<PAGE>
Pursuant to Rule 424(b)(5)
File No. 333-51151
PROSPECTUS SUPPLEMENT
(To Prospectus dated April 22, 1999)
GE CAPITAL MORTGAGE SERVICES, INC. 1999-12 TRUST
ISSUER
GE CAPITAL MORTGAGE SERVICES, INC.
DEPOSITOR AND SERVICER
$190,810,858
(APPROXIMATE)
REMIC MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1999-12
PRINCIPAL AND INTEREST PAYABLE MONTHLY, BEGINNING JUNE 25, 1999
-------------------------
THE TRUST WILL ISSUE:
o 6 classes of senior certificates; and
o 6 classes of junior certificates.
For a description of the classes of certificates offered by this prospectus
supplement, see "Securities Offered" on page S-3.
The assets of the trust will include a pool of conventional, fixed-rate,
first-lien, fully-amortizing, one- to four-family residential mortgage loans.
The stated maturities of the mortgage loans will range from 9 to 15 years.
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CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-8 OF THIS
PROSPECTUS SUPPLEMENT.
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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.
Merrill Lynch, Pierce, Fenner & Smith Incorporated will purchase the senior
certificates and Bear, Stearns & Co. Inc. will purchase the junior certificates
offered by this prospectus supplement. These underwriters will sell the
certificates 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 99.4514811% 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. The certificates will be
available for delivery to investors on or about May 27, 1999.
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MERRILL LYNCH & CO. BEAR, STEARNS & CO. INC.
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The date of this prospectus supplement is May 24, 1999.
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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
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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.
1999-12 Trust. The trust was created for the sole purpose of issuing the
certificates.
We will sell the mortgage loans underlying the certificates to the trust.
SECURITIES OFFERED
The total original principal balance of the certificates will be
approximately $192,660,137. 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
SENIOR CERTIFICATES PRINCIPAL BALANCE(1) INTEREST RATE DENOMINATION
-------------------- ------------- ------------
<S> <C> <C> <C>
Class A1....................................... $ 12,432,345 6.25% $ 25,000
Class A2....................................... 45,392,413 6.25 25,000
Class A3....................................... 130,000,000 6.25 25,000
RESIDUAL CERTIFICATES
Class R........................................ 100 6.25 (2)
JUNIOR CERTIFICATES
Class M........................................ 1,733,000 6.25 100,000
Class B1....................................... 675,000 6.25 100,000
Class B2....................................... 578,000 6.25 100,000
</TABLE>
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(1) Approximate, subject to adjustment as described in this prospectus
supplement.
(2) This class of certificates will be issued as a single certificate in
definitive physical form.
The Class A1, Class A2, Class A3, Class R, Class PO and Class S
Certificates are the senior certificates. The Class M and the Class B1 through
Class B5 Certificates are the junior certificates.
The Class PO, Class S, Class B3, Class B4 and Class B5 Certificates are not
offered by this prospectus supplement. We will initially retain the Class PO and
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 above. The total original principal balance of
the certificates will not be less than $190,000,000 or greater than
$210,000,000.
S-3
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Certificates with principal balances in excess of the minimum denominations
shown in the table above will be issued in multiples of $1,000 above the minimum
denomination. The Class R Certificates will be issued as a single certificate.
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 May 1,
1999:
<TABLE>
<S> <C>
o Total outstanding principal balance(1): $192,660,137
o Original terms to maturity: 9 to 15 years
o Weighted average maturity: between 173 and 175 months
o Weighted average annual interest rate: between 6.86% and 6.90%
o Largest geographic concentration: no more than 34% of the mortgage loans are
secured by properties located in California
</TABLE>
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(1) Approximate, after deducting payments of principal due or received on or
before May 1, 1999, and subject to the variance described in this prospectus
supplement.
THE SERVICER
We will directly service approximately 81% of the mortgage loans in the
trust and will supervise the servicing of the remainder of the mortgage loans by
third-party servicers.
As servicer, we must make reasonable efforts to collect payments due on the
mortgage loans. In addition, we must advance delinquent payments on mortgage
loans to the extent described in this prospectus supplement. We 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.
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 June
25, 1999.
On each distribution date, the trustee will first pay to the senior
certificates the amounts of interest and principal distributable to them from
available funds. The trustee will then pay interest and principal to the junior
certificates from the remaining available funds.
S-4
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Interest Payments
o 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 distribution; and
-- the amount of any accrued interest not paid on your certificates on
earlier distribution dates.
o 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.
o If you are the holder of a junior certificate, you will receive interest
payments only after the trustee has paid interest and principal to:
-- all of the senior certificates, and
-- each class of junior certificates that ranks higher than your
certificates.
o The trustee will calculate interest on the basis of a 360-day year
consisting of twelve 30-day months.
Principal Payments
o After interest payments have been made on all senior certificates
entitled to interest, each class of senior certificates entitled to
principal distributions will also receive a payment of principal. If you
are the holder of junior certificates, you will receive principal
payments after (1) interest and principal have been paid on all the
senior certificates and the junior certificates ranking senior to yours
(if any) and (2) interest has been paid on your certificates. You should
refer to "Description of the Certificates -- Distribution on the
Certificates" for a description of the amount of principal payable to you
and the priority in which it will be paid.
o The amount and timing of principal you receive on your certificates will
depend on:
-- the various formulas and priorities described in this prospectus
supplement that determine the allocation of principal payments to your
certificates; and
-- the amounts actually available for distribution as principal.
o Because of the principal allocation formulas described in this prospectus
supplement, the senior certificates entitled to principal
distributions -- other than the Class PO Certificates -- will receive
principal payments at a faster rate than the junior certificates for at
least the first nine years after issuance of the certificates. The Class
A1 Certificates will not benefit from this accelerated repayment. You
should refer to "Description of the Certificates -- Distributions on the
Certificates -- Allocation of Available Funds."
S-5
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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 May 1, 1999. See "The Pooling and Servicing
Agreement -- Optional Termination" in this prospectus supplement.
CREDIT ENHANCEMENT
If you are the holder of a senior certificate, your certificate will
benefit from the credit enhancement provided by the subordination of the junior
certificates.
This subordination will benefit the senior certificates in two ways:
o The senior certificates will have a preferential right over the junior
certificates to receive funds available for interest and principal
distributions.
o The junior certificates will absorb all losses on the mortgage loans up
to the levels 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.
If you are a holder of a junior certificate, your certificate will benefit
from the credit enhancement provided by the subordination of any lower-ranking
classes of junior certificates. This subordination will, however, offer only
limited protection against the loss of your investment.
FEDERAL INCOME TAX CONSEQUENCES
The trust will be treated as a single REMIC for federal income tax
purposes. As a result, the certificates other than the Class R Certificates will
be treated as regular interests in the REMIC, and the Class R Certificates will
be treated as the residual interest in the REMIC. All of the regular interest
certificates will be treated as debt for tax purposes. In addition, unless you
are the holder of the Class R 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:
o the Class R Certificates, which will be subject to special rules that
could significantly reduce their after-tax yield;
o the junior certificates, whose reported income may exceed the amount of
cash actually received; and
o certain classes of certificates which may be issued with original issue
discount.
S-6
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You should refer to "Federal Income Tax Consequences" in this prospectus
supplement and "Federal Income Tax Consequences -- REMIC Certificates" in the
accompanying prospectus to determine the tax consequences to you of an
investment in the certificates.
LEGAL INVESTMENT
The senior certificates offered hereby and the Class M Certificates will be
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 for so long as they satisfy the criteria described in
"Legal Investment Matters" in this prospectus supplement. No other certificates
will be mortgage related securities. You should consult your own legal advisors
to determine whether, and to what extent, you can invest in the certificates
offered hereby. See "Legal Investment Matters" in this prospectus supplement and
in the accompanying prospectus 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 and Class R 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" from Fitch IBCA, Inc. and/or Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc., at the time of their initial
issuance. You should refer to "Certificate Ratings" in this prospectus
supplement to learn more about the significance and limitation of ratings.
S-7
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RISK FACTORS
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<S> <C>
AN INVESTMENT IN THE CERTIFICATES MAY NOT The certificates are not suitable investments for all
BE SUITABLE FOR YOU 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 Payments on the mortgage loans will not be insured by the
MORTGAGE LOANS MAY REDUCE THE YIELD ON government or any other person. Moreover, we, as
YOUR CERTIFICATES servicer, have a limited obligation to make advances for
delinquent installments of principal or interest, as
described in "The Pooling and Servicing Agreement --
Advances." Consequently, the certificates will absorb
the losses resulting from delinquent payments, and the
yield on your certificates could be lower than you
expect.
In addition, if you are buying a class of certificates
that ranks junior to another class of certificates, you
will be more likely than the holder of a certificate
senior to yours to experience losses as a result of
payment defaults or liquidation losses on the underlying
mortgage loans. This is because payment 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.
WE CANNOT GUARANTEE YOU REGULAR PAYMENTS The amounts you receive on your certificates will depend
ON YOUR CERTIFICATES on the amount of the payments borrowers make on the
mortgage loans. Because we cannot predict the rate at
which borrowers will repay their loans, you may receive
distributions on your certificates in amounts that are
larger or smaller
</TABLE>
S-8
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<TABLE>
<S> <C>
than you expect. In addition, the life of your
certificates may be longer or shorter than anticipated.
Because of this, we cannot guarantee that you will
receive distributions at any specific future date or in
any specific amount.
PREPAYMENT RATES THAT ARE FASTER OR SLOWER The yield to maturity on your certificates will depend
THAN YOU EXPECT MAY REDUCE THE YIELD ON primarily on the purchase price of your certificates and
YOUR CERTIFICATES the rate of principal payments on the mortgage loans in
the trust. Unexpected changes in prepayment rates could
have the following negative effects:
o 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.
o 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 Rapid prepayment rates on the mortgage loans are likely
DISTRIBUTIONS FROM THE CERTIFICATES IN to coincide with periods of low prevailing interest
COMPARABLE INVESTMENTS 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.
</TABLE>
S-9
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<TABLE>
<S> <C>
PREPAYMENTS MAY CAUSE REDUCTIONS IN The actual interest rate on your certificate, if entitled
INTEREST DISTRIBUTIONS ON YOUR to distributions of interest, may be less than the
CERTIFICATES 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.
THE CONCENTRATION OF MORTGAGE LOANS IN A significant percentage of the mortgage loans in the
SPECIFIC GEOGRAPHIC AREAS MAY INCREASE trust are secured by properties located in California.
THE RISK OF LOSS ON THOSE MORTGAGE LOANS Any deterioration in the real estate market or economy of
AND REDUCE THE YIELD ON YOUR California could result in higher rates of loss and
CERTIFICATES delinquency than expected on the mortgage loans secured
by California properties. In addition, California 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 these mortgage loans. These events may impact
on 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 A decline in real estate values or in economic conditions
THAN EXPECTED, WHICH MAY LOWER THE YIELD generally could increase the rates of delinquencies,
ON YOUR CERTIFICATES 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 As described in "Description of the Certificates --
CERTIFICATES MAY NOT BE ADEQUATE TO Allocation of Realized Losses," losses will be allocated
PROTECT HIGHER- first to the junior certificates. Losses may be severe
RANKING CERTIFICATES FROM ALL LOSSES 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.
</TABLE>
S-10
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<TABLE>
<S> <C>
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 We may, at our option, terminate the trust under the
TRUST, THE YIELD ON YOUR CERTIFICATES circumstances described in "The Pooling and Servicing
COULD BE LOWER THAN EXPECTED Agreement -- Optional Termination" in this prospectus
supplement. If the proceeds realized upon 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 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 The certificates will not be listed on any securities
CERTIFICATES 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
they are offering, 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 Unless you are the purchaser of the Class R Certificates,
CERTIFICATES, WHICH CAN CAUSE DELAYS IN your ownership of the certificates will be registered
DISTRIBUTIONS AND HAMPER YOUR ABILITY TO electronically with DTC. The lack of physical
PLEDGE OR RESELL YOUR CERTIFICATES certificates could:
o result in payment delays on the certificates because
the trustee will be sending distributions on the
certificates to DTC instead of directly to you;
o make it difficult for you to pledge your certificates
if physical certificates are required by the party
demanding the pledge; and
</TABLE>
S-11
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<TABLE>
<S> <C>
o 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 THAT OF THIRD PARTIES TO BE Many computer systems and microprocessors with data
YEAR 2000 COMPUTER READY COULD DISRUPT functions, including those in non-information technology
THE DISTRIBUTIONS ON YOUR CERTIFICATES 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 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.
</TABLE>
S-12
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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-62 of this
prospectus supplement. Any capitalized terms that are not defined in the
prospectus supplement are defined in the accompanying prospectus. See "Index of
Certain Prospectus Definitions" on page 96 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
conventional, fixed-rate, fully-amortizing mortgage loans. The mortgage loans
are secured by mortgages, deeds of trust or other security instruments creating
first liens on one- to four-family residential properties or first liens on
rights to own and occupy apartments in cooperative buildings. 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 Form 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. This definitive description
will specify the precise aggregate Scheduled Principal Balance (as defined in
this prospectus supplement) 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 mortgage loan pool on pages S-16
through S-20 of this prospectus supplement. It also will specify the original
principal balance (or in the case of the Class S Certificates, the notional
principal balance) of each class of certificates on the date of issuance of the
certificates, the initial Senior Percentage, the initial Junior Percentage, the
initial Class A1 Percentage, the Bankruptcy Loss Amount, the Fraud Loss Amount
and the Special Hazard Loss Amount, each as defined herein, as of the Cut-off
Date. The Pooling and Servicing Agreement and its exhibits will be filed as an
exhibit to the definitive description of the final mortgage loan pool.
The "Scheduled Principal Balance" of a mortgage loan as of the Cut-off Date
is the then outstanding principal balance thereof, after deducting payments of
principal due or received on or before such date. The "Scheduled Principal
Balance" of a mortgage loan as of any Distribution Date is the unpaid principal
balance of such mortgage loan as specified in the amortization schedule at the
time relating thereto (before any adjustment to such schedule by reason of
bankruptcy or similar proceeding or any moratorium or similar waiver or grace
period) as of the first day of the month preceding the month of such
Distribution Date, after giving effect to any previously applied partial
principal prepayments, the payment of principal due on such first day of the
month and Deficient Valuations occurring after the Bankruptcy Coverage
Termination Date (as such terms are defined herein), irrespective of any
delinquency in payment by the related borrower.
