<PAGE>
PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED DECEMBER 17, 1997)
$941,294,000 (APPROXIMATE)
GMAC COMMERCIAL MORTGAGE SECURITIES, INC.
DEPOSITOR
GMAC COMMERCIAL MORTGAGE CORPORATION
SERVICER
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1997-C2
The Series 1997-C2 Mortgage Pass-Through Certificates (the "Certificates")
will consist of the following sixteen classes (each, a "Class"): (i) the
Class X Certificates; (ii) the Class A-1, Class A-2 and Class A-3
Certificates (collectively, the "Class A Certificates" and collectively with
the Class X Certificates, the "Senior Certificates"); (iii) the Class B,
Class C, Class D, Class E, Class F, Class G, Class H, Class J and Class K
Certificates (collectively, the "Subordinate Certificates;" and collectively
with the Senior Certificates, the "REMIC Regular Certificates");
(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, 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, GMAC COMMERCIAL MORTGAGE CORPORATION 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" BEGINNING ON PAGE S-19 HEREIN AND PAGE 11 IN THE
PROSPECTUS BEFORE PURCHASING ANY OFFERED CERTIFICATE.
<TABLE>
<CAPTION>
ASSUMED FINAL MOODY'S/
INITIAL CERTIFICATE DISTRIBUTION DATE DCR
CLASS BALANCE (1) PASS-THROUGH RATE (2) RATINGS
---------- ------------------ ---------------- ------------------ ---------
<S> <C> <C> <C> <C>
Class X (3) 1.273%(4) April 15, 2027 Aaa/AAA
Class A-1 $228,705,000 6.451% December 15, 2004 Aaa/AAA
Class A-2 $ 57,000,000 6.550% April 15, 2007 Aaa/AAA
Class A-3 $433,005,000 6.566% November 15, 2007 Aaa/AAA
Class B $ 69,725,000 6.703% December 15, 2007 Aa2/AA
Class C $ 69,725,000 6.910% December 15, 2007 A2/A-
Class D $ 32,181,000 7.192%(5) January 15, 2008 Baa1/BBB
Class E $ 50,953,000 7.624%(6) April 15, 2011 Baa3/NR
</TABLE>
(footnotes on page S-2)
The Offered Certificates will be purchased from the Depositor by Goldman,
Sachs & Co., Deutsche Morgan Grenfell Inc. and Residential Funding Securities
Corporation (the "Underwriters," with Goldman, Sachs & Co. and Deutsche
Morgan Grenfell Inc. as co-bookrunners and co-lead managers) and will be
offered by the Underwriters 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 $3,000,000,
will be 104.8% of the initial aggregate Certificate Balance of the Offered
Certificates, plus accrued interest. The Offered Certificates are offered by
the Underwriters subject to prior sale, when, as and if delivered to and
accepted by the Underwriters and subject to certain other conditions. It is
expected that the Offered Certificates will be delivered in book-entry form
through the Same-Day Funds Settlement System of DTC, Cedel Bank, societe
anonyme, and the Euroclear System on or about December 23, 1997 (the
"Delivery Date"), against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO. DEUTSCHE MORGAN GRENFELL
RESIDENTIAL FUNDING SECURITIES CORPORATION
The date of this Prospectus Supplement is December 17, 1997.
<PAGE>
GMAC COMMERCIAL MORTGAGE SECURITIES, INC.
Mortgage Pass-Through Certificates, Series 1997-C2
Idaho Nebraska Missouri Iowa
4 properties 2 properties 3 properties 3 properties
413,626,020 $12,389,065 $15,779,563 $14,591,112
1.27% of total 1.15% of total 1.47% of total 1.36% of total
Minnesota Illinois Michigan Indiana
5 properties 1 property 4 properties 1 property
$11,883,669 $6,731,400 $20,877,641 $7,888,604
1.11% of total 0.63% of total 1.95% of total 0.74% of total
Ohio Pennsylvania New Hampshire Massachusetts
1 property 9 properties 1 property 2 properties
$8,483,627 $25,465,686 $4,676,905 $20,231,954
0.79% of total 2.37% of total 0.44% of total 1.89% of total
Connecticut New York New Jersey D.O.C.
4 properties 9 properties 8 properties 1 property
$46,294,429 $88,025,949 $69,754,943 $4,194,424
4.32% of total 8.21% of total 6.50% of total 0.39% of total
Delaware Maryland West Virginia Virginia
2 properties 3 properties 2 properties 3 properties
$21,190,424 $12,006,520 $7,020,247 $16,268,006
1.98% of total 1.12% of total 0.65% of total 1.52% of total
North Carolina South Carolina Georgia Florida
2 properties 2 properties 10 properties 23 properties
$13,558,066 $5,317,897 $35,116,759 $138,814,912
1.26% of total 0.50% of total 3.27% of total 12.94% of total
Tennessee Alabama Kentucky Louisiana
3 properties 2 properties 1 property 16 properties
$16,390,444 $11,121,827 $5,727,875 $44,925,788
1.53% of total 1.04% of total 0.53% of total 4.19% of total
Kansas Texas Oklahoma Colorado
2 properties 16 properties 1 property 7 properties
$2,454,804 $43,186,428 $1,138,386 $41,163,456
0.23% of total 4.03% of total 0.11% of total 3.84% of total
Arizona Nevada California Utah
1 property 1 property 30 properties 1 property
$4,088,076 $3,884,427 $265,038,393 $2,198,600
0.38% of total 0.36% of total 24.71% of total 0.20% of total
Washington Alaska
1 property 1 property
$6,195,965 $5,000,000
0.58% of total 0.47% of total
[ ] less than of equal to 1.00% of Initial Pool Balance
[ ] 1.01% - 5.00% of Initial Pool Balance
[ ] 5.01% - 10.00% of Initial Pool Balance
[ ] greater than 10.00% of Initial Pool Balance
For purposes of this map, the IHS/Litchfield Loan (as defined herein) is
treated as 43 Mortgage Loans each of which is allocated a Cut-Off Date
Principal Balance based on the Allocated Principal Amounts thereof (as
defined herein).
<PAGE>
(The footnotes to the table on the cover page are as follows)
- ------------
(1) Subject to a variance of plus or minus 5%.
(2) The "Assumed Final Distribution Date" with respect to any Class of
Offered Certificates is the Distribution Date (as defined herein) on
which the final distribution would occur for such Class of Certificates
based upon the assumption that no Mortgage Loan is prepaid prior to its
stated maturity and otherwise based on the Maturity Assumptions (as
described herein). The actual performance and experience of the
Mortgage Loans will likely differ from such assumptions. The Rated
Final Distribution Date (as defined herein) for each Class of Principal
Balance Certificates (as defined herein) is the Distribution Date in
April 2029. See "Yield and Maturity Considerations" herein.
(3) The Class X Certificates will not have a Certificate Balance and will
accrue interest on the Notional Amount (as defined herein) thereof,
which is equal to the aggregate Certificate Balance of the Principal
Balance Certificates.
(4) Approximate Initial Pass-Through Rate. The Pass-Through Rate applicable
to the Class X Certificates for each Distribution Date subsequent to
the initial Distribution Date will be equal to the weighted average (by
Certificate Balance of the corresponding Class of Principal Balance
Certificates) of the Pass-Through Rates applicable to each Class X
Component. The Pass-Through Rate for each Class X Component will equal
the excess, if any, of the Weighted Average Net Mortgage Rate (as
defined herein) for such Distribution Date over the Pass-Through Rate
for such Distribution Date applicable to the related Class of Principal
Balance Certificates. See "Description of the Certificates."
(5) Lesser of 7.192% or Weighted Average Net Mortgage Rate.
(6) Lesser of 7.624% or Weighted Average Net Mortgage Rate.
(cover continued from preceding page)
and (iv) the Class R-I, Class R-II and Class R-III Certificates (the "REMIC
Residual Certificates"). Only the Senior Certificates and the Class B, Class
C, Class D and Class E Certificates (collectively, the "Offered
Certificates") are offered hereby. The respective Classes of Offered
Certificates will be issued with the respective Certificate Balances and
Pass-Through Rates set forth or otherwise described in the table on the cover
page hereof.
The Certificates will represent the entire beneficial ownership interest
in a trust fund (the "Trust Fund") to be established by the Depositor, the
assets of which will consist primarily of a segregated pool (the "Mortgage
Asset Pool") of multifamily and commercial mortgage loans (the "Mortgage
Loans"). The Cut-off Date is December 1, 1997 and, as of such date, the
Mortgage Loans had an aggregate principal balance (the "Initial Pool
Balance") of $1,072,702,289 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 Asset Pool."
As described herein, three separate REMIC elections will be made with
respect to the Trust Fund for federal income tax purposes (the REMICs formed
thereby being herein referred to as "REMIC I," "REMIC II" and "REMIC III,"
respectively). The Offered Certificates will constitute "regular interests"
in REMIC III. See "Certain Federal Income Tax Consequences" herein and in the
Prospectus.
Distributions on the Certificates will be made, to the extent of available
funds, on each Distribution Date (as defined herein) beginning in January
1998. As described herein, interest distributions on each Class of Offered
Certificates will be made on each Distribution Date based on the Pass-Through
Rate then applicable to such Class and the Certificate Balance or Notional
Amount, as the case may be, of such Class outstanding immediately prior to
such Distribution Date. Distributions allocable to principal of the
respective Classes of Certificates with Certificate Balances (the "Principal
Balance Certificates") will be made in the amounts and in accordance with the
priorities described herein until the Certificate Balance of each such Class
is reduced to zero. The Class X Certificates will not have a Certificate
Balance or entitle the holders thereof to receive distributions of principal.
As described herein, any Prepayment Premiums actually collected on the
Mortgage Loans will, in general, be distributed among certain of the Classes
of Certificates in the amounts and in accordance with the priorities
described herein. See "Description of the Certificates -- Distributions"
herein.
S-2
<PAGE>
As and to the extent described herein, the Subordinate Certificates will
be subordinate to the Senior Certificates; and each Class of Subordinate
Certificates will further be subordinate to each other class of Subordinate
Certificates, if any, with an earlier alphabetical Class designation. The
REMIC Residual Certificates will be subordinate to the REMIC Regular
Certificates. See "Description of the Certificates -- Distributions" and
"--Subordination; Allocation of Losses and Certain Expenses" herein.
The yield to maturity of each Class of Offered Certificates will depend
on, among other things, the rate and timing of principal payments (including
by reason of prepayments, loan extensions, repurchases, defaults and
liquidations) and losses on or in respect of the Mortgage Loans that result
in a reduction of the Certificate Balance or Notional Amount of such Class.
The yield to maturity of the Class X Certificates will be highly sensitive to
the rate and timing of principal payments (including by reason of
prepayments, loan extensions, repurchases, defaults and liquidations) and
losses on or in respect of the Mortgage Loans, which rate and timing of
principal payments and losses 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 X Certificates. Investors in the Class X Certificates
should consider the associated risks, including the risk that a rapid rate of
principal prepayments on the Mortgage Loans could result in the failure of
investors in such Certificates to recover fully their initial investments.
See "Yield and Maturity Considerations" herein and "Yield and Maturity
Considerations" and "Risk Factors -- Yield and Prepayment Considerations" in
the Prospectus.
See "Index of Principal Definitions" in the Prospectus for the location of
meanings of capitalized terms used but not defined herein. See "Index of
Principal Terms" herein for location of meanings of other capitalized terms
used herein.
There is currently no secondary market for the Offered Certificates. The
Underwriters currently intend to make a secondary market in the Offered
Certificates, but are 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 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 DECEMBER 17, 1997, 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.
UNTIL MARCH 17, 1998, 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.
S-3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
TRANSACTION OVERVIEW ............................................................ S-6
SUMMARY OF PROSPECTUS SUPPLEMENT ................................................ S-7
RISK FACTORS .................................................................... S-19
The Certificates .............................................................. S-19
The Mortgage Loans ............................................................ S-19
DESCRIPTION OF THE MORTGAGE ASSET POOL .......................................... S-28
General ....................................................................... S-28
Certain Terms and Conditions of the Mortgage Loans ............................ S-29
Additional Mortgage Loan Information .......................................... S-33
The Mortgage Loan Sellers ..................................................... S-35
Certain Underwriting Matters .................................................. S-36
Assignment of the Mortgage Loans; Repurchases and Substitutions .............. S-37
Representations and Warranties; Repurchases ................................... S-39
Changes in Mortgage Asset Pool Characteristics ................................ S-41
SERVICING OF THE MORTGAGE LOANS ................................................. S-41
General ....................................................................... S-41
The Servicer .................................................................. S-42
Termination of the Servicer with Respect to Specially Serviced Mortgage Loans
and REO Properties............................................................ S-43
Servicing and Other Compensation and Payment of Expenses ...................... S-44
Modifications, Waivers, Amendments and Consents ............................... S-46
Sale of Defaulted Mortgage Loans .............................................. S-47
REO Properties ................................................................ S-48
Inspections; Collection of Operating Information .............................. S-48
DESCRIPTION OF THE CERTIFICATES ................................................. S-50
General ....................................................................... S-50
Book-Entry Registration of the Offered Certificates ........................... S-50
Certificate Balances and Notional Amounts ..................................... S-53
Pass-Through Rates ............................................................ S-54
Distributions ................................................................. S-54
Subordination; Allocation of Losses and Certain Expenses ...................... S-58
P&I Advances .................................................................. S-60
Appraisal Reductions .......................................................... S-60
Reports to Certificateholders; Certain Available Information .................. S-61
Voting Rights ................................................................. S-64
Termination; Retirement of Certificates ....................................... S-64
The Trustee ................................................................... S-64
YIELD AND MATURITY CONSIDERATIONS ............................................... S-66
Yield Considerations .......................................................... S-66
Weighted Average Life ......................................................... S-67
Certain Price/Yield Tables .................................................... S-73
Yield Sensitivity of the Class X Certificates ................................. S-78
S-4
<PAGE>
PAGE
--------
CERTAIN FEDERAL INCOME TAX CONSEQUENCES ......................................... S-80
General ....................................................................... S-80
Original Issue Discount and Premium ........................................... S-80
Characterization of Investments in Offered Certificates ....................... S-81
METHOD OF DISTRIBUTION .......................................................... S-82
LEGAL MATTERS ................................................................... S-83
RATINGS ......................................................................... S-83
LEGAL INVESTMENT ................................................................ S-84
ERISA CONSIDERATIONS ............................................................ S-84
INDEX OF PRINCIPAL TERMS ........................................................ S-86
ANNEX A.......................................................................... A-1
ANNEX B.......................................................................... B-1
ANNEX C.......................................................................... C-1
ANNEX D.......................................................................... D-1
</TABLE>
S-5
<PAGE>
TRANSACTION OVERVIEW
Prospective investors are advised to carefully read, and should rely
solely on, the detailed information appearing elsewhere in this Prospectus
Supplement and the Prospectus relating to the Offered Certificates in making
their investment decision. The following Transaction Overview does not
include all relevant information relating to the securities and collateral
described herein, particularly with respect to the risks and special
considerations involved with an investment in such securities and is
qualified in its entirety by reference to the detailed information appearing
elsewhere in this Prospectus Supplement and the Prospectus. Prior to making
an investment decision, a prospective investor should carefully review this
Prospectus Supplement and the Prospectus. Capitalized terms used and not
otherwise defined herein have the respective meanings assigned to them in
this Prospectus Supplement and the Prospectus. See "Index of Principal Terms"
in this Prospectus Supplement and "Index of Principal Definitions" in the
Prospectus.
<TABLE>
<CAPTION>
INITIAL
CERTIFICATE INITIAL
RATINGS BALANCE OR PERCENT OF DESCRIPTION OF PASS-THROUGH WEIGHTED PRINCIPAL
(MOODY'S/ NOTIONAL INITIAL POOL PASS-THROUGH RATE AVG. LIFE(D) WINDOW(D)
CLASS DCR) AMOUNT BALANCE SUBORDINATION(C) RATE (APPROXIMATE) (YEARS) (MONTHS)
- ------- ---------- ----------------- -------------- -------------- ----------------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
X ...... Aaa/AAA $1,072,702,289(b) N/A N/A Variable Rate I/O 1.273% N/A 1-352
A-1 .... Aaa/AAA $ 228,705,000 21.32% 33.00% Fixed Rate 6.451% 5.5 1-84
A-2 .... Aaa/AAA $ 57,000,000 5.31% 33.00% Fixed Rate 6.550% 8.2 84-112
A-3 .... Aaa/AAA $ 433,005,000 40.37% 33.00% Fixed Rate 6.566% 9.8 112-119
B ...... Aa2/AA $ 69,725,000 6.50% 26.50% Fixed Rate 6.703% 9.9 119-120
C ...... A2/A- $ 69,725,000 6.50% 20.00% Fixed Rate 6.910% 10.0 120-120
D ...... Baa1/BBB $ 32,181,000 3.00% 17.00% (e) 7.192% 10.0 120-121
E ...... Baa3/NR $ 50,953,000 4.75% 12.25% (e) 7.624% 11.6 121-160
F(a) ... $ 48,271,000 4.50% 7.75% (e) 6.750% 14.7 160-184
G(a) ... $ 13,409,000 1.25% 6.50% (e) 6.750% 16.7 184-216
H(a) ... $ 34,863,000 3.25% 3.25% (e) 6.750% 20.7 216-278
J(a) ... $ 5,363,000 0.50% 2.75% (e) 6.750% 23.4 278-285
K(a) ... $ 29,502,289 2.75% 0.00% (e) 6.750% 26.1 285-352
</TABLE>
- ------------
(a) Not offered hereby.
(b) Notional Amount.
(c) Reflects aggregate of Certificate Balances of all Classes of
Certificates that, as of the Closing Date, are subordinate to the
specified Class, expressed as a percentage of the Initial Pool Balance.
(d) The weighted average life and period during which distributions of
principal would be received (the "Principal Window") set forth in the
foregoing table with respect to each Class of REMIC Regular
Certificates is based on the assumptions that there are no prepayments
on the Mortgage Loans and otherwise on the basis of the Maturity
Assumptions (as defined herein). See "Yield and Maturity
Considerations" herein. With respect to the Class X Certificates, the
Principal Window is the period during which distributions of interest
would be received based upon the foregoing assumptions.
(e) Lesser of fixed rate or Weighted Average Net Mortgage Rate.
Set forth below is certain information regarding the Mortgage Loans and
the Mortgaged Properties as of the Cut-off Date (all weighted averages set
forth below are based on the Cut-off Date Balances (as defined herein) of the
respective Mortgage Loans). Such information is described, and additional
information regarding the Mortgage Loans and the Mortgaged Properties is set
forth, under "Description of the Mortgage Asset Pool" herein and in Annex A
hereto.
MORTGAGE POOL CHARACTERISTICS
<TABLE>
<CAPTION>
CHARACTERISTICS ENTIRE MORTGAGE POOL
- --------------------------------------------- --------------------
<S> <C>
Initial Pool Balance.......................... $1,072,702,289
Number of Mortgage Loans ..................... 144
Number of Mortgaged Properties ............... 188
Average Cut-off Date Balance ................. $7,449,321
Weighted Average Mortgage Rate ............... 7.983%
Weighted Average Remaining Term to Maturity
or Anticipated Repayment Date ............... 140.0 Months
Weighted Average Debt Service Coverage Ratio 1.37
Weighted Average Cut-off Date LTV Ratio ..... 73.27%
</TABLE>
"Cut-off Date Loan-to-Value Ratio" and "Debt Service Coverage Ratio" are
calculated as described in Annex A hereto.
S-6
<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, including on
Annex A hereto, 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
1997-C2.
Depositor ..................... GMAC Commercial Mortgage Securities, Inc.
See "The Depositor" in the Prospectus.
Servicer ...................... GMAC Commercial Mortgage Corporation. See
"Servicing of the Mortgage Loans -- The
Servicer" herein.
Trustee ....................... State Street Bank and Trust Company. See
"Description of the Certificates -- The
Trustee" herein.
Mortgage Loan Sellers ......... On or before the Delivery Date, the
Depositor will acquire the Mortgage Loans
that are to constitute the Trust Fund from
three sources: (i) German American Capital
Corporation ("GACC"), an affiliate of
Deutsche Bank AG; (ii) GMAC Commercial
Mortgage Corporation ("GMACCM"); and (iii)
Goldman Sachs Mortgage Company ("GSMC" and,
with GACC and GMACCM, collectively, the
"Mortgage Loan Sellers"). Each Mortgage Loan
Seller will make certain representations and
warranties with respect to its Mortgage
Loans, and all such representations and
warranties will be assigned by the Depositor
to the Trustee. See "Description of the
Mortgage Asset Pool -- The Mortgage Loan
Sellers" herein.
Cut-off Date .................. December 1, 1997.
Delivery Date ................. On or about December 23, 1997.
Distribution Date ............. The 15th day of each month, or, if any such
15th day is not a business day, then on the
next business day beginning on January 15,
1998 (the "Distribution Date").
Record Date ................... With respect to any Distribution Date, the
last business day of the calendar month
immediately preceding the month in which
such Distribution Date occurs.
Interest Accrual Period ....... With respect to any Distribution Date, the
calendar month immediately preceding the
month in which such Distribution Date
occurs.
Registration and Denominations
.............................. The Offered Certificates will be issued as
Book-Entry Certificates in denominations of:
(i) in the case of the Class X Certificates,
$1,000,000 Notional Amount and in any whole
dollar denomination in excess thereof; and
(ii) in the case of the other Classes of
Offered Certificates, $25,000 actual
principal amount and in any whole dollar
denomination in excess thereof. Each Class
of Offered Certificates will be represented
S-7
<PAGE>
by one or more Certificates registered in
the name of Cede & Co., as nominee of DTC.
Persons acquiring beneficial ownership
interests in the Offered Certificates may
elect to hold their book-entry Certificate
interests either through DTC in the United
States, or through Cedel Bank, societe
anonyme ("CEDEL") or the Euroclear System
("Euroclear") in Europe. Transfers within
DTC, CEDEL or Euroclear, as the case may be,
will be in accordance with the usual rules
and operating procedures of the applicable
system. The Offered Certificates (the "DTC
Registered Certificates") will be
represented by one or more global
certificates registered in the name of Cede
& Co., as nominee of DTC. No Certificate
Owner acquiring an interest in the DTC
Registered Certificates will be entitled to
receive a Definitive Certificate of such
class, except under the limited
circumstances described herein. See
"Description of the Certificates --
Book-Entry Registration of the Offered
Certificates" herein and Annex D hereto and
"Description of the Certificates --
Book-Entry Registration and Definitive
Certificates" in the Prospectus.
The Mortgage Asset Pool ....... The Mortgage Asset Pool will consist of 144
Mortgage Loans, with an Initial Pool Balance
of $1,072,702,289, subject to a variance of
plus or minus 5%. All numerical information
provided herein with respect to the Mortgage
Loans is provided on an approximate basis.
The Cut-off Date Balances (as defined
herein) of the Mortgage Loans will range
from $504,808 to $165,290,099 and the
average Cut-off Date Balance will be
$7,449,321.
Each Mortgage Loan is secured by a first
mortgage lien on a fee simple and/or
leasehold interest in a Mortgaged Property
used for commercial or multifamily
residential purposes.
Substantially all of the Mortgage Loans
constitute nonrecourse obligations of the
related borrower, and prospective investors
should thus consider all of the Mortgage
Loans to be nonrecourse. None of the
Mortgage Loans is insured or guaranteed by
the United States, any governmental agency
or instrumentality or any private mortgage
insurer except for three Mortgage Loans
which have the benefit of a mortgage
insurance policy supporting up to 50% of the
related principal balance. See "Description
of the Mortgage Asset Pool -- General"
herein.
Set forth below are the number of Mortgage
Loans, and the approximate percentage of the
Initial Pool Balance represented by such
Mortgage Loans, that are secured by
Mortgaged Properties located in the four
states with the highest concentrations:
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF OF INITIAL
STATE MORTGAGE LOANS POOL BALANCE
- ------------- -------------- --------------
<S> <C> <C>
California .. 30 24.71%
Florida ...... 23 12.94
New York ..... 9 8.21
New Jersey .. 7 6.50
</TABLE>
S-8
<PAGE>
The remaining Mortgaged Properties are
located throughout 33 other states and the
District of Columbia. For purposes of
describing geographic concentration, the
IHS/Litchfield Loan (as defined herein),
which is secured by 43 Mortgaged Properties
located in twelve states, is treated as 43
Mortgage Loans each of which is allocated a
Cut-off Date Principal Balance based on the
Allocated Principal Amounts thereof (as
defined herein).
Set forth below are the number of Mortgage
Loans, and the approximate percentage of the
Initial Pool Balance represented by such
Mortgage Loans, that are secured by
Mortgaged Properties operated for each
indicated purpose:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
PROPERTY TYPE MORTGAGE LOANS INITIAL POOL BALANCE
- ------------------- -------------- --------------------
<S> <C> <C>
Multifamily ........ 57 28.07%
Retail ............. 40 25.82%
Skilled Nursing ... 5 16.87%
Office ............. 16 9.97%
Industrial ......... 8 6.98%
Cooperative
Housing............ 3 5.08%
Hospitality ........ 6 4.13%
Mixed Use .......... 6 1.95%
Other .............. 3 1.14%
</TABLE>
One hundred forty of the Mortgage Loans (the
"Fixed-Rate Loans"), representing 98.8% of
the Initial Pool Balance, bear interest at
Mortgage Rates that are, in each case, fixed
for the entire remaining term of the
Mortgage Loan. Four of the Mortgage Loans
(the "ARM Loans"), representing 1.2% of the
Initial Pool Balance, accrue interest at
Mortgage Rates that are subject to
adjustment on a periodic basis, in general,
by adding a specified percentage (a "Gross
Margin") to the value of a base index (an
"Index"), subject to specified caps, as
applicable. No Mortgage Loan (other than
each ARD Loan (as defined herein)) permits
negative amortization or the deferral of
accrued interest. See "Description of the
Mortgage Asset Pool -- Certain Terms and
Conditions of the Mortgage Loans -- Mortgage
Rates; Calculations of Interest" herein.
One hundred twenty-one of the Mortgage Loans
(the "Balloon Loans"), which represent
79.49% of the Initial Pool Balance, provide
for monthly payments of principal based on
amortization schedules significantly longer
than the remaining terms of such Mortgage
Loans (and, in some cases, following an
interest only period). As a result,
substantial principal amounts will be due
and payable (each such payment, together
with the corresponding interest payment, a
"Balloon Payment") in respect of such
Mortgage Loans on their respective maturity
dates, unless prepaid prior thereto. Sixteen
of the Mortgage Loans, which represent
12.54% of the Initial Pool Balance, are
fully amortizing.
S-9
<PAGE>
Hyperamortization. Seven of the Mortgage
Loans (the "ARD Loans"), which represent
7.97% of the Initial Pool Balance, permit
the related borrower to prepay the related
Mortgage Loan without payment of a
Prepayment Premium beginning one to six
months prior to the related Anticipated
Repayment Date. The "Anticipated Repayment
Date" for any such ARD Loan is set forth on
Annex A. If the related borrower elects to
prepay an ARD Loan in full on the related
Anticipated Repayment Date, a substantial
amount of principal will be due. If a
borrower elects not to prepay an ARD Loan on
or before its Anticipated Repayment Date,
commencing on such Anticipated Repayment
Date, such ARD Loan will bear interest at
the Revised Rate (as defined herein).
Interest accrued on an ARD Loan at the
excess of the related Revised Rate over the
Mortgage Rate (the "Excess Interest") will
be deferred until the principal balance
thereof is reduced to zero. If a borrower
elects not to prepay an ARD Loan on or
before its Anticipated Repayment Date, all
or a substantial portion of all monthly cash
flow from the related Mortgaged Property
collected after such date will be applied to
the payment of principal on such ARD Loan
and, after the principal balance thereof has
been reduced to zero, to the payment of
accrued and unpaid Excess Interest. To the
extent such Excess Interest is unpaid, it
will, except where limited by applicable
law, continue to accrue interest at the
Revised Rate. All of the ARD Loans for which
a Lockbox Account (as defined herein) has
not been established on or before the
Closing Date provide that a Lockbox Account
must be established on or prior to the
applicable Anticipated Repayment Date. See
"Description of the Mortgage Asset Pool
--Certain Terms and Conditions of the
Mortgage Loans -- Hyperamortization" herein.
Credit Lease Loans. Seven of the GACC
Mortgage Loans (the "Credit Lease Loans"),
which represent 5.88% of the Initial Pool
Balance are backed by net lease obligations
("Credit Leases") of, or net lease
obligations guaranteed by, various entities.
Scheduled monthly rent payments (the
"Monthly Rental Payments") under the Credit
Leases by the tenants (each, a "Tenant" and
collectively, the "Tenants") are generally
sufficient to pay in full and on a timely
basis all interest and principal and other
sums scheduled to be paid with respect to
the related Credit Lease Loans.
All of the Credit Lease Loans are secured by
assignments of leases and rents (the "Credit
Lease Assignments") on properties (the
"Credit Lease Properties") net-leased to the
Tenants pursuant to the Credit Leases. The
Credit Lease Loans generally provide that
the Tenant is responsible for all costs and
expenses incurred in connection with the
maintenance and operation of the related
Mortgaged Property. See "Description of the
Mortgage Asset Pool -- Certain Terms and
Conditions of the Mortgage Loans -- Credit
Lease Loans" herein.
S-10
<PAGE>
Call Protection. All but one of the Mortgage
Loans impose some restriction on voluntary
principal prepayments, whether in the form
of an absolute prohibition or a requirement
that any voluntary principal prepayment be
accompanied by a Prepayment Premium. The
prepayment terms of each of the Mortgage
Loans are described under "Description of
the Mortgage Asset Pool -- Certain Terms and
Conditions of the Mortgage Loans --
Prepayment Provisions" herein and on Annex A
hereto.
<TABLE>
<CAPTION>
OVERVIEW OF ORIGINAL CALL PROTECTION (1) (2)
- --------------------------------------------------------
<S> <C>
Lock-out Period with defeasance ............... 44.93%
Lock-out Period with yield maintenance charge 21.83%
Yield maintenance charge ...................... 32.04%
Lock-out Period with prepayment premium ...... 1.15%
Other (3) ..................................... 0.05%
</TABLE>
(1) Percentage of Initial Pool Balance.
Certain of the Mortgage Loans may permit
prepayment without penalty for a
specified period preceding the maturity
date or Anticipated Repayment Date.
(2) With respect to 9 Mortgage Loans
representing 3.03% of the Initial Pool
Balance, 0.50% is added to the
applicable treasury rate for purposes of
calculating the applicable yield
maintenance charge.
(3) Includes Mortgage Loans with other types
of call protection and one Mortgage Loan
with no call protection.
Defeasance. Thirty-eight Mortgage Loans,
which represent 44.93% of the Initial Pool
Balance, permit the applicable borrower,
after a specified period, provided no event
of default exists, to obtain the release of
the related Mortgaged Property (or, if a
Cross-Collateralized Mortgage Loan (as
defined herein), one or more of the related
Mortgaged Properties) from the lien of the
related Mortgage (a "Defeasance Option")
upon the pledge to the Trustee of
noncallable U.S. government obligations that
provide payments on or prior to all
successive scheduled payment dates upon
which interest and principal payments are
due under the related Mortgage Note and in
amounts due on such dates, and upon
satisfaction of certain other conditions.
For detailed statistical information
regarding the entire Mortgage Asset Pool,
see "Description of the Mortgage Asset Pool
-- Certain Terms and Conditions of the
Mortgage Loans -- Defeasance" herein and
Annex A hereto.
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 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
Asset Pool and certain related assets.
S-11
<PAGE>
Certificate Balances and
Notional Amounts ............. Upon initial issuance, the Class A-1, Class
A-2, Class A-3, Class B, Class C, Class D
and Class E Certificates will have the
respective Certificate Balances set forth on
the cover page hereof (in each case, subject
to a variance of plus or minus 5%).
The Class F, Class G, Class H, Class J and
Class K Certificates will have an initial
aggregate Certificate Balance equal to the
excess of the Initial Pool Balance over the
initial aggregate Certificate Balance of the
Class A, Class B, Class C, Class D, and
Class E Certificates.
The Class X Certificates will not have a
Certificate Balance; such Class of
Certificates will instead represent the
right to receive distributions of interest
accrued as described herein on a Notional
Amount. The Notional Amount of the Class X
Certificates at any time will equal the
aggregate Certificate Balance of the
Principal Balance Certificates at such time.
The Notional Amount of the Class X
Certificates is used solely for the purpose
of determining the amount of interest to be
distributed on such Class of Certificates
and does not represent the right to receive
any distributions of principal. The Class X
Certificates consist of twelve components
each corresponding to a different Class of
Principal Balance Certificates (the "Class X
Components").
No Class of REMIC Residual Certificates will
have a Certificate Balance.
See "Description of the Certificates --
Certificate Balances and Notional Amounts"
and " -- Distributions" herein.
Pass-Through Rates ............ The Pass-Through Rate applicable to the
Class X Certificates for the initial
Distribution Date will equal approximately
1.273% per annum. The Pass-Through Rate
applicable to the Class X Certificates for
each Distribution Date subsequent to the
initial Distribution Date will be equal to
the weighted average (by Certificate Balance
of the corresponding Class of Principal
Balance Certificates) of the Pass-Through
Rates applicable to each Class X Component.
The Pass-Through Rate for each Class X
Component will equal the excess, if any, of
the Weighted Average Net Mortgage Rate (as
defined herein) for such Distribution Date
over the Pass-Through Rate for such
Distribution Date applicable to the related
Class of Principal Balance Certificates.
The Pass-Through Rates applicable to the
Class A-1, Class A-2, Class A-3, Class B and
Class C Certificates will be fixed and, at
all times, will be equal to the respective
Pass-Through Rates specified for each such
Class on the cover page hereof. The
Pass-Through Rates applicable to the Class D
and Class E Certificates at all times will
be equal to the lesser of the respective
Pass-Through Rates specified for each such
Class
S-12
<PAGE>
on the cover page hereof and the Weighted
Average Net Mortgage Rate.
The Pass-Through Rates applicable to the
Class F, Class G, Class H, Class J and Class
K Certificates at all times will be equal to
the lesser of a specified rate and the
Weighted Average Net Mortgage Rate. No Class
of REMIC Residual Certificates will have a
specified Pass-Through Rate.
Distributions of Interest and
Principal on the Senior
Certificates ................. On each Distribution Date, to the extent of
the Available Distribution Amount (as
defined herein) for such date, the holders
of the respective Classes of Senior
Certificates will be entitled to receive
distributions of interest, on a pro rata
basis, in an amount equal to all
Distributable Certificate Interest (as
defined herein) in respect of each such
Class of Certificates for such Distribution
Date and, to the extent not previously paid,
for all prior Distribution Dates, if any.
On each Distribution Date, following all
required distributions of interest on the
Senior Certificates, the Trustee will apply
the remaining portion, if any, of the
Available Distribution Amount for such date
to make payments of principal on the
respective Classes of Class A Certificates,
in the amounts and order described herein,
up to an aggregate amount equal to the
lesser of (i) the then aggregate of the
outstanding Certificate Balance of the Class
A Certificates and (ii) the aggregate of the
Principal Distribution Amount (as defined
herein) for such Distribution Date (or, on
the final Distribution Date in connection
with a termination of the Trust Fund (see
"Description of the Certificates --
Termination; Retirement of Certificates"
herein), up to an aggregate amount equal to
the aggregate of the then outstanding
Certificate Balances of the Class A
Certificates). See "Description of the
Certificates -- Distributions" herein.
Distributions of Interest and
Principal on the Class B,
Class C, Class D, and
Class E Certificates ......... On each Distribution Date, following all
required distributions of interest and
principal on the Senior Certificates, the
Trustee will apply the remaining portion, if
any, of the Available Distribution Amount
for such date to make payments of interest
and principal on the Class B, Class C, Class
D and Class E Certificates, in that order.
On each Distribution Date, the holders of
each such Class of Offered Certificates, to
the extent of the Available Distribution
Amount remaining after all required
distributions of interest and principal on
the Senior Certificates and each other Class
of Offered Certificates, if any, with an
earlier alphabetical Class designation, will
be entitled: first, to distributions of
interest up to an amount equal to all
Distributable Certificate Interest in
respect of such particular Class of Offered
Certificates for such Distribution Date and,
to the extent not previously paid, for all
prior Distribution Dates, if any, and,
S-13
<PAGE>
then, if the Certificate Balances of the
Class A Certificates and each other Class of
Principal Balance Certificates, if any, with
an earlier alphabetical Class designation,
have been reduced to zero, to distributions
of principal up to an amount equal to the
lesser of (i) the then outstanding
Certificate Balance of such particular Class
of Offered Certificates and (ii) the
aggregate of the Principal Distribution
Amount for such Distribution Date (net of
any portion of such aggregate amount paid in
retirement of the Class A Certificates
and/or any other Class of Principal Balance
Certificates with an earlier alphabetical
Class designation) (or, on the final
Distribution Date in connection with a
termination of the Trust Fund, up to an
amount equal to the then outstanding
Certificate Balance of such particular Class
of Offered Certificates). See "Description
of the Certificates --Distributions" herein.
Distributions of Prepayment
Premiums ..................... Any Prepayment Premium actually collected
with respect to a Mortgage Loan during any
particular Collection Period (as defined
herein) will be distributed among certain
Classes of Certificates in the amounts and
priorities described under "Description of
the Certificates -- Distributions --
Distributions of Prepayment Premiums"
herein.
Certain Yield and Prepayment
Considerations ............... The yield on each Class of Offered
Certificates 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 --Application of the Available
Distribution Amount" and " -- Distributions
-- 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.
S-14
<PAGE>
The actual rate of prepayment of principal
on the Mortgage Loans cannot be predicted.
The investment performance of the Offered
Certificates may vary materially and
adversely from the investment expectations
of investors due to prepayments on the
Mortgage Loans being higher or lower than
anticipated by investors. The actual yield
to the holder of an Offered Certificate may
not be equal to the yield anticipated at the
time of purchase of the Certificate or,
notwithstanding that the actual yield is
equal to the yield anticipated at that time,
the total return on investment expected by
the investor or the expected weighted
average life of the Certificate may not be
realized. For a discussion of certain
factors affecting prepayment of the Mortgage
Loans, including the effect of Prepayment
Premiums, see "Yield and Maturity
Considerations" herein. In deciding whether
to purchase any Offered Certificates, an
investor should make an independent decision
as to the appropriate prepayment assumptions
to be used.
The Pass-Through Rates applicable to the
Class D and Class E Certificates will be
equal to the lesser of the respective
Pass-Through Rates specified for such Class
on the cover page hereof and the Weighted
Average Net Mortgage Rate. Losses or
payments of principal on Mortgage Loans with
higher Mortgage Rates could result in a
reduction in the Weighted Average Net
Mortgage Rate to a rate less than the
specified fixed rates applicable to such
Classes.
The Class X Certificates are interest-only
Certificates and are not entitled to any
distributions in respect of principal. The
yield to maturity of the Class X
Certificates will be especially sensitive to
the prepayment, loan extension, repurchase,
default and liquidation experience on, the
Mortgage Loans, which prepayment,
repurchase, default and recovery experience
may fluctuate significantly from time to
time. A rate of principal payments and
liquidations 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 X Certificates and
may result in holders not recouping their
initial investments. See "Yield and Maturity
Considerations -- Yield Sensitivity of the
Class X Certificates" herein.
P&I Advances .................. The Servicer is required to make advances
(each, a "P&I Advance") of delinquent
principal and interest on the Mortgage
Loans, under the circumstances and subject
to the limitations set forth herein. In no
event will the Servicer be required to
advance the full amount of any delinquent
Balloon Payment. If the Servicer fails to
make a required P&I Advance, the Trustee
will be required to make such P&I Advance.
The Servicer and the Trustee will each be
entitled to interest on any P&I 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
S-15
<PAGE>
the Certificates -- P&I 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 Subordinate
Certificates to receive distributions with
respect to the Mortgage Loans will be
subordinate to the rights of the holders of
the Senior Certificates and, further, in the
case of any particular Class of Subordinate
Certificates, to the rights of the holders
of each other Class of Subordinate
Certificates, if any, with an earlier
alphabetical Class designation, in each case
to the extent described herein and in the
Prospectus. In addition, the rights of the
holders of the REMIC Residual Certificates
to receive distributions with respect to the
Mortgage Loans will be subordinate to the
rights of the holders of the REMIC Regular
Certificates, 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 --
Application of the Available Distribution
Amount." No other form of Credit Support
will be available for the benefit of the
holders of the Offered Certificates.
If, following the distributions to be made
in respect of the Certificates on any
Distribution Date, the aggregate Stated
Principal Balance of the Mortgage Asset Pool
that will be outstanding immediately
following such Distribution Date is less
than the then aggregate Certificate Balance
of the Principal Balance Certificates, the
Certificate Balances of the Subordinate
Certificates will be reduced, in reverse
alphabetical order, until, in the case of
each such Class of Subordinate Certificates,
such deficit (or the related Certificate
Balance) is reduced to zero (whichever
occurs first). If any portion of such
deficit remains outstanding at such time as
the aggregate Certificate Balance of the
Subordinate Certificates is reduced to zero,
then, the respective Certificate Balances of
the Class A-1, Class A-2 and Class A-3
Certificates will be reduced, pro rata in
accordance with the relative sizes of the
remaining Certificate Balances of such
Classes of Certificates, until such deficit
(or each such Certificate Balance) is
reduced to zero. Any such deficit may be the
result of Realized Losses (as defined
herein) incurred in respect of the Mortgage
Loans and/or Additional Trust Fund Expenses
(also, as defined herein). The foregoing
reductions in the Certificate Balances of
the Principal Balance Certificates will be
deemed to constitute an allocation of any
such Realized Losses and Additional Trust
Fund Expenses. Any such allocation will also
have the effect of reducing the Notional
Amount of the Class X Certificates.
S-16
<PAGE>
Optional Termination .......... At its option, on any Distribution Date on
which the remaining aggregate Stated
Principal Balance of the Mortgage Asset Pool
is less than 1% of the Initial Pool Balance,
the 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 ................. For federal income tax purposes, three
separate REMIC elections will be made with
respect to certain segregated asset pools
which make up the Trust Fund, the resulting
REMICs being herein referred to as REMIC I,
REMIC II and REMIC III, respectively. The
assets of REMIC I will include the Mortgage
Loans, any REO Properties acquired on behalf
of the Certificateholders, the Certificate
Account, the REO Account (if established)
and any Replacement Mortgage Loans
substituted for Deleted Mortgage Loans (as
defined herein). For federal income tax
purposes, (i) the separate, uncertificated
regular interests in REMIC I will be the
"regular interests" in REMIC I and will
constitute the assets of REMIC II, (ii) the
Class R-I Certificates will be the sole
class of "residual interests" in REMIC I,
(iii) the separate, uncertificated regular
interests in REMIC II will be the "regular
interests" in REMIC II and will constitute
the assets of REMIC III, (iv) the Class R-II
Certificates will be the sole class of
"residual interests" in REMIC II, (v) the
REMIC Regular Certificates will be the
"regular interests" in, and generally will
be treated as debt obligations of, REMIC
III, and (vi) the Class R-III Certificates
will be the sole class of "residual
interests" in REMIC III.
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.
Ratings ....................... It is a condition to their issuance that the
Offered Certificates receive from Moody's
Investors Service, Inc. ("Moody's") and Duff
& Phelps Credit Rating Co. ("DCR" and
together with Moody's, the "Rating
Agencies") the credit ratings indicated
herein. The ratings of the Offered
Certificates address the timely payment
thereon of interest and, to the extent
applicable, the ultimate payment thereon of
principal on or before the Rated Final
Distribution Date. The ratings of the
Offered Certificates do not, however,
represent any assessment of (i) the
likelihood or frequency of principal
prepayments (whether voluntary or
involuntary) on the Mortgage Loans, (ii) the
corresponding effect on yield to investors,
(iii) the possibility that, as a result of
prepayments, investors in the Class X
Certificates may realize a lower than
anticipated yield or may
S-17
<PAGE>
not fully recover their initial investment
or (iv) whether and to what extent
Prepayment Premiums will be received. Also,
a security rating does not represent any
assessment of the yield to maturity that
investors may experience or the possibility
that the holders of the Class X Certificates
might not fully recover their investment in
the event of rapid prepayments of the
Mortgage Loans (including both voluntary and
involuntary prepayments). In general, the
ratings thus address credit risk and not
prepayment risk. As described herein, the
amounts payable with respect to the Class X
Certificates consist only of interest. If
the entire pool were to prepay in the
initial month, with the result that the
Class X Certificateholders receive only a
single month's interest and thus suffer a
nearly complete loss of their investment,
all amounts "due" to such Holders will
nevertheless have been paid, and such result
is consistent with the "AAA" rating received
on the Class X Certificates. The Class X
Certificates' Notional Amount upon which
interest is calculated is reduced by the
allocation of Realized Losses, Additional
Trust Fund Expenses and prepayments, whether
voluntary or involuntary. The rating does
not address the timing or magnitude of
reductions of such notional amount, but only
the obligation to pay interest timely on the
Notional Amount as so reduced from time to
time. Accordingly, the ratings of the Class
X Certificates should be evaluated
independently from similar ratings on other
types of securities. With respect to any
Credit Lease Loan, a downgrade in the credit
rating of the related Tenants and/or
Guarantors may have an adverse effect on the
rating of the Offered Certificates. The
ratings of the Offered Certificates also do
not address certain other matters as
described under "Ratings" herein. 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. See "Ratings"
herein.
Legal Investment .............. The Offered Certificates will not be
"mortgage related securities" within the
meaning of SMMEA. Institutions whose
investment activities are subject to legal
investment laws and regulations, regulatory
capital requirements or review by regulatory
authorities may be subject to restrictions
on investment in the Offered Certificates
and 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.
ERISA Considerations .......... A fiduciary of a Plan should review with its
counsel 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. See "ERISA
Considerations" herein and in the
Prospectus.
S-18
<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
Subordination of Class B, Class C, Class D and Class E Certificates;
Allocation of Realized Losses. As described herein, the rights of holders of
the Subordinate Certificates, including the Class B, Class C, Class D and E
Certificates, to receive certain payments of principal and interest otherwise
payable on their Certificates, in the case of each Class of Subordinate
Certificates, will be subordinated to such rights of the holders of the
Senior Certificates and the holders of each other Class of Subordinate
Certificates, if any, having an earlier alphabetical Class designation, to
the extent set forth herein. See "Description of the Certificates --
Distributions" herein. Realized Losses on the Mortgage Loans and Additional
Trust Fund Expenses will be allocated to the Class K, Class J, Class H, Class
G, Class F, Class E, Class D, Class C and Class B Certificates, in that
order, reducing amounts payable to each such Class. Any such allocation of
Realized Losses and Additional Trust Fund Expenses will have the effect of
reducing the Notional Amount of the Class X Certificates by the amount so
allocated.
Potential Conflicts of Interest. As described herein, the Servicer will
have considerable latitude in determining whether to liquidate or modify
defaulted Mortgage Loans. See "Servicing of the Mortgage Loans --
Modifications, Waivers, Amendments and Consents" herein. It is expected that
GMACCM, the Servicer, will acquire in connection with the initial issuance
thereof certain of the Subordinate Certificates, including the Class K
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 K Certificates) can terminate the rights and
obligations of the 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 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. See "Servicing of the Mortgage Loans -- Termination
of the Servicer with Respect to Specially Serviced Mortgage Loans and REO
Properties" herein.
THE MORTGAGE LOANS
Environmental Considerations. Substantially all of the Mortgaged
Properties were subject to a "Phase I" environmental site assessment (or an
update of a previously conducted assessment) and, in the case of certain
Mortgage Loans, a "Phase II," which were performed on behalf of the related
Mortgage Loan Seller, or as to which the related report was delivered to the
related Mortgage Loan Seller in connection with its acquisition or
origination of the related Mortgage Loan. With respect to substantially all
of the Mortgage Loans, such environmental assessments (or updates) were
performed during the 18-month period prior to the Cut-off Date. No such
environmental assessment revealed any material adverse environmental
condition or circumstance with respect to any Mortgaged Property, except for
(i) those cases in which an operations and maintenance plan or periodic
monitoring of such Mortgaged Property or nearby properties was recommended or
an escrow reserve to cover the estimated cost of remediation was established;
(ii) those cases involving a leaking underground storage tank or groundwater
contamination at a nearby property which condition has not yet affected such
Mortgaged Property and as to which a responsible party has been identified
under applicable law; (iii) those cases where such conditions were remediated
or abated prior to the Delivery Date; or (iv) those cases in which
groundwater or soil contamination was identified or suspected, and a letter
of credit was provided to cover estimated costs of continued monitoring or
remediation.
The Servicer is required to obtain an environmental site assessment of a
Mortgaged Property securing a defaulted Mortgage Loan prior to acquiring
title thereto or assuming its operation. Such
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requirement 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 this requirement 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. Thirty Mortgage Loans, which represent 24.71% of
the Initial Pool Balance, are secured by liens on Mortgaged Properties
located in California; 23 Mortgage Loans, which represent 12.94% of the
Initial Pool Balance, are secured by liens on Mortgaged Properties located in
Florida; 9 Mortgage Loans, which represent 8.21% of the Initial Pool Balance,
are secured by liens on Mortgaged Properties located in New York; and 7
Mortgage Loans, which represent 6.50% of the Initial Pool Balance, are
secured by Mortgaged Properties located in New Jersey. For purposes of
describing geographic concentration, the IHS/Litchfield Loan (as defined
herein), which is secured by 43 Mortgaged Properties located in twelve
states, is treated as 43 Mortgage Loans each of which is allocated a Cut-off
Date Principal Balance based on the Allocated Principal Amounts thereof (as
defined herein). In general, the level of such concentration increases the
exposure of the Mortgage Asset Pool to any adverse economic or other
developments, including earthquakes, hurricanes and other natural disasters,
that may occur in such States. In addition, improvements on Mortgaged
Properties located in California may be more susceptible to certain types of
special hazards not covered by insurance (such as earthquakes) than
properties located in other parts of the country. The Mortgage Loans
generally do not require any borrowers to maintain earthquake insurance.
