As filed with the Securities and Exchange Commission on October 26, 1999
Registration No. 333-74299
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------------
GMAC COMMERCIAL MORTGAGE SECURITIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 23-2811925
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
650 Dresher Road
P.O. Box 1015
Horsham, Pennsylvania 19044-8015
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
DAVID E. CREAMER, DIRECTOR AND PRESIDENT
GMAC COMMERCIAL MORTGAGE SECURITIES, INC.
650 Dresher Road
P.O. Box 1015
Horsham, Pennsylvania 19044-8015
(215) 328-3164
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
ROBERT L. SCHWARTZ, ESQ.
MANAGING DIRECTOR AND GENERAL COUNSEL
GMAC MORTGAGE GROUP, INC.
3031 West Grand Boulevard
Detroit, Michigan 48232
DIANE CITRON, ESQ. JOSHUA E. RAFF, ESQ.
MAYER, BROWN & PLATT ORRICK, HERRINGTON & SUTCLIFFE LLP
1675 Broadway 666 Fifth Avenue
New York, New York 10019-5820 New York, New York 10103
Approximate date of commencement of proposed sale to the public: From time
to time on or after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
plans, please check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
<TABLE>
<CAPTION>
-------------------------------
CALCULATION OF REGISTRATION FEE
===============================================================================================================================
Proposed Maximum Proposed Maximum
Title of Securities Amount Offering Price Aggregate Offering Amount of
Being Registered to be Registered(1) Per Unit(2) Price (2) Registration Fee(1)
- ---------------------------------- ---------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Mortgage Pass-Through Certificates $2,000,000,000 100% $2,000,000,000 $556,000
===============================================================================================================================
</TABLE>
(1) $12,601,854 aggregate principal amount of Mortgage Pass-Through
Certificates registered by the Registrant under Registration Statement No.
333-64963 referred to below are consolidated in this Registration Statement
pursuant to Rule 429. All registration fees in connection with such unsold
amount of Mortgage Pass-Through Certificates have been previously paid by
the Registrant under the foregoing Registration Statement. Accordingly, the
total amount registered under the Registration Statement as so consolidated
as of the date of this filing is $2,012,601,854.
(2) Estimated solely for the purpose of calculating the registration fee.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
Pursuant to Rule 429 of the Securities Act of 1933, the prospectus which is
part of this Registration Statement is a combined prospectus and includes all
the information currently required in a prospectus relating to the securities
covered by Registration Statement No. 333- 64963 previously filed by the
Registrant.
================================================================================
<PAGE>
Prospectus Supplement to Prospectus dated [ ]
$[__] (Approximate)
GMAC Commercial Mortgage Securities, Inc.
Depositor
GMAC Commercial Mortgage Corporation
Servicer
Series [__] Mortgage Pass-Through Certificates
- --------------------------------------------------------------------------------
You should consider carefully the risk factors beginning on pages S-[__] in this
prospectus supplement and page [__] in the prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The certificates represent interests only in the trust created for Series [__].
They do not represent interests in or obligations of GMAC Commercial Mortgage
Securities, Inc., GMAC Commercial Mortgage Corporation or any of their
affiliates.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This prospectus supplement may be used to offer and sell the offered
certificates only if accompanied by the prospectus.
- --------------------------------------------------------------------------------
The certificates will consist of:
o The [__] classes of offered certificates described in the table on page
S-[__].
o [__] additional classes of private certificates, all of which are
subordinated to, and provide credit enhancement for, the offered
certificates.
The assets underlying the certificates will include:
o A pool of [__] fixed rate, monthly pay mortgage loans secured by first
priority liens on [__] commercial and multifamily residential properties.
The mortgage pool will have an initial pool balance of approximately $ [__]
Credit enhancement:
The subordination of certificates other than the Class [__] certificates will
provide credit enhancement to the Class [__] certificates.
Neither the Securities and Exchange Commission nor any state securities
commission has approved the offered certificates or determined that this
prospectus supplement or the prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
The underwriters will sell the offered certificates at varying prices to be
determined at the time of sale. The proceeds to GMAC Commercial Mortgage
Securities, Inc. from the sale of the offered certificates will be approximately
[__]% of their principal balance plus accrued interest, before deducting
expenses. The underwriters' commission will be the difference between the price
they pay to GMAC Commercial Mortgage Securities, Inc. for the offered
certificates and the amount they receive from the sale of the offered
certificates to the public.
<PAGE>
[names of underwriters]
[date]
<PAGE>
Important notice about information presented in this
prospectus supplement and the accompanying prospectus
We tell you about the offered certificates in two separate documents that
progressively provide more detail:
o the accompanying prospectus, which provides general information, some
of which may not apply to your series of certificates; and
o this prospectus supplement, which describes the specific terms of your
series of certificates.
The prospectus and the prospectus supplement, together, provide a
description of the material terms of your certificates. You should rely on the
information in this prospectus supplement to the extent it provides a more
specific description of your certificates.
We include cross references in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
further related discussions. The following table of contents and the table of
contents included in the accompanying prospectus provide the pages on which
these captions are located.
S-3
<PAGE>
TABLE OF CONTENTS
Summary of Series [__] Certificates and Pool Characteristics ............ S-7
Summary of Series [__] Transaction ...................................... S-9
Relevant Parties and Important Dates .................................... S-9
The Mortgage Pool ....................................................... S-9
Geographic Concentrations of the Mortgaged Properties ................... S-10
Property Types .......................................................... S-10
Call Protection provided by the Mortgage Loans .......................... S-10
Payment Terms of the Mortgage Loans ..................................... S-10
The Certificates ........................................................ S-10
Certificate Designations ................................................ S-10
Initial Certificate Balances of the Certificates ........................ S-10
Distributions on the Offered Certificates ............................... S-11
Subordination of Classes of Certificates ................................ S-12
Allocation of Losses and Expenses to Classes of Certificates ............ S-12
Advances made by the Servicer ........................................... S-12
Optional Termination of the Trust ....................................... S-13
Legal Investment in the Certificates .................................... S-13
ERISA Considerations for Certificateholders ............................. S-13
Tax Status of the Certificates .......................................... S-13
Ratings on the Certificates ............................................. S-14
RISK FACTORS ............................................................ S-15
Allocations of losses on the mortgage loans will reduce
your payments and yield on your certificates ......................... S-15
Delinquencies, losses and prepayments on the mortgage
loans will affect the yield on the certificates ...................... S-15
The mortgage loans are not insured ...................................... S-16
Conflicts of interest may occur when certificateholders
of various classes have differing interests .......................... S-16
Adverse environmental conditions on the mortgaged
property may reduce or delay your payments ........................... S-17
Geographic concentration may increase realized losses on the
mortgage loans ....................................................... S-18
The mortgage loans are non-recourse loans ............................... S-19
Seller is the only person making representations and warranties on
mortgage loans ....................................................... S-19
Balloon payments may increase losses on the mortgage loans and
extend the weighted average life of your certificate ................. S-20
Risks Particular to Office Properties:
Economic decline in tenant businesses or changes in demographic
conditions could adversely affect the value and cash flow
from office properties ............................................... S-21
Competition with other office properties could also adversely
affect the value and cash flow from office properties ................ S-22
Risks Particular to Retail Properties: A significant tenant
ceasing to operate at a retail property could adversely affect
its value and cash flow .............................................. S-22
Retail properties are vulnerable to changes in consumer preferences ..... S-23
Competition from alternative retail distribution channels may
adversely affect the value and cash flow from retail properties ...... S-23
Risks Particular to Multifamily Properties: Reductions in occupancy
and rent levels on multifamily properties could adversely
affect their value and cash flow ..................................... S-24
S-4
<PAGE>
Restrictions imposed on multifamily properties by government
programs could also adversely affect their value and cash flow ....... S-24
Risks Particular to Hospitality Properties: Reductions in room
rates or occupancy at a hospitality property could adversely
affect its value and cash flow ....................................... S-25
Risks Particular to Industrial Properties: Changes in economic
and demographic conditions could adversely affect the value
and cash flow from industrial properties ............................. S-26
Restrictions imposed by site characteristics could also adversely
affect the value and cash flow from industrial properties ............ S-26
Restrictions imposed by increased environmental risks could also
adversely affect the value and cash flow from industrial properties .. S-27
Risks associated with tenants generally: Losses may be caused by
tenant credit risk on the mortgage loans ............................. S-27
Losses may be caused by tenant credit risk on the mortgage loans ........ S-27
Losses may be caused by the expiration of or tenant defaults on leases .. S-28
