<PAGE> 1
FILED PURSUANT TO RULE 424B5
REGISTRATION NO. 333-68951
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JANUARY 25, 2000)
GE CAPITAL MORTGAGE SERVICES, INC.
2000-10 TRUST
ISSUER
GE CAPITAL MORTGAGE SERVICES, INC.
DEPOSITOR AND SERVICER
$545,837,291
(APPROXIMATE)
REMIC MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2000-10
PRINCIPAL AND INTEREST PAYABLE MONTHLY, BEGINNING IN SEPTEMBER 2000
THE TRUST WILL ISSUE:
- 30 classes of senior certificates; and
- 6 classes of junior certificates.
For a description of the classes of certificates offered by this prospectus
supplement, see the table beginning on page S-4.
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 20 to 30 years.
-------------------------
Consider carefully the risk factors beginning on page S-11 of this prospectus
supplement.
-------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Donaldson, Lufkin & Jenrette Securities Corporation will purchase the senior
certificates and Credit Suisse First Boston Corporation will purchase the junior
certificates offered by this prospectus supplement. Edward D. Jones & Co., L.P.,
as dealer, will also offer the Class A3 Certificates from time to time at
varying prices determined at the time of sale. Each underwriter will sell the
certificates purchased by it 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 97.9995949% 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 purchased by it and the amount it receives from their sale to
the public. The certificates will be available for delivery to investors on or
about August 25, 2000.
-------------------------
DONALDSON, LUFKIN & JENRETTE
CREDIT SUISSE FIRST BOSTON
EDWARD D. JONES & CO., L.P.
-------------------------
The date of this prospectus supplement is August 18, 2000.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary of Terms............... S-6
The Issuer................... S-6
Description of the
Certificates.............. S-6
The Mortgage Loans........... S-6
The Servicer................. S-7
Distributions on the
Certificates.............. S-7
Optional Termination......... S-8
Credit Enhancement........... S-9
Federal Income Tax
Consequences.............. S-9
Legal Investment............. S-10
ERISA Considerations......... S-10
Certificate Ratings.......... S-10
Risk Factors................... S-11
Index of Definitions........... S-16
Description of the Mortgage
Pool and the Mortgaged
Properties................... S-16
General...................... S-16
The Mortgage Loans........... S-16
Description of the
Certificates................. S-25
General...................... S-25
Book-Entry Certificates...... S-25
Non-Book-Entry
Certificates.............. S-27
Available Funds.............. S-28
Distributions on the
Certificates.............. S-28
Principal Distributions on
the Class A3
Certificates.............. S-41
Allocation Of Realized Losses
On The Certificates....... S-45
Additional Rights of the
Residual
Certificateholders........ S-49
Subordination................ S-50
Restrictions on Transfer of
the Residual
Certificates.............. S-52
Yield and Weighted Average Life
Considerations............... S-52
Yield........................ S-52
Prepayments.................. S-52
The Class M, Class B1 and
Class B2 Certificates..... S-54
Sensitivity of the Class A5
and Class A26
Certificates.............. S-55
Final Payment
Considerations............ S-57
Weighted Average Lives of the
Certificates.............. S-57
GE Capital Mortgage Services,
Inc.......................... S-66
General...................... S-66
Recent Developments.......... S-66
Delinquency and Foreclosure
Experience of GECMSI...... S-66
Use of Proceeds................ S-69
The Pooling and Servicing
Agreement.................... S-69
Servicing Arrangement with
Respect to the Mortgage
Loans..................... S-69
Collection Account........... S-72
Advances..................... S-73
Purchases of Defaulted
Mortgage Loans............ S-73
Servicing Compensation,
Compensating Interest and
Payment of Expenses....... S-74
Trustee...................... S-75
Reports to
Certificateholders........ S-75
Optional Termination......... S-75
Voting Rights................ S-76
Federal Income Tax
Consequences................. S-76
Regular Certificates......... S-76
Residual Certificates........ S-77
ERISA Considerations........... S-78
Legal Investment Matters....... S-80
Plan of Distribution........... S-81
Certificate Ratings............ S-82
Legal Matters.................. S-82
Index of Certain Prospectus
Supplement Definitions....... S-83
</TABLE>
S-2
<PAGE> 3
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.
This prospectus supplement and the accompanying prospectus contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended. Specifically, forward-looking statements, together with
related qualifying language and assumptions, are found in the material
(including tables) under the headings "Risk Factors" and "Yield and Weighted
Average Life Considerations." Forward-looking statements are also found in other
places throughout this prospectus supplement and the prospectus, and may be
identified by, among other things, accompanying language such as "expects,"
"intends," "anticipates," "estimates" or analogous expressions, or by qualifying
language or assumptions. These statements involve known and unknown risks,
uncertainties and other important factors that could cause the actual results or
performance to differ materially from the forward-looking statements. These
risks, uncertainties and other factors include, among others, general economic
and business conditions, competition, changes in political, social and economic
conditions, regulatory initiatives and compliance with governmental regulations,
customer preference and various other matters, many of which are beyond the
depositor's control. These forward-looking statements speak only as of the date
of this prospectus supplement. The depositor expressly disclaims any obligation
or undertaking to disseminate any updates or revisions to any forward-looking
statements to reflect changes in the depositor's expectations with regard to
those statements or any change in events, conditions or circumstances on which
any forward-looking statement is based.
S-3
<PAGE> 4
THE SERIES 2000-10 CERTIFICATES
<TABLE>
<CAPTION>
INITIAL RATING
OF OFFERED
CLASS CERTIFICATE CERTIFICATE CERTIFICATES(3)
PRINCIPAL INTEREST INTEREST ---------------
CLASS BALANCE(1) RATE PRINCIPAL TYPES(2) TYPES(2) FITCH S&P
----- ----------------- ----------- --------------------------- ------------------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
OFFERED CERTIFICATES
Class A1............. $ 26,200,000 7.750% Senior, Sequential Pay Fixed Rate AAA AAA
Class A2............. $308,500,000 7.750% Senior, Sequential Pay Fixed Rate AAA AAA
Class A3............. $ 36,000,000 7.500% Senior, Sequential Pay Fixed Rate AAA AAA
Class A4............. $ 52,784,091 7.750% Senior, Lockout Fixed Rate AAA AAA
Class A5............. (4) 8.000% Senior, Notional Amount Fixed Rate, AAA AAA
Interest Only
Class A6............. $ 1,800,000 7.500% Senior, Sequential Pay Fixed Rate AAA AAA
Class A7............. $ 1,800,000 7.500% Senior, Sequential Pay Fixed Rate AAA AAA
Class A8............. $ 1,800,000 7.500% Senior, Sequential Pay Fixed Rate AAA AAA
Class A9............. $ 1,800,000 7.500% Senior, Sequential Pay Fixed Rate AAA AAA
Class A10............ $ 1,800,000 7.625% Senior, Sequential Pay Fixed Rate AAA AAA
Class A11............ $ 1,800,000 7.625% Senior, Sequential Pay Fixed Rate AAA AAA
Class A12............ $ 1,800,000 7.625% Senior, Sequential Pay Fixed Rate AAA AAA
Class A13............ $ 1,800,000 7.625% Senior, Sequential Pay Fixed Rate AAA AAA
Class A14............ $ 1,800,000 7.875% Senior, Sequential Pay Fixed Rate AAA AAA
Class A15............ $ 1,800,000 7.875% Senior, Sequential Pay Fixed Rate AAA AAA
Class A16............ $ 1,800,000 7.875% Senior, Sequential Pay Fixed Rate AAA AAA
Class A17............ $ 1,800,000 7.875% Senior, Sequential Pay Fixed Rate AAA AAA
Class A18............ $ 1,800,000 8.000% Senior, Sequential Pay Fixed Rate AAA AAA
Class A19............ $ 1,800,000 8.000% Senior, Sequential Pay Fixed Rate AAA AAA
Class A20............ $ 1,800,000 8.000% Senior, Sequential Pay Fixed Rate AAA AAA
Class A21............ $ 1,800,000 8.000% Senior, Sequential Pay Fixed Rate AAA AAA
Class A22............ $ 13,754,000 7.750% Senior, Sequential Pay Fixed Rate AAA AAA
Class A23............ $ 36,700,000 7.750% Senior, Sequential Pay Fixed Rate AAA AAA
Class A24............ $ 9,900,000 7.750% Senior, Sequential Pay Accrual, Fixed Rate AAA AAA
Class A25............ $ 15,200,000 7.750% Senior, Accretion Directed, Fixed Rate AAA AAA
Sequential Pay
Class A26............ (4) 0.050% Senior, Notional Amount Fixed Rate, AAA AAA
Interest Only
Class R.............. $ 100 7.750% Senior, Sequential Pay Fixed Rate AAA AAA
Class RL............. $ 100 7.750% Senior, Sequential Pay Fixed Rate AAA AAA
Class M.............. $ 11,353,000 7.750% Junior Fixed Rate AA N/A
Class B1............. $ 4,431,000 7.750% Junior Fixed Rate A N/A
Class B2............. $ 2,215,000 7.750% Junior Fixed Rate BBB N/A
</TABLE>
S-4
<PAGE> 5
<TABLE>
<CAPTION>
INITIAL RATING
OF OFFERED
CLASS CERTIFICATE CERTIFICATE CERTIFICATES(3)
PRINCIPAL INTEREST INTEREST ---------------
CLASS BALANCE(1) RATE PRINCIPAL TYPES(2) TYPES(2) FITCH S&P
----- ----------------- ----------- --------------------------- ------------------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
NON-OFFERED
CERTIFICATES
Class PO............. $ 2,455,666 (5) Senior, Ratio Strip Principal Only N/A N/A
Class S.............. (6) (7) Senior, Notional Amount Variable Rate, N/A N/A
Interest Only
Class B3............. $ 1,938,000 7.750% Junior Fixed Rate N/A N/A
Class B4............. $ 1,939,000 7.750% Junior Fixed Rate N/A N/A
Class B5............. $ 1,661,852 7.750% Junior Fixed Rate N/A N/A
</TABLE>
-------------------------
(1) Approximate, subject to adjustment as described in this prospectus
supplement.
(2) See "Description of the Certificates--Categories of Classes" in the
prospectus for a description of the principal and interest categories
listed.
(3) A description of the ratings of the offered certificates is set forth under
the heading "Certificate Ratings" in this prospectus supplement.
(4) The Class A5 and Class A26 Certificates are Interest Only Certificates and
will not be entitled to distributions in respect of principal. The Class A5
and Class A26 Certificates will bear interest on their respective Notional
Principal Balances (initially approximately $900,000 and $36,000,000,
respectively), as described under "Description of the
Certificates--Distributions on the Certificates--Interest" in this
prospectus supplement.
(5) The Class PO Certificates are Principal Only Certificates and will not be
entitled to distributions in respect of interest.
(6) The Class S Certificates are Interest Only Certificates and will not be
entitled to distributions in respect of principal.
(7) The Class S Certificates will receive distributions in respect of interest
as described under "Description of the Certificates--Distributions on the
Certificates--Interest" in this prospectus supplement.
S-5
<PAGE> 6
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.
2000-10 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.
DESCRIPTION OF THE CERTIFICATES
The Class A1 through Class A26 Certificates, Class PO, Class R, Class RL
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 provide information about those
classes solely to aid your understanding of the certificates being offered. We
will initially retain the Class PO and Class S Certificates but may transfer
them later.
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 August
1, 2000:
<TABLE>
<S> <C>
Number of Mortgage Loans: 1,620
Aggregate Scheduled Principal Balance(1): $553,831,809
Range of Scheduled Principal Balances(1): $24,214 to $1,470,000
Average Scheduled Principal Balance(1): $341,871
Range of Mortgage Interest Rates: 6.50% to 11.70%
Weighted Average Mortgage Interest Rate(1): 8.63%
Range of Remaining Scheduled Terms to
Maturity: 198 months to 360 months
Weighted Average Remaining Scheduled Term to
Maturity(1): 357 months
Range of Original Loan-to-Value Ratios(1): 14.13% to 100.00%
Weighted Average Original Loan-to-Value
Ratio(1)(2): 75.90%
Geographic Concentration of Mortgaged
Properties Securing Mortgage Loans in Excess
of 5% of the Aggregate Scheduled Principal
Balance(1): California 30.51%
New Jersey 7.04%
Virginia 6.25%
Texas 5.56%
Maximum Five-Digit Zip Code Concentration(1): 0.54%
</TABLE>
-------------------------
(1) Approximate.
(2) With respect to the Pledged Asset Mortgage Loans, this percentage excludes
the value of additional collateral.
S-6
<PAGE> 7
THE SERVICER
We will directly service approximately 32% 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 and will reduce our
servicing compensation, to the extent described in this prospectus supplement,
to reimburse certificateholders for shortfalls of interest payments.
You should refer to "GE Capital Mortgage Services, Inc." and "The Pooling
and Servicing Agreement--Servicing Arrangement with Respect to the Mortgage
Loans" and "--Servicing Compensation, Compensating Interest and Payment of
Expenses" in this prospectus supplement.
For a discussion of recent developments concerning us, you should refer to
"GE Capital Mortgage Services, Inc.--Recent Developments" 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
September 25, 2000.
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.
INTEREST PAYMENTS
- The actual amount of interest you receive on your certificates on each
distribution date will depend on:
--the amount of interest accrued on your certificates;
--the total amount of funds available for distribution;
--the amount of any accrued interest not paid on your certificates on
earlier distribution dates; and
--whether you are a holder of the Class A24 Certificates, which accrue
interest rather than pay it on a current basis, as described below.
- If you are the holder of a senior certificate, the amount of interest
payable to you will be in proportion to the interest payable on all of
the senior certificates together. All of the senior certificates entitled
to interest payments will receive these payments at the same time.
- The Class A5 and Class A26 Certificates are Interest Only Certificates
and will receive no payments of principal. As a result, the yield on
these certificates will be particularly sensitive to the rate of
prepayments on the mortgage loans. See the risk factor relating to these
certificates on page S-12.
- If you are a holder of the Class A24 Certificates, the interest accrued
on your certificates will initially not be distributed to you. This
accrued interest will instead
S-7
<PAGE> 8
be added to the principal amount of your certificates until such time as
described in "Description of the Certificates--Distributions on the
Certificates" in this prospectus supplement.
- 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.
- The trustee will calculate interest on the basis of a 360-day year
consisting of twelve 30-day months.
PRINCIPAL PAYMENTS
- 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--Distributions on the
Certificates" for a description of the amount of principal payable to you
and the priority in which it will be paid.
- The amount and timing of principal you receive on your certificates will
depend on:
--the various priorities and formulas described in this prospectus
supplement that determine the allocation of principal payments to your
certificates; and
--the amounts actually available for distribution as principal.
- Because of the principal allocation formulas described in this prospectus
supplement, the senior certificates entitled to principal
distributions--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 the issuance of the certificates. The
Class A4 Certificates will not benefit from this accelerated repayment.
You should refer to "Description of the Certificates--Distributions on
the Certificates--Allocation of Available Funds."
- If you are the holder of a Class A3 Certificate, you will have the option
to request redemption of all or any part of your certificate, in any
amount that is a multiple of $1,000. In addition, you may receive
principal payments by random lottery. Accordingly, the timing of the
principal payments you receive will be determined by whether your
redemption request is honored and whether your certificates are selected
for payment. You should refer to "Description of the Certificates--
Principal Distributions on the Class A3 Certificates" for a description
of how principal payments will be made on these certificates. You should
also see the risk factor relating to these certificates on page S-12.
- The Class A5 and Class A26 Certificates are Interest Only Certificates
and will receive no payments of principal.
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
S-8
<PAGE> 9
loans is less than 10% of the aggregate principal balance of the mortgage loans
as of August 1, 2000. 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:
- The senior certificates will have a preferential right over the junior
certificates to receive funds available for interest and principal
distributions.
- The junior certificates will absorb all losses on the mortgage loans up
to the level described in this prospectus supplement.
If you are the holder of a senior certificate, you should keep in mind,
however, that the subordination of the junior certificates offers only limited
protection against the loss of your investment. If you are the 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 consist of two REMICs for federal income tax purposes. The
certificates, other than the Class R and RL Certificates, will be treated as
regular interests in the upper-tier REMIC, the Class R Certificates will be
treated as the residual interest in the upper-tier REMIC, and the Class RL
Certificates will be treated as the residual interest in the lower-tier REMIC.
All of the regular interest certificates will be treated as debt for tax
purposes. In addition, holders of regular interests are required to report
income on their 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:
- the Class A5, Class A24 and Class A26 Certificates, which will likely be,
and certain other classes of certificates which may be, issued with
original issue discount;
- the Class R and Class RL Certificates, which will be subject to special
rules that could significantly reduce their after-tax yield; and
- the junior certificates, whose reported income may exceed the amount of
cash actually received.
You should refer to "Federal Income Tax Consequences" in this prospectus
supplement and "Federal Income Tax Consequences--REMIC Certificates" in the
accompanying prospectus to determine the tax consequences to you of an
investment in the certificates.
S-9
<PAGE> 10
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.
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, Class R or Class RL 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 in the table beginning
on page S-4 from Fitch, 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-10
<PAGE> 11
RISK FACTORS
AN INVESTMENT IN THE
CERTIFICATES MAY
NOT BE SUITABLE FOR YOU The certificates are not suitable
investments for all investors. In
particular, you should not purchase any
class of offered certificates unless you
understand the prepayment, credit, liquidity
and market risks associated with that class.
The certificates are complex securities. You
should possess, either alone or together
with an investment advisor, the expertise
necessary to evaluate the information
contained in this prospectus supplement and
the accompanying prospectus in the context
of your financial situation and tolerance
for risk.
You should carefully consider, among other
things, the factors described below before
purchasing the certificates.
LOSSES AND DELINQUENT PAYMENTS
ON THE MORTGAGE LOANS MAY REDUCE
THE YIELD ON YOUR CERTIFICATES Payments on the mortgage loans will not be
insured by the government or any other
person. Moreover, we, as servicer, have 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 ON YOUR CERTIFICATES The amounts you receive on your certificates
will depend on the amount of the payments
borrowers make on the mortgage loans.
Because we cannot predict the rate at which
borrowers will repay their loans, you may
receive distributions on your certificates
in amounts that are larger or smaller than
you expect. In addition, 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
S-11
<PAGE> 12
date or in any specific amount. Holders of
the Class A3 Certificates should be aware of
the special payment rules for these
certificates that may make these payments
especially unpredictable.
PREPAYMENT RATES THAT ARE FASTER
OR SLOWER THAN YOU EXPECT MAY
REDUCE THE YIELD ON YOUR
CERTIFICATES The yield to maturity on your certificates
will depend primarily on the purchase price
of your certificates and the rate of
principal payments on the mortgage loans in
the trust. Unexpected changes in prepayment
rates could have the following negative
effects:
- If you bought your certificates for more
than their face amount, the yield on your
certificates will drop if principal
payments occur at a rate faster than you
expect.
- If you bought your certificates for less
than their face amount, the yield on your
certificates will drop if principal
payments occur at a rate slower than you
expect.
- If you are the holder of a Class A5 or
Class A26 Certificate, you will receive
only distributions of interest. If
prepayments occur at a rate faster than
expected, the yield on your certificates
may drop. You should also consider the
risk that you may not fully recover your
investment if there are rapid rates of
principal prepayments on the mortgage
loans.
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.
PRINCIPAL PAYMENTS ON THE CLASS
A3 CERTIFICATES MAY BE LESS
PREDICTABLE THAN ON OTHER
CLASSES BECAUSE OF SPECIAL RULES
FOR DISTRIBUTING PRINCIPAL As described in this prospectus supplement,
special rules apply to determining which
holders receive principal distributions on
this class and when these distributions are
made. Amounts available for principal on
this class will first be paid to holders who
have submitted requests for principal
payments in the order submitted and with
certain priorities given to holders who have
died. Any amounts not paid to these
requesting holders will be paid by random
lot to other holders of this class.
If you submitted a request for principal
payments, you may not receive the amount
requested, either because other requests had
priority over yours or because the amount
available for principal
S-12
<PAGE> 13
payments on your class was insufficient to
honor your request. If the amount available
for principal distributions on this class
exceeds the amount requested by all holders
of such class, you may receive distributions
in excess of the amount you requested or,
even if you did not make a request, you may
receive distributions.
As a result, holders may not receive
principal payments when they are expecting
them, and may receive principal payments
when they are not expecting them. In
addition to making distributions on this
class somewhat unpredictable, your yield may
be affected by the timing of these payments,
as described in some of the other risk
factors in this prospectus supplement.
Investors in these certificates should pay
particular attention to the risk that they
may be less likely to receive principal
payments when prevailing interest rates
available for reinvestment are high, and may
be more likely to receive principal payments
when prevailing interest rates available for
reinvestment are low. See "Description of
the Certificates--Distributions on the
Certificates--Principal Distributions on the
Class A3 Certificates."
YOU MAY BE UNABLE TO REINVEST
DISTRIBUTIONS FROM THE
CERTIFICATES IN COMPARABLE
INVESTMENTS Rapid prepayment rates on the mortgage loans
are likely to coincide with periods of low
prevailing interest rates. During these
periods, the yield at which you may be able
to reinvest amounts received as payments on
your certificates may be lower than the
yield on your certificates. Conversely, slow
prepayment rates on the mortgage loans are
likely to coincide with periods of high
interest rates. During these periods, the
amount of payments available to you for
reinvestment at high rates may be relatively
low.
See "Yield and Weighted Average Life
Considerations" in this prospectus
supplement and "Yield, Maturity and Weighted
Average Life Considerations" in the
prospectus for more discussion of the effect
of prepayments.
PREPAYMENTS MAY CAUSE REDUCTIONS
IN INTEREST DISTRIBUTIONS ON
YOUR CERTIFICATES The effective interest rate on your
certificates may be less than the interest
rate stated in this prospectus supplement.
Your certificates will be allocated any
interest shortfalls that we do not
compensate for as described in this
prospectus supplement. If you are the holder
of a Class A5 or Class A26 Certificate,
which pays only interest, extremely high
rates of prepayments on the mortgage loans
could result in the failure to recover
S-13
<PAGE> 14
your original investment. The circumstances
under which interest shortfalls will occur
are described in "Description of the
Certificates--Distributions on the
Certificates" in this prospectus supplement.
THE CONCENTRATION OF MORTGAGE
LOANS IN SPECIFIC GEOGRAPHIC
AREAS MAY INCREASE THE RISK
OF LOSS ON THOSE MORTGAGE
LOANS AND REDUCE THE YIELD
ON YOUR CERTIFICATES Approximately 31% of the mortgage loans in
the trust are secured by properties located
in California. Any deterioration in the real
estate market or economy in California could
result in higher rates of loss and
delinquency than expected on the mortgage
loans. In addition, California may
experience natural disasters, such as
earthquakes, fires and floods, which may not
be fully insured against and which may
result in property damage and losses on the
mortgage loans. These events may adversely
affect the funds available to make payments
on your certificates, which may in turn
reduce the yield on your certificates.
See "Description of the Mortgage Pool and
the Mortgaged Properties" in this prospectus
supplement for more information on the
location of the mortgage loans.
LOSSES ON THE MORTGAGE LOANS MAY
BE HIGHER THAN EXPECTED, WHICH
MAY LOWER THE YIELD ON YOUR
CERTIFICATES A decline in real estate values or in
economic conditions generally could increase
the rates of delinquencies, foreclosures and
losses on the mortgage loans to a level that
is significantly higher than those
experienced currently. This in turn will
reduce the yield on your certificates, if
the credit enhancement described in this
prospectus supplement is not enough to
protect your certificates from these losses.
THE SUBORDINATION PROVIDED BY
THE JUNIOR CERTIFICATES MAY
NOT BE ADEQUATE TO PROTECT
HIGHER-RANKING CERTIFICATES
FROM ALL LOSSES As described in "Description of the
Certificates--Allocation of Realized Losses
on the Certificates," losses will be
allocated first to the junior certificates,
in inverse order of priority. Losses may be
severe enough, however, to reduce the
aggregate principal balance of the junior
certificates to zero. If this occurs, the
senior certificates will bear their pro rata
share of losses thereafter.
In addition, certain types of
losses--referred to in this prospectus
supplement as "Excess Losses"--will be borne
pro rata by the senior certificates and the
junior certificates after a specified amount
of these losses are borne solely by the
junior certificates.
S-14
<PAGE> 15
IF WE EXERCISE OUR OPTION TO
TERMINATE THE TRUST, THE YIELD
ON YOUR CERTIFICATES COULD BE
LOWER THAN EXPECTED We may, at our option, terminate the trust
under the circumstances described in "The
Pooling and Servicing Agreement--Optional
Termination" in this prospectus supplement.
If the proceeds realized upon 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, especially in
the case of the Class A5 and Class A26
Certificates.
You should refer to "The Pooling and
Servicing Agreement--Optional Termination"
for a discussion of additional consequences
of the trust's early termination.
YOU MAY NOT BE ABLE TO RESELL
YOUR CERTIFICATES The certificates will not be listed on any
securities exchange, and a resale market for
the certificates may not develop. Although
each underwriter of this offering intends to
create a resale market for the certificates
it is offering, it has no obligation to do
so. If a market for the certificates does
develop, it may not continue. Moreover, this
market may not be liquid enough to allow you
to resell your certificates or to resell
them at the price you desire.
YOU WILL NOT RECEIVE PHYSICAL
CERTIFICATES, WHICH CAN CAUSE
DELAYS IN DISTRIBUTIONS AND
HAMPER YOUR ABILITY TO PLEDGE
OR RESELL YOUR CERTIFICATES Unless you are the purchaser of the residual
certificates, your ownership of the
certificates will be registered
electronically with DTC. The lack of
physical certificates could:
- result in payment delays on the
certificates because the trustee will be
sending distributions on the certificates
to DTC instead of directly to you;
- make it difficult for you to pledge your
certificates if physical certificates are
required by the party demanding the
pledge; and
- hinder your ability to resell the
certificates because some investors may be
unwilling to buy certificates that are not
in physical form.
S-15
<PAGE> 16
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-83 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.
THE MORTGAGE LOANS
The mortgage loans will have an aggregate Scheduled Principal Balance as of
August 1, 2000 (the "CUT-OFF DATE"), after deducting payments of principal due
or received on or before such date, of approximately $553,831,809.
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 "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 on or received 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 proceedings 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 Loss Amount has been reduced to zero,
irrespective of any delinquency in payment by the related borrower.
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).
S-16
<PAGE> 17
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.
The interest rates borne by the mortgage loans are expected to range from
6.50% to 11.70% per annum, and the weighted average mortgage interest rate as of
the Cut-off Date of the mortgage loans is expected to be approximately 8.63% per
annum. The original principal balances of the mortgage loans are expected to
range from approximately $24,300 to approximately $1,470,000 and, as of the
Cut-off Date, the average Scheduled Principal Balance of the mortgage loans is
not expected to exceed $341,871 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 January 1987 and the month and
year of the latest scheduled maturity date of any such mortgage loan will be
August 2030. All of the mortgage loans will have original terms to maturity of
20 to 30 years, and it is expected that the weighted average scheduled remaining
term to maturity of the mortgage loans will be approximately 357 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:
- Approximately 15.15% of the mortgage loans will have a Scheduled
Principal Balance of more than $500,000 and up to and including $750,000.
Approximately 2.41% of the mortgage loans will have a Scheduled Principal
Balance of more than $750,000 and up to and including $1,000,000.
Approximately 1.14% of the mortgage loans will have a Scheduled Principal
Balance of more than $1,000,000.
- Approximately 0.10% of the mortgage loans by aggregate Scheduled
Principal Balance as of the Cut-off Date will have a loan-to-value ratio
at origination of 100%. As of the Cut-off Date, the weighted average
loan-to-value ratio at origination of the mortgage loans is expected to
be approximately 75.90%. With respect to the Pledged Asset Mortgage Loans
referred to below, this percentage does not include the value of any
additional collateral.
- Approximately 0.28% 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.
- Approximately 0.28% of the mortgage loans will be temporary buy-down
mortgage loans. The portion of the interest rate paid by the related
mortgagor will not increase by more than one percentage point for each
six-month period. No mortgage interest rate may exceed the "bought down"
rate by more than 3 percentage points, and no buy-down period will exceed
3 years.
- No more than 0.54% of the mortgage loans will be secured by mortgaged
properties located in any one five-digit postal zip code area.
- Nine of the mortgage loans, having an aggregate Scheduled Principal
Balance as of the Cut-off Date of approximately $1,759,091, will be
Pledged Asset Mortgage Loans.
"PLEDGED ASSET MORTGAGE LOANS" are mortgage loans that will be
master-serviced by GECMSI and directly serviced by Merrill Lynch Credit
Corporation ("MLCC") and that had a loan-to-value ratio at origination of
greater than 80%, but not greater than 100%, and which, in addition to being
secured by the related mortgaged property, are either (1) secured by a security
interest in a limited amount of additional collateral--normally securities owned
by the mortgagor--or (2) supported by a third-party guarantee (usually
S-17
<PAGE> 18
provided by a parent of the mortgagor). This guarantee in turn is secured by a
security interest in collateral--normally securities--or by a lien on
residential real estate of the guarantor and/or supported by the right to draw
on a home equity line of credit extended by MLCC to the guarantor.
For purposes of applying its underwriting guidelines to Pledged Asset
Mortgage Loans, GECMSI uses a Pledged Asset Loan-to-Value Ratio. The "PLEDGED
ASSET LOAN-TO-VALUE RATIO" is calculated as (i) the original loan amount less
the portion of any required additional collateral which is covered by the
limited purpose surety bond as described below, divided by (ii) the Original
Value (as defined in the accompanying prospectus) of the related mortgaged
property. Each of the Pledged Asset Mortgage Loans will have a Pledged Asset
Loan-to-Value Ratio at origination not in excess of 70%.
The amount of the additional collateral referred to in clauses (1) and (2)
of the second preceding paragraph generally does not exceed 30% of the original
principal balance of the related Pledged Asset Mortgage Loan, although the
amount of the additional collateral may exceed 30% of the original principal
balance if the original principal balance of the loan exceeds $1,000,000. In
limited cases, MLCC may have required additional collateral in excess of 30% of
the original principal balance of any Pledged Asset Mortgage Loan as part of the
underwriting decision. The requirement to maintain additional collateral
generally terminates when the principal balance of the Pledged Asset Mortgage
Loan is reduced to a predetermined amount specified in the related pledge or
guaranty agreement, as applicable, or the loan-to-value ratio for such Pledged
Asset Mortgage Loan is reduced to MLCC's applicable loan-to-value ratio limit
for such mortgage loan (generally an 80% loan-to-value ratio) by virtue of a
reduction in the principal balance of the related mortgage loan or an increase
in the appraised value of the mortgaged property as determined by MLCC.
Under a separate agreement between GECMSI and MLCC, MLCC will be
responsible for administering any pledge or guaranty agreements relating to any
additional collateral. MLCC has advised GECMSI that its normal servicing
procedures provide that it will attempt to realize on the security interest in
any additional collateral if the related mortgage loan is liquidated upon
default. The pledge or guaranty agreement and the security interest in such
additional collateral, if any, will be assigned by GECMSI to the trust, for the
benefit of the holders of the certificates, but will not be part of the REMIC.
If any Pledged Asset Mortgage Loans are supported by a guarantee that is secured
by a lien on residential real estate, this lien will not be transferred to the
Trustee. The right to receive proceeds from the realization of any additional
collateral upon any liquidation thereof will be assigned by GECMSI to the trust.
No assurance can be given as to the amount of proceeds, if any, that might
be realized from the liquidation of such additional collateral. Ambac Assurance
Corporation, a Wisconsin-domiciled stock insurance corporation regulated by the
Office of the Commissioner of Insurance of the State of Wisconsin and licensed
to do business in 50 states, the District of Columbia, the Commonwealth of
Puerto Rico and Guam, has previously issued a limited purpose surety bond
relating to the Pledged Asset Mortgage Loans. This surety bond, which is limited
in amount, is intended to guarantee receipt by the trust of certain shortfalls
in the net proceeds realized from the liquidation of any required additional
collateral (such amount not to exceed 30% of the original principal balance of
the related Pledged Asset Mortgage Loan) to the extent any such shortfall
results in a loss of principal on the related Pledged Asset Mortgage Loan that
becomes a Liquidated Mortgage Loan, as more particularly described in, and as
limited by, the terms and
S-18
<PAGE> 19
provisions of the surety bond. GECMSI will assign its rights as beneficiary
under the surety bond with respect to the Pledged Asset Mortgage Loan to the
trust. The surety bond will not cover any payments on the certificates that are
recoverable or sought to be recovered as a voidable preference under applicable
law.
We expect that the following percentages of the mortgage loans (by
Scheduled Principal Balance as of the Cut-off Date) will have been originated
under the following documentation programs:
- At least 82.00% of the mortgage loans, and approximately 99.07% 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.
- No more than 15.71% of the mortgage loans will have been originated under
GECMSI's no income verification programs or other no income verification
programs acceptable to GECMSI.
- No more than 0.84% of the mortgage loans will have been originated under
GECMSI's no income no asset verification programs or other no income no
asset verification programs acceptable to GECMSI.
- No more than 0.29% of the mortgage loans will have been originated under
GECMSI's "Enhanced Streamlined Refinance Program" or other streamlined
refinance programs acceptable to GECMSI.
- No more than 0.24% of the mortgage loans will have been acquired under
GECMSI's "No Ratio" program or other no ratio 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 mortgage loan 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"), 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 loan
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.
Set forth below is a description as of the Cut-off Date of certain
characteristics of the mortgage pool and the mortgage loans expected to be
included therein. The sum of the percentages may not equal 100% due to rounding.
S-19
<PAGE> 20
ORIGINAL PRINCIPAL BALANCES AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF POOL BY
AGGREGATE SCHEDULED AGGREGATE SCHEDULED
RANGE OF ORIGINAL NUMBER OF PRINCIPAL BALANCE AS OF THE PRINCIPAL BALANCE AS OF THE
PRINCIPAL BALANCE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
----------------- ----------------- --------------------------- ---------------------------
<S> <C> <C> <C>
$ 0- 240,000... 216 $ 28,002,311.46 5.06%
240,001- 250,000.... 6 1,486,771.49 0.27
250,001- 300,000.... 425 118,832,801.73 21.46
300,001- 350,000.... 382 123,850,442.97 22.36
350,001- 400,000.... 210 79,188,481.08 14.30
400,001- 450,000.... 117 49,900,441.26 9.01
450,001- 600,000.... 184 94,108,345.78 16.99
600,001- 650,000.... 48 30,491,546.36 5.51
650,001-1,470,000... 32 27,970,667.60 5.05
----- --------------- ------
Total........... 1,620 $553,831,809.73 100.00%
===== =============== ======
</TABLE>
MORTGAGE INTEREST RATES AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF POOL BY
AGGREGATE SCHEDULED AGGREGATE SCHEDULED
NUMBER OF PRINCIPAL BALANCE AS OF THE PRINCIPAL BALANCE AS OF THE
MORTGAGE INTEREST RATE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
---------------------- -------------- --------------------------- ---------------------------
<S> <C> <C> <C>
6.500%............... 1 $ 326,144.03 0.06%
6.625................ 2 733,081.58 0.13
6.750................ 3 1,325,856.16 0.24
6.875................ 6 2,429,677.87 0.44
7.000................ 4 1,685,187.14 0.30
7.125................ 4 1,610,463.79 0.29
7.250................ 13 4,564,155.44 0.82
7.375................ 4 1,005,543.74 0.18
7.500................ 7 2,905,990.89 0.52
7.625................ 13 4,073,850.80 0.74
7.750................ 16 5,929,710.48 1.07
7.875................ 32 10,533,111.21 1.90
8.000................ 26 7,816,252.07 1.41
8.125................ 42 14,791,797.82 2.67
8.175................ 1 319,084.83 0.06
8.240................ 1 104,236.15 0.02
8.250................ 122 42,332,980.06 7.64
8.375................ 182 63,538,521.07 11.47
8.500................ 220 76,217,202.76 13.76
8.625................ 176 60,998,459.95 11.01
8.750................ 204 69,973,844.91 12.63
8.875................ 190 63,961,570.65 11.55
9.000................ 94 31,840,654.96 5.75
9.125................ 70 24,573,947.18 4.44
9.175................ 1 322,829.89 0.06
9.250................ 54 18,701,995.00 3.38
</TABLE>
S-20
<PAGE> 21
<TABLE>
<CAPTION>
PERCENTAGE OF POOL BY
AGGREGATE SCHEDULED AGGREGATE SCHEDULED
NUMBER OF PRINCIPAL BALANCE AS OF THE PRINCIPAL BALANCE AS OF THE
MORTGAGE INTEREST RATE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
---------------------- -------------- --------------------------- ---------------------------
<S> <C> <C> <C>
9.375%............... 38 $ 11,963,256.12 2.16%
9.500................ 37 13,166,093.08 2.38
9.625................ 11 3,403,890.18 0.61
9.750................ 29 8,338,383.74 1.51
9.875................ 9 1,656,400.08 0.30
10.000................ 1 539,020.67 0.10
10.125................ 1 576,517.92 0.10
10.375................ 2 503,620.14 0.09
10.625................ 1 267,834.76 0.05
10.750................ 1 248,987.67 0.05
11.000................ 1 268,241.63 0.05
11.700................ 1 283,413.31 0.05
----- --------------- ------
Total............ 1,620 $553,831,809.73 100.00%
===== =============== ======
</TABLE>
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF POOL BY
AGGREGATE SCHEDULED AGGREGATE SCHEDULED
NUMBER OF PRINCIPAL BALANCE AS OF THE PRINCIPAL BALANCE AS OF THE
STATE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
----- -------------- --------------------------- ---------------------------
<S> <C> <C> <C>
Alabama.............. 6 $ 1,618,826.86 0.29%
Arizona.............. 69 20,557,703.13 3.71
Arkansas............. 2 738,933.50 0.13
California........... 449 168,965,434.40 30.51
Colorado............. 60 21,296,889.03 3.85
Connecticut.......... 35 10,778,745.13 1.95
Delaware............. 8 2,586,242.94 0.47
District of
Columbia........... 6 2,609,863.54 0.47
Florida.............. 55 17,184,587.87 3.10
Georgia.............. 41 15,053,122.95 2.72
Hawaii............... 5 2,066,581.00 0.37
Idaho................ 4 921,445.42 0.17
Illinois............. 71 23,762,617.86 4.29
Indiana.............. 6 1,548,160.13 0.28
Iowa................. 2 612,383.54 0.11
Kansas............... 7 2,087,552.33 0.38
Kentucky............. 10 4,151,232.81 0.75
Louisiana............ 4 1,130,992.54 0.20
Maine................ 3 850,130.98 0.15
Maryland............. 69 22,502,718.89 4.06
Massachusetts........ 79 25,358,539.54 4.58
Michigan............. 21 7,209,533.01 1.30
Minnesota............ 40 6,910,173.21 1.24
Mississippi.......... 2 720,616.31 0.13
Missouri............. 13 5,249,108.45 0.95
Montana.............. 4 814,917.38 0.15
</TABLE>
S-21
<PAGE> 22
<TABLE>
<CAPTION>
PERCENTAGE OF POOL BY
AGGREGATE SCHEDULED AGGREGATE SCHEDULED
NUMBER OF PRINCIPAL BALANCE AS OF THE PRINCIPAL BALANCE AS OF THE
STATE MORTGAGE LOANS CUT-OFF DATE CUT-OFF DATE
----- -------------- --------------------------- ---------------------------
<S> <C> <C> <C>
Nebraska............. 4 $ 1,494,999.11 0.27%
Nevada............... 11 4,925,438.00 0.89
New Hampshire........ 5 1,316,410.92 0.24
New Jersey........... 120 38,980,224.03 7.04
New Mexico........... 8 2,529,150.26 0.46
New York............. 47 15,778,543.97 2.85
North Carolina....... 10 2,865,849.74 0.52
Ohio................. 23 7,784,916.02 1.41
Oklahoma............. 3 1,128,635.81 0.20
Oregon............... 7 2,587,575.92 0.47
Pennsylvania......... 39 12,538,169.84 2.26
Rhode Island......... 4 1,136,210.61 0.21
South Carolina....... 11 3,408,677.95 0.62
Tennessee............ 5 1,362,836.82 0.25
Texas................ 89 30,803,447.38 5.56
Utah................. 13 5,618,783.07 1.01
Vermont.............. 3 1,351,952.56 0.24
Virginia............. 99 34,597,791.45 6.25
Washington........... 41 14,028,783.72 2.53
Wisconsin............ 7 2,306,359.80 0.42
----- --------------- ------
Total........... 1,620 $553,831,809.73 100.00%
===== =============== ======
</TABLE>
YEAR OF ORIGINATION AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF POOL BY
AGGREGATE SCHEDULED AGGREGATE SCHEDULED
NUMBER OF PRINCIPAL BALANCE AS OF THE PRINCIPAL BALANCE AS OF
YEAR OF ORIGINATION MORTGAGE LOANS CUT-OFF DATE THE CUT-OFF DATE
------------------- -------------- --------------------------- -----------------------
<S> <C> <C> <C>
1987................... 4 $ 887,279.65 0.16%
1988................... 4 973,942.49 0.18
1995................... 1 371,515.45 0.07
1998................... 9 3,128,879.97 0.57
1999................... 78 19,604,388.94 3.54
2000................... 1,524 528,865,803.23 95.49
----- --------------- ------
Total............. 1,620 $553,831,809.73 100.00%
===== =============== ======
</TABLE>
S-22
<PAGE> 23
YEAR OF MATURITY AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF POOL BY
AGGREGATE SCHEDULED AGGREGATE SCHEDULED
NUMBER OF PRINCIPAL BALANCE AS OF THE PRINCIPAL BALANCE AS OF
YEAR OF MATURITY MORTGAGE LOANS CUT-OFF DATE THE CUT-OFF DATE
----------------------- -------------- --------------------------- -----------------------
<S> <C> <C> <C>
2017................... 4 $ 887,279.65 0.16%
2018................... 3 706,107.73 0.13
2019................... 1 267,834.76 0.05
2020................... 6 1,678,931.38 0.30
2025................... 2 808,523.10 0.15
2026................... 1 371,515.45 0.07
2028................... 7 2,508,584.32 0.45
2029................... 64 18,818,947.16 3.40
2030................... 1,532 527,784,086.18 95.30
----- --------------- ------
Total............. 1,620 $553,831,809.73 100.00%
===== =============== ======
</TABLE>
TYPES OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE OF POOL BY
AGGREGATE SCHEDULED AGGREGATE SCHEDULED
NUMBER OF PRINCIPAL BALANCE AS OF THE PRINCIPAL BALANCE AS OF
TYPE OF DWELLING MORTGAGE LOANS CUT-OFF DATE THE CUT-OFF DATE
----------------------- -------------- --------------------------- -----------------------
<S> <C> <C> <C>
Single-family
detached............. 1,455 $511,334,351.33 92.33%
Single-family
attached............. 40 11,997,283.31 2.17
Condominium............ 67 19,342,227.60 3.49
2-4 Family Units....... 57 11,118,669.16 2.01
Co-op.................. 1 39,278.33 0.01
----- --------------- ------
Total............. 1,620 $553,831,809.73 100.00%
===== =============== ======
</TABLE>
OCCUPANCY STATUS OF MORTGAGED PROPERTIES(1)
<TABLE>
<CAPTION>
PERCENTAGE OF POOL BY
AGGREGATE SCHEDULED AGGREGATE SCHEDULED
NUMBER OF PRINCIPAL BALANCE AS OF THE PRINCIPAL BALANCE AS OF
OCCUPANCY MORTGAGE LOANS CUT-OFF DATE THE CUT-OFF DATE
----------------------- -------------- --------------------------- -----------------------
<S> <C> <C> <C>
Owner Occupied......... 1,527 $532,239,174.21 96.10%
Vacation............... 45 12,771,406.42 2.31
Investment............. 48 8,821,229.10 1.59
----- --------------- ------
Total............. 1,620 $553,831,809.73 100.00%
===== =============== ======
</TABLE>
-------------------------
(1) Based on information supplied by the mortgagor in the loan application.
S-23
<PAGE> 24
PURPOSE OF THE MORTGAGE LOANS
<TABLE>
<CAPTION>
PERCENTAGE OF POOL BY
AGGREGATE SCHEDULED AGGREGATE SCHEDULED
NUMBER OF PRINCIPAL BALANCE AS OF THE PRINCIPAL BALANCE AS OF
PURPOSE OF THE LOANS MORTGAGE LOANS CUT-OFF DATE THE CUT-OFF DATE
----------------------- -------------- --------------------------- -----------------------
<S> <C> <C> <C>
Purchase............... 1,250 $423,895,912.94 76.54%
Rate Term/Refinance.... 222 77,098,159.61 13.92
Cash-out Refinance..... 148 52,837,737.18 9.54
----- --------------- ------
Total............. 1,620 $553,831,809.73 100.00%
===== =============== ======
</TABLE>
LOAN-TO-VALUE RATIOS AT ORIGINATION
<TABLE>
<CAPTION>
AGGREGATE SCHEDULED
RANGE OF PRINCIPAL BALANCE AS OF
LOAN-TO-VALUE RATIOS NUMBER OF THE
AT ORIGINATION MORTGAGE LOANS CUT-OFF DATE
-------------------- -------------- -----------------------
<S> <C> <C> <C>
00.00- 50.00%.......... 56 $ 20,159,063.73 3.64%
50.01- 60.00........... 76 29,502,583.45 5.33
60.01- 70.00........... 194 76,076,976.65 13.74
70.01- 75.00........... 165 60,456,659.29 10.92
75.01- 80.00........... 881 300,874,610.82 54.33
80.01- 85.00........... 24 7,520,701.79 1.36
85.01- 90.00........... 150 40,428,968.60 7.30
90.01- 95.00........... 58 16,130,674.56 2.91
95.01-100.00........... 16 2,681,570.84 0.48
----- --------------- ------
Total............. 1,620 $553,831,809.73 100.00%
===== =============== ======
</TABLE>
For the Pledged Asset Mortgage Loans, the loan-to-value in the table above
excludes the value of any additional collateral.
S-24
<PAGE> 25
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 B3, Class B4, Class B5
and Class S Certificates, none of which are offered hereby. The certificates
will be issued in the aggregate original principal balance of approximately
$553,831,809.
As described below, each class of certificates offered hereby, other than
the residual certificates, will be issued in book-entry form. Beneficial
interests in these certificates (the "BOOK-ENTRY CERTIFICATES") will be held by
investors through the book-entry facilities of The Depository Trust Company, as
described below, in the minimum denominations described in the table below. The
certificates offered hereby are not intended to be directly or indirectly held
or beneficially owned in amounts lower than such minimum denominations.
Notwithstanding the integral multiple requirements described in the table below,
one certificate of each class other than the residual certificates may evidence
an additional amount equal to the remaining Class Certificate Principal Balance
thereof.
FORMS AND DENOMINATIONS OF OFFERED CERTIFICATES
<TABLE>
<CAPTION>
ORIGINAL MINIMUM INCREMENTAL
CLASS CERTIFICATE FORM DENOMINATION DENOMINATION
----- ---------------- ------------ ------------
<S> <C> <C> <C>
Classes A1, A2, A4, A23 and A24... Book-Entry $ 25,000 $1,000
Classes A3, A6, A7, A8, A9, A10,
A11, A12, A13, A14, A15, A16,
A17, A18, A19, A20, A21, A22 and
A25............................. Book-Entry $ 1,000 $1,000
Class A5.......................... Book-Entry $ 900,000(1) N/A
Class A26......................... Book-Entry $36,000,000(1) N/A
Classes M, B1 and B2.............. Book-Entry $ 100,000 $1,000
Classes R and RL.................. Non-Book-Entry $ 100 N/A
</TABLE>
-------------------------
(1) Denomination expressed in initial Notional Principal Balance.
BOOK-ENTRY CERTIFICATES
Each class of the Book-Entry Certificates will be registered as one or more
certificates 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 certificates.
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,
S-25
<PAGE> 26
a "FINANCIAL INTERMEDIARY") that maintains the beneficial owner's account for
such purpose. In turn, the Financial Intermediary's ownership of such Book-Entry
Certificate will be recorded on the records of DTC (or of a participating firm
that acts as agent for the Financial Intermediary, whose interest will in turn
be recorded on the records of DTC, if the beneficial owner's Financial
Intermediary is not a DTC participant). Therefore, the beneficial owner must
rely on the foregoing procedures to evidence its beneficial ownership of a
Book-Entry Certificate. Beneficial ownership of a Book-Entry Certificate may
only be transferred by compliance with the procedures of such Financial
Intermediaries and participants.
DTC, which is a New York-chartered limited purpose trust company, performs
services for its participants, some of which (and/or their representatives) own
DTC. In accordance with its normal procedures, DTC is expected to record the
positions held by each of its participants in the Book-Entry Certificates,
whether held for its own account or as a nominee for another person. In general,
beneficial ownership of Book-Entry Certificates will be subject to the rules,
regulations and procedures governing DTC and its participants as in effect from
time to time.
Distributions of principal of and interest on the Book-Entry Certificates
will be made on each Distribution Date by the Trustee to DTC. DTC will be
responsible for crediting the amount of such payments to the accounts of the
applicable participants in accordance with DTC's normal procedures. Each DTC
participant will be responsible for disbursing such payments to the beneficial
owners of the Book-Entry Certificates that it represents and to each Financial
Intermediary for which it acts as agent. Each such Financial Intermediary will
be responsible for disbursing funds to the beneficial owners of the Book-Entry
Certificates that it represents.
As a result, under a book-entry format, beneficial owners of the Book-Entry
Certificates may experience some delay in their receipt of payments. Because DTC
can only act on behalf of Financial Intermediaries, the ability of a beneficial
owner to pledge Book-Entry Certificates to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
Book-Entry Certificates, may be limited due to the lack of physical certificates
for such Book-Entry Certificates. In addition, issuance of the Book-Entry
Certificates in book-entry form may reduce the liquidity of such certificates in
the secondary market since certain potential investors may be unwilling to
purchase certificates for which they cannot obtain physical certificates.
DTC has advised GECMSI and the Trustee that, unless and until definitive
physical certificates are issued, DTC will take any action permitted to be taken
by a holder of a certificate under the Agreement only at the direction of one or
more Financial Intermediaries to whose DTC accounts the Book-Entry Certificates
are credited. DTC may take conflicting actions with respect to other Book-Entry
Certificates to the extent that such actions are taken on behalf of Financial
Intermediaries whose holdings include such Book-Entry Certificates.
Definitive physical certificates will be issued to beneficial owners of the
related Book-Entry Certificates, or their nominees, rather than to DTC, only if
(a) DTC or GECMSI advises the Trustee in writing that DTC is no longer willing,
qualified or able to discharge properly its responsibilities as nominee and
depository with respect to the certificates and GECMSI or the Trustee is unable
to locate a qualified successor, (b) GECMSI, at its sole option, elects to
terminate the book-entry system through DTC, (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
S-26
<PAGE> 27
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, or (d) if pro rata distributions cannot be made on
the Designated Retail Certificates (as defined herein) through the facilities of
DTC.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability through DTC of
definitive physical certificates. Upon surrender by DTC of the global
certificate or certificates representing the certificates and instructions for
re-registration, the Trustee will issue definitive physical certificates, and
thereafter the Trustee will recognize the holders of such certificates as
certificateholders under the Agreement. Following the issuance of definitive
physical certificates, distribution of principal and interest on the
certificates will be made by the Trustee directly to holders of these
certificates in accordance with the procedures set forth in the Agreement.
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. For so long as the Class
M, Class B1 or Class B2 Certificates are Book-Entry Certificates, each
transferee of a beneficial interest therein will be deemed to have made one of
the representations in clause (1) of the preceding sentence. See "ERISA
Considerations" herein.
NON-BOOK-ENTRY CERTIFICATES
The residual certificates (the "NON-BOOK-ENTRY CERTIFICATES") will be
issued in fully-registered, certificated form. The Non-Book-Entry Certificates
will be transferable and exchangeable on a certificate register to be maintained
at the corporate trust office in the city in which the Trustee is located or
such other office or agency maintained for such purposes by the Trustee in New
York City. Under the Agreement, the Trustee will initially be appointed as the
certificate registrar. No service charge will be made for any registration of
transfer or exchange of the residual certificates, but payment of a sum
sufficient to cover any tax or other governmental charge may be required by the
Trustee. The residual certificates will be subject to certain restrictions on
transfer. See "--Restrictions on Transfer of the Residual Certificates" herein.