Mortgage Loans Not Insured. Except for three Mortgage Loans which have the
benefit of a partial mortgage insurance policy, none of the Mortgage Loans is
insured or guaranteed by the United States, any governmental entity or
instrumentality, by any private mortgage insurer or by the Depositor, the
Underwriters, Servicer or any Mortgage Loan Seller. As described herein, in
certain limited circumstances, a Mortgage Loan Seller may be obligated to
repurchase or replace a Mortgage Loan if its representations and warranties
concerning such Mortgage Loan are breached; however, there can be no
assurance that any Mortgage Loan Seller will be in a financial position to
effect such repurchase or substitution. See "Description of the Mortgage
Asset Pool -- The Mortgage Loan Sellers," "--Assignment of the Mortgage
Loans; Repurchases and Substitutions," and "--Representations and Warranties;
Repurchases" herein.
Non-Recourse Mortgage Loans. Substantially all of the Mortgage Loans are
non-recourse loans as to which recourse, in the event of a default, will be
limited to the related Mortgaged Property. In those cases where the loan
documents permit recourse to the borrower or a guarantor, no assurance can be
given that the financial condition of such borrower or guarantor will permit
it to satisfy its recourse obligations. Consequently, payment on each
Mortgage Loan prior to maturity is (or should be considered by investors to
be) dependent primarily on the sufficiency of the cash flow of the related
Mortgaged Property, and at maturity (whether at scheduled maturity or, in the
event of a default, upon the acceleration of such maturity) upon the then
market value of the related Mortgaged Property or the ability of the related
borrower to refinance the Mortgaged Property.
Balloon Payments. One hundred twenty-one of the Mortgage Loans, which
represent 79.49% of the Initial Pool Balance provide for Balloon Payments to
be due at their respective stated maturity dates 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 "Description of the
Mortgage Asset Pool -- Certain Terms and Conditions of the Mortgage Loans"
herein and "Risk Factors -- Balloon Payments; Borrower Default" in the
Prospectus.
In order to maximize recoveries on defaulted Mortgage Loans, the Servicer
may extend and modify Mortgage Loans that are in material default or as to
which a payment default (including the failure to
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make a Balloon Payment) is reasonably foreseeable; subject, however, to the
limitations described under "Servicing of the Mortgage Loans --
Modifications, Waivers, Amendments and Consents" 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 Servicer, will likely extend
the weighted average life of such Class of Offered Certificates. See "Yield
and Maturity Considerations" herein and in the Prospectus.
Risks Particular to Retail Properties. Forty Mortgage Loans, which
represent 25.82% of the Initial Pool Balance, are secured by retail
properties. Significant factors determining the value of retail properties
are the quality of the tenants as well as fundamental aspects of real estate
such as location and market demographics. The correlation between the success
of tenant businesses and property value is more direct with respect to retail
properties than other types of commercial property because a significant
component of the total rent paid by retail tenants is often tied to a
percentage of gross sales. Significant tenants at a retail property play an
important part in generating customer traffic and making a retail property a
desirable location for other tenants at such property. Accordingly, retail
properties may be adversely affected if a significant tenant ceases
operations at such locations (which may occur on account of a voluntary
decision not to renew a lease, bankruptcy or insolvency of such tenant, such
tenant's general cessation of business activities or for other reasons). In
addition, certain tenants at retail properties may be entitled to terminate
their leases or pay reduced rent if an anchor tenant ceases operations at
such property. In such cases, there can be no assurance that any such anchor
tenants will continue to occupy space in the related shopping centers. See
"Description of the Mortgage Asset Pool -- Certain Terms and Conditions of
the Mortgage Loans -- Tenant Matters" herein. Furthermore, the correlation
between the success of tenant businesses and credit quality of the Mortgage
Loan is increased when the property is a single tenant property. For a
description of risk factors relating to single tenant properties see
"--Tenant Credit Risk" and "--Credit Quality of Tenants and Guarantors"
herein.
Unlike office or hospitality properties, retail properties also face
competition from sources outside a given real estate market. Catalogue
retailers, home shopping networks, the Internet, telemarketing and outlet
centers all compete with more traditional retail properties for consumer
dollars. Continued growth of these alternative retail outlets (which are
often characterized by lower operating costs) could adversely affect the
rents collectible at the retail properties which secure Mortgage Loans in the
Trust Fund.
Risks Particular to Multifamily Properties. Fifty-seven Mortgage Loans,
which represent 28.07% of the Initial Pool Balance, are secured by
multifamily rental properties. Adverse economic conditions, either local,
regional or national, may limit the amount of rent that can be charged for
rental units, and may result in a reduction in timely rent payments or a
reduction in occupancy levels. Occupancy and rent levels may also be affected
by construction of additional housing units, local military base closings,
developments at local colleges and universities and national, regional and
local politics, including, in the case of multifamily rental properties,
current or future rent stabilization and rent control laws and agreements. In
addition, the level of mortgage interest rates may encourage tenants in
multifamily rental properties to purchase housing. Furthermore, tax credit
and city, state and federal housing subsidy or similar programs may impose
rent limitations and may adversely affect the ability of the applicable
borrowers to increase rents to maintain such Mortgaged Properties in proper
condition during periods of rapid inflation or declining market value of such
Mortgaged Properties. In addition, such programs may impose income
restrictions on tenants, which may reduce the number of eligible tenants in
such Mortgaged Properties and result in a reduction in occupancy rates
applicable thereto. Furthermore, some eligible tenants may not find any
differences in rents between such subsidized or supported properties and
other multifamily rental properties in the same area to be a sufficient
economic incentive to reside at a subsidized or supported property, which may
have fewer amenities or otherwise be less attractive as a residence. All of
these conditions and events may increase the possibility that a borrower may
be unable to meet its obligations under its Mortgage Loan.
Risks Particular to Office Properties. Sixteen Mortgage Loans, which
represent 9.97% of the Initial Pool Balance, are secured by office
properties. Significant factors determining the value of office
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properties are the quality of the tenants in the building, the physical
attributes of the building in relation to competing buildings and the
strength and stability of the market area as a desirable business location.
Office properties may be adversely affected by an economic decline in the
business operated by the tenants. The risk of such an adverse effect is
increased if revenue is dependent on a single tenant or if there is a
significant concentration of tenants in a particular business or industry.
For a description of risk factors relating to single tenant properties see
"--Tenant Credit Risk" and "--Credit Quality of Tenants and Guarantors"
herein.
Office properties are also subject to competition with other office
properties in the same market. Competition is affected by a property's age,
condition, design (e.g., floor sizes and layout), access to transportation
and ability or inability to offer certain amenities to its tenants, including
sophisticated building systems (such as fiberoptic cables, satellite
communications or other base building technological features).
The success of an office property also depends on the local economy. A
company's decision to locate office headquarters in a given area, for
example, may be affected by such factors as labor cost and quality, tax
environment and quality of life issues such as schools and cultural
amenities. A central business district may have an economy which is markedly
different from that of a suburb. The local economy and the financial
condition of the owner will impact on an office property's ability to attract
stable tenants on a consistent basis. In addition, the cost of refitting
office space for a new tenant is often more costly than for other property
types.
Risks Particular to Industrial Properties. Eight Mortgage Loans, which
represent 6.98% of the Initial Pool Balance, are secured by industrial
properties. Significant factors determining the value of industrial
properties are the quality of tenants, building design and adaptability and
the location of the property. Concerns about the quality of tenants,
particularly major tenants, are similar in both office properties and
industrial properties, although industrial properties are more frequently
dependent on a single tenant. With respect to one Mortgage Loan, representing
1.63% of the Initial Pool Balance, the sole tenant is the subject of a
Chapter 11 reorganization proceeding. Although the lease was entered into
during the pendency of the tenant's Chapter 11 proceeding and rent due under
the lease is given priority over unsecured creditors in the Chapter 11
proceeding, it is subordinate to administrative claims incurred in a
liquidation proceeding, if such proceeding occurs, and no assurance can be
given that rent will be paid in full for the entire lease term. If the full
rent is not paid for the entire term, the borrower's ability to pay debt
service is likely to be adversely affected. The borrower has pledged certain
additional collateral, including a letter of credit and a reserve account, as
security for such Mortgage Loan. For a description of risk factors relating
to single tenant properties see "--Tenant Credit Risk" and "--Credit Quality
of Tenants and Guarantors" herein. In addition, properties used for many
industrial purposes are more prone to environmental concerns than other
property types.
Aspects of building site design and adaptability affect the value of an
industrial property. Site characteristics which are valuable to an industrial
property include clear heights, column spacing, zoning restrictions, number
of bays and bay depths, divisibility, truck turning radius and overall
functionality and accessibility. Location is also important because an
industrial property requires the availability of labor sources, proximity to
supply sources and customers and accessibility to rail lines, major roadways
and other distribution channels.
Risks Particular to Cooperative Properties. Three Mortgage Loans, which
represent 5.08% of the Initial Pool Balance, are secured by cooperative
housing properties. A cooperative apartment building and the land under the
building is owned or leased by a non-profit cooperative corporation. The
cooperative owns all the apartment units in the building and all common
areas. The cooperative is directly responsible for building management and
payment of real estate taxes and hazard and liability insurance premiums. A
cooperative is owned by tenant-stockholders who, through ownership of stock,
shares or membership certificates in the corporation, receive proprietary
leases or occupancy agreements which confer exclusive rights to occupy
specific apartments or units. Generally, a tenant-stockholder of a
cooperative must make a monthly maintenance payment to the cooperative
representing such tenant-stockholder's pro rata share of the cooperative's
payments for its mortgage loan, real
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property taxes, maintenance expenses and other capital expenses and ordinary
expenses, less any other income that the cooperative may realize. Such
payments to the cooperative are in addition to any payments of principal and
interest the tenant-stockholder must make on any loans of the
tenant-stockholder secured by its shares in the cooperative. Unanticipated
expenditures in some cases may be paid by raising maintenance payments or
through special assessments on the tenant-stockholders.
In a typical cooperative conversion plan, the owner of a rental apartment
building contracts to sell the building to a newly formed cooperative
corporation. Under a typical non-eviction plan, shares are allocated to each
apartment unit by the owner or sponsor, and the current tenants have a
certain period to subscribe at prices discounted from the prices to be
offered to the public after such period. As part of the consideration for the
sale, the owner or sponsor receives all the unsold shares of the cooperative.
The sponsor usually also controls the cooperative's board of directors and
management for a limited period of time until the controlling shares in the
corporation are sold to tenant stockholders. A tenant at the time of
conversion who chooses not to purchase shares is entitled to reside in the
unit as a subtenant from the owner of the shares allocated to such apartment
unit. Any applicable rent control or rent stabilization laws would continue
to be applicable to such subtenancy and the subtenant may be entitled to
renew its lease indefinitely and would continue to be protected from rent
increases above those permitted by any applicable rent control and rent
stabilization laws. The stockholder is responsible for the maintenance
payments to the cooperative without regard to its receipt or non-receipt of
rent from the subtenant, which may be lower than maintenance payments on the
units. Newly-formed cooperatives typically have the greatest concentration of
non-tenant stockholders. In addition, the sponsor of the cooperative
conversion may own a significant percentage of the units in the cooperative.
If the sponsor controls a significant number of units and is unable to or
does not make required payments, the ability of the related borrower to meet
debt service obligations will be adversely affected.
Each borrower's ability to meet debt service obligations on its Mortgage
Loan, as well as all other operating expenses, is dependent primarily upon
the receipt of maintenance payments from the tenant-stockholders, any rental
income from units or commercial areas that the cooperative might control and
sales proceeds from units that are sold. The net operating income of the
Mortgaged Properties and the market value of the Mortgaged Properties may be
adversely affected if space in the Mortgaged Properties cannot be leased, if
tenants are unable to meet their lease obligations or for any other reason
rental payments cannot be collected or if tenant-stockholders are unable to
make their maintenance payments or pay any special assessments.
In addition, because qualification as a "cooperative housing corporation"
under the Code is generally made on a year-to-year basis, there can be no
assurance that the Borrowers will continue to qualify for any subsequent
year. If a borrower fails to qualify for one or more years, the value of the
collateral securing the related Mortgage Loan could be impaired because such
favorable tax treatment would not be available to tenant-stockholders with
respect to those years.
Risks Particular to Hospitality Properties. Six Mortgage Loans, which
represent 4.13% of the Initial Pool Balance, are secured by hospitality
properties. Various factors, including location, quality and franchise
affiliation, affect the economic viability of a hospitality property. Adverse
economic conditions, either local, regional or national, may limit the amount
that may be charged for a room and may result in a reduction in occupancy
levels. The construction of competing hospitality properties can have similar
effects. Because hospitality property rooms generally are rented for short
periods of time, hospitality properties tend to respond more quickly to
adverse economic conditions and competition than do other commercial
properties. In addition, the transferability of franchise license agreements
may be restricted. Furthermore, the ability of a hospitality property to
attract customers, and a portion of a hospitality property's revenues, may
depend on its having a liquor license. Such a license may not be transferable
in the event of a foreclosure on the related Mortgaged Property.
Risks Particular to Skilled Nursing Facilities. Five Mortgage Loans, which
represent 16.87% of the Initial Pool Balance, are secured by Mortgages on
properties operated as skilled nursing facilities. Significant factors
determining the value of such properties include federal and state laws,
competition with similar properties on a local and regional basis and the
continued availability of revenue from government reimbursement programs,
primarily Medicaid and Medicare.
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Such facilities may receive a substantial portion of their revenues from
government reimbursement programs, primarily Medicaid and Medicare. Medicaid
and Medicare are subject to statutory and regulatory changes, retroactive
rate adjustments, administrative rulings, policy interpretations, delays by
fiscal intermediaries and government funding restrictions, all of which can
adversely affect revenues from operation. Moreover, governmental payors have
employed cost-containment measures that limit payments to health care
providers. In addition, providers of long-term nursing care and other medical
services are highly regulated by federal, state and local law and are subject
to, among other things, federal and state licensing requirements, facility
inspections, rate setting, reimbursement policies, and laws relating to the
adequacy of medical care, distribution of pharmaceuticals, equipment,
personnel, operating policies and maintenance of and additions to facilities
and services, any or all of which factors can increase the cost of operation,
limit growth and, in extreme cases, require or result in suspension or
cessation of operations.
Under applicable federal and state laws and regulations, Medicare and
Medicaid reimbursements are generally not permitted to be made to any person
other than the provider who actually furnished the related medical goods and
services. Accordingly, in the event of foreclosure on a nursing facility, a
subsequent lessee or operator of the facility would generally not be entitled
to obtain from government payors any outstanding reimbursement payments
relating to services furnished prior to such foreclosure.
Such facilities may be subject to state regulation that requires the
operators to be licensed (generally on an annual basis), and the facilities
must meet various state licensure requirements that relate, among other
things, to qualifications of personnel, quality of care and the adequacy of
their buildings, equipment and suppliers. In the event of foreclosure, there
can be no assurance that the Trustee or purchaser at a foreclosure sale would
be entitled to the rights under any required licenses and regulatory
approvals, or that such party, if required to apply in its own right, could
obtain a new license or a new approval. In addition, such facilities are
generally "special purpose" properties that are not readily converted to
general residential, retail or office use.
Risks Associated with Other Property Types. Mortgage loans secured by
other property types, such as self-storage facilities, mixed use or mobile
home parks, may pose risks not associated with loans secured by liens on
other types of income-producing real estate. Nine Mortgage Loans representing
approximately 3.08% of the Initial Pool Balance, are secured by other types
of property. Such properties may be "special purpose" properties that may
have limited alternative uses.
Credit Quality of Tenants and Guarantors. Seven of the Mortgage Loans,
which represent 5.88% of the Initial Pool Balance, are Credit Lease Loans.
See "--Tenant Credit Risk" herein. Interest and principal payments on the
Credit Lease Loans are dependent principally on the payment by each Tenant or
guarantor of such Tenant's Credit Lease (the "Guarantor"), if any, of Monthly
Rental Payments and other payments due under the terms of its Credit Lease. A
downgrade in the credit rating of the Tenants and/or the Guarantors may have
a related adverse effect on the rating of the Offered Certificates.
If a Tenant or Guarantor defaults on its obligation to make Monthly Rental
Payments under a Credit Lease or the associated guarantee, as the case may
be, the borrower under a Credit Lease Loan may not have the ability to make
required payments on such Credit Lease Loan. If a payment default on the
Credit Lease Loan occurs, the Servicer may be entitled to foreclose upon or
otherwise realize upon the related Credit Lease Property to recover amounts
due under the Credit Lease Loan, and will also be entitled to pursue any
available remedies against the defaulting Tenant and any Guarantor, which may
include rights to all future Monthly Rental Payments. If the default occurs
before significant amortization of the Credit Lease Loan has occurred and no
recovery is available from the related borrower, the Tenant or any Guarantor,
it is unlikely in most cases that the Servicer will be able to recover in
full the amounts then due under the Credit Lease Loan. See "Description of
the Mortgage Asset Pool -- Certain Terms and Conditions of the Mortgage Loans
- -- Credit Lease Loans" herein.
Tenant Credit Risk. Income from and the market value of retail, office and
industrial Mortgaged Properties would be adversely affected if space in such
Mortgaged Properties could not be leased, if tenants were unable to meet
their lease obligations, if a significant tenant were to become a debtor in a
bankruptcy case under any bankruptcy or other similar law related to
creditors rights or if for any other
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reason rental payments could not be collected. If tenant sales in the
Mortgaged Properties that contain retail space were to decline, rents based
upon such sales would decline and tenants may be unable to pay their rent or
other occupancy costs. Upon the occurrence of an event of default by a
tenant, delays and costs in enforcing the lessor's rights could be
experienced. Repayment of the Mortgage Loans will be affected by the
expiration of space leases and the ability of the respective borrowers to
renew the leases or relet the space on comparable terms. Even if vacated
space is successfully relet, the costs associated with reletting, including
tenant improvements, leasing commissions and free rent, could exceed the
amount of any reserves maintained for such purpose and could reduce cash flow
from the Mortgaged Properties. Although many of the Mortgage Loans require
the borrower to maintain escrows for such consideration, there can be no
assurance that such factors will not adversely impact the ability of a
borrower to repay a mortgage loan.
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.
Limitations of Appraisals. An appraisal or other market analysis was
conducted in respect of the Mortgaged Properties in connection with the
origination of the related Mortgage Loan, and the resulting estimates of
value are the bases of the Cut-off Date LTV Ratios referred to herein.
However, those estimates represent the analysis and opinion of the person
performing the appraisal or market analysis and are not guarantees of present
or future values. Moreover, the values of the Mortgaged Properties may have
fluctuated significantly since the appraisal or market study was performed in
connection with the origination of the related Mortgage Loan and generally,
no update of such appraisal or market study has been performed since the date
of origination. In addition, appraisals seek to establish the amount a
typically motivated buyer would pay a typically motivated seller. Such amount
could be significantly higher than the amount obtained from the sale of a
Mortgaged Property under a distress or liquidation sale. Information
regarding the values of Mortgaged Properties available to the Depositor as of
the Cut-off Date is presented in Annex A and Annex C hereto for illustrative
purposes only.
Risks of Secured Subordinate Financing. Certain of the Mortgaged
Properties are known to be encumbered by subordinated debt that is not part
of the Mortgage Asset Pool. For all of the Mortgage Loans, the holder of any
material subordinate debt has agreed not to foreclose for so long as the
related Mortgage Loan is outstanding and the Trust Fund is not pursuing a
foreclosure action. Substantially all of the Mortgage Loans either prohibit
the related borrower from encumbering the Mortgaged Property with additional
secured debt or require the consent of the holder of the first lien prior to
so encumbering such property. However, a violation of such prohibition may
not become evident until the related Mortgage Loan otherwise defaults.
The existence of any such additional subordinate indebtedness may increase
the difficulty of refinancing the related Mortgage Loan at maturity for the
purpose of making any Balloon Payments and the possibility that reduced cash
flow could result in deferred maintenance. Also, in the event that the holder
of the subordinated debt secured by a Mortgaged Property has filed for
bankruptcy or been placed in involuntary receivership, foreclosing on such
Mortgaged Property could be delayed.
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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.
Concentration of Mortgage Loans. Several of the Mortgage Loans,
individually or together with other Mortgage Loans with which they are
cross-collateralized, have Cut-off Date Balances that are substantially
higher than the average Cut-off Date Balance, including one Mortgage Loan
representing 15.41% of the Initial Pool 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.
Limitation on Enforceability of Cross-Collateralization. Eleven Mortgage
Loans representing in the aggregate 3.24% 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 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-Collateralized and Cross-Defaulted
Mortgage Loans."
Tax Considerations Related to Foreclosure. If the Trust Fund were to
acquire a Mortgaged Property subsequent to a default on the related Mortgage
Loan pursuant to a foreclosure or delivery of a deed in lieu of foreclosure,
the Servicer would be required to retain an independent contractor to operate
and manage the Mortgaged Property. By reference to rules applicable to real
estate investment trusts, such property will be considered "foreclosure
property" for a period of two full years after the taxable year of
acquisition, with possible extensions. Any net income from such "foreclosure
property" other than qualifying "rents from real property," will subject
REMIC I to federal (and possibly state or local) tax on such income at the
highest marginal corporate tax rate, thereby reducing net proceeds available
for distribution to Certificateholders.
Risks Associated with Mortgaged Properties located in California. As of
the Cut-off Date, 30 of the Mortgage Loans, which represent 24.71% of the
Initial Pool Balance, are secured by liens on Mortgaged Properties located in
California. The following discussion contains a general summary of certain
legal
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aspects of loans secured by income-producing properties in California. The
summary does not purport to be complete nor does the summary reflect the laws
of any other state. The summary relates only to the topics covered and are
qualified in their entirety by reference to the applicable state laws being
discussed. See also "Certain Legal Aspects of Mortgage Loans" in the
Prospectus.
Mortgage loans in California are generally secured by deeds of trust.
Provided the deed of trust contains a private power of sale, a lender may
foreclose either non-judicially or judicially. Most lenders choose
non-judicial foreclosure because the process typically may be completed
within a much shorter time frame; however, a lender is barred from obtaining
a deficiency judgment after a non-judicial foreclosure. If the lender opts
for judicial foreclosure, an application for a deficiency judgment must be
filed with the court within three months of the foreclosure sale. A
deficiency judgment may not exceed the difference between the indebtedness
and the fair value of the property, as determined by the court. Unless the
lender waives the right to a deficiency judgment, the borrower has a right to
redeem the property following a judicial foreclosure sale for a period of
three months from the date of sale if the proceeds from the sale were
sufficient to satisfy the debt, or for a period of one year if the proceeds
were insufficient to satisfy the debt. Junior lienholders do not have a right
to redeem the property following a judicial foreclosure sale unless the
junior lien was created before July 1, 1983. California's form of the "one
action rule" requires the lender to look first to the property for
satisfaction of the debt if the lender wants to pursue a deficiency judgment.
In general, a lender who takes any action to enforce the debt other than
judicial or non-judicial foreclosure violates the one-action rule and may be
deemed to have waived its security for the indebtedness and, in some cases,
may be prevented from collecting the indebtedness altogether.
Leasehold Considerations. Three Mortgage Loans which represent 2.03% of
the Initial Pool Balance, are secured solely by a Mortgage on the borrower's
leasehold interest under a ground lease. Three Mortgage Loans, which
represent 2.40% of the Initial Pool Balance, are secured by a Mortgage on
both the borrower's leasehold interest and fee simple interest in the
Mortgaged Property. See "Description of the Mortgage Asset Pool -- Certain
Terms and Conditions of the Mortgage Loans -- Ground Leases" herein.
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. However, in each of these cases, each related ground lease requires
the lessor to give the leasehold mortgagee notice of lessee defaults and an
opportunity to cure them, permits the leasehold estate to be assigned to and
by the leasehold mortgagee at and after a foreclosure sale, and contains
certain other protective provisions typically included in a "mortgageable"
ground lease.
Zoning and Building Code Compliance. Each Mortgage Loan Seller has taken
certain steps to establish that the use and operation of Mortgaged Properties
securing its Mortgage Loans were in compliance in all material respects with
all applicable zoning, land-use, building, fire and health ordinances, rules,
regulations and orders applicable to such Mortgaged Properties, but no
assurance can be made that such steps revealed all possible violations.
Evidence of such compliance may have been in the form of legal opinions,
certifications from government officials, title policy endorsements and/or
representations by the related borrower contained in the related Mortgage
Loan documents. Certain violations may exist at any particular Mortgaged
Property, but the related Mortgage Loan Seller does not consider any such
violations known to it to be material. In many cases, the use, operation
and/or structure of a Mortgaged Property constitutes a permitted
nonconforming use and/or structure, which may not be rebuilt to its current
state in the event of a material casualty event; however, it is expected that
insurance proceeds would be available for application to the related Mortgage
Loan if such were to occur.
Risk of Changes in Concentrations. As payments in respect of principal
(including in the form of voluntary principal prepayments, liquidations
proceeds and the repurchase prices for any Mortgage Loans repurchased due to
breaches of representations or warranties or defaults) are received with
respect to the Mortgage Loans, the remaining Mortgage Loans as a group may
exhibit increased concentration with respect to the type of properties,
property characteristics, number of borrowers and affiliated borrowers and
geographic location. Because principal on the Principal Balance Certificates
is
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payable in sequential order, the Classes thereof that have a lower priority
with respect to the payment of principal are relatively more likely to be
exposed to any risks associated with changes in concentrations of borrower,
loan or property characteristics.
Adjustable Rate Mortgage Loans. Four of the Mortgage Loans which represent
1.2% of the Initial Pool Balance are ARM Loans. Increases in the required
Monthly Payments (as defined herein) 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.
Costs of Compliance with Americans with Disabilities Act. Under the
Americans with Disabilities Act of 1990 (the "ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. To the extent the Mortgaged Properties do
not comply with the ADA, the borrowers may be required to incur costs of
complying with the ADA. In addition, noncompliance could result in the
imposition of fines by the federal government or an award of damages to
private litigants.
Litigation. There may be legal proceedings pending and, from time to time,
threatened against the borrowers and their affiliates relating to the
business of or arising out of the ordinary course of business of the
borrowers and their affiliates. There can be no assurance that such
litigation will not have a material adverse affect on the distributions to
Certificateholders.
DESCRIPTION OF THE MORTGAGE ASSET POOL
GENERAL
The Mortgage Asset Pool will consist of 144 Mortgage Loans with an Initial
Pool Balance of $1,072,702,289, subject to a variance of plus or minus 5%.
See "Description of the Trust Funds" and "Certain Legal Aspects of Mortgage
Loans" in the Prospectus. All numerical information provided herein with
respect to the Mortgage Loans is provided on an approximate basis. All
weighted average information provided herein with respect to the Mortgage
Loans is determined by related Cut-off Date Balance. The "Cut-off Date
Balance" of each Mortgage Loan is the unpaid principal balance thereof as of
the Cut-off Date (which will be December 1, 1997), after application of all
payments of principal due on or before such date, whether or not received.
Except as otherwise described below under "--Certain Terms and Conditions
of the Mortgage Loans -- Related Borrowers, Cross-Collateralized and
Cross-Defaulted Mortgage Loans," each Mortgage Loan is evidenced by a
Mortgage Note and secured by a Mortgage that creates a first mortgage lien on
a fee simple and/or leasehold interest in a Mortgaged Property, improved by
multifamily, retail, skilled nursing, office, industrial, cooperative
housing, hospitality or other commercial property.
Three of the Mortgage Loans (other than the Cross-Collateralized Mortgage
Loans), which represent 16.27% of the Initial Pool Balance, are secured by
more than one Mortgaged Property, including the IHS/Litchfield Loan, which is
secured by 43 Mortgaged Properties. Two Mortgage Loans are secured by the
same Mortgaged Property. Accordingly, the total number of Mortgage Loans
reflected herein is 144, while the total number of Mortgaged Properties
reflected herein is 188.
The Mortgage Asset Pool includes five separate sets of
Cross-Collateralized Mortgage Loans which represent 3.24% of the Initial Pool
Balance. See "--Certain Terms and Conditions of the Mortgage Loans -- Related
Borrowers, Cross-Collateralized and Cross-Defaulted Mortgage Loans" below and
Annex A hereto.
Substantially all the Mortgage Loans constitute nonrecourse obligations of
the related borrower and, upon any such borrower's default in the payment of
any amount due under the related Mortgage Loan, the holder thereof may look
only to the related Mortgaged Property or Properties for satisfaction of the
borrower's obligation. In addition, in those cases where recourse to a
borrower or guarantor is permitted by the loan documents, no assurance can be
given that the financial condition of such borrower or guarantor will permit
it to satisfy its recourse obligations. Except for three Mortgage Loans which
have the benefit of a partial mortgage insurance policy, none of the Mortgage
Loans is insured or guaranteed
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by the United States, any governmental entity or instrumentality, by any
private mortgage insurer, or by the Depositor, Servicer or any Mortgage Loan
Seller.
Fourteen of the Mortgage Loans (the "GACC Mortgage Loans"), which
represent 28.93% of the Initial Pool Balance, are currently held by GACC. All
of the GACC Mortgage Loans were originated by GACC or its affiliates.
Ninety-three of the Mortgage Loans (the "GMACCM Mortgage Loans"), which
represent 51.15% of the Initial Pool Balance, are currently held by GMACCM.
All of the GMACCM Mortgage Loans were originated by GMACCM. Thirty-seven of
the Mortgage Loans (the "GSMC Mortgage Loans"), which represent 19.92% of the
Initial Pool Balance, are currently held by GSMC. 87.8% of the GSMC Mortgage
Loans were acquired from Central Park Capital, L.P., an affiliate of GSMC,
and 12.2% of the GSMC Mortgage Loans were acquired from Imperial Commercial
Capital Corp.
On or prior to the Delivery Date, the Depositor will acquire the Mortgage
Loans from the Mortgage Loan Sellers, in each case pursuant to a purchase
agreement to be entered into between the Depositor and the related Mortgage
Loan Seller (each, a "Mortgage Loan Purchase Agreement"). The Depositor will
thereupon assign its interests in the Mortgage Loans, without recourse, to
the Trustee for the benefit of the Certificateholders. See "--The Mortgage
Loan Sellers" and "--Assignment of Mortgage Loans; Repurchases and
Substitutions" below. Each Mortgage Loan Seller constitutes a "Mortgage Asset
Seller" for purposes of the Prospectus.
CERTAIN TERMS AND CONDITIONS OF THE MORTGAGE LOANS
Due Dates. All of the Mortgage Loans provide for scheduled monthly
payments of principal and/or interest ("Monthly Payments") on Due Dates which
are the first day of each month. In the case of certain Mortgage Loans, the
related Balloon Payment may be due on a day other than the related Due Date
for Monthly Payments (any resulting Balloon Payment Interest Shortfalls (as
defined herein) to be covered by the Servicer out of its own funds). See
"Servicing of the Mortgage Loans -- Servicing and Other Compensation and
Payment of Expenses" herein.
All but one of the Mortgage Loans provide for a grace period for the
payment of Monthly Payments of not more than ten days. One Mortgage Loan
provides for a grace period for the payment of Monthly Payments of 12 days.
Mortgage Rates; Calculations of Interest. 104 of the Mortgage Loans, which
represent 78.37% of the Initial Pool Balance, accrue interest on the basis of
a 360-day year consisting of twelve 30-day months. 39 of the Mortgage Loans
which represent 21.58% of the Initial Pool Balance, accrue interest on the
basis of the actual number of days elapsed in a year consisting of 360 days.
One Mortgage Loan does not specify the basis for calculation of interest but
is treated as 30/360 for purposes hereof.
Four of the Mortgage Loans, which represent 1.20% of the Initial Pool
Balance, are ARM Loans. See "Annex A" herein.
As of the Cut-off Date, the Mortgage Rates of the Mortgage Loans will
range from 7.010% to 9.375% per annum, and the weighted average Mortgage Rate
of the Mortgage Loans will be 7.983% per annum.
Hyperamortization. Seven of the Mortgage Loans, which represent 7.97% of
the Initial Pool Balance, bear interest at their respective Mortgage Rates
until an Anticipated Repayment Date. Commencing on the respective Anticipated
Repayment Date, except as described below, each such Mortgage Loan generally
will bear interest at a fixed rate (the "Revised Rate") per annum equal to
the Mortgage Rate plus 2.0%. Excess Interest on such Mortgage Loans will be
deferred until the principal balance thereof is reduced to zero. Non-payment
of such Excess Interest will not constitute a default under such Mortgage
Loans prior to the related maturity date. To the extent Excess Interest is
unpaid, it will, except where limited by applicable law, continue to accrue
interest at the Revised Rate. Prior to the Anticipated Repayment Date,
borrowers under ARD Loans will be required to enter into a lockbox agreement
whereby all revenue will be deposited directly into a designated account (the
"Lockbox Account") controlled by the Servicer. From and after the Anticipated
Repayment Date, in addition to paying interest (at the Mortgage Rate) and
principal (based on the amortization schedule), the related borrower
generally will be required to apply all monthly cash flow from the related
Mortgaged Property
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to pay the following amounts in the following order of priority: (i) payments
to required escrow funds, (ii) payment of operating expenses pursuant to the
terms of an annual budget approved by the Servicer, (iii) payment of approved
extraordinary operating expenses or capital expenses not set forth in the
approved annual budget or allotted for in any escrow fund, (iv) principal on
the Mortgage Loan until such principal is paid in full and (v) to Excess
Interest. As described below, ARD Loans generally provide that the related
borrower is prohibited from prepaying the Mortgage Loan until one to six
months prior to the Anticipated Repayment Date but, upon the commencement of
such period, may prepay the loan, in whole or in part, without payment of a
Prepayment Premium. The Anticipated Repayment Date for each ARD Loan is
listed in Annex A.
Amortization of Principal. The Mortgage Asset Pool consists of 121 Balloon
Loans, which represent 79.49% of the Initial Pool Balance; 7 ARD Loans, which
represent 7.97% of the Initial Pool Balance; and 16 fully amortizing Mortgage
Loans, which represent 12.54% of the Initial Pool Balance.
Three Mortgage Loans, which represent 3.41% of the Initial Pool Balance,
are "split amortization" Mortgage Loans that amortize at a certain
amortization schedule for a specified period following origination, and
thereafter amortize at a different amortization schedule until maturity. No
assurance is given as to the effect of such split amortization on prepayments
of such Mortgage Loans. See "Certain Characteristics of the Mortgage
Loans--Split Amortization Loans" in Annex A hereto.
In addition, four Mortgage Loans, which represent 2.06% of the Initial
Pool Balance, provide for payments of interest only for up to 24 months
following origination before payments of principal are due. The total dollar
amount of the Monthly Payment will be subject to a one-time increase in order
to permit the commencement of scheduled amortization of such loan. See "Risk
Factors -- Balloon Payments; Borrower Default" in the Prospectus. No Mortgage
Loan (other than the ARD Loans) permits negative amortization or the deferral
of accrued interest.
Prepayment Provisions. As of the Cut-off Date, all but one of the Mortgage
Loans impose some restriction on voluntary principal prepayments, whether in
the form of an absolute prohibition or a requirement that any voluntary
principal prepayment be accompanied by a Prepayment Premium.
As described herein, Prepayment Premiums actually collected on the
Mortgage Loans will be distributed to the respective Classes of
Certificateholders in the amounts and priorities described under "Description
of the Certificates -- Distributions -- Distributions of Prepayment Premiums"
herein. The enforceability, under the laws of a number of states, of
provisions similar to the provisions of the Mortgage Loans providing for the
payment of a Prepayment Premium upon an involuntary prepayment is unclear. No
assurance can be given that, at any time that any Prepayment Premium is
required to be made in connection with an involuntary prepayment, the
obligation to pay such Prepayment Premium will be enforceable under
applicable law or, if enforceable, the foreclosure proceeds will be
sufficient to make such payment. Liquidation Proceeds recovered in respect of
any defaulted Mortgage Loan will, in general, be applied to cover outstanding
servicing expenses and unpaid principal and interest prior to being applied
to cover any Prepayment Premium due in connection with the liquidation of
such Mortgage Loan. The Depositor makes no representation as to the
enforceability of the provision of any Mortgage Loan requiring the payment of
a Prepayment Premium or as to the collectability of any Prepayment Premium.
In general, no Prepayment Premium will be payable upon any mandatory
prepayment of a Mortgage Loan in connection with a casualty or condemnation.
See "Annex A" herein and "Certain Legal Aspects of Mortgage Loans -- Default
Interest and Limitations on Prepayments" in the Prospectus.
No Prepayment Premium will be payable in connection with any repurchase of
a Mortgage Loan by a Mortgage Loan Seller for a material breach of
representation or warranty on the part of such Mortgage Loan Seller or any
failure to deliver documentation relating thereto, nor will any Prepayment
Premium be payable in connection with the purchase of all of the Mortgage
Loans and any REO Properties by the Servicer or the Depositor in connection
with the termination of the Trust Fund or in connection with the purchase of
defaulted Mortgage Loans by the Servicer or any holder or holders of
Certificates evidencing a majority interest in the Controlling Class. See
"--Assignment of the Mortgage Loans; Repurchases and Substitutions" and
"--Representations and Warranties; Repurchases" and "Description of the
Certificates -- Termination; Retirement of Certificates" herein.
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Defeasance. Thirty-eight Mortgage Loans, which represent 44.93% of the
Initial Pool Balance, permit the applicable borrower, after a specified
period provided no event of default exists, to exercise a Defeasance Option,
provided that, among other conditions, the borrower (a) pays on any Due Date
(the "Release Date") (i) all interest accrued and unpaid on the principal
balance of the Mortgage Note to and including the Release Date, (ii) all
other sums, excluding scheduled interest or principal payments, due under the
Mortgage Loan, and (iii) any costs and expenses incurred in connection with
such release, (b) delivers direct, non-callable obligations of (or
non-callable obligations, fully guaranteed as to timely payment by) the
United States of America (the "Defeasance Collateral") providing payments on
or prior to all successive scheduled payment dates from the Release Date to
the related maturity date, and in an amount equal to or greater than the
scheduled payments due on such dates under the Mortgage Loan (or with respect
to Cross-Collateralized Mortgage Loans which permit defeasance, an amount
equal to not less than the principal portion of such Mortgage Loan allocable
to the released Mortgaged Property), and (c) delivers a security agreement
granting the Trust Fund a first priority security interest in the Defeasance
Collateral and an opinion of counsel to such effect. Simultaneously with such
actions, the related Mortgaged Property will be released from the lien of the
Mortgage Loan and the Defeasance Collateral will be substituted as the
collateral securing the Mortgage Loan.
The Depositor makes no representation as to the enforceability of the
defeasance provisions of any Mortgage Loan.
Credit Lease Loans. Seven Mortgage Loans, which represent 5.88% of the
Initial Pool Balance, are Credit Lease Loans. Each Credit Lease has a primary
lease term (the "Primary Term") that expires on or after the scheduled final
maturity date of the related Credit Lease Loan. The Credit Lease Loans are
scheduled to be fully repaid from Monthly Rental Payments made over the
Primary Term of the related Credit Lease. Certain of the Credit Leases give
the Tenant the right to extend the term of the Credit Lease by one or more
renewal periods after the end of the Primary Term.
The amount of the Monthly Rental Payments payable by each Tenant is equal
to or greater than the scheduled payment of all principal, interest and other
amounts due each month on the related Credit Lease Loan.
Each Credit Lease generally provides that the related Tenant must pay all
real property taxes and assessments levied or assessed against the related
Credit Lease Property and all charges for utility services, insurance and
other operating expenses incurred in connection with the operation of the
related Credit Lease Property.
Generally, each Credit Lease Loan provides that if the Tenant defaults
beyond applicable notice and grace periods in the performance of any covenant
or agreement of such Credit Lease (a "Credit Lease Default"), the Servicer on
behalf of the Trust may exercise rights under the related Credit Lease
Assignment to require the mortgagor either (i) to terminate such Credit Lease
or (ii) not to terminate such Credit Lease and exercise any of its rights
thereunder. A default under a Credit Lease will constitute a default under
the related Credit Lease Loan.
While each Credit Lease requires the Tenant to fulfill its payment and
maintenance obligations during the term of the Credit Lease, in some cases
the Tenant has not covenanted to operate the related Credit Lease Property
for the term of the Credit Lease, and the Tenant may at any time cease actual
operations at the Credit Lease Property, but it remains obligated to continue
to meet all of its obligations under the Credit Lease.
The Credit Leases do not have termination rights or rent abatement rights
arising from casualty, condemnation or mortgagor defaults.
At the end of the term of the Credit Lease, the Tenants are generally
obligated to surrender the Credit Lease Property in good order and in its
original condition received by the Tenant, except for ordinary wear and tear
and repairs required to be performed by the mortgagor.
Pursuant to the terms of each Credit Lease Assignment, the related
mortgagor has assigned to the mortgagee of the related Credit Lease Loan, as
security for such mortgagor's obligations thereunder,
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such mortgagor's rights under the Credit Leases and its rights to all income
and profits to be derived from the operation and leasing of the related
Credit Lease property, including, but not limited to, an assignment of any
guarantee of the Tenant's obligations under the Credit Lease and an
assignment of the right to receive all Monthly Rental Payments due under the
Credit Leases.
Cooperative Loans. Three Mortgage Loans, which represent approximately
5.08% of the Initial Pool Balance, are Mortgage Loans which are secured by
Cooperative Properties, each of which is located in or around New York, New
York. Each of the Cooperative Loans has the benefit of a mortgage insurance
policy insuring up to 50% of the outstanding principal amount of the Mortgage
Loan, subject to certain terms and conditions. Each Cooperative Loan is made
to a cooperative housing corporation. As described under "Risk Factors -- The
Mortgage Loans -- Risks Particular to Cooperative Properties," mortgage loans
secured by cooperative properties depend primarily on maintenance payments
made by tenant-stockholders. As of June 30, 1997, approximately 53.8%, 23.3%
and 53.5% of the units in the Cooperative Properties were owned by the
sponsor or other non-tenant owner unrelated to the borrower. Additional
unsold units may be owned by the related borrower. If the sponsor or such
other non-tenant owner ceases or is unable to pay the maintenance payments on
the units owned by such owner, the related borrower's ability to pay debt
service on the Mortgage Loan may be adversely affected.
Related Borrowers, Cross-Collateralized and Cross-Defaulted Mortgage
Loans. Each of the Mortgage Loan Sellers has identified certain sets of
Mortgage Loans in its respective pool made to borrowers who are affiliated or
under common control with one another (although no such set of Mortgage Loans
other than the CRICKM Loans represents more than 4.0% of the Initial Pool
Balance).
Eleven Mortgage Loans, which represent 3.24% of the Initial Pool Balance,
are Cross-Collateralized Mortgage Loans among groups of related borrowers.
Two of such Cross-Collateralized Mortgage Loans are to the same borrower and
secured by the same Mortgaged Property.
Cross-collateralization arrangements involving more than one borrower
could be challenged as a fraudulent conveyance by creditors of a borrower or
by the representative of the bankruptcy estate of a borrower, if a borrower
were to become a debtor in a bankruptcy case. See "Risk Factors -- The
Mortgage Loans -- Limitation on Enforceability of Cross-Collateralization"
herein.
See Annex A hereto for information regarding the Cross-Collateralized
Mortgage Loans.
Three of the Mortgage Loans (other than the Cross-Collateralized Mortgage
Loans), which represent 16.27% of the Initial Pool Balance, are secured by
one or more Mortgages encumbering multiple Mortgaged Properties. With respect
to each of such Mortgage Loans, the related Mortgaged Properties are of the
same property type and, other than the IHS/Litchfield Loan, are located in
the same state. Each of these Mortgage Loans other than the IHS/Litchfield
Loan is evidenced by a single Mortgage Note, and despite the related multiple
Mortgaged Properties, none is treated as a set of Cross-Collateralized
Mortgage Loans for purposes herein. The IHS/Litchfield Loan is secured by 43
Mortgaged Properties located in twelve states and is evidenced by 43 Mortgage
Notes. Accordingly, the total number of Mortgage Loans reflected herein is
144, while the total number of Mortgaged Properties reflected herein is 188.
The IHS/Litchfield Loan is treated as a single Mortgage Loan for all purposes
hereof except that in describing the geographic concentration of the Mortgage
Asset Pool, the IHS/Litchfield Loan is treated as 43 Mortgage Loans each of
which is assigned an Allocated Principal Amount as described herein.
Due-on-Sale and Due-on-Encumbrance Provisions. All of the Mortgage Loans
contain both "due-on-sale" and "due-on-encumbrance" clauses that in each
case, subject to limited exception, permit the holder of the Mortgage to
accelerate the maturity of the related Mortgage Loan if the borrower sells or
otherwise transfers or encumbers the related Mortgaged Property or prohibit
the borrower from doing so without the consent of the holder of the Mortgage.
See "--Secured Subordinate Financing" herein. Certain of the Mortgage Loans
permit either: (i) a one-time transfer of the related Mortgaged Property if
certain specified conditions are satisfied or if the transfer is to a
borrower reasonably acceptable to the lender; or (ii) transfers to certain
parties related to the borrower. The Servicer will determine, in accordance
with the Servicing Standard, whether to exercise any right the holder of any
Mortgage may
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have under any such clause to accelerate payment of the related Mortgage Loan
upon, or to withhold its consent to, any transfer or further encumbrance of
the related Mortgaged Property. See "The Pooling and Servicing Agreements --
Due-on-Sale and Due-on-Encumbrance Provisions" and "Certain Legal Aspects of
Mortgage Loans -- Due-on-Sale and Due-on-Encumbrance" in the Prospectus.
One Mortgage Loan, which represents approximately 1.72% of the Initial
Pool Balance, is subject to a purchase agreement pursuant to which the
borrower has contracted to sell the Mortgaged Property for settlement,
subject to the terms and conditions set forth therein, on or before April 1,
1998. Under the purchase agreement, the buyer has the right to request
lender's consent to assume the Mortgage Loan and, if such consent is not
granted, to cause a prepayment of the Mortgage Loan or to terminate the
purchase agreement. No assurance can be given with respect to the
consummation of the sale of the Mortgaged Property, the assumption of the
Mortgage Loan or the prepayment of the Mortgage Loan. The prepayment of the
Mortgage Loan in full, among other things, will have the effect of causing a
principal payment of the Certificates then entitled to principal and may be
expected to adversely affect the yield on the Class X Certificates. See
"Yield and Maturity Considerations" herein.
Secured Subordinate Financing. Certain of the Mortgaged Properties are
known to be encumbered by subordinated debt that is not part of the Mortgage
Asset Pool. In substantially all cases, the holder of any material
subordinated debt has agreed not to foreclose for so long as the related
Mortgage Loan is outstanding, and the Trust Fund is not pursuing a
foreclosure action. Substantially all of the remaining Mortgage Loans either
prohibit the related borrower from encumbering the Mortgaged Property with
additional secured debt or require the consent of the holder of the first
lien prior to so encumbering such property. See "Risk Factors -- The Mortgage
Loans --Risks of Secured Subordinate Financing" herein and "Certain Legal
Aspects of Mortgage Loans -- Subordinate Financing" in the Prospectus.
Ground Leases. Three of the Mortgage Loans, which represent 2.03% of the
Initial Pool Balance, are in each case secured solely by a Mortgage on the
applicable borrower's leasehold interest in the related Mortgaged Property.
Three Mortgage Loans, which represents 2.40% of the Initial Pool Balance, are
secured by a Mortgage on both the borrower's leasehold interest and fee
simple interest in the Mortgaged Property. None of the related ground leases
expire less than ten years after the stated maturity of the related Mortgage
Loan. In each such case, the related ground lessor has agreed to give the
holder of the Mortgage Loan notice of, and has granted such holder the right
to cure, any default or breach by the lessee. See "Risk Factors -- The
Mortgage Loans -- Leasehold Considerations" herein.
ADDITIONAL MORTGAGE LOAN INFORMATION
General. For a detailed presentation of certain characteristics of the
Mortgage Loans and Mortgaged Properties, on an individual basis and in
tabular format, see Annex A hereto.
Significant Mortgage Loans
The IHS/Litchfield Loan
The Loan. The largest Mortgage Loan in the Mortgage Asset Pool is a
Mortgage Loan secured by 43 Mortgaged Properties operated by Integrated
Health Systems of Lester, Inc. (the "IHS/Litchfield Loan"). The
IHS/Litchfield Loan was originated by GACC on September 30, 1997 and has a
principal balance as of the Cut-off Date of $165,290,099, which represents
15.41% of the Initial Pool Balance. The IHS/Litchfield Loan is secured by fee
Mortgages (the "IHS/Litchfield Mortgages") encumbering 43 skilled nursing
home properties (the "IHS/Litchfield Properties") located in 12 states. The
Mortgage Loan documents permit the release of individual Mortgaged Properties
upon a payment of 125% of the allocated principal amount (the "Allocated
Principal Amount") for the applicable Mortgaged Property, as set forth in the
table below (as of the Cut-off Date) plus any applicable prepayment premium.
