<PAGE>
As filed with the Securities and Exchange Commission on November 12, 1997
Registration No. 333-37717
===============================================================================
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
Amendment No. 1
to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
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 principal 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) 328-3480
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------
Copies to:
Robert L. Schwartz, Esq.
Managing Director and General Counsel
GMAC Mortgage Group, Inc.
3031 West Grand Boulevard
Detroit, Michigan 48232
<TABLE>
<CAPTION>
<S> <C> <C>
Diane Citron, Esq. Joshua E. Raff, Esq. Stephen S. Kudenholdt, Esq.
Mayer Brown & Platt Orrick, Herrington & Sutcliffe LLP Thacher Proffitt & Wood
190 South LaSalle Street 666 Fifth Avenue Two World Trade Center
Chicago, Illinois 60603 New York, New York 10103 New York, New York 10048
</TABLE>
===============================================================================
<PAGE>
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]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TITLE OF SECURITIES BEING REGISTERED AMOUNT PROPOSED PROPOSED AMOUNT OF
TO BE REGISTERED MAXIMUM MAXIMUM REGISTRATION
(1) OFFERING AGGREGATE FEE
PRICE OFFERING (1)
PER UNIT PRICE
(2) (2)
- -------------------------------------------------------------------------------------------------------
Mortgage Pass-Through Certificates $5,001,000,000 100% $5,001,000,000 $1,515,456(3)
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) $1,103,020,854 aggregate principal amount of Mortgage Pass-Through
Certificates registered by the Registrant under Registration Statement
No. 333-18959 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 $6,104,020,854.
(2) Estimated solely for the purpose of calculating the registration
fee.
(3) $304 previously paid.
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. 333-18959 previously filed by
the Registrant.
===============================================================================
2
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 12, 1997
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED ___________, 1995)
$________________________
GMAC COMMERCIAL MORTGAGE SECURITIES, INC.
DEPOSITOR
GMAC COMMERCIAL MORTGAGE CORPORATION
MASTER SERVICER
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__-__ 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 ___ 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>
(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,]
[commercial] [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 [and subject to a variance of plus or minus 5%]. 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,
ii
<PAGE>
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.]
iii
<PAGE>
[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.
iv
<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............... 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
S-1
<PAGE>
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
$_________________[, subject to a
variance of plus or minus 5%]. On or
prior to the Delivery Date, the
Depositor will acquire the Mortgage
Loans 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] [commercial]
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
S-2
<PAGE>
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.
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 $____________
[(in each case, subject to a variance of
plus or minus 5%)]. See "Description of
the Certificates-General" herein.
The Pass-Through Rate applicable to each
Class of Certificates for the initial
Distribution Date will equal
S-3
<PAGE>
_____% 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.
The "Available Distribution Amount" for
any Distribution Date is, as described
herein under
S-4
<PAGE>
"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
S-5
<PAGE>
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 (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
S-6
<PAGE>
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 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
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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 [and principal], in
any event under the circumstances and
subject to the limitations set forth
herein. In no event will the Master
Servicer be required to advance the full
amount of any delinquent Balloon
Payment. 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 LOSSES
AND CERTAIN EXPENSES............. 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
"Description of
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<PAGE>
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.
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
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<PAGE>
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, even 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.
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.
For information regarding the
consequences under ERISA of investing in
the Offered Certificates, see "ERISA
Considerations" 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
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<PAGE>
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.
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<PAGE>
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.
THE CERTIFICATES
[Potential Conflicts of Interest. As described herein, the Master
Servicer will have considerable latitude in determining whether to liquidate or
modify defaulted Mortgage Loans. See "Description of the Mortgage
Pool--Modifications, Waivers and Amendments" herein. It is expected that the
Master Servicer will acquire in connection with the initial issuance thereof
certain of the Subordinate Certificates, including the Class __ Certificates.
In addition, subject to the conditions described herein, the holder or holders
of Certificates representing more than 50% of the voting rights allocated to
the Controlling Class (as described herein and initially consisting of the
Class __ Certificates) can terminate the rights and obligations of the Master
Servicer in respect of Specially Serviced Mortgage Loans and REO Properties
(each as defined herein) and can appoint a replacement to perform such duties,
which replacement may be any such holder or an affiliate thereof. Investors in
the Offered Certificates should consider that, although the Master Servicer
will be obligated to act in accordance with the terms of the Pooling and
Servicing Agreement, it may have interests when dealing with defaulted Mortgage
Loans that are in conflict with those of the holders of the Offered
Certificates.]
THE MORTGAGE LOANS
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.
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.
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<PAGE>
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.
[Management. The successful operation of a real estate project is
dependent on the performance and viability of the property manager of such
project. The property manager is responsible for responding to changes in the
local market, planning and implementing the rental structure, including
establishing levels of rent payments, and ensuring that maintenance and capital
improvements can be carried out in a timely fashion. Accordingly, by
controlling costs, providing appropriate service to tenants and seeing to the
maintenance of improvements, sound property management can improve cash flow,
reduce vacancy, leasing and repair costs and preserve building value. On the
other hand, management errors can, in some cases, impair the long term
viability of a real estate project.
Certain of the Mortgaged Properties may be managed by property
managers affiliated with the respective borrowers. These property managers may
also manage and/or franchise additional properties, including Mortgaged
Properties or other properties that may compete with the Mortgaged Properties.
Moreover, affiliates of the managers and/or the borrowers, or the managers
and/or the borrowers themselves, may also own other properties, including
competing properties. Accordingly, the managers of the Mortgaged Properties and
the borrowers may experience conflicts of interest in the management and/or
ownership of such properties.]
