As filed with the Securities and Exchange Commission on December 30, 1996
Registration No. _________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GMAC COMMERCIAL MORTGAGE SECURITIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
23-2811925
(I.R.S. employer identification number)
650 Dresher Road
P.O. Box 1015
Horsham, Pennsylvania 19044-8015
(Address, including zip code, and telephone number, including area code, of
registrant's principle executive offices)
David E. Creamer, Director and President
GMAC Commercial Mortgage Securities, Inc.
650 Dresher Road
P.O. Box 1015
Horsham, Pennsylvania 19044-8015
(215) 682-3480
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
Robert L. Schwartz, Esq.
Managing Director and General Counsel
GMAC Mortgage Corporation
3031 West Grand Boulevard
Detroit, Michigan 48232
Diane Citron, Esq. Stephen S. Kudenholdt, Esq.
Mayer Brown & Platt William J. Cullen, Esq.
190 South LaSalle Street Thacher Proffitt & Wood
Chicago, Illinois 60603 Two World Trade Center
New York, New York 10048
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Approximate date of commencement of proposed sale to the public: From time
to time on or after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest plans, please check the following box. [X]
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<CAPTION>
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE AMOUNT OF
AMOUNT PRICE OFFERING REGISTRATION
TO BE REGISTERED PER UNIT PRICE FEE
TITLE OF SECURITIES BEING REGISTERED (1) (2) (2) (1)
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<S> <C> <C> <C> <C>
Mortgage Pass-Through Certificates $2,000,000,000 100% $2,000,000,000 $606,060.60
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</TABLE>
(1) $543,263,650.00 aggregate principal amount of Mortgage Pass-Through
Certificates registered by the Registrant under Registration Statement No.
33-94448 referred to below are consolidated in this Registration Statement
pursuant to Rule 429. All registration fees in connection with such unsold
amount of Mortgage Pass-Through Certificates have been previously paid by
the Registrant under the foregoing Registration Statement. Accordingly,
the total amount registered under the Registration Statement as so
consolidated as of the date of this filing is $2,543,263,650.00
(2) Estimated solely for the purpose of calculating the registration fee.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Pursuant to Rule 429 of the Securities Act of 1933, the prospectus which
is part of this Registration Statement is a combined prospectus and includes all
the information currently required in a prospectus relating to the securities
covered by Registration Statement No. 33-94448 previously filed by the
Registrant.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement and the prospectus to which it relates
shall not constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED DECEMBER 30, 1996
GMAC COMMERCIAL MORTGAGE SECURITIES, INC.
MORTGAGE PASS-THROUGH CERTIFICATES
The mortgage pass-through certificates (the "OFFERED CERTIFICATES")
offered hereby and by the supplements hereto (each, a "PROSPECTUS SUPPLEMENT")
will be offered from time to time in series. The Offered Certificates of any
series, together with any other mortgage pass-through certificates of such
series, are collectively referred to herein as the "CERTIFICATES".
Each series of Certificates will represent in the aggregate the entire
beneficial ownership interest in a trust fund (with respect to any series, the
"TRUST FUND") to be formed by GMAC Commercial Mortgage Securities, Inc. (the
"DEPOSITOR") and consisting primarily of a segregated pool (a "MORTGAGE ASSET
POOL") of the Mortgage Loans (as defined in the related Prospectus Supplement),
mortgage-backed securities ("MBS") that evidence interests in, or that are
secured by pledges of, one or more of various types of multifamily or commercial
mortgage loans, or a combination of Mortgage Loans and MBS (collectively,
"MORTGAGE ASSETS"). If so specified in the related Prospectus Supplement, the
Trust Fund for a series of Certificates may include letters of credit, insurance
policies, guarantees, reserve funds or other types of credit support, or any
combination thereof, and also interest rate exchange agreements and other
financial assets, or any combination thereof. See "Description of the Trust
Funds", "Description of the Certificates" and "Description of Credit Support".
The yield on each class of Certificates of a series will be affected
by, among other things, the rate of payment of principal (including prepayments)
on the Mortgage Assets in the related Trust Fund and the timing of receipt of
such payments as described herein and in the related Prospectus Supplement. See
"Yield and Maturity Considerations". A Trust Fund may be subject to early
termination under the circumstances described herein and in the related
Prospectus Supplement. See "Description of the Certificates--Termination;
Retirement of the Certificates".
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. THIS PROSPECTUS MAY NOT BE
USED TO CONSUMMATE SALES OF THE OFFERED CERTIFICATES OF ANY SERIES UNLESS
ACCOMPANIED BY THE PROSPECTUS SUPPLEMENT FOR SUCH SERIES.
(COVER CONTINUED ON NEXT PAGE)
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS
ON THE OFFERED CERTIFICATES. THE OFFERED CERTIFICATES DO NOT REPRESENT
AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR, THE MASTER SERVICER,
GMAC COMMERCIAL MORTGAGE CORPORATION OR ANY OF THEIR
AFFILIATES. NEITHER THE OFFERED CERTIFICATES NOR THE MORTGAGE
ASSETS WILL BE GUARANTEED OR INSURED BY THE DEPOSITOR, THE
MASTER SERVICER, GMAC COMMERCIAL MORTGAGE CORPORATION
OR ANY OF THEIR AFFILIATES OR, UNLESS OTHERWISE
SPECIFIED IN THE RELATED PROSPECTUS SUPPLEMENT,
BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING ON PAGE 7
HEREIN UNDER THE CAPTION "RISK FACTORS" AND SUCH INFORMATION AS MAY BE SET FORTH
UNDER THE CAPTION "RISK FACTORS" IN THE RELATED PROSPECTUS SUPPLEMENT BEFORE
PURCHASING ANY OFFERED CERTIFICATE.
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The Offered Certificates of any series may be offered through one or
more different methods, including offerings through underwriters, as described
under "Method of Distribution" and in the related Prospectus Supplement.
THE DATE OF THIS PROSPECTUS IS [___________], 1996
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(COVER CONTINUED)
There will be no secondary market for the Offered Certificates of any
series prior to the offering thereof. There can be no assurance that a secondary
market for any Offered Certificates will develop or, if it does develop, that it
will continue. The Certificates will not be listed on any securities exchange.
As described in the related Prospectus Supplement, the Certificates of
each series, including the Offered Certificates of such series, may consist of
one or more classes of Certificates that: (i) provide for the accrual of
interest thereon based on a fixed, variable or adjustable interest rate; (ii)
are senior or subordinate to one or more other classes of Certificates in
entitlement to certain distributions on the Certificates; (iii) are entitled to
distributions of principal, with disproportionate, nominal or no distributions
of interest; (iv) are entitled to distributions of interest, with
disproportionate, nominal or no distributions of principal; (v) provide for
distributions of interest thereon or principal thereof that commence only
following the occurrence of certain events, such as the retirement of one or
more other classes of Certificates of such series; (vi) provide for
distributions of principal thereof to be made, from time to time or for
designated periods, at a rate that is faster (and, in some cases, substantially
faster) or slower (and, in some cases, substantially slower) than the rate at
which payments or other collections of principal are received on the Mortgage
Assets in the related Trust Fund; or (vii) provide for distributions of
principal thereof to be made, subject to available funds, based on a specified
principal payment schedule or other methodology. Distributions in respect of the
Certificates of each series will be made on a monthly, quarterly, semi-annual,
annual or other periodic basis as specified in the related Prospectus
Supplement. See "Description of the Certificates".
If so provided in the related Prospectus Supplement, one or more
elections may be made to treat the related Trust Fund or a designated portion
thereof as a "real estate mortgage investment conduit" (each, a "REMIC") for
federal income tax purposes. If applicable, the Prospectus Supplement for a
series of Certificates will specify which class or classes of such series of
Certificates will be considered to be regular interests in the related REMIC and
which class of Certificates or other interests will be designated as the
residual interest in the related REMIC. See "Certain Federal Income Tax
Consequences".
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PROSPECTUS SUPPLEMENT
As more particularly described herein, the Prospectus Supplement
relating to each series of Offered Certificates will, among other things, set
forth, as and to the extent appropriate: (i) a description of the class or
classes of such Offered Certificates, including the payment provisions with
respect to each such class, the aggregate principal amount, if any, of each such
class, the rate at which interest accrues from time to time, if at all, with
respect to each such class or the method of determining such rate, and whether
interest with respect to each such class will accrue from time to time on its
aggregate principal amount, if any, or on a specified notional amount, if at
all; (ii) information with respect to any other classes of Certificates of the
same series; (iii) the respective dates on which distributions are to be made;
(iv) information as to the assets, including the Mortgage Assets, constituting
the related Trust Fund (all such assets, with respect to the Certificates of any
series, the "TRUST ASSETS"); (v) the circumstances, if any, under which the
related Trust Fund may be subject to early termination; (vi) additional
information with respect to the method of distribution of such Offered
Certificates; (vii) whether one or more REMIC elections will be made and the
designation of the "regular interests" and "residual interests" in each REMIC to
be created; (viii) the initial percentage ownership interest in the related
Trust Fund to be evidenced by each class of Certificates of such series; (ix)
information concerning the Trustee (as defined herein) of the related Trust
Fund; (x) if the related Trust Fund includes Mortgage Loans, information
concerning the Master Servicer and any Special Servicer (each as defined herein)
of such Mortgage Loans; (xi) information as to the nature and extent of
subordination of any class of Certificates of such series, including a class of
Offered Certificates; and (xii) whether such Offered Certificates will be
initially issued in definitive or book-entry form.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"COMMISSION") a Registration Statement (of which this Prospectus forms a part)
under the Securities Act of 1933, as amended, with respect to the Offered
Certificates. This Prospectus and the Prospectus Supplement relating to each
series of Offered Certificates contain summaries of the material terms of the
documents referred to herein and therein, but do not contain all of the
information set forth in the Registration Statement pursuant to the rules and
regulations of the Commission. For further information, reference is made to
such Registration Statement and the exhibits thereto. Such Registration
Statement and exhibits can be inspected and copied at prescribed rates at the
public reference facilities maintained by the Commission at its Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its Midwest
Regional Offices located as follows: Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511; and Northeast Regional Office, Seven
World Trade Center, Suite 1300, New York, New York 10048. The Commission
maintains a Web site at http://www.sec.gov containing reports, proxy and
information statements and other information regarding registrants, including
the Depositor, that file electronically with the Commission.
No dealer, salesman, or any other person has been authorized to give
any information, or to make any representations, other than those contained in
this Prospectus or any related Prospectus Supplement, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Depositor or any dealer, salesman, or any other person.
Neither the delivery of this Prospectus or any related Prospectus Supplement nor
any sale made hereunder or thereunder shall under any circumstances create an
implication that there has been no change in the information herein or therein
since the date hereof. This
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Prospectus and any related Prospectus Supplement are not an offer to sell or a
solicitation of an offer to buy any security in any jurisdiction in which it is
unlawful to make such offer or solicitation.
The Master Servicer or another specified person will cause to be
provided to registered holders of the Offered Certificates of each series
periodic unaudited reports concerning the related Trust Fund.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports
filed or caused to be filed by the Depositor with respect to a Trust Fund
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act of 1934, as
amended, prior to the termination of an offering of Offered Certificates
evidencing interests therein. The Depositor will provide or cause to be provided
without charge to each person to whom this Prospectus is delivered in connection
with the offering of one or more classes of Offered Certificates, upon written
or oral request of such person, a copy of any or all documents or reports
incorporated herein by reference, in each case to the extent such documents or
reports relate to one or more of such classes of such Offered Certificates,
other than the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Requests to the Depositor should
be directed in writing to its principal executive offices at 650 Dresher Road,
Horsham, Pennsylvania 19044, or by telephone at (215) 682-3480.
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TABLE OF CONTENTS
PAGE
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PROSPECTUS SUPPLEMENT ....................................................... 4
AVAILABLE INFORMATION ....................................................... 4
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE ........................... 5
SUMMARY OF PROSPECTUS ....................................................... 9
RISK FACTORS ................................................................ 16
LIMITED LIQUIDITY ....................................................... 16
LIMITED OBLIGATIONS ..................................................... 16
CREDIT SUPPORT LIMITATIONS .............................................. 16
YIELD AND PREPAYMENT CONSIDERATIONS ..................................... 17
INVESTMENT IN COMMERCIAL AND MULTIFAMILY MORTGAGE LOANS ................. 17
BALLOON PAYMENTS; BORROWER DEFAULT ...................................... 18
LEASES AND RENTS ........................................................ 19
ENVIRONMENTAL CONSIDERATIONS ............................................ 19
DESCRIPTION OF THE TRUST FUNDS .............................................. 19
GENERAL ................................................................. 19
MORTGAGE LOANS .......................................................... 19
MBS ..................................................................... 23
CERTIFICATE ACCOUNTS .................................................... 24
CREDIT SUPPORT .......................................................... 24
CASH FLOW AGREEMENTS .................................................... 24
YIELD AND MATURITY CONSIDERATIONS ........................................... 24
GENERAL ................................................................. 24
PASS-THROUGH RATE ....................................................... 25
PAYMENT DELAYS .......................................................... 25
CERTAIN SHORTFALLS IN COLLECTIONS OF INTEREST ........................... 25
YIELD AND PREPAYMENT CONSIDERATIONS ..................................... 26
WEIGHTED AVERAGE LIFE AND MATURITY ...................................... 27
OTHER FACTORS AFFECTING YIELD, WEIGHTED AVERAGE LIFE AND MATURITY ....... 28
THE DEPOSITOR ............................................................... 30
GMAC COMMERCIAL MORTGAGE CORPORATION ........................................ 30
DESCRIPTION OF THE CERTIFICATES ............................................. 31
GENERAL ................................................................. 31
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DISTRIBUTIONS ........................................................... 31
DISTRIBUTIONS OF INTEREST ON THE CERTIFICATES ........................... 32
DISTRIBUTIONS OF PRINCIPAL OF THE CERTIFICATES .......................... 33
ALLOCATION OF LOSSES AND SHORTFALLS ..................................... 34
ADVANCES IN RESPECT OF DELINQUENCIES .................................... 34
REPORTS TO CERTIFICATEHOLDERS ........................................... 35
TERMINATION; RETIREMENT OF CERTIFICATES ................................. 36
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES ..................... 37
THE POOLING AND SERVICING AGREEMENTS ........................................ 39
GENERAL ................................................................. 39
ASSIGNMENT OF MORTGAGE LOANS; REPURCHASES ............................... 39
REPRESENTATIONS AND WARRANTIES; REPURCHASES ............................. 41
COLLECTION AND OTHER SERVICING PROCEDURES ............................... 42
SUB-SERVICERS ........................................................... 44
SPECIAL SERVICERS ....................................................... 44
CERTIFICATE ACCOUNT ..................................................... 44
REALIZATION UPON DEFAULTED MORTGAGE LOANS ............................... 47
HAZARD INSURANCE POLICIES ............................................... 49
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS ........................... 50
SERVICING COMPENSATION AND PAYMENT OF EXPENSES .......................... 50
EVIDENCE AS TO COMPLIANCE ............................................... 50
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE DEPOSITOR ......... 51
EVENTS OF DEFAULT ....................................................... 52
RIGHTS UPON EVENT OF DEFAULT ............................................ 52
AMENDMENT ............................................................... 53
THE TRUSTEE ............................................................. 54
DUTIES OF THE TRUSTEE ................................................... 54
CERTAIN MATTERS REGARDING THE TRUSTEE ................................... 54
RESIGNATION AND REMOVAL OF THE TRUSTEE .................................. 55
DESCRIPTION OF CREDIT SUPPORT ............................................... 56
GENERAL ................................................................. 56
INSURANCE OR GUARANTEES WITH RESPECT TO MORTGAGE LOANS .................. 57
LETTER OF CREDIT ........................................................ 57
CREDIT SUPPORT WITH RESPECT TO MBS ...................................... 58
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS ..................................... 58
GENERAL ................................................................. 58
TYPES OF MORTGAGE INSTRUMENTS ........................................... 58
LEASES AND RENTS ........................................................ 59
PERSONALTY .............................................................. 59
FORECLOSURE ............................................................. 59
BANKRUPTCY LAWS ......................................................... 62
ENVIRONMENTAL CONSIDERATIONS ............................................ 63
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DUE-ON-SALE AND DUE-ON-ENCUMBRANCE ...................................... 65
SUBORDINATE FINANCING ................................................... 65
DEFAULT INTEREST AND LIMITATIONS ON PREPAYMENTS ......................... 66
APPLICABILITY OF USURY LAWS ............................................. 66
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940 ......................... 66
CERTAIN FEDERAL INCOME TAX CONSEQUENCES ..................................... 67
GENERAL ................................................................. 67
REMICS .................................................................. 68
GRANTOR TRUST FUNDS ..................................................... 84
STATE AND OTHER TAX CONSEQUENCES ............................................ 93
ERISA CONSIDERATIONS ........................................................ 93
GENERAL ................................................................. 93
PLAN ASSET REGULATIONS .................................................. 94
PROHIBITED TRANSACTION EXEMPTION ........................................ 94
CONSULTATION WITH COUNSEL ............................................... 96
TAX EXEMPT INVESTORS .................................................... 97
LEGAL INVESTMENT ............................................................ 97
USE OF PROCEEDS ............................................................. 98
LEGAL MATTERS ............................................................... 99
FINANCIAL INFORMATION ...................................................... 100
RATING ..................................................................... 100
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SUMMARY OF PROSPECTUS
The following summary of certain pertinent information is qualified in
its entirety by reference to the more detailed information appearing elsewhere
in this Prospectus and by reference to the information with respect to each
series of Certificates contained in the Prospectus Supplement to be prepared and
delivered in connection with the offering of Offered Certificates of such
series. An Index of Principal Definitions is included at the end of this
Prospectus.
SECURITIES OFFERED
Mortgage pass-through certificates.
DEPOSITOR GMAC Commercial Mortgage Securities, Inc.,
a wholly-owned subsidiary of GMAC
Commercial Mortgage Corporation
("GMACCM"). See "The Depositor".
TRUSTEE The trustee (the "TRUSTEE") for each
series of Certificates will be named in
the related Prospectus Supplement. See
"The Pooling and Servicing Agreements--The
Trustee".
MASTER SERVICER If a Trust Fund includes Mortgage Loans,
then the servicer or the master servicer
(each, a "MASTER SERVICER") for the
corresponding series of Certificates will
be named in the related Prospectus
Supplement. The Master Servicer for any
series of Certificates may be GMACCM or
another affiliate of the Depositor. The
Master Servicer may also be the Special
Servicer for such series and, in such dual
capacity, would be referred to as the
"SERVICER". See "GMAC Commercial Mortgage
Corporation" and "The Pooling and
Servicing Agreements--Certain Matters
Regarding the Master Servicer and the
Depositor".
SPECIAL SERVICER If a Trust Fund includes Mortgage Loans,
then any special servicers (each, a
"SPECIAL SERVICER") for the corresponding
series of Certificates will be named, or
the circumstances under which a Special
Servicer may be appointed will be
described, in the related Prospectus
Supplement. A Special Servicer for any
series of Certificates may be the Master
Servicer or an affiliate of the Depositor
or the Master Servicer. See "The Pooling
and Servicing Agreements--Special
Servicers".
MBS ADMINISTRATOR If a Trust Fund includes MBS, then the
entity responsible for administering such
MBS (the "MBS ADMINISTRATOR") will be
named in the related Prospectus
Supplement. If an entity other than the
Trustee and the Master Servicer is the MBS
Administrator, such entity will be herein
referred to as the "MANAGER". The Manager
for any series of Certificates may be
GMACCM or another affiliate of the
Depositor.
THE MORTGAGE ASSETS The Mortgage Assets will be the primary
asset of any Trust Fund. The Mortgage
Assets with respect to each series of
Certificates will, in general, consist of
a pool of Mortgage Loans secured by first
or junior liens on, as described herein,
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multifamily residential properties or
commercial properties. If so specified in
the related Prospectus Supplement, a Trust
Fund may include Mortgage Loans secured by
liens on real estate projects under
construction. The Mortgage Loans will not
be guaranteed or insured by the Depositor,
GMACCM or any of their affiliates or,
unless otherwise provided in the related
Prospectus Supplement, by any governmental
agency or instrumentality or by any other
person. If so specified in the related
Prospectus Supplement, some Mortgage Loans
may be delinquent or non-performing as of
the date the related Trust Fund is formed.
As and to the extent described in the
related Prospectus Supplement, a Mortgage
Loan (i) may provide for no accrual of
interest or for accrual of interest
thereon at an interest rate (a "MORTGAGE
RATE") that is fixed over its term or that
adjusts from time to time, or that may be
converted at the borrower's election from
an adjustable to a fixed Mortgage Rate, or
from a fixed to an adjustable Mortgage
Rate, (ii) may provide for level payments
to maturity or for payments that adjust
from time to time to accommodate changes
in the Mortgage Rate or to reflect the
occurrence of certain events, and may
permit negative amortization, (iii) may be
fully amortizing or may be partially
amortizing or non-amortizing, with a
balloon payment due on its stated maturity
date, (iv) may prohibit over its term or
for a certain period prepayments and/or
require payment of a premium or a yield
maintenance penalty in connection with
certain prepayments and (v) may provide
for payments of principal, interest or
both, on due dates that occur monthly,
quarterly, semi-annually or at such other
interval as is specified in the related
Prospectus Supplement. Unless otherwise
provided in the related Prospectus
Supplement, each Mortgage Loan will have
had an original term to maturity of not
more than 40 years. Unless otherwise
provided in the related Prospectus
Supplement, no Mortgage Loan will have
been originated by the Depositor; however,
some or all of the Mortgage Loans in any
Trust Fund may have been originated by
GMACCM or another affiliate of the
Depositor. See "Description of the Trust
Funds--Mortgage Loans".
If and to the extent specified in the
related Prospectus Supplement, the
Mortgage Assets with respect to a series
of Certificates may also include, or
consist of, MBS, provided that each MBS
will evidence an interest in, or will be
secured by a pledge of, one or more
mortgage loans that conform to the
descriptions of the Mortgage Loans
contained herein. See "Description of the
Trust Funds--MBS".
THE CERTIFICATES Each series of Certificates will be issued
in one or more classes pursuant to a
pooling and servicing agreement or other
agreement
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specified in the related Prospectus
Supplement (in either case, a "POOLING AND
SERVICING AGREEMENT") and will represent
in the aggregate the entire beneficial
ownership interest in the related Trust
Fund.
As described in the related Prospectus
Supplement, the Certificates of each
series, including the Offered Certificates
of such series, may consist of one or more
classes of Certificates that, among other
things: (i) are senior (collectively,
"SENIOR CERTIFICATES") or subordinate
(collectively, "SUBORDINATE CERTIFICATES")
to one or more other classes of
Certificates in entitlement to certain
distributions on the Certificates; (ii)
are entitled to distributions of
principal, with disproportionate, nominal
or no distributions of interest
(collectively, "STRIPPED PRINCIPAL
CERTIFICATES"); (iii) are entitled to
distributions of interest, with
disproportionate, nominal or no
distributions of principal (collectively,
"STRIPPED INTEREST CERTIFICATES"); (iv)
provide for distributions of interest
thereon or principal thereof that commence
only after the occurrence of certain
events, such as the retirement of one or
more other classes of Certificates of such
series; (v) provide for distributions of
principal thereof to be made, from time to
time or for designated periods, at a rate
that is faster (and, in some cases,
substantially faster) or slower (and, in
some cases, substantially slower) than the
rate at which payments or other
collections of principal are received on
the Mortgage Assets in the related Trust
Fund; (vi) provide for distributions of
principal thereof to be made, subject to
available funds, based on a specified
principal payment schedule or other
methodology; or (vii) provide for
distribution based on collections on the
Mortgage Assets in the related Trust Fund
attributable to prepayment premiums, yield
maintenance penalties or equity
participations.
Each class of Certificates, other than
certain classes of Stripped Interest
Certificates and certain classes of REMIC
Residual Certificates (as defined herein),
will have an initial stated principal
amount (a "CERTIFICATE BALANCE"); and each
class of Certificates, other than certain
classes of Stripped Principal Certificates
and certain classes of REMIC Residual
Certificates, will accrue interest on its
Certificate Balance or, in the case of
certain classes of Stripped Interest
Certificates, on a notional amount (a
"NOTIONAL AMOUNT") based on a fixed,
variable or adjustable interest rate (a
"PASS-THROUGH RATE"). The related
Prospectus Supplement will specify the
Certificate Balance, Notional Amount
and/or Pass-Through Rate (or, in the case
of a variable or adjustable Pass-Through
Rate, the method for determining such
rate), as applicable, for each class of
Offered Certificates.
If so specified in the related Prospectus
Supplement, a class of Certificates may
have two or more component parts, each
having
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characteristics that are otherwise
described herein as being attributable to
separate and distinct classes.
The Certificates will not be guaranteed or
insured by the Depositor, by the Master
Servicer, by GMACCM or any of their
affiliates, by any governmental agency or
instrumentality or by any other person or
entity, unless otherwise provided in the
related Prospectus Supplement. See "Risk
Factors--Limited Obligations".
DISTRIBUTIONS OF INTEREST ON THE
CERTIFICATES Interest on each class of Offered
Certificates (other than certain classes
of Stripped Principal Certificates and
certain classes of REMIC Residual
Certificates) of each series will accrue
at the applicable Pass-Through Rate on the
Certificate Balance or, in the case of
certain classes of Stripped Interest
Certificates, the Notional Amount thereof
outstanding from time to time and will be
distributed to Certificateholders as
provided in the related Prospectus
Supplement (each of the specified dates on
which distributions are to be made, a
"DISTRIBUTION DATE"). Distributions of
interest with respect to one or more
classes of Certificates (collectively,
"ACCRUAL CERTIFICATES") may not commence
until the occurrence of certain events,
such as the retirement of one or more
other classes of Certificates, and
interest accrued with respect to a class
of Accrual Certificates prior to the
occurrence of such an event will either be
added to the Certificate Balance thereof
or otherwise deferred as described in the
related Prospectus Supplement.
Distributions of interest with respect to
one or more classes of Certificates may be
reduced to the extent of certain
delinquencies, losses and other
contingencies described herein and in the
related Prospectus Supplement. See "Risk
Factors--Yield and Prepayment
Considerations", "Yield and Maturity
Considerations--Certain Shortfalls in
Collections of Interest" and "Description
of the Certificates--Distributions of
Interest on the Certificates".
DISTRIBUTIONS OF PRINCIPAL OF THE
CERTIFICATES As and to the extent described in each
Prospectus Supplement, distributions of
principal with respect to the related
series of Certificates will be made on
each Distribution Date to the holders of
the class or classes of Certificates of
such series entitled thereto until the
Certificate Balances of such Certificates
have been reduced to zero. Distributions
of principal with respect to one or more
classes of Certificates: (i) may be made
at a rate that is faster (and, in some
cases, substantially faster) or slower
(and, in some cases, substantially slower)
than the rate at which payments or other
collections of principal are received on
the Mortgage Assets in the related Trust
Fund; (ii) may not commence until the
occurrence of certain events, such as the
retirement of one or more other classes of
Certificates of the same series; (iii) may
be made, subject to certain limitations,
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based on a specified principal payment
schedule; or (iv) may be contingent on the
specified principal payment schedule for
another class of the same series and the
rate at which payments and other
collections of principal on the Mortgage
Assets in the related Trust Fund are
received. Unless otherwise specified in
the related Prospectus Supplement,
distributions of principal of any class of
Offered Certificates will be made on a pro
rata basis among all of the Certificates
of such class. See "Description of the
Certificates--Distributions of Principal
of the Certificates".
CREDIT SUPPORT AND CASH FLOW
AGREEMENTS If so provided in the related Prospectus
Supplement, partial or full protection
against certain defaults and losses on the
Mortgage Assets in the related Trust Fund
may be provided to one or more classes of
Certificates of the related series in the
form of subordination of one or more other
classes of Certificates of such series,
which other classes may include one or
more classes of Offered Certificates, or
by one or more other types of credit
support, such as a letter of credit,
insurance policy, guarantee, reserve fund
or another type of credit support, or a
combination thereof (any such coverage
with respect to the Certificates of any
series, "CREDIT SUPPORT"). If so provided
in the related Prospectus Supplement, a
Trust Fund may include: (i) guaranteed
investment contracts pursuant to which
moneys held in the funds and accounts
established for the related series will be
invested at a specified rate; or (ii)
certain other agreements, such as interest
rate exchange agreements, interest rate
cap or floor agreements, or other
agreements designed to reduce the effects
of interest rate fluctuations on the
Mortgage Assets or on one or more classes
of Certificates (any such agreement, in
the case of clause (i) or (ii), a "CASH
FLOW AGREEMENT"). Certain relevant
information regarding any applicable
Credit Support or Cash Flow Agreement will
be set forth in the Prospectus Supplement
for a series of Offered Certificates. See
"Risk Factors--Credit Support
Limitations", "Description of the Trust
Funds--Credit Support" and "--Cash Flow
Agreements" and "Description of Credit
Support".
ADVANCES If and to the extent provided in the
related Prospectus Supplement, if a Trust
Fund includes Mortgage Loans, the Master
Servicer, a Special Servicer, the Trustee,
any provider of Credit Support and/or any
other specified person may be obligated to
make, or have the option of making,
certain advances with respect to
delinquent scheduled payments of principal
and/or interest on such Mortgage Loans.
Any such advances made with respect to a
particular Mortgage Loan will be
reimbursable from subsequent recoveries in
respect of such Mortgage Loan and
otherwise to the extent described herein
and in the related Prospectus Supplement.
See "Description of the
Certificates--Advances in respect of
Delinquencies". If and to the extent
provided in the Prospectus Supplement for
a series of
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Certificates, any entity making such
advances may be entitled to receive
interest thereon for a specified period
during which certain or all of such
advances are outstanding, payable from
amounts in the related Trust Fund. See
"Description of the Certificates--Advances
in Respect of Delinquencies". If a Trust
Fund includes MBS, any comparable
advancing obligation of a party to the
related Pooling and Servicing Agreement,
or of a party to the related MBS
Agreement, will be described in the
related Prospectus Supplement.
OPTIONAL TERMINATION The Master Servicer, the Depositor or, if
specified in the related Prospectus
Supplement, the holder of the residual
interest in a REMIC may at its option
either (i) effect early retirement of a
series of Certificates through the
purchase of the assets in the related
Trust Fund or (ii) purchase, in whole but
not in part, the Certificates specified in
the related Prospectus Supplement; in each
case under the circumstances and in the
manner set forth herein under "Description
of the Certificates--Termination;
Retirement of Certificates" and in the
related Prospectus Supplement.
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES The Certificates of each series will
constitute "regular interests" ("REMIC
REGULAR CERTIFICATES") and "residual
interests" ("REMIC RESIDUAL CERTIFICATES")
in a Trust Fund, or a designated portion
thereof, treated as a REMIC under Sections
860A through 860G of the Internal Revenue
Code of 1986 (the "CODE").
Investors are advised to consult their tax
advisors and to review "Certain Federal
Income Tax Consequences" herein and in the
related Prospectus Supplement.
ERISA CONSIDERATIONS Fiduciaries of employee benefit plans and
certain other retirement plans and
arrangements, including individual
retirement accounts, annuities, Keogh
plans, and collective investment funds and
separate accounts in which such plans,
accounts, annuities or arrangements are
invested, that are subject to the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), or Section 4975 of the
Code, should review with their legal
advisors whether the purchase or holding
of Offered Certificates could give rise to
a transaction that is prohibited or is not
otherwise permissible either under ERISA
or Section 4975 of the Code. See "ERISA
Considerations" herein and in the related
Prospectus Supplement.
LEGAL INVESTMENT The Offered Certificates will constitute
"mortgage related securities" for purposes
of the Secondary Mortgage Market
Enhancement Act of 1984, as amended
("SMMEA"), only if so specified in the
related Prospectus Supplement. Investors
whose investment authority is subject to
legal restrictions should consult
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their legal advisors to determine whether
and to what extent the Offered
Certificates constitute legal investments
for them. See "Legal Investment" herein
and in the related Prospectus Supplement.
RATING At their respective dates of issuance,
each class of Offered Certificates will be
rated not lower than investment grade by
one or more nationally recognized
statistical rating agencies (each, a
"RATING AGENCY"). See "Rating" herein and
in the related Prospectus Supplement.
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RISK FACTORS
In considering an investment in the Offered Certificates of any series,
investors should consider, among other things, the following risk factors and
any other factors set forth under the heading "Risk Factors" in the related
Prospectus Supplement. In general, to the extent that the factors discussed
below pertain to or are influenced by the characteristics or behavior of
Mortgage Loans included in a particular Trust Fund, they would similarly pertain
to and be influenced by the characteristics or behavior of the mortgage loans
underlying any MBS included in such Trust Fund.
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Offered
Certificates of any series will develop or, if it does develop, that it will
provide holders with liquidity of investment or that it will continue for as
long as such Certificates remain outstanding. The Prospectus Supplement for any
series of Offered Certificates may indicate that an underwriter specified
therein intends to establish a secondary market in such Offered Certificates;
however, no underwriter will be obligated to do so. The Certificates will not be
listed on any securities exchange.
LIMITED OBLIGATIONS
The Certificates will not represent an interest in or obligation of the
Depositor, the Master Servicer, GMACCM or any of their affiliates. The only
obligations of the foregoing entities with respect to the Certificates or the
Mortgage Assets will be the obligations (if any) of the Depositor and the Master
Servicer pursuant to certain limited representations and warranties made with
respect to the Mortgage Assets, the Master Servicer's servicing obligations
under the related Pooling and Servicing Agreement (including its limited
obligation to make certain advances in the event of delinquencies on the
Mortgage Loans, but only to the extent deemed recoverable) and pursuant to the
terms of any MBS, and such other limited obligations of the Master Servicer and
the Depositor as may be described in the related Prospectus Supplement. Neither
the Certificates nor the underlying Mortgage Assets will be guaranteed or
insured by the Depositor, the Master Servicer, GMACCM or any of their affiliates
or, unless otherwise specified in the related Prospectus Supplement, by any
governmental agency or instrumentality. Proceeds of the Trust Assets included in
the related Trust Fund for each series of Certificates (including the Mortgage
Assets, any fund or instrument constituting Credit Support and any Cash Flow
Agreements) will be the sole source of payments on the Certificates, and there
will be no recourse to the Depositor, the Master Servicer, GMACCM or any other
entity in the event that such proceeds are insufficient or otherwise unavailable
to make all payments provided for under the Certificates.
CREDIT SUPPORT LIMITATIONS
The Prospectus Supplement for a series of Certificates will describe
any Credit Support provided with respect thereto. Use of Credit Support will be
subject to the conditions and limitations described herein and in the related
Prospectus Supplement. Moreover, such Credit Support may not cover all potential
losses; for example, Credit Support may or may not cover loss by reason of fraud
or negligence by a mortgage loan originator or other parties.
A series of Certificates may include one or more classes of Subordinate
Certificates (which may include Offered Certificates), if so provided in the
related Prospectus Supplement. Although subordination is intended to reduce the
likelihood of temporary shortfalls and ultimate losses to holders of Senior
Certificates, the amount of subordination will be limited and may decline under
certain circumstances. In addition, if principal payments on one or more classes
of Offered Certificates of a series are made in a specified order of priority,
any related Credit Support may be exhausted before the principal of the later
paid classes of Offered Certificates of such series has been repaid in full. As
a result, the impact of losses and shortfalls experienced with respect to the
Mortgage Assets may fall
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primarily upon those classes of Offered Certificates having a later right of
payment. Moreover, if a form of Credit Support covers the Offered Certificates
of more than one series and losses on the related Mortgage Assets exceed the
amount of such Credit Support, it is possible that the holders of Offered
Certificates of one (or more) such series will be disproportionately benefited
by such Credit Support to the detriment of the holders of Offered Certificates
of one (or more) other such series.
The amount of any applicable Credit Support supporting one or more
classes of Offered Certificates, including the subordination of one or more
classes of Certificates, will be determined on the basis of criteria established
by each Rating Agency rating such classes of Certificates based on an assumed
level of defaults, delinquencies and losses on the underlying Mortgage Assets
and certain other factors. There can, however, be no assurance that the loss
experience on the related Mortgage Assets will not exceed such assumed levels.
See "Description of the Certificates--Allocation of Losses and Shortfalls" and
"Description of Credit Support".
YIELD AND PREPAYMENT CONSIDERATIONS
The yield to maturity of the Offered Certificates of each series will
depend on the rate and timing of principal payments (including prepayments,
liquidations due to defaults, and repurchases for breaches of representations
and warranties or document defects) on the Mortgage Loans and the price paid by
Certificateholders. Such yield may be adversely affected by a higher or lower
than anticipated rate of prepayments on the related Mortgage Loans. The yield to
maturity on Stripped Interest Certificates and Stripped Principal Certificates
will be extremely sensitive to the rate of prepayments on the related Mortgage
Loans. In addition, the yield to maturity on certain other types of classes of
Certificates, including Accrual Certificates, Certificates with a Pass-Through
Rate which fluctuates inversely with an index or certain other classes in a
series including more than one class of Certificates, may be relatively more
sensitive to the rate of prepayment on the related Mortgage Loans than other
classes of Certificates. The rate of principal payments on pools of mortgage
loans varies among pools and from time to time is influenced by a variety of
economic, demographic, geographic, social, tax, legal and other factors,
including prevailing mortgage market interest rates and the particular terms of
the Mortgage Loans (e.g., provisions that prohibit voluntary prepayments during
specified periods or impose penalties in connection therewith). There can be no
assurance as to the actual rate of prepayment on the Mortgage Loans in any Trust
Fund or that such rate of prepayment will conform to any model described herein
or in any Prospectus Supplement. See "Yield and Maturity Considerations" herein.
INVESTMENT IN COMMERCIAL AND MULTIFAMILY MORTGAGE LOANS
A description of certain material considerations associated with
investments in mortgage loans is included herein under "Certain Legal Aspects of
Mortgage Loans". Mortgage loans made on the security of multifamily or
commercial property may have a greater likelihood of delinquency and
foreclosure, and a greater likelihood of loss in the event thereof, than loans
made on the security of an owner-occupied single-family property. See
"Description of the Trust Funds--Mortgage Loans--Default and Loss Considerations
with Respect to the Mortgage Loans". The ability of a borrower to repay a loan
secured by an income-producing property typically is dependent primarily upon
the successful operation of such property rather than upon the existence of
independent income or assets of the borrower; thus, the value of an
income-producing property is directly related to the net operating income
derived from such property. If the net operating income of the property is
reduced (for example, if rental or occupancy rates decline or real estate tax
rates or other operating expenses increase), the borrower's ability to repay the
loan may be impaired. A number of the Mortgage Loans may be secured by liens on
owner-occupied Mortgaged Properties or on Mortgaged Properties leased to a
single tenant or a small number of significant tenants. Accordingly, a decline
in the financial condition of the borrower or a significant tenant, as
applicable, may have a disproportionately greater effect on the net operating
income from such Mortgaged Properties than would be the case with respect to
Mortgaged Properties with multiple tenants. Furthermore, the value of any
Mortgaged Property may be adversely affected by factors
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generally incident to interests in real property, including changes in general
or local economic conditions and/or specific industry segments; declines in real
estate values; declines in rental or occupancy rates; increases in interest
rates, real estate tax rates and other operating expenses; changes in
governmental rules, regulations and fiscal policies, including environmental
legislation; natural disasters and civil disturbances such as earthquakes,
hurricanes, floods, eruptions or riots; and other circumstances, conditions or
events beyond the control of a Master Servicer.
Additional considerations may be presented by the type and use of a
particular Mortgaged Property. For instance, Mortgaged Properties that operate
as hospitals and nursing homes are subject to significant governmental
regulation of the ownership, operation, maintenance and financing of health care
institutions. Hotel and motel properties are often operated pursuant to
franchise, management or operating agreements that may be terminable by the
franchisor or operator, and the transferability of a hotel's operating, liquor
and other licenses upon a transfer of the hotel, whether through purchase or
foreclosure, is subject to local law requirements.
It is anticipated that some or all of the Mortgage Loans included in
any Trust Fund will be nonrecourse loans or loans for which recourse may be
restricted or unenforceable. As to any such Mortgage Loan, recourse in the event
of borrower default will be limited to the specific real property and other
assets, if any, that were pledged to secure the Mortgage Loan. However, even
with respect to those Mortgage Loans that provide for recourse against the
borrower and its assets generally, there can be no assurance that enforcement of
such recourse provisions will be practicable, or that the assets of the borrower
will be sufficient to permit a recovery in respect of a defaulted Mortgage Loan
in excess of the liquidation value of the related Mortgaged Property. See
"Certain Legal Aspects of Mortgage Loans--Foreclosure--Anti-Deficiency
Legislation".
Further, the concentration of default, foreclosure and loss risks in
individual Mortgage Loans in a particular Trust Fund will generally be greater
than for pools of single-family loans because Mortgage Loans in a Trust Fund
will generally consist of a smaller number of higher balance loans than would a
pool of single-family loans of comparable aggregate unpaid principal balance.
BALLOON PAYMENTS; BORROWER DEFAULT
Certain of the Mortgage Loans included in a Trust Fund may be
non-amortizing or only partially amortizing over their terms to maturity and,
thus, will require substantial payments of principal and interest (that is,
balloon payments) at their stated maturity. Mortgage Loans of this type involve
a greater likelihood of default than self-amortizing loans because the ability
of a borrower to make a balloon payment typically will depend upon its ability
either to refinance the loan or to sell the related Mortgaged Property. The
ability of a borrower to accomplish either of these goals will be affected by a
number of factors, including the value of the related Mortgaged Property, the
level of available mortgage rates at the time of sale or refinancing, the
borrower's equity in the related Mortgaged Property, the financial condition and
operating history of the borrower and the related Mortgaged Property, tax laws,
rent control laws (with respect to certain residential properties), Medicaid and
Medicare reimbursement rates (with respect to hospitals and nursing homes),
prevailing general economic conditions and the availability of credit for loans
secured by multifamily or commercial, as the case may be, real properties
generally. Neither the Depositor nor any of its affiliates will be required to
refinance any Mortgage Loan.
If and to the extent described herein and in the related Prospectus
Supplement, in order to maximize recoveries on defaulted Mortgage Loans, the
Master Servicer or a Special Servicer will be permitted (within prescribed
limits) to extend and modify Mortgage Loans that are in default or as to which a
payment default is imminent. See "The Pooling and Servicing
Agreements--Realization upon Defaulted Mortgage Loans". While a Master Servicer
or a Special Servicer generally will be required to determine that any such
extension or modification is reasonably likely to produce a greater recovery
than liquidation, taking into account the time value of money, there can be no
assurance that any such
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extension or modification will in fact increase the present value of receipts
from or proceeds of the affected Mortgage Loans.
LEASES AND RENTS
Each Mortgage Loan included in any Trust Fund secured by Mortgaged
Property that is subject to leases typically will be secured by an assignment of
leases and rents pursuant to which the borrower assigns to the lender its right,
title and interest as landlord under the leases of the related Mortgaged
Property, and the income derived therefrom, as further security for the related
Mortgage Loan, while retaining a license to collect rents for so long as there
is no default. If the borrower defaults, the license terminates and the lender
is entitled to collect rents. Some state laws may require that the lender take
possession of the Mortgaged Property and obtain a judicial appointment of a
receiver before becoming entitled to collect the rents. In addition, if
bankruptcy or similar proceedings are commenced by or in respect of the
borrower, the lender's ability to collect the rents may be adversely affected.
See "Certain Legal Aspects of Mortgage Loans--Leases and Rents".
ENVIRONMENTAL CONSIDERATIONS
Under the laws of certain states, contamination of real property may
give rise to a lien on the property to assure the costs of cleanup. In several
states, such a lien has priority over an existing mortgage lien on such
property. In addition, under the laws of some states and under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, a lender may be liable, as an "owner" or "operator", for costs of
addressing releases or threatened releases of hazardous substances at a
property, if agents or employees of the lender have become sufficiently involved
in the operations of the borrower, regardless of whether the environmental
damage or threat was caused by the borrower or a prior owner. A lender also
risks such liability on foreclosure of the mortgage.
DESCRIPTION OF THE TRUST FUNDS
GENERAL
The primary assets of each Trust Fund will consist of Mortgage Loans
(see "--Mortgage Loans" below), MBS (see "--MBS" below) or a combination of
Mortgage Loans and MBS. Each Trust Fund will be established by the Depositor.
Each Mortgage Asset will be selected by the Depositor for inclusion in a Trust
Fund from among those purchased, either directly or indirectly, from a prior
holder thereof (a "MORTGAGE ASSET SELLER"), which prior holder may or may not be
the originator of such Mortgage Loan or the issuer of such MBS and may be GMACCM
or another affiliate of the Depositor. The Mortgage Assets will not be
guaranteed or insured by the Depositor, GMACCM or any of their affiliates or,
unless otherwise provided in the related Prospectus Supplement, by any
governmental agency or instrumentality or by any other person. The discussion
below under the heading "--Mortgage Loans", unless otherwise noted, applies
equally to mortgage loans underlying any MBS included in a particular Trust
Fund.
MORTGAGE LOANS
GENERAL. The Mortgage Loans will be evidenced by promissory notes (the
"MORTGAGE NOTES") secured by mortgages, deeds of trust or similar security
instruments (the "MORTGAGES") that create first or junior liens on fee or
leasehold estates in properties (the "MORTGAGED PROPERTIES") consisting of (i)
residential properties consisting of five or more rental or cooperatively-owned
dwelling units in high-rise, mid-rise or garden apartment buildings or other
residential structures ("MULTIFAMILY PROPERTIES") or (ii) office buildings,
retail stores and establishments, hotels or motels, nursing homes, hospitals or
other health care-related facilities, mobile home parks, warehouse facilities,
mini-warehouse
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facilities, self-storage facilities, industrial plants, parking lots, mixed use
or various other types of income-producing properties or unimproved land
("COMMERCIAL PROPERTIES"). The Multifamily Properties may include mixed
commercial and residential structures and apartment buildings owned by private
cooperative housing corporations ("COOPERATIVES"). Unless otherwise specified in
the related Prospectus Supplement, each Mortgage will create a first priority
mortgage lien on a borrower's fee estate in a Mortgaged Property. If a Mortgage
creates a lien on a borrower's leasehold estate in a property, then, unless
otherwise specified in the related Prospectus Supplement, the term of any such
leasehold will exceed the term of the Mortgage Note by at least ten years.
Unless otherwise specified in the related Prospectus Supplement, each Mortgage
Loan will have been originated by a person (the "ORIGINATOR") other than the
Depositor; however, the Originator may be GMACCM or, alternatively, may be or
may have been another affiliate of the Depositor.
If so provided in the related Prospectus Supplement, Mortgage Assets
for a series of Certificates may include Mortgage Loans secured by junior liens,
and the loans secured by the related senior liens ("SENIOR LIENS") may not be
included in the Mortgage Pool. The primary risk to holders of Mortgage Loans
secured by junior liens is the possibility that adequate funds will not be
received in connection with a foreclosure of the related Senior Liens to satisfy
fully both the Senior Liens and the Mortgage Loan. In the event that a holder of
a Senior Lien forecloses on a Mortgaged Property, the proceeds of the
foreclosure or similar sale will be applied first to the payment of court costs
and fees in connection with the foreclosure, second to real estate taxes, third
in satisfaction of all principal, interest, prepayment or acceleration
penalties, if any, and any other sums due and owing to the holder of the Senior
Liens. The claims of the holders of the Senior Liens will be satisfied in full
out of proceeds of the liquidation of the related Mortgage Property, if such
proceeds are sufficient, before the Trust Fund as holder of the junior lien
receives any payments in respect of the Mortgage Loan. If the Master Servicer
were to foreclose on any Mortgage Loan, it would do so subject to any related
Senior Liens. In order for the debt related to such Mortgage Loan to be paid in
full at such sale, a bidder at the foreclosure sale of such Mortgage Loan would
have to bid an amount sufficient to pay off all sums due under the Mortgage Loan
and any Senior Liens or purchase the Mortgaged Property subject to such Senior
Liens. In the event that such proceeds from a foreclosure or similar sale of the
related Mortgaged Property are insufficient to satisfy all Senior Liens and the
Mortgage Loan in the aggregate, the Trust Fund, as the holder of the junior
lien, and, accordingly, holders of one or more classes of the Certificates of
the related series bear (i) the risk of delay in distributions while a
deficiency judgment against the borrower is obtained and (ii) the risk of loss
if the deficiency judgment is not realized upon. Moreover, deficiency judgments
may not be available in certain jurisdictions or the Mortgage Loan may be
nonrecourse.
If so specified in the related Prospectus Supplement, Mortgage Assets
for a series of Certificates may include Mortgage Loans made on the security of
real estate projects under construction. In that case, the related Prospectus
Supplement will describe the procedures and timing for making disbursements from
construction reserve funds as portions of the related real estate project are
completed. In addition, the Mortgage Assets for a particular series of
Certificates may include Mortgage Loans that are delinquent or non-performing as
of the date such Certificates are issued. In that case, the related Prospectus
Supplement will set forth, as to each such Mortgage Loan, available information
as to the period of such delinquency or non-performance, any forbearance
arrangement then in effect, the condition of the related Mortgaged Property and
the ability of the Mortgaged Property to generate income to service the mortgage
debt.
DEFAULT AND LOSS CONSIDERATIONS WITH RESPECT TO THE MORTGAGE LOANS.
Mortgage loans secured by liens on income-producing properties are substantially
different from loans made on the security of owner-occupied single-family homes.
The repayment of a loan secured by a lien on an income-producing property is
typically dependent upon the successful operation of such property (that is, its
ability to generate income). Moreover, some or all of the Mortgage Loans
included in a particular Trust Fund may be non-recourse loans, which means that,
absent special facts, recourse in the case of default will be
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limited to the Mortgaged Property and such other assets, if any, that were
pledged to secure repayment of the Mortgage Loan.
Lenders typically look to the Debt Service Coverage Ratio of a loan
secured by income-producing property as an important factor in evaluating the
likelihood of default on such a loan. Unless otherwise defined in the related
Prospectus Supplement, the "DEBT SERVICE COVERAGE RATIO" of a Mortgage Loan at
any given time is the ratio of (i) the Net Operating Income derived from the
related Mortgaged Property for a twelve-month period to (ii) the annualized
scheduled payments of principal and/or interest on the Mortgage Loan and any
other loans senior thereto that are secured by the related Mortgaged Property.
Unless otherwise defined in the related Prospectus Supplement, "NET OPERATING
INCOME" means, for any given period, the total operating revenues derived from a
Mortgaged Property during such period, minus the total operating expenses
incurred in respect of such Mortgaged Property during such period other than (i)
non-cash items such as depreciation and amortization, (ii) capital expenditures
and (iii) debt service on the related Mortgage Loan or on any other loans that
are secured by such Mortgaged Property. The Net Operating Income of a Mortgaged
Property will generally fluctuate over time and may or may not be sufficient to
cover debt service on the related Mortgage Loan at any given time. As the
primary source of the operating revenues of a non-owner occupied,
income-producing property, rental income (and, with respect to a Mortgage Loan
secured by a Cooperative apartment building, maintenance payments from
tenant-stockholders of a Cooperative) may be affected by the condition of the
applicable real estate market and/or area economy. In addition, properties
typically leased, occupied or used on a short-term basis, such as certain health
care-related facilities, hotels and motels, and mini-warehouse and self-storage
facilities, tend to be affected more rapidly by changes in market or business
conditions than do properties typically leased for longer periods, such as
warehouses, retail stores, office buildings and industrial plants. Commercial
Properties may be owner-occupied or leased to a small number of tenants. Thus,
the Net Operating Income of such a Mortgaged Property may depend substantially
on the financial condition of the borrower or a tenant, and Mortgage Loans
secured by liens on such properties may pose a greater likelihood of default and
loss than loans secured by liens on Multifamily Properties or on multi-tenant
Commercial Properties.
Increases in operating expenses due to the general economic climate or
economic conditions in a locality or industry segment, such as increases in
interest rates, real estate tax rates, energy costs, labor costs and other
operating expenses, and/or to changes in governmental rules, regulations and
fiscal policies, may also affect the likelihood of default on a Mortgage Loan.
As may be further described in the related Prospectus Supplement, in some cases
leases of Mortgaged Properties may provide that the lessee, rather than the
borrower/landlord, is responsible for payment of operating expenses ("NET
LEASES"). However, the existence of such "net of expense" provisions will result
in stable Net Operating Income to the borrower/landlord only to the extent that
the lessee is able to absorb operating expense increases while continuing to
make rent payments.
Lenders also look to the Loan-to-Value Ratio of a mortgage loan as a
factor in evaluating the likelihood of loss if a property must be liquidated
following a default. Unless otherwise defined in the related Prospectus
Supplement, the "LOAN-TO-VALUE RATIO" of a Mortgage Loan at any given time is
the ratio (expressed as a percentage) of (i) the then outstanding principal
balance of the Mortgage Loan and any other loans senior thereto that are secured
by the related Mortgaged Property to (ii) the Value of the related Mortgaged
Property. Unless otherwise specified in the related Prospectus Supplement, the
"VALUE" of a Mortgaged Property will be its fair market value determined in an
appraisal obtained by the Originator at the origination of such loan. The lower
the Loan-to-Value Ratio, the greater the percentage of the borrower's equity in
a Mortgaged Property, and thus (a) the greater the incentive of the borrower to
perform under the terms of the related Mortgage Loan (in order to protect such
equity) and (b) the greater the cushion provided to the lender against loss on
liquidation following a default.
Loan-to-Value Ratios will not necessarily constitute an accurate
measure of the likelihood of liquidation loss in a pool of Mortgage Loans. For
example, the value of a Mortgaged Property as of the
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date of initial issuance of the related series of Certificates may be less than
the Value determined at loan origination, and will likely continue to fluctuate
from time to time based upon certain factors including changes in economic
conditions and the real estate market. Moreover, even when current, an appraisal
is not necessarily a reliable estimate of value. Appraised values of
income-producing properties are generally based on the market comparison method
(recent resale value of comparable properties at the date of the appraisal), the
cost replacement method (the cost of replacing the property at such date), the
income capitalization method (a projection of value based upon the property's
projected net cash flow), or upon a selection from or interpolation of the
values derived from such methods. Each of these appraisal methods can present
analytical difficulties. It is often difficult to find truly comparable
properties that have recently been sold; the replacement cost of a property may
have little to do with its current market value; and income capitalization is
inherently based on inexact projections of income and expense and the selection
of an appropriate capitalization rate and discount rate. Where more than one of
these appraisal methods are used and provide significantly different results, an
accurate determination of value and, correspondingly, a reliable analysis of the
likelihood of default and loss, is even more difficult.
Although there may be multiple methods for determining the value of a
Mortgaged Property, value will in all cases be affected by property performance.
As a result, if a Mortgage Loan defaults because the income generated by the
related Mortgaged Property is insufficient to cover operating costs and expenses
and pay debt service, then the value of the Mortgaged Property will reflect such
and a liquidation loss may occur.
While the Depositor believes that the foregoing considerations are
important factors that generally distinguish loans secured by liens on
income-producing real estate from single-family mortgage loans, there can be no
assurance that all of such factors will in fact have been prudently considered
by the Originators of the Mortgage Loans, or that, for a particular Mortgage
Loan, they are complete or relevant. See "Risk Factors--Investment in Commercial
and Multifamily Mortgage Loans" and "--Balloon Payments; Borrower Default".
Payment Provisions of the Mortgage Loans. Unless otherwise specified in
the related Prospectus Supplement, all of the Mortgage Loans will (i) have had
original terms to maturity of not more than 40 years and (ii) provide for
scheduled payments of principal, interest or both, to be made on specified dates
("DUE DATES") that occur monthly, quarterly, semi-annually or annually. A
Mortgage Loan (i) may provide for no accrual of interest or for accrual of
interest thereon at a Mortgage Rate that is fixed over its term or that adjusts
from time to time, or that may be converted at the borrower's election from an
adjustable to a fixed Mortgage Rate, or from a fixed to an adjustable Mortgage
Rate, (ii) may provide for level payments to maturity or for payments that
adjust from time to time to accommodate changes in the Mortgage Rate or to
reflect the occurrence of certain events, and may permit negative amortization,
(iii) may be fully amortizing or may be partially amortizing or non-amortizing,
with a balloon payment due on its stated maturity date, and (iv) may prohibit
over its term or for a certain period prepayments (the period of such
prohibition, a "LOCK-OUT PERIOD" and its date of expiration, a "LOCK-OUT DATE")
and/or require payment of a premium or a yield maintenance penalty (a
"PREPAYMENT PREMIUM") in connection with certain prepayments, in each case as
described in the related Prospectus Supplement. A Mortgage Loan may also contain
a provision that entitles the lender to a share of appreciation of the related
Mortgaged Property, or profits realized from the operation or disposition of
such Mortgaged Property or the benefit, if any, resulting from the refinancing
of the Mortgage Loan (any such provision, an "EQUITY PARTICIPATION"), as
described in the related Prospectus Supplement.
MORTGAGE LOAN INFORMATION IN PROSPECTUS SUPPLEMENTS. Each Prospectus
Supplement will contain certain information pertaining to the Mortgage Loans in
the related Trust Fund, which, to the extent then applicable and specifically
known to the Depositor, will generally include the following: (i) the aggregate
outstanding principal balance and the largest, smallest and average outstanding
principal balance of the Mortgage Loans, (ii) the type or types of property that
provide security for repayment of the Mortgage
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Loans, (iii) the earliest and latest origination date and maturity date of the
Mortgage Loans, (iv) the original and remaining terms to maturity of the
Mortgage Loans, or the respective ranges thereof, and the weighted average
original and remaining terms to maturity of the Mortgage Loans, (v) the
Loan-to-Value Ratios of the Mortgage Loans (either at origination or as of a
more recent date), or the range thereof, and the weighted average of such
Loan-to-Value Ratios, (vi) the Mortgage Rates borne by the Mortgage Loans, or
range thereof, and the weighted average Mortgage Rate borne by the Mortgage
Loans, (vii) with respect to Mortgage Loans with adjustable Mortgage Rates ("ARM
LOANS"), the index or indices upon which such adjustments are based, the
adjustment dates, the range of gross margins and the weighted average gross
margin, and any limits on Mortgage Rate adjustments at the time of any
adjustment and over the life of the ARM Loan, (viii) information regarding the
payment characteristics of the Mortgage Loans, including, without limitation,
balloon payment and other amortization provisions, Lock-out Periods and
Prepayment Premiums, (ix) the Debt Service Coverage Ratios of the Mortgage Loans
(either at origination or as of a more recent date), or the range thereof, and
the weighted average of such Debt Service Coverage Ratios, and (x) the
geographic distribution of the Mortgaged Properties on a state-by-state basis.
In appropriate cases, the related Prospectus Supplement will also contain
certain information available to the Depositor that pertains to the provisions
of leases and the nature of tenants of the Mortgaged Properties. If the
Depositor is unable to provide the specific information described above at the
time Offered Certificates of a series are initially offered, more general
information of the nature described above will be provided in the related
Prospectus Supplement, and specific information will be set forth in a report
which will be available to purchasers of those Certificates at or before the
initial issuance thereof and will be filed as part of a Current Report on Form
8-K with the Commission within fifteen days following such issuance.
MBS
MBS may include (i) private-label (that is, not guaranteed or insured
by the United States or any agency or instrumentality thereof) mortgage
participations, mortgage pass-through certificates or other mortgage-backed
securities or (ii) certificates insured or guaranteed by the Federal Home Loan
Mortgage Corporation ("FHLMC"), the Federal National Mortgage Association
("FNMA"), the Governmental National Mortgage Association or the Federal
Agricultural Mortgage Corporation ("FAMC"), provided that, unless otherwise
specified in the related Prospectus Supplement, each MBS will evidence an
interest in, or will be secured by a pledge of, mortgage loans that conform to
the descriptions of the Mortgage Loans contained herein.
Any MBS will have been issued pursuant to a participation and servicing
agreement, a pooling and servicing agreement, an indenture or similar agreement
(an "MBS AGREEMENT"). The issuer of the MBS (the "MBS ISSUER") and/or the
servicer of the underlying mortgage loans (the "MBS SERVICER") will have entered
into the MBS Agreement, generally with a trustee (the "MBS TRUSTEE") or, in the
alternative, with the original purchaser or purchasers of the MBS.
The MBS may have been issued in one or more classes with
characteristics similar to the classes of Certificates described herein.