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<PAGE>
IHS/LITCHFIELD ALLOCATED LOAN AMOUNTS
<TABLE>
<CAPTION>
PROPERTY NAME CUT-OFF DATE BALANCE
- ---------------------------- --------------------
<S> <C>
Hanover House................ $ 6,025,426.39
Cheyenne Mountain............ 7,141,246.42
Cheyenne Place Retirement
Center...................... 3,421,847.64
Mesa Manor................... 4,612,055.21
Pikes Peak Manor............. 6,694,918.20
Pueblo Manor................. 11,009,421.27
Fort Myers Care Center....... 7,661,962.17
Bradenton/Heritage Park ..... 6,843,694.29
Orange Park Care Center ..... 2,677,967.29
Palm Bay Convalescent
Center...................... 5,132,770.95
Port Charlotte Care Center .. 6,546,142.15
Sebring...................... 1,636,535.79
Winter Park Care Center ..... 3,868,174.86
The Shores Nursing Center ... 10,488,705.52
Buckhead/Heritage............ 3,793,787.31
Shoreham..................... 3,198,683.05
Boise........................ 3,273,071.56
Great Bend Manor............. 1,338,983.65
Wichita/Northeast............ 1,115,820.04
Mayfair Manor................ 5,727,875.25
Shreveport/Centenary......... 1,487,759.71
Heritage Manor of
Alexandria.................. 446,328.21
Heritage Manor of Gonzales .. 2,826,743.36
Heritage Manor of Kaplan .... 2,826,743.36
Heritage Manor of Lafayette . $ 892,655.42
Heritage Manor of Many I .... 4,388,890.61
Heritage Manor of Many II ... 1,785,311.85
Heritage Manor of Marrero ... 2,901,130.90
Minden/Meadowview............ 6,248,590.99
Heritage Manor of New Iberia
North....................... 3,049,906.96
Heritage Manor of New Iberia
South....................... 1,934,087.94
Claiborne/Heritage Manor of
Shreveport.................. 1,413,372.18
Heritage Manor of Thibodaux . 2,008,475.46
Heritage Manor of Vivian .... 2,603,579.75
Charlotte at Hawthorne....... 10,488,705.52
Pierremont Heritage Manor ... 4,016,950.91
Nashville/Donelson........... 5,802,262.79
Heritage Manor of Plainview . 892,655.42
Heritage Manor of Iowa Park . 446,328.21
Wichita Falls/Midwestern
Parkway..................... 1,636,535.79
Terrell Care Center.......... 1,264,596.11
Terrell Convalescent Center . 1,710,923.32
Jeffersonian Manor........... 2,008,475.50
</TABLE>
The IHS/Litchfield Loan was made to Litchfield Investment Company, L.L.C.
("LIC"), a Connecticut special purpose entity formed in 1994 solely for the
purpose of purchasing, owning and operating the IHS/Litchfield Properties.
LIC leases each of the IHS/Litchfield Properties under essentially identical
triple net leases (collectively, the "Leases") to Integrated Health Services
of Lester, Inc. ("IHS of Lester") a wholly owned subsidiary of Integrated
Health Services, Inc. ("IHS"). IHS unconditionally guarantees the Leases.
Payment, prepayment and defeasance terms for the IHS/Litchfield Loan are
as set forth on Annex A.
The Borrower. LIC is a Connecticut limited liability company beneficially
owned by three individual investors. LIC was formed in 1994 in connection
with the original acquisition of the IHS/Litchfield Properties and lease to
IHS of Lester. LIC's activities have been limited since that time to the
ownership of the IHS/Litchfield Properties and acting as lessor under the
Leases.
The Properties. The IHS/Litchfield Properties consist of 43 skilled
nursing home properties located in Alabama, Colorado, Florida, Georgia,
Idaho, Kansas, Kentucky, Louisiana, North Carolina, Tennessee, Texas, and
West Virginia. The IHS/Litchfield Properties range in number of beds from 56
to 287 and were constructed between 1949 to 1985. Appraisals dated September
1, 1997 determined an aggregate value for the IHS/Litchfield Properties of
$222,200,000.
<PAGE>
The Tenant. IHS of Lester is the lessee for each property. IHS, the
guarantor and parent of IHS of Lester, is a Delaware corporation and one of
the nation's leading post-acute health care providers. IHS is a publicly
traded health care operator (NYSE: IHS) which operates long term health care
facilities nationwide. As of October 30, 1997, IHS had a senior debt rating
of Ba3 from Moody's and BB-from S&P and a market capitalization in excess of
$800 million as of December 5, 1997.
The Leases. Each of the leases is a triple net lease with an 11-year
initial term. Upon the expiration of the initial term of the Leases, IHS of
Lester will have an option to (i) renew the Leases at a base rent equal to a
fixed amount above the debt service payable on the loan entered into to
refinance the IHS/Litchfield Loan or (ii) purchase the IHS/Litchfield
Properties for a purchase price equal to the
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<PAGE>
greatest of (a) fair market value, (b) 125% of the outstanding amount of
mortgage debt on the IHS/Litchfield Properties and (c) a multiple of the
earnings from the IHS/Litchfield Properties. If IHS of Lester does exercise
its purchase option, it would, after repayment of the IHS/Litchfield Loan, be
entitled to credit certain amounts paid by IHS of Lester to LIC under the
Leases against the purchase price. If IHS of Lester does not renew the Leases
(which renewal must be exercised at least 18 months prior to the expiration
of the Leases) and the IHS/Litchfield Properties are appraised at the end of
the tenth Lease year for less than $215,600,000, then IHS would be required
to post a deposit in the amount of $29,400,000, which deposit could be
applied by LIC to the extent necessary to cover any shortfall between the
actual sales proceeds realized by LIC from the IHS/Litchfield Properties and
$215,600,000. In addition, if IHS of Lester chose neither to renew nor
purchase, it would forfeit its rights to certain incentive fees payable by
LIC under a related agreement based upon increases in earnings from the
IHS/Litchfield Properties and payable only out of refinancing proceeds
(including $15,700,000 already paid to IHS of Lester).
The CRICKM Loans
The Loans. Seven Mortgage Loans for which borrowers are affiliates
(collectively, the "CRICKM Loans") representing 5.88% of the Initial Pool
Balance, were originated by GACC on October 15, 1997 and have an aggregate
principal balance as of the Cut-Off Date of $63,111,165.
The CRICKM Loans consist of seven separate Mortgage Loans to seven
different special purpose Delaware business trusts (each, a "CRICKM Loan
Borrower") formed solely for the purpose of purchasing, owning and operating
the CRICKM Properties (as defined herein). Each CRICKM Loan is secured by a
fee Mortgage encumbering one of six free standing retail stores or one
shopping center located throughout the United States (the "CRICKM
Properties") and net leased to Kmart Corporation ("Kmart"). The separate
Mortgage Loans which comprise the CRICKM Loans are neither
cross-collateralized nor cross-defaulted.
Payment, prepayment and defeasance terms and reserves for the CRICKM Loans
are as set forth on Annex A.
The Borrowers. Each of the CRICKM Loan Borrowers is a special purpose
Delaware business trust sponsored by Corporate Realty Investment Company,
("CRIC"), a Massachusetts based limited liability company.
The Properties. The CRICKM Properties consist of 6 free standing retail
stores and one shopping center property located in California, Connecticut,
Indiana, Texas, and West Virginia. The CRICKM Properties range in square feet
from 86,479 square feet to 188,442 square feet and were constructed between
1991 to 1996. Appraisals performed in September 1997 determined an aggregate
value for the CRICKM Properties of $67,900,000.
The Tenant. Kmart leases each CRICKM Property (including the entire
shopping center property, a portion of which is subleased to other tenants)
under a fully "bondable" triple net credit leases. As of December 5, 1997
Kmart had a senior secured rating of Ba1/BB-/BB+ and unsecured rating of
Ba3/B+/BB-from Moody's, Standard & Poor's Rating Services ("S&P"), and DCR,
respectively. S&P's outlook on Kmart is positive as of October 15, 1997.
THE MORTGAGE LOAN SELLERS
GMACCM. GMACCM, a corporation organized under the laws of the State of
California and an affiliate of the Depositor, is a wholly-owned direct
subsidiary of GMAC Mortgage Group, Inc., which in turn is a wholly-owned
direct subsidiary of General Motors Acceptance Corporation. Each of GMACCM
and the Depositor is also an affiliate of Residential Funding Securities
Corporation, one of the Underwriters. The principal offices of GMACCM are
located at 650 Dresher Road, Horsham, Pennsylvania 19044. Its telephone
number is (215) 328-4622.
GSMC. GSMC is a limited partnership organized under the laws of the State
of New York. Its general partner is Goldman Sachs Real Estate Funding Corp.,
which is a wholly owned subsidiary of The Goldman Sachs Group, L.P. GSMC is
an affiliate of Goldman, Sachs & Co., one of the Underwriters. The principal
offices of GSMC are located at 85 Broad Street, New York, NY 10004. Its
telephone number is (212) 902-1000.
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<PAGE>
German American Capital Corporation. GACC is a wholly-owned subsidiary of
Deutsche Bank North America Holding Corp., which in turn is a wholly-owned
subsidiary of Deutsche Bank AG, a German corporation. GACC is also an
affiliate of Deutsche Morgan Grenfell Inc., one of the Underwriters. GACC
engages primarily in the business of purchasing and holding mortgage loans
pending securitization, repackaging or other disposition. GACC also acts from
time to time as the originator of mortgage loans. Although GACC purchases and
sells mortgage loans for its own account, it does not act as a broker or
dealer in connection with any such loans. The principal offices of GACC are
located at 31 West 52nd Street, New York, New York 10019.
The information set forth herein concerning the Mortgage Loan Sellers and
the underwriting conducted by each with respect to the Mortgage Loan has been
provided by the respective Mortgage Loan Sellers, and neither the Depositor
nor the Underwriters make any representation or warranty as to the accuracy
or completeness of such information.
CERTAIN UNDERWRITING MATTERS
Environmental Assessments. Substantially all of the Mortgaged Properties
were subject to a "Phase I" environmental site assessment (or an update of a
previously conducted assessment), and in the case of certain Mortgage Loans,
a "Phase II," which was performed on behalf of the related Mortgage Loan
Seller, or as to which the related report was delivered to the related
Mortgage Loan Seller in connection with its origination or acquisition of the
related Mortgage Loan. With respect to substantially all of the Mortgage
Loans, such environmental assessments or updates thereof were conducted
within the 18-month period prior to the Cut-off Date. No such environmental
assessment revealed any material adverse environmental condition or
circumstance with respect to any Mortgaged Property, except for: (i) those
cases in which an operations and maintenance plan or periodic monitoring of
such Mortgaged Property or nearby properties was recommended or an escrow
reserve to cover the estimated cost of remediation was established; (ii)
those cases involving a leaking underground storage tank or groundwater
contamination at a nearby property, which condition has not yet affected such
Mortgaged Property and as to which a responsible party has been identified
under applicable law; (iii) those cases where such conditions were remediated
or abated prior to the Delivery Date; or (iv) those cases in which
groundwater or soil contamination was identified or suspected, a letter of
credit was provided to cover estimated costs of continued monitoring or
remediation.
The information contained herein is based on the environmental assessments
and has not been independently verified by the Depositor, the Mortgage Loan
Sellers, the Underwriters, or any of their respective affiliates.
Property Condition Assessments. Inspections of substantially all of the
Mortgaged Properties (or updates of previously conducted inspections) were
conducted by independent licensed engineers by or on behalf of the related
Mortgage Loan Seller within the 18-month period prior to the Cut-off Date.
Such inspections were generally commissioned to inspect the exterior walls,
roofing, interior construction, mechanical and electrical systems and general
condition of the site, buildings and other improvements located at a
Mortgaged Property. With respect to certain of the Mortgage Loans, the
resulting reports indicated a variety of deferred maintenance items and
recommended capital expenditures. In some (but not all) instances, cash
reserves were established to fund such deferred maintenance and/or
replacement items. Any Mortgaged Property that was not subject to an
engineering inspection on behalf of the related Mortgage Loan Seller was
inspected by representatives or another designee of the related Mortgage Loan
Seller.
Appraisals and Market Analysis. An appraisal or market analysis for
substantially all the Mortgaged Properties was performed (or an existing
appraisal updated) on behalf of the related Mortgage Loan Seller within the
18-month period prior to the Cut-off Date. See "Annex A" herein. Each such
appraisal was conducted by an independent appraiser that is state certified
and/or designated as a Member of the Appraisal Institute ("MAI"), in order to
establish that the appraised value of the related Mortgaged Property or
Properties exceeded the original principal balance of the Mortgage Loan (or,
in the case of a set of related Cross-Collateralized Mortgage Loans, the
aggregate original principal balance of such set). In general, such
appraisals represent the analysis and opinions of the respective
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<PAGE>
appraisers at or before the time made, and are not guarantees of, and may not
be indicative of, present or future value. There can be no assurance that
another appraiser would not have arrived at a different valuation, even if
such appraiser used the same general approach to and same method of
appraising the property. In addition, appraisals seek to establish the amount
a typically motivated buyer would pay a typically motivated seller. Such
amount could be significantly higher than the amount obtained from the sale
of a Mortgaged Property under a distress or liquidation sale. Furthermore,
not all of the above-described appraisals of the Mortgaged Properties
conformed to the appraisal guidelines set forth in Title XI of the Federal
Financial Institutions Reform, Recovery and Enforcement Act of 1989. See
"Risk Factors -- The Mortgage Pool -- Limitations of Appraisals" herein.
Hazard, Liability and Other Insurance. The Mortgage Loans require that
either: (i) in most cases, the Mortgaged Property be insured by a hazard
insurance policy in an amount (subject to a customary deductible) at least
equal to the lesser of the outstanding principal balance of the related
Mortgage Loan and 100% of the full insurable replacement cost of the
improvements located on the related Mortgaged Property, and if applicable,
the related hazard insurance policy contains appropriate endorsements to
avoid the application of co-insurance and does not permit reduction in
insurance proceeds for depreciation; or (ii) in certain cases, the Mortgaged
Property be insured by hazard insurance in such other amounts as was required
by the related originators. In addition, if any portion of a Mortgaged
Property securing any Mortgage Loan was, at the time of the origination of
such Mortgage Loan, in an area identified in the Federal Register by the
Flood Emergency Management Agency as having special flood hazards, and flood
insurance was available, a flood insurance policy meeting any requirements of
the then current guidelines of the Federal Insurance Administration is in
effect with a generally acceptable insurance carrier, in an amount
representing coverage not less than the least of (1) the outstanding
principal balance of such Mortgage Loan, (2) the full insurable value of such
Mortgaged Property, (3) the maximum amount of insurance available under the
National Flood Insurance Act of 1968, as amended and (4) 100% of the
replacement cost of the improvements located on the related Mortgaged
Property except in certain cases where self insurance was permitted. In
general, the standard form of hazard insurance policy covers physical damage
to, or destruction of, the improvements on the Mortgaged Property by fire,
lightning, explosion, smoke, windstorm and hail, riot or strike and civil
commotion, subject to the conditions and exclusions set forth in each policy.
Each Mortgage generally also requires the related borrower to maintain
comprehensive general liability insurance against claims for personal and
bodily injury, death or property damage occurring on, in or about the related
Mortgaged Property in an amount customarily required by institutional
lenders.
Each Mortgage generally further requires the related borrower to maintain
business interruption or rent loss insurance in an amount not less than 100%
of the projected rental income from the related Mortgaged Property for not
less than six months.
In general, the Mortgaged Properties are not insured for earthquake risk.
The IHS/Litchfield Loan and the CRICKM Loans permit the tenant to
self-insure all or a portion of the risks which would otherwise be insured
under the hazard, liability or business interruption insurance policies.
ASSIGNMENT OF THE MORTGAGE LOANS; REPURCHASES AND SUBSTITUTIONS
On or prior to the Delivery Date, each Mortgage Loan Seller will assign
its Mortgage Loans, without recourse, to the Depositor, and the Depositor
will assign all the Mortgage Loans, without recourse, to the Trustee for the
benefit of the Certificateholders. In connection with the foregoing, each
Mortgage Loan Seller is required in accordance with the related Mortgage Loan
Purchase Agreement to deliver the following documents, among others, with
respect to each Mortgage Loan so assigned by it, to the Depositor or its
custodial agent (who will deliver such documents to the Trustee) or, at the
direction of the Depositor, directly to the Trustee: (a) the original
Mortgage Note, endorsed (without recourse) in blank or to the order of
Trustee; (b) the original or a copy of the related Mortgage(s), together with
originals or copies of any intervening assignments of such document(s), in
each case with evidence of recording thereon (unless such document(s) have
not been returned by the applicable recorder's office);
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<PAGE>
(c) the original or a copy of any related assignment(s) of rents and leases
(if any such item is a document separate from the Mortgage), together with
originals or copies of any intervening assignments of such document(s), in
each case with evidence of recording thereon (unless such document(s) have
not been returned by the applicable recorder's office); (d) an assignment of
each related Mortgage in blank or in favor of the Trustee, in recordable
form; (e) an assignment of any related assignment(s) of rents and leases (if
any such item is a document separate from the Mortgage) in blank or in favor
of the Trustee, in recordable form; (f) any UCC financing statements and
original assignments thereof to the Trustee; (g) an original or copy of the
related lender's title insurance policy (or, if a title insurance policy has
not yet been issued, a commitment for title insurance "marked-up" at the
closing of such Mortgage Loan); and (h) when relevant, the related ground
lease or a copy thereof.
The Trustee will be required to review the documents delivered by the
related Mortgage Loan Seller and/or Depositor with respect to each Mortgage
Loan within 60 days following the Delivery Date, and the Trustee will hold
the related documents in trust. If it is found during the course of such
review or at any other time that any of the above-described documents was not
delivered with respect to any Mortgage Loan or that any such document is
defective, and in either case such omission or defect materially and
adversely affects the value of the related Mortgage Loan or the interests of
Certificateholders therein, and if the related Mortgage Loan Seller cannot
deliver the document or cure the defect within a period of 90 days following
its receipt of notice of such omission or defect, then the related Mortgage
Loan Seller will be obligated pursuant to the related Mortgage Loan Purchase
Agreement (the relevant rights under which will be assigned by the Depositor
to the Trustee) to repurchase the affected Mortgage Loan within such 90-day
period at a price (the "Purchase Price") at least equal to the unpaid
principal balance of such Mortgage Loan, together with any accrued but unpaid
interest thereon to but not including the Due Date in the Collection Period
of the repurchase and any related unreimbursed Servicing Advances (as defined
herein).
In lieu of affecting any such repurchase in the manner set forth above, a
Mortgage Loan Seller is also permitted to substitute a new mortgage loan (a
"Replacement Mortgage Loan") for the affected Mortgage Loan (any Mortgage
Loan repurchased or substituted, a "Deleted Mortgage Loan"). To qualify as a
Replacement Mortgage Loan, the Replacement Mortgage Loan must have certain
financial terms substantially similar to the Deleted Mortgage Loan and meet a
number of specific requirements. In particular, the Replacement Mortgage Loan
must (i) have a Stated Principal Balance (as defined herein) of not more than
the Stated Principal Balance of the Deleted Mortgage Loan, (ii) accrue
interest at a rate of interest at least equal to that of the Deleted Mortgage
Loan, (iii) be a fixed-rate Mortgage Loan if the Deleted Mortgage Loan is a
fixed-rate Mortgage Loan or an adjustable-rate Mortgage Loan (with the same
adjustable rate and other financial terms as the Deleted Mortgage Loan) if
the Deleted Mortgage Loan is an adjustable-rate Mortgage Loan, and (iv) have
a remaining term to stated maturity of not greater than, and not more than
two years less than, the Deleted Mortgage Loan (any mortgage loan meeting
such qualifications, a "Qualifying Substitute Mortgage Loan"). In addition,
the Replacement Mortgage Loan must be a "qualified replacement mortgage"
within the meaning of 860G(a)(4) of the Code. Finally, the Mortgage Loan
Seller must deposit in the Distribution Account an amount, if any, by which
the Stated Principal Balance of the Deleted Mortgage Loan exceeds the Stated
Principal Balance of the Replacement Mortgage Loan (the "Substitution
Shortfall Amount").
The foregoing repurchase or substitution obligation will constitute the
sole remedy available to the Certificateholders and the Trustee for any
failure on the part of a Mortgage Loan Seller to deliver any of the
above-described documents with respect to any of its Mortgage Loans or for
any defect in any such document; and none of the Depositor, either of the
other Mortgage Loan Sellers or any other person or entity will be obligated
to repurchase the affected Mortgage Loan if the related Mortgage Loan Seller
defaults on its obligation to do so.
Within 45 days following the Delivery Date, the related Mortgage Loan
Seller will cause the assignments with respect to each Mortgage Loan
described in clauses (d) and (e) of the fourth preceding paragraph to be
completed in the name of the Trustee (if delivered in blank) and submitted
for recording in the real property records of the appropriate jurisdictions.
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<PAGE>
REPRESENTATIONS AND WARRANTIES; REPURCHASES
In each Mortgage Loan Purchase Agreement, subject to certain exceptions,
the related Mortgage Loan Seller has represented and warranted with respect
to each of its Mortgage Loans, as of the Delivery Date, or as of such other
date specifically provided in the representation and warranty, among other
things, generally to the effect that:
(i) Immediately prior to the transfer thereof to the Depositor, such
Mortgage Loan Seller had good and marketable title to, and was the sole
owner and holder of, such Mortgage Loan, free and clear of any and all
liens, encumbrances and other interests on, in or to such Mortgage Loan
(other than, in certain cases, the right of a subservicer to primary
service such Mortgage Loan).
(ii) Such Mortgage Loan Seller has full right and authority to sell,
assign and transfer such Mortgage Loan.
(iii) The information pertaining to such Mortgage Loan set forth in the
Mortgage Loan schedule attached to the related Mortgage Loan Purchase
Agreement was true and correct in all material respects as of the Cut-off
Date.
(iv) Such Mortgage Loan was not, as of the Cut-off Date, 30 days or more
delinquent in respect of any Monthly Payment required thereunder, without
giving effect to any applicable grace period.
(v) The lien of the related Mortgage is insured by an ALTA lender's title
insurance policy, or its equivalent as adopted in the applicable
jurisdiction, issued by a nationally recognized title insurance company,
insuring the originator of the related Mortgage Loan, its successors and
assigns, as to the first priority lien of the Mortgage in the original
principal amount of the related Mortgage Loan after all advances of
principal, subject only to Permitted Encumbrances (or, if a title
insurance policy has not yet been issued in respect of any Mortgage Loan,
a policy meeting the foregoing description is evidenced by a commitment
for title insurance "marked-up" at the closing of such loan). "Permitted
Encumbrances" include (A) the lien of current real property taxes and
assessments not yet due and payable, (B) covenants, conditions and
restrictions, rights of way, easements and other matters of public record,
and (C) exceptions and exclusions specifically referred to in the lender's
title insurance policy issued or, as evidenced by a "marked-up"
commitment, to be issued in respect of such Mortgage Loan. The Permitted
Encumbrances referred to above do not materially interfere with the
security intended to be provided by the related Mortgage, the current use
or operation of the related Mortgaged Property, or the current ability of
such Mortgaged Property to generate net operating income sufficient to
service the Mortgage Loan.
(vi) Such Mortgage Loan Seller has not waived any material default,
breach, violation or event of acceleration existing under the related
Mortgage or Mortgage Note.
(vii) There is no valid offset, defense or counterclaim to such Mortgage
Loan.
(viii) Such Mortgage Loan Seller has not received actual notice (A) that
there is any proceeding pending or threatened for the total or partial
condemnation of the related Mortgaged Property or (B) that there is any
material damage at the related Mortgaged Property that materially and
adversely affects the value of such Mortgaged Property.
(ix) At origination, such Mortgage Loan complied with all applicable
usury laws.
(x) The proceeds of such Mortgage Loan have been fully disbursed and
there is no requirement for future advances thereunder.
(xi) The Mortgage Note and Mortgage for such Mortgage Loan and all other
documents and instruments evidencing, guaranteeing, insuring or otherwise
securing such Mortgage Loan have been duly and properly executed by the
parties thereto, and each is the legal, valid and binding obligation of
the maker thereof (subject to any non-recourse provisions contained in any
of the foregoing agreements and any applicable state anti-deficiency
legislation), enforceable in accordance with its terms, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
receivership, moratorium or other laws relating to or affecting the rights
of creditors generally and by general principles of equity (regardless of
whether such enforcement is considered in a proceeding in equity or at
law).
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<PAGE>
(xii) All insurance required under the Mortgage for such Mortgage Loan
is in full force and effect with respect to the related Mortgaged
Property.
(xiii) The related Mortgaged Property was subject to one or more
environmental site assessments (or an update of a previously conducted
assessment), which was performed on behalf of such Mortgage Loan Seller,
or as to which the related report was delivered to such Mortgage Loan
Seller in connection with its origination or acquisition of such Mortgage
Loan; and such Mortgage Loan Seller, having made no independent inquiry
other than reviewing the resulting report(s) and/or employing an
environmental consultant to perform the assessment(s) referenced herein,
has no knowledge of any material and adverse environmental condition or
circumstance affecting such Mortgaged Property that was not disclosed in
the related report(s).
(xiv) Such Mortgage Loan is not cross-collateralized with a mortgage loan
other than another Mortgage Loan.
(xv) All escrow deposits relating to such Mortgage Loan that were
required to be deposited with the mortgagee or its agent under the terms
of the related loan documents, have been so deposited.
(xvi) As of the date of origination of such Mortgage Loan and, to the
actual knowledge of the Mortgage Loan Seller, as of the Closing Date, the
related Mortgaged Property was and is free and clear of any mechanics' and
materialmen's liens or liens in the nature thereof which create a lien
prior to that created by the related Mortgage, except those which are
insured against by the title policy referred to in (v) above.
(xvii) If the Mortgage Loan is an ARM Loan, all of the terms of the
related Mortgage Note pertaining to interest rate adjustments, payment
adjustments and adjustments of the principal balance are enforceable, such
adjustments will not affect the priority of the mortgage lien, and all
such adjustments and all calculations made before the Cut-off Date were
made correctly and in full compliance with the terms of the related
Mortgage and Mortgage Note.
(xviii) No holder of the Mortgage Loan has, to the Mortgage Loan Seller's
knowledge, advanced funds or induced, solicited or knowingly received any
advance of funds from a party other than the owner of the related
Mortgaged Property, directly or indirectly, for the payment of any amount
required by the Mortgage Loan.
(xix) To such Mortgage Loan Seller's knowledge, based on due diligence
customarily performed in the origination of comparable mortgage loans by
the Mortgage Loan Seller, as of the date of origination of the Mortgage
Loan, the related Mortgagor or operator (with respect to certain
healthcare properties) was in possession of all material licenses, permits
and authorizations required by applicable laws for the ownership and
operation of the related Mortgaged Property as it was then operated.
(xx) The related Mortgage or Mortgage Note, together with applicable
state law, contains customary and enforceable provisions such as to render
the rights and remedies of the holders thereof adequate for the practical
realization against the related Mortgaged Property of the principal
benefits of the security intended to be provided thereby.
If it is found that there exists a material breach of any of the foregoing
representations and warranties of any of the Mortgage Loan Sellers with
respect to any of its Mortgage Loans, and if such Mortgage Loan Seller cannot
cure such breach within a period of 90 days following its receipt of notice
of such breach, then such Mortgage Loan Seller will be obligated pursuant to
the related Mortgage Loan Purchase Agreement (the relevant rights under which
will be assigned by the Depositor to the Trustee) to repurchase the affected
Mortgage Loan within such 90-day period at the applicable Purchase Price or
substitute a Replacement Mortgage Loan for the affected Mortgage Loan and pay
any Substitution Shortfall Amount.
The foregoing repurchase or substitution obligation will constitute the
sole remedy available to the Certificateholders and the Trustee for any
breach of a Mortgage Loan Seller's representations and warranties regarding
any of its Mortgage Loans. As to any Mortgage Loan, the related Mortgage Loan
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Seller will be the sole Warranting Party; and none of the Depositor, any of
the other Mortgage Loan Sellers or any other person or entity will be
obligated to repurchase any affected Mortgage Loan in connection with a
breach of the related Mortgage Loan Seller's representations and warranties
if the related Mortgage Loan Seller defaults on its obligation to do so. See
"The Pooling and Servicing Agreements -- Representations and Warranties;
Repurchases" in the Prospectus.
CHANGES IN MORTGAGE ASSET POOL CHARACTERISTICS
The description in this Prospectus Supplement of the Mortgage Asset Pool
and the Mortgaged Properties is based upon the Mortgage Asset 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 Asset 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 Asset Pool prior to the
issuance of the Offered Certificates, unless including such mortgage loans
would materially alter the characteristics of the Mortgage Asset Pool as
described herein. The information set forth herein is representative of the
characteristics of the Mortgage Asset 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 Asset 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 Asset 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
GENERAL
The Servicer will be responsible for the servicing and administration of
all the Mortgage Loans; however, the holder or holders of Certificates
evidencing a majority interest in the Controlling Class (as defined herein)
will be entitled to terminate substantially all the rights and duties of the
Servicer in respect of Specially Serviced Mortgage Loans (as defined herein)
and REO Properties and to appoint a replacement to perform such duties under
substantially the same terms and conditions as applicable to the Servicer.
See "--Termination of the Servicer with Respect to Specially Serviced
Mortgage Loans and REO Properties" below. The Servicer, either directly or
through Sub-Servicers, will be required to service and administer the
Mortgage Loans in the best interests of and for the benefit of the
Certificateholders (as determined by the Servicer in its good faith and
reasonable judgment), in accordance with applicable law, the terms of the
Pooling and Servicing Agreement and the terms of the respective Mortgage
Loans and, to the extent consistent with the foregoing, in the same manner as
is normal and usual in its general mortgage servicing and REO property
management activities with respect to mortgage loans and REO properties that
are comparable to those for which it is responsible under the Pooling and
Servicing Agreement. Such requirements are herein referred to as the
"Servicing Standard."
A "Specially Serviced Mortgage Loan" is any Mortgage Loan as to which any
of the following events (each, a "Special Servicing Event") has occurred: (i)
the related borrower has failed to make when due any Balloon Payment, which
failure has continued unremedied for 30 days; (ii) the related borrower has
failed to make when due any Monthly Payment (other than a Balloon Payment) or
any other payment required under the related Mortgage Note or the related
Mortgage(s), which failure continues unremedied for 60 days; (iii) the
Servicer has determined in its good faith and reasonable judgment, that a
default in the making of a Monthly Payment or any other payment required
under the related Mortgage Note or the related Mortgage(s) is likely to occur
within 30 days and is likely to remain unremedied for at least 60 days or, in
the case of a Balloon Payment, for at least 30 days; (iv) there shall have
occurred a default under the related loan documents, other than as described
in clause (i) or (ii) above, that
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materially impairs the value of the related Mortgaged Property as security
for the Mortgage Loan or otherwise materially and adversely affects the
interests of Certificateholders, which default has continued unremedied for
the applicable grace period under the terms of the Mortgage Loan (or, if no
grace period is specified, 60 days); (v) a decree or order of a court or
agency or supervisory authority having jurisdiction in the premises in an
involuntary case under any present or future federal or state bankruptcy,
insolvency or similar law or the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings, or for the winding-up or liquidation of
its affairs, shall have been entered against the related borrower and such
decree or order shall have remained in force undischarged or unstayed for a
period of 60 days; (vi) the related borrower shall have consented to the
appointment of a conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings of or relating to such borrower or of or relating to all or
substantially all of its property; (vii) the related borrower shall have
admitted in writing its inability to pay its debts generally as they become
due, filed a petition to take advantage of any applicable insolvency or
reorganization statute, made an assignment for the benefit of its creditors,
or voluntarily suspended payment of its obligations; and (viii) the Servicer
shall have received notice of the commencement of foreclosure or similar
proceedings with respect to the related Mortgaged Property or Properties.
A Mortgage Loan will cease to be a Specially Serviced Mortgage Loan (and
will become a "Corrected Mortgage Loan") at such time as such of the
following as are applicable occur with respect to the circumstances
identified above that caused the Mortgage Loan to be characterized as a
Specially Serviced Mortgage Loan (and provided that no other Special
Servicing Event then exists):
(a) with respect to the circumstances described in clauses (i) and (ii)
of the preceding paragraph, the related borrower has made three
consecutive full and timely Monthly Payments under the terms of such
Mortgage Loan (as such terms may be changed or modified in connection with
a bankruptcy or similar proceeding involving the related borrower or by
reason of a modification, waiver or amendment granted or agreed to by the
Servicer);
(b) with respect to the circumstances described in clauses (iii), (v),
(vi) and (vii) of the preceding paragraph, such circumstances cease to
exist in the good faith and reasonable judgment of the Servicer;
(c) with respect to the circumstances described in clause (iv) of the
preceding paragraph, such default is cured; and
(d) with respect to the circumstances described in clause (viii) of the
preceding paragraph, such proceedings are terminated.
The Servicer will be required to service and administer the respective
groups of related Cross-Collateralized Mortgage Loans as a single Mortgage
Loan as and when it deems necessary and appropriate, consistent with the
Servicing Standard. If any Cross-Collateralized Mortgage Loan becomes a
Specially Serviced Mortgage Loan, then each other Mortgage Loan that is
cross-collateralized with it shall also become a Specially Serviced Mortgage
Loan. Similarly, no Cross-Collateralized Mortgage Loan shall subsequently
become a Corrected Mortgage Loan, unless and until all Special Servicing
Events in respect of each other Mortgage Loan that is cross-collateralized
with it, are remediated or otherwise addressed as contemplated above.
Set forth below, following the subsection captioned "--The Servicer," is a
description of certain pertinent provisions of the Pooling and Servicing
Agreement relating to the servicing of the Mortgage Loans. Reference is also
made to the Prospectus, in particular to the section captioned "The Pooling
and Servicing Agreements" for important additional information regarding the
terms and conditions of the Pooling and Servicing Agreement as they relate to
the rights and obligations of the Servicer thereunder. The Servicer
constitutes a "Master Servicer" for purposes of the Prospectus. However,
information set forth in the Prospectus should be read taking account of all
supplemental information contained herein.
THE SERVICER
GMACCM will be the Servicer with respect to the Mortgage Asset Pool. As of
September 30, 1997, the Servicer had a total commercial and multifamily
mortgage loan servicing portfolio of approximately
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$30.7 billion. See "Description of the Mortgage Asset Pool -- The Mortgage
Loan Sellers -- GMACCM" herein and "GMAC Commercial Mortgage Corporation" in
the Prospectus.
TERMINATION OF THE SERVICER WITH RESPECT TO
SPECIALLY SERVICED MORTGAGE LOANS AND REO PROPERTIES
The holder or holders of Certificates entitled to more than 50% of the
voting rights allocated to the Controlling Class (as defined below) may at
any time terminate substantially all of the rights and duties of the Servicer
in respect of Specially Serviced Mortgage Loans and REO Properties and
appoint a replacement (a "Replacement Special Servicer") to perform such
duties under substantially the same terms and conditions as applicable to the
Servicer. Such holder(s) shall designate a replacement to so serve by the
delivery to the Trustee of a written notice stating such designation. The
Trustee shall, promptly after receiving any such notice, so notify the Rating
Agencies. If the designated replacement is acceptable to the Trustee, which
approval may not be unreasonably withheld, the designated replacement shall
become the Replacement Special Servicer as of the date the Trustee shall have
received: (i) written confirmation from each Rating Agency stating that if
the designated replacement were to serve as Replacement Special Servicer
under the Pooling and Servicing Agreement, none of the then-current rating or
ratings of all outstanding Classes of the Certificates would be qualified,
downgraded or withdrawn as a result thereof; (ii) a written acceptance of all
obligations of a Replacement Special Servicer, executed by the designated
replacement; and (iii) an opinion of counsel to the effect that the
designation of such replacement to serve as Replacement Special Servicer is
in compliance with the Pooling and Servicing Agreement, that the designated
replacement will be bound by the terms of the Pooling and Servicing Agreement
and that the Pooling and Servicing Agreement will be enforceable against such
designated replacement in accordance with its terms. The Servicer shall be
deemed to have resigned from its duties in respect of Specially Serviced
Mortgage Loans and REO Properties simultaneously with such designated
replacement's becoming the Replacement Special Servicer under the Pooling and
Servicing Agreement. Any Replacement Special Servicer may be similarly so
replaced by the holder or holders of Certificates entitled to more than 50%
of the voting rights allocated to the Controlling Class.
In general, a Replacement Special Servicer will possess rights and
obligations comparable to those of a Master Servicer described in the
Prospectus under "The Pooling and Servicing Agreements -- Sub-Servicers,"
"--Evidence as to Compliance" and "--Certain Matters Regarding a Master
Servicer and the Depositor." In addition, a Replacement Special Servicer will
be responsible for performing the servicing and other administrative duties
attributable to the Servicer herein or a Master Servicer under "The Pooling
and Servicing Agreements" (and, in particular, under the subsection thereof
captioned "--Realization Upon Defaulted Mortgage Loans") in the Prospectus,
insofar as such duties relate to Specially Serviced Mortgage Loans and REO
Properties. Notwithstanding any appointment of a Replacement Special
Servicer, however, the Servicer shall continue to collect information and
prepare all reports to the Trustee and to pay the reasonable compensation of
the Trustee required under the Pooling and Servicing Agreement with respect
to any Specially Serviced Mortgage Loans and REO Properties, and further to
render incidental services with respect to any Specially Serviced Mortgage
Loans and REO Properties as are specifically provided for in the Pooling and
Servicing Agreement. Unless the same person acts in both capacities, the
Servicer and the Replacement Special Servicer shall not have any
responsibility for the performance of each other's duties under the Pooling
and Servicing Agreement.
The "Controlling Class" will be the most subordinate Class of Principal
Balance Certificates outstanding (the Class A-1, Class A-2 and Class A-3
Certificates being treated as a single Class for this purpose) that has a
Certificate Balance at least equal to 25% of its initial Certificate Balance
(or, if no Class of Principal Balance Certificates has a Certificate Balance
at least equal to 25% of its initial Certificate Balance, then the
"Controlling Class" will be the most subordinate Class of Principal Balance
Certificates with the largest Certificate Balance then outstanding).
Initially the Controlling Class will consist of the Class K Certificates. It
is anticipated that the Servicer will acquire certain Subordinate
Certificates, including the Class K Certificates.
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SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal compensation to be paid to the Servicer in respect of its
servicing activities will be the Servicing Fee, the Special Servicing Fee,
the Workout Fee and the Liquidation Fee. The "Servicing Fee" will be payable
monthly on a loan-by-loan basis from amounts received or advanced in respect
of interest on each Mortgage Loan (including Specially Serviced Mortgage
Loans and Mortgage Loans as to which the related Mortgaged Property has
become an REO Property), will accrue at a percentage rate per annum set forth
on Annex A for each Mortgage Loan (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 due or deemed due on the
related Mortgage Loan is computed. The "Special Servicing Fee" will accrue
solely with respect to each Specially Serviced Mortgage Loan and each
Mortgage Loan as to which the related Mortgaged Property has become an REO
Property, at a rate equal to 0.25% per annum, on the basis of the same
principal amount and for the same period respecting which any related
interest payment due or deemed due on such Mortgage Loan is computed, and
will be payable monthly from the same sources and at the same time as, but
separate from, the Servicing Fee with respect to such Mortgage Loan. A
"Workout Fee" will in general be payable with respect to each Corrected
Mortgage Loan. As to each Corrected Mortgage Loan, the Workout Fee will be
payable out of, and will be calculated by application of a "Workout Fee Rate"
of 1.0% to, each collection of interest and principal (including scheduled
payments, prepayments, Balloon Payments and payments at maturity) received on
such Mortgage Loan for so long as it remains a Corrected Mortgage Loan. The
Workout Fee with respect to any Corrected Mortgage Loan will cease to be
payable if such loan again becomes a Specially Serviced Mortgage Loan or if
the related Mortgaged Property becomes an REO Property; provided that a new
Workout Fee will become payable if and when such Mortgage Loan again becomes
a Corrected Mortgage Loan. If the Servicer is terminated (other than for
cause) or resigns with respect to any or all of its servicing duties, it
shall retain the right to receive any and all Workout Fees payable with
respect to Mortgage Loans that became Corrected Mortgage Loans during the
period that it had responsibility for servicing Specially Serviced Mortgage
Loans and that were still Corrected Mortgage Loans at the time of such
termination or resignation (and the successor Servicer or Replacement Special
Servicer shall not be entitled to any portion of such Workout Fees), in each
case until the Workout Fee for any such loan ceases to be payable in
accordance with the preceding sentence. A "Liquidation Fee" will be payable
with respect to each Specially Serviced Mortgage Loan as to which the
Servicer obtains a full or discounted payoff from the related borrower and,
except as otherwise described below, with respect to any Specially Serviced
Mortgage Loan or REO Property as to which the Servicer receives any
Liquidation Proceeds. As to each such Specially Serviced Mortgage Loan and
REO Property, the Liquidation Fee will be payable from, and will be
calculated by application of a "Liquidation Fee Rate" of 1.0% to, the related
payment or proceeds. Notwithstanding anything to the contrary described
above, no Liquidation Fee will be payable based on, or out of, Liquidation
Proceeds received in connection with the purchase of any Specially Serviced
Mortgage Loan or REO Property by the Servicer, a Replacement Special Servicer
or any holder of Certificates evidencing a majority interest in the
Controlling Class or the purchase of all of the Mortgage Loans and REO
Properties by the Servicer or the Depositor in connection with the
termination of the Trust Fund. If, however, Liquidation Proceeds are received
with respect to any Corrected Mortgage Loan and the Servicer is properly
entitled to a Workout Fee, such Workout Fee will be payable based on and out
of the portion of such Liquidation Proceeds that constitute principal and/or
interest.
As additional servicing compensation, the Servicer will be entitled to
retain all assumption and modification fees, late payment charges, charges
for beneficiary statements or demands, amounts collected for checks returned
for insufficient funds, and any similar or ancillary fees, in each case to
the extent actually paid by a borrower with respect to a Mortgage Loan. The
Servicer will also be entitled to: (a) Prepayment Interest Excesses and
Balloon Payment Interest Excesses (each described below) collected on the
Mortgage Loans; and (b) any default interest actually collected on the
Mortgage Loans, but only to the extent that such default interest is not
allocable to pay any portion of a Workout Fee or Liquidation Fee payable with
respect to the related Mortgage Loan or to cover interest on any Advances (as
defined below) made in respect of the related Mortgage Loan. In addition, the
Servicer will be authorized to invest or direct the investment of funds held
in any and all accounts maintained by it that
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constitute part of the REO Account, if established, and the Replacement
Special Servicer will be authorized to invest or direct the investment of
funds held in the REO Account, and the Servicer and Replacement Special
Servicer, respectively, will be entitled to retain any interest or other
income earned on such funds, but will be required to cover any losses from
its own funds without any right to reimbursement. The Servicer and
Replacement Special Servicer shall have such rights and obligations
irrespective of whether the Servicer or Replacement Special Servicer, as
applicable, actually directs the investment of such funds.
If a Replacement Special Servicer is appointed, then as compensation for
performing its duties in respect of the Specially Serviced Mortgage Loans and
REO Properties, such Replacement Special Servicer will be entitled to receive
all Special Servicing Fees, Liquidation Fees and, except as otherwise
described above, Workout Fees otherwise payable to the Servicer for
performing such duties. A Replacement Special Servicer will also become (and
the Servicer will also cease to be) entitled to any default interest actually
collected on the Mortgage Loans, but only to the extent that (i) such default
interest is not allocable to pay any portion of a Workout Fee or Liquidation
Fee payable to the Servicer or Replacement Special Servicer with respect to
the related Mortgage Loan or to cover interest payable to the Servicer, the
Replacement Special Servicer or the Trustee with respect to any Advances made
in respect of the related Mortgage Loan and (ii) such default interest is
allocable to the period that the related Mortgage Loan constituted a
Specially Serviced Mortgage Loan.
If a borrower voluntarily prepays a Mortgage Loan, in whole or in part,
after the Due Date but before the Determination Date in any calendar month,
the amount of interest (net of related Servicing Fees) accrued on such
prepayment from such Due Date to, but not including, the date of prepayment
(or any later date through which interest accrues) will, to the extent
actually collected, constitute a "Prepayment Interest Excess." Conversely, if
a borrower prepays a Mortgage Loan, in whole or in part, after the
Determination Date in any calendar month and does not pay interest on such
prepayment through the end of such calendar month, then the shortfall in a
full month's interest (net of related Servicing Fees) on such prepayment will
constitute a "Prepayment Interest Shortfall." Similarly, if the Due Date for
any Balloon Payment occurs after the first day of, but before the
Determination Date in, any calendar month, the amount of interest (net of
related Servicing Fees) accrued on the related Balloon Loan from the
beginning of such month to the maturity date will, to the extent actually
collected in connection with the payment of such Balloon Payment on or before
such Determination Date, constitute a "Balloon Payment Interest Excess."
Conversely, if the Due Date for any Balloon Payment occurs after the
Determination Date in any calendar month, the amount of interest (net of
related Servicing Fees) that would have accrued on the related Balloon Loan
from the stated maturity date through the end of such calendar month will, to
the extent not paid by the borrower, constitute a "Balloon Payment Interest
Shortfall." Prepayment Interest Excesses and Balloon Payment Interest
Excesses collected on the Mortgage Loans will be retained by the Servicer as
additional servicing compensation. The Servicer will cover, out of its own
funds, any Balloon Payment Interest Shortfalls and, to the extent of that
portion of its aggregate Servicing Fee for the same Collection Period
calculated for each Mortgage Loan at a rate equal to the Master Servicing Fee
Rate (as defined in Annex A herein) for such Mortgage Loan, Prepayment
Interest Shortfalls incurred with respect to the Mortgage Loans during any
Collection Period.
The Servicer and any Replacement Special Servicer will, in general, each
be required to pay its overhead and any general and administrative expenses
incurred by it in connection with its servicing activities under the Pooling
and Servicing Agreement, including the fees of any Sub-Servicers retained by
it, and will not be entitled to reimbursement therefor except as expressly
provided in the Pooling and Servicing Agreement. In general, customary,
reasonable and necessary "out of pocket" costs and expenses incurred by the
Servicer or a Replacement Special Servicer in connection with the servicing
of a Mortgage Loan after a default, delinquency or other unanticipated event,
or in connection with the administration of any REO Property, will constitute
"Servicing Advances" (Servicing Advances and P&I Advances, collectively,
"Advances") and, in all cases, will be reimbursable from future payments and
other collections, including in the form of Liquidation Proceeds, Insurance
Proceeds and Condemnation Proceeds, in any event on or in respect of the
related Mortgage Loan or REO Property ("Related Proceeds"). Notwithstanding
the foregoing, the Servicer and any Replacement Special Servicer will each
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be permitted to pay, or to direct the payment of, certain servicing expenses
directly out of the Certificate Account or the REO Account, as applicable,
and at times without regard to the relationship between the expense and the
funds from which it is being paid (including in connection with the
remediation of any adverse environmental circumstance or condition at a
Mortgaged Property or an REO Property, although in such specific
circumstances the Servicer may advance the costs thereof). Furthermore, if
any Replacement Special Servicer is required under the Pooling and Servicing
Agreement to make any Servicing Advance but does not desire to do so, such
Replacement Special Servicer may, in its sole discretion, request that the
Servicer make such Advance, such request to be made in writing and in a
timely manner that does not adversely affect the interests of any
Certificateholder; provided, however, that such Replacement Special Servicer
will have an obligation to make any such Servicing Advance that, in its good
faith and reasonable judgment, is necessary to avoid (i) a penalty, (ii)
material harm to a Mortgaged Property or (iii) any other material adverse
consequence to the Trust Fund (an "Emergency Advance"). The Servicer shall
make any such Servicing Advance (other than an Emergency Advance) requested
by a Replacement Special Servicer within ten (10) days of the Servicer's
receipt of such request. A Replacement Special Servicer shall be relieved of
any obligations with respect to an Advance that it requests the Servicer to
make (regardless of whether or not the Servicer makes that Advance), other
than an Emergency Advance.
If the Servicer (or a Replacement Special Servicer) is required under the
Pooling and Servicing Agreement to make a Servicing Advance, but does not do
so within 15 days after such Servicing Advance is required to be made, then
the Trustee will, if it has actual knowledge of such failure, be required to
give the defaulting party notice of such failure and, if such failure
continues for three more days, the Trustee will be required to make such
Servicing Advance.
The Servicer, any Replacement Special Servicer and the Trustee will be
obligated to make Servicing Advances only to the extent that such Servicing
Advances are, in the reasonable and good faith judgment of such party,
ultimately recoverable from Related Proceeds.
As and to the extent described herein, the Servicer, any Replacement
Special Servicer and the Trustee are each entitled to receive interest at the
Reimbursement Rate (as defined herein) on Servicing Advances made thereby.
See "The Pooling and Servicing Agreements -- Certificate Account" and
"--Servicing Compensation and Payment of Expenses" in the Prospectus and
"Description of the Certificates -- P&I Advances" herein.
The Servicer will be required to pay, out of its Servicing Fee, the
compensation of the Trustee.