S-13
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The "Pool Scheduled Principal Balance" as of any Distribution Date is equal
to the aggregate Scheduled Principal Balances of all of the mortgage loans that
were Outstanding Mortgage Loans on the first day of the month preceding the
month of such Distribution Date (or such other date as is specified).
An "Outstanding Mortgage Loan" is any mortgage loan which has not been
prepaid in full, has not become a Liquidated Mortgage Loan and has not been
repurchased.
We expect that the mortgage loans (by Scheduled Principal Balance as of the
Cut-off Date) will have been originated under the following documentation
programs:
o At least 89% of the mortgage loans and substantially all of the mortgage
loans with loan-to-value ratios in excess of 80% will have been
originated under GECMSI's full or alternative documentation program or
other full or alternative documentation programs acceptable to GECMSI.
o No more than 7.50% of the mortgage loans will have been originated under
GECMSI's no income verification programs or other no income verification
programs acceptable to GECMSI.
o No more than 3.50% of the mortgage loans will have been originated under
GECMSI's "Enhanced Streamlined Refinance Program" or other streamlined
refinance programs acceptable to GECMSI.
o No more than 0.50% of the mortgage loans will have been originated under
GECMSI's "No Ratio Program" or other no ratio programs acceptable to
GECMSI.
o No more than 0.50% of the mortgage loans will have been originated under
GECMSI's "No Income, No Asset Verification Program" or other no income,
no asset verification programs acceptable to GECMSI.
o None of the mortgage loans will have been acquired under GECMSI's
"Relocation Loan" program or other relocation programs acceptable to
GECMSI.
See "The Trusts -- The Mortgage Loans -- Loan Underwriting Policies" in the
accompanying prospectus for a description of these documentation programs.
Each mortgage loan other than a Cooperative Loan, as defined below, is
required to be covered by a standard hazard insurance policy. Each mortgage loan
which had a loan-to-value ratio at origination in excess of 80% also will be
covered by a private mortgage insurance policy. See "Servicing of the Mortgage
Loans -- Hazard Insurance" and " -- Private Mortgage Insurance" in the
prospectus.
All payments due on each mortgage loan on which at least one payment of
principal and interest was due prior to the Cut-off Date will have been paid
through the first day of the month preceding the Cut-off Date. The mortgage pool
will include a substantial number of recently originated loans on which the
first monthly payments are not due until the Cut-off Date or on a date
subsequent to the initial issuance of the certificates.
For a description of the underwriting standards generally applicable to the
mortgage loans, see "The Trusts -- The Mortgage Loans -- Loan Underwriting
Policies" in the prospectus.
S-14
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THE MORTGAGE LOANS
The mortgage loans will have an aggregate Scheduled Principal Balance as of
the Cut-off Date, after deducting payments of principal due on, or received on
or before, such date, of approximately $192,660,137. This amount is subject to a
permitted variance such that the aggregate Scheduled Principal Balance thereof
will not be less than $190,000,000 or greater than $210,000,000.
Prior to issuance of the certificates, we will not remove from the expected
mortgage pool more than 5% of the mortgage loans, measured by Scheduled
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
Scheduled Principal Balance as of the Cut-off Date, unless a revised prospectus
supplement is delivered to prospective investors.
The interest rates borne by the mortgage loans are expected to range from
5.750% to 10.625% per annum, and the weighted average mortgage interest rate as
of the Cut-off Date of such mortgage loans is expected to be between 6.86% and
6.90% per annum. The original principal balances of the mortgage loans are
expected to range from $20,000 to $922,000 and, as of the Cut-off Date, the
average Scheduled Principal Balance of the mortgage loans is not expected to
exceed $298,000 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 March 1986, and the month and year of the latest scheduled
maturity date of any such mortgage loan will be May 2014. All of the mortgage
loans will have original terms to maturity of 9 to 15 years, and it is expected
that the weighted average scheduled remaining term to maturity of the mortgage
loans will be between 173 and 175 months as of the Cut-off Date.
The mortgage loans are expected to have the following additional
characteristics (by Scheduled Principal Balance of all the mortgage loans) as of
the Cut-off Date:
o No more than 17% of the mortgage loans will have a Scheduled Principal
Balance of more than $500,000 and up to and including $750,000. No more
than 1% of the mortgage loans will have a Scheduled Principal Balance of
more than $750,000 and up to and including $1,000,000. None of the
mortgage loans will have a Scheduled Principal Balance of more than
$1,000,000.
o No more than 5% of the mortgage loans will have a loan-to-value ratio at
origination in excess of 80%, no more than 2% of the mortgage loans will
have a loan-to-value ratio at origination in excess of 90%, and none of
the mortgage loans will have a loan-to-value ratio at origination in
excess of 95%. As of the Cut-off Date, the weighted average loan-to-value
ratio at origination of the mortgage loans is expected to be between 66%
and 69%.
o No more than 3.79% of the mortgage loans had a loan-to-value ratio at
origination calculated based on an appraisal conducted more than one year
before the origination date thereof.
o The proceeds of at least 24% of the mortgage loans will have been used to
acquire the related mortgaged property. The proceeds of the remainder of
the mortgage loans
S-15
<PAGE>
will have been used to refinance an existing loan. No more than 14%
of such mortgage loans will have been the subject of "cash-out"
refinancings.
o None of the mortgage loans will be temporary buy-down mortgage loans.
o No more than 3% of the mortgage loans will be secured by mortgaged
properties located in any one postal zip code area.
o No more than 34% of the mortgage loans will be secured by mortgaged
properties located in California. The majority of the mortgage loans will
be secured by mortgaged properties located in California, Maryland,
Florida, New Jersey and Massachusetts.
o No more than 4% of the mortgage loans will be secured by mortgaged
properties located in any one state except the states specified in the
preceding sentence.
o At least 93% of the mortgage loans will be secured by mortgaged
properties determined by GECMSI to be the primary residence of the
mortgagor. The basis for the determination will be the making of a
representation by the mortgagor at origination that the underlying
property will be used as the mortgagor's primary residence.
o At least 92% of the mortgage loans will be secured by single-family,
detached residences.
o No more than 5% of the mortgage loans will be secured by condominiums.
o No more than 1% of the mortgage loans will be secured by shares of stock
in cooperative housing corporations and assignments of the proprietary
leases to occupy cooperative apartment units therein (each, a
"Cooperative Loan").
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):
ORIGINAL PRINCIPAL BALANCES AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
AGGREGATE SCHEDULED PERCENTAGE OF POOL BY
PRINCIPAL BALANCE AGGREGATE SCHEDULED
RANGE OF ORIGINAL NUMBER OF AS OF THE PRINCIPAL BALANCE AS
PRINCIPAL BALANCE MORTGAGE LOANS CUT-OFF DATE OF THE CUT-OFF DATE
- ----------------------------------- -------------- ------------------- ---------------------
<S> <C> <C> <C>
$ 0- 227,150................. 135 $ 12,784,394.25 6.64%
227,151- 250,000................. 36 7,778,433.73 4.04
250,001- 300,000................. 160 43,485,438.34 22.57
300,001- 350,000................. 127 40,597,245.46 21.07
350,001- 400,000................. 64 23,543,870.27 12.22
400,001- 450,000................. 43 18,200,721.20 9.45
450,001- 600,000................. 64 32,369,541.65 16.80
600,001- 650,000................. 20 12,268,844.94 6.37
650,001-1,000,000................. 2 1,631,647.36 0.85
---- --------------- ---------
Total......................... 651 $192,660,137.20 100.00%
---- --------------- ---------
---- --------------- ---------
</TABLE>
S-16
<PAGE>
MORTGAGE INTEREST RATES AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
AGGREGATE SCHEDULED PERCENTAGE OF POOL BY
PRINCIPAL BALANCE AGGREGATE SCHEDULED
NUMBER OF AS OF THE PRINCIPAL BALANCE AS
MORTGAGE INTEREST RATE MORTGAGE LOANS CUT-OFF DATE OF THE CUT-OFF DATE
- ---------------------------------- -------------- -------------------- ---------------------
<S> <C> <C> <C>
5.7500%........................... 1 $ 308,911.15 0.16%
5.8750............................ 1 228,049.87 0.12
6.0000............................ 5 2,146,883.92 1.11
6.1250............................ 2 634,880.00 0.33
6.2500............................ 11 3,353,452.18 1.74
6.3750............................ 21 6,969,199.42 3.62
6.5000............................ 44 16,691,510.90 8.66
6.6250............................ 71 23,855,805.68 12.38
6.7500............................ 120 42,104,383.71 21.85
6.8750............................ 116 37,023,631.90 19.22
7.0000............................ 75 23,377,674.66 12.13
7.1250............................ 34 11,337,574.83 5.88
7.2500............................ 24 6,348,948.52 3.30
7.3750............................ 22 4,706,792.03 2.44
7.5000............................ 15 2,622,891.79 1.36
7.6250............................ 11 1,061,778.80 0.55
7.7500............................ 9 1,691,800.27 0.88
7.8750............................ 12 1,754,378.92 0.91
8.0000............................ 15 2,101,776.65 1.09
8.2500............................ 8 1,820,648.06 0.95
8.3750............................ 5 644,737.98 0.33
8.5000............................ 3 472,543.15 0.25
8.7500............................ 3 513,702.94 0.27
8.8750............................ 1 117,585.54 0.06
9.0000............................ 1 129,585.50 0.07
9.3750............................ 1 121,330.96 0.06
9.7500............................ 5 100,958.48 0.05
9.8750............................ 6 172,402.61 0.09
10.0000........................... 4 108,930.71 0.06
10.1250........................... 2 31,524.48 0.02
10.5000........................... 2 82,564.41 0.04
10.6250........................... 1 23,297.18 0.01
---- ---------------- -------
Total........................ 651 $ 192,660,137.20 100.00%
---- ---------------- -------
---- ---------------- -------
</TABLE>
S-17
<PAGE>
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
AGGREGATE SCHEDULED PERCENTAGE OF POOL BY
PRINCIPAL AGGREGATE SCHEDULED
NUMBER OF BALANCE AS OF PRINCIPAL BALANCE AS
STATE MORTGAGE LOANS THE CUT-OFF DATE OF THE CUT-OFF DATE
- --------------------------------- --------------- -------------------- ---------------------
<S> <C> <C> <C>
Alabama.......................... 2 $ 683,824.65 0.35%
Arizona.......................... 25 6,975,783.63 3.62
Arkansas......................... 4 1,290,548.70 0.67
California....................... 192 62,509,328.62 32.45
Colorado......................... 12 3,659,757.07 1.90
Connecticut...................... 8 2,556,349.91 1.33
Delaware......................... 2 247,124.78 0.13
District of Columbia............. 1 448,549.15 0.23
Florida.......................... 52 11,434,287.83 5.93
Georgia.......................... 12 3,643,589.27 1.89
Hawaii........................... 1 179,000.00 0.09
Illinois......................... 21 6,715,615.38 3.49
Indiana.......................... 5 1,971,540.68 1.02
Iowa............................. 2 812,828.54 0.42
Kansas........................... 3 615,148.66 0.32
Kentucky......................... 2 737,604.00 0.38
Louisiana........................ 8 2,643,244.29 1.37
Maine............................ 2 638,029.58 0.33
Maryland......................... 35 12,251,263.75 6.36
Massachusetts.................... 24 7,794,378.36 4.05
Michigan......................... 2 841,994.08 0.44
Minnesota........................ 6 1,826,055.09 0.95
Mississippi...................... 1 438,550.46 0.23
Missouri......................... 1 302,431.64 0.16
Montana.......................... 1 396,351.88 0.21
Nebraska......................... 1 300,000.00 0.16
Nevada........................... 8 2,505,862.57 1.30
New Hampshire.................... 2 724,267.18 0.38
New Jersey....................... 51 10,419,424.99 5.41
New Mexico....................... 2 512,230.46 0.27
New York......................... 23 5,457,272.58 2.83
North Carolina................... 6 1,280,516.31 0.66
North Dakota..................... 1 298,295.58 0.15
Ohio............................. 7 2,109,699.90 1.10
Oklahoma......................... 1 403,083.40 0.21
Oregon........................... 7 2,198,866.87 1.14
Pennsylvania..................... 29 6,407,553.43 3.33
Rhode Island..................... 2 592,310.19 0.31
South Carolina................... 7 2,325,334.90 1.21
Tennessee........................ 16 4,865,362.64 2.53
Texas............................ 26 7,095,638.00 3.68
Utah............................. 9 2,912,277.40 1.51
Vermont.......................... 2 752,583.10 0.39
Virginia......................... 12 4,215,134.72 2.19
Washington....................... 11 4,184,083.77 2.17
Wisconsin........................ 4 1,487,159.21 0.77
--- ---------------- ---------
Total.......................... 651 $ 192,660,137.20 100.00%
--- ---------------- ---------
--- ---------------- ---------
</TABLE>
S-18
<PAGE>
YEAR OF ORIGINATION AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
AGGREGATE SCHEDULED PERCENTAGE OF POOL BY
PRINCIPAL BALANCE AGGREGATE SCHEDULED
NUMBER OF AS OF THE PRINCIPAL BALANCE AS
YEAR OF ORIGINATION MORTGAGE LOANS CUT-OFF DATE OF THE CUT-OFF DATE
- --------------------------------- -------------- -------------------- ---------------------
<S> <C> <C> <C>
1986............................. 20 $ 519,677.87 0.27%
1991............................. 1 157,339.22 0.08
1992............................. 40 7,305,727.20 3.79
1994............................. 1 398,692.25 0.21
1995............................. 1 385,031.40 0.20
1997............................. 5 1,278,511.49 0.66
1998............................. 51 13,938,406.18 7.23
1999............................. 532 168,676,751.59 87.55
---- ---------------- -------
Total....................... 651 $ 192,660,137.20 100.00%
---- ---------------- -------
---- ---------------- -------
</TABLE>
YEAR OF MATURITY AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
AGGREGATE SCHEDULED PERCENTAGE OF POOL BY
PRINCIPAL BALANCE AGGREGATE SCHEDULED
NUMBER OF AS OF THE PRINCIPAL BALANCE AS
YEAR OF MATURITY MORTGAGE LOANS CUT-OFF DATE OF THE CUT-OFF DATE
- --------------------------------- -------------- -------------------- ---------------------
<S> <C> <C> <C>
2001............................. 20 $ 519,677.87 0.27%
2007............................. 41 7,463,066.42 3.87
2008............................. 1 168,256.46 0.09
2009............................. 8 1,874,156.88 0.97
2012............................. 7 1,645,933.42 0.85
2013............................. 38 10,311,191.79 5.35
2014............................. 536 170,677,854.36 88.59
---- ---------------- ---------
Total....................... 651 $ 192,660,137.20 100.00%
---- ---------------- ---------
---- ---------------- ---------
</TABLE>
TYPES OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
AGGREGATE SCHEDULED PERCENTAGE OF POOL BY
PRINCIPAL BALANCE AGGREGATE SCHEDULED
NUMBER OF AS OF THE PRINCIPAL BALANCE AS
TYPE OF DWELLING MORTGAGE LOANS CUT-OFF DATE OF THE CUT-OFF DATE
- --------------------------------- -------------- -------------------- ---------------------
<S> <C> <C> <C>
Single-family detached........... 588 $ 180,502,428.05 93.69%
Single-family attached........... 16 2,658,014.00 1.38
Condominium...................... 36 7,358,833.18 3.82
2-4 family units................. 9 1,515,271.01 0.79
Co-op............................ 2 625,590.96 0.32
---- ---------------- ---------
Total....................... 651 $ 192,660,137.20 100.00%
---- ---------------- ---------
---- ---------------- ---------
</TABLE>
S-19
<PAGE>
OCCUPANCY STATUS OF MORTGAGED PROPERTIES(1)
<TABLE>
<CAPTION>
AGGREGATE SCHEDULED PERCENTAGE OF POOL BY
PRINCIPAL BALANCE AGGREGATE SCHEDULED
NUMBER OF AS OF THE PRINCIPAL BALANCE AS
OCCUPANCY MORTGAGE LOANS CUT-OFF DATE OF THE CUT-OFF DATE
- ----------------------------------- -------------- ------------------- ---------------------
<S> <C> <C> <C>
Owner occupied..................... 598 $183,739,252.26 95.37%
Vacation........................... 29 6,776,400.97 3.52
Investment......................... 24 2,144,483.97 1.11
---- --------------- -------
Total......................... 651 $192,660,137.20 100.00%
---- --------------- -------
---- --------------- -------
</TABLE>
- ------------------
(1) Based on information supplied by the mortgagor in the loan application.