[Related Borrowers. Certain borrowers under the Mortgage Loans are
affiliated or under common control with one another. In such circumstances, any
adverse circumstances relating to a borrower or an affiliate thereof and
affecting one of the related Mortgage Loans or Mortgaged Properties could also
affect Mortgage Loans or Mortgaged Properties of the related borrower. In
particular, the bankruptcy or insolvency of any such borrower or affiliate
could have an adverse effect on the operation of all of the Mortgaged
Properties of that borrower and its affiliates and on the ability of such
related Mortgaged Properties to produce sufficient cash flow to make required
payments on the Mortgage Loans. For example, if a person that owns or directly
or indirectly controls several Mortgaged Properties experiences financial
difficulty at one Mortgaged Property, it could defer maintenance at one or more
other Mortgaged Properties in order to satisfy current expenses with respect to
the Mortgaged Property experiencing financial difficulty, or it could attempt
to avert foreclosure by filing a bankruptcy petition that might have the effect
of interrupting payments for an indefinite period on all the related Mortgage
Loans. See "Certain Legal Aspects of Mortgage Loans-Bankruptcy Laws" in the
Prospectus.]
[Limitation on Enforceability of Cross-Collateralization. ___ Mortgage
Loans representing in the aggregate ___% of the Initial Pool Balance are
cross-collateralized with one or more other Mortgage Loans (the
"Cross-Collateralized Mortgage Loans"). Cross-collateralization arrangements
involving more than one borrower could be challenged as a fraudulent conveyance
by creditors of a borrower or by the representative or the bankruptcy estate of
a borrower, if a borrower were to become a debtor in a bankruptcy case.
Generally, under federal and most state fraudulent conveyance statutes, the
incurring of an obligation or the transfer of property by a person will be
subject to avoidance under certain circumstances if the person did not receive
fair consideration or reasonably equivalent value in exchange for such
obligation or transfer and (i) was insolvent or was rendered insolvent by such
obligation or
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<PAGE>
transfer, (ii) was engaged in business or a transaction, or was about to engage
in business or a transaction, for which any property remaining with the person
has an unreasonably small capital or (iii) intended to, or believed that it
would, incur debts that would be beyond the person's ability to pay as such
debts matured. Accordingly, a lien granted by a borrower to secure repayment of
another borrower's Mortgage Loan could be avoided if a court were to determine
that (i) such borrower was insolvent at the time of granting the lien, was
rendered insolvent by the granting of the lien, or was left with inadequate
capital or was not able to pay its debts as they matured and (ii) the borrower
did not, when it allowed its Mortgaged Property to be encumbered by a lien
securing the entire indebtedness represented by the other Mortgage Loan,
receive fair consideration or reasonably equivalent value for pledging such
Mortgaged Property for the equal benefit of the other borrower. See
"Description of the Mortgage Asset Pool-Certain Terms and Conditions of the
Mortgage Loans-Related Borrowers, Cross- Collateralization and Cross-Defaulted
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.
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 $_______________[, subject to a
variance of plus or minus 5%]. 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] [commercial] 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.
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<PAGE>
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.
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
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.]
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<PAGE>
[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.
[DELINQUENT AND NONPERFORMING MORTGAGE LOANS]
[Describe those delinquent and nonperforming Mortgage Loans, if any,
included in the Trust Fund.]
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 the underwriting conducted by such Mortgage Loan Seller with respect to the
Mortgage Loans 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.
CERTAIN UNDERWRITING MATTERS
[All of the Mortgage Loans were originated or acquired by the Mortgage
Loan Seller, generally in accordance with the underwriting criteria described
herein.
[General description of underwriting policies used by Mortgage Loan
Seller or Sellers.]
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.]
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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 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.
SERVICING OF THE MORTGAGE LOANS
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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 ______ __, 199_, the Master
Servicer had a total commercial and multifamily mortgage loan servicing
portfolio of approximately $__ billion. See "GMAC Commercial Mortgage
Corporation" in the Prospectus.
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 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.
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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 is required to (or may contract with a third party
to) perform physical inspections of each Mortgaged Property at least once every
two years (or, if the related Mortgage Loan has a then-current balance greater
than $5,000,000, at least once every year). In addition, the Master Servicer,
subject to statutory limitations or limitations set forth in the related loan
documents, is required to perform a physical inspection of each Mortgaged
Property as soon as is practicable after the related Mortgage Loan becomes a
Specially Serviced Mortgage Loan. The Master Servicer will be required to
prepare or cause to be prepared a written report of each such inspection
performed thereby describing the condition of the Mortgaged Property.
With respect to each Mortgage Loan that requires the borrower to
deliver operating statements with respect to the related Mortgaged Property,
the Master Servicer is also required to make reasonable efforts to collect and
review such 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 upon reasonable request by
Certificateholders during normal business hours at the offices of the Master
Servicer. See "Description of the Certificates-Reports to Certificateholders;
Certain Available Information" herein.
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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
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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
___________________________ 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."
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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.
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
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(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;
(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;
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<PAGE>
(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.]
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
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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 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
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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 LOSSES AND CERTAIN EXPENSES
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 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
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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 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
S-27
<PAGE>
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
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<PAGE>
and all modifications, waivers and amendments of the terms of a 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
S-29
<PAGE>
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 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.
S-30
<PAGE>
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.
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
S-31
<PAGE>
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 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
S-32
<PAGE>
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 30/360 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.
S-33
<PAGE>
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>
<CAPTION>
PERCENT OF THE INITIAL CERTIFICATE BALANCE OF THE
CLASS A CERTIFICATES AT THE RESPECTIVE CPRS
SET FORTH BELOW:
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>
<CAPTION>
PERCENT OF THE INITIAL CERTIFICATE BALANCE OF THE
CLASS B CERTIFICATES AT THE RESPECTIVE CPRS
SET FORTH BELOW:
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.......................................
</TABLE>
S-34
<PAGE>
Weighted Average Life (years)(A).........................
- --------------
(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>
<CAPTION>
PRE-TAX YIELD TO MATURITY OF THE CLASS S CERTIFICATES
AT THE FOLLOWING CPRS
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.
S-35
<PAGE>
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 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.
S-36
<PAGE>
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.
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 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 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
S-37
<PAGE>
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.
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
S-38
<PAGE>
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.