MODIFICATIONS, WAIVERS, AMENDMENTS AND CONSENTS
The Servicer may agree to any modification, waiver or amendment of any
term of, forgive interest on and principal of, capitalize interest on, permit
the release, addition or substitution of collateral securing, and/or permit
the release of the borrower on or any guarantor 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) the Servicer may not agree to any modification, waiver or amendment
of any term of, or take any of the other above referenced actions with
respect to, any Mortgage Loan that would affect the amount or timing of
any related payment of principal, interest or other amount payable
thereunder or, in the Servicer's good faith and reasonable judgment, would
materially impair the security for such Mortgage Loan or reduce the
likelihood of timely payment of amounts due thereon, unless, in the
Servicer's judgment, a material default on such Mortgage Loan has occurred
or a default in respect of payment on such Mortgage Loan is reasonably
foreseeable, and such modification, waiver, amendment or other action is
reasonably likely to produce a greater recovery to Certificateholders on a
present value basis than would liquidation;
(ii) the Servicer may not extend the maturity of any Mortgage Loan beyond
the date that is two years prior to the Rated Final Distribution Date;
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(iii) the Servicer shall not make or permit any modification, waiver or
amendment of any term of, or take any of the other above referenced
actions with respect to, any Mortgage Loan that would (A) cause any of
REMIC I, REMIC II or REMIC III to fail to qualify as a REMIC under the
Code or, except as otherwise described under "--REO Properties" below,
result in the imposition of any tax on "prohibited transactions" or
"contributions" after the startup date of any such REMIC under the REMIC
Provisions or (B) cause any Mortgage Loan to cease to be a "qualified
mortgage" within the meaning of Section 860G(a)(3) of the Code (provided
that the Servicer shall not be liable for judgments as regards decisions
made under this subsection which were made in good faith and, unless it
would constitute bad faith or negligence to do so, the Servicer may rely
on opinions of counsel in making such decisions);
(iv) the Servicer shall not permit any borrower to add or substitute any
collateral for an outstanding Mortgage Loan, which collateral constitutes
real property, unless the Servicer shall have first determined in its good
faith and reasonable judgment, based upon a Phase I environmental
assessment (and such additional environmental testing as the Servicer
deems necessary and appropriate), that such additional or substitute
collateral is in compliance with applicable environmental laws and
regulations and that there are no circumstances or conditions present with
respect to such new collateral relating to the use, management or disposal
of any hazardous materials for which investigation, testing, monitoring,
containment, clean-up or remediation would be required under any then
applicable environmental laws and/or regulations; and
(v) with limited exceptions, the Servicer shall not release any
collateral securing an outstanding Mortgage Loan;
provided that (x) the limitations, conditions and restrictions set forth in
clauses (i) through (v) above will not apply to any modification of any term
of any Mortgage Loan that is required under the terms of such Mortgage Loan
in effect on the Delivery Date or that is solely within the control of the
related borrower, and (y) notwithstanding clauses (i) through (v) above, the
Servicer will not be required to oppose the confirmation of a plan in any
bankruptcy or similar proceeding involving a borrower if in its reasonable
and good faith judgment such opposition would not ultimately prevent the
confirmation of such plan or one substantially similar.
SALE OF DEFAULTED MORTGAGE LOANS
The Pooling and Servicing Agreement grants to the Servicer, any
Replacement Special Servicer and the holder or holders of Certificates
evidencing a majority interest in the Controlling Class a right to purchase
from the Trust Fund certain defaulted Mortgage Loans. If the Servicer has
determined, in its good faith and reasonable judgment, that any defaulted
Mortgage Loan will become the subject of a foreclosure, the Servicer will be
required to promptly so notify in writing the Trustee, and the Trustee will
be required, within 10 days after receipt of such notice, to notify the
holders of the Controlling Class. Any holder or holders of Certificates
evidencing a majority interest in the Controlling Class may, at its or their
option, purchase from the Trust Fund, at a price equal to the applicable
Purchase Price, any such defaulted Mortgage Loan. If such Certificateholders
have not purchased such defaulted Mortgage Loan within 15 days of their
having received notice in respect thereof, either the Servicer or any
Replacement Special Servicer may, at its option, purchase such defaulted
Mortgage Loan from the Trust Fund, at a price equal to the applicable
Purchase Price.
The Servicer may offer to sell any such defaulted Mortgage Loan not
otherwise purchased pursuant to the prior paragraph, if and when the Servicer
determines, consistent with the Servicing Standard, that such a sale would be
in the best economic interests of the Trust Fund. Such offer is to be made in
a commercially reasonable manner for a period of not less than 10 days.
Unless the Servicer determines, in its good faith and reasonable judgment,
that acceptance of any offer would not be in the best economic interests of
the Trust Fund, the Servicer shall accept the highest cash offer received
from any person that constitutes a fair price (which may be less than the
Purchase Price) for such Mortgage Loan; provided that none of the Servicer,
any Replacement Special Servicer, the Depositor, the holder of any
Certificate
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or an affiliate of any such party may purchase such Mortgage Loan for less
than the Purchase Price unless at least two other offers are received from
independent third parties. See also "The Pooling and Servicing Agreements --
Realization Upon Defaulted Mortgage Loans" in the Prospectus.
REO PROPERTIES
In general, the Servicer will be obligated to (or may contract with a
third party to) operate and manage any Mortgaged Property acquired as REO
Property in a manner that would, in its good faith and reasonable judgment
and to the extent commercially feasible, maximize the Trust Fund's net
after-tax proceeds from such property. After the Servicer reviews the
operation of such property and consults with the Trustee to determine the
Trust Fund's federal income tax reporting position with respect to income it
is anticipated that the Trust Fund would derive from such property, the
Servicer could determine that it would not be commercially feasible to manage
and operate such property in a manner that would avoid the imposition of a
tax on "net income from foreclosure property" within the meaning of the REMIC
Provisions or a tax on "prohibited transactions" under Section 860F of the
Code (either such tax referred to herein as an "REO Tax"). To the extent that
income the Trust Fund receives from an REO Property is subject to a tax on
(i) "net income from foreclosure property," such income would be subject to
federal tax at the highest marginal corporate tax rate and (ii) "prohibited
transactions," such income would be subject to federal tax at a 100% rate.
The determination as to whether income from an REO Property would be subject
to an REO Tax will depend on the specific facts and circumstances relating to
the management and operation of each REO Property. Generally, income from an
REO Property that is directly operated by the Servicer would be apportioned
and classified as "service" or "non-service" income. The "service" portion of
such income could be subject to federal tax either at the highest marginal
corporate tax rate or at the 100% rate on "prohibited transactions," and the
"non-service" portion of such income could be subject to federal tax at the
highest marginal corporate tax rate or, although it appears unlikely, at the
100% rate applicable to "prohibited transactions." Any REO Tax imposed on the
Trust Fund's income from an REO Property would reduce the amount available
for distribution to Certificateholders. Certificateholders are advised to
consult their own tax advisors regarding the possible imposition of REO Taxes
in connection with the operation of commercial REO Properties by REMICs. The
Servicer will be required to sell any REO Property acquired on behalf of the
Trust Fund within the time period and in the manner described under "The
Pooling and Servicing Agreements -- Realization Upon Defaulted Mortgage
Loans" in the Prospectus.
The Servicer, or, if appointed, the Replacement Special Servicer, shall
establish and maintain one or more eligible accounts (the "REO Account"), to
be held on behalf of the Trustee in trust for the benefit of the
Certificateholders, for the retention of revenues, Liquidation Proceeds (net
of related liquidation expenses) and Insurance Proceeds derived from each REO
Property. The Servicer or Replacement Special Servicer, as applicable, shall
use the funds in the REO Account to pay for the proper operation, management,
maintenance, disposition and liquidation of any REO Property, but only to the
extent of amounts on deposit in the REO Account relate to such REO Property.
To the extent that amounts in the REO Account in respect of any REO Property
are insufficient to make such payments, such Servicer or Replacement Special
Servicer shall make a Servicing Advance, unless it determines such Servicing
Advance would be nonrecoverable. Within one Business Day following the end of
each Collection Period, the Servicer or Replacement Special Servicer shall
deposit all amounts collected received in respect of each REO Property during
such Collection Period, net of any amounts withdrawn to make any permitted
disbursements, to the Certificate Account, provided that the Servicer and the
Replacement Special Servicer may retain in the REO Account permitted
reserves.
INSPECTIONS; COLLECTION OF OPERATING INFORMATION
The 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 $2,000,000, at least once every year). In addition, the
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 practicable after the related Mortgage Loan
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becomes a Specially Serviced Mortgage Loan. The 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
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
Servicer likely to have any practical means of compelling such delivery in
the case of an otherwise performing Mortgage Loan.
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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 REO Property acquired on behalf of the
Certificateholders through foreclosure, deed in lieu of foreclosure or
otherwise; (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 each of the Mortgage Loan Purchase Agreements relating to
Mortgage Loan document delivery requirements and the representations and
warranties of the related Mortgage Loan Seller regarding its Mortgage Loans.
The Certificates will consist of sixteen Classes to be designated as: (i)
the Class X Certificates; (ii) the Class A-1 Certificates, the Class A-2
Certificates and Class A-3 Certificates (collectively, the "Class A
Certificates;" and collectively with the Class X Certificates, the "Senior
Certificates"); (iii) the Class B Certificates, the Class C Certificates, the
Class D Certificates, the Class E Certificates, the Class F Certificates, the
Class G Certificates, the Class H Certificates, the Class J Certificates and
the Class K Certificates (collectively, the "Subordinate Certificates;" and
collectively with the Senior Certificates, the "REMIC Regular Certificates");
and (iv) the Class R-I Certificates, the Class R-II Certificates and the
Class R-III Certificates (collectively, the "REMIC Residual Certificates").
Only the Senior Certificates and the Class B, Class C, Class D and Class E
Certificates (collectively the "Offered Certificates") are offered hereby.
The Class F, Class G, Class H, Class J and Class K and REMIC Residual
Certificates have not been registered under the Securities Act of 1933 and
are not offered hereby.
The Offered Certificates will be issued in book-entry format in
denominations of: (i) in the case of the Class X Certificates, $1,000,000
notional principal amount and in any whole dollar denomination in excess
thereof; and (ii) in the case of the other Classes of Offered Certificates,
$25,000 actual principal amount and in any whole dollar denomination in
excess thereof.
Each Class of Offered 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 initially will be Cede
& Co. No Certificate Owner will be entitled to receive a Definitive
Certificate representing its interest in a Class of Offered Certificates,
except as set forth below under "--Book-Entry Registration of the Offered
Certificates -- Definitive Certificates." Unless and until Definitive
Certificates are issued in respect of any Class of Offered Certificates, all
references to actions by holders of the Offered Certificates will refer to
actions taken by DTC upon instructions received from the related Certificate
Owners through its Participants, and all references herein to payments,
notices, reports and statements to holders of the Offered Certificates will
refer to payments notices, reports and statements to DTC or Cede & Co., as
the registered holder of the Offered Certificates, for distribution to the
related Certificate Owners through its Participants in accordance with DTC
procedures. Until Definitive Certificates are issued in respect of any Class
of Offered Certificates, interests in such Certificates will be transferred
on the book-entry records of DTC and its Participants. The Certificate Owners
may elect to hold their Certificates through DTC, in the United States, or
CEDEL or Euroclear, in Europe, through participants in such systems, or
indirectly through organizations which are participants in such systems. See
"Description of the Certificates -- Book-Entry Registration and Definitive
Certificates" in the Prospectus.
BOOK-ENTRY REGISTRATION OF THE OFFERED CERTIFICATES
General. Certificate Owners that are not Direct or Indirect Participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, the Offered Certificates may do so only through Direct and
Indirect Participants. In addition, Certificate Owners will receive all
payments on their Offered
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Certificates from the Trustee through DTC and its Direct and Indirect
Participants. Accordingly, Certificate Owners may experience delays in their
receipt of payments. Unless and until Definitive Certificates are issued in
respect of any Class thereof, the only registered Certificateholder of the
Offered Certificates will be Cede & Co., as nominee of DTC. Certificate
Owners will not be recognized by the Trustee or the Servicer as
Certificateholders; and, except under the limited circumstances described
herein, 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 regarding DTC and its
operations (the "Rules"), DTC is required to make book-entry transfers of the
Offered Certificates among Participants and to receive and transmit payments
on the Offered Certificates. Direct and Indirect Participants with which
Certificate Owners have accounts with respect to the Offered Certificates
similarly are required to make book-entry transfers and receive and transmit
such payments on behalf of their respective Certificate Owners. Accordingly,
although Certificate Owners will not possess physical certificates evidencing
their interests in the Offered Certificates, the Rules provide a mechanism by
which Certificate Owners, through their Direct and Indirect Participants,
will receive payments and will be able to transfer their interests in the
Offered Certificates.
None of the Depositor, the Servicer, the Trustee, or the Mortgage Loan
Sellers 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
Offered Certificates held by Cede & Co., as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interest.
Euroclear and CEDEL. The Offered Certificates will be initially issued to
investors through the book-entry facilities of DTC, or CEDEL or Euroclear if
such investors are participants of such systems, or indirectly through
organizations which are participants in such systems. As to any such class of
Offered Certificates, the record holder of such Certificates will be DTC's
nominee. CEDEL and Euroclear will hold omnibus positions on behalf of their
participants through customers' securities accounts in CEDEL's and
Euroclear's names on the books of their respective depositories (the
"Depositories"), which in turn will hold such positions in customers'
securities accounts in Depositories' names on the books of DTC.
Because of time zone differences, the securities account of a CEDEL or
Euroclear Participant (each as defined below) as a result of a transaction
with a DTC Participant (other than a depositary holding on behalf of CEDEL or
Euroclear) will be credited during the securities settlement processing day
(which must be a business day for CEDEL or Euroclear, as the case may be)
immediately following the DTC settlement date. Such credits or any
transactions in such securities settled during such processing will be
reported to the relevant Euroclear Participant or CEDEL Participant on such
business day. Cash received in CEDEL or Euroclear as a result of sales of
securities by or through a CEDEL Participant or Euroclear Participant to a
DTC Participant (other than the depository for CEDEL or Euroclear) will be
received with value on the DTC settlement date, but will be available in the
relevant CEDEL or Euroclear cash account only as of the business day
following settlement in DTC.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants or Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC
in accordance with DTC rules on behalf of the relevant European international
clearing system by the relevant Depositories; however, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in
accordance with its rules and procedures and within its established deadlines
(European time). The relevant European international clearing system will, if
the transaction meets its settlement requirements, deliver instructions to
its Depository to take action to effect final settlement on its behalf
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by delivering or receiving securities in DTC, and making or receiving payment
in accordance with normal procedures for same day funds settlement applicable
to DTC. CEDEL Participants or Euroclear Participants may not deliver
instructions directly to the Depositories.
CEDEL, as a professional depository, holds securities for its
participating organizations ("CEDEL Participants") and facilitates the
clearance and settlement of securities transactions between CEDEL
Participants through electronic book-entry changes in accounts of CEDEL
Participants, thereby eliminating the need for physical movement of
certificates. As a professional depository, CEDEL is subject to regulation by
the Luxembourg Monetary Institute.
Euroclear was created to hold securities for participants of Euroclear
("Euroclear Participants") and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities
and cash. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian co-operative corporation
(the "Clearance Cooperative"). All operations are conducted by the Euroclear
Operator, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Clearance
Cooperative. The Clearance Cooperative establishes policies for Euroclear on
behalf of Euroclear's Participants. The Euroclear Operator is the Belgian
branch of a New York banking corporation which is a member bank of the
Federal Reserve System. As such, it is regulated and examined by the Board of
Governors of the Federal Reserve System and the New York State Banking
Department, as well as the Belgian Banking Commission. Securities clearance
accounts and cash accounts with the Euroclear Operator are governed by the
Terms and Conditions Governing Use of Euroclear and the related Operating
Procedures of the Euroclear System and applicable Belgian law (collectively,
the "Terms and Conditions"). The Terms and Conditions govern transfers of
securities and cash within Euroclear, withdrawals of securities and cash from
Euroclear, and receipts of payments with respect to securities in Euroclear.
All securities in Euroclear are held on a fungible basis without attribution
of specific certificates to specific securities clearance accounts.
Distributions in respect of the DTC Registered Certificates will be
forwarded by the Trustee to DTC, and DTC will be responsible for forwarding
such payments to Participants, each of which will be responsible for
disbursing such payments to the Certificate Owners it represents or, if
applicable, to Indirect Participants. Accordingly, Certificate Owners may
experience delays in the receipt of payments in respect of their
Certificates. Under DTC's procedures, DTC will take actions permitted to be
taken by holders of any class of DTC Registered Certificates under the
Pooling and Servicing Agreement only at the direction of one or more
Participants to whose account the DTC Registered Certificates are credited
and whose aggregate holdings represent no less than any minimum amount of
Percentage Interests or voting rights required therefor. DTC may take
conflicting actions with respect to any action of Certificateholders of any
class to the extent that Participants authorize such actions. None of the
Depositor, the Trustee, or any of their respective affiliates will have any
liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests in the DTC Registered Certificates
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
Certificate Owners will not be recognized by the Trustee as
Certificateholders, as such term is used in the Pooling and Servicing
Agreement; provided, however, that Certificate Owners will be permitted to
request and receive information furnished to Certificateholders by the
Trustee subject to receipt by the Trustee of a certification in form and
substance acceptable to the Trustee stating that the person requesting such
information is a Certificate Owner. Otherwise, the Certificate Owners will be
permitted to receive information furnished to Certificateholders and to
exercise the rights of Certificateholders only indirectly through DTC, its
Participants and Indirect Participants.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of the Offered Certificates among
Participants of DTC, CEDEL and Euroclear, they are under no obligation to
perform or continue to perform such procedures and such procedures may be
discontinued at any time. See Annex D hereto.
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Definitive Certificates. Definitive Certificates will be issued to
Certificate Owners or their nominees, respectively, rather than to DTC or its
nominee, only under the limited conditions set forth in the Prospectus under
"Description of the Certificates -- Book-Entry Registration and Definitive
Certificates."
Upon the occurrence of an event described in the Prospectus in the last
paragraph under "Description of the Certificates -- Book-Entry Registration
and Definitive Certificates," the Trustee is required to notify, through DTC,
Direct Participants who have ownership of Offered Certificates as indicated
on the records of DTC, of the availability of Definitive Certificates with
respect thereto. Upon surrender by DTC of the physical certificates
registered in the name of its nominee and representing the Offered
Certificates and upon receipt of instructions from DTC for re-registration,
the Trustee will reissue the respective Classes of Offered Certificates as
Definitive Certificates issued in the respective principal or notional
amounts owned by individual Certificate Owners of each such Class, and
thereafter the Trustee and the Servicer will recognize the holders of such
Definitive Certificates as Certificateholders.
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.
CERTIFICATE BALANCES AND NOTIONAL AMOUNTS
Upon initial issuance, the Class A-1, Class A-2, Class A-3, Class B, Class
C, Class D, Class E, Class F, Class G, Class H, Class J and Class K
Certificates will have the following Certificate Balances (in each case,
subject to a variance of plus or minus 5%):
<TABLE>
<CAPTION>
INITIAL CERTIFICATE PERCENT OF INITIAL PERCENT OF
CLASS BALANCE POOL BALANCE CREDIT SUPPORT
- ------------ ------------------- -------------------- --------------
<S> <C> <C> <C>
Class A-1.... $228,705,000 21.32% 33.00%
Class A-2 .. 57,000,000 5.31 33.00
Class A-3 .. 433,005,000 40.37 33.00
Class B ..... 69,725,000 6.50 26.50
Class C ..... 69,725,000 6.50 20.00
Class D ..... 32,181,000 3.00 17.00
Class E ..... 50,953,000 4.75 12.25
Class F ..... 48,271,000 4.50 7.75
Class G ..... 13,409,000 1.25 6.50
Class H ..... 34,863,000 3.25 3.25
Class J ..... 5,363,000 0.50 2.75
Class K ..... 29,502,289 2.75 0.00
</TABLE>
On each Distribution Date, the Certificate Balance of each Class of
Principal Balance Certificates will be reduced by any distributions of
principal actually made on such Class of Certificates on such Distribution
Date, and will be further reduced by any Realized Losses and Additional Trust
Fund Expenses deemed allocated to such Class of Certificates on such
Distribution Date. See "--Distributions" and "--Subordination; Allocation of
Realized Losses and Certain Expenses" below.
The Class X Certificates will not have a Certificate Balance. The Class X
Certificates will represent the right to receive distributions of interest
accrued as described herein on a Notional Amount equal to the aggregate
Certificate Balance of the Principal Balance Certificates outstanding from
time to time. The Class X Certificates will have an initial Notional Amount
of $1,072,702,289 (subject to a variance of plus or minus 5%). The Class X
Certificates consist of twelve components each corresponding to a different
Class of Principal Balance Certificates (the "Class X Components").
No Class of REMIC Residual Certificates will have a Certificate Balance.
The "Stated Principal Balance" of each Mortgage Loan will generally equal
the Cut-off Date Balance thereof (or in the case of a Replacement Mortgage
Loan, the outstanding principal balance as of the related date of
substitution), reduced (to not less than zero) on each Distribution Date by
(i) any payments or other collections (or advances in lieu thereof) of
principal of such Mortgage Loan that have been or, if they had not been
applied to cover Additional Trust Fund Expenses, would have been
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distributed on the Certificates on such date, and (ii) the principal portion
of any Realized Loss incurred in respect of or allocable to such Mortgage
Loan during the related Collection Period.
PASS-THROUGH RATES
The rate per annum at which any Class of Certificates accrues interest
from time to time is herein referred to as its "Pass-Through Rate."
The Pass-Through Rate applicable to each Class of Offered Certificates
(other than the Class D, Class E and Class X Certificates) for each
Distribution Date is fixed at the respective rate per annum set forth with
respect to such Class on the cover page hereof. The Pass-Through Rates
applicable to the Class D and Class E Certificates at all times will be equal
to the lesser of the respective Pass-Through Rates specified for each such
Class on the cover page hereof and the Weighted Average Net Mortgage Rate.
The Pass-Through Rate applicable to the Class X Certificates for the initial
Distribution Date will equal approximately 1.273% per annum. The Pass-Through
Rate applicable to the Class X Certificates for any Distribution Date will be
variable and will be equal to the weighted average (by Certificate Balance of
the corresponding Class of Principal Balance Certificates) of the
Pass-Through Rate applicable to each Class X Component. The Pass-Through Rate
for each Class X Component will equal the excess, if any, of the Weighted
Average Net Mortgage Rate for such Distribution Date over the Pass-Through
Rate for such Distribution Date applicable to the related Class of Principal
Balance Certificates.
The Pass-Through Rates applicable to the Class F, Class G, Class H, Class
J and Class K Certificates will, at all times, be equal to the lesser of a
specified rate and the Weighted Average Net Mortgage Rate. No Class of REMIC
Residual Certificates will have a specified Pass-Through Rate.
The "Weighted Average Net Mortgage Rate" for each Distribution Date is the
weighted average of the Net Mortgage Rates for the Mortgage Loans as of the
commencement of the related Collection Period, weighted on the basis of their
respective Stated Principal Balances outstanding immediately prior to such
Distribution Date.
The "Net Mortgage Rate" with respect to any Mortgage Loan is, in general,
a per annum rate equal to the related Mortgage Rate in effect from time to
time, minus the Servicing Fee Rate. However, for purposes of calculating
Pass-Through Rates, the Net Mortgage Rate for any Mortgage Loan shall be
determined without regard to any modification, waiver or amendment of the
terms of such Mortgage Loan, whether agreed to by the Servicer or resulting
from a bankruptcy, insolvency or similar proceeding involving the related
borrower. In addition, if any Mortgage Loan does not accrue interest on the
basis of a 360-day year consisting of twelve 30-day months (which is the
basis on which interest accrues in respect of the REMIC Regular
Certificates), then, for purposes of calculating Pass-Through Rates, the Net
Mortgage Rate of such Mortgage Loan for any one-month period preceding a
related Due Date will be the annualized rate at which interest would have to
accrue in respect of such loan on the basis of a 360-day year consisting of
twelve 30-day months in order to produce the aggregate amount of interest
actually accrued in respect of such loan during such one-month period at the
related Mortgage Rate (net of the related Servicing Fee Rate). See "Servicing
of the Mortgage Loans -- Servicing and Other Compensation and Payment of
Expenses" and "--Modifications, Waivers, Amendments and Consents" herein.
The "Collection Period" for each Distribution Date is the period that
begins immediately following the Determination Date in the calendar month
preceding the month in which such Distribution Date occurs (or, in the case
of the initial Distribution Date, immediately following the Cut-off Date) and
ends on the Determination Date in the calendar month in which such
Distribution Date occurs. The "Determination Date" will be the 5th day of
each month or, if any such 5th day is not a business day, the immediately
preceding business day.
DISTRIBUTIONS
General. Distributions on or with respect to the Certificates will be made
by the Trustee, to the extent of available funds, on each Distribution Date,
commencing in January 1998. Except as otherwise
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described below, all such distributions will be made to the persons in whose
names the Certificates are registered at the close of business on the related
Record Date and, as to each such person, 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, or otherwise
by check mailed to such Certificateholder. The final distribution on any
Certificate (determined without regard to any possible future reimbursement
of any Realized Losses or Additional Trust Fund Expense (each as defined
herein) previously allocated to such 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. Any distribution that is to be made with respect to a
Certificate in reimbursement of a Realized Loss or Additional Trust Fund
Expense previously allocated thereto, which reimbursement is to occur after
the date on which such Certificate is surrendered as contemplated by the
preceding sentence (the likelihood of any such distribution being remote),
will be made by check mailed to the Certificateholder that surrendered such
Certificate. All distributions made on or with respect to a Class of
Certificates will be allocated pro rata among such Certificates based on
their respective Percentage Interests in such Class.
The Available Distribution Amount. With respect to any Distribution Date,
distributions of interest on and principal of the Certificates will be made
from the Available Distribution Amount for such Distribution Date. The
"Available Distribution Amount" for any Distribution Date will, in general,
equal (a) all amounts on deposit in the Certificate Account as of the close
of business on the related Determination Date, exclusive of any portion
thereof that represents one or more of the following:
(i) Monthly Payments collected but due on a Due Date subsequent to the
related Collection Period;
(ii) Prepayment Premiums (which are separately distributable on the
Certificates as hereinafter described);
(iii) amounts that are payable or reimbursable to any person other than
the Certificateholders (including amounts payable to the Servicer, any
Replacement Special Servicer or the Trustee as compensation or in
reimbursement of outstanding Advances and amounts payable in respect of
Additional Trust Fund Expenses); and
(iv) amounts deposited in the Certificate Account in error; plus
(b) to the extent not already included in clause (a), any P&I Advances
made with respect to such Distribution Date and payments made by the Servicer
to cover Prepayment Interest Shortfalls and Balloon Payment Interest
Shortfalls incurred during the related Collection Period.
See "The Pooling and Servicing Agreements -- Certificate Account" in the
Prospectus.
Application of the Available Distribution Amount. On each Distribution
Date, the Trustee will apply the Available Distribution Amount for such date
for the following purposes and in the following order of priority:
(1) to pay interest to the holders of the respective Classes of
Senior Certificates, up to an amount equal to, and pro rata as among
such Classes in accordance with, all Distributable Certificate
Interest in respect of each such Class of Certificates for such
Distribution Date and, to the extent not previously paid, for each
prior Distribution Date, if any;
(2) to pay principal: first to the holders of the Class A-1
Certificates, second to the holders of the Class A-2 Certificates, and
third to the Class A-3 Certificates, in each case, up to an amount
equal to the lesser of (i) the then outstanding Certificate Balance of
such Class of Certificates and (ii) the remaining Principal
Distribution Amount for such Distribution Date;
(3) to reimburse the holders of the respective Classes of Class A
Certificates, up to an amount equal to, and pro rata as among such
Classes in accordance with, the respective amounts of Realized Losses
and Additional Trust Fund Expenses, if any, previously deemed
allocated to such Classes of Certificates and for which no
reimbursement has previously been paid; and
(4) to make payments on the Subordinate Certificates as set forth
below;
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provided that, on each Distribution Date after the aggregate Certificate
Balance of the Subordinate Certificates has been reduced to zero, and in any
event on the final Distribution Date in connection with a termination of the
Trust Fund (see "--Termination; Retirement of Certificates" below), the
payments of principal to be made as contemplated by clause (2) above with
respect to the Class A Certificates, will be so made to the holders of the
respective Classes of such Certificates, up to an amount equal to, and pro
rata as among such Classes in accordance with, the respective then
outstanding Certificate Balances of such Classes of Certificates.
On each Distribution Date, following the above-described distributions on
the Senior Certificates, the Trustee will apply the remaining portion, if
any, of the Available Distribution Amount for such date to make payments on
the respective Classes of Subordinate Certificates in alphabetical order of
Class designation. On each Distribution Date, the holders of each Class of
Subordinate Certificates will, to the extent of the Available Distribution
Amount remaining after all required distributions to be made therefrom (as
described under this "--Distributions -- Application of the Available
Distribution Amount" section) on the Senior Certificates and each other Class
of Subordinate Certificates, if any, with an earlier alphabetical Class
designation, be entitled: first, to distributions of interest, up to an
amount equal to all Distributable Certificate Interest in respect of such
Class of Certificates for such Distribution Date and, to the extent not
previously paid, for each prior Distribution Date, if any; second, if the
Certificate Balances of the Class A Certificates and each other Class of
Subordinate Certificates, if any, with an earlier alphabetical Class
designation have been reduced to zero, to distributions of principal, up to
an amount equal to the lesser of (a) the then outstanding Certificate Balance
of such Class of Certificates and (b) the aggregate of the remaining
Principal Distribution Amounts for such Distribution Date (or, on the final
Distribution Date in connection with the termination of the Trust Fund, up to
an amount equal to the then outstanding Certificate Balance of such Class of
Certificates); and, third, to distributions for purposes of reimbursement, up
to an amount equal to all Realized Losses and Additional Trust Fund Expenses,
if any, previously deemed allocated to such Class of Certificates and for
which no reimbursement has previously been paid.
On each Distribution, following the above-described distributions on the
REMIC Regular Certificates, the Trustee will pay the remaining portion, if
any, of the Available Distribution Amounts for such date to the holders of
the REMIC Residual Certificates.
Distributable Certificate Interest. The "Distributable Certificate
Interest" in respect of each Class of REMIC Regular Certificates for each
Distribution Date is equal to the Accrued Certificate Interest in respect of
such Class of Certificates for such Distribution Date, reduced by such Class
of Certificates' allocable share (calculated as described below) of any Net
Aggregate Prepayment Interest Shortfall for such Distribution Date.
The "Accrued Certificate Interest" in respect of each Class of REMIC
Regular 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 Certificate Balance or Notional
Amount, as the case may be, of such Class of Certificates 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.
To the extent of that portion of its aggregate Servicing Fees for the
related Collection Period calculated at the Master Servicing Fee Rate for
each Mortgage Loan, the Servicer is required to make a non-reimbursable
payment with respect to each Distribution Date to cover the aggregate of any
Prepayment Interest Shortfalls incurred with respect to the Mortgage Asset
Pool during each Collection Period. The "Net Aggregate Prepayment Interest
Shortfall" for any Distribution Date will be the amount, if any, by which (a)
the aggregate of all Prepayment Interest Shortfalls incurred with respect to
the Mortgage Asset Pool during the related Collection Period, exceeds (b) any
such payment made by the Servicer with respect to such Distribution Date to
cover such Prepayment Interest Shortfalls. See "Servicing of the Mortgage
Loans -- Servicing and Other Compensation and Payment of Expenses" herein.
The Net Aggregate Prepayment Interest Shortfall, if any, for each
Distribution Date will be
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allocated on such Distribution Date: first, to the respective Classes of
Subordinate Certificates sequentially in reverse alphabetical order of Class
designation, in each case up to the amount of the Accrued Certificate
Interest in respect of such Class of Certificates for such Distribution Date;
and thereafter, among the respective Classes of Senior Certificates, pro
rata, in accordance with the respective amounts of Accrued Certificate
Interest for each such Class of Senior Certificates for such Distribution
Date.
Principal Distribution Amount. The "Principal Distribution Amount" with
respect to any Distribution Date will, in general, equal the aggregate of the
following:
(a) the principal portions of all Monthly Payments (other than Balloon
Payments) and any Assumed Monthly Payments due or deemed due, as the case
may be, in respect of the Mortgage Loans for their respective Due Dates
occurring during the related Collection Period;
(b) all voluntary principal prepayments received on the Mortgage Loans
during the related Collection Period;
(c) with respect to any Balloon Loan as to which the related stated
maturity date occurred during or prior to the related Collection Period,
any payment of principal (exclusive of any voluntary principal prepayment
and any amount described in clause (d) below) made by or on behalf of the
related borrower during the related Collection Period, net of any portion
of such payment that represents a recovery of the principal portion of any
Monthly Payment (other than a Balloon Payment) due, or the principal
portion of any Assumed Monthly Payment deemed due, in respect of such
Mortgage Loan on a Due Date during or prior to the related Collection
Period and not previously recovered;
(d) the portion of all Liquidation Proceeds, Condemnation Proceeds and
Insurance Proceeds received on the Mortgage Loans during the related
Collection Period that were identified and applied by the Servicer as
recoveries of principal thereof, in each case net of any portion of such
amounts that represents a recovery of the principal portion of any Monthly
Payment (other than a Balloon Payment) due, or the principal portion of
any Assumed Monthly Payment deemed due, in respect of the related Mortgage
Loan on a Due Date during or prior to the related Collection Period and
not previously recovered; and
(e) if such Distribution Date is subsequent to the initial Distribution
Date, the excess, if any, of (i) the Principal Distribution Amount for the
immediately preceding Distribution Date, over (ii) the aggregate
distributions of principal made on the Principal Balance Certificates in
respect of such Principal Distribution Amount on such immediately
preceding Distribution Date.
An "Assumed Monthly Payment" is an amount deemed due in respect of: (i)
any Balloon Loan that is delinquent in respect of its Balloon Payment beyond
the first Determination Date that follows its stated maturity date and as to
which no arrangements have been agreed to for collection of the delinquent
amounts; or (ii) any Mortgage Loan as to which the related Mortgaged Property
or Properties have become REO Property or Properties. The Assumed Monthly
Payment deemed due on any such Balloon Loan on its stated maturity date and
on any successive Due Date that it remains or is deemed to remain outstanding
shall equal the Monthly Payment that would have been due thereon on such date
if the related Balloon Payment had not come due, but rather such Mortgage
Loan had continued to amortize in accordance with such loan's amortization
schedule, if any, in effect immediately prior to maturity and had continued
to accrue interest in accordance with such loan's terms in effect immediately
prior to maturity. The Assumed Monthly Payment deemed due on any such
Mortgage Loan as to which the related Mortgaged Property or Properties have
become REO Property or Properties, on each Due Date for so long as such REO
Property or Properties remain part of the Trust Fund, shall equal the Monthly
Payment (or, in the case of a Balloon Loan described in the prior sentence,
the Assumed Monthly Payment) due on the last Due Date prior to the
acquisition of such REO Property or Properties.
Distributions of Prepayment Premiums. Any Prepayment Premium (whether
described in the related Mortgage Loan documents as a fixed prepayment
premium or a yield maintenance amount) actually collected with respect to a
Mortgage Loan during any particular Collection Period will be
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distributed on the related Distribution Date to the holders of each Class of
Offered Certificates and the holders of the Class F and Class G Certificates
in an aggregate amount up to the product of (a) such Prepayment Premium, (b)
the Discount Rate Fraction and (c) the Principal Allocation Fraction of each
such Class. The "Discount Rate Fraction" is equal to a fraction (not greater
than 1.0 or less than 0.0) of (a) the numerator of which is equal to the
excess of (x) the Pass-Through Rate for such Class of Certificates over (y)
the relevant Discount Rate (as defined below) and (b) the denominator of
which is equal to the excess of (x) the Mortgage Rate of the related Mortgage
Loan over (y) the relevant Discount Rate. With respect to any Distribution
Date and each Class of Offered Certificates and the Class F and Class G
Certificates, the "Principal Allocation Fraction" is a fraction the numerator
of which is the Principal Distribution Amount allocated to such Class of
Certificates for such Distribution Date and the denominator of which is the
Principal Distribution Amount for all Classes of Certificates as of such
Distribution Date.
The "Discount Rate" means the yield for "This Week" as reported by the
Federal Reserve Board in Federal Reserve Statistical Release H.15(519) for
the constant maturity treasury having a maturity coterminous with the
Maturity Date or Anticipated Repayment Date of such Mortgage Loan as of the
Determination Date. If there is no Discount Rate for instruments having a
maturity coterminous with the remaining term (to maturity or Anticipated
Repayment Date, where applicable) of the applicable Mortgage Loan, then the
Discount Rate will be equal to the interpolation of the yields of the
constant maturity treasuries with maturities next longer and shorter than
such remaining term to maturity or Anticipated Repayment Date. The portion of
the Prepayment Premium remaining after the payment of the amount calculated
as described above will be distributed to the holders of the Class X
Certificates.
The Prepayment Premiums, if any, collected on the Mortgage Loans during
any Collection Period may not be sufficient to fully compensate
Certificateholders of any Class for any loss in yield attributable to the
related prepayments of principal.
Treatment of REO Properties. Notwithstanding that any Mortgaged Property
may be acquired as part of the Trust Fund through foreclosure, deed in lieu
of foreclosure or otherwise, the related Mortgage Loan will be treated, for
purposes of, among other things, determining distributions on the
Certificates, allocations of Realized Losses and Additional Trust Fund
Expenses to the Certificates, and the amount of Servicing Fees and Special
Servicing Fees payable under the Pooling and Servicing Agreement, as having
remained outstanding until such REO Property is liquidated. Among other
things, such Mortgage Loan will be taken into account when determining
Pass-Through Rates and the Principal Distribution Amount. In connection
therewith, operating revenues and other proceeds derived from such REO
Property (after application thereof to pay certain costs and taxes, including
certain reimbursements payable to the Servicer, any Replacement Special
Servicer and/or the Trustee, incurred in connection with the operation and
disposition of such REO Property) will be "applied" by the Servicer as
principal, interest and other amounts "due" on such Mortgage Loan, and,
subject to the applicable limitations described under "--P&I Advances" below,
the Servicer will be required to make P&I Advances in respect of such
Mortgage Loan, in all cases as if such Mortgage Loan had remained
outstanding.
SUBORDINATION; ALLOCATION OF LOSSES AND CERTAIN EXPENSES
As and to the extent described herein, the rights of holders of
Subordinate Certificates to receive distributions of amounts collected or
advanced on the Mortgage Loans will, in the case of each Class thereof, be
subordinated to the rights of holders of the Senior Certificates and,
further, to the rights of holders of each other Class of Subordinate
Certificates, if any, with an earlier alphabetical Class designation. This
subordination is intended to enhance the likelihood of timely receipt by
holders of the respective Classes of Senior Certificates of the full amount
of Distributable Certificate Interest payable in respect of their
Certificates on each Distribution Date, and the ultimate receipt by holders
of the respective Classes of Class A Certificates of principal equal to, in
each such case, the entire Certificate Balance of such Class of Certificates.
Similarly, but to decreasing degrees, this subordination is also intended to
enhance the likelihood of timely receipt by holders of the other Classes of
Offered Certificates of the full amount of Distributable Certificate Interest
payable in respect of their Certificates on each Distribution Date, and the
ultimate receipt by holders of such other Classes of Offered Certificates of
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principal equal to, in each such case, the entire Certificate Balance of such
Class of Certificates. The subordination of any Class of Subordinate
Certificates will be accomplished by, among other things, the application of
the Available Distribution Amount on each Distribution Date in the order of
priority described under "--Distributions -- Application of the Available
Distribution Amount" above. No other form of Credit Support will be available
for the benefit of holders of the Offered Certificates.
If, following the distributions to be made in respect of the Certificates
on any Distribution Date, the aggregate Stated Principal Balance of the
Mortgage Asset Pool that will be outstanding immediately following such
Distribution Date is less than the then aggregate Certificate Balance of the
Principal Balance Certificates, the respective Certificate Balances of the
Class K, Class J, Class H, Class G, Class F, Class E, Class D, Class C and
Class B Certificates will be reduced, sequentially in that order, in the case
of each such Class until such deficit (or the related Certificate Balance) is
reduced to zero (whichever occurs first). If any portion of such deficit
remains at such time as the Certificate Balances of such Classes of
Certificates are reduced to zero, then the respective Certificate Balances of
the Class A-1, Class A-2 and Class A-3 Certificates will be reduced, pro rata
in accordance with the relative sizes of the remaining Certificate Balances
of such Classes of Certificates, until such deficit (or each such Certificate
Balance) is reduced to zero. Any such deficit may be the result of Realized
Losses incurred in respect of the Mortgage Loans and/or Additional Trust Fund
Expenses. The foregoing reductions in the Certificate Balances of the
Principal Balance Certificates will be deemed to constitute an allocation of
any such Realized Losses and Additional Trust Fund Expenses. Any such
reduction will also have the effect of reducing the Notional Amount of the
Class X Certificates.
"Realized Losses" are losses on or in respect of the Mortgage Loans
arising from the inability of the Servicer to collect all amounts due and
owing under any such Mortgage Loan, including by reason of the fraud or
bankruptcy of a borrower or a casualty of any nature at a Mortgaged Property,
to the extent not covered by insurance. The Realized Loss in respect of a
liquidated Mortgage Loan (or related REO Property or Properties) is an amount
generally equal to the excess, if any, of (a) the outstanding principal
balance of such Mortgage Loan as of the date of liquidation, together with
(i) all accrued and unpaid interest thereon at the related Mortgage Rate to
but not including the Due Date in the Collection Period in which the
liquidation occurred and (ii) all related unreimbursed Servicing Advances and
outstanding liquidation expenses, over (b) the aggregate amount of
Liquidation Proceeds, if any, recovered in connection with such liquidation.
If any portion of the debt due under a Mortgage Loan is forgiven, whether in
connection with a modification, waiver or amendment granted or agreed to by
the Servicer or in connection with the bankruptcy or similar proceeding
involving the related borrower, the amount so forgiven also will be treated
as a Realized Loss.
"Additional Trust Fund Expenses" include, among other things, (i) Special
Servicing Fees, Workout Fees and Liquidation Fees, (ii) interest in respect
of unreimbursed Advances, (iii) the cost of various opinions of counsel
required or permitted to be obtained in connection with the servicing of the
Mortgage Loans and the administration of the Trust Fund, (iv) certain
unanticipated, non-Mortgage Loan specific expenses of the Trust Fund,
including certain indemnities and reimbursements to the Trustee as described
under "The Pooling and Servicing Agreements -- Certain Matters Regarding the
Trustee" in the Prospectus, certain indemnities and reimbursements to the
Servicer and the Depositor (and certain indemnities and reimbursements to a
Replacement Special Servicer comparable to those for the Servicer) 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 "Servicing of the Mortgage
Loans -- REO Properties" herein and "Certain Federal Income Tax Consequences
- -- REMICs -- Taxation of Owners of REMIC Residual Certificates -- Prohibited
Transactions Tax and Other Taxes" in the Prospectus, (v) any amounts expended
on behalf of the Trust Fund to remediate an adverse environmental condition
at any Mortgaged Property securing a defaulted Mortgage Loan (see "The
Pooling and Servicing Agreements -- Realization Upon Defaulted Mortgage
Loans" in the Prospectus), and (vi) any other expense of the Trust Fund not
specifically included in the calculation of "Realized Loss" for which there
is no corresponding collection from a borrower. Additional Trust Fund
Expenses will reduce amounts payable to Certificateholders and, consequently,
may result in a loss on the Offered Certificates.
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P&I ADVANCES
With respect to each Distribution Date, unless the Servicer, in its
reasonable judgment, believes that the funds therefor would not be
recoverable from Related Proceeds and subject to the recoverability standard
described in the Prospectus, the Servicer, will be obligated to make P&I
Advances 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 generally equal
to the aggregate of all Monthly Payments (other than Balloon Payments) and
any Assumed Monthly Payments (in each case net of any related Workout Fee)
that were due or deemed due, as the case may be, in respect of the Mortgage
Loans during the related Collection Period and that were not paid by or on
behalf of the related borrowers or otherwise collected as of the close of
business on the last day of the related Collection Period or other specified
date prior to such Distribution Date. The Servicer's obligations to make P&I
Advances in respect of any Mortgage Loan will continue through liquidation of
such Mortgage Loan or disposition of any REO Property acquired in respect
thereof. Notwithstanding the foregoing, if it is determined that an Appraisal
Reduction Amount exists with respect to any Required Appraisal Mortgage Loan
(each as defined below), then, with respect to the Distribution Date
immediately following the date of such determination and with respect to each
subsequent Distribution Date for so long as such Appraisal Reduction Amount
exists, in the event of subsequent delinquencies thereon, the interest
portion of the P&I Advance in respect of such Mortgage Loan will be reduced
(no reduction to be made in the principal portion, however) to equal to the
product of (i) the amount of the interest portion of such P&I Advance that
would otherwise be required to be made for such Distribution Date without
regard to this sentence, multiplied by (ii) a fraction (expressed as a
percentage), the numerator of which is equal to the Stated Principal Balance
of such Mortgage Loan, net of such Appraisal Reduction Amount, and the
denominator of which is equal to the Stated Principal Balance of such
Mortgage Loan. See "--Appraisal Reductions" below. If the Servicer fails to
make a required P&I Advance, the Trustee will be required to make such P&I
Advance. See "--The Trustee" below.
The Servicer and the Trustee will each be entitled to recover any P&I
Advance made by it from Related Proceeds collected in respect of the Mortgage
Loan as to which such P&I Advance was made. Notwithstanding the foregoing,
neither the Servicer nor the Trustee will be obligated to make a P&I Advance
that would, if made, constitute a Nonrecoverable Advance. The Servicer and
the Trustee will each be entitled to recover any P&I Advance previously made
by it that is, at any time, determined to be a Nonrecoverable Advance, out of
funds received on or in respect of other Mortgage Loans. See "Description of
the Certificates -- Advances in Respect of Delinquencies" and "The Pooling
and Servicing Agreements -- Certificate Account" in the Prospectus.
The Servicer and the Trustee will each be entitled with respect to any
Advance made thereby, and any Replacement Special Servicer will be entitled
with respect to any Servicing Advance made thereby, to interest accrued on
the amount of such Advance for so long as it is outstanding at a rate per
annum (the "Reimbursement Rate") equal to the "prime rate" as published in
the "Money Rates" section of The Wall Street Journal, as such "prime rate"
may change from time to time. Such interest on any Advance will be payable to
the Servicer, any Replacement Special Servicer, or the Trustee, as the case
may be, out of default interest collected in respect of the related Mortgage
Loan or, in connection with the reimbursement of such Advance, out of any
amounts then on deposit in the Certificate Account. To the extent not offset
by default interest actually collected in respect of any defaulted Mortgage
Loan, interest accrued on outstanding Advances made in respect thereof will
result in a reduction in amounts payable on the Certificates.
APPRAISAL REDUCTIONS
Upon the earliest of (i) the date on which any Mortgage Loan becomes a
Modified Mortgage Loan (as defined below), (ii) the 90th day following the
occurrence of any uncured delinquency in Monthly Payments with respect to any
Mortgage Loan, (iii) the date on which a receiver is appointed and continues
in such capacity in respect of a Mortgaged Property securing any Mortgage
Loan and (iv) the date on which a Mortgaged Property securing any Mortgage
Loan becomes an REO Property (each such
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Mortgage Loan, a "Required Appraisal Loan"), the Servicer will be required,
within 30 days (or such longer period as the Servicer is diligently and in
good faith proceeding to obtain such appraisal), to obtain an appraisal of
the related Mortgaged Property from an independent MAI-designated appraiser,
unless such an appraisal had previously been obtained within the prior twelve
months. The cost of such appraisal will be advanced by the Servicer, subject
to its right to be reimbursed therefor as a Servicing Advance. As a result of
any such appraisal, it may be determined that an Appraisal Reduction Amount
exists with respect to the related Required Appraisal Loan. The "Appraisal
Reduction Amount" for any Required Appraisal Loan will be an amount,
calculated as of the Determination Date immediately succeeding the date on
which the appraisal is obtained, equal to the excess, if any, of (a) the sum
of (i) the Stated Principal Balance of such Required Appraisal Loan, (ii) to
the extent not previously advanced by or on behalf of the Servicer or the
Trustee, all unpaid interest on the Required Appraisal Loan through the most
recent Due Date prior to such Determination Date at a per annum rate equal to
the related Mortgage Rate, (iii) all related unreimbursed Advances made with
respect to such Required Appraisal Loan plus interest accrued on such
Advances at the Reimbursement Rate and (iv) all currently due and unpaid real
estate taxes and assessments, insurance premiums, and, if applicable, ground
rents in respect of the related Mortgaged Property, net of any escrow
reserves held by the Servicer to cover any such item, over (b) 90% of an
amount equal to (i) the appraised value of the related Mortgaged Property or
REO Property as determined by such appraisal, net of (ii) the amount of any
liens on such property that are prior to the lien of the Required Appraisal
Loan, are not in respect of items included in clause (a)(iv) above and were
not taken into account in the calculation of such appraised value.
With respect to each Required Appraisal Loan (unless such Mortgage Loan
has become a Corrected Mortgage Loan and has remained current for twelve
consecutive Monthly Payments, and no other Special Servicing Event has
occurred with respect thereto during the preceding twelve months), the
Servicer is required, within 30 days of each anniversary of such loan's
becoming a Required Appraisal Loan, to order an update of the prior appraisal
(the cost of which will be covered by and reimbursable as a Servicing
Advance). Based upon such appraisal, the Servicer is to redetermine and
report to the Trustee the Appraisal Reduction Amount, if any, with respect to
such Mortgage Loan.