PURPOSE OF THE MORTGAGE LOANS
<TABLE>
<CAPTION>
AGGREGATE SCHEDULED PERCENTAGE OF POOL BY
PRINCIPAL BALANCE AGGREGATE SCHEDULED
NUMBER OF AS OF THE PRINCIPAL BALANCE AS
PURPOSE OF THE LOANS MORTGAGE LOANS CUT-OFF DATE OF THE CUT-OFF DATE
- --------------------------------- -------------- ------------------- ---------------------
<S> <C> <C> <C>
Purchase......................... 189 $ 50,108,190.27 26.01%
Rate Term/Refinance.............. 382 120,312,503.07 62.45
Cash-out Refinance............... 80 22,239,443.86 11.54
---- --------------- -------
Total....................... 651 $192,660,137.20 100.00%
---- --------------- -------
---- --------------- -------
</TABLE>
LOAN-TO-VALUE RATIOS AT ORIGINATION
<TABLE>
<CAPTION>
AGGREGATE SCHEDULED PERCENTAGE OF POOL BY
RANGE OF PRINCIPAL BALANCE AGGREGATE SCHEDULED
LOAN-TO-VALUE RATIOS NUMBER OF AS OF THE PRINCIPAL BALANCE AS
AT ORIGINATION MORTGAGE LOANS CUT-OFF DATE OF THE CUT-OFF DATE
- --------------------------------- ------------------- -------------------- ---------------------
<S> <C> <C> <C>
00.00 -50.00..................... 74 $ 20,271,504.02 10.52%
50.001-60.00..................... 103 30,510,896.47 15.84
60.001-70.00..................... 158 48,023,055.58 24.93
70.001-75.00..................... 112 33,194,540.56 17.23
75.001-80.00..................... 170 52,001,539.68 26.99
80.001-85.00..................... 11 3,268,909.63 1.70
85.001-90.00..................... 17 4,278,767.65 2.22
90.001-95.00..................... 6 1,110,923.61 0.58
--- ---------------- -------
Total....................... 651 $ 192,660,137.20 100.00%
--- ---------------- -------
--- ---------------- -------
</TABLE>
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 State Street Bank and Trust
Company, as trustee (the "Trustee"). See the prospectus for important additional
information regarding the terms and conditions of the Agreement and the
certificates. The certificates will be issued in the classes offered by this
prospectus supplement, together with the Class PO, Class S, Class B3, Class B4
and Class B5 Certificates, none of which are offered hereby. The certificates
will be issued in the aggregate original principal balance of approximately
S-20
<PAGE>
$192,660,137, subject to a permitted variance such that the aggregate original
principal balance will not be less than $190,000,000 or greater than
$210,000,000. Any such variance will be allocated so as to approximate the
material characteristics of the classes of certificates described herein.
As described below, each class of certificates offered hereby, other than
the Class R Certificates, which are referred to as the "residual certificates,"
will be issued in book-entry form. Beneficial interests in the 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 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 Class Certificate Principal Balance thereof.
BOOK-ENTRY CERTIFICATES
Each class of the certificates offered hereby other than the residual
certificates (the "Book-Entry Certificates") will be registered as a single
certificate held by a nominee of The Depository Trust Company, which is known as
DTC. For purposes of this discussion, the term DTC also refers to any successor
depository selected by DTC. 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 DTC participants.
DTC, which is a New York-chartered limited purpose trust company, performs
services for its participants, some of which (and/or their representatives) own
DTC. In accordance with its normal procedures, DTC is expected to record the
positions held by each 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.
S-21
<PAGE>
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
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.
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.
S-22
<PAGE>
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."
DISTRIBUTIONS ON THE CERTIFICATES
Allocation of Available Funds
Interest and principal on the certificates will be distributed monthly on
the 25th day of each month or, if such 25th day is not a business day, on the
succeeding business day (each, a "Distribution Date"), commencing in June 1999.
These distributions will be in an aggregate amount equal to the Available Funds
for such Distribution Date. Distributions will be made to holders of record at
the close of business on the related Record Date.
On each Distribution Date, the Available Funds will be distributed in the
following order of priority among the certificates:
first, to the classes of senior certificates (other than the Class PO
Certificates), the Accrued Certificate Interest on each such class for such
Distribution Date, any shortfall in available amounts being allocated among
such classes in proportion to the amount of Accrued Certificate Interest
otherwise distributable thereon;
second, to the classes of senior certificates (other than the Class PO
Certificates), any Accrued Certificate Interest thereon remaining
undistributed from previous Distribution Dates, to the extent of remaining
Available Funds, any shortfall in
S-23
<PAGE>
available amounts being allocated among such classes in proportion to the
amount of such Accrued Certificate Interest remaining undistributed for
each such class for such Distribution Date;
third, to the classes of senior certificates entitled to principal
distributions, in reduction of the aggregate class certificate principal
balances (the "Class Certificate Principal Balances") thereof, to the
extent of remaining Available Funds, concurrently as follows:
(1) to the Class A1, Class A2, Class A3 and Class R Certificates,
the Senior Optimal Principal Amount for such Distribution Date, in the
following order of priority:
(a) to the Class R Certificates, until the Class Certificate
Principal Balance thereof has been reduced to zero; and
(b) to the Class A1, Class A2 and Class A3 Certificates, the
remaining Senior Optimal Principal Amount for such Distribution
Date, concurrently, as follows:
(I) approximately 30.7865473198% of the amount
distributable pursuant to clause (1)(b) to the Class A1 and
Class A2 Certificates, in the following order of priority:
(A) to the Class A1 Certificates, the Class A1
Principal Distribution Amount (as defined herein) for such
Distribution Date, until the Class Certificate Principal
Balance thereof has been reduced to zero; and
(B) to the Class A2 Certificates (the "Group I Senior
Certificates"), the amount distributable pursuant to
clause (1)(b)(I) less the Class A1 Principal Distribution
Amount for such Distribution Date, until the Class
Certificate Principal Balance thereof has been reduced to
zero; and
(II) approximately 69.2134526802% of the amount
distributable pursuant to clause (1)(b) to the Class A3
Certificates, until the Class Certificate Principal Balance
thereof has been reduced to zero; and
(2) to the Class PO Certificates, the Class PO Principal
Distribution Amount for such Distribution Date, until the Class
Certificate Principal Balance thereof has been reduced to zero;
fourth, to the Class PO Certificates, to the extent of remaining
Available Funds, the Class PO Deferred Amount for such Distribution Date,
until the Class Certificate Principal Balance thereof has been reduced to
zero; provided that, (i) on any Distribution Date, distributions pursuant
to this priority fourth shall not exceed the Junior Optimal Principal
Amount for such Distribution Date, (ii) such distributions shall not reduce
the Class Certificate Principal Balance of the Class PO Certificates and
(iii) no distribution will be made in respect of the Class PO Deferred
Amount after the Distribution Date on which the respective Class
Certificate Principal Balances of the junior certificates have been reduced
to zero (the "Cross-Over Date");
fifth, to the Class M Certificates, to the extent of remaining
Available Funds, in the following order: (a) the Accrued Certificate
Interest thereon for such Distribution
S-24
<PAGE>
Date, (b) any Accrued Certificate Interest thereon remaining undistributed
from previous Distribution Dates and (c) such Class's Allocable Share (as
defined under " -- Principal" below) for such Distribution Date;
sixth, to the Class B1 Certificates, to the extent of remaining
Available Funds, in the following order: (a) the Accrued Certificate
Interest thereon for such Distribution Date, (b) any Accrued Certificate
Interest thereon remaining undistributed from previous Distribution Dates
and (c) such Class's Allocable Share for such Distribution Date;
seventh, to the Class B2 Certificates, to the extent of remaining
Available Funds, in the following order: (a) the Accrued Certificate
Interest thereon for such Distribution Date, (b) any Accrued Certificate
Interest thereon remaining undistributed from previous Distribution Dates
and (c) such Class's Allocable Share for such Distribution Date; and
eighth, to each of the Class B3, Class B4 and Class B5 Certificates,
to the extent of remaining Available Funds: (a) the Accrued Certificate
Interest thereon for such Distribution Date, (b) any Accrued Certificate
Interest thereon remaining undistributed from previous Distribution Dates
and (c) such Classes' Allocable Share for such Distribution Date.
The percentages set forth in priority third above were calculated on the
basis of the Class Certificate Principal Balances of the related certificates
described herein. If these Class Certificate Principal Balances are increased or
decreased in accordance with the variance permitted hereby, the applicable
percentages will be increased or decreased substantially correspondingly.
On each Distribution Date after the Cross-Over Date, distributions of
principal on the outstanding senior certificates entitled to principal
distributions (other than the Class PO Certificates) will be made pro rata among
all such certificates, regardless of the allocation, or sequential nature, of
principal payments described in priority third above.
"Pro rata" distributions among classes of certificates will be made in
proportion to the then-current Class Certificate Principal Balances of such
classes.
If, after distributions have been made under priorities first and second
above on any Distribution Date, the remaining Available Funds are less than the
sum of the Senior Optimal Principal Amount and the Class PO Principal
Distribution Amount for such Distribution Date, the amounts distributable under
priority third above shall be proportionately reduced, and such remaining
Available Funds will be distributed on the senior certificates entitled to
principal distributions in accordance with the applicable clauses of priority
third above on the basis of such reduced amounts. Notwithstanding such
allocation, Realized Losses will be allocated to the certificates as described
under " -- Allocation of Realized Losses on the Certificates" herein.
Interest
Interest will accrue on the certificates offered hereby entitled to
interest distributions at the respective interest rates set forth in the summary
of this prospectus supplement during each Interest Accrual Period. The "Interest
Accrual Period" for each class of certificates entitled to distributions of
interest will be the one-month period ending on the last day of
S-25
<PAGE>
the month preceding the month in which a Distribution Date occurs. Interest will
be calculated on the basis of a 360-day year consisting of twelve 30-day months.
Interest will accrue on the Class B3, Class B4 and Class B5 Certificates at
the rate of 6.25% per annum during each Interest Accrual Period.
Interest will accrue on the Class S Certificates during each Interest
Accrual Period at a variable per annum rate equal to the excess of (1) the
weighted average (by Scheduled Principal Balance) carried to six decimal places,
rounded down, of the Net Mortgage Rates of the Outstanding Mortgage Loans which
are Non-discount Mortgage Loans as of the first day of such Interest Accrual
Period (or as of the Cut-off Date, in the case of the first Interest Accrual
Period) over (2) 6.25%. However, this calculation will not include any mortgage
loan that was the subject of a voluntary prepayment in full received by GECMSI,
or in the case of a mortgage loan master-serviced by GECMSI, of which GECMSI
receives notice, on or after the first day but on or before the fifteenth day of
the related Interest Accrual Period. The per annum interest rate on the Class S
Certificates for the first Interest Accrual Period is expected to be
approximately 0.429104%.
The Class PO Certificates are principal-only certificates and will not
accrue interest.
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 Certificate
Interest Rate on the Certificate Principal Balance (or, in the case of a Class S
Certificate, the Notional 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 portion of any Excess Losses
(as defined herein) through the Cross-Over Date and, after the Cross-Over Date,
the interest portion of Realized Losses, including Excess Losses.
The "Certificate Principal Balance" of any certificate as of any
Distribution Date will equal such certificate's Certificate Principal Balance on
the Closing Date as reduced by;
o all amounts distributed on previous Distribution Dates on such
certificate on account of principal;
o the principal portion of all Realized Losses previously allocated to such
certificate; and
o in the case of a junior certificate, such certificate's pro rata share,
if any, of the Junior Certificate Writedown Amount and the Class PO
Deferred Payment Writedown Amount (each as defined below) for previous
Distribution Dates.
