.00.................... 142 8,733,202.92 3.21
50.01 - 60.00.................... 154 11,025,885.99 4.05
60.01 - 70.00.................... 275 22,683,404.74 8.34
70.01 - 75.00.................... 330 28,325,073.74 10.41
75.01 - 80.00.................... 902 82,545,246.15 30.36
80.01 - 85.00.................... 395 34,666,335.72 12.74
85.01 - 90.00.................... 452 48,069,718.27 17.67
----- --------------- ------
Total.................. 3,638 $272,015,350.23 100.00%
===== =============== ======
</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 13.36% of the mortgage loans, the lesser of (a) the appraised
value or (b) 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 70.69%. 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 77.34% and
23.96%, respectively.
S-22
<PAGE> 23
HOME EQUITY LOAN RATIO(1)(2)
(FOR SECOND-LIEN MORTGAGE LOANS)
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
AGGREGATE PRINCIPAL
BALANCE OF
NUMBER OF MORTGAGE
MORTGAGE LOANS LOANS IN A
RANGE OF HOME EQUITY IN A SECOND- CUT-OFF DATE SECOND-LIEN
LOAN RATIOS LIEN POSITION PRINCIPAL BALANCE POSITION
-------------------- -------------- ----------------- -------------------
<S> <C> <C> <C>
0.00 - 10.00%.............. 29 $ 699,410.74 2.06%
10.01 - 20.00............... 411 11,323,920.32 33.38
20.01 - 30.00............... 273 10,467,981.76 30.85
30.01 - 40.00............... 107 5,395,032.14 15.90
40.01 - 50.00............... 45 2,860,884.43 8.43
50.01 - 60.00............... 28 1,595,179.36 4.70
60.01 - 70.00............... 8 271,702.51 0.80
70.01 - 75.00............... 1 70,333.79 0.21
75.01 - 80.00............... 2 82,474.10 0.24
80.01 - 85.00............... 2 135,988.98 0.40
85.01 - 90.00............... 3 319,663.72 0.94
90.01 and above............. 11 705,419.82 2.08
--- -------------- ------
Total.............. 920 $33,927,991.67 100.00%
=== ============== ======
</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 29.31%.
LOAN TYPE
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
AGGREGATE
NUMBER OF CUT-OFF DATE PRINCIPAL
TYPE MORTGAGE LOANS PRINCIPAL BALANCE BALANCE
---- -------------- ----------------- -------------
<S> <C> <C> <C>
Balloon.......................... 1,003 $ 98,127,875.23 36.07%
Fully amortizing................. 2,635 173,887,475.00 63.93
----- --------------- ------
Total.................. 3,638 $272,015,350.23 100.00%
===== =============== ======
</TABLE>
S-23
<PAGE> 24
MONTHS REMAINING TO STATED MATURITY AS OF THE CUT-OFF DATE
(FOR BALLOON LOANS)
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
NUMBER OF MONTHS AGGREGATE
REMAINING TO PRINCIPAL
STATED MATURITY NUMBER OF BALLOON CUT-OFF DATE BALANCE OF
AS OF CUT-OFF DATE MORTGAGE LOANS PRINCIPAL BALANCE BALLOON LOANS
------------------ ----------------- ----------------- -------------
<S> <C> <C> <C>
156 - 179..................... 700 $67,246,889.56 68.53%
180 - 239..................... 303 30,880,985.67 31.47
----- -------------- ------
Total.................... 1,003 $98,127,875.23 100.00%
===== ============== ======
</TABLE>
The following describes certain delinquency characteristics as of the
Cut-off Date of the mortgage loans expected to comprise the mortgage loan pool:
- - No more than 0.25% of the mortgage loans (by Principal Balance of all of the
mortgage loans) is 30 days or more delinquent in payment as of the Cut-off
Date.
- - During the 12 months preceding the Cut-off Date, 21 mortgage loans, with an
aggregate Principal Balance as of the Cut-off Date of approximately
$1,406,355.21 and comprising approximately 0.52% 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, and 5
mortgage loans, with an aggregate Principal Balance as of the Cut-off Date of
approximately $208,092.17 and comprising approximately 0.08% of the mortgage
pool (by Principal Balance as of the Cut-off Date) had been delinquent in
payment for a period of at least 60 days (but less than 90 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 or a
self-amortizing basis. Approximately 99.84% of the mortgage loans are expected
to be self-amortizing mortgage loans, and approximately 0.16% 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
S-24
<PAGE> 25
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 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.
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 changed 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 a change in Due Date, subject to any determination by it
that such an advance 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 6.81% 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 1% to 9% of the principal amount
prepaid and substantially all of the prepayment premiums are scheduled to expire
by the end of June 2004.
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<PAGE> 26
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 Cut-off Date between GECMSI,
as depositor of the mortgage loans and servicer, and The First National Bank of
Chicago, as 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 by this prospectus
supplement, together with the Class B3, Class B4, Class B5 and Class S
Certificates, none of which are offered hereby. The certificates will be issued
in the aggregate original principal balance of approximately $272,015,350,
subject to a permitted variance such that the aggregate original principal
balance of the certificates will not be less than $258,414,582 or greater than
$285,616,117. 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 residual certificates, will be issued in book-entry form. Beneficial
interests in these certificates (the "Book-Entry Certificates") will be held by
investors through the book-entry facilities of The Depository Trust Company, as
described below, in the minimum denominations described in the summary of this
prospectus supplement. Notwithstanding the minimum denominations of the
certificates described in the summary, one certificate of each class other than
the residual certificates may be issued in a lower amount. Notwithstanding the
integral multiple requirements described in the summary, one certificate of each
class other than the residual certificates may evidence an additional amount
equal to the remaining principal balance thereof.
BOOK-ENTRY CERTIFICATES
Each class of 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. GECMSI has been informed by DTC that its nominee
will be Cede & Co. Accordingly, Cede & Co. 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 definitive physical certificate representing such 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, 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 DTC 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
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<PAGE> 27
each of its participants 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 its 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 DTC
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 GECMSI and the Trustee that, unless and until definitive
physical certificates are issued, DTC will take any action permitted to be taken
by a holder of a certificate 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 physical 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 GECMSI 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 GECMSI or the Trustee is unable
to locate a qualified successor, (b) GECMSI, 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 physical certificates. Upon surrender by DTC of the global
certificate or certificates representing the certificates and instructions for
re-registration, the Trustee will issue definitive physical certificates, and
thereafter the Trustee will recognize the holders of such certificates as
certificateholders under the Agreement. Following the issuance of definitive
physical certificates, distribution of principal and interest on the
certificates will be made by the Trustee directly to holders of these
certificates in accordance with the procedures set forth in the Agreement.
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<PAGE> 28
The Agreement will provide that, if definitive physical certificates are
issued in respect of the Class M, Class B1 or Class B2 Certificates, no transfer
of such a certificate may be made unless the Trustee has received (1) a
certificate to the effect that the proposed transferee is not an ERISA Plan (as
defined herein) or that the transferee is an insurance company investing assets
of its general account and the exemption provided by Section III(a) of the
Department of Labor Prohibited Transaction Class Exemption 95-60, 60 Fed. Reg.
35925 (July 12, 1995), applies to such transferee's acquisition and holding of
such certificate or (2) an opinion of counsel relating to such transfer in form
and substance satisfactory to the Trustee and GECMSI. See "ERISA Considerations"
herein.
NON-BOOK-ENTRY CERTIFICATES
The residual certificates (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 (the
"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,
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 described in the accompanying prospectus under "Servicing
of the Mortgage Loans -- 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:
- 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 that Distribution Date;
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<PAGE> 29
- any Nonrecoverable Advances (as defined herein) reimbursed to GECMSI will
be deducted from Available Interest Funds; and
- 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 that 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 -- Loan Payment Record" in the prospectus.
DISTRIBUTIONS ON THE CERTIFICATES
Interest
Interest on the certificates will be distributed monthly on the 25(th) day
of each month or, if such 25(th) day is not a business day, on the succeeding
business day (each, a "Distribution Date") commencing in July 1999 in an
aggregate amount equal to the Available Interest Funds for such Distribution
Date. On each Distribution Date, the Available Interest Funds will be
distributed in the following order of priority among the certificates:
first, pro rata to the classes of senior certificates other than the
residual certificates, the Accrued Certificate Interest on each such class
of certificates for such Distribution Date, less the applicable Interest
Percentage of any Unpaid Net Simple Interest Shortfall, any shortfall in
available amounts being allocated among such classes in proportion to the
amount of Accrued Certificate Interest otherwise distributable thereon;
second, pro rata to the classes of senior certificates other than the
residual certificates, any Accrued Certificate Interest thereon remaining
undistributed from previous Distribution Dates (including any related
Unpaid Net Simple Shortfalls previously allocated to such classes), to the
extent of remaining Available Interest Funds, any shortfall in available
amounts being allocated among such classes in proportion to the amount of
such Accrued Certificate Interest remaining undistributed for each class
for such Distribution Date;
third, to the Class M Certificates, to the extent of remaining
Available Interest Funds, in the following order: (a) the Accrued
Certificate Interest thereon for such Distribution Date (less the
applicable Interest Percentage of any Unpaid Net Simple Interest Shortfall)
and (b) any Accrued Certificate Interest thereon remaining undistributed
from previous Distribution Dates (including any related Unpaid Net Simple
Interest Shortfall previously allocated to such class);
fourth, to the Class B1 Certificates, to the extent of remaining
Available Interest Funds, in the following order: (a) the Accrued
Certificate Interest thereon for such Distribution Date (less the
applicable Interest Percentage of any Unpaid Net Simple Interest Shortfall)
and (b) any Accrued Certificate Interest thereon remaining undistributed
from previous Distribution Dates (including any related Unpaid Net Simple
Interest Shortfall previously allocated to such class);
fifth, to the Class B2 Certificates, to the extent of remaining
Available Interest Funds, in the following order: (a) the Accrued
Certificate Interest thereon for such Distribution Date (less the
applicable Interest Percentage of any Unpaid Net Simple Interest Shortfall)
and (b) any Accrued Certificate Interest thereon remaining undistributed
from previous Distribution Dates (including any related Unpaid Net Simple
Interest Shortfall previously allocated to such class); and
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<PAGE> 30
sixth, sequentially, to the Class B3, Class B4 and Class B5
Certificates, to the extent of remaining Available Interest Funds, in the
following order: (a) the Accrued Certificate Interest thereon for such
Distribution Date (less the applicable Interest Percentage of any Unpaid
Net Simple Interest Shortfall) and (b) any Accrued Certificate Interest
thereon remaining undistributed from previous Distribution Dates (including
any related Unpaid Net Simple Interest Shortfall previously allocated to
such class).
Interest will accrue on the certificates offered hereby, other than the
residual certificates, at the respective interest rates set forth in the summary
of this prospectus supplement or described below during each one-month period
ending on the last day of the month preceding the month in which each
Distribution Date occurs (each, an "Interest Accrual Period"). Interest will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
Interest will accrue on the Class A5, Class M and Class B1 Certificates
during the initial Interest Accrual Period at an interest rate of 7.510%, 7.560%
and 7.905% per annum, respectively, and during each subsequent Interest Accrual
Period at an interest rate equal to the lesser of (1) 7.510%, 7.560% and 7.905%
per annum, respectively, and (2) the Weighted Average Net Mortgage Rate for the
related Interest Accrual Period. Interest will accrue on the Class B2, Class B3,
Class B4 and Class B5 Certificates at the Weighted Average Net Mortgage Rate
during each Interest Accrual Period.
Interest will accrue on the Class S Certificates during each Interest
Accrual Period at a per annum interest rate equal to the Weighted Average Net
Mortgage Rate less the weighted average (by Class Certificate Principal Balance)
of the interest rates of the other classes of certificates. The per annum
interest rate on the Class S Certificates for the first Interest Accrual Period
is expected to be approximately 2.117%.