A "Modified Mortgage Loan" is any Mortgage Loan as to which any Special
Servicing Event has occurred and which has been modified by the Servicer in a
manner that: (a) affects the amount or timing of any payment of principal or
interest due thereon (other than, or in addition to, bringing current Monthly
Payments with respect to such Mortgage Loan); (b) except as expressly
contemplated by the related Mortgage, results in a release of the lien of the
Mortgage on any material portion of the related Mortgaged Property without a
corresponding principal prepayment in an amount not less than the fair market
value (as is) of the property to be released; or (c) in the reasonable good
faith judgment of the Servicer, otherwise materially impairs the security for
such Mortgage Loan or reduces the likelihood of timely payment of amounts due
thereon.
REPORTS TO CERTIFICATEHOLDERS; CERTAIN AVAILABLE INFORMATION
Trustee Reports. On each Distribution Date, the Trustee will be required
to forward by mail to each holder of an Offered Certificate 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 Asset Pool. For a 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.
In addition, based on information provided in monthly reports prepared by
the Servicer and delivered to the Trustee, the Trustee will prepare and/or
forward on each Distribution Date to each Offered Certificateholder, the
following statements and reports (collectively with the Distribution Date
Statements, the "Trustee Reports"), substantially in the forms set forth in
Annex B (although such forms may be subject to change over time) and
containing, among other things, substantially the information set forth
below:
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(1) A report containing information regarding the Mortgage Loans as of
the close of business on the immediately preceding Determination Date,
which report shall contain certain of the categories of information
regarding the Mortgage Loans set forth in this Prospectus Supplement in
the tables under the caption "Annex A: Certain Characteristics of the
Mortgage Loans" (calculated, where applicable, on the basis of the most
recent relevant information provided by the borrowers to the Servicer and
by the Servicer to the Trustee) and such information shall be presented in
a loan-by-loan and tabular format substantially similar to the formats
utilized in this Prospectus Supplement on Annex A.
(2) A "Delinquent Loan Status Report" setting forth, among other things,
those Mortgage Loans which, as of the close of business on the immediately
preceding Determination Date, were delinquent 30-59 days, delinquent 60-89
days, delinquent 90 days or more, current but specially serviced, or in
foreclosure but not REO Property or which has become REO Property.
(3) An "Historical Loan Modification Report" setting forth, among other
things, those Mortgage Loans which, as of the close of business on the
immediately preceding Determination Date, have been modified pursuant to
the Pooling and Servicing Agreement (i) during the Collection Period
ending on such Determination Date and (ii) since the Cut-off Date, showing
the original and the revised terms thereof.
(4) An "Historical Loss Estimate Report" setting forth, among other
things, as of the close of business on the immediately preceding
Determination Date, (i) the aggregate amount of liquidation proceeds and
liquidation expenses, both for the Collection Period ending on such
Determination Date and for all prior Collection Periods, and (ii) the
amount of Realized Losses occurring both during such Collection Period and
historically, set forth on a Mortgage Loan-by-Mortgage Loan basis.
(5) An "REO Status Report" setting forth, among other things, with
respect to each REO Property that was included in the Trust Fund as of the
close of business on the immediately preceding Determination Date, (i) the
acquisition date of such REO Property, (ii) the amount of income collected
with respect to any REO Property (net of related expenses) and other
amounts, if any, received on such REO Property during the Collection
Period ending on such Determination Date and (iii) the value of the REO
Property based on the most recent appraisal or other valuation thereof
available to the Servicer as of such date of determination (including any
prepared internally by the Servicer).
(6) A "Servicer Watch List" setting forth, among other things, certain
Mortgage Loans which have experienced a material decrease in debt service
coverage, a loss of or bankruptcy of the largest tenant (to the extent the
Servicer has actual knowledge of such loss or bankruptcy) or are
approaching maturity.
None of the above reports will include any information that the Servicer
deems to be confidential. Neither the Servicer nor the Trustee shall be
responsible for the accuracy or completeness of any information supplied to
it by a borrower or other third party that is included in any reports,
statements, materials or information prepared or provided by the Servicer or
the Trustee, as applicable. The Trustee will make available the monthly
Trustee Reports to Certificateholders and all associated reporting
information through its Corporate Trust home page on the world wide web
and/or by facsimile through its Street Fax automated fax-back system. The web
page is located at "corporatetrust.statestreet.com." CMBS information is
available by clicking the "Investor Information & Reporting" button, and
selecting the appropriate transaction. Interested parties can register for
Street Fax by calling (617) 664-5600 and requesting an account application by
following the instructions provided by the system.
Prior to each Distribution Date, the Servicer will deliver to the Trustee
(by electronic means) a "Comparative Financial Status Report" containing
substantially the content set forth in Annex B setting forth, among other
things, the occupancy, revenue, net operating income and debt service
coverage ratio for each Mortgage Loan or related Mortgaged Property as of the
Determination Date immediately preceding the preparation of such report for
each of the following three periods (but only to the extent the
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related borrower is required by the Mortgage to deliver and does deliver, or
otherwise agrees to provide and does provide, such information): (i) the most
current available year-to-date; (ii) each of the previous two full fiscal
years stated separately; and (iii) the "base year" (representing the original
analysis of information used as of the Cut-Off Date).
In addition, the Servicer is also required to perform with respect to each
Mortgaged Property and REO Property:
(a) Within 30 days after receipt of a quarterly operating statement, if
any, commencing with the calendar quarter ended March 31, 1998, an
"Operating Statement Analysis" containing revenue, expense, and net
operating income information substantially in accordance with Annex B (but
only to the extent the related borrower is required by the Mortgage to
deliver and does deliver, or otherwise agrees to provide and does provide,
such information) for such Mortgaged Property or REO Property as of the
end of such calendar quarter. The Servicer will deliver to the Trustee by
electronic means the Operating Statement Analysis upon request, and
(b) Within 30 days after receipt by the Servicer of an annual operating
statement, an NOI adjustment analysis containing substantially the content
set forth in Annex B, the "NOI Adjustment Worksheet," (but only to the
extent the related borrower is required by the Mortgage to deliver and
does deliver, or otherwise agrees to provide and does provide, such
information) presenting the computation made in accordance with the
methodology described in the Pooling and Servicing Agreement to
"normalize" the full year net operating income and debt service coverage
numbers used by the Servicer in its reporting obligation in (1) above. The
Servicer will deliver to the Trustee by electronic means the "NOI
Adjustment Worksheet" upon request.
Certificate Owners who have certified to the Trustee as to their
beneficial ownership of any Offered Certificate may also obtain copies of any
of the Trustee Reports described above upon request. Otherwise, until such
time as Definitive Certificates are issued in respect of the Offered
Certificates, the foregoing information will be available to the related
Certificate Owners only to the extent that 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 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
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.
Other Information. The Trustee will make available at its offices
primarily responsible for administration of the Trust Fund (or the offices of
the Servicer), during normal business hours, for review by any holder or
Certificate Owner 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 Trustee Reports delivered to holders of
the relevant Class of Offered Certificates since the Delivery Date, (c) all
officer's certificates and 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, (d) the most
recent property inspection report prepared by or on behalf of the Servicer
and delivered to the Trustee in respect of each Mortgaged Property, (e) the
most recent annual operating statements, if any, collected by or on behalf of
the Servicer and delivered to the Trustee in respect of each Mortgaged
Property, and (f) the Mortgage Note, Mortgage and other legal documents
relating to each Mortgage Loan, including any and all modifications, waivers
and amendments of the terms of a Mortgage Loan entered into by the Servicer
and delivered to the Trustee. Copies of any and all of the foregoing items
will be available from the Trustee upon reasonable written request; provided
that the Trustee will be permitted to require payment of a sum sufficient to
cover the reasonable costs and expenses of providing such copies; and
provided, further, that the Trustee may require (x) in the case of a
Certificate Owner, a written confirmation executed by the requesting person
or entity, in a form reasonably acceptable to the Trustee, generally to the
effect that such person or entity is a beneficial owner of Offered
Certificates, is requesting the information solely for use in evaluating such
person's or entity's investment in such Certificates and will otherwise keep
such information confidential and (y) in
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the case of a prospective purchaser, confirmation executed by the requesting
person or entity, in a form reasonably acceptable to the Trustee, generally
to the effect that such person or entity is a prospective purchaser of
Offered Certificates or an interest therein, is requesting the information
solely for use in evaluating a possible investment in such Certificates and
will otherwise keep such information confidential. Certificateholders, by the
acceptance of their Certificates, will be deemed to have agreed to keep such
information confidential. The Servicer may, but is not required, make certain
information available over the Internet.
VOTING RIGHTS
At all times during the term of the Pooling and Servicing Agreement, 98%
of the voting rights for the Certificates (the "Voting Rights") shall be
allocated among the holders of the respective Classes of Principal Balance
Certificates in proportion to the Certificate Balances of their Certificates,
1% of the Voting Rights shall be allocated among the holders of the Class X
Certificates, and the remaining Voting Rights shall be allocated equally
among the holders of the respective Classes of REMIC Residual Certificates.
Voting Rights allocated to a Class of Certificateholders shall be allocated
among such Certificateholders in proportion to the Percentage Interests in
such Class evidenced by their respective Certificates. Appraisal Reduction
Amounts will be allocated in reduction of the respective Certificate Balances
of the Class K, Class J, Class H, Class G, Class F, Class E, Class D, Class
C, Class B and Class A Certificates, in that order, solely for purposes of
calculating Voting Rights.
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) subject to the requirement that the then
aggregate Stated Principal Balance of the Mortgage Asset Pool be less than 1%
of the Initial Pool Balance, the purchase of all of the assets of the Trust
Fund by the 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 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 Mortgage Loans as to which the related Mortgaged
Properties have become REO Properties) 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 Mortgage Loan), as determined by an
appraiser mutually agreed upon by the Servicer and the Trustee, reduced by
(b) if such purchase is by the Servicer, the aggregate of amounts payable or
reimbursable to the Servicer under the Pooling and Servicing Agreement.
On the final Distribution Date, the aggregate amount paid by the 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 as
described above under "--Distributions -- Application of the Available
Distribution Amount."
THE TRUSTEE
The Trustee. State Street Bank and Trust Company ("State Street") will act
as Trustee. The Trustee is at all times required to be, and will be required
to resign if it fails to be, (i) an institution insured by the FDIC, (ii) a
corporation, trust company, national bank or national banking association,
organized and doing business under the laws of the United States of America
or any state thereof, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of not less than $50,000,000
and subject to supervision or examination by federal or state authority and
(iii) an institution
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whose long-term senior unsecured debt (or that of its fiscal agent, if
applicable) is rated not less than "Aa2" by Moody's and "A" by Duff & Phelps
(or such lower ratings as the Rating Agencies would permit without an adverse
effect on any of the then-current ratings of the Certificates). The corporate
trust office of the Trustee responsible for administration of the Trust Fund
(the "Corporate Trust Office") is located at Two International Place -- 5th
Floor, Boston, MA 02110, Attention: Corporate Trust Department -- GMAC
Commercial Mortgage Securities, Inc., Mortgage Pass-Through Certificates,
Series 1997-C2.
The Servicer will be responsible for payment of the compensation of the
Trustee.
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<PAGE>
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 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 for the Class X Certificates for
any Distribution Date will be variable and will be based on the Weighted
Average Net Mortgage Rate for such Distribution Date. The Pass-Through Rates
for the Class D and Class E Certificates will be equal to the lesser of the
respective Pass-Through Rates specified for such Classes on the cover page
hereof and the Weighted Average Net Mortgage Rate. Accordingly, the yield on
the Class X, Class D and Class E Certificates will be sensitive to changes in
the relative composition of the Mortgage Loans as a result of scheduled
amortization, voluntary prepayments, liquidations of Mortgage Loans following
default and repurchases of Mortgage Loans. Losses or payments of principal on
the Mortgage Loans with higher Mortgage Rates could result in a reduction in
the Weighted Average Net Mortgage Rate, thereby reducing the Pass-Through
Rate for the Class X Certificates and, to the extent that the Weighted
Average Net Mortgage Rate is reduced below the specified fixed rates set
forth on the cover hereof for the Class D and Class E Certificates, reducing
the Pass-Through Rates on the Class D and Class E Certificates.
See "Description of the Certificates -- Pass-Through Rates" and
"Description of the Mortgage Asset Pool" herein and "--Yield Considerations
- -- Rate and Timing of Principal Payments" and "--Yield Sensitivity of the
Class X Certificates" below.
Rate and Timing of Principal Payments. The yield to holders of the Class X
Certificates and any other 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, among other things, 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 thereof have not occurred, liquidations and purchases of the
Mortgage Loans, will result in distributions on the Principal Balance
Certificates of amounts that otherwise would have been distributed (and
reductions in the Notional Amount of the Class X Certificates that would
otherwise have occurred) 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 Principal Balance Certificates)
while work-outs are negotiated or foreclosures are completed. See "Servicing
of the Mortgage Loans -- Modifications, Waivers, Amendments and Consents"
herein and "The Pooling and Servicing Agreements -- Realization Upon
Defaulted Mortgage Loans" and "Certain Legal Aspects of Mortgage Loans --
Foreclosure" in the Prospectus. Because the rate of principal payments on the
Mortgage Loans will depend on future events and a variety of factors (as
described below), no assurance can be given as to such rate or the rate of
principal prepayments in particular. The Depositor is not aware of any
relevant publicly available or authoritative statistics with respect to the
historical prepayment experience of a large group of mortgage loans
comparable to the Mortgage Loans.
The extent to which the yield to maturity of an Offered Certificate may
vary from the anticipated yield will depend upon the degree to which such
Certificate is purchased at a discount or premium and when, and to what
degree, payments of principal on the Mortgage Loans are in turn distributed
on or otherwise result in the reduction of the principal balance or notional
amount, as the case may be, of such Certificate. 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
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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. The yield to maturity of the
Class X Certificates will be highly sensitive to the rate and timing of
principal payments (including by reason of prepayments, defaults and
liquidations) on or in respect of, the Mortgage Loans. Investors in the Class
X Certificates should fully consider the associated risks, including the risk
that an extremely rapid rate of amortization and prepayment of the Mortgage
Loans could result in the failure of such investors to fully recoup their
initial investments.
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 generally be borne: first, by the
holders of the respective Classes of Subordinate Certificates, in reverse
alphabetical order of Class designation, to the extent of amounts (or, in the
case of a Net Aggregate Prepayment Interest Shortfall, just interest)
otherwise distributable in respect of their Certificates; and then, by the
holders of the Senior Certificates.
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,
prepayment lock-out periods, 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 comparable residential and/or commercial space
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 Asset Pool" herein and "Risk Factors" and "Yield and Maturity
Considerations -- Yield and Prepayment Considerations" in the Prospectus.
The rate of prepayment on the Mortgage Asset 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. If a Mortgage Loan is not in a lock-out period, the Prepayment
Premium, if any, in respect of such Mortgage Loan may not be sufficient
economic disincentive to prevent the related borrower from voluntarily
prepaying the loan as part of a refinancing thereof. See "Description of the
Mortgage Asset Pool -- Certain Terms and Conditions of the Mortgage Loans"
herein.
Delay in Payment of Distributions. Because monthly distributions will not
be made to Certificateholders until a date that is scheduled to be at least
15 days following the end of related Interest Accrual 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 Certificates Interest. As described under
"Description of the Certificates -- Distributions -- Application of the
Available Distribution Amount" 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 a Principal Balance 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
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distributed to the investor. For purposes of this Prospectus Supplement, the
weighted average life of a Principal Balance Certificate is determined by (i)
multiplying the amount of each principal distribution thereon by the number
of years from the Delivery Date 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 Certificate. Accordingly, the
weighted average life of any such Certificate will be influenced by, among
other things, the rate at which principal of the Mortgage Loans is paid or
otherwise collected or advanced and the extent to which such payments,
collections and/or advances of principal are in turn applied in reduction of
the Certificate Balance of the Class of Certificates to which such
Certificate belongs.
Prepayments on mortgage loans may be measured by a prepayment standard or
model. The model used in this Prospectus Supplement is the CPR model. As used
in each of the following sets of tables with respect to any particular Class,
the column headed "0%" assumes that none of the Mortgage Loans is prepaid
before maturity or, where applicable, extended maturity. The columns headed
"5%," "10%," "15%," "20%," and "25%" assume with respect to any particular
Class, that no prepayments are made on any Mortgage Loan during such Mortgage
Loan's prepayment lock-out or defeasance period, if any, or during such
Mortgage Loan's yield maintenance period, if any, and are otherwise made on
each of the Mortgage Loans at the indicated CPRs. There is no assurance,
however, that prepayments of the Mortgage Loans (whether or not in a
prepayment lock-out period or a yield maintenance period) will conform to any
particular CPR, and no representation is made that the Mortgage Loans will
prepay in accordance with the assumptions at any of the CPRs shown or at any
other particular prepayment rate, that all the Mortgage Loans will prepay in
accordance with the assumptions at the same rate or that Mortgage Loans that
are in a prepayment lock-out period or a yield maintenance period will not
prepay as a result of involuntary liquidations upon default or otherwise. A
"prepayment lock-out period" is any period during which the terms of the
Mortgage Loan prohibit voluntary prepayments on the part of the borrower. A
"yield maintenance period" is any period during which the terms of the
Mortgage Loan provide that voluntary prepayments be accompanied by a
Prepayment Premium calculated on the basis of a yield maintenance formula.
The following tables indicate the percentage of the initial Certificate
Balance of each Class of Offered Certificates (other than the Class X
Certificates) that would be outstanding after each of the dates shown at
various CPRs and the corresponding weighted average life of each such Class
of Certificates. The tables have been prepared on the basis of the
information set forth on Annex A and the following assumptions (collectively,
the "Maturity Assumptions"): (i) the initial Certificate Balances and
Notional Amount, as the case may be, and the Pass-Through Rates for the
respective Classes of Offered Certificates, (ii) the scheduled Monthly
Payments for each Mortgage Loan are, in the case of each ARM Loan, equal to
the Monthly Payment in effect as of the Cut-Off Date until the next payment
adjustment is scheduled to occur and thereafter is based on such Mortgage
Loan's then current balance, the then current Mortgage Rate and stated
remaining amortization term calculated using a 30/360 interest accrual
method, and, in the case of each other Mortgage Loan, based on such Mortgage
Loan's Cut-off Date Balance, stated monthly principal and interest payments
(as such may be increased or decreased in the case of the four Mortgage Loans
as described in Annex A) and the Mortgage Rate in effect as of the Cut-off
Date, (iii) all scheduled Monthly Payments are assumed to be timely received
on the first day of each month, (iv) the one-month LIBOR Index is assumed to
be 5.9648% per annum and the one-year Treasury is assumed to be 5.490% per
annum and each is assumed to remain constant and, for the purpose of
calculating the Discount Rate applicable to the allocation of Prepayment
Premiums, the three month and six month LIBOR and, one year, two year, three
year, five year, ten year and thirty year treasury yield rate is assumed to
be 5.203%, 5.394%, 5.453%, 5.687%, 5.706%, 5.756%, 5.791% and 5.985%,
respectively, (v) there are no delinquencies or losses in respect of the
Mortgage Loans, there are no extensions of maturity in respect of the
Mortgage Loans, there are no Appraisal Reduction Amounts with respect to the
Mortgage Loans and there are no casualties or condemnations affecting the
Mortgaged Properties, (vi) prepayments are made on each of the Mortgage Loans
at the indicated CPRs set forth in the table (without regard to any
limitations in such Mortgage Loans on partial voluntary principal
prepayments) (except to the extent modified below by the assumption numbered
(xiv)) and that the ARD Loans mature on the Anticipated Repayment Date, (vii)
all Mortgage Loans accrue interest
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under the applicable Accrual Method as specified in Annex A, (viii) neither
the Servicer nor the Depositor exercises its right of optional termination
described herein, (ix) no Mortgage Loan is required to be repurchased by a
Mortgage Loan Seller, (x) no Prepayment Interest Shortfalls are incurred and
no Prepayment Premiums are collected, (xi) there are no Additional Trust Fund
Expenses, (xii) distributions on the Certificates are made on the 15th day of
each month, commencing in January 1998, (xiii) when specifically indicated in
a particular table, no prepayments are received as to any Mortgage Loan
during such Mortgage Loan's prepayment lock-out period or defeasance period
("LOP"), if any, or yield maintenance period ("YMP"), if any, (xiv) the
prepayment provisions for each Mortgage Loan as set forth on Annex A are
assumed to begin on the first due date of such Mortgage Loan and (xv) the
Certificates are issued on December 23, 1997. To the extent that the Mortgage
Loans have characteristics or experience performance that differs from those
assumed in preparing the tables set forth below, the Class A-1, Class A-2,
Class A-3, Class B, Class C, Class D and Class E Certificates may mature
earlier or later than indicated by the tables. It is highly unlikely that the
Mortgage Loans will prepay or perform in accordance with the Maturity
Assumptions at any constant rate until maturity or that all the Mortgage
Loans will prepay in accordance with the Maturity Assumptions or at the same
rate. In addition, variations in the actual prepayment experience and the
balance of the specific 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.
Based on the Maturity Assumptions, the following tables indicate the
resulting weighted average lives of the Class A-1, Class A-2, Class A-3,
Class B, Class C, Class D and Class E Certificates and set forth the
percentage of the initial Certificate Balance of each such Class of
Certificates that would be outstanding after each of the dates shown under
the applicable assumptions at the indicated CPRs.
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<PAGE>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF THE CLASS A-1 CERTIFICATES
OUTSTANDING AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENTS LOCKED OUT THROUGH
LOP AND YMP, THEN AT THE FOLLOWING CPRS
--------------------------------------------
DATE 0% 5% 10% 15% 20% 25%
- ---------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Initial.......... 100% 100% 100% 100% 100% 100%
Dec. 15, 1998 ... 95 95 95 95 95 95
Dec. 15, 1999 ... 90 90 90 90 90 90
Dec. 15, 2000 ... 85 85 84 84 83 83
Dec. 15, 2001 ... 79 78 78 77 77 76
Dec. 15, 2002 ... 70 69 68 67 66 66
Dec. 15, 2003 ... 63 61 60 59 58 57
Dec. 15, 2004 ... 0 0 0 0 0 0
Weighted Average
Life (in
years).......... 5.5 5.5 5.4 5.4 5.4 5.4
</TABLE>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF THE CLASS A-2 CERTIFICATES
OUTSTANDING AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENTS LOCKED OUT THROUGH
LOP AND YMP, THEN AT THE FOLLOWING CPRS
--------------------------------------------
DATE 0% 5% 10% 15% 20% 25%
- ---------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Initial.......... 100% 100% 100% 100% 100% 100%
Dec. 15, 1998 ... 100 100 100 100 100 100
Dec. 15, 1999 ... 100 100 100 100 100 100
Dec. 15, 2000 ... 100 100 100 100 100 100
Dec. 15, 2001 ... 100 100 100 100 100 100
Dec. 15, 2002 ... 100 100 100 100 100 100
Dec. 15, 2003 ... 100 100 100 100 100 100
Dec. 15, 2004 ... 91 88 85 82 78 75
Dec. 15, 2005 ... 62 46 29 13 0 0
Dec. 15, 2006 ... 25 0 0 0 0 0
Dec. 15, 2007 ... 0 0 0 0 0 0
Weighted Average
Life (in
years).......... 8.2 7.9 7.6 7.5 7.4 7.3
</TABLE>
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<PAGE>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF THE CLASS A-3 CERTIFICATES
OUTSTANDING AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENTS LOCKED OUT THROUGH
LOP AND YMP, THEN AT THE FOLLOWING CPRS
--------------------------------------------
DATE 0% 5% 10% 15% 20% 25%
- ---------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Initial.......... 100% 100% 100% 100% 100% 100%
Dec. 15, 1998 ... 100 100 100 100 100 100
Dec. 15, 1999 ... 100 100 100 100 100 100
Dec. 15, 2000 ... 100 100 100 100 100 100
Dec. 15, 2001 ... 100 100 100 100 100 100
Dec. 15, 2002 ... 100 100 100 100 100 100
Dec. 15, 2003 ... 100 100 100 100 100 100
Dec. 15, 2004 ... 100 100 100 100 100 100
Dec. 15, 2005 ... 100 100 100 100 100 98
Dec. 15, 2006 ... 100 99 96 92 89 86
Dec. 15, 2007 ... 0 0 0 0 0 0
Weighted Average
Life (in
years).......... 9.8 9.8 9.7 9.7 9.6 9.5
</TABLE>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF THE CLASS B CERTIFICATES
OUTSTANDING AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENTS LOCKED OUT THROUGH
LOP AND YMP, THEN AT THE FOLLOWING CPRS
--------------------------------------------
DATE 0% 5% 10% 15% 20% 25%
- ---------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Initial ......... 100% 100% 100% 100% 100% 100%
Dec. 15, 1998 ... 100 100 100 100 100 100
Dec. 15, 1999 ... 100 100 100 100 100 100
Dec. 15, 2000 ... 100 100 100 100 100 100
Dec. 15, 2001 ... 100 100 100 100 100 100
Dec. 15, 2002 ... 100 100 100 100 100 100
Dec. 15, 2003 ... 100 100 100 100 100 100
Dec. 15, 2004 ... 100 100 100 100 100 100
Dec. 15, 2005 ... 100 100 100 100 100 100
Dec. 15, 2006 ... 100 100 100 100 100 100
Dec. 15, 2007 ... 0 0 0 0 0 0
Weighted Average
Life (in
years).......... 9.9 9.9 9.9 9.9 9.9 9.9
</TABLE>
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<PAGE>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF THE CLASS C CERTIFICATES
OUTSTANDING AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENTS LOCKED OUT THROUGH
LOP AND YMP, THEN AT THE FOLLOWING CPRS
--------------------------------------------
DATE 0% 5% 10% 15% 20% 25%
- ---------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Initial ......... 100% 100% 100% 100% 100% 100%
Dec. 15, 1998 ... 100 100 100 100 100 100
Dec. 15, 1999 ... 100 100 100 100 100 100
Dec. 15, 2000 ... 100 100 100 100 100 100
Dec. 15, 2001 ... 100 100 100 100 100 100
Dec. 15, 2002 ... 100 100 100 100 100 100
Dec. 15, 2003 ... 100 100 100 100 100 100
Dec. 15, 2004 ... 100 100 100 100 100 100
Dec. 15, 2005 ... 100 100 100 100 100 100
Dec. 15, 2006 ... 100 100 100 100 100 100
Dec. 15, 2007 ... 0 0 0 0 0 0
Weighted Average
Life (in
years).......... 10.0 10.0 10.0 10.0 10.0 10.0
</TABLE>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF THE CLASS D CERTIFICATES
OUTSTANDING AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENTS LOCKED OUT THROUGH
LOP AND YMP, THEN AT THE FOLLOWING CPRS
--------------------------------------------
DATE 0% 5% 10% 15% 20% 25%
- ---------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Initial ......... 100% 100% 100% 100% 100% 100%
Dec. 15, 1998 ... 100 100 100 100 100 100
Dec. 15, 1999 ... 100 100 100 100 100 100
Dec. 15, 2000 ... 100 100 100 100 100 100
Dec. 15, 2001 ... 100 100 100 100 100 100
Dec. 15, 2002 ... 100 100 100 100 100 100
Dec. 15, 2003 ... 100 100 100 100 100 100
Dec. 15, 2004 ... 100 100 100 100 100 100
Dec. 15, 2005 ... 100 100 100 100 100 100
Dec. 15, 2006 ... 100 100 100 100 100 100
Dec. 15, 2007 ... 25 23 21 19 17 15
Dec. 15, 2008 ... 0 0 0 0 0 0
Weighted Average
Life (in
years).......... 10.0 10.0 10.0 10.0 10.0 10.0
</TABLE>
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<PAGE>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF THE CLASS E CERTIFICATES
OUTSTANDING AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENTS LOCKED OUT THROUGH
LOP AND YMP, THEN AT THE FOLLOWING CPRS
--------------------------------------------
DATE 0% 5% 10% 15% 20% 25%
- ---------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Initial ......... 100% 100% 100% 100% 100% 100%
Dec. 15, 1998 ... 100 100 100 100 100 100
Dec. 15, 1999 ... 100 100 100 100 100 100
Dec. 15, 2000 ... 100 100 100 100 100 100
Dec. 15, 2001 ... 100 100 100 100 100 100
Dec. 15, 2002 ... 100 100 100 100 100 100
Dec. 15, 2003 ... 100 100 100 100 100 100
Dec. 15, 2004 ... 100 100 100 100 100 100
Dec. 15, 2005 ... 100 100 100 100 100 100
Dec. 15, 2006 ... 100 100 100 100 100 100
Dec. 15, 2007 ... 100 100 100 100 100 100
Dec. 15, 2008 ... 65 62 60 58 56 54
Dec. 15, 2009 ... 26 22 18 15 12 9
Dec. 15, 2010 ... 4 0 0 0 0 0
Dec. 15, 2011 ... 0 0 0 0 0 0
Weighted Average
Life (in
years).......... 11.6 11.5 11.4 11.3 11.2 11.2
</TABLE>
CERTAIN PRICE/YIELD TABLES
The tables set forth below show the corporate bond equivalent ("CBE")
yield and weighted average life in years with respect to each Class of
Offered Certificates (other than the Class X Certificates) under the Maturity
Assumptions.
The yields set forth in the following tables were calculated by
determining the monthly discount rates which, when applied to the assumed
stream of cash flows to be paid on each Class of Offered Certificates (other
than the Class X Certificates), would cause the discounted present value of
such assumed stream of cash flows as of December 23, 1997 to equal the
assumed purchase prices, plus accrued interest at the applicable Pass-Through
Rate as stated on the cover hereof from and including the Cut-off Date to but
excluding the Delivery Date, and converting such monthly rates to semi-annual
corporate bond equivalent rates. Such calculation does not take into account
variations that may occur in the interest rates at which investors may be
able to reinvest funds received by them as reductions of the Certificate
Balances of such Classes of Offered Certificates and consequently does not
purport to reflect the return on any investment in such Classes of Offered
Certificates when such reinvestment rates are considered. Purchase prices are
expressed as a percentage of the initial Certificate Balance of the specified
Class (i.e., 99-16 means 99.50%).
S-73
<PAGE>
PRE-TAX YIELD TO MATURITY (CBE) AND WEIGHTED AVERAGE LIFE
FOR THE CLASS A-1 CERTIFICATES AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENTS LOCKED OUT THROUGH LOP AND
YMP, THEN AT THE FOLLOWING CPRS
--------------------------------------------------------
ASSUMED PURCHASE PRICE
(%) PLUS ACCRUED
INTEREST 0% 5% 10% 15% 20% 25%
- ----------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
99-16................... 6.595% 6.595% 6.595% 6.596% 6.596% 6.596%
99-20................... 6.566 6.567 6.567 6.567 6.567 6.567
99-24................... 6.538 6.538 6.538 6.538 6.538 6.538
99-28................... 6.510 6.510 6.509 6.509 6.509 6.509
100-00.................. 6.482 6.481 6.481 6.481 6.480 6.480
100-04.................. 6.454 6.453 6.452 6.452 6.452 6.451
100-08.................. 6.425 6.425 6.424 6.423 6.423 6.422
100-12.................. 6.397 6.396 6.396 6.395 6.394 6.393
100-16.................. 6.369 6.368 6.367 6.366 6.366 6.365
100-20.................. 6.341 6.340 6.339 6.338 6.337 6.336
100-24.................. 6.314 6.312 6.311 6.310 6.308 6.307
100-28.................. 6.286 6.284 6.283 6.281 6.280 6.279
101-00.................. 6.258 6.256 6.254 6.253 6.251 6.250
101-04.................. 6.230 6.228 6.226 6.225 6.223 6.222
101-08.................. 6.202 6.200 6.198 6.196 6.195 6.193
101-12.................. 6.175 6.172 6.170 6.168 6.166 6.165
101-16.................. 6.147 6.145 6.142 6.140 6.138 6.136
Weighted Average
Life (years)........... 5.522 5.481 5.444 5.411 5.380 5.352
</TABLE>
PRE-TAX YIELD TO MATURITY (CBE) AND WEIGHTED AVERAGE LIFE
FOR THE CLASS A-2 CERTIFICATES AT THE SPECIFID CPRS
<TABLE>
<CAPTION>
PREPAYMENTS LOCKED OUT THROUGH LOP AND
YMP, THEN AT THE FOLLOWING CPRS
--------------------------------------------------------
ASSUMED PURCHASE PRICE
(%) PLUS ACCRUED
INTEREST 0% 5% 10% 15% 20% 25%
- ----------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
99-16................... 6.680% 6.681% 6.682% 6.683% 6.683% 6.684%
99-20................... 6.659 6.660 6.661 6.661 6.661 6.661
99-24................... 6.639 6.639 6.639 6.639 6.639 6.639
99-28................... 6.619 6.618 6.618 6.617 6.617 6.617
100-00.................. 6.599 6.597 6.596 6.596 6.595 6.595
100-04.................. 6.579 6.577 6.575 6.574 6.573 6.573
100-08.................. 6.559 6.556 6.554 6.552 6.551 6.551
100-12.................. 6.538 6.535 6.533 6.531 6.530 6.529
100-16.................. 6.518 6.514 6.511 6.509 6.508 6.507
100-20.................. 6.498 6.494 6.490 6.488 6.486 6.485
100-24.................. 6.478 6.473 6.469 6.466 6.464 6.463
100-28.................. 6.458 6.452 6.448 6.445 6.443 6.441
101-00.................. 6.438 6.432 6.427 6.423 6.421 6.419
101-04.................. 6.419 6.411 6.406 6.402 6.399 6.397
101-08.................. 6.399 6.390 6.385 6.381 6.378 6.375
101-12.................. 6.379 6.370 6.364 6.359 6.356 6.354
101-16.................. 6.359 6.349 6.343 6.338 6.335 6.332
Weighted Average
Life (years) .......... 8.246 7.885 7.649 7.493 7.383 7.300
</TABLE>
S-74
<PAGE>
PRE-TAX YIELD TO MATURITY (CBE) AND WEIGHTED AVERAGE LIFE
FOR THE CLASS A-3 CERTIFICATES AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENTS LOCKED OUT THROUGH LOP AND
YMP, THEN AT THE FOLLOWING CPRS
--------------------------------------------------------
ASSUMED PURCHASE PRICE
(%) PLUS ACCRUED
INTEREST 0% 5% 10% 15% 20% 25%
- ----------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
99-16................... 6.691% 6.691% 6.692% 6.692% 6.692% 6.692%
99-20................... 6.673 6.674 6.674 6.674 6.674 6.674
99-24................... 6.656 6.656 6.656 6.656 6.656 6.656
99-28................... 6.638 6.638 6.638 6.638 6.638 6.638
100-00.................. 6.620 6.620 6.620 6.620 6.620 6.619
100-04.................. 6.602 6.602 6.602 6.602 6.602 6.601
100-08.................. 6.585 6.584 6.584 6.584 6.584 6.583
100-12.................. 6.567 6.567 6.566 6.566 6.566 6.565
100-16.................. 6.549 6.549 6.549 6.548 6.548 6.547
100-20.................. 6.532 6.531 6.531 6.530 6.530 6.529
100-24.................. 6.514 6.514 6.513 6.513 6.512 6.511
100-28.................. 6.496 6.496 6.495 6.495 6.494 6.493
101-00.................. 6.479 6.478 6.478 6.477 6.476 6.475
101-04.................. 6.461 6.461 6.460 6.459 6.458 6.458
101-08.................. 6.444 6.443 6.443 6.442 6.441 6.440
101-12.................. 6.426 6.426 6.425 6.424 6.423 6.422
101-16.................. 6.409 6.408 6.407 6.406 6.405 6.404
Weighted Average
Life (years) .......... 9.796 9.760 9.712 9.658 9.600 9.543
</TABLE>
PRE-TAX YIELD TO MATURITY (CBE) AND WEIGHTED AVERAGE LIFE
FOR THE CLASS B CERTIFICATES AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENTS LOCKED OUT THROUGH LOP AND
YMP, THEN AT THE FOLLOWING CPRS
--------------------------------------------------------
ASSUMED PURCHASE PRICE
(%) PLUS ACCRUED
INTEREST 0% 5% 10% 15% 20% 25%
- ----------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
99-16................... 6.831% 6.831% 6.831% 6.831% 6.831% 6.831%
99-20................... 6.814 6.814 6.814 6.814 6.814 6.814
99-24................... 6.796 6.796 6.796 6.796 6.796 6.796
99-28................... 6.778 6.778 6.778 6.778 6.778 6.778
100-00.................. 6.760 6.760 6.760 6.760 6.760 6.760
100-04.................. 6.743 6.743 6.743 6.742 6.742 6.742
100-08.................. 6.725 6.725 6.725 6.725 6.725 6.725
100-12.................. 6.707 6.707 6.707 6.707 6.707 6.707
100-16.................. 6.690 6.690 6.690 6.690 6.689 6.689
100-20.................. 6.672 6.672 6.672 6.672 6.672 6.672
100-24.................. 6.654 6.654 6.654 6.654 6.654 6.654
100-28.................. 6.637 6.637 6.637 6.637 6.637 6.637
101-00.................. 6.619 6.619 6.619 6.619 6.619 6.619
101-04.................. 6.602 6.602 6.602 6.602 6.602 6.602
101-08.................. 6.584 6.584 6.584 6.584 6.584 6.584
101-12.................. 6.567 6.567 6.567 6.567 6.567 6.567
101-16.................. 6.550 6.550 6.549 6.549 6.549 6.549
Weighted Average
Life (years) .......... 9.913 9.910 9.907 9.904 9.901 9.897
</TABLE>
S-75
<PAGE>
PRE-TAX YIELD TO MATURITY (CBE) AND WEIGHTED AVERAGE LIFE
FOR THE CLASS C CERTIFICATES AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENTS LOCKED OUT THROUGH LOP AND
YMP, THEN AT THE FOLLOWING CPRS
--------------------------------------------------------
ASSUMED PURCHASE PRICE
(%) PLUS ACCRUED
INTEREST 0% 5% 10% 15% 20% 25%
- ----------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
99-16................... 7.043% 7.043% 7.043% 7.043% 7.043% 7.043%
99-20................... 7.025 7.025 7.025 7.025 7.025 7.025
99-24................... 7.008 7.008 7.008 7.008 7.008 7.008
99-28................... 6.990 6.990 6.990 6.990 6.990 6.990
100-00.................. 6.972 6.972 6.972 6.972 6.972 6.972
100-04.................. 6.954 6.954 6.954 6.954 6.954 6.954
100-08.................. 6.936 6.936 6.936 6.936 6.936 6.936
100-12.................. 6.919 6.919 6.919 6.919 6.919 6.919
100-16.................. 6.901 6.901 6.901 6.901 6.901 6.901
100-20.................. 6.883 6.883 6.883 6.883 6.883 6.883
100-24.................. 6.865 6.865 6.865 6.865 6.865 6.865
100-28.................. 6.848 6.848 6.848 6.848 6.848 6.848
101-00.................. 6.830 6.830 6.830 6.830 6.830 6.830
101-04.................. 6.813 6.813 6.813 6.813 6.813 6.813
101-08.................. 6.795 6.795 6.795 6.795 6.795 6.795
101-12.................. 6.778 6.778 6.778 6.778 6.778 6.778
101-16.................. 6.760 6.760 6.760 6.760 6.760 6.760
Weighted Average
Life (years) .......... 9.978 9.978 9.978 9.978 9.978 9.978
</TABLE>
PRE-TAX YIELD TO MATURITY (CBE) AND WEIGHTED AVERAGE LIFE
FOR THE CLASS D CERTIFICATES AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENTS LOCKED OUT THROUGH LOP AND
YMP, THEN AT THE FOLLOWING CPRS
--------------------------------------------------------
ASSUMED PURCHASE PRICE
(%) PLUS ACCRUED
INTEREST 0% 5% 10% 15% 20% 25%
- ----------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
99-00................... 7.405% 7.405% 7.405% 7.405% 7.405% 7.405%
99-04................... 7.387 7.387 7.387 7.387 7.387 7.387
99-08................... 7.369 7.369 7.369 7.369 7.369 7.369
99-12................... 7.351 7.351 7.351 7.351 7.351 7.351
99-16................... 7.333 7.333 7.333 7.333 7.333 7.333
99-20................... 7.314 7.314 7.314 7.314 7.314 7.314
99-24................... 7.296 7.296 7.296 7.296 7.296 7.296
99-28................... 7.278 7.278 7.278 7.278 7.278 7.278
100-00.................. 7.260 7.260 7.260 7.260 7.260 7.260
100-04.................. 7.242 7.242 7.242 7.242 7.242 7.242
100-08.................. 7.224 7.224 7.224 7.224 7.224 7.224
100-12.................. 7.206 7.206 7.206 7.206 7.206 7.206
100-16.................. 7.188 7.188 7.188 7.188 7.188 7.188
100-20.................. 7.170 7.170 7.170 7.170 7.170 7.170
100-24.................. 7.152 7.152 7.152 7.152 7.152 7.152
100-28.................. 7.135 7.135 7.135 7.135 7.135 7.135
101-00.................. 7.117 7.117 7.117 7.117 7.117 7.117
Weighted Average
Life (years) .......... 9.999 9.997 9.995 9.994 9.992 9.990
</TABLE>
S-76
<PAGE>
PRE-TAX YIELD TO MATURITY (CBE) AND WEIGHTED AVERAGE LIFE
FOR THE CLASS E CERTIFICATES AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENTS LOCKED OUT THROUGH LOP AND
YMP, THEN AT THE FOLLOWING CPRS
--------------------------------------------------------
ASSUMED PURCHASE PRICE
(%) PLUS ACCRUED
INTEREST 0% 5% 10% 15% 20% 25%
- ----------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
99-00................... 7.841% 7.842% 7.842% 7.843% 7.843% 7.843%
99-04................... 7.824 7.825 7.825 7.825 7.826 7.826
99-08................... 7.807 7.808 7.808 7.808 7.808 7.809
99-12................... 7.790 7.791 7.791 7.791 7.791 7.791
99-16................... 7.774 7.774 7.774 7.774 7.774 7.774
99-20................... 7.757 7.757 7.757 7.757 7.757 7.757
99-24................... 7.740 7.740 7.740 7.740 7.740 7.740
99-28................... 7.723 7.723 7.723 7.723 7.723 7.722
100-00.................. 7.706 7.706 7.706 7.706 7.705 7.705
100-04.................. 7.689 7.689 7.689 7.689 7.688 7.688
100-08.................. 7.673 7.672 7.672 7.672 7.671 7.671
100-12.................. 7.656 7.656 7.655 7.655 7.654 7.654
100-16.................. 7.639 7.639 7.638 7.638 7.637 7.637
100-20.................. 7.623 7.622 7.622 7.621 7.620 7.620
100-24.................. 7.606 7.605 7.605 7.604 7.604 7.603
100-28.................. 7.590 7.589 7.588 7.587 7.587 7.586
101-00.................. 7.573 7.572 7.571 7.570 7.570 7.569
Weighted Average
Life (years) .......... 11.588 11.481 11.394 11.312 11.238 11.174
</TABLE>
S-77
<PAGE>
YIELD SENSITIVITY OF THE CLASS X CERTIFICATES
The yield to maturity of the Class X Certificates will be especially
sensitive to the prepayment, repurchase and default experience on the
Mortgage Loans, which prepayment, repurchase and default experience 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 X
Certificates. There can be no assurance that the Mortgage Loans will prepay
at any particular rate. Prospective investors in the Class X Certificates
should fully consider the associated risks, including the risk that such
investors may not fully recover their initial investment.
The following tables indicate the sensitivity of the pre-tax yield to
maturity on the Class X Certificates to various constant rates of prepayment
on the Mortgage Loans by projecting the monthly aggregate payments of
interest on the Class X Certificates and computing the corresponding pre-tax
yields to maturity on a corporate bond equivalent basis, based on the
Maturity Assumptions, except that it was assumed that (x) the right of
optional termination is exercised on the first Distribution Date on which the
remaining aggregate Stated Principal Balance of the Mortgage Asset Pool is
less than 1% of the Initial Pool Balance and (y) Prepayment Premiums
described in the related Mortgage Loan documents as fixed prepayment premiums
were collected pursuant to the terms of each Mortgage Loan. It was further
assumed that the aggregate purchase price of the Class X Certificates are as
specified below, in each case expressed (i.e., 7-08 is 7.25%) as a percentage
of the initial Notional Amount (without accrued interest). Any differences
between such assumptions and the actual characteristics and performance of
the Mortgage Loans and of the Class X 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.
The pre-tax yields set forth in the following tables were calculated by
determining the monthly discount rates that, when applied to the assumed
streams of cash flows to be paid on the Class X Certificates, would cause the
discounted present value of such assumed stream of cash flows to equal the
assumed aggregate purchase price thereof, and by converting such monthly
rates to semi-annual corporate bond equivalent rates. Such calculation does
not take into account shortfalls in collection of interest due to prepayments
(or other liquidations) of the Mortgage Loans or the interest rates at which
investors may be able to reinvest funds received by them as distributions on
the Class X Certificates (and accordingly does not purport to reflect the
return on any investment in the Class X Certificates when such reinvestment
rates are considered).
Notwithstanding the assumed prepayment rates reflected in the preceding
tables, it is highly unlikely that the Mortgage Loans will be prepaid
according to one particular pattern. For this reason, and because the timing
of cash flows is critical to determining yields, the pre-tax yield to
maturity on the Class X 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 X 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 X 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.
In addition, holders of the Class X Certificates generally have rights to
relatively larger portions of interest payments on Mortgage Loans with higher
Mortgage Rates; thus, the yield on the Class X Certificates will be
materially and adversely affected if the Mortgage Loans with higher Mortgage
Rates prepay faster than the Mortgage Loans with lower Mortgage Rates.
S-78
<PAGE>
PRE-TAX YIELD TO MATURITY FOR THE
CLASS X CERTIFICATES AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENTS LOCKED OUT THROUGH
LOP AND YMP, THEN AT THE FOLLOWING CPRS
--------------------------------------------------------
ASSUMED PURCHASE PRICE (%)
PLUS ACCRUED INTEREST 0% 5% 10% 15% 20% 25%
- ------------------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
7-24..................... 9.325% 9.178% 9.057% 8.950% 8.853% 8.766%
8-00..................... 8.621 8.468 8.343 8.233 8.134 8.044
8-08..................... 7.955 7.795 7.666 7.553 7.451 7.361
</TABLE>
S-79
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
Upon the issuance of the Offered Certificates, Orrick, Herrington &
Sutcliffe LLP, 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, REMIC I, REMIC II
and REMIC III will each qualify as a REMIC under the Code. For Federal income
tax purposes, the Class R-I Certificates will be the sole class of "residual
interests" in REMIC I; the Class R-II Certificates will be the sole class of
"residual interests" in REMIC II; the Offered Certificates will evidence the
"regular interests" in, and will be treated as debt instruments of, REMIC
III; and the Class R-III Certificates will be the sole class of "residual
interests" in REMIC III. See "Certain Federal Income Tax Consequences --
REMICs" in the Prospectus.
ORIGINAL ISSUE DISCOUNT AND PREMIUM
The Class X Certificates will 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 not prepay prior to their
respective maturity dates. No representation is made that the Mortgage Loans
will not prepay. See "Certain Federal Income Tax Consequences -- REMICs --
Taxation of Owners of REMIC Regular Certificates -- Original Issue Discount"
in the Prospectus.
The IRS has issued OID Regulations under Sections 1271 to 1275 of the Code
generally addressing the treatment of debt instruments issued with original
issue discount. Purchasers of the Offered Certificates should be aware that
the OID Regulations and Section 1272(a)(6) of the Code do not adequately
address certain issues relevant to, or are not applicable to, prepayable
securities such as the Offered Certificates. In addition, there is
considerable uncertainty concerning the application of Section 1272(a)(6) of
the Code and the OID Regulations to REMIC Regular Certificates that provide
for payments based on an adjustable rate, such as the Class X Certificates.
There are uncertainties concerning the application of Section 1272(a)(6) of
the Code to the Class X Certificates, and the rules of the OID Regulations
relating to debt instruments having an adjustable rate of interest are
limited in their application in ways that could preclude their application to
the Class X Certificates even in the absence of Section 1272(a)(6) of the
Code. The IRS could assert that income derived from a Class X Certificate
should be calculated as if the Class X Certificate were a Certificate
purchased at a premium equal to the price paid by the Holder for the Class X
Certificate. Under this approach, a Holder would be entitled to amortize such
premium only if it has in effect an election under Section 171 of the Code
with respect to all taxable debt instruments held by such Holder, as
described in the Prospectus under "Certain Federal Income Tax Consequences --
REMICs -- Taxation of Owners of REMIC Regular Certificates -- Premium."
Alternatively, the IRS could assert that the Class X Certificates should be
taxable under regulations governing debt instruments having one or more
contingent payments. Prospective purchasers of the Offered Certificates are
advised to consult their tax advisors concerning the tax treatment of such
Certificates.
Assuming the Class X Certificates are treated as having been issued with
original issue discount, it appears that a reasonable method of reporting
original issue discount with respect to the Class X Certificates, generally
would be to report all income with respect to such Certificates as original
issue discount for each period, computing such original issue discount (i) by
assuming that the value of the applicable index will remain constant for
purposes of determining the original yield to maturity of, and projecting
future distributions on, such Certificates, thereby treating such
Certificates as fixed rate instruments to which the original issue discount
computation rules described in the Prospectus can be applied, and (ii) by
accounting for any positive or negative variation in the actual value of the
applicable index in any period from its assumed value as a current adjustment
to original issue discount with respect to such period. See "Certain Federal
Income Tax Consequences -- REMICs -- Taxation of Owners of REMIC Regular
Certificates -- Original Issue Discount" in the Prospectus.