Tenant bankruptcy entails risks ......................................... S-28
Losses may be caused by inadequate property management .................. S-29
Conflicts of interests between property managers and owners
may result in losses ................................................. S-29
Limited alternative uses of other property types could adversely
affect their value and cash flow ..................................... S-30
Losses may result if the servicer is unable to sell a mortgaged property
securing a defaulted mortgage loan for its appraised value ........... S-30
Subordinate financing on the mortgaged property may increase risks ...... S-31
Related borrowers may make losses on the mortgage loans more severe ..... S-31
Larger-than-average balance loans may make losses more severe ........... S-32
Losses could result from limitation on enforceability of
cross-collateralization .............................................. S-32
Tax considerations related to foreclosure may reduce payments to
certificateholders ................................................... S-33
State law limitations on remedies ....................................... S-33
Bankruptcy rules may limit ability of lender to enforce remedies ........ S-34
Your payments may be reduced or delayed if zoning and building code
noncompliance on the mortgaged properties adversely affects the
ability of borrowers to make payments on the mortgage loans .......... S-34
Changes in concentrations of borrower, loan or property
characteristics may cause losses on the mortgage loans ............... S-35
Compliance with the Americans with Disabilities Act may reduce
payments to certificateholders ....................................... S-35
Year 2000 problem may reduce or delay collections and distributions
of receipts on the mortgage loans .................................... S-35
DESCRIPTION OF THE MORTGAGE POOL ........................................ S-36
Calculations of Interest ................................................ S-36
Balloon Loans ........................................................... S-36
ARD Loans ............................................................... S-37
Amortization of Principal ............................................... S-38
Due Dates ............................................................... S-38
Defeasance .............................................................. S-38
Prepayment Provisions ................................................... S-39
Related Borrowers, Cross-Collateralized Mortgage Loans and
Mortgage Loans Collateralized by Multiple
S-5
<PAGE>
Properties .............................................................. S-40
Due-on-Sale and Due-on-Encumbrance Provisions ........................... S-40
Secured Subordinate Financing ........................................... S-41
Secured Subordinate Debt ................................................ S-41
Significant Mortgage Loans S-41
The Seller .............................................................. S-42
Underwriting Matters .................................................... S-42
Hazard, Liability and Other Insurance ................................... S-43
Assignment of the Mortgage Loan; Repurchases and Substitutions .......... S-44
Representations and Warranties; Repurchases S-46
Pool Characteristics; Changes in Mortgage Pool .......................... S-49
SERVICING OF THE MORTGAGE LOANS ......................................... S-50
The Servicer ............................................................ S-50
Servicing Standard ...................................................... S-50
Specially Serviced Mortgage Loans ....................................... S-50
Termination of the Servicer for Specially Serviced Mortgage
Loans and REO Properties .............................................. S-52
Servicing and Other Compensation and Payment of Expenses ................ S-53
Modifications, Waivers, Amendments and Consents ......................... S-56
Enforcement of ARD Loans ................................................ S-57
Sale of Defaulted Mortgage Loans ........................................ S-58
REO Properties .......................................................... S-58
Inspections; Collection of Operating Information ........................ S-59
DESCRIPTION OF THE
CERTIFICATES ............................................................ S-60
Denominations ........................................................... S-60
Book-Entry Registration of the Offered Certificates ..................... S-61
Certificate Balances and National Amounts ............................... S-64
Pass-Through Rates ...................................................... S-64
Distributions ........................................................... S-66
Distributions of Prepayment Premiums .................................... S-69
Distributions of Excess Interest ........................................ S-69
Distributions of Excess Liquidation Proceeds ............................ S-70
Treatment of REO Properties ............................................. S-70
Interest Reserve Account ................................................ S-70
Subordination; Allocation of Losses and Expenses ........................ S-71
P&I Advances ............................................................ S-72
Appraisal Reductions .................................................... S-73
Reports to Certificateholders; Available Information .................... S-75
Other Information ....................................................... S-78
Voting Rights ........................................................... S-78
Termination; Retirement of Certificates ................................. S-79
The Trustee ............................................................. S-80
YIELD AND MATURITY CONSIDERATIONS ....................................... S-80
Yield Considerations .................................................... S-80
Factors that Affect the Rate and Timing of Payments and Defaults ........ S-82
Delay in Payment of Distributions ....................................... S-82
Unpaid Distributable Certificate Interest ............................... S-82
Weighted Average Life ................................................... S-83
Price/Yield Tables ...................................................... S-86
Yield Sensitivity of the Class X Certificates ........................... S-88
FEDERAL INCOME TAX CONSEQUENCES ......................................... S-89
Original Issue Discount and Premium ..................................... S-90
New Withholding Regulations ............................................. S-92
Characterization of Investments in Offered Certificates ................. S-92
METHOD OF DISTRIBUTION .................................................. S-93
LEGAL MATTERS ........................................................... S-94
RATINGS S-94
LEGAL INVESTMENT ........................................................ S-95
ERISA CONSIDERATIONS .................................................... S-96
Glossary ................................................................ S-98
ANNEX A
CHARACTERISTICS OF THE MORTGAGE LOANS .............................. S-101
ANNEX B ................................................................. S-113
ANNEX C ................................................................. S-114
ANNEX D
GLOBAL CLEARANCE, SETTLEMENT
S-6
<PAGE>
AND TAX DOCUMENTATION PROCEDURES ........................................ S-115
Summary of Series [__] Certificates and Pool Characteristics
The Series [__] Mortgage Pass-Through Certificates
<TABLE>
<CAPTION>
ORIGINAL APPROXIMATE INITIAL APPROXIMATE
PRINCIPAL PERCENT OF PASS- WEIGHTED AVG. PRINCIPAL
OR NOTIONAL CREDIT THROUGH LIFE (5) WINDOW (6)
CLASS RATINGS [__] AMOUNT (1) SUPPORT (4) RATE (IN YEARS) (MONTH/YEAR)
----- ------------ ------------ ----------- ---- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
(1) These amounts are approximate.
(2) The Class X certificates will accrue interest on the Class X notional
amount.
(3) The Class X certificates will accrue interest at a variable rate based upon
the weighted average net mortgage rate. See "Description of the
Certificates--Pass-Through Rates."
(4) The percent of credit support reflects the aggregate certificate balances
of all classes of certificates that will be subordinate to each class on
the date the certificates are issued, expressed as a percentage of the
initial pool balance.
(5) The weighted average life of a security is the average amount of time that
will elapse from the time the security is issued until the investor
receives all principal payments on the security, weighted on the basis of
principal paid, or, in the case of Class X certificates, the reduction in
notional amount.
(6) The principal window is the period during which each class would receive
distributions of principal assuming that there are no prepayments on the
mortgage loans and according to the maturity assumptions described under
"Yield and Maturity Considerations" in this prospectus supplement.
The following table shows information regarding the mortgage loans and the
mortgaged properties as of the cut-off date, which is the due date of any
mortgage loan in [__].
S-7
<PAGE>
All weighted averages set forth below are based on the balances of the
mortgage loans as of that date. The balance of each mortgage loan as of the due
date for any mortgage loan in [__] is its unpaid principal balance as of that
date, after applying all payments of principal due on or before that date,
whether or not those payments are received.
S-8
<PAGE>
Series [__] Mortgage Pool Characteristics
Characteristics Entire Mortgage Pool
- --------------- --------------------
Initial pool balance ..................................... $
Number of mortgage loans
Number of mortgaged properties
Average balance as of the cut-off date ................... $
Range of mortgage rates .................................. % to %
as of the cut-off date
Weighted average mortgage rate ........................... %
Weighted average remaining term to maturity or ...........
anticipated repayment date months
Weighted average debt service coverage ratio
Weighted average loan-to-value ratio ..................... %
The calculation of loan-to-value ratio and debt service coverage ratio is
described in Annex A to this prospectus supplement and the calculations of the
weighted average debt service coverage ratio and weighted average loan-to-value
ratio.
S-9
<PAGE>
Summary of Series [__] Transaction
This summary highlights selected information from this document. To
understand all of the terms of the offered certificates, you should read
carefully this entire document and the accompanying prospectus.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Relevant Parties and Important Dates
<S> <C> <C>
Title of Series: Series [__] Mortgage Cut-off Date[s]: [__]
Pass-Through Certificates
The Issuer: GMAC Commercial Mortgage Securities Inc. Distribution Date: The 15th day of each month or,
Series [__] Trust formed to issue the if the 15th day is not a business day, the
mortgage pass-through certificates and to immediately succeeding business day, beginning in
acquire the mortgage pool. [__].