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.
S-39
<PAGE>
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 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 (and, as
applicable, insurance company general accounts) in which such plans, accounts
or arrangements are invested, that is subject to ERISA and/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 assets of a Plan may qualify for exemptive relief under the Exemption,
as described under "ERISA Considerations - Prohibited
S-40
<PAGE>
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 Depositor, the Trustee and the Master Servicer with an
opinion of counsel satisfactory to the Depositor, the Trustee and the Master
Servicer that such transfer is permissible under applicable law, will not
constitute or result in any non-exempt prohibited transaction under ERISA or
Section 4975 of the Code and will not subject the Depositor, the Trustee or
the Master Servicer to any obligation in addition to those undertaken in the
Pooling and Servicing Agreement. In lieu of such opinion of counsel, the
prospective transferee of a Class [ ] Certificate may provide a certification
of facts substantially to the effect that the purchase of such Certificate by
or on behalf of, or with assets of, any Plan is permissible under applicable
law, will not constitute or result in any non-exempt prohibited transaction
under ERISA or Section 4975 of the Code, will not subject the Depositor, the
Trustee or the Master Servicer to any obligation in addition to those
undertaken in the Pooling and Servicing Agreement, and the following
conditions are met: (a) the source of funds used to purchase such Certificate
is an "insurance company general account" (as such term is defined in United
States Department of Labor Prohibited Transaction Class Exemption ("PTCE")
95-60 and (b) the conditions set forth in Sections I and III of PTCE 95-60
have been satisfied as of the date of the acquisition of such Certificates.
See "ERISA Considerations--Representation From Investing Plans" in the
Prospectus.
Any Plan fiduciary or other person considering whether to purchase an
Offered Certificate on behalf of or with assets of a Plan should consult with
its counsel regarding the applicability of the fiduciary responsibility
provisions of ERISA and the prohibited transaction provisions of ERISA and
Section 4975 of the Code to such investment and the availability of the
Exemption or any other prohibited transaction exemption in connection
therewith. See "ERISA Considerations" in the Prospectus.
S-41
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
360/360 basis .............................................................S-24
Accrued Certificate Interest...............................................S-24
Advance ..............................................................S-7, S-27
ARM Loans ..................................................................S-2
Available Distribution Amount..............................................S-22
Balloon Payment ..........................................................S-3
Certificate Balance..........................................................ii
Certificate Registrar......................................................S-21
Certificates .................................................................i
Class ........................................................................i
Class A Certificate Owner...................................................S-1
Class B Available Distribution Amount.......................................S-5
Class S Certificates.........................................................ii
Collateral Support Deficit............................................S-8, S-26
Constant Prepayment Rate...................................................S-32
CPR .......................................................................S-32
Cross-Collateralized Mortgage Loans........................................S-13
Cut-off Date ................................................................ii
Cut-off Date Balance.......................................................S-14
Definitive Class A Certificate..............................................S-2
Delivery Date ...............................................................ii
Determination Date.........................................................S-22
Distributable Certificate Interest.........................................S-24
Distributable Principal....................................................S-25
Distribution Date .....................................................ii, S-22
Distribution Date Statement................................................S-28
Due Date ...................................................................S-2
Due Period ................................................................S-22
Effective Net Mortgage Rate................................................S-24
Fixed Rate Loans ..........................................................S-3
Form 8-K ..................................................................S-17
Gross Margin ...............................................................S-2
Index ......................................................................S-2
Initial Pool Balance.........................................................ii
Interest Rate Adjustment Date...............................................S-2
LTV Ratio .................................................................S-50
Master Servicer Reimbursement Rate.........................................S-28
Monthly Payments ...........................................................S-2
Mortgage ..................................................................S-14
Mortgage Loans ..............................................................ii
Mortgage Note .............................................................S-14
Mortgage Pool ...............................................................ii
Mortgage Rate ..............................................................S-2
Mortgaged Property....................................................S-2, S-14
Net Aggregate Prepayment Interest Shortfall................................S-24
Net Mortgage Rate ..........................................................S-4
Nonrecoverable Advance.....................................................S-27
Offered Certificates....................................................i, S-20
Ownership Percentage.......................................................S-25
Pass-Through Rate ...........................................................ii
Payment Adjustment Date.....................................................S-3
Percentage Interest........................................................S-20
Plan ......................................................................S-40
Pooling and Servicing Agreement.............................................S-3
Prepayment Interest Excess.................................................S-18
Prepayment Premiums........................................................S-16
Purchase Agreement..........................................................S-2
Purchase Price ............................................................S-17
Related Proceeds ..........................................................S-27
REMIC Regular Certificates...................................................ii
REO Loan ..................................................................S-25
REO Property ..............................................................S-19
Rules .....................................................................S-21
Senior Certificates.....................................................i, S-20
Servicing Fee .............................................................S-18
Servicing Fee Rate.........................................................S-18
Stated Principal Balance...................................................S-25
Trust Fund ..................................................................ii
Underwriter ............................................................i, S-38
Underwriting Agreement.....................................................S-38
Voting Rights .............................................................S-29
S-42
<PAGE>
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 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 TIME SINCE THE DATE OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS.
TABLE OF CONTENTS
Page
Prospectus Supplement
Summary...................................................................
Risk Factors..............................................................
Description of the Mortgage Pool..........................................
Servicing of the Mortgage Loans...........................................
Description of the Certificates...........................................
Yield and Maturity Considerations.........................................
Certain Federal Income Tax Consequences...................................
Method of Distribution....................................................
Legal Matters.............................................................
Rating....................................................................
Legal Investment..........................................................
ERISA Considerations......................................................
Index of Principal Definitions............................................
Annex A ..................................................................
Prospectus
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 and Other Tax Consequences..........................................
ERISA Considerations......................................................
Legal Investment..........................................................
Use of Proceeds...........................................................
Method of Distribution....................................................
Legal Matters.............................................................
Financial Information.....................................................
Rating....................................................................