S-80
<PAGE>
If the method for computing original issue discount described in the
Prospectus results in a negative amount for any period with respect to a
holder of a Class X Certificate, the amount of original issue discount
allocable to such period would be zero and such Certificateholder will be
permitted to offset such negative amount only against future original issue
discount (if any) attributable to such Certificate. Although the matter is
not free from doubt, a holder of a Class X Certificate may be permitted to
deduct a loss to the extent that his or her respective remaining basis in
such Certificate exceeds the maximum amount of future payments to which such
Certificateholder is entitled, assuming no further prepayments of the
Mortgage Loans. Any such loss might be treated as a capital loss.
The OID Regulations in some circumstances permit the holder of a debt
instrument to recognize original issue discount under a method that differs
from that of the issuer. Accordingly, it is possible that holders of Class X
Certificates may be able to select a method for recognizing original issue
discount that differs from that used by the REMIC Administrator in preparing
reports to Certificateholders and the IRS. Prospective purchasers of Class X
Certificates are advised to consult their tax advisors concerning the
treatment of such Certificates.
Prepayment Premiums actually collected on the Mortgage Loans will be
distributed to the holders of each Class of Certificates entitled thereto as
described herein. It is not entirely clear under the Code when the amount of
a Prepayment Premium should be taxed to the holder of a Class of Certificates
entitled to a Prepayment Premium. For Federal income tax reporting purposes,
Prepayment Premiums will be treated as income to the holders of a Class of
Certificates entitled to Prepayment Premiums only after the Servicer's actual
receipt of a Prepayment Premium as to which such Class of Certificates is
entitled under the terms of the Pooling and Servicing Agreement. It appears
that Prepayment Premiums are to be treated as ordinary income rather than
capital gain. However, the correct characterization of such income is not
entirely clear and Certificateholders should consult their tax advisors
concerning the treatment of Prepayment Premiums.
The Class A-1, Class A-2, Class A-3, Class B and Class C Certificates will
be treated for Federal income tax purposes as having been issued at a
premium. Whether any holder of any 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.
CHARACTERIZATION OF INVESTMENTS IN OFFERED CERTIFICATES
The Offered Certificates will be "real estate assets" within the meaning
of Section 856(c)(4)(A) of the Code in the same proportion that the assets of
the Trust Fund would be so treated. In addition, interest (including original
issue discount, if any) on the Offered Certificates will be interest
described in Section 856(c)(3)(B) of the Code to the extent that such
Certificates are treated as "real estate assets" within the meaning of
Section 856(c)(4)(A) of the Code. Moreover, the Offered Certificates will be
"qualified mortgages" under Section 860G(a)(3) of the Code if transferred to
another REMIC on its start-up day in exchange for regular or residual
interests therein.
The Offered Certificates will be treated as assets within the meaning of
Section 7701(a)(19)(C) of the Code generally only to the extent of the
portion of the Mortgage Loans secured by multifamily Mortgaged Properties.
See "Description of the Mortgage Asset Pool" herein and "Certain Federal
Income Tax Consequences -- REMICs" 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.
S-81
<PAGE>
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in an Underwriting
Agreement, dated December 17, 1997 (the "Underwriting Agreement"), the
Underwriters have agreed to purchase and the Depositor has agreed to sell to
the Underwriters the Offered Certificates. It is expected that delivery of
the Offered Certificates will be made only in book-entry form through the
Same Day Funds Settlement System of DTC on or about December 23, 1997,
against payment therefor in immediately available funds.
In the Underwriting Agreement, each Underwriter has agreed to purchase the
portion of the Certificates of each Class set forth below.
ALLOCATION TABLE
<TABLE>
<CAPTION>
UNDERWRITER CLASS X CLASS A-1 CLASS A-2 CLASS A-3
- --------------------------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Goldman, Sachs & Co ........ 65% 57% 65% 61%
Deutsche Morgan
Grenfell Inc. ............. 35% 30% 35% 33%
Residential Funding
Securities Corporation ... -- 13% -- 6%
----------- ------------- ------------- -------------
Total ..................... 100% 100% 100% 100%
=========== ============= ============= =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
UNDERWRITER CLASS B CLASS C CLASS D CLASS E
- --------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Goldman, Sachs & Co ........ 60% 65% 65% 65%
Deutsche Morgan
Grenfell Inc. ............. 33% 35% 35% 35%
Residential Funding
Securities Corporation ... 7% -- -- --
----------- ----------- ----------- -----------
Total ..................... 100% 100% 100% 100%
=========== =========== =========== ===========
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all of the Offered
Certificates if any are purchased. In the event of default by either
Underwriter, the Underwriting Agreement provides that, in certain
circumstances, the purchase commitment of the nondefaulting Underwriters may
be increased or the underwriting may be terminated.
The Underwriting Agreement provides that the obligation of each
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 Underwriters may be
effected from time to time in one or more negotiated transactions, or
otherwise, at varying prices to be determined at the time of sale. Proceeds
to the Depositor from the sale of the Offered Certificates, before deducting
expenses payable by the Depositor, will be approximately 104.8% of the
aggregate Certificate Balance of the Offered Certificates, plus accrued
interest. Each 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, each Underwriter may be deemed to have received
compensation from the Depositor in the form of underwriting compensation.
Each 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.
Deutsche Morgan Grenfell Inc. is an affiliate of GACC, Goldman, Sachs &
Co. is an affiliate of GSMC and Residential Funding Securities Corporation is
an affiliate of each of GMACCM and the Depositor.
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriters, and that under limited circumstances the Underwriters will
indemnify the Depositor, against certain civil liabilities under the
Securities Act of 1933, as amended, or contribute to payments 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 Trustee Reports discussed herein under
"Description of
S-82
<PAGE>
the Certificates -- Reports to Certificateholders; Certain Available
Information." 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 by Orrick,
Herrington & Sutcliffe LLP and for the Underwriters by Brown & Wood LLP.
RATINGS
It is a condition to their issuance that the respective Classes of Offered
Certificates receive the indicated credit ratings from DCR and Moody's:
<TABLE>
<CAPTION>
CLASS DCR MOODY'S
- -------------- ------- -----------
<S> <C> <C>
Class X........ AAA Aaa
Class A-1 ..... AAA Aaa
Class A-2...... AAA Aaa
Class A-3...... AAA Aaa
Class B........ AA Aa2
Class C........ A- A2
Class D........ BBB Baa1
Class E........ NR Baa3
</TABLE>
The ratings of the Offered Certificates address the likelihood of the
timely receipt by holders thereof of all payments of interest to which they
are entitled and the ultimate receipt by holders thereof of all payments of
principal to which they are entitled, if any, by the Distribution Date in
April 2029 (the "Rated Final Distribution Date"). The ratings take into
consideration the credit quality of the Mortgage Asset Pool, structural and
legal aspects associated with the Certificates, and the extent to which the
payment stream from the Mortgage Asset Pool is adequate to make payments of
principal and interest required under the Offered Certificates. The ratings
of the Offered Certificates do not, however, represent any assessments of (i)
the likelihood or frequency of principal prepayments on the Mortgage Loans,
(ii) the degree to which such prepayments might differ from those originally
anticipated or (iii) whether and to what extent Prepayment Premiums will be
collected in connection with such prepayments or the corresponding effect on
yield to investors. In general, the ratings thus address credit risk and not
prepayment risk.
As described herein, the amounts payable with respect to the Class X
Certificates do not include principal. If all the Mortgage Loans were to
prepay in the initial month, with the result that the Class X Certificates
were to receive only a single month's interest (without regard to any
Prepayment Premiums that may be collected), and thus suffer a nearly complete
loss of their investment, all amounts "due" to such Certificateholders will
nevertheless have been paid, and such result is consistent with the ratings
assigned by Moody's and DCR to the Class X Certificates. The ratings of the
Class X Certificates by Moody's and DCR do not address the timing or
magnitude of reductions of the Notional Amount of the Class X Certificates,
but only the obligation to pay interest timely on the Notional Amount of the
Class X Certificates, as such may be reduced from time to time as described
herein. Such ratings do not represent any assessment of the yield to maturity
of the Class X Certificates or the possibility that the Class X
Certificateholders might not fully recover their investment in the event of
rapid prepayments of the Mortgage Loans (including both voluntary and
involuntary prepayments). The Class X Certificate Notional Amount upon which
interest is calculated is reduced by the allocation of Realized Losses and
S-83
<PAGE>
prepayments, whether voluntary or involuntary. The rating does not address
the timing or magnitude of reductions of such Notional Amount, but only the
obligation to pay interest timely on the notional amount as so reduced from
time to time. Accordingly, the ratings of the Class X Certificates should be
evaluated independently from similar ratings on other types of securities.
There can be no assurance as to whether any rating agency not requested to
rate the Offered Certificates will nonetheless issue a rating to any Class
thereof and, if so, what such rating would be. A rating assigned to any Class
of Offered Certificates by a rating agency that has not been requested by the
Depositor to do so may be lower than the ratings assigned thereto by Moody's
or DCR, as applicable. With respect to any Credit Lease Loan, a downgrade in
the credit rating of the related Tenants and/or Guarantors may have an
adverse effect on the rating of the Offered Certificates.
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
The Offered Certificates will not be "mortgage related securities" for
purposes of SMMEA. As a result, the appropriate characterization of the
Offered Certificates under various legal investment restrictions, and thus
the ability of investors subject to these restrictions to purchase the
Offered 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 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 counsel 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 and Class X 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 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 any similar exemption issued
to the Underwriters will apply to the Class B, Class C, Class D or Class E
Certificates. As a result, no transfer of a Class B, Class C, Class D or
Class E 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 Servicer with an opinion of counsel satisfactory to the Depositor,
the Trustee and the 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
S-84
<PAGE>
in the Pooling and Servicing Agreement. In lieu of such opinion of counsel,
the prospective transferee of a Class B, Class C, Class D or Class E
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. In addition, so long as the Class B, Class
C, Class D and Class E Certificates are registered in the name of Cede & Co.,
as nominee of DTC, any purchaser of such Certificates will be deemed to have
represented by such purchase that either: (a) such purchaser is not a Plan
and is not purchasing such Certificates by or on behalf of, or with assets
of, any Plan or (b) the purchase of any such Certificate by or on behalf of,
or with assets of, any Plan is permissible under applicable law, will not
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 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 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-85
<PAGE>
INDEX OF PRINCIPAL TERMS
<TABLE>
<CAPTION>
<S> <C>
Accrued Certificate Interest .............................. S-56
ADA ....................................................... S-28
Additional Trust Fund Expenses ............................ S-59
Advances .................................................. S-45
Allocated Principal Amount ................................ S-33
Anticipated Repayment Date ................................ S-10
Appraisal Reduction Amount ................................ S-61
ARD Loans ................................................. S-10
ARM Loans ................................................. S-9
Assumed Final Distribution Date ........................... S-2
Assumed Monthly Payment ................................... S-57
Available Distribution Amount ............................. S-55
Balloon Loans ............................................. S-9
Balloon Payment ........................................... S-9
Balloon Payment Interest Excess ........................... S-45
Balloon Payment Interest Shortfall ........................ S-45
CBE ....................................................... S-73
CEDEL ..................................................... S-8
CEDEL Participants ........................................ S-52
Certificates .............................................. Cover
Class ..................................................... Cover
Class A Certificates ...................................... Cover, S-50
Class X Components ........................................ S-12, S-53
Clearance Cooperative ..................................... S-52
Collection Period ......................................... S-54
Controlling Class ......................................... S-43
Corporate Trust Office .................................... S-65
Corrected Mortgage Loan ................................... S-42
Credit Lease Assignments .................................. S-10
Credit Lease Default ...................................... S-31
Credit Lease Loans ........................................ S-10
Credit Lease Properties ................................... S-10
Credit Leases ............................................. S-10
CRIC ...................................................... S-35
CRICKM Loan Borrower ...................................... S-35
CRICKM Loans .............................................. S-35
CRICKM Properties ......................................... S-35
Cross-Collateralized Mortgage Loans ....................... S-26
Cut-off Date Balance ...................................... S-28
DCR ....................................................... S-17
Defeasance Collateral ..................................... S-31
Defeasance Option ......................................... S-11
Deleted Mortgage Loan ..................................... S-38
Delivery Date ............................................. Cover
Depositories .............................................. S-51
Determination Date ........................................ S-54
Discount Rate ............................................. S-58
Discount Rate Fraction .................................... S-58
Distributable Certificate Interest ........................ S-56
Distribution Date ......................................... S-7
DTC Registered Certificates ............................... S-8
S-86
<PAGE>
Emergency Advance ......................................... S-46
Euroclear ................................................. S-8
Euroclear Operator ........................................ S-52
Euroclear Participants .................................... S-52
Excess Interest ........................................... S-10
Fixed-Rate Loans .......................................... S-9
Form 8-K .................................................. S-41
GACC ...................................................... S-7
GACC Mortgage Loans ....................................... S-29
GMACCM .................................................... S-7
GMACCM Mortgage Loans ..................................... S-29
Gross Margin .............................................. S-9
GSMC ...................................................... S-7
GSMC Mortgage Loans ....................................... S-29
Guarantor ................................................. S-24
IHS ....................................................... S-34
IHS of Lester ............................................. S-34
IHS/Litchfield Loan ....................................... S-33
IHS/Litchfield Mortgages .................................. S-33
IHS/Litchfield Properties ................................. S-33
Index ..................................................... S-9
Initial Pool Balance ...................................... S-2
Kmart ..................................................... S-35
Leases .................................................... S-34
LIC ....................................................... S-34
Liquidation Fee ........................................... S-44
Liquidation Fee Rate ...................................... S-44
Lockbox Account ........................................... S-29
LOP ....................................................... S-69
MAI ....................................................... S-36
Master Servicer ........................................... S-42
Maturity Assumptions ...................................... S-68
Modified Mortgage Loan .................................... S-61
Monthly Payments .......................................... S-29
Monthly Rental Payments ................................... S-10
Moody's ................................................... S-17
Mortgage Asset Pool ....................................... S-2
Mortgage Asset Seller ..................................... S-29
Mortgage Loan Purchase Agreement .......................... S-29
Mortgage Loan Sellers ..................................... S-7
Mortgage Loans ............................................ S-2
Net Aggregate Prepayment Interest Shortfall ............... S-56
Net Mortgage Rate ......................................... S-54
Offered Certificates ...................................... S-2, S-50
Pass-Through Rate ......................................... S-54
Permitted Encumbrances .................................... S-39
P&I Advance ............................................... S-15
Plan ...................................................... S-84
Pooling and Servicing Agreement ........................... S-11
Prepayment Interest Excess ................................ S-45
Prepayment Interest Shortfall ............................. S-45
Primary Term .............................................. S-31
Principal Allocation Fraction ............................. S-58
S-87
<PAGE>
Principal Balance Certificates ............................ S-2
Principal Distribution Amount ............................. S-57
Principal Window .......................................... S-6
PTCE ...................................................... S-85
Purchase Price ............................................ S-38
Qualifying Substitute Mortgage Loan ....................... S-38
Rated Final Distribution Date ............................. S-83
Rating Agencies ........................................... S-17
Realized Losses ........................................... S-59
Reimbursement Rate ........................................ S-60
Related Proceeds .......................................... S-45
Release Date .............................................. S-31
REMIC I ................................................... S-2
REMIC II .................................................. S-2
REMIC III ................................................. S-2
REMIC Regular Certificates ................................ Cover, S-50
REMIC Residual Certificates ............................... S-2, S-50
REO Account ............................................... S-48
REO Tax ................................................... S-48
Replacement Mortgage Loan ................................. S-38
Replacement Special Servicer .............................. S-43
Required Appraisal Loan ................................... S-61
Revised Rate .............................................. S-29
Rules ..................................................... S-51
Senior Certificates ....................................... Cover, S-50
Servicing Advances ........................................ S-45
Servicing Fee ............................................. S-44
Servicing Fee Rate ........................................ S-44
Servicing Standard ........................................ S-41
S&P ....................................................... S-35
Special Servicing Event ................................... S-41
Special Servicing Fee ..................................... S-44
Specially Serviced Mortgage Loan .......................... S-41
State Street .............................................. S-64
Stated Principal Balance .................................. S-53
Subordinate Certificates .................................. Cover, S-50
Substitution Shortfall Amount ............................. S-38
Tenant .................................................... S-10
Tenants ................................................... S-10
Terms and Conditions ...................................... S-52
Trust Fund ................................................ S-2
Trustee Reports ........................................... S-61
Underwriters .............................................. Cover
Underwriting Agreement .................................... S-82
Voting Rights ............................................. S-64
Weighted Average Net Mortgage Rate ........................ S-54
Workout Fee ............................................... S-44
Workout Fee Rate .......................................... S-44
YMP ....................................................... S-69
</TABLE>
S-88
<PAGE>
DISTRIBUTION OF REMAINING AMORTIZATION TERMS
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE CUT-OFF DATE PRINCIPAL BALANCE
<PAGE>
GMAC COMMERCIAL MORTGAGE CORPORATION AS MASTER SERVICER
GMAC COMMERCIAL MORTGAGE CORPORATION AS SPECIAL SERVICER
STATE STREET BANK AND TRUST COMPANY AS TRUSTEE
GMAC COMMERCIAL MORTGAGE SECURITIES, INC.
SERIES 1997-C2
REPORT TO CERTIFICATEHOLDERS FOR PAYMENT DATE:
PAYMENT SUMMARY
- ----------------------------------------------------------------------------------------------------------------------------
PASS-THROUGH INTEREST ORIGINAL BEGINNING PRINCIPAL CLASS INTEREST TOTAL P&I ENDING
CLASS CUSIP RATE TYPE BALANCE BALANCE DISTRIB. AMOUNT DISTRIBUTION AMT PAYABLE BALANCE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TOTALS:
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
DISTRIBUTIONS PER CERTIFICATE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
BEGINNING PRINCIPAL INTEREST ENDING
CLASS CERTIFICATE FACTOR DISTRIBUTION(1) DISTRIBUTION(1) CERTIFICATE FACTOR
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------
</TABLE>
- -----------------------------------------------------------------------------
For additional information or with questions, please contact:
- -----------------------------------------------------------------------------
STATE STREET CORPORATE TRUST
- -----------------------------------------------------------------------------
BOND ANALYST:
ACCOUNT OFFICER:
STREET CONNECTION:(FACTOR AND RATE BY CUSIP) (617)664-5500
STREET FAX: (617) 664-5600
Web Site: corporatetrust.statestreet.com
- -----------------------------------------------------------------------------
DISCLAIMER NOTICE: This report has been prepared by or based on information
furnished to State Street Bank and Trust Company ("State Street") by one or
more third parties (e.g.,Servicer, Master Servicer, etc.). State Street shall
not have and does not undertake responsibility for the accuracy or
completeness of information provided by such third parties, and makes no
representations or warranties with respect to the accuracy or completeness
thereof or the sufficiency thereof for any particular purpose. State Street
has not independently verified information received from third parties, and
shall have no liability for any inaccuracies therein or caused thereby.
B-1
<PAGE>
GMAC COMMERCIAL MORTGAGE CORPORATION AS MASTER SERVICER
GMAC COMMERCIAL MORTGAGE CORPORATION AS SPECIAL SERVICER
STATE STREET BANK AND TRUST COMPANY AS TRUSTEE
GMAC COMMERCIAL MORTGAGE SECURITIES, INC.
SERIES 1997-C2
REPORT TO CERTIFICATEHOLDERS FOR PAYMENT DATE:
PAYMENT DETAILS
PRINCIPAL DETAIL
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
BEGINNING PRINCIPAL REALIZED APPRAISAL REIMBRS ADD TRUST ENDING
CLASS BALANCE DISTRIBUTION LOSSES REDUCTION AMTS EXP/REALIZED LOSSES BALANCE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
TOTALS:
-------------------------------------------------------------------------------------------------
</TABLE>
INTEREST DETAIL
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
EXCESS
ACCRUED PREPAYMENT DISTRIBUTABLE CURRENT PAYMENT TO CLASS ENDING BALANCE
CERTIFICATE INTEREST CERTIFICATE UNPAID UNPAID INTEREST PREPYMT PREMS/ UNPAID
CLASS INTEREST SHORTFALLS INTEREST INTEREST INTEREST DIST AMOUNT YMC INTEREST
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
TOTALS:
-----------------------------------------------------------------------------------------------------------
</TABLE>
B-2
<PAGE>
GMAC COMMERCIAL MORTGAGE CORPORATION AS MASTER SERVICER
GMAC COMMERCIAL MORTGAGE CORPORATION AS SPECIAL SERVICER
STATE STREET BANK AND TRUST COMPANY AS TRUSTEE
GMAC COMMERCIAL MORTGAGE SECURITIES, INC.
SERIES 1997-C2
REPORT TO CERTIFICATEHOLDERS FOR PAYMENT DATE:
ADDITIONAL REPORTING INFORMATION
MORTGAGE LOAN ACTIVITY FOR RELATED PAYMENT DATE:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED BEGINNING ENDING AGG ENDING
# OF AVERAGE AVERAGE AGG STATED STATED UNPAID AVAILABLE
MORTGAGE REMAINING TERM MORTGAGE PRINCIPAL PRINCIPAL PRINCIPAL DISTRIBUTION
LOANS OUTS TO MATURITY RATE BALANCE BALANCE BALANCE AMT
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
CURRENT REALIZED CURRENT ADDITIONAL PRINCIPAL
LOSSES TRUST FUND EXP # OF PAYOFFS PREPAYMENTS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
APPRAISAL REDUCTION INFORMATION:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
LOANS # SPB OF APR RED LOAN ALL UNPD INT & FEES APPRAISED VALUE P&I ADVANCE ON LOAN
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
</TABLE>
AGGREGATE DELINQUENCY INFORMATION FOR RELATED PAYMENT DATE:
<TABLE>
<CAPTION>
ONE MONTH TWO MONTHS 3 MONTHS + FORECLOSURES
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
# OF LOANS
- ---------------------------------------------------------------------------------------
AGG PRIN BALANCE
- ---------------------------------------------------------------------------------------
</TABLE>
REO PROPERTY WITH FINAL RECOVERY DETERMINATION:
<TABLE>
<CAPTION>
MORTGAGE BASIS FOR FINAL ALL PROCEEDS PORTION PROCEEDS AMOUNT OF
LOAN # RECOVERY DETERMINATION RECEIVED TO CERTIFICATES REALIZED LOSS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
LIQUIDATED MORTGAGE LOANS: (OTHER THAN PREPAYMENTS IN FULL)
<TABLE>
<CAPTION>
LOAN NUMBER OF LIQUIDATION PORTION OF PROCEEDS AMOUNT OF
# LIQUIDATION EVENT PROCEEDS PAYABLE TO CERTIFICATES REALIZED LOSS
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
P&I ADVANCE & FEE INFORMATION
- ------------------------------
ADVANCES:
- --Current P&I
- --Outstanding P&I
- --Servicing
- --Nonrecoverable P&I
INTEREST ON:
- --P&I Advances
- --Servicing Advances
SERVICING COMPENSATION:
- --to Master Servicer
- --to Special Servicer
- --------------------------------
LOAN PREPAYMENT INFORMATION:
- ---------------------------------
LOAN # AMOUNT OF PREPAYMENT
- ---------------------------------
- ---------------------------------
- ---------------------------------
- ---------------------------------
- ---------------------------------
- ---------------------------------
TOTAL 0.00
- ---------------------------------
B-3
<PAGE>
STATE STREET CORPORATE TRUST
GMAC COMMERCIAL MORTGAGE SECURITIES, INC. WEB: CORPORATETRUST.STATESTREET.COM
SERIES 1997-C2 PAYMENT DATE:
REPORT
DISTRIBUTION OF CURRENT SCHEDULED PRINCIPAL BALANCES
- -------------------------------------------------------------------------------
AGGREGATE WEIGHTED AVERAGES
CURRENT SCHEDULED # OF MTG SCHED PRIN % TOT MNTHS MORT
PRINCIPAL BALANCE LOANS BALANCE SCHED BAL DSCR TO MAT RATE
- -------------------------------------------------------------------------------
less than
$1,000,000.00
$1,000,000.00+
$2,000,000.00+
$3,000,000.00+
$4,000,000.00+
$5,000,000.00+
$6,000,000.00+
$7,000,000.00+
$8,000,000.00+
$10,000,000.00+
$15,000,000.00+
$20,000,000.00+
- -------------------------------------------------------------------------------
Total
- -------------------------------------------------------------------------------
DISTRIBUTION OF CURRENT MORTGAGE INTEREST RATES
- -------------------------------------------------------------------------------
AGGREGATE WEIGHTED AVERAGES
CURRENT SCHEDULED # OF MTG SCHED PRIN % TOT MNTHS MORT
PRINCIPAL BALANCE LOANS BALANCE SCHED BAL DSCR TO MAT RATE
- -------------------------------------------------------------------------------
LESS THAN 8.000%
8.000%+
8.250%+
8.500%+
8.750%+
9.000%+
9.250%+
9.500%+
10.000%+
- -------------------------------------------------------------------------------
Total
- -------------------------------------------------------------------------------
DISTRIBUTION OF REMAINING STATED TERM (BALLOON LOANS ONLY)
- -------------------------------------------------------------------------------
REMAINING AGGREGATE WEIGHTED AVERAGES
STATED TERM # OF MTG SCHED PRIN % TOT MNTHS MORT
(MONTHS) LOANS BALANCE SCHED BAL DSCR TO MAT RATE
- -------------------------------------------------------------------------------
less than 13
13-24
25-36
37-48
49-60
61-72
73+
- -------------------------------------------------------------------------------
Total
- -------------------------------------------------------------------------------
DISTRIBUTION OF REMAINING STATED TERM (FULLY AMORTIZING LOANS ONLY)
- -------------------------------------------------------------------------------
REMAINING AGGREGATE WEIGHTED AVERAGES
STATED TERM # OF MTG SCHED PRIN % TOT MNTHS MORT
(MONTHS) LOANS BALANCE SCHED BAL DSCR TO MAT RATE
- -------------------------------------------------------------------------------
less than 13
13-24
25-36
37-60
61-120
121-180
181-240
241+
- -------------------------------------------------------------------------------
Total
- -------------------------------------------------------------------------------
B-4
<PAGE>
STATE STREET CORPORATE TRUST
GMAC COMMERCIAL MORTGAGE SECURITIES, INC. WEB: CORPORATETRUST.STATESTREET.COM
SERIES 1997-C2 PAYMENT DATE:
REPORT
DISTRIBUTION BY STATE
- -------------------------------------------------------------------------------
AGGREGATE WEIGHTED AVERAGES
# OF MTG SCHED PRIN % TOT MNTHS MORT
STATE LOANS BALANCE SCHED BAL DSCR TO MAT RATE
- -------------------------------------------------------------------------------
Texas
Florida
California
Pennsylvania
Maryland
Arizona
Georgia
New Jersey
Illinois
Massachusetts
Other
- -------------------------------------------------------------------------------
Total
- -------------------------------------------------------------------------------
DISTRIBUTION OF PROPERTY TYPE
- -------------------------------------------------------------------------------
AGGREGATE WEIGHTED AVERAGES
PROPERTY # OF MTG SCHED PRIN % TOT MNTHS MORT
TYPES LOANS BALANCE SCHED BAL DSCR TO MAT RATE
- -------------------------------------------------------------------------------
Multifamily
Retail
Hotel
Office
Industrial
Self-Storage
Health Care
Mobile Home Park
- -------------------------------------------------------------------------------
Total
- -------------------------------------------------------------------------------
DISTRIBUTION OF SEASONING
- -------------------------------------------------------------------------------
AGGREGATE WEIGHTED AVERAGES
SEASONING # OF MTG SCHED PRIN % TOT MNTHS MORT
(MONTHS) LOANS BALANCE SCHED BAL DSCR TO MAT RATE
- -------------------------------------------------------------------------------
less than 13
13-24
25-36
37-48
48-60
61-72
73+
- -------------------------------------------------------------------------------
Total
- -------------------------------------------------------------------------------
DISTRIBUTION OF MOST RECENT DEBT SERVICE COVERAGE RATIO
- -------------------------------------------------------------------------------
AGGREGATE WEIGHTED AVERAGES
# OF MTG SCHED PRIN % TOT MNTHS MORT
DSCR LOANS BALANCE SCHED BAL DSCR TO MAT RATE
- -------------------------------------------------------------------------------
0
less than 1.01
1.01-1.109
1.11-1.209
1.21-1.309
1.31-1.409
1.41-1.509
1.51-2.009
2.01+
- -------------------------------------------------------------------------------
Total
- -------------------------------------------------------------------------------
B-5
<PAGE>
STATE STREET CORPORATE TRUST
GMAC COMMERCIAL MORTGAGE SECURITIES, INC. WEB: CORPORATETRUST.STATESTREET.COM
SERIES 1997-C2 PAYMENT DATE:
REPORT
DISTRIBUTION OF LOAN TO VALUE RATIO
- -------------------------------------------------------------------------------
AGGREGATE WEIGHTED AVERAGES
MOST RECENT # OF MTG SCHED PRIN % TOT MNTHS MORT
LTV LOANS BALANCE SCHED BAL DSCR TO MAT RATE
- -------------------------------------------------------------------------------
0
less than 50.00
50.00+
60.00+
70.00+
80.00+
90.00+
100.00+
- -------------------------------------------------------------------------------
Total
- -------------------------------------------------------------------------------
DISTRIBUTION OF AMORTIZATION TYPE
- -------------------------------------------------------------------------------
AGGREGATE WEIGHTED AVERAGES
AMORTIZATION # OF MTG SCHED PRIN % TOT MNTHS MORT
TYPE LOANS BALANCE SCHED BAL DSCR TO MAT RATE
- -------------------------------------------------------------------------------
Amortizing Balloon
Fully Amortizing
Other
- -------------------------------------------------------------------------------
Total
- -------------------------------------------------------------------------------
DISTRIBUTION OF REMAINING AMORTIZATION TERM
- -------------------------------------------------------------------------------
ORIGINAL AGGREGATE WEIGHTED AVERAGES
AMORTIZATION # OF MTG SCHED PRIN % TOT MNTHS MORT
TERM LOANS BALANCE SCHED BAL DSCR TO MAT RATE
- -------------------------------------------------------------------------------
0+
120+
240+
270+
300+
330+
370+
- -------------------------------------------------------------------------------
Total
- -------------------------------------------------------------------------------
DISTRIBUTION OF ORIGINAL TERM TO MATURITY
- -------------------------------------------------------------------------------
ORIGINAL AGGREGATE WEIGHTED AVERAGES
TERM TO # OF MTG SCHED PRIN % TOT MNTHS MORT
MATURITY LOANS BALANCE SCHED BAL DSCR TO MAT RATE
- -------------------------------------------------------------------------------
0+
72+
89+
109+
121+
241+
275+
- -------------------------------------------------------------------------------
Total
- -------------------------------------------------------------------------------
B-6
<PAGE>
GMAC COMMERCIAL MORTGAGE SECURITIES, INC.
SERIES 1997-C2
DELINQUENT LOAN STATUS REPORT
AS OF ______________
<TABLE>
<CAPTION>
OTHER
SHORT NAME PAID SCHEDULED TOTAL P&I TOTAL ADVANCES
PROSPECTUS (WHEN PROPERTY SQ FT OR THRU LOAN ADVANCES EXPENSES TO (TAXES &
ID APPROPRIATE) TYPE CITY STATE UNITS DATE BALANCE TO DATE DATE ESCROW)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
90 + DAYS DELINQUENT
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
60 DAYS DELINQUENT
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
30 DAYS DELINQUENT
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Current & at Special Servicer
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
<PAGE>
- -----------------------------------------------------------------------------------------------------------------------
FCL--Foreclosure
- -----------------------------------------------------------------------------------------------------------------------
LTM--Latest 12 Months either Last Annual or Trailing 12 Months
- -----------------------------------------------------------------------------------------------------------------------
* Workout Strategy should match the CSSA Loan file using abbreviated words in place of a code number such as (FCL--In
Foreclosure, MOD--Modification, DPO--Discount Payoff, NS--Note Sale, BK--Bankruptcy, PP--Payment Plan, TBD--To Be
Determined)
- -----------------------------------------------------------------------------------------------------------------------
It is possible to combine the status codes if the loan is going in more than one direction. (i.e. FCL/Mod, BK/Mod,
BK/FCL/DPO)
- -----------------------------------------------------------------------------------------------------------------------
** App--Appraisal, BPO--Broker opinion, Int.--Internal Value
- -----------------------------------------------------------------------------------------------------------------------
*** How to determine the cap rate is agreed upon by Underwriter and servicers--to be provided by a third party.
- -----------------------------------------------------------------------------------------------------------------------
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<CAPTION>
VALUE
CURRENT CURRENT ***CAP USING NOI
TOTAL MONTHLY INTEREST MATURITY LTM NOI LTM RATE & CAP
EXPOSURE P&I RATE DATE DATE LTM NOI DSCR ASSIGNED RATE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
B-7
<PAGE>
GMAC COMMERCIAL MORTGAGE SECURITIES, INC.
SERIES 1997-C2
DELINQUENT LOAN STATUS REPORT
AS OF ______________
<TABLE>
<CAPTION>
APPRAISAL
SHORT NAME BPO OR LOSS USING ESTIMATED
PROSPECTUS (WHEN PROPERTY VALUATION INTERNAL 90% APPR. RECOVERY
ID APPROPRIATE) TYPE CITY STATE DATE VALUE** OR BPO (F) %
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
90 + DAYS DELINQUENT
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
60 DAYS DELINQUENT
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
30 DAYS DELINQUENT
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Current & at Special Servicer
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
<PAGE>
- -----------------------------------------------------------------------------------------------------
FCL--Foreclosure
- -----------------------------------------------------------------------------------------------------
LTM--Latest 12 Months either Last Annual or Trailing 12 Months
- -----------------------------------------------------------------------------------------------------
* Workout Strategy should match the CSSA Loan file using abbreviated words in place of a code number
such as (FCL--In Foreclosure, MOD--Modification, DPO--Discount Payoff, NS--Note Sale, BK--Bankruptcy,
PP--Payment Plan, TBD--To Be Determined)
- -----------------------------------------------------------------------------------------------------
It is possible to combine the status codes if the loan is going in more than one direction. (i.e.
FCL/Mod, BK/Mod, BK/FCL/DPO)
- -----------------------------------------------------------------------------------------------------
** App--Appraisal, BPO--Broker opinion, Int.--Internal Value
- -----------------------------------------------------------------------------------------------------
*** How to determine the cap rate is agreed upon by Underwriter and servicers--to be provided by a
third party.
- -----------------------------------------------------------------------------------------------------
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<CAPTION>
TOTAL
APPRAISAL FCL EXPECTED
REDUCTION TRANSFER RESOLUTION START FCL SALE WORKOUT
REALIZED DATE DATE DATE DATE STRATEGY COMMENTS
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
B-8
<PAGE>
<TABLE>
<CAPTION>
GMAC COMMERCIAL MORTGAGE CORPORATION AS MASTER SERVICER STATE STREET CORPORATE TRUST
GMAC COMMERCIAL MORTGAGE CORPORATION AS SPECIAL SERVICER WEB: CORPORATETRUST.STATESTREET.COM
STATE STREET BANK AND TRUST COMPANY AS TRUSTEE PAYMENT DATE:
GMAC COMMERCIAL MORTGAGE SECURITIES, INC. REPORT ID
SERIES 1997-C2
LOAN LEVEL DETAIL
- -----------------------------------------------------------------------------------------------------------------------------------
OFFER PROPERTY TRANSFER MATURITY NEG AM BEG NOTE SCHED PREPAY/ PREPAY PAID THRU PREPMT LOAN
CONTROL # TYPE DATE STATE DATE (Y/N) SCHED BAL RATE P&I LIQUID DATE DATE PREMIUM STATUS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
Totals
- -------------------------------------------------------------------------------
If state field is blank loan has properties in multiple states.
- -------------------------------------------------------------------------------
Loan Status:
A = Payment not rec'd. but still in grace period, B = Late payment, but less
than 1 mo., 0 = Current, 1 = 1 mo. delinquent, 2 = 2 mo. delinquent, 3 = Three
or more mo. delinquent 4 = Assumed scheduled payment (performing matured
balloon), 7 = Foreclosure, 9 = REO
- -------------------------------------------------------------------------------
B-9
<PAGE>
GMAC COMMERCIAL MORTGAGE SECURITIES, INC.
SERIES 1997-C2
HISTORICAL LOAN MODIFICATION REPORT
AS OF ______________
<TABLE>
<CAPTION>
BALANCE BALANCE
WHEN AT THE
MOD/ SENT TO EFFECTIVE # MTHS
PROSPECTUS EXTENSION EFFECT SPECIAL DATE OF OLD FOR RATE NEW OLD NEW
ID CITY STATE FLAG DATE SERVICER REHABILITATION RATE CHANGE RATE P&I P&I
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
THIS REPORT IS HISTORICAL
- -----------------------------------------------------------------------------------------------------------------
INFORMATION IS AS OF MODIFICATION. EACH LINE SHOULD NOT CHANGE IN THE FUTURE.
ONLY NEW MODIFICATIONS SHOULD BE ADDED.
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
TOTAL FOR ALL LOANS:
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
TOTAL FOR LOANS IN CURRENT MONTH:
- -----------------------------------------------------------------------------------------------------------------
# OF LOANS $ BALANCE
- -----------------------------------------------------------------------------------------------------------------
MODIFICATIONS:
- -----------------------------------------------------------------------------------------------------------------
MATURITY DATE EXTENSIONS:
- -----------------------------------------------------------------------------------------------------------------
TOTAL:
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
<PAGE>
- -----------------------------------------------------------------------------------------------------------------
* The information in these columns is from a particular point in time and should not change on this
report once assigned.
- -----------------------------------------------------------------------------------------------------------------
(1) Actual principal loss taken by bonds
- -----------------------------------------------------------------------------------------------------------------
(2) Expected future loss due to a rate reduction. This is just an estimate calculated at the time
of the modification.
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
(2) EST.
FUTURE
INTEREST
TOTAL # (1) LOSS TO
MTHS FOR REALIZED TRUST $
OLD NEW CHANGE LOSS TO (RATE
MATURITY MATURITY OF MOD TRUST $ REDUCTION) COMMENT
- -----------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
</TABLE>
B-10
<PAGE>
GMAC COMMERCIAL MORTGAGE SECURITIES, INC.
SERIES 1997-C2
HISTORICAL LOSS ESTIMATE REPORT (REO-SOLD OR DISCOUNTED PAYOFF)
AS OF ______________
<TABLE>
<CAPTION>
% LATEST
SHORT NAME RECEIVED APPRAISAL EFFECT NET AMT
PROSPECTUS (WHEN PROPERTY FROM OR BROKERS DATE OF SALES RECEIVED SCHEDULED TOTAL P&I
ID APPROPRIATE) TYPE CITY STATE SALE OPINION SALE PRICE FROM SALE BALANCE ADVANCED
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
THIS REPORT IS HISTORICAL
- ---------------------------------------------------------------------------------------------------------------------------------
ALL INFORMATION IS FROM THE LIQUIDATION DATE AND DOES NOT NEED TO BE UPDATED.
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL ALL LOANS:
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
CURRENT MONTH ONLY:
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DATE
ACTUAL DATE MINOR TOTAL LOSS %
SERVICING LOSSES LOSS ADJ LOSS OF
TOTAL FEES NET PASSED PASSED MINOR ADJ PASSED WITH SCHEDULED
EXPENSES EXPENSE PROCEEDS THRU THRU TO TRUST THRU ADJUSMENT BALANCE
- -----------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
B-11
<PAGE>
GMAC COMMERCIAL MORTGAGE SECURITIES, INC.
SERIES 1997-C2
REO STATUS REPORT
AS OF ______________
<TABLE>
<CAPTION>
OTHER
SHORT NAME SCHEDULED TOTAL P&I TOTAL ADVANCES
PROSPECTUS (WHEN PROPERTY SQ FT PAID THRU LOAN ADVANCES EXPENSES (TAXES & TOTAL
ID APPROPRIATE) TYPE CITY STATE OR UNITS DATE BALANCE TO DATE TO DATE ESCROW) EXPOSURE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
LOSS
CAP VALUE APPRAISAL USING
CURRENT LTM LTM RATE USING BPO OR 92% ESTIMATED
MONTHLY MATURITY NOI NOI/ ASSIGN VALUATION NOI & INTERNAL APPR. OR RECOVERY
P&I DATE DATE DSC *** DATE CAP RATE VALUE** BPO (F) %
- -----------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
TOTAL
APPRAISAL REO PENDING
REDUCTION TRANSFER ACQUISITION RESOLUTION
REALIZED DATE DATE DATE COMMENTS
- -----------------------------------------------------------------
<C> <C> <C> <C> <C>
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
</TABLE>
(1) Use the following codes; App.-Appraisal, BPO-Brokers Opinion,
Int-Internal Value
*** How to determine the cap rate is agreed upon by Underwriter and servicers
- to be provided by a third party.
B-12
<PAGE>
GMAC COMMERCIAL MORTGAGE SECURITIES, INC.
SERIES 1997-C2
SERVICER WATCH LIST
AS OF ______________
<TABLE>
<CAPTION>
S4 S55 S61 S57 S58 P7 P8 P11 P54
- -----------------------------------------------------------------------------------------------------------------------------------
SHORT NAME SCHEDULED PAID
PROSPECTUS (WHEN PROPERTY LOAN THRU MATURITY LTM*
ID APPROPRIATE) TYPE CITY STATE BALANCE DATE DATE DSCR COMMENT/REASON ON WATCH LIST
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
List all loans on watch list and reason sorted in descending balance order.
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Total: $
- -----------------------------------------------------------------------------------------------------------------------------------
* LTM--Last 12 months either trailing or last annual
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-13
<PAGE>
GMAC COMMERCIAL MORTGAGE SECURITIES, INC.
SERIES 1997-C2
COMPARATIVE FINANCIAL STATUS REPORT
AS OF ______________
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
ORIGINAL UNDERWRITING INFORMATION
- ------------------------------------------------------------------------------------------------------------
BASIS YEAR
- --------------------------------------------------------------------------------
Last
Property Scheduled Paid Annual Financial
Prospectus Inspect Loan Thru Debt Info as of % Total $
ID City State Date Balance Date Service Date Occ Revenue NOI DSCR
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
yy/mm yy/mm
- ------------------------------------------------------------------------------------------------------------
List all loans currently in deal with or without information largest to smallest loan
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Total: $ $ WA $ $ WA
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
RECEIVED
- ------------------------------------------------------------------------------------------------------------
FINANCIAL INFORMATION: LOANS BALANCE
- ------------------------------------------------------------------------------------------------------------
# % $ %
- ------------------------------------------------------------------------------------------------------------
CURRENT FULL YEAR:
- ------------------------------------------------------------------------------------------------------------
CURRENT FULL YR. RECEIVED WITH DSC LESS THAN 1:
- ------------------------------------------------------------------------------------------------------------
PRIOR FULL YEAR:
- ------------------------------------------------------------------------------------------------------------
PRIOR FULL YR. RECEIVED WITH DSC LESS THAN 1:
- ------------------------------------------------------------------------------------------------------------
QUARTERLY FINANCIALS:
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------------------------------------
(1) DSC calculated using NOI/Debt Service
- ------------------------------------------------------------------------------------------------------------
(2) Net change should compare the latest year to the underwriting year
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------
2ND PRECEDING ANNUAL OPERATING INFORMATION PRECEDING ANNUAL OPERATING INFORMATION
- ---------------------------------------------------------------------------------------
AS OF __________ NORMALIZED AS OF __________ NORMALIZED
- ---------------------------------------------------------------------------------------
Financial Financial
Info as of % Total $ Info as of % Total $
Date Occ Revenue NOI DSCR Date Occ Revenue NOI DSCR
- ---------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------
yy/mm yy/mm
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
WA $ $ WA WA $ $ WA
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
REQUIRED
- ---------------------------------------------------------------------------------------
LOANS BALANCE
- ---------------------------------------------------------------------------------------
# % $ %
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
- ---------------------------------------------------------------
YTD OR TRAILING FINANCIAL INFORMATION NET CHANGE
- ---------------------------------------------------------------
MONTH REPORTED "ACTUAL" PRECEDING & BASIS
- ---------------------------------------------------------------
%
FS Start FS End Total $ % % Total
Date Date Revenue NOI DSC Occ Rev DSC
- ---------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------
yy/mm yy/mm
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
WA $ $ WA WA $ WA
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
</TABLE>
B-14
<PAGE>
GMAC COMMERCIAL MORTGAGE SECURITIES, INC.
SERIES 1997-C2
OPERATING STATEMENT ANALYSIS REPORT
AS OF ______________
<TABLE>
<CAPTION>
<S> <C>
PROPERTY OVERVIEW
----------------
Control Number | |
------------------------------
Current Balance/Paid to Date | |
---------------------------------------------------------
Property Name | |
---------------------------------------------------------
Property Type | |
---------------------------------------------------------
Property Address, City, | |
State ---------------------------------------------------------
Net Rentable Square Feet | |
------------------------------
Year Built/Year Renovated | |
-------------------------------------------------------------------------
Year of Operations | UNDERWRITING | 1993 | 1994 | 1995 | YTD |
-------------------------------------------------------------------------
Occupancy Rate* | | | | | |
-------------------------------------------------------------------------
Average Rental Rate | | | | | |
-------------------------------------------------------------------------
* OCCUPANCY RATES ARE YEAR END OR THE ENDING DATE OF THE FINANCIAL
STATEMENT FOR THE PERIOD.
INCOME:
NO. OF MOS.
-------------
NUMBER OF MOS. ANNUALIZED PRIOR YEAR CURRENT YR. | |
-------------------------------------------------------------------------------------------------
PERIOD ENDED | UNDERWRITING | 1993 | 1994 | 1995 | 1996 YTD** | 1995-BASE | 1995-1994 |
STATEMENT CLASSIFICATION | BASE LINE | NORMALIZED | NORMALIZED | NORMALIZED | AS OF / /96 | VARIANCE | VARIANCE |
-------------------------------------------------------------------------------------------------
Rental Income (Category 1) | | | | | | | |
-------------------------------------------------------------------------------------------------
Rental Income (Category 2) | | | | | | | |
-------------------------------------------------------------------------------------------------
Rental Income (Category 3) | | | | | | | |
-------------------------------------------------------------------------------------------------
Pass Through/Escalations | | | | | | | |
-------------------------------------------------------------------------------------------------
Other Income | | | | | | | |
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
EFFECTIVE GROSS INCOME | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | % | % |
-------------------------------------------------------------------------------------------------
Normalized - Full year Financial statements that have been reviewed by the underwriter or
Servicer
** Servicer wil not be expected to "Normalize" these YTD numbers.
OPERATING EXPENSES:
-------------------------------------------------------------------------------------------------
Real Estate Taxes | | | | | | | |
-------------------------------------------------------------------------------------------------
Property Insurance | | | | | | | |
-------------------------------------------------------------------------------------------------
Utilities | | | | | | | |
-------------------------------------------------------------------------------------------------
Repairs and Maintenance | | | | | | | |
-------------------------------------------------------------------------------------------------
Management Fees | | | | | | | |
-------------------------------------------------------------------------------------------------
Payroll & Benefits Expense | | | | | | | |
-------------------------------------------------------------------------------------------------
Advertising & Marketing | | | | | | | |
-------------------------------------------------------------------------------------------------
Professional Fees | | | | | | | |
-------------------------------------------------------------------------------------------------
Other Expenses | | | | | | | |
-------------------------------------------------------------------------------------------------
Ground Rent | | | | | | | |
-------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | % | % |
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
OPERATING EXPENSE RATIO | | | | | | | |
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
NET OPERATING INCOME | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | | |
-------------------------------------------------------------------------------------------------
<PAGE>
-------------------------------------------------------------------------------------------------
Leasing Commissions | | | | | | | |
-------------------------------------------------------------------------------------------------
Tenant Improvements | | | | | | | |
-------------------------------------------------------------------------------------------------
Replacement Reserve | | | | | | | |
-------------------------------------------------------------------------------------------------
TOTAL CAPITAL ITEMS | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | | $0.00 |
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
NOI AFTER CAPITAL ITEMS | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | | |
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
DEBT SERVICE (PER SERVICER) | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | | |
-------------------------------------------------------------------------------------------------
CASH FLOW AFTER DEBT SERVICE | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | | |
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
(1) DSCR: (NOI/DEBT SERVICE) | | | | | | | |
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
DSCR: (AFTER RESERVES/CAP EXP.) | | | | | | | |
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
SOURCE OF FINANCIAL DATA:
-------------------------------------------------------------------------------------------------
(i.e. operating statements, financial statements, tax
return, other)
</TABLE>
NOTES AND ASSUMPTIONS:
- -----------------------------------------------------------------------------
The years shown above will roll always showing a three year history. 1995 is
the current year financials; 1994 is the prior year financials.
This report may vary depending on the property type and because of the way
information may vary in each borrower's statement.
Rental Income need to be broken down whenever possible differently for each
property type as follows: Retail: 1) Base Rent 2) Percentage rents on cashflow
Hotel: 1) Room Revenue 2) Food/Beverage Nursing Home: 1) Private 2) Medicaid 3)
Medicare
INCOME: COMMENT
EXPENSE: COMMENT
CAPITAL ITEMS: COMMENT
(1) Used in the Comparative Financial Status Report
B-15
<PAGE>
GMAC COMMERCIAL MORTGAGE SECURITIES, INC.