Depositor: GMAC Commercial Mortgage Securities, Inc. Closing Date: On or about [__].
650 Dresher Road
Horsham, Pennsylvania 19044-8015 Determination Date: The 5th day of each month or,
(215) 328-4622 if the 5th day is not a business day, the
immediately succeeding business day.
Seller:
GMAC Commercial Mortgage Collection Period: For any distribution
Corporation date, the period that begins immediately
following the determination date
Servicer: in the prior calendar month and continues
GMAC Commercial Mortgage through and includes the determination
Corporation date in the calendar month in which that
Trustee: distribution date occurs. The first
collection period, however, for each
[__] mortgage loan begins immediately
following its cut-off date.
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The Mortgage Pool
The mortgage pool will consist of mortgage loans secured by first mortgage liens
on real property interests held by borrowers that own or lease the mortgaged
properties. The mortgaged properties are used for commercial or multifamily
residential purposes.
GMAC Commercial Mortgage Corporation originated all of the mortgage loans. The
mortgage loans were originated between [__].
The seller will make representations and warranties regarding the mortgage
loans. The depositor will assign these representations and warranties to the
trustee.
In this prospectus supplement, the percentage of the initial pool balance refers
to the principal
S-10
<PAGE>
balance of the mortgage loans or the allocated loan amount secured by a
mortgaged property. The initial pool balance of the mortgage loans is equal to
their unpaid aggregate principal balances as of their cut-off dates, after
taking into account all payments of principal due on or before that date,
whether or not received. All mortgage pool information in this prospectus
supplement is approximate and depends upon the final composition of the mortgage
loans sold to the trust.
Annex A to this prospectus supplement provides characteristics of the mortgage
loans on a loan-by-loan basis. Also see "Description of the Mortgage Pool" in
this prospectus supplement.
Geographic Concentrations of the Mortgaged Properties
The mortgaged properties are located in [__] states. The following table lists
the number and percentage of mortgaged properties that are located in the five
states with the highest concentrations of mortgaged properties.
Number of Percentage
Mortgaged of Initial
State Properties Pool Balance
- ----- ---------- ------------
Property Types
The following table lists the number and percentage of mortgaged properties that
are operated for each purpose.
Number of Percentage
Mortgaged of Initial
Property Type Properties Pool Balance
- ------------- ---------- ------------
Call Protection provided by the Mortgage Loans
The terms of each of the mortgage loans restrict the ability of the borrower to
prepay the loan. All the mortgage loans permit defeasance after a lockout
period. For a description of defeasance provisions in the mortgage loans, See
"Description of the Mortgage Pool--Defeasance."
Payment Terms of the Mortgage Loans
All the mortgage loans accrue interest at a fixed rate. However, the rate on a
loan with an anticipated repayment date may increase if that loan is not repaid
on its anticipated repayment date. See "Description of the Mortgage
Pool--Calculations of Interest," and "--ARD Loans" in this prospectus
supplement.
The Certificates
Your certificates represent the right to a portion of the collections on the
trust's assets. The certificates represent all of the beneficial ownership
interests in the trust. The offered certificates are the only securities offered
through this prospectus supplement. The private certificates are not offered by
this prospectus supplement.
Certificate Designations
We refer to the certificates by the following designations:
------------------------------ ---------------------------
Designation Related Class(es)
------------------------------ ---------------------------
Offered certificates
------------------------------ ---------------------------
Senior certificates
------------------------------ ---------------------------
Interest only certificates
------------------------------ ---------------------------
Subordinate certificates
------------------------------ ---------------------------
REMIC Residual certificates
------------------------------ ---------------------------
REMIC regular certificates
------------------------------ ---------------------------
S-11
<PAGE>
Initial Certificate Balances of the Certificates
The aggregate principal balance of the certificates issued by the trust will be
approximately $[__], but may vary upward or downward by no more than 5%.
The senior certificates will comprise approximately [__]% and the subordinate
certificates will comprise approximately [__]% of the initial aggregate
certificate balance of the certificates.
The Class X certificates will not have a certificate balance. The Class X
Certificates will have a notional amount and will accrue interest on that
notional amount. The Class X certificates will not receive any distributions of
principal.
Distributions on the Offered Certificates
The trustee will make distributions to certificateholders on each distribution
date in the order of priority described below.
Until paid in full, each class of offered certificates will be entitled to
receive monthly distributions of interest.
The borrowers make payments of interest and principal to the servicer. The
servicer will deduct its servicing fee and send the remainder to the trustee.
After deducting its trustee fee, the trustee will distribute the remaining
amount, up to the amount available to the certificateholders as follows:
- --------------------------------------------------------
Amount available to certificateholders
- --------------------------------------------------------
- --------------------------------------------------------
Step 1
Distribution of interest to the senior certificates
- --------------------------------------------------------
- --------------------------------------------------------
Step 2
Distribution of principal to the
Class [__] certificates
- --------------------------------------------------------
- --------------------------------------------------------
Step 3
Distribution of the
amount of interest due and
principal due each class of the subordinate
certificates. These distributions are made in the
priority of the alphabetic order of the subordinate
certificates and as described below.
- --------------------------------------------------------
- --------------------------------------------------------
Step 4
Any remaining funds to the residual certificates
- --------------------------------------------------------
Distributions of interest and principal are not made to a class of certificates
if its certificate balance has been reduced to zero. However, realized losses or
additional trust fund expenses allocated to reduce the certificate balance of a
class of certificates may be reimbursed if the amount available for distribution
is sufficient. See "Description of the Certificates --Distributions" for a
discussion of the amount available for distribution and the priorities and
amounts of distributions on the certificates. Because payments are made in the
order described above, there may not be sufficient funds to make each of the
payments described above after making distributions with a higher priority.
Funds may be insufficient if the trust experiences realized losses, incurs
unanticipated expenses or an appraisal reduction event occurs.
On any given distribution date, there may be insufficient payments received from
the mortgage loans for all classes of certificates to receive the full amount of
interest due on that date. Those certificates that do not receive their full
interest distributions on any distribution date will be entitled to receive the
shortfall in each month
S-12
<PAGE>
thereafter up to the aggregate amount of the shortfall, in the same priority as
their distribution of interest. However, there will be no extra interest paid to
make up for the delay in distribution of interest.
The amount of interest distributable on each class on each distribution date
will equal:
o 1/12th of the pass-through rate for that class
multiplied by
o the related class certificate balance or class notional amount.
Due to allocations of losses, expenses and any net aggregate prepayment interest
shortfall, the actual amount of interest distributed on each distribution date
may be less than this amount.
See "Description of the Certificates- Distributions" in this prospectus
supplement.
Subordination of Classes of Certificates
The senior certificates will receive all distributions of interest and principal
before the subordinate certificates are entitled to receive distributions of
interest or principal. This subordination of the subordinate certificates to the
senior certificates provides credit support to the senior certificates. Each
class of subordinated certificates will provide credit enhancement to
subordinated certificates with earlier alphabetical class designations.
Allocation of Losses and Expenses to Classes of Certificates
A loss is realized on a mortgage loan when the servicer determines that it has
received all amounts it expects to receive from the mortgage loan and that
amount is less than the outstanding principal balance on the loan plus accrued
and unpaid interest.
An additional trust fund expense is an expense incurred by the trust that is not
covered by a corresponding payment from a borrower.
Losses and additional trust fund expenses will be allocated to the certificates
by deducting those losses from the certificate balances of the certificates
without making any payments to the certificateholders. In general, losses and
additional trust fund expenses are allocated to the certificates if the
aggregate outstanding principal balance of the mortgage loans immediately
following the distributions to be made on the certificates on any distribution
date is less than the aggregate outstanding certificate balance of the
certificates. If this happens, the certificate balances of the certificates will
be reduced as shown in the following chart:
- --------------------------------------------------------
Step 1
Reduce the certificate balances of the
Class [ ____________] certificates to zero, in that
order
- --------------------------------------------------------
- --------------------------------------------------------
Step 2
Reduce the certificate balances of the
Class [___________] certificates to zero
- --------------------------------------------------------
Any reductions in the certificate balances of the certificates as the result of
the allocation of losses and trust fund expenses will also have the effect of
reducing the notional amount of the Class X certificates.
For a detailed description of the allocation of losses and trust fund expenses
among the certificates, see "Description of the Certificates--Subordination;
Allocation of Losses and Expenses" in this prospectus supplement.