As used in this prospectus supplement, the following terms have the
meanings set forth below:
- The "Weighted Average Net Mortgage Rate" for any Interest Accrual Period
is the weighted average (by Principal Balance) of the Net Mortgage Rates
on the mortgage loans as of the first day of such Interest Accrual
Period, as determined by GECMSI as servicer. Any mortgage loans which
have been prepaid in full (or, in the case of a mortgage loan
master-serviced by GECMSI, of which GECMSI receives notice) on or prior
to the fifteenth day of the month in which such Interest Accrual Period
occurs will not be included in the above calculation. The 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 9.165% per annum.
- The "Net Mortgage Rate" of any mortgage loan equals the interest 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 "Accrued Certificate Interest" for any certificate entitled to
distributions of interest for any Distribution Date will equal the
interest accrued during the related Interest Accrual Period at the
applicable interest rate on the Certificate Principal Balance of such
certificate immediately prior to such Distribution Date, less such
certificate's share of any Net Interest Shortfall (as defined below), the
interest
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<PAGE> 31
portion of any Excess Losses (as defined herein) through the Cross-Over
Date and, after the Cross-Over Date, the interest portion of any Realized
Losses including Excess Losses.
- The "Certificate Principal Balance" of any certificate as of any
Distribution Date will equal such certificate's principal balance on the
date of the initial issuance of the certificates as reduced, but not
below zero, by:
-- all amounts distributed on previous Distribution Dates on such
certificate on account of principal;
-- the principal portion of all Realized Losses previously allocated to
such certificate; and
-- in the case of the junior certificates, such certificate's pro rata
share, if any, of the Junior Certificate Writedown Amount (as defined
below) for previous Distribution Dates.
- The "Class Certificate Principal Balance" of a class as of any
Distribution Date will equal the aggregate Certificate Principal Balances
of all the certificates of that class on such Distribution Date.
- As of any Distribution Date, the "Junior Certificate Writedown Amount"
will equal the amount by which (1) 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 (2) the aggregate Principal Balance of
the mortgage loans on the first day of the month of such Distribution
Date less any Deficient Valuations (as defined herein) occurring on or
prior to the Bankruptcy Coverage Termination Date (as defined herein).
- The aggregate "Notional Principal Balance" of the Class S Certificates as
of any Distribution Date will equal the aggregate Principal Balance of
the mortgage loans with respect to such Distribution Date.
- The "Interest Percentage" is, with respect to any class of certificates
and any Distribution Date, the ratio (expressed as a decimal carried to
six places) of the Accrued Certificate Interest for such class to the
Accrued Certificate Interest for all classes, in each case with respect
to such Distribution Date.
- 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 described in clause (2) of the preceding
sentence over the amount described 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 (a) to
include any advances of interest made by GECMSI
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<PAGE> 32
as servicer in such month in respect of such simple interest mortgage
loans, and (b) to be reduced by any amounts paid to GECMSI as servicer in
such month in reimbursement of advances previously made by GECMSI in
respect of such simple interest mortgage loans (including simple interest
mortgage loans that, at the time of reimbursement, are no longer part of
the trust).
- The "Unpaid Net Simple Interest Shortfall" for any Distribution Date will
be equal to the excess, if any, of (1) any Net Simple Interest Shortfall
for such Distribution Date, over (2) 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
self-amortizing mortgage loan (other than an Early Installment) 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 -- 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 (other than an Early Installment),
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 Realized Losses on the
Certificates" below) will, on each Distribution Date, be allocated among all the
outstanding certificates entitled to distributions of interest in proportion to
the amount of Accrued Certificate Interest that would have been allocated
thereto in the absence of such shortfall and losses.
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
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<PAGE> 33
subordination of the junior certificates in right of distribution, such losses
will be borne first by the outstanding junior certificates 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 entitled to distributions of interest (after taking into account
any related Unpaid Net Simple Interest Shortfall), 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 (including any related Unpaid Net Simple Interest Shortfalls) will be
added to the amount of interest to be distributed 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 July 1999 in an aggregate amount equal to the
Available Principal Funds for such Distribution Date.
On each Distribution Date, the Senior Principal Distribution Amount will be
distributed to the senior certificates (other than the Class S Certificates), in
reduction of the Class Certificate Principal Balances thereof in the following
order of priority:
(a) to the Class A6 Certificates, the Class A6 Principal Distribution
Amount (as defined below), if any, for such Distribution Date, until the
Class Certificate Principal Balance thereof has been reduced to zero; and
(b) to the other senior certificates, an amount equal to the Senior
Principal Distribution Amount for such Distribution Date less the Class A6
Principal Distribution Amount, if any, for such date, in the following
order of priority:
(1) pro rata, to the Class R1 and Class R2 Certificates, until the
Class Certificate Principal Balances thereof have each been reduced to
zero;
(2) to the Class A1 Certificates, until the Class Certificate
Principal Balance thereof has been reduced to zero;
(3) to the Class A2 Certificates, until the Class Certificate
Principal Balance thereof has been reduced to zero;
(4) to the Class A3 Certificates, until the Class Certificate
Principal Balance thereof has been reduced to zero;
(5) to the Class A4 Certificates, until the Class Certificate
Principal Balance thereof has been reduced to zero; and
(6) to the Class A5 Certificates, until the Class Certificate
Principal Balance thereof has been reduced to zero.
On each Distribution Date after the Distribution Date on which the
respective Class Certificate Principal Balances of the junior certificates are
reduced to zero (the "Cross-Over Date"), distributions of principal on the
outstanding senior certificates entitled to distributions of principal will be
made pro rata among all such certificates, regardless of the allocation, or
sequential nature, of principal payments described in the preceding paragraph.
The Class A6 Certificates will receive no distributions of principal during the
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<PAGE> 34
first three years after the Cut-off Date, except as otherwise described herein
on the earlier of the Senior Transition Date (as defined herein) and the
Cross-Over Date.
On each Distribution Date, each class of junior certificates will be
entitled to receive its Allocable Share (as defined herein) for such
Distribution Date.
The "Senior Principal Distribution Amount" with respect to each
Distribution Date will be an amount equal to the sum of:
(1) the Senior Percentage (as defined below) of all payments of principal
actually received by GECMSI on each mortgage loan in the calendar month
preceding the month in which the Distribution Date occurs (including
the principal portion of any Early Installment), other than those
payments of principal described in clauses (2) through (5) below;
(2) the Senior Prepayment Percentage (as defined below) of the Principal
Balance of each mortgage loan which was the subject of a prepayment in
full received by GECMSI (or, in the case of a mortgage loan
master-serviced by GECMSI, of which GECMSI receives notice) during the
applicable Prepayment Period (as defined below);
(3) the Senior Prepayment Percentage of all partial prepayments of
principal received with respect to self-amortizing mortgage loans,
other than Early Installments, during the related Prepayment Period;
(4) the Senior Prepayment Percentage of the sum of (a) the net liquidation
proceeds allocable to principal on each mortgage loan which 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 that was purchased by a private mortgage
insurer during the related Prepayment Period as an alternative to
paying a claim under the related insurance policy; and
(5) the Senior Prepayment Percentage of the sum of (a) the Principal
Balance of each mortgage loan which was repurchased by GECMSI in
connection with such Distribution Date and (b) the difference, if any,
between the Principal Balance of a mortgage loan that has been replaced
by GECMSI with a substitute mortgage loan under to the Agreement in
connection with such Distribution Date and the Principal Balance of
such substitute mortgage loan.
With respect to any mortgage loan that was the subject of a voluntary
prepayment in full and any Distribution Date, the "Prepayment Period" is the
period from the sixteenth day of the month preceding the month of such
Distribution Date (or, in the case of the first Distribution Date, from the
Cut-off Date) through the fifteenth day of the month of such Distribution Date.
With respect to any other unscheduled prepayment of principal of any mortgage
loan and any Distribution Date, the "Prepayment Period" is the month preceding
the month of such Distribution Date.
The "Senior Percentage" on any Distribution Date will equal the lesser of
100% and the percentage (carried to six places rounded up) obtained by dividing
the aggregate Certificate Principal Balances of all the senior certificates
immediately preceding such Distribution Date by the aggregate Certificate
Principal Balances of all the certificates immediately preceding such
Distribution Date. The initial Senior Percentage is expected to be approximately
84.50%.
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<PAGE> 35
The "Senior Prepayment Percentage" on any Distribution Date occurring
during the periods set forth below will be as follows:
<TABLE>
<CAPTION>
PERIOD (DATES INCLUSIVE) SENIOR PREPAYMENT PERCENTAGE
------------------------ ----------------------------
<S> <C>
July 1999 - June 2004................ 100%
July 2004 - June 2005................ Senior Percentage plus 70% of the
Junior Percentage
July 2005 - June 2006................ Senior Percentage plus 60% of the
Junior Percentage
July 2006 - June 2007................ Senior Percentage plus 40% of the
Junior Percentage
July 2007 - June 2008................ Senior Percentage plus 20% of the
Junior Percentage
July 2008 and thereafter............. Senior Percentage
</TABLE>
Notwithstanding the foregoing, if the Senior Percentage on any Distribution
Date exceeds the initial Senior Percentage, the Senior Prepayment Percentage for
such Distribution Date will equal 100%.
In addition, the reduction of the Senior Prepayment Percentage below the
level in effect for the most recent prior period specified in the table above
shall be effective on any Distribution Date only if, as of the last day of the
month preceding such Distribution Date:
(1) the aggregate Principal Balance of mortgage loans delinquent 60
days or more (including for this purpose any mortgage loans in foreclosure
and mortgage loans with respect to which the related mortgaged property has
been acquired by the trust) does not exceed 50% of the aggregate Class
Certificate Principal Balance of the junior certificates as of such date;
and
(2) cumulative Realized Losses do not exceed:
(a) 30% of the aggregate Class Certificate Principal Balance of the
junior certificates as of the date of issuance of the certificates (the
"Original Junior Principal Balance") if such Distribution Date occurs
between and including July 2004 and June 2005;
(b) 35% of the Original Junior Principal Balance if such
Distribution Date occurs between and including July 2005 and June 2006;
(c) 40% of the Original Junior Principal Balance if such
Distribution Date occurs between and including July 2006 and June 2007;
(d) 45% of the Original Junior Principal Balance if such
Distribution Date occurs between and including July 2007 and June 2008;
and
(e) 50% of the Original Junior Principal Balance if such
Distribution Date occurs during or after July 2008 (such limitation
being the "Senior Prepayment Percentage Stepdown Limitation").
The "Class A6 Principal Distribution Amount" with respect to any
Distribution Date will be an amount, not to exceed the Senior Principal
Distribution Amount, equal to the product of (a) the Senior Principal
Distribution Amount for such Distribution Date, (b) the Class A6 Certificate
Percentage for such Distribution Date and (c) the Class A6 Distribution
Percentage for such Distribution Date; provided that on the Distribution Date on
which the Class Certificate Principal Balances of the other senior certificates
are reduced to zero (the "Senior Transition Date"), the Class A6 Principal
Distribution
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Amount will be equal to the remaining Senior Principal Distribution Amount for
such Distribution Date after distributions of principal on the other senior
certificates.
The "Class A6 Certificate Percentage" with respect to any Distribution Date
is the percentage obtained by dividing (a) the Class Certificate Principal
Balance of the Class A6 Certificates immediately preceding such Distribution
Date by (b) the aggregate Certificate Principal Balance of all the senior
certificates immediately preceding such Distribution Date.