Distributions of principal and interest, if any, on each Distribution Date
on the Non-Book-Entry Certificates will be made to the persons in whose names
such certificates are registered at the close of business on the last business
day of the month immediately preceding the month of such Distribution Date (the
"RECORD DATE"). Distributions will be made by check or money order mailed to the
person entitled thereto at the address appearing in the certificate register or,
to the extent permitted in the Agreement, 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
S-27
<PAGE> 28
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 "Collection
and Other Servicing Procedures--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 September
2000. These distributions will be in an aggregate amount equal to the Available
Funds for the related Distribution Date. Distributions will be made to holders
of record on 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 entitled to distributions
of interest, 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; provided, however, that on each
Distribution Date through the Accretion Termination Date, such amounts with
respect to the Class A24 Certificates will not be distributed on such
certificates under this priority first but will instead be added to the
Class Certificate Principal Balance thereof and distributed in accordance
with the paragraph following priority eighth below;
second, to the classes of senior certificates entitled to
distributions of interest, any Accrued Certificate Interest thereon
remaining undistributed (or not added to the Class Certificate Principal
Balance of the Class A24 Certificates) from previous Distribution Dates, to
the extent of remaining Available Funds, any shortfall in available amounts
being allocated among such classes in proportion to the amount of such
Accrued Certificate Interest remaining undistributed (or not added to the
Class Certificate Principal Balance of the Class A24 Certificates) for each
such class for such Distribution Date; provided, however, that on each
Distribution Date through the Accretion Termination Date, such amounts with
respect to the Class A24 Certificates will not be distributed on such
certificates under this priority second but will instead be added to the
Class Certificate Principal Balance thereof and distributed in accordance
with the paragraph following priority eighth below;
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, pro rata, as follows:
(1) to the classes of senior certificates, other than the Class PO
Certificates, the Senior Optimal Principal Amount for such Distribution
Date, in the order of priority set forth below; and
S-28
<PAGE> 29
(2) to the Class PO Certificates, the Class PO Principal
Distribution Amount for such Distribution Date;
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, (1) on any Distribution Date, distributions pursuant
to this priority fourth shall not exceed the Junior Optimal Principal
Amount for such Distribution Date, (2) such distributions shall not reduce
the Class Certificate Principal Balance of the Class PO Certificates and
(3) 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: (1) the Accrued Certificate
Interest thereon for such Distribution Date, (2) any Accrued Certificate
Interest thereon remaining undistributed from previous Distribution Dates
and (3) 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: (1) the Accrued Certificate
Interest thereon for such Distribution Date, (2) any Accrued Certificate
Interest thereon remaining undistributed from previous Distribution Dates
and (3) 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: (1) the Accrued Certificate
Interest thereon for such Distribution Date, (2) any Accrued Certificate
Interest thereon remaining undistributed from previous Distribution Dates
and (3) 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: (1) the Accrued Certificate
Interest thereon for such Distribution Date, (2) any Accrued Certificate
Interest thereon remaining undistributed from previous Distribution Dates
and (3) such class's Allocable Share for such Distribution Date.
On each Distribution Date on which there is a Class A24 Accrual Amount,
before distributions are made pursuant to the following paragraph, an amount
equal to the Class A24 Accrual Amount will be distributed sequentially as
follows:
(i) to the Class A25 Certificates, until the Class Certificate
Principal Balance thereof has been reduced to zero; and
(ii) to the Class A24 Certificates.
Amounts allocated to the senior certificates (other than the Class PO
Certificates) pursuant to priority third above will be distributed sequentially
as follows:
(a) to the Class A4 Certificates, in an amount equal to the Class A4
Principal Distribution Amount (as defined herein) for such Distribution
Date, until the Class Certificate Principal Balance thereof has been
reduced to zero;
(b) to the Class R and Class RL Certificates, sequentially, in that
order, until their Class Certificate Principal Balances have been reduced
to zero;
S-29
<PAGE> 30
(c) concurrently, until the Class Certificate Principal Balance of the
Class A24 Certificates has been reduced to zero, as follows:
(i) approximately 59.8546691534%, sequentially, as follows:
(1) on each Distribution Date on or after the Distribution
Date in September 2003, $36,000 on each Distribution Date to the
Class A3 Certificates, until the Class Certificate Principal
Balance thereof has been reduced to zero;
(2) sequentially, until $248,342,000 has been distributed
pursuant to this priority (c)(i)(2), as follows:
(A) concurrently, until the Class Certificate Principal
Balance of the Class A22 Certificates has been reduced to
zero, as follows:
(I) approximately 82.6822517746%, sequentially, as
follows:
(aa) to the Class A2 Certificates, until the
Class Certificate Principal Balance thereof has been
reduced to zero; and
(bb) to the Class A22 Certificates, until the
Class Certificate Principal Balance thereof has been
reduced to zero;
(II) approximately 7.4515648286%, sequentially, as
follows:
(aa) to the Class A1 Certificates, until the
Class Certificate Principal Balance thereof has been
reduced to zero; and
(bb) to the Class A22 Certificates, until the
Class Certificate Principal Balance thereof has been
reduced to zero;
(III) approximately 9.8661833968%, sequentially, as
follows:
(aa) to the Class A23 Certificates, until the
Class Certificate Principal Balance thereof has been
reduced to zero; and
(bb) to the Class A22 Certificates, until the
Class Certificate Principal Balance thereof has been
reduced to zero;
(B) concurrently, to the Class A6, Class A10, Class A14
and Class A18 Certificates, pro rata until their Class
Certificate Principal Balances have been reduced to zero;
(C) concurrently, to the Class A7, Class A11, Class A15
and Class A19 Certificates, pro rata until their Class
Certificate Principal Balances have been reduced to zero;
(D) concurrently, to the Class A8, Class A12, Class A16
and Class A20 Certificates, pro rata until their Class
Certificate Principal Balances have been reduced to zero;
(E) concurrently, to the Class A9, Class A13, Class A17
and Class A21 Certificates, pro rata until their Class
Certificate Principal Balances have been reduced to zero; and
(3) to the Class A3 Certificates, until the Class Certificate
Principal Balance thereof has been reduced to zero; and
S-30
<PAGE> 31
(ii) approximately 40.1453308466%, sequentially, as follows:
(1) sequentially, until $165,612,000 has been distributed
pursuant to this priority (c)(ii)(1), as described in priorities
(c)(i)(2)(A) through (E);
(2) to the Class A25 Certificates, until the Class Certificate
Principal Balance thereof has been reduced to zero; and
(3) to the Class A24 Certificates, until the Class Certificate
Principal Balance thereof has been reduced to zero.
The Class A24 Accrual Amount distributed as described above on a
Distribution Date will be added to the Class Certificate Principal Balance of
the Class A24 Certificates on such date.
The "CLASS A24 ACCRUAL AMOUNT" with respect to each Distribution Date
through the Accretion Termination Date will be an amount equal to the sum of (a)
the Accrued Certificate Interest in respect of the Class A24 Certificates in
accordance with priority first of the second paragraph under "--Allocation of
Available Funds" above and (b) any available amounts allocable to such class in
accordance with priority second under "--Allocation of Available Funds" above.
The "ACCRETION TERMINATION DATE" is the earlier of: (1) the Cross-Over
Date; and (2) the Distribution Date on which the Class Certificate Principal
Balance of the Class A25 Certificates has been reduced to zero.
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 above.
"PRO RATA" distributions among classes of certificates will be made in
proportion to the then-current Class Certificate Principal Balances of such
classes or, in the case of priority third above, in proportion to the Senior
Optimal Principal Amount and the Class PO Principal Distribution Amount.
INTEREST
Interest will accrue on the certificates offered hereby at the respective
interest rates set forth in the table beginning on page S-4 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 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 interest rate of 7.750% per annum during each Interest Accrual Period.
Interest will accrue on the Notional Principal Balance of 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) 7.750%. 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 the mortgage loan
master-serviced by GECMSI, of which GECMSI receives notice, on or after the
first day
S-31
<PAGE> 32
but on or before the fifteenth day of such Interest Accrual Period. The per
annum interest rate on the Class S Certificates for the first Interest Accrual
Period is expected to be approximately 0.698780%.
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 $512,744,256.
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
A5, Class A26 or 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 date of the initial issuance of the certificates,
(1) as reduced by:
- all amounts distributed on previous Distribution Dates on such
certificate on account of principal;
- the principal portion of all Realized Losses previously allocated to such
certificate;
- in the case of a junior certificate, such certificate's pro rata share,
if any, of the Junior Certificate Writedown Amount (as defined below) and
the Class PO Deferred Payment Writedown Amount (as defined below) for
previous Distribution Dates; and
(2) in the case of the Class A24 Certificates through the Accretion
Termination Date, as increased by all Accrued Certificate Interest added to the
Certificate Principal Balance thereof on previous Distribution Dates.
The aggregate "NOTIONAL PRINCIPAL BALANCE" of the Class A5 Certificates as
of any Distribution Date will equal the product of (i) the Class Certificate
Principal Balance of the Class A3 Certificates as of such Distribution Date and
(ii) 2.50%. The initial aggregate Notional Principal Balance of the Class A5
Certificates is expected to be approximately $900,000.
The aggregate "NOTIONAL PRINCIPAL BALANCE" of the Class A26 Certificates as
of any Distribution Date will equal the Class Certificate Principal Balance of
the Class A3 Certificates as of such Distribution Date. The initial aggregate
Notional Principal Balance of the Class A26 Certificates is expected to be
approximately $36,000,000.
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
S-32
<PAGE> 33
the month of such Distribution Date less any Deficient Valuations occurring
before the Bankruptcy Loss Amount has been reduced to zero.
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 of 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 in inverse order of priority, until the Class
Certificate Principal Balance of each such class has been reduced to zero.
With respect to any Distribution Date, the "NET INTEREST SHORTFALL" will
equal the excess of the aggregate Interest Shortfalls with respect to such
Distribution Date over the Compensating Interest Payment, 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" below) will, on each Distribution Date, be allocated among all the
outstanding certificates entitled to distributions of interest in proportion to
the amount of Accrued Certificate Interest that would have been allocated
thereto in the absence of such shortfall and losses. 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
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<PAGE> 34
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 or, in the case of the Class A24 Certificates through the
Accretion Termination Date, the amounts that would otherwise have been added to
the Class Certificate Principal Balance thereof. Such reduction with respect to
the Class A24 Certificates will effect a corresponding reduction in the Class
A24 Accrual Amount on such Distribution Date and the amount distributed in
respect of the Class A24 Accrual Amount as principal on certain classes of
certificates as described above. 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 (or added to
the Class Certificate Principal Balance of the Class A24 Certificates through
the Accretion Termination Date) on subsequent Distribution Dates in accordance
with priority second of the second paragraph under "--Allocations 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 Certificate 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 7.750% per annum (each such mortgage loan, a
"DISCOUNT MORTGAGE LOAN") will be the fraction, expressed as a percentage, equal
to NMR divided by 7.750%. The "NON-PO PERCENTAGE" with respect to any mortgage
loan with a NMR equal to or greater than 7.750% (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 (7.750%--NMR) divided by 7.750%. 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 $2,455,666.
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 as described under "--Allocation of Available
Funds" above (the "AVAILABLE FUNDS ALLOCATION"). In accordance with priority
third of the Available Funds Allocation, 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, of the Available Funds Allocation. In
accordance with each such
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<PAGE> 35
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, 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
Class A4 Certificates will not receive any distributions in respect of scheduled
payments, prepayments or certain other unscheduled recoveries of principal on
the mortgage loans during the first five years after the date of initial
issuance of the certificates, except as otherwise described herein on or
following the earlier of the Group I Final Distribution Date and the Cross-Over
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 Loss Amount has been reduced
to zero, 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 (as defined herein);
(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
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<PAGE> 36
(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.
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 A4 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 (determined without
application of the Senior Percentage or the Senior Prepayment Percentage)
for such date multiplied by the Class A4 Scheduled Distribution 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 (determined without
application of the Senior Prepayment Percentage) for such date multiplied
by the product of (x) the Class A4 Prepayment Distribution Percentage for
such date and (y) the Class A4 Percentage for such date.
Notwithstanding the foregoing, (1) on the Group I Final Distribution Date,
the Class A4 Principal Distribution Amount will be increased by any Senior
Optimal Principal Amount remaining after distributions of principal have been
made on the Group I Senior Certificates, and (2) following the Group I Final
Distribution Date, the Class A4 Principal Distribution Amount will equal the
Senior Optimal Principal Amount.
The "CLASS A4 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 A4 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 A4 Percentage is expected to
be approximately 9.57%.
The "CLASS A4 PREPAYMENT DISTRIBUTION PERCENTAGE" for any Distribution Date
will equal 0% through the Distribution Date in August 2005; 30% thereafter
through the Distribution Date in August 2006; 40% thereafter through the
Distribution Date in August 2007; 60% thereafter through the Distribution Date
in August 2008; 80% thereafter through the Distribution Date in August 2009; and
100% thereafter.
The "CLASS A4 SCHEDULED DISTRIBUTION PERCENTAGE" for any Distribution Date
through the Distribution Date in August 2005 will equal 0%. The Class A4
Scheduled Distribution Percentage on any Distribution Date after the
Distribution Date in August 2005 will equal the Class A4 Percentage for such
Distribution Date.
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<PAGE> 37
The "GROUP I FINAL DISTRIBUTION DATE" is the Distribution Date on which the
Class Certificate Principal Balance of each of the Group I Senior Certificates
has been reduced to zero.
"GROUP I SENIOR CERTIFICATES" are all classes of senior certificates, other
than the Class A4, Class A5, Class A26, Class S and Class PO Certificates.
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 preceding such Distribution
Date. The initial Senior Percentage is expected to be approximately 95.73%.
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>
September 2000-August 2005.... 100%
September 2005-August 2006.... Senior Percentage plus 70% of
the Junior Percentage
September 2006-August 2007.... Senior Percentage plus 60% of
the Junior Percentage
September 2007-August 2008.... Senior Percentage plus 40% of
the Junior Percentage
September 2008-August 2009.... Senior Percentage plus 20% of
the Junior Percentage
September 2009 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
September 2005 and August 2006;
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<PAGE> 38
(b) 35% of the Original Junior Principal Balance if such
Distribution Date occurs between and including September
2006 and August 2007;
(c) 40% of the Original Junior Principal Balance if such
Distribution Date occurs between and including September
2007 and August 2008;
(d) 45% of the Original Junior Principal Balance if such
Distribution Date occurs between and including September
2008 and August 2009; and
(e) 50% of the Original Junior Principal Balance if such
Distribution Date occurs during or after September 2009; or
(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 September
2005 and August 2006;
(b) 15% of the Original Junior Principal Balance if such
Distribution Date occurs between and including September
2006 and August 2007;
(c) 20% of the Original Junior Principal Balance if such
Distribution Date occurs between and including September
2007 and August 2008;
(d) 25% of the Original Junior Principal Balance if such
Distribution Date occurs between and including September
2008 and August 2009; and
(e) 30% of the Original Junior Principal Balance if such
Distribution Date occurs during or after September 2009.
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 Loss Amount has been reduced to zero, 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;
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<PAGE> 39
(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 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 prior to the reduction of the Bankruptcy Loss Amount to zero.
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 4.27%.
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 Loss Amount has
been reduced to zero, 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;
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<PAGE> 40
(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 the
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 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 succeeding sentence, no Class
B1, Class B2, Class B3, Class B4 or Class B5 Certificate (together, the "CLASS B
CERTIFICATES") shall be entitled on any Distribution Date to receive
distributions pursuant to clauses (2), (3) and (5) of the definition of Junior
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
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<PAGE> 41
classes of junior certificates, in reduction of the Allocable Shares thereof, in
inverse order of priority.
PRINCIPAL DISTRIBUTIONS ON THE CLASS A3 CERTIFICATES
GENERAL
Arrangements have been made to distribute principal on the Class A3
Certificates (the "DESIGNATED RETAIL CERTIFICATES") in $1,000 increments. These
arrangements are intended to accommodate retail investors who may not wish to
receive their principal distributions in amounts smaller than $1,000 and to give
a limited payment priority to investors who request early payment. As a result,
only some Designated Retail Certificates of the class will receive distributions
of principal on any given date on which principal would otherwise be distributed
on all certificates of such class.
Principal payments on the Designated Retail Certificates will be made as
follows:
- The amount of principal, if any, distributable on each Distribution Date
on such class as a whole will be determined as described under
"Distributions on the Certificates--Allocation of Available Funds" above.
- The distribution of principal on such class will be rounded upward to an
integral multiple of $1,000 by withdrawing funds from the Rounding
Account (as defined below), if necessary.
- The Trustee will remit distributions of principal to DTC in integral
multiples of $1,000. DTC will then remit such distributions to its
participants on behalf of the beneficial owners of such class. The
participants and the relevant Financial Intermediaries in turn will be
responsible for remitting principal payments to their customers as
described above.
- Holders of such class who have properly made a Principal Distribution
Request, as described below, will be paid before other holders of such
class, to the extent of available principal for such class.
- Principal Distribution Requests submitted on behalf of Deceased Holders
(as defined below) will be entitled to a first priority, and requests
from beneficial owners other than Deceased Holders ("LIVING HOLDERS")
will be entitled to a second priority.
- If more principal is available for distribution on such class on a
Distribution Date than the amount covered by valid Principal Distribution
Requests, beneficial owners of such class will receive distributions of
principal on such Distribution Date in integral multiples of $1,000
pursuant to DTC's random lot procedures, to the extent of such excess.
Notwithstanding the foregoing, on and after the earlier to occur of the
Cross-Over Date and the date on which any Realized Loss is allocated to the
Designated Retail Certificates, distributions on the Designated Retail
Certificates will be made pro rata among all holders of the certificates of such
class and will not be made in integral multiples of $1,000, by requested
distributions or by random lot. If pro rata distributions cannot be made through
the facilities of DTC, the Designated Retail Certificates will be withdrawn from
the facilities of DTC and definitive physical certificates will be issued to the
beneficial owners of those certificates.
There can be no assurance that each participant receiving distributions of
principal made by random lot, or in accordance with Principal Distribution
Requests, and that each Financial Intermediary in the chain to beneficial
owners, will remit distributions to their
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<PAGE> 42
customers by random lot or in accordance with Principal Distribution Requests.
Investors should ask their brokers or other intermediaries what allocation
procedures they use. Neither GECMSI nor the Trustee will be responsible for the
manner in which DTC, any participant or any Financial Intermediary allots
distributions on these certificates.
The Agreement will provide that, in the event definitive physical
certificates are issued in respect of the Designated Retail Certificates while
distributions of principal are being made by requested distributions or by
random lot, the Trustee will determine which physical certificates of such class
will receive principal distributions on such class on the applicable
Distribution Date using procedures comparable to those described herein.
Due to the procedures for distributions described herein, there can be no
assurance that any particular beneficial owner of a Designated Retail
Certificate will receive a principal distribution on any Distribution Date. The
timing and amount of distributions in reduction of the Certificate Principal
Balance of these certificates is highly uncertain, and such distributions may be
made earlier or later than the date, or in amounts different from that, desired
by a beneficial owner of such certificate. Accordingly, the allocation of
principal distributions in respect of such certificates may result in actual
yields to investors and weighted average lives that vary significantly from
those anticipated, and such yields and weighted average lives will vary among
the holders of such class of certificates. See the related risk factor on page
S-13.
ROUNDING OF DISTRIBUTIONS OF PRINCIPAL
For purposes of distributions of principal on the Designated Retail
Certificates, a rounding account (a "ROUNDING ACCOUNT") will be established on
behalf of such class on the date of issuance of the certificates by the deposit
of $999.99 in a segregated, non-interest bearing account maintained by the
Trustee pursuant to the Agreement. Prior to the earlier of the Cross-Over Date
or the date on which any Realized Loss is allocated to such class, whenever
distributions of principal are to be made on the Designated Retail Certificates,
the amount allocable to such class will be rounded upward to an integral
multiple of $1,000, if necessary.
On the first Distribution Date when distributions of principal will be made
on the Designated Retail Certificates, the Trustee will withdraw from the
applicable Rounding Account any funds needed to round the amount allocable to
such class upward to the next integral multiple of $1,000 and will distribute
the rounded amount on such class. On the next Distribution Date when
distributions of principal will be made on such class of certificates, the
Trustee will first apply the amount allocable to such class in respect of
principal to repay any amount withdrawn from such Rounding Account on the
previous Distribution Date; then it will round the remainder of such allocable
amount upward to the next integral multiple of $1,000 by making another
withdrawal from such Rounding Account and will distribute this amount on such
class. This process will continue on subsequent Distribution Dates prior to the
earlier of the Cross-Over Date or the date on which any Realized Loss is
allocated to such class, until the Class Certificate Principal Balance of such
class of certificates has been reduced to zero.
Upon the earliest of the Cross-Over Date, the date on which any Realized
Loss is allocated to the Designated Retail Certificates and the next
Distribution Date after the Class Certificate Principal Balance of the
Designated Retail Certificates is reduced to zero, the balance in the applicable
Rounding Account will be restored to $999.99 from Available Funds otherwise
available for distribution to other classes of certificates and will be
distributed to the holder of the Class RL Certificate, and such Rounding Account
will be terminated.
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<PAGE> 43
As a result of the operation of the applicable Rounding Account, the
aggregate distributions made in reduction of the Class Certificate Principal
Balance of the Designated Retail Certificates on each Distribution Date may be
slightly more or less than would be the case in the absence of such rounding
procedures, but such difference in respect of such class will be no more than
$999.99 on such Distribution Date. Under no circumstances will the sum of all
distributions made in reduction of the Class Certificate Principal Balance of
the Designated Retail Certificates through any Distribution Date be less than
the sum that would have resulted in the absence of such rounding procedures.
PRINCIPAL DISTRIBUTION REQUESTS AND WITHDRAWALS
Each beneficial owner of a Designated Retail Certificate may request that a
distribution of principal on such certificate be made on a Distribution Date, in
any integral multiple of $1,000, by delivering a written request (each, a
"PRINCIPAL DISTRIBUTION REQUEST") to the DTC participant or Financial
Intermediary that maintains such beneficial owner's account. The participant
should in turn make the request to DTC (or, in the case of a Financial
Intermediary, such firm must notify the related participant of such request,
which participant should make the request to DTC) on a form required by DTC and
provided to the participant.
In the case of a request on behalf of a Deceased Holder, a certified copy
of the death certificate and any additional appropriate evidence of death and
any tax waivers must be forwarded to the Trustee under separate cover.
Furthermore, such requests of Deceased Holders that are incomplete may not be
honored by the Trustee and, if not honored, will lose their priority and must be
re-requested. Upon receipt of such Principal Distribution Request, DTC will date
and time-stamp such request. Such requests will be honored on any Distribution
Date only to the extent that they are received by DTC on or before the Record
Date for such Distribution Date. DTC may establish such procedures as it deems
fair and equitable to establish the order of receipt of requests for such
distributions received by it on the same day. Such requests shall be made
available to the Trustee through the facilities of DTC. Principal Distribution
Requests delivered to DTC after the Record Date for a particular Distribution
Date and requests received in a timely manner but not accepted with respect to a
particular Distribution Date will be treated as Principal Distribution Requests
for the next succeeding Distribution Date and each succeeding Distribution Date
thereafter until each request is accepted or is withdrawn as described below.
In the case of Principal Distribution Requests on behalf of Living Holders,
DTC will establish a new order of priority for each Distribution Date. This
order will apply both to previously unsatisfied Principal Distribution Requests
and to newly submitted requests. A Principal Distribution Request submitted on
behalf of a Living Holder who later dies will become entitled to the priority of
a newly submitted request on behalf of a Deceased Holder. Such priority will be
effective for each subsequent Distribution Date if DTC has received a certified
copy of the death certificate for such Deceased Holder and any additional
appropriate evidence of death and any requested tax waivers by the last business
day of the preceding calendar month. Each Principal Distribution Request
submitted by a beneficial owner of a Designated Retail Certificate will be held
by DTC until such request has been accepted or has been withdrawn in writing as
described below.
On any Distribution Date on which principal distributions are made on the
Designated Retail Certificates, priority of distributions of principal in
respect of such class will be given to holders of such class on whose behalf
Principal Distribution Requests have been
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duly received and not withdrawn. DTC will honor Principal Distribution Requests
in the following order of priority:
first, DTC will honor Principal Distribution Requests submitted on
behalf of Deceased Holders of such class in the order of their receipt by
DTC, until such requests have been honored in an amount up to $100,000 for
each requesting Deceased Holder; and
second, DTC will honor Principal Distribution Requests submitted on
behalf of Living Holders of such class in the order of priority established
by DTC, until such requests have been honored in an amount of up to $10,000
for each requesting Living Holder.
Thereafter, DTC will honor Principal Distribution Requests submitted on
behalf of each Deceased Holder as provided in priority first up to a second
$100,000 and thereafter, Principal Distribution Requests submitted on behalf of
each Living Holder as provided in priority second up to a second $10,000. This
sequence of priorities will be repeated until all Principal Distribution
Requests have been honored to the extent of amounts available for distribution
in reduction of the Class Certificate Principal Balance of the Designated Retail
Certificates.
If the amount available for distribution in reduction of the Class
Certificate Principal Balance of the Designated Retail Certificates on a given
Distribution Date is insufficient to honor all Principal Distribution Request
for such class, such requests will be honored on succeeding Distribution Dates
as principal becomes available for distribution on such class, without the need
for the holders to resubmit their Principal Distribution Requests.
On any Distribution Date on which principal distributions are to be made on
the Designated Retail Certificates, the Trustee will advise DTC as to which
Principal Distribution Requests should be honored, and in what amounts.
Any beneficial owner of Designated Retail Certificates with respect to
which a Principal Distribution Request has been made may withdraw such request
by so notifying in writing the participant or Financial Intermediary that
maintains such beneficial owner's account (each such withdrawal, a
"WITHDRAWAL"). The participant should forward the Withdrawal to DTC on a form
required by DTC. In the event that such account is maintained by a Financial
Intermediary, such Financial Intermediary should notify the related participant,
which in turn should forward the Withdrawal of such request on such form to DTC.
If such Withdrawal has not been received by DTC on or before the Record Date for
the applicable Distribution Date, the previously made Principal Distribution
Request will be irrevocable with respect to such Distribution Date.
Neither GECMSI nor the Trustee will be liable for any delay or failure by
any DTC participant or any Financial Intermediary in the delivery of Principal
Distribution Requests or Withdrawals to DTC.
If the amount available for distribution in reduction of the Class
Certificate Principal Balance of the Designated Retail Certificates on any
Distribution Date exceeds the amount needed to honor all Principal Distribution
Requests with respect to such class on such date, additional principal
distributions, in integral multiples equal to $1,000, will be made to the
holders of such class in accordance with DTC's established random lot
procedures, without regard to whether or not such certificateholders have
submitted Principal Distribution Requests.
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DEFINITION OF "DECEASED HOLDER"
A "DECEASED HOLDER" is a beneficial owner of a Designated Retail
Certificate who was living at the time such interest was acquired and whose
executor or other authorized representative causes to be furnished to the
Trustee a certified copy of the death certificate for such Deceased Holder and
any additional evidence of death satisfactory to the Trustee and any tax waivers
requested by the Trustee.
Designated Retail Certificates beneficially owned by tenants by the
entirety, joint tenants or tenants in common will be considered to be
beneficially owned by a single owner. The death of a tenant by the entirety,
joint tenant or tenant in common will be deemed to be the death of the
beneficial owner, and the Designated Retail Certificates so beneficially owned
will be eligible for priority with respect to distributions of principal,
subject to the limitations described herein.
Designated Retail Certificates beneficially owned by a trust will be
considered to be beneficially owned by each beneficiary of the trust to the
extent of such beneficiary's beneficial interest therein, but in no event will a
trust's beneficiaries collectively be deemed to be beneficial owners of a number
of individual Designated Retail Certificates greater than the number of
individual Designated Retail Certificates of which such trust is the owner. The
death of the beneficiary of a trust will be deemed to be the death of a
beneficial owner of the Designated Retail Certificates beneficially owned by the
trust to the extent of such beneficiary's beneficial interest in such trust. The
death of an individual who was a tenant by the entirety, joint tenant or tenant
in common in a tenancy that is the beneficiary of a trust will be deemed to be
the death of the beneficiary of the trust.
The death of a person who, during his or her lifetime, was entitled to
substantially all of the beneficial ownership interest in a Designated Retail
Certificate will be deemed to be the death of the beneficial owner of the
Designated Retail Certificate regardless of the registration of the ownership,
if such beneficial ownership interest can be established to the satisfaction of
the Trustee.
Expenses incurred by the Trustee in an effort to determine the beneficial
ownership interest, including, without limitation, attorney's fees, shall be
paid by the beneficial owner. Such beneficial interest will be deemed to exist
in typical cases of street name or nominee ownership, ownership by a trustee,
ownership under the Uniform Gift to Minors Act and community property or other
joint ownership arrangements between a husband and wife. Beneficial interest
shall include the power to sell, transfer, or otherwise dispose of a Designated
Retail Certificate and the right to receive the proceeds therefrom, as well as
interest and distributions in reduction of principal balance payable with
respect thereto. As used in this prospectus supplement, a request for a
distribution of principal of a Designated Retail Certificate by a Deceased
Holder means a request by the personal representative, surviving tenant by the
entirety, surviving joint tenant or surviving tenant in common of such Deceased
Holder.
ALLOCATION OF REALIZED LOSSES ON THE CERTIFICATES
A "REALIZED LOSS" is
- as to any Liquidated Mortgage Loan (as defined below), the unpaid
principal balance thereof plus accrued and unpaid interest thereon at the
Net Mortgage Rate through the last day of the month of liquidation, less
the net proceeds from the liquidation of, and any insurance proceeds
from, such mortgage loan and the related mortgaged property.
- as to any mortgage loan, a Deficient Valuation (as defined below).
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A "LIQUIDATED MORTGAGE LOAN" is any defaulted mortgage loan as to which
GECMSI has determined that all amounts which it expects to recover from or on
account of such mortgage loan have been recovered.
A Deficient Valuation may result from the personal bankruptcy of a
mortgagor if the bankruptcy court establishes the value of the mortgaged
property at an amount less than the then outstanding principal balance of the
mortgage loan secured by such mortgaged property and reduces the secured debt to
such value. In such case, the trust, as the holder of such mortgage loan, would
become an unsecured creditor to the extent of the difference between the
outstanding principal balance of such mortgage loan and such reduced secured
debt (such difference, a "DEFICIENT VALUATION").
An "EXCESS LOSS" is any Deficient Valuation, Fraud Loss or Special Hazard
Loss (each a type of Realized Loss), or any part thereof, occurring after the
Bankruptcy Loss Amount, Fraud Loss Amount or Special Hazard Loss Amount,
respectively, has been reduced to zero.
A "NON-EXCESS REALIZED LOSS" is any Realized Loss other than an Excess
Loss.
A "FRAUD LOSS" is any Realized Loss attributable to fraud in the
origination of the related mortgage loan.
A "SPECIAL HAZARD LOSS" is a Realized Loss attributable to damage or a
direct physical loss suffered by a mortgaged property--including any Realized
Loss due to the presence or suspected presence of hazardous wastes or substances
on a mortgaged property--other than any such damage or loss covered by a hazard
policy or a flood insurance policy required to be maintained in respect of such
mortgaged property under the Agreement or any loss due to normal wear and tear
or certain other causes.
LOSSES ALLOCABLE TO 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 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
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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 "Collection and Other Servicing Procedures--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 reduction of the Fraud Loss Amount, the Special Hazard Loss Amount and the
Bankruptcy Loss Amount, respectively, to zero will also 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 Loss Amount, Special Hazard Loss Amount and
the Bankruptcy Loss Amount, respectively, have been reduced to zero 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.
Upon the initial issuance of the certificates, the "FRAUD LOSS AMOUNT" will
equal approximately $5,538,318 (approximately 1.00% 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 $5,538,318 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 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 earlier of the
Cross-Over Date or the fifth anniversary of the Cut-off Date, the Fraud Loss
Amount shall be zero.
Upon the initial issuance of the certificates, the "SPECIAL HAZARD LOSS
AMOUNT" will equal approximately $5,538,318 (approximately 1.00% of the
aggregate Scheduled
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<PAGE> 48
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
$5,538,318 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.
As of any Distribution Date on or after the Cross-Over Date, the Special
Hazard Loss Amount will be zero.
On each Distribution Date, the "BANKRUPTCY LOSS AMOUNT" will equal
approximately $217,793 (approximately 0.04% 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). As of any
Distribution Date on or after the Cross-Over Date, the Bankruptcy Loss Amount
will be zero. 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 distributions of principal and interest on
such certificates (or the calculation of the Class A24 Accrual Amount for the
Class A24 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. For purposes
of allocating the principal portion of Realized Losses (including Excess
Losses), the Class Certificate Principal Balance of the Class A24 Certificates
will be deemed to equal the lesser of (1) their original Class Certificate
Principal Balance and (2) their outstanding Class Certificate Principal Balance.
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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 before
the Bankruptcy Loss Amount has been reduced to zero (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 Loss Amount has been reduced
to zero, 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 before the Bankruptcy Loss Amount has
been reduced to zero 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:
(1) the Class R Certificates will be entitled to receive:
(a) the amount, if any, of Available Funds remaining in the
upper-tier REMIC on any Distribution Date after distributions of
interest and principal and in respect of the Class PO Deferred Amount
are made on the certificates on such date; and
(b) the proceeds, if any, of the assets of the trust remaining in
the upper-tier REMIC after the Class Certificate Principal Balances of
all classes of certificates have each been reduced to zero; and
(2) the Class RL Certificates will be entitled to receive:
(a) the amount, if any, of Available Funds remaining in the
lower-tier REMIC on any Distribution Date after distributions of
interest and principal and in respect of the Class PO Deferred Amount
are made on the certificates on such date;
(b) the amount of any Unanticipated Recoveries received by GECMSI
in the calendar month preceding the month of a Distribution Date and not
otherwise allocated to other classes of certificates as described in
"Servicing of the Mortgage Loans--Unanticipated Recoveries of Losses on
the Mortgage Loans" in the accompanying prospectus;
(c) the proceeds, if any, of the assets of the trust remaining in
the lower-tier REMIC after the Class Certificate Principal Balances of
all classes of certificates have each been reduced to zero; and
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(d) the amount in the Rounding Account after the earliest of the
Cross-Over Date, the date on which any Realized Loss is allocated to the
Designated Retail Certificates and the next Distribution Date after the
Class Certificate Principal Balance of the Designated Retail
Certificates is reduced to zero.
It is not anticipated that any material assets will be remaining for such
distributions on the Class R or Class RL Certificates at any such time. See
"Federal Income Tax Consequences--Residual Certificates" herein.
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 4.25% 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:
(a) 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
(b) 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 Non-Excess Realized Loss 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 Non-Excess Realized Loss 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.
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<PAGE> 51
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
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. Among such senior
certificates, such amounts 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 such amounts will be allocated pro
rata among all of the outstanding senior certificates entitled to principal
distributions (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 on the junior
certificates for such date, any remaining undistributed 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 1.00% of the
initial aggregate Certificate Principal Balance of all of the certificates and
approximately 23.53% 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 Non-Excess Realized Loss with respect to a mortgage
loan 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
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Distribution Date) will not be distributable to the holders of any class of
Class B Certificates on any Distribution Date for which the related Class
Prepayment Distribution Trigger is not satisfied, except as described above. See
"--Distributions on the Certificates--Principal." If the Class Prepayment
Distribution Trigger is not satisfied with respect to any class of Class B
Certificates, the amortization of more senior ranking classes of junior
certificates may occur more rapidly than would otherwise have been the case and,
in the absence of losses in respect of the mortgage loans, the percentage
interest in the principal balance of the mortgage loans evidenced by such Class
B Certificates may increase.
As a result of the subordination of any class of certificates, such class
of certificates will be more sensitive than more senior ranking classes of
certificates 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 Certificates." In addition,
the Agreement provides that the residual certificates may not be acquired by an
ERISA Plan. The residual certificates will contain a legend describing the
foregoing restrictions.
YIELD AND WEIGHTED AVERAGE LIFE CONSIDERATIONS
YIELD
The effective yield on the certificates will depend upon, among other
things, the price at which the certificates are purchased and the rate and
timing of payments of principal (including both scheduled and unscheduled
payments) of the mortgage loans underlying the certificates. You should refer to
"Yield, Maturity and Weighted Average Life Considerations" in the prospectus and
the text below for a discussion of the factors that could affect the yield of
your certificates.
PREPAYMENTS
The rate of distribution of principal of the certificates (and the
aggregate amount of interest payable on the Class A5 and Class A26 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 the
holders of the Class A5 and Class A26 Certificates) will generally be entitled
on any Distribution Date to receive from Available Funds
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distributions of amounts based on clause (4) of each of the definitions of
Senior Optimal Principal Amount, Class PO Principal 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 the Class A5 and Class
A26 Certificates, reducing the respective Notional Principal Balances 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 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 allocation being subject to reduction thereafter as described herein.
The portion of such amounts otherwise allocable to the Class A4 Certificates
(other than amounts described in clause (4) of the definition of Senior Optimal
Principal Amount) 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 such amounts will be allocated pro
rata among all the outstanding senior certificates entitled to principal
distributions (other than the Class PO Certificates) on each Distribution Date
after the Cross-Over Date. The resulting allocation between the Group I Senior
Certificates and the Class A4 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 A4 Certificates through the earlier of the Group I Final
Distribution Date and the Cross-Over Date. In addition, the Class A4
Certificates will not receive any distributions of scheduled principal payments
or amounts described in clause (4) of the definition of Senior Optimal Principal
Amount during the first five years after the date of initial issuance of the
certificates, except as otherwise described herein on or following 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 entitled to principal distributions (other than the Class PO
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.
S-53
<PAGE> 54
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 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 (or added to the Class Certificate Principal Balance of the Class
A24 Certificate) 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--Optional 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
S-54
<PAGE> 55
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 advances of delinquent monthly payments of principal and
interest, delinquencies on the mortgage loans may also have a relatively greater
effect:
(1) on the yields to investors in the Class B Certificates with higher
numerical designations than on the yields to investors in those Class B
Certificates with lower numerical designations;
(2) on the yields to investors in the Class B Certificates than on the
yields to investors in the other classes of the certificates; and
(3) on the yields to investors in the Class M Certificates than on the
yields to investors in the senior certificates.
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.
SENSITIVITY OF THE CLASS A5 AND CLASS A26 CERTIFICATES
The yield to investors in the Class A5 and Class A26 Certificates, which
are Interest Only Certificates, will be highly sensitive to the rate of
principal payments (including prepayments) on the mortgage loans. Faster than
anticipated rates of prepayments on the mortgage loans could result in actual
yields to investors that are significantly lower than anticipated yields or the
failure of such investors to fully recover their investments. The Notional
Principal Balance of the Class A5 Certificates at any time will equal the
product of (i) the Class Certificate Principal Balance of the Class A3
Certificates at such time and (ii)2.50%. The Notional Principal Balance of the
Class A26 Certificates at any time will equal the Class Certificate Principal
Balance of the Class A3 Certificates at such time.
To illustrate the significance of prepayments on the distributions on the
Class A5 and Class A26 Certificates, the following tables indicate the pre-tax
yields to maturity (on a corporate bond equivalent basis) under the specified
assumptions at the different constant percentages of the Prepayment Assumption
shown. The yields were calculated by determining the applicable monthly discount
rates which, when applied to the assumed streams of cash flows to be paid on the
Class A5 and Class A26 Certificates, would cause the discounted present value of
such cash flows to equal the assumed purchase price percentages for such
certificates stated in such tables and converting the applicable monthly
discount rates to corporate bond equivalent rates. Implicit in the use of any
discounted present value or internal rate of return calculations such as these
is the assumption that intermediate cash flows are reinvested at the discount
rate or internal rate
S-55
<PAGE> 56
of return. Thus, these calculations do not take into account the different
interest rates at which investors may be able to reinvest funds received by them
as distributions on such certificates and, consequently, do not reflect the
return on any investment when such reinvestment rates are considered. It is
unlikely that the mortgage loans will prepay at any of the constant levels of
the Prepayment Assumption shown or any other constant rate until maturity or
that all of the mortgage loans will prepay at the same rate. The timing of
changes in the rate of prepayments may significantly affect the total
distributions received, the date of receipt of such distributions and the actual
yield to maturity to any investor, even if the average rate of principal
prepayments is consistent with an investor's expectation. In general, the
earlier the payment of principal of the mortgage loans, the greater the effect
on an investor's yield to maturity. As a result, the effect on an investor's
yield of principal prepayments occurring at a rate higher (or lower) than the
rate anticipated by the investor during the period immediately following the
issuance of the certificates will not be equally offset by a subsequent like
reduction (or increase) in the rate of principal prepayments.
The following tables have been prepared based on the Modeling Assumptions
(as defined herein) and the additional assumptions that:
(1) the assumed purchase prices of the Class A5 and Class A26
Certificates, which do not include accrued interest, are as specified
(expressed as a percentage of the respective Notional Principal Balances
thereof); and
(2) such purchase prices are paid on August 30, 2000.
PRE-TAX YIELD* TO MATURITY OF THE CLASS A5 CERTIFICATES
(ASSUMED PURCHASE PRICE PERCENTAGE--31.75%)
PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
0% 100% 275% 400% 500%
--------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
25.41% 25.40% 24.40% 20.35% 13.87%
</TABLE>
-------------------------
* Corporate bond-equivalent basis
PRE-TAX YIELD* TO MATURITY OF THE CLASS A26 CERTIFICATES
(ASSUMED PURCHASE PRICE PERCENTAGE--0.25%)
PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
0% 100% 275% 400% 500%
--------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
19.74% 19.70% 18.16% 13.08% 5.20%
</TABLE>
-------------------------
* Corporate bond-equivalent basis
The mortgage loans may not have all the characteristics assumed, and there
can be no assurance that:
(1) the mortgage loans will prepay at any of the constant rates shown
in the tables or any particular rate;
(2) the pre-tax yields to maturity on the Class A5 and Class A26
Certificates will correspond to any amounts shown herein; or
(3) the purchase prices of the Class A5 and Class A26 Certificates
will be as assumed.
S-56
<PAGE> 57
Each investor must make its own decision as to the appropriate prepayment
assumptions to be used in deciding whether or not to purchase a Class A5 or
Class A26 Certificate.
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
August 2030. 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.
Based on the Modeling Assumptions and the additional assumption that no
principal prepayments are experienced on the mortgage loans, the final
Distribution Date for the Class A25 Certificates is expected to occur in
September, 2012. Depending on the characteristics and performance of the
mortgage loans, the actual final Distribution Date for the Class A25
Certificates may be earlier or later (perhaps substantially) than September,
2012.
WEIGHTED AVERAGE LIVES OF THE CERTIFICATES
The "WEIGHTED AVERAGE LIFE" on of a certificate is determined by:
- multiplying the reduction, if any, in the principal balance or notional
balance thereof on each Distribution Date by the number of years from
August 30, 2000 to such Distribution Date;
- summing the results; and
- dividing the sum by the aggregate reductions in the principal balance or
notional 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, or in the case of
the Class A5 and Class A26 Certificates, which have no Class Certificate
Principal Balances, variability in the weighted average lives of such classes of
certificates could result in variability in the related yields to maturity.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this prospectus supplement (the
"PREPAYMENT ASSUMPTION") represents an assumed rate of prepayment each month
relative to the then outstanding principal balance of a pool of mortgage loans.
The Prepayment Assumption does not purport to be either a historical description
of the prepayment experience of any pool of mortgage loans or a prediction of
the anticipated rate of prepayment of any pool of mortgage loans, including the
mortgage loans in the mortgage loan pool. A prepayment assumption of 100% of the
Prepayment Assumption assumes prepayment rates of 0.2% per
S-57
<PAGE> 58
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 CLASS CERTIFICATE PRINCIPAL BALANCES
The following tables set forth the percentages of the initial Class
Certificate Principal Balance or Notional 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 (other than 0% of the Prepayment Assumption) set forth in
the table, it is assumed with respect to the mortgage loans (the "MODELING
ASSUMPTIONS") that:
(1) the distributions in respect of the certificates are made and
received in cash on the 25th day of each month commencing in September
2000;
(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 $553,831,809;
(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--Optional Termination" herein;
(6) scheduled monthly payments on such mortgage loans are received on
the first day of each month commencing in September 2000, 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 August 2000)
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 or Notional
Principal Balance and interest rate on the certificates for each class of
certificates offered hereby are as indicated in the table on page S-4;
(10) the certificates are purchased on August 30, 2000;
(11) the amount distributable to certificateholders is not reduced by
the incurrence of any expenses by the trust;
(12) distributions of principal on the Class A3 Certificates are not
restricted to increments of $1,000 and no withdrawals are made from the
Rounding Account; and
S-58
<PAGE> 59
(13) the mortgage loans are divided into two groups (each, a "MORTGAGE
LOAN GROUP") and the mortgage loans in each Mortgage Loan Group have the
respective characteristics described below:
<TABLE>
<CAPTION>
AGGREGATE
SCHEDULED STATED
PRINCIPAL REMAINING TERM
MORTGAGE LOAN BALANCE AS OF MORTGAGE INTEREST NET MORTGAGE AGE TO MATURITY
GROUP THE CUT-OFF DATE RATE RATE (MONTHS) (MONTHS)
--------------------- ---------------- ------------------- ------------ -------- --------------
<S> <C> <C> <C> <C> <C>
Discount............. $ 41,087,553.62 7.5421097205% 7.2868082404% 7 353
Non-discount......... $512,744,256.11 8.7224475258% 8.4487804960% 2 357
</TABLE>
It is not likely that the mortgage loans will prepay at any constant
percentage 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.
In addition, if the actual characteristics of the mortgage loans included in the
mortgage loan pool differ from those assumed in calculating the percentages set
forth in the tables, the actual Class Certificate Principal Balance or Notional
Principal Balance of each class of certificates outstanding at any time and the
actual weighted average life of each class of certificates would differ (which
difference would be material) from the corresponding information in the tables
for each indicated percentage of the Prepayment Assumption.
S-59
<PAGE> 60
PERCENT OF ORIGINAL CLASS CERTIFICATE PRINCIPAL BALANCE
OUTSTANDING OF THE CERTIFICATES
<TABLE>
<CAPTION>
CLASS A1 CLASS A2 CLASS A3
--------------------------------- -------------------------------- ------------------
DISTRIBUTION DATE 0% 100% 275% 400% 500% 0% 100% 275% 400% 500% 0% 100% 275%
----------------- ---- ---- ----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percent............... 100 100 100 100 100 100 100 100 100 100 100 100 100
August 2001................... 99 96 91 88 85 99 96 92 88 86 100 100 100
August 2002................... 98 89 73 63 54 98 89 75 65 57 100 100 100
August 2003................... 96 79 51 34 21 96 80 54 38 26 100 100 100
August 2004................... 95 70 33 12 0 95 71 37 17 3 99 99 99
August 2005................... 93 61 17 0 0 94 63 22 1 0 98 98 98
August 2006................... 92 53 6 0 0 92 56 11 0 0 96 96 96
August 2007................... 90 46 0 0 0 91 49 3 0 0 95 95 95
August 2008................... 89 40 0 0 0 89 43 0 0 0 94 94 94
August 2009................... 87 34 0 0 0 88 38 0 0 0 93 93 93
August 2010................... 85 29 0 0 0 86 33 0 0 0 92 92 92
August 2011................... 82 24 0 0 0 83 29 0 0 0 90 90 78
August 2012................... 80 20 0 0 0 81 24 0 0 0 89 89 64
August 2013................... 77 15 0 0 0 79 20 0 0 0 88 88 52
August 2014................... 74 11 0 0 0 76 16 0 0 0 87 87 42
August 2015................... 71 7 0 0 0 73 13 0 0 0 86 86 34
August 2016................... 67 4 0 0 0 69 9 0 0 0 84 84 27
August 2017................... 64 * 0 0 0 66 6 0 0 0 83 83 22
August 2018................... 59 0 0 0 0 62 3 0 0 0 82 82 18
August 2019................... 55 0 0 0 0 57 0 0 0 0 81 81 14
August 2020................... 50 0 0 0 0 52 0 0 0 0 80 80 11
August 2021................... 44 0 0 0 0 47 0 0 0 0 78 78 9
August 2022................... 38 0 0 0 0 42 0 0 0 0 77 77 7
August 2023................... 31 0 0 0 0 35 0 0 0 0 76 76 5
August 2024................... 24 0 0 0 0 29 0 0 0 0 75 74 4
August 2025................... 16 0 0 0 0 21 0 0 0 0 74 60 3
August 2026................... 8 0 0 0 0 13 0 0 0 0 72 46 2
August 2027................... 0 0 0 0 0 4 0 0 0 0 71 33 1
August 2028................... 0 0 0 0 0 0 0 0 0 0 70 21 1
August 2029................... 0 0 0 0 0 0 0 0 0 0 52 9 *
August 2030................... 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Average Life (in
years)....................... 18.2 7.3 3.2 2.5 2.1 18.7 7.9 3.5 2.6 2.2 25.1 23.4 14.1
<CAPTION>
CLASS A3
-----------
DISTRIBUTION DATE 400% 500%
----------------- ---- ----
<S> <C> <C>
Initial Percent............... 100 100
August 2001................... 100 100
August 2002................... 100 100
August 2003................... 100 100
August 2004................... 99 99
August 2005................... 98 93
August 2006................... 96 39
August 2007................... 67 9
August 2008................... 42 0
August 2009................... 28 0
August 2010................... 21 0
August 2011................... 15 0
August 2012................... 11 0
August 2013................... 8 0
August 2014................... 6 0
August 2015................... 5 0
August 2016................... 3 0
August 2017................... 2 0
August 2018................... 2 0
August 2019................... 1 0
August 2020................... 1 0
August 2021................... 1 0
August 2022................... * 0
August 2023................... * 0
August 2024................... * 0
August 2025................... * 0
August 2026................... * 0
August 2027................... * 0
August 2028................... * 0
August 2029................... * 0
August 2030................... 0 0
Weighted Average Life (in
years)....................... 8.6 5.9
</TABLE>
-------------------------
* Indicates an amount above zero and less than 0.5% of the original Class
Certificate Principal Balance is outstanding.