Distributions in respect of the MBS will be made by the MBS Issuer, the MBS
Servicer or the MBS Trustee on the dates specified in the related Prospectus
Supplement. The MBS Issuer or the MBS Servicer or another person specified in
the related Prospectus Supplement may have the right or obligation to repurchase
or substitute assets underlying the MBS after a certain date or under other
circumstances specified in the related Prospectus Supplement.
Reserve funds, subordination or other credit support similar to that
described for the Certificates under "Description of Credit Support" may have
been provided with respect to the MBS. The type, characteristics and amount of
such credit support, if any, will be a function of the characteristics of the
underlying mortgage loans and other factors and generally will have been
established on the basis of the requirements of any Rating Agency that may have
assigned a rating to the MBS, or by the initial purchasers of the MBS.
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The Prospectus Supplement for a series of Certificates that evidence
interests in MBS will specify, to the extent available, (i) the aggregate
approximate initial and outstanding principal amount and type of the MBS to be
included in the Trust Fund, (ii) the original and remaining term to stated
maturity of the MBS, if applicable, (iii) the pass-through or bond rate of the
MBS or the formula for determining such rates, (iv) the payment characteristics
of the MBS, (v) the MBS Issuer, MBS Servicer and MBS Trustee, as applicable,
(vi) a description of the credit support, if any, (vii) the circumstances under
which the related underlying mortgage loans, or the MBS themselves, may be
purchased prior to their maturity, (viii) the terms on which mortgage loans may
be substituted for those originally underlying the MBS, (ix) the type of
mortgage loans underlying the MBS and, to the extent available to the Depositor
and appropriate under the circumstances, such other information in respect of
the underlying mortgage loans described under "--Mortgage Loans--Mortgage Loan
Information in Prospectus Supplements", and (x) the characteristics of any cash
flow agreements that relate to the MBS.
CERTIFICATE ACCOUNTS
Each Trust Fund will include one or more accounts (collectively, the
"Certificate Account") established and maintained on behalf of the
Certificateholders into which all payments and collections received or advanced
with respect to the Mortgage Assets and other assets in the Trust Fund will be
deposited to the extent described herein and in the related Prospectus
Supplement. See "The Pooling and Servicing Agreements--Certificate Account".
CREDIT SUPPORT
If so provided in the Prospectus Supplement for a series of
Certificates, partial or full protection against certain defaults and losses on
the Mortgage Assets in the related Trust Fund may be provided to one or more
classes of Certificates of such series in the form of subordination of one or
more other classes of Certificates of such series or by one or more other types
of credit support, such as a letter of credit, insurance policy, guarantee or
reserve fund, among others, or a combination thereof. The amount and types of
Credit Support, the identification of the entity providing it (if applicable)
and related information with respect to each type of Credit Support, if any,
will be set forth in the Prospectus Supplement for a series of Certificates. See
"Risk Factors--Credit Support Limitations" and "Description of Credit Support".
CASH FLOW AGREEMENTS
If so provided in the Prospectus Supplement for a series of
Certificates, the related Trust Fund may include guaranteed investment contracts
pursuant to which moneys held in the funds and accounts established for such
series will be invested at a specified rate. The Trust Fund may also include
certain other agreements, such as interest rate exchange agreements, interest
rate cap or floor agreements, or other agreements designed to reduce the effects
of interest rate fluctuations on the Mortgage Assets on one or more classes of
Certificates. The principal terms of any such Cash Flow Agreement, including,
without limitation, provisions relating to the timing, manner and amount of
payments thereunder and provisions relating to the termination thereof, will be
described in the related Prospectus Supplement. The related Prospectus
Supplement will also identify the obligor under the Cash Flow Agreement.
YIELD AND MATURITY CONSIDERATIONS
GENERAL
The yield on any Offered Certificate will depend on the price paid by
the Certificateholder, the Pass-Through Rate of the Certificate and the amount
and timing of distributions on the Certificate. See "Risk Factors--Yield and
Prepayment Considerations". The following discussion contemplates a Trust Fund
that consists solely of Mortgage Loans. While the characteristics and behavior
of mortgage loans
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underlying an MBS can generally be expected to have the same effect on the yield
to maturity and/or weighted average life of a class of Certificates as will the
characteristics and behavior of comparable Mortgage Loans, the effect may differ
due to the payment characteristics of the MBS. If a Trust Fund includes MBS, the
related Prospectus Supplement will discuss the effect, if any, that the payment
characteristics of the MBS may have on the yield to maturity and weighted
average lives of the Offered Certificates of the related series.
PASS-THROUGH RATE
The Certificates of any class within a series may have a fixed,
variable or adjustable Pass-Through Rate, which may or may not be based upon the
interest rates borne by the Mortgage Loans in the related Trust Fund. The
Prospectus Supplement with respect to any series of Certificates will specify
the Pass-Through Rate for each class of Offered Certificates of such series or,
in the case of a class of Offered Certificates with a variable or adjustable
Pass-Through Rate, the method of determining the Pass-Through Rate; the effect,
if any, of the prepayment of any Mortgage Loan on the Pass-Through Rate of one
or more classes of Offered Certificates; and whether the distributions of
interest on the Offered Certificates of any class will be dependent, in whole or
in part, on the performance of any obligor under a Cash Flow Agreement.
PAYMENT DELAYS
With respect to any series of Certificates, a period of time will
elapse between the date upon which payments on the Mortgage Loans in the related
Trust Fund are due and the Distribution Date on which such payments are passed
through to Certificateholders. That delay will effectively reduce the yield that
would otherwise be produced if payments on such Mortgage Loans were distributed
to Certificateholders on the date they were due.
CERTAIN SHORTFALLS IN COLLECTIONS OF INTEREST
When a principal prepayment in full or in part is made on a Mortgage
Loan, the borrower is generally charged interest on the amount of such
prepayment only through the date of such prepayment, instead of through the Due
Date for the next succeeding scheduled payment. However, interest accrued on any
series of Certificates and distributable thereon on any Distribution Date will
generally correspond to interest accrued on the Mortgage Loans to their
respective Due Dates during the related Due Period. Unless otherwise specified
in the Prospectus Supplement for a series of Certificates, a "DUE PERIOD" will
be a specified time period (generally running from the second day of one month
to the first day of the next month, inclusive) and all scheduled payments on the
Mortgage Loans in the related Trust Fund that are due during a given Due Period
will, to the extent received by a specified date (the "DETERMINATION DATE") or
otherwise advanced by the related Master Servicer or other specified person, be
distributed to the holders of the Certificates of such series on the next
succeeding Distribution Date. Consequently, if a prepayment on any Mortgage Loan
is distributable to Certificateholders on a particular Distribution Date, but
such prepayment is not accompanied by interest thereon to the Due Date for such
Mortgage Loan in the related Due Period, then the interest charged to the
borrower (net of servicing and administrative fees) may be less (such shortfall,
a "PREPAYMENT INTEREST SHORTFALL") than the corresponding amount of interest
accrued and otherwise payable on the Certificates of the related series. If and
to the extent that any such shortfall is allocated to a class of Offered
Certificates, the yield thereon will be adversely affected. The Prospectus
Supplement for each series of Certificates will describe the manner in which any
such shortfalls will be allocated among the classes of such Certificates. The
related Prospectus Supplement will also describe any amounts available to offset
such shortfalls.
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YIELD AND PREPAYMENT CONSIDERATIONS
A Certificate's yield to maturity will be affected by the rate of
principal payments on the Mortgage Loans in the related Trust Fund and the
allocation thereof to reduce the principal balance (or notional amount, if
applicable) of such Certificate. The rate of principal payments on the Mortgage
Loans in any Trust Fund will in turn be affected by the amortization schedules
thereof (which, in the case of ARM Loans, may change periodically to accommodate
adjustments to the Mortgage Rates thereon), the dates on which any balloon
payments are due, and the rate of principal prepayments thereon (including for
this purpose, voluntary prepayments by borrowers and also prepayments resulting
from liquidations of Mortgage Loans due to defaults, casualties or condemnations
affecting the Mortgaged Properties, or purchases of Mortgage Loans out of the
related Trust Fund). Because the rate of principal prepayments on the Mortgage
Loans in any Trust Fund will depend on future events and a variety of factors
(as described below), no assurance can be given as to such rate.
The extent to which the yield to maturity of a class of Offered
Certificates of any series may vary from the anticipated yield will depend upon
the degree to which they are purchased at a discount or premium and when, and to
what degree, payments of principal on the Mortgage Loans in the related Trust
Fund are in turn distributed on such Certificates (or, in the case of a class of
Stripped Interest Certificates, result in the reduction of the Notional Amount
thereof). An investor should consider, in the case of any Offered Certificate
purchased at a discount, the risk that a slower than anticipated rate of
principal payments on the Mortgage Loans in the related Trust Fund could result
in an actual yield to such investor that is lower than the anticipated yield
and, in the case of any Offered Certificate purchased at a premium, the risk
that a faster than anticipated rate of principal payments on such Mortgage Loans
could result in an actual yield to such investor that is lower than the
anticipated yield. In addition, if an investor purchases an Offered Certificate
at a discount (or premium), and principal payments are made in reduction of the
principal balance or notional amount of such investor's Offered Certificates at
a rate slower (or faster) than the rate anticipated by the investor during any
particular period, the consequent adverse effects on such investor's yield would
not be fully offset by a subsequent like increase (or decrease) in the rate of
principal payments.
In general, the Notional Amount of a class of Stripped Interest
Certificates will either (i) be based on the principal balances of some or all
of the Mortgage Assets in the related Trust Fund or (ii) equal the Certificate
Balances of one or more of the other classes of Certificates of the same series.
Accordingly, the yield on such Stripped Interest Certificates will be inversely
related to the rate at which payments and other collections of principal are
received on such Mortgage Assets or distributions are made in reduction of the
Certificate Balances of such classes of Certificates, as the case may be.
Consistent with the foregoing, if a class of Certificates of any series
consists of Stripped Interest Certificates or Stripped Principal Certificates, a
lower than anticipated rate of principal prepayments on the Mortgage Loans in
the related Trust Fund will negatively affect the yield to investors in Stripped
Principal Certificates, and a higher than anticipated rate of principal
prepayments on such Mortgage Loans will negatively affect the yield to investors
in Stripped Interest Certificates. If the Offered Certificates of a series
include any such Certificates, the related Prospectus Supplement will include a
table showing the effect of various constant assumed levels of prepayment on
yields on such Certificates. Such tables will be intended to illustrate the
sensitivity of yields to various constant assumed prepayment rates and will not
be intended to predict, or to provide information that will enable investors to
predict, yields or prepayment rates.
The Depositor is not aware of any relevant publicly available or
authoritative statistics with respect to the historical prepayment experience of
a group of multifamily or commercial mortgage loans. However, the extent of
prepayments of principal of the Mortgage Loans in any Trust Fund may be affected
by a number of factors, including, without limitation, the availability of
mortgage credit, the relative economic vitality of the area in which the
Mortgaged Properties are located, the quality of
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management of the Mortgaged Properties, the servicing of the Mortgage Loans,
possible changes in tax laws and other opportunities for investment. In
addition, the rate of principal payments on the Mortgage Loans in any Trust Fund
may be affected by the existence of Lock-out Periods and requirements that
principal prepayments be accompanied by Prepayment Premiums, and by the extent
to which such provisions may be practicably enforced. To the extent enforceable,
such provisions could constitute either an absolute prohibition (in the case of
a Lock-out Period) or a disincentive (in the case of a Prepayment Premium) to a
borrower's voluntarily prepaying its Mortgage Loan.
The rate of prepayment on a pool of mortgage loans is likely to be
affected by prevailing market interest rates for mortgage loans of a comparable
type, term and risk level. When the prevailing market interest rate is below a
mortgage coupon, a borrower may have an increased incentive to refinance its
mortgage loan. Even in the case of ARM Loans, as prevailing market interest
rates decline, and without regard to whether the Mortgage Rates on such ARM
Loans decline in a manner consistent therewith, the related borrowers may have
an increased incentive to refinance for purposes of either (i) converting to a
fixed rate loan and thereby "locking in" such rate or (ii) taking advantage of a
different index, margin or rate cap or floor on another adjustable rate mortgage
loan.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some borrowers may sell
Mortgaged Properties in order to realize their equity therein, to meet cash flow
needs or to make other investments. In addition, some borrowers may be motivated
by federal and state tax laws (which are subject to change) to sell Mortgaged
Properties prior to the exhaustion of tax depreciation benefits. The Depositor
makes no representation as to the particular factors that will affect the
prepayment of the Mortgage Loans in any Trust Fund, as to the relative
importance of such factors, as to the percentage of the principal balance of
such Mortgage Loans that will be paid as of any date or as to the overall rate
of prepayment on such Mortgage Loans.
WEIGHTED AVERAGE LIFE AND MATURITY
The rate at which principal payments are received on the Mortgage Loans
in any Trust Fund will affect the ultimate maturity and the weighted average
life of one or more classes of the Certificates of such series. Unless otherwise
specified in the related Prospectus Supplement, weighted average life refers to
the average amount of time that will elapse from the date of issuance of an
instrument until each dollar allocable as principal of such instrument is repaid
to the investor.
The weighted average life and maturity of a class of Certificates of
any series will be influenced by the rate at which principal on the related
Mortgage Loans, whether in the form of scheduled amortization or prepayments
(for this purpose, the term "prepayment" includes voluntary prepayments,
liquidations due to default and purchases of Mortgage Loans out of the related
Trust Fund), is paid to such class. Prepayment rates on loans are commonly
measured relative to a prepayment standard or model, such as the Constant
Prepayment Rate ("CPR") prepayment model or the Standard Prepayment Assumption
("SPA") prepayment model. CPR represents an assumed constant rate of prepayment
each month (expressed as an annual percentage) relative to the then outstanding
principal balance of a pool of loans for the life of such loans. SPA represents
an assumed variable rate of prepayment each month (expressed as an annual
percentage) relative to the then outstanding principal balance of a pool of
loans, with different prepayment assumptions often expressed as percentages of
SPA. For example, a prepayment assumption of 100% of SPA assumes prepayment
rates of 0.2% per annum of the then outstanding principal balance of such loans
in the first month of the life of the loans and an additional 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 loans, 100% of SPA
assumes a constant prepayment rate of 6% per annum each month.
Neither CPR nor SPA nor any other prepayment model or assumption
purports to be a historical description of prepayment experience or a prediction
of the anticipated rate of prepayment of any
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particular pool of loans. Moreover, the CPR and SPA models were developed based
upon historical prepayment experience for single-family loans. Thus, it is
unlikely that the prepayment experience of the Mortgage Loans included in any
Trust Fund will conform to any particular level of CPR or SPA.
The Prospectus Supplement with respect to each series of Certificates
will contain tables, if applicable, setting forth the projected weighted average
life of each class of Offered Certificates of such series and the percentage of
the initial Certificate Balance of each such class that would be outstanding on
specified Distribution Dates based on the assumptions stated in such Prospectus
Supplement, including assumptions that prepayments on the related Mortgage Loans
are made at rates corresponding to various percentages of CPR or SPA, or at such
other rates specified in such Prospectus Supplement. Such tables and assumptions
will illustrate the sensitivity of the weighted average lives of the
Certificates to various assumed prepayment rates and will not be intended to
predict, or to provide information that will enable investors to predict, the
actual weighted average lives of the Certificates.
OTHER FACTORS AFFECTING YIELD, WEIGHTED AVERAGE LIFE AND MATURITY
BALLOON PAYMENTS; EXTENSIONS OF MATURITY. Some or all of the Mortgage
Loans included in a particular Trust Fund may require that balloon payments be
made at maturity. Because the ability of a borrower to make a balloon payment
typically will depend upon its ability either to refinance the loan or to sell
the related Mortgaged Property, there is a possibility that Mortgage Loans that
require balloon payments may default at maturity, or that the maturity of such a
Mortgage Loan may be extended in connection with a workout. In the case of
defaults, recovery of proceeds may be delayed by, among other things, bankruptcy
of the borrower or adverse conditions in the market where the property is
located. In order to minimize losses on defaulted Mortgage Loans, the Master
Servicer or a Special Servicer, to the extent and under the circumstances set
forth herein and in the related Prospectus Supplement, may be authorized to
modify Mortgage Loans that are in default or as to which a payment default is
imminent. Any defaulted balloon payment or modification that extends the
maturity of a Mortgage Loan may delay distributions of principal on a class of
Offered Certificates and thereby extend the weighted average life of such
Certificates and, if such Certificates were purchased at a discount, reduce the
yield thereon.
NEGATIVE AMORTIZATION. The weighted average life of a class of
Certificates can be affected by Mortgage Loans that permit negative amortization
to occur. A Mortgage Loan that provides for the payment of interest calculated
at a rate lower than the rate at which interest accrues thereon would, in the
case of an ARM Loan, be expected during a period of increasing interest rates to
amortize at a slower rate (and perhaps not at all) than if interest rates were
declining or were remaining constant. Such slower rate of Mortgage Loan
amortization would correspondingly be reflected in a slower rate of amortization
for one or more classes of Certificates of the related series. In addition,
negative amortization on one or more Mortgage Loans in any Trust Fund may result
in negative amortization on the Certificates of the related series. The related
Prospectus Supplement will describe, if applicable, the manner in which negative
amortization in respect of the Mortgage Loans in any Trust Fund is allocated
among the respective classes of Certificates of the related series. The portion
of any Mortgage Loan negative amortization allocated to a class of Certificates
may result in a deferral of some or all of the interest payable thereon, which
deferred interest may be added to the Certificate Balance thereof. Accordingly,
the weighted average lives of Mortgage Loans that permit negative amortization
(and that of the classes of Certificates to which any such negative amortization
would be allocated or that would bear the effects of a slower rate of
amortization on such Mortgage Loans) may increase as a result of such feature.
Negative amortization also may occur in respect of an ARM Loan that (i)
limits the amount by which its scheduled payment may adjust in response to a
change in its Mortgage Rate, (ii) provides that its scheduled payment will
adjust less frequently than its Mortgage Rate or (iii) provides for constant
scheduled payments notwithstanding adjustments to its Mortgage Rate.
Accordingly, during a period of declining interest rates, the scheduled payment
on such a Mortgage Loan may exceed the amount
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necessary to amortize the loan fully over its remaining amortization schedule
and pay interest at the then applicable Mortgage Rate, thereby resulting in the
accelerated amortization of such Mortgage Loan. Any such acceleration in
amortization of its principal balance will shorten the weighted average life of
such Mortgage Loan and, correspondingly, the weighted average lives of those
classes of Certificates entitled to a portion of the principal payments on such
Mortgage Loan.
The extent to which the yield on any Offered Certificate will be
affected by the inclusion in the related Trust Fund of Mortgage Loans that
permit negative amortization, will depend upon (i) whether such Offered
Certificate was purchased at a premium or a discount and (ii) the extent to
which the payment characteristics of such Mortgage Loans delay or accelerate the
distributions of principal on such Certificate (or, in the case of a Stripped
Interest Certificate, delay or accelerate the reduction of the notional amount
thereof). See "--Yield and Prepayment Considerations" above.
FORECLOSURES AND PAYMENT PLANS. The number of foreclosures and the
principal amount of the Mortgage Loans that are foreclosed in relation to the
number and principal amount of Mortgage Loans that are repaid in accordance with
their terms will affect the weighted average lives of those Mortgage Loans and,
accordingly, the weighted average lives of and yields on the Certificates of the
related series. Servicing decisions made with respect to the Mortgage Loans,
including the use of payment plans prior to a demand for acceleration and the
restructuring of Mortgage Loans in bankruptcy proceedings or otherwise, may also
have an effect upon the payment patterns of particular Mortgage Loans and thus
the weighted average lives of and yields on the Certificates of the related
series.
LOSSES AND SHORTFALLS ON THE MORTGAGE ASSETS. The yield to holders of
the Offered Certificates of any series will directly depend on the extent to
which such holders are required to bear the effects of any losses or shortfalls
in collections arising out of defaults on the Mortgage Loans in the related
Trust Fund and the timing of such losses and shortfalls. In general, the earlier
that any such loss or shortfall occurs, the greater will be the negative effect
on yield for any class of Certificates that is required to bear the effects
thereof.
The amount of any losses or shortfalls in collections on the Mortgage
Assets in any Trust Fund (to the extent not covered or offset by draws on any
reserve fund or under any instrument of Credit Support) will be allocated among
the respective classes of Certificates of the related series in the priority and
manner, and subject to the limitations, specified in the related Prospectus
Supplement. As described in the related Prospectus Supplement, such allocations
may be effected by a reduction in the entitlements to interest and/or
Certificate Balances of one or more such classes of Certificates, and/or by
establishing a priority of payments among such classes of Certificates.
The yield to maturity on a class of Subordinate Certificates may be
extremely sensitive to losses and shortfalls in collections on the Mortgage
Loans in the related Trust Fund.
ADDITIONAL CERTIFICATE AMORTIZATION. In addition to entitling the
holders thereof to a specified portion (which may during specified periods range
from none to all) of the principal payments received on the Mortgage Assets in
the related Trust Fund, one or more classes of Certificates of any series,
including one or more classes of Offered Certificates of such series, may
provide for distributions of principal thereof from (i) amounts attributable to
interest accrued but not currently distributable on one or more classes of
Accrual Certificates, (ii) Excess Funds or (iii) any other amounts described in
the related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, "EXCESS FUNDS" will, in general, represent that portion
of the amounts distributable in respect of the Certificates of any series on any
Distribution Date that represent (i) interest received or advanced on the
Mortgage Assets in the related Trust Fund that is in excess of the interest
currently accrued on the Certificates of such series, or (ii) Prepayment
Premiums, payments from Equity Participations or any other amounts received on
the Mortgage Assets in the related Trust Fund that do not constitute interest
thereon or principal thereof.
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The amortization of any class of Certificates out of the sources
described in the preceding paragraph would shorten the weighted average life of
such Certificates and, if such Certificates were purchased at a premium, reduce
the yield thereon. The related Prospectus Supplement will discuss the relevant
factors to be considered in determining whether distributions of principal of
any class of Certificates out of such sources is likely to have any material
effect on the rate at which such Certificates are amortized and the consequent
yield with respect thereto.
OPTIONAL EARLY TERMINATION. The Master Servicer, the Depositor or, if
specified in the related Prospectus Supplement, the holder of the residual
interest in a REMIC may at its option either (i) effect early retirement of a
series of Certificates through the purchase of the assets in the related Trust
Fund or (ii) purchase, in whole but not in part, the Certificates specified in
the related Prospectus Supplement; in each case under the circumstances and in
the manner set forth herein under "Description of the Certificates--Termination;
Retirement of Certificates" and in the related Prospectus Supplement. In the
absence of other factors, any such early retirement of a class of Offered
Certificates would shorten the weighted average life thereof and, if such
Certificates were purchased at premium, reduce the yield thereon.
THE DEPOSITOR
GMAC Commercial Mortgage Securities, Inc. is a wholly-owned subsidiary
of GMACCM which is a wholly-owned subsidiary of GMAC Mortgage Group, Inc., a
Michigan Corporation. The Depositor was incorporated in the State of Delaware on
June 22, 1995. The Depositor was organized for the purpose of serving as a
private secondary mortgage market conduit. The Depositor maintains its principal
office at 650 Dresher Road, Horsham, Pennsylvania 19044. Its telephone number is
(215) 682-3480. The Depositor does not have, nor is it expected in the future to
have, any significant assets.
GMAC COMMERCIAL MORTGAGE CORPORATION
Unless otherwise specified in the related Prospectus Supplement, GMAC
Commercial Mortgage Corporation, an affiliate of the Company and a corporation
duly organized and existing under the laws of the State of California, will act
as the Master Servicer or Manager for a series of Certificates.
GMACCM buys mortgage loans primarily through its branch network and
also from mortgage loan originators or sellers nationwide and services mortgage
loans for its own account and for others. GMACCM's principal executive offices
are located at 650 Dresher Road, Horsham, Pennsylvania 19044. Its telephone
number is (215) 682-4622. GMACCM conducts operations from its headquarters in
Pennsylvania and from offices located in California, Colorado, the District of
Columbia, Illinois, Michigan, Minnesota, Missouri, Nebraska, New York, Ohio,
Texas, Virginia, Washington and Wisconsin.
The size of the loan portfolio which GMACCM was servicing as of the end
of the most recent calendar quarter will be set forth in each Prospectus
Supplement relating to a Mortgage Pool master serviced by it. GMACCM's
delinquency, foreclosure and loan loss experience as of the end of the most
recent calendar quarter for which such information is available on the portfolio
of loans master serviced by it that were originated under its modified loan
purchase criteria will be summarized in each Prospectus Supplement relating to a
Mortgage Pool master serviced by it. There can be no assurance that such
experience will be representative of the results that may be experienced with
respect to any particular Mortgage Pool.
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DESCRIPTION OF THE CERTIFICATES
GENERAL
Each series of Certificates will represent the entire beneficial
ownership interest in the Trust Fund created pursuant to the related Pooling and
Servicing Agreement. As described in the related Prospectus Supplement, the
Certificates of each series, including the Offered Certificates of such series,
may consist of one or more classes of Certificates that, among other things: (i)
provide for the accrual of interest on the Certificate Balance or Notional
Amount thereof at a fixed, variable or adjustable rate; (ii) constitute Senior
Certificates or Subordinate Certificates; (iii) constitute Stripped Interest
Certificates or Stripped Principal Certificates; (iv) provide for distributions
of interest thereon or principal thereof that commence only after the occurrence
of certain events, such as the retirement of one or more other classes of
Certificates of such series; (v) provide for distributions of principal thereof
to be made, from time to time or for designated periods, at a rate that is
faster (and, in some cases, substantially faster) or slower (and, in some cases,
substantially slower) than the rate at which payments or other collections of
principal are received on the Mortgage Assets in the related Trust Fund; (vi)
provide for distributions of principal thereof to be made, subject to available
funds, based on a specified principal payment schedule or other methodology; or
(vii) provide for distributions based on collections on the Mortgage Assets in
the related Trust Fund attributable to Prepayment Premiums and Equity
Participations.
If so specified in the related Prospectus Supplement, a class of
Certificates may have two or more component parts, each having characteristics
that are otherwise described herein as being attributable to separate and
distinct classes. For example, a class of Certificates may have a Certificate
Balance on which it accrues interest at a fixed, variable or adjustable rate.
Such class of Certificates may also have certain characteristics attributable to
Stripped Interest Certificates insofar as it may also entitle the holders
thereof to distributions of interest accrued on a Notional Amount at a different
fixed, variable or adjustable rate. In addition, a class of Certificates may
accrue interest on one portion of its Certificate Balance at one fixed, variable
or adjustable rate and on another portion of its Certificate Balance at a
different fixed, variable or adjustable rate.
Each class of Offered Certificates of a series will be issued in
minimum denominations corresponding to the principal balances or, in case of
certain classes of Stripped Interest Certificates or REMIC Residual
Certificates, notional amounts or percentage interests, specified in the related
Prospectus Supplement. As provided in the related Prospectus Supplement, one or
more classes of Offered Certificates of any series may be issued in fully
registered, definitive form (such Certificates, "DEFINITIVE CERTIFICATES") or
may be offered in book-entry format (such Certificates, "BOOK-ENTRY
CERTIFICATES") through the facilities of The Depository Trust Company ("DTC").
The Offered Certificates of each series (if issued as Definitive Certificates)
may be transferred or exchanged, subject to any restrictions on transfer
described in the related Prospectus Supplement, at the location specified in the
related Prospectus Supplement, without the payment of any service charges, other
than any tax or other governmental charge payable in connection therewith.
Interests in a class of Book-Entry Certificates will be transferred on the
book-entry records of DTC and its participating organizations.
DISTRIBUTIONS
Distributions on the Certificates of each series will be made on each
Distribution Date from the Available Distribution Amount for such series and
such Distribution Date. Unless otherwise provided in the related Prospectus
Supplement, the "AVAILABLE DISTRIBUTION AMOUNT" for any series of Certificates
and any Distribution Date will refer to the total of all payments or other
collections (or advances in lieu thereof) on, under or in respect of the
Mortgage Assets and any other assets included in the related Trust Fund that are
available for distribution to the holders of Certificates of such series on such
date. The particular components of the Available Distribution Amount for any
series and Distribution Date will be
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more specifically described in the related Prospectus Supplement. In general,
the Distribution Date for a series of Certificates will be the 25th day of each
month (or, if any such 25th day is not a business day, the next succeeding
business day), commencing in the month immediately following the month in which
such series of Certificates is issued.
Except as otherwise specified in the related Prospectus Supplement,
distributions on the Certificates of each series (other than the final
distribution in retirement of any such Certificate) 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 preceding the month in which the applicable
Distribution Date occurs (the "RECORD DATE"). All distributions with respect to
each class of Certificates on each Distribution Date will be allocated pro rata
among the outstanding Certificates in such class in proportion to the respective
Percentage Interests evidenced thereby unless otherwise specified in the related
Prospectus Supplement. Payments will be made either by wire transfer in
immediately available funds to the account of a Certificateholder at a bank or
other entity having appropriate facilities therefor, if such Certificateholder
has provided the person required to make such payments with wiring instructions
no later than the related Record Date or such other date specified in the
related Prospectus Supplement (and, if so provided in the related Prospectus
Supplement, such Certificateholder holds Certificates in the requisite amount or
denomination specified therein), or by check mailed to the address of such
Certificateholder as it appears on the Certificate Register; provided, however,
that the final distribution in retirement of any class of Certificates (whether
Definitive Certificates or Book-Entry Certificates) will be made only upon
presentation and surrender of such Certificates at the location specified in the
notice to Certificateholders of such final distribution. The undivided
percentage interest (the "PERCENTAGE INTEREST") represented by an Offered
Certificate of a particular class will be equal to the percentage obtained by
dividing the initial principal balance or notional amount of such Certificate by
the initial Certificate Balance or Notional Amount of such class.
DISTRIBUTIONS OF INTEREST ON THE CERTIFICATES
Each class of Certificates of each series (other than certain classes
of Stripped Principal Certificates and certain classes of REMIC Residual
Certificates that have no Pass-Through Rate) may have a different Pass-Through
Rate, which in each case may be fixed, variable or adjustable. The related
Prospectus Supplement will specify the Pass-Through Rate or, in the case of a
variable or adjustable Pass-Through Rate, the method for determining the
Pass-Through Rate, for each class. Unless otherwise specified in the related
Prospectus Supplement, interest on the Certificates of each series will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
Distributions of interest in respect of any class of Certificates
(other than a class of Accrual Certificates, which will be entitled to
distributions of accrued interest commencing only on the Distribution Date, or
under the circumstances, specified in the related Prospectus Supplement, and
other than any class of Stripped Principal Certificates or REMIC Residual
Certificates that is not entitled to any distributions of interest) will be made
on each Distribution Date based on the Accrued Certificate Interest for such
class and such Distribution Date, subject to the sufficiency of the portion of
the Available Distribution Amount allocable to such class on such Distribution
Date. Prior to the time interest is distributable on any class of Accrual
Certificates, the amount of Accrued Certificate Interest otherwise distributable
on such class will be added to the Certificate Balance thereof on each
Distribution Date or otherwise deferred as described in the related Prospectus
Supplement. With respect to each class of Certificates (other than certain
classes of Stripped Interest Certificates and certain classes of REMIC Residual
Certificates), the "ACCRUED CERTIFICATE INTEREST" for each Distribution Date
will be equal to interest at the applicable Pass-Through Rate accrued for a
specified period (generally the most recently ended calendar month) on the
outstanding Certificate Balance of such class of Certificates immediately prior
to such Distribution Date. Unless otherwise provided in the related Prospectus
Supplement, the Accrued Certificate Interest for each Distribution Date on a
class of Stripped Interest Certificates will be similarly calculated except that
it will accrue on a Notional Amount that is either (i) based on the
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principal balances of some or all of the Mortgage Assets in the related Trust
Fund or (ii) equal to the Certificate Balances of one or more other classes of
Certificates of the same series. Reference to a Notional Amount with respect to
a class of Stripped Interest Certificates is solely for convenience in making
certain calculations and does not represent the right to receive any
distributions of principal. If so specified in the related Prospectus
Supplement, the amount of Accrued Certificate Interest that is otherwise
distributable on (or, in the case of Accrual Certificates, that may otherwise be
added to the Certificate Balance of) one or more classes of the Certificates of
a series may be reduced to the extent that any Prepayment Interest Shortfalls,
as described under "Yield and Maturity Considerations--Certain Shortfalls in
Collections of Interest", exceed the amount of any sums that are applied to
offset the amount of such shortfalls. The particular manner in which such
shortfalls will be allocated among some or all of the classes of Certificates of
that series will be specified in the related Prospectus Supplement. The related
Prospectus Supplement will also describe the extent to which the amount of
Accrued Certificate Interest that is otherwise distributable on (or, in the case
of Accrual Certificates, that may otherwise be added to the Certificate Balance
of) a class of Offered Certificates may be reduced as a result of any other
contingencies, including delinquencies, losses and deferred interest on or in
respect of the Mortgage Assets in the related Trust Fund. Unless otherwise
provided in the related Prospectus Supplement, any reduction in the amount of
Accrued Certificate Interest otherwise distributable on a class of Certificates
by reason of the allocation to such class of a portion of any deferred interest
on or in respect of the Mortgage Assets in the related Trust Fund will result in
a corresponding increase in the Certificate Balance of such class. See "Risk
Factors--Yield and Prepayment Considerations" and "Yield and Maturity
Considerations--Certain Shortfalls in Collections of Interest".
DISTRIBUTIONS OF PRINCIPAL OF THE CERTIFICATES
Each class of Certificates of each series (other than certain classes
of Stripped Interest Certificates and certain classes of REMIC Residual
Certificates) will have a Certificate Balance, which, at any time, will equal
the then maximum amount that the holders of Certificates of such class will be
entitled to receive as principal out of the future cash flow on the Mortgage
Assets and other assets included in the related Trust Fund. The outstanding
Certificate Balance of a class of Certificates will be reduced by distributions
of principal made thereon from time to time and, if so provided in the related
Prospectus Supplement, further by any losses incurred in respect of the related
Mortgage Assets allocated thereto from time to time. In turn, the outstanding
Certificate Balance of a class of Certificates may be increased as a result of
any deferred interest on or in respect of the related Mortgage Assets being
allocated thereto from time to time, and will be increased, in the case of a
class of Accrual Certificates prior to the Distribution Date on which
distributions of interest thereon are required to commence, by the amount of any
Accrued Certificate Interest in respect thereof (reduced as described above).
Unless otherwise provided in the related Prospectus Supplement, the initial
aggregate Certificate Balance of all classes of a series of Certificates will
not be greater than the aggregate outstanding principal balance of the related
Mortgage Assets as of a specified date (the "CUT-OFF DATE"), after application
of scheduled payments due on or before such date, whether or not received. The
initial Certificate Balance of each class of a series of Certificates will be
specified in the related Prospectus Supplement. As and to the extent described
in the related Prospectus Supplement, distributions of principal with respect to
a series of Certificates will be made on each Distribution Date to the holders
of the class or classes of Certificates of such series entitled thereto until
the Certificate Balances of such Certificates have been reduced to zero.
Distributions of principal with respect to one or more classes of Certificates
may be made at a rate that is faster (and, in some cases, substantially faster)
than the rate at which payments or other collections of principal are received
on the Mortgage Assets in the related Trust Fund. Distributions of principal
with respect to one or more classes of Certificates may not commence until the
occurrence of certain events, such as the retirement of one or more other
classes of Certificates of the same series, or may be made at a rate that is
slower (and, in some cases, substantially slower) than the rate at which
payments or other collections of principal are received on the Mortgage Assets
in the related Trust Fund. Distributions of principal with respect to one or
more classes of Certificates (each such class, a "CONTROLLED AMORTIZATION
CLASS") may be made, subject to available funds, based on a specified principal
payment schedule. Distributions
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of principal with respect to one or more classes of Certificates (each such
class, a "COMPANION CLASS") may be contingent on the specified principal payment
schedule for a Controlled Amortization Class of the same series and the rate at
which payments and other collections of principal on the Mortgage Assets in the
related Trust Fund are received. Unless otherwise specified in the related
Prospectus Supplement, distributions of principal of any class of Offered
Certificates will be made on a PRO RATA basis among all of the Certificates of
such class.
ALLOCATION OF LOSSES AND SHORTFALLS
The amount of any losses or shortfalls in collections on the Mortgage
Assets in any Trust Fund (to the extent not covered or offset by draws on any
reserve fund or under any instrument of Credit Support) will be allocated among
the respective classes of Certificates of the related series in the priority and
manner, and subject to the limitations, specified in the related Prospectus
Supplement. As described in the related Prospectus Supplement, such allocations
may be effected by a reduction in the entitlements to interest and/or the
Certificate Balances of one or more such classes of Certificates, or by
establishing a priority of payments among such classes of Certificates. See
"Description of Credit Support".
ADVANCES IN RESPECT OF DELINQUENCIES
If and to the extent provided in the related Prospectus Supplement, if
a Trust Fund includes Mortgage Loans, the Master Servicer, a Special Servicer,
the Trustee, any provider of Credit Support and/or any other specified person
may be obligated to advance, or have the option of advancing, on or before each
Distribution Date, from its or their own funds or from excess funds held in the
related Certificate Account that are not part of the Available Distribution
Amount for the related series of Certificates for such Distribution Date, an
amount up to the aggregate of any payments of principal (other than the
principal portion of any balloon payments) and interest that were due on or in
respect of such Mortgage Loans during the related Due Period and were delinquent
on the related Determination Date.
Advances are intended to maintain a regular flow of scheduled interest
and principal payments to holders of the class or classes of Certificates
entitled thereto, rather than to guarantee or insure against losses.
Accordingly, all advances made out of a specific entity's own funds will be
reimbursable out of related recoveries on the Mortgage Loans (including amounts
drawn under any fund or instrument constituting Credit Support) respecting which
such advances were made (as to any Mortgage Loan, "RELATED PROCEEDS") and such
other specific sources as may be identified in the related Prospectus
Supplement, including in the case of a series that includes one or more classes
of Subordinate Certificates, collections on other Mortgage Assets in the related
Trust Fund that would otherwise be distributable to the holders of one or more
classes of such Subordinate Certificates. No advance will be required to be made
by a Master Servicer, Special Servicer or Trustee if, in the judgment of the
Master Servicer, Special Servicer or Trustee, as the case may be, such advance
would not be recoverable from Related Proceeds or another specifically
identified source (any such advance, a "NONRECOVERABLE ADVANCE"); and, if
previously made by a Master Servicer, Special Servicer or Trustee, a
Nonrecoverable Advance will be reimbursable thereto from any amounts in the
related Certificate Account prior to any distributions being made to the related
series of Certificateholders.
If advances have been made by a Master Servicer, Special Servicer,
Trustee or other entity from excess funds in a Certificate Account, such Master
Servicer, Special Servicer, Trustee or other entity, as the case may be, will be
required to replace such funds in such Certificate Account on any future
Distribution Date to the extent that funds in such Certificate Account on such
Distribution Date are less than payments required to be made to the related
series of Certificateholders on such date. If so specified in the related
Prospectus Supplement, the obligation of a Master Servicer, Special Servicer,
Trustee or other entity to make advances may be secured by a cash advance
reserve fund or a surety bond. If applicable, information regarding the
characteristics of, and the identity of any obligor on, any such surety bond,
will be set forth in the related Prospectus Supplement.
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If and to the extent so provided in the related Prospectus Supplement,
any entity making advances will be entitled to receive interest on certain or
all of such advances for a specified period during which such advances are
outstanding at the rate specified in such Prospectus Supplement, and such entity
will be entitled to payment of such interest periodically from general
collections on the Mortgage Loans in the related Trust Fund prior to any payment
to the related series of Certificateholders or as otherwise provided in the
related Pooling and Servicing Agreement and described in such Prospectus
Supplement.
The Prospectus Supplement for any series of Certificates evidencing an
interest in a Trust Fund that includes MBS will describe any comparable
advancing obligation of a party to the related Pooling and Servicing Agreement
or of a party to the related MBS Agreement.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, together with the distribution to the
holders of each class of the Offered Certificates of a series, a Master
Servicer, Manager or Trustee, as provided in the related Prospectus Supplement,
will forward to each such holder, a statement (a "DISTRIBUTION DATE STATEMENT")
that, unless otherwise provided in the related Prospectus Supplement, will set
forth, among other things, in each case to the extent applicable:
(i) the amount of such distribution to holders of such class
of Offered Certificates that was applied to reduce the Certificate
Balance thereof;
(ii) the amount of such distribution to holders of such class
of Offered Certificates that was applied to pay Accrued Certificate
Interest;
(iii) the amount, if any, of such distribution to holders of
such class of Offered Certificates that was allocable to (A) Prepayment
Premiums and (B) payments on account of Equity Participations;
(iv) the amount, if any, by which such distribution is less
than the amounts to which holders of such class of Offered Certificates
are entitled;
(v) if the related Trust Fund includes Mortgage Loans, the
aggregate amount of advances included in such distribution;
(vi) if the related Trust Fund includes Mortgage Loans, the
amount of servicing compensation received by the related Master
Servicer (and, if payable directly out of the related Trust Fund, by
any Special Servicer and any Sub-Servicer) and, if the related Trust
Fund includes MBS, the amount of administrative compensation received
by the REMIC Administrator;
(vii) information regarding the aggregate principal balance of
the related Mortgage Assets on or about such Distribution Date;
(viii) if the related Trust Fund includes Mortgage Loans,
information regarding the number and aggregate principal balance of
such Mortgage Loans that are delinquent;
(ix) if the related Trust Fund includes Mortgage Loans,
information regarding the aggregate amount of losses incurred and
principal prepayments made with respect to such Mortgage Loans during
the related Prepayment Period (that is, the specified period, generally
corresponding to the related Due Period, during which prepayments and
other unscheduled collections on the Mortgage Loans in the related
Trust Fund must be received in order to be distributed on a particular
Distribution Date);
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(x) the Certificate Balance or Notional Amount, as the case
may be, of such class of Certificates at the close of business on such
Distribution Date, separately identifying any reduction in such
Certificate Balance or Notional Amount due to the allocation of any
losses in respect of the related Mortgage Assets, any increase in such
Certificate Balance or Notional Amount due to the allocation of any
negative amortization in respect of the related Mortgage Assets and any
increase in the Certificate Balance of a class of Accrual Certificates,
if any, in the event that Accrued Certificate Interest has been added
to such balance;
(xi) if such class of Offered Certificates has a variable
Pass-Through Rate or an adjustable Pass-Through Rate, the Pass-Through
Rate applicable thereto for such Distribution Date and, if
determinable, for the next succeeding Distribution Date;
(xii) the amount deposited in or withdrawn from any reserve
fund on such Distribution Date, and the amount remaining on deposit in
such reserve fund as of the close of business on such Distribution
Date;
(xiii) if the related Trust Fund includes one or more
instruments of Credit Support, such as a letter of credit, an insurance
policy and/or a surety bond, the amount of coverage under each such
instrument as of the close of business on such Distribution Date; and
(xiv) the amount of Credit Support being afforded by any
classes of Subordinate Certificates.
In the case of information furnished pursuant to subclauses (i)-(iii)
above, the amounts will be expressed as a dollar amount per minimum denomination
of the relevant class of Offered Certificates or as a percentage. The Prospectus
Supplement for each series of Certificates may describe additional information
to be included in reports to the holders of the Offered Certificates of such
series.
Within a reasonable period of time after the end of each calendar year,
the Master Servicer, Manager or Trustee for a series of Certificates, as the
case may be, will be required to furnish to each person who at any time during
the calendar year was a holder of an Offered Certificate of such series a
statement containing the information set forth in subclauses (i)-(iii) above,
aggregated for such calendar year or the applicable portion thereof during which
such person was a Certificateholder. Such obligation will be deemed to have been
satisfied to the extent that substantially comparable information is provided
pursuant to any requirements of the Code as are from time to time in force. See,
however, "--Book-Entry Registration and Definitive Certificates" below.
If the Trust Fund for a series of Certificates includes MBS, the
ability of the related Master Servicer, Manager or Trustee, as the case may be,
to include in any Distribution Date Statement information regarding the mortgage
loans underlying such MBS will depend on the reports received with respect to
such MBS. In such cases, the related Prospectus Supplement will describe the
loan-specific information to be included in the Distribution Date Statements
that will be forwarded to the holders of the Offered Certificates of that series
in connection with distributions made to them.
TERMINATION; RETIREMENT OF CERTIFICATES
The obligations created by the Pooling and Servicing Agreement for each
series of Certificates (other than limited payment and notice obligations of the
applicable parties) will terminate upon the payment to Certificateholders of
that series of all amounts held in the Certificate Account or by the Master
Servicer and required to be paid to them pursuant to such Pooling and Servicing
Agreement following the earlier of (i) the final payment or other liquidation or
disposition (or any advance with respect thereto) of the last Mortgage Asset
subject thereto or of any property acquired upon foreclosure
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or deed in lieu of foreclosure of any Mortgage Loan subject thereto and (ii) the
purchase by the Master Servicer, the Depositor or, if specified in the related
Prospectus Supplement, by the holder of the REMIC Residual Certificates (see
"Certain Federal Income Tax Consequences" below) from the Trust Fund for such
series of all remaining Mortgage Assets therein and property, if any, acquired
in respect of the Mortgage Loans therein. In addition to the foregoing, the
Master Servicer or the Depositor will have the option to purchase, in whole but
not in part, the Certificates specified in the related Prospectus Supplement in
the manner set forth in the related Prospectus Supplement. Upon the purchase of
such Certificates or at any time thereafter, at the option of the Master
Servicer or the Depositor, the Mortgage Assets may be sold, thereby effecting a
retirement of the Certificates and the termination of the Trust Fund, or the
Certificates so purchased may be held or resold by the Master Servicer or the
Depositor. In no event, however, will the trust created continue beyond the
expiration of 21 years from the death of the survivor of certain persons named
in such Pooling and Servicing Agreement. Written notice of termination of the
Pooling and Servicing Agreement will be given to each Certificateholder, and the
final distribution will be made only upon surrender and cancellation of the
Certificates at an office or agency appointed by the Trustee which will be
specified in the notice of termination. If the Certificateholders are permitted
to terminate the trust under the applicable Pooling and Servicing Agreement, a
penalty may be imposed upon the Certificateholders based upon the fee that would
be foregone by the Master Servicer and/or any Special Servicer because of such
termination.
Any such purchase of Mortgage Assets and property acquired in respect
of Mortgage Loans evidenced by a series of Certificates shall be made at the
option of the Master Servicer, the Depositor or, if applicable, the holder of
the REMIC Residual Certificates at the price specified in the related Prospectus
Supplement. The exercise of such right will effect early retirement of the
Certificates of that series, but the right of the Master Servicer, the Depositor
or, if applicable, such holder to so purchase is subject to the aggregate
principal balance of the Mortgage Assets for that series as of the Distribution
Date on which the purchase proceeds are to be distributed to Certificateholders
being less than the percentage specified in the related Prospectus Supplement of
the aggregate principal balance of the Mortgage Assets at the Cut-off Date for
that series. The Prospectus Supplement for each series of Certificates will set
forth the amounts that the holders of such Certificates will be entitled to
receive upon such early retirement. Such early termination may adversely affect
the yield to holders of certain classes of such Certificates. If a REMIC
election has been made, the termination of the related Trust Fund will be
effected in a manner consistent with applicable federal income tax regulations
and its status as a REMIC.
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
If so provided in the Prospectus Supplement for a series of
Certificates, one or more classes of the Offered Certificates of such series
will be offered in book-entry format through the facilities of DTC, and each
such class will be represented by one or more global Certificates registered in
the name of DTC or its nominee.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking corporation" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities for its participating organizations
("PARTICIPANTS") and facilitate the clearance and settlement of securities
transactions between Participants through electronic computerized book-entry
changes in their accounts, thereby eliminating the need for physical movement of
securities certificates. "DIRECT PARTICIPANTS", which maintain accounts with
DTC, include securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. DTC is owned by a
number of its Direct Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. Access to the DTC system also is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain
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a custodial relationship with a Direct Participant, either directly or
indirectly ("INDIRECT PARTICIPANTS"). The rules applicable to DTC and its
Participants are on file with the Commission.
Purchases of Book-Entry Certificates under the DTC system must be made
by or through Direct Participants, which will receive a credit for the
Book-Entry Certificates on DTC's records. The ownership interest of each actual
purchaser of a Book-Entry Certificate (a "CERTIFICATE OWNER") is in turn to be
recorded on the Direct and Indirect Participants' records. Certificate Owners
will not receive written confirmation from DTC of their purchases, but
Certificate Owners are expected to receive written confirmations providing
details of such transactions, as well as periodic statements of their holdings,
from the Direct or Indirect Participant through which each Certificate Owner
entered into the transaction. Transfers of ownership interest in the Book-Entry
Certificates are to be accomplished by entries made on the books of Participants
acting on behalf of Certificate Owners. Certificate Owners will not receive
certificates representing their ownership interests in the Book-Entry
Certificates, except in the event that use of the book-entry system for the
Book-Entry Certificates of any series is discontinued as described below.
DTC has no knowledge of the actual Certificate Owners of the Book-Entry
Certificates; DTC's records reflect only the identity of the Direct Participants
to whose accounts such Certificates are credited, which may or may not be the
Certificate Owners. The Participants will remain responsible for keeping account
of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Certificate Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Distributions on the Book-Entry Certificates will be made to DTC. DTC's
practice is to credit Direct Participants' accounts on the related Distribution
Date in accordance with their respective holdings shown on DTC's records unless
DTC has reason to believe that it will not receive payment on such date.
Disbursement of such distributions by Participants to Certificate Owners will be
governed by standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered in
"street name", and will be the responsibility of each such Participant (and not
of DTC, the Depositor or any Trustee or Master Servicer), subject to any
statutory or regulatory requirements as may be in effect from time to time.
Under a book-entry system, Certificate Owners may receive payments after the
related Distribution Date.
Unless otherwise provided in the related Prospectus Supplement, the
only "Certificateholder" (as such term is used in the related Pooling and
Servicing Agreement) of Book-Entry Certificates will be the nominee of DTC, and
the Certificate Owners will not be recognized as Certificateholders under the
Pooling and Servicing Agreement. Certificate Owners will be permitted to
exercise the rights of Certificateholders under the related Pooling and
Servicing Agreement only indirectly through the Participants who in turn will
exercise their rights through DTC. The Depositor is informed that DTC will take
action permitted to be taken by a Certificateholder under a Pooling and
Servicing Agreement only at the direction of one or more Participants to whose
account with DTC interests in the Book-Entry Certificates are credited.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain Certificate Owners, the ability of a
Certificate Owner to pledge its interest in Book-Entry Certificates to persons
or entities that do not participate in the DTC system, or otherwise take actions
in respect of its interest in Book-Entry Certificates, may be limited due to the
lack of a physical certificate evidencing such interest.
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Unless otherwise specified in the related Prospectus Supplement,
Certificates initially issued in book-entry form will be issued as Definitive
Certificates to Certificate Owners or their nominees, rather than to DTC or its
nominee, only if (i) the Depositor advises the Trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities as depository
with respect to such Certificates and the Depositor is unable to locate a
qualified successor or (ii) the Depositor, at its option, elects to terminate
the book-entry system through DTC with respect to such Certificates. Upon the
occurrence of either of the events described in the preceding sentence, DTC will
be required to notify all Participants of the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the certificate or
certificates representing a class of Book-Entry Certificates, together with
instructions for registration, the Trustee for the related series or other
designated party will be required to issue to the Certificate Owners identified
in such instructions the Definitive Certificates to which they are entitled, and
thereafter the holders of such Definitive Certificates will be recognized as
Certificateholders under the related Pooling and Servicing Agreement.
THE POOLING AND SERVICING AGREEMENTS
GENERAL
The Certificates of each series will be issued pursuant to a Pooling
and Servicing Agreement. In general, the parties to a Pooling and Servicing
Agreement will include the Depositor, the Trustee, the Master Servicer and, in
some cases, a Special Servicer appointed as of the date of the Pooling and
Servicing Agreement. However, a Pooling and Servicing Agreement that relates to
a Trust Fund that includes MBS may include a Manager as a party, but may not
include a Master Servicer or other servicer as a party. All parties to each
Pooling and Servicing Agreement under which Certificates of a series are issued
will be identified in the related Prospectus Supplement. If so specified in the
related Prospectus Supplement, an affiliate of the Depositor, or the Mortgage
Asset Seller or an affiliate thereof, may perform the functions of Master
Servicer, Special Servicer or Manager. Any party to a Pooling and Servicing
Agreement or any affiliate thereof may own Certificates issued thereunder.
A form of a pooling and servicing agreement has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
However, the provisions of each Pooling and Servicing Agreement will vary
depending upon the nature of the Certificates to be issued thereunder and the
nature of the related Trust Fund. The following summaries describe certain
provisions that may appear in a Pooling and Servicing Agreement under which
Certificates that evidence interests in Mortgage Loans will be issued. The
Prospectus Supplement for a series of Certificates will describe any provision
of the related Pooling and Servicing Agreement that materially differs from the
description thereof contained in this Prospectus and, if the related Trust Fund
includes MBS, will summarize all of the material provisions of the related
Pooling and Servicing Agreement. The summaries herein do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all of the provisions of the Pooling and Servicing Agreement for each series
of Certificates and the description of such provisions in the related Prospectus
Supplement. The Depositor will provide a copy of the Pooling and Servicing
Agreement (without exhibits) that relates to any series of Certificates without
charge upon written request of a holder of a Certificate of such series
addressed to it at its principal executive offices specified herein under "The
Depositor".
ASSIGNMENT OF MORTGAGE LOANS; REPURCHASES
At the time of issuance of any series of Certificates, the Depositor
will assign (or cause to be assigned) to the designated Trustee the Mortgage
Loans to be included in the related Trust Fund, together with, unless otherwise
specified in the related Prospectus Supplement, all principal and interest to be
received on or with respect to such Mortgage Loans after the Cut-off Date, other
than principal and interest due on or before the Cut-off Date. The Trustee will,
concurrently with such assignment, deliver the Certificates to or at the
direction of the Depositor in exchange for the Mortgage Loans and the other
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assets to be included in the Trust Fund for such series. Each Mortgage Loan will
be identified in a schedule appearing as an exhibit to the related Pooling and
Servicing Agreement. Such schedule generally will include detailed information
that pertains to each Mortgage Loan included in the related Trust Fund, which
information will typically include the address of the related Mortgaged Property
and type of such property; the Mortgage Rate and, if applicable, the applicable
index, gross margin, adjustment date and any rate cap information; the original
and remaining term to maturity; the original amortization term; and the original
and outstanding principal balance.
In addition, unless otherwise specified in the related Prospectus
Supplement, the Depositor will, as to each Mortgage Loan to be included in a
Trust Fund, deliver, or cause to be delivered, to the related Trustee (or to a
custodian appointed by the Trustee as described below) the Mortgage Note
endorsed, without recourse, either in blank or to the order of such Trustee (or
its nominee), the Mortgage with evidence of recording indicated thereon (except
for any Mortgage not returned from the public recording office), an assignment
of the Mortgage in blank or to the Trustee (or its nominee) in recordable form,
together with any intervening assignments of the Mortgage with evidence of
recording thereon (except for any such assignment not returned from the public
recording office), and, if applicable, any riders or modifications to such
Mortgage Note and Mortgage, together with certain other documents at such times
as set forth in the related Pooling and Servicing Agreement. Such assignments
may be blanket assignments covering Mortgages on Mortgaged Properties located in
the same county, if permitted by law. Notwithstanding the foregoing, a Trust
Fund may include Mortgage Loans where the original Mortgage Note is not
delivered to the Trustee if the Depositor delivers, or causes to be delivered,
to the related Trustee (or such custodian) a copy or a duplicate original of the
Mortgage Note, together with an affidavit certifying that the original thereof
has been lost or destroyed. In addition, if the Depositor cannot deliver, with
respect to any Mortgage Loan, the Mortgage or any intervening assignment with
evidence of recording thereon concurrently with the execution and delivery of
the related Pooling and Servicing Agreement because of a delay caused by the
public recording office, the Depositor will deliver, or cause to be delivered,
to the related Trustee (or such custodian) a true and correct photocopy of such
Mortgage or assignment as submitted for recording. The Depositor will deliver,
or cause to be delivered, to the related Trustee (or such custodian) such
Mortgage or assignment with evidence of recording indicated thereon after
receipt thereof from the public recording office. If the Depositor cannot
deliver, with respect to any Mortgage Loan, the Mortgage or any intervening
assignment with evidence of recording thereon concurrently with the execution
and delivery of the related Pooling and Servicing Agreement because such
Mortgage or assignment has been lost, the Depositor will deliver, or cause to be
delivered, to the related Trustee (or such custodian) a true and correct
photocopy of such Mortgage or assignment with evidence of recording thereon.
Unless otherwise specified in the related Prospectus Supplement, assignments of
Mortgage to the Trustee (or its nominee) will be recorded in the appropriate
public recording office, except in states where, in the opinion of counsel
acceptable to the Trustee, such recording is not required to protect the
Trustee's interests in the Mortgage Loan against the claim of any subsequent
transferee or any successor to or creditor of the Depositor or the originator of
such Mortgage Loan.
The Trustee (or a custodian appointed by the Trustee) for a series of
Certificates will be required to review the Mortgage Loan documents delivered to
it within a specified period of days after receipt thereof, and the Trustee (or
such custodian) will hold such documents in trust for the benefit of the
Certificateholders of such series. Unless otherwise specified in the related
Prospectus Supplement, if any such document is found to be missing or defective,
and such omission or defect, as the case may be, materially and adversely
affects the interests of the Certificateholders of the related series, the
Trustee (or such custodian) will be required to notify the Master Servicer and
the Depositor, and one of such persons will be required to notify the relevant
Mortgage Asset Seller. In that case, and if the Mortgage Asset Seller cannot
deliver the document or cure the defect within a specified number of days after
receipt of such notice, then, except as otherwise specified below or in the
related Prospectus Supplement, the Mortgage Asset Seller will be obligated to
repurchase the related Mortgage Loan from the Trustee at a price generally equal
to the unpaid principal balance thereof, together with accrued but unpaid
interest
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through a date on or about the date of purchase, or at such other price as will
be specified in the related Prospectus Supplement (in any event, the "PURCHASE
PRICE"). If so provided in the Prospectus Supplement for a series of
Certificates, a Mortgage Asset Seller, in lieu of repurchasing a Mortgage Loan
as to which there is missing or defective loan documentation, will have the
option, exercisable upon certain conditions and/or within a specified period
after initial issuance of such series of Certificates, to replace such Mortgage
Loan with one or more other mortgage loans, in accordance with standards that
will be described in the Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement, this repurchase or substitution obligation
will constitute the sole remedy to holders of the Certificates of any series or
to the related Trustee on their behalf for missing or defective Mortgage Asset
documentation and neither the Depositor nor, unless it is the Mortgage Asset
Seller, the Master Servicer will be obligated to purchase or replace a Mortgage
Loan if a Mortgage Asset Seller defaults on its obligation to do so.
The Trustee will be authorized at any time to appoint one or more
custodians pursuant to a custodial agreement to hold title to the Mortgage Loans
in any Trust Fund, and to maintain possession of and, if applicable, to review,
the documents relating to such Mortgage Loans, in any case as the agent of the
Trustee. The identity of any such custodian to be appointed on the date of
initial issuance of the Certificates will be set forth in the related Prospectus
Supplement. Any such custodian may be an affiliate of the Depositor or the
Master Servicer.
REPRESENTATIONS AND WARRANTIES; REPURCHASES
Unless otherwise provided in the Prospectus Supplement for a series of
Certificates, the Depositor will, with respect to each Mortgage Loan in the
related Trust Fund, make or assign, or cause to be made or assigned, certain
representations and warranties (the person making such representations and
warranties, the "WARRANTING PARTY") covering, by way of example: (i) the
accuracy of the information set forth for such Mortgage Loan on the schedule of
Mortgage Loans appearing as an exhibit to the related Pooling and Servicing
Agreement; (ii) the enforceability of the related Mortgage Note and Mortgage and
the existence of title insurance insuring the lien priority of the related
Mortgage; (iii) the Warranting Party's title to the Mortgage Loan and the
authority of the Warranting Party to sell the Mortgage Loan; and (iv) the
payment status of the Mortgage Loan. It is expected that in most cases the
Warranting Party will be the Mortgage Asset Seller; however, the Warranting
Party may also be an affiliate of the Mortgage Asset Seller, the Depositor or an
affiliate of the Depositor, the Master Servicer, a Special Servicer or another
person acceptable to the Depositor. The Warranting Party, if other than the
Mortgage Asset Seller, will be identified in the related Prospectus Supplement.