As of any Distribution Date, the "Junior Certificate Writedown Amount" will
equal the amount by which (a) the sum of the Class Certificate Principal
Balances of all of the certificates, after giving effect to the distribution of
principal and the allocation of Realized Losses in reduction of the Certificate
Principal Balances of the certificates on such Distribution Date, exceeds (b)
the Pool Scheduled Principal Balance on the first day of the month of such
Distribution Date less any Deficient Valuations occurring on or prior to the
Bankruptcy Coverage Termination Date.
For any Distribution Date, the "Class PO Deferred Payment Writedown Amount"
will equal the amount, if any, distributed on such date in respect of the Class
PO Deferred Amount pursuant to priority fourth in the second paragraph under
" -- Allocation of Available Funds" above. The Junior Certificate Writedown
Amount and the Class PO Deferred Payment Writedown Amount will be allocated to
the classes of junior certificates
S-26
<PAGE>
in inverse order of priority until the Class Certificate Principal Balance of
each such class has been reduced to zero.
The aggregate "Notional Principal Balance" of the Class S Certificates as
of any Distribution Date will equal the aggregate Scheduled Principal Balance of
the Outstanding Mortgage Loans which are Non-discount Mortgage Loans as of the
first day of the calendar month preceding such Distribution Date. The initial
aggregate Notional Principal Balance of the Class S Certificates is expected to
be approximately $174,696,692.
With respect to any Distribution Date, the "Net Interest Shortfall" will
equal the aggregate Interest Shortfalls with respect to such Distribution Date
less the Compensating Interest Payment, if any, for such Distribution Date. See
"The Pooling and Servicing Agreement -- Servicing Compensation, Compensating
Interest and Payment of Expenses" herein for a definition of "Compensating
Interest Payment."
With respect to any Distribution Date, an "Interest Shortfall" in respect
of a mortgage loan will result from:
(1) any voluntary prepayment of principal in full on such mortgage
loan received from the sixteenth day (or, in the case of the first
Distribution Date, from the Cut-off Date) through the last day of the month
preceding such Distribution Date;
(2) any partial prepayment of principal on such mortgage loan by the
mortgagor during the month preceding such Distribution Date; or
(3) a reduction in the interest rate on such mortgage loan due to the
application of the Soldiers' and Sailors' Civil Relief Act of 1940 whereby,
in general, members of the Armed Forces who entered into mortgages prior to
the commencement of military service may have the interest rates on those
mortgage loans reduced for the duration of their active military service.
See "Certain Legal Aspects of the Mortgage Loans -- Soldiers' and Sailors' Civil
Relief Act" in the prospectus. As to any Distribution Date and any mortgage loan
with respect to which a prepayment in full has occurred as described above, the
resulting "Interest Shortfall" generally will equal the difference between (a)
one month's interest at the mortgage interest rate net of the applicable
servicing fee (the "Net Mortgage Rate") on the Scheduled Principal Balance of
such mortgage loan, and (b) the amount of interest at the Net Mortgage Rate
actually received with respect to such mortgage loan. In the case of a partial
prepayment, the resulting "Interest Shortfall" will equal one month's interest
at the applicable Net Mortgage Rate on the amount of such prepayment.
Any Net Interest Shortfall, 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") 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. See "The Pooling and
Servicing Agreement -- Servicing Compensation, Compensating Interest and Payment
of Expenses" herein.
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 Funds on the related
Distribution Date. As a result of the
S-27
<PAGE>
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 Available Funds are insufficient on any Distribution Date to distribute
the aggregate Accrued Certificate Interest on the senior certificates entitled
to distributions of interest to their certificateholders, any shortfall in
available amounts will be allocated among such classes of senior certificates in
proportion to the amounts of Accrued Certificate Interest otherwise
distributable thereon. The amount of any such undistributed Accrued Certificate
Interest will be added to the amount of interest to be distributed on the senior
certificates entitled to distributions of interest on subsequent Distribution
Dates in accordance with priority second in the second paragraph under
" -- Allocation of Available Funds" above. No interest will accrue on any
Accrued Certificate Interest remaining undistributed from previous Distribution
Dates.
Principal
Distributions in reduction of the principal balance of each certificate
entitled to principal distributions will be made on each Distribution Date.
All payments and other amounts received in respect of principal of the
mortgage loans will be allocated between (1) the senior certificates entitled to
principal distributions (other than the Class PO Certificates) and the junior
certificates, on the one hand, and (2) the Class PO Certificates, on the other,
in each case based on the applicable Non-PO Percentage and the applicable PO
Percentage, respectively, of such amounts.
The "Non-PO Percentage" with respect to any mortgage loan with a Net
Mortgage Rate ("NMR") less than 6.25% per annum (each such mortgage loan, a
"Discount Mortgage Loan") will be the fraction, expressed as a percentage, equal
to NMR divided by 6.25%. The "Non-PO Percentage" with respect to any mortgage
loan with a Net Mortgage Rate equal to or greater than 6.25% (each such mortgage
loan, a "Non-discount Mortgage Loan") will be 100%. The "PO Percentage" with
respect to any Discount Mortgage Loan will be the fraction, expressed as a
percentage, equal to (6.25% -- NMR) divided by 6.25%. The "PO Percentage" with
respect to any Non-discount Mortgage Loan will be 0%.
The initial Class Certificate Principal Balance of the Class PO
Certificates, which are not offered hereby, will be approximately $500,426,
subject to the variance described herein.
Distributions in reduction of the Class Certificate Principal Balance of
each class of senior certificates entitled to principal distributions will be
made on each Distribution Date under priority third in the second paragraph
under "-- Allocation of Available Funds" above. In accordance with priority
third, the Available Funds remaining after the distribution of interest will be
allocated to such senior certificates in an aggregate amount not to exceed the
sum of the Senior Optimal Principal Amount and the Class PO Principal
Distribution Amount for such Distribution Date. Distributions in reduction of
the Class Certificate Principal Balances of the Class M, Class B1 and Class B2
Certificates will be made pursuant to priorities fifth, sixth and seventh,
respectively, in the second paragraph under " -- Allocation of Available Funds"
above. In accordance with each such priority, the Available Funds, if any,
remaining after distributions of principal and interest on the senior
certificates and payments in respect of the Class PO Deferred Amount on such
Distribution Date will be allocated to the Class M, Class B1 and Class B2
Certificates in an amount equal to each such class's Allocable Share for such
Distribution Date,
S-28
<PAGE>
provided that no distribution of principal will be made on any such class
until any class ranking prior thereto has received distributions of interest and
principal, and such class has received distributions of interest, on such
Distribution Date.
The "Senior Optimal Principal Amount" with respect to each Distribution
Date will be an amount equal to the sum of:
(1) the Senior Percentage (as defined herein) of the applicable Non-PO
Percentage of all scheduled payments of principal due on each mortgage loan
on the first day of the month in which the Distribution Date occurs, as
specified in the amortization schedule at the time applicable thereto,
after adjustment for previous principal prepayments and the principal
portion of Debt Service Reductions after the Bankruptcy Coverage
Termination Date, but before any adjustment to such amortization schedule
by reason of any other bankruptcy or similar proceeding or any moratorium
or similar waiver or grace period;
(2) the Senior Prepayment Percentage (as defined herein) of the
applicable Non-PO Percentage of the Scheduled 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 the applicable Non-PO
Percentage of all partial prepayments of principal received during the
applicable Prepayment Period;
(4) the lesser of:
(a) the Senior Prepayment Percentage of the applicable Non-PO
Percentage of the sum of (w) 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 (x), and (x) 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
(b)(i) the Senior Percentage of the applicable Non-PO Percentage of
the sum of (w) the Scheduled Principal Balance of each mortgage loan
which became a Liquidated Mortgage Loan during the related Prepayment
Period, other than mortgage loans described in clause (x), and (x) the
Scheduled 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 minus
(ii) the Senior Percentage of the applicable Non-PO Percentage of the
principal portion of Excess Losses (other than Debt Service Reductions)
during the related Prepayment Period; and
(5) the Senior Prepayment Percentage of the applicable Non-PO
Percentage of the sum of (a) the Scheduled 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 Scheduled
Principal Balance of a mortgage loan that has been replaced by GECMSI with
a substitute mortgage loan pursuant to the Agreement in connection with
such Distribution Date and the Scheduled Principal Balance of such
substitute mortgage loan.
S-29
<PAGE>
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 "Class A1 Principal Distribution Amount" for any Distribution Date will
equal the sum of:
(a) the total of the amounts described in clauses (1) and (4) of the
definition of Senior Optimal Principal Amount (without application of the
Senior Percentage or the Senior Prepayment Percentage) for such date
multiplied by the Class A1 Percentage for such date; and
(b) the total of the amounts described in clauses (2), (3) and (5) of
the definition of Senior Optimal Principal Amount (without application of
the Senior Prepayment Percentage) for such date multiplied by the product
of (x) the Class A1 Prepayment Distribution Percentage for such date and
(y) the Class A1 Percentage for such date.
Notwithstanding the foregoing, (1) on the Group I Final Distribution Date,
the Class A1 Principal Distribution Amount will be increased by any Senior
Optimal Principal Amount remaining for distribution under clause (1)(b)(I)(B) of
priority third in the second paragraph under "Allocation of Available Funds"
above after distributions of principal have been made on the Group I Senior
Certificates, and (2) following the Group I Final Distribution Date, the
Class A1 Principal Distribution Amount will equal the portion of the Senior
Optimal Principal Amount available for distribution under clause (1)(b)(I) of
such priority third.
The "Class A1 Percentage" for any Distribution Date will equal the
percentage (carried to six places rounded up) obtained by dividing (1) the
aggregate Certificate Principal Balance of the Class A1 Certificates immediately
preceding such Distribution Date by (2) the aggregate Certificate Principal
Balance of all the certificates (other than the Class PO Certificates)
immediately preceding such Distribution Date. The initial Class A1 Percentage is
expected to be approximately 6.47%.
The "Class A1 Prepayment Distribution Percentage" for any Distribution Date
will equal 0% through the Distribution Date in May 2004; 30% thereafter through
the Distribution Date in May 2005; 40% thereafter through the Distribution Date
in May 2006; 60% thereafter through the Distribution Date in May 2007; 80%
thereafter through the Distribution Date in May 2008; and 100% thereafter.
The "Group I Final Distribution Date" is the Distribution Date on which the
Class Certificate Principal Balance of the Group I Senior Certificates has been
reduced to zero.
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
(other than the Class PO Certificates) immediately preceding such Distribution
Date by the aggregate Certificate Principal Balances of all the certificates
(other than the Class PO Certificates) immediately
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<PAGE>
preceding such Distribution Date. The initial Senior Percentage is expected to
be approximately 97.74%.
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>
June 1999 -- May 2004........... 100%
June 2004 -- May 2005........... Senior Percentage plus 70% of
the Junior Percentage
June 2005 -- May 2006........... Senior Percentage plus 60% of
the Junior Percentage
June 2006 -- May 2007........... Senior Percentage plus 40% of
the Junior Percentage
June 2007 -- May 2008........... Senior Percentage plus 20% of
the Junior Percentage
June 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, no 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 (such limitation being the "Senior
Prepayment Percentage Stepdown Limitation") unless, as of the last day of the
month preceding such Distribution Date, either:
(A) (1) the aggregate Scheduled 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
June 2004 and May 2005;
(b) 35% of the Original Junior Principal Balance if such
Distribution Date occurs between and including June 2005
and May 2006;
(c) 40% of the Original Junior Principal Balance if such
Distribution Date occurs between and including June 2006
and May 2007;
(d) 45% of the Original Junior Principal Balance if such
Distribution Date occurs between and including June 2007
and May 2008; and
(e) 50% of the Original Junior Principal Balance if such
Distribution Date occurs during or after June 2008; or
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<PAGE>
(B) (1) the aggregate Scheduled 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), averaged over the last three months, as a
percentage of the aggregate Scheduled Principal Balance of all
mortgage loans averaged over the last three months, does not
exceed 4%; and
(2) cumulative Realized Losses do not exceed:
(a) 10% of the Original Junior Principal Balance if such
Distribution Date occurs between and including June 2004
and May 2005;
(b) 15% of the Original Junior Principal Balance if such
Distribution Date occurs between and including June 2005
and May 2006;
(c) 20% of the Original Junior Principal Balance if such
Distribution Date occurs between and including June 2006
and May 2007;
(d) 25% of the Original Junior Principal Balance if such
Distribution Date occurs between and including June 2007
and May 2008; and
(e) 30% of the Original Junior Principal Balance if such
Distribution Date occurs during or after June 2008.
The "Class PO Principal Distribution Amount" with respect to each
Distribution Date will be an amount equal to the sum of:
(1) the applicable PO Percentage of all scheduled payments of
principal due on each mortgage loan on the first day of the month in which
the Distribution Date occurs, as specified in the amortization schedule at
the time applicable thereto, after adjustment for previous principal
prepayments and the principal portion of Debt Service Reductions after the
Bankruptcy Coverage Termination Date, but before any adjustment to such
amortization schedule by reason of any other bankruptcy or similar
proceeding or any moratorium or similar waiver or grace period;
(2) the applicable PO Percentage of the Scheduled 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 related Prepayment Period;
(3) the applicable PO Percentage of all partial prepayments of
principal received during the related Prepayment Period;
(4) the applicable PO 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 applicable PO Percentage of the sum of (a) the Scheduled
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 Scheduled Principal Balance of a mortgage loan that has been
replaced by GECMSI with a substitute mortgage loan pursuant to the
Agreement in connection with such
S-32
<PAGE>
Distribution Date and the Scheduled Principal Balance of such substitute
mortgage loan.
For purposes of clauses (2) and (5) above, the Scheduled Principal Balance
of a mortgage loan will be reduced by the amount of any Deficient Valuation that
occurred on or before the Bankruptcy Coverage Termination 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
(other than the Class PO Certificates) have each been reduced to zero (the
"Senior Final Distribution Date"), the Junior Prepayment Percentage will equal
100%. The initial Junior Percentage is expected to be approximately 2.26%.