S-60
<PAGE> 61
PERCENT OF ORIGINAL CLASS CERTIFICATE PRINCIPAL BALANCE(1)
OUTSTANDING OF THE CERTIFICATES
<TABLE>
<CAPTION>
CLASS A4 CLASS A5
--------------------------------- --------------------------------
DISTRIBUTION DATE 0% 100% 275% 400% 500% 0% 100% 275% 400% 500%
----------------- ---- ---- ----- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percent............... 100 100 100 100 100 100 100 100 100 100
August 2001................... 100 100 100 100 100 100 100 100 100 100
August 2002................... 100 100 100 100 100 100 100 100 100 100
August 2003................... 100 100 100 100 100 100 100 100 100 100
August 2004................... 100 100 100 100 100 99 99 99 99 99
August 2005................... 100 100 100 100 100 98 98 98 98 93
August 2006................... 99 97 94 91 89 96 96 96 96 39
August 2007................... 97 93 86 81 76 95 95 95 67 9
August 2008................... 96 89 76 67 56 94 94 94 42 0
August 2009................... 94 83 65 53 37 93 93 93 28 0
August 2010................... 93 77 53 40 26 92 92 92 21 0
August 2011................... 91 71 43 30 18 90 90 78 15 0
August 2012................... 89 65 35 22 12 89 89 64 11 0
August 2013................... 87 59 29 16 8 88 88 52 8 0
August 2014................... 84 54 23 12 6 87 87 42 6 0
August 2015................... 82 49 19 9 4 86 86 34 5 0
August 2016................... 79 45 15 6 3 84 84 27 3 0
August 2017................... 76 40 12 5 2 83 83 22 2 0
August 2018................... 72 36 10 3 1 82 82 18 2 0
August 2019................... 68 32 8 2 1 81 81 14 1 0
August 2020................... 64 29 6 2 1 80 80 11 1 0
August 2021................... 60 25 5 1 * 78 78 9 1 0
August 2022................... 55 22 4 1 * 77 77 7 * 0
August 2023................... 50 18 3 1 * 76 76 5 * 0
August 2024................... 44 15 2 * * 75 74 4 * 0
August 2025................... 38 12 1 * * 74 60 3 * 0
August 2026................... 31 10 1 * * 72 46 2 * 0
August 2027................... 24 7 1 * * 71 33 1 * 0
August 2028................... 16 4 * * * 70 21 1 * 0
August 2029................... 7 2 * * * 52 9 * * 0
August 2030................... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life (in
years)....................... 21.5 15.9 11.4 9.9 8.9 25.1 23.4 14.1 8.6 5.9
<CAPTION>
CLASSES A6, A10, A14 AND A18
--------------------------------
DISTRIBUTION DATE 0% 100% 275% 400% 500%
----------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent............... 100 100 100 100 100
August 2001................... 100 100 100 100 100
August 2002................... 100 100 100 100 100
August 2003................... 100 100 100 100 100
August 2004................... 100 100 100 100 100
August 2005................... 100 100 100 100 0
August 2006................... 100 100 100 0 0
August 2007................... 100 100 100 0 0
August 2008................... 100 100 96 0 0
August 2009................... 100 100 0 0 0
August 2010................... 100 100 0 0 0
August 2011................... 100 100 0 0 0
August 2012................... 100 100 0 0 0
August 2013................... 100 100 0 0 0
August 2014................... 100 100 0 0 0
August 2015................... 100 100 0 0 0
August 2016................... 100 100 0 0 0
August 2017................... 100 100 0 0 0
August 2018................... 100 100 0 0 0
August 2019................... 100 100 0 0 0
August 2020................... 100 100 0 0 0
August 2021................... 100 0 0 0 0
August 2022................... 100 0 0 0 0
August 2023................... 100 0 0 0 0
August 2024................... 100 0 0 0 0
August 2025................... 100 0 0 0 0
August 2026................... 100 0 0 0 0
August 2027................... 100 0 0 0 0
August 2028................... 0 0 0 0 0
August 2029................... 0 0 0 0 0
August 2030................... 0 0 0 0 0
Weighted Average Life (in
years)....................... 27.9 20.5 8.2 5.5 4.5
</TABLE>
-------------------------
(1) With respect to the Class A5 Certificates, percentages are expressed as
percentages of the initial Notional Principal Balance thereof.
* Indicates an amount above zero and less than 0.5% of the original Class
Certificate Principal Balance or Notional Principal Balance is outstanding.
S-61
<PAGE> 62
PERCENT OF ORIGINAL CLASS CERTIFICATE PRINCIPAL BALANCE
OUTSTANDING OF THE CERTIFICATES
<TABLE>
<CAPTION>
CLASSES A7, A11, A15 AND A19 CLASSES A8, A12, A16 AND A20
--------------------------------- --------------------------------
DISTRIBUTION DATE 0% 100% 275% 400% 500% 0% 100% 275% 400% 500%
----------------- ---- ---- ----- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percent............... 100 100 100 100 100 100 100 100 100 100
August 2001................... 100 100 100 100 100 100 100 100 100 100
August 2002................... 100 100 100 100 100 100 100 100 100 100
August 2003................... 100 100 100 100 100 100 100 100 100 100
August 2004................... 100 100 100 100 100 100 100 100 100 100
August 2005................... 100 100 100 100 0 100 100 100 100 0
August 2006................... 100 100 100 0 0 100 100 100 0 0
August 2007................... 100 100 100 0 0 100 100 100 0 0
August 2008................... 100 100 100 0 0 100 100 100 0 0
August 2009................... 100 100 0 0 0 100 100 61 0 0
August 2010................... 100 100 0 0 0 100 100 0 0 0
August 2011................... 100 100 0 0 0 100 100 0 0 0
August 2012................... 100 100 0 0 0 100 100 0 0 0
August 2013................... 100 100 0 0 0 100 100 0 0 0
August 2014................... 100 100 0 0 0 100 100 0 0 0
August 2015................... 100 100 0 0 0 100 100 0 0 0
August 2016................... 100 100 0 0 0 100 100 0 0 0
August 2017................... 100 100 0 0 0 100 100 0 0 0
August 2018................... 100 100 0 0 0 100 100 0 0 0
August 2019................... 100 100 0 0 0 100 100 0 0 0
August 2020................... 100 100 0 0 0 100 100 0 0 0
August 2021................... 100 72 0 0 0 100 100 0 0 0
August 2022................... 100 0 0 0 0 100 41 0 0 0
August 2023................... 100 0 0 0 0 100 0 0 0 0
August 2024................... 100 0 0 0 0 100 0 0 0 0
August 2025................... 100 0 0 0 0 100 0 0 0 0
August 2026................... 100 0 0 0 0 100 0 0 0 0
August 2027................... 100 0 0 0 0 100 0 0 0 0
August 2028................... 85 0 0 0 0 100 0 0 0 0
August 2029................... 0 0 0 0 0 0 0 0 0 0
August 2030................... 0 0 0 0 0 0 0 0 0 0
Weighted Average Life (in
years)....................... 28.1 21.2 8.6 5.7 4.6 28.3 22.0 9.1 5.9 4.7
<CAPTION>
CLASSES A9, A13, A17 AND A21
--------------------------------
DISTRIBUTION DATE 0% 100% 275% 400% 500%
----------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent............... 100 100 100 100 100
August 2001................... 100 100 100 100 100
August 2002................... 100 100 100 100 100
August 2003................... 100 100 100 100 100
August 2004................... 100 100 100 100 100
August 2005................... 100 100 100 100 0
August 2006................... 100 100 100 91 0
August 2007................... 100 100 100 0 0
August 2008................... 100 100 100 0 0
August 2009................... 100 100 100 0 0
August 2010................... 100 100 20 0 0
August 2011................... 100 100 0 0 0
August 2012................... 100 100 0 0 0
August 2013................... 100 100 0 0 0
August 2014................... 100 100 0 0 0
August 2015................... 100 100 0 0 0
August 2016................... 100 100 0 0 0
August 2017................... 100 100 0 0 0
August 2018................... 100 100 0 0 0
August 2019................... 100 100 0 0 0
August 2020................... 100 100 0 0 0
August 2021................... 100 100 0 0 0
August 2022................... 100 100 0 0 0
August 2023................... 100 66 0 0 0
August 2024................... 100 0 0 0 0
August 2025................... 100 0 0 0 0
August 2026................... 100 0 0 0 0
August 2027................... 100 0 0 0 0
August 2028................... 100 0 0 0 0
August 2029................... * 0 0 0 0
August 2030................... 0 0 0 0 0
Weighted Average Life (in
years)....................... 28.6 23.3 9.7 6.1 4.9
</TABLE>
-------------------------
* Indicates an amount above zero and less than 0.5% of the original Class
Certificate Principal Balance is outstanding.
S-62
<PAGE> 63
PERCENT OF ORIGINAL CLASS CERTIFICATE PRINCIPAL BALANCE
OUTSTANDING OF THE CERTIFICATES
<TABLE>
<CAPTION>
CLASS A22 CLASS A23 CLASS A24
--------------------------------- -------------------------------- ------------------
DISTRIBUTION DATE 0% 100% 275% 400% 500% 0% 100% 275% 400% 500% 0% 100% 275%
----------------- ---- ---- ----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percent............... 100 100 100 100 100 100 100 100 100 100 100 100 100
August 2001................... 100 100 100 100 100 99 96 92 88 86 108 108 108
August 2002................... 100 100 100 100 100 98 89 75 65 57 117 117 117
August 2003................... 100 100 100 100 100 96 80 54 37 25 126 126 126
August 2004................... 100 100 100 100 95 95 71 36 16 3 136 136 136
August 2005................... 100 100 100 90 0 94 63 22 1 0 147 147 147
August 2006................... 100 100 100 0 0 92 56 11 0 0 159 159 159
August 2007................... 100 100 94 0 0 91 49 3 0 0 172 172 172
August 2008................... 100 100 0 0 0 89 43 0 0 0 186 186 186
August 2009................... 100 100 0 0 0 88 38 0 0 0 200 200 200
August 2010................... 100 100 0 0 0 86 33 0 0 0 217 217 217
August 2011................... 100 100 0 0 0 83 28 0 0 0 234 234 191
August 2012................... 100 100 0 0 0 81 24 0 0 0 253 253 156
August 2013................... 100 100 0 0 0 79 20 0 0 0 254 254 127
August 2014................... 100 100 0 0 0 76 16 0 0 0 254 254 103
August 2015................... 100 100 0 0 0 73 12 0 0 0 254 254 83
August 2016................... 100 100 0 0 0 69 9 0 0 0 254 254 67
August 2017................... 100 100 0 0 0 66 6 0 0 0 254 254 54
August 2018................... 100 94 0 0 0 62 2 0 0 0 254 254 43
August 2019................... 100 82 0 0 0 57 0 0 0 0 254 254 34
August 2020................... 100 5 0 0 0 52 0 0 0 0 254 254 27
August 2021................... 100 0 0 0 0 47 0 0 0 0 254 254 21
August 2022................... 100 0 0 0 0 41 0 0 0 0 254 254 16
August 2023................... 100 0 0 0 0 35 0 0 0 0 254 218 12
August 2024................... 100 0 0 0 0 28 0 0 0 0 254 181 9
August 2025................... 100 0 0 0 0 21 0 0 0 0 254 146 6
August 2026................... 100 0 0 0 0 13 0 0 0 0 254 113 4
August 2027................... 97 0 0 0 0 4 0 0 0 0 254 81 3
August 2028................... 0 0 0 0 0 0 0 0 0 0 254 50 2
August 2029................... 0 0 0 0 0 0 0 0 0 0 126 21 1
August 2030................... 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Average Life (in
years)....................... 27.6 19.3 7.7 5.2 4.3 18.7 7.9 3.4 2.6 2.2 29.0 25.7 14.9
<CAPTION>
CLASS A24
-----------
DISTRIBUTION DATE 400% 500%
----------------- ---- ----
<S> <C> <C>
Initial Percent............... 100 100
August 2001................... 108 108
August 2002................... 117 117
August 2003................... 126 126
August 2004................... 136 136
August 2005................... 147 147
August 2006................... 159 96
August 2007................... 164 21
August 2008................... 102 0
August 2009................... 67 0
August 2010................... 50 0
August 2011................... 37 0
August 2012................... 28 0
August 2013................... 21 0
August 2014................... 15 0
August 2015................... 11 0
August 2016................... 8 0
August 2017................... 6 0
August 2018................... 4 0
August 2019................... 3 0
August 2020................... 2 0
August 2021................... 2 0
August 2022................... 1 0
August 2023................... 1 0
August 2024................... 1 0
August 2025................... * 0
August 2026................... * 0
August 2027................... * 0
August 2028................... * 0
August 2029................... * 0
August 2030................... 0 0
Weighted Average Life (in
years)....................... 9.6 6.3
</TABLE>
-------------------------
* Indicates an amount above zero and less than 0.5% of the original Class
Certificate Principal Balance is outstanding.
S-63
<PAGE> 64
PERCENT OF ORIGINAL CLASS CERTIFICATE PRINCIPAL BALANCE(1)
OUTSTANDING OF THE CERTIFICATES
<TABLE>
<CAPTION>
CLASS A25 CLASS A26
--------------------------------- --------------------------------
DISTRIBUTION DATE 0% 100% 275% 400% 500% 0% 100% 275% 400% 500%
----------------- ---- ---- ----- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percent............................................ 100 100 100 100 100 100 100 100 100 100
August 2001................................................ 95 95 95 95 95 100 100 100 100 100
August 2002................................................ 89 89 89 89 89 100 100 100 100 100
August 2003................................................ 83 83 83 83 83 100 100 100 100 100
August 2004................................................ 76 76 76 76 76 99 99 99 99 99
August 2005................................................ 69 69 69 69 51 98 98 98 98 93
August 2006................................................ 62 62 62 62 0 96 96 96 96 39
August 2007................................................ 53 53 53 0 0 95 95 95 67 9
August 2008................................................ 44 44 44 0 0 94 94 94 42 0
August 2009................................................ 35 35 35 0 0 93 93 93 28 0
August 2010................................................ 24 24 11 0 0 92 92 92 21 0
August 2011................................................ 13 13 0 0 0 90 90 78 15 0
August 2012................................................ 1 1 0 0 0 89 89 64 11 0
August 2013................................................ 0 0 0 0 0 88 88 52 8 0
August 2014................................................ 0 0 0 0 0 87 87 42 6 0
August 2015................................................ 0 0 0 0 0 86 86 34 5 0
August 2016................................................ 0 0 0 0 0 84 84 27 3 0
August 2017................................................ 0 0 0 0 0 83 83 22 2 0
August 2018................................................ 0 0 0 0 0 82 82 18 2 0
August 2019................................................ 0 0 0 0 0 81 81 14 1 0
August 2020................................................ 0 0 0 0 0 80 80 11 1 0
August 2021................................................ 0 0 0 0 0 78 78 9 1 0
August 2022................................................ 0 0 0 0 0 77 77 7 * 0
August 2023................................................ 0 0 0 0 0 76 76 5 * 0
August 2024................................................ 0 0 0 0 0 75 74 4 * 0
August 2025................................................ 0 0 0 0 0 74 60 3 * 0
August 2026................................................ 0 0 0 0 0 72 46 2 * 0
August 2027................................................ 0 0 0 0 0 71 33 1 * 0
August 2028................................................ 0 0 0 0 0 70 21 1 * 0
August 2029................................................ 0 0 0 0 0 52 9 * * 0
August 2030................................................ 0 0 0 0 0 0 0 0 0 0
Weighted Average Life (in years)........................... 7.0 7.0 6.7 5.3 4.4 25.1 23.4 14.1 8.6 5.9
</TABLE>
-------------------------
(1) With respect to the Class A26 Certificates, percentages are expressed as
percentages of the initial Notional Principal Balance thereof.
* Indicates an amount above zero and less than 0.5% of the original Class
Certificate Principal Balance or Notional Principal Balance is outstanding.
S-64
<PAGE> 65
PERCENT OF ORIGINAL CLASS CERTIFICATE PRINCIPAL BALANCE
OUTSTANDING OF THE CERTIFICATES
<TABLE>
<CAPTION>
CLASSES M, B1 AND B2 CLASSES R AND RL
--------------------------------- --------------------------------
DISTRIBUTION DATE 0% 100% 275% 400% 500% 0% 100% 275% 400% 500%
----------------- ---- ---- ----- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percent............................................ 100 100 100 100 100 100 100 100 100 100
August 2001................................................ 99 99 99 99 99 0 0 0 0 0
August 2002................................................ 98 98 98 98 98 0 0 0 0 0
August 2003................................................ 98 98 98 98 98 0 0 0 0 0
August 2004................................................ 97 97 97 97 97 0 0 0 0 0
August 2005................................................ 95 95 95 95 95 0 0 0 0 0
August 2006................................................ 94 93 89 87 85 0 0 0 0 0
August 2007................................................ 93 89 82 77 73 0 0 0 0 0
August 2008................................................ 92 85 73 64 58 0 0 0 0 0
August 2009................................................ 90 79 62 51 43 0 0 0 0 0
August 2010................................................ 89 73 51 38 29 0 0 0 0 0
August 2011................................................ 87 67 41 28 20 0 0 0 0 0
August 2012................................................ 85 62 34 21 14 0 0 0 0 0
August 2013................................................ 83 57 28 16 9 0 0 0 0 0
August 2014................................................ 80 52 22 11 6 0 0 0 0 0
August 2015................................................ 78 47 18 8 4 0 0 0 0 0
August 2016................................................ 75 43 15 6 3 0 0 0 0 0
August 2017................................................ 72 39 12 5 2 0 0 0 0 0
August 2018................................................ 69 35 9 3 1 0 0 0 0 0
August 2019................................................ 65 31 7 2 1 0 0 0 0 0
August 2020................................................ 61 27 6 2 1 0 0 0 0 0
August 2021................................................ 57 24 5 1 * 0 0 0 0 0
August 2022................................................ 53 21 3 1 * 0 0 0 0 0
August 2023................................................ 48 18 3 1 * 0 0 0 0 0
August 2024................................................ 42 15 2 * * 0 0 0 0 0
August 2025................................................ 36 12 1 * * 0 0 0 0 0
August 2026................................................ 30 9 1 * * 0 0 0 0 0
August 2027................................................ 23 7 1 * * 0 0 0 0 0
August 2028................................................ 15 4 * * * 0 0 0 0 0
August 2029................................................ 7 2 * * * 0 0 0 0 0
August 2030................................................ 0 0 0 0 0 0 0 0 0 0
Weighted Average Life (in years)........................... 20.6 15.3 11.0 9.6 8.9 0.1 0.1 0.1 0.1 0.1
</TABLE>
-------------------------
* Indicates an amount above zero and less than 0.5% of the original Class
Certificate Principal Balance is outstanding.
S-65
<PAGE> 66
GE CAPITAL MORTGAGE SERVICES, INC.
GENERAL
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 (856) 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 any time. For further information concerning the
bulletin board, you should call 800-544-3466, extension 5515.
RECENT DEVELOPMENTS
GECMSI is currently exploring potential options for the outsourcing or sale
of its servicing and the sale of its origination operations. In the event that
GECMSI sells its servicing rights with respect to the mortgage loans and the
purchaser meets the criteria set forth in the Agreement as described in the
prospectus under "Servicing of the Mortgage Loans--Resignation, Succession and
Indemnification of GECMSI, as Servicer, and the Depositor," GECMSI will be
released from its obligations and liabilities as Servicer under the Agreement
other than those obligations and liabilities incurred while it was acting as
Servicer. Alternatively, GECMSI may enter into a sub-servicing agreement with
another servicer of residential mortgage loans, pursuant to which such other
entity would service for GECMSI the mortgage loans currently directly serviced
by GECMSI and master service for GECMSI the mortgage loans currently covered by
a Direct Master Servicing Arrangement (as defined in the prospectus). In such
event GECMSI would remain primarily liable for the proper servicing of the
mortgage loans under the Agreement and the pooling and servicing agreements for
other series of REMIC mortgage pass-through certificates, although GECMSI would
no longer have the capability to service those loans itself. As of the date of
this prospectus supplement, GECMSI has not entered into a binding agreement for
the outsourcing or sale of its servicing or origination business.
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 the
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
sub-serviced by others.
S-66
<PAGE> 67
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF DECEMBER 31, AS OF DECEMBER 31,
1997 1998 1999
--------------------- --------------------- ---------------------
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...... 726,869 $83,535,531 622,179 $75,039,774 562,446 $70,098,945
======= =========== ======= =========== ======= ===========
Period of
delinquency(1).....
30 to 59 days...... 2,687 $ 281,657 2,314 $ 242,342 1,848 $ 186,250
60 to 89 days...... 632 71,245 526 56,889 314 33,105
90 days or
more(2)......... 5,442 662,342 4,561 512,734 3,247 363,039
------- ----------- ------- ----------- ------- -----------
Total delinquent
loans.............. 8,761 $ 1,015,244 7,401 $ 811,965 5,409 $ 582,394
======= =========== ======= =========== ======= ===========
Percent of
portfolio.......... 1.21% 1.22% 1.19% 1.08% 0.96% 0.83%
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999 AS OF MARCH 31, 2000
--------------------- ---------------------
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...................... 598,583 $72,701,241 554,428 $69,007,714
======= =========== ======= ===========
Period of delinquency(1).............
30 to 59 days...................... 1,669 $ 178,506 1,369 $ 136,736
60 to 89 days...................... 353 36,246 361 38,977
90 days or more(2)................. 4,223 482,267 2,979 332,218
------- ----------- ------- -----------
Total delinquent loans............... 6,245 $ 697,019 4,709 $ 507,931
======= =========== ======= ===========
Percent of portfolio................. 1.04% 0.96% 0.85% 0.74%
</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.
S-67
<PAGE> 68
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------
1997 1998 1999
---- ----------- -----------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Total portfolio....................... $83,535,531 $75,039,774 $70,098,945
Foreclosures(1)....................... 271,046 189,421 128,053
Foreclosure ratio..................... 0.32% 0.25% 0.18%
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
------------------------------
1999 2000
---- -------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C>
Total portfolio..................................... $72,701,241 $69,007,714
Foreclosures(1)..................................... 203,664 118,755
Foreclosure ratio................................... 0.28% 0.17%
</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 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
S-68
<PAGE> 69
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 32% (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 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 primary servicing agents from time to
time. See "Servicing of the Mortgage Loans" in the accompanying prospectus.
Approximately 31.46% (by aggregate Scheduled Principal Balance as of the
Cut-off Date) of the mortgage loans are expected to be directly serviced by
National City Mortgage Co. ("NATIONAL CITY") pursuant to a Direct Master
Servicing Arrangement. For information concerning the delinquency and
foreclosure experience on certain residential mortgage loans serviced by
National City, see "--National City Mortgage Co." below.
Approximately 21.97% (by aggregate Scheduled Principal Balance as of the
Cut-off Date) of the mortgage loans are expected to be directly serviced by
Countrywide Home Loans, Inc. ("COUNTRYWIDE") pursuant to a Direct Master
Servicing Arrangement. For information concerning the delinquency and
foreclosure experience on certain residential mortgage loans serviced by
Countrywide, see "--Countrywide Home Loans, Inc." below.
NATIONAL CITY MORTGAGE CO.
The following information concerning National City was provided by National
City and none of GECMSI, the underwriters or any affiliate of any of them makes
any representations as to the accuracy or completeness of the information.
National City is a mortgage banking subsidiary of National City Bank,
Indiana, with headquarters in Miamisburg, Ohio.
S-69
<PAGE> 70
National City has been approved as a mortgagee and seller/servicer by
several agencies and instrumentalities, including Fannie Mae, the Government
National Mortgage Association and Freddie Mac.
The following delinquency tables set forth certain information concerning
the delinquency and foreclosure experience on mortgage loans serviced directly
by National City. The following tables include mortgage loans which have a
variety of payment characteristics, as well as mortgage loans secured by
mortgaged properties in geographic locations that may not be representative of
the geographic distribution or concentration of the mortgaged properties
securing the mortgage loans in the trust serviced by National City. There can be
no assurance that the delinquency and foreclosure experience set forth below
with respect to National City's total serviced portfolio will be similar to the
results that may be experienced with respect to the mortgage loans in the trust
serviced by National City.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF DECEMBER 31, AS OF DECEMBER 31,
1997 1998 1999
--------------------- --------------------- ---------------------
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........ 357,377 $25,958,112 544,378 $43,102,372 620,907 $53,763,282
======= =========== ======= =========== ======= ===========
Period of
delinquency..........
30 to 59 days........ 7,932 $ 490,608 14,119 $ 988,337 15,020 $ 1,123,653
60 to 89 days........ 2,022 116,812 3,395 203,443 3,154 225,806
90 days or more(1)... 4,914 298,518 6,510 448,696 7,308 516,128
------- ----------- ------- ----------- ------- -----------
Total delinquent
loans........... 14,868 $ 905,938 24,024 $ 1,640,476 25,482 $ 1,865,587
======= =========== ======= =========== ======= ===========
Percent of portfolio... 4.16% 3.49% 4.41% 3.81% 4.10% 3.47%
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999 AS OF MARCH 31, 2000
---------------------- ----------------------
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................. 569,294 $46,527,686 632,342 $55,438,608
======= =========== ======= ===========
Period of delinquency...........
30 to 59 days................. 10,510 $ 763,054 10,738 $ 837,123
60 to 89 days................. 2,302 153,541 2,555 194,035
90 days or more(1)............ 6,902 446,666 7,349 537,754
------- ----------- ------- -----------
Total delinquent loans..... 19,714 $ 1,363,261 20,642 $ 1,568,912
======= =========== ======= ===========
Percent of portfolio............ 3.46% 2.93% 3.26% 2.83%
</TABLE>
-------------------------
(1) Includes delinquent bankruptcies and pending foreclosures.
S-70
<PAGE> 71
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF DECEMBER 31, AS OF DECEMBER 31,
1997 1998 1999
--------------------- --------------------- ---------------------
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...... 357,377 $25,958,112 544,378 $43,102,372 620,907 $53,763,282
Foreclosures(2)...... N/A N/A 1,089 N/A 1,528 N/A
------- ----------- ------- ----------- ------- -----------
Foreclosure ratio.... N/A N/A 0.20% N/A 0.25% N/A
======= =========== ======= =========== ======= ===========
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999 AS OF MARCH 31, 2000
---------------------- ----------------------
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..................... 569,294 $46,527,686 632,342 $55,438,608
Foreclosures(2)..................... 1,054 N/A 1,695 N/A
-------- ----------- -------- -----------
Foreclosure ratio................... 0.19% N/A 0.27% N/A
======== =========== ======== ===========
</TABLE>
-------------------------
(2) Foreclosures represent properties, the title of which has been acquired by
National City, by investors or by an insurer following foreclosure or
delivery of a deed in lieu or foreclosure and which has not been liquidated
at the end of the period indicated.
COUNTRYWIDE HOME LOANS, INC.
The following information concerning Countrywide was provided by
Countrywide and none of GECMSI, the underwriters or any affiliate of any of them
makes any representations as to the accuracy or completeness of the information.
Countrywide, a New York corporation and a subsidiary of Countrywide Credit
Industries, Inc., is engaged primarily in the mortgage banking business, and as
such, originates, purchases, sells and services mortgage loans. The principal
executive offices of Countrywide are located at 4500 Park Granada, Calabasas,
California 91302. At February 29, 2000, Countrywide provided servicing for
approximately $249.9 billion aggregate principal amount of mortgage loans,
substantially all of which are being serviced for unaffiliated persons.
Historically, a variety of factors, including the appreciation of real
estate values, have limited Countrywide's loss and delinquency experience on its
portfolio of serviced mortgage loans. There can be no assurance that factors
beyond Countrywide's control, such as national or local economic conditions or
downturns in the real estate markets of its lending areas, will not result in
increased rates of delinquencies and foreclosure losses in the future.
The following table summarizes the delinquency and foreclosure experience,
respectively, on the dates indicated, of all mortgage loans serviced or master
serviced by Countrywide, excluding mortgage loans sub-serviced for others. The
delinquency and foreclosure percentages may be affected by the size and relative
lack of seasoning of the servicing portfolio which increased from approximately
$158.6 billion at February 28, 1997, to approximately $182.9 billion at February
28, 1998 to approximately $215.5 billion at February 28, 1999 and to
approximately $249.9 billion at February 29, 2000. Accordingly,
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the information below should not be considered as a basis for assessing the
likelihood, amount or severity of delinquency or losses on the mortgage loans in
the trust serviced by Countrywide and no assurances can be given that the
foreclosure and delinquency experience presented in the table below will be
indicative of such experience on the mortgage loans in the trust serviced by
Countrywide.
<TABLE>
<CAPTION>
AT FEBRUARY 28(29)
----------------------------
1997 1998 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Delinquent Mortgage Loans and
Pending Foreclosures at Period End
30 to 59 days................................... 2.26% 2.68% 3.05% 3.40%
60 to 89 days................................... 0.52 0.58 0.21 0.25
90 days or more (excluding pending
foreclosures)................................ 0.66 0.65 0.29 0.32
---- ---- ---- ----
Total delinquent loans....................... 3.44% 3.91% 3.55% 3.97%
==== ==== ==== ====
Foreclosures pending.............................. 0.71% 0.45% 0.31% 0.39%
==== ==== ==== ====
Total delinquencies and foreclosures pending...... 4.15% 4.36% 3.86% 4.36%
==== ==== ==== ====
</TABLE>
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 of GE
Capital's short term unsecured rating below A-1+ by Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies, Inc. ("S&P"), GECMSI will, in
lieu of the Loan Payment Record described under the caption "Servicing of the
Mortgage Loans--Loan Payment Record" in the accompanying prospectus, establish
and maintain or cause to be established and maintained a separate account (the
"COLLECTION ACCOUNT") for the certificates for the collection of payments on the
mortgage loans; provided, however, that such action will not be required if
GECMSI delivers to the Trustee a letter from each rating agency which originally
rated the certificates to the effect that the failure to take such action would
not cause such rating agency to withdraw or reduce its then current rating of
such certificates. If established, such Collection Account would be:
- maintained with a depository institution the debt obligations of which
are, at the time of any deposit therein, rated by each of Fitch, 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;
- an account or accounts the deposits in which are fully insured by either
the Bank Insurance Fund (the "BIF") of the Federal Deposit Insurance
Corporation (the "FDIC") or the Savings Association Insurance Fund (as
successor to the Federal Savings and Loan Insurance Corporation) of the
FDIC (the "SAIF");
- an account or accounts with a depository institution, which accounts are
insured by the BIF or SAIF (to the limits established by the FDIC), and
which uninsured deposits are invested in United States government
securities or other high quality investments, or are otherwise secured to
the extent required by Fitch and 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
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depositors or creditors of the depository institution with which the
account is maintained;
- a trust account maintained with the corporate trust department of a
federal or state chartered depository institution or trust company with
trust powers and acting in its fiduciary capacity for the benefit of the
Trustee; or
- an account as will not cause either 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 the related 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 (i) 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") or (ii) any mortgage loan as to which the
originator or seller of such mortgage loan has breached a representation or
warranty to GECMSI regarding the characteristics of such 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.
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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 0.26% and 0.28%. The aggregate servicing compensation to GECMSI
could vary depending on the prepayment experience of the mortgage loans. The
servicing compensation of any direct servicer of any mortgage loan will be paid
out of the related servicing fee, and GECMSI will retain the balance 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 approximately 68% 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 the Company 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.
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<PAGE> 75
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 225 Franklin Street, Boston, Massachusetts 02110.
REPORTS TO CERTIFICATEHOLDERS
As described in "The Pooling and Servicing Agreement--Reports to
Certificateholders" in the prospectus, the Trustee will make available to you
monthly statements relating to your certificates. These statements will be
posted on the Trustee's web site at http://corporatetrust.statestreet.com under
the category "Investor Information & Reporting" no later than the Distribution
Date for each month or, if you prefer, they will be mailed to you on each
Distribution Date. If you prefer receiving these statements by mail, you must
send a written request to the Trustee. The Trustee will also mail the first two
monthly statements to you, even though these statements will also be available
electronically.
If the statement for any month is unavailable on the Trustee's web site by
the applicable Distribution Date, the Trustee will mail a hard copy to you no
later than that Distribution Date. The Trustee will also promptly notify you of
any changes in the web site's address.
We assume no responsibility for the contents of the Trustee's web site
except to the extent that those contents have been furnished by us. Moreover, we
assume no liability for any errors made by the Trustee in any Distribution Date
statements posted.
OPTIONAL TERMINATION
GECMSI may, at its option, repurchase all of the mortgage loans underlying
the certificates and thereby effect the early retirement of the certificates and
cause the termination of the trust on any Distribution Date after the aggregate
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 this option unless the Trustee has received an
opinion of counsel that the exercise of such option will not subject the trust
to a tax on prohibited transactions or result in the failure of the lower-tier
REMIC or upper-tier REMIC to qualify as a REMIC.
In accordance with the Agreement, any such repurchase by GECMSI of the
assets included in the trust will be at a price equal to the sum of:
(1) 100% of the unpaid principal balance of each mortgage loan in the
trust other than a mortgage loan described in clause (2) below, as of the
first day of the month of such repurchase, plus accrued and unpaid interest
thereon to the first day of
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the month of such repurchase at the related NMR, less any amounts
representing previously unreimbursed advances; and
(2) the appraised value of any property acquired in respect of a
related mortgage loan less any amounts representing previously unreimbursed
advances in respect thereof and a good faith estimate of liquidation
expenses.
The Available Funds on the final Distribution Date will be allocated to
each class of certificates in accordance with the priorities described under
"Description of the Certificates--Distributions on the Certificates--Allocation
of Available Funds." Accordingly, if the Available Funds on the final
Distribution Date are less than the aggregate principal balance of all
outstanding certificates plus accrued and unpaid interest thereon, then in the
event that such Distribution Date occurs:
- prior to the Cross-over Date, the resulting shortfall will borne by the
certificates in inverse order of their related payment priorities, and
- on or after the Cross-over Date, such shortfall will be borne pro rata
among the senior certificates.
No holder of any certificates will be entitled to any Unanticipated
Recoveries received with respect to any mortgage loan after the termination of
the trust. See "Servicing of the Mortgage Loans--Unanticipated Recoveries of
Losses on the Mortgage Loans" in the prospectus.
VOTING RIGHTS
The Class A5, Class A26 and Class S Certificates will each be allocated 1%
of the votes and the other classes of certificates (other than the Class A5,
Class A26 and Class S Certificates) in the aggregate will be allocated 97% 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 A5, Class A26 and
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 Cadwalader, Wickersham & Taft, special counsel to
GECMSI.
An election will be made to treat the trust as a two-tier REMIC for federal
income tax purposes.
The certificates other than the residual certificates (the "REGULAR
CERTIFICATES") will be designated as "REGULAR INTERESTS" in the upper-tier
REMIC. The Class R Certificates will be designated as the "RESIDUAL INTEREST" in
the upper-tier REMIC, and the Class RL Certificates will be designated as the
"residual interest" in the lower-tier REMIC.
REGULAR CERTIFICATES
The Regular Certificates generally will be treated as debt instruments
issued by the upper-tier REMIC for federal income tax purposes. Income on
Regular Certificates must be reported under an accrual method of accounting.
Certain classes of Regular Certificates (other than the Class A5, Class A24 and
Class A26 Certificates) may be issued with
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original issue discount in an amount equal to the excess of their initial
respective Class Certificate Principal Balances (plus accrued interest from the
last day preceding the issue date corresponding to a Distribution Date through
the issue date), over their issue prices (including all accrued interest). The
Class A24 Certificates will be treated as being issued with original issue
discount in an amount equal to the excess of (1) the sum of all payments thereon
determined under the prepayment assumption described below, over (2) their issue
price. 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 275% 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.
Although unclear for federal income tax purposes, it is anticipated that
the Class A5 and Class A26 Certificates will be considered to be issued with
original issue discount in an amount equal to the excess of all distributions of
interest expected to be received thereon over their respective issue prices
(including accrued interest). Any "negative" amounts of original issue discount
on the Class A5 and Class A26 Certificates attributable to rapid prepayments
with respect to the mortgage loans will not be deductible currently, but may be
offset against future positive accruals of original issue discount, if any. A
holder of a Class A5 or Class A26 Certificate may be entitled to a loss
deduction to the extent it becomes certain that such holder will not recover a
portion of its basis in such certificate, assuming no further prepayments. In
the alternative, it is possible that rules similar to the "noncontingent bond
method" of the contingent interest rules in the OID Regulations may be
promulgated with respect to the Class A5 and Class A26 Certificates. Unless and
until such regulations are issued, original issue discount will be computed and
reported to holders of the Class A5 and Class A26 Certificates without regard to
the contingent interest rules.
The requirement to report income on a Regular Certificate under an accrual
method may result in the inclusion of amounts in income that are not currently
distributed in cash. In the case of a junior certificate, accrued income may
exceed cash distributions as a result of the preferential right of classes of
senior certificates to receive cash distributions in the event of losses or
delinquencies on mortgage loans. Prospective purchasers of junior certificates
should consult their tax advisors regarding the timing of income from those
certificates and the timing and character of any deductions that may be
available with respect to principal or accrued interest that is not paid. See
"Federal Income Tax Consequences--REMIC Certificates--Income from Regular
Certificates" in the accompanying prospectus.
RESIDUAL CERTIFICATES
The holders of the Class R and Class RL Certificates must include the
taxable income of the upper-tier REMIC and lower-tier REMIC, respectively, in
their federal taxable income. The resulting tax liability of the holders may
exceed cash distributions to such holders during certain periods. All or a
portion of the taxable income from the residual certificates recognized by a
holder may be treated as "EXCESS INCLUSION" income, which with limited
exceptions is subject to U.S. federal income tax in all events.
Under Treasury regulations, the residual certificates may be considered to
be "NONECONOMIC RESIDUAL INTERESTS" at the time they are issued, in which event
certain
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transfers thereof would be disregarded for federal income tax purposes. In
addition, the Internal Revenue Service has proposed regulations pursuant to
which, in order to meet the "safe harbor" for the transfer of a noneconomic
residual interest, the transferor would be required to pay the transferee an
amount not less than the excess of the present value of the tax on expected
future income over the sum of any expected cash flows and the tax benefit of
expected future losses with respect to the Class R or Class RL Certificates,
generally using the applicable Federal rate under Section 1274(d) of the Code as
the discount rate. This proposed regulation has a proposed effective date of
February 4, 2000 if adopted. Prospective investors should consult their own tax
advisors as to the applicability and effect of the proposed regulations.
Prospective purchasers of the residual certificates should consider
carefully the tax consequences of an investment in residual certificates
discussed in the prospectus and should consult their own tax advisors with
respect to those consequences. See "Federal Income Tax Consequences--REMIC
Certificates--Income from Residual Certificates; --Taxation of Certain Foreign
Investors; --Transfers of Residual Certificates; --Servicing Compensation and
Other REMIC Pool Expenses."
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, as amended (the "CODE"), impose certain duties and
restrictions on any person which is an employee benefit plan within the meaning
of Section 3(3) of ERISA subject to ERISA or a plan subject to Section 4975 of
the Code or any person utilizing the assets of such employee benefit plan or
other plan (an "ERISA PLAN") and certain persons who perform services for ERISA
Plans. For example, unless exempted, an investment by an ERISA Plan in the
certificates offered hereby may constitute or give rise to a prohibited
transaction under ERISA or Section 4975 of the Code. The United States
Department of Labor (the "DOL") has issued certain such exemptions from these
prohibitions which might be applicable in connection with an ERISA Plan's
purchase of certain of the certificates offered hereby, including Prohibited
Transaction Class Exemption 83-1 ("PTE 83-1"). In particular, the exemptive
relief provided by PTE 83-1 may be available with respect to the initial
acquisition and holding of certain classes of certificates offered hereby;
provided that the conditions specified in PTE 83-1 are satisfied. See "ERISA
Considerations" in the accompanying prospectus.
The DOL has issued to Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ") an individual administrative exemption, Prohibited Transaction Exemption
90-83 (55 Fed. Reg. 50250, December 5, 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:
- DLJ is the sole underwriter or the manager or co-manager of the
underwriting syndicate for the certificates;
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- the certificates are rated in one of the three highest generic rating
categories by Fitch, Moody's Investors Service, Inc. or S&P at the time
of the acquisition of such certificates by the ERISA Plan;
- the certificates represent a beneficial ownership interest in, among
other things, obligations that bear interest or are purchased at a
discount and which are secured by single-family residential, multifamily
residential or commercial real property (including obligations secured by
leasehold interests on residential or commercial real property), or
fractional undivided interests in such obligations;
- the certificates are not subordinated to other certificates issued by the
trust in respect of the mortgage pool;
- the ERISA Plan investing in 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;
- the acquisition of the certificates is on terms that are at least as
favorable to the ERISA Plan as they would be in an arm's length
transaction with an unrelated third party;
- the Trustee is not an affiliate of any member of the "Restricted Group"
(as defined below); and
- the compensation to DLJ 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):
- GECMSI;
- DLJ or Credit Suisse First Boston Corporation ("CREDIT SUISSE");
- the Trustee;
- any entity that provides insurance or other credit enhancement to the
trust in respect of the mortgage pool; or
- any obligor with respect to mortgage loans included in the mortgage pool
constituting more than five percent of the aggregate unamortized
principal balance of the assets in such mortgage loan pool (the
"RESTRICTED GROUP").
Before purchasing any certificate offered hereby, a fiduciary of an ERISA Plan
should make its own determination as to the availability of the exemptive relief
provided in the
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<PAGE> 80
Exemption or the availability of any other prohibited transaction exemptions,
and whether the conditions of any such exemption will be applicable to such
certificate.
The Exemption does not apply to the initial purchase, the holding or the
subsequent resale of the Class 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
respective REMICs constituted by the trust, and all "excess inclusions"
allocated to the residual certificates, if held by a Tax-Exempt Investor, will
be considered "unrelated business taxable income" and thus will be subject to
federal income tax. See "Federal Income Tax Consequences--Residual Certificates"
herein and "Federal Income Tax Consequences--REMIC Certificates--Income from
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 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
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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 of 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 DLJ and GECMSI and Credit Suisse, the
senior certificates offered hereby are being purchased from GECMSI by DLJ, and
the junior certificates offered hereby are being purchased from GECMSI by Credit
Suisse upon issuance. Distribution of the certificates offered hereby will be
made by DLJ and Credit Suisse from time to time in negotiated transactions or
otherwise at varying prices to be determined at the time of sale. DLJ has
advised GECMSI that Edward D. Jones & Co., L.P. proposes also to offer the Class
A3 Certificates from time to time for sale 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 97.9995949% 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, the
underwriters 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.
Credit Suisse 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.
S-81
<PAGE> 82
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 Cadwalader, Wickersham & Taft, New York, New York, and for the
underwriters by Brown & Wood LLP, Washington, D.C.
S-82
<PAGE> 83
INDEX OF CERTAIN PROSPECTUS SUPPLEMENT DEFINITIONS
<TABLE>
<CAPTION>
DEFINED TERM PAGE
<S> <C>
Accretion Termination Date..... S-31
Accrued Certificate Interest... S-32
Adjustment Amount.............. S-48
Agreement...................... S-25
Allocable Share................ S-40
Available Funds................ S-28
Available Funds Allocation..... S-34
Bankruptcy Loss Amount......... S-48
beneficial owner............... S-25
BIF............................ S-72
Book-Entry Certificates........ S-25
Certificate Principal
Balance...................... S-32
Class A24 Accrual Amount....... S-31
Class A4 Percentage............ S-36
Class A4 Prepayment
Distribution Percentage...... S-36
Class A4 Principal Distribution
Amount....................... S-36
Class A4 Scheduled Distribution
Percentage................... S-36
Class B Certificates........... S-40
Class Certificate Principal
Balances..................... S-28
Class PO Deferred Amount....... S-46
Class PO Deferred Payment
Writedown Amount............. S-33
Class PO Principal Distribution
Amount....................... S-38
Class Prepayment Distribution
Trigger...................... S-40
Code........................... S-79
Collection Account............. S-72
Compensating Interest
Payment...................... S-74
Cooperative Loan............... S-19
Countrywide.................... S-69
Credit Suisse.................. S-79
Cross-Over Date................ S-29
Cut-off Date................... S-16
Debt Service Reduction......... S-48
Deceased Holder................ S-45
</TABLE>
<TABLE>
<CAPTION>
DEFINED TERM PAGE
<S> <C>
Defaulted Mortgage Loan........ S-73
Deficient Valuation............ S-46
Designated Retail
Certificates................. S-41
Discount Mortgage Loan......... S-34
Distribution Date.............. S-28
DLJ............................ S-78
DOL............................ S-78
ERISA.......................... S-78
ERISA Plan..................... S-78
Excess Loss.................... S-46
Exemption...................... S-78
FDIC........................... S-72
Financial Intermediary......... S-26
Fitch.......................... S-72
Fraud Loss..................... S-46
Fraud Loss Amount.............. S-47
GECMSI......................... S-16
Group I Final Distribution
Date......................... S-37
Group I Senior Certificates.... S-37
Interest Accrual Period........ S-31
Interest Shortfall............. S-33
Junior Certificate Writedown
Amount....................... S-32
Junior Optimal Principal
Amount....................... S-39
Junior Percentage.............. S-39
Junior Prepayment Percentage... S-39
Liquidated Mortgage Loan....... S-46
Living Holders................. S-41
Loss Allocation Limitation..... S-49
MLCC........................... S-17
Modeling Assumptions........... S-58
Mortgage Loan Group............ S-59
mortgage related securities.... S-80
National City.................. S-69
Net Interest Shortfall......... S-33
Net Mortgage Rate.............. S-33
NMR............................ S-34
</TABLE>
S-83
<PAGE> 84
<TABLE>
<CAPTION>
DEFINED TERM PAGE
<S> <C>
Non-Book-Entry Certificates.... S-27
Non-discount Mortgage Loan..... S-34
noneconomic residual
interests.................... S-77
Non-Excess Realized Loss....... S-46
Non-PO Percentage.............. S-34
Notional Principal Balance..... S-32
Original Junior Principal
Balance...................... S-37
Outstanding Mortgage Loan...... S-17
Pledged Asset Loan-to-Value
Ratio........................ S-18
Pledged Asset Mortgage Loans... S-17
PO Percentage.................. S-34
Pool Scheduled Principal
Balance...................... S-16
Prepayment Assumption.......... S-57
Prepayment Interest............ S-54
Prepayment Period.............. S-36
Principal Distribution
Request...................... S-43
Pro rata....................... S-31
PTE 83-1....................... S-78
Realized Loss.................. S-45
Record Date.................... S-27
Regular Certificates........... S-76
</TABLE>
<TABLE>
<CAPTION>
DEFINED TERM PAGE
<S> <C>
regular interests.............. S-76
residual interest.............. S-76
Restricted Group............... S-79
Rounding Account............... S-42
S&P............................ S-72
SAIF........................... S-72
Scheduled Principal Balance.... S-16
Senior Final Distribution
Date......................... S-39
Senior Optimal Principal
Amount....................... S-35
Senior Percentage.............. S-37
Senior Prepayment Percentage... S-37
Senior Prepayment Percentage
Stepdown Limitation.......... S-37
SMMEA.......................... S-80
Special Hazard Loss............ S-46
Special Hazard Loss Amount..... S-47
Tax-Exempt Investor............ S-80
Trustee........................ S-25
weighted average life.......... S-58
Withdrawal..................... S-44
</TABLE>
S-84
<PAGE> 85
PROSPECTUS
GE CAPITAL MORTGAGE SERVICES, INC.
GE CAPITAL MORTGAGE FUNDING CORPORATION
(DEPOSITORS)
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES BY SEPARATE TRUSTS)
------------------------------
EACH SERIES OF CERTIFICATES:
- will consist of one or more classes of mortgage pass-through certificates
representing interests in the assets of a trust;
- will receive principal and interest only from payments collected on the
assets of the related trust; and
- will not be insured or guaranteed by any government agency or
instrumentality and will not be obligations of GE Capital Mortgage
Services, Inc., GE Capital Mortgage Funding Corporation or any related
companies.
EACH TRUST:
- will own a pool of mortgage loans sold to the trust by either GE Capital
Mortgage Services, Inc. or GE Capital Mortgage Funding Corporation;
- will be serviced by GE Capital Mortgage Services, Inc.; and
- will include mortgage loans secured by first or second liens on:
-- one- to four-family residential properties; and
-- rights to own and occupy apartments in cooperative buildings.
------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JANUARY 25, 2000.
<PAGE> 86
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CAPTION PAGE
------- ----
<S> <C>
Description of the Certificates..... 1
The Agreements.................... 1
Form of Certificates.............. 2
Classes of Certificates........... 2
Categories Of Classes............. 4
Distributions of Principal and
Interest....................... 8
Example of Distributions.......... 10
Optional Termination of a Trust... 12
The Trusts.......................... 13
The Mortgage Loans................ 14
Appraisals........................ 22
Credit Enhancement.................. 23
Types of Enhancements............. 23
Subordination..................... 24
Purchase of Liquidating Loans..... 25
Limited Guarantee of the
Guarantor...................... 26
Cross-Support..................... 27
Pool Insurance.................... 27
Special Hazard Insurance.......... 28
Bankruptcy Bond................... 29
Repurchase Bond................... 30
Guaranteed Investment Contracts... 30
Reserve Accounts.................. 30
Other Insurance, Guarantees and
Similar Instruments or
Agreements..................... 31
Yield, Maturity and Weighted Average
Life Considerations............... 31
General........................... 31
Effective Interest Rate............. 34
Servicing of the Mortgage Loans..... 35
Collection and Other Servicing
Procedures........................ 36
Private Mortgage Insurance........ 40
Hazard Insurance.................. 41
Unanticipated Recoveries of Losses
on the Mortgage Loans.......... 42
Advances.......................... 43
Loan Payment Record............... 44
Servicing and Other Compensation
and Payment of Expenses........ 47
Resignation, Succession and
Indemnification of GECMSI, as
Servicer, and the Depositor.... 47
The Pooling and Servicing
Agreement......................... 48
Assignment of Mortgage Loans...... 49
Repurchase or Substitution........ 52
Certain Refinancings.............. 54
Evidence as to Compliance......... 54
List of Certificateholders........ 54
The Trustee....................... 55
</TABLE>
<TABLE>
<CAPTION>
CAPTION PAGE
------- ----
<S> <C>
Administration of the Certificate
Account........................ 56
Reports to Certificateholders..... 56
Events of Default................. 57
Rights Upon Event of Default...... 58
Amendment......................... 58
Termination....................... 59
Governing Law..................... 60
GE Capital Mortgage Services,
Inc. ............................... 60
Delinquency and Foreclosure
Experience..................... 60
Year 2000 Legislation............. 61
Legal Proceedings................. 61
GE Capital Mortgage Funding
Corporation....................... 61
Risk of Recharacterization........ 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
General........................... 63
Foreclosure....................... 65
Cooperative Loans................. 66
Junior Mortgages; Rights of Senior
Mortgagees..................... 67
Right of Redemption............... 69
Anti-Deficiency Legislation and
Other Limitations on Lenders... 69
Enforceability of Certain
Provisions..................... 70
Applicability of Usury Laws....... 71
Soldiers' and Sailors' Civil
Relief Act..................... 71
Environmental Considerations...... 72
Legal Investment Matters............ 72
ERISA Considerations................ 74
Federal Income Tax Consequences..... 76
General........................... 76
REMIC Elections................... 76
REMIC Certificates................ 77
Non-REMIC Certificates............ 89
Trust As Grantor Trust............ 89
Status of the Certificates........ 90
Backup Withholding................ 93
Plan of Distribution................ 93
Use of Proceeds..................... 94
Legal Matters....................... 95
Financial Information............... 95
Index of Certain Prospectus
Definitions....................... 96
</TABLE>
i
<PAGE> 87
DESCRIPTION OF THE CERTIFICATES
The certificates comprising each series of certificates will represent the
entire beneficial ownership interest in a distinct trust that will issue those
certificates. A series of certificates will be issued under a separate pooling
and servicing agreement entered into among GE Capital Mortgage Services, Inc.
("GECMSI") or GE Capital Mortgage Funding Corporation ("FUNDING"), as depositor
of the assets in each trust, GECMSI, as servicer of the assets, and a commercial
bank or trust company acting as trustee for the benefit of certificateholders of
the related series.
THE AGREEMENTS
The provisions of each pooling and servicing agreement will vary depending
upon the nature of the certificates to be issued and the nature of the related
trust. This prospectus summarizes the material provisions which may appear in
each agreement. The prospectus supplement for a series of certificates will
describe any other material provision of the agreement relating to such series.
GECMSI will provide certificateholders, without charge, on written request, a
copy of the pooling and servicing agreement for any series. Requests should be
addressed to GE Capital Mortgage Services, Inc., Three Executive Campus, Cherry
Hill, New Jersey 08002, Attention: General Counsel. The pooling and servicing
agreement relating to a series of certificates will be filed by GECMSI or
Funding, as applicable, with the SEC after the date of issuance of such series
of certificates.
Source of Funds for Payment
The certificates of a series will be entitled to payment only from the
proceeds from the assets included in the trust issuing such series. You will not
be entitled to payments from the assets included in any other trust established
by GECMSI or Funding. The certificates are not obligations of General Electric
Company, General Electric Capital Corporation, GE Capital Mortgage Corporation,
General Electric Mortgage Insurance Corporation, GECMSI, Funding or any other
affiliate of GECMSI or Funding. The certificates will not be guaranteed by any
governmental agency or any other person.
The depositor and the servicer of the mortgage loans for a trust will each
have limited obligations to the trust. Unless otherwise stated in the prospectus
supplement:
- The depositor's obligations will be limited to repurchasing mortgage
loans or cooperative apartment loans in the trust if the depositor
breaches its representations and warranties concerning the loans.
- The only obligations of GECMSI as servicer for the trust will be its
contractual servicing and/or master servicing obligations, including any
obligation under certain limited circumstances to make advances of
delinquent installments of principal, interest or both, adjusted in the
case of interest to the weighted average rate at which interest accrues
on the related series of certificates. This obligation will arise when
any borrower fails to make any payment of interest or, except in the case
of a home equity loan, principal required under the terms of a mortgage
loan in the trust. GECMSI will be obligated to advance the entire amount
of such payment, net of the applicable servicing fee, less the amount of
the payment that GECMSI reasonably believes will not be recoverable to it
out of liquidation proceeds or otherwise. You should refer to "The
Pooling and Servicing Agreement -- Assignment of Assets" and
"-- Repurchase or Substitution" and "Servicing of the Mortgage
Loans -- Advances" in this prospectus.