The "Class A6 Distribution Percentage" for any Distribution Date occurring
during the periods set forth below will be as follows:
<TABLE>
<CAPTION>
CLASS A6
PERIOD (DATES INCLUSIVE) DISTRIBUTION PERCENTAGE
------------------------ -----------------------
<S> <C>
July 1999 - June 2002....................................... 0%
July 2002 - June 2004....................................... 45%
July 2004 - June 2005....................................... 80%
July 2005 - June 2006....................................... 100%
July 2006 and thereafter.................................... 300%
</TABLE>
provided that on any Distribution Date following the Senior Transition Date, the
Class A6 Distribution Percentage will equal 100% for such Distribution Date.
The "Junior Percentage" on any Distribution Date will equal 100% minus the
Senior Percentage. The "Junior Prepayment Percentage" will equal 100% minus the
Senior Prepayment Percentage, except that on any Distribution Date after the
respective Class Certificate Principal Balances of the senior certificates have
each been reduced to zero (the "Final Senior Distribution Date"), the Junior
Prepayment Percentage will equal 100%. The initial Junior Percentage is expected
to be approximately 15.50%.
The "Junior Principal Distribution Amount" with respect to each
Distribution Date will be an amount equal to the sum of:
(1) the Junior Percentage of all payments of principal actually received by
GECMSI on each outstanding mortgage loan in the calendar month
preceding the month in which the Distribution Date occurs, including
the principal portion of any Early Installment, other than those
payments described in clauses (2) through (5) below;
(2) the Junior Prepayment Percentage of the Principal Balance of each
mortgage loan which was the subject of a prepayment in full received by
GECMSI (or, in the case of a mortgage loan master-serviced by GECMSI,
of which GECMSI receives notice) during the applicable Prepayment
Period;
(3) the Junior Prepayment Percentage of all partial prepayments of
principal received with respect to self-amortizing mortgage loans,
other than Early Installments, during the related Prepayment Period;
(4) the Junior Prepayment Percentage of the sum of (a) the net liquidation
proceeds allocable to principal received during the related Prepayment
Period in respect of each Liquidated Mortgage Loan, other than mortgage
loans described in clause (b), and (b) the Principal Balance of each
mortgage loan that was purchased by a private mortgage insurer during
the related Prepayment Period as an alternative to paying a claim under
the related insurance policy; and
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(5) the Junior Prepayment Percentage of the sum of (a) the Principal
Balance of each mortgage loan which was repurchased by GECMSI in
connection with such Distribution Date and (b) the difference, if any,
between the Principal Balance of a mortgage loan that has been replaced
by GECMSI with a substitute mortgage loan under the Agreement in
connection with such Distribution Date and the Principal Balance of
such substitute mortgage loan.
The "Allocable Share" with respect to any class of junior certificates on
any Distribution Date will generally equal such class's pro rata share (based on
the Class Certificate Principal Balance of each class entitled thereto) of each
of the components of the Junior Principal Distribution Amount described above;
provided, that, except as described in the second succeeding sentence, no Class
B1, Class B2, Class B3, Class B4 or Class B5 Certificate (together, the "Class B
Certificates") shall be entitled on any Distribution Date to receive
distributions pursuant to clauses (2), (3) and (5) of the definition of Junior
Principal Distribution Amount unless the Class Prepayment Distribution Trigger
for the related class is satisfied for such Distribution Date.
The "Class Prepayment Distribution Trigger" for a class of Class B
Certificates for any Distribution Date is satisfied if 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, and
the denominator of which is the principal balance of the mortgage loan pool with
respect to such Distribution Date, equals or exceeds such percentage calculated
as of the date of issuance of the certificates. If, on any Distribution Date,
the Class Certificate Principal Balance of the Class M Certificates or of any
class of Class B Certificates for which the related Class Prepayment
Distribution Trigger was satisfied on such Distribution Date is reduced to zero,
any amounts distributable to such class under clauses (2), (3) and (5) of the
definition of Junior Principal Distribution Amount, to the extent of such
class's remaining Allocable Share, shall be distributed to the remaining classes
of junior certificates in reduction of their respective Class Certificate
Principal Balances in order of priority. If the Class Prepayment Distribution
Trigger is not satisfied for any class of Class B Certificates on any
Distribution Date, this may have the effect of accelerating the amortization of
more senior ranking classes of junior certificates because the amount otherwise
distributable to such class under clauses (2), (3) and (5) of the definition of
Junior Principal Distribution Amount will be distributable among the outstanding
Class M Certificates and each class of the Class B Certificates as to which the
related Class Prepayment Distribution Trigger has been satisfied on a pro rata
basis.
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" is
- as to any Liquidated Mortgage Loan (as defined below), 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.
- as to any mortgage loan, a Deficient Valuation (as defined below).
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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.
A Deficient Valuation may result from the personal bankruptcy of a
mortgagor if the bankruptcy court establishes 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 reduces the secured debt to
such value. In such case, the trust, as 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").
An "Excess Loss" is any Deficient Valuation, Fraud Loss or Special Hazard
Loss (each a type of Realized Loss) occurring after, respectively, the
Bankruptcy Coverage Termination Date, Fraud Coverage Termination Date or Special
Hazard Termination Date, each as defined below.
A "Non-Excess Realized Loss" is any Realized Loss other than an Excess
Loss.
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.
Losses Allocable to Certificates
Prior to the Cross-Over Date (and on such date under certain
circumstances), the principal portion of any Non-Excess Realized Loss will be
allocated among the outstanding classes of junior certificates, in inverse order
of priority, until the Class Certificate Principal Balance of each such class
has been reduced to zero (i.e., Non-Excess Realized Losses will be allocated
first to the Class B5 Certificates while such certificates are outstanding,
second to the Class B4 Certificates, and so on). Fraud Losses, Special Hazard
Losses and Deficient Valuations occurring prior to the Fraud Coverage
Termination Date, Special Hazard Termination Date and Bankruptcy Coverage
Termination Date, respectively, will be allocated to the junior certificates in
the manner described in the preceding sentence.
Commencing on the Cross-Over Date, the principal portion of any Realized
Loss will be allocated among the outstanding classes of senior certificates
entitled to principal distributions pro rata based upon their Class Certificate
Principal Balances.
As indicated above, Fraud Losses, Special Hazard Losses and Deficient
Valuations occurring after the Fraud Coverage Termination Date, Special Hazard
Termination Date and Bankruptcy Coverage Termination Date, respectively, will be
Excess Losses. The principal portion of any Excess Loss on a mortgage loan for
any Distribution Date (whether occurring before, on or after the Cross-Over
Date) will be allocated pro rata among all outstanding classes of certificates
entitled to principal distributions based on their Class Certificate Principal
Balances.
Fraud Coverage Termination Date. The "Fraud Coverage Termination Date" is
the Distribution Date upon which the Fraud Loss Amount has been reduced to zero
or a
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negative number (or the Cross-Over Date, if earlier). Upon the initial issuance
of the certificates, the "Fraud Loss Amount" will equal approximately $5,440,307
(approximately 2.00% of the aggregate Principal Balances of the mortgage loans
as of the Cut-off Date). As of any Distribution Date prior to the first
anniversary of the Cut-off Date, the Fraud Loss Amount will equal approximately
$5,440,307, minus the aggregate amount of Fraud Losses that would have been
allocated to the junior certificates in the absence of the Loss Allocation
Limitation since the Cut-off Date. As of any Distribution Date from the first to
the fourth anniversaries of the Cut-off Date, the Fraud Loss Amount will equal
(1) the lesser of (a) the Fraud Loss Amount as of the most recent anniversary of
the Cut-off Date and (b) 1% 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 the absence of the Loss Allocation Limitation since the most
recent anniversary of the Cut-off Date. After the fourth anniversary of the
Cut-off Date, the Fraud Loss Amount shall be zero.
Special Hazard Termination Date. The "Special Hazard Termination Date" is
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). Upon the
initial issuance of the certificates, the "Special Hazard Loss Amount" will
equal approximately $2,720,154 (approximately 1.00% of the aggregate Scheduled
Principal Balances of the mortgage loans as of the Cut-off Date). As of any
Distribution Date, the Special Hazard Loss Amount will equal approximately
$2,720,154 minus the sum of (1) the aggregate amount of Special Hazard Losses
that would have been previously allocated to the junior certificates in the
absence of the Loss Allocation Limitation and (2) the Adjustment Amount. For
each anniversary of the Cut-off Date, the "Adjustment Amount" shall be equal to
the amount, if any, by which the Special Hazard Loss Amount (without giving
effect to the deduction of the Adjustment Amount for such anniversary) exceeds
the lesser of:
(a) an amount calculated by GECMSI and approved by each of Fitch and
Moody's (each as defined herein), which amount shall not be less than
$500,000; and
(b) the greater of (x) 1% (or if greater than 1%, the highest
percentage of mortgage loans by principal balance secured by mortgaged
properties in any California zip code) of the outstanding principal balance
of all the mortgage loans on the Distribution Date immediately preceding
such anniversary and (y) twice the outstanding principal balance of the
mortgage loan which has the largest outstanding principal balance on the
Distribution Date immediately preceding such anniversary.
Bankruptcy Coverage Termination Date. The "Bankruptcy Coverage Termination
Date" is 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). On
each Distribution Date, the "Bankruptcy Loss Amount" will equal approximately
$50,000 (approximately 0.02% of the aggregate Principal Balances of the mortgage
loans as of the Cut-off Date), subject to reduction as described in the
Agreement, minus the aggregate amount of previous Deficient Valuations. The
Bankruptcy Loss Amount and the manner of reduction thereof described in the
Agreement may be reduced or modified upon written confirmation from Fitch and
Moody's that such reduction or modification will not adversely affect the then
current ratings of the senior certificates by Fitch and Moody's. Such reduction
may adversely affect the coverage provided by subordination with respect to
Deficient Valuations.
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<PAGE> 40
Method of Allocating Realized Losses
All allocations of Realized Losses to a class of certificates will be
accomplished on a Distribution Date by reducing the Class Certificate Principal
Balance thereof by the appropriate 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
such certificates commencing on the following Distribution Date.
The interest portion of all Realized Losses will be allocated among the
outstanding classes of certificates entitled to distributions of interest to the
extent described under "-- Distributions on the Certificates -- Interest" above.
No reduction of the Class Certificate Principal Balance of any class will
be made on any Distribution Date on account of any Realized Loss to the extent
that such reduction would have the effect of reducing the aggregate Certificate
Principal Balance of all of the certificates as of such Distribution Date to an
amount less than the aggregate 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 being the "Loss Allocation Limitation").
ADDITIONAL RIGHTS OF THE RESIDUAL CERTIFICATEHOLDERS
In addition to distributions of principal and interest to the holders of
the residual certificates as described under "Distributions on the Certificates"
in this prospectus supplement:
(1) The Class R2 Certificates will be entitled to receive:
(a) the amount, if any, of Available Funds remaining in the upper-tier
REMIC on any Distribution Date after distributions of interest and
principal are made on the certificates on such date; and
(b) the proceeds, if any, of the assets of the trust remaining in the
upper-tier REMIC after the Class Certificate Principal Balances of all
classes of certificates have each been reduced to zero.
(2) The Class R1 Certificates will be entitled to receive:
(a) the amount, if any, of Available Funds remaining in the lower-tier
REMIC on any Distribution Date after distributions of interest and
principal are made on the certificates on such date;
(b) the proceeds, if any, of the assets of the trust remaining in the
lower-tier REMIC after the Class Certificate Principal Balances of all
classes of certificates have each been reduced to zero; and
(c) the amount of any Unanticipated Recoveries received by GECMSI in
the calendar month preceding the month of a Distribution Date and not
otherwise allocated to other classes of certificates as described in
"Servicing of the Mortgage Loans -- Unanticipated Recoveries of Losses on
the Mortgages Loans" in the accompanying prospectus.