The "Junior Optimal Principal Amount" with respect to each Distribution
Date will be an amount equal to the sum of the following (but in no event
greater than the aggregate Class Certificate Principal Balances of the junior
certificates immediately prior to such Distribution Date):
(1) the Junior Percentage of the applicable Non-PO Percentage of all
scheduled payments of principal due on each outstanding mortgage loan on
the first day of the month in which the Distribution Date occurs, as
specified in the amortization schedule at the time applicable thereto,
after adjustment for previous principal prepayments and the principal
portion of Debt Service Reductions after the Bankruptcy Coverage
Termination Date, but before any adjustment to such amortization schedule
by reason of any other bankruptcy or similar proceeding or any moratorium
or similar waiver or grace period;
(2) the Junior Prepayment Percentage of the applicable Non-PO
Percentage of the Scheduled Principal Balance of each mortgage loan which
was the subject of a 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 related Prepayment Period;
(3) the Junior Prepayment Percentage of the applicable Non-PO
Percentage of all partial prepayments of principal received during the
related Prepayment Period, plus, on the Senior Final Distribution Date,
100% of any Senior Optimal Principal Amount remaining undistributed on such
date;
(4) the amount, if any, by which the sum of (a) the applicable Non-PO
Percentage of 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
applicable Non-PO Percentage of 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 exceeds (c) the sum of the amounts distributable to senior
certificateholders (other than the holders of the Class PO Certificates)
under clause (4) of the definition of Senior Optimal Principal Amount on
such Distribution Date; and
(5) the Junior Prepayment Percentage of the applicable Non-PO
Percentage of the sum of (a) the Scheduled Principal Balance of each
mortgage loan which was
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<PAGE>
repurchased by GECMSI in connection with such Distribution Date and
(b) the difference, if any, between the Scheduled Principal Balance of a
mortgage loan that has been replaced by GECMSI with a substitute mortgage
loan pursuant to the Agreement in connection with such Distribution Date
and the Scheduled 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 Optimal Principal Amount described above;
provided, that, except as described in the second sentence of the following
paragraph, 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 Optimal Principal 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 Pool Scheduled Principal Balance 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 Optimal Principal 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 Optimal
Principal 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
subject to the priority of payments described herein. On any Distribution Date,
any reduction in funds available for distribution to the classes of junior
certificates resulting from a distribution of the Class PO Deferred Amount to
the Class PO Certificates will be allocated to the classes of junior
certificates, in reduction of the Allocable Shares thereof, in inverse order of
priority.
ALLOCATION OF REALIZED LOSSES ON THE CERTIFICATES
A "Realized Loss" is
o 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.
o as to any mortgage loan, a Deficient Valuation (as defined below).
S-34
<PAGE>
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").
A "Non-Excess Realized Loss" is any Realized Loss other than an Excess
Loss.
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 "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 the Class PO Certificates
On each Distribution Date, the applicable PO Percentage of the principal
portion of any Realized Loss (including any Excess Loss) on a Discount Mortgage
Loan will be allocated to the Class PO Certificates until the Class Certificate
Principal Balance thereof is reduced to zero.
With respect to any Distribution Date through the Cross-Over Date, the sum
of (1) the applicable PO Percentage of the principal portion of Non-Excess
Realized Losses on a Discount Mortgage Loan allocated to the Class PO
Certificates on such date and (2) all amounts previously allocated to the
Class PO Certificates in respect of such losses and not distributed to the
Class PO Certificates on prior Distribution Dates will be the "Class PO Deferred
Amount."
To the extent funds are available therefor on any Distribution Date through
the Cross-Over Date, distributions in respect of the Class PO Deferred Amount
will be made on the Class PO Certificates in accordance with priority fourth of
the second paragraph under " -- Distributions on the
Certificates -- Allocation of Available Funds" above. Any distribution of
Available Funds in respect of the Class PO Deferred Amount will not reduce the
Class Certificate Principal Balance of the Class PO Certificates. No interest
will accrue on the Class PO Deferred Amount. On each Distribution Date through
the Cross-Over Date, the Class Certificate Principal Balance of the lowest
ranking class of junior certificates then outstanding will be reduced by the
amount of any distributions made to the Class PO Certificates in respect of the
Class PO Deferred Amount on such Distribution
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Date, through the operation of the Class PO Deferred Payment Writedown Amount.
After the Cross-Over Date, no distributions will be made in respect of the
Class PO Deferred Amount and Realized Losses allocated to the Class PO
Certificates will be borne by them without a right of reimbursement from any
other class of certificates. Any distribution of Unanticipated Recoveries (as
defined in the accompanying prospectus) on the Class PO Certificates will be
adjusted to take into account the Class PO Deferred Amount previously paid to
such class as specified in the Agreement. See "Servicing of the Mortgage
Loans -- Unanticipated Recoveries of Losses on the Mortgage Loans" in the
accompanying prospectus.
Losses Allocable to Certificates other than the Class PO Certificates
Prior to the Cross-Over Date (and on such date under certain
circumstances), the applicable Non-PO Percentage of 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 applicable Non-PO Percentage of the
principal portion of any Realized Loss will be allocated among the outstanding
classes of senior certificates entitled to principal distributions (other than
the Class PO Certificates) 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 applicable Non-PO Percentage of 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 (other
than the Class PO Certificates) 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 negative number (or the Cross-Over Date, if earlier). Upon the initital
issuance of the certificates, the "Fraud Loss Amount" will equal approximately
$1,926,601 (approximately 1% of the aggregate Scheduled 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 $1,926,601, 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 fifth 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% (from the first to but excluding the
third anniversaries of the Cut-off Date) or 0.5% (from and including the third
to but excluding the fifth anniversaries of the Cut-off Date) of the aggregate
outstanding principal balance of all of the mortgage loans as
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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. As of any Distribution Date on or after the fifth 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 $1,926,601 (approximately 1% 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
$1,926,601 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
S&P, 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
$100,000 (approximately 0.05% of the aggregate Scheduled 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 and
Debt Service Reductions (as defined below). 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 S&P (each as defined herein)
that such reduction or modification will not adversely affect the then current
ratings of the senior certificates by Fitch and S&P. Such reduction may
adversely affect the coverage provided by subordination with respect to
Deficient Valuations.
A "Debt Service Reduction" is a reduction in the amount of the monthly
payment due on a mortgage loan as established by a bankruptcy court in a
personal bankruptcy of a mortgagor.
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
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distributions of principal and interest on such certificates commencing on the
following Distribution Date. The aggregate amount of the principal portion of
any Non-Excess Realized Losses to be allocated to the Class PO Certificates on
any Distribution Date through the Cross-Over Date will also be taken into
account in determining distributions in respect of the Class PO Deferred Amount
for such 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 Pool Scheduled Principal Balance 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").
Debt Service Reductions are not Realized Losses, and the principal portion
thereof will not be allocated in reduction of the Certificate Principal Balance
of any certificate. However, after the Bankruptcy Coverage Termination Date, the
amounts distributable under clause (1) of the definitions of Senior Optimal
Principal Amount, Class PO Principal Distribution Amount and Junior Optimal
Principal Amount will be reduced by the amount of the principal portion of any
Debt Service Reductions. Regardless of when they occur, Debt Service Reductions
may reduce the amount of Available Funds otherwise available for distribution on
a Distribution Date. As a result of the subordination of the junior certificates
in right of distribution, the reduction in Available Funds resulting from any
Debt Service Reductions prior to the Bankruptcy Coverage Termination Date will
be borne by the junior certificates (to the extent then outstanding) in inverse
order of priority.
ADDITIONAL RIGHTS OF THE RESIDUAL CERTIFICATEHOLDERS
In addition to distributions of principal and interest, the holders of the
Class R Certificates will be entitled to receive:
(1) the amount, if any, of Available Funds remaining in the REMIC on
any Distribution Date after distributions of interest and principal and in
respect of the Class PO Deferred Amount are made on the certificates on
such date;
(2) 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 the other classes of certificates as described in
"Servicing of the Mortgage Loans -- Unanticipated Recoveries of Losses on
the Mortgage Loans" in the accompanying prospectus; and
(3) the proceeds, if any, of the assets of the trust remaining in the
REMIC after the Class Certificate Principal Balances of all classes of
certificates have each been reduced to zero.
It is not anticipated that any material assets will be remaining for such
distributions on the Class R Certificates at any such time. See "Federal Income
Tax Consequences -- Residual Certificates" herein.
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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 2.25% of the aggregate Certificate Principal Balance of all the
classes of certificates. The rights of the holders of the junior certificates to
receive distributions with respect to the mortgage loans will be subordinate to
such rights of the holders of the senior certificates, to the extent described
above. The subordination of the junior certificates is intended:
(1) to enhance the likelihood of timely receipt by the holders of the
senior certificates (to the extent of the subordination of the junior
certificates) of the full amount of the scheduled monthly distributions of
principal and 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, prior to any
distribution 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 -- Allocation of Available Funds,"
the amounts due to the senior certificateholders on each Distribution Date
out of the Available Funds with respect to such date and, if necessary, by
the right of such holders to receive future distributions on the mortgage
loans that would otherwise have been payable to the holders of the junior
certificates;
(2) the allocation to the junior certificates of the applicable
Non-PO Percentage of the principal portion of any Realized Loss (other than
an Excess Loss or a Debt Service Reduction) to the extent set forth herein;
and
(3) the allocation to the junior certificates of the applicable PO
Percentage of the principal portion of any Realized Loss (other than an
Excess Loss or a Debt Service Reduction) to the extent set forth herein
through the operation of the Class PO Deferred Payment Writedown Amount.
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 the applicable Non-PO Percentage of any prepayment or other
unscheduled recovery of principal with respect to a mortgage loan will be
allocated to the senior certificates as a whole entitled to principal
distributions (other than the Class PO Certificates) during at least the first
five years after the date of initial issuance of the certificates, with such
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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 allocable to the Class A1 and Class A2
Certificates will be allocated to the outstanding Group I Senior Certificates
during the first five years after the date of initial issuance of the
Certificates (except as otherwise described herein on or following the Group I
Final Distribution Date) with such allocation being subject to reduction
thereafter as described herein, except that the amounts described in the first
sentence of this paragraph will be allocated pro rata among all of the
outstanding senior certificates (other than the Class PO Certificates) on each
Distribution Date after the Cross-Over Date.
After the payment of amounts 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 Funds in an
aggregate amount equal to the Accrued Certificate Interest thereon from previous
Distribution Dates and the sum of the Allocable Shares of the classes of junior
certificates. 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 of distribution to the
junior certificates offered hereby, will equal approximately 0.70% of the
initial aggregate Certificate Principal Balance of all of the certificates and
approximately 31.12% 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 on such
Distribution Date out of Available 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 applicable Non-PO Percentage of the
principal portion of any Realized Loss with respect to a mortgage loan (other
than a Debt Service Reduction or an Excess Loss) and any Class PO Deferred
Payment Writedown Amount 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 and of the Class PO Deferred Payment Writedown Amount 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, the applicable Non-PO Percentage of prepayments and certain other
unscheduled recoveries of principal in respect of the mortgage loans (which will
not be distributable to such 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 Senior Final 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
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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 to the rate of delinquencies and defaults on the mortgage loans,
and under certain circumstances investors in such certificates may not recover
their initial investment.
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 following text for a discussion of the factors that could affect the yield
of your certificates.
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 as well as voluntary prepayments by borrowers (such
as, for example, prepayments in full due to refinancings, including refinancings
made by GECMSI in the ordinary course of conducting its mortgage banking
business, some of which refinancings may be solicited by GECMSI, or prepayments
in connection with biweekly payment programs, participation in which may be
solicited by GECMSI) and prepayments resulting from foreclosure, condemnation
and other dispositions of the mortgaged properties, from repurchase by GECMSI of
any mortgage loan as to which there has been a material breach of warranty or
defect in documentation (or deposit of certain amounts in respect of delivery of
a substitute mortgage loan therefor) and from an exercise by GECMSI of its
option to repurchase a Defaulted Mortgage Loan.
Mortgagors are permitted to prepay the mortgage loans, in whole or in part,
at any time without penalty. In addition, as a result of the fact that
certificateholders (other than holders of any class of interest-only
certificates) will generally be entitled on any Distribution Date to receive
from Available Funds distributions of amounts based on clause (4) of each of the
definitions of Senior Optimal Principal Amount, Class PO Principal
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Distribution Amount or Junior Optimal Principal Amount, as the case may be, the
occurrence of defaults on the mortgage loans may produce the same effect on the
certificates receiving such distributions as an early receipt of principal. See
"Yield, Maturity and Weighted Average Life Considerations" in the prospectus for
a discussion of the factors that may influence prepayment rates.
Voluntary prepayments in full of principal on the mortgage loans received
by GECMSI (or, in the case of mortgage loans master-serviced by GECMSI, of which
GECMSI receives notice) from the first day through the fifteenth day of each
month (other than the month of the Cut-off Date) are passed through to the
certificateholders in the month of receipt or payment. Voluntary prepayments of
principal in full received from the sixteenth day (or, in the case of the month
of the Cut-off Date, from the Cut-off Date) through the last day of each month,
and all voluntary partial prepayments of principal on the mortgage loans are
passed through to the certificateholders in the month following the month of
receipt or payment. Any prepayment of a mortgage loan or liquidation of a
mortgage loan (by foreclosure proceedings or by virtue of the purchase of a
mortgage loan in advance of its stated maturity as required or permitted by the
Agreement) will generally have the effect of passing through to the
certificateholders principal amounts (or, in the case of any class of
interest-only 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 the applicable Non-PO Percentage of any prepayments
and other unscheduled recoveries of principal with respect to a mortgage loan
will be allocated solely to the outstanding senior certificates (other than the
Class PO and Class S Certificates) 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. The portion of such amounts
otherwise allocable to the Class A1 and Class A2 Certificates will be allocated
solely to the outstanding Group I Senior Certificates during the first five
years after the date of initial issuance of the certificates (except as
otherwise described herein on or following the Group I Final Distribution Date),
with such allocation being subject to reduction thereafter as described herein,
provided that all of the amounts referred to in the first sentence of this
paragraph will be allocated pro rata among all the outstanding senior
certificates (other than the Class PO and Class S Certificates) on each
Distribution Date after the Cross-Over Date. The resulting allocation between
the Group I Senior Certificates and the Class A1 Certificates is designed to
accelerate the allocation of principal prepayments and certain other unscheduled
recoveries of principal on the mortgage loans to holders of the Group I Senior
Certificates relative to the Class A1 Certificates through the earlier of the
Group I Final Distribution Date and the Cross-Over Date. Notwithstanding the
foregoing, all distributions of principal on the outstanding senior certificates
(other than the Class PO and Class S Certificates) will be made pro rata among
such certificates on each Distribution Date after the Cross-Over Date. See
"Description of the Certificates -- Distributions on the
Certificates -- Principal" herein.