<PAGE> 88
The mortgage loans in the trust will not be insured or guaranteed by any
governmental entity or, except as specified in the prospectus supplement, by any
other person. You may experience delays in distributions on your certificates or
losses on your certificates if delinquent payments or losses on defaulted
mortgage loans are not advanced by the servicer or another person or paid from
any credit enhancement arrangement in your trust.
FORM OF CERTIFICATES
The certificates of each series will be issued in fully-registered form
only. The minimum original principal balance or notional principal balance that
may be represented by a certificate (the "DENOMINATION") will be specified in
the prospectus supplement. The original principal balance of each certificate
will equal the aggregate distributions allocable to principal to which such
certificate is entitled. Unless otherwise stated in the prospectus supplement,
interest distributions on each certificate that is not entitled to distributions
allocable to principal will be calculated based on the notional principal
balance of such certificate. The notional principal balance of a certificate
will not evidence an interest in or entitlement to distributions allocable to
principal but will be used solely for convenience in determining the interest
payable on such certificate, the denomination of the certificate and the voting
rights of its holder. You will not receive the notional principal balance of
your certificate.
Except for global certificates described in the next paragraph, you may
transfer and exchange your certificates on a certificate register to be
maintained at the corporate trust office of the trustee or an office or agency
maintained for such purposes by the trustee in New York City. Unless otherwise
stated in the prospectus supplement, the trustee will initially act as the
certificate registrar. Unless otherwise stated in the prospectus supplement, no
service charge will be made for any registration of transfer or exchange of
certificates, but payment of a sum sufficient to cover any tax or other
governmental charge may be required. Before a certificate is properly presented
for transfer, GECMSI, the trustee, the certificate registrar and any of their
agents may treat the person in whose name a certificate is registered as the
owner of such certificate for the purpose of receiving distributions of
principal and interest and for all other purposes under the pooling and
servicing agreement.
For certain classes of certificates specified in the applicable prospectus
supplement, investors will not have the right to receive physical certificates
evidencing their ownership except under limited circumstances. Instead, the
trust will issue the certificates in the form of global certificates, which will
be held by The Depository Trust Company, known as DTC, or its nominee. Financial
institutions that are direct or indirect participants in DTC will record
beneficial ownership of a certificate by individual investors in the authorized
denominations.
CLASSES OF CERTIFICATES
The classes of certificates of a series, in general, fall into different
categories. The following chart identifies and generally defines certain of the
more typical categories. The prospectus supplement for a series of certificates
may identify the classes which comprise such series by reference to the
following categories or another category specified in the applicable prospectus
supplement.
2
<PAGE> 89
Each series of certificates will be issued in a single class or in two or
more classes. The certificates of each class will be entitled to receive:
- any distributions from the assets of the trust that are allocable to
principal, in the aggregate amount of the original principal balance, if
any, of such class of certificates; and
- any distributions from the assets of the trust that are allocable to
interest on the principal balance or notional principal balance of such
certificates at the interest rate, if any, payable on such class of
certificates.
If stated in the prospectus supplement, one or more classes of a series of
certificates may be entitled to receive all amounts payable on a specific group
of assets in the related trust.
If stated in the prospectus supplement, the certificates will have an
aggregate original principal balance equal to the aggregate unpaid principal
balance of the mortgage loans as of the close of business on the first day of
the month of creation of the trust (the "CUT-OFF DATE") after deducting payments
of principal due on or before, and prepayments of principal received before, the
Cut-off Date. The certificates will bear interest in the aggregate equal to the
weighted average of the Net Mortgage Rates. The "NET MORTGAGE RATE" will equal
the rate of interest payable on each mortgage loan in the pool minus GECMSI's
servicing fee as described herein, the servicing fee of any third party servicer
of the mortgage loans and such other amounts (including fees payable to GECMSI
as master servicer, if applicable) as are stated in the prospectus supplement.
If stated in the prospectus supplement, the original principal balance of the
certificates and the interest rate on the classes of certificates will be
determined based on the cash flow on the mortgage loans.
Each class of certificates that is entitled to distributions allocable to
interest will bear interest at a fixed rate or a rate that is subject to change
from time to time (a) in accordance with a schedule, (b) in reference to a
widely published interest rate index such as the London Interbank Offered Rate
(LIBOR) or (c) otherwise, in each case as specified in the prospectus
supplement.
A series of certificates may include one or more classes entitled only to
distributions:
- allocable to interest;
- allocable to principal (and allocable as between scheduled payments of
principal and Principal Prepayments, as defined below); or
- allocable to both principal (and allocable as between scheduled payments
of principal and Principal Prepayments) and interest.
A series of certificates may consist of one or more classes as to which
distributions will be allocated:
- on the basis of collections from designated portions of the assets of the
trust;
- in accordance with a schedule or formula;
- in relation to the occurrence of events; or
- otherwise, in each case as stated in the prospectus supplement.
The timing and amounts of such distributions may vary among classes, over
time or otherwise, in each case as stated in the prospectus supplement.
3
<PAGE> 90
The taking of action with respect to certain amendments to the pooling and
servicing agreement will require the consent of the holders of the certificates.
Consent is required of certificateholders evidencing interests aggregating
either not less than 66% of all interests in the related trust or not less than
66% of all interests of each class that would be adversely affected by the
amendment. Every certificateholder must consent to an amendment that would
reduce the amount of, or delay the timing of, distributions on the certificates
or collection of payments on mortgage loans. The voting rights allocated to each
class of certificates will be specified in the prospectus supplement. Votes may
be allocated in different proportions among classes of certificates depending on
whether the certificates of a class have a principal balance or a notional
principal balance. See "The Pooling and Servicing Agreement -- Amendment" in
this prospectus.
CATEGORIES OF CLASSES
The classes of certificates of a series, in general, fall into different
categories. The following chart identifies and generally defines certain of the
more typical categories. The prospectus supplement for a series of certificates
may identify the classes which comprise such series by reference to the
following categories or another category specified in the applicable prospectus
supplement.
PRINCIPAL TYPES
ACCRETION DIRECTED
CERTIFICATES................. A class of certificates that receives principal
payments from amounts that would otherwise be
distributed as interest on specified Accrual
Certificates. Such principal payments may be in
lieu of or in addition to principal payments
from principal receipts on the mortgage loans
for the related series.
COMPANION CERTIFICATES (ALSO
SOMETIMES REFERRED TO AS
"SUPPORT CERTIFICATES").... A class of certificates that is entitled to
receive principal payments on any distribution
date only if scheduled payments have been made
on specified Planned Amortization Certificates,
Targeted Amortization Certificates and/or
Scheduled Amortization Certificates.
COMPONENT CERTIFICATES....... A class of certificates consisting of two or
more specified components (each, a "COMPONENT")
as described in the applicable prospectus
supplement. The Components of a class of
Component Certificates may have different
principal and/or interest payment
characteristics but together constitute a single
class and do not represent severable interests.
Each Component of a class of Component
Certificates may be identified as falling into
one or more of the categories in this chart.
LOCKOUT CERTIFICATES......... A class of Senior Certificates that is designed
not to participate in or to participate to a
limited extent in (i.e., to be "locked out" of),
for a specified period, the receipt of (1)
principal prepayments on the mortgage loans that
are allocated disproportionately to the Senior
Certificates of such series as a group pursuant
to a
4
<PAGE> 91
"shifting interest" structure and/or (2)
scheduled principal payments on the mortgage
loans that are allocated to the classes of
Senior Certificates as a group. A class of
Lockout Certificates will typically not be
entitled to receive, or will be entitled to
receive only a restricted portion of,
distributions of principal prepayments and/or
scheduled principal payments, as applicable, for
a period of several years, during which time all
or a portion of such principal payments that it
would otherwise be entitled to receive in the
absence of a "lockout" structure will be
distributed in reduction of the principal
balances of other Senior Certificates. Lockout
Certificates are designed to minimize weighted
average life volatility during the lockout
period.
NOTIONAL AMOUNT
CERTIFICATES................. A class of certificates having no principal
balance and bearing interest on the related
notional amount. The notional amount is a
hypothetical amount used for calculating
interest distributions.
PASS-THROUGH CERTIFICATES.... A class of Senior Certificates that is entitled
to receive a specified percentage of the
principal payments that are distributable to the
Senior Certificates or applicable group of
Senior Certificates (other than any Ratio Strip
Certificates) in the aggregate on a distribution
date and that is not designated as a class of
Sequential Pay Certificates.
PLANNED AMORTIZATION
CERTIFICATES (ALSO
SOMETIMES REFERRED TO AS
"PAC CERTIFICATES")........ A class of certificates that is designed to
receive principal payments using a predetermined
principal balance schedule derived by assuming
two constant prepayment rates for the underlying
mortgage loans. These two rates are the
endpoints for the "structuring range" for the
class of Planned Amortization Certificates. The
Planned Amortization Certificates in any series
may be subdivided into different categories
(e.g., Planned Amortization Certificates I ("PAC
I") Planned Amortization Certificates II ("PAC
II") and so forth) derived using different
structuring ranges. A class of PAC Certificates
is designed to provide protection against
volatility of weighted average life if
prepayments occur at a constant rate within the
structuring range.
RATIO STRIP CERTIFICATES..... A class of certificates that is entitled to
receive a constant proportion, or "ratio strip,"
of the principal payments on the underlying
mortgage loans.
5
<PAGE> 92
SCHEDULED AMORTIZATION
CERTIFICATES (ALSO
SOMETIMES REFERRED TO AS
"SCHEDULED
CERTIFICATES")............. A class of certificates that is designed to
receive principal payments using a predetermined
principal balance schedule but is not designated
as a class of Planned Amortization Certificates
or Targeted Amortization Certificates. The
schedule is derived by assuming either two
constant prepayment rates or a single constant
prepayment rate for the underlying mortgage
loans. In the former case, the two rates are the
endpoints for the "structuring range" for the
class of Scheduled Amortization Certificates and
such range generally is narrower than for a
class of Planned Amortization Certificates.
Typically, the Support Certificates for the
applicable series of certificates generally will
represent a smaller percentage of a class of
Scheduled Amortization Certificates than the
Support Certificates generally would represent
in relation to a class of Planned Amortization
Certificates or Targeted Amortization
Certificates. A class of Scheduled Amortization
Certificates is generally less sensitive to
weighted average life volatility as a result of
prepayments than a class of Support Certificates
but more sensitive than a class of Planned
Amortization Certificates or Targeted
Amortization Certificates.
SENIOR CERTIFICATES.......... A class of certificates that is entitled to
receive payments of principal and interest on
each distribution date prior to the classes of
Subordinated Certificates.
SEQUENTIAL PAY
CERTIFICATES................. A class of certificates that is entitled to
receive principal payments in a prescribed
sequence, that does not have a predetermined
principal balance schedule and that, in most
cases, is entitled to receive payments of
principal continuously from the first
distribution date on which it receives principal
until it is retired. A class of Sequential Pay
Certificates may receive principal payments
concurrently with one or more other classes of
Sequential Pay Certificates. A single class that
is entitled to receive principal payments before
or after other classes in the same series of
certificates may be identified as a class of
Sequential Pay Certificates.
SUBORDINATED CERTIFICATES
(ALSO SOMETIMES REFERRED TO
AS "JUNIOR
CERTIFICATES")............. A class of certificates that is entitled to
receive payments of principal and interest on
each distribution date only after the Senior
Certificates and classes of Subordinated
Certificates with higher priority of
distributions have received their full principal
and interest entitlements.
6
<PAGE> 93
SUPER SENIOR CERTIFICATES.... A class of Senior Certificates that will not
bear its share of certain losses after the
classes of Subordinated Certificates are no
longer outstanding for so long as one or more
other specified classes of Senior Certificates
are outstanding.
SUPER SENIOR SUPPORT
CERTIFICATES............... A class of Senior Certificates that bears
certain losses allocated to one or more classes
of Super Senior Certificates after the classes
of Subordinated Certificates are no longer
outstanding.
TARGETED AMORTIZATION
CERTIFICATES (ALSO
SOMETIMES REFERRED TO AS
"TAC CERTIFICATES")........ A class of certificates that is designed to
receive principal payments using a predetermined
principal balance schedule derived by assuming a
single constant prepayment rate for the
underlying mortgage loans. A class of TAC
Certificates is designed to provide some
protection against shortening of weighted
average life if prepayments occur at a rate
exceeding the assumed constant prepayment rate
used to derive the principal balances schedule
for that TAC class.
INTEREST TYPES
ACCRUAL CERTIFICATES......... A class of certificates that accretes the amount
of accrued interest otherwise distributable on
such class, which amount will be added as
principal to the principal balance of such class
on each applicable distribution date. Such
accretion may continue until some specified
event has occurred or until such class of
Accrual Certificates is retired.
FIXED RATE CERTIFICATES...... A class of certificates with an interest rate
that is fixed throughout the life of the class.
FLOATING RATE CERTIFICATES... A class of certificates with an interest rate
that resets periodically based upon a designated
index and that varies directly with changes in
such index.
INTEREST ONLY CERTIFICATES... A class of certificates that is entitled to
receive some or all of the interest payments
made on the mortgage loans and little or no
principal. Interest Only Certificates have
either a nominal principal balance or a notional
amount. A nominal principal balance represents
actual principal that will be paid on the class.
It is referred to as nominal since it is
extremely small compared to other classes. A
notional amount is the amount used as a
reference to calculate the amount of interest
due on a class of Interest Only Certificates
that is not entitled to any distributions in
respect of principal.
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INVERSE FLOATING RATE
CERTIFICATES............... A class of certificates with an interest rate
that resets periodically based upon a designated
index and that varies inversely with changes in
such index and with changes in the interest rate
payable on the related class of Floating Rate
Certificates.
PRINCIPAL ONLY
CERTIFICATES................. A class of certificates that does not bear
interest and is entitled to receive only
distributions in respect of principal.
STEP COUPON CERTIFICATES..... A class of certificates with a fixed interest
rate that is reduced to a lower fixed rate after
a specified period of time. The difference
between the initial interest rate and the lower
interest rate will be supported by a reserve
fund established on the closing date.
VARIABLE RATE CERTIFICATES... A class of certificates with an interest rate
that resets periodically and is calculated by
reference to the rate or rates of interest
applicable to the mortgage loans.
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
General
Distributions of principal and interest at the applicable interest rate (if
any) on the certificates will be made by the trustee out of funds available on
the distribution dates specified in the prospectus supplement. Distribution
dates may be monthly, quarterly, semiannually or at another interval specified
in the prospectus supplement. Distributions will be made to the persons in whose
names the certificates are registered at the close of business on the last
business day of the preceding month (each, a "RECORD DATE"). Distributions will
be made by check or money order mailed to the person entitled thereto at the
address appearing in the certificate register or, if specified in the prospectus
supplement, in the case of certificates that are of a certain minimum
denomination as specified in the prospectus supplement, upon written request by
the certificateholder, by wire transfer or by such other means as are agreed
upon with the person entitled thereto. The final distribution in retirement of
the certificates will be made only upon presentation and surrender of the
certificates at the office or agency of the trustee specified in the notice to
certificateholders of such final distribution. All distributions on global
certificates held by DTC will be made to DTC, which will credit the accounts of
its direct participants. If you hold an interest in a global certificate, you
will have to rely on your financial intermediary to forward you the payments.
Distributions allocable to principal and interest on the certificates will
be made by the trustee out of, and only to the extent of, funds in a separate
account established and maintained under the pooling and servicing agreement for
the benefit of holders of the certificates of the related series (the
"CERTIFICATE ACCOUNT"). As between certificates of different classes and as
between distributions of principal (and, if applicable, between distributions of
Principal Prepayments and scheduled payments of principal) and interest,
distributions made on any distribution date will be applied in the manner
specified in the prospectus supplement. Unless otherwise stated in the
prospectus supplement, distributions to any class of certificates will be made
pro rata to all certificateholders of that class. If stated in the prospectus
supplement, the amounts received by the trustee as described below under "The
Trusts" will be invested in the following, or in other investments
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specified in the prospectus supplement, which together constitute the "Eligible
Investments":
(1) obligations of, or guaranteed as to timely receipt of principal
and interest by, the United States or any agency or instrumentality thereof
when such obligations are backed by the full faith and credit of the United
States;
(2) repurchase agreements on obligations specified in clause (1),
provided that the unsecured obligations of the party agreeing to repurchase
such obligations are at the time rated by each rating agency rating the
certificates in the highest long-term rating category;
(3) federal funds, certificates of deposit, time deposits and banker's
acceptances, of any U.S. depository institution or trust company
incorporated under the laws of the United States or any state, provided
that the debt obligations of such depository institution or trust company
at the date of acquisition thereof have been rated by each rating agency
rating the certificates in the highest long-term rating category;
(4) commercial paper of any corporation incorporated under the laws of
the United States or any state thereof which on the date of acquisition has
the highest short term rating of each rating agency rating the
certificates; and
(5) other obligations or securities that are acceptable to each rating
agency rating the certificates as an Eligible Investment hereunder and will
not, as evidenced in writing, result in a reduction or withdrawal in the
then current rating of the certificates.
All income or other gain from such investments will be deposited in the
Certificate Account and will be available to make payments on the certificates
on the next succeeding distribution date in the manner specified in the
prospectus supplement.
Distributions of Interest
Unless otherwise stated in the prospectus supplement, interest will accrue
on each class of certificates entitled to interest from the date, at the
interest rate and for the periods (each, an "INTEREST ACCRUAL PERIOD") specified
in the prospectus supplement. Interest will accrue on the aggregate principal
balance of your certificate, or if your certificate is an interest-only class,
interest will accrue on its notional principal balance. To the extent funds are
available therefor, interest accrued during each Interest Accrual Period will be
distributable on the distribution dates specified in the prospectus supplement
until the aggregate principal balance of the certificates of such class has been
distributed in full or, in the case of interest-only classes, until the
aggregate notional principal balance of such certificates is reduced to zero.
Unless otherwise stated in the prospectus supplement, distributions of interest
on each class of Accrual Certificates will commence only after the occurrence of
the events specified in the prospectus supplement. Unless otherwise stated in
the prospectus supplement, prior to such time, the aggregate principal balance
of such class of Accrual Certificates will increase on each distribution date by
the amount of interest that would have been distributed on such class but that
was not required to be distributed to such class on such distribution date. Any
such class of Accrual Certificates will thereafter accrue interest on its
outstanding principal balance as so stated.
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Distributions of Principal
Unless otherwise stated in the prospectus supplement, the aggregate
principal balance of any class of certificates entitled to distributions of
principal will be:
- the aggregate original principal balance of such class of certificates;
minus
- all distributions made to the holders of such certificates as allocable
to principal; minus
- all realized losses allocated to such class; and plus
- in the case of Accrual Certificates, unless otherwise stated in the
prospectus supplement, all interest accrued less its allocable share of
shortfalls, but not then distributable on such Accrual Certificates.
The prospectus supplement will specify the method by which the amount of
principal to be distributed on the certificates on each distribution date will
be calculated and the manner in which such amount will be allocated among the
classes of certificates entitled to distributions of principal.
If stated in the prospectus supplement, one or more classes of Senior
Certificates will be entitled to receive all or a disproportionate percentage of
the payments or other recoveries of principal on a mortgage loan which are
received in advance of their scheduled due dates and not accompanied by amounts
of interest representing scheduled interest due after the month of such payments
("PRINCIPAL PREPAYMENTS") in the percentages and under the circumstances or for
the periods specified in the prospectus supplement. Any such allocation of
Principal Prepayments to such senior classes will have the effect of
accelerating the reduction of the principal balances of the certificates for
those classes while increasing the interests in the trust held by the other,
subordinate, classes. Increasing the interests of the Subordinated Certificates
relative to that of the Senior Certificates is intended to preserve the benefits
to the Senior Certificates of the subordination provided by the Subordinated
Certificates. See "Credit Enhancement -- Subordination."
Unscheduled Distributions
If stated in the prospectus supplement, the trustee will make unscheduled
distributions of principal on the certificates at the time and in the amount
specified if the amount anticipated to be on deposit in the Certificate Account
on the next date of distribution on the certificates, together with, if
applicable, any amounts available to be withdrawn from any reserve account, may
be insufficient to make required distributions on the certificates on such
distribution date. Unless otherwise stated in the prospectus supplement, the
amount of any such unscheduled distribution that is allocable to principal will
not exceed the amount that would otherwise have been required to be distributed
as principal on the certificates on the next distribution date. Unless otherwise
stated in the prospectus supplement, all distributions allocable to principal in
any unscheduled distribution will be made in the same priority and manner as
distributions of principal on the certificates would have been made on the next
distribution date. Notice of any unscheduled distribution will be given by the
trustee prior to the date of such distribution.
EXAMPLE OF DISTRIBUTIONS
The following chart sets forth an example of hypothetical distributions on
a series of the certificates for the distribution date occurring in May of the
relevant year, assuming such certificates are issued during March of that year.
All references to the trust,
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certificateholders, mortgage loans, Loan Payment Record and Certificate Account
refer to those related to such series of certificates. We have assumed that all
dates are business days. The following discussion of the allocation of mortgage
loan payments as between principal and interest would not necessarily apply to
simple-interest home equity loans or mortgage loans that do not provide for
payments of principal and interest in arrears on a monthly basis, and if a
series of certificates is backed by a material amount of such mortgage loans,
the prospectus supplement will describe the allocation of such payments and the
manner in which distributions thereof will be made to certificateholders. If, as
stated in the prospectus supplement, one or more classes of a series of
certificates are payable from a specific group of assets in the related trust,
the following discussion would be applicable to such classes and the mortgage
loans from which such payments will be made on such certificates.
MARCH 1...................... Cut-off Date. The aggregate unpaid principal
balance of the mortgage loans after deducting
principal payments due and payable on or before
March 1 and Principal Prepayments received
before March 1 will be included in the trust.
These deducted principal payments and Principal
Prepayments will be retained by Funding or
GECMSI and will not be included in the trust or
passed through to certificateholders.
APRIL 1-30................... Voluntary principal prepayments in full, and
interest thereon to the date of prepayment,
received from April 16 through April 30 will be
passed through to the related certificateholders
on May 25. Voluntary principal prepayments in
full received by the servicer -- or, in the case
of mortgage loans master-serviced by the
servicer, of which the servicer receives
notice -- from April 1 through April 15 will be
passed through to the certificateholders, net of
any interest thereon, in the month of their
receipt. Other unscheduled prepayments received
at any time during the month will be passed
through to the related certificateholders on May
25.
APRIL 30..................... Record Date. Distributions on May 25 will be made
to certificateholders of record at the close of
business on the last business day of April.
MAY 1-17..................... Through May 15, the servicer receives -- or, in
the case of mortgage loans master-serviced by the
servicer, receives notice of -- any voluntary
principal prepayments in full and interest
thereon to the date of prepayment. Such principal
prepayments, net of any interest, will be
credited to the Loan Payment Record and deposited
into the Certificate Account for distribution to
the related certificateholders on May 25. Through
May 17, the servicer receives interest on April 1
principal balances plus principal due May 1.
Payments due on May 1 from mortgagors will be
credited to the Loan Payment Record as received.
Such payments will include the scheduled
principal payments received, plus one month's
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interest on the April 1 principal balances, less
interest to the extent described above on the
prepaid amount of any mortgage loan prepaid
during April. Payments received from mortgagors
after May 15 will be subject to a late charge in
accordance with the terms of the related
mortgage instruments. These late charges will be
retained by the servicer.
MAY 18....................... Determination Date. On the fifth business day
preceding the distribution date, GECMSI
determines the aggregate amount of distributions
to be made on the certificates on the following
distribution date.
MAY 23....................... GECMSI furnishes notice of the distribution
amount to the trustee on the second business day
preceding the distribution date.
MAY 24....................... Deposit Date. On the business day preceding the
distribution date, GECMSI transfers amounts to
be distributed to certificateholders in the
Certificate Account.
MAY 25....................... Distribution Date. On May 25, the trustee will
distribute to certificateholders the aggregate
amounts set forth in the notice it received from
GECMSI on May 23. If a payment due May 1 is
received from a mortgagor on or after the date on
which GECMSI determines the aggregate amount of
distributions to be made on the certificates and
the servicer has advanced funds in the amount of
such payment to the certificateholders, such late
payment will be paid to GECMSI. If no such
advance has been made, such late payment will be
passed through to such certificateholders at the
time of the next distribution.
OPTIONAL TERMINATION OF A TRUST
If stated in the prospectus supplement, either GECMSI, Funding or the
holders of one or more classes of certificates specified in the prospectus
supplement may, at its or their option, effect early termination of the trust,
on any distribution date after the time specified in the prospectus supplement,
by purchasing all of the certificates or the assets in the trust at a price and
in accordance with the procedures specified in the prospectus supplement. The
proceeds of this sale will be applied on such distribution date to the
distribution in full of the principal balance of each outstanding certificate
entitled to distributions allocable to principal and to accrued interest at the
applicable interest rate to the date specified in the prospectus supplement on
each certificate entitled to distributions allocable to interest, or to such
other amount as is specified in the prospectus supplement. Notice of such
optional termination will be given by the trustee prior to such distribution
date. The proceeds realized upon an early termination may be less than the total
principal balance of all outstanding certificates plus accrued and unpaid
interest. In this case, the resulting shortfall will be allocated among the
certificates as described in the prospectus supplement.
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It is anticipated that GECMSI, Funding or the holders of designated classes
of certificates that can exercise an early termination option will buy the
assets in the trust for a price equal to the sum of the following:
- the unpaid principal balance of each mortgage loan on the first day of
the month of repurchase, plus accrued interest to such date at the
related Net Mortgage Rate; plus
- the appraised value of any mortgaged properties acquired by the trust, as
determined by an appraiser mutually agreed upon with the trustee; minus
- the servicer's good faith estimate of liquidation expenses that would be
incurred in disposing of these mortgaged properties; and minus
- unreimbursed monthly advances of principal or interest by the servicer if
it is the person exercising the early termination option.
The assets will be sold by the trust in connection with any early
termination without representation or warranty, except as to the trust's title,
and without recourse. No holder of any class of certificates will be entitled to
any share of unanticipated recoveries received after the termination of the
trust. See "Unanticipated Recoveries of Losses on the Mortgage Loans" in this
prospectus.
THE TRUSTS
The trust issuing a series of certificates may include the following
assets:
- the mortgage loans subject to the related pooling and servicing agreement
from time to time;
- all payments (subject, if specified in the prospectus supplement, to
certain exclusions) in respect of such mortgage loans;
- if specified in the prospectus supplement, reinvestment income on such
payments;
- all property acquired by foreclosure or deed in lieu of foreclosure with
respect to any mortgage loan;
- all rights of the depositor of the mortgage loans under any private
mortgage insurance policies and any other insurance policies required to
be maintained in respect of the mortgage loans;
- if Funding acts as depositor, its rights and remedies under the Loan Sale
Agreement (as defined below); and
- if so specified in the prospectus supplement, one or more of the
following:
- any Reserve Accounts;
- any loan as to which either (1) liquidation proceedings have been
commenced and any equitable or statutory right to reinstate such
mortgage loan has expired or (2) GECMSI, as servicer, has agreed to
accept a deed in lieu of foreclosure, in each case for a price equal
to 100% of the principal balance of such mortgage loan, plus, unless
otherwise stated in the prospectus supplement, one month's interest
thereon at the applicable Net Mortgage Rate (a "LIQUIDATING LOAN");
- an advance of interest or principal by the servicer;
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- a guarantee that deposits will be made to the Certificate Account (a
"DEPOSIT GUARANTEE"); or
- any pool insurance, special hazard insurance or other insurance,
guarantee or similar instruments or agreements.
GECMSI will have originated or acquired each mortgage loan included in a
trust. If Funding acts as the depositor of the mortgage loans in the trust, it
will have acquired the related mortgage loans from GECMSI pursuant to a loan
sale agreement (a "LOAN SALE AGREEMENT").
The following is a brief description of the mortgage loans expected to be
included in the trusts. The related prospectus supplement will contain a
detailed description of the mortgage loan pool, including the following:
- the aggregate Scheduled Principal Balance, as defined in the prospectus
supplement, of the mortgage loans as of the Cut-off Date;
- years of origination;
- mortgage interest rates borne by the mortgage loans;
- original loan-to-value ratios;
- types of properties securing the mortgage loans; and
- geographical distribution of the mortgage loans by state.
The detailed description of the mortgage pool also will specify the
original principal balance, or, in the case of interest-only certificates, the
notional principal balance, of each class of certificates on the date of
issuance of the certificates, and information regarding the amount of any forms
of credit enhancement, if applicable. The aggregate principal balance of the
final pool will be within 5% of the amount stated in the prospectus supplement.
A copy of the pooling and servicing agreement for each trust and its
exhibits with respect to each series of certificates will be available for
inspection at the corporate trust office of the trustee specified in the related
prospectus supplement. A schedule of the mortgage loans relating to such series
will be attached to the pooling and servicing agreement delivered to the trustee
upon delivery of the certificates.
THE MORTGAGE LOANS
Description of the Mortgage Loans
The mortgage loans will be evidenced by promissory notes secured by
mortgages or deeds of trust. The mortgages create the following liens:
- first liens on residential properties;
- first or second liens on mortgaged properties securing closed-end home
equity loans ("HOME EQUITY LOANS"); or
- first liens on long-term leases of mortgaged properties.
The mortgage loans will be within the broad classification of one- to
four-family mortgage loans. These are defined generally as (1) loans secured by
mortgages on residences housing one to four families, (2) loans secured by
mortgages on condominium units and (3) loans secured by mortgages on leasehold
estates. The mortgage loans may
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include cooperative apartment loans ("COOPERATIVE LOANS") secured by security
interests in shares issued by private, non-profit, cooperative housing
corporations and in the related proprietary leases or occupancy agreements
granting exclusive rights to owners to occupy specific apartments in a
cooperative building.
The mortgage loans will be "conventional" mortgage loans; i.e., they will
not be insured or guaranteed by any governmental agency.
The mortgaged properties securing the mortgage loans will be located in one
or more states in the United States, the District of Columbia, Puerto Rico,
Guam, the U.S. Virgin Islands and other territories of the United States and may
include investment properties and vacation and second homes.
Each mortgage loan will be selected by the depositor of the mortgage loans
for inclusion in a trust from among those originated or acquired by GECMSI in
the ordinary course of its mortgage lending activities, including newly
originated loans.
Unless otherwise stated in the prospectus supplement, the mortgage loans
(other than Home Equity Loans) will have initial principal balances of not less
than the minimum amount permitted under the laws of the state where the related
mortgaged property is located and not more than $1,000,000 and will have
original maturities of 10 to 30 years. Unless otherwise stated in the prospectus
supplement, principal and interest on the mortgage loans (other than Home Equity
Loans that employ the simple interest method) will be payable on the first day
of each month, and interest will be calculated based on a 360-day year of twelve
30-day months. When a full payment of principal is made on a mortgage loan
during a month, the mortgagor is charged interest only on the days of the month
actually elapsed up to the date of such prepayment, at a daily interest rate
that is applied to the principal amount of the loan so prepaid. When a partial
prepayment of principal is made on a mortgage loan other than a Home Equity Loan
during a month, the mortgagor generally will not be charged interest on the
amount of the partial prepayment during the month in which such prepayment is
made.
If stated in the prospectus supplement, all or a portion of the mortgage
loans included in a trust may be Home Equity Loans. The Home Equity Loan portion
of any trust may consist of loans secured by first liens or by first and second
liens. Unless otherwise stated in the prospectus supplement, Home Equity Loans
will have initial principal balances within the ranges permitted under the laws
of the state where the related mortgaged property is located and will have
original maturities of 5 to 30 years. Interest on Home Equity Loans will be
calculated on the basis of either a 360-day year or 365-day year, depending on
applicable state law. As specified in the prospectus supplement, interest on
Home Equity Loans will accrue on a simple interest basis or on a
fully-amortizing basis. Under the simple interest method, regularly scheduled
payments, which are based on the amortization of the loan over a series of equal
monthly payments, and other payments are applied first to interest accrued to
the date payment is received, then to principal. See "Yield, Maturity and
Weighted Average Life Considerations."
GECMSI also originates and acquires balloon loans. If stated in the
prospectus supplement, the Home Equity Loans may include balloon loans. Such
loans may be originated with a stated maturity of 15 years but may on occasion
be originated with a shorter stated maturity. Notwithstanding the 15-year
maturity, level monthly payments on such a balloon loan would typically be
calculated on an amortization -- i.e., principal reduction -- schedule based on
a 30-year maturity. As a result, upon the maturity of a balloon loan, the
borrower will be required to make a balloon payment, which will be
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significantly larger than such borrower's previous monthly payments. The ability
of such borrower to repay the balloon loan at maturity frequently will depend on
such borrower's ability to refinance the loan.
The mortgage loans may be purchase-money loans used by the borrowers to
acquire the related mortgaged properties or may be loans used by the borrowers
to refinance existing mortgage loans. A refinancing may be a cash-out loan, the
principal balance of which exceeds the sum of the amount needed to repay the
loan being refinanced plus closing costs and points associated with the new
mortgage loan, or may be a non-cash-out or rate-and-term refinancing in which
the borrower refinances the loan solely to change the interest rate or term of
the mortgage loan.
The payment terms of the mortgage loans to be included in a trust will be
described in the related prospectus supplement and may include any of the
following features or combinations thereof or other features described in the
related prospectus supplement:
- Interest may be payable at a fixed rate, a rate adjustable from time to
time in relation to an index, a rate that is fixed for a period of time
or under certain circumstances and is followed by an adjustable rate, a
rate that otherwise varies from time to time, or a rate that is
convertible from an adjustable rate to a fixed rate. Changes to an
adjustable rate may be subject to periodic limitations, maximum rates,
minimum rates or a combination of such limitations. Accrued interest may
be deferred and added to the principal of a loan for such periods and
under such circumstances as may be specified in the related prospectus
supplement. Mortgage loans may provide for the payment of interest at a
rate lower than the specified mortgage rate for a period of time or for
the life of the loan with the amount of any difference contributed from
funds supplied by the seller of the mortgaged property or another source.
- Principal may be payable on a level debt service basis to fully amortize
the loan over its term, may be calculated on the basis of an amortization
schedule that is significantly longer than the original term to maturity
or on an interest rate that is different from the interest rate on the
mortgage loan or may not be amortized during all or a portion of the
original term. Payment of all or a substantial portion of the principal
may be due on maturity. Principal may include interest that has been
deferred and added to the principal balance of the mortgage loan.
- Monthly payments of principal and interest may be fixed for the life of
the loan, may increase over a specified period of time or may change from
period to period. Mortgage loans may include limits on periodic increases
or decreases in the amount of monthly payments and may include maximum or
minimum amounts of monthly payments.
- Prepayments of principal may be subject to a prepayment fee, which may be
fixed for the life of the loan or may decline over time, and may be
prohibited for the life of the loan or for certain periods known as
lockout periods. Certain loans may permit prepayments after expiration of
the applicable lockout period and may require the payment of a prepayment
fee in connection with any such subsequent prepayment. Other loans may
permit prepayments without payment of a fee unless the prepayment occurs
during specified time periods. The loans may include due-on-sale clauses
which permit the mortgagee to demand payment of the entire mortgage loan
in connection with the sale or certain transfers of the related
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mortgaged property. Other mortgage loans may be assumable by persons
meeting the then applicable underwriting standards of GECMSI.
It is anticipated that the mortgage loans in each trust will usually
consist primarily of mortgage loans secured by mortgaged properties determined
by GECMSI to be the primary residences of the borrowers. The basis for such
determination will be the making of a representation by the borrower in his or
her loan application that he or she intends to use the underlying property as
his or her primary residence. However, if specified in the related prospectus
supplement, a trust may contain all or a substantial number of mortgage loans
secured by mortgaged properties which are represented by the borrower to be
second homes or investment properties.
The prospectus supplement will contain the following information regarding
the mortgage loans: (1) the interest rates, (2) the average Principal Balance,
as defined below, and the aggregate Principal Balance of the mortgage loans as
of the related Cut-off Date, (3) the years of origination and (4) the original
principal balances and the original loan-to-value ratios of the mortgage loans.
The "PRINCIPAL BALANCE" of any mortgage loan (other than a Home Equity Loan)
will be the unpaid principal balance of such mortgage loan as of the Cut-off
Date, after deducting any principal payments due on or before the Cut-off Date,
reduced by all principal payments, including principal payments advanced
pursuant to the pooling and servicing agreement for each trust, previously
distributed to certificateholders with respect to such mortgage loan and
reported to them as allocable to principal. The "Principal Balance" of any Home
Equity Loan as of the Cut-off Date will be the unpaid principal balance thereof
as of such date. The prospectus supplement will also contain information
regarding the geographic distribution and nature of the mortgaged properties
securing the mortgage loans.
Unless otherwise stated in the prospectus supplement, the loan-to-value
ratio of any mortgage loan will be determined by dividing (1) the amount of such
loan, without taking into account any secondary financing, by (2) the Original
Value of the related mortgaged property. The principal amount of the loan, for
purposes of computation of the loan-to-value ratio of any mortgage loan, will
include any part of an origination fee that has been financed. The Original
Value of a mortgaged property is:
- in the case of a purchase money mortgage loan, the lesser of the value of
the mortgaged property, based on an appraisal thereof acceptable to
GECMSI, and the selling price; and
- in the case of any non-purchase money mortgage loan, the value of the
mortgaged property, based on either the appraised value determined in an
appraisal obtained at the time of refinancing or origination of such loan
or, if no such appraisal has been obtained, the value of the related
mortgaged property. In the latter case, the value generally will be
supported by either (1) a representation by the related correspondent as
to such value; (2) a broker's price opinion, automated appraisal,
drive-by appraisal or other certification of value; (3) an appraisal
obtained within twelve months prior to such refinancing or origination;
or (4) the sales price, if the mortgaged property was purchased within
the previous twelve months.
In the case of seasoned mortgage loans acquired by GECMSI, the values used
in calculating loan-to-value ratios may no longer be accurate valuations of the
mortgaged properties. Under GECMSI's underwriting standards, a correspondent or
other third-party seller is generally permitted to provide secondary financing
(or subordinate existing secondary financing) to, or obtain such secondary
financing for, a mortgagor
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contemporaneously with the origination of a mortgage loan, provided that the
combined loan-to-value ratio does not exceed GECMSI's underwriting guidelines
for the specific loan program. Secondary financing is readily available and may
be obtained by a mortgagor from a variety of lenders, including the related
correspondent or other third-party seller, at any time, including at origination
of the mortgage loan.
Loan Production Sources
GECMSI acquires the mortgage loans that may underlie a series of
certificates in various ways:
- by purchasing mortgage loans originated or otherwise acquired by its
approved correspondents or other approved third parties;
- by closing mortgage loans originated through loan brokers eligible to
refer applications to GECMSI;
- by refinancing mortgage loans in its own servicing portfolio; and
- by originating loans with borrowers who currently have mortgage loans
serviced by GECMSI.
GECMSI may purchase loans from correspondents or other third parties either
for contemporaneous delivery or for delivery in one or more pools on a
forward-delivery basis at some future date.
GECMSI's mortgage loan correspondents and loan brokers are certain lending
institutions that satisfy GECMSI's financial and operational criteria,
demonstrate experience in originating mortgage loans and follow GECMSI's loan
underwriting standards or other loan underwriting standards approved by GECMSI.
Except as described below, GECMSI generally reviews each mortgage loan for
compliance with its underwriting standards before accepting delivery from its
correspondents. Under GECMSI's "delegated underwriting" program, however, GECMSI
delegates all underwriting functions to certain approved correspondents. In such
cases, GECMSI will not perform any underwriting functions prior to its
acquisition of the loans, instead relying on the representations and warranties
of its correspondents and on post-purchase reviews of the material loan
documents and samplings of the loans for compliance with applicable underwriting
standards. Mortgage loans originated by a correspondent may be closed in the
name of such correspondent and acquired by GECMSI or, to a lesser extent, closed
in the name of GECMSI. Mortgage loans originated by GECMSI through loan brokers
are generally underwritten by GECMSI, processed by the broker on behalf of
GECMSI as well as by GECMSI, and closed in GECMSI's name.
GECMSI purchases portfolios of loans from other third-party sellers in
negotiated transactions. Before making such purchases, GECMSI generally
determines that such sellers satisfy GECMSI's financial and operational
criteria, have demonstrated experience in originating or acquiring single-family
mortgage loans and have followed loan underwriting standards acceptable to
GECMSI.
Loans acquired from GECMSI's correspondents and brokers will generally have
been recently originated. Loans acquired in bulk whole loan sales from
correspondents and from other third parties in negotiated transactions are more
likely to include loans that have been outstanding for a period of time. The
prospectus supplement will provide information with respect to the origination
dates and the remaining terms to maturity of the mortgage loans included in the
related trust.
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Loan Underwriting Policies
The mortgage loans in a trust will generally have been originated in
accordance with the underwriting standards described below. In the case of
mortgage loans sold to GECMSI by certain approved correspondents who have
exhibited strong financial performance and have delinquency and foreclosure
rates with respect to their conventional loan portfolios acceptable to GECMSI,
GECMSI may vary some of the generally acceptable underwriting standards and
program criteria described herein, such as required documentation levels,
loan-to-value ratios and the mortgagors' debt and income ratios. If a
significant portion of the mortgage loans included in any trust have been
originated or acquired by GECMSI under materially different standards from those
described herein, the related prospectus supplement will describe such
standards.
The underwriting standards applied by GECMSI in acquiring or originating
mortgage loans are intended to evaluate the prospective borrower's credit
standing and ability to repay the loan and the value and adequacy of the
underlying mortgaged property as collateral for the loan. In applying these
standards, GECMSI must be satisfied that the value of the property being
financed supports, and will continue to support, the outstanding loan balance.
GECMSI may require that mortgage loans that are not eligible for purchase by
Freddie Mac or Fannie Mae be underwritten by a nationally-recognized third-party
underwriter approved by GECMSI. In such cases, as well as in cases of loans
originated under GECMSI's delegated underwriting program as described above in
"-- Loan Production Sources" and in the case of loans sold by certain
third-party sellers, the determination of a mortgage loan's compliance with the
underwriting standards described herein will be made by the related underwriter.
In acquiring or originating residential mortgage loans, GECMSI follows
procedures established to comply with applicable federal and state laws and
regulations. In applying for a loan, a prospective borrower is generally
required to supply detailed information for a loan application designed to
provide pertinent credit information about the prospective mortgagor, the
property to be purchased or that will serve as the security for the loan, and
the type of loan desired. The application generally includes a description of
the prospective borrower's assets and liabilities and income and expenses.
GECMSI also usually requires a credit report that summarizes the prospective
mortgagor's credit with merchants and lenders and, in the case of second-lien
Home Equity Loans, a written or telephonic verification of the first mortgage
balance and payment history. GECMSI may, as part of its overall evaluation of
the prospective borrower's creditworthiness, use a credit scoring model and/or
mortgage scoring model to evaluate in a statistical manner the expected
performance of a mortgage loan based on the pertinent credit information
concerning the prospective mortgagor supplied through national credit bureaus,
certain other information provided by the prospective borrower and an assessment
of specific mortgage loan characteristics, including loan-to-value ratio, type
of loan product and geographic location. GECMSI expects to place greater
reliance on a prospective mortgagor's credit and/or mortgage scores in the
underwriting process.
The extensiveness of the documentation that GECMSI requires in connection
with the verification of a prospective borrower's employment status, income,
assets and adequacy of funds to close varies from full documentation to limited
documentation, as further described below. GECMSI may raise or lower its
documentation requirements depending upon such factors as the net worth and
financial performance of the correspondent or other third party selling the
mortgage loans and the performance of such correspondent's mortgage loan
portfolio. In addition, GECMSI will take into account the
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performance of those mortgage loans previously sold to it by such correspondent
or third party seller, as well as factors particular to a mortgage loan such as
the credit history of the individual borrower, the loan-to-value ratio of the
loan and the prospective mortgagor's credit and/or mortgage scores.
The following paragraphs describe some of GECMSI's loan documentation
programs.
1. FULL OR ALTERNATIVE DOCUMENTATION
Under a typical full or alternative documentation loan approval process,
verification of the prospective borrower's employment status and current salary
is obtained from records prepared by the employer or by other means satisfactory
to GECMSI. Each prospective borrower who is self-employed is generally required
to submit a copy of his or her federal income tax returns. In the case of
purchase money mortgage loans, GECMSI also generally requires verification that
the borrower has adequate funds to close the mortgage loan. A prospective
borrower may be eligible for a loan approval process permitting limited
documentation if the amount of the mortgage loan, together with, in the case of
a second-lien Home Equity Loan, the unpaid principal balance of the senior
mortgage loan, would not exceed a certain percentage of the original value of
the related mortgaged property and certain other requirements are satisfied.
2. LIMITED DOCUMENTATION
The limited documentation process differs from the full or alternative
documentation process primarily in that it does not require a verification of
the borrower's employment, income and/or assets or, in certain circumstances,
verification of funds to close, and generally places greater reliance on a
prospective mortgagor's credit and/or mortgage scores. Certain of GECMSI's
programs that utilize the limited documentation loan approval process are
described below. A loan application and credit report and, when applicable, a
mortgage or rental reference are usually obtained. A current appraisal is also
generally obtained, except as described below.
3. RELOCATION LOANS
Certain of the mortgage loans (other than Home Equity Loans) may have been
originated or acquired under GECMSI's relocation loan program. Under the
relocation loan program, the related borrower must be a relocating employee, the
relocation loan must be secured by the related borrower's primary residence and
the employer generally must have paid all or a substantial portion of the
relocating employee's closing costs. A relocating employee may be either an
employee transferring from one location to another, a new hire or a participant
in a group relocation. Loan documentation for a relocation loan will generally
be similar to that required for other mortgage loans originated or acquired by
GECMSI, except with respect to the treatment of the income of the spouse of the
relocating employee. If the spouse confirms an intention to seek employment at
the new location, under certain circumstances, a portion of such spouse's income
at the old location may be counted for qualifying for a relocation loan.
Generally, for all relocation loans, the spouse's income at the old location
must also be verified.
4. NO INCOME VERIFICATION PROGRAM
Certain of the mortgage loans (other than Home Equity Loans) may have been
originated or acquired under GECMSI's No Income Verification program, pursuant
to which GECMSI generally will not verify any self-employment or other income of
the
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borrower. Unless otherwise stated in the prospectus supplement, in order to
qualify for the No Income Verification program, the related borrower generally
must have (1) no delinquent mortgage or rental payments during the preceding 24
months, (2) a minimum of two months' principal, interest, tax and insurance
payments in reserves after the closing of the related loan and (3) acceptable
credit scores.
5. NO RATIO PROGRAM
Certain of the mortgage loans (other than Home Equity Loans) may have been
originated or acquired under GECMSI's No Ratio program, pursuant to which GECMSI
will verify the assets of the borrower but will not require the borrower to
either complete the income section on the loan application or satisfy any
qualifying housing-to-income or debt-to-income ratios. Unless otherwise stated
in the prospectus supplement, in order to qualify for the No Ratio program, the
related borrower generally must have (1) no delinquent mortgage or rental
payments during the preceding 24 months, (2) a minimum of six months' principal,
interest, tax and insurance payments in reserves after the closing of the
related loan and (3) strong credit scores.
6. NO INCOME NO ASSET VERIFICATION PROGRAM
Certain of the mortgage loans (other than Home Equity Loans) may have been
originated or acquired under GECMSI's No Income No Asset Verification program,
pursuant to which GECMSI will not verify any income or assets of the borrower.
This program is only available to certain approved correspondents who have
exhibited strong financial performance and have delinquency and foreclosure
rates with respect to their conventional loan portfolios acceptable to GECMSI.
Unless otherwise stated in the prospectus supplement, in order to qualify for
the No Income No Asset Verification program, the related borrower generally must
have (1) no delinquent mortgage or rental payments during the preceding 24
months, (2) a stated minimum of six months' principal, interest, tax and
insurance payments in reserves after the closing of the related loan and (3)
strong credit scores.
7. ENHANCED STREAMLINED REFINANCE PROGRAM
Certain of the mortgage loans (other than Home Equity Loans) may have been
originated or acquired under GECMSI's Enhanced Streamlined Refinance program.
Under this program, if GECMSI is currently the servicer of a borrower's
first-lien mortgage loan, GECMSI may originate a rate-and-term, rather than
cash-out, refinance loan which pays off the existing mortgage loan so long as
the existing mortgage loan is current, and the borrower has no more than one
30-day delinquent mortgage payment on the existing mortgage loan during the
preceding 12 months. Under this program, GECMSI generally will not verify any
income or assets of the borrower, and no new appraisal will be required. GECMSI
will, however, represent and warrant in the pooling and servicing agreement that
the value of the related mortgaged property is no less than the value
established at the time the existing mortgage loan was originated.
Upon receipt of appropriate verification, where required, the credit
report, and, in certain cases, the prospective borrower's credit score or
mortgage score, GECMSI (or the delegated underwriter) makes a determination as
to whether the prospective borrower has sufficient monthly income to meet the
monthly payment obligations on the proposed mortgage loan (including real estate
taxes and insurance on the subject property), plus other financial obligations
not expected to be fully repaid within the next ten months and normal monthly
living expenses. In the case of a mortgage loan with more than one
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borrower where all the borrowers intend to occupy the mortgaged property, the
combined gross income of all such borrowers is considered for the above
computation. However, GECMSI may depart from a strict application of its
guidelines in favor of other credit considerations, and may permit such a
departure in the case of loans acquired from certain of its approved
correspondents and other third-party sellers. In its evaluation of seasoned
mortgage loans which have 24 or more months of payment experience, GECMSI
generally places greater emphasis on payment history and may take into account
market and other economic trends while placing less emphasis on underwriting
factors generally applied to newly originated mortgage loans.
APPRAISALS
In assessing the adequacy of properties as collateral for mortgage loans,
an independent appraisal is generally used with respect to each property
considered for financing. Such appraisal generally entails physical inspection
of the property as well as a verification that the property is in good
condition. The appraiser estimates the value of the property based on market
values of comparable homes and, to a lesser extent, the cost of replacing the
property.
No assurance can be given that values of the mortgaged properties have
remained or will remain at the levels which existed on the dates of appraisal of
such mortgaged properties. The appraisal of any mortgaged property reflects the
individual appraiser's judgment as to value, based on the market value of
comparable homes sold within the recent past in comparable nearby locations and
on the estimated replacement cost. Because of the unique locations and special
features of certain mortgaged properties, identifying comparable properties in
nearby locations may be difficult. The appraised values of such mortgaged
properties will be based to a greater extent on adjustments made by the
appraisers to the appraised values of reasonably similar properties. If
residential real estate values generally or in particular geographic areas
decline such that the outstanding principal balances of the mortgage loans and
any secondary financing on the mortgaged properties become equal to or greater
than the values of such mortgaged properties, the actual rates of delinquencies,
foreclosures and losses could be significantly higher than those now generally
experienced in the mortgage lending industry and those now experienced on
GECMSI's servicing portfolios. To the extent that such losses are not covered by
any of the credit enhancement features described herein, they will be borne by
the holders of the related certificates.
GECMSI may not require a current appraisal in connection with certain
purchase money mortgage loans, certain refinancings and certain home equity loan
programs. The percentage of mortgage loans representing such purchase money
mortgage loans, refinancings and home equity loans (by Principal Balance of all
of the mortgage loans included in a trust as of the Cut-off Date) where an
appraisal dated within the past year has not been obtained will be specified in
the related prospectus supplement, if material. In addition, the percentage of
mortgage loans in respect of which no appraisal has been obtained will be
specified in the related prospectus supplement, if material. Generally,
appraisals in connection with a Home Equity Loan will be dated within six months
prior to the origination of such mortgage loan. In the event that there has been
a decline in value of the mortgaged properties with respect to mortgage loans
originated without current appraisals, the use of other methods in establishing
the original value of a mortgaged property and in calculating the loan-to-value
ratios of such mortgage loans may result in substantially lower loan-to-value
ratios than would be the case if new appraisals were obtained at the time of
refinancing. This may be particularly true in geographic areas
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where there has been a substantial decline in property values since the date of
origination of the refinanced mortgage loans. In addition, the use of methods
other than a current appraisal to establish the original value of a mortgaged
property (e.g., a broker's price opinion, an automated appraisal or a drive-by
appraisal) may not provide as thorough a review or as accurate an assessment of
the value of the related mortgaged property. In certain circumstances, GECMSI
may require a current appraisal where, as a result of deterioration in
conditions in the local real estate market since the date of origination of the
refinanced mortgage loan, there is a greater probability that the original
appraisal may not accurately reflect the current market value of the mortgaged
property.