Unless otherwise provided in the related Prospectus Supplement, the
Master Servicer and/or Trustee will be required to notify promptly any
Warranting Party of any breach of any representation or warranty made by it in
respect of a Mortgage Loan that materially and adversely affects the interests
of the Certificateholders of the related series. If such Warranting Party cannot
cure such breach within a specified period following the date on which it was
notified of such breach, then, unless otherwise provided in the related
Prospectus Supplement, it will be obligated to repurchase such Mortgage Loan
from the Trustee at the applicable Purchase Price. If so provided in the
Prospectus Supplement for a series of Certificates, a Warranting Party, in lieu
of repurchasing a Mortgage Loan as to which a breach has occurred, will have the
option, exercisable upon certain conditions and/or within a specified period
after initial issuance of such series of Certificates, to replace such Mortgage
Loan with one or more other mortgage loans, in accordance with standards that
will be described in the Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement, this repurchase or substitution obligation
will constitute the sole remedy available to holders of the Certificates of any
series or to the related Trustee on their behalf for a breach of representation
and warranty by a Warranting Party and neither the Depositor nor the Master
Servicer, in either case unless it is the Warranting Party, will be obligated to
purchase or replace a Mortgage Loan if a Warranting Party defaults on its
obligation to do so.
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In some cases, representations and warranties will have been made in
respect of a Mortgage Loan as of a date prior to the date upon which the related
series of Certificates is issued, and thus may not address events that may occur
following the date as of which they were made. However, the Depositor will not
include any Mortgage Loan in the Trust Fund for any series of Certificates if
anything has come to the Depositor's attention that would cause it to believe
that the representations and warranties made in respect of such Mortgage Loan
will not be accurate in all material respects as of the date of issuance. The
date as of which the representations and warranties regarding the Mortgage Loans
in any Trust Fund were made will be specified in the related Prospectus
Supplement.
COLLECTION AND OTHER SERVICING PROCEDURES
Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer for any Mortgage Pool, directly or through Sub-Servicers, will
be obligated under the related Pooling and Servicing Agreement to service and
administer the Mortgage Loans in such Mortgage Pool for the benefit of the
related Certificateholders, in accordance with applicable law and with the terms
of such Pooling and Servicing Agreement, such Mortgage Loans and any instrument
of Credit Support included in the related Trust Fund. Subject to the foregoing,
the Master Servicer will have full power and authority to do any and all things
in connection with such servicing and administration that it may deem necessary
and desirable.
As part of its servicing duties, a Master Servicer will be required to
make reasonable efforts to collect all payments called for under the terms and
provisions of the Mortgage Loans that it services and will be obligated to
follow such collection procedures as it would follow with respect to mortgage
loans that are comparable to such Mortgage Loans and held for its own account,
provided (i) such procedures are consistent with the terms of the related
Pooling and Servicing Agreement, and (ii) do not impair recovery under any
instrument of Credit Support included in the related Trust Fund. Consistent with
the foregoing, the Master Servicer will be permitted, in its discretion, unless
otherwise specified in the related Prospectus Supplement, to waive any
Prepayment Premium, late payment charge or other charge in connection with any
Mortgage Loan.
Under a Pooling and Servicing Agreement, a Master Servicer will be
granted certain discretion to extend relief to Mortgagors whose payments become
delinquent. Unless otherwise specified in the related Prospectus Supplement, if
a material default occurs or a payment default is reasonably foreseeable with
respect to a Mortgage Loan, the Master Servicer will be permitted, subject to
any specific limitations set forth in the related Pooling and Servicing
Agreement and described in the related Prospectus Supplement, to modify, waive
or amend any term of such Mortgage Loan, including deferring payments, extending
the stated maturity date or otherwise adjusting the payment schedule, provided
that such modification, waiver or amendment (i) is reasonably likely to produce
a greater recovery with respect to such Mortgage Loan on a present value basis
than would liquidation and (ii) will not adversely affect the coverage under any
applicable instrument of Credit Support.
A mortgagor's failure to make required Mortgage Loan payments may mean
that operating income is insufficient to service the mortgage debt, or may
reflect the diversion of that income from the servicing of the mortgage debt. In
addition, a mortgagor that is unable to make Mortgage Loan payments may also be
unable to make timely payment of taxes and otherwise to maintain and insure the
related Mortgaged Property. In general, the related Master Servicer will be
required to monitor any Mortgage Loan that is in default, evaluate whether the
causes of the default can be corrected over a reasonable period without
significant impairment of the value of the related Mortgaged Property, initiate
corrective action in cooperation with the Mortgagor if cure is likely, inspect
the related Mortgaged Property and take such other actions as it deems necessary
and appropriate. A significant period of time may elapse before the Master
Servicer is able to assess the success of any such corrective action or the need
for additional initiatives. The time within which the Master Servicer can make
the initial determination of appropriate action, evaluate the success of
corrective action, develop additional initiatives, institute
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foreclosure proceedings and actually foreclose (or accept a deed to a Mortgaged
Property in lieu of foreclosure) on behalf of the Certificateholders of the
related series may vary considerably depending on the particular Mortgage Loan,
the Mortgaged Property, the mortgagor, the presence of an acceptable party to
assume the Mortgage Loan and the laws of the jurisdiction in which the Mortgaged
Property is located. If a mortgagor files a bankruptcy petition, the Master
Servicer may not be permitted to accelerate the maturity of the Mortgage Loan or
to foreclose on the related Mortgaged Property for a considerable period of
time. See "Certain Legal Aspects of Mortgage Loans--Bankruptcy Laws."
Mortgagors may, from time to time, request partial releases of the
Mortgaged Properties, easements, consents to alteration or demolition and other
similar matters. The Master Servicer may approve such a request if it has
determined, exercising its business judgment in the same manner as it would if
it were the owner of the related Mortgage Loan, that such approval will not
adversely affect the security for, or the timely and full collectability of, the
related Mortgage Loan. Any fee collected by the Master Servicer for processing
such request will be retained by the Master Servicer as additional servicing
compensation.
In the case of Mortgage Loans secured by junior liens on the related
Mortgaged Properties, unless otherwise provided in the related Prospectus
Supplement, the Master Servicer will be required to file (or cause to be filed)
of record a request for notice of any action by a superior lienholder under the
Senior Lien for the protection of the related Trustee's interest, where
permitted by local law and whenever applicable state law does not require that a
junior lienholder be named as a party defendant in foreclosure proceedings in
order to foreclose such junior lienholder's equity of redemption. Unless
otherwise specified in the related Prospectus Supplement, the Master Servicer
also will be required to notify any superior lienholder in writing of the
existence of the Mortgage Loan and request notification of any action (as
described below) to be taken against the mortgagor or the Mortgaged Property by
the superior lienholder. If the Master Servicer is notified that any superior
lienholder has accelerated or intends to accelerate the obligations secured by
the related Senior Lien, or has declared or intends to declare a default under
the mortgage or the promissory note secured thereby, or has filed or intends to
file an election to have the related Mortgaged Property sold or foreclosed,
then, unless otherwise specified in the related Prospectus Supplement, the
Master Servicer will be required to take, on behalf of the related Trust Fund,
whatever actions are necessary to protect the interests of the related
Certificateholders, and/or to preserve the security of the related Mortgage
Loan, subject to the application of the REMIC Provisions. Unless otherwise
specified in the related Prospectus Supplement, the Master Servicer will be
required to advance the necessary funds to cure the default or reinstate the
Senior Lien, if such advance is in the best interests of the related
Certificateholders and the Master Servicer determines such advances are
recoverable out of payments on or proceeds of the related Mortgage Loan.
The Master Servicer for any Trust Fund, directly or through
Sub-Servicers, will also be required to perform as to the Mortgage Loans in such
Trust Fund various other customary functions of a servicer of comparable loans,
including maintaining escrow or impound accounts, if required under the related
Pooling and Servicing Agreement, for payment of taxes, insurance premiums,
ground rents and similar items, or otherwise monitoring the timely payment of
those items; attempting to collect delinquent payments; supervising
foreclosures; negotiating modifications; conducting property inspections on a
periodic or other basis; managing (or overseeing the management of) Mortgaged
Properties acquired on behalf of such Trust Fund through foreclosure,
deed-in-lieu of foreclosure or otherwise (each, an "REO PROPERTY"); and
maintaining servicing records relating to such Mortgage Loans. Unless otherwise
specified in the related Prospectus Supplement, the Master Servicer will be
responsible for filing and settling claims in respect of particular Mortgage
Loans under any applicable instrument of Credit Support.
See "Description of Credit Support".
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SUB-SERVICERS
A Master Servicer may delegate its servicing obligations in respect of
the Mortgage Loans serviced thereby to one or more third-party servicers (each,
a "SUB-SERVICER"); provided that, unless otherwise specified in the related
Prospectus Supplement, such Master Servicer will remain obligated under the
related Pooling and Servicing Agreement. A Sub-Servicer for any series of
Certificates may be an affiliate of the Depositor or Master Servicer. Unless
otherwise provided in the related Prospectus Supplement, each sub-servicing
agreement between a Master Servicer and a Sub-Servicer (a "SUB-SERVICING
AGREEMENT") will provide for servicing of the applicable Mortgage Loans
consistent with the related Pooling and Servicing Agreement. A Master Servicer
will be required to monitor the performance of Sub-Servicers retained by it and
will have the right to remove a Sub-Servicer retained by it at any time it
considers such removal to be in the best interests of Certificateholders.
Unless otherwise provided in the related Prospectus Supplement, a
Master Servicer will be solely liable for all fees owed by it to any
Sub-Servicer, irrespective of whether the Master Servicer's compensation
pursuant to the related Pooling and Servicing Agreement is sufficient to pay
such fees. Each Sub-Servicer will be reimbursed by the Master Servicer that
retained it for certain expenditures which it makes, generally to the same
extent the Master Servicer would be reimbursed under a Pooling and Servicing
Agreement. See "--Certificate Account" and "--Servicing Compensation and Payment
of Expenses".
SPECIAL SERVICERS
To the extent so specified in the related Prospectus Supplement, one or
more Special Servicers may be a party to the related Pooling and Servicing
Agreement or may be appointed by the Master Servicer or another specified party.
A Special Servicer for any series of Certificates may be an affiliate of the
Depositor or the Master Servicer and may hold, or be affiliated with the holder
of, Subordinate Certificates of such series. A Special Servicer may be entitled
to any of the rights, and subject to any of the obligations, described herein in
respect of a Master Servicer. In general, a Special Servicer's duties will
relate to defaulted Mortgage Loans, including instituting foreclosures and
negotiating work-outs. The related Prospectus Supplement will describe the
rights, obligations and compensation of any Special Servicer for a particular
series of Certificates. The Master Servicer will be liable for the performance
of a Special Servicer only if, and to the extent, set forth in the related
Prospectus Supplement. In certain cases the Master Servicer may be appointed the
Special Servicer.
CERTIFICATE ACCOUNT
GENERAL. The Master Servicer, the Trustee and/or a Special Servicer
will, as to each Trust Fund that includes Mortgage Loans, establish and maintain
or cause to be established and maintained the corresponding Certificate Account,
which will be established so as to comply with the standards of each Rating
Agency that has rated any one or more classes of Certificates of the related
series. A Certificate Account may be maintained as an interest-bearing or a
non-interest-bearing account and the funds held therein may be invested pending
each succeeding Distribution Date in United States government securities and
other obligations that are acceptable to each Rating Agency that has rated any
one or more classes of Certificates of the related series ("PERMITTED
INVESTMENTS"). Unless otherwise provided in the related Prospectus Supplement,
any interest or other income earned on funds in a Certificate Account will be
paid to the related Master Servicer, Trustee or Special Servicer (if any) as
additional compensation. A Certificate Account may be maintained with the
related Master Servicer, Special Servicer or Mortgage Asset Seller or with a
depository institution that is an affiliate of any of the foregoing or of the
Depositor, provided that it complies with applicable Rating Agency standards. If
permitted by the applicable Rating Agency or Agencies, a Certificate Account may
contain funds relating to more than one series of mortgage pass-through
certificates and may contain other funds representing payments on mortgage loans
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owned by the related Master Servicer or Special Servicer (if any) or serviced by
either on behalf of others.
DEPOSITS. Unless otherwise provided in the related Pooling and
Servicing Agreement and described in the related Prospectus Supplement, the
following payments and collections received or made by the Master Servicer, the
Trustee or any Special Servicer subsequent to the Cut-off Date (other than
payments due on or before the Cut-off Date) are to be deposited in the
Certificate Account for each Trust Fund that includes Mortgage Loans, within a
certain period following receipt (in the case of collections on or in respect of
the Mortgage Loans) or otherwise as provided in the related Pooling and
Servicing Agreement:
(i) all payments on account of principal, including principal
prepayments, on the Mortgage Loans;
(ii) all payments on account of interest on the Mortgage
Loans, including any default interest collected, in each case net of
any portion thereof retained by the Master Servicer or any Special
Servicer as its servicing compensation or as compensation to the
Trustee;
(iii) all proceeds received under any hazard, title or other
insurance policy that provides coverage with respect to a Mortgaged
Property or the related Mortgage Loan (other than proceeds applied to
the restoration of the property or released to the related borrower)
(collectively, "INSURANCE PROCEEDS"), all proceeds received in
connection with the condemnation or other governmental taking of all or
any portion of a Mortgaged Property (other than proceeds applied to the
restoration of the property or released to the related borrower)
(collectively, "CONDEMNATION PROCEEDS"), and all other amounts received
and retained in connection with the liquidation of defaulted Mortgage
Loans or property acquired in respect thereof, by foreclosure or
otherwise (such amounts, together with those amounts listed in clause
(vii) below, "LIQUIDATION PROCEEDS"), together with the net operating
income (less reasonable reserves for future expenses) derived from the
operation of any Mortgaged Properties acquired by the Trust Fund
through foreclosure or otherwise;
(iv) any amounts paid under any instrument or drawn from any
fund that constitutes Credit Support for the related series of
Certificates;
(v) any advances made with respect to delinquent scheduled
payments of principal and interest on the Mortgage Loans;
(vi) any amounts paid under any Cash Flow Agreement;
(vii) all proceeds of the purchase of any Mortgage Loan, or
property acquired in respect thereof, by the Depositor, any Mortgage
Asset Seller or any other specified person as described under
"--Assignment of Mortgage Loans; Repurchases" and "--Representations
and Warranties; Repurchases", all proceeds of the purchase of any
defaulted Mortgage Loan as described under "--Realization Upon
Defaulted Mortgage Loans", and all proceeds of any Mortgage Asset
purchased as described under "Description of the
Certificates--Termination; Retirement of Certificates";
(viii) to the extent that any such item does not constitute
additional servicing compensation to the Master Servicer or a Special
Servicer and is not otherwise retained by the Depositor or another
specified person, any payments on account of modification or assumption
fees, late payment charges, Prepayment Premiums or Equity
Participations with respect to the Mortgage Loans;
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(ix) all payments required to be deposited in the Certificate
Account with respect to any deductible clause in any blanket insurance
policy described under "--Hazard Insurance Policies";
(x) any amount required to be deposited by the Master Servicer
or the Trustee in connection with losses realized on investments for
the benefit of the Master Servicer or the Trustee, as the case may be,
of funds held in the Certificate Account; and
(xi) any other amounts required to be deposited in the
Certificate Account as provided in the related Pooling and Servicing
Agreement and described in the related Prospectus Supplement.
WITHDRAWALS. Unless otherwise provided in the related Pooling and
Servicing Agreement and described in the related Prospectus Supplement, a Master
Servicer, Trustee or Special Servicer may make withdrawals from the Certificate
Account for each Trust Fund that includes Mortgage Loans for any of the
following purposes:
(i) to make distributions to the Certificateholders on each
Distribution Date;
(ii) to pay the Master Servicer or a Special Servicer any
servicing fees not previously retained thereby, such payment to be made
out of payments and other collections of interest on the particular
Mortgage Loans as to which such fees were earned;
(iii) to reimburse the Master Servicer, a Special Servicer or
any other specified person for unreimbursed advances of delinquent
scheduled payments of principal and interest made by it, and certain
unreimbursed servicing expenses incurred by it, with respect to
Mortgage Loans in the Trust Fund and properties acquired in respect
thereof, such reimbursement to be made out of amounts that represent
late payments collected on the particular Mortgage Loans, Liquidation
Proceeds, Condemnation Proceeds and Insurance Proceeds collected on the
particular Mortgage Loans and properties, and net income collected on
the particular properties, with respect to which such advances were
made or such expenses were incurred or out of amounts drawn under any
form of Credit Support with respect to such Mortgage Loans and
properties, or if in the judgment of the Master Servicer, the Special
Servicer or such other person, as applicable, such advances and/or
expenses will not be recoverable from such amounts, such reimbursement
to be made from amounts collected on other Mortgage Loans in the same
Trust Fund or, if and to the extent so provided by the related Pooling
and Servicing Agreement and described in the related Prospectus
Supplement, only from that portion of amounts collected on such other
Mortgage Loans that is otherwise distributable on one or more classes
of Subordinate Certificates of the related series;
(iv) if and to the extent described in the related Prospectus
Supplement, to pay the Master Servicer, a Special Servicer or any other
specified person interest accrued on the advances and servicing
expenses described in clause (iii) above incurred by it while such
remain outstanding and unreimbursed;
(v) to pay for costs and expenses incurred by the Trust Fund
for environmental site assessments performed with respect to Mortgaged
Properties that constitute security for defaulted Mortgage Loans, and
for any containment, clean-up or remediation of hazardous wastes and
materials present on such Mortgaged Properties, as described under
"--Realization Upon Defaulted Mortgage Loans";
(vi) to reimburse the Master Servicer, the Depositor, the
Trustee, or any of their respective directors, officers, employees and
agents, as the case may be, for certain expenses, costs and liabilities
incurred thereby, as and to the extent described under "--Certain
Matters
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Regarding the Master Servicer and the Depositor" and "--Certain Matters
Regarding the Trustee";
(vii) if and to the extent described in the related Prospectus
Supplement, to pay the fees of the Trustee and any provider of Credit
Support;
(viii) if and to the extent described in the related
Prospectus Supplement, to reimburse prior draws on any form of Credit
Support;
(ix) to pay the Master Servicer, a Special Servicer or the
Trustee, as appropriate, interest and investment income earned in
respect of amounts held in the Certificate Account as additional
compensation;
(x) to pay any servicing expenses not otherwise required to be
advanced by the Master Servicer, a Special Servicer or any other
specified person;
(xi) if one or more elections have been made to treat the
Trust Fund or designated portions thereof as a REMIC, to pay any
federal, state or local taxes imposed on the Trust Fund or its assets
or transactions, as and to the extent described under "Certain Federal
Income Tax Consequences--REMICs--Prohibited Transactions Tax and Other
Taxes";
(xii) to pay for the cost of various opinions of counsel
obtained pursuant to the related Pooling and Servicing Agreement for
the benefit of Certificateholders;
(xiii) to make any other withdrawals permitted by the related
Pooling and Servicing Agreement and described in the related Prospectus
Supplement; and
(xiv) to clear and terminate the Certificate Account upon the
termination of the Trust Fund.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
If a default on a Mortgage Loan has occurred or, in the Master
Servicer's judgment, a payment default is imminent, the Master Servicer, on
behalf of the Trustee, may at any time institute foreclosure proceedings,
exercise any power of sale contained in the related Mortgage, obtain a deed in
lieu of foreclosure, or otherwise acquire title to the related Mortgaged
Property, by operation of law or otherwise. Unless otherwise specified in the
related Prospectus Supplement, the Master Servicer may not, however, acquire
title to any Mortgaged Property, have a receiver of rents appointed with respect
to any Mortgaged Property or take any other action with respect to any Mortgaged
Property that would cause the Trustee, for the benefit of the related series of
Certificateholders, or any other specified person to be considered to hold title
to, to be a "mortgagee-in-possession" of, or to be an "owner" or an "operator"
of such Mortgaged Property within the meaning of certain federal environmental
laws, unless the Master Servicer has previously received a report prepared by a
person who regularly conducts environmental audits (which report will be an
expense of the Trust Fund) and either:
(i) such report indicates that (a) the Mortgaged Property is
in compliance with applicable environmental laws and regulations and
(b) there are no circumstances or conditions present at the Mortgaged
Property that have resulted in any contamination for which
investigation, testing, monitoring, containment, clean-up or
remediation could be required under any applicable environmental laws
and regulations; or
(ii) the Master Servicer, based solely (as to environmental
matters and related costs) on the information set forth in such report,
determines that taking such actions as are necessary to
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bring the Mortgaged Property into compliance with applicable
environmental laws and regulations and/or taking the actions
contemplated by clause (i)(b) above, is reasonably likely to produce a
greater recovery, taking into account the time value of money, than not
taking such actions. See "Certain Legal Aspects of Mortgage
Loans--Environmental Considerations".
A Pooling and Servicing Agreement may grant to the Master Servicer, a
Special Servicer, a provider of Credit Support and/or the holder or holders of
certain classes of the related series of Certificates a right of first refusal
to purchase from the Trust Fund, at a predetermined purchase price (which, if
insufficient to fully fund the entitlements of Certificateholders to principal
and interest thereon, will be specified in the related Prospectus Supplement),
any Mortgage Loan as to which a specified number of scheduled payments are
delinquent. In addition, unless otherwise specified in the related Prospectus
Supplement, the Master Servicer may offer to sell any defaulted Mortgage Loan if
and when the Master Servicer determines, consistent with its normal servicing
procedures, that such a sale would produce a greater recovery, taking into
account the time value of money, than would liquidation of the related Mortgaged
Property. In the absence of any such sale, the Master Servicer will generally be
required to proceed against the related Mortgaged Property, subject to the
discussion below.
Unless otherwise provided in the related Prospectus Supplement, if
title to any Mortgaged Property is acquired by a Trust Fund as to which a REMIC
election has been made, the Master Servicer, on behalf of the Trust Fund, will
be required to sell the Mortgaged Property within two years of acquisition,
unless (i) the Internal Revenue Service (the "IRS") grants an extension of time
to sell such property or (ii) the Trustee receives an opinion of independent
counsel to the effect that the holding of the property by the Trust Fund for
more than two years after its acquisition will not result in the imposition of a
tax on the Trust Fund or cause the Trust Fund (or any designated portion
thereof) to fail to qualify as a REMIC under the Code at any time that any
Certificate is outstanding. Subject to the foregoing and any other tax-related
limitations, the Master Servicer will generally be required to attempt to sell
any Mortgaged Property so acquired on the same terms and conditions it would if
it were the owner. Unless otherwise provided in the related Prospectus
Supplement, if title to any Mortgaged Property is acquired by a Trust Fund as to
which a REMIC election has been made, the Master Servicer will also be required
to ensure that the Mortgaged Property is administered so that it constitutes
"foreclosure property" within the meaning of Code Section 860G(a)(8) at all
times, that the sale of such property does not result in the receipt by the
Trust Fund of any income from non-permitted assets as described in Code Section
860F(a)(2)(B), and that the Trust Fund does not derive any "net income from
foreclosure property" within the meaning of Code Section 860G(c)(2), with
respect to such property. If the Trust Fund acquires title to any Mortgaged
Property, the Master Servicer, on behalf of the Trust Fund, may retain an
independent contractor to manage and operate such property. The retention of an
independent contractor, however, will not relieve the Master Servicer of its
obligation to manage such Mortgaged Property as required under the related
Pooling and Servicing Agreement.
If Liquidation Proceeds collected with respect to a defaulted Mortgage
Loan are less than the outstanding principal balance of the defaulted Mortgage
Loan plus interest accrued thereon plus the aggregate amount of reimbursable
expenses incurred by the Master Servicer in connection with such Mortgage Loan,
then, to the extent that such shortfall is not covered by any instrument or fund
constituting Credit Support, the Trust Fund will realize a loss in the amount of
such shortfall. The Master Servicer will be entitled to reimbursement out of the
Liquidation Proceeds recovered on any defaulted Mortgage Loan, prior to the
distribution of such Liquidation Proceeds to Certificateholders, amounts that
represent unpaid servicing compensation in respect of the Mortgage Loan,
unreimbursed servicing expenses incurred with respect to the Mortgage Loan and
any unreimbursed advances of delinquent payments made with respect to the
Mortgage Loan. In addition, if and to the extent set forth in the related
Prospectus Supplement, amounts otherwise distributable on the Certificates may
be further reduced by interest payable to the Master Servicer on such servicing
expenses and advances.
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If any Mortgaged Property suffers damage such that the proceeds, if
any, of the related hazard insurance policy are insufficient to restore fully
the damaged property, the Master Servicer will not be required to expend its own
funds to effect such restoration unless (and to the extent not otherwise
provided in the related Prospectus Supplement) it determines (i) that such
restoration will increase the proceeds to Certificateholders on liquidation of
the Mortgage Loan after reimbursement of the Master Servicer for its expenses
and (ii) that such expenses will be recoverable by it from related Insurance
Proceeds, Condemnation Proceeds, Liquidation Proceeds and/or amounts drawn on
any instrument or fund constituting Credit Support.
HAZARD INSURANCE POLICIES
Unless otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing Agreement will require the Master Servicer to use
reasonable efforts to cause each Mortgage Loan borrower to maintain a hazard
insurance policy that provides for such coverage as is required under the
related Mortgage or, if the Mortgage permits the holder thereof to dictate to
the borrower the insurance coverage to be maintained on the related Mortgaged
Property, such coverage as is consistent with the Master Servicer's normal
servicing procedures. Unless otherwise specified in the related Prospectus
Supplement, such coverage generally will be in an amount equal to the lesser of
the principal balance owing on such Mortgage Loan and the replacement cost of
the related Mortgaged Property. The ability of a Master Servicer to assure that
hazard insurance proceeds are appropriately applied may be dependent upon its
being named as an additional insured under any hazard insurance policy and under
any other insurance policy referred to below, or upon the extent to which
information concerning covered losses is furnished by borrowers. All amounts
collected by a Master Servicer under any such policy (except for amounts to be
applied to the restoration or repair of the Mortgaged Property or released to
the borrower in accordance with the Master Servicer's normal servicing
procedures and/or to the terms and conditions of the related Mortgage and
Mortgage Note) will be deposited in the related Certificate Account. The Pooling
and Servicing Agreement may provide that the Master Servicer may satisfy its
obligation to cause each borrower to maintain such a hazard insurance policy by
maintaining a blanket policy insuring against hazard losses on all of the
Mortgage Loans in a Trust Fund. If such blanket policy contains a deductible
clause, the Master Servicer will be required, in the event of a casualty covered
by such blanket policy, to deposit in the related Certificate Account all
additional sums that would have been deposited therein under an individual
policy but were not because of such deductible clause.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements of the property by
fire, lightning, explosion, smoke, windstorm and hail, and riot, strike and
civil commotion, subject to the conditions and exclusions specified in each
policy. Although the policies covering the Mortgaged Properties will be
underwritten by different insurers under different state laws in accordance with
different applicable state forms, and therefore will not contain identical terms
and conditions, most such policies typically do not cover any physical damage
resulting from war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides and
mudflows), wet or dry rot, vermin and domestic animals. Accordingly, a Mortgaged
Property may not be insured for losses arising from any such cause unless the
related Mortgage specifically requires, or permits the holder thereof to
require, such coverage.
The hazard insurance policies covering the Mortgaged Properties will
typically contain co-insurance clauses that in effect require an insured at all
times to carry insurance of a specified percentage (generally 80% to 90%) of the
full replacement value of the improvements on the property in order to recover
the full amount of any partial loss. If the insured's coverage falls below this
specified percentage, such clauses generally provide that the insurer's
liability in the event of partial loss does not exceed the lesser of (i) the
replacement cost of the improvements less physical depreciation and (ii) such
proportion of the loss as the amount of insurance carried bears to the specified
percentage of the full replacement cost of such improvements.
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DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS
Certain of the Mortgage Loans may contain a due-on-sale clause that
entitles the lender to accelerate payment of the Mortgage Loan upon any sale or
other transfer of the related Mortgaged Property made without the lender's
consent. Certain of the Mortgage Loans may also contain a due-on-encumbrance
clause that entitles the lender to accelerate the maturity of the Mortgage Loan
upon the creation of any other lien or encumbrance upon the Mortgaged Property.
Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer will determine whether to exercise any right the Trustee may have under
any such provision in a manner consistent with the Master Servicer's normal
servicing procedures. Unless otherwise specified in the related Prospectus
Supplement, the Master Servicer will be entitled to retain as additional
servicing compensation any fee collected in connection with the permitted
transfer of a Mortgaged Property. See "Certain Legal Aspects of Mortgage
Loans--Due-on-Sale and Due-on-Encumbrance".
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Unless otherwise specified in the related Prospectus Supplement, a
Master Servicer's primary servicing compensation with respect to a series of
Certificates will come from the periodic payment to it of a specified portion of
the interest payments on each Mortgage Loan in the related Trust Fund. Because
such compensation is generally based on a percentage of the principal balance of
each such Mortgage Loan outstanding from time to time, it will decrease in
accordance with the amortization of the Mortgage Loans. If and to the extent
described in the related Prospectus Supplement, a Master Servicer's compensation
may also include: (i) an additional specified portion of the interest payments
on each defaulted Mortgage Loan serviced by the Master Servicer; (ii) subject to
any specified limitations, a fixed percentage of some or all of the collections
and proceeds received with respect to any defaulted Mortgage Loan as to which it
negotiated a work-out or that it liquidated; and (iii) any other amounts
specified in the related Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement, the Master Servicer may retain, as additional
compensation, all or a portion of late payment charges, Prepayment Premiums,
modification fees and other fees collected from borrowers and any interest or
other income that may be earned on funds held in the Certificate Account. Any
Sub-Servicer will receive a portion of the Master Servicer's compensation as its
sub-servicing compensation.
In addition to amounts payable to any Sub-Servicer, a Master Servicer
may be required, to the extent provided in the related Prospectus Supplement, to
pay from amounts that represent its servicing compensation certain expenses
incurred in connection with the administration of the related Trust Fund,
including, without limitation, payment of the fees and disbursements of
independent accountants, payment of fees and disbursements of the Trustee and
any custodians appointed thereby and payment of expenses incurred in connection
with distributions and reports to Certificateholders. Certain other expenses,
including certain expenses related to Mortgage Loan defaults and liquidations
and, to the extent so provided in the related Prospectus Supplement, interest on
such expenses at the rate specified therein, and the fees of any Special
Servicer, may be required to be borne by the Trust Fund.
EVIDENCE AS TO COMPLIANCE
Each Pooling and Servicing Agreement will provide that on or before a
specified date in each year, beginning the first such date that is at least a
specified number of months after the Cut-off Date, a firm of independent public
accountants will furnish a statement to the related Trustee to the effect that,
on the basis of an examination by such firm conducted substantially in
compliance with the Uniform Single Audit Program for Mortgage Bankers or the
Audit Program for Mortgages serviced for FHLMC, the servicing of mortgage loans
under agreements (including the related Pooling and Servicing Agreement)
substantially similar to each other was conducted in compliance with such
agreements except for such significant exceptions or errors in records that, in
the opinion of the firm, the Uniform Single Audit Program for Mortgage Bankers
or the Audit Program for Mortgages serviced for FHLMC requires
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it to report. In rendering its statement such firm may rely, as to the matters
relating to the direct servicing of mortgage loans by Sub-Servicers, upon
comparable statements for examinations conducted substantially in compliance
with the Uniform Single Audit Program for Mortgage Bankers or the Audit Program
for Mortgages serviced for FHLMC (rendered within one year of such statement) of
firms of independent public accountants with respect to those Subservicers which
also have been the subject of such an examination.
Each Pooling and Servicing Agreement will also provide that, on or
before a specified date in each year, beginning the first such date that is at
least a specified number of months after the Cut-off Date, there is to be
delivered to the related Trustee an annual statement signed by one or more
officers of the Master Servicer to the effect that, to the best knowledge of
each such officer, the Master Servicer has fulfilled in all material respects
its obligations under the Pooling and Servicing Agreement throughout the
preceding year or, if there has been a material default in the fulfillment of
any such obligation, such statement shall specify each such known default and
the nature and status thereof. Such statement may be provided as a single form
making the required statements as to more than one Pooling and Servicing
Agreement.
Unless otherwise specified in the related Prospectus Supplement, copies
of the annual accountants' statement and the annual statement of officers of a
Master Servicer may be obtained by Certificateholders upon written request to
the Trustee.
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE DEPOSITOR
The entity servicing as Master Servicer under a Pooling and Servicing
Agreement may be an affiliate of the Depositor and may have other normal
business relationships with the Depositor or the Depositor's affiliates. Unless
otherwise specified in the related Prospectus Supplement, the Pooling and
Servicing Agreement for a series of Certificates will provide that the Master
Servicer may not resign from its obligations and duties thereunder except upon a
determination that performance of such duties is no longer permissible under
applicable law or except in connection with a permitted transfer of servicing.
No such resignation will become effective until the Trustee or a successor
servicer has assumed the Master Servicer's obligations and duties under the
Pooling and Servicing Agreement.
Unless otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing Agreement will also provide that, except as set forth
below, neither the Master Servicer, the Depositor, nor any director, officer,
employee or agent of the Master Servicer or the Depositor will be under any
liability to the Trust Fund or the Certificateholders for any action taken or
for refraining from the taking of any action in good faith pursuant to the
Pooling and Servicing Agreement, or for errors in judgment; provided, however,
that neither the Master Servicer, the Depositor, nor any such person will be
protected against any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance of duties or by
reason of reckless disregard of obligations and duties thereunder. Unless
otherwise specified in the related Prospectus Supplement, each Pooling and
Servicing Agreement will further provide that the Master Servicer, the
Depositor, and any director, officer, employee or agent of the Master Servicer
or the Depositor is entitled to indemnification by the Trust Fund and will be
held harmless against any loss, liability or expense incurred in connection with
any legal action relating to the Pooling and Servicing Agreement or the related
series of Certificates, other than any loss, liability or expense related to any
specific Mortgage Loan or Mortgage Loans (except any such loss, liability or
expense otherwise reimbursable pursuant to the Pooling and Servicing Agreement)
and any loss, liability or expense incurred by reason of willful misfeasance,
bad faith or 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 neither the Master Servicer
nor the Depositor will be under any obligation to appear in, prosecute or defend
any legal or administrative action that is not incidental to its respective
duties under the Pooling and Servicing Agreement and which in its opinion may
involve it in any expense or liability. The Master Servicer or the Depositor
may, however,
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in its discretion undertake any such action which it may deem necessary or
desirable with respect to the 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 Fund, and the Master Servicer or the Depositor, as the case may be, will
be entitled to be reimbursed therefor out of funds otherwise distributable to
Certificateholders.
Any person into which the Master Servicer may be merged or
consolidated, any person resulting from any merger or consolidation to which the
Master Servicer is a party or any person succeeding to the business of the
Master Servicer will be the successor of the Master Servicer under the Pooling
and Servicing Agreement, provided that, unless otherwise specified in the
related Prospectus Supplement, (i) such person is qualified to service mortgage
loans on behalf of FNMA or FHLMC and (ii) such merger, consolidation or
succession does not adversely affect the then-current ratings of the classes of
Certificates of the related series that have been rated. In addition,
notwithstanding the prohibition on its resignation, the Master Servicer may
assign its rights under a Pooling and Servicing Agreement to any person to whom
the Master Servicer is transferring a substantial portion of its mortgage
servicing portfolio, provided clauses (i) and (ii) above are satisfied. In the
case of any such assignment, the Master Servicer will be released from its
obligations under such Pooling and Servicing Agreement, other than liabilities
and obligations incurred by it prior to the time of such assignment.
EVENTS OF DEFAULT
Events of Default under the Pooling and Servicing Agreement in respect
of a series of Certificates, unless otherwise specified in the Prospectus
Supplement, will include, without limitation, (i) any failure by the Master
Servicer to make a required deposit to the Certificate Account or, if the Master
Servicer is so required, to distribute to the holders of any class of
Certificates of such series any required payment which continues unremedied for
5 days after the giving of written notice of such failure to the Master Servicer
by the Trustee or the Depositor, or to the Master Servicer, the Depositor and
the Trustee by the holders of Certificates of such class evidencing not less
than 25% of the aggregate Percentage Interests constituting such class; (ii) any
failure by the Master Servicer duly to observe or perform in any material
respect any other of its covenants or agreements in the Pooling and Servicing
Agreement with respect to such series of Certificates which continues unremedied
for 30 days after the giving of written notice of such failure to the Master
Servicer by the Trustee or the Depositor, or to the Master Servicer, the
Depositor and the Trustee by the holders of any class of Certificates of such
series evidencing not less than 25% of the aggregate Percentage Interests
constituting such class; and (iii) certain events of insolvency, readjustment of
debt, marshalling of assets and liabilities or similar proceedings regarding the
Master Servicer and certain actions by the Master Servicer indicating its
insolvency or inability to pay its obligations. Material variations to the
foregoing Events of Default (other than to add thereto or to make them more
restrictive) will be specified in the related Prospectus Supplement. A default
pursuant to the terms of any MBS included in any Trust Fund will not constitute
an Event of Default under the related Pooling and Servicing Agreement.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default remains unremedied, either the Depositor
or the Trustee may, and at the direction of the holders of Certificates
evidencing not less than 51% of the aggregate undivided interests (or, if so
specified in the related Prospectus Supplement, voting rights) in the related
Trust Fund the Trustee shall, by written notification to the Master Servicer and
to the Depositor or the Trustee, as applicable, terminate all of the rights and
obligations of the Master Servicer under the Pooling and Servicing Agreement
covering such Trust Fund and in and to the related Mortgage Loans and the
proceeds thereof (other than any rights of the Master Servicer as
Certificateholder and other than any rights of the Master Servicer to payment
and/or reimbursement for previously earned servicing fees and outstanding
advances), whereupon the Trustee or, upon notice to the Depositor and with the
Depositor's
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consent, its designee will succeed to all responsibilities, duties and
liabilities of the Master Servicer under such Pooling and Servicing Agreement
(other than the obligation to purchase Mortgage Loans under certain
circumstances) and will be entitled to similar compensation arrangements. In the
event that the Trustee would be obligated to succeed the Master Servicer but is
unwilling so to act, it may appoint (or if it is unable so to act, it shall
appoint) or petition a court of competent jurisdiction for the appointment of, a
FNMA- or FHLMC-approved mortgage servicing institution with a net worth of at
least $10,000,000 to act as successor to the Master Servicer under the Pooling
and Servicing Agreement (unless otherwise set forth in the Pooling and Servicing
Agreement). Pending such appointment, the Trustee is obligated to act in such
capacity. 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 the initial Master Servicer under the Pooling and Servicing Agreement.
No Certificateholder will have any right under a Pooling and Servicing
Agreement to institute any proceeding with respect to such Pooling and Servicing
Agreement unless such holder previously has given to the Trustee written notice
of default and the continuance thereof and unless the holders of Certificates of
any class evidencing not less than 25% of the aggregate Percentage Interests
constituting such class have made written request upon 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
request and indemnity has neglected or refused to institute any such proceeding.
However, the Trustee will be under no obligation to exercise any of the trusts
or powers vested in it by the Pooling and Servicing Agreement or to institute,
conduct or defend any litigation thereunder or in relation thereto at the
request, order or direction of any of the holders of Certificates covered by
such Pooling and Servicing Agreement, 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
Each Pooling and Servicing Agreement may be amended by the parties
thereto, without the consent of any of the holders of Certificates covered by
such Pooling and Servicing Agreement, (i) to cure any ambiguity, (ii) to correct
or supplement any provision therein which may be inconsistent with any other
provision therein or to correct any error, (iii) to change the timing and/or
nature of deposits in the Certificate Account, provided that (A) such change
would not adversely affect in any material respect the interests of any
Certificateholder, as evidenced by an opinion of counsel, and (B) such change
would not adversely affect the then-current rating of any rated classes of
Certificates, as evidenced by a letter from each applicable Rating Agency, (iv)
if a REMIC election has been made with respect to the related Trust Fund, to
modify, eliminate or add to any of its provisions (A) to such extent as shall be
necessary to maintain the qualification of the Trust Fund as a REMIC or to avoid
or minimize the risk of imposition of any tax on the related Trust Fund,
provided that the Trustee has received an opinion of counsel to the effect that
(1) such action is necessary or desirable to maintain such qualification or to
avoid or minimize such risk, and (2) such action will not adversely affect in
any material respect the interests of any holder of Certificates covered by the
Pooling and Servicing Agreement, or (C) to restrict the transfer of the REMIC
Residual Certificates, provided that the Depositor has determined that the
then-current ratings of the classes of the Certificates that have been rated
will not be adversely affected, as evidenced by a letter from each applicable
Rating Agency, and that any such amendment will not give rise to any tax with
respect to the transfer of the REMIC Residual Certificates to a non-Permitted
Transferee, (v) to make any other provisions with respect to matters or
questions arising under such Pooling and Servicing Agreement or any other
change, provided that such action will not adversely affect in any material
respect the interests of any Certificateholder, or (vi) to amend specified
provisions that are not material to holders of any class of Certificates offered
hereunder.
The Pooling and Servicing Agreement may also be amended by the parties
thereto with the consent of the holders of Certificates of each class affected
thereby evidencing, in each case, not less than 66% of the aggregate Percentage
Interests constituting such class for the purpose of adding any provisions
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to or changing in any manner or eliminating any of the provisions of such
Pooling and Servicing Agreement or of modifying in any manner the rights of the
holders of Certificates covered by such Pooling and Servicing Agreement, except
that no such amendment may (i) reduce in any manner the amount of, or delay the
timing of, payments received on Mortgage Loans which are required to be
distributed on a Certificate of any class without the consent of the holder of
such Certificate or (ii) reduce the aforesaid percentage of Certificates of any
class the holders of which are required to consent to any such amendment without
the consent of the holders of all Certificates of such class covered by such
Pooling and Servicing Agreement then outstanding.
Notwithstanding the foregoing, if a REMIC election has been made with
respect to the related Trust Fund, the Trustee will not be required to consent
to any amendment to a Pooling and Servicing Agreement without having first
received an opinion of counsel to the effect that such amendment or the exercise
of any power granted to the Master Servicer, the Depositor, the Trustee or any
other specified person in accordance with such amendment will not result in the
imposition of a tax on the related Trust Fund or cause such Trust Fund to fail
to qualify as a REMIC.
THE TRUSTEE
The Trustee under each Pooling and Servicing Agreement will be named in
the related Prospectus Supplement. The commercial bank, national banking
association, banking corporation or trust company that serves as Trustee may
have typical banking relationships with the Depositor and its affiliates.
DUTIES OF THE TRUSTEE
The Trustee for each series of Certificates will make no representation
as to the validity or sufficiency of the related Pooling and Servicing
Agreement, the Certificates or any underlying Mortgage Asset or related document
and will not be accountable for the use or application by or on behalf of any
Master Servicer or Special Servicer of any funds paid to the Master Servicer or
Special Servicer in respect of the Certificates or the underlying Mortgage
Assets. If no Event of Default has occurred and is continuing, the Trustee for
each series of Certificates will be required to perform only those duties
specifically required under the related Pooling and Servicing Agreement.
However, upon receipt of any of the various certificates, reports or other
instruments required to be furnished to it pursuant to the related Pooling and
Servicing Agreement, a Trustee will be required to examine such documents and to
determine whether they conform to the requirements of such agreement.
CERTAIN MATTERS REGARDING THE TRUSTEE
As and to the extent described in the related Prospectus Supplement,
the fees and normal disbursements of any Trustee may be the expense of the
related Master Servicer or other specified person or may be required to be borne
by the related Trust Fund.
Unless otherwise specified in the related Prospectus Supplement, the
Trustee for each series of Certificates will be entitled to indemnification,
from amounts held in the Certificate Account for such series, for any loss,
liability or expense incurred by the Trustee in connection with the Trustee's
acceptance or administration of its trusts under the related Pooling and
Servicing Agreement; provided, however, that such indemnification will not
extend to any loss liability or expense incurred by reason of willful
misfeasance, bad faith or negligence on the part of the Trustee in the
performance of its obligations and duties thereunder, or by reason of its
reckless disregard of such obligations or duties.
Unless otherwise specified in the related Prospectus Supplement, the
Trustee for each series of Certificates will be entitled to execute any of its
trusts or powers under the related Pooling and Servicing Agreement or perform
any of this duties thereunder either directly or by or through agents or
attorneys.
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RESIGNATION AND REMOVAL OF THE TRUSTEE
The Trustee may resign at any time, in which event the Depositor will
be obligated to appoint a successor Trustee. The Depositor may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Pooling and Servicing Agreement or if the Trustee becomes insolvent. Upon
becoming aware of such circumstances, the Depositor will be obligated to appoint
a successor Trustee. The Trustee may also be removed at any time by the holders
of Certificates evidencing not less than 51% of the aggregate undivided
interests (or, if so specified in the related Prospectus Supplement, voting
rights) in the related Trust Fund. Any resignation or removal of the Trustee and
appointment of a successor Trustee will not become effective until acceptance of
the appointment by the successor Trustee.
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DESCRIPTION OF CREDIT SUPPORT
GENERAL
Credit Support may be provided with respect to one or more classes of
the Certificates of any series, or with respect to the related Mortgage Assets.
Credit Support may be in the form of a letter of credit, the subordination of
one or more classes of Certificates, the use of a pool insurance policy or
guarantee insurance, the establishment of one or more reserve funds or another
method of Credit Support described in the related Prospectus Supplement, or any
combination of the foregoing. If and to the extent so provided in the related
Prospectus Supplement, any of the foregoing forms of Credit Support may provide
credit enhancement for more than one series of Certificates.
Unless otherwise provided in the related Prospectus Supplement for a
series of Certificates, the Credit Support will not provide protection against
all risks of loss and will not guarantee payment to Certificateholders of all
amounts to which they are entitled under the related Pooling and Servicing
Agreement. If losses or shortfalls occur that exceed the amount covered by the
related Credit Support or that are of a type not covered by such Credit Support,
Certificateholders will bear their allocable share of deficiencies. Moreover, if
a form of Credit Support covers the Offered Certificates of more than one series
and losses on the related Mortgage Assets exceed the amount of such Credit
Support, it is possible that the holders of Offered Certificates of one (or
more) such series will be disproportionately benefited by such Credit Support to
the detriment of the holders of Offered Certificates of one (or more) other such
series.
If Credit Support is provided with respect to one or more classes of
Certificates of a series, or with respect to the related Mortgage Assets, the
related Prospectus Supplement will include a description of (i) the nature and
amount of coverage under such Credit Support, (ii) any conditions to payment
thereunder not otherwise described herein, (iii) the conditions (if any) under
which the amount of coverage under such Credit Support may be reduced and under
which such Credit Support may be terminated or replaced and (iv) the material
provisions relating to such Credit Support. Additionally, the related Prospectus
Supplement will set forth certain information with respect to the obligor, if
any, under any instrument of Credit Support. See "Risk Factors--Credit Support
Limitations".
SUBORDINATE CERTIFICATES
If so specified in the related Prospectus Supplement, one or more
classes of Certificates of a series may be Subordinate Certificates. To the
extent specified in the related Prospectus Supplement, the rights of the holders
of Subordinate Certificates to receive distributions from the Certificate
Account on any Distribution Date will be subordinated to the corresponding
rights of the holders of Senior Certificates. If so provided in the related
Prospectus Supplement, the subordination of a class may apply only in the event
of certain types of losses or shortfalls. The related Prospectus Supplement will
set forth information concerning the method and amount of subordination provided
by a class or classes of Subordinate Certificates in a series and the
circumstances under which such subordination will be available.
If the Mortgage Assets in any Trust Fund are divided into separate
groups, each supporting a separate class or classes of Certificates of the
related series, Credit Support may be provided by cross-support provisions
requiring that distributions be made on Senior Certificates evidencing interests
in one group of Mortgage Assets prior to distributions on Subordinate
Certificates evidencing interests in a different group of Mortgage Assets within
the Trust Fund. The Prospectus Supplement for a series that includes a
cross-support provision will describe the manner and conditions for applying
such provisions.
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INSURANCE OR GUARANTEES WITH RESPECT TO MORTGAGE LOANS
If so provided in the Prospectus Supplement for a series of
Certificates, Mortgage Loans included in the related Trust Fund will be covered
for certain default risks by insurance policies or guarantees. The related
Prospectus Supplement will describe the nature of such default risks and the
extent of such coverage.
LETTER OF CREDIT
If so provided in the Prospectus Supplement for a series of
Certificates, deficiencies in amounts otherwise payable on such Certificates or
certain classes thereof will be covered by one or more letters of credit, issued
by a bank or other financial institution specified in such Prospectus Supplement
(the "LETTER OF CREDIT BANK"). Under a letter of credit, the Letter of Credit
Bank will be obligated to honor draws thereunder in an aggregate fixed dollar
amount, net of unreimbursed payments thereunder, generally equal to a percentage
specified in the related Prospectus Supplement of the aggregate principal
balance of the Mortgage Assets on the related Cut-off Date or of the initial
aggregate Certificate Balance of one or more classes of Certificates. If so
specified in the related Prospectus Supplement, the letter of credit may permit
draws only in the event of certain types of losses and shortfalls. The amount
available under the letter of credit will, in all cases, be reduced to the
extent of the unreimbursed payments thereunder and may otherwise be reduced as
described in the related Prospectus Supplement. The obligations of the Letter of
Credit Bank under the letter of credit for each series of Certificates will
expire at the earlier of the date specified in the related Prospectus Supplement
or the termination of the Trust Fund.
CERTIFICATE INSURANCE AND SURETY BONDS
If so provided in the Prospectus Supplement for a series of
Certificates, deficiencies in amounts otherwise payable on such Certificates or
certain classes thereof will be covered by insurance policies or surety bonds
provided by one or more insurance companies or sureties. Such instruments may
cover, with respect to one or more classes of Certificates of the related
series, timely distributions of interest or distributions of principal on the
basis of a schedule of principal distributions set forth in or determined in the
manner specified in the related Prospectus Supplement. The related Prospectus
Supplement will describe any limitations on the draws that may be made under any
such instrument.
RESERVE FUNDS
If so provided in the Prospectus Supplement for a series of
Certificates, deficiencies in amounts otherwise payable on such Certificates or
certain classes thereof will be covered (to the extent of available funds) by
one or more reserve funds in which cash, a letter of credit, Permitted
Investments, a demand note or a combination thereof will be deposited, in the
amounts specified in such Prospectus Supplement. If so specified in the related
Prospectus Supplement, the reserve fund for a series may also be funded over
time by a specified amount of certain collections received on the related
Mortgage Assets.
Amounts on deposit in any reserve fund for a series will be applied for
the purposes, in the manner, and to the extent specified in the related
Prospectus Supplement. If so specified in the related Prospectus Supplement,
reserve funds may be established to provide protection only against certain
types of losses and shortfalls. Following each Distribution Date, amounts in a
reserve fund in excess of any amount required to be maintained therein may be
released from the reserve fund under the conditions and to the extent specified
in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, amounts deposited
in any reserve fund will be invested in Permitted Investments. Unless otherwise
specified in the related Prospectus Supplement, any reinvestment income or other
gain from such investments will be credited to the related reserve fund
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for such series, and any loss resulting from such investments will be charged to
such reserve fund. However, such income may be payable to any related Master
Servicer or another service provider as additional compensation for its
services. The reserve fund, if any, for a series will not be a part of the Trust
Fund unless otherwise specified in the related Prospectus Supplement.
CREDIT SUPPORT WITH RESPECT TO MBS
If so provided in the Prospectus Supplement for a series of
Certificates, any MBS included in the related Trust Fund and/or the related
underlying mortgage loans may be covered by one or more of the types of Credit
Support described herein. The related Prospectus Supplement will specify, as to
each such form of Credit Support, the information indicated above with respect
thereto, to the extent such information is material and available.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains general summaries of certain legal
aspects of loans secured by commercial and multifamily residential properties.
Because such legal aspects are governed by applicable state law (which laws may
differ substantially), the summaries do not purport to be complete, to reflect
the laws of any particular state, or to encompass the laws of all states in
which the security for the Mortgage Loans (or mortgage loans underlying any MBS)
is situated. Accordingly, the summaries are qualified in their entirety by
reference to the applicable laws of those states. See "Description of the Trust
Funds--Mortgage Loans". For purposes of the following discussion, "Mortgage
Loan" includes a mortgage loan underlying an MBS.
GENERAL
Each Mortgage Loan will be evidenced by a note or bond and secured by
an instrument granting a security interest in real property, which may be a
mortgage, deed of trust or a deed to secure debt, depending upon the prevailing
practice and law in the state in which the related Mortgaged Property is
located. Mortgages, deeds of trust and deeds to secure debt are herein
collectively referred to as "mortgages". A mortgage creates a lien upon, or
grants a title interest in, the real property covered thereby, and represents
the security for the repayment of the indebtedness customarily evidenced by a
promissory note. The priority of the lien created or interest granted will
depend on the terms of the mortgage and, in some cases, on the terms of separate
subordination agreements or intercreditor agreements with others that hold
interests in the real property, the knowledge of the parties to the mortgage
and, generally, the order of recordation of the mortgage in the appropriate
public recording office. However, the lien of a recorded mortgage will generally
be subordinate to later-arising liens for real estate taxes and assessments and
other charges imposed under governmental police powers.
TYPES OF MORTGAGE INSTRUMENTS
There are two parties to a mortgage: a mortgagor (the borrower and
usually the owner of the subject property) and a mortgagee (the lender). In
contrast, a deed of trust is a three-party instrument, among a trustor (the
equivalent of a borrower), a trustee to whom the real property is conveyed, and
a beneficiary (the lender) for whose benefit the conveyance is made. Under a
deed of trust, the trustor grants the property, irrevocably until the debt is
paid, in trust and generally with a power of sale, to the trustee to secure
repayment of the indebtedness evidenced by the related note. A deed to secure
debt typically has two parties, pursuant to which the borrower, or grantor,
conveys title to the real property to the grantee, or lender, generally with a
power of sale, until such time as the debt is repaid. In a case where the
borrower is a land trust, there would be an additional party because legal title
to the property is held by a land trustee under a land trust agreement for the
benefit of the borrower. At origination of a mortgage loan involving a land
trust, the borrower may execute a separate undertaking to make payments on the
mortgage note. In no event is the land trustee personally liable for the
mortgage note
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obligation. The mortgagee's authority under a mortgage, the trustee's authority
under a deed of trust and the grantee's authority under a deed to secure debt
are governed by the express provisions of the related instrument, the law of the
state in which the real property is located, certain federal laws and, in some
deed of trust transactions, the directions of the beneficiary.
LEASES AND RENTS
Mortgages that encumber income-producing property often contain an
assignment of rents and leases and/or may be accompanied by a separate
assignment of rents and leases, pursuant to which the borrower assigns to the
lender the borrower's right, title and interest as landlord under each lease and
the income derived therefrom, while (unless rents are to be paid directly to the
lender) retaining a revocable license to collect the rents for so long as there
is no default. If the borrower defaults, the license terminates and the lender
is entitled to collect the rents. Local law may require that the lender take
possession of the property and/or obtain a court-appointed receiver before
becoming entitled to collect the rents.
In most states, hotel and motel room rates are considered accounts
receivable under the Uniform Commercial Code ("UCC"); in cases where hotels or
motels constitute loan security, the rates are generally pledged by the borrower
as additional security for the loan. In general, the lender must file financing
statements in order to perfect its security interest in the room rates and must
file continuation statements, generally every five years, to maintain perfection
of such security interest. In certain cases, Mortgage Loans secured by hotels or
motels may be included in a Trust Fund even if the security interest in the room
rates was not perfected or the requisite UCC filings were allowed to lapse. Even
if the lender's security interest in room rates is perfected under applicable
non-bankruptcy law, it will generally be required to commence a foreclosure
action or otherwise take possession of the property in order to enforce its
rights to collect the room rates following a default. In the bankruptcy setting,
however, the lender will be stayed from enforcing its rights to collect room
rates, but those room rates (in light of certain revisions to the Bankruptcy
Code which are effective for all bankruptcy cases commenced on or after October
22, 1994) constitute "cash collateral" and therefore cannot be used by the
bankruptcy debtor without a hearing or lender's consent and unless the lender's
interest in the room rates is given adequate protection (e.g., cash payment for
otherwise encumbered funds or a replacement lien on unencumbered property, in
either case equal in value to the amount of room rates that the debtor proposes
to use, or other similar relief). See "--Bankruptcy Laws".
PERSONALTY
In the case of certain types of mortgaged properties, such as hotels,
motels and nursing homes, personal property (to the extent owned by the borrower
and not previously pledged) may constitute a significant portion of the
property's value as security. The creation and enforcement of liens on personal
property are governed by the UCC. Accordingly, if a borrower pledges personal
property as security for a mortgage loan, the lender generally must file UCC
financing statements in order to perfect its security interest therein, and must
file continuation statements, generally every five years, to maintain that
perfection. In certain cases, Mortgage Loans secured in part by personal
property may be included in a Trust Fund even if the security interest in such
personal property was not perfected or the requisite UCC filings were allowed to
lapse.
FORECLOSURE
GENERAL. Foreclosure is a legal procedure that allows the lender to
recover its mortgage debt by enforcing its rights and available legal remedies
under the mortgage. If the borrower defaults in payment or performance of its
obligations under the note or mortgage, the lender has the right to institute
foreclosure proceedings to sell the real property at public auction to satisfy
the indebtedness.
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Foreclosure procedures vary from state to state. Two primary methods of
foreclosing a mortgage are judicial foreclosure, involving court proceedings,
and non-judicial foreclosure pursuant to a power of sale granted in the mortgage
instrument. Other foreclosure procedures are available in some states, but they
are either infrequently used or available only in limited circumstances.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses are raised or counterclaims are interposed, and
sometimes requires several years to complete.
JUDICIAL FORECLOSURE. A judicial foreclosure proceeding is conducted in
a court having jurisdiction over the mortgaged property. Generally, the action
is initiated by the service of legal pleadings upon all parties having a
subordinate interest of record in the real property and all parties in
possession of the property, under leases or otherwise, whose interests are
subordinate to the mortgage. Delays in completion of the foreclosure may
occasionally result from difficulties in locating defendants. When the lender's
right to foreclose is contested, the legal proceedings can be time-consuming.
Upon successful completion of a judicial foreclosure proceeding, the court
generally issues a judgment of foreclosure and appoints a referee or other
officer to conduct a public sale of the mortgaged property, the proceeds of
which are used to satisfy the judgment. Such sales are made in accordance with
procedures that vary from state to state.
EQUITABLE AND OTHER LIMITATIONS ON ENFORCEABILITY OF CERTAIN
PROVISIONS. United States courts have traditionally imposed general equitable
principles to limit the remedies available to lenders in foreclosure actions.
These principles are generally designed to relieve borrowers from the effects of
mortgage defaults perceived as harsh or unfair. Relying on such principles, a
court may alter the specific terms of a loan to the extent it considers
necessary to prevent or remedy an injustice, undue oppression or overreaching,
or may require the lender to undertake affirmative actions to determine the
cause of 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 and have required that lenders reinstate loans or
recast payment schedules in order to accommodate borrowers who are suffering
from a temporary financial disability. In other cases, courts have limited the
right of the lender to foreclose in the case of a nonmonetary default, such as a
failure to adequately maintain the mortgaged property or an impermissible
further encumbrance of the mortgaged property. Finally, some courts have
addressed the issue of whether federal or state constitutional provisions
reflecting due process concerns for adequate notice require that a borrower
receive notice in addition to statutorily-prescribed minimum notice. For the
most part, these cases have upheld the reasonableness of the notice provisions
or have found that a public sale under a mortgage providing for a power of sale
does not involve sufficient state action to trigger constitutional protections.
In addition, some states may have statutory protection such as the
right of the borrower to reinstate mortgage loans after commencement of
foreclosure proceedings but prior to a foreclosure sale.
NON-JUDICIAL FORECLOSURE/POWER OF SALE. In states permitting
non-judicial foreclosure proceedings, foreclosure of a deed of trust is
generally accomplished by a non-judicial trustee's sale pursuant to a power of
sale typically granted in the deed of trust. A power of sale may also be
contained in any other type of mortgage instrument if applicable law so permits.