Index of Principal Definitions............................................
<PAGE>
GMAC COMMERCIAL MORTGAGE
SECURITIES, INC.
$___________
MULTIFAMILY MORTGAGE PASS-THROUGH
CERTIFICATES
SERIES 199_-_
CLASS A CERTIFICATES VARIABLE RATE $___________
CLASS B CERTIFICATES VARIABLE RATE $___________
CLASS R CERTIFICATES VARIABLE RATE $ 100
-----------
PROSPECTUS SUPPLEMENT
__________, 199_
-----------
[UNDERWRITER]
S-43
<PAGE>
ANNEX A
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
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.
MORTGAGE RATES AS OF THE CUT-OFF DATE
S-44
<PAGE>
<TABLE>
<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..........................................
============== =================== ====================
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>
<TABLE>
<CAPTION>
GROSS MARGINS FOR THE ARM LOANS
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............................................
============== ================== ===================
Weighted Average
Gross Margin: ____%
</TABLE>
S-45
<PAGE>
<TABLE>
<CAPTION>
FREQUENCY OF ADJUSTMENTS TO MORTGAGE RATES AND MONTHLY PAYMENTS FOR THE ARM LOANS
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>
<CAPTION>
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..........................................
============== ================== ===================
Weighted Average Maximum Lifetime
Mortgage Rate (ARM Loans): _____% per annum (A)
</TABLE>
- --------------
(A) This calculation does not include the __________ ARM Loans without maximum
lifetime Mortgage Rates.
<TABLE>
<CAPTION>
MINIMUM LIFETIME MORTGAGE RATES FOR THE ARM LOANS
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..........................................
============== ================== ===================
Weighted Average Minimum Lifetime
Mortgage Rate (ARM Loans): _____% per annum (A)
</TABLE>
- --------------
(A) This calculation does not include the __________ ARM Loans without maximum
lifetime Mortgage Rates.
S-46
<PAGE>
<TABLE>
<CAPTION>
MAXIMUM ANNUAL MORTGAGE RATES FOR THE ARM LOANS
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..........................................
============== ================== ===================
Weighted Average Maximum Annual
Mortgage Rate (ARM Loans): _____% per annum (A)
</TABLE>
- --------------
(A) This calculation does not include the __________ ARM Loans without maximum
annual Mortgage Rates.
<TABLE>
<CAPTION>
MINIMUM ANNUAL MORTGAGE RATES FOR THE ARM LOANS
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..........................................
============== ================== ===================
Weighted Average Minimum Annual
Mortgage Rate (ARM Loans): _____% per annum (A)
</TABLE>
- --------------
(A) This calculation does not include the __________ ARM Loans without maximum
annual Mortgage Rates.
S-47
<PAGE>
<TABLE>
<CAPTION>
CUT-OFF DATE BALANCES
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...............................................
============== ================== ===================
Average Cut-off Date
Balance (All Mortgage
Loans): $____________
Average Cut-off Date
Balance (ARM Loans): $____________
Average Cut-off Date
Balance (Fixed Rate Loans): $____________
</TABLE>
S-48
<PAGE>
<TABLE>
<CAPTION>
ORIGINAL TERM TO STATED MATURITY (IN MONTHS)
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.........................................
============== ========================= =====================
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>
<TABLE>
<CAPTION>
REMAINING TERM TO STATED MATURITY (IN MONTHS)
AS OF THE CUT-OFF DATE
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.........................................
============== ========================= ===================
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
</TABLE>
S-49
<PAGE>
<TABLE>
<CAPTION>
YEAR OF ORIGINATION
Number of Percent by
Mortgage Aggregate Cut-off Aggregate Cut-off
YEAR Loans Date Balance Date Balance
---- ----- ------------ ------------
<S> <C> <C> <C>
-------------- ------------------------- -------------------
Total.........................................
============== ========================= ===================
</TABLE>
<TABLE>
<CAPTION>
YEAR OF SCHEDULED MATURITY
Number of Percent by
Mortgage Aggregate Cut-off Aggregate Cut-off
YEAR Loans Date Balance Date Balance
---- ----- ------------ ------------
<S> <C> <C> <C>
--------------------- ------------------ -------------------
Total.........................
===================== ================== ===================
S-50
<PAGE>
[The following table sets forth a range of Debt Service Coverage Ratios
for the Mortgage Loans. The "Debt Service Coverage Ratio," "Underwritten Debt
Service Coverage Ratio" or "Underwritten DSCR" means, with respect to any
Mortgage Loan, or with respect to a Mortgage Loan evidenced by one Mortgage
Note but secured by multiple Mortgaged Properties, (a) the Underwritten Cash
Flow for the Mortgaged Property, divided by (b) the Annual Debt Service for
such Mortgage Loan. The "Annual Debt Service" means, for any Mortgage Loans 12
times the monthly payment in effect as of the Cut-off Date or, for any Mortgage
Loan that pay interest only for a period of time, 12 times the Monthly Payment
in effect at the end of such period. The "Underwritten Cash Flow" with respect
to any Mortgaged Property means an estimate of the cash flow available for debt
service in a typical year of stable, normal operations. In general, it is the
estimated revenue derived from the use and operation of such Mortgaged Property
less the sum of (a) estimated operating expenses (such as utilities,
administrative expenses, repairs and maintenance, management and franchise fees
and advertising), (b) fixed expenses (such as insurance, real estate taxes and,
if applicable, ground lease payments) and (c) capital expenditures and reserves
for capital expenditures, including tenant improvement costs and leasing
commissions. Underwritten Cash Flow generally does not reflect interest expense
and non-cash items such as depreciation and amortization. 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>
<TABLE>
<CAPTION>
DEBT SERVICE COVERAGE RATIOS(A)
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..........................
============== =========================== ===================
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)
</TABLE>
- --------------
(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.
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
S-51
<PAGE>
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>
<CAPTION>
LTV RATIOS AT ORIGINATION
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...................