The mortgage loans in a pool will not have loan-to-value ratios in excess
of 105% of original value of the mortgaged property. Generally, mortgage loans
that GECMSI originates or acquires do not have loan-to-value ratios in excess of
95% of the original value of the mortgaged property. The prospectus supplement
for a series will describe the extent to which a pool includes mortgage loans
with loan-to-value ratios exceeding 95%. In certain cases, secondary financing,
or subordination of existing secondary financing, is permitted, provided that
the combined loan-to-value ratio does not exceed GECMSI's underwriting
guidelines for the specific loan program. Unless otherwise stated in the
prospectus supplement, mortgage loans (other than Home Equity Loans) that GECMSI
acquires or originates which have an original principal amount exceeding 80% of
original value of the mortgaged property will have private mortgage insurance.
GECMSI generally requires such coverage to continue until the loan-to-value
ratio is 80% or less. Federal law also permits the cancellation of, and requires
the termination of, private mortgage insurance on mortgaged properties that are
single-family, owner-occupied dwellings once the loan-to-value ratio falls below
certain thresholds. See "Servicing of the Mortgage Loans -- Private Mortgage
Insurance" below. GECMSI does not require private mortgage insurance with
respect to Home Equity Loans.
If Home Equity Loans constitute a material portion of the mortgage loans
included in a trust, the related prospectus supplement will describe in further
detail the underwriting standards applicable to the Home Equity Loans.
CREDIT ENHANCEMENT
TYPES OF ENHANCEMENTS
Credit enhancement may be provided with respect to one or more classes of a
series of certificates or with respect to the mortgage loans in the related
trust. Credit enhancement may be in one or more of the following forms:
- the limited obligation of GECMSI as servicer to purchase Liquidating
Loans;
- a limited financial guarantee policy;
- a limited guarantee or other similar instrument issued by the guarantor
named in the prospectus supplement, which may be an affiliate of GECMSI;
- the subordination of one or more classes of the certificates of such
series;
- the establishment of one or more reserve accounts;
- the use of a cross-support feature;
- a pool insurance policy;
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- a bankruptcy bond;
- a special hazard insurance policy;
- a repurchase bond;
- a guaranteed investment contract; or
- another method of credit enhancement described in the related prospectus
supplement.
Unless otherwise stated in the prospectus supplement, any credit
enhancement will not provide protection against all risks of loss and will not
guarantee repayment of the entire principal balance of the certificates and
interest thereon. If losses occur which exceed the amount covered by credit
enhancement or which are not covered by the credit enhancement,
certificateholders will bear their allocable share of deficiencies.
If the prospectus supplement for a series states that an institution other
than GECMSI will act as sole servicer or master servicer of the related mortgage
loans, or that GECMSI will act as master servicer of such mortgage loans under a
Supervisory Master Servicing Arrangement, as defined under "Servicing of the
Mortgage Loans," whereby other servicers will be directly obligated to perform
certain servicing duties, if so specified in such prospectus supplement, such
other master servicers or servicers may provide certain of the credit
enhancement arrangements described below in lieu of GECMSI. In such event, all
references to GECMSI as servicer under the description of such credit
enhancement set forth below should be read to refer to such other master
servicer or servicers, as the case may be.
SUBORDINATION
If so stated in the prospectus supplement, distributions in respect of
scheduled principal, Principal Prepayments, interest or any combination thereof
that otherwise would have been payable to one or more classes of Subordinated
Certificates of a series of certificates will instead be payable to holders of
one or more classes of Senior Certificates of such series under the
circumstances and to the extent specified in the prospectus supplement. If
stated in the prospectus supplement, delays in receipt of scheduled payments on
the mortgage loans and losses on defaulted mortgage loans will be borne first by
the various classes of Subordinated Certificates and thereafter by the various
classes of Senior Certificates, in each case under the circumstances and subject
to the limitations specified in the prospectus supplement. The aggregate
distributions in respect of delinquent payments on the mortgage loans over the
lives of the certificates or at any time, the aggregate losses in respect of
defaulted mortgage loans which must be borne by the Subordinated Certificates by
virtue of subordination and the amount of the distributions otherwise
distributable to the subordinated certificateholders that will be distributable
to senior certificateholders on any distribution date may be limited as
specified in the prospectus supplement. If aggregate distributions in respect of
delinquent payments on the mortgage loans or aggregate losses in respect of such
mortgage loans were to exceed the total amounts payable and available for
distribution to holders of Subordinated Certificates or, if applicable, were to
exceed the specified maximum amount, holders of Senior Certificates could
experience losses on the certificates.
In addition to or in lieu of the foregoing, if so stated in the prospectus
supplement, all or any portion of distributions otherwise payable to holders of
Subordinated Certificates on any distribution date may instead be deposited into
one or more reserve accounts established by the trustee. If so stated in the
prospectus supplement, such deposits may be
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made on each distribution date, on each distribution date for specified periods
or until the balance in the reserve account has reached a specified amount and,
following payments from the reserve account to holders of Senior Certificates or
otherwise, thereafter to the extent necessary to restore the balance in the
reserve account to required levels, in each case as specified in the prospectus
supplement. If so specified in the prospectus supplement, amounts on deposit in
the reserve account may be released to the depositor of the mortgage loans in
the trust or the holders of any class of certificates at the times and under the
circumstances specified in the prospectus supplement.
If stated in the prospectus supplement, one or more classes of certificates
may bear the risk of certain losses on defaulted mortgage loans not covered by
other forms of credit enhancement prior to other classes of certificates. Such
subordination might be effected by reducing the principal balance of the
Subordinated Certificates on account of such losses, thereby decreasing the
proportionate share of distributions allocable to such certificates, or by
another means specified in the prospectus supplement.
If stated in the prospectus supplement, various classes of Senior
Certificates and Subordinated Certificates may themselves be subordinate in
their right to receive certain distributions to other classes of Senior and
Subordinated Certificates, respectively, through a cross-support mechanism or
otherwise.
If so stated in the prospectus supplement, the same class of certificates
may constitute Senior Certificates with respect to certain types of payments or
certain losses and Subordinated Certificates with respect to other types of
payments or losses.
As between classes of Senior Certificates and as between classes of
Subordinated Certificates, distributions may be allocated among such classes (1)
in the order of their scheduled final distribution dates, (2) in accordance with
a schedule or formula, (3) in relation to the occurrence of events or (4)
otherwise, in each case as specified in the prospectus supplement. As between
classes of Subordinated Certificates, payments to holders of Senior Certificates
on account of delinquencies or losses and payments to any reserve account will
be allocated as specified in the prospectus supplement.
Unless otherwise stated in the prospectus supplement, the pooling and
servicing agreement may permit the servicer, at its option, to grant to the
holders of certain classes of Subordinated Certificates certain rights in
connection with the foreclosure of defaulted mortgage loans in the related
trust. See "Servicing of the Mortgage Loans -- Collection and Other Servicing
Procedures."
PURCHASE OF LIQUIDATING LOANS
GECMSI, as servicer, may be obligated, if and to the extent described in
the prospectus supplement, to purchase any Liquidating Loan. Any such obligation
of GECMSI, as servicer, may be limited as specified in the prospectus
supplement. In particular, the aggregate losses from the purchase of Liquidating
Loans that GECMSI is obligated to bear, measured as the difference between the
aggregate payments made by GECMSI into the Certificate Account in respect of
Liquidating Loans and the aggregate net proceeds received by GECMSI from the
disposition of such Loans, may be limited to an amount specified in the
prospectus supplement. After this amount is exhausted, no further Liquidating
Loans will be purchased by GECMSI, unless such amount has been restored as
described below.
If so stated in the prospectus supplement, GECMSI, as servicer, will have
the option, but not the obligation, to purchase (i) any mortgage loan as to
which the mortgagor has
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failed to make unexcused payment in full of three or more scheduled payments of
principal and interest (a "DELINQUENT MORTGAGE LOAN") and (ii) any mortgage loan
as to which the originator of such mortgage loan breached a representation or
warranty to GECMSI regarding the characteristics of such mortgage loan. Unless
otherwise stated in the prospectus supplement, any such purchase will be for a
price equal to 100% of the Principal Balance of such mortgage loan plus interest
thereon at the applicable Net Mortgage Rate from the date on which interest was
last paid to the first day of the month in which such purchase price is to be
distributed, net of any unreimbursed advances of principal and interest thereon
made by GECMSI as servicer. The purchase price for any mortgage loan purchased
pursuant to this paragraph will be deposited in the Certificate Account on the
next Deposit Date (as defined under "Servicing of the Mortgage Loans -- Loan
Payment Record").
The purchase by GECMSI, as servicer, of a Delinquent Mortgage Loan may
result in the diminution of the amount of GECMSI's obligations, as servicer, to
purchase Liquidating Loans, to the extent that net recoveries upon the
liquidation of such Delinquent Mortgage Loan are, or are estimated by GECMSI on
the date of such purchase to be, less than the sum of the purchase price for
such Delinquent Mortgage Loan and any previous unreimbursed advances of
delinquent installments of principal and interest (adjusted to the related Net
Mortgage Rate) made by GECMSI with respect thereto. To the extent that actual
recoveries, net of related expenses, upon the final liquidation of such
Delinquent Mortgage Loan differ from the estimated amount thereof, the amount of
GECMSI's remaining obligation to purchase Liquidating Loans will be adjusted up
or down accordingly. If a Delinquent Mortgage Loan becomes current after its
purchase by GECMSI, any related decrease in the amount of GECMSI's obligation to
purchase Liquidating Loans will be reversed in its entirety. Liquidation
proceeds in connection with the liquidation of any mortgaged property may not be
deemed for this purpose to include the entire principal balance of any mortgage
loan made by GECMSI to facilitate such sale at a rate less than then prevailing
market rates. In estimating the net amount of proceeds recoverable upon the
liquidation of any Delinquent Mortgage Loan, GECMSI may treat as related
liquidation expenses certain costs associated with the protection of the
mortgaged property, property sales expenses and foreclosure or other similar
costs.
Following the purchase by GECMSI of any Liquidating Loan or Delinquent
Mortgage Loan as described above, and the payment by GECMSI of the purchase
price therefor, GECMSI will be entitled to receive an assignment by the trustee
of such mortgage loan, and GECMSI will thereafter own such mortgage loan free of
any further obligation to the trustee or the certificateholders with respect
thereto.
LIMITED GUARANTEE OF THE GUARANTOR
If stated in the prospectus supplement, certain obligations of GECMSI, as
servicer, under the related pooling and servicing agreement may be covered by a
limited guarantee or similar instrument, limited in scope and amount, issued by
the specified guarantor. If so specified, the guarantor may be obligated to take
one or more of the following actions in the event GECMSI fails to do so: (1)
make deposits pursuant to a Deposit Guarantee; (2) make advances (an "ADVANCE
GUARANTEE"); or (3) purchase Liquidating Loans (a "LIQUIDATING LOAN GUARANTEE").
Any such limited guarantee will be limited in amount and a portion of the
coverage of any such limited guarantee may be separately allocated to certain
events. For example, a portion of the aggregate amount of a guarantee to
purchase Liquidating Loans may be separately allocated to Liquidating Loans due
to special hazards
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not covered by standard hazard insurance policies, Liquidating Loans due to the
bankruptcy of a mortgagor, and other Liquidating Loans. The scope, amount and,
if applicable, the allocation of any limited guarantee will be described in the
related prospectus supplement.
If and to the extent that the guarantor is required to make payments under
any such limited guarantee, unless otherwise stated in the prospectus
supplement, the guarantor, upon notice from the trustee, will be obligated to
deposit the amount of such payments in same-day funds in the Certificate Account
on the day after the Deposit Date, all as set forth more specifically in such
limited guarantee. If the guarantor is required to make any payment under a
limited guarantee, the guarantor will be subrogated, to the extent of such
payment, to the rights of holders of the certificates and shall have all rights
of GECMSI under the related agreement as described herein. Any limited guarantee
issued by the guarantor will be limited in amount or duration as specified in
the prospectus supplement and may not guarantee the full extent of GECMSI's
obligations with respect to which such limited guarantee was issued. As
described in the prospectus supplement, if applicable, the amount of any limited
guarantee will be reduced by amounts distributed by the guarantor, and not
recovered by it, under all limited guarantees issued by the guarantor with
respect to the same series of certificates and by any reduction in GECMSI's
obligations with respect to which such limited guarantee was issued.
CROSS-SUPPORT
If stated in the prospectus supplement, the beneficial ownership of
separate groups of assets included in a trust may be evidenced by separate
classes of the related series of certificates. In such case, credit enhancement
may be provided by a cross-support feature which may require that distributions
be made with respect to certificates evidencing beneficial ownership of one or
more asset groups prior to distributions to Subordinated Certificates evidencing
a beneficial ownership interest in other asset groups within the same trust. The
prospectus supplement for a series which includes a cross-support feature will
describe the manner and conditions for applying such cross-support feature.
If stated in the prospectus supplement, the coverage provided by one or
more forms of credit enhancement may apply concurrently to two or more separate
trusts. If applicable, the prospectus supplement will identify the trusts to
which such credit enhancement relates and the manner of determining the amount
of the coverage provided thereby and the application of such coverage to the
identified trusts.
POOL INSURANCE
In order to decrease the likelihood that certificateholders will experience
losses in respect of the mortgage loans, if stated in the prospectus supplement,
the depositor of the mortgage loans in the trust will obtain one or more pool
insurance policies. Any such policies may be in lieu of or in addition to any
obligations of GECMSI in respect of the mortgage loans. Such pool insurance
policy will, subject to the limitations described in the prospectus supplement,
cover loss by reason of default in payments on the mortgage loans up to the
amounts specified in the prospectus supplement and for the periods specified in
the prospectus supplement. GECMSI, as servicer, will agree to use its best
reasonable efforts to maintain in effect any such pool insurance policy and to
present claims thereunder to the pool insurer on behalf of itself, the trustee
and the certificateholders. The pool insurance policy, however, is not a blanket
policy against loss, since claims thereunder may only be made respecting
particular defaulted mortgage loans and only upon
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satisfaction of certain conditions precedent described below. The pool insurance
policy, if any, will not cover losses due to a failure to pay or denial of a
claim under a primary mortgage insurance policy, irrespective of the reason
therefor.
Unless otherwise stated in the prospectus supplement, the original amount
of coverage under any pool insurance policy will be reduced over the life of the
related series of certificates by the aggregate dollar amount of claims paid
less the aggregate of the net amounts realized by the pool insurer upon
disposition of all foreclosed properties. The amount of claims paid will include
expenses incurred by GECMSI on the foreclosed properties for hazard insurance
premiums and, to the extent approved by the pool insurer, amounts paid for
property taxes, the discharge of liens, expenses required to preserve and repair
the properties and foreclosure costs, as well as accrued interest on delinquent
mortgage loans to the date of payment of the claim. See "Certain Legal Aspects
of the Mortgage Loans -- Foreclosure." Accordingly, if aggregate net claims paid
under any pool insurance policy reach the original policy limit, coverage under
that pool insurance policy will be exhausted and any further losses will be
borne by one or more classes of certificateholders unless assumed by GECMSI as
servicer or the guarantor under any obligations they may have in respect of
Liquidating Loans or by some other entity, if and to the extent specified in the
prospectus supplement.
Since any mortgage pool insurance policy may require that the property
subject to a defaulted mortgage loan be restored to its original condition prior
to claiming against the pool insurer, such policy may not provide coverage
against hazard losses. As described under "Servicing of the Mortgage
Loans -- Hazard Insurance," the hazard policies concerning the mortgage loans
typically exclude from coverage physical damage resulting from a number of
causes and even when the damage is covered, may afford recoveries which are
significantly less than the full replacement cost of such losses. Even if
special hazard insurance is applicable as specified in the prospectus
supplement, no coverage in respect of special hazard losses will cover all
risks, and the amount of any such coverage will be limited. See "Special Hazard
Insurance" below. As a result, certain hazard risks will not be insured against
and will therefore be borne by certificateholders, unless otherwise assumed by
GECMSI as servicer or the guarantor under any obligations they may have in
respect of Liquidating Loans or by some other entity, as specified in the
prospectus supplement.
SPECIAL HAZARD INSURANCE
In order to decrease the likelihood that certificateholders will experience
losses in respect of the mortgage loans, if specified in the prospectus
supplement, GECMSI or Funding, as depositor of the mortgage loans in a trust,
will obtain one or more special hazard insurance policies with respect to the
mortgage loans. Any such policies may be in lieu of or in addition to any
obligations of GECMSI to advance delinquent payments in respect of the mortgage
loans. Such a special hazard insurance policy will, subject to limitations
described below and in the prospectus supplement, protect holders of
certificates from loss by reason of damage to mortgaged properties caused by
certain hazards (including earthquakes and, to a limited extent, tidal waves and
related water damage) not covered by the standard form of hazard insurance
policy for the respective states in which the mortgaged properties are located
or under flood insurance policies, if any, covering the mortgaged properties. It
also protects holders from loss from partial damage caused by reason of the
application of the co-insurance clause contained in hazard insurance policies.
Any special hazard insurance policy may not cover losses occasioned by war,
civil insurrection, certain governmental actions, errors in design, faulty
workmanship
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or materials (except under certain circumstances), nuclear reaction, flood (if
the mortgaged property is located in a federally designated flood area),
chemical contamination and certain other risks. Aggregate claims under each
special hazard insurance policy may be limited to a specified percentage of the
aggregate principal balance as of the Cut-off Date of the mortgage loans. Any
special hazard insurance policy may also provide that no claim may be paid
unless hazard and, if applicable, flood insurance on the mortgaged property has
been kept in force and other protection and preservation expenses have been paid
by the servicer.
Subject to the foregoing limitations, any special hazard insurance policy
may provide that, where there has been damage to property securing a foreclosed
mortgage loan (title to which has been acquired by the insured) and to the
extent such damage is not covered by the hazard insurance policy or flood
insurance policy, if any, maintained by the mortgagor or the servicer, the
special hazard insurer will pay the lesser of (1) the cost of repair or
replacement of such property or (2) upon transfer of the property to the special
hazard insurer, the unpaid principal balance of such mortgage loan at the time
of acquisition of such property by foreclosure or deed in lieu of foreclosure,
plus accrued interest to the date of claim settlement and certain expenses
incurred by the servicer with respect to such property. If the unpaid principal
balance plus accrued interest and certain expenses is paid by the insurer, the
amount of further coverage under the related special hazard insurance policy
will be reduced by such amount less any net proceeds from the sale of the
property. Any amount paid as the cost of repair or replacement of the property
will also reduce coverage by such amount. Restoration of the property with the
proceeds described under clause (1) above will satisfy the condition under any
pool insurance policy that the property be restored before a claim under such
pool insurance policy may be validly presented with respect to the defaulted
mortgage loan secured by such property. The payment described under clause (2)
above will render unnecessary presentation of a claim in respect of such
mortgage loan under the related pool insurance policy. Therefore, so long as a
pool insurance policy remains in effect, the payment by the insurer under a
special hazard insurance policy of the cost of repair or replacement or the
unpaid principal balance of the mortgage loan plus accrued interest and certain
expenses will not affect the total insurance proceeds paid to
certificateholders, but will affect the relative amounts of coverage remaining
under the related special hazard insurance policy and pool insurance policy.
BANKRUPTCY BOND
In the event of a bankruptcy of a borrower, the bankruptcy court may
establish the value of the mortgaged property securing the related mortgage loan
at an amount less than the then outstanding principal balance of such mortgage
loan secured by such mortgaged property and could reduce the secured debt to
such value. In such case, the holder of such mortgage loan would become an
unsecured creditor to the extent of the difference between the outstanding
principal balance of such mortgage loan and such reduced secured debt. In
addition, certain other modifications of the terms of a mortgage loan can result
from a bankruptcy proceeding, including the reduction in monthly payments
required to be made by the borrower. See "Certain Legal Aspects of the Mortgage
Loans -- Enforceability of Certain Provisions." If so stated in the related
prospectus supplement, the depositor of the mortgage loans in a trust will
obtain a bankruptcy bond or similar insurance contract (the "BANKRUPTCY BOND")
for proceedings with respect to borrowers under the Bankruptcy Code. The
bankruptcy bond will cover certain losses resulting from a reduction by a
bankruptcy court of scheduled payments of principal of and interest on a
mortgage loan or a reduction
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by such court of the principal amount of a mortgage loan and will cover certain
unpaid interest on the amount of such a principal reduction from the date of the
filing of a bankruptcy petition.
The bankruptcy bond will provide coverage in the aggregate amount specified
in the related prospectus supplement. Such amount will be reduced by payments
made under such bankruptcy bond in respect of the related mortgage loans, unless
otherwise stated in the related prospectus supplement, and will not be restored.
In lieu of a bankruptcy bond, the depositor of mortgage loans in a trust
may obtain a limited guarantee to cover such bankruptcy-related losses.
REPURCHASE BOND
If so stated in the related prospectus supplement, GECMSI, as servicer,
will be obligated to repurchase any mortgage loan up to an aggregate dollar
amount specified in the related prospectus supplement for which insurance
coverage is denied due to dishonesty, misrepresentation or fraud in connection
with the origination or sale of such mortgage loan. Such obligation may be
secured by a surety bond or other instrument or mechanism guaranteeing payment
of the amount to be paid by GECMSI.
GUARANTEED INVESTMENT CONTRACTS
If so stated in the prospectus supplement, on or prior to the issue date
for a series of certificates, the trustee will enter into a guaranteed
investment contract pursuant to which all amounts deposited in the Certificate
Account, and if so specified the reserve accounts, will be invested by the
trustee and under which the issuer of the guaranteed investment contract will
pay to the trustee interest at an agreed rate per annum with respect to the
amounts so invested.
RESERVE ACCOUNTS
If stated in the prospectus supplement, cash, U.S. Treasury securities,
instruments evidencing ownership of principal or interest payments thereon,
letters of credit, demand notes, certificates of deposit, other instruments or
obligations or a combination thereof in the aggregate amount specified in the
prospectus supplement will be deposited by the depositor of the mortgage loans
on the issue date of a series of certificates in one or more accounts (each, a
"RESERVE ACCOUNT") established by the trustee. Such cash and the principal and
interest payments on such other instruments will be used to enhance the
likelihood of timely payment of principal of, and interest on, or, if so
specified in the prospectus supplement, to provide additional protection against
losses in respect of, the assets in the related trust, to pay the expenses of
the trust or for such other purposes specified in the prospectus supplement.
Whether or not the depositor of the mortgage loans in a trust has any obligation
to make such a deposit, certain amounts to which the subordinated
certificateholders, if any, will otherwise be entitled may instead be deposited
into the reserve account from time to time and in the amounts as specified in
the prospectus supplement. Any cash in the reserve account and the proceeds of
any other instrument upon maturity will be invested in Eligible Investments,
which, unless otherwise stated in the prospectus supplement, will include
obligations of the United States and certain agencies thereof, certificates of
deposit, certain commercial paper, time deposits and bankers acceptances sold by
eligible commercial banks and certain repurchase agreements of United States
government securities with eligible commercial banks. If a letter of credit is
deposited with the trustee, such letter of credit will be irrevocable. Unless
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otherwise stated in the prospectus supplement, any instrument deposited therein
will name the trustee, in its capacity as trustee for the holders of the
certificates, as beneficiary and will be issued by an entity acceptable to each
rating agency that rates the certificates. Additional information with respect
to such instruments deposited in the reserve accounts will be set forth in the
prospectus supplement.
Any amounts so deposited and payments on instruments so deposited will be
available for withdrawal from the reserve account for distribution to the
holders of certificates for the purposes, in the manner and at the times
specified in the prospectus supplement.
OTHER INSURANCE, GUARANTEES AND SIMILAR INSTRUMENTS OR AGREEMENTS
If stated in the prospectus supplement, the related trust may also include
insurance, guarantees, letters of credit or similar arrangements for the purpose
of:
- maintaining timely payments or providing additional protection against
losses on the assets included in such trust;
- paying administrative expenses; or
- establishing a minimum reinvestment rate on the payments made in respect
of such assets or principal payment rate on such assets.
Such arrangements may include agreements under which certificateholders are
entitled to receive amounts deposited in various accounts held by the trustee
upon the terms specified in the prospectus supplement. Such arrangements may be
in lieu of any obligation of the servicer to advance delinquent installments in
respect of the mortgage loans. See "Servicing of Mortgage Loans -- Advances."
YIELD, MATURITY AND WEIGHTED AVERAGE LIFE CONSIDERATIONS
GENERAL
The yields to maturity and weighted average lives of the certificates will
be affected primarily by the rate and timing of principal payments received on
or in respect of the mortgage loans included in the related trust. The yields to
investors will be sensitive in varying degrees to the rate of prepayments on the
mortgage loans. The extent to which the yield to maturity of a certificate is
sensitive to prepayments will depend upon the degree to which it is purchased at
a discount or premium. In the case of certificates purchased at a premium,
faster than anticipated rates of principal payments on the mortgage loans could
result in actual yields to investors that are lower than the anticipated yields,
and in the case of certain classes of such certificates could result in a
failure of investors to recover their investments. In the case of certificates
purchased at a discount, slower than anticipated rates of principal payments on
the mortgage loans could result in actual yields to investors that are lower
than the anticipated yields and could result in an extension of the weighted
average lives of such certificates. Such principal payments will include
scheduled payments as well as Principal Prepayments (including refinancings) and
prepayments resulting from foreclosure, condemnation and other dispositions of
the mortgaged properties (including amounts paid by insurers under applicable
insurance policies), from repurchase by GECMSI of any mortgage loan as to which
there has been a material breach of warranty or defect in documentation (or
deposit of certain amounts in respect of delivery of a substitute mortgage
loan), repurchase by GECMSI, the Guarantor or any other entity of any
Liquidating Loan or Delinquent Mortgage Loan, if applicable,
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and from the repurchase by the servicer of all of the certificates or all of the
mortgage loans in certain circumstances. See "Description of the
Certificates -- Optional Termination of a Trust." The yield to maturity and
weighted average lives of the certificates may also be affected by the amount
and timing of delinquencies and losses on the mortgage loans.
The rate of prepayment on mortgage loans may also be influenced by programs
offered by mortgage loan originators (including GECMSI), servicers (including
GECMSI) and mortgage loan brokers to encourage refinancing through such
originators, servicers and brokers, including, but not limited to, general or
targeted solicitations (which may be based on characteristics including, but not
limited to, the mortgage loan interest rate or payment history and the
geographic location of the mortgaged property), reduced origination fees or
closing costs, pre-approved applications, waiver of pre-closing interest accrued
with respect to a refinanced loan prior to the pay-off of such loan, or other
financial incentives. In particular, the application of GECMSI's "Enhanced
Streamlined Refinance program" (as described under "The Mortgage Loans--Loan
Underwriting Policies") which enables qualifying mortgagors to refinance with
minimal documentation may substantially affect the rate of prepayment on the
mortgage loans.
After origination of the related mortgage loans, certain of the borrowers
may be solicited by GECMSI to participate in its biweekly payment programs,
under which payments equal to one-half of one full monthly payment are made in
respect of the related mortgage loan on a biweekly basis. In contrast to a
mortgage loan in respect of which payments are received once every month, a
mortgage loan involved in a biweekly payment program will produce thirteen full
monthly payments per calendar year, resulting in additional prepayments of
principal over the life of the mortgage loan. All payments of principal received
during a month in respect of a mortgage loan in a biweekly payment program will
be applied to the principal balance of such mortgage loan on the first business
day of the succeeding month and will not result in interest shortfalls.
A number of social, economic, tax, geographic, demographic, legal and other
factors may influence prepayments, delinquencies and losses. These factors may
include the age of the mortgage loans, the geographic distribution of the
mortgaged properties, the payment terms of the mortgages, the characteristics of
the mortgagors, homeowner mobility, economic conditions generally and in the
geographic area in which the mortgaged properties are located, enforceability of
due-on-sale clauses, servicing decisions, prevailing mortgage market interest
rates in relation to the interest rates on the mortgage loans, the availability
of mortgage funds, the use of second or home equity mortgage loans by
mortgagors, the availability of refinancing opportunities, the use of the
properties as second or vacation homes, the extent of the mortgagors' net equity
in the mortgaged properties and, where investment properties are securing the
mortgage loans, tax-related considerations and the availability of other
investments. The rate of principal payment may also be subject to seasonal
variations. The prepayment experience on Home Equity Loans may differ from those
of other mortgage loans and may differ between first-priority and
second-priority Home Equity Loans.
The rate of principal prepayments on pools of conventional housing loans
has fluctuated significantly in recent years. Generally, if prevailing interest
rates were to fall significantly below the interest rates on the mortgage loans,
the mortgage loans would be expected to prepay at higher rates than if
prevailing rates were to remain at or above the interest rates on the mortgage
loans. During such periods, the yields at which an investor in the certificates
may be able to reinvest amounts received as payments on the investor's
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certificates may be lower than the yield on those certificates. Conversely, if
interest rates were to rise above the interest rates on the mortgage loans, the
mortgage loans would be expected to prepay at lower rates than if prevailing
rates were to remain at or below interest rates on the mortgage loans. During
such periods, the amount of payments available to an investor for reinvestment
at such high rates may be relatively low. The mortgage loans will not prepay at
any constant rate, nor will all of the mortgage loans prepay at the same rate at
any one time. The timing of changes in the rate of prepayments may significantly
affect a certificateholder's actual yield to maturity, even if the average rate
of principal payments is consistent with a certificateholder's expectation. In
general, the earlier a prepayment of principal the greater the effect on a
certificateholder's yield to maturity. As a result, the effect on a
certificateholder's yield of principal payments occurring at a rate higher or
lower than the rate anticipated by the investor during the period immediately
following the issuance of the related series of certificates will not be offset
by a subsequent like reduction or increase in the rate of principal payments.
When a mortgage loan prepays in full, the borrower will generally be
required to pay interest on the amount of prepayment only to the prepayment
date. When a partial prepayment of principal is made on a mortgage loan (other
than a simple interest Home Equity Loan), the borrower generally will not be
required to pay interest on the amount of the partial prepayment during the
month in which such prepayment is made. In addition, unless otherwise stated in
the related prospectus supplement, a full or partial prepayment will not be
required to be passed through to certificateholders until the month following
receipt.
The prospectus supplement will specify the extent to which interest on the
Home Equity Loans in the related trust accrues on a simple interest basis. Under
the simple interest method, regularly scheduled payments, which are based on the
amortization of the loan over a series of equal monthly payments, and other
payments are applied first to interest accrued to the date payment is received
and then to reduce the unpaid principal balance of the related loan. Each
regularly scheduled monthly interest payment is calculated by multiplying the
outstanding principal balance of the loan by the stated interest rate. Such
product is then multiplied by a fraction, the numerator of which is the number
of days elapsed since the preceding payment of interest was made and the
denominator of which is either 365 or 360, depending on applicable state law.
As a result of the payment terms of simple interest Home Equity Loans, the
making of a scheduled payment on, or the prepayment of, such a Home Equity Loan
prior to its scheduled due date may result in the collection of less than one
month's interest on such Home Equity Loan for the period since the preceding
payment was made (a "SIMPLE INTEREST SHORTFALL"). Conversely, if the scheduled
payment on such a Home Equity Loan is made after its scheduled payment date or
the Home Equity Loan is prepaid after the scheduled due date, the collection of
interest on such Home Equity Loan for such period may be greater than one
month's interest on such Home Equity Loan. In addition, the extent to which
simple interest Home Equity Loans experience early payment or late payment of
scheduled payments will correspondingly change the amount of principal received
during a monthly period and, accordingly, the amount of principal to be
distributed on the related distribution date and the amount of unpaid principal
due at the stated maturity of such Home Equity Loans. To the extent shortfalls
attributable to prepayments or the early receipt of a scheduled payment on Home
Equity Loans are not compensated for by any forms of credit enhancement or
servicer payments described in the prospectus supplement, the certificateholders
will experience delays or losses in amounts due them.
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If a mortgagor pays more than one scheduled installment on a simple
interest Home Equity Loan at a time, the entire amount of the additional
installment will be treated as a principal prepayment and passed through to
certificateholders in the month following the month of receipt. In such case,
although the mortgagor will not be required to make the next regularly scheduled
installment, interest will continue to accrue on the principal balance of the
Home Equity Loan, as reduced by the application of the early installment. As a
result, when the mortgagor pays the next required installment, the installment
so paid may be insufficient to cover the interest that has accrued since the
last payment by the mortgagor. Notwithstanding such insufficiency, the
mortgagor's Home Equity Loan would be considered to be current. If specified in
the prospectus supplement, GECMSI will be required to advance the amount of such
insufficiency. This insufficiency will continue until the installment payments
received are once again sufficient to cover all accrued interest and to reduce
the principal balance of the Home Equity Loan. Depending on the principal
balance and interest rate of the related Home Equity Loan and on the number of
installments that were paid early, there may be extended periods of time during
which Home Equity Loans that are current are not amortizing.
Factors other than those identified herein and in the prospectus supplement
could significantly affect principal prepayments at any time and over the lives
of the certificates. The relative contribution of the various factors affecting
prepayment may also vary from time to time. There can be no assurance as to the
rate of payment of principal of the mortgage loans at any time or over the lives
of the certificates.
The prospectus supplement relating to a series of certificates will discuss
in greater detail the effect of the rate and timing of principal payments
(including prepayments), delinquencies and losses on the yield, weighted average
lives and maturities of such certificates. If a series of certificates is backed
by a pool of mortgage loans that includes Home Equity Loans providing for
balloon payments at maturity, the prospectus supplement will contain information
regarding the potential effect of such mortgage loans on the weighted average
lives of such certificates.
EFFECTIVE INTEREST RATE
The mortgage loans will bear interest at fixed interest rates, payable in
arrears. Each monthly interest payment on a mortgage loan is calculated as 1/12
of the applicable interest rate times the outstanding principal balance of such
mortgage loan on the first day of the month.
Except as otherwise specified in the prospectus supplement, the effective
yield to holders of certificates entitled to interest distributions will be
lower than the yield otherwise produced by the applicable interest rate and the
applicable purchase prices thereof because while interest will accrue from the
first day of each month, the distribution of such interest will not be made
until the 25th day (or if such day is not a business day, the immediately
following business day) of the month following the month of accrual. In
addition, the effective yield on such certificates will be affected by any Net
Interest Shortfall (as defined in the prospectus supplement) and the interest
portion of certain losses. See "Description of the Certificates -- Distributions
on the Certificates" in the prospectus supplement. The yield on certificates
backed by Home Equity Loans may be adversely affected by the occurrence of
Simple Interest Shortfalls.
When a full prepayment is made on a mortgage loan, the mortgagor is charged
interest ("PREPAYMENT INTEREST") on the days in the month actually elapsed up to
the date of such prepayment, at a daily interest rate (determined by dividing
the interest rate by
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360, or 365 in the case of certain simple interest Home Equity Loans) which is
applied to the principal amount of the loan so prepaid. When such a prepayment
is made during the period from the sixteenth day through the last day of any
month (and from the Cut-off Date through the fifteenth day of the month of the
Cut-off Date), such Prepayment Interest is passed through the certificateholders
in the month following its receipt and the amount of interest thus distributed
to certificateholders, to the extent not supplemented by a Compensating Interest
Payment or a Simple Interest Payment (each as defined and described in the
prospectus supplement), will be less than the amount which would have been
distributed in the absence of such prepayment. The payment of a claim under
certain insurance policies or the purchase of a defaulted mortgage loan by a
private mortgage insurer may also cause a reduction in the amount of interest
passed through. A reduction in the interest rate of any mortgage loan due to the
application of the Soldiers' and Sailors' Civil Relief Act of 1940 may also
reduce the amount of interest passed through to certificateholders. Shortfalls
described in this paragraph will be borne by certificateholders to the extent
described herein. See "Description of the Certificates -- Distributions on the
Certificates -- Interest" in the prospectus supplement.
Any partial prepayment on a mortgage loan other than a simple interest Home
Equity Loan will be applied to the balance of the related mortgage loan as of
the first day of the month of receipt, will be passed through to the
certificateholders in the following month and, to the extent not supplemented by
a Compensating Interest Payment, will reduce the aggregate amount of interest
distributable to the certificateholders in such month in an amount equal to 30
days of interest at the related Net Mortgage Rate on the amount of such
prepayment.
SERVICING OF THE MORTGAGE LOANS
With respect to each series of certificates, the related mortgage loans
will be serviced either by GECMSI as primary servicer, by GECMSI as master
servicer, by another institution as primary servicer or by another institution
as master servicer. If an institution other than GECMSI acts as primary servicer
or as master servicer for a series, GECMSI may have no servicing obligations
with respect to such series. If GECMSI or another institution acts as master
servicer with respect to a series, the related pooling and servicing agreement
may provide either (1) that the master servicer may delegate all or a portion of
the servicing duties described below to other servicers but shall remain
directly liable for all such servicing duties (a "DIRECT MASTER SERVICING
ARRANGEMENT"), or (2) that certain of the servicing duties described below may
be performed directly by other servicers, pursuant to servicing agreements
entered into between such servicers and GECMSI, as seller, and assigned to the
trustee, in which event the master servicer will be obligated to supervise such
servicers' performance but will not itself be obligated to perform such duties
(a "SUPERVISORY MASTER SERVICING ARRANGEMENT"). Unless otherwise stated in the
prospectus supplement, if GECMSI is acting as master servicer under a Direct
Master Servicing Arrangement, the servicing agreement entered into between
GECMSI and the direct servicer will be deemed to be between GECMSI and the
direct servicer alone, and the trustee and the certificateholders will have no
claims, obligations, duties or liabilities with respect thereto. Each master
servicer will have the ability to terminate any such other servicer upon terms
that will be agreed to at or before the time the related series of certificates
is issued. Unless otherwise stated in the prospectus supplement, in the event
that the master servicer is no longer acting as such for the series, the trustee
or a successor master servicer shall succeed to the master servicer's rights
under the servicing agreement with the primary servicer.
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The prospectus supplement for each series will specify whether GECMSI or
another institution will act as primary servicer or master servicer for such
series, and if there is a master servicer, whether the master servicing
arrangement is a Direct Master Servicing Arrangement or a Supervisory Master
Servicing Arrangement. If GECMSI acts as master servicer for a series under a
Direct Master Servicing Arrangement, all references herein to GECMSI as servicer
should be read to refer to GECMSI as master servicer, as appropriate. If GECMSI
acts as master servicer for a series under a Supervisory Master Servicing
Arrangement, such references should be read to refer to the direct servicers of
such series, acting under the supervision of GECMSI as master servicer. If an
institution other than GECMSI acts as primary servicer for a series, or acts as
master servicer for such series under a Direct Master Servicing Arrangement, all
references herein to GECMSI as servicer should be read to refer to such
institution as primary or master servicer, as appropriate. If an institution
other than GECMSI acts as master servicer with respect to a series under a
Supervisory Master Servicing Arrangement, such references should be read to
refer to the direct servicers of such series, acting under the supervision of
such institution as master servicer.
With respect to each series of certificates, except to the extent the
pooling and servicing agreement specifically prescribes other servicing
standards, the related mortgage loans will be serviced under servicing standards
substantially equivalent to those required for approval by Fannie Mae or Freddie
Mae.
COLLECTION AND OTHER SERVICING PROCEDURES
GECMSI, as servicer, will be responsible for making reasonable efforts to
collect all payments called for under the mortgage loans and shall, consistent
with each pooling and servicing agreement, follow such collection procedures as
it follows with respect to mortgage loans in its servicing portfolio which are
comparable to the mortgage loans. Consistent with the above, GECMSI, as
servicer, may, in its discretion, (1) waive any late payment charge and (2) if a
default on the related mortgage loan has occurred or is reasonably foreseeable,
arrange with the mortgagor, at any time prior to foreclosure, a schedule for the
payment of principal and interest due and unpaid for a period of up to two years
after the date upon which the arrangement with the mortgagor is entered into or
otherwise modify the terms of such mortgage loan as provided in the related
prospectus supplement. Generally, the arrangement period will not be more than
eighteen months. In the event of any such arrangement GECMSI will be responsible
for distributing funds with respect to such mortgage loan during the scheduled
period in accordance with the original amortization schedule thereof and without
regard to the temporary modification thereof. Such arrangement may not benefit
all certificateholders to the same extent.
GECMSI, as servicer, will be obligated to follow such normal practices and
procedures as it deems necessary or advisable to realize upon a defaulted
mortgage loan. In this regard, GECMSI, as servicer, may directly or through a
local assignee, sell the property at a foreclosure or trustee's sale, negotiate
with the mortgagor for a deed in lieu of foreclosure or, in the event a
deficiency judgment is available against the mortgagor or other person foreclose
against such property and proceed for the deficiency against the appropriate
person. See "Certain Legal Aspects of the Mortgage Loans -- Anti-Deficiency
Legislation and Other Limitations on Lenders" for a description of the limited
availability of deficiency judgments. The amount of the ultimate net recovery,
including the proceeds of any pool insurance or other guarantee, after
reimbursement to GECMSI, as servicer, of its expenses incurred in connection
with the liquidation of any such defaulted mortgage loan, including those
described in the next paragraph in the case of second-lien Home
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Equity Loans, and prior unreimbursed advances of principal and interest,
delinquent taxes, assessments, insurance premiums and comparable items and
property protection expenses with respect thereto, will be credited to the Loan
Payment Record when realized. This amount will be distributed to
certificateholders on the next distribution date following the month of receipt.
If specified in the prospectus supplement, if such net recovery exceeds the
Principal Balance of such mortgage loan plus one month's interest thereon at the
Net Mortgage Rate, the excess will be paid to GECMSI as additional servicing
compensation. GECMSI will not be required to expend its own funds in connection
with any foreclosure or towards the restoration of any mortgaged property unless
it shall determine (1) that such restoration or foreclosure will increase the
proceeds of liquidation of the mortgaged loan to certificateholders after
reimbursement to itself for such expenses and (2) that such expenses will be
recoverable to it either through liquidation proceeds or insurance proceeds in
respect of the related mortgage loan.
If a REMIC election has been made with respect to all or any portion of a
trust, GECMSI will dispose of any property it acquires through foreclosure of a
related mortgage loan or otherwise before the end of the third calendar year
after the year of its acquisition unless it receives from qualified tax counsel
an opinion that it may hold such property for a longer period without adverse
tax consequences.
GECMSI, as servicer, will not be obligated to foreclose on any mortgaged
property which it believes may be contaminated with or affected by hazardous or
toxic wastes, materials or substances. See "Certain Legal Aspects of the
Mortgage Loans -- Environmental Considerations." GECMSI will not be liable to
the certificateholders of a series if it fails to foreclose on a mortgaged
property securing a mortgage loan in the related trust which it believes may be
so contaminated or affected, even if such mortgaged property is, in fact, not so
contaminated or affected. If GECMSI does not foreclose on such a mortgaged
property, the certificateholders of the related series may experience a loss on
the related mortgage loan. In addition, GECMSI will not be liable to the
certificateholders if, based on its belief that no such contamination or effect
exists, GECMSI forecloses on a mortgaged property and takes title to such
mortgaged property on behalf of the related trustee, and thereafter such
mortgaged property is determined to be so contaminated or affected.
Unless otherwise stated in the prospectus supplement relating to a series
of certificates, if GECMSI determines that all amounts which it expects to
recover from or on account of such a mortgage loan have been recovered, GECMSI's
obligation, if any, to advance delinquent installments of principal, interest or
both on such mortgage loan will cease and the Principal Balance of such mortgage
loan will be allocated in reduction of the principal balance of the certificates
of the related series in the manner in which losses are allocated as specified
in such prospectus supplement.
GECMSI may not foreclose on any mortgaged property securing a Home Equity
Loan unless it forecloses subject to any senior mortgage on such mortgaged
property and any outstanding property taxes. In the event of such foreclosure,
GECMSI generally will pay, subject to the final sentence of this paragraph, the
entire amount due on such senior mortgage loan to the senior mortgagee at or
prior to the foreclosure sale. If any senior mortgage is in default after GECMSI
has initiated its foreclosure action, GECMSI may advance funds to keep the
senior mortgage current until such time as GECMSI satisfies such senior
mortgage. In the event foreclosure proceedings have been instituted on any
senior mortgage prior to the initiation of GECMSI's foreclosure action, GECMSI
may satisfy the senior mortgage at the time of the foreclosure sale or take
other action to
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protect its interest in the related mortgaged property. GECMSI will take or
refrain from taking any such action based upon the standards and considerations
described in the preceding paragraph.
Unless otherwise stated in the prospectus supplement, if a series of
certificates includes one or more classes of subordinate certificates, the
pooling and servicing agreement may permit GECMSI, at its option, to grant to
the holders of certain classes of subordinate certificates (the "Loss
Certificates") certain rights in connection with the foreclosure of defaulted
mortgage loans in the related trust. Such rights may be granted on the date of
initial issuance of such series of certificates or thereafter and may or may not
inure to the benefit of successive holders of the Loss Certificates. These
rights would include, among other things, the right to receive notice from
GECMSI that foreclosure of a defaulted mortgage loan is imminent and the right
to instruct GECMSI to delay the commencement of foreclosure proceedings for up
to six months after the mortgage loan has become delinquent. GECMSI may also
grant the holders of the Loss Certificates the option to purchase a defaulted
mortgage loan at the conclusion of such six-month period, at a purchase price
equal to its unpaid principal balance plus accrued interest. The proceeds of
such purchase would be deposited in the related Collection Account as
liquidation proceeds.
It will be a condition to the exercise of these latter rights that a
reserve fund for the benefit of holders of the other classes of certificates of
such series and GECMSI as servicer be established. An amount equal to 125% of
the greater of the Scheduled Principal Balance, as defined in the related
prospectus supplement, of the defaulted mortgage loan and the then current
appraised value of the underlying mortgaged property, together with interest at
the applicable interest rate on the mortgage loan for the period that
foreclosure is delayed, must be deposited into such reserve fund. The principal
purpose of the reserve fund would be to protect holders of the other classes of
certificates of such series from any diminution in value of the underlying
mortgaged property attributable to the delay in foreclosure. Amounts on deposit
in the reserve fund may be invested in certain specific investments acceptable
to each of the rating agencies that are rating such certificates.
The exercise by holders of the Loss Certificates of the right to delay
foreclosure will not alter the obligation of GECMSI to make any advances of
delinquent mortgage loan payments specified in the prospectus supplement. Any
such advances made by GECMSI after the date foreclosure is delayed will be
recoverable by GECMSI from amounts on deposit in the reserve fund. GECMSI will
continue to be entitled to reimbursement for Nonrecoverable Advances out of the
assets of the related trust.
The exercise by the holders of the Loss Certificates of any right to delay
commencement of foreclosure proceedings as described above could affect the
amount recovered upon the liquidation of the related mortgaged property and
could also affect the extent of any losses recognized thereon if the amounts
available in the reserve fund are not sufficient to make up the difference
between the net liquidation proceeds and the unpaid principal balance of the
related defaulted mortgage loan. There can be no assurance that this situation
would not arise under circumstances in which it could be in the interest of
other classes of certificates to proceed promptly to pursue remedies against the
mortgagor and mortgaged property in order to expedite recovery on a defaulted
mortgage loan. Any right to delay commencement of foreclosure proceedings
granted to the holders of the Loss Certificates would terminate in certain
specified circumstances, including when such class's principal balance had been
reduced to zero.
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With respect to Cooperative Loans, any prospective purchaser will generally
have to obtain the approval of the board of directors of the relevant
cooperative before purchasing the shares and acquiring rights under the related
proprietary lease or occupancy agreement. See "Certain Legal Aspects of the
Mortgage Loans" herein. This approval is usually based on the purchaser's income
and net worth and numerous other factors. Although the cooperative's approval is
unlikely to be unreasonably withheld or delayed, the necessity of acquiring such
approval could limit the number of potential purchasers for those shares and
otherwise limit the trust's ability to sell and realize the value of those
shares.
In general, a "TENANT-STOCKHOLDER" (as defined in Section 216(b)(2) of the
Internal Revenue Code of 1986, as amended (the "CODE")) of a corporation that
qualifies as a "cooperative housing corporation" within the meaning of Code
Section 216(b)(1) is allowed a deduction for amounts paid or accrued within his
taxable year to the corporation representing his proportionate share of certain
interest expenses and certain real estate taxes allowable as a deduction under
Code Section 216(a) to the corporation under Code Sections 163 and 164. In order
for a corporation to qualify under Code Section 216(b)(1) for its taxable year
in which such items are allowable as a deduction to the corporation, such
Section requires, among other things, that at least 80% of the gross income of
the corporation be derived from its tenant-stockholders, as defined in Code
Section 216(b)(2). By virtue of this requirement, the status of a corporation
for purposes of Code Section 216(b)(1) must be determined on a year-to-year
basis. Consequently, there can be no assurance that cooperatives relating to the
Cooperative Loans will qualify under such Section for any particular year. In
the event that such a cooperative fails to qualify for one or more years, the
value of the collateral securing any related Cooperative Loans could be
significantly impaired because no deduction would be allowable to
tenant-stockholders under Code Section 216(a) with respect to those years. In
view of the significance of the tax benefits accorded tenant-stockholders of a
corporation that qualifies under Code Section 216(b)(1), the likelihood that
such a failure would be permitted to continue over a period of years appears
remote.
If a mortgaged property has been or is about to be conveyed by the
mortgagor, GECMSI, as servicer, will be obligated to accelerate the maturity of
the mortgage loan, unless it reasonably believes it is unable to enforce that
mortgage loan's due-on-sale clause under applicable law or such enforcement
would adversely affect or jeopardize coverage under any related primary mortgage
insurance policy or pool insurance policy. If it reasonably believes it may be
restricted by law, for any reason, from enforcing such a due-on-sale clause,
GECMSI may enter into an assumption and modification agreement with the person
to whom such property has been or is about to be conveyed, pursuant to which
such person becomes liable under the promissory note evidencing such mortgage
loan. Any fee collected by GECMSI for entering into an assumption agreement will
be retained by GECMSI as additional servicing compensation. For a description of
circumstances in which GECMSI may be unable to enforce due-on-sale clauses, see
"Certain Legal Aspects of the Mortgage Loans -- Enforceability of Certain
Provisions." In connection with any such assumption, the interest rate borne by
the related promissory note evidencing such mortgage loan may not be decreased.
GECMSI, as servicer, will maintain with one or more depository institutions
one or more accounts into which it will deposit all payments of taxes, insurance
premiums, assessments or comparable items received for the account of the
mortgagors. Withdrawals from such account or accounts may be made only to effect
payment of taxes, insurance premiums, assessments or comparable items, to
reimburse GECMSI, or the applicable servicer, out of related collections for any
cost incurred in paying taxes, insurance
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premiums and assessments or otherwise preserving or protecting the value of the
mortgages, to refund to mortgagors any amounts determined to be overages and to
pay interest to mortgagors on balances in such account or accounts to the extent
required by law.
So long as it acts as servicer of the mortgage loans, GECMSI, and any
successor to GECMSI appointed as servicer following an Event of Default, will be
required to maintain certain insurance covering errors and omissions in the
performance of its obligations as servicer and certain fidelity bond coverage
ensuring against losses through wrongdoing of its officers, employees and
agents.
PRIVATE MORTGAGE INSURANCE
The mortgage loans in a pool will not have loan-to-value ratios in excess
of 105% of the original value of the mortgaged property of the mortgaged
property. Generally, mortgage loans that GECMSI originates or acquires do not
have loan-to-value ratios in excess of 95% of the original value of the
mortgaged property. The prospectus supplement for a series will describe the
extent to which a pool includes mortgage loans with loan-to-value ratios
exceeding 95%. Unless otherwise stated in the prospectus supplement, mortgage
loans other than Home Equity Loans that GECMSI originates or acquires usually
will have private mortgage insurance if the original principal amount of those
loans exceeds 80% of the original value of the mortgaged properties. GECMSI
generally requires such coverage to continue until the outstanding principal
amount equals or is less than 80% of the original value of the mortgaged
property.