A power of sale under a deed of trust allows a non-judicial public sale to be
conducted generally following a request from the beneficiary/lender to the
trustee to sell the property upon default by the borrower and after notice of
sale is given in accordance with the terms of the mortgage and applicable state
law. In some states, prior to such sale, the trustee under the deed of trust
must record a notice of default and notice of sale and send a copy to the
borrower and to any other party who has recorded a request for a copy of a
notice of default and notice of sale. In addition, in some states the trustee
must provide notice to any other party having an interest of record in the real
property, including junior lienholders. A notice of sale must be posted in a
public place and, in most states, published for a specified period of time in
one or more newspapers. The borrower or junior lienholder may then have the
right, during a reinstatement period
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required in some states, to cure the default by paying the entire actual amount
in arrears (without regard to the acceleration of the indebtedness), plus the
lender's expenses incurred in enforcing the obligation. In other states, the
borrower or the junior lienholder is not provided a period to reinstate the
loan, but has only the right to pay off the entire debt to prevent the
foreclosure sale. Generally, state law governs the procedure for public sale,
the parties entitled to notice, the method of giving notice and the applicable
time periods.
PUBLIC SALE. A third party may be unwilling to purchase a mortgaged
property at a public sale because of the difficulty in determining the exact
status of title to the property (due to, among other things, redemption rights
that may exist) and because of the possibility that physical deterioration of
the property may have occurred during the foreclosure proceedings. Therefore, it
is common for the lender to purchase the mortgaged property for an amount equal
to the secured indebtedness and accrued and unpaid interest plus the expenses of
foreclosure, in which event the borrower's debt will be extinguished, or for a
lesser amount in order to preserve its right to seek a deficiency judgment if
such is available under state law and under the terms of the Mortgage Loan
documents. (The Mortgage Loans, however, are generally expected to be
non-recourse. See "Risk Factors--Investment in Commercial and Multifamily
Mortgage Loans".) Thereafter, subject to the borrower's right in some states to
remain in possession during a redemption period, the lender will become the
owner of the property and have both the benefits and burdens of ownership,
including the obligation to pay debt service on any senior mortgages, to pay
taxes, to obtain casualty insurance and to make such repairs as are necessary to
render the property suitable for sale. The costs of operating and maintaining a
commercial or multifamily residential property may be significant and may be
greater than the income derived from that property. The lender also will
commonly obtain the services of a real estate broker and pay the broker's
commission in connection with the sale or lease 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. Moreover, because of the expenses
associated with acquiring, owning and selling a mortgaged property, a lender
could realize an overall loss on a mortgage loan even if the mortgaged property
is sold at foreclosure, or resold after it is acquired through foreclosure, for
an amount equal to the full outstanding principal amount of the loan plus
accrued interest.
The holder of a junior mortgage that forecloses on a mortgaged property
does so subject to senior mortgages and any other prior liens, and may be
obliged to keep senior mortgage loans current in order to avoid foreclosure of
its interest in the property. In addition, if the foreclosure of a junior
mortgage triggers the enforcement of a "due-on-sale" clause contained in a
senior mortgage, the junior mortgagee could be required to pay the full amount
of the senior mortgage indebtedness or face foreclosure.
RIGHTS OF REDEMPTION. The purposes of a foreclosure action are to
enable the lender to realize upon its security and to bar the borrower, and all
persons who have interests in the property that are subordinate to that of the
foreclosing lender, from exercise of their "equity of redemption". The doctrine
of equity of redemption provides that, until the property encumbered by a
mortgage has been sold in accordance with a properly conducted foreclosure and
foreclosure sale, those having interests that are subordinate to that of the
foreclosing lender have an equity of redemption and may redeem the property by
paying the entire debt with interest. Those having an equity of redemption must
generally be made parties and joined in the foreclosure proceeding in order for
their equity of redemption to be terminated.
The equity of redemption is a common-law (non-statutory) right which
should be distinguished from post-sale statutory rights 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. In some states, statutory redemption may occur only upon
payment of the foreclosure sale price. In other states, redemption may be
permitted 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 because the exercise of a right of redemption would
defeat the title of any purchaser through a foreclosure. Consequently, the
practical effect of the redemption right is to
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force the lender to maintain the property and pay the expenses of ownership
until the redemption period has expired. In some states, a post-sale statutory
right of redemption may exist following a judicial foreclosure, but not
following a trustee's sale under a deed of trust.
ANTI-DEFICIENCY LEGISLATION. Some or all of the Mortgage Loans may be
nonrecourse loans, as to which recourse in the case of default will be limited
to the Mortgaged Property and such other assets, if any, that were pledged to
secure the Mortgage Loan. However, even if a mortgage loan by its terms provides
for recourse to the borrower's other assets, a lender's ability to realize upon
those assets may be limited by state law. For example, in some states a lender
cannot obtain a deficiency judgment against the borrower following foreclosure
or sale under a deed of trust. A deficiency judgment is a personal judgment
against the former borrower equal 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 may require the lender to exhaust the security afforded
under a mortgage before bringing a personal action against the borrower. In
certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security;
however, in some of those states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and thus may be
precluded from foreclosing upon the security. Consequently, lenders in those
states where such an election of remedy provision exists will usually proceed
first against the security. Finally, other statutory provisions, designed to
protect borrowers from exposure to large deficiency judgments that might result
from bidding at below-market values at the foreclosure sale, limit any
deficiency judgment to the excess of the outstanding debt over the fair market
value of the property at the time of the sale.
LEASEHOLD CONSIDERATIONS. Mortgage Loans may be secured by a mortgage
on the borrower's leasehold interest in a ground lease. Leasehold mortgage loans
are subject to certain risks not associated with mortgage loans secured by a
lien on the fee estate of the borrower. The most significant of these risks is
that if the borrower's leasehold were to be terminated upon a lease default, the
leasehold mortgagee would lose its security. This risk may be lessened if the
ground lease requires the lessor to give the leasehold mortgagee notices of
lessee defaults and an opportunity to cure them, permits the leasehold estate to
be assigned to and by the leasehold mortgagee or the purchaser at a foreclosure
sale, and contains certain other protective provisions typically included in a
"mortgageable" ground lease. Certain Mortgage Loans, however, may be secured by
ground leases which do not contain these provisions.
CROSS-COLLATERALIZATION. Certain of the Mortgage Loans may be secured
by more than one mortgage covering properties located in more than one state.
Because of various state laws governing foreclosure or the exercise of a power
of sale and because, in general, foreclosure actions are brought in state court
and the courts of one state cannot exercise jurisdiction over property in
another state, it may be necessary upon a default under a cross-collateralized
Mortgage Loan to foreclose on the related mortgages in a particular order rather
than simultaneously in order to ensure that the lien of the mortgages is not
impaired or released.
BANKRUPTCY LAWS
Operation of the Bankruptcy Code and related state laws may interfere
with or affect the ability of a lender to realize upon collateral and/or to
enforce a deficiency judgment. For example, under the Bankruptcy Code, virtually
all actions (including foreclosure actions and deficiency judgment proceedings)
to collect a debt are automatically stayed upon the filing of the bankruptcy
petition and, often, no interest or principal payments are made during the
course of the bankruptcy case. The delay and the consequences thereof caused by
such automatic stay can be significant. Also, under the Bankruptcy Code, the
filing of a petition in bankruptcy by or on behalf of a junior lienor may stay
the senior lender from taking action to foreclose out such junior lien.
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Under the Bankruptcy Code, provided certain substantive and procedural
safeguards protective of the lender are met, the amount and terms of a mortgage
loan secured by a lien on property of the debtor may be modified under certain
circumstances. For example, the outstanding amount of the loan may be reduced to
the then-current value of the property (with a corresponding partial reduction
of the amount of lender's security interest) pursuant to a confirmed plan or
lien avoidance proceeding, thus leaving the lender a general unsecured creditor
for the difference between such value and the outstanding balance of the loan.
Other modifications may include the reduction in the amount of each scheduled
payment, by means of a reduction in the rate of interest and/or an alteration of
the repayment schedule (with or without affecting the unpaid principal balance
of the loan), and/or by an extension (or shortening) of the term to maturity.
Some bankruptcy courts have approved plans, based on the particular facts of the
reorganization case, that effected the cure of a mortgage loan default by paying
arrearages over a number of years. Also, a bankruptcy court may permit a debtor,
through its rehabilitative plan, to reinstate a loan mortgage payment schedule
even if the lender has obtained a final judgment of foreclosure prior to the
filing of the debtor's petition.
Federal bankruptcy law may also have the effect of interfering with or
affecting the ability of a secured lender to enforce the borrower's assignment
of rents and leases related to the mortgaged property. Under the Bankruptcy
Code, a lender may be stayed from enforcing the assignment, and the legal
proceedings necessary to resolve the issue could be time-consuming, with
resulting delays in the lender's receipt of the rents. Recent amendments to the
Bankruptcy code, however, may minimize the impairment of the lender's ability to
enforce the borrower's assignment of rents and leases. In addition to the
inclusion of hotel revenues within the definition of "cash collateral" as noted
previously in the section entitled "--Leases and Rents", the amendments provide
that a pre-petition security interest in rents or hotel revenues is designed to
overcome those cases holding that a security interest in rents is unperfected
under the laws of certain states until the lender has taken some further action,
such as commencing foreclosure or obtaining a receiver prior to activation of
the assignment of rents.
If a borrower's ability to make payment on a mortgage loan is dependent
on its receipt of rent payments under a lease of the related property, that
ability may be impaired by the commencement of a bankruptcy case relating to a
lessee under such lease. Under the Bankruptcy Code, the filing of a petition in
bankruptcy by or on behalf of a lessee results in a stay in bankruptcy against
the commencement or continuation of any state court proceeding for past due
rent, for accelerated rent, for damages or for a summary eviction order with
respect to a default under the lease that occurred prior to the filing of the
lessee's petition. In addition, the Bankruptcy Code generally provides that a
trustee or debtor-in-possession may, subject to approval of the court, (i)
assume the lease and retain it or assign it to a third party or (ii) reject the
lease. If the lease is assumed, the trustee or debtor-in-possession (or
assignee, if applicable) must cure any defaults under the lease, compensate the
lessor for its losses and provide the lessor with "adequate assurance" of future
performance. Such remedies may be insufficient, and any assurances provided to
the lessor may, in fact, be inadequate. If the lease is rejected, the lessor
will be treated as an unsecured creditor with respect to its claim for damages
for termination of the lease. The Bankruptcy Code also limits a lessor's damages
for lease rejection to the rent reserved by the lease (without regard to
acceleration) for the greater of one year, or 15%, not to exceed three years, of
the remaining term of the lease.
ENVIRONMENTAL CONSIDERATIONS
GENERAL. A lender may be subject to environmental risks when taking a
security interest in real property. Of particular concern may be properties that
are or have been used for industrial, manufacturing, military or disposal
activity. Such environmental risks include the possible diminution of the value
of a contaminated property or, as discussed below, potential liability for
clean-up costs or other remedial actions that could exceed the value of the
property or the amount of the lender's loan. In certain circumstances, a lender
may decide to abandon a contaminated mortgaged property as collateral for its
loan rather than foreclose and risk liability for clean-up costs.
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SUPERLIEN LAWS. Under the laws of many states, contamination on a
property may give rise to a lien on the property for clean-up costs. In several
states, such a lien has priority over all existing liens, including those of
existing mortgages. In these states, the lien of a mortgage may lose its
priority to such a "superlien".
CERCLA. The federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA"), imposes strict liability on
present and past "owners" and "operators" of contaminated real property for the
costs of clean-up. A secured lender may be liable as an "owner" or "operator" of
a contaminated mortgaged property if agents or employees of the lender have
participated in the management of such mortgaged property or the operations of
the borrower. Such liability may exist even if the lender did not cause or
contribute to the contamination and regardless of whether the lender has
actually taken possession of a mortgaged property through foreclosure, deed in
lieu of foreclosure or otherwise. Moreover, such liability is not limited to the
original or unamortized principal balance of a loan or to the value of the
property securing a loan. Excluded from CERCLA's definition of "owner" or
"operator", however, is a person "who without participating in the management of
the facility, holds indicia of ownership primarily to protect his security
interest". This is the so called "secured creditor exemption".
The Asset Conservation, Lender Liability and Deposit Insurance Act of
1996 (the "Act") amended, among other things, the provisions of CERCLA with
respect to lender liability and the secured creditor exemption. The Act offers
substantial protection to lenders by defining the activities in which a lender
can engage and still have the benefit of the secured creditor exemption. In
order for a lender to be deemed to have participated in the management of a
mortgaged property, the lender must actually participate in the operational
affairs of the property of the borrower. The Act provides that "merely having
the capacity to influence, or unexercised right to control" operations does not
constitute participation in management. A lender will lose the protection of the
secured creditor exemption only if it exercises decision-making control over the
borrower's environmental compliance and hazardous substance handling and
disposal practices, or assumes day-to-day management of all operational
functions of the mortgaged property. The Act also provides that a lender will
continue to have the benefit of the secured creditor exemption even if it
forecloses on a mortgaged property, purchases it at a foreclosure sale or
accepts a deed-in-lieu of foreclosure provided that the lender seeks to sell the
mortgaged property at the earliest practicable commercially reasonable time on
commercially reasonable terms.
CERTAIN OTHER FEDERAL AND STATE LAWS. Many states have statutes similar
to CERCLA, and not all those statutes provide for a secured creditor exemption.
In addition, under federal law, there is potential liability relating to
hazardous wastes and underground storage tanks under the federal Resource
Conservation and Recovery Act ("RCRA").
In addition, the definition of "hazardous substances" under CERCLA
specifically excludes petroleum products. Subtitle I of RCRA governs underground
petroleum storage tanks. Under the Act the protections accorded to lenders under
CERCLA are also accorded to the holders of security interests in underground
storage tanks. It should be noted, however, that liability for cleanup of
petroleum contamination may be governed by state law, which may not provide for
any specific protection for secured creditors.
In a few states, transfers of some types of properties are conditioned
upon cleanup of contamination prior to transfer. In these cases, a lender that
becomes the owner of a property through foreclosure, deed in lieu of foreclosure
or otherwise, may be required to clean up the contamination before selling or
otherwise transferring the property.
Beyond statute-based environmental liability, there exist common law
causes of action (for example, actions based on nuisance or on toxic tort
resulting in death, personal injury or damage to property) related to hazardous
environmental conditions on a property. While it may be more difficult
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to hold a lender liable in such cases, unanticipated or uninsured liabilities of
the borrower may jeopardize the borrower's ability to meet its loan obligations.
ADDITIONAL CONSIDERATIONS. The cost of remediating hazardous substance
contamination at a property can be substantial. If a lender becomes liable, it
can bring an action for contribution against the owner or operator who created
the environmental hazard, but that individual or entity may be without
substantial assets. Accordingly, it is possible that such costs could become a
liability of the Trust Fund and occasion a loss to the Certificateholders.
To reduce the likelihood of such a loss, unless otherwise specified in
the related Prospectus Supplement, the Pooling and Servicing Agreement will
provide that the Master Servicer, acting on behalf of the Trustee, may not
acquire title to a Mortgaged Property or take over its operation unless the
Master Servicer, based solely (as to environmental matters) on a report prepared
by a person who regularly conducts environmental audits, has made the
determination that it is appropriate to do so, as described under "The Pooling
and Servicing Agreements--Realization Upon Defaulted Mortgage Loans".
If a lender forecloses on a mortgage secured by a property, the
operations on which are subject to environmental laws and regulations, the
lender will be required to operate the property in accordance with those laws
and regulations. Such compliance may entail substantial expense, especially in
the case of industrial or manufacturing properties.
In addition, a lender may be obligated to disclose environmental
conditions on a property to government entities and/or to prospective buyers
(including prospective buyers at a foreclosure sale or following foreclosure).
Such disclosure may decrease the amount that prospective buyers are willing to
pay for the affected property, sometimes substantially, and thereby decrease the
ability of the lender to recoup its investment in a loan upon foreclosure.
ENVIRONMENTAL SITE ASSESSMENTS. In most cases, an environmental site
assessment of each Mortgaged Property will have been performed in connection
with the origination of the related Mortgage Loan or at some time prior to the
issuance of the related Certificates. Environmental site assessments, however,
vary considerably in their content, quality and cost. Even when adhering to good
professional practices, environmental consultants will sometimes not detect
significant environmental problems because to do an exhaustive environmental
assessment would be far too costly and time-consuming to be practical.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE
Certain of the Mortgage Loans may contain "due-on-sale" and
"due-on-encumbrance" clauses that purport to permit the lender to accelerate the
maturity of the loan if the borrower transfers or encumbers the related
Mortgaged Property. In recent years, court decisions and legislative actions
placed substantial restrictions on the right of lenders to enforce such clauses
in many states. However, the Garn-St Germain Depository Institutions Act of 1982
(the "GARN ACT") generally preempts state laws that prohibit the enforcement of
due-on-sale clauses and permits lenders to enforce these clauses in accordance
with their terms, subject to certain limitations as set forth in the Garn Act
and the regulations promulgated thereunder. Accordingly, a Master Servicer may
nevertheless have the right to accelerate the maturity of a Mortgage Loan that
contains a "due-on-sale" provision upon transfer of an interest in the property,
without regard to the Master Servicer's ability to demonstrate that a sale
threatens its legitimate security interest.
SUBORDINATE FINANCING
The terms of certain of the Mortgage Loans may not restrict the ability
of the borrower to use the Mortgaged Property as security for one or more
additional loans, or such restrictions may be unenforceable. Where a borrower
encumbers a mortgaged property with one or more junior liens, the
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senior lender is subjected to additional risk. First, the borrower may have
difficulty servicing and repaying multiple loans. Moreover, if the subordinate
financing permits recourse to the borrower (as is frequently the case) and the
senior loan does not, a borrower may have more incentive to repay sums due on
the subordinate loan. Second, acts of the senior lender that prejudice the
junior lender or impair the junior lender's security may create a superior
equity in favor of the junior lender. For example, if the borrower and the
senior lender agree to an increase in the principal amount of or the interest
rate payable on the senior loan, the senior lender may lose its priority to the
extent any existing junior lender is harmed or the borrower is additionally
burdened. Third, if the borrower defaults on the senior loan and/or any junior
loan or loans, the existence of junior loans and actions taken by junior lenders
can impair the security available to the senior lender and can interfere with or
delay the taking of action by the senior lender. Moreover, the bankruptcy of a
junior lender may operate to stay foreclosure or similar proceedings by the
senior lender.
DEFAULT INTEREST AND LIMITATIONS ON PREPAYMENTS
Notes and mortgages may contain provisions that obligate the borrower
to pay a late charge or additional interest if payments are not timely made, and
in some circumstances, may prohibit prepayments for a specified period and/or
condition prepayments upon the borrower's payment of prepayment fees or yield
maintenance penalties. In certain states, there are or may be specific
limitations upon the late charges which a lender may collect from a borrower for
delinquent payments. Certain states also limit the amounts that a lender may
collect from a borrower as an additional charge if the loan is prepaid. In
addition, the enforceability of provisions that provide for prepayment fees or
penalties upon an involuntary prepayment is unclear under the laws of many
states.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980 ("TITLE V") provides that state usury limitations shall not
apply to certain types of residential (including multifamily) first mortgage
loans originated by certain lenders after March 31, 1980. Title V authorized any
state to reimpose interest rate limits by adopting, before April 1, 1983, a law
or constitutional provision that 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. Certain states have taken action to reimpose
interest rate limits and/or to limit discount points or other charges.
No Mortgage Loan originated in any state in which application of Title
V has been expressly rejected or a provision limiting discount points or other
charges has been adopted, will (if originated after that rejection or adoption)
be eligible for inclusion in a Trust Fund unless (i) such Mortgage Loan provides
for such interest rate, discount points and charges as are permitted in such
state or (ii) such Mortgage Loan provides that the terms thereof are to be
construed in accordance with the laws of another state under which such interest
rate, discount points and charges would not be usurious and the borrower's
counsel has rendered an opinion that such choice of law provision would be given
effect.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
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 was in
reserve status and is called to active duty after origination of the Mortgage
Loan), may not be charged interest (including fees and charges) 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. The Relief Act applies to
individuals who are members of the Army, Navy, Air Force, Marines, National
Guard, Reserves, Coast Guard and officers of the U.S. Public Health Service
assigned to duty with the military. Because the Relief Act applies to
individuals who enter military service
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(including reservists who are called to active duty) after origination of the
related mortgage loan, no information can be provided as to the number of loans
with individuals as borrowers that may be affected by the Relief Act.
Application of the Relief Act would adversely affect, for an indeterminate
period of time, the ability of a Master Servicer or Special Servicer to collect
full amounts of interest on certain of the Mortgage Loans. Any shortfalls in
interest collections resulting from the application of the Relief Act would
result in a reduction of the amounts distributable to the holders of the related
series of Certificates, and would not be covered by advances or, unless
otherwise specified in the related Prospectus Supplement, any form of Credit
Support provided in connection with such Certificates. In addition, the Relief
Act imposes limitations that would impair the ability of a Master Servicer or
Special Servicer to foreclose on an affected Mortgage Loan during the borrower's
period of active duty status, and, under certain circumstances, during an
additional three month period thereafter.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of the anticipated material
federal income tax consequences of the purchase, ownership and disposition of
Offered Certificates. This discussion is directed solely to Certificateholders
that hold the Certificates as capital assets within the meaning of Section 1221
of the Code and it does not purport to discuss all federal income tax
consequences that may be applicable to particular categories of investors, some
of which (such as banks, insurance companies and foreign investors) may be
subject to special rules. Further, the authorities on which this discussion, and
the opinion referred to below, are based are subject to change or differing
interpretations, which could apply retroactively. Taxpayers and preparers of tax
returns (including those filed by any REMIC or other issuer) should be aware
that under applicable Treasury regulations a provider of advice on specific
issues of law is not considered an income tax return preparer unless the advice
(i) is given with respect to events that have occurred at the time the advice is
rendered and is not given with respect to the consequences of contemplated
actions, and (ii) is directly relevant to the determination of an entry on a tax
return. Accordingly, taxpayers should consult their tax advisors and tax return
preparers regarding the preparation of any item on a tax return, even where the
anticipated tax treatment has been discussed herein. In addition to the federal
income tax consequences described herein, potential investors should consider
the state and local tax consequences, if any, of the purchase, ownership and
disposition of Offered Certificates. See "State and Other Tax Consequences".
Certificateholders are advised to consult their tax advisors concerning the
federal, state, local or other tax consequences to them of the purchase,
ownership and disposition of Offered Certificates.
The following discussion addresses certificates ("REMIC CERTIFICATES")
representing interests in a Trust Fund, or a portion thereof, that the Master
Servicer or the Trustee will elect to have treated as a REMIC under Sections
860A through 860G (the "REMIC PROVISIONS") of the Code. The Prospectus
Supplement for each series of Certificates will indicate whether a REMIC
election (or elections) will be made for the related Trust Fund and, if such an
election is to be made, will identify all "regular interests" and "residual
interests" in the REMIC. If a REMIC election will not be made for a Trust Fund,
the federal income tax consequences of the purchase, ownership and disposition
of the related Certificates will be set forth in the related Prospectus
Supplement. For purposes of this tax discussion, references to a
"CERTIFICATEHOLDER" or a "holder" are to the beneficial owner of a Certificate.
The following discussion is limited in applicability to Offered
Certificates. Moreover, this discussion applies only to the extent that Mortgage
Assets held by a Trust Fund consist solely of Mortgage Loans. To the extent that
other Mortgage Assets, including REMIC certificates and mortgage pass-through
certificates, are to be held by a Trust Fund, the tax consequences associated
with the inclusion of such assets will be disclosed in the related Prospectus
Supplement. In addition, if Cash Flow Agreements, other than guaranteed
investment contracts, are included in a Trust Fund, the tax
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consequences associated with such Cash Flow Agreements also will be disclosed in
the related Prospectus Supplement. See "Description of the Trust Funds--Cash
Flow Agreements".
Furthermore, the following discussion is based in part upon the rules
governing original issue discount that are set forth in Sections 1271-1273 and
1275 of the Code and in the Treasury regulations issued thereunder (the "OID
REGULATIONS"), and in part upon the REMIC Provisions and the Treasury
regulations issued thereunder (the "REMIC REGULATIONS"). The OID Regulations do
not adequately address certain issues relevant to, and in some instances provide
that they are not applicable to, securities such as the Certificates.
REMICS
CLASSIFICATION OF REMICS. Upon the issuance of each series of REMIC
Certificates, counsel to the Depositor will deliver its opinion generally to the
effect that, assuming compliance with all provisions of the related Pooling and
Servicing Agreement, the related Trust Fund (or each applicable portion thereof)
will qualify as a REMIC and the REMIC Certificates offered with respect thereto
will be considered to evidence ownership of REMIC Regular Certificates or REMIC
Residual Certificates in that REMIC within the meaning of the REMIC Provisions.
If an entity electing to be treated as a REMIC fails to comply with one
or more of the ongoing requirements of the Code for such status during any
taxable year, the Code provides that the entity will not be treated as a REMIC
for such year and thereafter. In that event, such entity may be taxable as a
corporation under Treasury regulations, and the related REMIC Certificates may
not be accorded the status or given the tax treatment described below. Although
the Code authorizes the Treasury Department to issue regulations providing
relief in the event of an inadvertent termination of REMIC status, no such
regulations have been issued. Any such relief, moreover, may be accompanied by
sanctions, such as the imposition of a corporate tax on all or a portion of the
Trust Fund's income for the period in which the requirements for such status are
not satisfied. The Pooling and Servicing Agreement with respect to each REMIC
will include provisions designed to maintain the Trust Fund's status as a REMIC
under the REMIC Provisions. It is not anticipated that the status of any Trust
Fund as a REMIC will be inadvertently terminated.
CHARACTERIZATION OF INVESTMENTS IN REMIC CERTIFICATES. In general,
unless otherwise provided in the related Prospectus Supplement, the REMIC
Certificates will be "real estate assets" within the meaning of Section
856(c)(5)(A) of the Code and assets described in Section 7701(a)(19)(C) of the
Code in the same proportion that the assets of the REMIC underlying such
Certificates would be so treated. However, to the extent that the REMIC assets
constitute mortgages on property not used for residential or certain other
prescribed purposes, the REMIC Certificates will not be treated as assets
qualifying under Section 7701(a)(19)(C). Moreover, if 95% or more of the assets
of the REMIC qualify for any of the foregoing treatments at all times during a
calendar year, the REMIC Certificates will qualify for the corresponding status
in their entirety for that calendar year. Interest (including original issue
discount) on the REMIC Regular Certificates and income allocated to the REMIC
Residual Certificates will be interest described in Section 856(c)(3)(B) of the
Code to the extent that such Certificates are treated as "real estate assets"
within the meaning of Section 856(c)(5)(A) of the Code. In addition, the REMIC
Regular Certificates will be "qualified mortgages" within the meaning of Section
860G(a)(3) of the Code. The determination as to the percentage of the REMIC's
assets that constitute assets described in the foregoing sections of the Code
will be made with respect to each calendar quarter based on the average adjusted
basis of each category of the assets held by the REMIC during such calendar
quarter. The Master Servicer or the Trustee will report those determinations to
Certificateholders in the manner and at the times required by applicable
Treasury regulations.
The assets of the REMIC will include, in addition to Mortgage Loans,
payments on Mortgage Loans held pending distribution on the REMIC Certificates
and property acquired by foreclosure held
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pending sale, and may include amounts in reserve accounts. It is unclear whether
property acquired by foreclosure held pending sale, and amounts in reserve
accounts would be considered to be part of the Mortgage Loans, or whether such
assets (to the extent not invested in assets described in the foregoing
sections) otherwise would receive the same treatment as the Mortgage Loans for
purposes of all of the foregoing sections. In addition, in some instances
Mortgage Loans may not be treated entirely as assets described in the foregoing
sections. If so, the related Prospectus Supplement will describe the Mortgage
Loans that may not be so treated. The REMIC Regulations do provide, however,
that payments on Mortgage Loans held pending distribution are considered part of
the Mortgage Loans for purposes of Section 856(c)(5)(A) of the Code.
Furthermore, foreclosure property will qualify as "real estate assets" under
Section 856(c)(5)(A) of the Code.
TIERED REMIC STRUCTURES. For certain series of REMIC Certificates, two
or more separate elections may be made to treat designated portions of the
related Trust Fund as REMICs ("TIERED REMICS") for federal income tax purposes.
Upon the issuance of any such series of REMIC Certificates, counsel to the
Depositor will deliver its opinion generally to the effect that, assuming
compliance with all provisions of the related Pooling and Servicing Agreement,
the Tiered REMICs will each qualify as a REMIC and the REMIC Certificates issued
by the Tiered REMICs, will be considered to evidence ownership of REMIC Regular
Certificates or REMIC Residual Certificates in the related REMIC within the
meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Certificates will
be "real estate assets" within the meaning of Section 856(c)(5)(A) of the Code
and "loans secured by an interest in real property" under Section 7701(a)(19)(C)
of the Code, and whether the income on such Certificates is interest described
in Section 856(c)(3)(B) of the Code, the Tiered REMICs will be treated as one
REMIC.
TAXATION OF OWNERS OF REMIC REGULAR CERTIFICATES.
GENERAL. Except as otherwise stated in this discussion, REMIC Regular
Certificates will be treated for federal income tax purposes as debt instruments
issued by the REMIC and not as ownership interests in the REMIC or its assets.
Moreover, holders of REMIC Regular Certificates that otherwise report income
under a cash method of accounting will be required to report income with respect
to REMIC Regular Certificates under an accrual method.
ORIGINAL ISSUE DISCOUNT. Certain REMIC Regular Certificates may be
issued with "original issue discount" within the meaning of Section 1273(a) of
the Code. Any holders of REMIC Regular Certificates issued with original issue
discount generally will be required to include original issue discount in income
as it accrues, in accordance with the method described below, in advance of the
receipt of the cash attributable to such income. In addition, Section 1272(a)(6)
of the Code provides special rules applicable to REMIC Regular Certificates and
certain other debt instruments issued with original issue discount. Regulations
have not been issued under that section.
The Code requires that a prepayment assumption be used with respect to
Mortgage Loans held by a REMIC in computing the accrual of original issue
discount on REMIC Regular Certificates issued by that REMIC, and that
adjustments be made in the amount and rate of accrual of such discount to
reflect differences between the actual prepayment rate and the prepayment
assumption. The prepayment assumption is to be determined in a manner prescribed
in Treasury regulations; as noted above, those regulations have not been issued.
The Conference Committee Report accompanying the Tax Reform Act of 1986 (the
"COMMITTEE REPORT") indicates that the regulations will provide that the
prepayment assumption used with respect to a REMIC Regular Certificate must be
the same as that used in pricing the initial offering of such REMIC Regular
Certificate. The prepayment assumption (the "PREPAYMENT ASSUMPTION") used in
reporting original issue discount for each series of REMIC Regular Certificates
will be consistent with this standard and will be disclosed in the related
Prospectus Supplement.
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However, neither the Depositor nor any other person will make any representation
that the Mortgage Loans will in fact prepay at a rate conforming to the
Prepayment Assumption or at any other rate.
The original issue discount, if any, on a REMIC Regular Certificate
will be the excess of its stated redemption price at maturity over its issue
price. The issue price of a particular class of REMIC Regular Certificates will
be the first cash price at which a substantial amount of REMIC Regular
Certificates of that class is sold (excluding sales to bond houses, brokers and
underwriters). If less than a substantial amount of a particular class of REMIC
Regular Certificates is sold for cash on or prior to the date of their initial
issuance (the "CLOSING DATE"), the issue price for such class will be the fair
market value of such class on the Closing Date. Under the OID Regulations, the
stated redemption price of a REMIC Regular Certificate is equal to the total of
all payments to be made on such Certificate other than "qualified stated
interest". "Qualified stated interest" is interest that is unconditionally
payable at least annually at a single fixed rate, or at a "qualified floating
rate", an "objective rate", a combination of a single fixed rate and one or more
"qualified floating rates" or one "qualified inverse floating rate", or a
combination of "qualified floating rates" that does not operate in a manner that
accelerates or defers interest payments on such REMIC Regular Certificate.
In the case of REMIC Regular Certificates bearing adjustable interest
rates, the determination of the total amount of original issue discount and the
timing of the inclusion thereof will vary according to the characteristics of
such REMIC Regular Certificates. If the original issue discount rules apply to
such Certificates, the related Prospectus Supplement will describe the manner in
which such rules will be applied with respect to those Certificates in preparing
information returns to the Certificateholders and the IRS.
Certain classes of the REMIC Regular Certificates may provide for the
first interest payment with respect to such Certificates to be made more than
one month after the date of issuance, a period which is longer than the
subsequent monthly intervals between interest payments. Assuming the "accrual
period" (as defined below) for original issue discount is each monthly period
that ends on a Distribution Date, in some cases, as a consequence of this "long
first accrual period", some or all interest payments may be required to be
included in the stated redemption price of the REMIC Regular Certificate and
accounted for as original issue discount. Because interest on REMIC Regular
Certificates must in any event be accounted for under an accrual method,
applying this analysis would result in only a slight difference in the timing of
the inclusion in income of the yield on the REMIC Regular Certificates.
In addition, if the accrued interest to be paid on the first
Distribution Date is computed with respect to a period that begins prior to the
Closing Date, a portion of the purchase price paid for a REMIC Regular
Certificate will reflect such accrued interest. In such cases, information
returns provided to the Certificateholders and the IRS will be based on the
position that the portion of the purchase price paid for the interest accrued
with respect to periods prior to the Closing Date is treated as part of the
overall cost of such REMIC Regular Certificate (and not as a separate asset the
cost of which is recovered entirely out of interest received on the next
Distribution Date) and that portion of the interest paid on the first
Distribution Date in excess of interest accrued for a number of days
corresponding to the number of days from the Closing Date to the first
Distribution Date should be included in the stated redemption price of such
REMIC Regular Certificate. However, the OID Regulations state that all or some
portion of such accrued interest may be treated as a separate asset the cost of
which is recovered entirely out of interest paid on the first Distribution Date.
It is unclear how an election to do so would be made under the OID Regulations
and whether such an election could be made unilaterally by a Certificateholder.
Notwithstanding the general definition of original issue discount,
original issue discount on a REMIC Regular Certificate will be considered to be
DE MINIMIS if it is less than 0.25% of the stated redemption price of the REMIC
Regular Certificate multiplied by its weighted average life. For this purpose,
the weighted average life of the REMIC Regular Certificate is computed as the
sum of the amounts determined, as to each payment included in the stated
redemption price of such REMIC Regular
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Certificate, by multiplying (i) the number of complete years (rounding down for
partial years) from the issue date until such payment is expected to be made
(presumably taking into account the Prepayment Assumption) by (ii) a fraction,
the numerator of which is the amount of the payment, and the denominator of
which is the stated redemption price at maturity of such REMIC Regular
Certificate. Under the OID Regulations, original issue discount of only a DE
MINIMIS amount (other than DE MINIMIS original issue discount attributable to a
so-called "teaser" interest rate or an initial interest holiday) will be
included in income as each payment of stated principal is made, based on the
product of the total amount of such de minimis original issue discount and a
fraction, the numerator of which is the amount of such principal payment and the
denominator of which is the outstanding stated principal amount of the REMIC
Regular Certificate. The OID Regulations also would permit a Certificateholder
to elect to accrue DE MINIMIS original issue discount into income currently
based on a constant yield method. See "--Taxation of Owners of REMIC Regular
Certificates--Market Discount" for a description of such election under the OID
Regulations.
If original issue discount on a REMIC Regular Certificate is in excess
of a DE MINIMIS amount, the holder of such Certificate must include in ordinary
gross income the sum of the "daily portions" of original issue discount for each
day during its taxable year on which it held such REMIC Regular Certificate,
including the purchase date but excluding the disposition date. In the case of
an original holder of a REMIC Regular Certificate, the daily portions of
original issue discount will be determined as follows.
As to each "accrual period", that is, unless otherwise stated in the
related Prospectus Supplement, each period that ends on a date that corresponds
to a Distribution Date and begins on the first day following the immediately
preceding accrual period (or in the case of the first such period, begins on the
Closing Date), a calculation will be made of the portion of the original issue
discount that accrued during such accrual period. The portion of original issue
discount that accrues in any accrual period will equal the excess, if any, of
(i) the sum of (a) the present value, as of the end of the accrual period, of
all of the distributions remaining to be made on the REMIC Regular Certificate,
if any, in future periods and (b) the distributions made on such REMIC Regular
Certificate during the accrual period of amounts included in the stated
redemption price, over (ii) the adjusted issue price of such REMIC Regular
Certificate at the beginning of the accrual period. The present value of the
remaining distributions referred to in the preceding sentence will be calculated
(i) assuming that distributions on the REMIC Regular Certificate will be
received in future periods based on the Mortgage Loans being prepaid at a rate
equal to the Prepayment Assumption and (ii) using a discount rate equal to the
original yield to maturity of the Certificate. For these purposes, the original
yield to maturity of the Certificate will be calculated based on its issue price
and assuming that distributions on the Certificate will be made in all accrual
periods based on the Mortgage Loans being prepaid at a rate equal to the
Prepayment Assumption. The adjusted issue price of a REMIC Regular Certificate
at the beginning of any accrual period will equal the issue price of such
Certificate, increased by the aggregate amount of original issue discount that
accrued with respect to such Certificate in prior accrual periods, and reduced
by the amount of any distributions made on such REMIC Regular Certificate in
prior accrual periods of amounts included in the stated redemption price. The
original issue discount accruing during any accrual period, computed as
described above, will be allocated ratably to each day during the accrual period
to determine the daily portion of original issue discount for such day.
A subsequent purchaser of a REMIC Regular Certificate that purchases
such Certificate at a cost (excluding any portion of such cost attributable to
accrued qualified stated interest) less than its remaining stated redemption
price will also be required to include in gross income the daily portions of any
original issue discount with respect to such Certificate. However, each such
daily portion will be reduced, if such cost is in excess of its "adjusted issue
price", in proportion to the ratio such excess bears to the aggregate original
issue discount remaining to be accrued on such REMIC Regular Certificate. The
adjusted issue price of a REMIC Regular Certificate on any given day equals the
sum of (i) the adjusted issue price (or, in the case of the first accrual
period, the issue price) of such Certificate at the beginning of the accrual
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period which includes such day and (ii) the daily portions of original issue
discount for all days during such accrual period prior to such day.
MARKET DISCOUNT. A Certificateholder that purchases a REMIC Regular
Certificate at a market discount, that is, in the case of a REMIC Regular
Certificate issued without original issue discount, at a purchase price less
than its remaining stated principal amount, or in the case of a REMIC Regular
Certificate issued with original issue discount, at a purchase price less than
its adjusted issue price will recognize gain upon receipt of each distribution
representing stated redemption price. In particular, under Section 1276 of the
Code such a Certificateholder generally will be required to allocate the portion
of each such distribution representing stated redemption price first to accrued
market discount not previously included in income, and to recognize ordinary
income to that extent. A Certificateholder may elect to include market discount
in income currently as it accrues rather than including it on a deferred basis
in accordance with the foregoing. If made, such election will apply to all
market discount bonds acquired by such Certificateholder on or after the first
day of the first taxable year to which such election applies. In addition, the
OID Regulations permit a Certificateholder to elect to accrue all interest,
discount (including de minimis market or original issue discount) and premium in
income as interest, based on a constant yield method. If such an election were
made with respect to a REMIC Regular Certificate with market discount, the
Certificateholder would be deemed to have made an election to include currently
market discount in income with respect to all other debt instruments having
market discount that such Certificateholder acquires during the taxable year of
the election or thereafter, and possibly previously acquired instruments.
Similarly, a Certificateholder that made this election for a Certificate that is
acquired at a premium would be deemed to have made an election to amortize bond
premium with respect to all debt instruments having amortizable bond premium
that such Certificateholder owns or acquires. See "--Taxation of Owners of REMIC
Regular Certificates--Premium" below. Each of these elections to accrue
interest, discount and premium with respect to a Certificate on a constant yield
method or as interest would be irrevocable.
However, market discount with respect to a REMIC Regular Certificate
will be considered to be de minimis for purposes of Section 1276 of the Code if
such market discount is less than 0.25% of the remaining stated redemption price
of such REMIC Regular Certificate multiplied by the number of complete years to
maturity remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average maturity of
obligations, and it is likely that the same rule will be applied with respect to
market discount, presumably taking into account the Prepayment Assumption. If
market discount is treated as de minimis under this rule, it appears that the
actual discount would be treated in a manner similar to original issue discount
of a de minimis amount. See "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" above. Such treatment would result in
discount being included in income at a slower rate than discount would be
required to be included in income using the method described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than one
installment. Until regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. The Committee Report indicates
that in each accrual period market discount on REMIC Regular Certificates should
accrue, at the Certificateholder's option: (i) on the basis of a constant yield
method, (ii) in the case of a REMIC Regular Certificate issued without original
issue discount, in an amount that bears the same ratio to the total remaining
market discount as the stated interest paid in the accrual period bears to the
total amount of stated interest remaining to be paid on the REMIC Regular
Certificate as of the beginning of the accrual period, or (iii) in the case of a
REMIC Regular Certificate issued with original issue discount, in an amount that
bears the same ratio to the total remaining market discount as the original
issue discount accrued in the accrual period bears to the total original issue
discount remaining on the REMIC Regular Certificate at the beginning of the
accrual period. Moreover, the Prepayment Assumption used in calculating the
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accrual of original issue discount is also used in calculating the accrual of
market discount. Because the regulations referred to in this paragraph have not
been issued, it is not possible to predict what effect such regulations might
have on the tax treatment of a REMIC Regular Certificate purchased at a discount
in the secondary market.
To the extent that REMIC Regular Certificates provide for monthly or
other periodic distributions throughout their term, the effect of these rules
may be to require market discount to be includible in income at a rate that is
not significantly slower than the rate at which such discount would accrue if it
were original issue discount. Moreover, in any event a holder of a REMIC Regular
Certificate generally will be required to treat a portion of any gain on the
sale or exchange of such Certificate as ordinary income to the extent of the
market discount accrued to the date of disposition under one of the foregoing
methods, less any accrued market discount previously reported as ordinary
income.
Further, under Section 1277 of the Code a holder of a REMIC Regular
Certificate may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or continued to
purchase or carry a REMIC Regular Certificate purchased with market discount.
For these purposes, the DE MINIMIS rule referred to above applies. Any such
deferred interest expense would not exceed the market discount that accrues
during such taxable year and is, in general, allowed as a deduction not later
than the year in which such market discount is includible in income. If such
holder elects to include market discount in income currently as it accrues on
all market discount instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not apply.
PREMIUM. A REMIC Regular Certificate purchased at a cost (excluding any
portion of such cost attributable to accrued qualified stated interest) greater
than its remaining stated redemption price will be considered to be purchased at
a premium. The holder of such a REMIC Regular Certificate may elect under
Section 171 of the Code to amortize such premium under the constant yield method
over the life of the Certificate. If made, such an election will apply to all
debt instruments having amortizable bond premium that the holder owns or
subsequently acquires. Amortizable premium will be treated as an offset to
interest income on the related debt instrument, rather than as a separate
interest deduction. The OID Regulations also permit Certificateholders to elect
to include all interest, discount and premium in income based on a constant
yield method, further treating the Certificateholder as having made the election
to amortize premium generally. See "--Taxation of Owners of REMIC Regular
Certificates--Market Discount" above. The Committee Report states that the same
rules that apply to accrual of market discount (which rules will require use of
a Prepayment Assumption in accruing market discount with respect to REMIC
Regular Certificates without regard to whether such Certificates have original
issue discount) will also apply in amortizing bond premium under Section 171 of
the Code.
REALIZED LOSSES. Under Section 166 of the Code, both corporate holders
of the REMIC Regular Certificates and noncorporate holders of the REMIC Regular
Certificates that acquire such Certificates in connection with a trade or
business should be allowed to deduct, as ordinary losses, any losses sustained
during a taxable year in which their Certificates become wholly or partially
worthless as the result of one or more realized losses on the Mortgage Loans.
However, it appears that a noncorporate holder that does not acquire a REMIC
Regular Certificate in connection with a trade or business will not be entitled
to deduct a loss under Section 166 of the Code until such holder's Certificate
becomes wholly worthless (i.e., until its outstanding principal balance has been
reduced to zero) and that the loss will be characterized as a short-term capital
loss.
Each holder of a REMIC Regular Certificate will be required to accrue
interest and original issue discount with respect to such Certificate, without
giving effect to any reductions in distributions attributable to defaults or
delinquencies on the Mortgage Loans or the Underlying Certificates until it can
be established that any such reduction ultimately will not be recoverable. As a
result, the amount of taxable income reported in any period by the holder of a
REMIC Regular Certificate could exceed the
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amount of economic income actually realized by the holder in such period.
Although the holder of a REMIC Regular Certificate eventually will recognize a
loss or reduction in income attributable to previously accrued and included
income that as the result of a realized loss ultimately will not be realized,
the law is unclear with respect to the timing and character of such loss or
reduction in income.
TAXATION OF OWNERS OF REMIC RESIDUAL CERTIFICATES.
GENERAL. As residual interests, the REMIC Residual Certificates will be
subject to tax rules that differ significantly from those that would apply if
the REMIC Residual Certificates were treated for federal income tax purposes as
direct ownership interests in the Mortgage Loans or as debt instruments issued
by the REMIC.
A holder of a REMIC Residual Certificate generally will be required to
report its daily portion of the taxable income or, subject to the limitations
noted in this discussion, the net loss of the REMIC for each day during a
calendar quarter that such holder owned such REMIC Residual Certificate. For
this purpose, the taxable income or net loss of the REMIC will be allocated to
each day in the calendar quarter ratably using a "30 days per month/90 days per
quarter/360 days per year" convention unless otherwise disclosed in the related
Prospectus Supplement. The daily amounts so allocated will then be allocated
among the REMIC Residual Certificateholders in proportion to their respective
ownership interests on such day. Any amount included in the gross income or
allowed as a loss of any REMIC Residual Certificateholder by virtue of this
paragraph will be treated as ordinary income or loss. The taxable income of the
REMIC will be determined under the rules described below in "--Taxable Income of
the REMIC" and will be taxable to the REMIC Residual Certificateholders without
regard to the timing or amount of cash distributions by the REMIC. Ordinary
income derived from REMIC Residual Certificates will be "portfolio income" for
purposes of the taxation of taxpayers subject to limitations under Section 469
of the Code on the deductibility of "passive losses".
A holder of a REMIC Residual Certificate that purchased such
Certificate from a prior holder of such Certificate also will be required to
report on its federal income tax return amounts representing its daily share of
the taxable income (or net loss) of the REMIC for each day that it holds such
REMIC Residual Certificate. Those daily amounts generally will equal the amounts
of taxable income or net loss determined as described above. The Committee
Report indicates that certain modifications of the general rules may be made, by
regulations, legislation or otherwise to reduce (or increase) the income of a
REMIC Residual Certificateholder that purchased such REMIC Residual Certificate
from a prior holder of such Certificate at a price greater than (or less than)
the adjusted basis (as defined below) such REMIC Residual Certificate would have
had in the hands of an original holder of such Certificate. The REMIC
Regulations, however, do not provide for any such modifications.
Any payments received by a holder of a REMIC Residual Certificate in
connection with the acquisition of such REMIC Residual Certificate will be taken
into account in determining the income of such holder for federal income tax
purposes. Although it appears likely that any such payment would be includible
in income immediately upon its receipt, the IRS might assert that such payment
should be included in income over time according to an amortization schedule or
according to some other method. Because of the uncertainty concerning the
treatment of such payments, holders of REMIC Residual Certificates should
consult their tax advisors concerning the treatment of such payments for income
tax purposes.
The amount of income REMIC Residual Certificateholders will be required
to report (or the tax liability associated with such income) may exceed the
amount of cash distributions received from the REMIC for the corresponding
period. Consequently, REMIC Residual Certificateholders should have other
sources of funds sufficient to pay any federal income taxes due as a result of
their ownership of REMIC Residual Certificates or unrelated deductions against
which income may be offset, subject to the
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rules relating to "excess inclusions", residual interests without "significant
value" and "noneconomic" residual interests discussed below. The fact that the
tax liability associated with the income allocated to REMIC Residual
Certificateholders may exceed the cash distributions received by such REMIC
Residual Certificateholders for the corresponding period may significantly
adversely affect such REMIC Residual Certificateholders' after-tax rate of
return.
TAXABLE INCOME OF THE REMIC. The taxable income of the REMIC will equal
the income from the Mortgage Loans and other assets of the REMIC plus any
cancellation of indebtedness income due to the allocation of realized losses to
REMIC Regular Certificates, less the deductions allowed to the REMIC for
interest (including original issue discount and reduced by any premium on
issuance) on the REMIC Regular Certificates (and any other class of REMIC
Certificates constituting "regular interests" in the REMIC not offered hereby),
amortization of any premium on the Mortgage Loans, bad debt losses with respect
to the Mortgage Loans and, except as described below, for servicing,
administrative and other expenses.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate basis in its assets equal to the sum of the issue prices of
all REMIC Certificates (or, if a class of REMIC Certificates is not sold
initially, their fair market values). Such aggregate basis will be allocated
among the Mortgage Loans and the other assets of the REMIC in proportion to
their respective fair market values. The issue price of any REMIC Certificates
offered hereby will be determined in the manner described above under
"--Taxation of Owners of REMIC Regular Certificates--Original Issue Discount".
The issue price of a REMIC Certificate received in exchange for an interest in
the Mortgage Loans or other property will equal the fair market value of such
interests in the Mortgage Loans or other property. Accordingly, if one or more
classes of REMIC Certificates are retained initially rather than sold, the
Master Servicer or the Trustee may be required to estimate the fair market value
of such interests in order to determine the basis of the REMIC in the Mortgage
Loans and other property held by the REMIC.
Subject to possible application of the de minimis rules, the method of
accrual by the REMIC of original issue discount income and market discount
income with respect to Mortgage Loans that it holds will be equivalent to the
method for accruing original issue discount income for holders of REMIC Regular
Certificates (that is, under the constant yield method taking into account the
Prepayment Assumption). However, a REMIC that acquires loans at a market
discount must include such market discount in income currently, as it accrues,
on a constant yield basis. See "--Taxation of Owners of REMIC Regular
Certificates" above, which describes a method for accruing such discount income
that is analogous to that required to be used by a REMIC as to Mortgage Loans
with market discount that it holds.
A Mortgage Loan will be deemed to have been acquired with discount (or
premium) to the extent that the REMIC's basis therein, determined as described
in the preceding paragraph, is less than (or greater than) its stated redemption
price. Any such discount will be includible in the income of the REMIC as it
accrues, in advance of receipt of the cash attributable to such income, under a
method similar to the method described above for accruing original issue
discount on the REMIC Regular Certificates. It is anticipated that each REMIC
will elect under Section 171 of the Code to amortize any premium on the Mortgage
Loans. Premium on any Mortgage Loan to which such election applies may be
amortized under a constant yield method, presumably taking into account a
Prepayment Assumption. Further, such an election would not apply to any Mortgage
Loan originated on or before September 27, 1985. Instead, premium on such a
Mortgage Loan should be allocated among the principal payments thereon and be
deductible by the REMIC as those payments become due or upon the prepayment of
such Mortgage Loan.
A REMIC will be allowed deductions for interest (including original
issue discount) on the REMIC Regular Certificates (including any other class of
REMIC Certificates constituting "regular interests" in the REMIC not offered
hereby) equal to the deductions that would be allowed if the REMIC
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Regular Certificates (including any other class of REMIC Certificates
constituting "regular interests" in the REMIC not offered hereby) were
indebtedness of the REMIC. Original issue discount will be considered to accrue
for this purpose as described above under "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount", except that the de minimis rule and the
adjustments for subsequent holders of REMIC Regular Certificates (including any
other class of REMIC Certificates constituting "regular interests" in the REMIC
not offered hereby) described therein will not apply.
If a class of REMIC Regular Certificates is issued at a price in excess
of the stated redemption price of such class (such excess "ISSUE PREMIUM"), the
net amount of interest deductions that are allowed the REMIC in each taxable
year with respect to the REMIC Regular Certificates of such class will be
reduced by an amount equal to the portion of the Issue Premium that is
considered to be amortized or repaid in that year. Although the matter is not
entirely certain, it is likely that Issue Premium would be amortized under a
constant yield method in a manner analogous to the method of accruing original
issue discount described above under "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount".
As a general rule, the taxable income of a REMIC will be determined in
the same manner as if the REMIC were an individual having the calendar year as
its taxable year and using the accrual method of accounting. However, no item of
income, gain, loss or deduction allocable to a prohibited transaction will be
taken into account. See "--Prohibited Transactions Tax and Other Taxes" below.
Further, the limitation on miscellaneous itemized deductions imposed on
individuals by Section 67 of the Code (which allows such deductions only to the
extent they exceed in the aggregate two percent of the taxpayer's adjusted gross
income) will not be applied at the REMIC level so that the REMIC will be allowed
deductions for servicing, administrative and other non-interest expenses in
determining its taxable income. All such expenses will be allocated as a
separate item to the holders of REMIC Certificates, subject to the limitation of
Section 67 of the Code. See "--Possible Pass-Through of Miscellaneous Itemized
Deductions" below. If the deductions allowed to the REMIC exceed its gross
income for a calendar quarter, such excess will be the net loss for the REMIC
for that calendar quarter.
BASIS RULES, NET LOSSES AND DISTRIBUTIONS. The adjusted basis of a
REMIC Residual Certificate will be equal to the amount paid for such REMIC
Residual Certificate, increased by amounts included in the income of the REMIC
Residual Certificateholder and decreased (but not below zero) by distributions
made, and by net losses allocated, to such REMIC Residual Certificateholder.
A REMIC Residual Certificateholder is not allowed to take into account
any net loss for any calendar quarter to the extent such net loss exceeds such
REMIC Residual Certificateholder's adjusted basis in its REMIC Residual
Certificate as of the close of such calendar quarter (determined without regard
to such net loss). Any loss that is not currently deductible by reason of this
limitation may be carried forward indefinitely to future calendar quarters and,
subject to the same limitation, may be used only to offset income from the REMIC
Residual Certificate. The ability of REMIC Residual Certificateholders to deduct
net losses may be subject to additional limitations under the Code, as to which
REMIC Residual Certificateholders should consult their tax advisors.
Any distribution on a REMIC Residual Certificate will be treated as a
non-taxable return of capital to the extent it does not exceed the holder's
adjusted basis in such REMIC Residual Certificate. To the extent a distribution
on a REMIC Residual Certificate exceeds such adjusted basis, it will be treated
as gain from the sale of such REMIC Residual Certificate. Holders of certain
REMIC Residual Certificates may be entitled to distributions early in the term
of the related REMIC under circumstances in which their bases in such REMIC
Residual Certificates will not be sufficiently large that such distributions
will be treated as non-taxable returns of capital. Their bases in such REMIC
Residual Certificates will initially equal the amount paid for such REMIC
Residual Certificates and will be increased by their allocable shares of taxable
income of the REMIC. However, such bases increases may not occur until the end
of the calendar quarter, or perhaps the end of the calendar year, with respect
to
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which such REMIC taxable income is allocated to the REMIC Residual
Certificateholders. To the extent such REMIC Residual Certificateholders'
initial bases are less than the distributions to such REMIC Residual
Certificateholders, and increases in such initial bases either occur after such
distributions or (together with their initial bases) are less than the amount of
such distributions, gain will be recognized to such REMIC Residual
Certificateholders on such distributions and will be treated as gain from the
sale of their REMIC Residual Certificates.
The effect of these rules is that a REMIC Residual Certificateholder
may not amortize its basis in a REMIC Residual Certificate, but may only recover
its basis through distributions, through the deduction of any net losses of the
REMIC or upon the sale of its REMIC Residual Certificate. See "--Sales of REMIC
Certificates" below. For a discussion of possible modifications of these rules
that may require adjustments to income of a holder of a REMIC Residual
Certificate other than an original holder in order to reflect any difference
between the cost of such REMIC Residual Certificate to such REMIC Residual
Certificateholder and the adjusted basis such REMIC Residual Certificate would
have in the hands of an original holder see "--Taxation of Owners of REMIC
Residual Certificates--General" above.
EXCESS INCLUSIONS. Any "excess inclusions" with respect to a REMIC
Residual Certificate will be subject to federal income tax in all events.
In general, the "excess inclusions" with respect to a REMIC Residual
Certificate for any calendar quarter will be the excess, if any, of (i) the
daily portions of REMIC taxable income allocable to such REMIC Residual
Certificate over (ii) the sum of the "daily accruals" (as defined below) for
each day during such quarter that such REMIC Residual Certificate was held by
such REMIC Residual Certificateholder. The daily accruals of a REMIC Residual
Certificateholder will be determined by allocating to each day during a calendar
quarter its ratable portion of the product of the "adjusted issue price" of the
REMIC Residual Certificate at the beginning of the calendar quarter and 120% of
the "long-term Federal rate" in effect on the Closing Date. For this purpose,
the adjusted issue price of a REMIC Residual Certificate as of the beginning of
any calendar quarter will be equal to the issue price of the REMIC Residual
Certificate, increased by the sum of the daily accruals for all prior quarters
and decreased (but not below zero) by any distributions made with respect to
such REMIC Residual Certificate before the beginning of such quarter. The issue
price of a REMIC Residual Certificate is the initial offering price to the
public (excluding bond houses and brokers) at which a substantial amount of the
REMIC Residual Certificates were sold. The "long-term Federal rate" is an
average of current yields on Treasury securities with a remaining term of
greater than nine years, computed and published monthly by the IRS. Although it
has not done so, the Treasury has authority to issue regulations that would
treat the entire amount of income accruing on a REMIC Residual Certificate as an
excess inclusion if the REMIC Residual Certificates are considered not to have
"significant value."
For REMIC Residual Certificateholders, excess inclusions (i) will not
be permitted to be offset by deductions, losses or loss carryovers from other
activities, (ii) will be treated as "unrelated business taxable income" to an
otherwise tax-exempt organization and (iii) will not be eligible for any rate
reduction or exemption under any applicable tax treaty with respect to the 30%
United States withholding tax imposed on distributions to REMIC Residual
Certificateholders that are foreign investors. See, however, "--Foreign
Investors in REMIC Certificates" below. Furthermore, for purposes of the
alternative minimum tax, (i) excess inclusions will not be permitted to be
offset by the alternative tax net operating loss deduction and (ii) alternative
minimum taxable income may not be less than the taxpayer's excess inclusions.
The latter rule has the effect of preventing non-refundable tax credits from
reducing the taxpayer's income tax to an amount lower than the tentative minimum
tax on excess inclusions.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Section 857(b)(2) of the
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Code, excluding any net capital gain), will be allocated among the shareholders
of such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder. Treasury regulations yet to be issued could apply a similar rule to
regulated investment companies, common trust funds and certain cooperatives; the
REMIC Regulations currently do not address this subject.
NONECONOMIC REMIC RESIDUAL CERTIFICATES. Under the REMIC Regulations,
transfers of "noneconomic" REMIC Residual Certificates will be disregarded for
all federal income tax purposes if "a significant purpose of the transfer was to
enable the transferor to impede the assessment or collection of tax". If such
transfer is disregarded, the purported transferor will continue to remain liable
for any taxes due with respect to the income on such "noneconomic" REMIC
Residual Certificate. The REMIC Regulations provide that a REMIC Residual
Certificate is noneconomic unless, based on the Prepayment Assumption and on any
required or permitted clean up calls, or required liquidation provided for in
the REMIC's organizational documents, (1) the present value of the expected
future distributions (discounted using the "applicable Federal rate" for
obligations whose term ends on the close of the last quarter in which excess
inclusions are expected to accrue with respect to the REMIC Residual
Certificate, which rate is computed and published monthly by the IRS) on the
REMIC Residual Certificate equals at least the present value of the expected tax
on the anticipated excess inclusions, and (2) the transferor reasonably expects
that the transferee will receive distributions with respect to the REMIC
Residual Certificate at or after the time the taxes accrue on the anticipated
excess inclusions in an amount sufficient to satisfy the accrued taxes.
Accordingly, all transfers of REMIC Residual Certificates that may constitute
noneconomic residual interests will be subject to certain restrictions under the
terms of the related Pooling and Servicing Agreement that are intended to reduce
the possibility of any such transfer being disregarded. Such restrictions will
require each party to a transfer to provide an affidavit that no purpose of such
transfer is to impede the assessment or collection of tax, including certain
representations as to the financial condition of the prospective transferee, as
to which the transferor is also required to make a reasonable investigation to
determine such transferee's historic payment of its debts and ability to
continue to pay its debts as they come due in the future. Prior to purchasing a
REMIC Residual Certificate, prospective purchasers should consider the
possibility that a purported transfer of such REMIC Residual Certificate by such
a purchaser to another purchaser at some future date may be disregarded in
accordance with the above-described rules which would result in the retention of
tax liability by such purchaser.