S-13
<PAGE>
Advances made by the Servicer
For any month, if the servicer receives a payment on a mortgage loan that is
less than the full scheduled payment, or if no payment is received, the servicer
is required to advance its own funds to cover that shortfall. However, the
servicer is required to make an advance only if it determines that the advance
will be recoverable from future payments or collections on that mortgage loan.
The servicer will not be required to advance the amount of any delinquent
balloon payment or any default interest or excess interest that may be due on
any ARD loan. If the servicer fails to make a required advance, the trustee will
be required to make that advance. However, the trustee will make an advance only
if it determines that the advance will be recoverable from future payments or
collections on that mortgage loan.
The servicer and the trustee each will be entitled to interest on any advances
of monthly payments made by it and advances of servicing expenses incurred by it
or on its behalf. See "Description of the Certificates--P&I Advances" in this
prospectus supplement and "Description of the Certificates--Advances in Respect
of Delinquencies" and "The Pooling and Servicing Agreements--Certificate
Account" in the prospectus.
Optional Termination of the Trust
If the remaining aggregate principal balance of the mortgage pool is less than
[__]% of the initial pool balance on any distribution date, the servicer or the
depositor may purchase the mortgage loans. Neither the servicer, nor the
depositor, however, are required to do so. If the servicer or depositor does
purchase the loans, the outstanding principal balance of the certificates will
be paid in full, together with accrued interest. See "Description of the
Certificates--Certificate Balances and Notional Amounts" and "--Termination;
Retirement of Certificates."
Legal Investment in the Certificates
At the time of their issuance, any of the offered certificates rated in the
category of "AAA" or "AA" or the equivalent by at least one rating agency will
be "mortgage related securities" and all other offered certificates will not be
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984. See "Legal Investment" in this prospectus supplement
for important information concerning possible restrictions on ownership of the
offered certificates by regulated institutions. You should consult your own
legal advisors in determining the extent to which the offered certificates
constitute legal investments for you.
ERISA Considerations for Certificateholders
If the considerations described under "ERISA Considerations" in this prospectus
supplement and in the accompanying prospectus are satisfied, the senior
certificates may be eligible for purchase by persons investing assets of
employee benefit plans or individual retirement accounts. The other offered
certificates may not be sold to these plans and accounts except as may be
permitted under a prohibited transaction class exemption available to some
insurance companies using general account assets.
Tax Status of the Certificates
The certificates, other than the residual certificates, will be treated as debt
for federal income tax purposes. Certificateholders, other than holders of
residual certificates, will be required to include in their income all interest
and original issue discount for that debt in accordance with the accrual method
of accounting regardless of the certificateholders' usual methods of accounting.
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<PAGE>
For federal income tax purposes, elections will be made to treat the asset pools
that make up the trust as [__]separate real estate mortgage investment conduits.
Except to the extent they represent the right to excess interest, the
certificates, other than the residual certificates, will represent ownership of
regular interests in one of these real estate mortgage investment conduits. For
federal income tax purposes, the residual certificates will be the residual
interests in the pool.
For further information regarding the federal income tax consequences of
investing in the offered certificates, see "Federal Income Tax Consequences" in
this prospectus supplement and in the accompanying prospectus.
Ratings on the Certificates
The offered certificates are required to receive ratings from [__] that are not
lower than those indicated under "Summary of Series [__] Certificates and Pool
Characteristics." The ratings of the offered certificates address the likelihood
that the holders of offered certificates will receive timely distributions of
interest and the ultimate repayment of principal before the rated final
distribution date that occurs in [__]. A security rating is not a recommendation
to buy, sell or hold a security and may be changed or withdrawn at any time by
the assigning rating agency. The ratings do not address the likelihood that
holders will receive any prepayment premiums, default interest or excess
interest. The ratings also do not address the tax treatment of payments on the
certificates or the likely actual rate of prepayments. The rate of prepayments,
if different than originally anticipated, could adversely affect the yield
realized by holders of the offered certificates or cause the Class X
certificateholders to fail to recover their initial investment.
S-15
<PAGE>
RISK FACTORS
The offered certificates are not suitable investments for all investors. In
particular, you should not purchase any class of offered certificates unless you
understand and are able to bear the risks associated with that class.
The offered certificates are complex securities and it is important that
you possess, either alone or together with an investment advisor, the expertise
necessary to evaluate the information contained in this prospectus supplement
and the accompanying prospectus in the context of your financial situation.
Allocations of losses on the mortgage If losses on the mortgage loans are
loans will reduce your payments and allocated to your class of certificates,
yield on your certificates the amount payable to you will be
reduced by the amount of these losses
and the yield to maturity on your
certificates will be reduced. Losses
allocated to a class reduce the
principal balance of the class without
making a payment to the class.
Because losses on the mortgage loans,
together with expenses relating to
defaulted mortgage loans, will be
allocated first to the most subordinated
class of subordinated certificates with
a positive balance, the yields on the
subordinate certificates will be
extremely sensitive to losses on the
mortgage loans.
If the principal balance of all of the
subordinate certificates has been
reduced to zero due to losses on and
expenses of defaulted mortgage loans,
losses and expenses will be allocated
pro rata to the Class [__] certificates.
Reductions in the principal balance of
any class reduce the notional amount of
the Class X certificates by a
corresponding amount, resulting in
smaller interest distributions to the
Class X certificateholders.
See "Description of the
Certificates--Subordination; Allocation
of Losses and Expenses" in this
prospectus supplement.
Delinquencies, losses and The yield to maturity on the
prepayments on the mortgage certificates will depend significantly
on the rate and timing of payments of
principal and interest on the
certificates. The rate and
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<PAGE>
loans will affect the yield on the timing of principal and interest
certificates payments on the mortgage loans,
including the rates of delinquency, loss
and prepayment, will affect the rate and
timing of payments of principal and
interest on the certificates. For a
discussion of the impact on the yields
of the certificates of the rate of
delinquency, loss and prepayment on the
mortgage rates and factors that affect
those rates, see "Yield and Maturity
Considerations" and "Description of the
Certificates--Subordination; Allocation
of Losses and Expenses" in this
prospectus supplement and "Risk
Factors--Yield and Prepayment
Considerations" in the prospectus.
The mortgage loans are not insured None of the mortgages are insured or
guaranteed by the United States, any
governmental entity or instrumentality,
by any private mortgage insurer or by
the depositor, the underwriters, the
servicer, the seller or the trustee.
Therefore, you should consider payment
on each mortgage loan to depend
exclusively on the borrower and any
guarantor under the particular mortgage
loan documents. If the borrower or any
guarantor fails to make all payments
when due on the mortgage loans, the
yield on your class of certificates may
be adversely affected and any resulting
losses may be allocated to your
certificates.
Conflicts of interest may occur when An affiliate of the servicer expects to
certificateholders of various classes acquire some of the subordinate
have differing interests certificates including a portion of the
Class [__] certificates. The affiliate's
ownership of certificates could cause a
conflict between the servicer's duties
as servicer and its affiliate's interest
as a holder of a certificate, especially
if actions would have a disproportionate
effect on one or more classes of
certificates. One action over which the
servicer has considerable latitude is
determining whether to liquidate or
modify defaulted mortgage loans. The
servicer may also waive provisions in
ARD loans that would require the payment
of excess interest or the replacement of
the property manager if the loan is not
paid on the anticipated repayment date.
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<PAGE>
Furthermore, if an event of default
regarding the servicer exists under the
pooling and servicing agreement, the
rights and obligations of the servicer
to service specially serviced mortgage
loans and properties acquired through
foreclosure may be terminated. The
certificateholders representing more
than 50% of the voting rights allocated
to a specified class may terminate that
servicer and appoint a replacement. The
servicer's affiliate may hold more than
50% of the voting rights allocated to
that specified class. As a result, the
interests of the servicer's affiliate
may conflict with those of other
certificateholders that desire to
replace the servicer of specially
serviced mortgage loans and foreclosure
properties. For example, the servicer's
affiliate could seek to reduce its
potential loss from a troubled mortgage
loan by deferring foreclosure or other
legal action in an attempt to maximize
future proceeds. However, the trust may
ultimately receive a smaller amount of
proceeds from that mortgage loan as a
result of that deferral.
The servicer is, however, required to
administer the mortgage loans in
accordance with the servicing standards
without regard to its ownership of any
certificate.
See "Servicing of the Mortgage
Loans--Termination of the Servicer for
Specially Serviced Mortgage Loans and
REO Properties" and "Servicing of the
Mortgage Loans--Modifications, Waivers,
Amendments and Consents" in this
prospectus supplement.