===================== ================== ==================
Weighted Average Original LTV
Ratio (All Mortgage Loans):
-----%
Weighted Average Original LTV
Ratio (ARM Loans): _____%
Weighted Average Original LTV
Ratio (Fixed Rate Loans):
-----%
</TABLE>
S-52
<PAGE>
<TABLE>
<CAPTION>
LTV Ratios at Cut-off Date
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...................
===================== ================== ==================
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): _____%
</TABLE>
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>
<CAPTION>
GEOGRAPHIC DISTRIBUTION
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.
S-53
<PAGE>
<TABLE>
<CAPTION>
OCCUPANCY RATES
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....................................
===================== ================== ===================
Weighted Average Occupancy Rate (All
Mortgage Loans)(A): _____%
Weighted Average Occupancy Rate (ARM
Loans)(A): _____%
Weighted Average Occupancy Rate (Fixed Rate
Loans)(A): _____%
</TABLE>
- --------------
(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>
<CAPTION>
PREPAYMENT RESTRICTIONS IN EFFECT AS OF THE CUT-OFF DATE
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.
S-54
<PAGE>
Certain additional information regarding the Mortgage Loans is
contained in the Prospectus Supplement 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.]
S-55
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER __, 1997
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.
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 [___________], 1997
<PAGE>
(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".
<PAGE>
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 Prospectus and any
3
<PAGE>
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)
328-3480.
4
<PAGE>
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, multifamily residential
properties or commercial properties. If
so specified in the related
5
<PAGE>
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 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.
6
<PAGE>
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
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".
7
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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, 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
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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 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
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"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 (and, as
applicable, insurance company general
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 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
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<PAGE>
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 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.
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<PAGE>
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 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
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(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 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
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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 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
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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 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," "Underwritten Debt
Service Coverage Ratio" or "Underwritten DSCR" means, with respect to any
Mortgage Loan, or with respect to a Mortgage Loan evidenced by one Mortgage
Note, but secured by multiple Mortgaged Properties, (a) the Underwritten Cash
flow for the Mortgaged Property, divided by (b) the Annual Debt Service for
such Mortgage Loan. "Underwritten Cash Flow" with respect to any Mortgaged
Property, means an estimate of cash flow available for debt service in a
typical year of stable, normal operations. In general, it is the estimated
revenue derived from the use and operation of such Mortgaged Property less the
sum of (a) estimated operating expenses (such as utilities, administrative
expenses, repairs and maintenance, management and franchise fees and
advertising), (b) fixed expenses (such as insurance, real estate taxes and, if
applicable, ground lease payments) and (c) capital expenditures and reserves
for capital expenditures, including tenant improvement costs and leasing
commissions. Underwritten Cash Flow generally does not reflect interest expense
and non-cash items such as depreciation and amortization. "Annual Debt Service"
means for any Mortgage Loan 12 times the monthly payment in effect as of the
Cut-off Date or, for any Mortgage Loans that pay interest only for a period of
time, 12 times the monthly payment in effect at the end of such period. The
Underwritten Cash Flow 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 Underwritten Cash Flow 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
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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 Underwritten Cash Flow 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 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
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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 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.
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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.
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
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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 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
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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.
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
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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 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
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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 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
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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 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.
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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.
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. Unless otherwise provided in the related
Prospectus Supplement, 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) 328-3480. 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) 328-4622. 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.
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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.
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
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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 more specifically described in the related Prospectus
Supplement Unless otherwise provided in the related Prospectus Supplement, 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
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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 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
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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 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, the Fiscal Agent (if any), 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, Fiscal Agent or Trustee if,
in the judgment of the Master Servicer, Special Servicer, Fiscal Agent 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, Fiscal Agent 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,
Fiscal Agent, Trustee or other entity from excess funds in a Certificate
Account, such Master Servicer, Special Servicer, Fiscal Agent, 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, Fiscal Agent, Trustee or other entity to
make advances may be secured by a cash advance reserve fund or a surety
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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.
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
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Loans in the related Trust Fund must be received in order to
be distributed on a particular Distribution Date);
(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
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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 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
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as banks, brokers, dealers and trust companies that clear through or maintain 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 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
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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 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
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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.
Representations and warranties may be 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. The date as of which the
representations and warranties
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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 or Special
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 or
Special 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 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."
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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; provided, however, that the Master Servicer will not
approve such a request if a REMIC election has been made and such request would
not (in the opinion of independent counsel) 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. 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 owned by the related Master Servicer or
Special Servicer (if any) or serviced by either on behalf of others.
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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;
(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
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(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 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;
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(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 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
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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 three full years after the
taxable year 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 longer than such period 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.
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
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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.
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".
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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 Attestation Program for Mortgage Bankers
established by the Mortgage Bankers Association of America with respect to the
servicing of commercial and multifamily mortgage loans 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 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
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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, 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
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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 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
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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 or desirable 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.
Unless otherwise specified in the Prospectus Supplement, 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 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
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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.
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.
INSURANCE OR GUARANTEES WITH RESPECT TO MORTGAGE LOANS
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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 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.
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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 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
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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.
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.
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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 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
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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 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
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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.
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
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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.
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
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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 of 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 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.
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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
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.
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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 (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. The following summary is based on the Code as well as
Treasury regulations and administrative and judicial rulings and practice.
Legislative, judicial and administrative changes may occur, possibly with
retroactive effect, that could alter or modify the continued validity of the
statements and conclusions set forth herein. This summary does not purport to
address all federal income tax matters that may be relevant to particular
holders. For example, it generally is addressed only to original purchasers of
the Certificates that are United States investors, deals only with Certificates
held as capital assets within the meaning of Section 1221 of the Code, and does
not address tax consequences to holders that may be relevant to investors
subject to special rules, such as non-
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U.S. investors, banks, insurance companies, tax-exempt organizations, electing
large partnerships, dealers in securities or currencies, mutual funds, REITs, S
corporations, estates and trusts, investors that hold the Certificates as part
of a hedge, straddle, integrated or conversion transaction, or holders whose
"functional currency" is not the United States dollar. Further, it does not
address alternative minimum tax consequences or the indirect effects on the
holders of equity interests in an entity that is a beneficial owner of the
Certificates. Further, this discussion does not address the state or local tax
consequences of the purchase, ownership and disposition of such Certificates.