It is not anticipated that any material assets will be remaining for such
distributions on the residual certificates at any such time. See "Federal Income
Tax Consequences -- Residual Certificates" herein.
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<PAGE> 41
SUBORDINATION
Priority of Senior Certificates
As of the date of the initial issuance of the certificates, the aggregate
Certificate Principal Balance of the junior certificates will equal
approximately 15.50% of the aggregate Certificate Principal Balance of all the
classes of certificates. The rights of the holders of the junior certificates to
receive interest distributions with respect to the mortgage loans will be
subordinate to such rights of the holders of the senior certificates to receive
interest distributions to the extent described above. The subordination of the
junior certificates is intended:
(1) to enhance the likelihood of regular receipt by the holders of the
senior certificates (to the extent of the subordination of the junior
certificates) of the full amount of the monthly distributions of interest
allocable to the senior certificates; and
(2) to afford the holders of the senior certificates (to the extent of
the subordination of the junior certificates) protection against Realized
Losses, to the extent described above.
If Realized Losses exceed the credit support provided to the senior certificates
through subordination, or if Excess Losses occur, all or a portion of such
losses will be borne by the senior certificates.
The protection afforded to the holders of senior certificates by means of
the subordination feature will be accomplished by:
(1) the preferential right of such holders to receive interest
distributions prior to any such distributions being made on a Distribution
Date in respect of the junior certificates in accordance with the paydown
rules specified above under "-- Distributions on the
Certificates -- Interest"; and
(2) the allocation to the junior certificates of the principal portion
of any Non-Excess Realized Loss to the extent set forth herein. The
allocation of the principal portion of Realized Losses (as set forth
herein) to the junior certificates on any Distribution Date will decrease
the protection provided to the senior certificates then outstanding on
future Distribution Dates by reducing the aggregate Certificate Principal
Balance of the junior certificates then outstanding.
In addition, in order to extend the period during which the junior
certificates remain available as credit enhancement for the senior certificates,
the entire amount of any prepayment in full or certain other unscheduled
recovery of principal as described herein with respect to a mortgage loan and
any prepayment in part with respect to a self-amortizing mortgage loan (other
than an Early Installment) will be allocated to the senior certificates entitled
to principal distributions, as a group, during at least the first five years
after the date of initial issuance of the certificates, with such allocation
being subject to reduction thereafter as described herein. This allocation has
the effect of accelerating the amortization of such senior certificates as a
group while, in the absence of losses in respect of the mortgage loans,
increasing the percentage interest in the principal balance of the mortgage
loans evidenced by the junior certificates. With respect to the senior
certificates, such amounts otherwise allocable to the Class A6 Certificates will
be allocated to the Class A1, Class A2, Class A3, Class A4, Class A5, Class R1
and Class R2 Certificates during the first three years after the date of initial
issuance of the certificates, with such allocation being subject to reduction
thereafter as described herein (except as otherwise described herein on or
following the Senior Transition Date, and except that such amounts
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will be allocated pro rata among all the senior certificates entitled to
principal distributions after the Cross-Over Date).
After the payment of interest distributable in respect of the senior
certificates on each Distribution Date, the junior certificates will be entitled
on such date to the remaining portion, if any, of the Available Interest Funds
in an aggregate amount equal to the Accrued Certificate Interest on the junior
certificates for such date and any remaining undistributed Accrued Certificate
Interest thereon from previous Distribution Dates. Amounts so distributed to
junior certificateholders will not be available to cover any delinquencies or
any Realized Losses in respect of subsequent Distribution Dates.
Priority Among Junior Certificates
As of the date of the initial issuance of the certificates, the aggregate
Certificate Principal Balance of the Class B3, Class B4 and Class B5
Certificates, all of which are subordinate in right as to respective
distributions of interest to the junior certificates offered hereby, will equal
approximately 5.50% of the initial aggregate Certificate Principal Balance of
all of the certificates and approximately 35.49% of the initial aggregate
Certificate Principal Balance of all of the junior certificates. On each
Distribution Date, the holders of any particular class of junior certificates,
other than the Class B5 Certificates, will have a preferential right to receive
the amounts due them in respect of interest on such Distribution Date out of
Available Interest Funds prior to any distribution being made on such date on
each class of certificates ranking junior to such class. In addition, except as
described herein, the principal portion of any Non-Excess Realized Loss with
respect to a mortgage loan will be allocated, to the extent set forth herein, in
reduction of the Class Certificate Principal Balances of the junior certificates
in inverse order of priority of such certificates. The effect of the allocation
of such Realized Losses to a class of junior certificates will be to reduce
future distributions allocable to such class and increase the relative portion
of distributions allocable to more senior classes of certificates.
In order to maintain the relative levels of subordination among the junior
certificates, prepayments in full, prepayments in part with respect to
self-amortizing mortgage loans (other than Early Installments) and certain other
unscheduled recoveries of principal as described herein in respect of the
mortgage loans (which will not be distributable to the junior certificates for
at least the first five years after the date of initial issuance of the
certificates, except as otherwise described herein on or following the Final
Senior Distribution Date) will not be distributable to the holders of any class
of Class B Certificates on any Distribution Date for which the related Class
Prepayment Distribution Trigger is not satisfied, except as described above. See
"-- Distributions on the Certificates -- Principal." If the Class Prepayment
Distribution Trigger is not satisfied with respect to any class of Class B
Certificates, the amortization of more senior ranking classes of junior
certificates may occur more rapidly than would otherwise have been the case and,
in the absence of losses in respect of the mortgage loans, the percentage
interest in the principal balance of the mortgage loans evidenced by such Class
B Certificates may increase.
As a result of the subordination of any class of certificates, such class
of certificates will be more sensitive than more senior ranking classes of
certificates the rate of delinquencies and defaults on the mortgage loans, and
under certain circumstances investors in such certificates may not recover their
initial investment.
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<PAGE> 43
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 and the text below for a discussion of the
factors that could affect the yield of your certificates.
The entire amount of any principal payment (including scheduled payments
and prepayments and other unscheduled recoveries of principal) with respect to a
mortgage loan allocable to the senior certificates will be allocated solely to
the Class A1, Class A2, Class A3, Class A4, Class A5, Class R1 and Class R2
Certificates during the first three years after the Cut-off Date (with such
allocation being subject to reduction thereafter as described herein), except as
otherwise described herein on or following the Senior Transition Date, provided
that such amounts will be allocated pro rata among all senior certificates other
than the Class S Certificates after the Cross-Over Date. This allocation prior
to the Senior Transition Date is designed to accelerate the allocation of
principal payments and certain other unscheduled recoveries on the mortgage
loans to the holders of the Class A1, Class A2, Class A3, Class A4, Class A5,
Class R1 and Class R2 Certificates while increasing the percentage interest in
the principal balance of the mortgage loans evidenced by the Class A6
Certificates.
The yields on the certificates other than the residual 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 the certificates (other than the residual
certificates) will be lower than the yield otherwise produced by the applicable
interest rates 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 (other than the
residual certificates) will be affected by any Net Interest Shortfall and the
interest portion of certain Realized Losses. See "Description of the
Certificates" herein.
THE CLASS A5, CLASS M, CLASS B1, AND CLASS B2 CERTIFICATES
The interest rate applicable to the Class A5, Class M and Class B1
Certificates on any Distribution Date other than the first Distribution Date
will equal the lesser of (a) 7.510%, 7.560% and 7.905% per annum, respectively,
and (b) the Weighted Average Net Mortgage Rate on the mortgage loans for the
related Interest Accrual Period. The
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interest rate applicable to the Class B2 Certificates on any Distribution Date
other than the first Distribution Date will equal the Weighted Average Net
Mortgage Rate on the mortgage loans for the related Interest Accrual Period. 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 interest rate and yield on these certificates.
The Net Mortgage Rates of the mortgage loans are expected to range from
approximately 6.25% to 13.99% 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 these certificates. The Weighted Average Net Mortgage Rate on
the mortgage loans as of the Cut-off Date is expected to be approximately 9.165%
per annum.
PRINCIPAL DISTRIBUTIONS; PREPAYMENTS
The rate of distribution of principal of the certificates (and the
aggregate amount of interest payable on any class of interest-only certificates)
will be affected primarily by the amount and timing of principal payments
received on or in respect of the 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 of mortgage loans
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 6.81% 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 June 2004. Any prepayment premiums received by
GECMSI will be retained as servicing compensation. See "Description of the
Mortgage Pool and the Mortgaged Properties -- Terms of the Mortgage Loans."
GECMSI is are 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.
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
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<PAGE> 45
(other than the month of the Cut-off Date) are passed through to the related
certificateholders in the month of receipt or payment. See "The Pooling and
Servicing Agreement -- Certain Modifications and Refinancings" in the
prospectus. 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) are passed through to the related
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 related Class S Certificates, reducing the Notional Principal
Balance thereof) which would otherwise be passed through (or reduced) in
amortized increments over the remaining term of such mortgage loan.
The entire amount of any prepayment in full, any prepayment in part with
respect to a self-amortizing mortgage loan (other than an Early Installment) and
any other unscheduled recovery of principal as described herein with respect to
a mortgage loan will be allocated solely to the outstanding senior certificates
entitled to distributions of principal, as a group, during at least the first
five years after the date of initial issuance of the certificates (with such
allocation being subject to reduction thereafter as described herein). This
allocation has the effect of accelerating the amortization of the senior
certificates while, in the absence of losses in respect of the mortgage loans,
increasing the percentage interest in the aggregate principal balance of the
mortgage loans evidenced by the junior certificates. The portion of such amounts
otherwise allocable to the Class A6 Certificates will be allocated to the other
senior certificates entitled to distributions of principal during the first
three years after the Cut-off Date (with such allocation being subject to
reduction thereafter as described herein), except as otherwise provided herein
on or after the Senior Transition Date, and except that such amounts will be
allocated pro rata among all senior certificates entitled to distributions of
principal after the Cross-Over Date. This allocation among the classes of senior
certificates is designed to accelerate the allocation of certain prepayments and
certain other unscheduled recoveries on the mortgage loans to holders of the
senior certificates entitled to distributions of principal other than the Class
A6 Certificates relative to the Class A6 Certificates. See "Description of the
Certificates -- Distributions on the Certificates -- Principal" herein.
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 Balance 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 loan rate
S-45
<PAGE> 46
by 360, or 365 in the case of certain simple interest mortgage 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 to the related
certificateholders in the month following its receipt and the amount of interest
thus distributed to such 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 may also cause a reduction in the amount of interest passed through.
Shortfalls described in this paragraph will be borne by the related
certificateholders to the extent described herein. See "Description of the
Certificates -- Distributions on the Certificates -- Interest" herein.
Any partial prepayment on 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 related 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 such
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 0.16% 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 loan pays the next required
S-46
<PAGE> 47
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 loan 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."
THE CLASS M, CLASS B1 AND CLASS B2 CERTIFICATES
The rate of payment of principal, the aggregate amount of distributions and
the yield to maturity of the Class M, Class B1 and Class B2 Certificates will be
affected by the rate of prepayments on the mortgage loans, as well as the rate
of mortgagor defaults resulting in Realized Losses, by the severity of those
losses and by the timing thereof. See "Description of the
Certificates -- Allocation of Realized Losses on the Certificates" herein for a
description of the manner in which such losses are borne by the holders of the
certificates. If the purchaser of a Class M, Class B1 or Class B2 Certificate
calculates its anticipated yield based on an assumed rate of default and amount
of Realized Losses that is lower than the default rate and the amount of losses
actually incurred, its actual yield to maturity may be lower than that so
calculated and could be negative. The timing of defaults and losses will also
affect an investor's actual yield to maturity, even if the average rate of
defaults and severity of losses are consistent with an investor's expectations.