The related Prospectus Supplement will disclose whether offered REMIC
Residual Certificates may be considered "noneconomic" residual interests under
the REMIC Regulations; provided, however, that any disclosure that a REMIC
Residual Certificate will not be considered "noneconomic" will be based upon
certain assumptions, and the Depositor will make no representation that a REMIC
Residual Certificate will not be considered "noneconomic" for purposes of the
above-described rules. See "--Foreign Investors in REMIC Certificates--REMIC
Residual Certificates" below for additional restrictions applicable to transfers
of certain REMIC Residual Certificates to foreign persons.
MARK-TO-MARKET RULES. On December 28, 1993, the IRS released temporary
regulations (the "MARK-TO-MARKET REGULATIONS") relating to the requirement that
a securities dealer mark to market securities held for sale to customers. This
mark-to-market requirement applies to all securities owned by a dealer, except
to the extent that the dealer has specifically identified a security as held for
investment. The Mark-to-Market Regulations provide that for purposes of this
mark-to-market requirement, a "negative value" REMIC Residual Certificate is not
treated as a security and thus generally may not be marked to market. This
exclusion from the mark-to-market requirement is expanded to include all REMIC
Residual Certificates under proposed Treasury regulations published January 4,
1995 which provide that any REMIC Residual Certificate issued after January 4,
1995 will not be treated as a security and therefore generally may not be marked
to market. Prospective purchasers of a REMIC
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Residual Certificate should consult their tax advisors regarding the possible
application of the mark-to-market requirement to REMIC Residual Certificates.
POSSIBLE PASS-THROUGH OF MISCELLANEOUS ITEMIZED DEDUCTIONS. Fees and
expenses of a REMIC generally will be allocated to the holders of the related
REMIC Residual Certificates. The applicable Treasury regulations indicate,
however, that in the case of a REMIC that is similar to a single class grantor
trust, all or a portion of such fees and expenses should be allocated to the
holders of the related REMIC Regular Certificates. Unless otherwise stated in
the related Prospectus Supplement, such fees and expenses will be allocated to
holders of the related REMIC Residual Certificates in their entirety and not to
the holders of the related REMIC Regular Certificates.
With respect to REMIC Residual Certificates or REMIC Regular
Certificates the holders of which receive an allocation of fees and expenses in
accordance with the preceding discussion, if any holder thereof is an
individual, estate or trust, or a "pass-through entity" beneficially owned by
one or more individuals, estates or trusts, (i) an amount equal to such
individual's, estate's or trust's share of such fees and expenses will be added
to the gross income of such holder and (ii) such individual's, estate's or
trust's share of such fees and expenses will be treated as a miscellaneous
itemized deduction allowable subject to the limitation of Section 67 of the
Code, which permits such deductions only to the extent they exceed in the
aggregate two percent of a taxpayer's adjusted gross income. In addition,
Section 68 of the Code provides that the amount of itemized deductions otherwise
allowable for an individual whose adjusted gross income exceeds a specified
amount will be reduced by the lesser of (i) 3% of the excess of the individual's
adjusted gross income over such amount or (ii) 80% of the amount of itemized
deductions otherwise allowable for the taxable year. The amount of additional
taxable income reportable by REMIC Certificateholders that are subject to the
limitations of either Section 67 or Section 68 of the Code may be substantial.
Furthermore, in determining the alternative minimum taxable income of such a
holder of a REMIC Certificate that is an individual, estate or trust, or a
"pass-through entity" beneficially owned by one or more individuals, estates or
trusts, no deduction will be allowed for such holder's allocable portion of
servicing fees and other miscellaneous itemized deductions of the REMIC, even
though an amount equal to the amount of such fees and other deductions will be
included in such holder's gross income. Accordingly, such REMIC Certificates may
not be appropriate investments for individuals, estates, or trusts, or
pass-through entities beneficially owned by one or more individuals, estates or
trusts. Such prospective investors should consult with their tax advisors prior
to making an investment in such Certificates.
SALES OF REMIC CERTIFICATES. If a REMIC Certificate is sold, the
selling Certificateholder will recognize gain or loss equal to the difference
between the amount realized on the sale and its adjusted basis in the REMIC
Certificate. The adjusted basis of a REMIC Regular Certificate generally will
equal the cost of such REMIC Regular Certificate to such Certificateholder,
increased by income reported by such Certificateholder with respect to such
REMIC Regular Certificate (including original issue discount and market discount
income) and reduced (but not below zero) by distributions on such REMIC Regular
Certificate received by such Certificateholder and by any amortized premium. The
adjusted basis of a REMIC Residual Certificate will be determined as described
under "--Taxation of Owners of REMIC Residual Certificates--Basis Rules, Net
Losses and Distributions". Except as provided in the following four paragraphs,
any such gain or loss will be capital gain or loss, provided such REMIC
Certificate is held as a capital asset (generally, property held for investment)
within the meaning of Section 1221 of the Code. The Code as of the date of this
Prospectus provides for a top marginal tax rate of 39.6% for individuals and a
maximum marginal rate for long-term capital gains of individuals of 28%. No such
rate differential exists for corporations. In addition, the distinction between
a capital gain or loss and ordinary income or loss remains relevant for other
purposes.
Gain from the sale of a REMIC Regular Certificate that might otherwise
be capital gain will be treated as ordinary income to the extent such gain does
not exceed the excess, if any, of (i) the amount that would have been includible
in the seller's income with respect to such REMIC Regular Certificate
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assuming that income had accrued thereon at a rate equal to 110% of the
"applicable Federal rate" (generally, a rate based on an average of current
yields on Treasury securities having a maturity comparable to that of the
Certificate based on the application of the Prepayment Assumption to such
Certificate which rate is computed and published monthly by the IRS), determined
as of the date of purchase of such REMIC Regular Certificate, over (ii) the
amount of ordinary income actually includible in the seller's income prior to
such sale. In addition, gain recognized on the sale of a REMIC Regular
Certificate by a seller who purchased such REMIC Regular Certificate at a market
discount will be taxable as ordinary income in an amount not exceeding the
portion of such discount that accrued during the period such REMIC Certificate
was held by such holder, reduced by any market discount included in income under
the rules described above under "--Taxation of Owners of REMIC Regular
Certificates--Market Discount" and "--Premium".
REMIC Certificates will be "evidences of indebtedness" within the
meaning of Section 582(c)(1) of the Code, so that gain or loss recognized from
the sale of a REMIC Certificate by a bank or thrift institution to which such
section applies will be ordinary income or loss.
A portion of any gain from the sale of a REMIC Regular Certificate that
might otherwise be capital gain may be treated as ordinary income to the extent
that such Certificate is held as part of a "conversion transaction" within the
meaning of Section 1258 of the Code. A conversion transaction generally is one
in which the taxpayer has taken two or more positions in the same or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in such transaction. The amount of gain so realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable Federal rate" (which rate is computed and
published monthly by the IRS) at the time the taxpayer enters into the
conversion transaction, subject to appropriate reduction for prior inclusion of
interest and other ordinary income items from the transaction.
Finally, a taxpayer may elect to have net capital gain taxed at
ordinary income rates rather than capital gains rates in order to include such
net capital gain in total net investment income for the taxable year, for
purposes of the rule that limits the deduction of interest on indebtedness
incurred to purchase or carry property held for investment to a taxpayer's net
investment income.
Except as may be provided in Treasury regulations yet to be issued, if
the seller of a REMIC Residual Certificate reacquires such REMIC Residual
Certificate, or acquires any other residual interest in a REMIC or any similar
interest in a "taxable mortgage pool" (as defined in Section 7701(i) of the
Code) during the period beginning six months before, and ending six months
after, the date of such sale, such sale will be subject to the "wash sale" rules
of Section 1091 of the Code. In that event, any loss realized by the REMIC
Residual Certificateholder on the sale will not be deductible, but instead will
be added to such REMIC Residual Certificateholder's adjusted basis in the
newly-acquired asset.
PROHIBITED TRANSACTIONS TAX AND OTHER TAXES. The Code imposes a tax on
REMICs equal to 100% of the net income derived from "prohibited transactions" (a
"PROHIBITED TRANSACTIONS TAX"). In general, subject to certain specified
exceptions a prohibited transaction means the disposition of a Mortgage Loan,
the receipt of income from a source other than a Mortgage Loan or certain other
permitted investments, the receipt of compensation for services, or gain from
the disposition of an asset purchased with the payments on the Mortgage Loans
for temporary investment pending distribution on the REMIC Certificates. It is
not anticipated that any REMIC will engage in any prohibited transactions in
which it would recognize a material amount of net income.
In addition, certain contributions to a REMIC made after the day on
which the REMIC issues all of its interests could result in the imposition of a
tax on the REMIC equal to 100% of the value of the
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contributed property (a "CONTRIBUTIONS TAX"). Each Pooling and Servicing
Agreement will include provisions designed to prevent the acceptance of any
contributions that would be subject to such tax.
REMICs also are subject to federal income tax at the highest corporate
rate on "net income from foreclosure property", determined by reference to the
rules applicable to real estate investment trusts. "Net income from foreclosure
property" generally means gain from the sale of a foreclosure property that is
inventory property and gross income from foreclosure property other than
qualifying rents and other qualifying income for a real estate investment trust.
Unless otherwise disclosed in the related Prospectus Supplement, it is not
anticipated that any REMIC will recognize "net income from foreclosure property"
subject to federal income tax.
Unless otherwise disclosed in the related Prospectus Supplement, it is
not anticipated that any material state or local income or franchise tax will be
imposed on any REMIC.
Unless otherwise stated in the related Prospectus Supplement, and to
the extent permitted by then applicable laws, any Prohibited Transactions Tax,
Contributions Tax, tax on "net income from foreclosure property" or state or
local income or franchise tax that may be imposed on the REMIC will be borne by
the related Master Servicer, Special Servicer, Manager or Trustee in any case
out of its own funds, provided that such person has sufficient assets to do so,
and provided further that such tax arises out of a breach of such person's
obligations under the related Pooling and Servicing Agreement and in respect of
compliance with applicable laws and regulations. Any such tax not borne by a
Master Servicer, Special Servicer, Manager or Trustee will be charged against
the related Trust Fund resulting in a reduction in amounts payable to holders of
the related REMIC Certificates.
Tax and Restrictions on Transfers of REMIC Residual Certificates to
Certain Organizations. If a REMIC Residual Certificate is transferred to a
"disqualified organization" (as defined below), a tax would be imposed in an
amount (determined under the REMIC Regulations) equal to the product of (i) the
present value (discounted using the "applicable Federal rate" for obligations
whose term ends on the close of the last quarter in which excess inclusions are
expected to accrue with respect to the REMIC Residual Certificate, which rate is
computed and published monthly by the IRS) of the total anticipated excess
inclusions with respect to such REMIC Residual Certificate for periods after the
transfer and (ii) the highest marginal federal income tax rate applicable to
corporations. The anticipated excess inclusions must be determined as of the
date that the REMIC Residual Certificate is transferred and must be based on
events that have occurred up to the time of such transfer, the Prepayment
Assumption and any required or permitted clean up calls or required liquidation
provided for in the REMIC's organizational documents. Such a tax generally would
be imposed on the transferor of the REMIC Residual Certificate, except that
where such transfer is through an agent for a disqualified organization, the tax
would instead be imposed on such agent. However, a transferor of a REMIC
Residual Certificate would in no event be liable for such tax with respect to a
transfer 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 such affidavit is
false. Moreover, an entity will not qualify as a REMIC unless there are
reasonable arrangements designed to ensure that (i) residual interests in such
entity are not held by disqualified organizations and (ii) information necessary
for the application of the tax described herein will be made available.
Restrictions on the transfer of REMIC Residual Certificates and certain other
provisions that are intended to meet this requirement will be included in each
Pooling and Servicing Agreement, and will be discussed in any Prospectus
Supplement relating to the offering of any REMIC Residual Certificate.
In addition, if a "pass-through entity" (as defined below) includes in
income excess inclusions with respect to a REMIC Residual Certificate, and a
disqualified organization is the record holder of an interest in such entity,
then a tax will be imposed on such entity equal to the product of (i) the amount
of excess inclusions on the REMIC Residual Certificate that are allocable to the
interest in the pass-through entity held by such disqualified organization and
(ii) the highest marginal federal income
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tax rate imposed on corporations. A pass-through entity will not be subject to
this tax for any period, however, if each record holder of an interest in such
pass-through entity furnishes to such pass-through entity (i) such holder's
social security number and a statement under penalties of perjury that such
social security number is that of the record holder or (ii) a statement under
penalties of perjury that such record holder is not a disqualified organization.
For these purposes, a "disqualified organization" means (i) the United
States, any State or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of the foregoing
(but would not include instrumentalities described in Section 168(h)(2)(D) of
the Code or the Federal Home Loan Mortgage Corporation), (ii) any organization
(other than a cooperative described in Section 521 of the Code) that is exempt
from federal income tax, unless it is subject to the tax imposed by Section 511
of the Code or (iii) any organization described in Section 1381(a)(2)(C) of the
Code. For these purposes, a "pass-through entity" means any regulated investment
company, real estate investment trust, trust, partnership or certain other
entities described in Section 860E(e)(6) of the Code. In addition, a person
holding an interest in a pass-through entity as a nominee for another person
will, with respect to such interest, be treated as a pass-through entity.
TERMINATION. A REMIC will terminate immediately after the Distribution
Date following receipt by the REMIC of the final payment in respect of the
Mortgage Loans or upon a sale of the REMIC's assets following the adoption by
the REMIC of a plan of complete liquidation. The last distribution on a REMIC
Regular Certificate will be treated as a payment in retirement of a debt
instrument. In the case of a REMIC Residual Certificate, if the last
distribution on such REMIC Residual Certificate is less than the REMIC Residual
Certificateholder's adjusted basis in such Certificate, such REMIC Residual
Certificateholder should (but may not) be treated as realizing a loss equal to
the amount of such difference, and such loss may be treated as a capital loss.
REPORTING AND OTHER ADMINISTRATIVE MATTERS. Solely for purposes of the
administrative provisions of the Code, the REMIC will be treated as a
partnership and REMIC Residual Certificateholders will be treated as partners.
Unless otherwise stated in the related Prospectus Supplement, the Trustee or the
Master Servicer, which generally will hold at least a nominal amount of REMIC
Residual Certificates, will file REMIC federal income tax returns on behalf of
the related REMIC, and will be designated as and will act as the "tax matters
person" with respect to the REMIC in all respects.
As the tax matters person, the Trustee or the Master Servicer, as the
case may be, subject to certain notice requirements and various restrictions and
limitations, generally will have the authority to act on behalf of the REMIC and
the REMIC Residual Certificateholders in connection with the administrative and
judicial review of items of income, deduction, gain or loss of the REMIC, as
well as the REMIC's classification. REMIC Residual Certificateholders generally
will be required to report such REMIC items consistently with their treatment on
the related REMIC's tax return and may in some circumstances be bound by a
settlement agreement between the Trustee or the Master Servicer, as the case may
be, as tax matters person, and the IRS concerning any such REMIC item.
Adjustments made to the REMIC tax return may require a REMIC Residual
Certificateholder to make corresponding adjustments on its return, and an audit
of the REMIC's tax return, or the adjustments resulting from such an audit,
could result in an audit of a REMIC Residual Certificateholder's return. No
REMIC will be registered as a tax shelter pursuant to Section 6111 of the Code
because it is not anticipated that any REMIC will have a net loss for any of the
first five taxable years of its existence. Any person that holds a REMIC
Residual Certificate as a nominee for another person may be required to furnish
to the related REMIC, in a manner to be provided in Treasury regulations, the
name and address of such person and other information.
Reporting of interest income, including any original issue discount,
with respect to REMIC Regular Certificates is required annually, and may be
required more frequently under Treasury regulations. These information reports
generally are required to be sent to individual holders of REMIC
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Regular Interests and the IRS; holders of REMIC Regular Certificates that are
corporations, trusts, securities dealers and certain other non-individuals will
be provided interest and original issue discount income information and the
information set forth in the following paragraph upon request in accordance with
the requirements of the applicable regulations. The information must be provided
by the later of 30 days after the end of the quarter for which the information
was requested, or two weeks after the receipt of the request. The REMIC must
also comply with rules requiring a REMIC Regular Certificate issued with
original issue discount to disclose on its face the amount of original issue
discount and the issue date, and requiring such information to be reported to
the IRS. Reporting with respect to REMIC Residual Certificates, including
income, excess inclusions, investment expenses and relevant information
regarding qualification of the REMIC's assets will be made as required under the
Treasury regulations, generally on a quarterly basis.
As applicable, the REMIC Regular Certificate information reports will
include a statement of the adjusted issue price of the REMIC Regular Certificate
at the beginning of each accrual period. In addition, the reports will include
information required by regulations with respect to computing the accrual of any
market discount. Because exact computation of the accrual of market discount on
a constant yield method would require information relating to the holder's
purchase price that the REMIC may not have, such regulations only require that
information pertaining to the appropriate proportionate method of accruing
market discount be provided. See "--Taxation of Owners of REMIC Regular
Certificates--Market Discount".
Unless otherwise specified in the related Prospectus Supplement, the
responsibility for complying with the foregoing reporting rules will be borne by
either the Trustee or the Master Servicer.
BACKUP WITHHOLDING WITH RESPECT TO REMIC CERTIFICATES. Payments of
interest and principal, as well as payments of proceeds from the sale of REMIC
Certificates, may be subject to the "backup withholding tax" under Section 3406
of the Code at a rate of 31% if recipients of such payments fail to furnish to
the payor certain information, including their taxpayer identification numbers,
or otherwise fail to establish an exemption from such tax. Any amounts deducted
and withheld from a distribution to a recipient would be allowed as a credit
against such recipient's federal income tax. Furthermore, certain penalties may
be imposed by the IRS on a recipient of payments that is required to supply
information but that does not do so in the proper manner.
FOREIGN INVESTORS IN REMIC CERTIFICATES. A REMIC Regular
Certificateholder that is not a "United States Person" (as defined below) and 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 REMIC Regular
Certificate will not, unless otherwise disclosed in the related Prospectus
Supplement, be subject to United States federal income or withholding tax in
respect of a distribution on a REMIC Regular Certificate, provided that the
holder complies to the extent necessary with certain identification requirements
(including delivery of a statement, signed by the Certificateholder under
penalties of perjury, certifying that such Certificateholder is not a United
States Person and providing the name and address of such Certificateholder). For
these purposes, "UNITED STATES PERSON" means a citizen or resident of the United
States, a corporation, partnership or other entity created or organized in, or
under the laws of, the United States or any political subdivision thereof, or an
estate whose income is subject to United States income tax regardless of its
source, or a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more United
States fiduciaries have the authority to control all substantial decisions of
the trust. It is possible that the IRS may assert that the foregoing tax
exemption should not apply with respect to a REMIC Regular Certificate held by a
REMIC Residual Certificateholder that owns directly or indirectly a 10% or
greater interest in the REMIC Residual Certificates. If the holder does not
qualify for exemption, distributions of interest, including distributions in
respect of accrued original issue discount, to such holder may be subject to a
tax rate of 30%, subject to reduction under any applicable tax treaty.
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In addition, the foregoing rules will not apply to exempt a United
States shareholder of a controlled foreign corporation from taxation on such
United States shareholder's allocable portion of the interest income received by
such controlled foreign corporation.
Further, it appears that a REMIC Regular Certificate would not be
included in the estate of a non-resident alien individual and would not be
subject to United States estate taxes. However, Certificateholders who are
non-resident alien individuals should consult their tax advisors concerning this
question.
Unless otherwise stated in the related Prospectus Supplement, transfers
of REMIC Residual Certificates to investors that are not United States Persons
will be prohibited under the related Pooling and Servicing Agreement.
GRANTOR TRUST FUNDS
CLASSIFICATION OF GRANTOR TRUST FUNDS. With respect to each series of
Grantor Trust Certificates, counsel to the Depositor will deliver its opinion to
the effect that, assuming compliance with all provisions of the related Pooling
and Servicing Agreement, the related Grantor Trust Fund will be classified as a
grantor trust under subpart E, part I of subchapter J of the Code and not as a
partnership or an association taxable as a corporation. Accordingly, each holder
of a Grantor Trust Certificate generally will be treated as the owner of an
interest in the Mortgage Loans included in the Grantor Trust Fund.
For purposes of the following discussion, a Grantor Trust Certificate
representing an undivided equitable ownership interest in the principal of the
Mortgage Loans constituting the related Grantor Trust Fund, together with
interest thereon at a pass-through rate, will be referred to as a "GRANTOR TRUST
FRACTIONAL INTEREST CERTIFICATE". A Grantor Trust Certificate representing
ownership of all or a portion of the difference between interest paid on the
Mortgage Loans constituting the related Grantor Trust Fund (net of normal
administration fees) and interest paid to the holders of Grantor Trust
Fractional Interest Certificates issued with respect to such Grantor Trust Fund
will be referred to as a "GRANTOR TRUST STRIP CERTIFICATE". A Grantor Trust
Strip Certificate may also evidence a nominal ownership interest in the
principal of the Mortgage Loans constituting the related Grantor Trust Fund.
CHARACTERIZATION OF INVESTMENTS IN GRANTOR TRUST CERTIFICATES.
GRANTOR TRUST FRACTIONAL INTEREST CERTIFICATES. In the case of Grantor
Trust Fractional Interest Certificates, unless otherwise disclosed in the
related Prospectus Supplement, counsel to the Depositor will deliver an opinion
that, in general, Grantor Trust Fractional Interest Certificates will represent
interests in (i) "loans...secured by an interest in real property" within the
meaning of Section 7701(a)(19)(C)(v) of the Code except to the extent that
Grantor Trust assets are secured by mortgages on real property not used for
residential or certain other prescribed purposes; (ii) "obligation[s] (including
any participation or Certificate of beneficial ownership therein) which...[are]
principally secured by an interest in real property" within the meaning of
Section 860G(a)(3) of the Code; and (iii) "real estate assets" within the
meaning of Section 856(c)(5)(B) of the Code. In addition, counsel to the
Depositor will deliver an opinion that interest on Grantor Trust Fractional
Interest Certificates will to the same extent be considered "interest on
obligations secured by mortgages on real property or on interests in real
property" within the meaning of Section 856(c)(3)(B) of the Code.
GRANTOR TRUST STRIP CERTIFICATES. Even if Grantor Trust Strip
Certificates evidence an interest in a Grantor Trust Fund consisting of Mortgage
Loans that are "loans...secured by an interest in real property" within the
meaning of Section 7701(a)(19)(C)(v) of the Code, and "real estate assets"
within the meaning of Section 856(c)(5)(A) of the Code, and the interest on
which is "interest on obligations secured by mortgages on real property" within
the meaning of Section 856(c)(3)(A) of the Code, it is
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unclear whether the Grantor Trust Strip Certificates, and the income therefrom,
will be so characterized. However, the policies underlying such sections
(namely, to encourage or require investments in mortgage loans by thrift
institutions and real estate investment trusts) may suggest that such
characterization is appropriate. Counsel to the Depositor will not deliver any
opinion on these questions. Prospective purchasers to which such
characterization of an investment in Grantor Trust Strip Certificates is
material should consult their tax advisors regarding whether the Grantor Trust
Strip Certificates, and the income therefrom, will be so characterized.
The Grantor Trust Strip Certificates will be "obligation[s] (including
any participation or Certificate of beneficial ownership therein) which...[are]
principally secured by an interest in real property" within the meaning of
Section 860G(a)(3)(A) of the Code.
TAXATION OF OWNERS OF GRANTOR TRUST FRACTIONAL INTEREST CERTIFICATES.
GENERAL. Holders of a particular series of Grantor Trust Fractional
Interest Certificates generally will be required to report on their federal
income tax returns their shares of the entire income from the Mortgage Loans
(including amounts used to pay reasonable servicing fees and other expenses) and
will be entitled to deduct their shares of any such reasonable servicing fees
and other expenses. Because of stripped interests, market or original issue
discount, or premium, the amount includible in income on account of a Grantor
Trust Fractional Interest Certificate may differ significantly from the amount
distributable thereon representing interest on the Mortgage Loans. Under Section
67 of the Code, an individual, estate or trust holding a Grantor Trust
Fractional Interest Certificate directly or through certain pass-through
entities will be allowed a deduction for such reasonable servicing fees and
expenses only to the extent that the aggregate of such holder's miscellaneous
itemized deductions exceeds two percent of such holder's adjusted gross income.
In addition, Section 68 of the Code provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a specified amount will be reduced by the lesser of (i) 3% of the excess
of the individual's adjusted gross income over such amount or (ii) 80% of the
amount of itemized deductions otherwise allowable for the taxable year. The
amount of additional taxable income reportable by holders of Grantor Trust
Fractional Interest Certificates who are subject to the limitations of either
Section 67 or Section 68 of the Code may be substantial. Further,
Certificateholders (other than corporations) subject to the alternative minimum
tax may not deduct miscellaneous itemized deductions in determining such
holder's alternative minimum taxable income. Although it is not entirely clear,
it appears that in transactions in which multiple classes of Grantor Trust
Certificates (including Grantor Trust Strip Certificates) are issued, such fees
and expenses should be allocated among the classes of Grantor Trust Certificates
using a method that recognizes that each such class benefits from the related
services. In the absence of statutory or administrative clarification as to the
method to be used, it currently is intended to base information returns or
reports to the IRS and Certificateholders on a method that allocates such
expenses among classes of Grantor Trust Certificates with respect to each period
based on the distributions made to each such class during that period.
The federal income tax treatment of Grantor Trust Fractional Interest
Certificates of any series will depend on whether they are subject to the
"stripped bond" rules of Section 1286 of the Code. Grantor Trust Fractional
Interest Certificates may be subject to those rules if (i) a class of Grantor
Trust Strip Certificates is issued as part of the same series of Certificates or
(ii) the Depositor or any of its affiliates retains (for its own account or for
purposes of resale) a right to receive a specified portion of the interest
payable on a Mortgage Asset. Further, the IRS has ruled that an unreasonably
high servicing fee retained by a seller or servicer will be treated as a
retained ownership interest in mortgages that constitutes a stripped coupon. For
purposes of determining what constitutes reasonable servicing fees for various
types of mortgages the IRS has established certain "safe harbors." The servicing
fees paid with respect to the Mortgage Loans for certain series of Grantor Trust
Certificates may be higher than the "safe harbors" and, accordingly, may not
constitute reasonable servicing compensation. The related Prospectus Supplement
will include information regarding servicing fees paid to a Master Servicer, a
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Special Servicer, any Sub-Servicer or their respective affiliates necessary to
determine whether the preceding "safe harbor" rules apply.
IF STRIPPED BOND RULES APPLY. If the stripped bond rules apply, each
Grantor Trust Fractional Interest Certificate will be treated as having been
issued with "original issue discount" within the meaning of Section 1273(a) of
the Code, subject, however, to the discussion below regarding the treatment of
certain stripped bonds as market discount bonds and the discussion regarding de
minimis market discount. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates--Market Discount" below. Under the stripped bond rules,
the holder of a Grantor Trust Fractional Interest Certificate (whether a cash or
accrual method taxpayer) will be required to report interest income from its
Grantor Trust Fractional Interest Certificate for each month in an amount equal
to the income that accrues on such Certificate in that month calculated under a
constant yield method, in accordance with the rules of the Code relating to
original issue discount.
The original issue discount on a Grantor Trust Fractional Interest
Certificate will be the excess of such Certificate's stated redemption price
over its issue price. The issue price of a Grantor Trust Fractional Interest
Certificate as to any purchaser will be equal to the price paid by such
purchaser of the Grantor Trust Fractional Interest Certificate. The stated
redemption price of a Grantor Trust Fractional Interest Certificate will be the
sum of all payments to be made on such Certificate, other than "qualified stated
interest", if any, as well as such Certificate's share of reasonable servicing
fees and other expenses. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates--If Stripped Bond Rules Do Not Apply" for a definition of
"qualified stated interest". In general, the amount of such income that accrues
in any month would equal the product of such holder's adjusted basis in such
Grantor Trust Fractional Interest Certificate at the beginning of such month
(see "--Sales of Grantor Trust Certificates" below) and the yield of such
Grantor Trust Fractional Interest Certificate to such holder. Such yield would
be computed as the rate (compounded based on the regular interval between
payment dates) that, if used to discount the holder's share of future payments
on the Mortgage Loans, would cause the present value of those future payments to
equal the price at which the holder purchased such Certificate. In computing
yield under the stripped bond rules, a Certificateholder's share of future
payments on the Mortgage Loans will not include any payments made in respect of
any ownership interest in the Mortgage Loans retained by the Depositor, a Master
Servicer, a Special Servicer, any Sub-Servicer or their respective affiliates,
but will include such Certificateholder's share of any reasonable servicing fees
and other expenses.
Section 1272(a)(6) of the Code requires (i) the use of a reasonable
prepayment assumption in accruing original issue discount and (ii) adjustments
in the accrual of original issue discount when prepayments do not conform to the
prepayment assumption, with respect to certain categories of debt instruments,
and regulations could be adopted applying those provisions to the Grantor Trust
Fractional Interest Certificates. It is unclear whether those provisions would
be applicable to the Grantor Trust Fractional Interest Certificates or whether
use of a reasonable prepayment assumption may be required or permitted without
reliance on these rules. It is also uncertain, if a prepayment assumption is
used, whether the assumed prepayment rate would be determined based on
conditions at the time of the first sale of the Grantor Trust Fractional
Interest Certificate or, with respect to any holder, at the time of purchase of
the Grantor Trust Fractional Interest Certificate by that holder.
Certificateholders are advised to consult their tax advisors concerning
reporting original issue discount in general and, in particular, whether a
prepayment assumption should be used in reporting original issue discount with
respect to Grantor Trust Fractional Interest Certificates.
In the case of a Grantor Trust Fractional Interest Certificate acquired
at a price equal to the principal amount of the Mortgage Loans allocable to such
Certificate, the use of a prepayment assumption generally would not have any
significant effect on the yield used in calculating accruals of interest income.
In the case, however, of a Grantor Trust Fractional Interest Certificate
acquired at a discount or premium (that is, at a price less than or greater than
such principal amount, respectively), the use of
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a reasonable prepayment assumption would increase or decrease such yield, and
thus accelerate or decelerate, respectively, the reporting of income.
If a prepayment assumption is not used, then when a Mortgage Loan
prepays in full, the holder of a Grantor Trust Fractional Interest Certificate
acquired at a discount or a premium generally will recognize ordinary income or
loss equal to the difference between the portion of the prepaid principal amount
of the Mortgage Loan that is allocable to such Certificate and the portion of
the adjusted basis of such Certificate that is allocable to such
Certificateholder's interest in the Mortgage Loan. If a prepayment assumption is
used, it appears that no separate item of income or loss should be recognized
upon a prepayment. Instead, a prepayment should be treated as a partial payment
of the stated redemption price of the Grantor Trust Fractional Interest
Certificate and accounted for under a method similar to that described for
taking account of original issue discount on REMIC Regular Certificates. See
"--REMICs--Taxation of Owners of REMIC Regular Certificates--Original Issue
Discount". It is unclear whether any other adjustments would be required to
reflect differences between an assumed prepayment rate and the actual rate of
prepayments.
In the absence of statutory or administrative clarification, it is
currently intended to base information reports or returns to the IRS and
Certificateholders in transactions subject to the stripped bond rules on a
prepayment assumption that will be disclosed in the related Prospectus
Supplement and on a constant yield computed using a representative initial
offering price for each class of Certificates. However, neither the Depositor
nor any other person will make any representation that the Mortgage Loans will
in fact prepay at a rate conforming to such prepayment assumption or any other
rate and Certificateholders should bear in mind that the use of a representative
initial offering price will mean that such information returns or reports, even
if otherwise accepted as accurate by the IRS, will in any event be accurate only
as to the initial Certificateholders of each series who bought at that price.
Under Treasury regulation Section 1.1286-1T, certain stripped bonds are
to be treated as market discount bonds and, accordingly, any purchaser of such a
bond is to account for any discount on the bond as market discount rather than
original issue discount. This treatment only applies, however, if immediately
after the most recent disposition of the bond by a person stripping one or more
coupons from the bond and disposing of the bond or coupon (i) there is no
original issue discount (or only a de minimis amount of original issue discount)
or (ii) the annual stated rate of interest payable on the original bond is no
more than one percentage point lower than the gross interest rate payable on the
original mortgage loan (before subtracting any servicing fee or any stripped
coupon). If interest payable on a Grantor Trust Fractional Interest Certificate
is more than one percentage point lower than the gross interest rate payable on
the Mortgage Loans, the related Prospectus Supplement will disclose that fact.
If the original issue discount or market discount on a Grantor Trust Fractional
Interest Certificate determined under the stripped bond rules is less than 0.25%
of the stated redemption price multiplied by the weighted average maturity of
the Mortgage Loans, then such original issue discount or market discount will be
considered to be de minimis. Original issue discount or market discount of only
a de minimis amount will be included in income in the same manner as de minimis
original issue and market discount described in "--Taxation of Owners of Grantor
Trust Fractional Interest Certificates--If Stripped Bond Rules Do Not Apply" and
"--Market Discount" below.
IF STRIPPED BOND RULES DO NOT APPLY. Subject to the discussion below on
original issue discount, if the stripped bond rules do not apply to a Grantor
Trust Fractional Interest Certificate, the Certificateholder will be required to
report its share of the interest income on the Mortgage Loans in accordance with
such Certificateholder's normal method of accounting. The original issue
discount rules will apply, even if the stripped bond rules do not apply, to a
Grantor Trust Fractional Interest Certificate to the extent it evidences an
interest in Mortgage Loans issued with original issue discount.
The original issue discount, if any, on the Mortgage Loans will equal
the difference between the stated redemption price of such Mortgage Loans and
their issue price. For a definition of "stated
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redemption price," see "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" above. In general, the issue price of a
Mortgage Loan will be the amount received by the borrower from the lender under
the terms of the Mortgage Loan, less any "points" paid by the borrower, and the
stated redemption price of a Mortgage Loan will equal its principal amount,
unless the Mortgage Loan provides for an initial "teaser," or below-market
interest rate. The determination as to whether original issue discount will be
considered to be de minimis will be calculated using the same test as in the
REMIC discussion. See "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" above.
In the case of Mortgage Loans bearing adjustable or variable interest
rates, the related Prospectus Supplement will describe the manner in which such
rules will be applied with respect to those Mortgage Loans by the Trustee or
Master Servicer, as applicable, in preparing information returns to the
Certificateholders and the IRS.
If original issue discount is in excess of a de minimis amount, all
original issue discount with respect to a Mortgage Loan will be required to be
accrued and reported in income each month, based on a constant yield. The OID
Regulations suggest that no prepayment assumption is appropriate in computing
the yield on prepayable obligations issued with original issue discount. In the
absence of statutory or administrative clarification, it currently is not
intended to base information reports or returns to the IRS and
Certificateholders on the use of a prepayment assumption in transactions not
subject to the stripped bond rules. However, Section 1272(a)(6) of the Code may
require that a prepayment assumption be made in computing yield with respect to
all mortgage-backed securities. Certificateholders are advised to consult their
own tax advisors concerning whether a prepayment assumption should be used in
reporting original issue discount with respect to Grantor Trust Fractional
Interest Certificates. Certificateholders should refer to the related Prospectus
Supplement with respect to each series to determine whether and in what manner
the original issue discount rules will apply to Mortgage Loans in such series.
A purchaser of a Grantor Trust Fractional Interest Certificate that
purchases such Grantor Trust Fractional Interest Certificate at a cost less than
such Certificate's allocable portion of the aggregate remaining stated
redemption price of the Mortgage Loans held in the related Trust Fund will also
be required to include in gross income such Certificate's daily portions of any
original issue discount with respect to such Mortgage Loans. However, each such
daily portion will be reduced, if the cost of such Grantor Trust Fractional
Interest Certificate to such purchaser is in excess of such Certificate's
allocable portion of the aggregate "adjusted issue prices" of the Mortgage Loans
held in the related Trust Fund, approximately in proportion to the ratio such
excess bears to such Certificate's allocable portion of the aggregate original
issue discount remaining to be accrued on such Mortgage Loans. The adjusted
issue price of a Mortgage Loan on any given day equals the sum of (i) the
adjusted issue price (or, in the case of the first accrual period, the issue
price) of such Mortgage Loan at the beginning of the accrual period that
includes such day and (ii) the daily portions of original issue discount for all
days during such accrual period prior to such day. The adjusted issue price of a
Mortgage Loan at the beginning of any accrual period will equal the issue price
of such Mortgage Loan, increased by the aggregate amount of original issue
discount with respect to such Mortgage Loan that accrued in prior accrual
periods, and reduced by the amount of any payments made on such Mortgage Loan in
prior accrual periods of amounts included in its stated redemption price.
Unless otherwise provided in the related Prospectus Supplement, the
Trustee or Master Servicer, as applicable, will provide to any holder of a
Grantor Trust Fractional Interest Certificate such information as such holder
may reasonably request from time to time with respect to original issue discount
accruing on Grantor Trust Fractional Interest Certificates. See "--Grantor Trust
Reporting" below.
MARKET DISCOUNT. If the stripped bond rules do not apply to a Grantor
Trust Fractional Interest Certificate, a Certificateholder may be subject to the
market discount rules of Sections 1276 through 1278
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of the Code to the extent an interest in a Mortgage Loan is considered to have
been purchased at a "market discount", that is, in the case of a Mortgage Loan
issued without original issue discount, at a purchase price less than its
remaining stated redemption price (as defined above), or in the case of a
Mortgage Loan issued with original issue discount, at a purchase price less than
its adjusted issue price (as defined above). If market discount is in excess of
a de minimis amount (as described below), the holder generally will be required
to include in income in each month the amount of such discount that has accrued
(under the rules described in the next paragraph) through such month that has
not previously been included in income, but limited, in the case of the portion
of such discount that is allocable to any Mortgage Loan, to the payment of
stated redemption price on such Mortgage Loan that is received by (or, in the
case of accrual basis Certificateholders, due to) the Trust Fund in that month.
A Certificateholder may elect to include market discount in income currently as
it accrues (under a constant yield method based on the yield of the Certificate
to such holder) rather than including it on a deferred basis in accordance with
the foregoing under rules similar to those described in "--Taxation of Owners of
REMIC Regular Interests--Market Discount" above.
Section 1276(b)(3) of the Code authorized the Treasury Department to
issue regulations providing for the method for accruing market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. Under those rules, in each
accrual period market discount on the Mortgage Loans should accrue, at the
holder's option: (i) on the basis of a constant yield method, (ii) in the case
of a Mortgage Loan issued without original issue discount, in an amount that
bears the same ratio to the total remaining market discount as the stated
interest paid in the accrual period bears to the total stated interest remaining
to be paid on the Mortgage Loan as of the beginning of the accrual period, or
(iii) in the case of a Mortgage Loan issued with original issue discount, in an
amount that bears the same ratio to the total remaining market discount as the
original issue discount accrued in the accrual period bears to the total
original issue discount remaining at the beginning of the accrual period. The
prepayment assumption, if any, used in calculating the accrual of original issue
discount is to be used in calculating the accrual of market discount. The effect
of using a prepayment assumption could be to accelerate the reporting of such
discount income. Because the regulations referred to in this paragraph have not
been issued, it is not possible to predict what effect such regulations might
have on the tax treatment of a Mortgage Loan purchased at a discount in the
secondary market.
Because the Mortgage Loans will provide for periodic payments of stated
redemption price, 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 would
be included in income if it were original issue discount.
Market discount with respect to Mortgage Loans may be considered to be
de minimis and, if so, will be includible in income under de minimis rules
similar to those described in "--REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" above within the exception that it is
less like that a prepayment assumption will be used for purposes of such rules
with respect to the Mortgage Loans.
Further, under the rules described in "--REMICs--Taxation of Owners of
REMIC Regular Certificates--Market Discount", any discount that is not original
issue discount and exceeds a de minimis amount may require the deferral of
interest expense deductions attributable to accrued market discount not yet
includible in income, unless an election has been made to report market discount
currently as it accrues.
PREMIUM. If a Certificateholder is treated as acquiring the underlying
Mortgage Loans at a premium, that is, at a price in excess of their remaining
stated redemption price, such Certificateholder may elect under Section 171 of
the Code to amortize using a constant yield method the portion of such premium
allocable to Mortgage Loans originated after September 27, 1985. Amortizable
premium is treated as an offset to interest income on the related debt
instrument, rather than as a separate interest
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deduction. However, premium allocable to Mortgage Loans originated before
September 28, 1985 or to Mortgage Loans for which an amortization election is
not made, should be allocated among the payments of stated redemption price on
the Mortgage Loan and be allowed as a deduction as such payments are made (or,
for a Certificateholder using the accrual method of accounting, when such
payments of stated redemption price are due).
It is unclear whether a prepayment assumption should be used in
computing amortization of premium allowable under Section 171 of the Code. If
premium is not subject to amortization using a prepayment assumption and a
Mortgage Loan prepays in full, the holder of a Grantor Trust Fractional Interest
Certificate acquired at a premium should recognize a loss equal to the
difference between the portion of the prepaid principal amount of the Mortgage
Loan that is allocable to the Certificate and the portion of the adjusted basis
of the Certificate that is allocable to the Mortgage Loan. If a prepayment
assumption is used to amortize such premium, it appears that such a loss would
be unavailable. Instead, if a prepayment assumption is used, a prepayment should
be treated as a partial payment of the stated redemption price of the Grantor
Trust Fractional Interest Certificate and accounted for under a method similar
to that described for taking account of original issue discount on REMIC Regular
Certificates. See "--REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount". It is unclear whether any other
adjustments would be required to reflect differences between the prepayment
assumption and the actual rate of prepayments.
TAXATION OF OWNERS OF GRANTOR TRUST STRIP CERTIFICATES. The "stripped
coupon" rules of Section 1286 of the Code will apply to the Grantor Trust Strip
Certificates. Except as described above in "--Taxation of Owners of Grantor
Trust Fractional Interest Certificates--If Stripped Bond Rules Apply", no
regulations or published rulings under Section 1286 of the Code have been issued
and some uncertainty exists as to how it will be applied to securities such as
the Grantor Trust Strip Certificates. Accordingly, holders of Grantor Trust
Strip Certificates should consult their tax advisors concerning the method to be
used in reporting income or loss with respect to such Certificates.
The OID Regulations do not apply to "stripped coupons", although they
provide general guidance as to how the original issue discount sections of the
Code will be applied. In addition, the discussion below is subject to the
discussion under "--Possible Application of Proposed Contingent Payment Rules"
below and assumes that the holder of a Grantor Trust Strip Certificate will not
own any Grantor Trust Fractional Interest Certificates.
Under the stripped coupon rules, it appears that original issue
discount will be required to be accrued in each month on the Grantor Trust Strip
Certificates based on a constant yield method. In effect, each holder of Grantor
Trust Strip Certificates would include as interest income in each month an
amount equal to the product of such holder's adjusted basis in such Grantor
Trust Strip Certificate at the beginning of such month and the yield of such
Grantor Trust Strip Certificate to such holder. Such yield would be calculated
based on the price paid for that Grantor Trust Strip Certificate by its holder
and the payments remaining to be made thereon at the time of the purchase, plus
an allocable portion of the servicing fees and expenses to be paid with respect
to the Mortgage Loans. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates--If Stripped Bond Rules Apply" above.
As noted above, Section 1272(a)(6) of the Code requires that a
prepayment assumption be used in computing the accrual of original issue
discount with respect to certain categories of debt instruments, and that
adjustments be made in the amount and rate of accrual of such discount when
prepayments do not conform to such prepayment assumption. Regulations could be
adopted applying those provisions to the Grantor Trust Strip Certificates. It is
unclear whether those provisions would be applicable to the Grantor Trust Strip
Certificates or whether use of a prepayment assumption may be required or
permitted in the absence of such regulations. It is also uncertain, if a
prepayment assumption is used, whether the assumed prepayment rate would be
determined based on conditions at the time of the first sale of the
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Grantor Trust Strip Certificate or, with respect to any subsequent holder, at
the time of purchase of the Grantor Trust Strip Certificate by that holder.
The accrual of income on the Grantor Trust Strip Certificates will be
significantly slower if a prepayment assumption is permitted to be made than if
yield is computed assuming no prepayments. In the absence of statutory or
administrative clarification, it currently is intended to base information
returns or reports to the IRS and Certificateholders on the Prepayment
Assumption disclosed in the related Prospectus Supplement and on a constant
yield computed using a representative initial offering price for each class of
Certificates. However, neither the Depositor nor any other person will make any
representation that the Mortgage Loans will in fact prepay at a rate conforming
to the Prepayment Assumption or at any other rate and Certificateholders should
bear in mind that the use of a representative initial offering price will mean
that such information returns or reports, even if otherwise accepted as accurate
by the IRS, will in any event be accurate only as to the initial
Certificateholders of each series who bought at that price. Prospective
purchasers of the Grantor Trust Strip Certificates should consult their tax
advisors regarding the use of the Prepayment Assumption.
It is unclear under what circumstances, if any, the prepayment of a
Mortgage Loan will give rise to a loss to the holder of a Grantor Trust Strip
Certificate. If a Grantor Trust Strip Certificate is treated as a single
instrument (rather than an interest in discrete mortgage loans) and the effect
of prepayments is taken into account in computing yield with respect to such
Grantor Trust Strip Certificate, it appears that no loss may be available as a
result of any particular prepayment unless prepayments occur at a rate faster
than the Prepayment Assumption. However, if a Grantor Trust Strip Certificate is
treated as an interest in discrete Mortgage Loans, or if the Prepayment
Assumption is not used, then when a Mortgage Loan is prepaid, the holder of a
Grantor Trust Strip Certificate should be able to recognize a loss equal to the
portion of the adjusted issue price of the Grantor Trust Strip Certificate that
is allocable to such Mortgage Loan.
POSSIBLE APPLICATION OF PROPOSED CONTINGENT PAYMENT RULES. The coupon
stripping rules' general treatment of stripped coupons is to regard them as
newly issued debt instruments in the hands of each purchaser. To the extent that
payments on the Grantor Trust Strip Certificates would cease if the Mortgage
Loans were prepaid in full, the Grantor Trust Strip Certificates could be
considered to be debt instruments providing for contingent payments. Under the
OID Regulations, debt instruments providing for contingent payments are not
subject to the same rules as debt instruments providing for noncontingent
payments, but no final regulations have been promulgated with respect to
contingent payment debt instruments. Proposed regulations were promulgated on
December 16, 1994 regarding contingent payment debt instruments, but it appears
that the Grantor Trust Strip Certificates, due to their similarity to other
mortgage-backed securities (such as REMIC regular interests) that are expressly
exempted from the application of such proposed regulations, may be excepted from
such proposed regulations. Like the OID Regulations, such proposed regulations
do not specifically address securities, such as the Grantor Trust Strip
Certificates, that are subject to the stripped bond rules of Section 1286 of the
Code.
If the contingent payment rules under the proposed regulations were to
apply, the holder of a Grantor Trust Strip Certificate would be required to
apply the "noncontingent bond method." Under the "noncontingent bond method,"
the issuer of a Grantor Trust Strip Certificate determines a projected payment
schedule on which interest will accrue. Holders of Grantor Trust Strip
Certificates are bound by the issuer's projected payment schedule. The projected
payment schedule consists of all noncontingent payments and a projected amount
for each contingent payment based on the projected yield (as described below) of
the Grantor Trust Strip Certificate. The projected amount of each payment is
determined so that the projected payment schedule reflects the projected yield.
The projected amount of each payment must reasonably reflect the relative
expected values of the payments to be received by the holders of a Grantor Trust
Strip Certificate. The projected yield referred to above is a reasonable rate,
not less than the "applicable Federal rate" that, as of the issue date, reflects
general market conditions, the credit quality of the issuer, and the terms and
conditions of the Mortgage Loans. The holder of a Grantor Trust
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Strip Certificate would be required to include as interest income in each month
the adjusted issue price of the Grantor Trust Strip Certificate at the beginning
of the period multiplied by the projected yield.
Assuming that a prepayment assumption were used, if the proposed
regulations or their principles were applied to Grantor Trust Strip
Certificates, the amount of income reported with respect thereto would be
substantially similar to that described under "Taxation of Owners of Grantor
Trust Strip Certificates."
Certificateholders should consult their tax advisors concerning the
possible application of the contingent payment rules to the Grantor Trust Strip
Certificates.
SALES OF GRANTOR TRUST CERTIFICATES. Any gain or loss, equal to the
difference between the amount realized on the sale or exchange of a Grantor
Trust Certificate and its adjusted basis, recognized on such sale or exchange of
a Grantor Trust Certificate by an investor who holds such Grantor Trust
Certificate as a capital asset, will be capital gain or loss, except to the
extent of accrued and unrecognized market discount, which will be treated as
ordinary income, and (in the case of banks and other financial institutions)
except as provided under Section 582(c) of the Code. The adjusted basis of a
Grantor Trust Certificate generally will equal its cost, increased by any income
reported by the seller (including original issue discount and market discount
income) and reduced (but not below zero) by any previously reported losses, any
amortized premium and by any distributions with respect to such Grantor Trust
Certificate. The Code as of the date of this Prospectus provides a top marginal
tax rate of 39.6% for individuals and a maximum marginal rate for long-term
capital gains of individuals of 28%. No such rate differential exists for
corporations. In addition, the distinction between a capital gain or loss and
ordinary income or loss remains relevant for other purposes.
Gain or loss from the sale of a Grantor Trust Certificate may be
partially or wholly ordinary and not capital in certain circumstances. Gain
attributable to accrued and unrecognized market discount will be treated as
ordinary income, as will gain or loss recognized by banks and other financial
institutions subject to Section 582(c) of the Code. Furthermore, a portion of
any gain that might otherwise be capital gain may be treated as ordinary income
to the extent that the Grantor Trust Certificate is held as part of a
"conversion transaction" within the meaning of Section 1258 of the Code. A
conversion transaction generally is one in which the taxpayer has taken two or
more positions in the same or similar property that reduce or eliminate market
risk, if substantially all of the taxpayer's return is attributable to the time
value of the taxpayer's net investment in such transaction. The amount of gain
realized in a conversion transaction that is recharacterized as ordinary income
generally will not exceed the amount of interest that would have accrued on the
taxpayer's net investment at 120% of the appropriate "applicable Federal rate"
(which rate is computed and published monthly by the IRS) at the time the
taxpayer enters into the conversion transaction, subject to appropriate
reduction for prior inclusion of interest and other ordinary income items from
the transaction.
Finally, a taxpayer may elect to have net capital gain taxed at
ordinary income rates rather than capital gains rates in order to include such
net capital gain in total net investment income for that taxable year, for
purposes of the rule that limits the deduction of interest on indebtedness
incurred to purchase or carry property held for investment to a taxpayer's net
investment income.
GRANTOR TRUST REPORTING. Unless otherwise provided in the related
Prospectus Supplement, the Trustee or Master Servicer, as applicable, will
furnish to each holder of a Grantor Trust Certificate with each distribution a
statement setting forth the amount of such distribution allocable to principal
on the underlying Mortgage Loans and to interest thereon at the related
Pass-Through Rate. In addition, the Trustee or Master Servicer, as applicable,
will furnish, within a reasonable time after the end of each calendar year, to
each holder of a Grantor Trust Certificate who was such a holder at any time
during such year, information regarding the amount of servicing compensation
received by the Master Servicer, the Special Servicer or any Sub-Servicer, and
such other customary factual information as the Depositor
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or the reporting party deems necessary or desirable to enable holders of Grantor
Trust Certificates to prepare their tax returns and will furnish comparable
information to the IRS as and when required by law to do so. Because the rules
for accruing discount and amortizing premium with respect to the Grantor Trust
Certificates are uncertain in various respects, there is no assurance the IRS
will agree with the Trustee's or Master Servicer's, as the case may be,
information reports of such items of income and expense. Moreover, such
information reports, even if otherwise accepted as accurate by the IRS, will in
any event be accurate only as to the initial Certificateholders that bought
their Certificates at the representative initial offering price used in
preparing such reports.
BACKUP WITHHOLDING. In general, the rules described in
"--REMICs--Backup Withholding with Respect to REMIC Certificates" will also
apply to Grantor Trust Certificates.
FOREIGN INVESTORS. In general, the discussion with respect to REMIC
Regular Certificates in "--REMICs--Foreign Investors in REMIC Certificates"
applies to Grantor Trust Certificates except that Grantor Trust Certificates
will, unless otherwise disclosed in the related Prospectus Supplement, be
eligible for exemption from U.S. withholding tax, subject to the conditions
described in such discussion, only to the extent the related Mortgage Loans were
originated after July 18, 1984.
To the extent that interest on a Grantor Trust Certificate would be
exempt under Sections 871(h)(1) and 881(c) of the Code from United States
withholding tax, and the Grantor Trust Certificate is not held in connection
with a Certificateholder's trade or business in the United States, such Grantor
Trust Certificate will not be subject to United States estate taxes in the
estate of a non-resident alien individual.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in
"Certain Federal Income Tax Consequences," potential investors should consider
the state and local tax consequences of the acquisition, ownership, and
disposition of the Offered Certificates. State tax law may differ substantially
from the corresponding federal law, and the discussion above does not purport to
describe any aspect of the income tax laws of any state or other jurisdiction.
Therefore, potential investors should consult their tax advisors with respect to
the various tax consequences of investments in the Offered Certificates.
ERISA CONSIDERATIONS
GENERAL
ERISA and the Code impose certain 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 (and as applicable, insurance company
general accounts) in which such plans, accounts or arrangements are invested
that are subject to the fiduciary responsibility provisions of ERISA and Section
4975 of the Code ("PLANS") and on persons who are fiduciaries with respect to
such Plans in connection with the investment of Plan assets. Certain employee
benefit plans, such as governmental plans (as defined in ERISA Section 3(32)),
and, if no election has been made under Section 410(d) of the Code, church plans
(as defined in Section 3(33) of ERISA) are not subject to ERISA requirements.
Accordingly, assets of such plans may be invested in Offered Certificates
without regard to the ERISA considerations described below, subject to the
provisions of other applicable federal and state law. Any such plan which is
qualified and exempt from taxation under Sections 401(a) and 501(a) of the Code,
however, is subject to the prohibited transaction rules set forth in Section 503
of the Code.
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ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan. In addition, Section 406 of ERISA and Section 4975 of the
Code prohibit a broad range of transactions involving assets of a Plan and
persons ("PARTIES IN INTEREST") who have certain specified relationships to the
Plan unless a statutory or administrative exemption is available. Unless an
exemption is available, a Plan's purchase or holding of a Certificate may
constitute a prohibited transaction if any of the Depositor, the Trustee, the
Master Servicer, the Manager, the Special Servicer or a Sub-Servicer is a Party
in Interest with respect to that Plan. Certain Parties in Interest that
participate in a prohibited transaction may be subject to an excise tax imposed
pursuant to Section 4975 of the Code or a penalty imposed pursuant to Section
502(i) of ERISA, unless a statutory or administrative exemption is available.
These prohibited transactions generally are set forth in Section 406 of ERISA
and Section 4975 of the Code.
PLAN ASSET REGULATIONS
A Plan's investment in Offered Certificates may cause the underlying
Mortgage Loans, MBS and other assets included in a related Trust Fund to be
deemed assets of such Plan. A regulation of the United States Department of
Labor ("DOL") at 29 C.F.R. Section 2510.3-101 provides that when a Plan acquires
an equity interest in an entity, the Plan's assets include both such equity
interest and an undivided interest in each of the underlying assets of the
entity, unless certain exceptions not applicable here apply, or unless the
equity participation in the entity by "benefit plan investors" (i.e., Plans and
certain employee benefit plans not subject to ERISA) is not "significant", both
as defined therein. Equity participation in a Trust Fund will be significant on
any date if immediately after the most recent acquisition of any Certificate,
25% or more of any class of Certificates is held by benefit plan investors.
Any person who has discretionary authority or control respecting the
management or disposition of Plan assets, and any person who provides investment
advice with respect to such assets for a fee, is a fiduciary of the investing
Plan. If the Mortgage Loans, MBS and other assets included in a Trust Fund
constitute Plan assets, then any party exercising management or discretionary
control regarding those assets, such as the Master Servicer, any Special
Servicer, any Sub-Servicer, any Manager, the Trustee, the obligor under any
credit enhancement mechanism, or certain affiliates thereof may be deemed to be
a Plan "fiduciary" and thus subject to the fiduciary responsibility provisions
and prohibited transaction provisions of ERISA and the Code with respect to the
investing Plan. In addition, if the Mortgage Loans, MBS and other assets
included in a Trust Fund constitute Plan assets, the purchase of Certificates by
a Plan, as well as the operation of the Trust Fund, may constitute or involve a
prohibited transaction under ERISA or the Code.
PROHIBITED TRANSACTION EXEMPTION
On March 29, 1994, the DOL issued (with an effective date of June 9,
1992) an individual exemption (the "EXEMPTION"), to certain of the Depositor's
affiliates, which generally exempts from the application of the prohibited
transaction provisions of Section 406 of ERISA, and the excise taxes imposed on
such prohibited transactions pursuant to Section 4975(a) and (b) of the Code,
certain transactions, among others, relating to the servicing and operation of
mortgage pools and the purchase, sale and holding of mortgage pass-through
certificates in a trust as to which (i) the Depositor is the sponsor if any
entity which has received from the DOL an individual prohibited transaction
exemption which is similar to the Exemption is the sole underwriter, or manager
or co-manager of the underwriting syndicate or a seller or placement agent, or
(ii) the Depositor or an affiliate is the Underwriter (as hereinafter defined),
provided that certain conditions set forth in the Exemption are satisfied. For
purposes of this Section "ERISA Considerations," the term "UNDERWRITER" shall
include (a) the Depositor and certain of its affiliates, (b) any person directly
or indirectly, through one or more intermediaries, controlling, controlled by or
under common control with the Depositor and certain of its affiliates, (c) any
member of the underwriting syndicate or selling group of which a person
described in (a) or (b) is a
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manager or co-manager with respect to a class of Certificates, or (d) any entity
which has received an exemption from the DOL relating to Certificates which is
similar to the Exemption.
The Exemption sets forth six general conditions which must be satisfied
for a transaction involving the purchase, sale and holding of Offered
Certificates to be eligible for exemptive relief thereunder. First, the
acquisition of Offered Certificates by a Plan must be on terms that are at least
as favorable to the Plan as they would be in an arm's-length transaction with an
unrelated party. Second, the Exemption only applies to Offered Certificates
evidencing rights and interests that are not subordinated to the rights and
interests evidenced by the other Certificates of the same trust. Third, the
Offered Certificates at the time of acquisition by a Plan must be rated in one
of the three highest generic rating categories by Standard & Poor's Ratings
Services, Moody's Investors Service, Inc., Duff & Phelps, Inc. or Fitch
Investors Service, L.P. Fourth, the Trustee cannot be an affiliate of any member
of the "RESTRICTED GROUP" which consists of any Underwriter, the Depositor, the
Master Servicer, any Special Servicer, any Sub-Servicer, any obligor under any
credit enhancement mechanism, any Manager and any mortgagor with respect to
Trust Assets constituting more than 5% of the aggregate unamortized principal
balance of the Trust Assets in the related Trust Fund as of the date of initial
issuance of the Certificates. Fifth, the sum of all payments made to and
retained by the Underwriters must represent not more than reasonable
compensation for underwriting the Certificates; the sum of all payments made to
and retained by the Depositor pursuant to the assignment of the Trust Assets to
the related Trust Fund must represent not more than the fair market value of
such obligations, and the sum of all payments made to and retained by the Master
Servicer, any Special Servicer, any Sub-Servicer and any Manager must represent
not more than reasonable compensation for such person's services under the
related Pooling and Servicing Agreement and reimbursement of such person's
reasonable expenses in connection therewith. Sixth, the Exemption states that
the investing Plan must be 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, as amended.
The Exemption also requires that each Trust Fund meet the following
requirements: (i) the Trust Fund must consist solely of assets of the type that
have been included in other investment pools; (ii) certificates in such other
investment pools must have been rated in one of the three highest categories of
one of the rating agencies specified above for at least one year prior to the
Plan's acquisition of Certificates; and (iii) certificates in such other
investment pools must have been purchased by investors other than Plans for at
least one year prior to any Plan's acquisition of Certificates.