Adverse environmental conditions on The trust could become liable for an
the mortgaged property may reduce or environmental condition at a mortgaged
delay your payments property. Any potential liability could
reduce or delay payments to
certificateholders.
Environmental assessments have been
performed on all of the mortgaged
properties. None of the environmental
assessments revealed material adverse
environmental conditions or
circumstances affecting any mortgaged
property, except those cases:
o in which the adverse conditions
were remediated or abated before
the date of issuance of the
certificates;
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<PAGE>
o in which an operations and
maintenance plan or periodic
monitoring of the mortgaged
property or nearby properties was
recommended;
o involving a leaking underground
storage tank or groundwater
contamination at a nearby property
that had not yet materially
affected the mortgaged property and
for which a responsible party
either has been identified under
applicable law or was then
conducting remediation of the
related condition;
o in which groundwater, soil or other
contamination was identified or
suspected, and an escrow reserve,
indemnity or other collateral was
provided to cover the estimated
costs of continued monitoring,
investigation, testing or
remediation;
o involving radon; or
o in which the related borrower has
agreed to seek a "case closed"
status for the issue from the
applicable governmental agency.
To decrease the likelihood of
environmental liability against the
trust, the servicer is required to
obtain a satisfactory environmental site
assessment of a mortgaged property and
see that any required remedial action is
taken before acquiring title or assuming
its operation.
See "Description of the Mortgage
Pool--Underwriting
Matters--Environmental Assessments" in
this prospectus supplement and "The
Pooling and Servicing
Agreements--Realization upon Defaulted
Mortgage Loans," "Risk
Factors--Environmental conditions may
subject the mortgaged property to liens
or impose costs on the property owner"
and "Legal Aspects of Mortgage
Loans--Environmental Considerations" in
the prospectus.
Geographic concentration may The 5 states with the highest
increase realized losses on the concentration of mortgage loans secured
mortgage loans by mortgaged properties are listed in
the table titled "Geographic
Concentrations" on page S-[__]. Any
deterioration in the real estate market
or economy or
S-19
<PAGE>
events in that state or region,
including earthquakes, hurricanes and
other natural disasters, may increase
the rate of delinquency experienced with
mortgage loans related to properties in
that region. As a result, realized
losses may occur on the mortgage loans
in the trust.
In addition, improvements on mortgaged
properties located in California may be
more susceptible to earthquakes than
properties located in other parts of the
country. Most mortgaged properties are
not insured for earthquake or hurricane
risk. If mortgaged properties are
insured, they may be insured for amounts
less than the outstanding principal
balances of the related mortgage loans.
The mortgage loans are non-recours All of the mortgage loans are
loans non-recourse loans. If a borrower
defaults on a loan, only the mortgaged
property, and not the other assets of
the borrower, is available to satisfy
the debt. Even if the mortgage loan
documents permit recourse to the
borrower or a guarantor, the trust may
not be able to ultimately collect the
amount due under that mortgage loan. Any
resulting losses will reduce your
payments and yield on your certificates.
Consequently, before maturity, you
should consider payment on each mortgage
loan to depend primarily on the
sufficiency of the cash flow of the
mortgaged property. At scheduled
maturity or upon acceleration of
maturity after a default, payment
depends primarily on the market value of
the mortgaged property or the ability of
the borrower to refinance the mortgaged
property. See "Legal Aspects of Mortgage
Loans--Foreclosure - Anti-Deficiency
Legislation" in the prospectus.
Seller is the only person making The seller will be the only person
representations and warranties on making representations and warranties on
mortgage loans the mortgage loans sold to the
depositor. Neither the depositor nor any
of its affiliates will be obligated to
repurchase any mortgage loan upon a
breach of the seller's representations
and warranties or any document defects
if the seller defaults on its repurchase
obligation. The seller may not have the
financial ability to effect these
repurchases. Any resulting
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<PAGE>
losses will reduce your payments and
yield on your certificates. See
"Description of the Mortgage
Pool--Assignment of the Mortgage Loans;
Repurchases and Substitutions" and
"--Representations and Warranties;
Repurchases and Substitutions" in this
prospectus supplement.
Balloon payments may increase [__] mortgage loans, which represent
losses on the mortgage loans and [__]% of the initial pool balance,
extend the weighted average life require balloon payments at their stated
of your certificate maturity. These mortgage loans involve a
greater degree of risk than fully
amortizing loans because the ability of
a borrower to make a balloon payment
typically depends on its ability to
refinance the mortgage loan or sell the
mortgaged property at a price sufficient
to permit repayment. A borrower's
ability to achieve either of these goals
will be affected by:
o the availability of, and
competition for, credit for
commercial or multifamily real
estate projects, which fluctuate
over time;
o the prevailing interest rates;
o the fair market value of the
property;
o the borrower's equity in the
property;
o the borrower's financial condition;
o the operating history and occupancy
level of the property;
o the tax laws; and
o prevailing general and regional
economic conditions.
Any delay in collection of a balloon
payment that otherwise would be
distributable to a class, whether the
delay is due to borrower default or to
modification of the mortgage loan by the
servicer, is likely to extend the
weighted average life of that class. If
the weighted average life of your class
of certificates is extended, your
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<PAGE>
yield on those certificates may be
reduced to less than what it would
otherwise have been.
See "Servicing of the Mortgage
Loans--Modifications, Waivers,
Amendments and Consents," "Description
of the Mortgage Pool--Balloon Loans,"
and "Yield and Maturity Considerations"
in this prospectus supplement and "Risk
Factors--Investment in Commercial and
Multifamily Mortgage Loans" and "Yield
and Maturity Considerations" in the
prospectus.
Risks Particular to Office Properties:
Economic decline in tenant [__] mortgaged properties, securing
businesses or changes in mortgage loans that represent [__]% of
demographic conditions could the initial pool balance, are office
adversely affect the value and properties.
cash flow from office properties
Economic decline in the businesses
operated by the tenants of office
properties may increase the likelihood
that a tenant may be unable to pay its
rent, which could result in realized
losses on the mortgage loans. A number
of economic and demographic factors may
adversely affect the value of office
properties, including:
o the quality of the tenants in the
building;
o the physical attributes of the
building in relation to competing
buildings;
o access to transportation;
o the availability of tax benefits;
o the strength and stability of
businesses operated by the tenant
or tenants;
o the desirability of the location
for business; and
o the cost of refitting office space
for a new tenant, which is often
significantly higher than the cost
of refitting other types of
properties for new tenants.
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<PAGE>
These risks may be increased if revenue
depends on a single tenant or if there
is a significant concentration of
tenants in a particular business or
industry. [__] of the mortgage loans
representing [__]% of the initial pool
balance are secured by single tenant
office properties. For a description of
risk factors relating to single tenant
properties, see "--Losses may be caused
by tenant credit risk on the mortgage
loans" below.
Competition with other office Competition from other office properties
properties could also adversely affect in the same market could decrease
the value and cash flow from office occupancy at office properties.
properties Decreased occupancy could result in
realized losses on the mortgage loans.
Competition is affected by a property's
age, condition, design, such as floor
sizes and layout, location, access to
transportation and ability to offer
amenities to its tenants, including
sophisticated building systems, such as
fiber optic cables, satellite
communications or other base building
technological features.
Risks Particular to Retail Properties:
A significant tenant ceasing to operate [__] mortgaged properties, securing
at a retail property could adversely mortgage loans that represent [__]% of
affect its value and cash flow the initial pool balance, are retail
properties.
A significant tenant ceasing to do
business at a retail property could
result in realized losses on the
mortgage loans. The loss of a
significant tenant may be the result of
the tenant's voluntary decision not to
renew a lease, the bankruptcy or
insolvency of the tenant, the tenant's
general cessation of business activities
or for other reasons. There is no
guarantee that any tenants will continue
to occupy space in the related retail
property.
Some component of the total rent paid by
retail tenants may be tied to a
percentage of gross sales. As a result,
the correlation between the success of
tenant businesses and property value is
more direct for retail properties than
other types of commercial property.
Significant tenants or anchor tenants at
a retail property play an important part
in generating customer traffic and
making a retail
S-23
<PAGE>
property a desirable location for other
tenants at that property. Some tenants
at retail properties may be entitled to
terminate their leases or pay reduced
rent if an anchor tenant ceases
operations at that property. If anchor
stores in a mortgaged property were to
close, the borrower may be unable to
replace those anchor tenants in a timely
manner on similar terms. A retail
"anchor tenant" is typically understood
to be a tenant that is larger in size
and is important in attracting customers
to a retail property, whether or not it
is located on the mortgaged property.