After that loan-to-value threshold is reached, a borrower may cancel its
private mortgage insurance. Under the recently enacted federal Homeowners
Protection Act, the cancellation of private mortgage insurance on single-family,
owner-occupied mortgaged properties may occur automatically or at the option of
the borrower if certain conditions are met. This act requires the automatic
cancellation of private mortgage insurance at the following times, if payments
on the mortgage loan are then current or are thereafter brought current:
- for all residential mortgage loans originated on or after July 29, 1999,
when the principal balance of the mortgage loan is first scheduled to
reach 78% (or 77% in the case of a mortgage loan determined at its
origination to be "high risk") of the original value of the mortgaged
property, based on the initial amortization schedule, or
- for all residential mortgage loans originated on or after July 29, 1999,
on the first day of the month following the midpoint of the amortization
term of the loan (e.g., 180 months in the case of a 360-month or 30-year
loan).
In addition, except with respect to a high risk loan, a borrower with a
good payment history has the option to cancel private mortgage insurance once
the principal balance of the mortgage loan is first scheduled to equal, or
actually equals, 80% of the original value of the mortgaged property. In order
to exercise this right, the borrower must satisfy the requirement of the holder
of the mortgage loan for evidence that the value of the mortgaged property has
not declined below the original value. GECMSI intends to permit borrowers to
establish the current value of the mortgaged property by one or more methods
permitted by applicable law.
Private mortgage insurance policies may be provided by General Electric
Mortgage Insurance Corporation, an affiliate of GECMSI and Funding. GECMSI does
not require
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private mortgage insurance policies on Home Equity Loans. A private mortgage
insurance policy may provide that, as an alternative to paying a claim
thereunder, the mortgage insurer will have the right to purchase the mortgage
loan following the receipt of a notice of default, at a purchase price equal to
the sum of the principal balance of the mortgage loan, accrued interest thereon
and the amount of certain advances made by GECMSI as servicer with respect to
the mortgage loan. The mortgage insurer may have such purchase right after the
borrower has failed to make three scheduled monthly payments, or one payment if
it is the first payment due on the mortgage loan, or after any foreclosure or
other proceeding affecting the mortgage loan or the mortgaged property has been
commenced. The proceeds of any such purchase will be distributed to
certificateholders on the applicable distribution date. A mortgage insurer may
be more likely to exercise such purchase option when prevailing interest rates
are low relative to the interest rate borne by the defaulted mortgage loan, in
order to reduce the aggregate amount of accrued interest that the insurer would
be obligated to pay upon payment of a claim.
HAZARD INSURANCE
GECMSI, as servicer, will cause to be maintained for each mortgaged
property a hazard insurance policy. The coverage of such policy is required to
be in an amount not less than the maximum insurable value of the improvements
securing the related mortgage loan from time to time or the principal balance
owing on such mortgage loan from time to time, whichever is less. All amounts
collected by GECMSI for the benefit of the related trust under any hazard
policy, except for amounts to be applied to the restoration or repair of
property subject to the related mortgage or property acquired by foreclosure or
amounts released to the related mortgagor in accordance with GECMSI's normal
servicing procedures, will be credited to the related Loan Payment Record and
deposited in the applicable Certificate Account at the times and in the manner
described under "Loan Payment Record" below.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements on the property by fire,
lightning, explosion, smoke, windstorm and hail, riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. Although the policies relating to the mortgage loans will be
underwritten by different insurers and, therefore, will not contain identical
terms and conditions, the basic terms thereof are dictated by state law. Such
policies typically do not cover any physical damage resulting from the
following: war, revolution, governmental actions, floods and other water-related
causes, earth movement, including earthquakes, landslides and mud flow, nuclear
reactions, pollution, wet or dry rot, vermin, rodents, insects or domestic
animals, theft and, in certain cases, vandalism. The foregoing list is merely
indicative of certain kinds of uninsured risks and is not intended to be all-
inclusive. If the property securing a mortgage loan is located in a federally
designated flood area, the pooling and servicing agreement will require that
flood insurance be maintained in such amounts as would be required by Fannie Mae
in connection with its mortgage loan purchase program. The depositor of the
mortgage loans in a trust may also purchase special hazard insurance against
certain of the uninsured risks described above. See "Credit
Enhancement -- Special Hazard Insurance."
Most of the properties securing the mortgage loans in a trust will be
covered by homeowners' insurance policies, which, in addition to the standard
form of fire and extended coverage, provide coverage for certain other risks.
These homeowners' policies typically contain a coinsurance clause which in
effect requires the insured at all times to carry insurance of a specified
percentage, generally 80% to 90%, of the full replacement
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value of the improvements on the property in order to recover the full amount of
any partial loss. If the insured's coverage falls below this specified
percentage, then the insurer's liability in the event of partial loss will not
exceed the lesser of (1) the actual cash value (generally defined as replacement
cost at the time and place of loss, less physical depreciation) of the
improvements damaged or destroyed, or (2) such proportion of the loss as the
amount of insurance carried bears to the specified percentage of the full
replacement cost of such improvements.
Since the amount of hazard insurance GECMSI is required to cause to be
maintained on the improvements securing the mortgage loans declines as the
principal balances owing thereon decrease, if the residential properties
securing the mortgage loans appreciate in value over time, the effect of
coinsurance in the event of partial loss may be that hazard insurance proceeds
will be insufficient to restore fully the damaged property.
GECMSI, as servicer, will cause to be maintained on any mortgaged property
acquired upon foreclosure, or by deed in lieu of foreclosure, on behalf of the
trustee hazard insurance. The hazard insurance will consist of extended coverage
in an amount which is at least equal to the lesser of (1) the maximum insurable
value from time to time of the improvements which are a part of such property or
(2) the unpaid principal balance of the related mortgage loan, plus, in the case
of a second priority Home Equity Loan, the unpaid principal balance of any
senior mortgage loan, at the time of such foreclosure or deed in lieu of
foreclosure, plus accrued interest and the good-faith estimate of GECMSI of
related liquidation expenses to be incurred in connection therewith.
GECMSI, as servicer, may maintain, in lieu of causing individual hazard
insurance policies to be maintained with respect to each mortgage loan, one or
more blanket insurance policies covering hazard losses on the mortgage loans.
GECMSI will pay the premium for such policy on the basis described therein and
will pay any deductible amount with respect to claims under such policy relating
to the mortgage loans.
GECMSI will not require that a standard hazard or flood insurance policy be
maintained on the cooperative apartment relating to any Cooperative Loan.
Generally, the cooperative itself is responsible for maintenance of hazard
insurance for the property owned by the cooperative and the tenant-stockholders
of that cooperative do not maintain individual hazard insurance policies. To the
extent, however, that a cooperative and the related borrower on a Cooperative
Loan do not maintain such insurance or do not maintain adequate coverage or any
insurance proceeds are not applied to the restoration of damaged property, any
damage to such borrower's cooperative apartment or such cooperative building
could significantly reduce the value of the collateral securing such Cooperative
Loan.
UNANTICIPATED RECOVERIES OF LOSSES ON THE MORTGAGE LOANS
To the extent and in the manner specified in the prospectus supplement, the
principal balance of classes of certificates may be reduced by allocating to
them losses of principal that occur in connection with liquidation on the
mortgage loans in the related trust (a "REALIZED LOSS"). Unless otherwise stated
in the prospectus supplement, holders of certificates that had previously been
allocated a Realized Loss in respect of a mortgage loan -- which holders may, in
the event of a transfer of any such certificate, be different from the holders
at the time the Realized Loss was allocated -- may receive distributions if the
servicer subsequently recovers an amount (an "UNANTICIPATED RECOVERY") in
respect of such mortgage loan as a result of events such as an unanticipated
insurance settlement, tax refund or mortgagor bankruptcy distribution. In such
event, the trustee will distribute
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to the holders of each outstanding class to which such Realized Loss had
previously been allocated its share of such Unanticipated Recovery in an amount
not to exceed the amount of such loss previously allocated to such class. This
distribution will be made on the distribution date in the calendar month
following receipt of the Unanticipated Recovery. Any distributions of
Unanticipated Recoveries will not reduce the principal balances of the class of
certificates receiving such recoveries. If the certificates include a class of
principal-only certificates, such principal-only class will be allocated a
percentage of any Unanticipated Recovery equal to the percentage of the loss
previously allocated to it in respect of the related mortgage loans, and the
other classes of certificates, other than interest-only certificates, that were
allocated a portion of such loss will receive a pro rata share of the balance.
Notwithstanding the foregoing, no certificateholder will be entitled to receive
any share of an Unanticipated Recovery following the distribution date on which
the principal balance of its certificates has been reduced to zero, including
following the termination of the trust. See "The Pooling and Servicing
Agreement -- Termination" in this prospectus.
ADVANCES
Unless otherwise stated in the prospectus supplement, in the event that any
borrower fails to make any payment of principal or interest required under the
terms of a mortgage loan, GECMSI, as servicer, will be obligated to advance the
entire amount of such payment adjusted in the case of any delinquent interest
payment to the applicable Net Mortgage Rate. Unless otherwise stated in the
prospectus supplement and except as described above under "Credit
Enhancement -- Purchase of Liquidating Loans," this obligation to advance will
be limited to amounts which GECMSI reasonably believes will be recoverable by it
out of liquidation proceeds or otherwise in respect of such mortgage loan.
GECMSI, or the applicable servicer, will be entitled to reimbursement for any
such advance from related late payments on the mortgage loan as to which such
advance was made. Furthermore, unless otherwise stated in the prospectus
supplement, GECMSI, or the applicable servicer, will be entitled to
reimbursement for any such advance (1) from liquidation proceeds or insurance
proceeds received if such mortgage loan is foreclosed, and is not purchased by
GECMSI, as servicer, pursuant to any obligation it may have to purchase
Liquidating Loans, prior to any payment to certificateholders in respect of the
repossession or foreclosure and (2) from receipts or recoveries on all other
mortgage loans or from any other assets of the trust, for all or any portion of
such advance which GECMSI determines, in good faith, may not be ultimately
recoverable from such liquidation or insurance proceeds (a "NONRECOVERABLE
ADVANCE"). Any Nonrecoverable Advance will be reimbursable out of the assets of
the trust. The amount of any scheduled payment required to be advanced by GECMSI
will not be affected by any agreement between GECMSI and a borrower providing
for the postponement or modification of the due date or amount of such scheduled
payment. If specified in the prospectus supplement, the trustee for the related
series will make advances of delinquent payments of principal and interest in
the event of a failure by GECMSI, as servicer, to perform such obligation.
Unless otherwise stated in the prospectus supplement, until any obligation
of GECMSI as servicer to purchase Liquidating Loans is exhausted, GECMSI will
advance delinquent installments of principal and interest, adjusted to the
applicable Net Mortgage Rate, on the mortgage loans as described above in an
aggregate amount up to the amount of its remaining purchase obligation,
irrespective of whether GECMSI believes any such advance will be recoverable.
GECMSI's obligation to advance delinquent installments of principal and
interest, adjusted to the applicable Net Mortgage Rate, on the mortgage
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loans which it deems recoverable will be unaffected by the exhaustion of any
obligation GECMSI as servicer to purchase Liquidating Loans. In the event that
GECMSI has an obligation to purchase Liquidating Loans, any outstanding
unreimbursed advances may be charged against the amount of such obligation,
subject to reinstatement on account of net recoveries on such mortgage loan.
Any such obligation to make advances may be limited to amounts due holders
of Senior Certificates of the related series or may be limited to specified
periods or otherwise as specified in the prospectus supplement.
GECMSI, or the applicable servicer, will make such advances in order to
maintain a regular flow of scheduled interest and principal payments to holders
of the relevant classes of certificates. Such advances do not represent an
obligation of GECMSI or the applicable servicer to guarantee or insure against
losses.
LOAN PAYMENT RECORD
The pooling and servicing agreement for each trust will require that
GECMSI, as servicer, establish and maintain a Loan Payment Record to which will
be credited the following payments received by GECMSI with respect to the
mortgage loans included in the related trust:
- all payments on account of principal, including Principal Prepayments
(other than principal payments due and payable on or before, and
Principal Prepayments received before, the Cut-off Date), received from
borrowers, excluding any amounts specified in the prospectus supplement;
- all payments, other than those due and payable on or before the Cut-off
Date, on account of interest received from borrowers, adjusted to the
applicable Net Mortgage Rate, and excluding any other amounts specified
in the prospectus supplement;
- all amounts received by GECMSI, or the applicable servicer, in connection
with the liquidation of any mortgaged property, and the purchase price
including applicable interest thereon, of any mortgage loan purchased by
GECMSI pursuant to the applicable pooling and servicing agreement or any
amount paid in connection with the substitution of a mortgage loan;
- all proceeds received by GECMSI, or the applicable servicer, under any
private mortgage insurance or any title, hazard, special hazard, pool or
other insurance policy covering any mortgage loan, other than proceeds to
be applied to the restoration or repair of the property subject to the
related mortgage or released to the borrower in accordance with the
normal servicing procedures of GECMSI;
- all proceeds received in respect of any mortgaged property acquired on
behalf of the trustee;
- Unanticipated Recoveries; and
- if the trust includes mortgage loans that are secured by other collateral
(such as securities) in addition to the related property, all amounts
received by GECMSI in connection with the liquidation of such additional
collateral.
GECMSI will not be required to credit to the Loan Payment Record payments
on any mortgage loan that has been previously released from the trust, amounts
representing fees or late charge penalties payable by borrowers or amounts
received by GECMSI for
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the account of borrowers for application towards the payment of taxes, insurance
premiums, assessments and similar items.
Unless otherwise stated in the prospectus supplement, GECMSI, as servicer,
may, from time to time, make debits to the Loan Payment Record for the following
purposes:
- to reimburse GECMSI, or the applicable servicer, for expenses incurred by
it in connection with the liquidation of any mortgage loan, including
amounts advanced on any senior mortgage loans, and prior unreimbursed
advances of delinquent installments of principal and interest, delinquent
taxes, assessments, insurance premiums and comparable items and property
protection expenses with respect thereto, in an amount not to exceed the
amount of the proceeds from any such liquidation, including insurance
proceeds, credited to the Loan Payment Record, and, if specified in the
prospectus supplement, to the extent such proceeds, net of such expenses,
exceed the Principal Balance of such mortgage loan plus one month's
interest thereon at the applicable Net Mortgage Rate, to pay to GECMSI
such excess as additional servicing compensation;
- to reimburse GECMSI, or the applicable servicer, for expenses
reimbursable under any insurance policy covering a mortgage loan and
amounts expended by GECMSI in good faith in connection with the
restoration of a mortgaged property damaged by an uninsured cause, in an
amount not to exceed the proceeds from any insurance covering such
mortgage loan and any liquidation thereof credited to the Loan Payment
Record;
- to reimburse GECMSI or Funding for certain expenses relating to the
pooling and servicing agreement as to which GECMSI or Funding is entitled
to indemnification or reimbursement pursuant to the pooling and servicing
agreement;
- to pay to GECMSI amounts received in respect of any mortgage loan
purchased by GECMSI as required by the pooling and servicing agreement to
the extent that the distribution of any such amounts on the distribution
date upon which the proceeds of such purchase are distributed would make
the total amount distributed in respect thereof greater than the
Principal Balance thereof plus, unless otherwise stated in the prospectus
supplement, one month's interest thereon at the applicable Net Mortgage
Rate, net of any unreimbursed advances of delinquent installments of
principal and interest made by GECMSI;
- to reimburse GECMSI, or, if applicable, the guarantor or any other
entity, for any previous advance of delinquent installments of principal
and interest, adjusted to the applicable Net Mortgage Rate, in respect of
any mortgage loan to the extent of recoveries, including late payments
and liquidation proceeds, on such mortgage loan;
- to reimburse GECMSI from any borrower payment of interest or other
recovery with respect to a particular mortgage loan, to the extent not
previously retained by GECMSI, for unpaid servicing fees with respect to
such mortgage loan, subject to certain limitations;
- to reimburse GECMSI, or, if applicable, the trustee, the guarantor or any
other entity, for any Nonrecoverable Advance;
- to make deposits into the Certificate Account; and
- to deduct any amount credited to the Loan Payment Record in error.
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In addition, if a trust includes second-priority Home Equity Loans, GECMSI,
as servicer, will be entitled to be reimbursed, out of payments received on a
second-priority Home Equity Loan, for funds advanced to keep the related senior
mortgages current.
On the date or dates specified in the pooling and servicing agreement
(each, a "DEPOSIT DATE") prior to each distribution date, unless otherwise
stated in the prospectus supplement, GECMSI as servicer, will transfer to the
Certificate Account the payments in respect of the mortgage loans described
above, net of any debits made thereto as described above, which were received by
it after the Cut-off Date and before the fifth business day next preceding such
distribution date (the "DETERMINATION DATE"), together with any required
advances of delinquent principal and interest payments to be made by it, except
(1) Principal Prepayments received during the month of such deposit, other than
as described in the next sentence, and all related payments of interest
representing interest for the month of deposit or any portion thereof and (2)
payments which represent early receipt of scheduled payments of principal and
interest due on a date or dates subsequent to the first day of the month of
deposit. In addition, unless otherwise stated in the prospectus supplement,
GECMSI will transfer to the Certificate Account (1) the amount of any voluntary
prepayment in full, net of any interest thereon, received by GECMSI (or, in the
case of a mortgage loan master-serviced by GECMSI, of which GECMSI receives
notice) during the period from the first day through the fifteenth day of the
month of such distribution date and (2) the amount of any Compensating Interest
Payment for such distribution date, as described in the prospectus supplement.
The net amounts described in the two preceding sentences are the "AVAILABLE
FUNDS" for a series of certificates with respect to any distribution date,
unless the prospectus supplement specifies that certain certificates are
entitled to payments from certain specified assets in the related trust, in
which case the amounts received from such specified assets are the "Available
Funds" for such certificates, as specified in the prospectus supplement.
Available Funds shall not include Unanticipated Recoveries. Unless otherwise
stated in the prospectus supplement, all transfers by GECMSI to the Certificate
Account will be made by transfer of next-day funds. Although such next-day funds
may have been credited to the Certificate Account, until such funds become
available to the trustee under applicable law and procedures relating to such
transfers, such funds will not be available to certificateholders. Unless
otherwise stated in the prospectus supplement, prior to transferring such funds,
GECMSI may commingle payments received in respect of the mortgage loans and may
invest such payments for its own account. Income realized on the investment of
such payments pending deposit into the Certificate Account will be retained by
GECMSI as additional servicing compensation. If GECMSI realizes any net losses
on such investments, it is required to deposit in the Certificate Account an
amount equal to such net loss before the next distribution date.
As a result of GECMSI's access to payments received in respect of the
mortgage loans prior to the time such payments become available to the trustee
in the Certificate Account, creditors or a trustee-in-bankruptcy for GECMSI may
be able to assert rights in such payments superior to those of the trustee.
If specified in the prospectus supplement, GECMSI may establish, or provide
for the establishment of, an account (the "COLLECTION ACCOUNT") in lieu of the
Loan Payment Record described above. If so specified, all amounts to be credited
or debited to the Loan Payment Record will instead be deposited in or withdrawn
from the Collection Account.
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SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
Unless otherwise stated in the prospectus supplement, GECMSI's primary
compensation for its servicing activities will come from the payment to it, with
respect to each interest payment on a mortgage loan, of all or a portion of the
difference between the interest rate for such mortgage loan and the related Net
Mortgage Rate. In addition to the primary compensation, GECMSI will retain all
assumption fees, late payment charges and other miscellaneous charges, all to
the extent collected from borrowers and, unless otherwise stated in the
prospectus supplement, the investment income described in the third preceding
paragraph. In the event GECMSI or another institution is acting as master
servicer under an agreement, the master servicer will receive compensation with
respect to the performance of its activities as master servicer.
Unless otherwise stated in the prospectus supplement, GECMSI will be
responsible for paying all expenses incurred in connection with the servicing of
the mortgage loans, subject to limited reimbursement as described in "Loan
Payment Record" above, including, without limitation, payment of any premium for
any Advance Guarantee, Liquidating Loan Guarantee, Deposit Guarantee, pool
insurance policy, special hazard policy, bankruptcy bond, repurchase bond or
other guarantee or surety, payment of the fees and the disbursements of the
trustee, the Administrator, if any, and the independent accountants, payment of
the compensation of any direct servicers of the mortgage loans, payment of all
fees and expenses in connection with the realization upon defaulted mortgage
loans and payment of expenses incurred in connection with distributions and
reports to certificateholders. Unless otherwise stated in the prospectus
supplement, GECMSI may assign any of its primary servicing compensation in
excess of that amount customarily retained as servicing compensation for similar
assets.
RESIGNATION, SUCCESSION AND INDEMNIFICATION OF GECMSI, AS SERVICER, AND THE
DEPOSITOR
The pooling and servicing agreement for each trust will provide that,
except as described in the second and third succeeding paragraphs, GECMSI may
not resign from its obligations and duties as servicer or master servicer
thereunder, except upon determination that GECMSI's performance of such duties
is no longer permissible under applicable law or as provided in the last
paragraph under this heading. No such resignation will become effective until
the trustee or a successor has assumed GECMSI's servicing obligations and duties
under such pooling and servicing agreement for each trust. The guarantor's
obligations under any Advance Guarantee, Liquidating Loan Guarantee or Deposit
Guarantee will, upon issuance thereof, be irrevocable, subject to certain
limited rights of assignment as described in the prospectus supplement if
applicable.
The pooling and servicing agreement will provide that none of GECMSI,
Funding, if applicable, or the guarantor, if applicable, nor any of their
respective directors, officers, employees or agents, shall be under any
liability to the trust or the certificateholders of the related series for
taking any action or for refraining from taking any action pursuant to such
pooling and servicing agreement, or for errors in judgment; provided, however,
that none of GECMSI, Funding, or the guarantor, nor any such person, will be
protected against any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or gross negligence in the performance of duties
or by reason of reckless disregard of obligations and duties thereunder. The
pooling and servicing agreement will also provide that GECMSI, Funding, if
applicable, and, the guarantor, if applicable, and their respective directors,
officers, employees and agents are entitled to indemnification by the related
trust and will be held harmless against any loss, liability or expense incurred
in
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connection with any legal action relating to the pooling and servicing agreement
or the certificates, other than any loss, liability or expense related to any
specific mortgage loan, except as otherwise reimbursable under the pooling and
servicing agreement or incurred by reason of willful misfeasance, bad faith or
gross negligence in the performance of duties thereunder or by reason of
reckless disregard of obligations and duties thereunder. In addition, each
pooling and servicing agreement will provide that none of GECMSI, Funding, if
applicable, the guarantor, if applicable, is under any obligation to appear in,
prosecute or defend any legal action which is not incidental to GECMSI's
servicing responsibilities under such pooling and servicing agreement or the
guarantor's payment obligations under any limited guarantee, respectively, and
which in its respective opinion may involve it in any expense or liability. Each
of GECMSI and, if applicable, the guarantor may, however, in its respective
discretion undertake any such action which it may deem necessary or desirable in
respect of such pooling and servicing agreement and the rights and duties of the
parties thereto and the interests of the certificateholders thereunder. In such
event, the legal expenses and costs of such action and any liability resulting
therefrom will be expenses, costs and liabilities of the trust, and GECMSI and,
if applicable, the guarantor, will be entitled to be reimbursed therefor from
amounts credited to the Loan Payment Record.
Any corporation into which GECMSI or Funding may be merged or consolidated
or any corporation resulting from any merger, conversion or consolidation to
which GECMSI or Funding is a party, or any corporation succeeding to the
business of GECMSI or Funding, or any corporation more than 50% of the voting
stock of which is owned, directly or indirectly, by General Electric Company, or
any limited partnership, the sole general partner of which is either GECMSI or a
corporation more than 50% of the voting stock of which is owned, directly or
indirectly, by General Electric Company, which assumes the obligations of GECMSI
or Funding, will be the successor of GECMSI or Funding under each pooling and
servicing agreement.
GECMSI also has the right to assign its rights, and delegate its duties and
obligations, as servicer under the pooling and servicing agreement for each
series of certificates; provided that (1) the purchaser or transferee accepting
such assignment or delegation is qualified to service mortgage loans for Fannie
Mae or Freddie Mac, (2) is reasonably satisfactory to the trustee for such
series of certificates and executes and delivers to the trustee an agreement, in
form and substance reasonably satisfactory to the trustee, which contains an
assumption by such purchaser or transferee of the due and punctual performance
and observance of each covenant and condition to be performed or observed by the
servicer under the pooling and servicing agreement from and after the date of
such agreement and (3) each applicable rating agency's rating of any
certificates of such series in effect immediately prior to such assignment or
delegation would not be qualified, downgraded or withdrawn as a result thereof.
In the case of any such assignment or delegation, GECMSI will be released from
its obligations as servicer under the pooling and servicing agreement except for
liabilities and obligations incurred prior to such assignment or delegation.
THE POOLING AND SERVICING AGREEMENT
The following, together with the description of the pooling and servicing
agreement in the prospectus supplement, describes all material provisions of the
pooling and servicing agreement relating to the applicable series of
certificates. The summaries do not purport to be complete and are subject to,
and qualified in their entirety by reference to, the provisions of the pooling
and servicing agreements. Where particular provisions or terms
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used in the pooling and servicing agreements are referred to, such provisions or
terms are as specified in the pooling and servicing agreements.
ASSIGNMENT OF MORTGAGE LOANS
At the time of issuance of a series of certificates, GECMSI or Funding, as
the applicable depositor of the mortgage loans into each trust and as seller,
will assign the related mortgage loans to the trustee. The depositor will also
assign to the trustee all principal and interest, subject to exclusions
specified in the prospectus supplement, received by the servicer on or with
respect to such mortgage loans on or after the Cut-off Date other than principal
and interest due and payable on or before, and Principal Prepayments received
before, the Cut-off Date. The trustee will, concurrently with such assignment,
execute, countersign and deliver the certificates to the depositor in exchange
for the mortgage loans. Each mortgage loan will be identified in a schedule
appearing as an exhibit to the pooling and servicing agreement. Such schedule
will include information as to the Principal Balance of each mortgage loan as of
the Cut-off Date, as well as information respecting the interest rate, the
scheduled monthly payment of principal and interest as of the Cut-off Date and
the maturity date of each promissory note evidencing the mortgage loans.
In addition, as to each mortgage loan, the depositor of the mortgage loans
in each trust, as seller, will deliver to the trustee or a custodian, on behalf
of the trustee, unless otherwise stated in the prospectus supplement or as
described below, the promissory note and mortgage, any assumption and
modification agreement and an assignment of the mortgage to the trustee in
recordable form, other than in respect of unavailable recording information. In
addition, unless otherwise stated in the prospectus supplement, the depositor
will also deliver to the trustee or custodian, if applicable, originals of the
recorded mortgages, any intervening assignments of the mortgages other than from
GECMSI to Funding and title insurance policies with respect to the mortgage
loans, as promptly as practicable, and in any case within thirty days, after
receiving all such documents from the applicable recording offices and title
insurance companies. Pending such delivery, GECMSI on behalf of the depositor
will retain and furnish to the trustee upon request copies of the mortgages and
intervening assignments of mortgage delivered for recording and the evidence of
title insurance issued at origination of the mortgage loans. GECMSI on behalf of
the depositor will retain and furnish to the trustee upon request any applicable
evidence of primary mortgage insurance so long as such insurance remains in
force.
Notwithstanding the preceding paragraph, with respect to any mortgage which
has been recorded in the name of Mortgage Electronic Registration Systems, Inc.
("MERS") or its designee, no mortgage assignment in favor of the trustee will be
required to be prepared or delivered. Instead, GECMSI on behalf of the depositor
will be required to take all actions as are necessary to cause the applicable
trust to be shown as the owner of the related mortgage loan on the records of
MERS for purposes of the system of recording transfers of beneficial ownership
of mortgages maintained by MERS.
The depositor of the mortgage loans may deliver to the trustee or
custodian, if applicable, in lieu of the original promissory note, a new
promissory note signed by the borrower confirming its obligation under the
original promissory note (a "CONFIRMATORY MORTGAGE NOTE"). Furthermore, a trust
may include mortgage loans where the original promissory note or a Confirmatory
Mortgage Note is not delivered to the trustee or custodian, if applicable, if
the depositor instead delivers to the trustee or custodian, if
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applicable, an affidavit certifying that the depositor was the sole owner of the
indebtedness evidenced by such note and the original thereof has been lost or
destroyed and the depositor indemnifies the trust against any loss, liability,
damage, claim or expense resulting from the depositor's failure to have
delivered the original promissory note or Confirmatory Mortgage Note. Such
indemnification will be terminated if the depositor subsequently delivers to the
trustee or custodian, if applicable, the original promissory note or a
Confirmatory Mortgage Note. Unless otherwise stated in the applicable prospectus
supplement, no more than 1% of the mortgage loans in any mortgage pool, measured
by Principal Balance as of the related Cut-Off Date, may consist of mortgage
loans as to which the depositor has failed to deliver the original promissory
note or Confirmatory Mortgage Note. In the case of mortgage loans purchased by
Funding from GECMSI without the original promissory note or Confirmatory
Mortgage Note, Funding, as depositor, may assign to the trustee the benefit of
an affidavit and indemnification to the foregoing effect received from GECMSI as
seller under the Loan Sale Agreement.
Unless otherwise stated in the prospectus supplement, the applicable
depositor may refrain from recording the assignments of the mortgage loans to
the trustee unless GECMSI or the trustee obtains actual notice or knowledge of
the occurrence of any one or more of the following:
- GECMSI is not a wholly-owned direct or indirect subsidiary of General
Electric Company or General Electric Capital Corporation ("GE CAPITAL")
does not own (directly or indirectly) at least two-thirds of the voting
shares of the capital stock of GECMSI;
- the long-term senior unsecured rating of GE Capital is downgraded by the
applicable rating agency below its two highest long-term rating
categories or such rating is withdrawn;
- GE Capital is no longer obligated pursuant to the terms of a support
agreement to maintain GECMSI's net worth or liquidity (as such terms are
defined in such support agreement) at the levels stated therein, or such
support agreement, including any amendment thereto, has been breached,
terminated or otherwise held to be unenforceable; or
- such support agreement, including any amendment thereto, is amended or
modified (each such event described in the preceding four paragraphs is
referred to herein as a "TRIGGER EVENT");
provided, however, that such recording will not be required if GECMSI delivers
to the trustee a letter from each rating agency which originally rated the
certificates to the effect that the failure to take such action would not cause
such rating agency to withdraw or reduce its then current ratings of such
certificates. For purposes of the foregoing, GECMSI, Funding or the trustee will
be deemed to have knowledge of any such downgrading if, in the exercise of
reasonable diligence, GECMSI, Funding or the trustee has or should have had
knowledge thereof. If a Trigger Event occurs, GECMSI will also promptly furnish
to the trustee the documents retained by GECMSI on behalf of Funding, if
applicable, as described in the preceding paragraph.
Although such recordation is not necessary to make the assignment of the
mortgage loans from GECMSI to Funding or from the applicable depositor to the
trustee effective, if GECMSI were to make a sale, assignment, satisfaction or
discharge of any mortgage loan prior to recording or filing the assignments to
Funding or to the trustee, the other parties to such sale, assignment,
satisfaction or discharge might have rights superior to
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those of Funding or the trustee, as the case may be. If GECMSI were to do so
without authority under the pooling and servicing agreement, it would be liable
to the trustee on behalf of the related certificateholders. Moreover, if
insolvency proceedings relating to GECMSI or Funding were commenced prior to
such recording or filing, creditors of GECMSI or Funding may be able to assert
rights in the affected mortgage loans superior to those of Funding or the
trustee.
GECMSI will acknowledge in the pooling and servicing agreement that its
retention of record title to the mortgages is for convenience only and that it
is holding record title solely as custodian for Funding, if applicable, and for
the trustee upon transfer of the mortgage loans to the trustee.
With respect to any mortgage loans which are Cooperative Loans, the
depositor of such loans in a trust, as seller, will cause to be delivered to the
trustee or custodian, if applicable, the related original cooperative note
endorsed to the order of the trustee (or the lost-note affidavit and
indemnification described in the second preceding paragraph), the original
security agreement, the proprietary lease or occupancy agreement, the
recognition agreement, an executed financing agreement and the relevant stock
certificate and related blank stock powers. The depositor will file in the
appropriate office an assignment and a financing statement evidencing the
trustee's security interest in each such loan.
Unless otherwise stated in the related prospectus supplement, the pooling
and servicing agreement will provide the trustee with the benefit of certain
representations and warranties relating to the mortgage loans. These
representations and warranties will be made by GECMSI in the pooling and
servicing agreement if it is acting as depositor. If Funding acts as depositor
with respect to mortgage loans acquired from GECMSI, Funding will assign to the
trustee in the pooling and servicing agreement the benefit of the
representations and warranties, together with the remedies for a breach thereof,
made by GECMSI in the related Loan Sale Agreement.
Unless otherwise stated in the related prospectus supplement, GECMSI
generally will represent and warrant, among other things, that:
- the information set forth in the schedule of mortgage loans attached
thereto is correct in all material respects at the date or dates
respecting which such information is furnished;
- a lender's title insurance policy or binder, or other assurance of title
insurance customary in the relevant jurisdiction therefor, for each
mortgage loan (other than a Cooperative Loan) was issued on the date of
origination thereof and each such policy or binder assurance is valid and
remains in full force and effect at the issue date of the certificates;
- at the date of initial issuance of the certificates, GECMSI has good
title to and under the sole owner of the mortgage loans and the mortgage
loans are being transferred free and clear of any liens, claims and
encumbrances;
- at the issue date of the certificates, each mortgage is a valid and
enforceable first or, in the case of a second priority Home Equity Loan,
second lien on the property securing the related promissory note, subject
only to (a) the lien of current real property taxes and assessments, (b)
covenants, conditions, and restrictions, rights of way, easements and
other matters of public record as of the date of the recording of such
mortgage, such exceptions appearing of record being acceptable to
mortgage lending institutions generally in the area wherein the property
subject to the
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mortgage is located or specifically reflected in the appraisal obtained
by GECMSI, (c) in the case of a second-priority Home Equity Loan, the
lien of the related first mortgage, and (d) other matters to which like
properties are commonly subject which do not materially interfere with
the benefits of the security intended to be provided by such mortgage,
and such property is free of material damage and is in good repair;
- at the issue date of the certificates, except in the case of Home Equity
Loans, no mortgage loan is 30 or more days delinquent and none of the
mortgage loans have been past due 30 or more days more than once during
the preceding twelve months, and there are no delinquent tax or
assessment liens against the property covered by the related mortgage;
- at the issue date of the certificates, the portion of each mortgage loan,
if any, which in the circumstances set forth above under "Servicing of
the Mortgage Loans -- Private Mortgage Insurance" should be insured with
a private mortgage insurer is so insured;
- at the issue date of the certificates, there is no valid offset, defense
or counterclaim to any mortgage or its related promissory note, including
the obligation of the mortgagor to pay the unpaid principal and interest
on such promissory note; and
- each mortgage loan at the time it was made complied in all material
respects with applicable state and federal laws, including, without
limitation, usury, equal credit opportunity and disclosure laws.
In addition to the foregoing, if Funding acts as depositor, it will also
represent and warrant that:
- it had good title to and was the sole owner of such mortgage loans
immediately prior to the assignment thereof to the trustee; and
- no valid offset, defense or counterclaim to the mortgage or related
promissory note exists as of the issue date of the certificates as a
result of any action taken by Funding.
In the event that the depositor of mortgage loans in a trust has acquired
the mortgage loans for a series from a third party, if so specified in the
related prospectus supplement, the depositor may, in lieu of making the
representations described in the preceding paragraph, cause the entity from
which the depositor acquired such mortgage loans to make such representations
(other than those regarding the depositor's title to the mortgage loans, which
will in all events be made by the depositor), in the sales agreement pursuant to
which such mortgage loans are acquired, or if such entity is acting as a
servicer, in its servicing agreement. In such event such representations, and
the depositor's rights against such entity in the event of a breach thereof,
will be assigned to the trustee for the benefit of the holders of the
certificates of such series.
REPURCHASE OR SUBSTITUTION
The trustee or custodian, if applicable, will review the documents
delivered to it with respect to the assets of the related trust. Unless
otherwise stated in the prospectus supplement, if any document is not delivered
or is found to be defective in any material respect and GECMSI cannot deliver
such document or cure such defect within 60 days after notice thereof, which the
trustee or custodian, if applicable, will undertake to give within 45 days of
the delivery of such documents, GECMSI will, not later than the first
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distribution date which is more than ten days after such 60-day period, (a)
remove the affected mortgage loan from the trust and substitute one or more
other mortgage loans therefor or (b) repurchase the mortgage loan from the
trustee for a price equal to 100% of its Principal Balance plus interest thereon
at the applicable Net Mortgage Rate from the date on which interest was last
paid to the first day of the month in which such purchase price is to be
distributed, net of any unreimbursed advances of principal and interest thereon
made by GECMSI, as servicer. Such purchase price will be deposited in the
Certificate Account on the business day preceding such distribution date. Unless
otherwise provided in the pooling and servicing agreement, this repurchase and
substitution obligation will constitute the sole remedy available to
certificateholders or the trustee on behalf of certificateholders against GECMSI
or Funding for a material defect in a document relating to a mortgage loan.
Unless otherwise stated in the prospectus supplement, GECMSI and Funding,
if acting as depositor of mortgage loans in a trust, will agree to either (a)
cure in all material respects any breach of any representation or warranty set
forth in such agreement that materially and adversely affects the interests of
the certificateholders in a mortgage loan (a "DEFECTIVE MORTGAGE LOAN") within
60 days of its discovery by GECMSI or Funding, as the case may be, or its
receipt of notice thereof from the trustee or Funding, (b) repurchase such
Defective Mortgage Loan not later than the first distribution date which is more
than ten days after such 60-day period for a price equal to 100% of its
Principal Balance plus interest thereon at the applicable Net Mortgage Rate from
the date on which interest was last paid to the first day of the month in which
such purchase price is to be distributed, net of any unreimbursed advances of
principal and interest thereon made by GECMSI as servicer, or (c) remove the
affected mortgage loan from the trust and substitute one or more other mortgage
loans therefor. Such purchase price will be deposited in the Certificate Account
on the business day preceding such distribution date. Unless otherwise provided
in the pooling and servicing agreement, this repurchase or substitution
obligation will constitute the sole remedy available to certificateholders or
the trustee on behalf of certificateholders for any such breach.
If so specified in the prospectus supplement for a series where the
depositor of mortgage loans in a trust has acquired the related mortgage loans
from a third party, in lieu of agreeing to repurchase or substitute mortgage
loans as described above, the depositor may obtain such an agreement from the
entity which sold such mortgage loans, which agreement will be assigned to the
trustee for the benefit of the holders of the certificates of such series. In
such event, unless otherwise stated in the related prospectus supplement, the
depositor will have no obligation to repurchase or substitute mortgage loans if
such entity defaults in its obligation to do so.
If a mortgage loan is substituted for another mortgage loan as described
above, the new mortgage loan will, unless otherwise stated in the prospectus
supplement:
- have a Principal Balance (together with any other new mortgage loan so
substituted), as of the first distribution date following the month of
substitution, after deduction of all payments due in the month of
substitution, not in excess of the Principal Balance of the removed
mortgage loan as of such distribution date (the amount of any shortfall,
plus one month's interest thereon at the applicable Net Mortgage Rate, to
be deposited in the Certificate Account on the business day prior to the
applicable distribution date);
- have an interest rate not less than, and not more than one percentage
point greater than, that of the removed mortgage loan;
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- have a Net Mortgage Rate equal to that of the removed mortgage loan;
- have a remaining term to stated maturity not later than, and not more
than one year less than, the remaining term to stated maturity of the
removed mortgage loan;
- have a current loan to original value not greater than that of the
removed mortgage loan; and
- in the reasonable determination of GECMSI, be of the same type, quality
and character as the removed mortgage loan (as if the defect or breach
giving rise to the substitution had not occurred) and be, as of the
substitution date, in compliance with the representations and warranties
contained in the pooling and servicing agreement.
Any such substitution will occur within two years after the initial
issuance of the related certificates.
CERTAIN REFINANCINGS
The pooling and servicing agreement will provide that if GECMSI in its
individual capacity agrees to refinance any mortgage loan upon the request of
the related mortgagor, such mortgage loan will be assigned to GECMSI by the
trustee upon certification that the principal balance of such mortgage loan and
accrued and unpaid interest thereon at the Net Mortgage Rate has been credited
to the related Loan Payment Record.
EVIDENCE AS TO COMPLIANCE
The pooling and servicing agreement will provide that a firm of independent
public accountants will furnish to the trustee on or before March 31 of each
year, beginning with March 31 in the year which begins not less than three
months after the date of the initial issue of certificates, a report as to
compliance by GECMSI with the minimum servicing standards set forth in the
Uniform Single Attestation Program for Mortgage Bankers ("USAP") with respect to
the mortgage loans (or, if the pooling and servicing agreement relates to Home
Equity Loans, with respect to the home equity loans) in GECMSI's servicing
portfolio. In connection with the preparation of such report, GECMSI will
provide to such firm of independent public accountants a statement signed by an
officer of GECMSI to the effect that GECMSI has complied in all material
respects with the minimum servicing standards set forth in the USAP with respect
to the mortgage loans (or, if the pooling and servicing agreement relates to
Home Equity Loans, with respect to the home equity loans) in GECMSI's servicing
portfolio or, if there has been material noncompliance with such servicing
standards, describing such noncompliance.
The pooling and servicing agreement will also provide for delivery to the
trustee on or before March 31 of each year, beginning with March 31 in the year
which begins not less than three months after the date of the initial issue of
the certificates, a statement signed by an officer of GECMSI, as servicer, to
the effect that GECMSI, as servicer, has fulfilled its material obligations
under the pooling and servicing agreement throughout the preceding year or, if
there has been a default in the fulfillment of any such obligations, describing
each such default.
LIST OF CERTIFICATEHOLDERS
Upon written request of the trustee, or, if the guarantor has issued any
limited guarantee with respect to such certificates, the guarantor, the
certificate registrar will provide to the trustee, or, if applicable, the
guarantor, within fifteen days after receipt of
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such request, a list of the names and addresses of all certificateholders of
record of a particular series as of the most recent Record Date for payment of
distributions to certificateholders of that series. Upon written request of
three or more certificateholders of record of a series of certificates for
purposes of communicating with other certificateholders with respect to their
rights under the pooling and servicing agreement for such series, the trustee
will afford, within five business days after the receipt of such request, such
certificateholders access during business hours to the most recent list of
certificateholders of that series held by the trustee. If such list is as of a
date more than 90 days prior to the date of receipt of a request from such
certificateholders, the trustee shall promptly request from the certificate
registrar a current list and will afford such requesting certificateholders
access to such list promptly upon receipt.
The pooling and servicing agreement will not provide for the holding of any
annual or other meetings of certificateholders.
THE TRUSTEE
Any commercial bank or trust company serving as trustee may have normal
banking relationships with GECMSI. In addition, the depositor of the mortgage
loans in a trust and the trustee acting jointly will have the power and the
responsibility for appointing co-trustees or separate trustees of all or any
part of the trust relating to a particular series of certificates. In the event
of such appointment, all rights, powers, duties and obligations conferred or
imposed upon the trustee by the pooling and servicing agreement shall be
conferred or imposed upon the trustee and such separate trustee or co-trustee
jointly, or, in any jurisdiction in which the trustee shall be incompetent or
unqualified to perform certain acts, singly upon such separate trustee or
co-trustee who shall exercise and perform such rights, powers, duties and
obligations solely at the direction of the trustee.
The trustee will make no representations as to the validity or sufficiency
of the pooling and servicing agreement, the certificates, (other than the
signature and countersignature of the trustee on the certificates) or of any
mortgage loan or related document, and will not be accountable for the use or
application by GECMSI or Funding of any funds paid to them in respect of the
certificates or the related assets, or amounts credited to the Loan Payment
Record or deposited into the Certificate Account. If no Event of Default has
occurred, the trustee will be required to perform only those duties specifically
required of it under the pooling and servicing agreement. If an Event of Default
has occurred and is continuing, the trustee is required to exercise such of the
rights and powers vested in it by the pooling and servicing agreement, and use
the same degree of care and skill in their exercise, as a prudent person would
exercise or use under the circumstances in the conduct of his or her own
affairs. However, upon receipt of the various certificates, reports or other
instruments required to be furnished to it, the trustee will be required to
examine them to determine whether they conform to the requirements of the
pooling and servicing agreement.
The trustee may resign at any time, and the depositor of the loans in a
trust may remove the trustee if the trustee ceases to be eligible to continue as
such under the pooling and servicing agreement, if the trustee becomes insolvent
or in such other instances, if any, as are set forth in the pooling and
servicing agreement. Following any resignation or removal of the trustee, GECMSI
will be obligated to appoint a successor trustee, any such successor to be
approved by the guarantor if so specified in the prospectus supplement in the
event that the guarantor has issued any limited guarantee with respect to the
certificates. Any resignation or removal of the trustee and appointment of a
successor
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trustee does not become effective until acceptance of the appointment by the
successor trustee. The trustee and any successor trustee will at all times: (1)
be a corporation organized under the laws of the state of New York, the state in
which the initial trustee has its principal office, or the United States of
America; (2) be authorized under such laws to exercise corporate trust powers;
(3) have a combined capital and surplus of at least $50,000,000; and (4) be
subject to the supervision of a state or federal authority.
GECMSI will pay the fees and expenses of the trustee incurred in connection
with the execution of its duties under the pooling and servicing agreement and
will indemnify the trustee from, and hold it harmless against, any and all
losses, liabilities, damages, claims or expenses other than those resulting from
the negligence or bad faith of the trustee.
ADMINISTRATION OF THE CERTIFICATE ACCOUNT
The pooling and servicing agreement will require that the Certificate
Account be either:
- maintained with a depository institution the debt obligations of which
are, at the time of any deposit therein, rated at least "AA" (or the
equivalent) by each nationally recognized statistical rating organization
that rated the certificates;
- an account or accounts the deposits in which are fully insured by either
the Bank Insurance Fund (the "BIF") of the Federal Deposit Insurance
Corporation (the "FDIC") or the Savings Association Insurance Fund
("SAIF") of the FDIC;
- an account or accounts with a depository institution, which accounts are
insured by the BIF or SAIF to the limits established by the FDIC, and
which uninsured deposits are invested in United States government
securities or other high quality investments, or are otherwise secured to
the extent required by each rating agency that rates the certificates
such that, as evidenced by an opinion of counsel, the holders of the
certificates have a claim with respect to the funds in the account or a
perfected first security interest against any collateral securing such
funds that is superior to claims of any other depositors or creditors of
the depository institution with which the account is maintained;
- a trust account maintained with the corporate trust department of a
federal or state chartered depository institution or trust company with
trust powers and acting in its fiduciary capacity for the benefit of the
trustee; or
- an account that will not cause any of the rating agencies that rates the
certificates to downgrade or withdraw their then-current rating assigned
to the certificates.
Not later than the second business day prior to each distribution date,
GECMSI, as servicer, will furnish a separate statement to the trustee for the
certificates setting forth, among other things, the amount to be distributed
with respect to the certificates on the next succeeding distribution date to
certificateholders, with amounts allocable to principal and to interest stated
separately and, if applicable, information relating to the amount available for
the purchase of Liquidating Loans.
REPORTS TO CERTIFICATEHOLDERS
At least two business days before each distribution date, unless otherwise
stated in the prospectus supplement, GECMSI, as servicer, will furnish to the
trustee for mailing to
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certificateholders on such distribution date, a statement generally setting
forth, to the extent applicable to any series, among other things:
- the aggregate amount of such distribution allocable to principal,
separately identifying the amount allocable to each class and the amount
of Principal Prepayments and mortgage loans repurchased by GECMSI
included therein;
- the amount of such distribution allocable to interest -- including any
amounts added to the principal balance of any class of Accrual
Certificates resulting from the accrual of interest that is not yet
distributable thereon -- separately identifying the amount allocable to
each class;
The trustee will deliver each month's statement to certificateholders by
either mailing it to certificateholders on the distribution date or, unless
otherwise specified in the prospectus supplement, by posting it on the trustee's
internet web site not later than the distribution date for that month. In
addition to distribution date statements, the trustee may make other information
relating to the certificates available on its web site. The trustee will notify
you promptly if information that would otherwise be mailed to you will instead
be made available on its web site. Upon written request to the trustee,
certificateholders may also receive written copies of all reports and statements
concerning the related series of certificates furnished on the trustee's web
site.
GECMSI, as servicer, will provide certificateholders which are federally
insured savings and loan associations with certain reports and with access to
information and documentation regarding the mortgage loans included in the trust
sufficient to permit such associations to comply with applicable regulations of
the Office of Thrift Supervision (the "OTS").
EVENTS OF DEFAULT
Events of Default under the pooling and servicing agreement will consist
of:
- any failure by GECMSI, as servicer, to distribute to certificateholders
any required payment, which failure continues unremedied for three
business days after the giving of written notice of such failure to
GECMSI by the trustee, or to GECMSI and the trustee by the holders of
certificates evidencing interests aggregating not less than 25% of each
affected class;
- any failure by GECMSI, as servicer, duly to observe or perform in any
material respect any other of its covenants or agreements in such pooling
and servicing agreement materially affecting the rights of
certificateholders which continues unremedied for 60 days after the
giving of written notice of such failure to GECMSI by the trustee, or to
GECMSI and the trustee by the holders of certificates evidencing
interests aggregating not less than 25% of each affected class;
- any failure by GECMSI, as servicer, to effect timely payment of the
premium for a pool insurance policy or a special hazard insurance policy
or limited guarantee, if any, which continues unremedied for 10 business
days after the giving of written notice of such failure by the trustee,
or to GECMSI and the trustee by the holders of certificates evidencing
interests aggregating not less than 25% of each affected class; or
- certain events of insolvency, readjustment of debt, marshaling of assets
and liabilities or similar proceedings and certain actions by GECMSI
indicating its insolvency, reorganization or inability to pay its
obligations.
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RIGHTS UPON EVENT OF DEFAULT
As long as an Event of Default under the pooling and servicing agreement
remains unremedied by GECMSI, as servicer (or, if applicable, by the guarantor
pursuant to any limited guarantee), the trustee, or holders of certificates
evidencing interests aggregating not less than 51% of each affected class, may
terminate all of the rights and obligations of GECMSI as servicer under the
pooling and servicing agreement, whereupon the trustee will succeed to all the
responsibilities, duties and liabilities of GECMSI as servicer under the
agreement and will be entitled to similar compensation arrangements, provided
that if the trustee had no obligation under the agreement to make advances of
delinquent principal and interest on the mortgage loans upon the failure of
GECMSI, as servicer, to do so, or if the trustee had such obligation but is
prohibited by law or regulation from making such advances, the trustee will not
be required to assume such obligation of GECMSI. GECMSI, as servicer, shall be
entitled to payment of certain amounts payable to it under the pooling and
servicing agreement, notwithstanding the termination of its activities as
servicer. No such termination will affect in any manner the guarantor's
obligations under any limited guarantee, except that the obligation of GECMSI,
as servicer, to make advances of delinquent payments of principal and interest,
adjusted to the applicable Net Mortgage Rate, and, if applicable, to purchase
any Liquidating Loan will become the direct obligations of the guarantor under
the Advance Guarantee and the Liquidating Loan Guarantee, respectively, if
applicable, until a new servicer is appointed. In the event that the trustee is
unwilling or unable so to act, it may appoint, or petition a court of competent
jurisdiction for the appointment of, a housing and home finance institution with
a net worth of at least $10,000,000 and, if the guarantor has issued any limited
guarantee with respect to the certificates, approved by the guarantor, to act as
successor to GECMSI, as servicer, under such pooling and servicing agreement. In
addition, if the guarantor has issued any limited guarantee with respect to the
related series of certificates, the guarantor will have the right to replace any
successor servicer to GECMSI with an institution meeting the requirements
described in the preceding sentence. The trustee and such successor may agree
upon the servicing compensation to be paid, which in no event may be greater
than the compensation to GECMSI under such pooling and servicing agreement.