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 interest rate by 360) which is applied to the principal amount of
the loan so prepaid. When such a prepayment is made during the period from the
sixteenth day through the last day of any month (and from the Cut-off Date
through the fifteenth day of the month of the Cut-off
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Date), such Prepayment Interest is passed through to the certificateholders
entitled thereto in the month following its receipt and the amount of interest
thus distributed to certificateholders, to the extent not supplemented by a
Compensating Interest Payment (as defined herein), will be less than the amount
which would have been distributed in the absence of such prepayment. The payment
of a claim under certain insurance policies or the purchase of a defaulted
mortgage loan by a private mortgage insurer may also cause a reduction in the
amount of interest passed through. Shortfalls described in this paragraph will
be borne by certificateholders to the extent described herein. See "Description
of the Certificates -- Distributions on the Certificates -- Interest" herein.
Any partial prepayment will be applied to the balance of the related
mortgage loan as of the first day of the month of receipt, will be passed
through to the certificateholders in the following month and, to the extent not
supplemented by a Compensating Interest Payment, will reduce the aggregate
amount of interest distributable to the certificateholders in such month in an
amount equal to 30 days of interest at the related Net Mortgage Rate on the
amount of such prepayment.
The yield on certain classes of the certificates also may be affected by
any repurchase by GECMSI of the mortgage loans as described under "The Pooling
and Servicing Agreement -- Termination" herein.
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,
either directly or through the allocation of the Class PO Deferred Payment
Writedown Amount, except as provided herein. To the extent not covered by
GECMSI's
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advances of delinquent monthly payments of principal and interest, delinquencies
on the mortgage loans may also have a relatively greater effect:
o 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;
o on the yields to investors in the Class B Certificates than on the yields
to investors in the other classes of the certificates; and
o on the yields to investors in the Class M Certificates than on the yields
to investors in the senior certificates.
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 discounts 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 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
May 2014. In addition, to the extent delinquencies and defaults are not covered
by advances made by GECMSI or offset by the effect of the subordination of the
junior certificates, delinquencies and defaults could affect the actual maturity
of the certificates offered hereby.
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WEIGHTED AVERAGE LIVES OF THE CERTIFICATES
The weighted average life of a certificate is determined by:
o 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;
o summing the results; and
o 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 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.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this prospectus supplement (the
"Prepayment Assumption") represents an assumed rate of prepayment each month
relative to the then outstanding principal balance of a pool of mortgage loans.
The Prepayment Assumption does not purport to be either a historical description
of the prepayment experience of any pool of mortgage loans or a prediction of
the anticipated rate of prepayment of any pool of mortgage loans, including the
mortgage loans in the mortgage pool. A prepayment assumption of 100% of the
Prepayment Assumption assumes prepayment rates of 0.2% per annum of the then
outstanding principal balance of such mortgage loans in the first month of the
life of the mortgage loans and increasing by 0.2% per annum in each month
thereafter until the thirtieth month. Beginning in the thirtieth month and in
each month thereafter during the life of the mortgage loans, 100% of the
Prepayment Assumption assumes a constant prepayment rate of 6.0% per annum.
Tables of 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 constant
percentages of the Prepayment Assumption and the corresponding weighted average
life of each such class of certificates. For purposes of calculations under the
columns at the indicated percentages of the Prepayment Assumption set forth in
the table, it is assumed with respect to the mortgage loans (the "Modeling
Assumptions") that:
(1) the distributions in respect of the certificates are made and received
in cash on the 25th day of each month commencing in June 1999;
(2) such mortgage loans prepay at the specified constant percentages of
the Prepayment Assumption;
(3) the aggregate outstanding Scheduled Principal Balance of such mortgage
loans as of the Cut-off Date is $192,660,137.20;
S-45
<PAGE>
(4) no defaults or delinquencies in the payment by mortgagors of principal
of and interest on such mortgage loans are experienced and GECMSI does
not repurchase any such mortgage loans as permitted or required by the
Agreement;
(5) GECMSI does not exercise its option to repurchase all the mortgage
loans in the trust as described under the caption "The Pooling and
Servicing Agreement -- Termination" herein;
(6) scheduled monthly payments on such mortgage loans are received on the
first day of each month commencing in June 1999, 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 in May 1999, and
include 30 days' interest thereon, and no Interest Shortfalls occur in
respect of the mortgage loans;
(8) the scheduled monthly payment for each such mortgage loan has been
calculated based on its outstanding balance, interest rate and
remaining term to maturity such that such mortgage loan will amortize
in amounts sufficient to repay the remaining balance of such mortgage
loan by its remaining term to maturity;
(9) the initial Class Certificate Principal Balance and interest rate on
the certificates for each class of certificates offered hereby are as
indicated on page S-3 hereof;
(10) the date of the initial issuance of the certificates is May 27, 1999;
(11) the amount distributable to certificateholders is not reduced by the
incurrence of any expenses by the trust; and
(12) the mortgage loans are divided into groups (each a "Mortgage Loan
Group") and the mortgage loans in each Mortgage Loan Group have the
respective characteristics described below:
<TABLE>
<CAPTION>
AGGREGATE STATED
SCHEDULED REMAINING
PRINCIPAL MORTGAGE NET TERM TO
MORTGAGE LOAN BALANCE AS OF THE INTEREST MORTGAGE AGE MATURITY
GROUP CUT-OFF DATE RATE RATE (MONTHS) (MONTHS)
- --------------------- ----------------- ------------ ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Discount............. $ 17,963,445.53 6.3109911900% 6.0758874586% 2 176
Non-discount......... 174,696,691.67 6.9340313827 6.6791044322 5 174
</TABLE>
It is not likely that the mortgage loans will prepay at a constant level of
the Prepayment Assumption. In addition, because certain of such mortgage loans
will have remaining terms to maturity and will bear interest at rates that are
different from those assumed, the actual Class Certificate Principal Balance of
each class of certificates outstanding at any time and the actual weighted
average life of each class of such certificates may differ from the
corresponding information in the table for each indicated percentage of the
Prepayment Assumption. Furthermore, even if all the mortgage loans prepay at the
indicated percentages of the Prepayment Assumption and the weighted average
mortgage interest rate and weighted average remaining term to maturity of such
mortgage loans were to equal the weighted average mortgage interest rate and
weighted average remaining term to maturity of the assumed mortgage loans, due
to the actual distribution of remaining terms to maturity and interest rates
among the mortgage loans, the actual principal balance of each class of
certificates outstanding at any time and the actual weighted average life of
each class of such certificates would differ (which difference could be
material) from the corresponding information set forth in the following tables.
S-46
<PAGE>
PERCENT OF ORIGINAL CLASS CERTIFICATE PRINCIPAL BALANCE
OUTSTANDING OF THE CERTIFICATES
<TABLE>
<CAPTION>
CLASS
CLASS A1 CLASS A2 A3
---------------------------------------- ---------------------------------------- ----
DISTRIBUTION DATE 0% 150% 300% 450% 600% 0% 150% 300% 450% 600% 0%
- --------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage............... 100 100 100 100 100 100 100 100 100 100 100
May 2000......................... 96 96 96 96 96 96 92 87 83 79 96
May 2001......................... 91 91 91 91 91 91 79 68 57 46 91
May 2002......................... 87 87 87 87 87 87 66 48 32 19 87
May 2003......................... 81 81 81 81 81 81 54 33 15 2 81
May 2004......................... 76 76 76 76 51 76 44 21 4 0 76
May 2005......................... 70 68 66 61 28 70 36 13 0 0 70
May 2006......................... 64 60 56 39 15 64 29 8 0 0 64
May 2007......................... 57 51 44 25 8 57 23 5 0 0 57
May 2008......................... 50 41 33 16 4 50 18 3 0 0 50
May 2009......................... 42 32 23 10 2 42 14 2 0 0 42
May 2010......................... 34 23 15 6 1 34 10 1 0 0 34
May 2011......................... 25 16 9 3 1 25 7 1 0 0 25
May 2012......................... 16 9 5 1 * 16 4 * 0 0 16
May 2013......................... 5 3 1 * * 5 1 * 0 0 5
May 2014......................... 0 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(in years)(1).................. 8.48 7.85 7.36 6.45 5.20 8.48 5.29 3.43 2.45 1.99 8.48
<CAPTION>
DISTRIBUTION DATE 150% 300% 450% 600%
- --------------------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Initial Percentage............... 100 100 100 100
May 2000......................... 93 89 86 83
May 2001......................... 82 73 64 56
May 2002......................... 70 56 44 33
May 2003......................... 60 43 30 19
May 2004......................... 51 33 20 11
May 2005......................... 43 25 13 6
May 2006......................... 35 18 8 3
May 2007......................... 29 13 5 2
May 2008......................... 23 9 3 1
May 2009......................... 18 7 2 1
May 2010......................... 13 4 1 *
May 2011......................... 9 3 1 *
May 2012......................... 5 1 * *
May 2013......................... 2 * * *
May 2014......................... 0 0 0 0
Weighted Average Life
(in years)(1).................. 5.84 4.28 3.31 2.68
</TABLE>
- -------------------------
* Indicates an amount above zero and less than 0.5% of the original Class
Cerificate Principal Balance is outstanding.
(1) The weighted average life is determined as described on page S-45 of this
prospectus supplement.
S-47
<PAGE>
PERCENT OF ORIGINAL CLASS CERTIFICATE PRINCIPAL BALANCE
OUTSTANDING OF THE CERTIFICATES
<TABLE>
<CAPTION>
CLASSES M, B1 AND B2 CLASS R
------------------------------------ ------------------------------------
DISTRIBUTION DATE 0% 150% 300% 450% 600% 0% 150% 300% 450% 600%
- ------------------------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage............................... 100 100 100 100 100 100 100 100 100 100
May 2000......................................... 96 96 96 96 96 0 0 0 0 0
May 2001......................................... 91 91 91 91 91 0 0 0 0 0
May 2002......................................... 87 87 87 87 87 0 0 0 0 0
May 2003......................................... 81 81 81 81 81 0 0 0 0 0
May 2004......................................... 76 76 76 76 76 0 0 0 0 0
May 2005......................................... 70 68 66 64 61 0 0 0 0 0
May 2006......................................... 64 60 56 51 47 0 0 0 0 0
May 2007......................................... 57 51 44 38 32 0 0 0 0 0
May 2008......................................... 50 41 33 26 20 0 0 0 0 0
May 2009......................................... 42 32 23 16 11 0 0 0 0 0
May 2010......................................... 34 23 15 9 5 0 0 0 0 0
May 2011......................................... 25 16 9 5 3 0 0 0 0 0
May 2012......................................... 16 9 5 2 1 0 0 0 0 0
May 2013......................................... 5 3 1 1 * 0 0 0 0 0
May 2014......................................... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life (in years)(1).............. 8.48 7.85 7.36 6.96 6.63 0.08 0.08 0.08 0.08 0.08
</TABLE>
- ------------------------
* Indicates an amount above zero and less than 0.5% of the original Class
Certificate Principal Balance is outstanding.
(1) The weighted average life is determined as described on page S-45 of this
prospectus supplement.
S-48
<PAGE>
GE CAPITAL MORTGAGE SERVICES, INC.
GECMSI, a wholly-owned subsidiary of GE Capital Mortgage Corporation, is a
New Jersey corporation originally incorporated in 1949. The principal executive
office of GECMSI is located at Three Executive Campus, Cherry Hill, New Jersey
08002, telephone (609) 661-6100. For a general description of GECMSI and its
activities, see "GE Capital Mortgage Services, Inc." in the accompanying
prospectus.
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.
DELINQUENCY AND FORECLOSURE EXPERIENCE OF GECMSI
The following delinquency tables set forth certain information concerning
the delinquency and foreclosure experience on one- to four-family conventional
residential mortgage loans serviced directly by GECMSI, excluding Home Equity
Loans (as defined in the prospectus) and special loan portfolios which, upon
GECMSI's commencement of servicing responsibilities, consisted of significant
numbers of mortgage loans that were seriously delinquent or in foreclosure. The
servicing portfolio does not include mortgage loans that were serviced or
subserviced by others.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF DECEMBER 31, AS OF DECEMBER 31,
1996 1997 1998
--------------------- --------------------- ---------------------
BY NO. BY DOLLAR BY NO. BY DOLLAR BY NO. BY DOLLAR
OF AMOUNT OF OF AMOUNT OF OF AMOUNT OF
LOANS LOANS LOANS LOANS LOANS LOANS
------- ----------- ------- ----------- ------- -----------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total portfolio........ 785,928 $88,188,662 726,869 $83,535,531 622,179 $75,039,774
------- ----------- ------- ----------- ------- -----------
------- ----------- ------- ----------- ------- -----------
Period of
delinquency(1)
30 to 59 days........ 3,362 $ 353,209 2,687 $ 281,657 2,314 $ 242,342
60 to 89 days........ 1,177 135,668 632 71,245 526 56,889
90 days or more(2)... 6,867 892,643 5,442 662,342 4,561 512,734
------- ----------- ------- ----------- ------- -----------
Total delinquent
loans................ 11,406 $ 1,381,520 8,761 $ 1,051,244 7,401 $ 811,965
------- ----------- ------- ----------- ------- -----------
------- ----------- ------- ----------- ------- -----------
Percent of portfolio... 1.45% 1.57% 1.21% 1.22% 1.19% 1.08%
</TABLE>
S-49
<PAGE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998 AS OF MARCH 31, 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 portfolio............................... 704,085 $81,644,151 598,583 $72,701,241
------- ----------- ------- -----------
------- ----------- ------- -----------
Period of delinquency(1)
30 to 59 days............................... 2,347 $ 248,451 1,669 178,506
60 to 89 days............................... 562 60,476 353 36,246
90 days or more(2).......................... 5,140 617,229 4,223 482,267
------- ----------- ------- -----------
Total delinquent loans........................ 8,049 926,156 6,245 697,019
------- ----------- ------- -----------
------- ----------- ------- -----------
Percent of portfolio.......................... 1.14% 1.13% 1.04% 0.96%
</TABLE>
- -------------------------
(1) The indicated periods of delinquency are based on the number of days past
due on a contractual basis, based on a 30-day month. No mortgage loan is
considered delinquent for these purposes until the monthly anniversary of
its contractual due date (e.g., a mortgage loan with a payment due on
January 1 would first be considered delinquent on February 1). The
delinquencies reported above were determined as of the dates indicated.