SERIES 1997-C2
NOI ADJUSTMENT WORKSHEET FOR "YEAR"
AS OF ______________
<TABLE>
<CAPTION>
<S> <C>
PROPERTY OVERVIEW
--------------
Control Number | |
---------------------------
Current Balance/Paid to Date | |
------------------------------------------------
Property Name | |
------------------------------------------------
Property Type | |
------------------------------------------------
Property Address, City, | |
State ------------------------------------------------
Net Rentable Square Feet | |
---------------------------
Year Built/Year Renovated | |
----------------------------------------
Year of Operations | BORROWER | ADJUSTMENT | NORMALIZED |
----------------------------------------
Occupancy Rate* | | | |
----------------------------------------
Average Rental Rate | | | |
----------------------------------------
* OCCUPANCY RATES ARE YEAR END OR THE
ENDING DATE OF THE FINANCIAL
STATEMENT FOR THE PERIOD.
INCOME:
NUMBER OF MOS. ANNUALIZED "YEAR"
------------------------------------------------------------------
PERIOD ENDED | BORROWER | | | | |
STATEMENT CLASSIFICATION | ACTUAL | | ADJUSTMENT | | NORMALIZED |
------------------------------------------------------------------
Rental Income (Category 1) | | | | | |
------------------------------------------------------------------
Rental Income (Category 2) | | | | | |
------------------------------------------------------------------
Rental Income (Category 3) | | | | | |
------------------------------------------------------------------
Pass Through/Escalations | | | | | |
------------------------------------------------------------------
Other Income | | | | | |
------------------------------------------------------------------
------------------------------------------------------------------
EFFECTIVE GROSS INCOME | $0.00 | | $0.00 | | $0.00 |
------------------------------------------------------------------
Normalized - Full year Financial statements that have been
reviewed by the underwriter or Servicer
OPERATING EXPENSES:
------------------------------------------------------------------
Real Estate Taxes | | | | | |
------------------------------------------------------------------
Property Insurance | | | | | |
------------------------------------------------------------------
Utilities | | | | | |
------------------------------------------------------------------
Repairs and Maintenance | | | | | |
------------------------------------------------------------------
Management Fees | | | | | |
------------------------------------------------------------------
Payroll & Benefits Expense | | | | | |
------------------------------------------------------------------
Advertising & Marketing | | | | | |
------------------------------------------------------------------
Professional Fees | | | | | |
------------------------------------------------------------------
Other Expenses | | | | | |
------------------------------------------------------------------
Ground Rent | | | | | |
------------------------------------------------------------------
TOTAL OPERATING EXPENSES | $0.00 | | $0.00 | | $0.00 |
------------------------------------------------------------------
------------------------------------------------------------------
OPERATING EXPENSE RATIO | | | | | |
------------------------------------------------------------------
------------------------------------------------------------------
NET OPERATING INCOME | $0.00 | | $0.00 | | $0.00 |
------------------------------------------------------------------
<PAGE>
------------------------------------------------------------------
Leasing Commissions | | | | | |
------------------------------------------------------------------
Tenant Improvements | | | | | |
------------------------------------------------------------------
Replacement Reserve | | | | | |
------------------------------------------------------------------
TOTAL CAPITAL ITEMS | $0.00 | | $0.00 | | $0.00 |
------------------------------------------------------------------
------------------------------------------------------------------
NOI AFTER CAPITAL ITEMS | $0.00 | | $0.00 | | $0.00 |
------------------------------------------------------------------
------------------------------------------------------------------
DEBT SERVICE (PER SERVICER) | $0.00 | | $0.00 | | $0.00 |
------------------------------------------------------------------
CASH FLOW AFTER DEBT SERVICE | $0.00 | | $0.00 | | $0.00 |
------------------------------------------------------------------
------------------------------------------------------------------
(1) DSCR: (NOI/DEBT SERVICE) | | | | | |
------------------------------------------------------------------
------------------------------------------------------------------
DSCR: (AFTER RESERVES/CAP EXP.) | | | | | |
------------------------------------------------------------------
------------------------------------------------------------------
SOURCE OF FINANCIAL DATA:
------------------------------------------------------------------
(i.e. operating statements, financial statements, tax return,
other)
</TABLE>
NOTES AND ASSUMPTIONS:
- -------------------------------------------------------------------------------
This report should be completed by the Servicer for any "Normalization" of
the Borrowers numbers.
The "Normalized" column is used in the Operating Statement Analysis Report.
This report may vary depending on the property type and because of the way
information may vary in each borrower's statement.
INCOME: COMMENTS
EXPENSE: COMMENTS
CAPITAL ITEMS: COMMENTS
(1) Used in the Comparative Financial Status Report
B-16
<PAGE>
ANNEX D
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered GMAC
Commercial Mortgage Securities, Inc. Mortgage Pass-Through Certificates,
Series 1997-C2 (the "Global Securities") will be available only in book-entry
form. Investors in the Global Securities may hold such Global Securities
through any of DTC, CEDEL or Euroclear. The Global Securities will be
tradeable as home market instruments in both the European and U.S. domestic
markets. Initial settlement and all secondary trades will settle in same day
funds. Capitalized terms used but not defined in this Annex B have the
meanings assigned to them in the Prospectus Supplement and the Prospectus.
Secondary market trading between investors holding Global Securities
through CEDEL and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and oper ating procedures and in
accordance with conventional eurobond practice (i.e., seven calendar day
settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures
applicable to U.S. corporate debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Certificates will be effected on a
delivery-against-payment basis through the respective Depositaries of CEDEL
and Euroclear (in such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name
of Cede & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect Participants in DTC. As a result, CEDEL and
Euroclear will hold positions on behalf of their participants through their
respective Depositaries, which in turn will hold such positions in accounts
as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to similar issues of pass-through
certificates. Investors' securities custody accounts will be credited with
their holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global
security and no "lock-up" or restricted period. Global Securities will be
credited to the securities custody accounts on the settlement date against
payments in same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired
value date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to similar
issues of pass-through certificates in same-day funds.
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and CEDEL or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a CEDEL Participant or a Euroclear Participant, the purchaser will
send instructions to CEDEL or Euroclear through a CEDEL Participant or
Euroclear Participant at least one business day prior to settlement. CEDEL or
Euroclear will instruct the respective Depositary, as the case may be, to
receive the Global Securities against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment
date
D-1
<PAGE>
to and excluding the settlement date. Payment will then be made by the
respective Depositary to the DTC Participant's account against delivery of
the Global Securities. After settlement has been completed, the Global
Securities will be credited to the respective clearing system and by the
clearing system, in accordance with its usual procedures, to the CEDEL
Participant's or Euroclear Participant's account. The Global Securities
credit will appear the next day (European time) and the cash debit will be
back-valued to, and the interest on the Global Securities will accrue from,
the value date (which would be the preceding day when settlement occurred in
New York). If settlement is not completed on the intended value date (i.e.,
the trade fails), the CEDEL or Euroclear cash debit will be valued instead as
of the actual settlement date.
CEDEL Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day
funds settlement. The most direct means of doing so is to pre-position funds
for settlement, either from cash on hand or existing lines of credit, as they
would for any settlement occurring within CEDEL or Euroclear. Under this
approach, they may take on credit exposure to CEDEL or Euroclear until the
Global Securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL Participants or Euroclear Participants can elect not to
pre-position funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, CEDEL Participants or Euroclear
Participants purchasing Global Securities would incur overdraft charges for
one day, assuming they cleared the overdraft when the Global Securities were
credited to their accounts. However, interest on the Global Securities would
accrue from the value date. Therefore, in many cases the investment income on
the Global Securities earned during that one day period may substantially
reduce or offset the amount of such overdraft charges, although this result
will depend on each CEDEL Participant's or Euroclear Participant's particular
cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities
to the respective Depositary for the benefit of CEDEL Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller
on the settlement date. Thus, to the DTC Participant a cross-market
transaction will settle no differently than a trade between two DTC
Participants.
Trading between CEDEL or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, CEDEL Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear
Participant at least one business day prior to settlement. In these cases,
CEDEL or Euroclear will instruct the respective Depositary, as appropriate,
to deliver the bonds to the DTC Participant's account against payment.
Payment will include interest accrued on the Global Securities from and
including the last coupon payment date to and excluding the settlement date.
The payment will then be reflected in the account of the CEDEL Participant or
Euroclear Participant the following day, and receipt of the cash proceeds in
the CEDEL Participant's or Euroclear Participant's account would be
back-valued to the value date (which would be the preceding day, when
settlement occurred in New York). Should the CEDEL Participant or Euroclear
Participant have a line of credit with its respective clearing system and
elect to be in debit in anticipation of receipt of the sale proceeds in its
account, the back-valuation will extinguish any overdraft charges incurred
over that one-day period. If settlement is not completed on the intended
value date (i.e., the trade fails), receipt of the cash proceeds in the CEDEL
Participant's or Euroclear Participant's account would instead be valued as
of the actual settlement date. Finally, day traders that use CEDEL or
Euroclear and that purchase Global Securities from DTC Participants for
delivery to CEDEL Participants or Euroclear Participants should note that
these trades would automatically fail on the sale side unless affirmative
action were taken. At least three techniques should be readily available to
eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the purchase
side of the day trade is reflected in their CEDEL or Euroclear accounts)
in accordance with the clearing system's customary procedures;
D-2
<PAGE>
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their CEDEL or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC Participant is at least
one day prior to the value date for the sale to the CEDEL Participant or
Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A Beneficial Owner of Global Securities holding securities through CEDEL
or Euroclear (or through DTC if the holder has an address outside the U.S.)
will be subject to the 30% U S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank or other
financial institution that holds customers' securities in the ordinary course
of its trade or business in the chain of intermediaries between such
Beneficial Owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (ii) such beneficial owner takes
one of the following steps to obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial Owners of
Certificates that are non-U.S. Persons can obtain a complete exemption from
the withholding tax by filing a signed Form W-8 (Certificate of Foreign
Status). If the information shown on Form W-8 changes, a new Form W-8 must be
filed within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a
U.S. branch, for which the interest income is effectively connected with its
conduct of a trade or business in the United States can obtain an exemption
from the withholding tax by filing Form 4224 (Exemption from Withholding of
Tax on Income Effectively Connected with the Conduct of a Trade or Business
in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are Beneficial Owners residing
in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing Form
1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty
provides only for a reduced rate, withholding tax will be imposed at that
rate unless the filer alternatively files Form W-8. Form 1001 may be filed by
the Beneficial Owner or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Beneficial Owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through whom it
holds (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of
the United States or any political subdivision thereof or (iii) an estate the
income of which is includable in gross income for United States tax purposes,
regardless of its source or a trust if a court within the United States is
able to exercise primary supervision of the administration of the trust and
one or more United States fiduciaries have the authority to control all
substantial decisions of the trust. This summary does not deal with all
aspects of U.S. Federal income tax withholding that may be relevant to
foreign holders of the Global Securities. Investors are advised to consult
their own tax advisors for specific tax advice concerning their holding and
disposing of the Global Securities.
D-3
<PAGE>
This diskette contains two spreadsheet files in read-only format that can
be put on a user-specified hard drive or network drive. These two files are
"GMAC97C2.xls" and "GMAC97C2.wk4." The file "GMAC97C2.xls" is a Microsoft
Excel(1), Version 5.0 spreadsheet, and the file "GMAC97C2.wk4" is a Lotus
123(1), Version 4.1 spreadsheet. Each file provides, in electronic format,
certain loan level information shown in ANNEX A of the Prospectus Supplement.
Open either file as you would normally open any spreadsheet in either
Microsoft Excel or Lotus 123. After either file is opened, a securities law
legend will be displayed. READ THE LEGEND CAREFULLY. To view the ANNEX A
data, see the worksheet labeled "Annex A."
- ------------
(1) Microsoft Excel and Lotus 123 are registered trademarks of Microsoft
Corporation and Lotus Development Corporation, respectively.
<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 UNDERWRITERS. 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
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Transaction Overview........................ S-6
Summary..................................... S-7
Risk Factors................................ S-19
Description of the Mortgage Asset Pool ..... S-28
Servicing of the Mortgage Loans............. S-41
Description of the Certificates............. S-50
Yield and Maturity Considerations........... S-66
Certain Federal Income Tax Consequences .... S-80
Method of Distribution...................... S-82
Legal Matters............................... S-83
Ratings..................................... S-83
Legal Investment............................ S-84
ERISA Considerations........................ S-84
Index of Principal Terms.................... S-86
Annex A .................................... A-1
Annex B .................................... B-1
Annex C .................................... C-1
Annex D .................................... D-1
</TABLE>
PROSPECTUS
<TABLE>
<CAPTION>
<S> <C>
Available Information ....................... 3
Incorporation of Certain Information by
Reference .................................. 4
Summary of Prospectus ....................... 5
Risk Factors ................................ 11
Description of the Trust Funds .............. 14
Yield and Maturity Considerations ........... 19
The Depositor ............................... 24
GMAC Commercial Mortgage Corporation ....... 24
Description of the Certificates ............. 25
The Pooling and Servicing Agreements ....... 32
Description of Credit Support ............... 47
Certain Legal Aspects of Mortgage Loans .... 49
Certain Federal Income Tax Consequences .... 58
State and Other Tax Consequences ............ 80
ERISA Considerations ........................ 81
Legal Investment ............................ 85
Use of Proceeds ............................. 86
Method of Distribution ...................... 87
Legal Matters ............................... 88
Financial Information ....................... 88
Rating ...................................... 88
Index of Principal Definitions .............. 89
</TABLE>
$941,294,000
(APPROXIMATE)
GMAC COMMERCIAL
MORTGAGE SECURITIES, INC.
MORTGAGE PASS-THROUGH
CERTIFICATES,
SERIES 1997-C2
PROSPECTUS SUPPLEMENT
GOLDMAN, SACHS & CO.
DEUTSCHE MORGAN GRENFELL
RESIDENTIAL FUNDING SECURITIES
CORPORATION
DECEMBER 17, 1997
<PAGE>
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 11
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 December 17, 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".
2
<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 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.
3
<PAGE>
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 SERVICE ................ 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
Prospectus Supplement, a Trust Fund
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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.
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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".
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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".
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<PAGE>
CREDIT SUPPORT AND CASH FLOW
AGREEMENTS ................... If so provided in the related Prospectus
Supplement, partial or full protection
against certain defaults and losses on the
Mortgage Assets in the related Trust Fund
may be provided to one or more classes of
Certificates of the related series in the
form of subordination of one or more other
classes of Certificates of such series,
which other classes may include one or more
classes of Offered Certificates, or by one
or more other types of credit support, such
as a letter of credit, insurance policy,
guarantee, reserve fund or another type of
credit support, or a combination thereof
(any such coverage with respect to the
Certificates of any series, "Credit
Support"). If so provided in the related
Prospectus Supplement, a Trust Fund may
include: (i) guaranteed investment contracts
pursuant to which moneys held in the funds
and accounts established for the related
series will be invested at a specified rate;
or (ii) certain other agreements, such as
interest rate exchange agreements, interest
rate cap or floor agreements, or other
agreements designed to reduce the effects of
interest rate fluctuations on the Mortgage
Assets or on one or more classes of
Certificates (any such agreement, in the
case of clause (i) or (ii), a "Cash Flow
Agreement"). Certain relevant information
regarding any applicable Credit Support or
Cash Flow Agreement will be set forth in the
Prospectus Supplement for a series of
Offered Certificates. See "Risk
Factors--Credit Support Limitations",
"Description of the Trust Funds--Credit
Support" and "--Cash Flow Agreements" and
"Description of Credit Support".
ADVANCES ...................... If and to the extent provided in the related
Prospectus Supplement, if a Trust Fund
includes Mortgage Loans, the Master
Servicer, a Special Servicer, the Trustee,
any provider of Credit Support and/or any
other specified person may be obligated to
make, or have the option of making, certain
advances with respect to delinquent
scheduled payments of principal and/or
interest on such Mortgage Loans. Any such
advances made with respect to a particular
Mortgage Loan will be reimbursable from
subsequent recoveries in respect of such
Mortgage Loan and otherwise to the extent
described herein and in the related
Prospectus Supplement. See "Description of
the Certificates-Advances in respect of
Delinquencies". If and to the extent
provided in the Prospectus Supplement for a
series of 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.
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<PAGE>
OPTIONAL TERMINATION .......... The Master Servicer, the Depositor or, if
specified in the related Prospectus
Supplement, the holder of the residual
interest in a REMIC may at its option either
(i) effect early retirement of a series of
Certificates through the purchase of the
assets in the related Trust Fund or (ii)
purchase, in whole but not in part, the
Certificates specified in the related
Prospectus Supplement; in each case under
the circumstances and in the manner set
forth herein under "Description of the
Certificates--Termination; Retirement of
Certificates" and in the related Prospectus
Supplement.
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES ................. The Certificates of each series will
constitute "regular interests" ("REMIC
Regular Certificates") and "residual
interests" ("REMIC Residual Certificates")
in a Trust Fund, or a designated portion
thereof, treated as a REMIC under Sections
860A through 860G of the Internal Revenue
Code of 1986 (the "Code").
Investors are advised to consult their tax
advisors and to review "Certain Federal
Income Tax Consequences" herein and in the
related Prospectus Supplement.
ERISA CONSIDERATIONS .......... Fiduciaries of employee benefit plans and
certain other retirement plans and
arrangements, including individual
retirement accounts, annuities, Keogh plans,
and collective investment funds and separate
accounts (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 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.
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The amount of any applicable Credit Support supporting one or more classes
of Offered Certificates, including the subordination of one or more classes
of Certificates, will be determined on the basis of criteria established by
each Rating Agency rating such classes of Certificates based on an assumed
level of defaults, delinquencies and losses on the underlying Mortgage Assets
and certain other factors. There can, however, be no assurance that the loss
experience on the related Mortgage Assets will not exceed such assumed
levels. See "Description of the Certificates--Allocation of Losses and
Shortfalls" and "Description of Credit Support".
YIELD AND PREPAYMENT CONSIDERATIONS
The yield to maturity of the Offered Certificates of each series will
depend on the rate and timing of principal payments (including prepayments,
liquidations due to defaults, and repurchases for breaches of representations
and warranties or document defects) on the Mortgage Loans and the price paid
by Certificateholders. Such yield may be adversely affected by a higher or
lower than anticipated rate of prepayments on the related Mortgage Loans. The
yield to maturity on Stripped Interest Certificates and Stripped Principal
Certificates will be extremely sensitive to the rate of prepayments on the
related Mortgage Loans. In addition, the yield to maturity on certain other
types of classes of Certificates, including Accrual Certificates,
Certificates with a Pass-Through Rate which fluctuates inversely with an
index or certain other classes in a series including more than one class of
Certificates, may be relatively more sensitive to the rate of prepayment on
the related Mortgage Loans than other classes of Certificates. The rate of
principal payments on pools of mortgage loans varies among pools and from
time to time is influenced by a variety of economic, demographic, geographic,
social, tax, legal and other factors, including prevailing mortgage market
interest rates and the particular terms of the Mortgage Loans (e.g.,
provisions that prohibit voluntary prepayments during specified periods or
impose penalties in connection therewith). There can be no assurance as to
the actual rate of prepayment on the Mortgage Loans in any Trust Fund or that
such rate of prepayment will conform to any model described herein or in any
Prospectus Supplement. See "Yield and Maturity Considerations" herein.
INVESTMENT IN COMMERCIAL AND MULTIFAMILY MORTGAGE LOANS
A description of certain material considerations associated with
investments in mortgage loans is included herein under "Certain Legal Aspects
of Mortgage Loans". Mortgage loans made on the security of multifamily or
commercial property may have a greater likelihood of delinquency and
foreclosure, and a greater likelihood of loss in the event thereof, than
loans made on the security of an owner-occupied single-family property. See
"Description of the Trust Funds--Mortgage Loans--Default and Loss
Considerations with Respect to the Mortgage Loans". The ability of a borrower
to repay a loan secured by an income-producing property typically is
dependent primarily upon the successful operation of such property rather
than upon the existence of independent income or assets of the borrower;
thus, the value of an income-producing property is directly related to the
net operating income derived from such property. If the net operating income
of the property is reduced (for example, if rental or occupancy rates decline
or real estate tax rates or other operating expenses increase), the
borrower's ability to repay the loan may be impaired. A number of the
Mortgage Loans may be secured by liens on owner-occupied Mortgaged Properties
or on Mortgaged Properties leased to a single tenant or a small number of
significant tenants. Accordingly, a decline in the financial condition of the
borrower or a significant tenant, as applicable, may have a
disproportionately greater effect on the net operating income from such
Mortgaged Properties than would be the case with respect to Mortgaged
Properties with multiple tenants. Furthermore, the value of any Mortgaged
Property may be adversely affected by factors 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
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significant governmental regulation of the ownership, operation, maintenance
and financing of health care institutions. Hotel and motel properties are
often operated pursuant to franchise, management or operating agreements that
may be terminable by the franchisor or operator, and the transferability of a
hotel's operating, liquor and other licenses upon a transfer of the hotel,
whether through purchase or foreclosure, is subject to local law
requirements.
It is anticipated that some or all of the Mortgage Loans included in any
Trust Fund will be nonrecourse loans or loans for which recourse may be
restricted or unenforceable. As to any such Mortgage Loan, recourse in the
event of borrower default will be limited to the specific real property and
other assets, if any, that were pledged to secure the Mortgage Loan. However,
even with respect to those Mortgage Loans that provide for recourse against
the borrower and its assets generally, there can be no assurance that
enforcement of such recourse provisions will be practicable, or that the
assets of the borrower will be sufficient to permit a recovery in respect of
a defaulted Mortgage Loan in excess of the liquidation value of the related
Mortgaged Property. See "Certain Legal Aspects of Mortgage
Loans--Foreclosure--Anti-Deficiency Legislation".
Further, the concentration of default, foreclosure and loss risks in
individual Mortgage Loans in a particular Trust Fund will generally be
greater than for pools of single-family loans because Mortgage Loans in a
Trust Fund will generally consist of a smaller number of higher balance loans
than would a pool of single-family loans of comparable aggregate unpaid
principal balance.
BALLOON PAYMENTS; BORROWER DEFAULT
Certain of the Mortgage Loans included in a Trust Fund may be
non-amortizing or only partially amortizing over their terms to maturity and,
thus, will require substantial payments of principal and interest (that is,
balloon payments) at their stated maturity. Mortgage Loans of this type
involve a greater likelihood of default than self-amortizing loans because
the ability of a borrower to make a balloon payment typically will depend
upon its ability either to refinance the loan or to sell the related
Mortgaged Property. The ability of a borrower to accomplish either of these
goals will be affected by a number of factors, including the value of the
related Mortgaged Property, the level of available mortgage rates at the time
of sale or refinancing, the borrower's equity in the related Mortgaged
Property, the financial condition and operating history of the borrower and
the related Mortgaged Property, tax laws, rent control laws (with respect to
certain residential properties), Medicaid and Medicare reimbursement rates
(with respect to hospitals and nursing homes), prevailing general economic
conditions and the availability of credit for loans secured by multifamily or
commercial, as the case may be, real properties generally. Neither the
Depositor nor any of its affiliates will be required to refinance any
Mortgage Loan.
If and to the extent described herein and in the related Prospectus
Supplement, in order to maximize recoveries on defaulted Mortgage Loans, the
Master Servicer or a Special Servicer will be permitted (within prescribed
limits) to extend and modify Mortgage Loans that are in default or as to
which a payment default is imminent. See "The Pooling and Servicing
Agreements--Realization upon Defaulted Mortgage Loans". While a Master
Servicer or a Special Servicer generally will be required to determine that
any such extension or modification is reasonably likely to produce a greater
recovery than liquidation, taking into account the time value of money, there
can be no assurance that any such 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
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entitled to collect the rents. In addition, if bankruptcy or similar
proceedings are commenced by or in respect of the borrower, the lender's
ability to collect the rents may be adversely affected. See "Certain Legal
Aspects of Mortgage Loans--Leases and Rents".
ENVIRONMENTAL CONSIDERATIONS
Under the laws of certain states, contamination of real property may give
rise to a lien on the property to assure the costs of cleanup. In several
states, such a lien has priority over an existing mortgage lien on such
property. In addition, under the laws of some states and under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended, a lender may be liable, as an "owner" or "operator", for costs of
addressing releases or threatened releases of hazardous substances at a
property, if agents or employees of the lender have become sufficiently
involved in the operations of the borrower, regardless of whether the
environmental damage or threat was caused by the borrower or a prior owner. A
lender also risks such liability on foreclosure of the mortgage.
DESCRIPTION OF THE TRUST FUNDS
GENERAL
The primary assets of each Trust Fund will consist of Mortgage Loans (see
"--Mortgage Loans" below), MBS (see "--MBS" below) or a combination of
Mortgage Loans and MBS. Each Trust Fund will be established by the Depositor.
Each Mortgage Asset will be selected by the Depositor for inclusion in a
Trust Fund from among those purchased, either directly or indirectly, from a
prior holder thereof (a "Mortgage Asset Seller"), which prior holder may or
may not be the originator of such Mortgage Loan or the issuer of such MBS and
may be GMACCM or another affiliate of the Depositor. The Mortgage Assets will
not be guaranteed or insured by the Depositor, GMACCM or any of their
affiliates or, unless otherwise provided in the related Prospectus
Supplement, by any governmental agency or instrumentality or by any other
person. The discussion below under the heading "--Mortgage Loans", unless
otherwise noted, applies equally to mortgage loans underlying any MBS
included in a particular Trust Fund.
MORTGAGE LOANS
General. The Mortgage Loans will be evidenced by promissory notes (the
"Mortgage Notes") secured by mortgages, deeds of trust or similar security
instruments (the "Mortgages") that create first or junior liens on fee or
leasehold estates in properties (the "Mortgaged Properties") consisting of
(i) residential properties consisting of five or more rental or
cooperatively-owned dwelling units in high-rise, mid-rise or garden apartment
buildings or other residential structures ("Multifamily Properties") or (ii)
office buildings, retail stores and establishments, hotels or motels, nursing
homes, hospitals or other health care-related facilities, mobile home parks,
warehouse facilities, mini-warehouse 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
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a foreclosure of the related Senior Liens to satisfy fully both the Senior
Liens and the Mortgage Loan. In the event that a holder of a Senior Lien
forecloses on a Mortgaged Property, the proceeds of the foreclosure or
similar sale will be applied first to the payment of court costs and fees in
connection with the foreclosure, second to real estate taxes, third in
satisfaction of all principal, interest, prepayment or acceleration
penalties, if any, and any other sums due and owing to the holder of the
Senior Liens. The claims of the holders of the Senior Liens will be satisfied
in full out of proceeds of the liquidation of the related Mortgage Property,
if such proceeds are sufficient, before the Trust Fund as holder of the
junior lien receives any payments in respect of the Mortgage Loan. If the
Master Servicer were to foreclose on any Mortgage Loan, it would do so
subject to any related Senior Liens. In order for the debt related to such
Mortgage Loan to be paid in full at such sale, a bidder at the foreclosure
sale of such Mortgage Loan would have to bid an amount sufficient to pay off
all sums due under the Mortgage Loan and any Senior Liens or purchase the
Mortgaged Property subject to such Senior Liens. In the event that such
proceeds from a foreclosure or similar sale of the related Mortgaged Property
are insufficient to satisfy all Senior Liens and the Mortgage Loan in the
aggregate, the Trust Fund, as the holder of the junior lien, and,
accordingly, holders of one or more classes of the Certificates of the
related series bear (i) the risk of delay in distributions while a deficiency
judgment against the borrower is obtained and (ii) the risk of loss if the
deficiency judgment is not realized upon. Moreover, deficiency judgments may
not be available in certain jurisdictions or the Mortgage Loan may be
nonrecourse.
If so specified in the related Prospectus Supplement, Mortgage Assets for
a series of Certificates may include Mortgage Loans made on the security of
real estate projects under construction. In that case, the related Prospectus
Supplement will describe the procedures and timing for making disbursements
from construction reserve funds as portions of the related real estate
project are completed. In addition, the Mortgage Assets for a particular
series of Certificates may include Mortgage Loans that are delinquent or
non-performing as of the date such Certificates are issued. In that case, the
related Prospectus Supplement will set forth, as to each such Mortgage Loan,
available information as to the period of such delinquency or
non-performance, any forbearance arrangement then in effect, the condition of
the related Mortgaged Property and the ability of the Mortgaged Property to
generate income to service the mortgage debt.
Default and Loss Considerations with Respect to the Mortgage
Loans. Mortgage loans secured by liens on income-producing properties are
substantially different from loans made on the security of owner-occupied
single-family homes. The repayment of a loan secured by a lien on an
income-producing property is typically dependent upon the successful
operation of such property (that is, its ability to generate income).
Moreover, some or all of the Mortgage Loans included in a particular Trust
Fund may be non-recourse loans, which means that, absent special facts,
recourse in the case of default will be 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,
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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 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.
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Although there may be multiple methods for determining the value of a
Mortgaged Property, value will in all cases be affected by property
performance. As a result, if a Mortgage Loan defaults because the income
generated by the related Mortgaged Property is insufficient to cover
operating costs and expenses and pay debt service, then the value of the
Mortgaged Property will reflect such and a liquidation loss may occur.
While the Depositor believes that the foregoing considerations are
important factors that generally distinguish loans secured by liens on
income-producing real estate from single-family mortgage loans, there can be
no assurance that all of such factors will in fact have been prudently
considered by the Originators of the Mortgage Loans, or that, for a
particular Mortgage Loan, they are complete or relevant. See "Risk
Factors--Investment in Commercial and Multifamily Mortgage Loans" and
"--Balloon Payments; Borrower Default".
Payment Provisions of the Mortgage Loans. Unless otherwise specified in
the related Prospectus Supplement, all of the Mortgage Loans will (i) have
had original terms to maturity of not more than 40 years and (ii) provide for
scheduled payments of principal, interest or both, to be made on specified
dates ("Due Dates") that occur monthly, quarterly, semi-annually or annually.
A Mortgage Loan (i) may provide for no accrual of interest or for accrual of
interest thereon at a Mortgage Rate that is fixed over its term or that
adjusts from time to time, or that may be converted at the borrower's
election from an adjustable to a fixed Mortgage Rate, or from a fixed to an
adjustable Mortgage Rate, (ii) may provide for level payments to maturity or
for payments that adjust from time to time to accommodate changes in the
Mortgage Rate or to reflect the occurrence of certain events, and may permit
negative amortization, (iii) may be fully amortizing or may be partially
amortizing or non-amortizing, with a balloon payment due on its stated
maturity date, and (iv) may prohibit over its term or for a certain period
prepayments (the period of such prohibition, a "Lock-Out Period" and its date
of expiration, a "Lock-Out Date") and/or require payment of a premium or a
yield maintenance penalty (a "Prepayment Premium") in connection with certain
prepayments, in each case as described in the related Prospectus Supplement.
A Mortgage Loan may also contain a provision that entitles the lender to a
share of appreciation of the related Mortgaged Property, or profits realized
from the operation or disposition of such Mortgaged Property or the benefit,
if any, resulting from the refinancing of the Mortgage Loan (any such
provision, an "Equity Participation"), as described in the related Prospectus
Supplement.
Mortgage Loan Information in Prospectus Supplements. Each Prospectus
Supplement will contain certain information pertaining to the Mortgage Loans
in the related Trust Fund, which, to the extent then applicable and
specifically known to the Depositor, will generally include the following:
(i) the aggregate outstanding principal balance and the largest, smallest and
average outstanding principal balance of the Mortgage Loans, (ii) the type or
types of property that provide security for repayment of the Mortgage 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
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of the nature described above will be provided in the related Prospectus
Supplement, and specific information will be set forth in a report which will
be available to purchasers of those Certificates at or before the initial
issuance thereof and will be filed as part of a Current Report on Form 8-K
with the Commission within fifteen days following such issuance.
MBS
MBS may include (i) private-label (that is, not guaranteed or insured by
the United States or any agency or instrumentality thereof) mortgage
participations, mortgage pass-through certificates or other mortgage-backed
securities or (ii) certificates insured or guaranteed by the Federal Home
Loan Mortgage Corporation ("FHLMC"), the Federal National Mortgage
Association ("FNMA"), the Governmental National Mortgage Association or the
Federal Agricultural Mortgage Corporation ("FAMC"), provided that, unless
otherwise specified in the related Prospectus Supplement, each MBS will
evidence an interest in, or will be secured by a pledge of, mortgage loans
that conform to the descriptions of the Mortgage Loans contained herein.
Any MBS will have been issued pursuant to a participation and servicing
agreement, a pooling and servicing agreement, an indenture or similar
agreement (an "MBS Agreement"). The issuer of the MBS (the "MBS Issuer")
and/or the servicer of the underlying mortgage loans (the "MBS Servicer")
will have entered into the MBS Agreement, generally with a trustee (the "MBS
Trustee") or, in the alternative, with the original purchaser or purchasers
of the MBS.
The MBS may have been issued in one or more classes with characteristics
similar to the classes of Certificates described herein. Distributions in
respect of the MBS will be made by the MBS Issuer, the MBS Servicer or the
MBS Trustee on the dates specified in the related Prospectus Supplement. The
MBS Issuer or the MBS Servicer or another person specified in the related
Prospectus Supplement may have the right or obligation to repurchase or
substitute assets underlying the MBS after a certain date or under other
circumstances specified in the related Prospectus Supplement.
Reserve funds, subordination or other credit support similar to that
described for the Certificates under "Description of Credit Support" may have
been provided with respect to the MBS. The type, characteristics and amount
of such credit support, if any, will be a function of the characteristics of
the underlying mortgage loans and other factors and generally will have been
established on the basis of the requirements of any Rating Agency that may
have assigned a rating to the MBS, or by the initial purchasers of the MBS.
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".
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CREDIT SUPPORT
If so provided in the Prospectus Supplement for a series of Certificates,
partial or full protection against certain defaults and losses on the
Mortgage Assets in the related Trust Fund may be provided to one or more
classes of Certificates of such series in the form of subordination of one or
more other classes of Certificates of such series or by one or more other
types of credit support, such as a letter of credit, insurance policy,
guarantee or reserve fund, among others, or a combination thereof. The amount
and types of Credit Support, the identification of the entity providing it
(if applicable) and related information with respect to each type of Credit
Support, if any, will be set forth in the Prospectus Supplement for a series
of Certificates. See "Risk Factors--Credit Support Limitations" and
"Description of Credit Support".
CASH FLOW AGREEMENTS
If so provided in the Prospectus Supplement for a series of Certificates,
the related Trust Fund may include guaranteed investment contracts pursuant
to which moneys held in the funds and accounts established for such series
will be invested at a specified rate. The Trust Fund may also include certain
other agreements, such as interest rate exchange agreements, interest rate
cap or floor agreements, or other agreements designed to reduce the effects
of interest rate fluctuations on the Mortgage Assets on one or more classes
of Certificates. The principal terms of any such Cash Flow Agreement,
including, without limitation, provisions relating to the timing, manner and
amount of payments thereunder and provisions relating to the termination
thereof, will be described in the related Prospectus Supplement. The related
Prospectus Supplement will also identify the obligor under the Cash Flow
Agreement.
YIELD AND MATURITY CONSIDERATIONS
GENERAL
The yield on any Offered Certificate will depend on the price paid by the
Certificateholder, the Pass-Through Rate of the Certificate and the amount
and timing of distributions on the Certificate. See "Risk Factors--Yield and
Prepayment Considerations". The following discussion contemplates a Trust
Fund that consists solely of Mortgage Loans. While the characteristics and
behavior of mortgage loans 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.
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CERTAIN SHORTFALLS IN COLLECTIONS OF INTEREST
When a principal prepayment in full or in part is made on a Mortgage Loan,
the borrower is generally charged interest on the amount of such prepayment
only through the date of such prepayment, instead of through the Due Date for
the next succeeding scheduled payment. However, interest accrued on any
series of Certificates and distributable thereon on any Distribution Date
will generally correspond to interest accrued on the Mortgage Loans to their
respective Due Dates during the related Due Period. Unless otherwise
specified in the Prospectus Supplement for a series of Certificates, a "Due
Period" will be a specified time period (generally running from the second
day of one month to the first day of the next month, inclusive) and all
scheduled payments on the Mortgage Loans in the related Trust Fund that are
due during a given Due Period will, to the extent received by a specified
date (the "Determination Date") or otherwise advanced by the related Master
Servicer or other specified person, be distributed to the holders of the
Certificates of such series on the next succeeding Distribution Date.
Consequently, if a prepayment on any Mortgage Loan is distributable to
Certificateholders on a particular Distribution Date, but such prepayment is
not accompanied by interest thereon to the Due Date for such Mortgage Loan in
the related Due Period, then the interest charged to the borrower (net of
servicing and administrative fees) may be less (such shortfall, a "Prepayment
Interest Shortfall") than the corresponding amount of interest accrued and
otherwise payable on the Certificates of the related series. If and to the
extent that any such shortfall is allocated to a class of Offered
Certificates, the yield thereon will be adversely affected. The Prospectus
Supplement for each series of Certificates will describe the manner in which
any such shortfalls will be allocated among the classes of such Certificates.
The related Prospectus Supplement will also describe any amounts available to
offset such shortfalls.
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,
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the yield on such Stripped Interest Certificates will be inversely related to
the rate at which payments and other collections of principal are received on
such Mortgage Assets or distributions are made in reduction of the
Certificate Balances of such classes of Certificates, as the case may be.
Consistent with the foregoing, if a class of Certificates of any series
consists of Stripped Interest Certificates or Stripped Principal
Certificates, a lower than anticipated rate of principal prepayments on the
Mortgage Loans in the related Trust Fund will negatively affect the yield to
investors in Stripped Principal Certificates, and a higher than anticipated
rate of principal prepayments on such Mortgage Loans will negatively affect
the yield to investors in Stripped Interest Certificates. If the Offered
Certificates of a series include any such Certificates, the related
Prospectus Supplement will include a table showing the effect of various
constant assumed levels of prepayment on yields on such Certificates. Such
tables will be intended to illustrate the sensitivity of yields to various
constant assumed prepayment rates and will not be intended to predict, or to
provide information that will enable investors to predict, yields or
prepayment rates.
The Depositor is not aware of any relevant publicly available or
authoritative statistics with respect to the historical prepayment experience
of a group of multifamily or commercial mortgage loans. However, the extent
of prepayments of principal of the Mortgage Loans in any Trust Fund may be
affected by a number of factors, including, without limitation, the
availability of mortgage credit, the relative economic vitality of the area
in which the Mortgaged Properties are located, the quality of 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
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due to default and purchases of Mortgage Loans out of the related Trust
Fund), is paid to such class. Prepayment rates on loans are commonly measured
relative to a prepayment standard or model, such as the Constant Prepayment
Rate ("CPR") prepayment model or the Standard Prepayment Assumption ("SPA")
prepayment model. CPR represents an assumed constant rate of prepayment each
month (expressed as an annual percentage) relative to the then outstanding
principal balance of a pool of loans for the life of such loans. SPA
represents an assumed variable rate of prepayment each month (expressed as an
annual percentage) relative to the then outstanding principal balance of a
pool of loans, with different prepayment assumptions often expressed as
percentages of SPA. For example, a prepayment assumption of 100% of SPA
assumes prepayment rates of 0.2% per annum of the then outstanding principal
balance of such loans in the first month of the life of the loans and an
additional 0.2% per annum in each month thereafter until the thirtieth month.
Beginning in the thirtieth month, and in each month thereafter during the
life of the loans, 100% of SPA assumes a constant prepayment rate of 6% per
annum each month.
Neither CPR nor SPA nor any other prepayment model or assumption purports
to be a historical description of prepayment experience or a prediction of
the anticipated rate of prepayment of any particular pool of loans. Moreover,
the CPR and SPA models were developed based upon historical prepayment
experience for single-family loans. Thus, it is unlikely that the prepayment
experience of the Mortgage Loans included in any Trust Fund will conform to
any particular level of CPR or SPA.
The Prospectus Supplement with respect to each series of Certificates will
contain tables, if applicable, setting forth the projected weighted average
life of each class of Offered Certificates of such series and the percentage
of the initial Certificate Balance of each such class that would be
outstanding on specified Distribution Dates based on the assumptions stated
in such Prospectus Supplement, including assumptions that prepayments on the
related Mortgage Loans are made at rates corresponding to various percentages
of CPR or SPA, or at such other rates specified in such Prospectus
Supplement. Such tables and assumptions will illustrate the sensitivity of
the weighted average lives of the Certificates to various assumed prepayment
rates and will not be intended to predict, or to provide information that
will enable investors to predict, the actual weighted average lives of the
Certificates.
OTHER FACTORS AFFECTING YIELD, WEIGHTED AVERAGE LIFE AND MATURITY
Balloon Payments; Extensions of Maturity. Some or all of the Mortgage
Loans included in a particular Trust Fund may require that balloon payments
be made at maturity. Because the ability of a borrower to make a balloon
payment typically will depend upon its ability either to refinance the loan
or to sell the related Mortgaged Property, there is a possibility that
Mortgage Loans that require balloon payments may default at maturity, or that
the maturity of such a Mortgage Loan may be extended in connection with a
workout. In the case of defaults, recovery of proceeds may be delayed by,
among other things, bankruptcy of the borrower or adverse conditions in the
market where the property is located. In order to minimize losses on
defaulted Mortgage Loans, the Master Servicer or a Special Servicer, to the
extent and under the circumstances set forth herein and in the related
Prospectus Supplement, may be authorized to modify Mortgage Loans that are in
default or as to which a payment default is imminent. Any defaulted balloon
payment or modification that extends the maturity of a Mortgage Loan may
delay distributions of principal on a class of Offered Certificates and
thereby extend the weighted average life of such Certificates and, if such
Certificates were purchased at a discount, reduce the yield thereon.
Negative Amortization. The weighted average life of a class of
Certificates can be affected by Mortgage Loans that permit negative
amortization to occur. A Mortgage Loan that provides for the payment of
interest calculated at a rate lower than the rate at which interest accrues
thereon would, in the case of an ARM Loan, be expected during a period of
increasing interest rates to amortize at a slower rate (and perhaps not at
all) than if interest rates were declining or were remaining constant. Such
slower rate of Mortgage Loan amortization would correspondingly be reflected
in a slower rate of amortization for one or more classes of Certificates of
the related series. In addition, negative amortization on one or more
Mortgage Loans in any Trust Fund may result in negative amortization on the
Certificates of the related series. The related Prospectus Supplement will
describe, if applicable, the manner in which negative amortization in respect
of the Mortgage Loans in any Trust Fund is allocated among the
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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.
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
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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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DESCRIPTION OF THE CERTIFICATES
GENERAL
Each series of Certificates will represent the entire beneficial ownership
interest in the Trust Fund created pursuant to the related Pooling and
Servicing Agreement. As described in the related Prospectus Supplement, the
Certificates of each series, including the Offered Certificates of such
series, may consist of one or more classes of Certificates that, among other
things: (i) provide for the accrual of interest on the Certificate Balance or
Notional Amount thereof at a fixed, variable or adjustable rate; (ii)
constitute Senior Certificates or Subordinate Certificates; (iii) constitute
Stripped Interest Certificates or Stripped Principal Certificates; (iv)
provide for distributions of interest thereon or principal thereof that
commence only after the occurrence of certain events, such as the retirement
of one or more other classes of Certificates of such series; (v) provide for
distributions of principal thereof to be made, from time to time or for
designated periods, at a rate that is faster (and, in some cases,
substantially faster) or slower (and, in some cases, substantially slower)
than the rate at which payments or other collections of principal are
received on the Mortgage Assets in the related Trust Fund; (vi) provide for
distributions of principal thereof to be made, subject to available funds,
based on a specified principal payment schedule or other methodology; or
(vii) provide for distributions based on collections on the Mortgage Assets
in the related Trust Fund attributable to Prepayment Premiums and Equity
Participations.
If so specified in the related Prospectus Supplement, a class of
Certificates may have two or more component parts, each having
characteristics that are otherwise described herein as being attributable to
separate and distinct classes. For example, a class of Certificates may have
a Certificate Balance on which it accrues interest at a fixed, variable or
adjustable rate. Such class of Certificates may also have certain
characteristics attributable to Stripped Interest Certificates insofar as it
may also entitle the holders thereof to distributions of interest accrued on
a Notional Amount at a different fixed, variable or adjustable rate. In
addition, a class of Certificates may accrue interest on one portion of its
Certificate Balance at one fixed, variable or adjustable rate and on another
portion of its Certificate Balance at a different fixed, variable or
adjustable rate.
Each class of Offered Certificates of a series will be issued in minimum
denominations corresponding to the principal balances or, in case of certain
classes of Stripped Interest Certificates or REMIC Residual Certificates,
notional amounts or percentage interests, specified in the related Prospectus
Supplement. As provided in the related Prospectus Supplement, one or more
classes of Offered Certificates of any series may be issued in fully
registered, definitive form (such Certificates, "Definitive Certificates") or
may be offered in book-entry format (such Certificates, "Book-Entry
Certificates") through the facilities of The Depository Trust Company
("DTC"). The Offered Certificates of each series (if issued as Definitive
Certificates) may be transferred or exchanged, subject to any restrictions on
transfer described in the related Prospectus Supplement, at the location
specified in the related Prospectus Supplement, without the payment of any
service charges, other than any tax or other governmental charge payable in
connection therewith. Interests in a class of Book-Entry Certificates will be
transferred on the book-entry records of Dtc and its participating
organizations.
DISTRIBUTIONS
Distributions on the Certificates of each series will be made on each
Distribution Date from the Available Distribution Amount for such series and
such Distribution Date. Unless otherwise provided in the related Prospectus
Supplement, the "Available Distribution Amount" for any series of
Certificates and any Distribution Date will refer to the total of all
payments or other collections (or advances in lieu thereof) on, under or in
respect of the Mortgage Assets and any other assets included in the related
Trust Fund that are available for distribution to the holders of Certificates
of such series on such date. The particular components of the Available
Distribution Amount for any series and Distribution Date will be 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.
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Except as otherwise specified in the related Prospectus Supplement,
distributions on the Certificates of each series (other than the final
distribution in retirement of any such Certificate) will be made to the
persons in whose names such Certificates are registered at the close of
business on the last business day of the month preceding the month in which
the applicable Distribution Date occurs (the "Record Date"). All
distributions with respect to each class of Certificates on each Distribution
Date will be allocated pro rata among the outstanding Certificates in such
class in proportion to the respective Percentage Interests evidenced thereby
unless otherwise specified in the related Prospectus Supplement. Payments
will be made either by wire transfer in immediately available funds to the
account of a Certificateholder at a bank or other entity having appropriate
facilities therefor, if such Certificateholder has provided the person
required to make such payments with wiring instructions no later than the
related Record Date or such other date specified in the related Prospectus
Supplement (and, if so provided in the related Prospectus Supplement, such
Certificateholder holds Certificates in the requisite amount or denomination
specified therein), or by check mailed to the address of such
Certificateholder as it appears on the Certificate Register; provided,
however, that the final distribution in retirement of any class of
Certificates (whether Definitive Certificates or Book-Entry Certificates)
will be made only upon presentation and surrender of such Certificates at the
location specified in the notice to Certificateholders of such final
distribution. The undivided percentage interest (the "Percentage Interest")
represented by an Offered Certificate of a particular class will be equal to
the percentage obtained by dividing the initial principal balance or notional
amount of such Certificate by the initial Certificate Balance or Notional
Amount of such class.
DISTRIBUTIONS OF INTEREST ON THE CERTIFICATES
Each class of Certificates of each series (other than certain classes of
Stripped Principal Certificates and certain classes of REMIC Residual
Certificates that have no Pass-Through Rate) may have a different
Pass-Through Rate, which in each case may be fixed, variable or adjustable.
The related Prospectus Supplement will specify the Pass-Through Rate or, in
the case of a variable or adjustable Pass-Through Rate, the method for
determining the Pass-Through Rate, for each class. Unless otherwise specified
in the related Prospectus Supplement, interest on the Certificates of each
series will be calculated on the basis of a 360-day year consisting of twelve
30-day months.
Distributions of interest in respect of any class of Certificates (other
than a class of Accrual Certificates, which will be entitled to distributions
of accrued interest commencing only on the Distribution Date, or under the
circumstances, specified in the related Prospectus Supplement, and other than
any class of Stripped Principal Certificates or REMIC Residual Certificates
that is not entitled to any distributions of interest) will be made on each
Distribution Date based on the Accrued Certificate Interest for such class
and such Distribution Date, subject to the sufficiency of the portion of the
Available Distribution Amount allocable to such class on such Distribution
Date. Prior to the time interest is distributable on any class of Accrual
Certificates, the amount of Accrued Certificate Interest otherwise
distributable on such class will be added to the Certificate Balance thereof
on each Distribution Date or otherwise deferred as described in the related
Prospectus Supplement. With respect to each class of Certificates (other than
certain classes of Stripped Interest Certificates and certain classes of
REMIC Residual Certificates), the "Accrued Certificate Interest" for each
Distribution Date will be equal to interest at the applicable Pass-Through
Rate accrued for a specified period (generally the most recently ended
calendar month) on the outstanding Certificate Balance of such class of
Certificates immediately prior to such Distribution Date. Unless otherwise
provided in the related Prospectus Supplement, the Accrued Certificate
Interest for each Distribution Date on a class of Stripped Interest
Certificates will be similarly calculated except that it will accrue on a
Notional Amount that is either (i) based on the 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
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that any Prepayment Interest Shortfalls, as described under "Yield and
Maturity Considerations--Certain Shortfalls in Collections of Interest",
exceed the amount of any sums that are applied to offset the amount of such
shortfalls. The particular manner in which such shortfalls will be allocated
among some or all of the classes of Certificates of that series will be
specified in the related Prospectus Supplement. The related Prospectus
Supplement will also describe the extent to which the amount of Accrued
Certificate Interest that is otherwise distributable on (or, in the case of
Accrual Certificates, that may otherwise be added to the Certificate Balance
of) a class of Offered Certificates may be reduced as a result of any other
contingencies, including delinquencies, losses and deferred interest on or in
respect of the Mortgage Assets in the related Trust Fund. Unless otherwise
provided in the related Prospectus Supplement, any reduction in the amount of
Accrued Certificate Interest otherwise distributable on a class of
Certificates by reason of the allocation to such class of a portion of any
deferred interest on or in respect of the Mortgage Assets in the related
Trust Fund will result in a corresponding increase in the Certificate Balance
of such class. See "Risk Factors--Yield and Prepayment Considerations" and
"Yield and Maturity Considerations--Certain Shortfalls in Collections of
Interest".