In general, the earlier a loss occurs, the greater the effect on an investor's
yield to maturity.
The yields to maturity on the classes of Class B Certificates with higher
numerical designations will be more sensitive to losses due to liquidations of
defaulted mortgage loans than will the yields on such classes with lower
numerical designations, and the yields to maturity on all of the Class B
Certificates will be more sensitive to such losses than will the yields on the
other classes of certificates. The yields to maturity on the Class M
Certificates will be more sensitive to such losses than will the yields on the
senior certificates and less sensitive than the yields on the Class B
Certificates. The junior certificates will be more sensitive to losses due to
liquidations of defaulted mortgage loans because the entire amount of such
losses will be allocable to such certificates in inverse order of priority,
except as provided herein. To the extent not covered by GECMSI's advances of
delinquent monthly payments of interest, delinquencies on the mortgage loans may
also have a relatively greater effect:
(1) on the yields to investors in the Class B Certificates with higher
numerical designations than on the yields to investors in those Class B
Certificates with lower numerical designations;
(2) on the yields to investors in the Class B Certificates than on the
yields to investors in the other classes of the certificates; and
(3) on the yields to investors in the Class M Certificates than on the
yields to investors in the senior certificates.
S-47
<PAGE> 48
As described above under "Description of the Certificates -- Distributions
on the Certificates -- Interest" and "-- Principal," "-- Allocation of Realized
Losses on the Certificates" and "-- Subordination," amounts otherwise
distributable to holders of any class of Class B Certificates will be made
available to protect the holders of the more senior ranking classes of the
certificates against interruptions in distributions due to certain mortgagor
delinquencies. Amounts otherwise distributable to holders of the Class M
Certificates will be made available to protect the holders of the senior
certificates against interruptions in distributions due to certain mortgagor
delinquencies. Such delinquencies, even if subsequently cured, may affect the
timing of the receipt of distributions by the holders of the junior
certificates.
To the extent that the Class M, Class B1 or Class B2 Certificates are being
purchased at a discount from their initial Class Certificate Principal Balances,
if the purchaser of such a certificate calculates its yield to maturity based on
an assumed rate of payment of principal faster than that actually received on
such certificate, its actual yield to maturity may be lower than that so
calculated.
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 the 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 June 2029. In addition, to the extent delinquencies and defaults
are not offset by the effect of the subordination of the certificates junior to
the certificates offered hereby, delinquencies and defaults could affect the
actual maturity of the certificates offered hereby.
WEIGHTED AVERAGE LIVES OF THE CERTIFICATES
The weighted average life of a certificate is determined by:
- multiplying the reduction, if any, in the principal balance thereof on
each Distribution Date by the number of years from the date of issuance
to such Distribution Date;
- summing the results; and
- dividing the sum by the aggregate reductions in the 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 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
which represents an assumed, variable annualized rate of prepayment each month
relative to the
S-48
<PAGE> 49
then outstanding principal balance of a pool of mortgage loans for the life of
such mortgage loans. This 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 21%
prepayment assumption assumes constant prepayment rates of 2.1% 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 2.1% 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 21%
prepayment assumption assumes a constant prepayment rate of 21% per annum each
month.
As used in the table below, 0% prepayment assumption assumes prepayment
rates equal to 0% of the prepayment assumption, i.e., no prepayments. Prepayment
assumptions of 16%, 19%, 23% and 25% represent assumed, variable rates of
prepayments determined on the same basis as a 21% prepayment assumption, with
16%, 19%, 23% and 25% and 1.6%, 1.9%, 2.3% and 2.5%, as applicable, substituted
for 21% and 2.1%, 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 loan in the trust.
Tables of Class Certificate Principal Balances
The following tables set 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 prepayment
assumption percentages and the corresponding weighted average life of each such
class of certificates. For purposes of calculations under the columns at the
indicated prepayment assumption percentages set forth in the tables, 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 July 1999;
(2) the mortgage loans prepay (without prepayment premiums) at the
specified prepayment assumption percentages;
(3) the aggregate outstanding Scheduled Principal Balance of the mortgage
loans as of the Cut-off Date is $272,015,350.23;
(4) no defaults or delinquencies in the payment by mortgagors of principal
of and interest on the mortgage loans are experienced and GECMSI does
not repurchase any of the 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 the 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 June 1999) and
include
S-49
<PAGE> 50
30 days' interest thereon, and no Interest Shortfalls occur in respect
of the mortgage loans;
(8) the scheduled monthly payment for each mortgage loan has been
calculated based on its outstanding balance, interest rate and
remaining term to maturity such that the mortgage loan will amortize
in amounts sufficient to repay the remaining balance of the 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 interest rate on
the certificates offered hereby are as indicated in the summary of
this prospectus supplement;
(11) the date of the initial issuance of the certificates is June 25, 1999;
(12) the mortgage pool consists of 5 mortgage loans having the
characteristics set forth below;
(13) the Net Mortgage Rate of each mortgage loan equals the mortgage loan
rate for such mortgage loan, less 0.50% per annum;
(14) the amount distributable to certificateholders is not reduced by the
incurrence of any expenses by the trust; 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 loan pool consists of mortgage loans having the following
characteristics:
<TABLE>
<CAPTION>
ORIGINAL
AMORTIZATION REMAINING REMAINING
TERM TO NET AMORTIZATION TERM TO
MATURITY CURRENT MORTGAGE TERM MATURITY AGE
AMORTIZATION TYPE (IN MONTHS) BALANCE RATE (IN MONTHS) (IN MONTHS) (IN MONTHS)
----------------- ------------ --------------- -------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Fully Amortizing..... 115 $ 5,821,228.09 9.051% 113 113 2
Fully Amortizing..... 180 39,798,737.60 9.403 178 178 2
Fully Amortizing..... 240 33,550,425.07 9.089 238 238 2
Fully Amortizing..... 359 94,717,084.24 8.897 357 357 2
Balloon.............. 360 98,127,875.23 9.361 359 179 1
--------------- ------
Total........ $272,015,350.23 9.165%(1)
===============
</TABLE>
- -------------------------
(1) Represents the Weighted Average Net Mortgage Rate of the assumed mortgage
loan pool.
It is not likely that the mortgage loans will prepay at a constant rate. In
addition, if the actual terms and payment and performance characteristics of the
mortgage loans included in the mortgage loan pool differ from those assumed in
the Modeling Assumptions used in calculating the percentages set forth in this
table, 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 may differ (which difference could be material) from
the corresponding information in the table for each indicated prepayment
assumption percentage.
S-50
<PAGE> 51
PERCENT OF ORIGINAL CLASS CERTIFICATE PRINCIPAL BALANCE
OUTSTANDING OF THE CERTIFICATES
<TABLE>
<CAPTION>
CLASS A1
PREPAYMENT ASSUMPTION
---------------------------------------------
DISTRIBUTION DATE 0% 16% 19% 21% 23% 25%
----------------- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100 100
June 2000........... 96 54 47 41 36 31
June 2001........... 92 2 0 0 0 0
June 2002........... 88 0 0 0 0 0
June 2003........... 83 0 0 0 0 0
June 2004........... 78 0 0 0 0 0
June 2005........... 72 0 0 0 0 0
June 2006........... 66 0 0 0 0 0
June 2007........... 61 0 0 0 0 0
June 2008........... 55 0 0 0 0 0
June 2009........... 49 0 0 0 0 0
June 2010........... 43 0 0 0 0 0
June 2011........... 35 0 0 0 0 0
June 2012........... 27 0 0 0 0 0
June 2013........... 18 0 0 0 0 0
June 2014........... 0 0 0 0 0 0
June 2015........... 0 0 0 0 0 0
June 2016........... 0 0 0 0 0 0
June 2017........... 0 0 0 0 0 0
June 2018........... 0 0 0 0 0 0
June 2019........... 0 0 0 0 0 0
June 2020........... 0 0 0 0 0 0
June 2021........... 0 0 0 0 0 0
June 2022........... 0 0 0 0 0 0
June 2023........... 0 0 0 0 0 0
June 2024........... 0 0 0 0 0 0
June 2025........... 0 0 0 0 0 0
June 2026........... 0 0 0 0 0 0
June 2027........... 0 0 0 0 0 0
June 2028........... 0 0 0 0 0 0
June 2029........... 0 0 0 0 0 0
Weighted Average
Life
(in years)(1).... 9.2 1.1 1.0 0.9 0.9 0.8
<CAPTION>
CLASS A2
PREPAYMENT ASSUMPTION
---------------------------------------------
DISTRIBUTION DATE 0% 16% 19% 21% 23% 25%
----------------- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100 100
June 2000........... 100 100 100 100 100 100
June 2001........... 100 100 68 43 19 0
June 2002........... 100 0 0 0 0 0
June 2003........... 100 0 0 0 0 0
June 2004........... 100 0 0 0 0 0
June 2005........... 100 0 0 0 0 0
June 2006........... 100 0 0 0 0 0
June 2007........... 100 0 0 0 0 0
June 2008........... 100 0 0 0 0 0
June 2009........... 100 0 0 0 0 0
June 2010........... 100 0 0 0 0 0
June 2011........... 100 0 0 0 0 0
June 2012........... 100 0 0 0 0 0
June 2013........... 100 0 0 0 0 0
June 2014........... 0 0 0 0 0 0
June 2015........... 0 0 0 0 0 0
June 2016........... 0 0 0 0 0 0
June 2017........... 0 0 0 0 0 0
June 2018........... 0 0 0 0 0 0
June 2019........... 0 0 0 0 0 0
June 2020........... 0 0 0 0 0 0
June 2021........... 0 0 0 0 0 0
June 2022........... 0 0 0 0 0 0
June 2023........... 0 0 0 0 0 0
June 2024........... 0 0 0 0 0 0
June 2025........... 0 0 0 0 0 0
June 2026........... 0 0 0 0 0 0
June 2027........... 0 0 0 0 0 0
June 2028........... 0 0 0 0 0 0
June 2029........... 0 0 0 0 0 0
Weighted Average
Life
(in years)(1).... 14.9 2.5 2.2 2.0 1.8 1.7
</TABLE>
- -------------------------
(1) The weighted average life is determined as described on page S-48.