Investors should consult their tax advisers in determining the federal, state,
local, or other tax consequences to them of the purchase, ownership and
disposition of the Certificates offered hereunder. See "State and Other Tax
Consequences".
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
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
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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.
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.
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. 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
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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 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
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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 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
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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 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.
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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 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
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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 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.
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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 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.
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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 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
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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
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.
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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 23, 1996, the IRS released final
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 REMIC Residual Certificate is not treated as
a security and thus may not be marked to market.
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
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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 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.
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 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
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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 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
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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 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.
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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.
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
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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.
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
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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 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 a
reasonable prepayment
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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 1.1286-1(b), 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 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
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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 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
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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 likely 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 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
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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 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
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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. Treasury regulations were promulgated on June 11, 1996 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 "comparable yield"
(as described below) of the Grantor Trust Strip Certificate. The projected
amount of each payment is determined so that the payment schedule reflects the
"comparable 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 in the manner prescribed by the regulations.
The "comparable yield" referred to above is generally the yield at which the
issuer would issue a fixed rate debt instrument with terms and conditions
similar to those of the Grantor Trust Strip Certificates, including the level
of subordination, term, timing of payments and general market conditions. The
holder of a Grantor Trust 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
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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 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
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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/or
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.
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 or result in 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
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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, the
Special Servicer, any Sub-Servicer, the 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 of ERISA and the prohibited transaction provisions of ERISA and
Section 4975 of 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, on behalf of or with assets of 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 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
Sections 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 issued by 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
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 or with assets of 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
or with assets of 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 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,
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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 or
Plan asset investor 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
acquisition of Certificates by or with assets of a Plan; 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 acquisition of Certificates by or
with assets of a Plan.
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 (collectively, "Non-Exempt 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 and persons investing
assets of Plans should not purchase Non-Exempt Certificates based solely upon
the Exemption.
A fiduciary or other investor of Plan assets 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, and 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 or with assets of a Plan. However, no 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 Sections
4975(a) and (b) of the Code by reason of 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 or with assets of a Plan and (3) the holding of Certificates by
or with assets of 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
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<PAGE>
to the Certificates so that the Exemption would provide an exemption from the
restrictions imposed by Sections 406(a) and (b) of ERISA, 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
Sections 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 or other
investor of Plan assets 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 or other Plan investor should
consider its general fiduciary obligations under ERISA in determining whether
to purchase any Offered Certificates with assets of a Plan. Such fiduciary or
other Plan investor should consider the availability of other class exemptions
granted by the DOL, which provide relief from certain of the prohibited
transaction provisions of ERISA and the related excise tax provisions of
Section 4975 of the Code, including Sections I and III of Prohibited
Transaction Class Exemption ("PTCE") 95-60, regarding transactions by
insurance company general accounts. The Prospectus Supplement with respect to
a series of Certificates may contain additional information regarding the
application of the Exemption, PTCE 95-60 or any other DOL exemption, with
respect to the Certificates offered thereby.
Any fiduciary or other Plan investor that 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. There can be no
assurance that any of these exemptions will apply with respect to any
particular Plan's or other Plan asset investor's investment in the
Certificates or, even if an exemption were deemed to apply, that any
exemption would apply to all prohibited transactions that may occur in
connection with such an investment.
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<PAGE>
INSURANCE COMPANY GENERAL ACCOUNTS
In addition to any exemption that may be available under PTCE 95-60
for the purchase and holding of the Certificates by an insurance company
general account, the Small Business Job Protection Act of 1996 added a new
Section 401(c) to ERISA, which provides certain exemptive relief from the
provisions of Part 4 of Title I of ERISA and Section 4975 of the Code,
including the prohibited transaction restrictions imposed by ERISA and the
related excise taxes imposed by Section 4975 of the Code, for transactions
involving an insurance company general account. Pursuant to Section 401(c) of
ERISA, the DOL is required to issue final regulations (the "401(c)
Regulations") no later than December 31, 1997 which are to provide guidance for
the purpose of determining, in cases where insurance policies and annuity
contracts supported by an insurer's general account are issued to or for the
benefit of a Plan on or before December 31, 1998, which general account assets
constitute Plan assets. Section 401(c) of ERISA generally provides that, until
the date which is 18 months after the 401(c) Regulations become final, no
person shall be subject to liability under Part 4 of Title I of ERISA and
Section 4975 of the Code on the basis of a claim that the assets of an
insurance company general account constitute Plan assets, unless (I) as
otherwise provided by the Secretary of labor in the 401(c) Regulations to
prevent avoidance of the regulations or (ii) an action is brought by the
Secretary of Labor for certain breaches of fiduciary duty which would also
constitute a violation of federal or state criminal law. Any assets of an
insurance company general account which support insurance policies or annuity
contracts issued to a Plan after December 31, 1998 or issued to Plans on or
before December 31, 1998 for which the insurance company does not comply with
the 401(c) Regulations may be treated as Plan assets. In addition, because
Section 401(c) does not relate to insurance company accounts, separate account
assets are still treated as Plan assets of any Plan invested in such separate
account. Insurance companies contemplating the investment of general account
assets in the Certificates should consult with their legal counsel with respect
to the applicability of Sections I and III of PTCE 95-60 and Section 401(c) of
ERISA, including the general account's ability to continue to hold the
Certificates after the date which is 18 months after the date the 401(c)
Regulations become final.