It is not clear whether certain Certificates that may be offered
hereunder would constitute "certificates" for purposes of the Exemption,
including but not limited to, (i) Certificates evidencing an interest in
certificates insured or guaranteed by FAMC, (ii) Certificates evidencing an
interest in Mortgage Loans secured by liens on real estate projects under
construction, (iii) Certificates evidencing an interest in a Trust Fund
including equity participations, (iv) Certificates evidencing an interest in a
Trust Fund including Cash Flow Agreements, or (v) subordinated Classes of
Certificates. In promulgating the Exemption, the DOL did not have under
consideration interests in pools of the exact nature described in this paragraph
and accordingly, unless otherwise provided in the related Prospectus Supplement,
Plans should not purchase Certificates representing interests as described in
the immediately preceding sentence based solely upon the Exemption.
A fiduciary of a Plan contemplating purchasing an Offered Certificate
must make its own determination that the general conditions set forth above will
be satisfied with respect to such Certificate.
If the general conditions of the Exemption are satisfied, the Exemption
may provide an exemption from the restrictions imposed by Sections 406(a) and
407 of ERISA (as well as the excise taxes imposed by Sections 4975(a) and (b) of
the Code by reason of Sections 4975(c)(1)(A) through (D) of the Code) in
connection with the direct or indirect sale, exchange, transfer, holding or the
direct or indirect acquisition or disposition in the secondary market of Offered
Certificates by a Plan. However, no
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exemption is provided from the restrictions of Sections 406(a)(1)(E) and
406(a)(2) of ERISA for the acquisition or holding of an Offered Certificate on
behalf of an "EXCLUDED PLAN" by any person who has discretionary authority or
renders investment advice with respect to assets of such Excluded Plan. For
purposes of the Certificates, an Excluded Plan is a Plan sponsored by any member
of the Restricted Group.
If certain specific conditions of the Exemption are also satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(b)(1) and (b)(2) of ERISA and the taxes imposed by Section 4975(c)(1)(E) of
the Code in connection with (1) the direct or indirect sale, exchange or
transfer of Certificates in the initial issuance of Certificates between the
Depositor or an Underwriter and a Plan when the person who has discretionary
authority or renders investment advice with respect to the investment of the
relevant Plan Assets in the Certificates is (a) a mortgagor with respect to 5%
or less of the fair market value of the Trust Assets or (b) an affiliate of such
a person, (2) the direct or indirect acquisition or disposition in the secondary
market of Certificates by a Plan and (3) the holding of Certificates by a Plan.
Further, if certain specific conditions of the Exemption are satisfied,
the Exemption may provide an exemption from the restrictions imposed by Sections
406(a), 406(b) and 407 of ERISA, and the taxes imposed by Sections 4975(a) and
(b) of the Code by reason of Section 4975(c) of the Code for transactions in
connection with the servicing, management and operation of the pools of Mortgage
Assets. The Depositor expects that the specific conditions of the Exemption
required for this purpose will be satisfied with respect to the Certificates so
that the Exemption would provide an exemption from the restrictions imposed by
Sections 406(a) and (b) of ERISA (as well as the excise taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section 4975(c) of the Code)
for transactions in connection with the servicing, management and operation of
the pools of Mortgage Assets, provided that the general conditions of the
Exemption are satisfied.
The Exemption also may provide an exemption from the restrictions
imposed by Sections 406(a) and 407(a) of ERISA, and the taxes imposed by Section
4975(a) and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of
the Code if such restrictions are deemed to otherwise apply merely because a
person is deemed to be a "party in interest" (within the meaning of Section
3(14) of ERISA) or a "disqualified person" (within the meaning of Section
4975(e)(2) of the Code) with respect to an investing Plan by virtue of providing
services to the Plan (or by virtue of having certain specified relationships to
such a person) solely as a result of the Plan's ownership of Certificates.
Before purchasing an Offered Certificate, a fiduciary of a Plan should
itself confirm (a) that the Certificates constitute "certificates" for purposes
of the Exemption and (b) that the specific and general conditions set forth in
the Exemption and the other requirements set forth in the Exemption would be
satisfied. In addition to making its own determination as to the availability of
the exemptive relief provided in the Exemption, the fiduciary should consider
its general fiduciary obligations under ERISA in determining whether to purchase
any Offered Certificates with assets of a Plan.
CONSULTATION WITH COUNSEL
Any Plan fiduciary which proposes to purchase Offered Certificates on
behalf of or with assets of a Plan should consult with its counsel with respect
to the potential applicability of ERISA and the Code to such investment and the
availability of the Exemption or any other prohibited transaction exemption in
connection therewith. The Prospectus Supplement with respect to a series of
Certificates may contain additional information regarding the application of the
Exemption, or any other exemption, with respect to the Certificates offered
thereby.
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TAX EXEMPT INVESTORS
A Plan 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" ("UBTI") within the meaning of Section 512 of the Code. All "excess
inclusions" of a REMIC allocated to a REMIC Residual Certificate held by a
Tax-Exempt Investor will be considered UBTI and thus will be subject to federal
income tax. See "Certain Federal Income Tax Consequences--Taxation of Owners of
REMIC Residual Certificates--Excess Inclusions."
LEGAL INVESTMENT
If so specified in the related Prospectus Supplement, the Offered
Certificates will constitute "mortgage related securities" for purposes of
SMMEA. Accordingly, investors whose investment authority is subject to legal
restrictions should consult their legal advisors to determine whether and to
what extent the Offered Certificates constitute legal investments for them.
Generally, only classes of Offered Certificates that (i) are rated in
one of the two highest rating categories by one or more Rating Agencies and (ii)
are part of a series evidencing interests in a Trust Fund consisting of loans
secured by a single parcel of real estate upon which is located a dwelling or
mixed residential and commercial structure, such as certain Multifamily Loans,
and originated by types of Originators specified in SMMEA, will be "mortgage
related securities" for purposes of SMMEA. "Mortgage related securities" are
legal investments 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 persons,
trusts, corporations, partnerships, associations, business trusts and business
entities (including depository institutions, insurance companies and pension
funds created pursuant to or existing under the laws of the United States or of
any state, the authorized investments of which are subject to state regulation).
Under SMMEA, if a state enacted legislation prior to October 3, 1991 that
specifically limits the legal investment authority of any such entities with
respect to "mortgage related securities", Offered Certificates would constitute
legal investments for entities subject to such legislation 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 such
securities, and national banks may purchase such securities for their own
account without regard to the limitations generally applicable to investment
securities set forth in 12 U.S.C. 24 (Seventh), subject in each case to such
regulations as the applicable federal regulatory authority may prescribe.
Upon the issuance of final implementing regulations under the Riegle
Community Development and Regulatory Improvement Act of 1994 and subject to any
limitations such regulations may impose, a modification of the definition of
"mortgage related securities" will become effective to expand the types of loans
to which such securities may relate to include loans secured by "one or more
parcels of real estate upon which is located one or more commercial structures".
In addition, the related legislative history states that this expanded
definition includes multifamily residential loans secured by more than one
parcel of real estate upon which is located more than one structure. Until
September 23, 2001 any state may enact legislation limiting the extent to which
"mortgage related securities" under this expanded definition would constitute
legal investments under that state's laws.
The Federal Financial Institutions Examination Council has issued a
supervisory policy statement (the "POLICY STATEMENT") applicable to all
depository institutions, setting forth guidelines for and significant
restrictions on investments in "high-risk mortgage securities". The Policy
Statement has been adopted by the Federal Reserve Board, the Office of the
Comptroller of the Currency, the FDIC and the
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OTS. The Policy Statement generally indicates that a mortgage derivative product
will be deemed to be high risk if it exhibits greater price volatility than a
standard fixed rate thirty-year mortgage security. According to the Policy
Statement, prior to purchase, a depository institution will be required to
determine whether a mortgage derivative product that it is considering acquiring
is high-risk, and if so that the proposed acquisition would reduce the
institution's overall interest rate risk. Reliance on analysis and documentation
obtained from a securities dealer or other outside party without internal
analysis by the institution would be unacceptable. There can be no assurance as
to which classes of Certificates, including Offered Certificates, will be
treated as high-risk under the Policy Statement.
The predecessor to the Office of Thrift Supervision (the "OTS") issued
a bulletin, entitled, "Mortgage Derivative Products and Mortgage Swaps", which
is applicable to thrift institutions regulated by the OTS. The bulletin
established guidelines for the investment by savings institutions in certain
"high-risk" mortgage derivative securities and limitations on the use of such
securities by insolvent, undercapitalized or otherwise "troubled" institutions.
According to the bulletin, such "high-risk" mortgage derivative securities
include securities having certain specified characteristics, which may include
certain classes of Offered Certificates. In addition, the National Credit Union
Administration has issued regulations governing federal credit union investments
which prohibit investment in certain specified types of securities, which may
include certain classes of Offered Certificates. Similar policy statements have
been issued by regulators having jurisdiction over other types of depository
institutions.
There may be other restrictions on the ability of certain investors
either to purchase certain classes of Offered Certificates or to purchase any
class of Offered Certificates representing more than a specified percentage of
the investor's assets. The Depositor will make no representations as to the
proper characterization of any class of Offered Certificates for legal
investment or other purposes, or as to the ability of particular investors to
purchase any class of Offered Certificates under applicable legal investment
restrictions. These uncertainties may adversely affect the liquidity of any
class of Offered Certificates. Accordingly, all investors whose investment
activities are subject to legal investment laws and regulations, regulatory
capital requirements or review by regulatory authorities should consult with
their legal advisors in determining whether and to what extent the Offered
Certificates of any class constitute legal investments or are subject to
investment, capital or other restrictions.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates of
any series will be applied by the Depositor to the purchase of Trust Assets or
will be used by the Depositor for general corporate purposes. The Depositor
expects to sell the Certificates from time to time, but the timing and amount of
offerings of Certificates will depend on a number of factors, including the
volume of Mortgage Assets acquired by the Depositor, prevailing interest rates,
availability of funds and general market conditions.
METHOD OF DISTRIBUTION
The Certificates offered hereby and by the related Prospectus
Supplements will be offered in series through one or more of the methods
described below. The Prospectus Supplement prepared for each series will
describe the method of offering being utilized for that series and will state
the net proceeds to the Depositor from such sale.
The Depositor intends that Offered Certificates will be offered through
the following methods from time to time and that offerings may be made
concurrently through more than one of these methods or that an offering of the
Offered Certificates of a particular series may be made through a combination of
two or more of these methods. Such methods are as follows:
1. By negotiated firm commitment or best efforts underwriting
and public re-offering by underwriters;
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2. By placements by the Depositor with institutional investors
through dealers; and
3. By direct placements by the Depositor with institutional
investors.
In addition, if specified in the related Prospectus Supplement, the
Offered Certificates of a series may be offered in whole or in part to the
seller of the related Mortgage Assets that would comprise the Trust Fund for
such Certificates.
If underwriters are used in a sale of any Offered Certificates (other
than in connection with an underwriting on a best efforts basis), 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. Such
underwriters may be broker-dealers affiliated with the Depositor whose
identities and relationships to the Depositor will be as set forth in the
related Prospectus Supplement. The managing underwriter or underwriters with
respect to the offer and sale of Offered Certificates of a particular series
will be set forth on the cover of the Prospectus Supplement relating to such
series and the members of the underwriting syndicate, if any, will be named in
such Prospectus Supplement.
In connection with the sale of Offered Certificates, underwriters may
receive compensation from the Depositor or from purchasers of the Offered
Certificates in the form of discounts, concessions or commissions. Underwriters
and dealers participating in the distribution of the Offered Certificates may be
deemed to be underwriters in connection with such Certificates, and any
discounts or commissions received by them from the Depositor and any profit on
the resale of Offered Certificates by them may be deemed to be underwriting
discounts and commissions under the Securities Act of 1933, as amended.
It is anticipated that the underwriting agreement pertaining to the
sale of the Offered Certificates of any series 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 (other than in connection with an underwriting on a best efforts
basis) and that, in limited circumstances, the Depositor will indemnify the
several underwriters and the underwriters will indemnify the Depositor against
certain civil liabilities, including liabilities under the Securities Act of
1933, as amended, or will contribute to payments required to be made in respect
thereof.
The Prospectus Supplement with respect to any series offered by
placements through dealers will contain information regarding the nature of such
offering and any agreements to be entered into between the Depositor and
purchasers of Offered Certificates of such series.
The Depositor anticipates that the Certificates offered hereby will be
sold primarily to institutional investors. Purchasers of Offered Certificates,
including dealers, may, depending on the facts and circumstances of such
purchases, be deemed to be "underwriters" within the meaning of the Securities
Act of 1933, as amended, in connection with reoffers and sales by them of
Offered Certificates. Holders of Offered Certificates should consult with their
legal advisors in this regard prior to any such reoffer or sale.
LEGAL MATTERS
Unless otherwise specified in the related Prospectus Supplement,
certain legal matters in connection with the Certificates of each series,
including certain federal income tax consequences, will be passed upon for the
Depositor by Mayer, Brown & Platt, Chicago, Illinois or Thacher Proffitt & Wood,
New York, New York.
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FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each series of
Certificates, and no Trust Fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related series of
Certificates. Accordingly, no financial statements with respect to any Trust
Fund will be included in this Prospectus or in the related Prospectus
Supplement. The Depositor has determined that its financial statements will not
be material to the offering of any Offered Certificates.
RATING
It is a condition to the issuance of any class of Offered Certificates
that they shall have been rated not lower than investment grade, that is, in one
of the four highest rating categories, by at least one Rating Agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by the holders thereof of all collections on the underlying mortgage
assets to which such holders are entitled. These ratings address the structural,
legal and issuer-related aspects associated with such certificates, the nature
of the underlying mortgage assets and the credit quality of the guarantor, if
any. Ratings on mortgage pass-through certificates do not represent any
assessment of the likelihood of principal prepayments by borrowers or of the
degree by which such prepayments might differ from those originally anticipated.
As a result, certificateholders might suffer a lower than anticipated yield,
and, in addition, holders of stripped interest certificates in extreme cases
might fail to recoup their initial investments. Furthermore, ratings on mortgage
pass-through certificates do not address the price of such certificates or the
suitability of such certificates to the investor.
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 organization. Each security rating should be evaluated
independently of any other security rating.
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<TABLE>
INDEX OF PRINCIPAL DEFINITIONS
<CAPTION>
PAGE PAGE
---- ----
<S> <C> <C> <C>
Accrual Certificates .................................. 12 Grantor Trust Fractional Interest Certificate ......... 84
Accrued Certificate Interest .......................... 32 Grantor Trust Strip Certificate ....................... 84
Act ................................................... 64 Indirect Participants ................................. 38
ARM Loans ............................................. 23 Insurance Proceeds .................................... 45
Available Distribution Amount ......................... 31 IRS ................................................... 48
Book-Entry Certificates ............................... 31 Issue Premium ......................................... 76
Cash Flow Agreement ................................... 13 Letter of Credit Bank ................................. 57
CERCLA ................................................ 64 Liquidation Proceeds .................................. 45
Certificate Account ................................... 24 Loan-to-Value Ratio ................................... 21
Certificate Balance ................................... 11 Lock-out Date ......................................... 22
Certificate Owner ..................................... 38 Lock-out Period ....................................... 22
Certificateholder ..................................... 67 Manager ............................................... 9
Certificates .......................................... 1 Mark-to-Market Regulations ............................ 78
Closing Date .......................................... 70 Master Servicer ....................................... 9
Code .................................................. 14 MBS ................................................... 1
Commercial Properties ................................. 20 MBS Administrator ..................................... 9
Commission ............................................ 4 MBS Agreement ......................................... 23
Committee Report ...................................... 69 MBS Issuer ............................................ 23
Companion Class ....................................... 34 MBS Servicer .......................................... 23
Condemnation Proceeds ................................. 45 MBS Trustee ........................................... 23
Contributions Tax ..................................... 81 Mortgage Asset Pool ................................... 1
Controlled Amortization Class ......................... 33 Mortgage Asset Seller ................................. 19
Cooperatives .......................................... 20 Mortgage Assets ....................................... 1
CPR ................................................... 27 Mortgage Notes ........................................ 19
Credit Support ........................................ 13 Mortgage Rate ......................................... 10
Cut-off Date .......................................... 33 Mortgaged Properties .................................. 19
Debt Service Coverage Ratio ........................... 21 Mortgages ............................................. 19
Definitive Certificates ............................... 31 Multifamily Properties ................................ 19
Depositor ............................................. 1 Net Leases ............................................ 21
Determination Date .................................... 25 Net Operating Income .................................. 21
Direct Participants ................................... 37 Nonrecoverable Advance ................................ 34
Distribution Date ..................................... 12 Notional Amount ....................................... 11
Distribution Date Statement ........................... 35 Offered Certificates .................................. 1
DOL ................................................... 94 OID Regulations ....................................... 68
DTC ................................................... 31 Originator ............................................ 20
Due Dates ............................................. 22 OTS ................................................... 98
Due Period ............................................ 25 Participants .......................................... 37
Equity Participation .................................. 22 Parties in Interest ................................... 94
ERISA ................................................. 14 Pass-Through Rate ..................................... 11
Excess Funds .......................................... 29 Percentage Interest ................................... 32
Excluded Plan ......................................... 96 Permitted Investments ................................. 44
Exemption ............................................. 94 Plans ................................................. 93
FAMC .................................................. 23 Policy Statement ...................................... 97
FHLMC ................................................. 23 Pooling and Servicing Agreement ....................... 11
FNMA .................................................. 23 Prepayment Assumption ................................. 69
Garn Act .............................................. 65 Prepayment Interest Shortfall ......................... 25
GMACCM ................................................ 9 Prepayment Premium .................................... 22
101
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<CAPTION>
PAGE
----
<S> <C>
Prohibited Transactions Tax ........................... 80
Prospectus Supplement ................................. 1
Purchase Price ........................................ 41
Rating Agency ......................................... 15
RCRA .................................................. 64
Record Date ........................................... 32
Related Proceeds ...................................... 34
Relief Act ............................................ 66
REMIC ................................................. 3
REMIC Certificates .................................... 67
REMIC Provisions ...................................... 67
REMIC Regular Certificates ............................ 14
REMIC Regulations ..................................... 68
REMIC Residual Certificates ........................... 14
REO Property .......................................... 43
Restricted Group ...................................... 95
Senior Certificates ................................... 11
Senior Liens .......................................... 20
Servicer .............................................. 9
SMMEA ................................................. 14
SPA ................................................... 27
Special Servicer ...................................... 9
Stripped Interest Certificates ........................ 11
Stripped Principal Certificates ....................... 11
Sub-Servicer .......................................... 44
Sub-Servicing Agreement ............................... 44
Subordinate Certificates .............................. 11
Tax Exempt Investor ................................... 97
Tiered REMICs ......................................... 69
Title V ............................................... 66
Trust Assets .......................................... 4
Trust Fund ............................................ 1
Trustee ............................................... 9
UBTI .................................................. 97
UCC ................................................... 59
Underwriter ........................................... 94
United States Person .................................. 83
Value ................................................. 21
Warranting Party ...................................... 41
</TABLE>
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement and the prospectus to which it relates
shall not constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED DECEMBER 30, 1996
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED ___________, 1995)
$------------------------
GMAC COMMERCIAL MORTGAGE SECURITIES, INC.
DEPOSITOR
GMAC COMMERCIAL MORTGAGE CORPORATION
MASTER SERVICER
MULTIFAMILY MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 199__-__
$_____________ VARIABLE RATE CLASS A CERTIFICATES
$_____________ VARIABLE RATE CLASS B CERTIFICATES
$ 100 VARIABLE RATE CLASS R CERTIFICATES
-----------
The Series 199__-__ Multifamily Mortgage Pass-Through Certificates (the
"Certificates") will consist of the following four classes (each, a "Class"):
(i) the Class A Certificates and Class R Certificates (collectively, the "Senior
Certificates"); (ii) the Class B Certificates; and (iii) the Class C
Certificates. Only the Senior Certificates and the Class B Certificates
(collectively, the "Offered Certificates") are offered hereby.
It is a condition of their issuance that the Senior Certificates be
rated not lower than ____, and that the Class B Certificates be rated not lower
than ______, by ___________________.
(COVER CONTINUED ON NEXT PAGE)
-----------
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS ON THE
OFFERED CERTIFICATES. THE OFFERED CERTIFICATES DO NOT REPRESENT AN INTEREST
IN OR OBLIGATION OF THE DEPOSITOR, THE MASTER SERVICER, GMAC COMMERCIAL
MORTGAGE CORPORATION OR ANY OF THEIR AFFILIATES. NEITHER THE OFFERED
CERTIFICATES NOR THE MORTGAGE LOANS ARE INSURED OR GUARANTEED
BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY
THE DEPOSITOR, THE MASTER SERVICER OR ANY OF THEIR AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
-----------
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING UNDER THE
CAPTION "RISK FACTORS" ON PAGE S-___ HEREIN AND PAGE 7 IN THE PROSPECTUS BEFORE
PURCHASING ANY OFFERED CERTIFICATE.
See "Index of Principal Definitions" in the Prospectus for location of
meanings of capitalized terms used but not defined herein. See "Index of
Principal Definitions" herein for location of meanings of those other
capitalized terms used herein.
There is currently no secondary market for the Offered Certificates.
_____________________ (the "Underwriter") intends to make a secondary market in
the Offered Certificates, but is not obligated to do so. There can be no
assurance that a secondary market for the Offered Certificates will develop or,
if it does develop, that it will continue. The Offered Certificates will not be
listed on any securities exchange.
The Offered Certificates will be purchased from the Depositor by the
Underwriter and will be offered by the Underwriter from time to time in
negotiated transactions or otherwise at varying prices to be determined at the
time of sale. Proceeds to the Depositor from the sale of the Offered
Certificates, before deducting expenses payable by the Depositor estimated to be
approximately $_____________, will be ______% of the initial aggregate
Certificate Balance of the Offered Certificates[, plus accrued interest thereon
from the Cut-off Date]. The Offered Certificates are offered by the Underwriter
subject to prior sale, when, as and if delivered to and accepted by the
Underwriter and subject to
[UNDERWRITER]
________________, 199__
<PAGE>
ii
(COVER CONTINUED)
certain other conditions. It is expected that the Class A Certificates will be
delivered in book-entry form through the Same-Day Funds Settlement System of DTC
and that the Class B and Class R Certificates will be delivered at the offices
of the Underwriter, _________________________ _________________________________,
on or about _____________, 199__ (the "Delivery Date"), against payment therefor
in immediately available funds.
The Certificates will represent in the aggregate the entire beneficial
ownership interest in a trust fund (the "Trust Fund"), to be established by the
Depositor, that will consist primarily of a segregated pool (the "Mortgage
Pool") of ____ conventional, fixed- and adjustable-rate, multifamily, balloon
mortgage loans (the "Mortgage Loans"). As of ____________, 199___ (the "Cut-off
Date"), the Mortgage Loans had an aggregate principal balance (the "Initial Pool
Balance") of $___________________, after application of all payments of
principal due on or before such date, whether or not received. Certain
characteristics of the Mortgage Loans are described herein under "Description of
the Mortgage Pool". The rights of the holders of the Class B and Class C
Certificates to receive distributions with respect to the Mortgage Loans will be
subordinate to the rights of the holders of the Senior Certificates, and the
rights of the holders of the Class C Certificates to receive distributions with
respect to the Mortgage Loans will be subordinate to the rights of the holders
of the Class B Certificates, in each case to the extent described herein and in
the Prospectus.
The Class A Certificates will be represented initially by certificates
registered in the name of Cede & Co., as nominee of DTC, as described herein.
The interests of the beneficial owners of the Class A Certificates will be
represented by book entries on the records of participating members of DTC.
Definitive certificates will be available for the Class A Certificates only
under the limited circumstances described herein and in the Prospectus. See
"Description of the Certificates-Book-Entry Registration of the Class A
Certificates" herein and "Description of the Certificates-Book-Entry
Registration and Definitive Certificates" in the Prospectus.
An election will be made to treat the Trust Fund as a REMIC for federal
income tax purposes. The Class A Certificates, the Class B Certificates and the
Class C Certificates (collectively, the "REMIC Regular Certificates") will
constitute "regular interests", and the Class R Certificates will constitute the
sole class of "residual interests", in the Trust Fund. See "Certain Federal
Income Tax Consequences" herein and in the Prospectus. Transfer of the Class R
Certificates will be prohibited to any non-United States person, and will be
subject to certain additional transfer restrictions described herein under
"Certain Federal Income Tax Consequences-Special Tax Considerations Applicable
to REMIC Residual Certificates" and in the Prospectus under "Certain Federal
Income Tax Consequences-REMICs-Tax and Restrictions on Transfers of REMIC
Residual Certificates to Certain Organizations".
Distributions on the Certificates will be made, to the extent of
available funds, on the 25th day of each month or, if any such day is not a
business day, then on the next business day, beginning in _____________ 199____
(each, a "Distribution Date"). As described herein, interest distributions on
each Class of Offered Certificates will be made on each Distribution Date based
on the variable pass-through rate (the "Pass-Through Rate") then applicable to
such Class and the stated principal amount (the "Certificate Balance") of such
Class outstanding immediately prior to such Distribution Date. The Pass-Through
Rate for each Class of Offered Certificates applicable to the first Distribution
Date will be _________% per annum. Subsequent to the initial Distribution Date,
the Pass-Through Rate for each Class of Offered Certificates will equal from
time to time the weighted average of, subject to certain adjustments described
herein, the Net Mortgage Rates (as defined herein) on the Mortgage Loans.
Principal distributions on each Class of Offered Certificates will be made in
the amounts and in accordance with the priorities described herein. See
"Description of the Certificates-Distributions" herein.
The yield to maturity on each Class of Offered Certificates will depend
on, among other things, changes in its respective Pass-Through Rate and the rate
and timing of principal payments (including by reason of prepayments, defaults
and liquidations) on the Mortgage Loans. See "Yield and Maturity Considerations"
herein and "Yield and Maturity Considerations" and "Risk Factors-Yield and
Prepayment Considerations" in the Prospectus. [The following disclosure is
applicable to Stripped Interest Certificates ("Class S Certificates"), when
offered... THE YIELD TO MATURITY ON THE CLASS S CERTIFICATES WILL BE EXTREMELY
SENSITIVE TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING BY REASONS OF
PREPAYMENTS, DEFAULTS AND LIQUIDATIONS) ON THE MORTGAGE LOANS, WHICH MAY
FLUCTUATE SIGNIFICANTLY FROM TIME TO TIME. A RATE OF PRINCIPAL PREPAYMENTS ON
THE MORTGAGE LOANS THAT IS MORE RAPID THAN EXPECTED BY INVESTORS WILL HAVE A
MATERIAL NEGATIVE EFFECT ON THE YIELD TO MATURITY OF THE CLASS S CERTIFICATES.
INVESTORS IN THE CLASS S CERTIFICATES SHOULD CONSIDER THE ASSOCIATED RISKS,
INCLUDING THE RISK THAT A RAPID RATE OF PRINCIPAL PREPAYMENTS ON THE MORTGAGE
LOANS COULD RESULT IN THE FAILURE OF INVESTORS IN SUCH CERTIFICATES TO RECOVER
FULLY THEIR INITIAL INVESTMENTS. SEE "YIELD AND MATURITY CONSIDERATIONS" HEREIN
AND "YIELD AND MATURITY CONSIDERATIONS" AND "RISK FACTORS-YIELD AND PREPAYMENT
CONSIDERATIONS" IN THE PROSPECTUS.]
<PAGE>
iii
[inside front cover]
THE CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE PART
OF A SEPARATE SERIES OF CERTIFICATES ISSUED BY THE DEPOSITOR AND ARE BEING
OFFERED PURSUANT TO ITS PROSPECTUS DATED ____________________, OF WHICH THIS
PROSPECTUS SUPPLEMENT IS A PART AND WHICH ACCOMPANIES THIS PROSPECTUS
SUPPLEMENT. THE PROSPECTUS CONTAINS IMPORTANT INFORMATION REGARDING THIS
OFFERING THAT IS NOT CONTAINED HEREIN, AND PROSPECTIVE INVESTORS ARE URGED TO
READ THE PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT IN FULL. SALES OF THE OFFERED
CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
[IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE OFFERED
CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.]
UNTIL [NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT], ALL
DEALERS EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS TO WHICH IT RELATES. THIS DELIVERY REQUIREMENT 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.
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND IN
THE ACCOMPANYING PROSPECTUS. CERTAIN CAPITALIZED TERMS THAT ARE USED IN THIS
SUMMARY MAY BE DEFINED ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT OR IN THE
PROSPECTUS. AN "INDEX OF PRINCIPAL DEFINITIONS" IS INCLUDED AT THE END OF BOTH
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. TERMS THAT ARE USED BUT NOT
DEFINED IN THIS PROSPECTUS SUPPLEMENT WILL HAVE THE MEANINGS SPECIFIED IN THE
PROSPECTUS.
TITLE OF CERTIFICATES............Multifamily Mortgage Pass-Through Certificates,
Series 199__-__.
DEPOSITOR........................GMAC Commercial Mortgage Securities, Inc. See
"The Depositor" in the Prospectus.
MASTER SERVICER..................GMAC Commercial Mortgage Corporation. See
"Servicing of the Mortgage Loans-The Master
Servicer" herein.
TRUSTEE ........................_____________________. See "Description of the
Certificates-The Trustee" herein.
MORTGAGE LOAN SELLER.............________________________. See "Description of
the Mortgage Pool-The Mortgage Loan Seller"
herein.
CUT-OFF DATE.....................___________________, 199__.
DELIVERY DATE....................On or about ___________________, 199__.
DENOMINATIONS....................The Class A Certificates will be issued,
maintained and transferred on the book-entry
records of DTC and its Participants in
denominations of $25,000 and integral multiples
of $1 in excess thereof. The Class B
Certificates will be issued in fully
registered, certificated form in denominations
of $100,000 and in integral multiples of $1,000
in excess thereof, with one Class B Certificate
evidencing an additional amount equal to the
remainder of the initial Certificate Balance of
such Class. The Class R Certificates will be
issued in registered, certificated form in
minimum denominations of 20% percentage
interest in such Class.
CERTIFICATE REGISTRATION.........The Class A Certificates will be represented by
one or more global Certificates registered in
the name of Cede & Co., as nominee of DTC. No
person acquiring an interest in the Class A
Certificates (any such person, a "Class A
Certificate Owner") will be entitled to receive
a Class A Certificate in fully registered,
certificated form (a "Definitive Class A
Certificate"), except under the limited
circumstances described herein and in the
Prospectus. The Class B and Class R
Certificates will be offered in fully
registered, certificated form. See "Description
of the Certificates-Book-Entry Registration of
the Class A Certificates" herein and
"Description of the Certificates-Book-Entry
Registration and Definitive Certificates" in
the Prospectus.
THE MORTGAGE POOL................The Mortgage Pool will consist of _____
conventional, balloon Mortgage Loans with an
Initial Pool Balance of $_________________. On
or prior to the Delivery Date, the Depositor
will acquire the Mortgage Loans
<PAGE>
S-2
from the Mortgage Loan Seller pursuant to a
Purchase Agreement, dated [the date hereof],
between the Depositor and the Mortgage Loan
Seller (the "Purchase Agreement").
Each Mortgage Loan is secured by a first
mortgage lien on a fee simple estate in a
multifamily rental property (each, a "Mortgaged
Property"). ________ of the Mortgage Loans,
which represent _____% of the Initial Pool
Balance, are secured by liens on Mortgaged
Properties located in _______________. The
remaining Mortgaged Properties are located
throughout ___________ other states. See
"Description of the Mortgage Pool-Additional
Mortgage Loan Information" herein.
___________ of the Mortgage Loans, which
represent ______% of the Initial Pool Balance,
provide for scheduled payments of principal
and/or interest ("Monthly Payments") to be due
on the first day of each month; the remainder
of the Mortgage Loans provide for Monthly
Payments to be due on the ____, _____, _____ or
_____ day of each month (the date in any month
on which a Monthly Payment on a Mortgage Loan
is first due, the "Due Date"). The annualized
rate at which interest accrues (the "Mortgage
Rate") on ____ of the Mortgage Loans (the "ARM
Loans"), which represent _____% of the Initial
Pool Balance, is subject to adjustment on
specified Due Dates (each such date of
adjustment, an "Interest Rate Adjustment Date")
by adding a fixed number of basis points (a
"Gross Margin") to the value of a base index
(an "Index"), subject, in ______ cases, to
lifetime maximum and/or minimum Mortgage Rates,
and in _____ cases, to periodic maximum and/or
minimum Mortgage Rates, in each case as
described herein; and the remaining Mortgage
Loans (the "Fixed Rate Loans") bear interest at
fixed Mortgage Rates. ____ of the ARM Loans,
which represent ___% of the Initial Pool
Balance, provide for Interest Rate Adjustment
Dates that occur monthly, while the remainder
of the ARM Loans provide for adjustments of the
Mortgage Rate to occur semi-annually or
annually. [Identify Mortgage Loan Index] See
"Description of the Mortgage Pool-Certain
Payment Characteristics" herein.
The amount of the Monthly Payment on all of the
ARM Loans is subject to adjustment on specified
Due Dates (each such date, a "Payment
Adjustment Date") to an amount that would
amortize the outstanding principal balance of
the Mortgage Loan over its then remaining
amortization schedule and pay interest at the
then applicable Mortgage Rate. The ARM Loans
provide for Payment Adjustment Dates that occur
on the Due Date following each related Interest
Rate Adjustment Date.
All of the Mortgage Loans provide for monthly
payments of principal based on amortization
schedules significantly longer than the
remaining terms of such Mortgage Loans, thereby
leaving substantial principal amounts due and
payable (each such payment, together with the
corresponding interest payment, a "Balloon
Payment") on their respective maturity dates,
unless prepaid prior thereto.
<PAGE>
S-3
DESCRIPTION OF THE CERTIFICATES..The Certificates will be issued pursuant to a
Pooling and Servicing Agreement, to be dated as
of the Cut-off Date, among the Depositor, the
Master Servicer and the Trustee (the "Pooling
and Servicing Agreement"), and will represent
in the aggregate the entire beneficial
ownership interest in the Trust Fund, which
will consist of the Mortgage Pool and certain
related assets.
The aggregate Certificate Balance of the
Certificates as of the Delivery Date will equal
the Initial Pool Balance. Each Class of Offered
Certificates will have the initial Certificate
Balance set forth on the cover page, and the
Class C Certificates will have an initial
Certificate Balance of $____________. See
"Description of the Certificates-General"
herein.
The Pass-Through Rate applicable to each Class
of Certificates for the initial Distribution
Date will equal _____% per annum. With respect
to any Distribution Date subsequent to the
initial Distribution Date, the Pass-Through
Rate for each Class of Certificates will equal
the weighted average of the applicable
Effective Net Mortgage Rates for the Mortgage
Loans, weighted on the basis of their
respective Stated Principal Balances (as
described herein) immediately prior to such
Distribution Date. For purposes of calculating
the Pass-Through Rate for any Class of
Certificates and any Distribution Date, the
"applicable Effective Net Mortgage Rate" for
each Mortgage Loan is an annualized rate equal
to the Mortgage Rate in effect for such
Mortgage Loan as of the [second] day of the
most recently ended calendar month, (a) reduced
by ___ basis points (the Mortgage Rate, as so
reduced, the "Net Mortgage Rate"), and (b) if
the accrual of interest on such Mortgage Loan
is computed other than on the basis of a
360-day year consisting of twelve 30-day months
(which is the basis of accrual for interest on
the Certificates), then adjusted to reflect
that difference in computation. See
"Description of the
Certificates-Distributions-Pass-Through Rates"
and "-Distributions-Certain Calculations with
Respect to Individual Mortgage Loans" herein.
INTEREST DISTRIBUTIONS
ON THE SENIOR CERTIFICATES.....On each Distribution Date, to the extent of the
Available Distribution Amount, holders of each
Class of Senior Certificates will be entitled
to receive distributions of interest in an
amount equal to all Distributable Certificate
Interest with respect to such Certificates for
such Distribution Date and, to the extent not
previously paid, for all prior Distribution
Dates.
The "Distributable Certificate Interest" in
respect of any Class of Certificates for any
Distribution Date will equal one month's
interest at the then-applicable Pass-Through
Rate accrued on the Certificate Balance of such
Class of Certificates immediately prior to such
Distribution Date, reduced (to not less than
zero) by such Class of Certificates' allocable
share (in each case, calculated as described
herein) of any Net Aggregate Prepayment
Interest Shortfall (also as described herein)
for such Distribution Date. See "Description of
the Certificates-Distributions- Distributable
Certificate Interest" herein.
<PAGE>
S-4
The "Available Distribution Amount" for any
Distribution Date is, as described herein under
""Description of the
Certificates-Distributions", the total of all
payments or other collections (or available
advances) on or in respect of the Mortgage
Loans that are available for distribution on
the Certificates on such date.
PRINCIPAL DISTRIBUTIONS ON
THE SENIOR CERTIFICATES........On each Distribution Date, to the extent of the
Available Distribution Amount remaining after
the distributions of interest to be made on the
Senior Certificates on such date, holders of
the Senior Certificates will be entitled to
distributions of principal (until the
Certificate Balances of such Classes of
Certificates are reduced to zero) in an
aggregate amount equal to the sum of (a) such
holders' PRO RATA share of the Scheduled
Principal Distribution Amount (as defined
herein) for such Distribution Date, plus (b)
the entire Unscheduled Principal Distribution
Amount (also as defined herein) for such
Distribution Date. Distributions of principal
on the Senior Certificates will be paid first
to the holders of the Class R Certificates
until the Certificate Balance of such
Certificates is reduced to zero, and then to
the holders of the Class A Certificates. See
"Description of the
Certificates-Distributions-Scheduled Principal
Distribution Amount and Unscheduled Principal
Distribution Amount" herein.
INTEREST DISTRIBUTIONS ON
THE CLASS B CERTIFICATES.......On each Distribution Date, to the extent of the
Available Distribution Amount remaining after
all distributions to be made on the Senior
Certificates on such date (such remaining
portion, the "Class B Available Distribution
Amount"), holders of the Class B Certificates
will be entitled to receive distributions of
interest in an amount equal to all
Distributable Certificate Interest with respect
to such Certificates for such Distribution Date
and, to the extent not previously paid, for all
prior Distribution Dates.
PRINCIPAL DISTRIBUTIONS ON
THE CLASS B CERTIFICATES.......On each Distribution Date, to the extent of the
Class B Available Distribution Amount remaining
after the distributions of interest to be made
on the Class B Certificates on such date,
holders of the Class B Certificates will be
entitled to distributions of principal (until
the Certificate Balance of such Class of
Certificates is reduced to zero) in an amount
equal to the sum of (a) such holders' PRO RATA
share of the Scheduled Principal Distribution
Amount for such Distribution Date, plus (b) if
the Certificate Balances of the Senior
Certificates have been reduced to zero, then to
the extent not distributed in reduction of such
Certificate Balances on such Distribution Date,
the entire Unscheduled Principal Distribution
Amount for such Distribution Date.
CERTAIN YIELD AND PREPAYMENT
CONSIDERATIONS.................The yield on the Offered Certificates of either
class will depend on, among other things, the
Pass-Through Rate for such Certificates. The
yield on any Offered Certificate that is
purchased at a discount or premium will also be
affected by the rate and timing of
distributions in respect of principal on such
Certificate, which in turn will be affected by
<PAGE>
S-5
(i) the rate and timing of principal payments
(including principal prepayments) on the
Mortgage Loans and (ii) the extent to which
such principal payments are applied on any
Distribution Date in reduction of the
Certificate Balance of the Class to which such
Certificate belongs. See "Description of the
Certificates -- Distributions -- Priority" and
"-Distributions -- Scheduled Principal
Distribution Amount and Unscheduled Principal
Distribution Amount" herein.
An investor that purchases an Offered
Certificate at a discount should consider the
risk that a slower than anticipated rate of
principal payments on such Certificate will
result in an actual yield that is lower than
such investor's expected yield. An investor
that purchases any Offered Certificate at a
premium should consider the risk that a faster
than anticipated rate of principal payments on
such Certificate will result in an actual yield
that is lower than such investor's expected
yield. Insofar as an investor's initial
investment in any Offered Certificate is
returned in the form of payments of principal
thereon, there can be no assurance that such
amounts can be reinvested in a comparable
alternative investment with a comparable yield.
The actual rate of prepayment of principal on
the Mortgage Loans cannot be predicted. The
Mortgage Loans may be prepaid at any time,
subject, in the case of ____ Mortgage Loans, to
payment of a Prepayment Premium. The investment
performance of the Offered Certificates may
vary materially and adversely from the
investment expectations of investors due to
prepayments on the Mortgage Loans being higher
or lower than anticipated by investors. The
actual yield to the holder of an Offered
Certificate may not be equal to the yield
anticipated at the time of purchase of the
Certificate or, notwithstanding that the actual
yield is equal to the yield anticipated at that
time, the total return on investment expected
by the investor or the expected weighted
average life of the Certificate may not be
realized. For a discussion of certain factors
affecting prepayment of the Mortgage Loans,
including the effect of Prepayment Premiums,
see "Yield and Maturity Considerations" herein.
IN DECIDING WHETHER TO PURCHASE ANY OFFERED
CERTIFICATES, AN INVESTOR SHOULD MAKE AN
INDEPENDENT DECISION AS TO THE APPROPRIATE
PREPAYMENT ASSUMPTIONS TO BE USED.
[The structure of the Offered Certificates
causes the yield of certain Classes to be
particularly sensitive to changes in the rates
of prepayment of the Mortgage Loans and other
factors, as follows:]
[The following disclosure is applicable to
Stripped Interest Certificates, when offered...
THE STRIPPED INTEREST CERTIFICATES. The Class S
Certificates are interest-only Certificates and
are not entitled to any distributions in
respect of principal. The yield to maturity of
the Class S Certificates will be especially
sensitive to the prepayment, repurchase and
default experience on the Mortgage Loans, which
may fluctuate significantly from time to time.
A rate of principal payments that is more rapid
than expected by investors will have a material
negative effect on the yield to maturity of the
Class S Certificates. See "Yield
<PAGE>
S-6
and Maturity Considerations-Yield Sensitivity
of the Class S Certificates" herein.]
CLASS R CERTIFICATES: Holders of the Class R
Certificates are entitled to receive
distributions of principal and interest as
described herein; however, holders of such
Certificates may have tax liabilities with
respect to their Certificates during the early
years of the term of the Trust Fund that
substantially exceed the principal and interest
payable thereon during such periods. See "Yield
and Maturity Considerations", especially
"-Additional Yield Considerations Applicable
Solely to the Class R Certificates," herein and
"Certain Federal Income Tax Consequences"
herein and in the Prospectus.
ADVANCES.........................The Master Servicer is required to make
advances (each, an "Advance") of delinquent
principal and interest on the Mortgage Loans
or, in the case of each Mortgage Loan that is
delinquent in respect of its Balloon Payment or
as to which the related Mortgaged Property was
acquired through foreclosure, deed in lieu of
foreclosure or otherwise, just of delinquent
interest, in any event under the circumstances
and subject to the limitations set forth
herein. The Master Servicer will be entitled to
interest on any Advances made and certain
servicing expenses incurred by it or on its
behalf, such interest accruing at the rate and
payable under the circumstances described
herein. See "Description of the
Certificates-Advances" herein and "Description
of the Certificates-Advances in Respect of
Delinquencies" and "The Pooling and Servicing
Agreements-Certificate Account" in the
Prospectus.
SUBORDINATION; ALLOCATION OF
COLLATERAL SUPPORT DEFICIT....The rights of the holders of the Class B and
Class C Certificates to receive distributions
with respect to the Mortgage Loans will be
subordinate to the rights of the holders of the
Senior Certificates, and the rights of the
holders of the Class C Certificates to receive
distributions with respect to the Mortgage
Loans will be subordinate to the rights of the
holders of the Class B Certificates, in each
case to the extent described herein and in the
Prospectus. Such subordination will be
accomplished by the application of the
Available Distribution Amount on each
Distribution Date to distributions on the
respective Classes of Certificates in the order
described herein under "Description of the
Certificates-Distributions-Priority". No other
form of Credit Support will be available for
the benefit of the holders of the Offered
Certificates.
As a result of losses and other shortfalls
experienced with respect to the Mortgage Loans
or otherwise with respect to the Trust Fund,
the aggregate Stated Principal Balance of the
Mortgage Pool expected to be outstanding
immediately following any Distribution Date may
be less than the aggregate Certificate Balance
of the Certificates immediately following the
distributions on such Distribution Date. Such
deficit (the "Collateral Support Deficit") will
be allocated first to the Class C Certificates,
then to the Class B Certificates and last to
the Class A Certificates (in reduction of their
Certificate Balances), in each case until the
related Certificate Balance has been reduced to
zero. See
<PAGE>
S-7
"Description of the Certificates -
Subordination; Allocation of Collateral Support
Deficit" herein.
OPTIONAL TERMINATION.............At its option, on any Distribution Date on
which the remaining aggregate Stated Principal
Balance of the Mortgage Pool is less than 10%
of the Initial Pool Balance, the Master
Servicer or the Depositor may purchase all of
the Mortgage Loans and REO Properties, and
thereby effect termination of the Trust Fund
and early retirement of the then outstanding
Certificates. See "Description of the
Certificates-Termination; Retirement of
Certificates" herein and in the Prospectus.
CERTAIN FEDERAL INCOME
TAX CONSEQUENCES............An election will be made to treat the Trust
Fund as a REMIC for Federal income tax
purposes. Upon the issuance of the Offered
Certificates, _______________________, counsel
to the Depositor, will deliver its opinion
generally to the effect that, assuming
compliance with all provisions of the Pooling
and Servicing Agreement, for Federal income tax
purposes, the Trust Fund will qualify as a
REMIC under Sections 860A through 860G of the
Code. For Federal income tax purposes, the
Class A, Class B and Class C Certificates will
be the "regular interests" in the Trust Fund,
and the Class R Certificates will be the sole
class of "residual interests" in the Trust
Fund.
Under the REMIC Regulations, the Class R
Certificates will not be regarded as having
"significant value" for purposes of applying
the rules relating to "excess inclusions." In
addition, the Class R Certificates may
constitute "noneconomic" residual interests for
purposes of the REMIC Regulations. Transfers of
the Class R Certificates will be restricted
under the Pooling and Servicing Agreement to
United States Persons in a manner designed to
prevent a transfer of a noneconomic residual
interest from being disregarded under the REMIC
Regulations. See "Certain Federal Income Tax
Consequences-Special Tax Considerations
Applicable to REMIC Residual Certificates"
herein and "Certain Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC
Residual Certificates-Excess Inclusions" and
"-Noneconomic REMIC Residual Certificates" in
the Prospectus.
The Class R Certificateholders may be required
to report an amount of taxable income with
respect to the early years of the Trust Fund's
term that significantly exceeds distributions
on the Class R Certificates during such years,
with corresponding tax deductions or losses
deferred until the later years of the Trust
Fund's term. Accordingly, on a present value
basis, the tax detriments occurring in the
earlier years may substantially exceed the sum
of any tax benefits in the later years. As a
result, the Class R Certificateholders'
after-tax rate of return may be zero or
negative, event if their pre-tax rate of return
is positive.
See "Yield and Maturity Considerations,"
especially "-Additional Yield Considerations
Applicable Solely to the Class R Certificates",
and "Certain Federal Income Tax
Consequences-Special Tax Considerations
Applicable to REMIC Residual Certificates"
herein.
<PAGE>
S-8
For further information regarding the Federal
income tax consequences of investing in the
Offered Certificates, see "Certain Federal
Income Tax Consequences" herein and in the
Prospectus.
RATING ........................It is a condition of their issuance that the
Senior Certificates be rated not lower than
"___", and that the Class B Certificates be
rated not lower than "___", by
_______________________ ([collectively,] the
"Rating Agenc[ies]"). 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
organization. A security rating does not
address the frequency of prepayments of
Mortgage Loans, or the corresponding effect on
yield to investors. [The following disclosure
is applicable to Stripped Interest
Certificates, when offered... A security rating
does not address the frequency or likelihood of
prepayments (whether voluntary or involuntary)
of Mortgage Loans, or the possibility that, as
a result of prepayments, investors in the Class
S Certificates may realize a lower than
anticipated yield or may fail to recover fully
their initial investment.] See "Rating" herein.
LEGAL INVESTMENT.................[The Senior Certificates will constitute
"mortgage related securities" for purposes of
SMMEA, for so long as they are rated in one of
the two highest ratings categories by one or
more nationally recognized statistical rating
organizations and, as such, are legal
investments for certain entities to the extent
provided in SMMEA. Such investments, however,
will be subject to general regulatory
considerations governing investment practices
under state and federal law. In addition,
institutions whose investment activities are
subject to review by federal or state
regulatory authorities may be or may become
subject to restrictions, which may be
retroactively imposed by such regulatory
authorities, on the investment by such
institutions in certain forms of mortgage
related securities. Furthermore, certain states
have recently enacted legislation overriding
the legal investment provisions of SMMEA.]
[The Class B Certificates will NOT be "mortgage
related securities" within the meaning of
SMMEA. As a result, the appropriate
characterization of the Class B Certificates
under various legal investment restrictions,
and thus the ability of investors subject to
these restrictions to purchase the Class B
Certificates, may be subject to significant
interpretative uncertainties.]
Investors should consult their legal advisors
to determine whether and to what extent the
Offered Certificates constitute legal
investments for them. See "Legal Investment"
herein and in the Prospectus.
<PAGE>
S-9
RISK FACTORS
Prospective purchasers of Offered Certificates should consider, among
other things, the following risk factors (as well as the risk factors set forth
under "Risk Factors" in the Prospectus) in connection with an investment
therein.
ENVIRONMENTAL CONSIDERATIONS. [An environmental site assessment was
performed at [each][all but ___] of the Mortgaged Properties during the _____
month period prior to the Cut-off Date. [Note any special environmental
problems.] [Otherwise,] no such environmental assessment revealed any material
adverse environmental condition or circumstance at any Mortgaged Property[,
except for (i) those cases in which the condition or circumstance was remediated
or an escrow for such remediation has been established and (ii) those cases in
which an operations and maintenance plan or periodic monitoring of nearby
properties was recommended, which recommendations are consistent with
industrywide practices].
The Pooling and Servicing Agreement requires that the Master Servicer
obtain an environmental site assessment of a Mortgaged Property securing a
defaulted Mortgage Loan prior to acquiring title thereto or assuming its
operation. Such prohibition effectively precludes enforcement of the security
for the related Mortgage Note until a satisfactory environmental site assessment
is obtained (or until any required remedial action is thereafter taken), but
will decrease the likelihood that the Trust Fund will become liable for a
material adverse environmental condition at the Mortgaged Property. However,
there can be no assurance that the requirements of the Pooling and Servicing
Agreement will effectively insulate the Trust Fund from potential liability for
a materially adverse environmental condition at any Mortgaged Property. See "The
Pooling and Servicing Agreements-Realization Upon Defaulted Mortgage Loans",
"Risk Factors-Environmental Considerations" and "Certain Legal Aspects of
Mortgage Loans-Environmental Considerations" in the Prospectus.
GEOGRAPHIC CONCENTRATION. ______ Mortgage Loans, which represent ____%
of the Initial Pool Balance, are secured by liens on Mortgaged Properties
located in _____________. In general, that concentration increases the exposure
of the Mortgage Pool to any adverse economic or other developments that may
occur in _________. In recent periods, _____________ (along with other regions
of the United States) has experienced a significant downturn in the market value
of real estate.
CONCENTRATION OF MORTGAGE LOANS AND BORROWERS. Several of the Mortgage
Loans have Cut-off Date Balances that are substantially higher than the average
Cut-off Date Balance. In general, concentrations in a mortgage pool of loans
with larger-than-average balances can result in losses that are more severe,
relative to the size of the pool, than would be the case if the aggregate
balance of the pool were more evenly distributed. Concentration of borrowers
also poses increased risks. For instance, if a borrower that owns several
Mortgaged Properties experiences financial difficulty at one Mortgaged Property,
or at another income-producing property that it owns, it could attempt to avert
foreclosure by filing a bankruptcy petition that might have the effect of
interrupting Monthly Payments for an indefinite period on all of the related
Mortgage Loans.
ADJUSTABLE RATE MORTGAGE LOANS. ________ of the Mortgage Loans, which
represent ____% of the Initial Pool Balance, are ARM Loans. Increases in the
required Monthly Payments on ARM Loans in excess of those assumed in the
original underwriting of such loans may result in a default rate higher than
that on mortgage loans with fixed mortgage rates.
BALLOON PAYMENTS. None of the Mortgage Loans is fully amortizing over
its term to maturity. Thus, each Mortgage Loan will have a substantial payment
(that is, a Balloon Payment) due at its stated maturity unless prepaid prior
thereto. Loans with Balloon Payments involve a greater likelihood of default
than self-amortizing loans because the ability of a borrower to make a Balloon
Payment typically will depend upon its ability either to refinance the loan or
to sell the related mortgaged property. See "Risk Factors-Balloon Payments;
Borrower Default" in the Prospectus.
<PAGE>
S-10
In order to maximize recoveries on defaulted Mortgage Loans, the
Pooling and Servicing Agreement enables the Master Servicer to extend and modify
Mortgage Loans that are in material default or as to which a payment default
(including the failure to make a Balloon Payment) is reasonably foreseeable;
subject, however, to the limitations described under "Servicing of the Mortgage
Loans-Modifications, Waivers and Amendments" herein. There can be no assurance,
however, that any such extension or modification will increase the present value
of recoveries in a given case. Any delay in collection of a Balloon Payment that
would otherwise be distributable in respect of a Class of Offered Certificates,
whether such delay is due to borrower default or to modification of the related
Mortgage Loan by the Master Servicer, will likely extend the weighted average
life of such Class of Offered Certificates. See "Yield and Maturity
Considerations" herein and in the Prospectus.
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Trust Fund will consist primarily of ___ conventional, balloon
Mortgage Loans with an Initial Pool Balance of $_______________. Each Mortgage
Loan is evidenced by a promissory note (a "Mortgage Note") and secured by a
mortgage, deed of trust or other similar security instrument (a "Mortgage") that
creates a first mortgage lien on a fee simple estate in a multifamily rental
property (a "Mortgaged Property"). ALL PERCENTAGES OF THE MORTGAGE LOANS, OR OF
ANY SPECIFIED GROUP OF MORTGAGE LOANS, REFERRED TO HEREIN WITHOUT FURTHER
DESCRIPTION ARE APPROXIMATE PERCENTAGES BY AGGREGATE CUT-OFF DATE BALANCE. The
"Cut-off Date Balance" of any Mortgage Loan is the unpaid principal balance
thereof as of the Cut-off Date, after application of all payments due on or
before such date, whether or not received.
The Mortgage Loans are not insured or guaranteed by any governmental
entity or private mortgage insurer. The Depositor has not undertaken any
evaluation of the significance of the recourse provisions of any of a number of
the Mortgage Loans that provide for recourse against the related borrower or
another person in the event of a default. Accordingly, investors should consider
all of the Mortgage Loans to be non-recourse loans as to which recourse in the
case of default will be limited to the specific property and such other assets,
if any, as were pledged to secure a Mortgage Loan.
On or prior to the Delivery Date, the Depositor will acquire the
Mortgage Loans from the Mortgage Loan Seller pursuant to the Purchase Agreement
and will thereupon assign its interests in the Mortgage Loans, without recourse,
to the Trustee for the benefit of the Certificateholders. See "-The Mortgage
Loan Seller" herein and "The Pooling and Servicing Agreements-Assignment of
Mortgage Loans; Repurchases" in the Prospectus. For purposes of the Prospectus,
the Mortgage Loan Seller constitutes a "Mortgage Asset Seller".
The Mortgage Loans were originated between 19__ and 19__. The Mortgage
Loan Seller originated ____ of the Mortgage Loans, which represent ___% of the
Initial Pool Balance, and acquired the remaining Mortgage Loans from the
respective originators thereof, generally in accordance with the underwriting
criteria described below under "-Underwriting Standards".
CERTAIN PAYMENT CHARACTERISTICS
___ of the Mortgage Loans, which represent ___% of the Initial Pool
Balance, have Due Dates that occur on the first day of each month. The remaining
Mortgage Loans have Due Dates that occur on the ______ (____% of the Mortgage
Loans), _____ (____% of the Mortgage Loans), _____ (____% of the Mortgage
Loans), and _______ (____% of the Mortgage Loans) day of each month.
____________ of the Mortgage Loans, which represent ____% of the
Initial Pool Balance, are ARM Loans. The ARM Loans bear interest at Mortgage
Rates that are subject to adjustment on periodically occurring Interest Rate
Adjustment Dates by adding the related Gross Margin to the applicable value of
the related Index, subject in ______ cases to rounding conventions and lifetime
minimum and/or maximum Mortgage Rates and, in the case of ________ Mortgage
<PAGE>
S-11
Loans, which represent ____% of the Initial Pool Balance, to periodic minimum
and/or maximum Mortgage Rates. The remaining Mortgage Loans are Fixed Rate
Loans. None of the ARM Loans is convertible into a Fixed Rate Loan.
[Identify Mortgage Loan Index] The adjustments to the Mortgage Rates on
the ARM Loans may in each case be based on the value of the related Index as
available a specified number of days prior to an Interest Rate Adjustment Date,
or may be based on the value of the related Index as most recently published as
of an Interest Rate Adjustment Date or as of a designated date preceding an
Interest Rate Adjustment Date. ____ of the ARM Loans, which represent ___% of
the Initial Pool Balance, provide for Interest Rate Adjustment Dates that occur
monthly; ____ of the ARM Loans, which represent ___% of the Initial Pool
Balance, provide for Interest Rate Adjustment Dates that occur semi-annually;
and the remaining ARM Loans provide for Interest Rate Adjustment Dates that
occur annually.
The Monthly Payments on each ARM Loan are subject to adjustment on each
Payment Adjustment Date to an amount that would amortize fully the principal
balance of the Mortgage Loan over its then remaining amortization schedule and
pay interest at the Mortgage Rate in effect during the one month period
preceding such Payment Adjustment Date. The ARM Loans provide for Payment
Adjustment Dates that occur on the Due Date following each related Interest Rate
Adjustment Date. None of the ARM Loans provide for negative amortization.
All of the Mortgage Loans provide for monthly payments of principal
based on amortization schedules significantly longer than the remaining terms of
such Mortgage Loans. Thus, each Mortgage Loan will have a Balloon Payment due at
its stated maturity date, unless prepaid prior thereto.
No Mortgage Loan currently prohibits principal prepayments; however,
[certain] of the Mortgage Loans impose fees or penalties ("Prepayment Premiums")
in connection with full or partial prepayments. Prepayment Premiums are payable
to the Master Servicer as additional servicing compensation, to the extent not
otherwise applied to offset Prepayment Interest Shortfalls, and may be waived by
the Master Servicer in accordance with the servicing standard described under
"Servicing of the Mortgage Loans-General" herein.
[THE INDEX]
Describe Index and include 5 year history.
[DELINQUENT AND NONPERFORMING MORTGAGE LOANS]
[Describe those delinquent and nonperforming Mortgage Loans, if any,
included in the Trust Fund.]
ADDITIONAL MORTGAGE LOAN INFORMATION
The following tables set forth the specified characteristics of, in
each case as indicated, the ARM Loans, the Fixed Rate Loans or all the Mortgage
Loans. The sum in any column may not equal the indicated total due to rounding.
<PAGE>
S-12
<TABLE>
MORTGAGE RATES AS OF THE CUT-OFF DATE
<CAPTION>
NUMBER OF PERCENT BY
MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
RANGE OF MORTGAGE RATES(%) LOANS DATE BALANCE DATE BALANCE
-------------------------- ----- ------------ ------------
<S> <C> <C> <C>
-------------- ------------------- --------------------
Total.......................................... ============== =================== ====================
</TABLE>
Weighted Average
Mortgage Rate (All Mortgage Loans):
______% per annum
Weighted Average
Mortgage Rate (ARM Loans): ____% per annum
Weighted Average
Mortgage Rate (Fixed Rate Loans): _____% per annum
<TABLE>
GROSS MARGINS FOR THE ARM LOANS
<CAPTION>
PERCENT BY
NUMBER OF AGGREGATE CUT-OFF AGGREGATE CUT-OFF
RANGE OF GROSS MARGINS(%) ARM LOANS DATE BALANCE DATE BALANCE
------------------------- --------- ------------ ------------
<S> <C> <C> <C>
-------------- ------------------ -------------------
Total............................................ ============== ================== ===================
</TABLE>
Weighted Average
Gross Margin: ____%
<PAGE>
S-13
<TABLE>
FREQUENCY OF ADJUSTMENTS TO MORTGAGE RATES AND MONTHLY PAYMENTS FOR THE ARM LOANS
<CAPTION>
Monthly
Mortgage Rate Payment Number of Percent by
Adjustment Adjustment Mortgage Aggregate Cut-off Aggregate Cut-off
Frequency Frequency Loans Date Balance Date Balance
--------- --------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
-------------- ------------------ -------------------
Total..................