S-51
<PAGE> 52
PERCENT OF ORIGINAL CLASS CERTIFICATE PRINCIPAL BALANCE
OUTSTANDING OF THE CERTIFICATES
<TABLE>
<CAPTION>
CLASS A3
PREPAYMENT ASSUMPTION
---------------------------------------------
DISTRIBUTION DATE 0% 16% 19% 21% 23% 25%
----------------- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100 100
June 2000........... 100 100 100 100 100 100
June 2001........... 100 100 100 100 100 97
June 2002........... 100 99 71 52 35 18
June 2003........... 100 52 21 3 0 0
June 2004........... 100 14 0 0 0 0
June 2005........... 100 0 0 0 0 0
June 2006........... 100 0 0 0 0 0
June 2007........... 100 0 0 0 0 0
June 2008........... 100 0 0 0 0 0
June 2009........... 100 0 0 0 0 0
June 2010........... 100 0 0 0 0 0
June 2011........... 100 0 0 0 0 0
June 2012........... 100 0 0 0 0 0
June 2013........... 100 0 0 0 0 0
June 2014........... 57 0 0 0 0 0
June 2015........... 49 0 0 0 0 0
June 2016........... 41 0 0 0 0 0
June 2017........... 31 0 0 0 0 0
June 2018........... 20 0 0 0 0 0
June 2019........... 10 0 0 0 0 0
June 2020........... 3 0 0 0 0 0
June 2021........... 0 0 0 0 0 0
June 2022........... 0 0 0 0 0 0
June 2023........... 0 0 0 0 0 0
June 2024........... 0 0 0 0 0 0
June 2025........... 0 0 0 0 0 0
June 2026........... 0 0 0 0 0 0
June 2027........... 0 0 0 0 0 0
June 2028........... 0 0 0 0 0 0
June 2029........... 0 0 0 0 0 0
Weighted Average
Life
(in years)(1).... 16.8 4.1 3.5 3.1 2.9 2.6
<CAPTION>
CLASS A4
PREPAYMENT ASSUMPTION
---------------------------------------------
DISTRIBUTION DATE 0% 16% 19% 21% 23% 25%
----------------- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100 100
June 2000........... 100 100 100 100 100 100
June 2001........... 100 100 100 100 100 100
June 2002........... 100 100 100 100 100 100
June 2003........... 100 100 100 100 75 49
June 2004........... 100 100 72 42 16 0
June 2005........... 100 81 35 9 0 0
June 2006........... 100 51 10 0 0 0
June 2007........... 100 40 4 0 0 0
June 2008........... 100 27 0 0 0 0
June 2009........... 100 16 0 0 0 0
June 2010........... 100 6 0 0 0 0
June 2011........... 100 0 0 0 0 0
June 2012........... 100 0 0 0 0 0
June 2013........... 100 0 0 0 0 0
June 2014........... 100 0 0 0 0 0
June 2015........... 100 0 0 0 0 0
June 2016........... 100 0 0 0 0 0
June 2017........... 100 0 0 0 0 0
June 2018........... 100 0 0 0 0 0
June 2019........... 100 0 0 0 0 0
June 2020........... 100 0 0 0 0 0
June 2021........... 94 0 0 0 0 0
June 2022........... 82 0 0 0 0 0
June 2023........... 68 0 0 0 0 0
June 2024........... 52 0 0 0 0 0
June 2025........... 36 0 0 0 0 0
June 2026........... 17 0 0 0 0 0
June 2027........... 0 0 0 0 0 0
June 2028........... 0 0 0 0 0 0
June 2029........... 0 0 0 0 0 0
Weighted Average
Life
(in years)(1).... 25.0 7.8 5.8 5.0 4.5 4.1
</TABLE>
- -------------------------
(1) The weighted average life of a certificate is determined as described on
page S-48.
S-52
<PAGE> 53
PERCENT OF ORIGINAL CLASS CERTIFICATE PRINCIPAL BALANCE
OUTSTANDING OF THE CERTIFICATES
<TABLE>
<CAPTION>
CLASS A5
PREPAYMENT ASSUMPTION
---------------------------------------------
DISTRIBUTION DATE 0% 16% 19% 21% 23% 25%
----------------- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100 100
June 2000........... 100 100 100 100 100 100
June 2001........... 100 100 100 100 100 100
June 2002........... 100 100 100 100 100 100
June 2003........... 100 100 100 100 100 100
June 2004........... 100 100 100 100 100 84
June 2005........... 100 100 100 100 72 33
June 2006........... 100 100 100 75 38 11
June 2007........... 100 100 100 67 32 2
June 2008........... 100 100 88 50 20 0
June 2009........... 100 100 72 40 15 0
June 2010........... 100 100 57 31 11 0
June 2011........... 100 93 45 23 8 0
June 2012........... 100 75 35 18 6 0
June 2013........... 100 60 27 13 4 0
June 2014........... 100 25 11 5 2 0
June 2015........... 100 20 8 4 1 0
June 2016........... 100 16 6 3 1 0
June 2017........... 100 12 5 2 1 0
June 2018........... 100 9 3 2 0 0
June 2019........... 100 7 3 1 0 0
June 2020........... 100 6 2 1 0 0
June 2021........... 100 4 1 1 0 0
June 2022........... 100 3 1 0 0 0
June 2023........... 100 2 1 0 0 0
June 2024........... 100 2 1 0 0 0
June 2025........... 100 1 0 0 0 0
June 2026........... 100 1 0 0 0 0
June 2027........... 93 0 0 0 0 0
June 2028........... 42 0 0 0 0 0
June 2029........... 0 0 0 0 0 0
Weighted Average
Life
(in years)(1).... 28.9 15.0 12.2 10.0 7.7 5.9
<CAPTION>
CLASS A6
PREPAYMENT ASSUMPTION
---------------------------------------------
DISTRIBUTION DATE 0% 16% 19% 21% 23% 25%
----------------- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100 100
June 2000........... 100 100 100 100 100 100
June 2001........... 100 100 100 100 100 100
June 2002........... 100 100 100 100 100 100
June 2003........... 99 89 87 85 83 80
June 2004........... 98 79 74 70 66 61
June 2005........... 97 63 56 50 43 34
June 2006........... 94 48 38 31 22 12
June 2007........... 86 22 13 8 3 0
June 2008........... 78 10 5 2 0 0
June 2009........... 71 5 2 1 0 0
June 2010........... 63 3 1 0 0 0
June 2011........... 56 1 0 0 0 0
June 2012........... 48 1 0 0 0 0
June 2013........... 40 0 0 0 0 0
June 2014........... 0 0 0 0 0 0
June 2015........... 0 0 0 0 0 0
June 2016........... 0 0 0 0 0 0
June 2017........... 0 0 0 0 0 0
June 2018........... 0 0 0 0 0 0
June 2019........... 0 0 0 0 0 0
June 2020........... 0 0 0 0 0 0
June 2021........... 0 0 0 0 0 0
June 2022........... 0 0 0 0 0 0
June 2023........... 0 0 0 0 0 0
June 2024........... 0 0 0 0 0 0
June 2025........... 0 0 0 0 0 0
June 2026........... 0 0 0 0 0 0
June 2027........... 0 0 0 0 0 0
June 2028........... 0 0 0 0 0 0
June 2029........... 0 0 0 0 0 0
Weighted Average
Life
(in years)(1).... 12.0 6.7 6.3 6.0 5.7 5.4
</TABLE>
- -------------------------
(1) The weighted average life is determined as described on page S-48.
S-53
<PAGE> 54
PERCENT OF ORIGINAL CLASS CERTIFICATE PRINCIPAL BALANCE
OUTSTANDING OF THE CERTIFICATES
<TABLE>
<CAPTION>
CLASS R1 AND CLASS R2
PREPAYMENT ASSUMPTION
---------------------------------------------
DISTRIBUTION DATE 0% 16% 19% 21% 23% 25%
----------------- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100 100
June 2000........... 0 0 0 0 0 0
June 2001........... 0 0 0 0 0 0
June 2002........... 0 0 0 0 0 0
June 2003........... 0 0 0 0 0 0
June 2004........... 0 0 0 0 0 0
June 2005........... 0 0 0 0 0 0
June 2006........... 0 0 0 0 0 0
June 2007........... 0 0 0 0 0 0
June 2008........... 0 0 0 0 0 0
June 2009........... 0 0 0 0 0 0
June 2010........... 0 0 0 0 0 0
June 2011........... 0 0 0 0 0 0
June 2012........... 0 0 0 0 0 0
June 2013........... 0 0 0 0 0 0
June 2014........... 0 0 0 0 0 0
June 2015........... 0 0 0 0 0 0
June 2016........... 0 0 0 0 0 0
June 2017........... 0 0 0 0 0 0
June 2018........... 0 0 0 0 0 0
June 2019........... 0 0 0 0 0 0
June 2020........... 0 0 0 0 0 0
June 2021........... 0 0 0 0 0 0
June 2022........... 0 0 0 0 0 0
June 2023........... 0 0 0 0 0 0
June 2024........... 0 0 0 0 0 0
June 2025........... 0 0 0 0 0 0
June 2026........... 0 0 0 0 0 0
June 2027........... 0 0 0 0 0 0
June 2028........... 0 0 0 0 0 0
June 2029........... 0 0 0 0 0 0
Weighted Average
Life
(in years)(1).... 0.1 0.1 0.1 0.1 0.1 0.1
<CAPTION>
CLASS M, CLASS B1 AND CLASS B2
PREPAYMENT ASSUMPTION
---------------------------------------------
DISTRIBUTION DATE 0% 16% 19% 21% 23% 25%
----------------- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100 100
June 2000........... 99 99 99 99 99 99
June 2001........... 97 97 97 97 97 97
June 2002........... 96 96 96 96 96 96
June 2003........... 94 94 94 94 94 94
June 2004........... 92 92 92 92 92 92
June 2005........... 90 86 85 84 84 83
June 2006........... 88 78 76 75 73 72
June 2007........... 86 68 65 63 61 59
June 2008........... 83 58 53 51 48 43
June 2009........... 80 47 42 39 36 31
June 2010........... 77 38 33 29 26 23
June 2011........... 74 30 25 22 20 16
June 2012........... 70 24 20 17 14 12
June 2013........... 66 19 15 13 10 8
June 2014........... 33 8 6 5 4 3
June 2015........... 31 6 5 4 3 2
June 2016........... 29 5 3 3 2 2
June 2017........... 27 4 3 2 1 1
June 2018........... 25 3 2 1 1 1
June 2019........... 22 2 1 1 1 0
June 2020........... 21 2 1 1 1 0
June 2021........... 19 1 1 1 0 0
June 2022........... 17 1 1 0 0 0
June 2023........... 15 1 0 0 0 0
June 2024........... 13 1 0 0 0 0
June 2025........... 11 0 0 0 0 0
June 2026........... 8 0 0 0 0 0
June 2027........... 6 0 0 0 0 0
June 2028........... 3 0 0 0 0 0
June 2029........... 0 0 0 0 0 0
Weighted Average
Life
(in years)(1).... 15.4 10.2 9.7 9.4 9.2 8.9
</TABLE>
- -------------------------
(1) The weighted average life of a certificate is determined as described on
page S-48.
S-54
<PAGE> 55
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.
GECMSI currently maintains an electronic bulletin board, accessible by
computer modem, which provides certain information about loans included in
various series of mortgage pass-through securities that GECMSI has publicly
offered. GECMSI makes no representation or warranty that such information will
be suitable for any particular purpose and GECMSI assumes no responsibility for
the accuracy or completeness of any information that is generated by others
using such information. GECMSI has no obligation to maintain the bulletin board
and may stop maintaining it at any time. For further information concerning the
bulletin board, you should call 800-544-3466, extension 5515.
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. 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
39.83% of the mortgage loans in the trust, 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 60.17% of the mortgage loans in the trust, by
Principal Balance as of the Cut-off Date, will be wholesale loans.
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 (1) reviews at least
two independent credit bureau reports (which may consist of a merged report),
(2) except in connection
S-55
<PAGE> 56
with home equity loans originated under one of its no income verification
programs, 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), (3)
conducts a title search and (4) obtains an independent appraisal of the
property, as described further below.
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 the first-lien home equity
loan secured by the related mortgaged property has a loan-to-value ratio not
exceeding 80%. GECMSI also generally has not made second-lien home equity loans
when the Second-Lien Combined Loan-to-Value Ratio has exceeded 85%. 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.
Certain home equity loans may be originated under GECMSI's no income
verification programs. In order to qualify for these programs, a borrower
generally must have a debt-to-income ratio of no greater than 60%, and 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%. The credit investigation of an applicant
for a loan under these programs is generally the same as described above, except
that the income of the borrower will not be verified. GECMSI generally verifies,
however, that the borrower has sufficient assets to cover certain closing costs
associated with these loans.
For further information respecting the underwriting standards applicable to
home equity loans, see "The Trusts -- The Mortgage Loans -- Loan Underwriting
Policies" in the prospectus.
S-56
<PAGE> 57
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.