No holder of certificates will have any right under the pooling and
servicing agreement to institute any proceeding with respect to the pooling and
servicing agreement, unless such holder previously has given to the trustee
written notice of default and unless the holders of certificates of each
affected class evidencing, in the aggregate, 25% or more of the interests in
such class have made written request to the trustee to institute such proceeding
in its own name as trustee thereunder and have offered to the trustee reasonable
indemnity and the trustee for 60 days after receipt of such notice, request and
offer of indemnity has neglected or refused to institute any such proceedings.
However, the trustee is under no obligation to exercise any of the trusts or
powers vested in it by the pooling and servicing agreement or to make any
investigation of matters arising thereunder or to institute, conduct or defend
any litigation thereunder or in relation thereto at the request, order or
direction of any of the certificateholders, unless such certificateholders have
offered to the trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred therein or thereby.
AMENDMENT
The pooling and servicing agreement may be amended by the depositor of the
mortgage loans in the trust, as seller, GECMSI, as servicer, and the trustee,
and if the
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guarantor has issued any limited guarantee with respect to the certificates,
with the consent of the guarantor, but without certificateholder consent, to
cure any ambiguity or mistake, to correct or supplement any provision therein
which may be inconsistent with any other provision therein or in the related
prospectus supplement, to take any action necessary to maintain the REMIC status
of any trust as to which a REMIC election has been made, to avoid or minimize
the risk of the imposition of any tax on the trust pursuant to the Code, or to
make any other provisions with respect to matters or questions arising under
such pooling and servicing agreement which are not materially inconsistent with
the provisions of such pooling and servicing agreement; provided that such
action will not, as evidenced by an opinion of counsel satisfactory to the
trustee, adversely affect in any material respect the interests of any
certificateholders of that series. Unless otherwise stated in the prospectus
supplement, the agreement may also be amended by GECMSI or Funding, as depositor
and seller, GECMSI, as servicer, and the trustee with the consent of holders of
certificates evidencing interests aggregating either not less than 66% of all
interests in the related trust or not less than 66% of all interests of each
class of certificates affected by such amendment, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
such agreement or of modifying in any manner the rights of certificateholders of
that series; provided, however, that no such amendment may (1) reduce in any
manner the amount of, or delay the timing of, payments received on mortgage
loans which are required to be distributed in respect of any certificate without
the consent of the holder of such certificate, (2) adversely affect in any
material respect the interests of the holders of any class of certificates in
any manner other than as described in (1), without the consent of the holders of
certificates of such class evidencing at least 66% of the interests of such
class or (3) reduce the aforesaid percentage of certificates, the holders of
which are required to consent to any such amendment, without the consent of the
holders of all certificates of such affected class then outstanding.
If a REMIC election has been made for all or any portion of the trust
related to any series of certificates, the trustee may not consent to any
amendment to the agreement unless it has received an opinion of qualified tax
counsel that such amendment will not subject the related trust to tax or cause
such trust to fail to qualify as a REMIC at any time that any certificates are
outstanding.
TERMINATION
The obligations of GECMSI or Funding, as depositor and seller, GECMSI, as
servicer, and the trustee created by the pooling and servicing agreement will
terminate upon the last action required to be taken by the trustee on the final
distribution date pursuant to the pooling and servicing agreement after the
earlier of (1) the maturity or other liquidation of the last mortgage loan
subject thereto or the disposition of all property acquired upon foreclosure of
any such mortgage loan or (2) the repurchase from the trust by the person
specified in the prospectus supplement of all the outstanding certificates or
all remaining assets in the trust. The pooling and servicing agreement will
establish the repurchase price for the assets in the trust and the allocation of
such purchase price among the classes of certificates. Unless otherwise stated
in the prospectus supplement, if the repurchase price, together with other funds
available to make final distributions, is less than the principal balance and
accrued interest on the certificates, such shortfall will be borne by
certificateholders as specified in the prospectus supplement. The exercise of
such right will effect early retirement of the certificates of that series, but
such person's right so to repurchase will be subject to the conditions set forth
in the related prospectus supplement. Any sale of certificates or assets by the
trustee in connection with the exercise
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of such repurchase right shall be made without representation or warranty,
except as to title, and without recourse. If a REMIC election is to be made with
respect to all or a portion of a trust, there may be additional conditions to
the termination of such trust which will be described in the related prospectus
supplement. In no event, however, will the trust created by the pooling and
servicing agreement continue beyond the expiration of 21 years from the death of
the survivor of certain persons named in the agreement. The trustee will give
written notice of termination of the pooling and servicing agreement to each
certificateholder, and the final distribution will be made only upon surrender
and cancellation of the certificates at an office or agency of the trustee
specified in such notice of termination.
If specified in the prospectus supplement, the pooling and servicing
agreement will permit the trustee to sell the mortgage loans, and the other
assets of the trust in the event that payments in respect thereto are
insufficient to make payments required in the agreement. The assets of the trust
will be sold only under the circumstances and in the manner specified in the
prospectus supplement.
GOVERNING LAW
The pooling and servicing agreement provides that it shall be construed in
accordance with the laws of the State of New York, and the obligations, rights
and remedies of the parties to the pooling and servicing agreement will be
determined in accordance with such laws.
GE CAPITAL MORTGAGE SERVICES, INC.
GECMSI, a New Jersey corporation, is a wholly-owned subsidiary of GE
Capital Mortgage Corporation ("GECMC"). GECMC is a wholly-owned subsidiary of GE
Capital, which, in turn, is a wholly-owned indirect subsidiary of General
Electric Company. GECMSI was acquired by GECMC, effective October 1, 1990, and
thereafter changed its name to GE Capital Mortgage Services, Inc.
GECMSI is engaged in the business of originating, refinancing, acquiring
and servicing residential mortgage loans secured by one- to four-family homes.
It obtains servicing through the acquisition and origination of mortgage loans,
and the purchase of servicing rights. GECMSI is also engaged in the home equity
business and originates, acquires and services Home Equity Loans. From time to
time, GECMSI may also engage in sales of such mortgage loans and servicing
rights. See "The Trusts -- The Mortgage Loans -- Loan Production Sources" and
"-- Loan Underwriting Policies."
DELINQUENCY AND FORECLOSURE EXPERIENCE
GECMSI's delinquency and foreclosure experience on the portfolio of one-to
four-family residential mortgage loans that it services as of a recent date will
be summarized in the prospectus supplement. Such summary will include or consist
of data with respect to GECMSI's Home Equity Loan portfolio if the related trust
includes a material amount of Home Equity Loans. There can be no assurance that
GECMSI's experience with respect to the mortgage loans included in any trust
will be similar to that historically experienced by GECMSI.
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YEAR 2000 LEGISLATION
A new federal law enacted in July 1999 will prohibit us, under certain
circumstances, from foreclosing on residential mortgages that fall into default
because of a year 2000 failure. Although this law would not prevent us from
ultimately enforcing a borrower's obligations on a mortgage, it could cause
delays in that enforcement and consequently affect distributions on your
certificates. See "Certain Legal Aspects of the Mortgage Loans -- Foreclosure."
LEGAL PROCEEDINGS
As a participant in the retail mortgage banking industry, we are from time
to time the subject of litigation in connection with our consumer mortgage
lending and servicing practices. We are not, however, presently the subject of
any such proceedings which we believe to be material, nor are we a party to any
other material legal proceedings.
GE CAPITAL MORTGAGE FUNDING CORPORATION
Funding is a Delaware corporation organized on December 9, 1998 for the
specific purpose of acquiring mortgage loans, forming trusts, acquiring, holding
and selling certificates and engaging in related transactions. Funding is a
wholly-owned subsidiary of GECMSI. Funding maintains its principal executive
office at Three Executive Campus, Suite W. 602, Cherry Hill, New Jersey 08002.
Its telephone number is (856) 661-5881.
Funding anticipates that it will use the net proceeds of the sale of a
series of certificates to pay a portion of the purchase price of the mortgage
loans, and accordingly, it does not anticipate having any significant assets
after the issuance of any certificates, but may retain certain classes of
certificates.
RISK OF RECHARACTERIZATION
Funding may acquire mortgage loans -- referred to in this section as the
"TRUST ASSETS" -- from GECMSI prior to transferring them to the trust. The
transfer of the Trust Assets from GECMSI to Funding and from Funding to the
trust will be structured as, and is intended to be, an absolute and
unconditional sale of the Trust Assets to the trust. However, if GECMSI or
Funding becomes subject to a bankruptcy, insolvency or similar proceeding (a
"PROCEEDING," and the party subject to such Proceeding, an "AFFECTED PARTY"), a
receiver, conservator, liquidator, trustee or similar party might attempt to
convince the relevant court to recharacterize the direct or indirect transfer of
the Trust Assets by the Affected Party to the trust as a pledge to secure a
borrowing evidenced by the certificates, rather than a sale of the Trust Assets.
An argument in favor of recharacterization might arise if Funding initially
retains a significant subordinated interest in the related trust and,
accordingly, in the Trust Assets. If Funding is the Affected Party, a bankruptcy
trustee or similar party might argue that Funding has not parted with the risks
of ownership of the Trust Assets as a result of its retention of such
certificates. The prospectus supplement will specify if Funding retains such an
interest.
GECMSI is not expected to retain any significant subordinated interest in
any Trust Assets that it sells to Funding. However, if GECMSI is the Affected
Party in respect of a Proceeding, in order to recharacterize the transfer of the
Trust Assets by GECMSI as a secured loan, it is likely that a receiver or
similar party would have to argue that the assets
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and liabilities of GECMSI and Funding should be consolidated, and that
accordingly such certificates should therefore be viewed as being held directly
by GECMSI.
In the event that an attempt to recharacterize the transfer of the Trust
Assets as a secured loan were successful, the trustee, on behalf of the holders
of the related series of certificates, would have a secured claim against the
Affected Party, but might be delayed or prohibited from exercising remedies with
respect to the Trust Assets or taking actions with respect to the Affected Party
absent court approval. In addition, other collateral might be substituted for
the Trust Assets and collections on the Trust Assets or such other collateral
might be applied to make distributions of principal and interest on such
certificates at times different from those required by the pooling and servicing
agreement, post-Proceeding interest might be limited, and payment of the loan
could be accelerated, with holders of certificates losing the right to future
interest distributions. Even if such an attempt were not successful, it is
possible that distributions on such certificates would be subject to delays
while the claim was being resolved by a court.
Funding's Certificate of Incorporation limits the activities in which
Funding is permitted to engage in such manner as is intended to make the
likelihood of a Proceeding by or against Funding remote, and Funding has been
organized and is designed to operate in a manner such that its separate
existence should be respected, notwithstanding a Proceeding in respect of itself
or GECMSI. However, neither Funding nor GECMSI makes any representation as to
the likelihood of the institution of a bankruptcy proceeding by or in respect of
Funding or whether a court would order such a consolidation of the assets and
liabilities of GECMSI with those of Funding in the event of a Proceeding.
The foregoing discussion does not purport to be comprehensive. Prospective
investors are advised to consult their own legal advisors as to the possible
consequences of any Proceeding instituted by or in respect of GECMSI or Funding.
WHERE YOU CAN FIND MORE INFORMATION ABOUT
GE CAPITAL MORTGAGE SERVICES, INC. AND
GE CAPITAL MORTGAGE FUNDING CORPORATION
We will file reports and other information with the SEC about the trust
issuing your certificates. Our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file at the SEC's public reference rooms in Washington, D.C.,
New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330
for further information on their public reference rooms.
The SEC allows us to incorporate by reference the information we file with
them about the trust issuing your certificates. This means that we can disclose
important information to you by referring you to these documents. The
information incorporated by reference is an important part of this prospectus,
and information that we file later with the SEC about the trust issuing your
certificates will automatically update and supersede this information. We
incorporate by reference any future annual, monthly and special SEC reports
filed by or on behalf of the trust issuing your certificates until the
termination of
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the offering of those certificates. You may request a copy of our filings at no
cost by writing or telephoning either of us at the following address:
<TABLE>
<S> <C>
Corporate Secretary Corporate Secretary
GE Capital Mortgage Services, Inc. GE Capital Mortgage Funding
Three Executive Campus Corporation
Cherry Hill, New Jersey 08002 Three Executive Campus, Suite W. 602
(856) 661-6512 Cherry Hill, New Jersey 08002
(856) 661-5881
</TABLE>
In addition, we will provide you with reports annually and as to each
distribution date containing information about the trust issuing your
certificates.
THE GUARANTOR
If specified in the prospectus supplement, an entity identified therein as
the guarantor will, to the limited extent specified, issue a limited guarantee
to guarantee certain of GECMSI's limited obligations under the related pooling
and servicing agreement. If the guarantor provides any such limited guarantee
with respect to a series of certificates, the prospectus supplement will contain
additional information about the guarantor.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans which are general in nature. Because such legal aspects are
governed primarily by applicable state law, which may differ substantially from
state to state, the summaries do not purport to be complete nor to reflect the
laws of any particular state, nor to encompass the laws of all states in which
the security for the mortgage loans is situated. The summaries are qualified in
their entirety by reference to the applicable federal and state laws governing
the mortgage loans.
GENERAL
Mortgages
The mortgages will be either deeds of trust or mortgages. A mortgage
creates a lien upon the real property encumbered by the mortgage. It is not
prior to the lien for real estate taxes and assessments. Priority between
mortgages depends on their terms and generally on the order of filing with a
state or county office. There are two parties to a mortgage: the mortgagor, who
is the borrower and homeowner or the land trustee or the trustee of an inter
vivos revocable trust (as described below), and the mortgagee, who is the
lender. Under the mortgage instrument, the mortgagor delivers to the mortgagee a
note or bond and the mortgage. In the case of a land trust, there are three
parties because title to the property is held by a land trustee under a land
trust agreement of which the borrower/homeowner is the beneficiary; at
origination of a mortgage loan, the borrower executes a separate undertaking to
make payments on the mortgage note. In the case of an inter vivos revocable
trust, there are three parties because title to the property is held by the
trustee under the trust instrument of which the home occupant is the primary
beneficiary; at origination of a mortgage loan, the primary beneficiary and the
trustee execute a mortgage note and the trustee executes a mortgage or deed of
trust, with the primary beneficiary agreeing to be bound by its terms. Although
a deed of trust is similar to a mortgage, a deed of trust formally has three
parties, the borrower-homeowner called the trustor (similar to a mortgagor), a
lender (similar to a mortgagee) called the
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beneficiary, and a third-party grantee called the trustee. Under a deed of
trust, the borrower grants the property, irrevocably until the debt is paid, in
trust and generally with a power of sale, to the trustee to secure payment of
the obligation. The trustee's authority under a deed of trust and the
mortgagee's authority under a mortgage are governed by law, the express
provisions of the deed of trust or mortgage and, in some cases, the directions
of the beneficiary.
Cooperatives
Certain of the mortgage loans may be Cooperative Loans. The private,
non-profit, cooperative apartment corporation owns all the real property that
comprises the project, including the land, separate apartments and all common
areas. The cooperative is directly responsible for project management and, in
most cases, payment of real estate taxes and hazard and liability insurance. If
there is a blanket mortgage on the cooperative apartment building and/or
underlying land, as is generally the case, the cooperative, as project
mortgagor, is also responsible for meeting these mortgage obligations. A blanket
mortgage is ordinarily incurred by the cooperative in connection with the
construction or purchase of the cooperative's apartment building. The interest
of the occupant under proprietary leases or occupancy agreements to which that
cooperative is a party are generally subordinate to the interest of the holder
of the blanket mortgage in that building. If the cooperative is unable to meet
the payment obligations arising under its blanket mortgage, the mortgagee
holding the blanket mortgage could foreclose on that mortgage and terminate all
subordinate proprietary leases and occupancy agreements. In addition, the
blanket mortgage on a cooperative may provide financing in the form of a
mortgage that does not fully amortize with a significant portion of principal
being due in one lump sum at final maturity. The inability of the cooperative to
refinance this mortgage and its consequent inability to make such final payment
could lead to foreclosure by the mortgagee providing the financing. A
foreclosure in either event by the holder of the blanket mortgage could
eliminate or significantly diminish the value of any collateral held by the
lender who financed the purchase by an individual tenant-stockholder of
cooperative shares or, in the case of a trust including Cooperative Loans, the
collateral securing the Cooperative Loans.
The cooperative is owned by tenant-stockholders who, through ownership of
stock shares or membership certificates in the corporation, receive proprietary
leases or occupancy agreements which confer exclusive rights to occupy specific
units. Generally, a tenant-stockholder of a cooperative must make a monthly
payment to the cooperative representing such tenant-stockholder's pro rata share
of the cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a cooperative and accompanying occupancy rights is financed through
a cooperative share loan evidenced by a promissory note and secured by a
security interest in the occupancy agreement or proprietary lease and in the
related cooperative shares. The lender takes possession of the share certificate
and a counterpart of the proprietary lease or occupancy agreement and a
financing statement covering the proprietary lease or occupancy agreement and
the cooperative shares is filed in the appropriate state and local offices to
perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as provided in the security agreement covering the assignment
of the proprietary lease or occupancy agreement and the pledge of cooperative
shares.
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FORECLOSURE
Mortgages
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust that authorizes
the trustee to sell the property to a third party upon any default by the
borrower under the terms of the note or deed of trust. In some states, the
trustee must record a notice of default and send a copy to the borrower-trustor
and any person who has recorded a request for a copy of a notice of default and
notice of sale. In addition, the trustee must provide notice in some states to
any other individual having an interest in the real property, including any
junior lien holders. The borrower, or any other person having a junior
encumbrance on the real estate, may, during a reinstatement period, cure the
default by paying the entire amount in arrears plus the costs and expenses
incurred in enforcing the obligation. Generally, state law controls the amount
of foreclosure expenses and costs, including attorney's fees, which may be
recovered by a lender. If the deed of trust is not reinstated, a notice of sale
must be posted in a public place and, in most states, published for a specific
period of time in one or more newspapers. In addition, some state laws require
that a copy of the notice of sale be posted on the property and sent to all
parties having an interest in the real property.
Foreclosure of a mortgage is generally accomplished by judicial action. The
action is initiated by the service of legal pleadings upon all parties having an
interest in the real property. Delays in completion of the foreclosure may
occasionally result from difficulties in locating necessary parties defendant.
Judicial foreclosure proceedings are often not protested by any of the parties
defendant. However, when the mortgagee's right to foreclose is contested, the
legal proceedings necessary to resolve the issue can be time consuming. After
the completion of judicial foreclosure, the court generally issues a judgment of
foreclosure and appoints a referee or other court officer to conduct the sale of
the property.
A sale conducted in accordance with the terms of the power of sale
contained in a mortgage or deed of trust is generally presumed to be conducted
regularly and fairly, and a conveyance of the real property by the referee
confers absolute legal title to the real property to the purchaser, free of all
junior mortgages and free of all other liens and claims subordinate to the
mortgage or deed of trust under which the sale is made (with the exception of
certain governmental liens and any redemption rights that may be granted to
borrowers pursuant to applicable state law). The purchaser's title is, however,
subject to all senior liens, encumbrances and mortgages. Thus, if the mortgage
or deed of trust being foreclosed is a junior mortgage or deed of trust, the
referee or trustee will convey title to the property to the purchaser, subject
to the underlying first mortgage or deed of trust and any other prior liens and
claims. A foreclosure under a junior mortgage or deed of trust generally will
have no effect on any senior mortgage or deed of trust, except that it may
trigger the right of a senior mortgagee or beneficiary to accelerate its
indebtedness under a due-on-sale clause or due on further encumbrance clause
contained in the senior mortgage.
In case of foreclosure under either a mortgage or a deed of trust, the sale
by the referee or other designated officer or by the trustee is a public sale.
However, because of the difficulty a potential buyer at the sale would have in
determining the exact status of title and because the physical condition of the
property may have deteriorated during the foreclosure proceedings, it is
uncommon for a third party to purchase the property at the foreclosure sale.
Rather, it is common for the lender to purchase the property from the trustee or
referee for an amount equal to the principal amount of the mortgage or deed of
trust, accrued and unpaid interest and expenses of foreclosure. Thereafter, the
lender will
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assume the burdens of ownership, including obtaining casualty insurance and
making such repairs at its own expense as are necessary to render the property
suitable for sale. The lender will commonly obtain the services of a real estate
broker and pay the broker's commission in connection with the sale of the
property. Depending upon market conditions, the ultimate proceeds of the sale of
the property may not equal the lender's investment in the property. Any loss may
be reduced by the receipt of any mortgage insurance proceeds.
Some courts have been faced with the issue of whether or not federal or
state constitutional provisions reflecting due process concerns for adequate
notice require that borrowers under deeds of trust or mortgages receive notices
in addition to the minimum prescribed by statute. For the most part, these cases
have upheld the notice provisions as being reasonable or have found that the
sale by a trustee under a deed of trust, or under a mortgage having a power of
sale, does not involve sufficient state action to afford constitutional
protections to the borrower.
Year 2000 Legislation
In July 1999, a new federal law was passed to limit legal liability for
losses due to year 2000 computer-related errors. This law will, among other
things, protect borrowers from foreclosure if their residential mortgage loans
become delinquent because an actual year 2000 failure results in the inability
to accurately or timely process their mortgage payments.
This law is not intended to extinguish or otherwise affect a borrower's
payment obligations but will instead delay the enforcement of obligations on an
otherwise defaulted mortgage loan. Borrowers seeking foreclosure protection
under this legislation must provide timely written notice and documentation of
that failure to the servicer. Absent an extension from the lender, borrowers
will then have four weeks to make up late payments on their loans. This law will
not apply to mortgage loans for which a default occurred before December 15,
1999, or for which an imminent default was foreseeable before that date.
Moreover, this law will not protect borrowers who deliver notice of a year 2000
failure after March 15, 2000. Mortgage loans that remain in default after the
applicable grace period will be subject to foreclosure or other enforcement.
This law could delay our ability to foreclose on some mortgages during the
first quarter of the year 2000, which could consequently affect the
distributions on your certificates.
COOPERATIVE LOANS
The cooperative shares owned by the tenant-stockholder and pledged to the
lender are, in almost all cases, subject to restrictions on transfer as set
forth in the cooperative's Certificate of Incorporation and Bylaws, as well as
the proprietary lease or occupancy agreement, and may be canceled by the
cooperative for failure by the tenant-stockholder to pay rent or other
obligations or charges owed by such tenant-stockholder, including mechanics'
liens against the cooperative apartment building incurred by such tenant-
stockholder. The proprietary lease or occupancy agreement generally permits the
cooperative to terminate such lease or agreement in the event an obligor fails
to make payments or defaults in the performance of covenants required
thereunder. Typically, the lender and the cooperative enter into a recognition
agreement which establishes the rights and obligations of both parties in the
event of a default by the tenant-stockholder on its obligations under the
proprietary lease or occupancy agreement. A default by the tenant-
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stockholder under the proprietary lease or occupancy agreement will usually
constitute a default under the security agreement between the lender and the
tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the cooperative will recognize the
lender's lien against proceeds from a sale of the cooperative apartment,
subject, however, to the cooperative's right to sums due under such proprietary
lease or occupancy agreement. The total amount owed to the cooperative by the
tenant-stockholder, which the lender generally cannot restrict and does not
monitor, could reduce the value of the collateral below the outstanding
principal balance of the cooperative loan and accrued and unpaid interest
thereon.
Recognition agreements also provide that in the event of a foreclosure on a
cooperative loan, the lender must obtain the approval or consent of the
cooperative as required by the proprietary lease before transferring the
cooperative shares or assigning the proprietary lease. Generally, the lender is
not limited in any rights it may have to dispossess the tenant-stockholders.
However, the requirement that the lender obtain prior approval or consent of the
cooperative before transferring the cooperative shares or assigning the
proprietary lease may result in delays in completion of foreclosure on
cooperative shares and delays in receipt of foreclosure proceeds by the related
trust. See "-- The Mortgage Loans -- General -- Cooperatives" herein.
In some states, foreclosure on the cooperative shares is accomplished by a
sale in accordance with the provisions of Article 9 of the Uniform Commercial
Code (the "UCC") and the security agreement relating to those shares. Article 9
of the UCC requires that a sale be conducted in a "commercially reasonable"
manner. Whether a foreclosure sale has been conducted in a commercially
reasonable manner will depend on the facts in each case. In determining
commercial reasonableness, a court will look to the notice given the debtor and
the method, manner, time, place and terms of the foreclosure. Generally, a sale
conducted according to the usual practice of banks selling similar collateral
will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the cooperative corporation to receive sums due under
the proprietary lease or occupancy agreement. If there are proceeds remaining,
the lender must account to the tenant-stockholder for the surplus. Conversely,
if a portion of the indebtedness remains unpaid, the tenant-stockholder is
generally responsible for the deficiency. See "Anti-Deficiency Legislation and
Other Limitations on Lenders" below.
JUNIOR MORTGAGES; RIGHTS OF SENIOR MORTGAGEES
Some of the Home Equity Loans included in a trust may be secured by
mortgages or deeds of trust that are junior to other mortgages or deeds of trust
held by GECMSI, Funding, other lenders or institutional investors. The rights of
the trustee, and therefore the certificateholders, as mortgagee under a junior
mortgage or beneficiary under a junior deed of trust are subordinate to those of
the mortgagee under the senior mortgage or beneficiary under the senior deed of
trust, including the prior rights of the senior mortgagee to receive
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hazard insurance and condemnation proceeds and to cause the property securing
the mortgage loan to be sold upon default of the mortgagor or trustor, thereby
extinguishing the junior mortgagee's or junior beneficiary's lien unless the
junior mortgagee or junior beneficiary asserts its subordinate interest in the
property in foreclosure litigation and, possibly, satisfies the defaulted senior
mortgage or deed of trust. As discussed more fully below, a junior mortgagee or
junior beneficiary may satisfy a defaulted senior loan in full and, in some
states, may cure such default and bring the senior loan current, in either event
adding the amounts expended to the balance due on the junior loan. In most
states, no notice of default is required to be given to a junior mortgagee or
junior beneficiary, and junior mortgagees or junior beneficiaries are seldom
given notice of defaults on senior mortgages. In order for a foreclosure action
in some states to be effective against a junior mortgagee or junior beneficiary,
the junior mortgagee or junior beneficiary must be named in any foreclosure
action, thus giving notice to junior lienors. See "Servicing of the Mortgage
Loans -- Collection and Other Servicing Procedures."
The standard form of the mortgage or deed of trust used by most
institutional lenders, including GECMSI, confers on the mortgagee or beneficiary
the right under some circumstances both to receive all proceeds collected under
any hazard insurance policy and all awards made in connection with any
condemnation proceedings, and to apply such proceeds and awards to any
indebtedness secured by the mortgage or deed of trust in such order as the
mortgagee or beneficiary may determine. Thus, in the event improvements on the
property are damaged or destroyed by fire or other casualty, or in the event the
property is taken by condemnation, the mortgagee or beneficiary under any
underlying senior mortgages may have the prior right to collect any insurance
proceeds payable under a hazard insurance policy and any award of damages in
connection with the condemnation and to apply the same to the indebtedness
secured by the senior mortgages or deeds of trust. Proceeds in excess of the
amount of senior mortgage indebtedness, in most cases, will be applied to the
indebtedness of a junior mortgage or trust deed.
A common form of mortgage or deed of trust used by institutional lenders
typically contains a future advance clause which provides, in essence, that
additional amounts advanced to or on behalf of the mortgagor or trustor by the
mortgagee or beneficiary are to be secured by the mortgage or deed of trust.
While such a clause is valid under the laws of most states, the priority of any
advance made under the clause depends, in some states, on whether the advance
was an obligatory or optional advance. If the mortgagee or beneficiary is
obligated to advance the additional amounts, the advance is entitled to receive
the same priority as amounts initially loaned under the mortgage or deed of
trust, notwithstanding that there may be intervening junior mortgages or deeds
of trust and other liens at the time of the advance. Where the mortgagee or
beneficiary is not obligated to advance the additional amounts (and, in some
jurisdictions, has actual knowledge of the intervening junior mortgages or deeds
of trust and other liens), the advance will be subordinate to such intervening
junior mortgages or deeds of trust and other liens. Priority of advances under
the clause rests, in many other states, on state statutes giving priority to all
advances made under the loan agreement to a "credit limit" amount stated in the
recorded mortgage.
Other provisions sometimes included in the form of the mortgage or deed of
trust used by institutional lenders, and included in some of the forms used by
GECMSI, obligate the mortgagor or trustor to pay, before delinquency, all taxes
and assessments on the property and, when due, all encumbrances, charges and
liens on the property which appear prior to the mortgage or deed of trust, to
provide and maintain fire insurance on the property, to maintain and repair the
property and not to commit or permit any waste
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thereof, and to appear in and defend any action or proceeding purporting to
affect the property or the rights of the mortgagee or beneficiary under the
mortgage or deed of trust. Upon a failure of the mortgagor or trustor to perform
any of these obligations, the mortgagee or beneficiary is given the right under
certain mortgages or deeds of trust to perform the obligation itself, at its
election, with the mortgagor or trustor agreeing to reimburse the mortgagee or
beneficiary for any sums expended by the mortgagee or beneficiary on behalf of
the mortgagor or trustor. All sums so expended by the mortgagee or beneficiary
become part of the indebtedness secured by the mortgage or deed of trust. See
"Servicing of the Mortgage Loans -- Collection and Other Servicing Procedures."
RIGHT OF REDEMPTION
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and foreclosed junior lienors are given a statutory
period in which to redeem the property from the foreclosure sale. In some
states, redemption may occur only upon payment of the entire principal balance
of the loan, accrued interest and expenses of foreclosure. In other states,
redemption may be authorized if the former borrower pays only a portion of the
sums due. The effect of a statutory right of redemption is to diminish the
ability of the lender to sell the foreclosed property. The rights of redemption
would defeat the title of any purchaser from the lender subsequent to
foreclosure or sale under a deed of trust. Consequently, the practical effect of
the redemption right is to force the lender to retain the property and pay the
expenses of ownership until the redemption period has run.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have imposed statutory prohibitions that limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the borrower following foreclosure or sale under a
deed of trust. A deficiency judgment would be a personal judgment against the
former borrower equal in most cases to the difference between the net amount
realized upon the public sale of the real property and the amount due to the
lender. Other statutes require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
Finally, other statutory provisions limit any deficiency judgment against the
former borrower following a judicial sale to the excess of the outstanding debt
over the fair market value of the property at the time of the public sale. The
purpose of these statutes is generally to prevent a beneficiary or a mortgagee
from obtaining a large deficiency judgment against the former borrower as a
result of low or no bids at the judicial sale.
In addition to laws limiting or prohibiting deficiency judgments, numerous
other statutory provisions, including the federal bankruptcy laws and state laws
affording relief to debtors, may interfere with or affect the ability of the
secured mortgage lender to realize upon collateral and/or enforce a deficiency
judgment. For example, with respect to federal bankruptcy law, a court with
federal bankruptcy jurisdiction may permit a debtor through his or her Chapter
11 or Chapter 13 rehabilitative plan to cure a monetary default in respect of a
mortgage loan on a debtor's residence by paying arrearages within a reasonable
time period and reinstating the original mortgage loan payment schedule even
though the lender accelerated the mortgage loan and final judgment of
foreclosure had been entered in state court, provided no sale of the residence
had yet occurred, prior to the filing of the debtor's petition. Some courts with
federal bankruptcy jurisdiction have approved plans,
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based on the particular facts of the reorganization case, that effected the
curing of a mortgage loan default by paying arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that the
terms of a mortgage loan secured by property of the debtor may be modified.
These courts have suggested that such modifications may include reducing the
amount of each monthly payment, changing the rate of interest, altering the
repayment schedule and reducing the lender's security interest to the value of
the residence, thus leaving the lender a general unsecured creditor for the
difference between the value of the residence and the outstanding balance of the
loan.
The Code provides priority to certain tax liens over the lien of the
mortgage. In addition, substantive requirements are imposed upon mortgage
lenders in connection with the origination and the servicing of mortgage loans
by numerous federal and some state consumer protection laws. These laws include
the federal Truth-in-Lending Act, Real Estate Settlement Procedures Act, Equal
Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act,
their related regulations and related statutes. These federal laws impose
specific statutory liabilities upon lenders who originate mortgage loans and who
fail to comply with the provisions of the law. In some cases, this liability may
affect assignees of the mortgage loans.
Generally, Article 9 of the UCC governs foreclosure on cooperative shares
and the related proprietary lease or occupancy agreement. Some courts have
interpreted section 9-504 of the UCC to prohibit a deficiency award unless the
creditor establishes that the sale of the collateral (which, in the case of a
Cooperative Loan, would be the shares of the cooperative and the related
proprietary lease or occupancy agreement) was conducted in a commercially
reasonable manner.
ENFORCEABILITY OF CERTAIN PROVISIONS
Unless the prospectus supplement indicates otherwise, all of the mortgage
loans will contain due-on-sale clauses. These clauses permit the lender to
accelerate the maturity of a loan if the borrower sells, transfers, or conveys
the property. The enforceability of these clauses was the subject of legislation
or litigation in many states, and in some cases the enforceability of these
clauses was limited or denied. However, the Garn-St Germain Depository
Institutions Act of 1982 (the "GARN-ST GERMAIN ACT") preempts state
constitutional, statutory and case law prohibiting the enforcement of
due-on-sale clauses and permits lenders to enforce these clauses in accordance
with their terms, subject to certain limited exceptions. The Garn-St Germain Act
does encourage lenders to permit assumption of loans at the original rate of
interest or at some other rate less than the average of the original rate and
the market rate.
Due-on-sale clauses contained in mortgage loans originated by federal
savings and loan associations or federal savings banks are fully enforceable
pursuant to regulations of the OTS which preempt state law restrictions on the
enforcement of due-on-sale clauses.
The Garn-St Germain Act also sets forth several specific instances in which
a mortgage lender covered by the Garn-St Germain Act (including federal savings
and loan associations and federal savings banks) may not exercise a due-on-sale
clause, notwithstanding the fact that a transfer of the property may have
occurred. These include intrafamily transfers, certain transfers by operation of
law, leases of fewer than three years and the creation of a junior encumbrance.
Regulations promulgated under the Garn-St Germain Act by the Federal Home Loan
Bank Board as succeeded by the OTS also
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prohibit the imposition of a prepayment penalty upon the acceleration of a loan
pursuant to a due-on-sale clause. If interest rates were to rise above the
interest rates on the mortgage loans, then any inability of GECMSI or Funding to
enforce due-on-sale clauses may result in the trust including a greater number
of loans bearing below-market interest rates than would otherwise be the case,
since a transferee of the property underlying a mortgage loan would have a
greater incentive in such circumstances to assume the transferor's mortgage
loan. Any inability of GECMSI to enforce due-on-sale clauses may affect the
average life of the mortgage loans and the number of mortgage loans that may be
outstanding until maturity. See "Yield, Maturity and Weighted Average Life
Considerations."
Upon foreclosure, courts have imposed general equitable principles. These
equitable principles are generally designed to relieve the borrower from the
legal effect of his defaults under the loan documents. Examples of judicial
remedies that have been fashioned include requirements that the lender undertake
affirmative and expensive actions to determine the causes for the borrower's
default and the likelihood that the borrower will be able to reinstate the loan.
In some cases, courts have substituted their judgment for the lender's judgment
and have required that lenders reinstate loans or recast payment schedules in
order to accommodate borrowers who are suffering from temporary financial
disability. In other cases, courts have limited the right of the lender to
foreclose if the default under the mortgage instrument is not monetary, such as
the borrower failing to adequately maintain the property or the borrower
executing a second mortgage or deed of trust affecting the property.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ("TITLE V"), provides that state usury
limitations shall not apply to certain types of residential first mortgage loans
originated by certain lenders after March 31, 1980. The Office of Thrift
Supervision is authorized to issue rules and regulations and to publish
interpretations governing implementation of Title V. The statute authorized any
state to reimpose interest rate limits by adopting, before April 1, 1983, a law
or constitutional provision which expressly rejects application of the federal
law. In addition, even where Title V is not so rejected, any state is authorized
by the law to adopt a provision limiting discount points or other charges on
mortgage loans covered by Title V.
Pursuant to the pooling and servicing agreement for each series of
certificates, GECMSI will represent and warrant to the trustee that the mortgage
loans have been originated in compliance in all material respects with
applicable state laws, including usury laws.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Generally, under the terms of the Soldiers' and Sailors' Civil Relief Act
of 1940, as amended (the "RELIEF ACT"), a borrower who enters military service
after the origination of such borrower's mortgage loan (including a borrower who
is a member of the National Guard or is in reserve status at the time of the
origination of the mortgage loan and is later called to active duty) may not be
charged interest above an annual rate of 6% during the period of such borrower's
active duty status, unless a court orders otherwise upon application of the
lender. It is possible that such interest rate limitation could have an effect,
for an indeterminate period of time, on the ability of GECMSI to collect full
amounts of interest on certain of the mortgage loans. In addition, the Relief
Act imposes
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limitations which would impair the ability of GECMSI to foreclose on an affected
mortgage loan during the borrower's period of active duty status. Thus, in the
event that such a mortgage loan goes into default there may be delays and losses
occasioned by the inability to realize upon the mortgaged property in a timely
fashion.
Under the applicable pooling and servicing agreement, GECMSI will not be
required to make deposits to the Certificate Account for a series of
certificates in respect of any mortgage loan as to which the Relief Act has
limited the amount of interest the related borrower is required to pay each
month, and certificateholders will bear such loss.
ENVIRONMENTAL CONSIDERATIONS
Under the federal Comprehensive Environmental Response Compensation and
Liability Act, as amended, and under state law in certain states, a secured
party which takes a deed in lieu of foreclosure, purchases a mortgaged property
at a foreclosure sale or operates a mortgaged property may become liable in
certain circumstances for the costs of remedial action if hazardous wastes or
hazardous substances have been released or disposed of on the property. Such
costs may be substantial. It is possible that such costs could reduce the
amounts otherwise distributable to the certificateholders if the related trust
were deemed to be liable for such costs and if such costs were incurred.
Moreover, under federal law and the law of certain states, a lien may be imposed
for any cleanup costs incurred by federal or state authorities on the property
that is the subject of such costs. All subsequent liens on such property are
subordinated to such lien and, in several states, even prior recorded liens,
including those of existing mortgages, are subordinated to such liens (a
"SUPERLIEN"). In the latter states, the security interest of the trustee in a
mortgaged property that is subject to such a Superlien could be adversely
affected.
Traditionally, residential mortgage lenders have not taken steps to
evaluate whether hazardous wastes or hazardous substances are present with
respect to any mortgaged property prior to the origination of the mortgage loan
or prior to foreclosure or accepting a deed in lieu of foreclosure. We make no
representation or warranty or assume any liability with respect to the absence
or effect of hazardous wastes or hazardous substances on any mortgaged property
or any casualty resulting from the presence or effect of hazardous wastes or
hazardous substances. See "Servicing of the Mortgage Loans -- Collection and
Other Servicing Procedures."
LEGAL INVESTMENT MATTERS
Unless otherwise stated in the prospectus supplement, all of the classes of
a series of certificates offered thereby will constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA"), so long as they are rated in one of the two highest rating
categories by one or more nationally recognized statistical rating
organizations, and, as such, are legal investments for persons, trusts,
corporations, partnerships, associations, business trusts and business entities,
(including, but not limited to, state-chartered savings banks, commercial banks,
savings and loan associations and insurance companies, as well as trustees and
state government employee retirement systems,) created pursuant to or existing
under the laws of the United States or of any state, the District of Columbia
and Puerto Rico, whose authorized investments are subject to state regulation to
the same extent that, under applicable law, obligations issued by or guaranteed
as to principal and interest by the United States or any agency or
instrumentality thereof constitute legal investments for such entities. Pursuant
to SMMEA, a number of states enacted legislation, on or before the October 3,
1991 cut-off for such
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enactments, limiting to varying extents the ability of certain entities (in
particular, insurance companies) to invest in "mortgage related securities," in
most cases by requiring the affected investors to rely solely upon existing
state law and not SMMEA. Accordingly, the investors affected by such legislation
will be authorized to invest in the certificates only to the extent provided in
such legislation.
SMMEA also amended the legal investment authority of federally chartered
depository institutions as follows:
- federal savings and loan associations and federal savings banks may
invest in, sell or otherwise deal with mortgage related securities
without limitation as to the percentage of their assets represented
thereby;
- federal credit unions may invest in mortgage related securities; and
- national banks may purchase mortgage related securities for their own
account without regard to the limitations generally applicable to
investment securities set forth in 12 U.S.C. Section 24 (Seventh),
subject in each case to such regulations as the applicable federal
regulatory authority may prescribe.
In this connection, the Officer of the Comptroller of the Currency (the
"OCC") has amended 12 C.F.R. Part 1 to authorize national banks to purchase and
sell for their own account, without limitation as to a percentage of the bank's
capital and surplus (but subject to compliance with certain general standards in
12 C.F.R. sec. 1.5 concerning "safety and soundness" and retention of credit
information), certain "Type IV securities," defined in 12 C.F.R. sec. 1.2(1) to
include certain "residential mortgage-related securities." As so defined,
"residential mortgage-related security" means, in relevant part, "mortgage
related security" within the meaning of SMMEA. The National Credit Union
Administration (the "NCUA") has adopted rules, codified at 12 C.F.R. Part 703,
which permit federal credit unions to invest in "mortgage related securities"
under certain limited circumstances, other than stripped mortgage related
securities, residual interests in mortgage related securities, and commercial
mortgage related securities, unless the credit union has obtained written
approval from the NCUA to participate in the "investment pilot program"
described in 12 C.F.R. sec. 703.140. The OTS has issued Thrift Bulletin 13a
(December 1, 1998), "Management of Interest Rate Risk, Investment Securities,
and Derivative Activities," which thrift institutions subject to the
jurisdiction of the OTS should consider before investing in any of the
certificates.
If specified in the prospectus supplement, one or more classes of a series
of certificates will not constitute "mortgage related securities" for purposes
of SMMEA. In such event, persons whose investments are subject to state or
federal regulation may not be legally authorized to invest in such classes of
certificates.
All depository institutions considering an investment in the certificates
should review the "Supervisory Policy Statement on Investment Securities and
End-User Derivatives Activities" (the "1998 POLICY STATEMENT") of the Federal
Financial Institutions Examination Council ("FFIEC"), which has been adopted by
the Board of Governors of the Federal Reserve System, the Federal Deposit
Insurance Corporation, the OCC and the OTS, effective May 26, 1998, and by the
NCUA, effective October 1, 1998. The 1998 Policy Statement sets forth general
guidelines which depository institutions must follow in managing risks
(including market, credit, liquidity, operational (transaction), and legal
risks) applicable to all securities (including mortgage pass-through securities
and mortgage-derivative products) used for investment purposes.
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Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing certificates, as
certain series or classes thereof may be deemed unsuitable investments, or may
otherwise be restricted, under such rules, policies or guidelines, in certain
instances irrespective of SMMEA.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, prudent investor provisions, percentage-of-assets limits, provisions which
may restrict or prohibit investments in securities which are not
interest-bearing or income-paying, and, with regard to any certificates issued
in book-entry form, provisions which may restrict or prohibit investments in
securities which are issued in book-entry form.
You should consult your own legal advisors in determining whether and to
what extent the certificates constitute legal investments for you.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Internal Revenue Code of 1986, as amended (the "CODE") impose
requirements on employee benefit plans (and on certain other retirement plans
and arrangements, including individual retirement accounts and annuities, Keogh
plans and collective investment funds and separate accounts in which such plans,
accounts or arrangements are invested) subject to ERISA or Section 4975 of the
Code (collectively, "PLANS") and on persons who are fiduciaries with respect to
such Plans. Among other things, ERISA requires that the assets of a Plan subject
to ERISA be held in trust and that the trustee, or other duly authorized
fiduciary, have exclusive authority and discretion to manage and control the
assets of such Plan. ERISA also imposes certain duties on persons who are
fiduciaries with respect to a Plan. Under ERISA, any person who exercises any
authority or control respecting the management or disposition of the assets of a
Plan generally is considered to be a fiduciary of such Plan. In addition to the
imposition by ERISA of general fiduciary standards of investment prudence and
diversification, ERISA and Section 4975 of the Code prohibit a broad range of
transactions involving Plan assets and persons ("PARTIES IN INTEREST") having
certain specified relationships to a Plan and impose additional prohibitions
where Parties in Interest are fiduciaries with respect to such Plan.
The United States Department of Labor (the "DOL") has issued a regulation
concerning the definition of what constitutes the assets of a Plan (DOL Reg.
Section 2510.3-101). Under this regulation, the underlying assets and properties
of corporations, partnerships and certain other entities in which a Plan makes
an "equity" investment could be deemed for purposes of ERISA and Section 4975 of
the Code to be assets of the investing Plan in certain circumstances. In such a
case, the fiduciary making such an investment for the Plan could be deemed to
have delegated his or her asset management responsibility, the underlying assets
and properties could be subject to ERISA's reporting and disclosure
requirements, and transactions involving the underlying assets and properties
could be subject to the fiduciary responsibility requirements of ERISA and the
prohibited transaction provisions of Section 4975 of the Code. Certain
exceptions to the regulation may apply in the case of a Plan's investment in the
certificates, but GECMSI and Funding cannot predict in advance whether any such
exceptions will apply due to the factual nature of the conditions to be met.
Accordingly, because the mortgage loans may be deemed Plan assets of each Plan
that purchases
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certificates, an investment in the certificates by a Plan might give rise to a
prohibited transaction under ERISA Sections 406 or 407 and be subject to an
excise tax under Code Section 4975 unless a statutory or administrative
exemption applies.
DOL Prohibited Transaction Class Exemption 83-1 ("PTE 83-1") exempts from
the prohibited transaction rules of ERISA and Section 4975 of the Code certain
transactions relating to the operation of residential mortgage pool investment
trusts and the purchase, sale and holding of "mortgage pool pass-through
certificates" in the initial issuance of such certificates. PTE 83-1 permits,
subject to certain conditions, transactions which might otherwise be prohibited
between Plans and Parties in Interest with respect to those Plans involving the
origination, servicing, operation and termination of mortgage pools consisting
of mortgage loans secured by first or second mortgages or deeds of trust on
single-family residential property, and the acquisition and holding of certain
mortgage pool pass-through certificates representing an interest in such
mortgage pools by Plans.
PTE 83-1 sets forth three general conditions which must be satisfied for
any transaction to be eligible for exemption: (1) the maintenance of a system of
insurance or other protection for the pooled mortgage loans and property
securing such loans, and for indemnifying certificateholders against reductions
in pass-through payments due to property damage or defaults in loan payments in
an amount not less than the greater of one percent of the aggregate principal
balance of all covered pooled mortgage loans or the principal balance of the
largest covered pooled mortgage loan; (2) the existence of a pool trustee who is
not an affiliate of the pool sponsor; and (3) a limitation on the amount of the
payments retained by the pool sponsor, together with other funds inuring to its
benefit, to not more than adequate consideration for selling the mortgage loans
plus reasonable compensation for services provided by the pool sponsor to the
mortgage pool.
Although the trustee for any series of certificates will be unaffiliated
with GECMSI and Funding, there can be no assurance that the system of insurance
or subordination will meet the general or specific conditions referred to above.
In addition, the nature of a trust's assets or the characteristics of one or
more classes of the related series of certificates may not be included within
the scope of PTE 83-1 or any other class exemption under ERISA. The prospectus
supplement will provide additional information with respect to the application
of ERISA and Section 4975 of the Code to the related certificates.
Several underwriters of mortgage-backed securities have applied for and
obtained individual ERISA prohibited transaction exemptions which are in some
respects broader than PTE 83-1. Such exemptions only apply to mortgage-backed
securities which, in addition to satisfying other conditions, are sold in an
offering with respect to which such underwriter serves as the sole or a managing
underwriter, or as a selling or placement agent. If such an exemption might be
applicable to a series of certificates, the related prospectus supplement will
refer to such possibility.
Each Plan fiduciary who is responsible for making the investment decisions
whether to purchase or commit to purchase and to hold certificates must make its
own determination as to whether the general and the specific conditions of PTE
83-1 have been satisfied, or as to the availability of any other prohibited
transaction exemptions. Each Plan fiduciary should also determine whether, under
the general fiduciary standards of investment prudence and diversification, an
investment in the certificates is appropriate for the Plan, taking into account
the overall investment policy of the Plan and the composition of the Plan's
investment portfolio.
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Unless otherwise stated in the prospectus supplement, the pooling and
servicing agreement will provide that the residual certificates of any series of
certificates with respect to which a REMIC election has been made may not be
acquired by a Plan.
Any Plan proposing to invest in certificates should consult with its
counsel to confirm that such investment will not result in a prohibited
transaction and will satisfy the other requirements of ERISA and the Code.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The discussion under the heading "Federal Income Tax Consequences" herein
and in the applicable prospectus supplement discusses and represents the opinion
of Cadwalader, Wickersham & Taft pertaining to the material federal income tax
consequences of purchasing, owning and disposing of certificates. The summary
does not purport to be a description of all tax consequences that may be
relevant to a potential investor, and assumes an understanding of tax rules of
general application. It does not address special rules which may apply to
investors based on their tax status, individual circumstances or other factors
unrelated to the offering, including special rules applicable to dealers in
securities or currencies, traders in securities electing to mark to market,
banks, tax exempt investors, insurance companies, pass-through entities,
governmental organizations, or investors that will hold certificates as a
position in a "straddle" or conversion transaction, or as part of a "synthetic
security" or other integrated financial transaction. The authorities on which
this discussion is based are subject to change or differing interpretations, and
any such change or interpretation could apply retroactively. Investors are
encouraged to consult their own tax advisors regarding the certificates.
For purposes of this discussion, unless otherwise stated, the term "OWNER"
will refer to the beneficial owner of a certificate.
REMIC ELECTIONS
Under the Code, an election may be made to treat each trust related to a
series of certificates (or segregated pools of assets within the trust) as a
"real estate mortgage investment conduit" ("REMIC") within the meaning of
Section 860D(a) of the Code. If one or more REMIC elections are made, the
certificates of any class will be either "regular interests" in a REMIC within
the meaning of Section 860G(a)(1) of the Code ("REGULAR CERTIFICATES") or
"residual interests" in a REMIC within the meaning of Section 860G(a)(2) of the
Code ("RESIDUAL CERTIFICATES"). The prospectus supplement for each series of
certificates will indicate whether an election will be made to treat each trust
as one or more REMICs, and if so, which certificates will be Regular
Certificates and which will be Residual Certificates.
If a REMIC election is made, each trust, or each portion thereof that is
treated as a separate REMIC, will be referred to as a "REMIC POOL." If a trust
is comprised of two REMIC Pools, one will be an "UPPER-TIER REMIC" and one a
"LOWER-TIER REMIC." The assets of the Lower-Tier REMIC will consist of the
mortgage loans and related trust assets. The assets of the Upper-Tier REMIC will
consist of all of the regular interests issued by the Lower-Tier REMIC.
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The discussion below under the heading "REMIC Certificates" considers
series for which a REMIC election will be made. Series for which no such
election will be made are addressed under "Non-REMIC Certificates."
REMIC CERTIFICATES
The discussion in this section applies only to a series of certificates for
which a REMIC election is made.
Tax Opinion
Qualification as a REMIC requires ongoing compliance with certain
conditions. Upon the issuance of each series of certificates for which a REMIC
election is made, Cadwalader, Wickersham & Taft, counsel to GECMSI and Funding,
will deliver its opinion generally to the effect that, with respect to each such
series of certificates, under then existing law and assuming compliance by the
depositor, the servicer and the trustee for such series with all of the
provisions of the related pooling and servicing agreement (and such other
agreements and representations as may be referred to in such opinion), each
REMIC Pool will be a REMIC, and the certificates of such series will be treated
as either Regular Certificates or Residual Certificates.
Status of Certificates
The certificates will be:
- assets described in Code Section 7701(a)(19)(C); and
- "real estate assets" under Code Section 856(c)(4)(A),
to the extent the assets of the related REMIC Pool are so treated. Interest on
the Regular Certificates will be "interest on obligations secured by mortgages
on real property or on interests in real property" within the meaning of Code
Section 856(c)(3)(B) in the same proportion that the income of the REMIC Pool is
so treated. If at all times 95% or more of the assets or income of the REMIC
Pool qualifies under the foregoing Code sections, the certificates (and income
thereon) will so qualify in their entirety. The Regular Certificates will also
qualify as "permitted assets" under Section 860L(c) of the Code.