DISTRIBUTIONS OF PRINCIPAL OF THE CERTIFICATES
Each class of Certificates of each series (other than certain classes of
Stripped Interest Certificates and certain classes of REMIC Residual
Certificates) will have a Certificate Balance, which, at any time, will equal
the then maximum amount that the holders of Certificates of such class will
be entitled to receive as principal out of the future cash flow on the
Mortgage Assets and other assets included in the related Trust Fund. The
outstanding Certificate Balance of a class of Certificates will be reduced by
distributions of principal made thereon from time to time and, if so provided
in the related Prospectus Supplement, further by any losses incurred in
respect of the related Mortgage Assets allocated thereto from time to time.
In turn, the outstanding Certificate Balance of a class of Certificates may
be increased as a result of any deferred interest on or in respect of the
related Mortgage Assets being allocated thereto from time to time, and will
be increased, in the case of a class of Accrual Certificates prior to the
Distribution Date on which distributions of interest thereon are required to
commence, by the amount of any Accrued Certificate Interest in respect
thereof (reduced as described above). Unless otherwise provided in the
related Prospectus Supplement, the initial aggregate Certificate Balance of
all classes of a series of Certificates will not be greater than the
aggregate outstanding principal balance of the related Mortgage Assets as of
a specified date (the "Cut-Off Date"), after application of scheduled
payments due on or before such date, whether or not received. The initial
Certificate Balance of each class of a series of Certificates will be
specified in the related Prospectus Supplement. As and to the extent
described in the related Prospectus Supplement, distributions of principal
with respect to a series of Certificates will be made on each Distribution
Date to the holders of the class or classes of Certificates of such series
entitled thereto until the Certificate Balances of such Certificates have
been reduced to zero. Distributions of principal with respect to one or more
classes of Certificates may be made at a rate that is faster (and, in some
cases, substantially faster) than the rate at which payments or other
collections of principal are received on the Mortgage Assets in the related
Trust Fund. Distributions of principal with respect to one or more classes of
Certificates may not commence until the occurrence of certain events, such as
the retirement of one or more other classes of Certificates of the same
series, or may be made at a rate that is slower (and, in some cases,
substantially slower) than the rate at which payments or other collections of
principal are received on the Mortgage Assets in the related Trust Fund.
Distributions of principal with respect to one or more classes of
Certificates (each such class, a "Controlled Amortization Class") may be
made, subject to available funds, based on a specified principal payment
schedule. Distributions 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)
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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 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.
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REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, together with the distribution to the holders
of each class of the Offered Certificates of a series, a Master Servicer,
Manager or Trustee, as provided in the related Prospectus Supplement, will
forward to each such holder, a statement (a "Distribution Date Statement")
that, unless otherwise provided in the related Prospectus Supplement, will
set forth, among other things, in each case to the extent applicable:
(i) the amount of such distribution to holders of such class of Offered
Certificates that was applied to reduce the Certificate Balance thereof;
(ii) the amount of such distribution to holders of such class of Offered
Certificates that was applied to pay Accrued Certificate Interest;
(iii) the amount, if any, of such distribution to holders of such class
of Offered Certificates that was allocable to (A) Prepayment Premiums and
(B) payments on account of Equity Participations;
(iv) the amount, if any, by which such distribution is less than the
amounts to which holders of such class of Offered Certificates are
entitled;
(v) if the related Trust Fund includes Mortgage Loans, the aggregate
amount of advances included in such distribution;
(vi) if the related Trust Fund includes Mortgage Loans, the amount of
servicing compensation received by the related Master Servicer (and, if
payable directly out of the related Trust Fund, by any Special Servicer
and any Sub-Servicer) and, if the related Trust Fund includes MBS, the
amount of administrative compensation received by the REMIC Administrator;
(vii) information regarding the aggregate principal balance of the
related Mortgage Assets on or about such Distribution Date;
(viii) if the related Trust Fund includes Mortgage Loans, information
regarding the number and aggregate principal balance of such Mortgage
Loans that are delinquent;
(ix) if the related Trust Fund includes Mortgage Loans, information
regarding the aggregate amount of losses incurred and principal
prepayments made with respect to such Mortgage Loans during the related
Prepayment Period (that is, the specified period, generally corresponding
to the related Due Period, during which prepayments and other unscheduled
collections on the Mortgage Loans in the related Trust Fund must be
received in order to be distributed on a particular Distribution Date);
(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
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(xiv) the amount of Credit Support being afforded by any classes of
Subordinate Certificates.
In the case of information furnished pursuant to subclauses (i)-(iii)
above, the amounts will be expressed as a dollar amount per minimum
denomination of the relevant class of Offered Certificates or as a
percentage. The Prospectus Supplement for each series of Certificates may
describe additional information to be included in reports to the holders of
the Offered Certificates of such series.
Within a reasonable period of time after the end of each calendar year,
the Master Servicer, Manager or Trustee for a series of Certificates, as the
case may be, will be required to furnish to each person who at any time
during the calendar year was a holder of an Offered Certificate of such
series a statement containing the information set forth in subclauses
(i)-(iii) above, aggregated for such calendar year or the applicable portion
thereof during which such person was a Certificateholder. Such obligation
will be deemed to have been satisfied to the extent that substantially
comparable information is provided pursuant to any requirements of the Code
as are from time to time in force. See, however, "--Book-Entry Registration
and Definitive Certificates" below.
If the Trust Fund for a series of Certificates includes MBS, the ability
of the related Master Servicer, Manager or Trustee, as the case may be, to
include in any Distribution Date Statement information regarding the mortgage
loans underlying such MBS will depend on the reports received with respect to
such MBS. In such cases, the related Prospectus Supplement will describe the
loan-specific information to be included in the Distribution Date Statements
that will be forwarded to the holders of the Offered Certificates of that
series in connection with distributions made to them.
TERMINATION; RETIREMENT OF CERTIFICATES
The obligations created by the Pooling and Servicing Agreement for each
series of Certificates (other than limited payment and notice obligations of
the applicable parties) will terminate upon the payment to Certificateholders
of that series of all amounts held in the Certificate Account or by the
Master Servicer and required to be paid to them pursuant to such Pooling and
Servicing Agreement following the earlier of (i) the final payment or other
liquidation or disposition (or any advance with respect thereto) of the last
Mortgage Asset subject thereto or of any property acquired upon foreclosure
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
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percentage specified in the related Prospectus Supplement of the aggregate
principal balance of the Mortgage Assets at the Cut-off Date for that series.
The Prospectus Supplement for each series of Certificates will set forth the
amounts that the holders of such Certificates will be entitled to receive
upon such early retirement. Such early termination may adversely affect the
yield to holders of certain classes of such Certificates. If a REMIC election
has been made, the termination of the related Trust Fund will be effected in
a manner consistent with applicable federal income tax regulations and its
status as a REMIC.
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
If so provided in the Prospectus Supplement for a series of Certificates,
one or more classes of the Offered Certificates of such series will be
offered in book-entry format through the facilities of DTC, and each such
class will be represented by one or more global Certificates registered in
the name of DTC or its nominee.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking corporation" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC was created to hold securities for its participating organizations
("Participants") and facilitate the clearance and settlement of securities
transactions between Participants through electronic computerized book-entry
changes in their accounts, thereby eliminating the need for physical movement
of securities certificates. "Direct Participants", which maintain accounts
with DTC, include securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. DTC is
owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. Access to the DTC system also is
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain 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
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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.
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
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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
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
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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 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
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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 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
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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."
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
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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".
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
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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.
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;
(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;
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(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
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
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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
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
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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".
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
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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 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.
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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
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
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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 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
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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 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.
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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.
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".
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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
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,
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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.
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
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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
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.
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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.
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
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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 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
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lender to maintain the property and pay the expenses of ownership until the
redemption period has expired. In some states, a post-sale statutory right of
redemption may exist following a judicial foreclosure, but not following a
trustee's sale under a deed of trust.
Anti-Deficiency Legislation. Some or all of the Mortgage Loans may be
nonrecourse loans, as to which recourse in the case of default will be
limited to the Mortgaged Property and such other assets, if any, that were
pledged to secure the Mortgage Loan. However, even if a mortgage loan by its
terms provides for recourse to the borrower's other assets, a lender's
ability to realize upon those assets may be limited by state law. For
example, in some states a lender cannot obtain a deficiency judgment against
the borrower following foreclosure or sale under a deed of trust. A
deficiency judgment is a personal judgment against the former borrower equal
to the difference between the net amount realized upon the public sale of the
real property and the amount due to the lender. Other statutes may require
the lender to exhaust the security afforded under a mortgage before bringing
a personal action against the borrower. In certain other states, the lender
has the option of bringing a personal action against the borrower on the debt
without first exhausting such security; however, in some of those states, the
lender, following judgment on such personal action, may be deemed to have
elected a remedy and thus may be precluded from foreclosing upon the
security. Consequently, lenders in those states where such an election of
remedy provision exists will usually proceed first against the security.
Finally, other statutory provisions, designed to protect borrowers from
exposure to large deficiency judgments that might result from bidding at
below-market values at the foreclosure sale, limit any deficiency judgment to
the excess of the outstanding debt over the fair market value of the property
at the time of the sale.
Leasehold Considerations. Mortgage Loans may be secured by a mortgage on
the borrower's leasehold interest in a ground lease. Leasehold mortgage loans
are subject to certain risks not associated with mortgage loans secured by a
lien on the fee estate of the borrower. The most significant of these risks
is that if the borrower's leasehold were to be terminated upon a lease
default, the leasehold mortgagee would lose its security. This risk may be
lessened if the ground lease requires the lessor to give the leasehold
mortgagee notices of lessee defaults and an opportunity to cure them, permits
the leasehold estate to be assigned to and by the leasehold mortgagee or the
purchaser at a foreclosure sale, and contains certain other protective
provisions typically included in a "mortgageable" ground lease. Certain
Mortgage Loans, however, may be secured by ground leases which do not contain
these provisions.
Cross-Collateralization. Certain of the Mortgage Loans may be secured by
more than one mortgage covering properties located in more than one state.
Because of various state laws governing foreclosure or the exercise of a
power of sale and because, in general, foreclosure actions are brought in
state court and the courts of one state cannot exercise jurisdiction over
property in another state, it may be necessary upon a default under a
cross-collateralized Mortgage Loan to foreclose on the related mortgages in a
particular order rather than simultaneously in order to ensure that the lien
of the mortgages is not impaired or released.
BANKRUPTCY LAWS
Operation of the Bankruptcy Code and related state laws may interfere with
or affect the ability of a lender to realize upon collateral and/or to
enforce a deficiency judgment. For example, under the Bankruptcy Code,
virtually all actions (including foreclosure actions and deficiency judgment
proceedings) to collect a debt are automatically stayed upon the filing of
the bankruptcy petition and, often, no interest or principal payments are
made during the course of the bankruptcy case. The delay and the consequences
thereof caused by such automatic stay can be significant. Also, under the
Bankruptcy Code, the filing of a petition in bankruptcy by or on behalf of a
junior lienor may stay the senior lender from taking action to foreclose out
such junior lien.
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
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lender a general unsecured creditor for the difference between such value and
the outstanding balance of the loan. Other modifications may include the
reduction in the amount of each scheduled payment, by means of a reduction in
the rate of interest and/or an alteration of the repayment schedule (with or
without affecting the unpaid principal balance of the loan), and/or by an
extension (or shortening) of the term to maturity. Some bankruptcy courts
have approved plans, based on the particular facts of the reorganization
case, that effected the cure of a mortgage loan default by paying arrearages
over a number of years. Also, a bankruptcy court may permit a debtor, through
its rehabilitative plan, to reinstate a loan mortgage payment schedule even
if the lender has obtained a final judgment of foreclosure prior to the
filing of the debtor's petition.
Federal bankruptcy law may also have the effect of interfering with or
affecting the ability of a secured lender to enforce the borrower's
assignment of rents and leases related to the mortgaged property. Under the
Bankruptcy Code, a lender may be stayed from enforcing the assignment, and
the legal proceedings necessary to resolve the issue could be time-consuming,
with resulting delays in the lender's receipt of the rents. Recent amendments
to the Bankruptcy code, however, may minimize the impairment of the lender's
ability to enforce the borrower's assignment of rents and leases. In addition
to the inclusion of hotel revenues within the definition of "cash collateral"
as noted previously in the section entitled "--Leases and Rents", the
amendments provide that a pre-petition security interest in rents or hotel
revenues is designed to overcome those cases holding that a security interest
in rents is unperfected under the laws of certain states until the lender has
taken some further action, such as commencing foreclosure or obtaining a
receiver prior to activation of the assignment of rents.
If a borrower's ability to make payment on a mortgage loan is dependent on
its receipt of rent payments under a lease of the related property, that
ability may be impaired by the commencement of a bankruptcy case relating to
a lessee under such lease. Under the Bankruptcy Code, the filing of a
petition in bankruptcy by or on behalf of a lessee results in a stay in
bankruptcy against the commencement or continuation of any state court
proceeding for past due rent, for accelerated rent, for damages or for a
summary eviction order with respect to a default under the lease that
occurred prior to the filing of the lessee's petition. In addition, the
Bankruptcy Code generally provides that a trustee or debtor-in-possession
may, subject to approval of the court, (i) assume the lease and retain it or
assign it to a third party or (ii) reject the lease. If the lease is assumed,
the trustee or debtor-in-possession (or assignee, if applicable) must cure
any defaults under the lease, compensate the lessor for its losses and
provide the lessor with "adequate assurance" of future performance. Such
remedies may be insufficient, and any assurances provided to the lessor may,
in fact, be inadequate. If the lease is rejected, the lessor will be treated
as an unsecured creditor with respect to its claim for damages for
termination of the lease. The Bankruptcy Code also limits a lessor's damages
for lease rejection to the rent reserved by the lease (without regard to
acceleration) for the greater of one year, or 15%, not to exceed three years,
of the remaining term of the lease.
ENVIRONMENTAL CONSIDERATIONS
General. A lender may be subject to environmental risks when taking a
security interest in real property. Of particular concern may be properties
that are or have been used for industrial, manufacturing, military or
disposal activity. Such environmental risks include the possible diminution
of the value of a contaminated property or, as discussed below, potential
liability for clean-up costs or other remedial actions that could exceed the
value of the property or the amount of the lender's loan. In certain
circumstances, a lender may decide to abandon a contaminated mortgaged
property as collateral for its loan rather than foreclose and risk liability
for clean-up costs.
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"
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or "operator" of a contaminated mortgaged property if agents or employees of
the lender have participated in the management of such mortgaged property or
the operations of the borrower. Such liability may exist even if the lender
did not cause or contribute to the contamination and regardless of whether
the lender has actually taken possession of a mortgaged property through
foreclosure, deed in lieu of foreclosure or otherwise. Moreover, such
liability is not limited to the original or unamortized principal balance of
a loan or to the value of the property securing a loan. Excluded from
CERCLA's definition of "owner" or "operator", however, is a person "who
without participating in the management of the facility, holds indicia of
ownership primarily to protect his security interest". This is the so called
"secured creditor exemption".
The Asset Conservation, Lender Liability and Deposit Insurance Act of 1996
(the "Act") amended, among other things, the provisions of CERCLA with
respect to lender liability and the secured creditor exemption. The Act
offers substantial protection to lenders by defining the activities in which
a lender can engage and still have the benefit of the secured creditor
exemption. In order for a lender to be deemed to have participated in the
management of a mortgaged property, the lender must actually participate in
the operational affairs of the property of the borrower. The Act provides
that "merely having the capacity to influence, or unexercised right to
control" operations does not constitute participation in management. A lender
will lose the protection of the secured creditor exemption only if it
exercises decision-making control over the borrower's environmental
compliance and hazardous substance handling and disposal practices, or
assumes day-to-day management of all operational functions of the mortgaged
property. The Act also provides that a lender will continue to have the
benefit of the secured creditor exemption even if it forecloses on a
mortgaged property, purchases it at a foreclosure sale or accepts a
deed-in-lieu of foreclosure provided that the lender seeks to sell the
mortgaged property at the earliest practicable commercially reasonable time
on commercially reasonable terms.
Certain Other Federal and State Laws. Many states have statutes similar to
CERCLA, and not all 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
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Servicer, based solely (as to environmental matters) on a report prepared by
a person who regularly conducts environmental audits, has made the
determination that it is appropriate to do so, as described under "The
Pooling and Servicing Agreements-Realization Upon Defaulted Mortgage Loans".
If a lender forecloses on a mortgage secured by a property, the operations
on which are subject to environmental laws and regulations, the lender will
be required to operate the property in accordance with those laws and
regulations. Such compliance may entail substantial expense, especially in
the case of industrial or manufacturing properties.
In addition, a lender may be obligated to disclose environmental
conditions on a property to government entities and/or to prospective buyers
(including prospective buyers at a foreclosure sale or following
foreclosure). Such disclosure may decrease the amount that prospective buyers
are willing to pay for the affected property, sometimes substantially, and
thereby decrease the ability of the lender to recoup its investment in a loan
upon foreclosure.
Environmental Site Assessments. In most cases, an environmental site
assessment of each Mortgaged Property will have been performed in connection
with the origination of the related Mortgage Loan or at some time prior to
the issuance of the related Certificates. Environmental site assessments,
however, vary considerably in their content, quality and cost. Even when
adhering to good professional practices, environmental consultants will
sometimes not detect significant environmental problems because to do an
exhaustive environmental assessment would be far too costly and
time-consuming to be practical.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE
Certain of the Mortgage Loans may contain "due-on-sale" and
"due-on-encumbrance" clauses that purport to permit the lender to accelerate
the maturity of the loan if the borrower transfers or encumbers the related
Mortgaged Property. In recent years, court decisions and legislative actions
placed substantial restrictions on the right of lenders to enforce such
clauses in many states. However, the Garn-St Germain Depository Institutions
Act of 1982 (the "Garn Act") generally preempts state laws that prohibit the
enforcement of due-on-sale clauses and permits lenders to enforce these
clauses in accordance with their terms, subject to certain limitations as set
forth in the Garn Act and the regulations promulgated thereunder.
Accordingly, a Master Servicer may nevertheless have the right to accelerate
the maturity of a Mortgage Loan that contains a "due-on-sale" provision upon
transfer of an interest in the property, without regard to the Master
Servicer's ability to demonstrate that a sale threatens its legitimate
security interest.
SUBORDINATE FINANCING
The terms of certain of the Mortgage Loans may not restrict the ability of
the borrower to use the Mortgaged Property as security for one or more
additional loans, or such restrictions may be unenforceable. Where a borrower
encumbers a mortgaged property with one or more junior liens, the 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.
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DEFAULT INTEREST AND LIMITATIONS ON PREPAYMENTS
Notes and mortgages may contain provisions that obligate the borrower to
pay a late charge or additional interest if payments are not timely made, and
in some circumstances, may prohibit prepayments for a specified period and/or
condition prepayments upon the borrower's payment of prepayment fees or yield
maintenance penalties. In certain states, there are or may be specific
limitations upon the late charges which a lender may collect from a borrower
for delinquent payments. Certain states also limit the amounts that a lender
may collect from a borrower as an additional charge if the loan is prepaid.
In addition, the enforceability of provisions that provide for prepayment
fees or penalties upon an involuntary prepayment is unclear under the laws of
many states.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980 ("Title V") provides that state usury limitations shall not apply
to certain types of residential (including multifamily) first mortgage loans
originated by certain lenders after March 31, 1980. Title V authorized any
state to reimpose interest rate limits by adopting, before April 1, 1983, a
law or constitutional provision that expressly rejects application of the
federal law. In addition, even where Title V is not so rejected, any state is
authorized by the law to adopt a provision limiting discount points or other
charges on mortgage loans covered by Title V. Certain states have taken
action to reimpose interest rate limits and/or to limit discount points or
other charges.
No Mortgage Loan originated in any state in which application of Title V
has been expressly rejected or a provision limiting discount points or other
charges has been adopted, will (if originated after that rejection or
adoption) be eligible for inclusion in a Trust Fund unless (i) such Mortgage
Loan provides for such interest rate, discount points and charges as are
permitted in such state or (ii) such Mortgage Loan provides that the terms
thereof are to be construed in accordance with the laws of another state
under which such interest rate, discount points and charges would not be
usurious and the borrower's counsel has rendered an opinion that such choice
of law provision would be given effect.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a borrower who enters military service after the
origination of such borrower's mortgage loan (including a borrower who was in
reserve status and is called to active duty after origination of the Mortgage
Loan), may not be charged interest (including fees and charges) above an
annual rate of 6% during the period of such borrower's active duty status,
unless a court orders otherwise upon application of the lender. The Relief
Act applies to individuals who are members of the Army, Navy, Air Force,
Marines, National Guard, Reserves, Coast Guard and officers of the U.S.
Public Health Service assigned to duty with the military. Because the Relief
Act applies to individuals who enter military service (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.
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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-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
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the related Pooling and Servicing Agreement, the related Trust Fund (or each
applicable portion thereof) will qualify as a REMIC and the REMIC
Certificates offered with respect thereto will be considered to evidence
ownership of REMIC Regular Certificates or REMIC Residual Certificates in
that REMIC within the meaning of the REMIC Provisions.
If an entity electing to be treated as a REMIC fails to comply with one or
more of the ongoing requirements of the Code for such status during any
taxable year, the Code provides that the entity will not be treated as a
REMIC for such year and thereafter. In that event, such entity may be taxable
as a corporation under Treasury regulations, and the related REMIC
Certificates may not be accorded the status or given the tax treatment
described below. Although the Code authorizes the Treasury Department to
issue regulations providing relief in the event of an inadvertent termination
of REMIC status, no such regulations have been issued. Any such relief,
moreover, may be accompanied by sanctions, such as the imposition of a
corporate tax on all or a portion of the Trust Fund's income for the period
in which the requirements for such status are not satisfied. The Pooling and
Servicing Agreement with respect to each REMIC will include provisions
designed to maintain the Trust Fund's status as a REMIC under the REMIC
Provisions. It is not anticipated that the status of any Trust Fund as a
REMIC will be inadvertently terminated.
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.
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The original issue discount, if any, on a REMIC Regular Certificate will
be the excess of its stated redemption price at maturity over its issue
price. The issue price of a particular class of REMIC Regular Certificates
will be the first cash price at which a substantial amount of REMIC Regular
Certificates of that class is sold (excluding sales to bond houses, brokers
and underwriters). If less than a substantial amount of a particular class of
REMIC Regular Certificates is sold for cash on or prior to the date of their
initial issuance (the "Closing Date"), the issue price for such class will be
the fair market value of such class on the Closing Date. Under the OID
Regulations, the stated redemption price of a REMIC Regular Certificate is
equal to the total of all payments to be made on such Certificate other than
"qualified stated interest". "Qualified stated interest" is interest that is
unconditionally payable at least annually at a single fixed rate, or at a
"qualified floating rate", an "objective rate", a combination of a single
fixed rate and one or more "qualified floating rates" or one "qualified
inverse floating rate", or a combination of "qualified floating rates" that
does not operate in a manner that accelerates or defers interest payments on
such REMIC Regular Certificate.
In the case of REMIC Regular Certificates bearing adjustable interest
rates, the determination of the total amount of original issue discount and
the timing of the inclusion thereof will vary according to the
characteristics of such REMIC Regular Certificates. If the original issue
discount rules apply to such Certificates, the related Prospectus Supplement
will describe the manner in which such rules will be applied with respect to
those Certificates in preparing information returns to the Certificateholders
and the IRS.
Certain classes of the REMIC Regular Certificates may provide for the
first interest payment with respect to such Certificates to be made more than
one month after the date of issuance, a period which is longer than the
subsequent monthly intervals between interest payments. Assuming the "accrual
period" (as defined below) for original issue discount is each monthly period
that ends on a Distribution Date, in some cases, as a consequence of this
"long first accrual period", some or all interest payments may be required to
be included in the stated redemption price of the REMIC Regular Certificate
and accounted for as original issue discount. Because interest on REMIC
Regular Certificates must in any event be accounted for under an accrual
method, applying this analysis would result in only a slight difference in
the timing of the inclusion in income of the yield on the REMIC Regular
Certificates.
In addition, if the accrued interest to be paid on the first Distribution
Date is computed with respect to a period that begins prior to the Closing
Date, a portion of the purchase price paid for a REMIC Regular Certificate
will reflect such accrued interest. In such cases, information returns
provided to the Certificateholders and the IRS will be based on the position
that the portion of the purchase price paid for the interest accrued with
respect to periods prior to the Closing Date is treated as part of the
overall cost of such REMIC Regular Certificate (and not as a separate asset
the cost of which is recovered entirely out of interest received on the next
Distribution Date) and that portion of the interest paid on the first
Distribution Date in excess of interest accrued for a number of days
corresponding to the number of days from the Closing Date to the first
Distribution Date should be included in the stated redemption price of such
REMIC Regular Certificate. However, the OID Regulations state that all or
some portion of such accrued interest may be treated as a separate asset the
cost of which is recovered entirely out of interest paid on the first
Distribution Date. It is unclear how an election to do so would be made under
the OID Regulations and whether such an election could be made unilaterally
by a Certificateholder.
Notwithstanding the general definition of original issue discount,
original issue discount on a REMIC Regular Certificate will be considered to
be de minimis if it is less than 0.25% of the stated redemption price of the
REMIC Regular Certificate multiplied by its weighted average life. For this
purpose, the weighted average life of the REMIC Regular Certificate is
computed as the sum of the amounts determined, as to each payment included in
the stated redemption price of such REMIC Regular 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
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income as each payment of stated principal is made, based on the product of
the total amount of such de minimis original issue discount and a fraction,
the numerator of which is the amount of such principal payment and the
denominator of which is the outstanding stated principal amount of the REMIC
Regular Certificate. The OID Regulations also would permit a
Certificateholder to elect to accrue de minimis original issue discount into
income currently based on a constant yield method. See "--Taxation of Owners
of REMIC Regular Certificates--Market Discount" for a description of such
election under the OID Regulations.
If original issue discount on a REMIC Regular Certificate is in excess of
a de minimis amount, the holder of such Certificate must include in ordinary
gross income the sum of the "daily portions" of original issue discount for
each day during its taxable year on which it held such REMIC Regular
Certificate, including the purchase date but excluding the disposition date.
In the case of an original holder of a REMIC Regular Certificate, the daily
portions of original issue discount will be determined as follows.
As to each "accrual period", that is, unless otherwise stated in the
related Prospectus Supplement, each period that ends on a date that
corresponds to a Distribution Date and begins on the first day following the
immediately preceding accrual period (or in the case of the first such
period, begins on the Closing Date), a calculation will be made of the
portion of the original issue discount that accrued during such accrual
period. The portion of original issue discount that accrues in any accrual
period will equal the excess, if any, of (i) the sum of (a) the present
value, as of the end of the accrual period, of all of the distributions
remaining to be made on the REMIC Regular Certificate, if any, in future
periods and (b) the distributions made on such REMIC Regular Certificate
during the accrual period of amounts included in the stated redemption price,
over (ii) the adjusted issue price of such REMIC Regular Certificate at the
beginning of the accrual period. The present value of the remaining
distributions referred to in the preceding sentence will be calculated (i)
assuming that distributions on the REMIC Regular Certificate will be received
in future periods based on the Mortgage Loans being prepaid at a rate equal
to the Prepayment Assumption and (ii) using a discount rate equal to the
original yield to maturity of the Certificate. For these purposes, the
original yield to maturity of the Certificate will be calculated based on its
issue price and assuming that distributions on the Certificate will be made
in all accrual periods based on the Mortgage Loans being prepaid at a rate
equal to the Prepayment Assumption. The adjusted issue price of a REMIC
Regular Certificate at the beginning of any accrual period will equal the
issue price of such Certificate, increased by the aggregate amount of
original issue discount that accrued with respect to such Certificate in
prior accrual periods, and reduced by the amount of any distributions made on
such REMIC Regular Certificate in prior accrual periods of amounts included
in the stated redemption price. The original issue discount accruing during
any accrual period, computed as described above, will be allocated ratably to
each day during the accrual period to determine the daily portion of original
issue discount for such day.
A subsequent purchaser of a REMIC Regular Certificate that purchases such
Certificate at a cost (excluding any portion of such cost attributable to
accrued qualified stated interest) less than its remaining stated redemption
price will also be required to include in gross income the daily portions of
any original issue discount with respect to such Certificate. However, each
such daily portion will be reduced, if such cost is in excess of its
"adjusted issue price", in proportion to the ratio such excess bears to the
aggregate original issue discount remaining to be accrued on such REMIC
Regular Certificate. The adjusted issue price of a REMIC Regular Certificate
on any given day equals the sum of (i) the adjusted issue price (or, in the
case of the first accrual period, the issue price) of such Certificate at the
beginning of the accrual 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
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previously included in income, and to recognize ordinary income to that
extent. A Certificateholder may elect to include market discount in income
currently as it accrues rather than including it on a deferred basis in
accordance with the foregoing. If made, such election will apply to all
market discount bonds acquired by such Certificateholder on or after the
first day of the first taxable year to which such election applies. In
addition, the OID Regulations permit a Certificateholder to elect to accrue
all interest, discount (including de minimis market or original issue
discount) and premium in income as interest, based on a constant yield
method. If such an election were made with respect to a REMIC Regular
Certificate with market discount, the Certificateholder would be deemed to
have made an election to include currently market discount in income with
respect to all other debt instruments having market discount that such
Certificateholder acquires during the taxable year of the election or
thereafter, and possibly previously acquired instruments. Similarly, a
Certificateholder that made this election for a Certificate that is acquired
at a premium would be deemed to have made an election to amortize bond
premium with respect to all debt instruments having amortizable bond premium
that such Certificateholder owns or acquires. See "--Taxation of Owners of
REMIC Regular Certificates--Premium" below. Each of these elections to accrue
interest, discount and premium with respect to a Certificate on a constant
yield method or as interest would be irrevocable.
However, market discount with respect to a REMIC Regular Certificate will
be considered to be de minimis for purposes of Section 1276 of the Code if
such market discount is less than 0.25% of the remaining stated redemption
price of such REMIC Regular Certificate multiplied by the number of complete
years to maturity remaining after the date of its purchase. In interpreting a
similar rule with respect to original issue discount on obligations payable
in installments, the OID Regulations refer to the weighted average maturity
of obligations, and it is likely that the same rule will be applied with
respect to market discount, presumably taking into account the Prepayment
Assumption. If market discount is treated as de minimis under this rule, it
appears that the actual discount would be treated in a manner similar to
original issue discount of a de minimis amount. See "--Taxation of Owners of
REMIC Regular Certificates--Original Issue Discount" above. Such treatment
would result in discount being included in income at a slower rate than
discount would be required to be included in income using the method
described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than
one installment. Until regulations are issued by the Treasury Department,
certain rules described in the Committee Report apply. The Committee Report
indicates that in each accrual period market discount on REMIC Regular
Certificates should accrue, at the Certificateholder's option: (i) on the
basis of a constant yield method, (ii) in the case of a REMIC Regular
Certificate issued without original issue discount, in an amount that bears
the same ratio to the total remaining market discount as the stated interest
paid in the accrual period bears to the total amount of stated interest
remaining to be paid on the REMIC Regular Certificate as of the beginning of
the accrual period, or (iii) in the case of a REMIC Regular Certificate
issued with original issue discount, in an amount that bears the same ratio
to the total remaining market discount as the original issue discount accrued
in the accrual period bears to the total original issue discount remaining on
the REMIC Regular Certificate at the beginning of the accrual period.
Moreover, the Prepayment Assumption used in calculating the 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.
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Further, under Section 1277 of the Code a holder of a REMIC Regular
Certificate may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or continued to
purchase or carry a REMIC Regular Certificate purchased with market discount.
For these purposes, the de minimis rule referred to above applies. Any such
deferred interest expense would not exceed the market discount that accrues
during such taxable year and is, in general, allowed as a deduction not later
than the year in which such market discount is includible in income. If such
holder elects to include market discount in income currently as it accrues on
all market discount instruments acquired by such holder in that taxable year
or thereafter, the interest deferral rule described above will not apply.
Premium. A REMIC Regular Certificate purchased at a cost (excluding any
portion of such cost attributable to accrued qualified stated interest)
greater than its remaining stated redemption price will be considered to be
purchased at a premium. The holder of such a REMIC Regular Certificate may
elect under Section 171 of the Code to amortize such premium under the
constant yield method over the life of the Certificate. If made, such an
election will apply to all debt instruments having amortizable bond premium
that the holder owns or subsequently acquires. Amortizable premium will be
treated as an offset to interest income on the related debt instrument,
rather than as a separate interest deduction. The OID Regulations also permit
Certificateholders to elect to include all interest, discount and premium in
income based on a constant yield method, further treating the
Certificateholder as having made the election to amortize premium generally.
See "--Taxation of Owners of REMIC Regular Certificates--Market Discount"
above. The Committee Report states that the same rules that apply to accrual
of market discount (which rules will require use of a Prepayment Assumption
in accruing market discount with respect to REMIC Regular Certificates
without regard to whether such Certificates have original issue discount)
will also apply in amortizing bond premium under Section 171 of the Code.
Realized Losses. Under Section 166 of the Code, both corporate holders of
the REMIC Regular Certificates and noncorporate holders of the REMIC Regular
Certificates that acquire such Certificates in connection with a trade or
business should be allowed to deduct, as ordinary losses, any losses
sustained during a taxable year in which their Certificates become wholly or
partially worthless as the result of one or more realized losses on the
Mortgage Loans. However, it appears that a noncorporate holder that does not
acquire a REMIC Regular Certificate in connection with a trade or business
will not be entitled to deduct a loss under Section 166 of the Code until
such holder's Certificate becomes wholly worthless (i.e., until its
outstanding principal balance has been reduced to zero) and that the loss
will be characterized as a short-term capital loss.
Each holder of a REMIC Regular Certificate will be required to accrue
interest and original issue discount with respect to such Certificate,
without giving effect to any reductions in distributions attributable to
defaults or delinquencies on the Mortgage Loans or the Underlying
Certificates until it can be established that any such reduction ultimately
will not be recoverable. As a result, the amount of taxable income reported
in any period by the holder of a REMIC Regular Certificate could exceed the
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
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otherwise disclosed in the related Prospectus Supplement. The daily amounts
so allocated will then be allocated among the REMIC Residual
Certificateholders in proportion to their respective ownership interests on
such day. Any amount included in the gross income or allowed as a loss of any
REMIC Residual Certificateholder by virtue of this paragraph will be treated
as ordinary income or loss. The taxable income of the REMIC will be
determined under the rules described below in "--Taxable Income of the REMIC"
and will be taxable to the REMIC Residual Certificateholders without regard
to the timing or amount of cash distributions by the REMIC. Ordinary income
derived from REMIC Residual Certificates will be "portfolio income" for
purposes of the taxation of taxpayers subject to limitations under Section
469 of the Code on the deductibility of "passive losses".
A holder of a REMIC Residual Certificate that purchased such Certificate
from a prior holder of such Certificate also will be required to report on
its federal income tax return amounts representing its daily share of the
taxable income (or net loss) of the REMIC for each day that it holds such
REMIC Residual Certificate. Those daily amounts generally will equal the
amounts of taxable income or net loss determined as described above. The
Committee Report indicates that certain modifications of the general rules
may be made, by regulations, legislation or otherwise to reduce (or increase)
the income of a REMIC Residual Certificateholder that purchased such REMIC
Residual Certificate from a prior holder of such Certificate at a price
greater than (or less than) the adjusted basis (as defined below) such REMIC
Residual Certificate would have had in the hands of an original holder of
such Certificate. The REMIC Regulations, however, do not provide for any such
modifications.
Any payments received by a holder of a REMIC Residual Certificate in
connection with the acquisition of such REMIC Residual Certificate will be
taken into account in determining the income of such holder for federal
income tax purposes. Although it appears likely that any such payment would
be includible in income immediately upon its receipt, the IRS might assert
that such payment should be included in income over time according to an
amortization schedule or according to some other method. Because of the
uncertainty concerning the treatment of such payments, holders of REMIC
Residual Certificates should consult their tax advisors concerning the
treatment of such payments for income tax purposes.
The amount of income REMIC Residual Certificateholders will be required to
report (or the tax liability associated with such income) may exceed the
amount of cash distributions received from the REMIC for the corresponding
period. Consequently, REMIC Residual Certificateholders should have other
sources of funds sufficient to pay any federal income taxes due as a result
of their ownership of REMIC Residual Certificates or unrelated deductions
against which income may be offset, subject to the 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
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REMIC Certificate received in exchange for an interest in the Mortgage Loans
or other property will equal the fair market value of such interests in the
Mortgage Loans or other property. Accordingly, if one or more classes of
REMIC Certificates are retained initially rather than sold, the Master
Servicer or the Trustee may be required to estimate the fair market value of
such interests in order to determine the basis of the REMIC in the Mortgage
Loans and other property held by the REMIC.
Subject to possible application of the de minimis rules, the method of
accrual by the REMIC of original issue discount income and market discount
income with respect to Mortgage Loans that it holds will be equivalent to the
method for accruing original issue discount income for holders of REMIC
Regular Certificates (that is, under the constant yield method taking into
account the Prepayment Assumption). However, a REMIC that acquires loans at a
market discount must include such market discount in income currently, as it
accrues, on a constant yield basis. See "--Taxation of Owners of REMIC
Regular Certificates" above, which describes a method for accruing such
discount income that is analogous to that required to be used by a REMIC as
to Mortgage Loans with market discount that it holds.
A Mortgage Loan will be deemed to have been acquired with discount (or
premium) to the extent that the REMIC's basis therein, determined as
described in the preceding paragraph, is less than (or greater than) its
stated redemption price. Any such discount will be includible in the income
of the REMIC as it accrues, in advance of receipt of the cash attributable to
such income, under a method similar to the method described above for
accruing original issue discount on the REMIC Regular Certificates. It is
anticipated that each REMIC will elect under Section 171 of the Code to
amortize any premium on the Mortgage Loans. Premium on any Mortgage Loan to
which such election applies may be amortized under a constant yield method,
presumably taking into account a Prepayment Assumption. Further, such an
election would not apply to any Mortgage Loan originated on or before
September 27, 1985. Instead, premium on such a Mortgage Loan should be
allocated among the principal payments thereon and be deductible by the REMIC
as those payments become due or upon the prepayment of such Mortgage Loan.
A REMIC will be allowed deductions for interest (including original issue
discount) on the REMIC Regular Certificates (including any other class of
REMIC Certificates constituting "regular interests" in the REMIC not offered
hereby) equal to the deductions that would be allowed if the REMIC 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,
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subject to the limitation of Section 67 of the Code. See "--Possible
Pass-Through of Miscellaneous Itemized Deductions" below. If the deductions
allowed to the REMIC exceed its gross income for a calendar quarter, such
excess will be the net loss for the REMIC for that calendar quarter.
Basis Rules, Net Losses and Distributions. The adjusted basis of a REMIC
Residual Certificate will be equal to the amount paid for such REMIC Residual
Certificate, increased by amounts included in the income of the REMIC
Residual Certificateholder and decreased (but not below zero) by
distributions made, and by net losses allocated, to such REMIC Residual
Certificateholder.
A REMIC Residual Certificateholder is not allowed to take into account any
net loss for any calendar quarter to the extent such net loss exceeds such
REMIC Residual Certificateholder's adjusted basis in its REMIC Residual
Certificate as of the close of such calendar quarter (determined without
regard to such net loss). Any loss that is not currently deductible by reason
of this limitation may be carried forward indefinitely to future calendar
quarters and, subject to the same limitation, may be used only to offset
income from the REMIC Residual Certificate. The ability of REMIC Residual
Certificateholders to deduct net losses may be subject to additional
limitations under the Code, as to which REMIC Residual Certificateholders
should consult their tax advisors.
Any distribution on a REMIC Residual Certificate will be treated as a
non-taxable return of capital to the extent it does not exceed the holder's
adjusted basis in such REMIC Residual Certificate. To the extent a
distribution on a REMIC Residual Certificate exceeds such adjusted basis, it
will be treated as gain from the sale of such REMIC Residual Certificate.
Holders of certain REMIC Residual Certificates may be entitled to
distributions early in the term of the related REMIC under circumstances in
which their bases in such REMIC Residual Certificates will not be
sufficiently large that such distributions will be treated as non-taxable
returns of capital. Their bases in such REMIC Residual Certificates will
initially equal the amount paid for such REMIC Residual Certificates and will
be increased by their allocable shares of taxable income of the REMIC.
However, such bases increases may not occur until the end of the calendar
quarter, or perhaps the end of the calendar year, with respect to 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
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decreased (but not below zero) by any distributions made with respect to such
REMIC Residual Certificate before the beginning of such quarter. The issue
price of a REMIC Residual Certificate is the initial offering price to the
public (excluding bond houses and brokers) at which a substantial amount of
the REMIC Residual Certificates were sold. The "long-term Federal rate" is an
average of current yields on Treasury securities with a remaining term of
greater than nine years, computed and published monthly by the IRS. Although
it has not done so, the Treasury has authority to issue regulations that
would treat the entire amount of income accruing on a REMIC Residual
Certificate as an excess inclusion if the REMIC Residual Certificates are
considered not to have "significant value."
For REMIC Residual Certificateholders, excess inclusions (i) will not be
permitted to be offset by deductions, losses or loss carryovers from other
activities, (ii) will be treated as "unrelated business taxable income" to an
otherwise tax-exempt organization and (iii) will not be eligible for any rate
reduction or exemption under any applicable tax treaty with respect to the
30% United States withholding tax imposed on distributions to REMIC Residual
Certificateholders that are foreign investors. See, however, "--Foreign
Investors in REMIC Certificates" below. Furthermore, for purposes of the
alternative minimum tax, (i) excess inclusions will not be permitted to be
offset by the alternative tax net operating loss deduction and (ii)
alternative minimum taxable income may not be less than the taxpayer's excess
inclusions. The latter rule has the effect of preventing non-refundable tax
credits from reducing the taxpayer's income tax to an amount lower than the
tentative minimum tax on excess inclusions.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Section 857(b)(2) of
the 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 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
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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 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.
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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 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.
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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.
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".
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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
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
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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 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
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(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 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
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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 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
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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
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
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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 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
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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 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.
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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 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
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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 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.
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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 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.
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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, 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
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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 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
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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.
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
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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
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
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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 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.
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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
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.
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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 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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INDEX OF PRINCIPAL TERMS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
401(c) Regulations 84
Accrual Certificates 8
Accrued Certificate Interest 26
Act 55
Annual Debt Service 15
ARM Loans 17
Available Distribution Amount 25
Book-Entry Certificates 25
Cash Flow Agreement 9
CERCLA 54
Certificate Account 18
Certificate Balance 7
Certificate Owner 31
Certificateholder 32
Certificates 1
Closing Date 60
Code 10
Commercial Properties 14
Commission 3
Committee Report 59
Companion Class 27
Condemnation Proceeds 38
Contributions Tax 69
Controlled Amortization Class 27
Cooperatives 14
CPR 22
Credit Support 9
Cut-Off Date 27
Debt Service Coverage Ratio 15
Definitive Certificates 25
Depositor 1
Determination Date 20
Direct Participants 31
Distribution Date 8
Distribution Date Statement 29
DTC 25
Due Dates 17
Due Period 20
Equity Participation 17
ERISA 10
Excess Funds 24
Excluded Plan 83
Exemption 82
FAMC 18
FHLMC 18
FNMA 18
Garn Act 56
GMACCM 5
Grantor Trust Fractional Interest Certificate 72
Grantor Trust Strip Certificate 73
Indirect Participants 31
Insurance Proceeds 38
89
<PAGE>
PAGE
--------
IRS 40
Issue Premium 65
Letter of Credit Bank 48
Liquidation Proceeds 38
Loan-to-Value Ratio 16
Lock-Out Date 17
Lock-Out Period 17
Manager 5
Mark-to-Market Regulations 68
Master Servicer 5
MBS 1
MBS Administrator 5
MBS Agreement 18
MBS Issuer 18
MBS Servicer 18
MBS Trustee 18
Mortgage Asset Pool 1
Mortgage Asset Seller 14
Mortgage Assets 1
Mortgage Notes 14
Mortgage Rate 6
Mortgaged Properties 14
Mortgages 14
Multifamily Properties 14
Net Leases 16
Non-Exempt Certificates 83
Nonrecoverable Advance 28
Notional Amount 7
Offered Certificates 1
OID Regulations 58
Originator 14
OTS 86
Participants 31
Pass-Through Rate 7
Percentage Interest 26
Permitted Investments 37
Plans 81
Policy Statement 86
Pooling And Servicing Agreement 6
Prepayment Assumption 59
Prepayment Interest Shortfall 20
Prepayment Premium 17
Prohibited Transactions Tax 69
Prospectus Supplement 1
PTCE 84
Purchase Price 34
Rating Agency 10
RCRA 55
Record Date 26
Related Proceeds 28
Relief Act 57
REMIC 2
REMIC Certificates 58
REMIC Provisions 58
90
<PAGE>
PAGE
--------
REMIC Regular Certificates 10
REMIC Regulations 58
REMIC Residual Certificates 10
REO Property 37
Restricted Group 82
Senior Certificates 7
Senior Liens 14
Servicer 5
SMMEA 10
SPA 22
Special Servicer 5
Stripped Interest Certificates 7
Stripped Principal Certificates 7
Subordinate Certificates 7
Sub-Servicer 37
Sub-Servicing Agreement 37
Tax Exempt Investor 85
Tiered REMICs 59
Title V 57
Trust Assets 3
Trust Fund 1
Trustee 5
UBTI 85
UCC 50
Underwriter 82
Underwritten Cash Flow 15
Underwritten Debt Service Coverage Ratio 15
Underwritten DSCR 15
UNITED STATES PERSON 72
Value 16
Warranting Party 34
</TABLE>
91
<PAGE>
This diskette contains two spreadsheet files in read-only format that can
be put on a user-specified hard drive or network drive. These two files are
"GMAC97C2.xls" and "GMAC97C2.wk4." The file "GMAC97C2.xls" is a Microsoft
Excel(1), Version 5.0 spreadsheet, and the file "GMAC97C2.wk4" is a Lotus
123(1), Version 4.1 spreadsheet. Each file provides, in electronic format,
certain loan level information shown in ANNEX A of the Prospectus Supplement.
Open either file as you would normally open any spreadsheet in either
Microsoft Excel or Lotus 123. After either file is opened, a securities law
legend will be displayed. READ THE LEGEND CAREFULLY. To view the ANNEX A
data, see the worksheet labeled "Annex A."
- ------------
(1) Microsoft Excel and Lotus 123 are registered trademarks of Microsoft
Corporation and Lotus Development Corporation, respectively.
<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 UNDERWRITERS. 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
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Transaction Overview........................ S-6
Summary..................................... S-7
Risk Factors................................ S-19
Description of the Mortgage Asset Pool ..... S-28
Servicing of the Mortgage Loans............. S-41
Description of the Certificates............. S-50
Yield and Maturity Considerations........... S-66
Certain Federal Income Tax Consequences .... S-80
Method of Distribution...................... S-82
Legal Matters............................... S-83
Ratings..................................... S-83
Legal Investment............................ S-84
ERISA Considerations........................ S-84
Index of Principal Terms.................... S-86
Annex A .................................... A-1
Annex B .................................... B-1
Annex C .................................... C-1
Annex D .................................... D-1
</TABLE>
PROSPECTUS
<TABLE>
<CAPTION>
<S> <C>
Available Information ....................... 3
Incorporation of Certain Information by
Reference .................................. 4
Summary of Prospectus ....................... 5
Risk Factors ................................ 11
Description of the Trust Funds .............. 14
Yield and Maturity Considerations ........... 19
The Depositor ............................... 24
GMAC Commercial Mortgage Corporation ....... 24
Description of the Certificates ............. 25
The Pooling and Servicing Agreements ....... 32
Description of Credit Support ............... 47
Certain Legal Aspects of Mortgage Loans .... 49
Certain Federal Income Tax Consequences .... 58
State and Other Tax Consequences ............ 80
ERISA Considerations ........................ 81
Legal Investment ............................ 85
Use of Proceeds ............................. 86
Method of Distribution ...................... 87
Legal Matters ............................... 88
Financial Information ....................... 88
Rating ...................................... 88
Index of Principal Definitions .............. 89
</TABLE>
$941,294,000
(APPROXIMATE)
GMAC COMMERCIAL
MORTGAGE SECURITIES, INC.
MORTGAGE PASS-THROUGH
CERTIFICATES,
SERIES 1997-C2
PROSPECTUS SUPPLEMENT
GOLDMAN, SACHS & CO.
DEUTSCHE MORGAN GRENFELL
RESIDENTIAL FUNDING SECURITIES
CORPORATION
DECEMBER 17, 1997