<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 9,463 278 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>
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF MARCH 31,
1998 1999
------------------- -------------------
BY NO. BY DOLLAR BY NO. BY DOLLAR
OF AMOUNT OF OF AMOUNT OF
LOANS LOANS LOANS LOANS
------ ---------- ------ ----------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Total home equity loan portfolio...................... 48,569 $2,962,710 47,508 $3,007,507
====== ========== ====== ==========
Period of delinquency(1)
One payment(2)...................................... 397 $ 21,296 465 $ 27,772
Two payments(2)..................................... 160 $ 8,822 171 $ 10,770
Three payments or more(3)........................... 1,303 $ 88,558 1,625 $ 109,773
------ ---------- ------ ----------
Total delinquent loans....................... 1,860 $ 118,676 2,261 $ 148,315
====== ========== ====== ==========
Percent of portfolio.................................. 3.83% 4.01% 4.76% 4.93%
</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>
S-57
<PAGE> 58
<TABLE>
<CAPTION>
AS OF MARCH 31,
------------------------------
1998 1999
------------ ------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C>
Total home equity loan portfolio............................ $2,962,710 $3,007,507
Foreclosed loans (Real estate owned ("REO")
properties)(1)............................................ $ 7,300 $ 11,205
Foreclosure ratio........................................... 0.25% 0.37%
</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.
We are not currently aware of specific trends that have affected our recent
delinquency and loss experience, nor are we currently aware of any trends that
are likely to affect the future performance of our servicing portfolio.
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>
S-58
<PAGE> 59
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1998 1999
---------- ----------
(DOLLAR AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Number of home equity loans serviced(1)..................... 48,569 47,508
Aggregate loan balance of home equity loans serviced........ $2,962,710 $3,007,507
Net losses(2):
By dollar amount........................................ $ 1,185 $ 2,329
Percentage(1)........................................... 0.04% 0.08%
</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 loan pool. Consequently, there can be no
assurance that the delinquency and foreclosure experience on the mortgage loans
in the mortgage loan 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 loan 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.
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.
S-59
<PAGE> 60
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.
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" 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 (1) as to which the proceeds therefrom were used to refinance an
existing mortgage loan ranking senior to a mortgage loan and (2) 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
S-60
<PAGE> 61
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 Loans -- 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, GECMSI will, in lieu of the
Loan Payment Record described under the caption "Servicing of the Mortgage
Loans -- 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 for the collection of payments on the
mortgage loans; 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 Account would be:
- maintained with a depository institution the debt obligations of which
are, at the time of any deposit therein, rated by each of Fitch IBCA,
Inc. ("Fitch") and Moody's Investors Service, Inc. ("Moody's") in one of
its two highest long-term rating categories and by Moody's in its highest
short-term rating category;
- 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");
- 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 Fitch and Moody's 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;
- 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
- an account as will not cause either Moody's or Fitch to downgrade or
withdraw its then-current ratings assigned to the certificates.
If a Collection Account is established for the certificates, all amounts
credited or debited to the Loan Payment Record in the manner described under the
caption "Servicing of the Mortgage Loans -- Loan Payment Record" will instead be
deposited or withdrawn from the related Collection Account. See "Servicing of
the Mortgage Loans -- Loan Payment Record" in the accompanying prospectus.
S-61
<PAGE> 62
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 -- Advances" in the accompanying
prospectus for more information. GECMSI will have no obligation to advance
delinquent payments of principal on the mortgage loans.
As a result of the subordination of the junior certificates, the effect of
reimbursements to GECMSI of previous advances from liquidation or insurance
proceeds and of nonrecoverable advances will generally be borne by the holders
of the junior certificates (to the extent then outstanding) in inverse order of
priority before they are borne by holders of the senior certificates.
Any failure by GECMSI to make an advance of delinquent installments of
interest on the mortgage loans as required under the Agreement will constitute
an Event of Default as defined thereunder, in which case the Trustee, as
successor to GECMSI in its capacity as servicer of the mortgage loans, will be
obligated to make any such advance, in accordance with the terms of the
Agreement unless prohibited by applicable law from doing so.
PURCHASES OF DEFAULTED MORTGAGE LOANS
Under the Agreement, GECMSI will have the option (but not the obligation)
to purchase any mortgage loan as to which the mortgagor has failed to make
unexcused payment in full of three or more consecutive 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, 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 related 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 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 0.50%. 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 retained by GECMSI 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
S-62
<PAGE> 63
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 prepayment, but in no event greater than the
lesser of (a) 1/12th of 0.125% of the aggregate Principal Balance of the
mortgage loans for such Distribution Date and (b) the aggregate amount received
by GECMSI on account of its servicing fees (net of any servicing compensation
paid to any direct servicer) in respect of such mortgage loans 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 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 -- 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 (1) the amount of such Net Simple Interest Shortfall and (2) the sum of (a)
the aggregate amount received by GECMSI on account of its servicing fees (net of
any compensation paid to any direct servicer) in connection with such
Distribution Date, less any Compensating Interest Payment in respect of such
Distribution Date, and (b) the Simple Interest Excess Amount for such
Distribution Date.
In the event that there is a Net Simple Interest Excess on any Distribution
Date, such excess will be applied to the distribution of interest pursuant to
priority second under "Description of the Certificates -- Distributions on the
Certificates -- Interest" to the extent of Unpaid Net Simple Interest Shortfalls
for all prior Distribution Dates, less all amounts distributed pursuant to such
priority second in respect of Unpaid Net Simple Interest Shortfalls on such
prior Distribution Dates.
Any remaining Net Simple Interest Excess will be paid to GECMSI as
additional servicing compensation.
The "Simple Interest Excess Amount" for any Distribution Date will be equal
to the greater of (1) zero and (2) 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.
S-63
<PAGE> 64
TRUSTEE
The Trustee for the certificates offered hereby will be The First National
Bank of Chicago, a national banking association. The Corporate Trust Office of
the Trustee is located at One First National Plaza, Suite 0126, Corporate Trust
Services, Chicago, Illinois 60670-0126, except that for certain purposes under
the Agreement such office is located at 14 Wall Street, 8th Floor, New York,
N.Y. 10005. 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) maintain banking relationships with the Trustee in the ordinary
course of their respective businesses.
OPTIONAL 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 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.
This notice will state:
(1) the distribution date on which the final distribution will be made;
(2) the amount of the final distribution; and
(3) that the final distribution on each certificate will be paid only upon
surrender of such certificate.
GECMSI may not exercise this 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 the lower-tier
REMIC or the upper-tier REMIC 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) below, 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, 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 principal
balance of all outstanding certificates plus accrued and unpaid interest
thereon, then in the event that such Distribution Date occurs:
- prior to the Cross-over Date, any resulting shortfall in accrued interest
on the certificates will be allocated first, to the junior certificates
in inverse order of priority and second, pro rata to the senior
certificates; and
S-64
<PAGE> 65
- on or after the Cross-over Date, any resulting shortfall in accrued
interest on the certificates will be borne pro rata by the senior
certificates; and
- at any time, any resulting shortfall in principal will be borne pro rata
by all outstanding 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 -- Unanticipated Recoveries of
Losses on the Mortgage Loans" in the prospectus.
VOTING RIGHTS
The Class S Certificates in the aggregate will be allocated 6% of the votes
and the other classes of certificates in the aggregate will be allocated 94% 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 S 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.
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
GECMSI.
An election will be made to treat the trust as a two-tier REMIC for federal
income tax purposes.
The certificates other than the residual certificates (the "Regular
Certificates") will be designated as "regular interests" in the upper-tier
REMIC. The Class R1 Certificates will be designated as the "residual interest"
in the lower-tier REMIC, and the Class R2 Certificates will be designated as the
"residual interest" in the upper-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 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 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 21% of the prepayment assumption described on pages S-48 and S-49 above.
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 Class A5, Class M and Class B1 Certificates provide for interest
payments based on a varying interest rate equal to the lesser of (a) 7.510%,
7.560% and 7.905% per annum, respectively, and (b) the Weighted Average Net
Mortgage Rate on the mortgage loans for the related Interest Accrual Period. The
Class B2 Certificates provide for interest payments based on a varying interest
rate equal to the Weighted Average Net Mortgage Rate on the mortgage loans for
the related Interest Accrual Period. However, these four classes of certificates
technically will not constitute "variable rate debt instruments"
S-65
<PAGE> 66
("VRDIs") within the meaning of the original issue discount rules of the
Internal Revenue Code of 1986 (the "Code"), as amended, and the tax treatment of
such certificates thus is not entirely clear. Nevertheless, until further
guidance is provided, it would appear reasonable to accrue interest income under
these certificates in accordance with the rules applicable to VRDIs. See
"Federal Income Tax Consequences -- REMIC Certificates -- Income from Regular
Certificates -- Variable Rate 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 R1 and Class R2 Certificates must include the
taxable income of the lower-tier REMIC and the upper-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 the residual certificates 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, the residual certificates may be considered to
be "noneconomic residual interests" at the time they are issued, in which event
certain transfers thereof would be disregarded for federal income tax purposes.
Prospective purchasers of the residual certificates 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 subject to 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.
See "ERISA Considerations" in the accompanying prospectus.
The United States Department of Labor (the "DOL") has issued to Prudential
Securities Incorporated and Lehman Brothers Inc. individual administrative
exemptions,
S-66
<PAGE> 67
Prohibited Transaction Exemption 90-32 (55 Fed. Reg. 23147, June 6, 1990), as
amended, and Prohibited Transaction Exemption 91-14 (56 Fed. Reg. 7413, February
22, 1991), as amended, respectively (together, the "Exemptions"), 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 Exemptions. The Exemptions might apply to the acquisition, holding and
resale of the senior certificates offered hereby by an ERISA Plan, provided that
specified conditions are met.
Among the conditions which would have to be satisfied for each of the
Exemptions to apply to the acquisition by an ERISA Plan of the senior
certificates offered hereby are the following:
- the underwriters are the sole underwriters or the managers or co-managers
of the underwriting syndicate for such certificates;
- the certificates are rated in one of the three highest generic rating
categories by Fitch, Moody's, Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc. or Duff & Phelps Credit
Rating Co. at the time of the acquisition of such certificates by the
ERISA Plan;
- 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 residential or commercial real property), or
fractional undivided interests in such obligations;
- the certificates are not subordinated to other certificates issued by the
trust in respect of the mortgage pool;
- 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;
- 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;
- the Trustee is not an affiliate of any member of the "Restricted Group"
(as defined below); and
- the compensation to the underwriters represents not more than reasonable
compensation for underwriting the certificates, the proceeds to GECMSI
pursuant to the assignment of the 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 Exemptions
are satisfied, the Exemptions 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.
S-67
<PAGE> 68
The Exemptions would not be available with respect to ERISA Plans sponsored
by any of the following entities (or any affiliate of any such entity):
- GECMSI;
- Prudential Securities Incorporated and Lehman Brothers Inc.;
- the Trustee;
- GE Capital or any other entity that provides insurance or other credit
enhancement to the trust in respect of the mortgage pool; or
- 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 loan 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 Exemptions or the availability of any other prohibited
transaction exemptions, and whether the conditions of any such exemption will be
applicable to such certificate.
The Exemptions do not apply to the initial purchase, the holding or the
subsequent resale of the 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 DOL
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 interests in the
respective REMICs 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 M, Class B1 and Class B2 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.
S-68
<PAGE> 69
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 offered
hereby under various legal investment restrictions, and thus the ability of
investors subject to these restrictions to purchase the certificates offered
hereby, 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.
GECMSI makes no representation as to the proper characterization of the
certificates offered hereby for legal investment of financial institution
regulatory purposes, or as to the ability of particular investors to purchase
the certificates offered hereby 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 offered hereby) may adversely affect the liquidity of the
certificates offered hereby.
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in an Underwriting Agreement
between GECMSI and the underwriters, GECMSI, as seller, has agreed to sell to
each of the underwriters, and each underwriter has severally agreed to purchase,
the Certificate Principal Balance of each class of certificates offered hereby
(other than the residual certificates) set forth opposite its name below.