In the event the assets of the related REMIC Pool include buy-down mortgage
loans, it is unclear whether the related buy-down funds would qualify under the
foregoing Code sections.
The rules described in the two preceding paragraphs will be applied to a
trust consisting of two REMIC Pools as if the trust were a single REMIC holding
the assets of the Lower-Tier REMIC.
Income from Regular Certificates
GENERAL
Except as otherwise provided in this tax discussion, Regular Certificates
will be taxed as newly originated debt instruments for federal income tax
purposes. Interest, original issue discount and market discount accrued on a
Regular Certificate will be ordinary income to the Owner. All Owners must
account for interest income under the accrual method of accounting, which may
result in the inclusion of amounts in income that are not currently distributed
in cash.
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On January 27, 1994, the Internal Revenue Service adopted regulations
applying the original issue discount rules of the Code (the "OID REGULATIONS").
Except as otherwise noted, the discussion below is based on the OID Regulations.
ORIGINAL ISSUE DISCOUNT
Certain Regular Certificates may have "original issue discount." An Owner
must include original issue discount in income as it accrues, without regard to
the timing of payments.
The total amount of original issue discount on a Regular Certificate is the
excess of its "stated redemption price at maturity" over its "issue price." The
issue price for any Regular Certificate is the price (including any accrued
interest) at which a substantial portion of the class of certificates including
such Regular Certificate are first sold to the public. In general, the stated
redemption price at maturity is the sum of all payments made on the Regular
Certificate, other than payments of interest that (i) are actually payable at
least annually over the entire life of the certificates and (ii) are based on a
single fixed rate or variable rate (or certain combinations of fixed and
variable rates). The stated redemption price at maturity of a Regular
Certificate always includes its original principal amount, but generally does
not include distributions of stated interest, except in the case of Accrual
Certificates, and, as discussed below, Interest Only Certificates. Special rules
for Regular Certificates that provide for interest based on a variable rate are
discussed below in "Income from Regular Certificates -- Variable Rate Regular
Certificates."
With respect to an Interest Only Certificate, the stated redemption price
at maturity is likely to be the sum of all payments thereon, determined in
accordance with the Prepayment Assumption (as defined below). In that event,
Interest Only Certificates would always have original issue discount.
Alternatively, in the case of an Interest Only Certificate with some principal
amount, the stated redemption price at maturity might be determined under the
general rules described in the preceding paragraph. If, applying those rules,
the stated redemption price at maturity were considered to equal the principal
amount of such certificate, then the rules described below under "Premium" would
apply. The Prepayment Assumption is the assumed rate of prepayment of the
mortgage loans used in pricing the Regular Certificates. The Prepayment
Assumption will be set forth in the related prospectus supplement.
Under a de minimis rule, original issue discount on a Regular Certificate
will be considered zero if it is less than 0.25% of the certificate's stated
redemption price at maturity multiplied by the certificate's weighted average
maturity. The weighted average maturity of a Regular Certificate is computed
based on the number of full years (i.e., rounding down partial years) each
distribution of principal (or other amount included in the stated redemption
price at maturity) is scheduled to be outstanding. The schedule of such
distributions likely should be determined in accordance with the Prepayment
Assumption.
The Owner of a Regular Certificate generally must include in income the
original issue discount that accrues for each day on which the Owner holds such
certificate,
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including the date of purchase, but excluding the date of disposition. The
original issue discount accruing in any period equals:
PV End + Dist - PV Beg
<TABLE>
<S> <C> <C>
Where:
PV End = present value of all remaining distributions to be made as
of the end of the period;
Dist = distributions made during the period includible in the
stated redemption price at maturity; and
PV Beg = present value of all remaining distributions as of the
beginning of the period.
</TABLE>
The present value of the remaining distributions is calculated based on (1)
the original yield to maturity of the Regular Certificate, (2) events (including
actual prepayments) that have occurred prior to the end of the period and (3)
the Prepayment Assumption. For these purposes, the original yield to maturity of
a Regular Certificate will be calculated based on its issue price, assuming that
the certificate will be prepaid in all periods in accordance with the Prepayment
Assumption, and with compounding at the end of each accrual period used in the
formula.
Assuming the Regular Certificates have monthly distribution dates, discount
would be computed under the formula generally for the one-month periods (or
shorter initial period) ending on each distribution date. The original issue
discount accruing during any accrual period is divided by the number of days in
the period to determine the daily portion of original issue discount for each
day.
The daily portions of original issue discount generally will increase if
prepayments on the underlying mortgage loans exceed the Prepayment Assumption
and decrease if prepayments are slower than the Prepayment Assumption (changes
in the rate of prepayments having the opposite effect in the case of an Interest
Only certificate). If the relative principal payment priorities of the classes
of Regular Certificates of a series change, any increase or decrease in the
present value of the remaining payments to be made on any such class will affect
the computation of original issue discount for the period in which the change in
payment priority occurs.
If original issue discount computed as described above is negative for any
period, the Owner generally will not be allowed a current deduction for the
negative amount but instead will be entitled to offset such amount only against
future positive original issue discount from such certificate. However, while
not free from doubt, such an Owner may be entitled to deduct "negative original
issue discount" to the extent the Owner's adjusted basis (as defined in "Sale or
Exchange of Certificates" below) in the certificate remaining after such
deduction is not less than the principal amount of the certificate.
ACQUISITION PREMIUM
If an Owner of a Regular Certificate acquires such certificate at a price
greater than its "adjusted issue price," but less than its remaining stated
redemption price at maturity, the daily portion for any day (as computed above)
is reduced by an amount equal to the product of (1) such daily portion and (2) a
fraction, the numerator of which is the amount by which the price exceeds the
adjusted issue price and the denominator of which is the sum of the daily
portions for such Regular Certificate for all days on and after the date of
purchase. The adjusted issue price of a Regular Certificate on any given day is
its issue price, increased by all original issue discount that has accrued on
such certificate and
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reduced by the amount of all previous distributions on such certificate of
amounts included in its stated redemption price at maturity.
MARKET DISCOUNT
A Regular Certificate may have market discount (as defined in the Code).
Market discount equals the excess of the adjusted issue price of a certificate
over the Owner's adjusted basis in the certificate. The Owner of a certificate
with market discount must report ordinary interest income, as the Owner receives
distributions on the certificate of principal or other amounts included in its
stated redemption price at maturity, equal to the lesser of (a) the excess of
the amount of those distributions over the amount, if any, of accrued original
issue discount on the certificate or (b) the portion of the market discount that
has accrued and not previously been included in income. Also, such Owner must
treat gain from the disposition of the certificate as ordinary income to the
extent of any accrued, but unrecognized, market discount. Alternatively, an
Owner may elect in any taxable year to include market discount in income
currently as it accrues on all market discount instruments acquired by the Owner
in that year or thereafter. An Owner may revoke such an election only with the
consent of the Internal Revenue Service.
In general terms, market discount on a Regular Certificate may be treated,
at the Owner's election, as accruing either (a) on the basis of a constant yield
(similar to the method described above for accruing original issue discount) or
(b) alternatively, either (1) in the case of a Regular Certificate issued
without original issue discount, in the ratio of stated interest distributable
in the relevant period to the total stated interest remaining to be distributed
from the beginning of such period (computed taking into account the Prepayment
Assumption) or (2) in the case of a Regular Certificate issued with original
issue discount, in the ratio of the amount of original issue discount accruing
in the relevant period to the total remaining original issue discount at the
beginning of such period. An election to accrue market discount on a Regular
Certificate on a constant yield basis is irrevocable with respect to that
certificate.
An Owner may be required to defer a portion of the deduction for interest
expense on any indebtedness that the Owner incurs or maintains in order to
purchase or carry a Regular Certificate that has market discount. The deferred
amount would not exceed the market discount that has accrued but not been taken
into income. Any such deferred interest expense is, in general, allowed as a
deduction not later than the year in which the related market discount income is
recognized.
Market discount with respect to a Regular Certificate will be considered to
be zero if such market discount is de minimis under a rule similar to that
described above in the fourth paragraph under "Original Issue Discount." Owners
should consult their own tax advisors regarding the application of the market
discount rules as well as the advisability of making any election with respect
to market discount.
Discount on a Regular Certificate that is neither original issue discount
nor market discount, as defined above, must be allocated ratably among the
principal payments on the certificate and included in income (as gain from the
sale or exchange of the certificate) as the related principal payments are made
(whether as scheduled payments or prepayments).
PREMIUM
A Regular Certificate, other than an Accrual Certificate or, as discussed
above under "Original Issue Discount," an Interest Only Certificate, purchased
at a cost (net of accrued interest) greater than its principal amount generally
is considered to be purchased
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at a premium. The Owner may elect under Code Section 171 to amortize such
premium under the constant yield method, using the Prepayment Assumption. To the
extent the amortized premium is allocable to interest income from the Regular
Certificate, it is treated as an offset to such interest rather than as a
separate deduction. An election made by an Owner would generally apply to all
its debt instruments and may not be revoked without the consent of the Internal
Revenue Service.
SPECIAL ELECTION TO APPLY OID RULES
In lieu of the rules described above with respect to de minimis discount,
acquisition premium, market discount and premium, an Owner of a Regular
Certificate may elect to accrue such discount, or adjust for such premium, by
applying the principles of the OID rules described above. An election made by a
taxpayer with respect to one obligation can affect other obligations it holds.
Owners should consult with their tax advisors regarding the merits of making
this election.
RETAIL REGULAR CERTIFICATES
For purposes of the original issue and market discount rules, a repayment
in full of a retail certificate that is subject to payment in units or other
increments, rather than on a pro rata basis with other retail certificates, will
be treated in the same manner as any other prepayment.
VARIABLE RATE REGULAR CERTIFICATES
The Regular Certificates may provide for interest that varies based on an
interest rate index. The OID Regulations provide special rules for calculating
income from certain "variable rate debt instruments" or "VRDIS." A debt
instrument must meet certain technical requirements to qualify as a VRDI, which
are outlined in the next paragraph. Under the regulations, income on a VRDI is
calculated by (1) creating a hypothetical debt instrument that pays fixed
interest at rates equivalent to the variable interest, (2) applying the original
issue discount rules of the Code to that fixed rate instrument, and (3)
adjusting the income accruing in any accrual period by the difference between
the assumed fixed interest amount and the actual amount for the period. In
general, where a variable rate on a debt instrument is based on an interest rate
index (such as LIBOR), a fixed rate equivalent to a variable rate is determined
based on the value of the index as of the issue date of the debt instrument. In
cases where rates are reset at different intervals over the life of a VRDI,
adjustments are made to ensure that the equivalent fixed rate for each accrual
period is based on the same reset interval.
A debt instrument must meet a number of requirements in order to qualify as
a VRDI. A VRDI cannot be issued at a premium above its principal amount that
exceeds a specified percentage of its principal amount (15%, or if less 1.5%
times its weighted average life). As a result, Interest Only Certificates will
never be VRDIs. Also, a debt instrument that pays interest based on a multiple
of an interest rate index is not a VRDI if the multiple is less than or equal to
0.65 or greater than 1.35, unless, in general, interest is paid based on a
single formula that lasts over the life of the instrument. A debt instrument is
not a VRDI if it is subject to caps and floors, unless they remain the same over
the life of the instrument or are not expected to change significantly the yield
on the instrument. Variable rate Regular Certificates other than Interest Only
Certificates may or may not qualify as VRDIs depending on their terms.
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In a case where a variable rate Regular Certificate does not qualify as a
VRDI, it will be treated under the OID Regulations as a contingent payment debt
instrument. The Internal Revenue Service has issued final regulations addressing
contingent payment debt instruments, but such regulations are not applicable by
their terms to REMIC regular interests. Until further guidance is forthcoming,
one method of calculating income on such a Regular Certificate that appears to
be reasonable would be to apply the principles governing VRDIs outlined above.
SUBORDINATED CERTIFICATES
Certain series of certificates may contain one or more classes of
Subordinated Certificates. In the event there are defaults or delinquencies on
the related mortgage loans, amounts that otherwise would be distributed on a
class of Subordinated Certificates may instead be distributed on other more
senior classes of certificates. Since Owners of Regular Certificates are
required to report income under an accrual method, Owners of Subordinated
Certificates will be required to report income without giving effect to delays
and reductions in distributions on such certificates attributable to defaults or
delinquencies on the mortgage loans, except to the extent that it can be
established that amounts are uncollectible. As a result, the amount of income
reported by an Owner of a subordinated certificate in any period could
significantly exceed the amount of cash distributed to such Owner in that
period. The Owner will eventually be allowed a loss (or be allowed to report a
lesser amount of income) to the extent that the aggregate amount of
distributions on the subordinated certificate is reduced as a result of defaults
and delinquencies on the mortgage loans. Such a loss could in some circumstances
be a capital loss. Also, the timing and amount of such losses or reductions in
income are uncertain. Owners of Subordinated Certificates should consult their
tax advisors on these points.
Income from Residual Certificates
TAXATION OF REMIC INCOME
Generally, Owners of Residual Certificates in a REMIC Pool ("RESIDUAL
OWNERS") must report ordinary income or loss equal to their pro rata shares
(based on the portion of all Residual Certificates they own) of the taxable
income or net loss of the REMIC. Such income must be reported regardless of the
timing or amounts of distributions on the Residual Certificates.
The taxable income of a REMIC Pool is generally determined under the
accrual method of accounting in the same manner as the taxable income of an
individual taxpayer. Taxable income is generally gross income, including
interest and original issue discount income, if any, on the assets of the REMIC
Pool and income from the amortization of any premium on Regular Certificates,
minus deductions. Market discount (as defined in the Code) with respect to
mortgage loans held by a REMIC Pool is recognized in the same fashion as if it
were original issue discount. Deductions include interest and original issue
discount expense on the Regular Certificates, reasonable servicing fees
attributable to the REMIC Pool, other administrative expenses and amortization
of any premium on assets of the REMIC Pool. As previously discussed, the timing
of recognition of "negative original issue discount," if any, on a Regular
Certificate is uncertain; as a result, the timing of recognition of the
corresponding income to the REMIC Pool is also uncertain.
If the trust consists of an Upper-Tier REMIC and a Lower-Tier REMIC, the
OID Regulations provide that the regular interests issued by the Lower-Tier
REMIC to the Upper-Tier REMIC will be treated as a single debt instrument for
purposes of the original
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issue discount provisions. A determination that these regular interests are not
treated as a single debt instrument would have a material adverse effect on the
Owners of Residual Certificates issued by the Lower-Tier REMIC.
A Residual Owner may not amortize the cost of its Residual Certificate.
Taxable income of the REMIC Pool, however, will not include cash received by the
REMIC Pool that represents a recovery of the REMIC Pool's initial basis in its
assets, and such basis will include the issue price of the Residual Certificates
(assuming the issue price is positive). Such recovery of basis by the REMIC Pool
will have the effect of amortization of the issue price of the Residual
Certificate over its life. The period of time over which such issue price is
effectively amortized, however, may be longer than the economic life of the
Residual Certificate. The issue price of a Residual Certificate is the price at
which a substantial portion of the class of certificates including the Residual
Certificate are first sold to the public (or if the Residual Certificate is not
publicly offered, the price paid by the first buyer).
A subsequent Residual Owner must report the same amounts of taxable income
or net loss attributable to the REMIC Pool as an original Owner. No adjustments
are made to reflect the purchase price.
Losses
A Residual Owner that is allocated a net loss of the REMIC Pool may not
deduct such loss currently to the extent it exceeds the Owner's adjusted basis
(as defined in "Sale or Exchange of Certificates" below) in its Residual
Certificate. A Residual Owner that is a U.S. person (as defined below in
"Taxation of Certain Foreign Investors"), however, may carry over any disallowed
loss to offset any taxable income generated by the same REMIC Pool.
EXCESS INCLUSIONS
A portion of the taxable income allocated to a Residual Certificate is
subject to special tax rules. That portion, referred to as an "excess
inclusion," is calculated for each calendar quarter and equals the excess of
such taxable income for the quarter over the daily accruals for the quarter. The
daily accruals equal the product of (1) 120% of the federal long-term rate under
Code Section 1274(d) for the month which includes the Closing Date (determined
on the basis of quarterly compounding and properly adjusted for the length of
the quarter) and (2) the adjusted issue price of the certificate at the
beginning of such quarter. The adjusted issue price of a Residual Certificate at
the beginning of a quarter is the issue price of the certificate, plus the
amount of daily accruals on the certificate for all prior quarters, decreased
(but not below zero) by any prior distributions on the certificate. If the
aggregate value of the Residual Certificates is not considered to be
"significant," then to the extent provided in Treasury regulations, a Residual
Owner's entire share of REMIC taxable income will be treated as an excess
inclusion. The regulations that have been adopted under Code Sections 860A
through 860G (the "REMIC REGULATIONS") do not contain such a rule.
Excess inclusions generally may not be offset by unrelated losses or loss
carryforwards or carrybacks of a Residual Owner. In addition, for all taxable
years beginning after August 20, 1996, and unless a Residual Owner elects
otherwise for all other taxable years, the alternate minimum taxable income of a
Residual Owner for a taxable year may not be less than the Residual Owner's
excess inclusions for the taxable year and excess inclusions
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are disregarded when calculating a Residual Owner's alternate minimum tax net
operating loss deduction.
Excess inclusions are treated as unrelated business taxable income for an
organization subject to the tax on unrelated business income. In addition, under
Treasury regulations yet to be issued, if a real estate investment trust,
regulated investment company or certain other pass-through entities are Residual
Owners, a portion of the distributions made by such entities may be treated as
excess inclusions.
DISTRIBUTIONS
Distributions on a Residual Certificate (whether at their scheduled times
or as a result of prepayments) generally will not result in any taxable income
or loss to the Residual Owner. If the amount of any distribution exceeds a
Residual Owner's adjusted basis in its Residual Certificate, however, the
Residual Owner will recognize gain (treated as gain from the sale or exchange of
its Residual Certificate) to the extent of such excess. See "Sale or Exchange of
Certificates" below.
PROHIBITED TRANSACTIONS; SPECIAL TAXES
Net income recognized by a REMIC Pool from "prohibited transactions" is
subject to a 100% tax and is disregarded in calculating the REMIC Pool's taxable
income. In addition, a REMIC Pool is subject to federal income tax at the
highest corporate rate on "net income from foreclosure property" (which has a
technical definition). A 100% tax also applies to certain contributions to a
REMIC Pool made after it is formed. It is not anticipated that any REMIC Pool
will (1) engage in prohibited transactions in which it recognizes a significant
amount of net income, (2) receive contributions of property that are subject to
tax, or (3) derive a significant amount of net income from foreclosure property
that is subject to tax.
NEGATIVE VALUE RESIDUAL CERTIFICATES
The federal income tax treatment of any consideration paid to a transferee
on a transfer of a Residual Certificate is unclear. Such a transferee should
consult its tax advisor. The preamble to the REMIC Regulations indicates that
the Internal Revenue Service may issue future guidance on the tax treatment of
such payments.
MARK TO MARKET RULES
A REMIC residual interest that is acquired on or after January 4, 1995 is
not a "security" for the purposes of Code Section 475, and thus is not subject
to the mark to market rules.
THE METHOD OF TAXATION OF RESIDUAL CERTIFICATES DESCRIBED IN THIS SECTION
CAN PRODUCE A SIGNIFICANTLY LESS FAVORABLE AFTER-TAX RETURN FOR A RESIDUAL
CERTIFICATE THAN WOULD BE THE CASE IF THE CERTIFICATE WERE TAXABLE AS A DEBT
INSTRUMENT. ALSO, A RESIDUAL OWNER'S RETURN MAY BE ADVERSELY AFFECTED BY THE
EXCESS INCLUSIONS RULES DESCRIBED ABOVE. IN CERTAIN PERIODS, TAXABLE INCOME AND
THE RESULTING TAX LIABILITY FOR A RESIDUAL OWNER MAY EXCEED ANY DISTRIBUTIONS IT
RECEIVES. IN ADDITION, A SUBSTANTIAL TAX MAY BE IMPOSED ON CERTAIN TRANSFERORS
OF A RESIDUAL CERTIFICATE AND CERTAIN RESIDUAL OWNERS THAT ARE "PASS-THROUGH"
ENTITIES. SEE "TRANSFERS OF RESIDUAL CERTIFICATES" BELOW. INVESTORS SHOULD
CONSULT THEIR TAX ADVISORS BEFORE PURCHASING A RESIDUAL CERTIFICATE.
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Sale or Exchange of Certificates
An Owner generally will recognize gain or loss upon sale or exchange of a
Regular or Residual Certificate equal to the difference between the amount
realized and the Owner's adjusted basis in the certificate. The adjusted basis
in a certificate generally will equal the cost of the certificate, increased by
income previously recognized, and reduced (but not below zero) by previous
distributions, and by any amortized premium in the case of a Regular
Certificate, or net losses allowed as a deduction in the case of a Residual
Certificate.
Except as described below, any gain or loss on the sale or exchange of a
certificate held as a capital asset will be capital gain or loss and will be
long-term or short-term depending on whether the certificate has been held for
more than one year. Such gain or loss will be ordinary income or loss (1) for a
bank or thrift institution, and (2) in the case of a Regular Certificate, (a) to
the extent of any accrued, but unrecognized, market discount, or (b) to the
extent income recognized by the Owner is less than the income that would have
been recognized if the yield on such certificate were 110% of the applicable
federal rate under Code Section 1274(d).
A Residual Owner should be allowed a loss upon termination of the REMIC
Pool equal to the amount of the Owner's remaining adjusted basis in its Residual
Certificates. Whether the termination will be treated as a sale or exchange
(resulting in a capital loss) is unclear.
Except as provided in Treasury regulations, the wash sale rules of Code
Section 1091 will apply to dispositions of a Residual Certificate where the
seller of the interest, during the period beginning six months before the sale
or disposition of the interest and ending six months after such sale or
disposition, acquires (or enters into any other transaction that results in the
application of Code Section 1091) any REMIC residual interest, or any interest
in a "taxable mortgage pool" (such as a non-REMIC owner trust) that is
economically comparable to a residual interest.
Taxation of Certain Foreign Investors Regular Certificates
REGULAR CERTIFICATES
A Regular Certificate held by an Owner that is a non-U.S. person (as
defined below), and that has no connection with the United States other than
owning the certificate, will not be subject to U.S. withholding or income tax
with respect to the certificate provided such Owner (i) is not a "10-percent
shareholder" within the meaning of Code Section 871(h)(3)(B) or a controlled
foreign corporation described in Code Section 881(c)(3)(C), and (ii) provides an
appropriate statement, signed under penalties of perjury, identifying the Owner
and stating, among other things, that the Owner is a non-U.S. person. If these
conditions are not met, a 30% withholding tax will apply to interest (including
original issue discount) unless an income tax treaty reduces or eliminates such
tax or unless the interest is effectively connected with the conduct of a trade
or business within the United States by such Owner. In the latter case, such
Owner will be subject to United States federal income tax with respect to all
income from the certificate at regular rates then applicable to U.S. taxpayers
(and in the case of a corporation, possibly also the branch profits tax).
The term "NON-U.S. PERSON" means any person other than a U.S. person. A
U.S. person is a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political
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subdivision thereof, an estate that is subject to U.S. federal income tax
regardless of the source of its income or a trust if a court within the United
States is able to exercise primary supervision over the administration of that
trust and one or more U.S. persons have the authority to control all substantial
decisions of that trust.
RESIDUAL CERTIFICATES
A Residual Owner that is a non-U.S. person, and that has no connection with
the United States other than owning a Residual Certificate, will not be subject
to U.S. withholding or income tax with respect to the certificate (other than
with respect to excess inclusions) provided that (1) the conditions described in
the second preceding paragraph with respect to Regular Certificates are met and
(2) in the case of a Residual Certificate in a REMIC Pool holding mortgage
loans, the mortgage loans were originated after July 18, 1984. Excess inclusions
are subject to a 30% withholding tax in all events (notwithstanding any contrary
tax treaty provisions) when distributed to the Residual Owner (or when the
Residual Certificate is disposed of). The Code grants the Treasury Department
authority to issue regulations requiring excess inclusions to be taken into
account earlier if necessary to prevent avoidance of tax. The REMIC Regulations
do not contain such a rule. The preamble thereto states that the Internal
Revenue Service is considering issuing regulations concerning withholding on
distributions to foreign holders of residual interests to satisfy accrued tax
liability due to excess inclusions.
With respect to a Residual Certificate that has been held at any time by a
non-U.S. person, the trustee (or its agent) will be entitled to withhold (and to
pay to the Internal Revenue Service) any portion of any payment on such Residual
Certificate that the trustee reasonably determines is required to be withheld.
If the trustee (or its agent) reasonably determines that a more accurate
determination of the amount required to be withheld from a distribution can be
made within a reasonable period after the scheduled date for such distribution,
it may hold such distribution in trust for the Residual Owner until such
determination can be made.
Special tax rules and restrictions that apply to transfers of Residual
Certificates to and from non-U.S. persons are discussed in the next section.
Transfers of Residual Certificates
Special tax rules and restrictions apply to transfers of Residual
Certificates to disqualified organizations or foreign investors, and to
transfers of noneconomic Residual Certificates.
DISQUALIFIED ORGANIZATIONS
In order to comply with the REMIC rules of the Code, the pooling and
servicing agreement will provide that no legal or beneficial interest in a
Residual Certificate may be transferred to, or registered in the name of, any
person unless (1) the proposed purchaser provides to the trustee an "affidavit"
(within the meaning of the REMIC Regulations) to the effect that, among other
items, such transferee is not a disqualified organization (as defined below), is
not purchasing a Residual Certificate as an agent for a disqualified
organization (i.e., as a broker, nominee, or other middleman) and (2) the
transferor states in writing to the trustee that it has no actual knowledge that
such affidavit is false.
If despite these restrictions a Residual Certificate is transferred to a
disqualified organization, the transfer may result in a tax equal to the product
of (1) the present value of the total anticipated future excess inclusions with
respect to such certificate and (2) the
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highest corporate marginal federal income tax rate. Such a tax generally is
imposed on the transferor, except that if the transfer is through an agent for a
disqualified organization, the agent is liable for the tax. A transferor is not
liable for such tax if the transferee furnishes to the transferor an affidavit
that the transferee is not a disqualified organization and, as of the time of
the transfer, the transferor does not have actual knowledge that the affidavit
is false.
A disqualified organization may hold an interest in a REMIC Certificate
through a pass-thru entity (as defined below). In that event, the pass-thru
entity is subject to tax (at the highest corporate marginal federal income tax
rate) on excess inclusions allocable to the disqualified organization. However,
such tax will not apply to the extent the pass-thru entity receives affidavits
from record holders of interests in the entity stating that they are not
disqualified organizations and the entity does not have actual knowledge that
the affidavits are false.
For these purposes, (1) "DISQUALIFIED ORGANIZATION" means the United
States, any state or political subdivision thereof, any foreign government, any
international organization, any agency or instrumentality of any of the
foregoing, certain organizations that are exempt from taxation under the Code
(including tax on excess inclusions) and certain corporations operating on a
cooperative basis, and (2) "PASS-THRU ENTITY" means any regulated investment
company, real estate investment trust, common trust fund, partnership, trust or
estate and certain corporations operating on a cooperative basis. Except as may
be provided in Treasury regulations, any person holding an interest in a
pass-thru entity as a nominee for another will, with respect to that interest,
be treated as a pass-thru entity. Certain additional rules also apply to
"electing large partnerships." If an electing large partnership holds a Residual
Certificate, all interests in the electing large partnership are treated as held
by disqualified organizations for the purposes of the tax on pass-through
entities described above. The exception to this tax described above for pass-
through entities that collect affidavits from their record holders is not
available to electing large partnerships.
FOREIGN INVESTORS
Under the REMIC Regulations, a transfer of a Residual Certificate to a non-
U.S. person that will not hold the certificate in connection with a U.S. trade
or business will be disregarded for all federal tax purposes if the certificate
has "tax avoidance potential." A Residual Certificate has tax avoidance
potential unless, at the time of transfer, the transferor reasonably expects
that:
(1) for each excess inclusion, the REMIC will distribute to the
transferee residual interest holder an amount that will equal at least 30
percent of the excess inclusion, and
(2) each such amount will be distributed at or after the time at which
the excess inclusion accrues and not later than the close of the calendar
year following the calendar year of accrual.
A transferor has such reasonable expectation if the above test would be met
assuming that the REMIC's mortgage loans will prepay at each rate between 50
percent and 200 percent of the Prepayment Assumption.
The REMIC Regulations also provide that a transfer of a Residual
Certificate from a non-U.S. person to a U.S. person (or to a non-U.S. person
that will hold the certificate in
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connection with a U.S. trade or business) is disregarded if the transfer has
"the effect of allowing the transferor to avoid tax on accrued excess
inclusions."
In light of these provisions, the pooling and servicing agreement provides
that a Residual Certificate may not be purchased by or transferred to any person
that is not a U.S. person, unless (1) such person holds the certificate in
connection with the conduct of a trade or business within the United States and
furnishes the transferor and the trustee with an effective Internal Revenue
Service Form 4224, or (2) the transferee delivers to both the transferor and the
trustee an opinion of nationally recognized tax counsel to the effect that such
transfer is in accordance with the requirements of the Code and the regulations
promulgated thereunder and that such transfer will not be disregarded for
federal income tax purposes.
NONECONOMIC RESIDUAL CERTIFICATES
Under the REMIC Regulations, a transfer of a "noneconomic" Residual
Certificate will be disregarded for all federal income tax purposes if a
significant purpose of the transfer is to impede the assessment or collection of
tax. Such a purpose exists if the transferor, at the time of the transfer,
either knew or should have known that the transferee would be unwilling or
unable to pay taxes due on its share of the taxable income of the REMIC. A
transferor is presumed to lack such knowledge if:
(1) the transferor conducted, at the time of the transfer, a
reasonable investigation of the financial condition of the transferee and
found that the transferee had historically paid its debts as they came due
and found no significant evidence to indicate that the transferee will not
continue to pay its debts as they become due, and
(2) the transferee represents to the transferor that it understands
that, as the holder of the noneconomic residual interest, it may incur tax
liabilities in excess of any cash flows generated by the interest and that
it intends to pay taxes associated with holding the residual interest as
they become due.
A Residual Certificate (including a certificate with significant value at
issuance) is noneconomic unless, at the time of the transfer, (1) the present
value of the expected future distributions on the certificate at least equals
the product of the present value of the anticipated excess inclusions and the
highest corporate income tax rate in effect for the year in which the transfer
occurs, and (2) the transferor reasonably expects that the transferee will
receive distributions on the certificate, at or after the time at which taxes
accrue, in an amount sufficient to pay the taxes.
The pooling and servicing agreement will provide that no legal or
beneficial interest in a Residual Certificate may be transferred to, or
registered in the name of, any person unless the transferor represents to the
trustee that it has conducted the investigation of the transferee, and made the
findings, described in the preceding paragraph, and the proposed transferee
provides to the trustee the transferee representations described in the
preceding paragraph, and agrees that it will not transfer the certificate to any
person unless that person agrees to comply with the same restrictions on future
transfers.
Servicing Compensation and Other REMIC Pool Expenses
Under Code Section 67, an individual, estate or trust is allowed certain
itemized deductions only to the extent that such deductions, in the aggregate,
exceed 2% of the Owner's adjusted gross income, and such a person is not allowed
such deductions to any extent in computing its alternative minimum tax
liability. Under Treasury regulations, if
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such a person is an Owner of a REMIC Certificate, the REMIC Pool is required to
allocate to such a person its share of the servicing fees and administrative
expenses paid by a REMIC together with an equal amount of income. Those fees and
expenses are deductible as an offset to the additional income, but subject to
the 2% floor.
In the case of a REMIC Pool that has multiple classes of Regular
Certificates with staggered maturities, fees and expenses of the REMIC Pool
would be allocated entirely to the Owners of Residual Certificates. However, if
the REMIC Pool were a "single-class REMIC" as defined in applicable Treasury
regulations, such deductions would be allocated proportionately among the
Regular and Residual Certificates.
Reporting and Administrative Matters
Annual reports will be made to the Internal Revenue Service, and to holders
of record of Regular Certificates, and Owners of Regular Certificates holding
through a broker, nominee or other middleman, that are not excepted from the
reporting requirements, of accrued interest, original issue discount,
information necessary to compute accruals of market discount, information
regarding the percentage of the REMIC Pool's assets meeting the qualified assets
tests described above under "Status of Certificates" and, where relevant,
allocated amounts of servicing fees and other Code Section 67 expenses. Holders
not receiving such reports may obtain such information from the related REMIC by
contacting the person designated in IRS Publication 938. Quarterly reports will
be made to Residual Holders showing their allocable shares of income or loss
from the REMIC Pool, excess inclusions, and Code Section 67 expenses.
The trustee will sign and file federal income tax returns for each REMIC
Pool. To the extent allowable, GECMSI will act as the tax matters person for
each REMIC Pool.
Each Owner of a Residual Certificate, by the acceptance of its Residual
Certificate, agrees that GECMSI will act as the Owner's agent in the performance
of any duties required of the Owner in the event that the Owner is the tax
matters person.
An Owner of a Residual Certificate is required to treat items on its
federal income tax return consistently with the treatment of the items on the
REMIC Pool's return, unless the Owner owns 100% of the Residual Certificate for
the entire calendar year or the Owner either files a statement identifying the
inconsistency or establishes that the inconsistency resulted from incorrect
information received from the REMIC Pool. The Internal Revenue Service may
assess a deficiency resulting from a failure to comply with the consistency
requirement without instituting an administrative proceeding at the REMIC level.
Any person that holds a Residual Certificate as a nominee for another person may
be required to furnish the REMIC Pool, in a manner to be provided in Treasury
regulations, the name and address of such other person and other information.
NON-REMIC CERTIFICATES
The discussion in this section applies only to a series of certificates for
which no REMIC election is made.
TRUST AS GRANTOR TRUST
Upon issuance of each series of certificates, Cadwalader, Wickersham &
Taft, counsel to GECMSI and Funding, will deliver its opinion to the effect
that, under then current law, assuming compliance by the applicable depositor,
the servicer and the trustee with all the provisions of the pooling and
servicing agreement (and such other agreements and
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representations as may be referred to in the opinion), the trust will be
classified for federal income tax purposes as a grantor trust and not as an
association taxable as a corporation.
Under the grantor trust rules of the Code, each Owner of a certificate will
be treated for federal income tax purposes as the owner of an undivided interest
in the mortgage loans (and any related assets) included in the trust. The Owner
will include in its gross income, gross income from the portion of the mortgage
loans allocable to the certificate, and may deduct its share of the expenses
paid by the trust that are allocable to the certificate, at the same time and to
the same extent as if it had directly purchased and held such interest in the
mortgage loans and had directly received payments thereon and paid such
expenses. If an Owner is an individual, trust or estate, the Owner will be
allowed deductions for its share of trust expenses (including reasonable
servicing fees) only to the extent that the sum of those expenses and the
Owner's other miscellaneous itemized deductions exceeds 2% of adjusted gross
income, and will not be allowed to deduct such expenses for purposes of the
alternative minimum tax. Distributions on a certificate will not be taxable to
the Owner, and the timing or amount of distributions will not affect the timing
or amount of income or deductions relating to a certificate.
STATUS OF THE CERTIFICATES
The certificates, other than Interest Only Certificates, will be:
- "real estate assets" under Code Section 856(c)(4)(A); and
- assets described in Section 7701(a)(19)(C) of the Code,
to the extent the assets of the trust are so treated. Interest income from such
certificates will be "interest on obligations secured by mortgages on real
property" under Code Section 856(c)(3)(B) to the extent the income of the trust
qualifies under that section. Although not certain, certificates that are
Interest Only Certificates should qualify under the foregoing Code sections to
the same extent as other certificates.
Possible Application of Stripped Bond Rules
The federal income tax treatment of certificates will depend on whether
they are subject to the "stripped bond" rules of Code Section 1286. In general,
certificates will be subject to those rules in the hands of an Owner if (1) the
depositor, the servicer (or anyone else) retains rights to receive more than 100
basis points of interest on any mortgage loans assigned to the trust
(disregarding rights to reasonable servicing compensation, but including rights
to fees in excess of reasonable compensation), or (2) certificates are issued in
two or more classes representing rights to non-pro rata shares of interest and
principal payments on the mortgage loans.
Notwithstanding the foregoing, a certificate will not be subject to the
stripped bond rules in the hands of an Owner unless, viewing the certificate as
a debt instrument issued by the trust, it would have original issue discount. In
general, a certificate will not have original issue discount if it pays interest
at a fixed rate, or a single variable rate, monthly over its entire life, is
issued within one month of the first distribution date, and is issued with no
more than a de minimis amount of discount below its principal amount. Discount
is de minimis if the certificate has an issue price (generally the initial
offering price at which a substantial amount of certificates are sold) that is
not less than its principal amount by more than .25% times the weighted average
life of the certificate (calculated by rounding down the number of years to each
principal payment to the next lowest number).
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For a more detailed discussion of the definition of original issue discount, see
"REMIC Certificates -- Income from Regular Certificates -- Original Issue
Discount" above.
Taxation of Certificates if Stripped Bond Rules Do Not Apply
If the stripped bond rules do not apply to a certificate, then the Owner
will be required to include in income its share of the interest payments on the
mortgage loans held by the trust in accordance with its tax accounting method.
The Owner must also account for discount or premium on the mortgage loans if it
is considered to have purchased its interest in the mortgage loans at a discount
or premium. An Owner will be considered to have purchased an interest in each
mortgage loan at a price determined by allocating its purchase price for the
certificate among the mortgage loans in proportion to their fair market values
at the time of purchase. It is likely that discount would be considered to
accrue and premium would be amortized, as described below, based on an
assumption that there will be no future prepayments of the mortgage loans, and
not based on a reasonable prepayment assumption.
DISCOUNT
The treatment of any discount relating to a mortgage loan will depend on
whether the discount is original issue discount or market discount. Discount at
which a mortgage loan is purchased will be original issue discount only if the
mortgage loan itself has original issue discount; the issuance of certificates
is not considered a new issuance of a debt instrument that can give rise to
original issue discount. A mortgage loan generally will be considered to have
original issue discount if the greater of the amount of points charged to the
borrower, or the amount of any interest foregone during any initial teaser
period, exceeds .167% of the principal amount of the mortgage loan times the
number of full years to maturity (i.e., 5% of the principal amount for a 30 year
loan), or if interest is not paid at a fixed rate or a single variable rate
(disregarding any initial teaser rate) over the life of the mortgage loan. It is
not anticipated that the amount of original issue discount, if any, accruing on
the mortgage loans in each month will be significant relative to the interest
paid currently on the mortgage loans, but there can be no assurance that this
will be the case.
In the case of a mortgage loan that is considered to have been purchased
with market discount that exceeds a de minimis amount (generally, .167% of the
principal amount times the number of whole years to maturity remaining at the
time of purchase), the Owner will be required to include in income in each month
the amount of such discount that has accrued through such month and not
previously been included in income, but limited to the amount of principal on
the mortgage loan that is received by the trust in that month. Because the
mortgage loans will provide for monthly principal payments, such discount may be
required to be included in income at a rate that is not significantly slower
than the rate at which such discount accrues. Any market discount that has not
previously been included in income will be recognized as ordinary income if and
when the mortgage loan is prepaid in full. For a more detailed discussion of the
market discount rules of the Code, see "REMIC Certificates -- Income from
Regular Certificates -- Market Discount" above.
In the case of market discount that does not exceed a de minimis amount,
the Owner generally will be required to allocate ratably the portion of such
discount that is allocable to a mortgage loan among the principal payments on
the mortgage loan and to include the
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discount in ordinary income as the related principal payments are made (whether
as scheduled payments or prepayments).
PREMIUM
In the event that a mortgage loan is purchased at a premium, the Owner may
elect under Section 171 of the Code to amortize such premium under a constant
yield method based on the yield of the mortgage loan to such Owner, provided
that such mortgage loan was originated after September 27, 1985. Premium
allocable to a mortgage loan originated on or before that date should be
allocated among the principal payments on the mortgage loan and allowed as an
ordinary deduction as principal payments are made (whether as scheduled payments
or prepayments).
Taxation of Certificates if Stripped Bond Rules Apply
If the stripped bond rules apply to a certificate, income on the
certificate will be treated as original issue discount and will be included in
income as it accrues under a constant yield method. More specifically, for
purposes of applying the original issue discount rules of the Code, the Owner
will likely be taxed as if it had purchased a newly issued, single debt
instrument providing for payments equal to the payments on the interests in the
mortgage loans allocable to the certificate, and having original issue discount
equal to the excess of the sum of such payments over the Owner's purchase price
for the certificate (which would be treated as the issue price). The amount of
original issue discount income accruing in any taxable year will be computed
generally as described above under "REMIC Certificates -- Income from Regular
Certificates -- Original Issue Discount." It is possible, however, that the
calculation must be made using as the Prepayment Assumption an assumption of
zero prepayments. If the calculation is made assuming no future prepayments,
then the Owner should be allowed to deduct currently any negative amount of
original issue discount produced by the accrual formula.
Different approaches could be applied in calculating income under the
stripped bond rules. For example, a certificate could be viewed as a collection
of separate debt instruments (one for each payment allocable to the certificate)
rather than a single debt instrument. Also, in the case of an Interest-Only
Certificate, it could be argued that certain proposed regulations governing
contingent payment debt obligations apply. Owners should consult their own tax
advisors regarding the calculation of income under the stripped bond rules.
Sales of Certificates
A certificateholder that sells a certificate will recognize gain or loss
equal to the difference between the amount realized in the sale and its adjusted
tax basis in the certificate. In general, such adjusted basis will equal the
certificateholder's cost for the certificate, increased by the amount of any
income previously reported with respect to the certificate and decreased (but
not below zero) by the amount of any distributions received thereon, the amount
of any losses previously allowable to such Owner with respect to such
certificate and any premium amortization thereon. Any such gain or loss would be
capital gain or loss if the certificate was held as a capital asset, subject to
the potential treatment of gain as ordinary income to the extent of any accrued
but unrecognized market discount under the market discount rules of the Code, if
applicable.
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Foreign Investors
Except as described in the following paragraph, an Owner that is not a U.S.
person (as defined under "REMIC Certificates -- Taxation of Foreign Investors"
above) and that is not subject to federal income tax as a result of any direct
or indirect connection to the United States in addition to its ownership of a
certificate will not be subject to United States income or withholding tax in
respect of a certificate (assuming the underlying mortgage loans were originated
after July 18, 1984), if the Owner provides an appropriate statement, signed
under penalties of perjury, identifying the Owner and stating, among other
things, that the Owner is not a U.S. person. If these conditions are not met, a
30% withholding tax will apply to interest (including original issue discount)
unless an income tax treaty reduces or eliminates such tax or unless the
interest is effectively connected with the conduct of a trade or business within
the United States by such Owner. Income effectively connected with a U.S. trade
or business will be subject to United States federal income tax at regular rates
then applicable to U.S. taxpayers (and in the case of a corporation, possibly
also the branch profits tax).
In the event the trust acquires ownership of real property located in the
United States in connection with a default on a mortgage loan, then any rental
income from such property allocable to an Owner that is not a U.S. person
generally will be subject to a 30% withholding tax. In addition, any gain from
the disposition of such real property allocable to an Owner that is not a U.S.
person may be treated as income that is effectively connected with a U.S. trade
or business under special rules governing United States real property interests.
The trust may be required to withhold tax on gain realized upon a disposition of
such real property by the trust at a 35% rate.
Reporting
Tax information will be reported annually to the Internal Revenue Service
and to holders of certificates that are not excluded from the reporting
requirements.
BACKUP WITHHOLDING
Distributions made on a certificate and proceeds from the sale of a
certificate to or through certain brokers may be subject to a "backup"
withholding tax of 31% unless, in general, the Owner of the certificate complies
with certain procedures or is a corporation or other person exempt from such
withholding. Any amounts so withheld from distributions on the certificates
would be refunded by the Internal Revenue Service or allowed as a credit against
the Owner's federal income tax.
PLAN OF DISTRIBUTION
Certificates are being offered hereby in series or in one or more classes
of a series through one or more of the various methods described below. The
prospectus supplement will describe the method of offering being utilized for
the related series or classes of certificates and will state the public offering
or purchase price of each class of certificates being offered thereby or the
method by which such price will be determined and the net proceeds to GECMSI or
Funding from the sale of each such series or class.
The certificates of each series or class will be offered through the
following methods from time to time, and offerings may be made concurrently
through more than one of these methods and an offering of a particular series or
of one or more classes of certificates
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may be made through a combination of two or more of these methods. Such methods
are as follows:
- by negotiated firm commitment underwriting and public reoffering by
underwriters;
- by placements by GECMSI or Funding with institutional investors through
dealers or agents; and
- by direct placements by GECMSI or Funding with institutional investors.
If underwriters are used in a sale of any certificates, such certificates
will be acquired by the underwriters for their own account and may be resold
from time to time in one or more transactions including negotiated transactions,
at fixed public offering prices or at varying prices to be determined at the
time of sale or at the time of commitment therefor. The managing underwriter or
underwriters with respect to the offer and sale of a particular series or class
of certificates will be set forth on the cover of the prospectus supplement
relating to such series or class and the members of the underwriting syndicate,
if any, will be named in such prospectus supplement.
In connection with the sale of the certificates, underwriters may receive
compensation from the depositor or from purchasers of the certificates in the
form of discounts, concessions or commissions. Underwriters and dealers
participating in the distribution of the certificates may be deemed to be
underwriters in connection with such certificates, and any discounts or
commissions received by them from GECMSI or Funding and any profit on the resale
of certificates by them may be deemed to be underwriting discounts and
commissions under the Securities Act of 1933, as amended (the "SECURITIES ACT").
The prospectus supplement will describe any such compensation paid by the
depositor.
It is anticipated that the underwriting agreement pertaining to the sale of
any series or class of certificates will provide that the obligations of the
underwriters will be subject to certain conditions precedent, that the
underwriters will be obligated to purchase all such certificates if any are
purchased and that the depositor will indemnify the underwriters against certain
civil liabilities, including liabilities under the Securities Act or will
contribute to payments required to be made in respect thereof.
Purchasers of certificates, including dealers, institutional investors and
sophisticated non-institutional investors, may, depending on the facts and
circumstances of such purchases, be deemed to be underwriters within the meaning
of the Securities Act, in connection with reoffers and sales by them of
certificates. Holders of certificates should consult with their legal advisors
in this regard prior to any such reoffer or sale.
With respect to any series of certificates offered other than through
underwriters, the prospectus supplement will contain information regarding the
nature of such offering and any agreements to be entered into between GECMSI or
Funding and purchasers of such certificates.
USE OF PROCEEDS
The net proceeds from sales of certificates will be added to GECMSI's or
Funding's general funds. Unless otherwise stated in the prospectus supplement,
GECMSI intends to use such proceeds for general corporate purposes, including
the acquisition of servicing rights, mortgage loans. If Funding acquires the
related mortgage loans from GECMSI, the net proceeds from sales of the related
certificates will be paid to GECMSI to acquire such assets.
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LEGAL MATTERS
The legality of the certificates offered hereby will be passed upon for
GECMSI or Funding by Cadwalader, Wickersham & Taft, New York, New York. Certain
federal income tax matters will be passed upon for GECMSI or Funding by
Cadwalader, Wickersham & Taft.
FINANCIAL INFORMATION
A trust will be formed with respect to each series of certificates. No
trust will have any assets or obligations prior to the issuance of the related
series of certificates. No trust will engage in any activities other than those
described herein or in the prospectus supplement. Accordingly, no financial
statement with respect to any trust is included in this prospectus or will be
included in the prospectus supplement.
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INDEX OF CERTAIN PROSPECTUS DEFINITIONS
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<S> <C>
1998 Policy Statement....................................... 73
Accretion Directed Certificates............................. 4
Accrual Certificates........................................ 7
Advance Guarantee........................................... 26
Affected Party.............................................. 61
Available Funds............................................. 46
bankruptcy bond............................................. 29
BIF......................................................... 56
Certificate Account......................................... 8
Code........................................................ 74
Collection Account.......................................... 46
Companion Certificates...................................... 4
Component................................................... 4
Component Certificates...................................... 4
Confirmatory Mortgage Note.................................. 49
Cooperative Loans........................................... 15
Cut-off Date................................................ 3
Defective Mortgage Loan..................................... 53
Delinquent Mortgage Loan.................................... 26
denomination................................................ 2
Deposit Date................................................ 46
Deposit Guarantee........................................... 14
Determination Date.......................................... 46
Direct Master Servicing Arrangement......................... 35
disqualified organization................................... 87
DOL......................................................... 74
ERISA....................................................... 74
FDIC........................................................ 56
FFIEC....................................................... 73
Fixed Rate Certificates..................................... 7
Floating Rate Certificates.................................. 7
Funding..................................................... 1
Garn-St Germain Act......................................... 70
GE Capital.................................................. 50
GECMC....................................................... 60
GECMSI...................................................... 1
Home Equity Loans........................................... 14
Interest Accrual Period..................................... 9
Interest Only Certificates.................................. 7
Inverse Floating Rate Certificates.......................... 8
Junior Certificates......................................... 6
Liquidating Loan............................................ 13
Liquidating Loan Guarantee.................................. 26
Loan Sale Agreement......................................... 14
Lockout Certificates........................................ 4
Loss Certificates........................................... 35
Lower-Tier REMIC............................................ 76
</TABLE>
96
<PAGE> 183
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
MERS........................................................ 49
NCUA........................................................ 73
Net Mortgage Rate........................................... 3
Nonrecoverable Advance...................................... 43
non-U.S. person............................................. 85
Notional Amount Certificates................................ 5
OCC......................................................... 73
OID Regulations............................................. 78
OTS......................................................... 57
Owner....................................................... 76
PAC Certificates............................................ 5
PAC I....................................................... 5
PAC II...................................................... 5
Parties in Interest......................................... 74
Pass-Through Certificates................................... 5
pass-thru entity............................................ 87
Planned Amortization Certificates........................... 5
Plans....................................................... 74
Prepayment Interest......................................... 34
Principal Balance........................................... 17
Principal Only Certificates................................. 8
Principal Prepayments....................................... 10
Proceeding.................................................. 61
PTE 83-1.................................................... 75
Ratio Strip Certificates.................................... 5
Realized Loss............................................... 42
Record Date................................................. 8
Regular Certificates........................................ 76
Relief Act.................................................. 71
REMIC....................................................... 76
REMIC Pool.................................................. 76
REMIC Regulations........................................... 83
Reserve Account............................................. 30
Residual Certificates....................................... 76
Residual Owners............................................. 82
SAIF........................................................ 56
Scheduled Amortization Certificates......................... 6
Scheduled Certificates...................................... 6
Securities Act.............................................. 94
Senior Certificates......................................... 6
Sequential Pay Certificates................................. 6
Simple Interest Shortfall................................... 33
SMMEA....................................................... 72
Step Coupon Certificates.................................... 8
Subordinated Certificates................................... 6
Super Senior Certificates................................... 7
Super Senior Support Certificates........................... 7
Superlien................................................... 72
Supervisory Master Servicing Arrangement.................... 35
</TABLE>
97
<PAGE> 184
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Support Certificates........................................ 4
TAC Certificates............................................ 7
Targeted Amortization Certificates.......................... 7
Title V..................................................... 71
Trigger Event............................................... 50
Trust Assets................................................ 61
UCC......................................................... 67
Unanticipated Recovery...................................... 42
Upper-Tier REMIC............................................ 76
USAP........................................................ 54
Variable Rate Certificates.................................. 8
VRDIs....................................................... 81
</TABLE>
98
<PAGE> 185
GE CAPITAL MORTGAGE SERVICES, INC.
2000-10 TRUST
(ISSUER)
GE CAPITAL MORTGAGE
SERVICES, INC.
(DEPOSITOR AND SERVICER)
$545,837,291
(APPROXIMATE)
REMIC MORTGAGE
PASS-THROUGH CERTIFICATES,
SERIES 2000-10
--------------------------------------------------------------------------------
PROSPECTUS SUPPLEMENT
--------------------------------------------------------------------------------
DONALDSON, LUFKIN & JENRETTE
CREDIT SUISSE FIRST BOSTON
EDWARD D. JONES & CO., L.P.
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.
All dealers that effect transactions in these securities, whether or not
participating in this offering, will deliver a prospectus supplement and
prospectus until ninety days following the date of this prospectus supplement.
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.
August 18, 2000