(2) Includes pending foreclosures.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------
1996 1997 1998
----------- ----------- -----------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Total portfolio............................ $88,188,662 $83,535,531 $75,039,774
Foreclosures(1)............................ 372,800 271,046 189,421
Foreclosure ratio.......................... 0.42% 0.32% 0.25%
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
---------------------------
1998 1999
----------- -----------
(DOLLAR AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Total portfolio......................................... $81,644,151 $72,701,241
Foreclosures(1)......................................... 233,929 203,664
Foreclosure ratio....................................... 0.29% 0.28%
</TABLE>
- -------------------------
(1) Foreclosures represent the principal balance of mortgage loans secured by
mortgaged properties, the title to which has been acquired by GECMSI, by
investors or by an insurer following foreclosure or delivery of a deed in
lieu of foreclosure and which had not been liquidated at the end of the
period indicated. The length of time necessary to complete the liquidation
of such mortgaged properties may be affected by prevailing economic
conditions and the marketability of the mortgaged properties.
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 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 trust. Consequently, there can be no assurance that
the delinquency and foreclosure experience on the mortgage loans in the trust
will be consistent with the data set forth above. The servicing portfolio, for
example, includes mortgage loans having a wide variety
S-50
<PAGE>
of payment characteristics (e.g., fixed rate mortgage loans, adjustable rate
mortgage loans and graduated payment mortgage loans) and mortgage loans secured
by mortgaged properties in geographic locations that may not be representative
of the geographic locations of the mortgage loans in the trust. The servicing
portfolio also includes mortgage loans originated in accordance with GECMSI's
then applicable underwriting policies as well as mortgage loans not originated
in accordance with such policies but as to which GECMSI had acquired the related
servicing rights.
The servicing portfolio includes many mortgage loans which have not been
outstanding long enough to have seasoned to a point where delinquencies would be
fully reflected. In the absence of such substantial continuous additions of
servicing for recently originated mortgage loans to the servicing portfolio, it
is possible that the delinquency and foreclosure percentages experienced in the
future could be significantly higher than those indicated in the tables above.
Investors should further note that a number of social, economic, tax,
geographic, demographic, legal and other factors may adversely affect the timely
payment by borrowers of scheduled payments of principal and interest on the
mortgage loans in the servicing portfolio, which could, in turn, cause an
increase in delinquency and foreclosure rates. These factors include economic
conditions, either nationally or in geographic areas where GECMSI's servicing
portfolio tends to be concentrated, the age of the mortgage loans in the trust,
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.
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 will directly service approximately 81% (by
aggregate Scheduled Principal Balance as of the Cut-off Date) of the mortgage
loans and will function as master servicer with respect to the remaining
mortgage loans pursuant to a Direct Master Servicing Arrangement (as defined in
the accompanying prospectus). Such master-serviced loans will be directly
serviced by the entities which originated or acquired those loans and sold them
to GECMSI. The Agreement permits GECMSI to use other
S-51
<PAGE>
primary servicing agents from time to time. See "Servicing of the Mortgage
Loans" in the accompanying prospectus.
COLLECTION ACCOUNT
The Agreement provides that if GECMSI or the Trustee obtains actual notice
or knowledge of the occurrence of a Trigger Event or the downgrade by Standard &
Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. ("S&P")
of GE Capital's short term unsecured rating below A-1+, 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:
o 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 S&P in one of its two highest long-term rating
categories and by S&P in its highest short-term rating category;
o an account or accounts the deposits in which are fully insured by either
the Bank Insurance Fund (the "BIF") of the Federal Deposit Insurance
Corporation (the "FDIC") or the Savings Association Insurance Fund (as
successor to the Federal Savings and Loan Insurance Corporation) of the
FDIC (the "SAIF");
o an account or accounts with a depository institution, which accounts are
insured by the BIF or SAIF (to the limits established by the FDIC), and
which uninsured deposits are invested in United States government
securities or other high quality investments, or are otherwise secured to
the extent required by Fitch and S&P such that, as evidenced by an
opinion of counsel, the holders of the certificates have a claim with
respect to the funds in the account or a perfected first security
interest against any collateral securing such funds that is superior to
claims of any other depositors or creditors of the depository institution
with which the account is maintained;
o a trust account maintained with the corporate trust department of a
federal or state chartered depository institution or trust company with
trust powers and acting in its fiduciary capacity for the benefit of the
Trustee; or
o an account as will not cause either Fitch or S&P 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
S-52
<PAGE>
the Collection Account. See "Servicing of the Mortgage Loans -- Loan Payment
Record" in the accompanying prospectus.
Prior to the occurrence of a Trigger Event, GECMSI will transfer to the
Certificate Account, in next day funds, the Available Funds for the related
Distribution Date on the business day immediately preceding such Distribution
Date.
ADVANCES
In the event that any mortgagor fails to make any payment of principal or
interest required under the terms of a mortgage loan, GECMSI will advance the
entire amount of such payment, net of the applicable servicing fee, less the
amount of any such payment that GECMSI reasonably believes will not be
recoverable out of liquidation proceeds or otherwise. See "Servicing of the
Mortgage Loans -- Advances" in the accompanying prospectus for more information.
The Trustee will make advances of delinquent principal and interest
payments in the event of a failure by GECMSI to perform its obligation to do so,
provided that the Trustee will not make such advance to the extent that it
reasonably believes the payment will not be recoverable to it out of related
liquidation or insurance proceeds or otherwise. The Trustee will be entitled to
reimbursement for advances in a manner similar to GECMSI's entitlement as
described in the accompanying prospectus.
As a result of the subordination of the junior certificates, the effect of
reimbursements to GECMSI or the Trustee of previous advances from liquidation or
insurance proceeds and of nonrecoverable advances will generally be borne by the
holders of the junior certificates (to the extent then outstanding) in inverse
order of priority before they are borne by holders of the senior certificates.
PURCHASES OF DEFAULTED MORTGAGE LOANS
Under the Agreement, GECMSI will have the option (but not the obligation)
to purchase any mortgage loan as to which the mortgagor has failed to make
unexcused payment in full of three or more scheduled payments of principal and
interest (a "Defaulted Mortgage Loan"). Any such purchase will be for a price
equal to 100% of the outstanding principal balance of such mortgage loan, plus
accrued and unpaid interest thereon at the Net Mortgage Rate (less any amounts
representing previously unreimbursed advances). The purchase price for any
Defaulted Mortgage Loan will be deposited in the Certificate Account on the
business day prior to the Distribution Date on which the proceeds of such
purchase are to be distributed to the certificateholders.
SERVICING COMPENSATION, COMPENSATING INTEREST AND PAYMENT OF EXPENSES
GECMSI's primary compensation for its servicing activities will come from
the payment to it, with respect to each interest payment on any mortgage loan,
of the servicing fee at the rate 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, expected to range from approximately 0.20% to
0.29%, with an anticipated initial weighted average rate of between
approximately 0.23% and 0.27%. The aggregate servicing compensation to
S-53
<PAGE>
GECMSI could vary depending on the prepayment experience of the mortgage loans.
The servicing compensation of any direct servicer of any mortgage loan will be
paid out of the related servicing fee, and GECMSI will retain the balance of the
servicing fee as part of its servicing compensation (subject to its obligation
to make Compensating Interest Payments, as described below).
To the extent any voluntary prepayment results in an Interest Shortfall (as
described in clauses (1) and (2) of the definition thereof) with respect to any
Distribution Date, GECMSI will be obligated to remit an amount (such amount, a
"Compensating Interest Payment") sufficient to pass through to
certificateholders the full amount of interest to which they would have been
entitled in the absence of such prepayments, but in no event greater than the
lesser of (a) 1/12th of 0.125% of the Pool Scheduled Principal Balance for such
Distribution Date and (b) the aggregate amount received by GECMSI on account of
its servicing fees (net of any servicing compensation paid to any direct
servicer) in connection with such Distribution Date. Because the net amount
received by GECMSI on account of its servicing fee is generally less in the case
of mortgage loans master-serviced by GECMSI than in the case of mortgage loans
GECMSI services directly, the amounts available for any Compensating Interest
Payment with respect to any Distribution Date will generally decrease to the
extent the proportion of Outstanding Mortgage Loans master-serviced by GECMSI
increases, and increase to the extent the proportion of such mortgage loans
decreases. It is expected that no more than 19% of the mortgage loans (by
aggregate Scheduled Principal Balance as of the Cut-off Date) will be
master-serviced by GECMSI. This percentage could vary over time, however, if
mortgage loans directly serviced by GECMSI experience a disproportionately high
or low level of prepayments or defaults relative to mortgage loans
master-serviced by GECMSI. In addition, the proportion of master-serviced
mortgage loans could be affected as a result of (1) the exercise by GECMSI of
its right under the Agreement to contract with third parties to directly service
mortgage loans, with GECMSI becoming the master servicer of such mortgage loans,
or (2) the substitution of any mortgage loans under the Agreement.
GECMSI will retain, as additional servicing compensation, amounts in
respect of interest paid by borrowers in connection with any principal
prepayment in full received by GECMSI (or, with respect to mortgage loans
master-serviced by GECMSI, of which GECMSI receives notice) from the first day
through the fifteenth day of each month, other than the month of the Cut-off
Date.
GECMSI will pay expenses incurred in connection with its responsibilities
under the Agreement, subject to limited reimbursement as described herein and in
the accompanying prospectus. See "Servicing of the Mortgage Loans -- Servicing
and Other Compensation and Payment of Expenses" in the accompanying prospectus
for information regarding other possible compensation to GECMSI.
TRUSTEE
The Trustee for the certificates offered hereby will be State Street Bank
and Trust Company, a Massachusetts banking corporation organized and existing
under the laws of the Commonwealth of Massachusetts. The Corporate Trust Office
of the Trustee is located at Two International Place, Boston, Massachusetts.
S-54
<PAGE>
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 and the REMIC constituted by the trust on any
Distribution Date after the aggregate Scheduled Principal Balance of the
mortgage loans is less than 10% of the aggregate Scheduled Principal Balance
thereof as of the Cut-off Date. Under the Agreement, the Trustee will provide
notice to certificateholders of this final distribution. 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 the foregoing option unless the Trustee has
received an opinion of counsel that the exercise of such option will not subject
the trust to a tax on prohibited transactions or result in the failure of the
trust to qualify as a REMIC.
In accordance with the Agreement, any such repurchase by GECMSI of the
assets included in the trust will be at a price equal to the sum of:
(1) 100% of the unpaid principal balance of each mortgage loan in the
trust, other than a mortgage loan described in clause (2) 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:
o prior to the Cross-Over Date, the resulting shortfall will be borne by
the certificates in inverse order of their related payment priorities;
and
o on or after the Cross-Over Date, such shortfall will be borne pro rata
among such certificates.
No holder of any certificates will be entitled to any Unanticipated
Recoveries received with respect to any mortgage loan after the termination of
the trust. See "Servicing of the Mortgage Loans -- Unanticipated Recoveries of
Losses on the Mortgage Loans" in the prospectus.
S-55
<PAGE>
VOTING RIGHTS
The Class S Certificates will be allocated 1% of the votes and the other
classes of certificates in the aggregate will be allocated 99% 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)
under the Agreement will be allocated among the 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 REMIC for federal income
tax purposes.
The certificates other than the residual certificates (the "Regular
Certificates") will be designated as "regular interests" in the REMIC and the
residual certificates will be designated as the "residual interest" in the
REMIC.
Regular Certificates
The Regular Certificates generally will be treated as debt instruments
issued by the 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 300% of
the Prepayment Assumption. No representation is made as to the actual rate at
which the mortgage loans will prepay. See "Federal Income Tax Consequences --
REMIC Certificates -- Income from Regular Certificates" in the accompanying
prospectus.
The requirement to report income on a Regular Certificate under an accrual
method may result in the inclusion of amounts in income that are not currently
distributed in cash. In the case of a junior certificate, accrued income may
exceed cash distributions as a result of the preferential right of classes of
senior certificates to receive cash distributions in the event of losses or
delinquencies on mortgage loans. Prospective purchasers of junior certificates
should consult their tax advisors regarding the timing of income from those
certificates and the timing and character of any deductions that may be
available with respect to principal or accrued interest that is not paid. See
"Federal Income Tax Consequences -- REMIC Certificates -- Income from Regular
Certificates" in the accompanying prospectus.
S-56
<PAGE>
Residual Certificates
The holders of the residual certificates must include the taxable income of
the REMIC in their federal taxable income. The resulting tax liability of the
holders may exceed cash distributions to such holders during certain periods.
All or a portion of the taxable income from a residual certificate recognized by
a holder may be treated as "excess inclusion" income, which with limited
exceptions is subject to U.S. federal income tax in all events.
Under Treasury regulations, 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 a residual certificate should consider carefully
the tax consequences of an investment in residual certificates discussed in the
prospectus and should consult their own tax advisors with respect to those
consequences. See "Federal Income Tax Consequences -- REMIC
Certificates -- Income from Residual Certificates -- Taxation of Certain
Foreign Investors -- Servicing Compensation and Other REMIC Pool
Expense -- Transfers of Residual Certificates."