-------------- ------------------ -------------------
-------------- ------------------ -------------------
</TABLE>
<TABLE>
MAXIMUM LIFETIME MORTGAGE RATES FOR THE ARM LOANS
PERCENT BY
RANGE OF MAXIMUM NUMBER OF AGGREGATE CUT-OFF AGGREGATE CUT-OFF
LIFETIME MORTGAGE RATES(%) ARM LOANS DATE BALANCE DATE BALANCE
-------------------------- --------- ------------ ------------
<S> <C> <C> <C>
Total..........................................
-------------- ------------------ -------------------
-------------- ------------------ -------------------
</TABLE>
Weighted Average Maximum Lifetime
Mortgage Rate (ARM Loans): _____% per annum (A)
- -----------------
(A) This calculation does not include the __________ ARM Loans without maximum
lifetime Mortgage Rates.
<TABLE>
MINIMUM LIFETIME MORTGAGE RATES FOR THE ARM LOANS
<CAPTION>
PERCENT BY
RANGE OF MINIMUM NUMBER OF AGGREGATE CUT-OFF AGGREGATE CUT-OFF
LIFETIME MORTGAGE RATES(%) ARM LOANS DATE BALANCE DATE BALANCE
-------------------------- --------- ------------ ------------
<S> <C> <C> <C>
Total..........................................
-------------- ------------------ -------------------
-------------- ------------------ -------------------
</TABLE>
Weighted Average Minimum Lifetime
Mortgage Rate (ARM Loans): _____% per annum (A)
- -----------------
(A) This calculation does not include the __________ ARM Loans without maximum
lifetime Mortgage Rates.
<PAGE>
S-14
<TABLE>
MAXIMUM ANNUAL MORTGAGE RATES FOR THE ARM LOANS
<CAPTION>
PERCENT BY
RANGE OF MAXIMUM NUMBER OF AGGREGATE CUT-OFF AGGREGATE CUT-OFF
ANNUAL MORTGAGE RATES(%) ARM LOANS DATE BALANCE DATE BALANCE
------------------------ --------- ------------ ------------
<S> <C> <C> <C>
Total..........................................
-------------- ------------------ -------------------
-------------- ------------------ -------------------
</TABLE>
Weighted Average Maximum Annual
Mortgage Rate (ARM Loans): _____% per annum (A)
- -----------------
(A) This calculation does not include the __________ ARM Loans without maximum
annual Mortgage Rates.
<TABLE>
MINIMUM ANNUAL MORTGAGE RATES FOR THE ARM LOANS
<CAPTION>
PERCENT BY
RANGE OF MINIMUM NUMBER OF AGGREGATE CUT-OFF AGGREGATE CUT-OFF
ANNUAL MORTGAGE RATES(%) ARM LOANS DATE BALANCE DATE BALANCE
------------------------ --------- ------------ ------------
<S> <C> <C> <C>
Total..........................................
-------------- ------------------ -------------------
-------------- ------------------ -------------------
</TABLE>
Weighted Average Minimum Annual
Mortgage Rate (ARM Loans): _____% per annum (A)
- -----------------
(A) This calculation does not include the __________ ARM Loans without maximum
annual Mortgage Rates.
<PAGE>
S-15
<TABLE>
CUT-OFF DATE BALANCES
<CAPTION>
NUMBER OF PERCENT BY
CUT-OFF DATE MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
BALANCE RANGE ($) LOANS DATE BALANCE DATE BALANCE
----------------- ----- ------------ ------------
<S> <C> <C> <C>
-------------- ------------------ -------------------
Total...............................................
-------------- ------------------ -------------------
-------------- ------------------ -------------------
</TABLE>
Average Cut-off Date
Balance (All Mortgage
Loans): $____________
Average Cut-off Date
Balance (ARM Loans): $____________
Average Cut-off Date
Balance (Fixed Rate Loans): $____________
<PAGE>
S-16
<TABLE>
ORIGINAL TERM TO STATED MATURITY (IN MONTHS)
<CAPTION>
NUMBER OF PERCENT BY
RANGE OF ORIGINAL MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
TERMS (IN MONTHS) LOANS DATE BALANCE DATE BALANCE
----------------- ----- ------------ ------------
<S> <C> <C> <C>
-------------- ------------------------- ---------------------
Total.........................................
-------------- ------------------------- ---------------------
-------------- ------------------------- ---------------------
</TABLE>
Weighted Average Original
Term to Stated Maturity
(All Mortgage Loans): ____ months
Weighted Average Original
Term to Stated Maturity
(ARM Loans): ____ months
Weighted Average Original
Term to Stated Maturity
(Fixed Rate Loans): ____ months
<TABLE>
REMAINING TERM TO STATED MATURITY (IN MONTHS)
AS OF THE CUT-OFF DATE
<CAPTION>
NUMBER OF PERCENT BY
RANGE OF REMAINING MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
TERMS (IN MONTHS) LOANS DATE BALANCE DATE BALANCE
----------------- ----- ------------ ------------
<S> <C> <C> <C>
-------------- ------------------------- -------------------
Total.........................................
-------------- ------------------------- -------------------
-------------- ------------------------- -------------------
</TABLE>
Weighted Average Remaining
Term to Stated Maturity
(All Mortgage Loans): ___ months
Weighted Average Remaining
Term to Stated Maturity
(ARM Loans): ___ months
Weighted Average Remaining
Term to Stated Maturity
(Fixed Rate Loans): ___ months
<PAGE>
S-17
<TABLE>
YEAR OF ORIGINATION
<CAPTION>
NUMBER OF PERCENT BY
MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
YEAR LOANS DATE BALANCE DATE BALANCE
---- ----- ------------ ------------
<S> <C> <C> <C>
-------------- ------------------------- -------------------
Total.........................................
-------------- ------------------------- -------------------
-------------- ------------------------- -------------------
</TABLE>
<TABLE>
YEAR OF SCHEDULED MATURITY
<CAPTION>
NUMBER OF PERCENT BY
MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
YEAR LOANS DATE BALANCE DATE BALANCE
---- ----- ------------ ------------
<S> <C> <C> <C>
--------------------- ------------------ -------------------
Total.........................
--------------------- ------------------ -------------------
--------------------- ------------------ -------------------
</TABLE>
<PAGE>
S-18
The following table sets forth a range of Debt Service Coverage Ratios for
the Mortgage Loans. The "Debt Service Coverage Ratio" set forth in the following
table for any Mortgage Loan is the ratio of (i) Net Operating Income produced by
the related Mortgaged Property for the period (annualized if the period was less
than one year) covered by the most recent operating statement available to the
Depositor to (ii) the amount of the Monthly Payment in effect as of the Cut-off
Date multiplied by 12. "Net Operating Income" is the revenue derived from the
use and operation of a Mortgaged Property (consisting primarily of rental income
and deposit forfeitures), less operating expenses (such as utilities, general
administrative expenses, management fees, advertising, repairs and maintenance),
and further less fixed expenses (such as insurance and real estate taxes). Net
Operating Income generally does not reflect capital expenditures. The following
table was prepared using operating statements obtained from the respective
mortgagors or the related property managers. In each case, the information
contained in such operating statements was unaudited, and the Depositor has made
no attempt to verify its accuracy. In the case of _____ Mortgage Loans (____ ARM
Loans and ____ Fixed Rate Loans), representing __% of the Initial Pool Balance,
operating statements could not be obtained, and accordingly, Debt Service
Coverage Ratios for those Mortgage Loans were not calculated. The last day of
the period (which may not correspond to the end of the calendar year most recent
to the Cut-off Date) covered by each operating statement from which a Debt
Service Coverage Ratio was calculated is set forth in Annex A with respect to
the related Mortgage Loan.
<TABLE>
DEBT SERVICE COVERAGE RATIOS(A)
<CAPTION>
RANGE OF NUMBER OF PERCENT BY
DEBT SERVICE MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
COVERAGE RATIOS LOANS DATE BALANCE DATE BALANCE
--------------- ----- ------------ ------------
<S> <C> <C> <C>
Not Calculated(B).............. -------------- --------------------------- -------------------
Total..........................
-------------- --------------------------- -------------------
-------------- --------------------------- -------------------
</TABLE>
Weighted Average
Debt Service Coverage
Ratio (All Mortgage
Loans): _____x(C)
Weighted Average
Debt Service Coverage
Ratio (ARM Loans): _____x(D)
Weighted Average
Debt Service Coverage
Ratio (Fixed Rate Loans): _____x(E)
- -------------------
(A) The Debt Service Coverage Ratios are based on the most recently
available operating statements obtained from the respective mortgagors
or the related property managers.
(B) The Debt Service Coverage Ratios for these Mortgage Loans were not
calculated due to a lack of available operating statements.
(C) This calculation does not include the ________ Mortgage Loans as to
which Debt Service Coverage Ratios were not calculated.
(D) This calculation does not include the ________ ARM Loans as to which
Debt Service Coverage Ratios were not calculated.
(E) This calculation does not include the ________ Fixed Rate Loans as to
which Debt Service Coverage Ratios were not calculated.
<PAGE>
S-19
The following tables set forth the range of LTV Ratios of the Mortgage
Loans at origination and the Cut-off Date. An "LTV Ratio" for any Mortgage Loan,
as of any date of determination, is a fraction, expressed as a percentage, the
numerator of which is the original principal balance of such Mortgage Loan or
the Cut-off Date Balance of such Mortgage Loan, as applicable, and the
denominator of which is the appraised value of the related Mortgaged Property as
determined by an appraisal thereof obtained in connection with the origination
of such Mortgage Loan. Because it is based on the value of a Mortgaged Property
determined as of loan origination, the information set forth in the table below
is not necessarily a reliable measure of the related borrower's current equity
in each Mortgaged Property. In a declining real estate market, the fair market
value of a Mortgaged Property could have decreased from the value determined at
origination, and the current actual loan-to-value ratio of a Mortgage Loan may
be higher than even its LTV Ratio at origination, notwithstanding taking into
account amortization since origination.
<TABLE>
LTV RATIOS AT ORIGINATION
<CAPTION>
NUMBER OF PERCENT BY
RANGE OF ORIGINAL MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
LTV RATIOS(%) LOANS DATE BALANCE DATE BALANCE
------------- ----- ------------ ------------
<S> <C> <C> <C>
--------------------- ------------------ ------------------
Total...................
--------------------- ------------------ ------------------
--------------------- ------------------ ------------------
</TABLE>
Weighted Average Original
LTV Ratio (All Mortgage
Loans): _____%
Weighted Average Original
LTV Ratio (ARM Loans):
-----%
Weighted Average Original
LTV Ratio (Fixed Rate
Loans): _____%
<PAGE>
S-20
<TABLE>
LTV RATIOS AT CUT-OFF DATE
<CAPTION>
NUMBER OF PERCENT BY
RANGE OF LTV RATIOS(% MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
AS OF CUT-OFF DATE LOANS DATE BALANCE DATE BALANCE
------------------ ----- ------------ ------------
<S> <C> <C> <C>
--------------------- ------------------ ------------------
Total...................
--------------------- ------------------ ------------------
--------------------- ------------------ ------------------
</TABLE>
Weighted Average LTV
Ratio as of Cut-off Date
(All Mortgage Loans):
-----%
Weighted Average LTV
Ratio as of Cut-off Date
(ARM Loans): _____%
Weighted Average LTV
Ratio as of Cut-off Date
(Fixed Rate Loans):
-----%
The Mortgage Loans are secured by Mortgaged Properties located in _____
different states. The following table sets forth the states in which the
Mortgaged Properties are located:
<TABLE>
GEOGRAPHIC DISTRIBUTION
<CAPTION>
NUMBER OF PERCENT BY
MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
STATE LOANS DATE BALANCE DATE BALANCE
----- ----- ------------ ------------
<S> <C> <C> <C>
--------------------- ------------------ -------------------
Total....................................
--------------------- ------------------ -------------------
--------------------- ------------------ -------------------
</TABLE>
No more than ___% of the Initial Pool Balance is secured by Mortgaged
Properties located in the same zip code area.
<PAGE>
S-21
<TABLE>
OCCUPANCY RATES
<CAPTION>
NUMBER OF PERCENT BY
RANGE OF MORTGAGE AGGREGATE CUT-OFF AGGREGATE CUT-OFF
OCCUPANCY RATES(A) LOANS DATE BALANCE DATE BALANCE
------------------ ----- ------------ ------------
<S> <C> <C> <C>
--------------------- ------------------ -------------------
Total....................................
--------------------- ------------------ -------------------
--------------------- ------------------ -------------------
</TABLE>
Weighted Average Occupancy Rate (All
Mortgage Loans)(A): _____%
Weighted Average Occupancy Rate
(ARM Loans)(A): _____%
Weighted Average Occupancy Rate
(Fixed Rate Loans)(A): _____%
- ---------------------------------
(A) Physical occupancy rates calculated based on rent rolls provided by the
respective Mortgagors or related property managers as of a date no more
than ___ months prior to the Cut-off Date.
<TABLE>
PREPAYMENT RESTRICTIONS IN EFFECT AS OF THE CUT-OFF DATE
<CAPTION>
WEIGHTED AVERAGES
% BY CUM. --------------------------------------------------------------
AGGREGATE AGGREGATE % OF INDICATIVE
CUT-OFF CUT-OFF INITIAL STATED REMAINING CUT-OFF
PREPAYMENT NUMBER DATE DATE POOL MORTGAGE REMAINING AMORT. IMPLIED DATE
RESTRICTIONS OF LOANS BALANCE BALANCE BALANCE RATE TERM (MO.) TERM (MO.) DSCR DSCR LTV
------------ -------- ---------- ---------- ------- -------- ----------- ----------- ---- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Locked Out (A)
Yield Maintenance (B)
Declining Percentage Premium
____% Premium
____% Premium
No Prepayment Restrictions
TOTALS
</TABLE>
- ------------------
(A) The weighted average term to the expiration of the lock-out periods is
___ years. _____ of the Mortgage Loans within their lock-out periods
are subject to declining percentage Prepayment Premiums after the
expiration of their lock-out periods; the remaining Mortgage Loans are
subject to a yield maintenance-type Prepayment Premium following such
expiration.
(B) All Mortgage Loans subject to yield maintenance-type Prepayment
Premiums remain subject to payment of the Prepayment Premium until at
least ___ months prior to maturity.
<PAGE>
S-22
Specified in Annex A to this Prospectus Supplement are the foregoing
and certain additional characteristics of the Mortgage Loans set forth on a
loan-by-loan basis. Certain additional information regarding the Mortgage Loans
is contained herein under "-Underwriting Standards" and "-Representations and
Warranties; Repurchases" and in the Prospectus under "Description of the Trust
Funds-Mortgage Loans" and "Certain Legal Aspects of Mortgage Loans".
[DELINQUENCIES. As of the Cut-off Date, [no] Mortgage Loan was more
than 30 days delinquent in respect of any Monthly Payment.]
THE MORTGAGE LOAN SELLER
GENERAL. [The Mortgage Loans Seller [, a wholly-owned subsidiary of
__________,] is a _________________ organized in 19___ under the laws of
__________________. As of December 31, 199_, the Mortgage Loan Seller had a net
worth of approximately $_________________, and currently holds and services for
its own account a total residential and commercial mortgage loan portfolio of
approximately $__________________, of which approximately $__________________
constitutes multifamily mortgage loans.]
The information set forth herein concerning the Mortgage Loan Seller
and its underwriting standards has been provided by the Mortgage Loan Seller,
and neither the Depositor nor the Underwriter makes any representation or
warranty as to the accuracy or completeness of such information.
UNDERWRITING STANDARDS
[All of the Mortgage Loans were originated or acquired by the Mortgage
Loan Seller, generally in accordance with the underwriting criteria described
herein.
[Description of underwriting standards.]
The Depositor believes that the Mortgage Loans selected for inclusion
in the Mortgage Pool from the Mortgage Loan Seller's portfolio were not so
selected on any basis which would have a material adverse effect on the
Certificateholders.]
REPRESENTATIONS AND WARRANTIES; REPURCHASES
In the Purchase Agreement, the Mortgage Loan Seller has represented and
warranted with respect to each Mortgage Loan, as of [the Delivery Date], or as
of such other date specifically provided in the representation and warranty,
among other things, that:
[Specify significant representations and warranties.]
If the Mortgage Loan Seller has been notified of a material breach of
any of the foregoing representations and warranties as described in the
Prospectus and if the Mortgage Loan Seller cannot cure such breach within a
period of 90 days following its receipt of such notice, then the Mortgage Loan
Seller will be obligated pursuant to the Purchase Agreement (the relevant rights
under which will be assigned, together with its interests in the Mortgage Loans,
by the Depositor to the Trustee) to repurchase the affected Mortgage Loan within
such 90-day period at a price (the "Purchase Price") equal to the sum of (i) the
unpaid principal balance of such Mortgage Loan, (ii) unpaid accrued interest on
such Mortgage Loan at the Mortgage Rate from the date to which interest was last
paid to the Due Date in the Due Period in which the purchase is to occur, and
(iii) certain servicing expenses that are reimbursable to the Master Servicer.
The foregoing repurchase obligation will constitute the sole remedy
available to the Certificateholders and the Trustee for any breach of the
Mortgage Loan Seller's representations and warranties regarding the Mortgage
Loans. The Mortgage Loan Seller will be the sole Warranting Party in respect of
the Mortgage Loans, and none of the Depositor, the Master Servicer, GMAC
Commercial Mortgage Corporation or any of their affiliates [(other than the
Mortgage Loan
<PAGE>
S-23
Seller)] will be obligated to repurchase any affected Mortgage Loan in
connection with a breach of the Mortgage Loan Seller's representations and
warranties if the Mortgage Loan Seller defaults on its obligation to do so.
However, the Depositor will not include any Mortgage Loan in the Mortgage Pool
if anything has come to the Depositor's attention prior to the Closing Date that
would cause it to believe that the representations and warranties made by the
Mortgage Loan Seller regarding such Mortgage Loan will not be correct in all
material respects. See "The Pooling and Servicing Agreements-Representations and
Warranties; Repurchases" in the Prospectus.
CHANGES IN MORTGAGE POOL CHARACTERISTICS
The description in this Prospectus Supplement of the Mortgage Pool and
the Mortgaged Properties is based upon the Mortgage Pool as expected to be
constituted at the time the Offered Certificates are issued, as adjusted for the
scheduled principal payments due on or before the Cut-off Date. Prior to the
issuance of the Offered Certificates, a Mortgage Loan may be removed from the
Mortgage Pool if the Depositor deems such removal necessary or appropriate or if
it is prepaid. A limited number of other mortgage loans may be included in the
Mortgage Pool prior to the issuance of the Offered Certificates, unless
including such Mortgage Loans would materially alter the characteristics of the
Mortgage Pool as described herein. The Depositor believes that the information
set forth herein will be representative of the characteristics of the Mortgage
Pool as it will be constituted at the time the Offered Certificates are issued,
although the range of Mortgage Rates and maturities and certain other
characteristics of the Mortgage Loans in the Mortgage Pool may vary.
A Current Report on Form 8-K (the "Form 8-K") will be available to
purchasers of the Offered Certificates on or shortly after the Delivery Date and
will be filed, together with the Pooling and Servicing Agreement, with the
Securities and Exchange Commission within fifteen days after the initial
issuance of the Offered Certificates. In the event Mortgage Loans are removed
from or added to the Mortgage Pool as set forth in the preceding paragraph, such
removal or addition will be noted in the Form 8-K.
THE MASTER SERVICER
GMAC Commercial Mortgage Corporation, a corporation duly organized and
existing under the laws of the State of California, will act as Master Servicer
with respect to the Mortgage Pool. As of the end of the most recent calendar
quarter, the Master Servicer had a net worth of approximately $__________, and a
total mortgage loan servicing portfolio of approximately $___________.
Set forth below is a description of certain pertinent provisions of the
Pooling and Servicing Agreement relating to the servicing of the Mortgage Loans.
Reference is also made to the Prospectus, in particular to the section captioned
"The Pooling and Servicing Agreements", for important information in addition to
that set forth herein regarding the terms and conditions of the Pooling and
Servicing Agreement as they relate to the rights and obligations of the Master
Servicer thereunder. Also see "GMAC Commercial Mortgage Corporation" in the
Prospectus.
DELINQUENCY EXPERIENCE
The following table summarizes the delinquency information with respect
to the entire commercial and multifamily mortgage portfolio of the Master
Servicer, [net of those mortgage loans serviced by the Master Servicer which are
guaranteed by the Federal Housing Administrator]. Many of the mortgage loans
included in the portfolio were originated by other entities or serviced by other
entities prior to the acquisition of the related servicing rights by the Master
Servicer. To the extent that mortgage loans in the portfolio were serviced for
other entities which own such mortgage loans as whole loans, the Master Servicer
does not have information with respect to the foreclosure and loss experience
thereof. The data presented in the following table is for illustrative purposes
only, and there is no assurance that the delinquency experience of the Mortgage
Loans will be similar to that set forth below.
<PAGE>
S-24
<TABLE>
DELINQUENCY EXPERIENCE
OF COMMERCIAL AND MULTIFAMILY MORTGAGE LOAN PORTFOLIO
<CAPTION>
AT , 199 AT , 199
------------------------------------------------------- -----------------------------------------
A
PERCENTAGE OF
TOTAL PERCENTAGE OF
NUMBER OF AGGREGATE PORTFOLIO BY NUMBER OF AGGREGATE TOTAL PORTFOLIO
LOANS BOOK VALUE BOOK VALUE LOANS BOOK VALUE BY BOOK VALUE
----- ---------- ---------- ----- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio
Total delinquencies of
30-59 days
Total delinquencies of
60-89 days
Total delinquencies of
90 or more days(1)
Total delinquencies of
30 or more days(1)
</TABLE>
- ---------------
(1) Figures do not include mortgage loans in foreclosure or mortgage loans the
servicing of which has been transferred or repurchased as a result of the
delinquency.
[FORECLOSURE AND LOSS EXPERIENCE
The following tables summarize the foreclosure and loss information
with respect to that portion of the Master Servicer's commercial and multifamily
mortgage portfolio which the Master Servicer services for its own account or for
investors in securitized mortgage loan pools. The data presented in the
following tables is for illustrative purposes only, and there is no assurance
that the foreclosure and loss experience of the Mortgage Loans will be similar
to that set forth below.
<TABLE>
FORECLOSURE EXPERIENCE OF COMMERCIAL AND MULTIFAMILY MORTGAGE LOANS
<CAPTION>
AT , 199 AT , 199
------------------------------------------------------- -----------------------------------------
PERCENTAGE OF
TOTAL PERCENTAGE OF
NUMBER OF AGGREGATE PORTFOLIO BY NUMBER OF AGGREGATE TOTAL PORTFOLIO
LOANS BOOK VALUE BOOK VALUE LOANS BOOK VALUE BY BOOK VALUE
----- ---------- ---------- ----- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio
Total loans in process of
foreclosure(1)
</TABLE>
- ----------
(1) Loans in process of foreclosure are loans for which foreclosure proceedings
had commenced on the dates indicated.
<PAGE>
S-25
<TABLE>
LOSS EXPERIENCE OF COMMERCIAL AND MULTIFAMILY MORTGAGE LOANS
<CAPTION>
_________ ENDING ___________, 199_ _________ ENDING ___________, 199_
<S> <C> <C>
Average Amount Outstanding(1)
Gross Losses(2)
Net Losses(3)
Gross Losses as a Percentage of
Average Amount Outstanding
Net Losses as a Percentage of
Average Amount Outstanding
</TABLE>
- ----------
(1) "Average Amount Outstanding" is computed using the beginning-of-period and
the end-of-period aggregate loan balances.
(2) "Gross Losses" refer to actual losses incurred on liquidated properties for
each respective period. Losses include all principal, foreclosure costs and
accrued interest to date. (3) "Net Losses" refer to "Gross Losses" minus all
recoveries on the related mortgage loan including, but not limited to,
recoveries from insurance, liquidation proceeds and deficiency judgments.]
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal compensation to be paid to the Master Servicer in respect
of its master servicing activities will be the Servicing Fee. The "Servicing
Fee" will be payable monthly on a loan-by-loan basis from amounts received in
respect of interest on each Mortgage Loan, will accrue in accordance with the
terms of the related Mortgage Note at a rate equal to ________% per annum (the
"Servicing Fee Rate") and will be computed on the basis of the same principal
amount and for the same period respecting which any related interest payment on
the related Mortgage Loan is computed. As additional servicing compensation, the
Master Servicer will be entitled to retain all Prepayment Premiums, assumption
and modification fees, late charges and penalty interest and, as and to the
extent described in the next paragraph, Prepayment Interest Excesses collected
from mortgagors. In addition, the Master Servicer is authorized but not required
to invest or direct the investment of funds held in the Certificate Account in
Permitted Investments, and the Master Servicer will be entitled to retain any
interest or other income earned on such funds.
[If a borrower voluntarily prepays a Mortgage Loan in whole or in part
during any Due Period (as defined herein) on a date that is prior to its Due
Date in such Due Period, a Prepayment Interest Shortfall may result. If such a
principal prepayment occurs during any Due Period after the Due Date for such
Mortgage Loan in such Due Period, the amount of interest (net of related
Servicing Fees) that accrues on the amount of such principal prepayment may
exceed (such excess, a "Prepayment Interest Excess") the corresponding amount of
interest accruing on the Certificates. As to any Due Period, to the extent
Prepayment Interest Excesses collected for all Mortgage Loans are greater than
Prepayment Interest Shortfalls incurred, such excess will be paid to the Master
Servicer as additional servicing compensation.]
[As and to the extent described herein under "Description of the
Certificates-Advances", the Master Servicer will be entitled to receive interest
on Advances and reimbursable servicing expenses, such interest to be paid,
contemporaneously with the reimbursement of the related Advance or servicing
expense, out of any other collections on the Mortgage Loans.]
The Master Servicer generally will be required to pay all expenses
incurred by it in connection with its servicing activities under the Pooling and
Servicing Agreement, and will not be entitled to reimbursement therefor except
as expressly provided in the Pooling and Servicing Agreement. However, the
Master Servicer will be permitted to pay certain such expenses directly out of
the Certificate Account and at times without regard to the relationship between
the expense and the funds from which it is being paid. In connection therewith,
the Master Servicer will be responsible for
<PAGE>
S-26
all fees of any sub-servicers, other than management fees earned in connection
with the operation of an REO Property, which management fees the Master Servicer
will be authorized to pay out of revenues received from such property (thereby
reducing the portion of such revenues that would otherwise be available for
distribution to Certificateholders). See "Description of the
Certificates-Distributions-Method, Timing and Amount" herein and "The Pooling
and Servicing Agreements-Certificate Account" and "-Servicing Compensation and
Payment of Expenses" in the Prospectus.
MODIFICATIONS, WAIVERS AND AMENDMENTS
The Master Servicer may, consistent with its normal servicing
practices, agree to modify, waive or amend any term of any Mortgage Loan,
without the consent of the Trustee or any Certificateholder, subject, however,
to each of the following limitations, conditions and restrictions:
(i) with limited exception, the Master Servicer may not agree
to any modification, waiver or amendment that will (i) affect the
amount or timing of any scheduled payments of principal or interest on
the Mortgage Loan or (ii) in its judgment, materially impair the
security for the Mortgage Loan or reduce the likelihood of timely
payment of amounts due thereon; unless, in any such case, in the Master
Servicer's judgment, a material default on the Mortgage Loan has
occurred or a payment default is reasonably foreseeable, and such
modification, waiver or amendment is reasonably likely to produce a
greater recovery with respect to the Mortgage Loan, taking into account
the time value of money, than would liquidation.
(ii) [describe additional limitations to permitted
modification standards]
The Master Servicer will notify the Trustee of any modification, waiver
or amendment of any term of any Mortgage Loan, and must deliver to the Trustee
or the related Custodian, for deposit in the related Mortgage File, an original
counterpart of the agreement related to such modification, waiver or amendment,
promptly (and in any event within [10] business days) following the execution
thereof. Copies of each agreement whereby any such modification, waiver or
amendment of any term of any Mortgage Loan is effected are to be available for
review during normal business hours at the offices of the [Trustee]. See
"Description of the Certificates-Reports to Certificateholders; Certain
Available Information" herein.
INSPECTIONS; COLLECTION OF OPERATING INFORMATION
The Master Servicer will perform physical inspections of each Mortgaged
Property at such times and in such manner as are consistent with the Master
Servicer's normal servicing procedures, but in any event (i) at least once per
calendar year, commencing in the calendar year _______, and (ii), if any
scheduled payment becomes more than 60 days delinquent on the related Mortgage
Loan, as soon as practicable thereafter. The Master Servicer will prepare a
written report of each such inspection describing the condition of the Mortgaged
Property and specifying the existence of any material vacancies in the Mortgaged
Property, of any sale, transfer or abandonment of the Mortgaged Property, of any
material change in the condition or value of the Mortgaged Property, or of any
waste committed thereon.
With respect to each Mortgage Loan that requires the borrower to
deliver such statements, the Master Servicer is also required to collect and
review the annual operating statements of the related Mortgaged Property. [Most]
of the Mortgages obligate the related borrower to deliver annual property
operating statements. However, there can be no assurance that any operating
statements required to be delivered will in fact be delivered, nor is the Master
Servicer likely to have any practical means of compelling such delivery in the
case of an otherwise performing Mortgage Loan.
Copies of the inspection reports and operating statements referred to
above are to be available for review by Certificateholders during normal
business hours at the offices of the [Trustee]. See "Description of the
Certificates-Reports to Certificateholders; Certain Available Information"
herein.
<PAGE>
S-27
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement and will represent in the aggregate the entire beneficial ownership
interest in a Trust Fund consisting of: (i) the Mortgage Loans and all payments
under and proceeds of the Mortgage Loans received after the Cut-off Date
(exclusive of payments of principal and interest due on or before the Cut-off
Date); (ii) any Mortgaged Property acquired on behalf of the Trust Fund through
foreclosure, deed in lieu of foreclosure or otherwise (upon acquisition, an "REO
Property"); (iii) such funds or assets as from time to time are deposited in the
Certificate Account; (iv) the rights of the mortgagee under all insurance
policies with respect to the Mortgage Loans; and (v) certain rights of the
Depositor under the Purchase Agreement relating to Mortgage Loan document
delivery requirements and the representations and warranties of the Mortgage
Loan Seller regarding the Mortgage Loans.
The Certificates will consist of the following four Classes: (i) the
Class A Certificates and the Class R Certificates (collectively, the "Senior
Certificates"); (ii) the Class B Certificates; and (iii) the Class C
Certificates. The Class A Certificates will have an initial Certificate Balance
of $____________, which represents ____% of the Initial Pool Balance; the Class
B Certificates will have an initial Certificate Balance of $____________, which
represents ____% of the Initial Pool Balance; the Class C Certificates will have
an initial Certificate Balance of $____________, which represents ___% of the
Initial Pool Balance; and the Class R Certificates will have an initial
Certificate Balance of $100. The Certificate Balance of any Class of
Certificates outstanding at any time represents the maximum amount which the
holders thereof are entitled to receive as distributions allocable to principal
from the cash flow on the Mortgage Loans and the other assets in the Trust Fund.
On each Distribution Date, the Certificate Balance of each Class of Certificates
will be reduced by any distributions of principal actually made on, and any
Collateral Support Deficit actually allocated to, such Class of Certificates on
such Distribution Date.
Only the Senior Certificates and the Class B Certificates (collectively
the "Offered Certificates") are offered hereby. The Class C Certificates have
not been registered under the Securities Act of 1933 and are not offered hereby.
The Class A Certificates will be issued, maintained and transferred on
the book-entry records of DTC and its Participants in denominations of $25,000
and integral multiples of $1 in excess thereof. The Class B Certificates will be
issued in fully registered, certificated form in denominations of $100,000 and
integral multiples of $1,000 in excess thereof, with one Class B Certificate
evidencing an additional amount equal to the remainder of the initial
Certificate Balance of such Class. The Class R Certificates will be issued in
registered, certificated form in minimum denominations of 20% Percentage
Interest in such Class. The "Percentage Interest" evidenced by any Offered
Certificate is equal to the initial denomination thereof as of the Delivery
Date, divided by the initial Certificate Balance of the Class to which it
belongs.
The Class A Certificates will initially be represented by one or more
global Certificates registered in the name of the nominee of DTC. The Depositor
has been informed by DTC that DTC's nominee will be Cede & Co. No Class A
Certificate Owner will be entitled to receive a Definitive Class A Certificate
representing its interest in such Class, except as set forth below under
"-Book-Entry Registration of the Class A Certificates-Definitive Class A
Certificates". Unless and until Definitive Class A Certificates are issued, all
references to actions by holders of the Class A Certificates will refer to
actions taken by DTC upon instructions received from Class A Certificate Owners
through its Participants, and all references herein to payments, notices,
reports and statements to holders of the Class A Certificates will refer to
payments notices, reports and statements to DTC or Cede & Co., as the registered
holder of the Class A Certificates, for distribution to Class A Certificate
Owners through its Participants in accordance with DTC procedures. See
"Description of the Certificates-Book-Entry Registration and Definitive
Certificates" in the Prospectus.
Until Definitive Class A Certificates are issued, interests in such
Class will be transferred on the book-entry records of DTC and its Participants.
Subject to certain restrictions on the transfer of such Certificates to Plans
(see "ERISA Considerations" herein), the Class B and Class R Certificates may be
transferred or exchanged at the offices of
<PAGE>
S-28
___________________________ located at _____________________________________,
without the payment of any service charges, other than any tax or other
governmental charge payable in connection therewith. ________________________
will initially serve as registrar (in such capacity, the "Certificate
Registrar") for purposes of recording and otherwise providing for the
registration of the Offered Certificates and of transfers and exchanges of the
Class B and, if issued, the Definitive Class A Certificates.
BOOK-ENTRY REGISTRATION OF THE CLASS A CERTIFICATES
GENERAL. Class A Certificate Owners that are not Direct or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, the Class A Certificates may do so only through Direct and
Indirect Participants. In addition, Class A Certificate Owners will receive all
distributions of principal of and interest on the Class A Certificates from the
Trustee through DTC and its Direct and Indirect Participants. Accordingly, Class
A Certificate Owners may experience delays in their receipt of payments. Unless
and until Definitive Class A Certificates are issued, it is anticipated that the
only registered Certificateholder of the Class A Certificates will be Cede &
Co., as nominee of DTC. Class A Certificate Owners will not be recognized by the
Trustee or the Master Servicer as Certificateholders, as such term is used in
the Pooling and Servicing Agreement, and Class A Certificate Owners will be
permitted to receive information furnished to Certificateholders and to exercise
the rights of Certificateholders only indirectly through DTC and its Direct and
Indirect Participants.
Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
of the Class A Certificates among Participants and to receive and transmit
distributions of principal of, and interest on, the Class A Certificates. Direct
and Indirect Participants with which Class A Certificate Owners have accounts
with respect to the Class A Certificates similarly are required to make
book-entry transfers and receive and transmit such distributions on behalf of
their respective Class A Certificate Owners. Accordingly, although Class A
Certificate Owners will not possess physical certificates evidencing their
interests in the Class A Certificates, the Rules provide a mechanism by which
Class A Certificate Owners, through their Direct and Indirect Participants, will
receive distributions and will be able to transfer their interests in the Class
A Certificates.
None of the Depositor, the Master Servicer or the Trustee will have any
liability for any actions taken by DTC or its nominee, including, without
limitation, actions for any aspect of the records relating to or payments made
on account of beneficial ownership interests in the Class A Certificates held by
Cede & Co., as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interest.
DEFINITIVE CLASS A CERTIFICATES. Definitive Class A Certificates will
be issued to Class A Certificate Owners or their nominees, respectively, rather
than to DTC or its nominee, only under the limited conditions set forth in the
Prospectus under "Description of the Certificates-Book-Entry Registration and
Definitive Certificates."
Upon the occurrence of an event described in the Prospectus in the last
paragraph under "Description of the Certificates-Book-Entry Registration and
Definitive Certificates," the Trustee is required to notify, through DTC, Direct
Participants who have ownership of Class A Certificates as indicated on the
records of DTC of the availability of Definitive Class A Certificates. Upon
surrender by DTC of the definitive certificates representing the Class A
Certificates and upon receipt of instructions from DTC for re-registration, the
Trustee will reissue the Class A Certificates as Definitive Class A Certificates
issued in the respective principal amounts owned by individual Class A
Certificate Owners, and thereafter the Trustee and the Master Servicer will
recognize the holders of such Definitive Class A Certificates as
Certificateholders under the Pooling and Servicing Agreement.
For additional information regarding DTC and Certificates maintained on
the book-entry records thereof, see "Description of the Certificates-Book-Entry
Registration and Definitive Certificates" in the Prospectus.
<PAGE>
S-29
DISTRIBUTIONS
METHOD, TIMING AND AMOUNT. Distributions on the Certificates will be
made by the [Trustee], to the extent of available funds, on the 25th day of each
month or, if any such 25th day is not a business day, then on the next
succeeding business day, commencing in _________ 199__ (each, a "Distribution
Date"). All such distributions (other than the final distribution on any
Certificate) will be made to the persons in whose names the Certificates are
registered at the close of business on each Record Date, which will be the last
business day of the month preceding the month in which the related Distribution
Date occurs. Each such distribution will be made by wire transfer in immediately
available funds to the account specified by the Certificateholder at a bank or
other entity having appropriate facilities therefor, if such Certificateholder
will have provided the [Trustee] with wiring instructions [no less than five
business days prior to the related Record Date (which wiring instructions may be
in the form of a standing order applicable to all subsequent distributions) and
is the registered owner of Certificates with an aggregate initial principal
amount of at least $5,000,000], or otherwise by check mailed to such
Certificateholder. The final distribution on any Certificate will be made in
like manner, but only upon presentation and surrender of such Certificate at the
location that will be specified in a notice of the pendency of such final
distribution. All distributions made with respect to a Class of Certificates
will be allocated PRO RATA among the outstanding Certificates of such Class
based on their respective Percentage Interests.
The aggregate amount available for distribution to Certificateholders
on each Distribution Date (the "Available Distribution Amount") will, in
general, equal the sum of the following amounts:
(a) the total amount of all cash received on the Mortgage
Loans and any REO Properties that is on deposit in the Certificate
Account as of the related Determination Date, exclusive of:
(i) all Monthly Payments collected but due on a
Due Date subsequent to the related Due
Period,
(ii) all principal prepayments (together with
related payments of interest thereon and
related Prepayment Premiums), Liquidation
Proceeds, Insurance Proceeds and other
unscheduled recoveries received subsequent
to the related Due Period, and
(iii) all amounts in the Certificate Account that
are due or reimbursable to any person other
than the Certificateholders; and
(b) all Advances made by the Master Servicer with respect
to such Distribution Date. See "The Pooling and Servicing
Agreements-Certificate Account" in the Prospectus.
The "Due Period" for each Distribution Date will be the period that
begins on the [second] day of the month preceding the month in which such
Distribution Date occurs and ends on the [first] day of the month in which such
Distribution Date occurs. For purposes of the discussion in the Prospectus, the
Due Period is also the Prepayment Period. The "Determination Date" for each
Distribution Date is the [15th] day of the month in which such Distribution Date
occurs or, if any such [15th] day is not a business day, then the next preceding
business day.
PRIORITY. On each Distribution Date, for so long as the Certificate
Balances of the Offered Certificates have not been reduced to zero, the
[Trustee] will (except as otherwise described under "-Termination; Retirement of
Certificates" below) apply amounts on deposit in the Certificate Account, to the
extent of the Available Distribution Amount, in the following order of priority:
(1) to distributions of interest to the holders of the
Senior Certificates in an amount equal to all
Distributable Certificate Interest in respect of the
Senior Certificates for such Distribution Date and,
to the extent not previously paid, for all prior
Distribution Dates;
<PAGE>
S-30
(2) to distributions of principal to the holders of the
Senior Certificates in an amount equal to the sum of
(a) the product of (i) the Senior Certificates'
Ownership Percentage (as calculated immediately prior
to such Distribution Date), multiplied by (ii) the
Scheduled Principal Distribution Amount for such
Distribution Date, plus (b) the entire Unscheduled
Principal Distribution Amount for such Distribution
Date (but not more than would be necessary to reduce
the aggregate Certificate Balance of the Senior
Certificates to zero);
(3) to distributions to the holders of the Class A
Certificates, until all amounts of Collateral Support
Deficit previously allocated to the Class A
Certificates, but not previously reimbursed, have
been reimbursed in full;
(4) to distributions of interest to the holders of the
Class B Certificates in an amount equal to all
Distributable Certificate Interest in respect of the
Class B Certificates for such Distribution Date and,
to the extent not previously paid, for all prior
Distribution Dates;
(5) to distributions of principal to the holders of the
Class B Certificates in an amount equal to the sum of
(a) the product of (i) the Class B Certificates'
Ownership Percentage (as calculated immediately prior
to such Distribution Date), multiplied by (ii) the
Scheduled Principal Distribution Amount for such
Distribution Date, plus (b) if the Certificate
Balances of the Senior Certificates have been reduced
to zero, then to the extent not distributed in
reduction of such Certificate Balances on such
Distribution Date, the entire Unscheduled Principal
Distribution Amount for such Distribution Date (but
not more than would be necessary to reduce the
Certificate Balance of the Class B Certificates to
zero);
(6) to distributions to the holders of the Class B
Certificates , until all amounts of Collateral
Support Deficit previously allocated to the Class B
Certificates, but not previously reimbursed, have
been reimbursed in full;
(7) to distributions of interest to the holders of the
Class C Certificates in an amount equal to all
Distributable Certificate Interest in respect of the
Class C Certificates for such Distribution Date and,
to the extent not previously distributed, for all
prior Distribution Dates;
(8) to distributions of principal to the holders of the
Class C Certificates in an amount equal to the
product of (a) the Class C Certificates' Ownership
Percentage (as calculated immediately prior to such
Distribution Date), multiplied by (b) the Scheduled
Principal Distribution Amount for such Distribution
Date;
(9) to distributions to the holders of the Class C
Certificates, until all amounts of Collateral Support
Deficit previously allocated to the Class C
Certificates, but not previously reimbursed, have
been reimbursed in full; and
(10) to distributions to the holders of the Class R
Certificates in an amount equal to the remaining
balance, if any, of the Available Distribution
Amount.
The distributions of principal to the holders of the Senior
Certificates as described in clause (2) above will be paid first to the holders
of the Class R Certificates until the Certificate Balance of such Certificates
is reduced to zero, and then to the holders of the Class A Certificates.
Accordingly, it is expected that the Certificate Balance of the Class R
Certificates would be reduced to zero on the initial Distribution Date and that
no other distributions of interest or principal would thereafter be made on the
Class R Certificates except pursuant to subparagraph (10) immediately above.
<PAGE>
S-31
Reimbursement of previously allocated Collateral Support Deficit will
not constitute distributions of principal for any purpose and will not result in
an additional reduction in the Certificate Balance of the Class of Certificates
in respect of which any such reimbursement is made.
PASS-THROUGH RATES. The Pass-Through Rate applicable to each Class of
Certificates for the initial Distribution Date will equal _______% per annum.
With respect to any Distribution Date subsequent to the initial Distribution
Date, the Pass-Through Rate for each Class of Certificates will equal the
weighted average of the applicable Effective Net Mortgage Rates for the Mortgage
Loans, weighted on the basis of their respective Stated Principal Balances
immediately prior to such Distribution Date. For purposes of calculating the
Pass-Through Rate for any Class of Certificates and any Distribution Date, the
"applicable Effective Net Mortgage Rate" for each Mortgage Loan is: (a) if such
Mortgage Loan accrues interest on the basis of a 360-day year consisting of
twelve 30-day months (a "360/360 basis", which is the basis of accrual for
interest on the Certificates), the Net Mortgage Rate in effect for such Mortgage
Loan as of the commencement of the related Due Period; and (b) if such Mortgage
Loan does not accrue interest on a 360/360 basis, the annualized rate at which
interest would have to accrue during the one month period preceding the Due Date
for such Mortgage Loan during the related Due Period on a 360/360 basis in order
to produce the aggregate amount of interest (adjusted to the actual Net Mortgage
Rate) accrued during such period. The "Net Mortgage Rate" for each Mortgage Loan
is equal to the related Mortgage Rate in effect from time to time less the
Servicing Fee Rate.
DISTRIBUTABLE CERTIFICATE INTEREST. The "Distributable Certificate
Interest" in respect of each Class of Certificates for each Distribution Date
represents that portion of the Accrued Certificate Interest in respect of such
Class of Certificates for such Distribution Date that is net of such Class's
allocable share (calculated as described below) of the aggregate of any
Prepayment Interest Shortfalls resulting from voluntary principal prepayments
made on the Mortgage Loans during the related Due Period that are not offset by
Prepayment Interest Excesses collected during the related Due Period (the
aggregate of such Prepayment Interest Shortfalls that are not so offset or
covered, as to such Distribution Date, the "Net Aggregate Prepayment Interest
Shortfall").
The "Accrued Certificate Interest" in respect of each Class of
Certificates for each Distribution Date is equal to one month's interest at the
Pass-Through Rate applicable to such Class of Certificates for such Distribution
Date accrued on the related Certificate Balance outstanding immediately prior to
such Distribution Date. Accrued Certificate Interest will be calculated on the
basis of a 360-day year consisting of twelve 30-day months.
The portion of the Net Aggregate Prepayment Interest Shortfall for any
Distribution Date that is allocable to each Class of Certificates will equal the
product of (a) such Net Aggregate Prepayment Interest Shortfall, multiplied by
(b) a fraction, the numerator of which is equal to the Accrued Certificate
Interest in respect of such Class of Certificates for such Distribution Date,
and the denominator of which is equal to the Accrued Certificate Interest in
respect of all the Classes of Certificates for such Distribution Date.
SCHEDULED PRINCIPAL DISTRIBUTION AMOUNT AND UNSCHEDULED PRINCIPAL
DISTRIBUTION AMOUNT. The "Scheduled Principal Distribution Amount" for each
Distribution Date will equal the aggregate of the principal portions of all
Monthly Payments, including Balloon Payments, due during or, if and to the
extent not previously received or advanced and distributed to Certificateholders
on a preceding Distribution Date, prior to the related Due Period, in each case
to the extent paid by the related borrower or advanced by the Master Servicer
and included in the Available Distribution Amount for such Distribution Date.
The Scheduled Principal Distribution Amount from time to time will include all
late payments of principal made by a borrower, including late payments in
respect of a delinquent Balloon Payment, regardless of the timing of such late
payments, except to the extent such late payments are otherwise reimbursable to
the Master Servicer for prior Advances.
The "Unscheduled Principal Distribution Amount" for each Distribution
Date will equal the aggregate of: (a) all voluntary prepayments of principal
received on the Mortgage Loans during the related Due Period; and (b) any other
collections (exclusive of payments by borrowers) received on the Mortgage Loans
and any REO Properties during the related Due Period, whether in the form of
Liquidation Proceeds, Insurance Proceeds, net income from REO Property
<PAGE>
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or otherwise, that were identified and applied by the Master Servicer as
recoveries of previously unadvanced principal of the related Mortgage Loan.
The respective amounts which constitute the Scheduled Principal
Distribution Amount and Unscheduled Principal Distribution Amount for any
Distribution Date are herein collectively referred to from time to time as the
"Distributable Principal".
The "Ownership Percentage" evidenced by any Class or Classes of
Certificates as of any date of determination will equal a fraction, expressed as
a percentage, the numerator of which is the then Certificate Balance(s) of such
Class(es) of Certificates, and the denominator of which is the then aggregate
Stated Principal Balance of the Mortgage Pool.
CERTAIN CALCULATIONS WITH RESPECT TO INDIVIDUAL MORTGAGE LOANS. The
"Stated Principal Balance" of each Mortgage Loan outstanding at any time
represents the principal balance of such Mortgage Loan ultimately due and
payable to the Certificateholders. The Stated Principal Balance of each Mortgage
Loan will initially equal the Cut-off Date Balance thereof and, on each
Distribution Date, will be reduced by the portion of the Distributable Principal
for such date that is attributable to such Mortgage Loan. The Stated Principal
Balance of a Mortgage Loan may also be reduced in connection with any forced
reduction of the actual unpaid principal balance thereof imposed by a court
presiding over a bankruptcy proceeding wherein the related borrower is the
debtor. See "Certain Legal Aspects of Mortgage Loans-Foreclosure-Bankruptcy
Laws" in the Prospectus. If any Mortgage Loan is paid in full or such Mortgage
Loan (or any Mortgaged Property acquired in respect thereof) is otherwise
liquidated, then, as of the first Distribution Date that follows the end of the
Due Period in which such payment in full or liquidation occurred, and
notwithstanding that a loss may have occurred in connection with any such
liquidation, the Stated Principal Balance of such Mortgage Loan shall be zero.
For purposes of calculating distributions on, and allocations of
Collateral Support Deficit to, the Certificates, as well as for purposes of
calculating the amount of Servicing Fees payable each month, each REO Property
will be treated as if there exists with respect thereto an outstanding mortgage
loan (an "REO Loan"), and all references to "Mortgage Loan", "Mortgage Loans"
and "Mortgage Pool" herein and in the Prospectus, when used in such context,
will be deemed to also be references to or to also include, as the case may be,
any "REO Loans". Each REO Loan will generally be deemed to have the same
characteristics as its actual predecessor Mortgage Loan, including the same
adjustable or fixed Mortgage Rate (and, accordingly, the same Net Mortgage Rate
and Effective Net Mortgage Rate) and the same unpaid principal balance and
Stated Principal Balance. Amounts due on such predecessor Mortgage Loan,
including any portion thereof payable or reimbursable to the Master Servicer,
will continue to be "due" in respect of the REO Loan; and amounts received in
respect of the related REO Property, net of payments to be made, or
reimbursement to the Master Servicer for payments previously advanced, in
connection with the operation and management of such property, generally will be
applied by the Master Servicer as if received on the predecessor Mortgage Loan.
However, notwithstanding the terms of the predecessor Mortgage Loan, the Monthly
Payment "due" on an REO Loan will in all cases, for so long as the related
Mortgaged Property is part of the Trust Fund, be deemed to equal one month's
interest thereon at the applicable Mortgage Rate.
SUBORDINATION; ALLOCATION OF COLLATERAL SUPPORT DEFICIT
The rights of holders of the Class B Certificates and the Class C
Certificates to receive distributions of amounts collected or advanced on the
Mortgage Loans will be subordinated, to the extent described herein, to the
rights of holders of the Senior Certificates; and the rights of holders of the
Class C Certificates to receive distributions of amounts collected or advanced
on the Mortgage Loans will be subordinated, to the extent described herein, to
the rights of holders of the Class B Certificates. This subordination is
intended to enhance the likelihood of timely receipt by the holders of the
Senior Certificates of the full amount of all Distributable Certificate Interest
payable in respect of such Certificates on each Distribution Date, and the
ultimate receipt by such holders of principal in an amount equal to the entire
aggregate Certificate Balance of the Senior Certificates. Similarly, but to a
lesser degree, this subordination is also intended to enhance the likelihood of
timely receipt by the holders of the Class B Certificates of the full amount of
all Distributable
<PAGE>
S-33
Certificate Interest payable in respect of such Certificates on each
Distribution Date, and the ultimate receipt by such holders of principal in an
amount equal to the entire Certificate Balance of the Class B Certificates. This
subordination will be accomplished by the application of the Available
Distribution Amount on each Distribution Date in accordance with the order of
priority described under "-Distributions-Priority" above. No other form of
Credit Support will be available for the benefit of the holders of the Offered
Certificates.
Allocation to the Senior Certificates, for so long as they are
outstanding, of the entire Unscheduled Principal Distribution Amount for each
Distribution Date will generally accelerate the amortization of such
Certificates relative to the actual amortization of the Mortgage Loans. To the
extent that the Senior Certificates are amortized faster than the Mortgage
Loans, the percentage interest evidenced by the Senior Certificates in the Trust
Fund will be decreased (with a corresponding increase in the interest in the
Trust Fund evidenced by the Class B and Class C Certificates), thereby
increasing, relative to their respective Certificate Balances, the subordination
afforded the Senior Certificates by the Class B and Class C Certificates.
Following retirement of the Class A Certificates, allocation to the Class B
Certificates, for so long as they are outstanding, of the entire Unscheduled
Principal Distribution Amount for each Distribution Date will provide a similar
benefit to such Class of Certificates as regards the relative amount of
subordination afforded thereto by the Class C Certificates.
On each Distribution Date, immediately following the distributions to
be made to the Certificateholders on such date, the [Trustee] is to calculate
the amount, if any, by which (i) the aggregate Stated Principal Balance of the
Mortgage Pool expected to be outstanding immediately following such Distribution
Date is less than (ii) the then aggregate Certificate Balance of the REMIC
Regular Certificates (any such deficit, "Collateral Support Deficit"). The
[Trustee] will be required to allocate any such Collateral Support Deficit among
the respective Classes of Certificates as follows: FIRST, to the Class C
Certificates, until the remaining Certificate Balance of such Class of
Certificates is reduced to zero; SECOND, to the Class B Certificates, until the
remaining Certificate Balance of such Class of Certificates is reduced to zero;
and LAST, to the Class A Certificates, until the remaining Certificate Balance
of such Class of Certificates has been reduced to zero. Any allocation of
Collateral Support Deficit to a Class of Certificates will be made by reducing
the Certificate Balance thereof by the amount so allocated. Any Collateral
Support Deficit allocated to a Class of REMIC Regular Certificates will be
allocated among the respective Certificates of such Class in proportion to the
Percentage Interests evidenced thereby. In general, Collateral Support Deficit
will result from the occurrence of: (i) losses and other shortfalls on or in
respect of the Mortgage Loans, including as a result of defaults and
delinquencies thereon and the payment to the Master Servicer of interest on
Advances and certain servicing expenses; and (ii) certain unanticipated,
non-Mortgage Loan specific expenses of the Trust Fund, including certain
reimbursements to the Trustee as described under "The Pooling and Servicing
Agreements - Certain Matters Regarding the Trustee" in the Prospectus, certain
reimbursements to the Master Servicer and the Depositor as described under "The
Pooling and Servicing Agreements - Certain Matters Regarding the Master Servicer
and the Depositor" in the Prospectus and certain federal, state and local taxes,
and certain tax-related expenses, payable out of the Trust Fund as described
under "Certain Federal Income Tax Consequences REMICs - Prohibited Transactions
Tax and Other Taxes " in the Prospectus. Accordingly, the allocation of
Collateral Support Deficit as described above will constitute an allocation of
losses and other shortfalls experienced by the Trust Fund.
ADVANCES
[On the business day immediately preceding each Distribution Date, the
Master Servicer will be obligated, subject to the recoverability determination
described in the next paragraph, to make advances (each, an "Advance") out of
its own funds or, subject to the replacement thereof as provided in the Pooling
and Servicing Agreement, funds held in the Certificate Account that are not
required to be part of the Available Distribution Amount for such Distribution
Date, in an amount equal to the aggregate of: (i) all Monthly Payments (net of
the related Servicing Fee), other than Balloon Payments, which were due on the
Mortgage Loans during the related Due Period and delinquent as of the related
Determination Date; (ii) in the case of each Mortgage Loan delinquent in respect
of its Balloon Payment as of the related Determination Date, an amount equal to
30 days' interest thereon at the related Mortgage Rate in effect as of the
commencement of the related Due Period (net of the related Servicing Fee), but
only to the extent that the related mortgagor has not made a payment sufficient
to cover such amount under any forbearance arrangement or otherwise that
<PAGE>
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has been included in the Available Distribution Amount for such Distribution
Date; and (iii) in the case of each REO Property, an amount equal to thirty
days' imputed interest with respect thereto at the related Mortgage Rate in
effect as of the commencement of the related Due Period (net of the related
Servicing Fee), but only to the extent that such amount is not covered by any
net income from such REO Property included in the Available Distribution Amount
for such Distribution Date. The Master Servicer's obligations to make Advances
in respect of any Mortgage Loan or REO Property will continue through
liquidation of such Mortgage Loan or disposition of such REO Property, as the
case may be.
The Master Servicer will be entitled to recover any Advance made out of
its own funds from any amounts collected in respect of the Mortgage Loan as to
which such Advance was made, whether in the form of late payments, Insurance
Proceeds, Liquidation Proceeds or otherwise ("Related Proceeds").
Notwithstanding the foregoing, the Master Servicer will not be obligated to make
any Advance that it determines in its reasonable good faith judgment would, if
made, not be recoverable out of Related Proceeds (a "Nonrecoverable Advance"),
and the Master Servicer will be entitled to recover any Advance that it so
determines to be a Nonrecoverable Advance out of general funds on deposit in the
Certificate Account. Nonrecoverable Advances will represent a portion of the
losses to be borne by the Certificateholders. See "Description of the
Certificates-Advances in Respect of Delinquencies" and "The Pooling and
Servicing Agreements-Certificate Account" in the Prospectus.
In connection with its recovery of any Advance or reimbursable
servicing expense, the Master Servicer will be entitled to be paid, out of any
amounts then on deposit in the Certificate Account, interest at ____% per annum
(the "Master Servicer Reimbursement Rate") accrued on the amount of such Advance
or expense from the date made to but not including the date of reimbursement.
To the extent not offset or covered by amounts otherwise payable on
Class C Certificates, interest accrued on outstanding Advances will result in a
reduction in amounts payable on the Class B Certificates; and to the extent not
offset or covered by amounts otherwise payable on the Class B and Class C
Certificates, interest accrued on outstanding Advances will result in a
reduction in amounts payable on the Senior Certificates. To the extent that any
holder of an Offered Certificate must bear the cost of the Master Servicer's
Advances, the benefits of such Advances to such holder will be contingent on the
ability of such holder to reinvest the amounts received as a result of such
Advances at a rate of return equal to or greater than the Master Servicer
Reimbursement Rate.]
REPORTS TO CERTIFICATEHOLDERS; CERTAIN AVAILABLE INFORMATION
On each Distribution Date, the [Trustee] will be required to forward by
mail to each holder of an Offered Certificate a statement (a "Distribution Date
Statement") providing various items of information relating to distributions
made on such date with respect to the relevant Class and the recent status of
the Mortgage Pool. For a more detailed discussion of the particular items of
information to be provided in each Distribution Date Statement, as well as a
discussion of certain annual information reports to be furnished by the
[Trustee] to persons who at any time during the prior calendar year were holders
of the Offered Certificates, see "Description of the Certificates-Reports to
Certificateholders" in the Prospectus.
The Pooling and Servicing Agreement requires that the [Trustee] make
available at its offices primarily responsible for [administration of the Trust
Fund], during normal business hours, for review by any holder of an Offered
Certificate, originals or copies of, among other things, the following items:
(a) the Pooling and Servicing Agreement and any amendments thereto, (b) all
Distribution Date Statements delivered to holders of the relevant Class of
Offered Certificates since the Delivery Date, (c) all officer's certificates
delivered to the Trustee since the Delivery Date as described under "The Pooling
and Servicing Agreements-Evidence as to Compliance" in the Prospectus, (d) all
accountants' reports delivered to the Trustee since the Delivery Date as
described under "The Pooling and Servicing Agreements-Evidence as to Compliance"
in the Prospectus, (e) the most recent property inspection report prepared by or
on behalf of the Master Servicer and delivered to the Trustee in respect of each
Mortgaged Property, (f) the most recent annual operating statements, if any,
collected by or on behalf of the Master Servicer and delivered to the Trustee in
respect of each Mortgaged Property, and (g) any and all modifications, waivers
and amendments of the terms of a
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S-35
Mortgage Loan entered into by the Master Servicer and delivered to the Trustee.
Copies of any and all of the foregoing items will be available from the
[Trustee] upon request; however, the [Trustee] will be permitted to require
payment of a sum sufficient to cover the reasonable costs and expenses of
providing such copies.
Until such time as Definitive Class A Certificates are issued, the
foregoing information will be available to Class A Certificate Owners only to
the extent it is forwarded by or otherwise available through DTC and its
Participants. Conveyance of notices and other communications by DTC to
Participants, and by Participants to Class A Certificate Owners, will be
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time. The Master Servicer, the
Trustee, the Depositor and the Certificate Registrar are required to recognize
as Certificateholders only those persons in whose names the Certificates are
registered on the books and records of the Certificate Registrar. The initial
registered holder of the Class A Certificates will be Cede & Co. as nominee for
DTC.