These risks may be increased when the
property is a single tenant property.
For a description of risk factors
relating to single tenant properties,
see "--Losses may be caused by tenant
credit risk on the mortgage loans"
below.
Retail properties are vulnerable to Changes in consumer preferences and
changes in consumer preferences market demographics may adversely affect
the value and cash flow from retail
properties. You may experience losses on
the certificates due to these changes.
Retail properties are particularly
vulnerable to changes in consumer
preferences and market demographics that
may relate to:
o changes in consumer spending
patterns;
o local competitive conditions, such
as an increased supply of retail
space or the construction of other
shopping centers;
o the attractiveness of the
properties and the surrounding
neighborhood to tenants and their
customers;
o the public perception of the safety
of the neighborhood; and
o the need to make major repairs or
improvements to satisfy major
tenants.
Competition from alternative retail Retail properties face competition from
distribution channels may adversely sources outside their local real estate
market. Catalogue retailers, home
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<PAGE>
affect the value and cash flow from shopping networks, the internet,
retail properties telemarketing and outlet centers all
compete with more traditional retail
properties for consumer dollars. These
alternative retail outlets are often
characterized by lower operating costs.
Continued growth of these alternative
retail outlets could adversely affect
the rents collectible at the retail
properties which secure mortgage loans
in the trust and result in realized
losses on the mortgage loans.
Risks Particular to Multifamily
Properties:
Reductions in occupancy and rent [__] mortgaged properties, securing
levels on multifamily properties mortgage loans that represent [__]% of
could adversely affect their value the initial pool balance, are
and cash flow multifamily rental properties. A
decrease in occupancy or rent levels
could result in realized losses on the
mortgage loans. Occupancy and rent
levels on multifamily properties may be
adversely affected by:
o local, regional or national
economic conditions, which may
limit the amount of rent that can
be charged for rental units or
result in a reduction in timely
rent payments;
o construction of additional housing
units in the same market;
o local military base or
industrial/business closings;
o developments at local colleges and
universities;
o national, regional and local
politics, including current or
future rent stabilization and rent
control laws and agreements;
o the level of mortgage interest
rates, which may encourage tenants
in multifamily rental properties to
purchase housing; and
o lack of amenities, unattractive
physical attributes or bad
reputation of the mortgaged
property.
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<PAGE>
Restrictions imposed on multifamily Tax credit, and city, state and federal
properties by government programs housing subsidies or similar programs
could also adversely affect their may apply to multifamily properties. The
value and cash flow limitations and restrictions imposed by
these programs could result in realized
losses on the mortgage loans that may be
allocated to your class of certificates.
These programs may include:
o rent limitations that could
adversely affect the ability of
borrowers to increase rents to
maintain the condition of their
mortgaged properties and satisfy
operating expenses; and
o tenant income restrictions that may
reduce the number of eligible
tenants in those mortgaged
properties and result in a
reduction in occupancy rates.
The differences in rents between
subsidized or supported properties and
other multifamily rental properties in
the same area may not be a sufficient
economic incentive for some eligible
tenants to reside at a subsidized or
supported property that may have fewer
amenities or be less attractive as a
residence.
Risks Particular to Hospitality
Properties:
Reductions in room rates or occupancy [__] mortgaged properties, securing
at a hospitality property could mortgage loans that represent [__]% of
adversely affect its value and cash the initial pool balance, are
flow hospitality properties. A decrease in
room rates or occupancy at hospitality
properties could result in realized
losses on the mortgage loans that may be
allocated to your class of certificates.
Room rates and occupancy levels may
depend upon the following factors.
o The proximity of a hospitality
property to major population
centers or attractions.
o Adverse local, regional or national
economic conditions or the
construction of competing
hospitality properties. Because
hospitality property rooms
typically are rented for short
periods of time, the performance of
hospitality properties tends to be
affected by adverse
S-26
<PAGE>
economic conditions and competition
more quickly than other commercial
properties.
o A hospitality property's ability to
attract customers and a portion of
its revenues may depend on its
having a liquor license. A liquor
license may not be transferable if
a foreclosure on the mortgaged
property occurs.
o In many parts of the country the
hotel and lodging industry is
seasonal in nature. Seasonality
will cause periodic fluctuations in
room and other revenues, occupancy
levels, room rates and operating
expenses.
o The viability of hospitality
properties that are franchisees of
national or regional hotel chains
depends in large part on the
continued existence and financial
strength of the franchisor. The
public perception of the franchise
service mark and the duration of
the franchise license agreement are
also important. If the franchisee
defaults on its debt, the trustee
may be unable to use the franchise
license without the consent of the
franchisor due to restrictions on
transfers imposed by the franchise
license agreements.
Risks Particular to Industrial
Properties:
Changes in economic and demographic [__] mortgaged properties, securing
conditions could adversely affect the mortgage loans that represent [__]% of
value and cash flow from industrial the initial pool balance, are industrial
properties properties. Economic decline in the
businesses operated by the tenants of
industrial properties could result in
realized losses on the mortgage loans
that may be allocated to your class of
certificates.
These risks are similar to those of
tenants of office properties. Industrial
properties, however, may be more
dependent on a single tenant. [__] of
the mortgage loans representing [__]% of
the initial pool balance are secured by
single tenant industrial properties. For
a description of risk factors relating
to office properties, see "--Economic
decline in tenant businesses or changes
in demographic conditions could
adversely affect the value and cash flow
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<PAGE>
from office properties," and for a
description of risk factors relating to
single tenant properties, see "--Losses
may be caused by tenant credit risk on
the mortgage loans" below.
Restrictions imposed by site Site characteristics at industrial
characteristics could also adversely properties may impose restrictions that
affect the value and cash flow from could cause realized losses on the
industrial properties mortgage loans that may be allocated to
your class of certificates. Site
characteristics which affect the value
of an industrial property include:
o clear heights;
o column spacing;
o number of bays and bay depths;
o truck turning radius;
o divisibility;
o zoning restrictions; and
o overall functionality and
accessibility.
An industrial property requires
availability of labor sources, proximit
to supply sources and customers, and
accessibility to rail lines, major
roadways and other distribution
channels.
Properties used for many industrial
Restrictions imposed by increased purposes are more prone to environmental
environmental risks could also concerns than other property types. For
adversely affect the value and cash a description of risk factors relating
flow from industrial properties to environmental risks, see "--Adverse
environmental conditions may reduce or
delay your payments" above.
Risks associated with tenants
generally:
Losses may be caused by tenant Cash flow or value of a mortgaged
credit risk on the mortgage loans property could be reduced if tenants are
unable to meet their lease
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<PAGE>
obligations or become insolvent. The
inability of tenants to meet their
obligations may result in realized
losses on the mortgage loans that may be
allocated to your class of certificates.
o If tenant sales in retail
properties decline, rents based on
sales will decline. Tenants may be
unable to pay their rent or other
occupancy costs as a result of poor
cash flow due to sales declines or
the amount of the gross sales
component of rent will be reduced.
If a tenant defaults, the borrower
may experience delays and costs in
enforcing the lessor's rights.
o If a tenant were to become
insolvent and subject to any
bankruptcy or similar law, the
collection of rental payments could
be interrupted and foreclosure on
the mortgaged property made more
difficult. See "Legal Aspects of
Mortgage Loans--Bankruptcy Laws" in
the prospectus.
These risks may be increased when the
property is a single tenant property or
is leased to relatively few tenants.[__]
of the mortgage loans representing [__]%
of the initial pool balance are secured
by single tenant properties.
Losses may be caused by the expiration The income from and market value of
of or tenant defaults on leases retail, office and industrial properties
would decline if space leases expired or
tenants defaulted and the borrowers were
unable to renew the leases or relet the
space on comparable terms.
If space is not renewed at all or is not
renewed on favorable terms, the trust
may experience realized losses on the
mortgage loans that may be allocated to
your class of certificates.
Even if borrowers successfully relet
vacated space, the costs associated with
reletting, including tenant
improvements, leasing commissions and
free rent, can exceed the amount of any
reserves maintained for that purpose and
reduce cash flow from the mortgaged
properties. Although many of the
mortgage loans require
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<PAGE>
the borrower to maintain escrows for
leasing expenses, there is no guarantee
that these reserves will be sufficient.
Tenant bankruptcy entails risks The bankruptcy or insolvency of a major
tenant, such as an anchor tenant, or a
number of smaller tenants, may adversely
affect the income produced by a
mortgaged property and result in reduced
losses on the mortgage loans that may be
allocated to your class of certificates.