ERISA CONSIDERATIONS
As described in the prospectus under "ERISA Considerations," the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and the Internal
Revenue Code of 1986 (the "Code") impose certain duties and restrictions on any
person which is an employee benefit plan within the meaning of Section 3(3) of
ERISA or a plan subject to Section 4975 of the Code or any person utilizing the
assets of such employee benefit plan or other plan (an "ERISA Plan") and certain
persons who perform services for ERISA Plans. For example, unless exempted, an
investment by an ERISA Plan in the certificates offered hereby may constitute or
give rise to a prohibited transaction under ERISA or Section 4975 of the Code.
The United States Department of Labor (the "DOL") has issued to Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") an individual
administrative exemption, Prohibited Transaction Exemption 90-29 (55 Fed. Reg.
21459, May 24, 1990), as amended (the "Exemption"), from certain of the
prohibited transaction provisions of ERISA with respect to the initial purchase,
the holding, and the subsequent resale by an ERISA Plan of certificates in
pass-through trusts that meet the conditions and requirements of the Exemption.
The Exemption might apply to the acquisition, holding and resale of the senior
certificates offered hereby by an ERISA Plan, provided that specified conditions
are met.
Among the conditions which would have to be satisfied for the Exemption to
apply to the acquisition by an ERISA Plan of the senior certificates offered
hereby are the following:
o Merrill Lynch is the sole underwriter or the manager or co-manager of the
underwriting syndicate for the certificates;
o the certificates are rated in one of the three highest generic rating
categories by Fitch, Moody's Investors Service, Inc., S&P or Duff &
Phelps Credit Rating Co. at the time of the acquisition of such
certificates by the ERISA Plan;
S-57
<PAGE>
o the certificates represent a beneficial ownership interest in, among
other things, obligations that bear interest or are purchased at a
discount and which are secured by single-family residential, multifamily
residential or commercial real property (including obligations secured by
leasehold interests on residential or commercial real property), or
fractional undivided interests in such obligations;
o the certificates are not subordinated to other certificates issued by the
trust in respect of the mortgage pool;
o the ERISA Plan investing in the certificates is an "accredited investor"
as defined in Rule 501(a)(1) of Regulation D of the Securities and
Exchange Commission under the Securities Act of 1933;
o the acquisition of the certificates is on terms that are at least as
favorable to the ERISA Plan as they would be in an arm's length
transaction with an unrelated third party;
o the Trustee is not an affiliate of any member of the "Restricted Group"
(as defined below); and
o the compensation to Merrill Lynch 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 Exemption
are satisfied, the Exemption may provide an exemption from the prohibited
transaction provisions of ERISA relating to possible self-dealing transactions
by fiduciaries who have discretionary authority, or render investment advice,
with respect to ERISA Plan assets used to purchase the senior certificates
offered hereby if the fiduciary (or its affiliate) is an obligor on any of the
mortgage loans.
The Exemption would not be available with respect to ERISA Plans sponsored
by any of the following entities (or any affiliate of any such entity):
o GECMSI;
o Merrill Lynch or Bear, Stearns & Co. Inc. ("Bear, Stearns");
o the Trustee;
o any entity that provides insurance or other credit enhancement to the
trust in respect of the mortgage pool; or
o any obligor with respect to mortgage loans included in the mortgage pool
constituting more than five percent of the aggregate unamortized
principal balance of the assets in such mortgage 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
S-58
<PAGE>
Exemption or the availability of any other prohibited transaction exemptions,
and whether the conditions of any such exemption will be applicable to such
certificate.
A substantially identical administrative exemption has been issued by the
DOL to Bear, Stearns. However, the Exemption does 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 interest in the
REMIC constituted by the trust, and all "excess inclusions" allocated to the
residual certificates, if held by a Tax-Exempt Investor, will be considered
"unrelated business taxable income" and thus will be subject to federal income
tax. See "Federal Income Tax Consequences--Residual Certificates" herein and
"Federal Income Tax Consequences--Federal Income Tax Consequences for REMIC
Certificates--Taxation of Residual Certificates" in the prospectus.
The Agreement will contain certain restrictions on the transferability of
the Class 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.
LEGAL INVESTMENT MATTERS
The senior certificates offered hereby and the Class M Certificates will
constitute "mortgage related securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA") so long as such certificates are rated
in one of the two highest rating categories by at least one nationally
recognized rating agency. As such, such certificates are legal investments for
certain entities to the extent provided in SMMEA. However, institutions subject
to the jurisdiction of the Office of the Comptroller of the Currency, the Board
of Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the Office of Thrift Supervision, the National Credit Union
Administration or state banking or insurance authorities should review
applicable rules, supervisory policies and guidelines of these agencies before
purchasing any of the
S-59
<PAGE>
certificates, as certain classes may be deemed to be unsuitable investments
under one or more of these rules, policies and guidelines and certain
restrictions may apply to investments in other classes. It should also be noted
that certain states have enacted legislation limiting to varying extents the
ability of certain entities (in particular insurance companies) to invest in
mortgage related securities. Investors should consult with their own legal
advisors in determining whether and to what extent the certificates constitute
legal investments for such investors. See "Legal Investment Matters" in the
accompanying prospectus.
The Class B1 and Class B2 Certificates will not constitute "mortgage
related securities" under SMMEA. The appropriate characterization of the Class
B1 and Class B2 Certificates under various legal investment restrictions, and
thus the ability of investors subject to these restrictions to purchase
Class B1 or Class B2 Certificates, may be subject to significant interpretive
uncertainties. All investors whose investment authority is subject to legal
restrictions should consult their own legal advisors to determine whether, and
to what extent, the Class B1 or Class B2 Certificates will constitute legal
investments for them.
GECMSI makes no representation as to the proper characterization of the
Class B1 or Class B2 Certificates for legal investment or financial institution
regulatory purposes, or as to the ability of particular investors to purchase
the Class B1 or Class B2 Certificates under applicable legal investment
restrictions. The uncertainties described above (and any unfavorable future
determinations concerning legal investment or financial institution regulatory
characteristics of the Class B1 or Class B2 Certificates) may adversely affect
the liquidity of the Class B1 and Class B2 Certificates.
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the respective
Underwriting Agreements between GECMSI and Merrill Lynch and GECMSI and Bear,
Stearns, the senior certificates offered hereby are being purchased from GECMSI
by Merrill Lynch, and the junior certificates offered hereby are being purchased
from GECMSI by Bear, Stearns, upon issuance. Distribution of the certificates
offered hereby will be made by the respective underwriters from time to time in
negotiated transactions or otherwise at varying prices to be determined at the
time of sale.
Proceeds to GECMSI from the sale of the certificates offered hereby will be
approximately 99.4514811% of the aggregate initial Class Certificate Principal
Balance of the certificates offered hereby, plus accrued interest thereon from
the Cut-off Date to but excluding the date of initial issuance of the
certificates, but before deducting issuance expenses payable by GECMSI. In
connection with the purchase and sale of the certificates offered hereby,
Merrill Lynch and Bear, Stearns may be deemed to have received compensation from
GECMSI in the form of underwriting discounts.
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.
S-60
<PAGE>
Bear, Stearns 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 each of Fitch and S&P and that the
Class M, Class B1 and Class B2 Certificates be rated "AA," "A" and "BBB,"
respectively, by Fitch.
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 associated with the certificates, including the
nature of the underlying mortgage loans. Fitch's ratings on mortgage
pass-through certificates do not represent any assessment of the likelihood or
rate of principal prepayments. The ratings do not address the possibility that
certificateholders might suffer a lower than anticipated yield.
S&P's ratings on mortgage pass-through certificates address the likelihood
of receipt by certificateholders of payments required under the operative
agreements. S&P's ratings take into consideration the credit quality of the
mortgage pool including any credit support providers, structural and legal
aspects associated with the certificates, and the extent to which the payment
stream of the mortgage pool is adequate to make payment required under the
certificates. S&P's ratings on the certificates do not, however, constitute a
statement regarding the frequency of prepayments on the mortgage loans. S&P's
rating does not address the possibility that investors may suffer 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 Fitch and S&P and GECMSI has not provided information
relating to the certificates offered hereby or the mortgage loans to any rating
agency other than Fitch and S&P. 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 Fitch and S&P.
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-61
<PAGE>
INDEX OF CERTAIN PROSPECTUS SUPPLEMENT DEFINITIONS
DEFINED TERM PAGE
- ---------------------------------------- ----
Accrued Certificate Interest............ S-26
Adjustment Amount....................... S-37
Agreement............................... S-20
Allocable Share......................... S-34
Available Funds......................... S-23
Bankruptcy Coverage Termination Date.... S-37
Bankruptcy Loss Amount.................. S-37
Bear, Stearns........................... S-58
beneficial owner........................ S-21
BIF..................................... S-52
Book-Entry Certificates................. S-21
Certificate Principal Balance........... S-26
Class A1 Percentage..................... S-30
Class A1 Prepayment Distribution
Percentage............................ S-30
Class A1 Principal Distribution
Amount................................ S-30
Class B Certificates.................... S-34
Class Certificate Principal Balances.... S-24
Class PO Deferred Amount................ S-35
Class PO Deferred Payment Writedown
Amount................................ S-26
Class PO Principal Distribution
Amount................................ S-32
Class Prepayment Distribution Trigger... S-34
Code.................................... S-57
Collection Account...................... S-52
Compensating Interest Payment........... S-54
Cooperative Loan........................ S-16
Cross-Over Date......................... S-24
Cut-off Date............................ S-13
Debt Service Reduction.................. S-37
Defaulted Mortgage Loan................. S-53
Deficient Valuation..................... S-35
Discount Mortgage Loan.................. S-28
Distribution Date....................... S-23
DEFINED TERM PAGE
- ---------------------------------------- ----
DOL..................................... S-57
ERISA................................... S-57
ERISA Plan.............................. S-57
Excess Loss............................. S-35
Exemption............................... S-57
FDIC.................................... S-52
Financial Intermediary.................. S-21
Fitch................................... S-52
Fraud Coverage Termination Date......... S-36
Fraud Loss.............................. S-35
Fraud Loss Amount....................... S-36
GECMSI.................................. S-13
Group I Final Distribution Date......... S-30
Group I Senior Certificates............. S-24
Interest Accrual Period................. S-25
Interest Shortfall...................... S-27
Junior Certificate Writedown Amount..... S-26
Junior Optimal Principal Amount......... S-33
Junior Percentage....................... S-33
Junior Prepayment Percentage............ S-33
Liquidated Mortgage Loan................ S-35
Loss Allocation Limitation.............. S-38
Merrill Lynch........................... S-57
Modeling Assumptions.................... S-45
Mortgage Loan Group..................... S-46
mortgage related securities............. S-7
Net Interest Shortfall.................. S-27
Net Mortgage Rate....................... S-27
NMR..................................... S-28
Non-Book-Entry Certificates............. S-23
Non-discount Mortgage Loan.............. S-28
Non-Excess Realized Loss................ S-35
Non-PO Percentage....................... S-28
noneconomic residual interests.......... S-57
Notional Principal Balance.............. S-27
Original Junior Principal Balance....... S-31
Outstanding Mortgage Loan............... S-14
S-62
<PAGE>
DEFINED TERM PAGE
- ---------------------------------------- ----
PO Percentage........................... S-28
Pool Scheduled Principal Balance........ S-14
Prepayment Assumption................... S-45
Prepayment Interest..................... S-42
Prepayment Period....................... S-30
Realized Loss........................... S-34
Record Date............................. S-23
Regular Certificates.................... S-56
regular interests....................... S-56
residual interest....................... S-56
Restricted Group........................ S-58
S&P..................................... S-52
SAIF.................................... S-52
DEFINED TERM PAGE
- ---------------------------------------- ----
Scheduled Principal Balance............. S-13
Senior Final Distribution Date.......... S-33
Senior Optimal Principal Amount......... S-29
Senior Percentage....................... S-30
Senior Prepayment Percentage............ S-31
Senior Prepayment Percentage Stepdown
Limitation............................ S-31
SMMEA................................... S-59
Special Hazard Loss..................... S-35
Special Hazard Loss Amount.............. S-37
Special Hazard Termination Date......... S-37
Tax-Exempt Investor..................... S-59
Trustee................................. S-20
S-63
<PAGE>
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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,
AND 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
PAGE
----
PROSPECTUS SUPPLEMENT
Summary of Terms.............................. S-3
Risk Factors.................................. S-8
Description of the Mortgage Pool and the
Mortgaged Properties........................ S-13
Description of the Certificates............... S-20
Yield and Weighted Average Life
Considerations.............................. S-41
GE Capital Mortgage Services, Inc............. S-49
Delinquency and Foreclosure Experience of
GECMSI...................................... S-49
Use of Proceeds............................... S-51
The Pooling and Servicing Agreement........... S-51
Federal Income Tax Consequences............... S-56
ERISA Considerations.......................... S-57
Legal Investment Matters...................... S-59
Plan of Distribution.......................... S-60
Certificate Ratings........................... S-61
Legal Matters................................. S-61
Index of Certain Prospectus Supplement
Definitions................................. S-62
PROSPECTUS
Description of the Certificates............... 1
The Trusts.................................... 9
Credit Enhancement............................ 20
Yield, Maturity and Weighted Average Life
Considerations.............................. 29
Servicing of the Mortgage Loans............... 33
The Pooling and Servicing Agreement........... 47
GE Capital Mortgage Services, Inc............. 59
GE Capital Mortgage Funding Corporation....... 61
Where You Can Find More Information About GE
Capital Mortgage Services, Inc. and GE
Capital Mortgage Funding Corporation........ 62
The Guarantor................................. 63
Certain Legal Aspects of the Mortgage Loans... 63
Legal Investment Matters...................... 72
ERISA Considerations.......................... 74
Federal Income Tax Consequences............... 76
Plan of Distribution.......................... 94
Use of Proceeds............................... 95
Legal Matters................................. 95
Financial Information......................... 95
Index of Certain Prospectus Definitions....... 96
---------------
Until August 22, 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.
================================================================================
================================================================================
$190,810,858
(APPROXIMATE)
GE CAPITAL MORTGAGE
SERVICES, INC.
1999-12 TRUST
(ISSUER)
GE CAPITAL MORTGAGE
SERVICES, INC.
(DEPOSITOR AND SERVICER)
REMIC MORTGAGE
PASS-THROUGH CERTIFICATES,
SERIES 1999-12
------------
PROSPECTUS SUPPLEMENT
------------
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
May 24, 1999
================================================================================