REPRESENTATION FROM INVESTING PLANS
It is not clear whether the exemptive relief afforded by the
Exemption will be applicable to the purchase, sale or holding of any class of
Non-Exempt Certificates. To the extent that Offered Certificates are
Non-Exempt Certificates, transfers of such Certificates to a Plan, to a
trustee or other person acting on behalf of any Plan, or to any other person
using Plan assets to effect such acquisition will not be registered by the
Trustee unless the transferee provides the Depositor, the Trustee and the
Master Servicer with an opinion of counsel satisfactory to the Depositor, the
Trustee and the Master Servicer, which opinion will not be at the expense of
the Depositor, the Trustee or the Master Servicer, that the purchase of such
Certificates by or on behalf of, or with asset of, any Plan is permissible
under applicable law, will not constitute or result in any non-exempt
prohibited transaction under ERISA or Section 4975 of the Code and will not
subject the Depositor, the Trustee or the Master Servicer to any obligation in
addition to those undertaken in the Pooling and Servicing Agreement. In lieu
of such opinion of counsel, the prospective transferee of any class of
Non-Exempt Certificates may provide a certification of facts substantially to
the effect that the purchase of such Certificates by or on behalf of, or with
asset of, any Plan is permissible under applicable law, will not constitute or
result in a non-exempt prohibited transaction under ERISA or Section 4975 of
the Code, will not subject the Depositor, the Trustee or the Master Servicer
to any obligation in addition to those undertaken in the Pooling and Servicing
Agreement, and the following conditions are met: (a) the source of funds used
to purchase such Certificates is an "insurance company general account" (as
such term is defined in PTCE 95-60 and (b) the conditions set forth in
Sections I and III of PTCE 95-60 have been satisfied as of the date of the
acquisition of such Certificates.
TAX EXEMPT INVESTORS
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<PAGE>
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."
Such fiduciary or other Plan investor should consider the
availability of other class exemptions granted by the DOL, which provide
relief from certain of the prohibited transaction provisions of ERISA and the
related excise tax provisions of Section 4975 of the Code, including Sections
I and III of Prohibited Transaction Class Exemption ("PTCE") 95-60, regarding
transactions by insurance company general accounts. The Prospectus Supplement
with respect to a series of Certificates may contain additional information
regarding the application of the Exemption, PTCE 95-60 or any other DOL
exemption, with respect to the Certificates offered thereby.
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 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
89
<PAGE>
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;
2. By placements by the Depositor with institutional
investors through dealers; and
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<PAGE>
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, Thacher Proffitt & Wood,
New York, New York or Orrick, Herrington & Sutcliffe LLP, New York, New York.
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
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<PAGE>
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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<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
Page Page
---- ----
93
<PAGE>
Accrual Certificates 12
Accrued Certificate Interest 32
Act 64
ARM Loans 23
Available Distribution Amount 31
Book-Entry Certificates 31
Cash Flow Agreement 13
CERCLA 64
Certificate Account 24
Certificate Balance 11
Certificate Owner 38
Certificateholder 67
Certificates 1
Closing Date 70
Code 14
Commercial Properties 20
Commission 4
Committee Report 69
Companion Class 34
Condemnation Proceeds 45
Contributions Tax 81
Controlled Amortization Class 33
Cooperatives 20
CPR 27
Credit Support 13
Cut-off Date 33
Debt Service Coverage Ratio 21
94
<PAGE>
Definitive Certificates 31
Depositor 1
Determination Date 25
Direct Participants 37
Distribution Date 12
Distribution Date Statement 35
DOL 94
DTC 31
Due Dates 22
Due Period 25
Equity Participation 22
ERISA 14
Excess Funds 29
Excluded Plan 96
Exemption 94
FAMC 23
FHLMC 23
FNMA 23
Garn Act 65
GMACCM 9
Grantor Trust Fractional Interest Certificate 84
Grantor Trust Strip Certificate 84
Indirect Participants 38
Insurance Proceeds 45
IRS 48
Issue Premium 76
Letter of Credit Bank 57
95
<PAGE>
Liquidation Proceeds 45
Loan-to-Value Ratio 21
Lock-out Date 22
Lock-out Period 22
Manager 9
Mark-to-Market Regulations 78
Master Servicer 9
MBS 1
MBS Administrator 9
MBS Agreement 23
MBS Issuer 23
MBS Servicer 23
MBS Trustee 23
Mortgage Asset Pool 1
Mortgage Asset Seller 19
Mortgage Assets 1
Mortgage Notes 19
Mortgage Rate 10
Mortgaged Properties 19
Mortgages 19
Multifamily Properties 19
Net Leases 21
Net Operating Income 21
Nonrecoverable Advance 34
Notional Amount 11
Offered Certificates 1
OID Regulations 68
96
<PAGE>
Originator 20
OTS 98
Participants 37
Parties in Interest 94
Pass-Through Rate 11
Percentage Interest 32
Permitted Investments 44
Plans 93
Policy Statement 97
Pooling and Servicing Agreement 11
Prepayment Assumption 69
Prepayment Interest Shortfall 25
Prepayment Premium 22
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
97
<PAGE>
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
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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.
<TABLE>
<CAPTION>
<S> <C>
Filing Fee for Registration Statement..................................$ 1,515,456.00
Legal Fees and Expenses................................................ 2,000,000.00
Accounting Fees and Expenses........................................... 800,000.00
Trustee's Fees and Expenses
(including counsel fees)............................................. 400,000.00
Blue Sky Fees and Expenses............................................. 100,000.00
Printing and Engraving Fees............................................ 400,000.00
Rating Agency Fees..................................................... 1,000,000.00
Miscellaneous.......................................................... 200,000.00
----------
Total..................................................................$ 6,415,456.00
===================
</TABLE>
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, 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
<PAGE>
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.
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 limitations, indemnify its directors or officers and may
purchase and maintain insurance as follows:
2
<PAGE>
(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 serving 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 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.
3
<PAGE>
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 and
officers of the company, or any of them, who incur or are threatened with
personal liability, including expenses, under the Employee Retirement Income
Security Act of 1974 or any amendatory or comparable legislation or regulation
thereunder.
EXHIBITS (ITEM 16 OF FORM S-3).