Under the federal bankruptcy code, a
tenant has the option of assuming or
rejecting any unexpired lease. If the
tenant rejects the lease, the landlord's
claim for breach of the lease would be a
general unsecured claim against the
tenant, unless collateral secures the
claim. The claim would be limited to the
unpaid rent reserved under the lease for
the periods before the bankruptcy
petition or earlier surrender of the
leased premises that are unrelated to
the rejection, plus the greater of one
year's rent or 15% of the remaining
reserved rent, but not more than three
years' rent. Even if provisions in the
lease prohibit assignment, in a
bankruptcy, the tenant may assign the
lease to another entity that could be
less creditworthy than the tenant may
have been at the time of origination of
the mortgage loan. See "Legal Aspects of
Mortgage Loans" in the prospectus.
Losses may be caused by inadequate Losses may be realized on the mortgage
property management loans that may be allocated to your
class of certificates if property
management is inadequate. The property
manager is responsible for the following
activities:
o responding to changes in the local
market;
o planning and implementing the
rental structure, including
establishing levels of rent
payments; and
o ensuring that maintenance and
capital improvements are carried
out in a timely fashion.
Sound property management controls
costs, provides appropriate service to
tenants and ensures that improvements
are maintained. Sound property
management can also maintain cash flow,
reduce vacancy,
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<PAGE>
leasing and repair costs and preserve
building value. Property management
errors can impair the long-term
viability of a property.
Conflicts of interests between Managers of mortgaged properties and the
property managers and owners borrowers may experience conflicts of
may result in losses interest in the management or ownership
of mortgaged properties. These conflicts
of interest could result in realized
losses on the mortgage loans that may be
allocated to your class of certificates.
These conflicts of interests may exist
because:
o the mortgaged properties may be
managed by property managers
affiliated with the borrowers;
o the mortgaged properties may be
managed by property managers who
also manage other properties that
compete with the mortgaged
properties; and
o affiliates of the managers or the
borrowers, or the managers or the
borrowers or both, may also own
other properties, including
competing properties.
Limited alternative uses of other [___] mortgaged properties, securing
property types could adversely mortgage loans that represent
affect their value and cash flow approximately [__]% of the initial pool
balance, are "special purpose"
properties that have limited alternative
uses. See Annex A for additional
information concerning "special purpose"
properties.
"Special purpose" limitations could
result in realized losses on the
mortgage loans that may be allocated to
your class of certificates. Mortgage
loans secured by other property types,
including mixed use properties, may pose
risks not associated with mortgage loans
secured by liens on other types of
income-producing real estate.
Losses may result if the servicer is An appraisal was conducted for each
unable to sell a mortgaged property mortgaged property in connection with
securing a defaulted mortgage loan for its origination, and the loan-to-value
its appraised value ratios as of the cut-off date referred
to in this prospectus supplement are
based on the appraisals. If the servicer
foreclosures on a mortgaged property and
realizes liquidation proceeds that are
less than the appraised value,
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a realized loss on the mortgage loan
could result that may be allocated to
your class of certificates.
Appraisals are not guarantees of present
or future value. Appraisals seek to
establish the amount a typically
motivated buyer would pay a typically
motivated seller. This amount could be
significantly higher than the amount
obtained from the sale of a mortgaged
property under a distress or liquidation
sale. If a borrower defaults on a
mortgage loan, the servicer may be
unable to sell a mortgaged property for
its appraised value.
Appraisals are estimates of value at the
time of the appraisal based on the
analysis and opinion of the appraiser.
The values of the mortgaged properties
may have changed significantly since the
appraisal was performed. Most appraisals
have not been updated since the mortgage
loan was originated.
Subordinate financing on the mortgaged [___] of the mortgaged properties
property may increase securing [__]% of the initial pool
risks balance are encumbered by subordinate
debt that is not part of the mortgage
pool. The existence of subordinate
indebtedness may adversely affect the
borrower's financial viability or the
enforcement of its lender's security
interest in the mortgaged property and
result in realized losses on the
mortgage loans that may be allocated to
your class of certificates. The
borrower's financial viability or the
enforcement of the lender's security
interest could be adversely affected by
subordinate financing because:
o refinancing the mortgage loan at
maturity for the purpose of making
any balloon payments may be more
difficult;
o reduced cash flow could result in
deferred maintenance; and
o if the borrower defaults after the
holder of the subordinated debt
files for bankruptcy or is placed
in involuntary receivership,
foreclosing on the mortgaged
property could be delayed.
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The holder of any material subordinate
debt on each of the mortgaged properties
has agreed not to foreclose for so long
as the mortgage loan is outstanding and
the trust is not pursuing a foreclosure
action. Substantially all of the
mortgage loans either prohibit the
borrower from encumbering the mortgaged
property with additional secured debt or
require the consent of the holder of the
first lien before so encumbering the
mortgaged property. A violation of this
prohibition, however, may not become
evident until the mortgage loan
otherwise defaults. For a description of
subordinate debt relating to the
mortgaged properties, see "Description
of the Mortgage Pool--Secured
Subordinate Financing" in this
prospectus supplement.
Related borrowers may make losses on Some borrowers under the mortgage loans
the mortgage loans more severe are affiliated or under common control
with one another. When borrowers are
related, any adverse circumstances
relating to one borrower or its
affiliates, and affecting one mortgage
loan or mortgaged property, also can
affect the related borrower's mortgage
loans or mortgaged properties which
could make losses more likely or more
severe or both than would be the case if
there were no related borrowers.
For example, a borrower that owns or
controls several mortgaged properties
and experiences financial difficulty at
one mortgaged property might defer
maintenance at one or more other
mortgaged properties to satisfy current
expenses of the mortgaged property
experiencing financial difficulty.
Alternatively, the borrower could
attempt to avert foreclosure by filing a
bankruptcy petition. The bankruptcy or
insolvency of one borrower or its
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 those
mortgaged properties to produce
sufficient cash flow to make required
payments on the mortgage loans. The
insufficiency of cash flows could result
in realized losses on the mortgage loans
that may be allocated to your class of
certificates. See "Legal Aspects of
Mortgage Loans--Bankruptcy Laws" in the
prospectus.
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Larger-than-average balance loans Several mortgage loans, either
may make losses more severe individually or together with other
mortgage loans with which they are
cross-collateralized, have outstanding
balances that are substantially higher
than the average outstanding balance. If
a mortgage pool includes loans with
larger-than- average balances, any
realized losses on the mortgage loans
are likely to be more severe, relative
to the size of the pool,than would be
the case if the aggregate balance of the
pool were distributed among a larger
number of loans.
Losses could result from limitation [__] mortgage loans, representing [__]%
on enforceability of cross- of the initial pool balance, are
collateralization cross-collateralized with one or more
other 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 that borrower were to
become a debtor in a bankruptcy case.
The additional security provided by
cross-collateralization would not be
available if a court determines that the
grant was a fraudulent conveyance. If a
creditor were to successfully assert a
fraudulent conveyance claim it could
result in realized losses on the
mortgage loans that may be allocated to
your class of certificates. See "Legal
Aspects of Mortgage Loans--Bankruptcy
Laws" in the prospectus and "Description
of the Mortgage Pool--Terms and
Conditions of the Mortgage
Loans--Related Borrowers,
Cross-Collateralized Mortgage Loans and
Mortgage Loans Collateralized by
Multiple Properties" in this prospectus
supplement.
Tax considerations related to Payment of taxes on any net income from
foreclosure may reduce payments to "foreclosure property" acquired by the
certificateholders trust will reduce the net proceeds
available for distribution to
certificateholders. If the trust
acquires a mortgaged property after a
default on the related mortgage loan
under a foreclosure or delivery of a
deed in lieu of foreclosure, that
property will be considered "foreclosure
property" under the tax rules applicable
to real estate mortgage investment
conduits. It will continue to be
considered "foreclosure property" for a
period of three full years after the
taxable year of
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<PAGE>
acquisition by the trust, with possible
extensions. Any net income from this
"foreclosure property", other than
qualifying "rents from real property,"
will subject the trust to federal and
possibly state or local tax on that
income at the highest marginal corporate
tax rate.