VOTING RIGHTS
At all times during the term of the Pooling and Servicing Agreement,
the voting rights for the series offered hereby (the "Voting Rights") shall be
allocated among the respective Classes of Certificateholders in proportion to
the Certificate Balances of their Certificates. Voting Rights allocated to a
Class of Certificateholders shall be allocated among such Certificateholders in
proportion to the Percentage Interests evidenced by their respective
Certificates.
TERMINATION; RETIREMENT OF CERTIFICATES
The obligations created by the Pooling and Servicing Agreement will
terminate following the earliest of (i) the final payment (or advance in respect
thereof) or other liquidation of the last Mortgage Loan or REO Property subject
thereto, and (ii) the purchase of all of the assets of the Trust Fund by the
Master Servicer or the Depositor. Written notice of termination of the Pooling
and Servicing Agreement will be given to each Certificateholder, and the final
distribution will be made only upon surrender and cancellation of the
Certificates at the office of the Certificate Registrar or other location
specified in such notice of termination.
Any such purchase by the Master Servicer or the Depositor of all the
Mortgage Loans and other assets in the Trust Fund is required to be made at a
price equal to (a) the sum of (i) the aggregate Purchase Price of all the
Mortgage Loans (exclusive of REO Loans) then included in the Trust Fund and (ii)
the aggregate fair market value of all REO Properties then included in the Trust
Fund (which fair market value for any REO Property may be less than the Purchase
Price for the corresponding REO Loan), as determined by an appraiser mutually
agreed upon by the Master Servicer and the Trustee, over (b) the aggregate of
amounts payable or reimbursable to the Master Servicer under the Pooling and
Servicing Agreement. Such purchase will effect early retirement of the then
outstanding Offered Certificates, but the right of the Master Servicer or the
Depositor to effect such termination is subject to the requirement that the then
aggregate Stated Principal Balance of the Mortgage Pool be less than 10% of the
Initial Pool Balance.
On the final Distribution Date, the aggregate amount paid by the Master
Servicer or the Depositor, as the case may be, for the Mortgage Loans and other
assets in the Trust Fund (if the Trust Fund is to be terminated as a result of
the purchase described in the preceding paragraph), together with all other
amounts on deposit in the Certificate Account and not otherwise payable to a
person other than the Certificateholders (see "The Pooling and Servicing
Agreements-Certificate Account" in the Prospectus), will be applied generally as
described above under "-Distributions-Priority", except that the distributions
of principal described thereunder will, in the case of each Class of
Certificates, be made, subject to available funds, in an amount equal to the
related Certificate Balance then outstanding.
THE TRUSTEE
____________, a _____________________, will act as Trustee on behalf of
the Certificateholders. [The Master Servicer will be responsible for the fees
and normal disbursements of the Trustee.] The offices of the Trustee primarily
responsible for the administration of the Trust Fund are located at
_____________________________. See "The Pooling
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and Servicing Agreements-the Trustee", "-Duties of the Trustee", "-Certain
Matters Regarding the Trustee" and "-Resignation and Removal of the Trustee" in
the Prospectus.
YIELD AND MATURITY CONSIDERATIONS
YIELD CONSIDERATIONS
GENERAL. The yield on any Offered Certificate will depend on: (i) the
Pass-Through Rate in effect from time to time for such Certificate; (ii) the
price paid for such Certificate and, if the price was other than par, the rate
and timing of payments of principal on such Certificate; and (iii) the aggregate
amount of distributions on such Certificate.
PASS-THROUGH RATE. The Pass-Through Rate applicable to each Class of
Offered Certificates for any Distribution Date will equal the weighted average
of the applicable Effective Net Mortgage Rates. Accordingly, the yield on the
Offered Certificates will be sensitive to (x) adjustments to the Mortgage Rates
on the ARM Loans and (y) changes in the relative composition of the Mortgage
Pool as a result of scheduled amortization, voluntary prepayments and
involuntary liquidations of the Mortgage Loans. See "Description of the Mortgage
Pool" herein and "-Yield Considerations-Rate and Timing of Principal Payments"
below.
RATE AND TIMING OF PRINCIPAL PAYMENTS. The yield to holders of Offered
Certificates that are purchased at a discount or premium will be affected by the
rate and timing of principal payments on the Mortgage Loans (including principal
prepayments on the Mortgage Loans resulting from both voluntary prepayments by
the mortgagors and involuntary liquidations). The rate and timing of principal
payments on the Mortgage Loans will in turn be affected by the amortization
schedules thereof, the dates on which Balloon Payments are due and the rate and
timing of principal prepayments and other unscheduled collections thereon
(including for this purpose, collections made in connection with liquidations of
Mortgage Loans due to defaults, casualties or condemnations affecting the
Mortgaged Properties, or purchases of Mortgage Loans out of the Trust Fund).
Prepayments and, assuming the respective stated maturity dates therefor have not
occurred, liquidations and purchases of the Mortgage Loans, will result in
distributions on the Offered Certificates of amounts that would otherwise be
distributed over the remaining terms of the Mortgage Loans. Defaults on the
Mortgage Loans, particularly at or near their stated maturity dates, may result
in significant delays in payments of principal on the Mortgage Loans (and,
accordingly, on the Offered Certificates) while work-outs are negotiated or
foreclosures are completed. See "Servicing of the Mortgage Loans-Modifications,
Waivers and Amendments" herein and "The Pooling and Servicing
Agreements-Realization Upon Defaulted Mortgage Loans" and "Certain Legal Aspects
of Mortgage Loans-Foreclosure" in the Prospectus. Because the rate of principal
payments on the Mortgage Loans will depend on future events and a variety of
factors (as described below), no assurance can be given as to such rate or the
rate of principal prepayments in particular. The Depositor is not aware of any
relevant publicly available or authoritative statistics with respect to the
historical prepayment experience of a large group of mortgage loans comparable
to the Mortgage Loans.
The extent to which the yield to maturity of any Class of Offered
Certificates may vary from the anticipated yield will depend upon the degree to
which such Certificates are purchased at a discount or premium and when, and to
what degree, payments of principal on the Mortgage Loans are in turn distributed
on such Certificates. An investor should consider, in the case of any Offered
Certificate purchased at a discount, the risk that a slower than anticipated
rate of principal payments on such Certificate could result in an actual yield
to such investor that is lower than the anticipated yield and, in the case of
any Offered Certificate purchased at a premium, the risk that a faster than
anticipated rate of principal payments on such Certificate could result in an
actual yield to such investor that is lower than the anticipated yield. In
general, the earlier a payment of principal is made on an Offered Certificate
purchased at a discount or premium, the greater will be the effect on an
investor's yield to maturity. As a result, the effect on an investor's yield of
principal payments on such investor's Offered Certificates occurring at a rate
higher (or lower) than the rate anticipated by the investor during any
particular period would not be fully offset by a subsequent like reduction (or
increase) in the rate of principal payments.
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LOSSES AND SHORTFALLS. The yield to holders of the Offered Certificates
will also depend on the extent to which such holders are required to bear the
effects of any losses or shortfalls on the Mortgage Loans. Losses and other
shortfalls on the Mortgage Loans will, with the exception of any Net Aggregate
Prepayment Interest Shortfalls, generally be borne: FIRST, by the holders of the
Class C Certificates, to the extent of amounts otherwise distributable in
respect of their Certificates; SECOND, by the holders of the Class B
Certificates, to the extent of amounts otherwise distributable in respect of
their Certificates; and LAST, by the holders of the Senior Certificates. As more
fully described herein under "Description of the
Certificates-Distributions-Distributable Certificate Interest", Net Aggregate
Prepayment Interest Shortfalls will generally be borne by the respective Classes
of Certificateholders on a PRO RATA basis.
CERTAIN RELEVANT FACTORS. The rate and timing of principal payments and
defaults and the severity of losses on the Mortgage Loans may be affected by a
number of factors, including, without limitation, prevailing interest rates, the
terms of the Mortgage Loans (for example, Prepayment Premiums, adjustable
Mortgage Rates and amortization terms that require Balloon Payments), the
demographics and relative economic vitality of the areas in which the Mortgaged
Properties are located and the general supply and demand for rental units in
such areas, the quality of management of the Mortgaged Properties, the servicing
of the Mortgage Loans, possible changes in tax laws and other opportunities for
investment. See "Risk Factors" and "Description of the Mortgage Pool" herein and
"Risk Factors" and "Yield and Maturity Considerations-Principal Prepayments" in
the Prospectus.
The rate of prepayment on the Mortgage Pool is likely to be affected by
prevailing market interest rates for mortgage loans of a comparable type, term
and risk level. When the prevailing market interest rate is below a mortgage
coupon, a borrower may have an increased incentive to refinance its mortgage
loan. Although most of the Mortgage Loans are ARM Loans, adjustments to the
Mortgage Rates thereon will generally be limited by lifetime and/or periodic
caps and floors and, in each case, will be based on the related Index (which may
not rise and fall consistently with mortgage interest rates then available) plus
the related Gross Margin (which may be different from margins then offered on
adjustable rate mortgage loans). See "Description of the Mortgage Pool-Certain
Payment Characteristics" and "-The Index" herein. As a result, the Mortgage
Rates on the ARM Loans at any time may not be comparable to prevailing market
interest rates. In addition, as prevailing market interest rates decline, and
without regard to whether the Mortgage Rates on the ARM Loans decline in a
manner consistent therewith, related borrowers may have an increased incentive
to refinance for purposes of either (i) converting to a fixed rate loan and
thereby "locking in" such rate, or (ii) taking advantage of a different index,
margin or rate cap or floor on another adjustable rate mortgage loan. The
Mortgage Loans may be prepaid at any time and, in ____ cases (approximately
_____% of the Initial Pool Balance), may be prepaid in whole or in part without
payment of a Prepayment Premium.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some borrowers may sell
Mortgaged Properties in order to realize their equity therein, to meet cash flow
needs or to make other investments. In addition, some borrowers may be motivated
by Federal and state tax laws (which are subject to change) to sell Mortgaged
Properties prior to the exhaustion of tax depreciation benefits.
The Depositor makes no representation as to the particular factors that
will affect the rate and timing of prepayments and defaults on the Mortgage
Loans, as to the relative importance of such factors, as to the percentage of
the principal balance of the Mortgage Loans that will be prepaid or as to which
a default will have occurred as of any date or as to the overall rate of
prepayment or default on the Mortgage Loans.
DELAY IN PAYMENT OF DISTRIBUTIONS. Because monthly distributions will
not be made to Certificateholders until a date that is scheduled to be at least
_____ days and as many as ______ days following the Due Dates for the Mortgage
Loans during the related Due Period, the effective yield to the holders of the
Offered Certificates will be lower than the yield that would otherwise be
produced by the applicable Pass-Through Rates and purchase prices (assuming such
prices did not account for such delay).
UNPAID DISTRIBUTABLE CERTIFICATE INTEREST. As described under
"Description of the Certificates-Distributions-Priority" herein, if the portion
of the Available Distribution Amount distributable in respect
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of interest on any Class of Offered Certificates on any Distribution Date is
less than the Distributable Certificate Interest then payable for such Class,
the shortfall will be distributable to holders of such Class of Certificates on
subsequent Distribution Dates, to the extent of available funds. Any such
shortfall will not bear interest, however, and will therefore negatively affect
the yield to maturity of such Class of Certificates for so long as it is
outstanding.
WEIGHTED AVERAGE LIFE
The weighted average life of an Offered Certificate refers to the
average amount of time that will elapse from the date of its issuance until each
dollar allocable to principal of such Certificate is distributed to the
investor. The weighted average life of an Offered Certificate will be influenced
by, among other things, the rate at which principal on the Mortgage Loans is
paid or otherwise collected, which may be in the form of scheduled amortization,
voluntary prepayments, Insurance Proceeds and Liquidation Proceeds.
Prepayments on mortgage loans may be measured by a prepayment standard
or model. The model used in this Prospectus Supplement is the ["Constant
Prepayment Rate" or "CPR" model. The CPR model represents an assumed constant
annual rate of prepayment each month, expressed as a per annum percentage of the
then scheduled principal balance of the pool of mortgage loans. As used in each
of the following tables, the column headed "0%" assumes that none of the
Mortgage Loans is prepaid before maturity. The columns headed "___%", "___%",
"___%" and "___%" assume that prepayments on the Mortgage Loans are made at
those levels of CPR. There is no assurance, however, that prepayments of the
Mortgage Loans will conform to any level of CPR, and no representation is made
that the Mortgage Loans will prepay at the levels of CPR shown or at any other
prepayment rate.]
The following tables indicate the percentage of the initial Certificate
Balance of each of the Class A Certificates and the Class B Certificates that
would be outstanding after each of the dates shown at various CPRs and the
corresponding weighted average life of each such Class of Certificates. The
tables have been prepared on the basis of the following assumptions, among
others: (i) scheduled monthly payments of principal and interest on the Mortgage
Loans, in each case prior to any prepayment of the loan, will be timely received
(with no defaults) and will be distributed on the 25th day of each month
commencing in ________ 199___; (ii) the Mortgage Rate in effect for each
Mortgage Loan as of the Cut-off Date will remain in effect (a) in the case of
each Fixed Rate Loan, to maturity and, (b) in the case of each ARM Loan, until
its next Interest Rate Adjustment Date, when a new Mortgage Rate that is to
remain in effect to maturity will be calculated reflecting the value of the
related Index as of ________, 199__, subject to such Mortgage Loan's lifetime
and/or periodic rate caps and floors, if any; (iii) all Mortgage Loans accrue
and pay interest on a 360/360 basis; (iv) the monthly principal and interest
payment due for each Mortgage Loan on the first Due Date following the Cut-off
Date will continue to be due (a) in the case of each Fixed Rate Loan, on each
Due Date until maturity and (b) in the case of each ARM Loan, until its next
Payment Adjustment Date, when a new payment that is to be due on each Due Date
until maturity will be calculated reflecting the appropriate Mortgage Rate and
remaining amortization term; (v) any principal prepayments on the Mortgage Loans
will be received on their respective Due Dates at the respective levels of CPR
set forth in the tables, and there will be no Net Aggregate Prepayment Interest
Shortfalls in connection therewith; and (vi) the Mortgage Loan Seller will not
be required to repurchase any Mortgage Loan, and neither the Master Servicer nor
the Depositor will exercise its option to purchase all the Mortgage Loans and
thereby cause an early termination of the Trust Fund. To the extent that the
Mortgage Loans have characteristics that differ from those assumed in preparing
the tables set forth below, the Class A Certificates or the Class B Certificates
may mature earlier or later than indicated by the tables. It is highly unlikely
that the Mortgage Loans will prepay at any constant rate until maturity or that
all the Mortgage Loans will prepay at the same rate. In addition, variations in
the actual prepayment experience and the balance of the Mortgage Loans that
prepay may increase or decrease the percentages of initial Certificate Balances
(and weighted average lives) shown in the following tables. Such variations may
occur even if the average prepayment experience of the Mortgage Loans were to
equal any of the specified CPR percentages.
Investors are urged to conduct their own analyses of the rates at which
the Mortgage Loans may be expected to prepay.
<PAGE>
S-39
Based on the foregoing assumptions, the following table indicates the
resulting weighted average lives of the Class A Certificates and sets forth the
percentage of the initial Certificate Balance of the Class A Certificates that
would be outstanding after each of the dates shown at the indicated CPRs.
<TABLE>
PERCENT OF THE INITIAL CERTIFICATE BALANCE OF THE
CLASS A CERTIFICATES AT THE RESPECTIVE CPRS
SET FORTH BELOW:
<CAPTION>
DATE 0% % % % %
- ---- -- -- -- -- --
<S> <C> <C> <C> <C> <C>
Delivery Date................................................ 100.0 100.0 100.0 100.0 100.0
_________ 25, 1995...........................................
_________ 25, 1996...........................................
_________ 25, 1997...........................................
_________ 25, 1998...........................................
_________ 25, 1999...........................................
_________ 25, 2000...........................................
_________ 25, 2001...........................................
_________ 25, 2002...........................................
Weighted Average Life (years)(A).............................
</TABLE>
- ----
(A) The weighted average life of a Class A Certificate is determined by (i)
multiplying the amount of each principal distribution thereon by the
number of years from the date of issuance of the Class A Certificates
to the related Distribution Date, (ii) summing the results and (iii)
dividing the sum by the aggregate amount of the reductions in the
principal balance of such Class A Certificate.
Based on the foregoing assumptions, the following table indicates the
resulting weighted average lives of the Class B Certificates and sets forth the
percentage of the initial Certificate Balance of the Class B Certificates that
would be outstanding after each of the dates shown at the indicated CPRs.
<TABLE>
PERCENT OF THE INITIAL CERTIFICATE BALANCE OF THE
CLASS B CERTIFICATES AT THE RESPECTIVE CPRS
SET FORTH BELOW:
<CAPTION>
DATE 0% % % % %
- ---- -- -- -- -- --
<S> <C> <C> <C> <C> <C>
Delivery Date............................................ 100.0 100.0 100.0 100.0 100.0
_________ 25, 1995.......................................
_________ 25, 1996.......................................
_________ 25, 1997.......................................
_________ 25, 1998.......................................
_________ 25, 1999.......................................
_________ 25, 2000.......................................
_________ 25, 2001.......................................
_________ 25, 2002.......................................
_________ 25, 2003.......................................
Weighted Average Life (years)(A).........................
</TABLE>
<PAGE>
S-40
- ----
(A) The weighted average life of a Class B Certificate is determined by (i)
multiplying the amount of each principal distribution thereon by the
number of years from the date of issuance of the Class B Certificates
to the related Distribution Date, (ii) summing the results and (iii)
dividing the sum by the aggregate amount of the reductions in the
principal balance of such Class B Certificate.
[The following disclosure is applicable to Stripped Interest Certificates, when
offered...
YIELD SENSITIVITY OF THE CLASS S CERTIFICATES
The yield to maturity of the Class S Certificates will be especially
sensitive to the prepayment, repurchase and default experience on the Mortgage
Loans, which may fluctuate significantly from time to time. A rapid rate of
principal payments will have a material negative effect on the yield to maturity
of the Class S Certificates. There can be no assurance that the Mortgage Loans
will prepay at any particular rate. Prospective investors in the Class S
Certificates should fully consider the associated risks, including the risk that
such investors may not fully recover their initial investment.
The following table indicates the sensitivity of the pre-tax yield to
maturity on the Class S Certificates to various constant rates of prepayment on
the Mortgage Loans by projecting the monthly aggregate payments of interest on
the Class S Certificates and computing the corresponding pre-tax yields to
maturity on a corporate bond equivalent basis, based on the assumptions
described in the third paragraph under the heading "--Weighted Average Life"
above, including the assumptions regarding the characteristics and performance
of the Mortgage Loans which differ from the actual characteristics and
performance thereof and assuming the aggregate purchase price set forth below.
Any differences between such assumptions and the actual characteristics and
performance of the Mortgage Loans and of the Class S Certificates may result in
yields being different from those shown in such table. Discrepancies between
assumed and actual characteristics and performance underscore the hypothetical
nature of the table, which is provided only to give a general sense of the
sensitivity of yields in varying prepayment scenarios.
<TABLE>
PRE-TAX YIELD TO MATURITY OF THE CLASS S CERTIFICATES
AT THE FOLLOWING CPRS
<CAPTION>
ASSUMED PURCHASE PRICE 0% % % % % %
- ---------------------- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
$________________............................... ____% ____% ____% ____% ____% ____%
</TABLE>
Each pre-tax yield to maturity set forth in the preceding table was
calculated by determining the monthly discount rate which, when applied to the
assumed stream of cash flows to be paid on the Class S Certificates, would cause
the discounted present value of such assumed stream of cash flows to equal the
assumed purchase price listed in the table. Accrued interest is included in the
assumed purchase price and is used in computing the corporate bond equivalent
yields shown. These yields do not take into account the different interest rates
at which investors may be able to reinvest funds received by them as
distributions on the Class S Certificates, and thus do not reflect the return on
any investment in the Class S Certificates when any reinvestment rates other
than the discount rates are considered.
Notwithstanding the assumed prepayment rates reflected in the preceding
tables, it is highly unlikely that the Mortgage Loans will be prepaid according
to one particular pattern. For this reason, and because the timing of cash flows
is critical to determining yields, the pre-tax yield to maturity on the Class S
Certificates is likely to differ from those shown in the tables, even if all of
the Mortgage Loans prepay at the indicated CPRs over any given time period or
over the entire life of the Certificates.
There can be no assurance that the Mortgage Loans will prepay at any
particular rate or that the yield on the Class S Certificates will conform to
the yields described herein. Investors are urged to make their investment
decisions based
<PAGE>
S-41
on the determinations as to anticipated rates of prepayment under a variety of
scenarios. Investors in the Class S Certificates should fully consider the risk
that a rapid rate of prepayments on the Mortgage Loans could result in the
failure of such investors to fully recover their investments.]
ADDITIONAL YIELD CONSIDERATIONS APPLICABLE SOLELY TO THE CLASS R CERTIFICATES
The Class R Certificateholders' after-tax rate of return on the Class R
Certificates will reflect their pre-tax rate of return, reduced by the taxes
required to be paid with respect to the Class R Certificates. Holders of Class R
Certificates may have tax liabilities with respect to their Certificates during
the early years of the Trust Fund's term that substantially exceed any
distributions payable thereon during any such period. In addition, holders of
Class R Certificates may have tax liabilities with respect to their Certificates
the present value of which substantially exceeds the present value of
distributions payable thereon and of any tax benefits that may arise with
respect thereto. Accordingly, the after-tax rate of return on the Class R
Certificates may be negative or may otherwise be significantly adversely
affected. The timing and amount of taxable income attributable to the Class R
Certificates will depend on, among other things, the timing and amounts of
prepayments and losses experienced with respect to the Mortgage Pool.
The Class R Certificateholders should consult their tax advisors as to
the effect of taxes and the receipt of any payments made to such holders in
connection with the purchase of the Class R Certificates on after-tax rates of
return on such Certificates. See "Certain Federal Income Tax Consequences"
herein and in the Prospectus.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Offered Certificates, _______________________,
counsel to the Depositor, will deliver its opinion generally to the effect that,
assuming compliance with all provisions of the Pooling and Servicing Agreement,
for Federal income tax purposes, the Trust Fund will qualify as a REMIC under
the Code. For Federal income tax purposes, the Class R Certificates will be the
sole class of "residual interests" in the REMIC, and the Class A, Class B and
Class C Certificates will be the "regular interests" in the REMIC and will be
treated as debt instruments of the REMIC. See "Certain Federal Income Tax
Consequences-REMICs" in the Prospectus.
The __________ Certificates [may] [will] [will not] be treated as
having been issued with original issue discount for Federal income tax reporting
purposes. The prepayment assumption that will be used in determining the rate of
accrual of [original issue discount,] market discount and premium, if any, for
Federal income tax purposes will be based on the assumption that subsequent to
the date of any determination the Mortgage Loans will prepay at a rate equal to
[a CPR of __%]. No representation is made that the Mortgage Loans will prepay at
that rate or at any other rate. See "Certain Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC Regular Certificates-Original
Issue Discount" in the Prospectus.
The ___________________ Certificates may be treated for Federal income
tax purposes as having been issued at a premium. Whether any holder of [either]
such Class of Certificates will be treated as holding a Certificate with
amortizable bond premium will depend on such Certificateholder's purchase price
and the distributions remaining to be made on such Certificate at the time of
its acquisition by such Certificateholder. Holders of [each] such Class of
Certificates should consult their tax advisors regarding the possibility of
making an election to amortize such premium. See "Certain Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC Regular Certificates-Premium" in
the Prospectus.
The Offered Certificates will be treated as "qualifying real property
loans" within the meaning of Section 593(d) of the Code, assets described in
Section 7701(a)(19)(C) of the Code and "real estate assets" within the meaning
of Section 856(c)(5)(A) of the Code, and interest (including original issue
discount, if any) on the Offered Certificates will be interest described in
Section 856(c)(3)(B) of the Code. Moreover, the Offered Certificates will be
"qualified mortgages" within the meaning of Section 860(A)(3) of the Code. See
"Certain Federal Income Tax Consequences-REMICs-Characterization of Investments
in REMIC Certificates" in the Prospectus.
<PAGE>
S-42
For further information regarding the Federal income tax consequences
of investing in the Offered Certificates, see "Certain Federal Income Tax
Consequences-REMICs" in the Prospectus.
SPECIAL TAX CONSIDERATIONS APPLICABLE TO REMIC RESIDUAL CERTIFICATES
The IRS has issued REMIC Regulations that significantly affect holders
of REMIC Residual Certificates. The REMIC Regulations impose restrictions on the
transfer or acquisition of certain residual interests, including the Class R
Certificates. In addition, the REMIC Regulations provide special rules
applicable to: (i) thrift institutions holding residual interests having
"significant value" and (ii) the transfer of "noneconomic" residual interests to
United States persons. Pursuant to the Pooling and Servicing Agreement, the
Class R Certificates may not be transferred to non-United States persons. See
"Certain Federal Income Tax Consequences--REMICS--Taxation of Owners of REMIC
Residual Certificates" in the Prospectus.
The REMIC Regulations provide for the determination of whether a
residual interest has "significant value" for purposes of applying the rules
relating to "excess inclusions" with respect to residual interests. Based on the
REMIC Regulations, the Class R Certificates do not have significant value and,
accordingly, thrift institutions and their affiliates will be prevented from
using their unrelated losses or loss carryovers to offset any excess inclusions
with respect to the Class R Certificates, which will be in an amount equal to
all or virtually all of the taxable income includable by holders of the Class R
Certificates. See "Certain Federal Income Tax Consequences-REMICs-Taxation of
Owners of REMIC Residual Certificates-Excess Inclusions" in the Prospectus.
The REMIC Regulations also provide that a transfer to a United States
person of "noneconomic" residual interests will be disregarded for all federal
income tax purposes, and that the purported transferor of "noneconomic" residual
interests will continue to remain liable for any taxes due with respect to the
income on such residual interests, if "a significant purpose of the transfer was
to impede the assessment or collection of tax." Based on the REMIC Regulations,
the Class R Certificates may constitute noneconomic residual interests during
some or all of their terms for purposes of the REMIC Regulations and,
accordingly, if a significant purpose of a transfer is to impede the assessment
or collection of tax, transfers of the Class R Certificates may be disregarded
and purported transferors may remain liable for any taxes due with respect to
the income on the Class R Certificates. All transfers of the Class R
Certificates will be subject to certain restrictions under the terms of the
Pooling and Servicing Agreement that are intended to reduce the possibility of
any such transfer being disregarded to the extent that the Class R Certificates
constitute noneconomic residual interests. See "Certain Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC Residual
Certificates-Noneconomic REMIC Residual Certificates" in the Prospectus.
The Class R Certificateholders may be required to report an amount of
taxable income with respect to the earlier accrual periods of the term of the
Trust Fund that significantly exceeds the amount of cash distributions received
by such Certificateholders from the Trust Fund with respect to such periods.
Furthermore, the tax on such income may exceed the cash distributions with
respect to such periods. Consequently, Class R Certificateholders should have
other sources of funds sufficient to pay any federal income taxes due in the
earlier years of the Trust Fund's term as a result of their ownership of the
Class R Certificates. In addition, the required inclusion of this amount of
taxable income during the Trust Fund's earlier accrual periods and the deferral
of corresponding tax losses or deductions until later accrual periods or until
the ultimate sale or disposition of a Class R Certificate (or possibly later
under the "wash sale" rules of Section 1091 of the Code) may cause the Class R
Certificateholders' after-tax rate of return to be zero or negative even if the
Class R Certificateholders' pre-tax rate of return is positive. That is, on a
present value basis, the Class R Certificateholders' resulting tax liabilities
could substantially exceed the sum of any tax benefits and the amount of any
cash distributions on the Class R Certificates over their life.
Potential investors in Class R Certificates should be aware that under
the Pooling and Servicing Agreement, the holder of the largest Percentage
Interest in the Class R Certificates shall, by its acceptance of such
Certificates, agree to irrevocably appoint the Master Servicer as its agent to
perform all of the duties of the tax matters person for the REMIC.
<PAGE>
S-43
Purchasers of the Class R Certificates are strongly advised to consult
their tax advisors as to the economic and tax consequences of investment in such
Certificates.
For further information regarding the federal income tax consequences
of investing in the Class R Certificates, see "Yield and Maturity
Considerations-Additional Yield Considerations Applicable Solely to the Class R
Certificates" herein and "Certain Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC Residual Certificates" in the
Prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in an Underwriting
Agreement, dated _____________, 199_ (the "Underwriting Agreement"),
______________________ ("the Underwriter") has agreed to purchase and the
Depositor has agreed to sell to the Underwriter each class of the Offered
Certificates. It is expected that delivery of the Class A Certificates will be
made only in book-entry form through the Same Day Funds Settlement System of
DTC, and that the delivery of the Class B and Class R Certificates will be made
at the offices of the Underwriter, _____________________, on or about
_____________, 199_ against payment therefor in immediately available funds.
The Underwriting Agreement provides that the obligation of the
Underwriter to pay for and accept delivery of its Certificates is subject to,
among other things, the receipt of certain legal opinions and to the conditions,
among others, that no stop order suspending the effectiveness of the Depositor's
Registration Statement shall be in effect, and that no proceedings for such
purpose shall be pending before or threatened by the Securities and Exchange
Commission.
The distribution of the Offered Certificates by the Underwriter may be
effected from time to time in one or more negotiated transactions, or otherwise,
at varying prices to be determined at the time of sale. Proceeds to the
Depositor from the sale of the Offered Certificates, before deducting expenses
payable by the Depositor, will be approximately ____% of the aggregate
Certificate Balance of the Offered Certificates plus accrued interest thereon
from the Cut-off Date. The Underwriter may effect such transactions by selling
its Certificates to or through dealers, and such dealers may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Underwriter for whom they act as agent. In connection with the sale of
the Offered Certificates, the Underwriter may be deemed to have received
compensation from the Depositor in the form of underwriting compensation. The
Underwriter and any dealers that participate with such Underwriter in the
distribution of the Offered Certificates may be deemed to be underwriters and
any profit on the resale of the Offered Certificates positioned by them may be
deemed to be underwriting discounts and commissions under the Securities Act of
1933, as amended.
The Underwriting Agreement provides that the Depositor will indemnify
the Underwriter, and that under limited circumstances the Underwriter will
indemnify the Depositor, against certain civil liabilities under the Securities
Act of 1933, as amended, or contribute to payments required to be made in
respect thereof.
There can be no assurance that a secondary market for the Offered
Certificates will develop or, if it does develop, that it will continue. The
primary source of ongoing information available to investors concerning the
Offered Certificates will be the monthly statements discussed in the Prospectus
under "Description of the Certificates--Reports to Certificateholders," which
will include information as to the outstanding principal balance of the Offered
Certificates and the status of the applicable form of credit enhancement. Except
as described herein under "Description of the Certificates--Reports to
Certificateholders; Certain Available Information", there can be no assurance
that any additional information regarding the Offered Certificates will be
available through any other source. In addition, the Depositor is not aware of
any source through which price information about the Offered Certificates will
be generally available on an ongoing basis. The limited nature of such
information regarding the Offered Certificates may adversely affect the
liquidity of the Offered Certificates, even if a secondary market for the
Offered Certificates becomes available.
<PAGE>
S-44
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor and the
Underwriter by ________________________.
RATING
It is a condition to issuance that the Senior Certificates be rated not
lower than "__", and the Class B Certificates be rated not lower than "__", by
____________________________________.
A securities rating on mortgage pass-through certificates addresses the
likelihood of the receipt by holders thereof of payments to which they are
entitled. The rating takes into consideration the credit quality of the mortgage
pool, structural and legal aspects associated with the certificates, and the
extent to which the payment stream from the mortgage pool is adequate to make
payments required under the certificates. The ratings on the Offered
Certificates do not, however, constitute a statement regarding the likelihood or
frequency of prepayments (whether voluntary or involuntary) on the Mortgage
Loans, [The following disclosure is applicable to Stripped Interest
Certificates, when offered... or the possibility that as a result of prepayments
investors in the Class S Certificates may realize a lower than anticipated yield
or may fail to recover fully their initial investment.]
There can be no assurance as to whether any rating agency not requested
to rate the Offered Certificates will nonetheless issue a rating to any Class
thereof and, if so, what such rating would be. A rating assigned to any Class of
Offered Certificates by a rating agency that has not been requested by the
Depositor to do so may be lower than the rating assigned thereto by
___________________________.
The ratings on the Offered 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.
LEGAL INVESTMENT
[As long as the Senior Certificates are rated in one of the two highest
rating categories by at least one nationally recognized statistical rating
organization, the Senior Certificates will constitute "mortgage related
securities" within the meaning of SMMEA, and as such will be legal investments
for persons, trusts, corporations, partnerships, associations, business trusts
and business entities (including depository institutions, life insurance
companies and pension funds) created pursuant to or existing under the laws of
the United States or of any State 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. Under SMMEA, however, if a State enacted legislation on or prior to
October 3, 1991 specifically limiting the legal investment authority of any such
entities with respect to "mortgage related securities," such securities will
constitute legal investments for entities subject to such legislation only to
the extent provided therein. Certain States have enacted legislation which
overrides the preemption provisions of SMMEA.]
[The Class B Certificates will not be "mortgage related securities" for
purposes of SMMEA. As a result, the appropriate characterization of the Class B
Certificates under various legal investment restrictions, and thus the ability
of investors subject to these restrictions to purchase the Class B Certificates,
is subject to significant interpretive uncertainties.]
The Depositor makes no representation as to the proper characterization
of any class of Offered Certificates for legal investment or other purposes, or
as to the ability of particular investors to purchase the Offered Certificates
under applicable legal investment or other restrictions. All institutions whose
investment activities are subject to legal investment laws and regulations,
regulatory capital requirements or review by regulatory authorities should
consult with
<PAGE>
S-45
their own legal advisors in determining whether and to what extent the Offered
Certificates constitute legal investments for them or are subject to investment,
capital or other restrictions.
See "Legal Investment" in the Prospectus.
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other retirement plan or
arrangement, including individual retirement accounts and annuities, Keogh plans
and collective investment funds and separate accounts in which such plans,
accounts or arrangements are invested, that is subject to ERISA, or Section 4975
of the Code (each, a "Plan") should review with its legal advisors whether the
purchase or holding of Offered Certificates could give rise to a transaction
that is prohibited or is not otherwise permitted either under ERISA or Section
4975 of the Code or whether there exists any statutory or administrative
exemption applicable thereto.
[The purchase or holding of the Class A Certificates by, on behalf of
or with "plan assets" of a Plan may qualify for exemptive relief under the
Exemption, as described under "ERISA Considerations - Prohibited Transaction
Exemption" in the Prospectus; however, the Exemption contains a number of
conditions, including the requirement that any such Plan must be 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, as amended. In addition,
neither the Exemption nor a similar exemption issued to the Underwriter will
apply to the Class B or Class R Certificates. As a result,] no transfer of a
[Class B or Class R] Certificate or any interest therein may be made to a Plan
or to any person who is directly or indirectly purchasing such Certificate or
interest therein on behalf of, as named fiduciary of, as trustee of, or with
assets of a Plan, unless the prospective transferee provides the Certificate
Registrar with a certification of facts and an opinion of counsel which
establish to the satisfaction of the Certificate Registrar that such transfer
will not result in a violation of Section 406 of ERISA or Section 4975 of the
Code or cause the Master Servicer or the Trustee to be deemed a fiduciary of
such Plan or result in the imposition of an excise tax under Section 4975 of the
Code. See "ERISA Considerations" in the Prospectus.
Any Plan fiduciary considering whether to purchase an Offered
Certificate on behalf of a Plan should consult with its counsel regarding the
applicability of the fiduciary responsibility and prohibited transaction
provisions of ERISA and the Code to such investment.
<PAGE>
<TABLE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
DEPOSITOR OR BY THE UNDERWRITER. THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO GMAC COMMERCIAL MORTGAGE SECURITIES, INC.
BUY, THE SECURITIES OFFERED HEREBY TO ANYONE IN
ANY JURISDICTION IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE ANY SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF $________________
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT
INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY MULTIFAMILY MORTGAGE PASS-THROUGH
TIME SINCE THE DATE OF THIS PROSPECTUS SUPPLEMENT CERTIFICATES
OR THE PROSPECTUS. SERIES 199_-_
<CAPTION>
TABLE OF CONTENTS CLASS A CERTIFICATES VARIABLE RATE $___________
CLASS B CERTIFICATES VARIABLE RATE $___________
CLASS R CERTIFICATES VARIABLE RATE $ 100
Page
----
Prospectus Supplement
<S> <C>
Summary................................................
Risk Factors........................................... -----------
Description of the Mortgage Pool.......................
Servicing of the Mortgage Loans........................ PROSPECTUS SUPPLEMENT
Description of the Certificates........................ __________, 199_
Yield and Maturity Considerations......................
Certain Federal Income Tax Consequences................ -----------
Method of Distribution.................................
Legal Matters..........................................
Rating.................................................
Legal Investment.......................................
ERISA Considerations................................... [UNDERWRITER]
Index of Principal Definitions.........................
<CAPTION>
Prospectus
<S> <C>
Prospectus Supplement..................................
Available Information..................................
Incorporation of Certain Information by Reference......
Summary of Prospectus..................................
Risk Factors...........................................
Description of the Trust Funds.........................
Yield and Maturity Considerations......................
The Depositor..........................................
GMAC Commercial Mortgage Corporation...................
Description of the Certificates........................
The Pooling and Servicing Agreements...................
Description of Credit Support..........................
Certain Legal Aspects of Mortgage Loans................
Certain Federal Income Tax Consequences................
State Tax and Other Considerations.....................
ERISA Considerations...................................
Legal Investment.......................................
Use of Proceeds........................................
<PAGE>
<S> <C>
Method of Distribution.................................
Legal Matters..........................................
Financial Information..................................
Rating.................................................
Index of Principal Definitions.........................
</TABLE>
<PAGE>
ANNEX A
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
360/360 basis ................................................S-29
Accrued Certificate Interest......................................S-29
Advance ...........................................S-6, S-32
ARM Loans .................................................S-2
Available Distribution Amount.....................................S-27
Balloon Payment .................................................S-2
Certificate Balance.................................................ii
Certificate Registrar.............................................S-26
Certificates ...................................................i
Class ...................................................i
Class A Certificate Owner..........................................S-1
Class B Available Distribution Amount..............................S-4
Class S Certificates................................................ii
Collateral Support Deficit...................................S-6, S-31
Constant Prepayment Rate..........................................S-36
CPR ................................................S-36
Cut-off Date ..................................................ii
Cut-off Date Balance..............................................S-10
Debt Service Coverage Ratio.......................................S-18
Definitive Class A Certificate.....................................S-1
Delivery Date ...................................................i
Determination Date................................................S-28
Distributable Certificate Interest................................S-29
Distributable Principal...........................................S-30
Distribution Date ............................................ii, S-27
Distribution Date Statement.......................................S-32
Due Date .................................................S-2
Due Period ................................................S-28
Effective Net Mortgage Rate.......................................S-29
Fixed Rate Loans .................................................S-2
Form 8-K ................................................S-23
Gross Margin .................................................S-2
Index .................................................S-2
Initial Pool Balance................................................ii
Interest Rate Adjustment Date......................................S-2
LTV Ratio ................................................S-19
Master Servicer Reimbursement Rate................................S-32
Monthly Payments .................................................S-2
Mortgage ................................................S-10
Mortgage Loans ..................................................ii
Mortgage Note ................................................S-10
Mortgage Pool ..................................................ii
Mortgage Rate .................................................S-2
Mortgaged Property...........................................S-2, S-10
Net Aggregate Prepayment Interest Shortfall.......................S-29
Net Mortgage Rate .................................................S-3
Net Operating Income..............................................S-18
Nonrecoverable Advance............................................S-32
Offered Certificates...........................................i, S-25
Ownership Percentage..............................................S-30
Pass-Through Rate ..................................................ii
Payment Adjustment Date............................................S-2
Percentage Interest...............................................S-26
Plan ................................................S-44
Pooling and Servicing Agreement....................................S-3
Prepayment Interest Excess........................................S-24
Prepayment Premiums...............................................S-11
Purchase Agreement.................................................S-2
Purchase Price ................................................S-22
Related Proceeds ................................................S-32
REMIC Regular Certificates..........................................ii
REO Loan ................................................S-30
REO Property ................................................S-25
Rules ................................................S-26
Senior Certificates............................................i, S-25
Servicing Fee ................................................S-23
Servicing Fee Rate................................................S-23
Stated Principal Balance..........................................S-30
Trust Fund ..................................................ii
Underwriter .............................................i, S-42
Underwriting Agreement............................................S-42
Voting Rights ................................................S-33
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION (ITEM 14 OF FORM S-3).
The expenses expected to be incurred in connection with the issuance
and distribution of the Certificates being registered, other than underwriting
compensation, are as set forth below.
Filing Fee for Registration Statement $ 606,060.60
Legal Fees and Expenses ........................ 1,000,000.00
Accounting Fees and Expenses.................... 400,000.00
Trustee's Fees and Expenses
(including counsel fees)................. 200,000.00
Blue Sky Fees and Expenses...................... 50,000.00
Printing and Engraving Fees .................... 200,000.00
Rating Agency Fees ............................. 500,000.00
Miscellaneous................................... 100,000.00
---------------
Total........................................... $ 3,056,060.60
===============
INDEMNIFICATION OF DIRECTORS AND OFFICERS (ITEM 15 OF FORM S-3).
The Pooling and Servicing Agreements will provide that no director,
officer, employee or agent of the Registrant is liable to the Trust Fund or the
Certificateholders, except for such person's own willful misfeasance, bad faith,
gross negligence in the performance of duties or reckless disregard of
obligations and duties. The Pooling and Servicing Agreements will further
provide that, with the exceptions stated above, a director, officer, employee or
agent of the Registrant is entitled to be indemnified against any loss,
liability or expense incurred in connection with legal action relating to such
Pooling and Servicing Agreements and related Certificates other than such
expenses related to particular Mortgage Assets.
Any underwriters who execute an Underwriting Agreement in the form
filed as Exhibit 1.1 to this Registration Statement will agree to indemnify the
Registrant's directors and its officers who signed this Registration Statement
against certain liabilities which might arise under the Securities Act of 1933
from certain information furnished to the Registrant by or on behalf of such
indemnifying party.
Subsection (a) of Section 145 of the General Corporation Law of
Delaware empowers a corporation to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, employee or agent of the corporation or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
cause to believe his conduct was unlawful.
<PAGE>
Subsection (b) of Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification may be made
in respect to any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine that despite the adjudication of liability such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper.
Section 145 further provides that to the extent a director, officer,
employee or agent of a corporation has been successful in the defense of any
action, suit or proceeding referred to in subsections (a) and (b) or in the
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith; that indemnification or advancement of expenses provided
for by Section 145 shall not be deemed exclusive of any other rights to which
the indemnified party may be entitled; and empowers the corporation to purchase
and maintain insurance on behalf of a director, officer, employee or agent of
the corporation against any liability asserted against him or incurred by him in
any such capacity or arising out of his status as such whether or not the
corporation would have the power to indemnify him against such liabilities under
Section 145.
The By-Laws of the Registrant provide, in effect, that to the extent
and under the circumstances permitted by subsections (a) and (b) of Section 145
of the General Corporation Law of the State of Delaware, the Registrant (i)
shall indemnify and hold harmless each person who was or is a party or is
threatened to be made a party to any action, suit or proceeding described in
subsections (a) and (b) by reason of the fact that he is or was a director or
officer, or his testator or intestate is or was a director or officer of the
Registrant, against expenses, judgments, fines and amounts paid in settlement,
and (ii) shall indemnify and hold harmless each person who was or is a party or
is threatened to be made a party to any such action, suit or proceeding if such
person is or was serving at the request of the Registrant as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
Certain controlling persons of the Registrant may also be entitled to
indemnification from General Motors Acceptance Corporation, an indirect parent
of the Registrant. Under sections 7015 and 7018-7023 of the New York Banking
Law, General Motors Acceptance Corporation may or shall, subject to various
exceptions and limitation, indemnify its directors or officers and may purchase
and maintain insurance as follows:
(a) If the director is made or threatened to be made a party to
an action by or in the right of General Motors Acceptance Corporation
to procure a judgment in its favor, by reason of the fact that such
person is or was a director or officer of General Motors Acceptance
Corporation or is or was servicing at the request of General Motors
Acceptance Corporation as a director or officer of some other
enterprise, General Motors Acceptance Corporation may indemnify such
person against amounts paid in settlement of such action or an appeal
therein, if such director or officer acted, in good faith, for a
purpose which such person reasonably believed to be in (or, in the case
of service for any other enterprise, not opposed to) the best interests
of General Motors Acceptance Corporation, except that no
indemnification is available under such statutory provisions in respect
of a threatened action or a pending action which is settled or
otherwise
<PAGE>
disposed of, or any claim or issue or matter as to which such person is
found liable to General Motors Acceptance Corporation, unless in each
such case a court determined that such person is fairly and reasonably
entitled to indemnity for such amount as the court deems proper.
(b) With respect to any action or proceeding other than one by
or in the right of General Motors Acceptance Corporation to procure a
judgment in its favor, if a director or officer is made or threatened
to be made a party by reason of the fact that such person was a
director or officer of General Motors Acceptance Corporation, or served
some other enterprise at the request of General Motors Acceptance
Corporation, General Motors Acceptance Corporation may indemnify such
person against judgments, fines, amounts paid in settlement and
reasonable expenses, including attorneys' fees, incurred as a result of
such action or proceeding or an appeal therein, if such person acted in
good faith for a purpose which such person reasonably believed to be in
(or, in the case of service for any other enterprise, not opposed to)
the best interests of General Motors Acceptance Corporation and, in
criminal actions or proceedings, in addition, had no reasonable cause
to believe that such person's conduct was unlawful.
(c) A director or officer who has been wholly successful, on the
merits or otherwise, in the defense of a civil or criminal action or
proceeding of the character described in paragraphs (a) or (b) above,
shall be entitled to indemnification as authorized in such paragraphs.
(d) General Motors Acceptance Corporation may purchase and
maintain insurance to indemnify directors and officers in instances in
which they may not otherwise be indemnified by General Motors
Acceptance Corporation under the provisions of the New York Banking
Law, provided that the contract of insurance provides for a retention
amount and for co-insurance, except that no such insurance may provide
for any payment, other than cost of defense, to or on behalf of any
director or officer if a judgment or other final adjudication adverse
to such director or officer establishes that such person's acts of
active and deliberate dishonesty were material to the cause of action
so adjudicated or that such person personally gained in fact a
financial profit or other advantage to which such person was not
legally entitled.
The foregoing statement is subject to the detailed provisions of
sections 7015 and 7018-7023 of the New York Banking Law.
As a subsidiary of General Motors Corporation, General Motors
Acceptance Corporation is insured against liabilities which it may incur by
reason of the foregoing provisions of the New York Banking Law and directors and
officers of General Motors Acceptance Corporation are insured against some
liabilities which might arise out of their employment and not be subject to
indemnification under said Banking Law.
Pursuant to resolutions adopted by the Board of Directors of General
Motors Corporation, that company to the fullest extent permissible under law
will indemnify, and has purchased insurance on behalf of, directors or officers
of the company, or any of them, who incur or are threatened with personal
liability, including expenses, under Employee Retirement Income Security Act of
1974 or any amendatory or comparable legislation or regulation thereunder.
<PAGE>
EXHIBITS (ITEM 16 OF FORM S-3).
Exhibits--
1.1 -- Form of Underwriting Agreement.*
3.1 -- Certificate of Incorporation.*
3.2 -- By-Laws.*
4.1 -- Form of Pooling and Servicing Agreement.*
5.1 -- Opinion of Mayer Brown & Platt with respect to
legality.
5.2 -- Opinion of Thacher Proffitt & Wood with respect to
legality.
8.1 -- Opinion of Mayer Brown & Platt with respect to
certain tax matters (included with Exhibit 5.1).
8.2 -- Opinion of Thacher Proffitt & Wood with respect to
certain tax matters (included with Exhibit 5.2).
23.1 -- Consent of Mayer Brown & Platt (included as part of
Exhibit 5.1 and Exhibit 8.1).
23.2 -- Consent of Thacher Proffitt & Wood (included as part
of Exhibit 5.2 and Exhibit 8.2).
24.1 -- Power of Attorney.*
24.2 -- Power of Attorney.
* Incorporated by reference from the Registration Statement on Form S-3 (File
No. 33-94448).
UNDERTAKINGS (ITEM 17 OF FORM S-3).
A. UNDERTAKINGS PURSUANT TO RULE 415.
The undersigned Registrant hereby undertakes:
(a) (1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933, (ii)
to reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement, and (iii) to include
any material information with respect to the plan of distribution not previously
disclosed in this Registration Statement or any material change to such
information in this Registration Statement; PROVIDED HOWEVER, that paragraphs
(a)(1)(i) and (a)(1)(ii) do not apply if the information required to be included
in a post-effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the Commission by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
<PAGE>
(b) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the Registration Statement shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial BONA FIDE offering
thereof.
(f) To provide to the underwriter at the closing specified in the
underwriting agreements certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
B. UNDERTAKING IN RESPECT OF INDEMNIFICATION.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3, reasonably believes that the
security rating requirement contained in Transaction Requirement B.5. of Form
S-3 will be met by the time of the sale of the securities registered hereunder
and has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Horsham, State of
Pennsylvania, on the 30th day of December, 1996.
GMAC COMMERCIAL MORTGAGE
SECURITIES, INC.
By: /s/ David E. Creamer
------------------------------
David E. Creamer
Director and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
* Director and President December 30, 1996
- ------------------------------------------ (Chief Executive Officer)
David E. Creamer
* Chief Financial Officer, December 30, 1996
- ------------------------------------------ Controller and Vice President
Wayne D. Hoch (Chief Financial Officer and
Chief Accounting Officer)
/s/ Charles E. Dunleavy, Jr. Director December 30, 1996
- ------------------------------------------
Charles E. Dunleavy, Jr.
/s/ Dennis W. Sheehan, Jr. Director December 30, 1996
- ------------------------------------------
Dennis W. Sheehan, Jr.
/s/ Charles S. Pringle Director December 30, 1996
- ------------------------------------------
Charles S. Pringle
/s/ Donald J. Puglisi Director December 30, 1996
- ------------------------------------------
Donald J. Puglisi
</TABLE>
* By:/s/ David E. Creamer
-------------------------------------
David E. Creamer
Attorney-in-fact pursuant to a power of attorney filed with Registration
Statement No. 33-94448.
EXHIBITS 5.1, 8.1, 23.1
December 30, 1996
GMAC Commercial Mortgage Securities, Inc.
650 Dresher Road
Horsham, Pennsylvania 19044
Ladies and Gentlemen:
We have acted as your counsel in connection with the preparation of the
Registration Statement on Form S-3 (the "Registration Statement"), and the
Prospectus and the form of Prospectus Supplement forming a part thereof
(collectively, the "Prospectus"), to be filed by you with the Securities and
Exchange Commission (the "Commission") pursuant to Rule 429 promulgated under
the Securities Act of 1933, as amended (the "Act"), on December 30, 1996. The
Registration Statement and the Prospectus relate to the offer and sale of up to
$2,000,000,000 aggregate principal amount of Mortgage Pass-Through Certificates
(Issuable in series) (the "Certificates") to be created and issued pursuant to
one or more Pooling and Servicing Agreements to be entered into between you, one
or more trustees and GMAC Commercial Mortgage Corporation or possibly another
entity as the master servicer (collectively, the "Agreement") as described in
the Registration Statement. A form of Pooling and Servicing Agreement is
included as an Exhibit to the Registration Statement. We have examined the
Registration Statement, the Prospectus and such other documents as we have
deemed necessary or advisable for purposes of rendering this opinion.
Additionally, our advice has formed the basis for the description of the
selected Federal income tax consequences of the purchase, ownership and
disposition of the Certificates to an original purchaser that appears under the
heading "Certain Federal Income Tax Consequences" in the Prospectus (the "Tax
Description"). Except as otherwise indicated herein, all terms defined in the
Prospectus are used herein as so defined.
We have assumed for the purposes of the opinions set forth below that
the Certificates will be issued in series created as described in the
Registration Statement and that the Certificates will be sold by you for
reasonably equivalent consideration. We have also assumed that the Agreement and
the Certificates will be duly authorized by all necessary
<PAGE>
GMAC Commercial Mortgage Securities, Inc.
December 30, 1996
Page 2
corporate action and that the Certificates will be duly issued, executed,
authenticated and delivered in accordance with the provisions of the Agreement.
In addition, we have assumed that the parties to each Agreement will satisfy
their respective obligations thereunder. We express no opinion with respect to
any series of Certificates for which we do not act as counsel to you.
The opinion set forth in paragraph 2 of this letter is based upon the
applicable provisions of the Internal Revenue Code of 1986, as amended, Treasury
regulations promulgated and proposed thereunder, current positions of the
Internal Revenue Service (the "IRS") contained in published Revenue Rulings and
Revenue Procedures, current administrative positions of the IRS and existing
judicial decisions. This opinion is subject to the explanations and
qualifications set forth under the caption "Certain Federal Income Tax
Consequences" in the Prospectus. No tax rulings will be sought from the IRS with
respect to any of the matters discussed herein.
On the basis of the foregoing examination and assumptions, and upon
consideration of applicable law, it is our opinion that:
1. When a Pooling and Servicing Agreement for a series of Certificates
has been duly and validly authorized, executed and delivered by the Depositor,
the Master Servicer and the Trustee, and the Certificates of such series have
been duly executed, authenticated, delivered and sold as contemplated in the
Registration Statement, such Certificates will be legally and validly issued,
fully paid and nonassessable, and the holders of such Certificates will be
entitled to the benefits of such Pooling and Servicing Agreement.
2. While the Tax Description does not purport to discuss all possible
Federal income tax ramifications of the purchase, ownership, and disposition of
the Certificates, particularly to purchasers subject to special rules under the
Internal Revenue Code of 1986, it constitutes, in all material respects, a fair
and accurate summary of such Federal income tax consequences under present
Federal income tax law. There can be no assurance, however, that the tax
conclusions presented therein will not be successfully challenged by the IRS, or
significantly altered by new legislation, changes in IRS positions or judicial
decisions, any of which challenges or alterations may be applied retroactively
with respect to completed transactions. We note, however, that the form of
Prospectus Supplement filed herewith does not relate to a specific transaction.
Accordingly, the above-referenced description of the selected Federal income tax
consequences may, under certain circumstances, require modification when an
actual transaction is undertaken.
<PAGE>
GMAC Commercial Mortgage Securities, Inc.
December 30, 1996
Page 3
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the references to this firm under the headings
"Legal Matters" in the Prospectus forming a part of the Registration Statement,
without admitting that we are "experts" within the meaning of the Act or the
rules and regulations of the Commission issued thereunder, with respect to any
part of the Registration Statement, including this exhibit.
Very truly yours,
MAYER, BROWN & PLATT
By: /s/ Mayer, Brown & Platt
-------------------------
EXHIBITS 5.2, 8.2, 23.2
December 30, 1996
GMAC Commercial Mortgage Securities, Inc.
650 Dresher Road
P.O. Box 1015
Horsham, Pennsylvania 19044-8015
Re: GMAC Commercial Mortgage Securities, Inc.
Multifamily and Commercial Mortgage Pass-Through Certificates
Registration Statement on Form S-3
-------------------------------------------------------------
Dear Sirs:
We are counsel to GMAC Commercial Mortgage Securities, Inc., a
Delaware corporation (the "Registrant"), in connection with the registration
under the Securities Act of 1933, as amended (the "Act"), of Multifamily and
Commercial Mortgage Pass-Through Certificates (the "Certificates"), and the
related preparation and filing of a Registration Statement on Form S-3 (the
"Registration Statement"). The Certificates are issuable in series under
separate pooling and servicing agreements (each such agreement, a "Pooling and
Servicing Agreement") among the Registrant and a trustee, a master servicer, a
special servicer and/or a certificate administrator to be identified in the
prospectus supplement for such series of Certificates. Each Pooling and
Servicing Agreement will be substantially in the form filed as an Exhibit to the
Registration Statement.
In connection with rendering this opinion letter, we have
examined the form of the Pooling and Servicing Agreement contained as an Exhibit
in the Registration Statement, the Registration Statement and such other
documents as we have deemed necessary. As to matters of fact, we have examined
and relied upon representations or certifications of officers of the Registrant
or public officials. We have assumed the authenticity of all documents submitted
to us as originals, the genuineness of all signatures, the legal capacity of
natural persons and the
<PAGE>
GMAC Commercial Mortgage Securities, Inc.
December 30, 1996 Page 2.
conformity to the originals of all documents submitted to us as copies. We have
assumed that all parties had the corporate power and authority to enter into and
perform all obligations thereunder. As to such parties, we also have assumed the
due authorization by all requisite corporate action, the due execution and
delivery and, except as expressed in opinion 2 below, the enforceability of such
documents.
In rendering this opinion letter, we express no opinion as to
the laws of any jurisdiction other than the laws of the State of New York and
the corporate laws of the State of Delaware, nor do we express any opinion,
either implicitly or otherwise, on any issue not expressly addressed below. In
rendering this opinion letter, we have not passed upon and do not pass upon the
application of the "doing business" or securities laws of any jurisdiction. This
opinion letter is further subject to the qualification that enforceability may
be limited by (i) bankruptcy, insolvency, liquidation, receivership, moratorium,
reorganization or other laws affecting the enforcement of the rights of
creditors generally and (ii) general principles of equity, whether enforcement
is sought in a proceeding in equity or at law.
Based upon and subject to the foregoing, we are of the opinion
that:
1. When a Pooling and Servicing Agreement for a series of
Certificates has been duly authorized by all necessary action and duly executed
and delivered by the parties thereto, the Pooling and Servicing Agreement will
be a legal and valid obligation of the Registrant.
2. When a Pooling and Servicing Agreement for a series of
Certificates has been duly authorized by all necessary action and duly executed
and delivered by the parties thereto, and when the Certificates of such series
have been duly executed and authenticated in accordance with the provisions of
the Pooling and Servicing Agreement and issued and sold as contemplated in the
Registration Statement and the prospectus and prospectus supplement delivered in
connection therewith, the Certificates will be legally and validly issued and
outstanding, fully paid and non-assessable, and the holders of the Certificates
will be entitled to the benefits of the Pooling and Servicing Agreement.
3. The description of federal income tax consequences
appearing under the heading "Certain Federal Income Tax Consequences" in the
prospectus contained in the Registration Statement, while not purporting to
discuss all possible federal income tax consequences of an investment in
Certificates, is accurate with respect to those tax consequences which are
discussed.
We hereby consent to the filing of this opinion letter as an
Exhibit to the Registration Statement, and to the use of our name in the
prospectus included in the Registration Statement under the heading "Legal
Matters", and in the prospectus included in the Registration
<PAGE>
GMAC Commercial Mortgage Securities, Inc.
December 30, 1996 Page 3.
Statement under the heading "Certain Federal Income Tax Consequences", without
admitting that we are "experts" within the meaning of the Act and the rules and
regulations thereunder with respect to any part of the Registration Statement,
including this Exhibit.
Very truly yours,
THACHER PROFFITT & WOOD
By /s/ Thacher Proffitt & Wood
---------------------------
EXHIBIT 24.2
------------
GMAC COMMERCIAL MORTGAGE SECURITIES, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints David E. Creamer as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities (including
his capacity as director and/or officer of GMAC Commercial Mortgage Securities,
Inc.), to sign any or all amendments (including post-effective amendments) to
the Registration Statement on Form S-3, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully and to all intents and
purposes as he might or could do in person, hereby ratifying and confirming that
said attorney-in-fact and agent, or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Charles E. Dunleavy, Jr. Director December 30, 1996
- -----------------------------------------------
Charles E. Dunleavy, Jr.
/s/ Charles S. Pringle Director December 30, 1996
- -----------------------------------------------
Charles S. Pringle
/s/ Donald J. Puglisi Director December 30, 1996
- -----------------------------------------------
Donald J. Puglisi
/S/ Dennis W. Sheehan, Jr. Director December 30, 1996
- -----------------------------------------------
Dennis W. Sheehan, Jr.
</TABLE>