Pursuant to the Underwriting Agreement, Prudential Securities Incorporated has
agreed to purchase the entire Class Certificate Principal Balance of the Class
R1 and Class R2 Certificates.
<TABLE>
<CAPTION>
UNDERWRITER CLASS A1 CLASS A2 CLASS A3 CLASS A4 CLASS A5 CLASS A6 CLASS M CLASS B1
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Prudential Securities
Incorporated........ $38,500,000 $15,500,000 $26,500,000 $16,000,000 $ 6,924,000 $11,500,000 $ 7,481,000 $3,401,000
Lehman Brothers
Inc. ............... 38,500,000 15,500,000 26,500,000 16,000,000 6,923,000 11,500,000 7,481,000 3,400,000
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Total............. $77,000,000 $31,000,000 $53,000,000 $32,000,000 $13,847,000 $23,000,000 $14,962,000 $6,801,000
=========== =========== =========== =========== =========== =========== =========== ==========
<CAPTION>
UNDERWRITER CLASS B2
- ----------- ----------
<S> <C>
Prudential Securities
Incorporated........ $2,721,000
Lehman Brothers
Inc. ............... 2,720,000
----------
Total............. $5,441,000
==========
</TABLE>
In the Underwriting Agreement, the underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the certificates
offered hereby of the applicable classes, if any are purchased. GECMSI has been
advised by the underwriters that they propose initially to offer the Class A1
through Class A6, Class M, Class B1 and Class B2 Certificates to the public at
the respective offering prices set forth on the cover page hereof and that
Prudential Securities Incorporated and Lehman Brothers Inc. propose initially to
offer all of such certificates to certain dealers at such price less a selling
concession not in excess of the respective amounts set forth in the table below
(expressed as a percentage of Certificate Principal Balance).
S-69
<PAGE> 70
<TABLE>
<CAPTION>
SELLING
CONCESSION
----------
<S> <C>
Class A1.................................... 0.90%
Class A2.................................... 1.20
Class A3.................................... 1.35
Class A4.................................... 1.60
Class A5.................................... 2.00
Class A6.................................... 1.75
Class M..................................... 2.00
Class B1.................................... 2.50
Class B2.................................... 3.00
</TABLE>
After the initial public offering, such prices and concessions may be changed.
Until the distribution of the Class A1 through Class A6, Class M, Class B1
and Class B2 Certificates is completed, rules of the Securities and Exchange
Commission may limit the ability of the underwriters to bid for and purchase
such certificates. As an exception to these rules, the underwriters are
permitted to engage in certain transactions that stabilize the price of such
certificates. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of such certificates. If the
underwriters create 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 Underwriters 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 underwriters make 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 underwriters make no
representation that such underwriters will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
Distribution of the Class R1 and Class R2 Certificates will be made by
Prudential Securities Incorporated from time to time in negotiated transactions
or otherwise at varying prices to be determined at the time of sale.
GECMSI has agreed to indemnify the underwriters against, or make
contributions to the underwriters with respect to, certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
Prudential Securities Incorporated has entered into an agreement with
GECMSI 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 senior
certificates offered hereby be rated "AAA" by Fitch and "Aaa" by Moody's, and
that the Class M, Class B1 and Class B2 Certificates be rated "Aa2," "A2" and
"Baa2," respectively, by Moody's.
The ratings assigned by Fitch to mortgage pass-through certificates address
the likelihood of the receipt by certificateholders of all distributions to
which such certificateholders are entitled. Fitch's ratings address the
structural and legal aspects
S-70
<PAGE> 71
associated with the certificates, including the nature of the underlying
mortgage loans and the credit quality of the credit support provider. Fitch's
ratings on mortgage pass-through certificates do not represent any assessment of
the likelihood or rate of principal prepayments.
The ratings of Moody's on mortgage pass-through certificates address the
likelihood of the receipt by certificateholders of all distributions to which
such certificateholders are entitled. Moody's rating opinions address the
structural and legal issues and tax-related aspects associated with the
certificates, including the nature of the underlying mortgage loans and the
credit quality of the credit support provider, if any. Moody's ratings on pass-
through certificates do not represent any assessment of the likelihood that
principal prepayments may differ from those originally anticipated.
The ratings of Moody's and Fitch do not address the possibility that, as a
result of principal prepayments, certificateholders may receive a lower than
anticipated yield.
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.
GECMSI has not requested a rating of the certificates offered hereby by any
rating agency other than Moody's and Fitch and GECMSI has not provided
information relating to the certificates offered hereby or the mortgage loans to
any rating agency other than Moody's and Fitch. 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 either, or
both, of Moody's and Fitch.
LEGAL MATTERS
Certain legal matters in respect of the certificates will be passed upon
for GECMSI by Cleary, Gottlieb, Steen & Hamilton, New York, New York and for the
underwriters by Brown & Wood LLP, Washington, D.C.
S-71
<PAGE> 72
INDEX OF CERTAIN PROSPECTUS SUPPLEMENT DEFINITIONS
<TABLE>
<CAPTION>
DEFINED TERM PAGE
------------ ----
<S> <C>
Accrued Certificate Interest................................ S-30
Adjustment Amount........................................... S-39
Agreement................................................... S-26
Allocable Share............................................. S-37
Available Funds............................................. S-28
Available Interest Funds.................................... S-28
Available Principal Funds................................... S-28
Balloon Loans............................................... S-15
Balloon Payments............................................ S-15
Bankruptcy Coverage Termination Date........................ S-39
Bankruptcy Loss Amount...................................... S-39
beneficial owner............................................ S-26
BIF......................................................... S-61
Book-Entry Certificates..................................... S-26
Certificate Principal Balance............................... S-31
Class A6 Certificate Percentage............................. S-36
Class A6 Distribution Percentage............................ S-36
Class A6 Principal Distribution Amount...................... S-35
Class B Certificates........................................ S-37
Class Certificate Principal Balance......................... S-31
Class Prepayment Distribution Trigger....................... S-37
Code........................................................ S-66
Collection Account.......................................... S-61
Compensating Interest Payment............................... S-63
Cross-Over Date............................................. S-33
Cut-off Date................................................ S-14
Defaulted Mortgage Loan..................................... S-62
Deficient Valuation......................................... S-38
Distribution Date........................................... S-29
DOL......................................................... S-66
Due Date.................................................... S-14
Early Installment........................................... S-45
ERISA....................................................... S-66
ERISA Plan.................................................. S-66
Excess Loss................................................. S-38
Exemptions.................................................. S-67
FDIC........................................................ S-61
Final Senior Distribution Date.............................. S-36
Financial Intermediary...................................... S-26
Fitch....................................................... S-61
Fraud Coverage Termination Date............................. S-38
Fraud Loss.................................................. S-38
Fraud Loss Amount........................................... S-39
GECMSI...................................................... S-14
Home Equity Loan Ratio...................................... S-23
Home Equity Loan-to-Value Ratio............................. S-22
Interest Accrual Period..................................... S-30
</TABLE>
S-72
<PAGE> 73
<TABLE>
<CAPTION>
DEFINED TERM PAGE
------------ ----
<S> <C>
Interest Percentage......................................... S-31
Interest Shortfall.......................................... S-32
Junior Certificate Writedown Amount......................... S-31
Junior Percentage........................................... S-36
Junior Prepayment Percentage................................ S-36
Junior Principal Distribution Amount........................ S-36
Liquidated Mortgage Loan.................................... S-38
Loss Allocation Limitation.................................. S-40
Modeling Assumptions........................................ S-49
Moody's..................................................... S-61
mortgage related securities................................. S-69
Net Interest Shortfall...................................... S-32
Net Mortgage Rate........................................... S-30
Net Simple Interest Excess.................................. S-31
Net Simple Interest Shortfall............................... S-31
Non-Book-Entry Certificates................................. S-28
Non-Excess Realized Loss.................................... S-38
Notional Principal Balance.................................. S-31
Original Junior Principal Balance........................... S-35
Permitted Senior Loan....................................... S-60
Prepayment Interest......................................... S-45
Prepayment Period........................................... S-34
Principal Balance........................................... S-14
Realized Loss............................................... S-37
Record Date................................................. S-28
Regular Certificates........................................ S-65
regular interests........................................... S-65
REO......................................................... S-58
residual interest........................................... S-65
Restricted Group............................................ S-68
Retail loans................................................ S-55
SAIF........................................................ S-61
Second-Lien Combined Loan-to-Value Ratio.................... S-21
Senior Percentage........................................... S-34
Senior Prepayment Percentage................................ S-35
Senior Prepayment Percentage Stepdown Limitation............ S-35
Senior Principal Distribution Amount........................ S-34
Senior Transition Date...................................... S-35
Simple Interest Excess Amount............................... S-63
Simple Interest Payment..................................... S-63
SMMEA....................................................... S-69
Special Hazard Loss......................................... S-38
Special Hazard Loss Amount.................................. S-39
Special Hazard Termination Date............................. S-39
Tax-Exempt Investor......................................... S-68
Trustee..................................................... S-26
Unpaid Net Simple Interest Shortfall........................ S-32
</TABLE>
S-73
<PAGE> 74
<TABLE>
<CAPTION>
DEFINED TERM PAGE
------------ ----
<S> <C>
VRDIs....................................................... S-66
Weighted Average Net Mortgage Rate.......................... S-30
Wholesale Loans............................................. S-55
</TABLE>
S-74
<PAGE> 75
- ---------------------------------------------------------
- ---------------------------------------------------------
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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary of Terms.................................. S- 3
Risk Factors...................................... S- 8
Description of the Mortgage Pool and the Mortgaged
Properties...................................... S-14
Description of the Certificates................... S-26
Yield and Weighted Average Life Considerations.... S-43
GE Capital Mortgage Services, Inc................. S-55
The Home Equity Loan Program...................... S-55
Delinquency, Foreclosure and Loan Loss Experience
of GECMSI's Home Equity Loan Servicing
Portfolio....................................... S-57
The Pooling and Servicing Agreement............... S-60
Federal Income Tax Consequences................... S-65
ERISA Considerations.............................. S-66
Legal Investment Matters.......................... S-69
Plan of Distribution.............................. S-69
Certificate Ratings............................... S-70
Legal Matters..................................... S-71
Index of Certain Prospectus Supplement Definitions... S-72
PROSPECTUS
Description of the Certificates................... 1
The Trusts........................................ 9
Credit Enhancement................................ 19
Yield, Maturity and Weighted Average Life
Considerations.................................. 27
Servicing of the Mortgage Loans................... 31
The Pooling and Servicing Agreement............... 44
GE Capital Mortgage Services, Inc................. 56
GE Capital Mortgage Funding Corporation........... 57
Where You Can Find More Information About GE
Capital Mortgage Services, Inc. and GE Capital
Mortgage Funding Corporation.................... 58
The Guarantor..................................... 59
Certain Legal Aspects of the Mortgage Loans....... 59
Legal Investment Matters.......................... 68
ERISA Considerations.............................. 70
Federal Income Tax Consequences................... 71
Plan of Distribution.............................. 89
Use of Proceeds................................... 90
Legal Matters..................................... 90
Financial Information............................. 90
Index of Certain Prospectus Definitions........... 91
</TABLE>
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UNTIL SEPTEMBER 21, 1999, 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.
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GE CAPITAL MORTGAGE SERVICES, INC.
1999-HE2 TRUST
$257,052,000
(APPROXIMATE)
GE CAPITAL MORTGAGE
SERVICES, INC.
(DEPOSITOR AND SERVICER)
REMIC HOME EQUITY LOAN
PASS-THROUGH CERTIFICATES,
SERIES 1999-HE2
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PROSPECTUS SUPPLEMENT
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PRUDENTIAL SECURITIES
LEHMAN BROTHERS
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JUNE 23, 1999
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