<TABLE>
<CAPTION>
<S> <C> <C>
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.
5.3 -- Opinion of Orrick, Herrington & Sutcliffe LLP 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).
8.3 -- Opinion of Orrick, Herrington & Sutcliffe LLP with respect to
certain tax matters.**
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).
23.3 -- Consent of Orrick, Herrington & Sutcliffe LLP (included as part
of Exhibit 5.3 and Exhibit 8.3).**
24.1 -- Power of Attorney.**
</TABLE>
* Incorporated by reference from the Registration Statement on Form S-3
(File No. 33-94448).
** Previously filed.
4
<PAGE>
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.
(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.
(c) 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
5
<PAGE>
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.
6
<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 Township of Horsham,
Commonwealth of Pennsylvania, on the 12th day of November, 1997.
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>
<S> <C> <C>
SIGNATURE TITLE DATE
/s/ David E. Creamer Director and President November 12, 1997
- --------------------------- (Chief Executive Officer)
David E. Creamer
* Chief Financial Officer, November 12, 1997
- --------------------------- Controller and Vice President
Wayne D. Hoch (Chief Financial Officer and
Chief Accounting Officer)
* Director November 12, 1997
- ----------------------------
Charles E. Dunleavy, Jr.
* Director November 12, 1997
- ----------------------------
Dennis W. Sheehan, Jr.
* Director November 12, 1997
- ----------------------------
Charles J. Pringle
* Director November 12, 1997
- ----------------------------
Donald J. Puglisi
</TABLE>
*By: /s/ David E. Creamer
------------------------
David E. Creamer
Attorney-in-fact pursuant to a power of attorney
previously filed with the Registration Statement.
7
<PAGE>
EXHIBIT 5.1
[Mayer, Brown & Platt letterhead]
November 12, 1997
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 November 12, 1997. The Registration Statement and the Prospectuss relate
to the offer and sale of up to $5,001,000,000 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 Sevicing 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 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.
-1-
<PAGE>
GMAC Commercial Mortgage Securities, Inc.
November 12, 1997
Page 2
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.
-2-
<PAGE>
GMAC Commercial Mortgage Securities, Inc.
November 12, 1997
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
------------------------
-3-
<PAGE>
EXHIBIT 5.2
[Thacher Proffitt & Wood Letterhead]
November 12, 1997
GMAC Commercial Mortgage Securities, Inc.
650 Dresher Road
P.O. Box 1015
Horsham, Pennsylvania 19044-8015
GMAC Commercial Mortgage Securities, Inc.
Multifamily and Commercial Mortgage
Pass-Through Certificates
Registration Statement on Form S-3
Ladies and Gentlemen:
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 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, a master servicer to be identified in the prospectus supplement
for such series of Certificates and a trustee 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.
<PAGE>
GMAC Commercial Mortgage Securities, Inc.
November 12, 1997 Page 2
In connection with rendering this opinion letter, we have
examined the forms of the Pooling and Servicing Agreement contained as Exhibits
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. In rendering this opinion letter, except for the matters
that are specifically addressed in the opinions expressed below, we have
assumed (i) the authenticity of all documents submitted to us as originals and
the conformity to the originals of all documents submitted to us as copies,
(ii) the necessary entity formation and continuing existence in the
jurisdiction of formation, and the necessary licensing and qualification in all
jurisdictions, of all parties to all documents, (iii) the necessary
authorization, execution, delivery and enforceability of all documents, and the
necessary entity power with respect thereto, and (iv) that there is not and
will not be any other agreement that modifies or supplements the agreements
expressed in the documents to which this opinion letter relates and that
renders any of the opinions expressed herein inconsistent with such documents
as so modified or supplemented.
Our opinions set forth below are subject to the qualification
that enforceability of each of the respective obligations of the parties under
any agreement is subject to (i) general principles of equity, regardless of
whether such enforceability is considered in a proceeding in equity or at law,
(ii) the effect of certain laws, regulations and judicial or other decisions
upon the availability and enforceability of certain covenants, remedies and
other provisions, including the remedies of specific performance and self-help
and provisions imposing penalties and forfeitures, (iii) bankruptcy,
insolvency, liquidation, receivership, moratorium, reorganization or other
similar laws affecting the rights of creditors and (iv) public policy
considerations underlying the securities laws, to the extent that such public
policy considerations limit the enforceability of the provisions of any
agreement, which purport or are construed to provide indemnification with
respect to securities law violations. However, the non-enforceability of any
such provisions will not, taken as a whole, materially interfere with the
practical realization of the benefits of the rights and remedies included in
any such agreement, except for the consequences of any judicial,
administrative, procedural or other delay which may be imposed by, relate to or
arise from applicable laws, equitable principles and interpretations thereof.
In rendering this opinion letter, we do not express any
opinion concerning any law other than the law of the State of New York and the
corporate law of the State of Delaware. We do not express any opinion with
respect to the securities laws of any jurisdiction or any other matter not
specifically addressed in the opinions expressed below.
Based upon and subject to the foregoing, it is our opinion
that:
1. Upon the authorization, execution and delivery thereof by
the parties thereto, each Pooling and Servicing Agreement will be the legal and
valid obligation of the Registrant, enforceable against the Registrant in
accordance with its terms.
<PAGE>
GMAC Commercial Mortgage Securities, Inc.
November 12, 1997 Page 3
2. Upon the authorization, execution and delivery of a
Pooling and Servicing Agreement for a series of Certificates by the parties
thereto, the execution and authentication of the Certificates of such series in
accordance with that Pooling and Servicing Agreement and the sale and delivery
of such Certificates as contemplated in the Registration Statement and the
prospectus and prospectus supplement delivered in connection therewith, such
Certificates will be legally and validly issued and outstanding, fully paid and
non-assessable and entitled to the benefits of that 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 the
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 and prospectus supplement included in the Registration Statement
under the heading "Legal Matters", and in the prospectus included in the
Registration 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