State law limitations on remedies Some jurisdictions, including
California, have laws that prohibit more
than one "judicial action" to enforce a
mortgage, and some courts have viewed
the term "judicial action" broadly. The
pooling and servicing agreement will
require the servicer and any replacement
special servicer to obtain legal advice
before enforcing any rights under the
mortgage loans that relate to properties
where the rule could be applicable. In
addition, the servicer and any
replacement special servicer may be
required to foreclose on properties in
states where the "one action" rules
apply before foreclosing on properties
located in states where judicial
foreclosure is the only permitted method
of foreclosure. See "Legal Aspects of
Mortgage Loans--Foreclosure" in the
prospectus.
Because of these considerations, the
ability of the servicer and any
replacement special servicer to
foreclose on the mortgage loans may be
limited by the application of state
laws. Actions could also subject the
trust to liability as a
"mortgagee-in-possession" or result in
equitable subordination of the claims of
the trustee to the claims of other
creditors of the borrower. The servicer
will be required to consider these
factors in deciding what alternative to
pursue after a default.
Bankruptcy rules may limit ability Operation of the federal bankruptcy code
of lender to enforce remedies and related state laws may interfere
with the ability of a lender to
foreclose upon a mortgaged property and
to take other actions to enforce its
remedies against the borrower or the
mortgaged property. For a description of
risks related to bankruptcy, see "Legal
Aspects of Mortgage Loans--Bankruptcy
Laws" in the prospectus.
Your payments may be reduced or Noncompliance with zoning and building
delayed if zoning and building code codes may cause the borrower to
experience cash flow delays and
shortfalls. These delays or shortfalls
in payments could
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<PAGE>
noncompliance on the mortgaged result in realized losses in the
properties adversely affects the mortgage loans that may be allocated to
ability of borrowers to make payments your class of certificates.
on the mortgage loans
The seller has taken steps to establish
that the use and operation of the
mortgaged properties securing the
mortgage loans are in compliance in all
material respects with all applicable
zoning, land-use, building, fire and
health ordinances, rules, regulations,
and orders. Evidence of this compliance
may be in the form of legal opinions,
certifications from government
officials, title policy endorsements or
representations by the related borrower
in the related mortgage loan documents.
These steps may not have revealed all
possible violations.
Some violations may exist at any
particular mortgaged property, but the
seller does not consider those defects
known to it to be material. In many
cases, the use, operation or structure
of a mortgaged property constitutes a
permitted nonconforming use or structure
that may not be rebuilt to its current
state if a material casualty event
occurs. If a mortgaged property could
not be rebuilt to its current state or
its current use were no longer permitted
due to building violations or changes in
zoning or other regulations, then the
borrower might experience cash flow
delays and shortfalls as referred to
above.
Changes in concentrations of As the mortgage loans are repaid,
borrower, loan or property liquidated or repurchased, the
characteristics may cause losses on characteristics of the pool may vary.
the mortgage loans For example, the relative concentrations
of properties and geographic location,
property characteristics, and number of
borrowers and affiliated borrowers may
change.
Classes that have a lower priority for
payment of principal are more likely to
be exposed to risks associated with any
of these changes.
Compliance with the Americans If the borrower were required to pay
with Disabilities Act may reduce expenses and fines imposed by the
payments to certificateholders Americans with Disabilities Act of 1990,
the amount available to make payments on
the mortgage loan would be reduced.
Reductions in funds available to make
mortgage loan payments could result in
realized losses on the mortgage loans
that may be allocated to your
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<PAGE>
class of certificates. Under the
Americans with Disabilities Act, all
public accommodations are required to
meet federal requirements related to
access and use by disabled persons. If
the mortgaged properties do not comply
with this law, the borrowers may be
required to incur costs of compliance.
Noncompliance could result in the
imposition of fines by the federal
government or an award of damages to
private litigants.
Year 2000 problem may reduce or Disruptions in the collection or
delay collections and distributions of distribution of receipts on the mortgage
receipts on the mortgage loans loans due to the year 2000 problem could
reduce or delay your distributions.
Computer problems may arise if the
servicer and the trustee have not
completed their efforts to avoid year
2000 issues on time, or if the computer
systems of the servicer or the trustee
are not fully year 2000-ready. The year
2000 problem is pervasive and complex;
virtually every computer operation will
be affected in some way by the rollover
of the two-digit year value to 00.
Systems that do not properly recognize
date-sensitive information when the year
changes to 2000 could generate erroneous
data or cause a system to fail.
We have been advised by each of the
servicer and the trustee that they are
committed to do one or both of the
following:
o to implement modifications to their
respective existing systems to the
extent required to cause them to be
year 2000-ready;
o acquire computer systems that are
year 2000-ready in each case before
January 1, 2000.
We have not, however, made any
independent investigation of the
computer systems of the servicer or the
trustee.
You can find a "Glossary" of capitalized terms used in this prospectus
supplement beginning on page S-[__] in this document.
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<PAGE>
DESCRIPTION OF THE MORTGAGE POOL
A detailed presentation of characteristics of the mortgage loans and
mortgaged properties on an individual basis and in tabular format is presented
in Annex A.
Calculations of Interest
[__] of the mortgage loans, which represent [__]% of the initial pool
balance, accrue interest at fixed interest rates on the basis of a 360-day year
consisting of twelve 30-day months. [__] of the mortgage loans, which represent
[__]% of the initial pool balance, accrue interest on the basis of a 360-day
year and the actual number of days elapsed.
In addition,[__] mortgage loans, which represent [__]% of the initial pool
balance, provide for payments of interest only for up to [__] months after
origination, during which period no payments of principal are due. A one-time
increase in the amount of the monthly payment for some of these mortgage loans
may be permitted to commence scheduled amortization of the loan. No mortgage
loan, other than the ARD loans, permits negative amortization or the deferral of
accrued interest.
Each mortgage loan bears interest at a mortgage rate that is fixed for the
entire remaining term of the mortgage loan, except that ARD loans will accrue
interest at a revised rate if not repaid on or before their respective
anticipated repayment dates.
Balloon Loans
[__] of the mortgage loans, which represent approximately [__]% of the
initial pool balance, are balloon loans that provide for monthly payments of
principal based on amortization schedules significantly longer than the
remaining terms of those mortgage loans. [__] of the mortgage loans begin
monthly payments of principal after an interest-only period. As a result, a
substantial principal amount will be due and payable together with the
corresponding interest payment on each balloon loan on its maturity date, unless
the borrower prepays the balloon loan before its maturity date. [__] of the
mortgage loans, which represent approximately [__]% of the initial pool balance,
are fully amortizing.
ARD Loans
[__] of the mortgage loans, which represent approximately [__]% of the
initial pool balance, are ARD loans that provide for changes in the accrual of
interest and the payment of principal as of their respective anticipated
repayment dates. The anticipated repayment date for each ARD loan is set forth
on Annex A to this prospectus supplement. If a borrower elects to prepay its ARD
loan in full on its anticipated repayment date, a substantial amount of
principal will be due. If a borrower does not prepay its ARD loan on or before
its anticipated repayment date, the ARD loan will bear interest at a revised
rate that will be a fixed rate per annum equal to the mortgage rate plus 2.0%
per annum. Beginning on its anticipated repayment date, excess interest or
interest accrued on an ARD loan at the excess of the revised rate over the
original mortgage rate compounded as described below, will be deferred until the
principal balance of the ARD loan has been reduced to zero. If a borrower does
not prepay its ARD loan on or before its anticipated repayment date, all or a
substantial portion of the monthly cash flow from the related mortgaged property
collected after that date, other than some minimum debt service
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<PAGE>
and specified property expenses will be applied to the payment of principal on
the ARD loan and, after its principal balance has been reduced to zero, to the
payment of accrued and unpaid excess interest.
The failure to pay excess interest will not constitute a default under the
ARD loans before the related maturity date. Unpaid excess interest will, except
where limited by applicable law, continue to accrue interest at the revised
rate.
As of or shortly after 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 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 will be required to apply all remaining monthly cash flow
from the related mortgaged property to pay the following amounts in the
following order of priority:
(1) payments to required escrow funds;
(2) payment of operating expenses under the terms of an annual budget
approved by the servicer;
(3) payment of approved extraordinary operating expenses or capital
expenses not a part of the approved annual budget or allotted for in
any escrow fund;
(4) principal on the mortgage loan until the principal is paid in full;
and
(5) excess interest.
ARD loans typically prohibit the related borrower from prepaying the
mortgage loan before or, in some cases, until a specified date before, the
anticipated repayment date. At that time, the borrower may prepay the loan, in
whole or in part, without payment of a penalty or yield maintenance in the form
of a prepayment premium. Any excess interest received on an ARD loan will be
distributed to the holders of the Class [__] certificates.
Amortization of Principal
In addition to the balloon loans and the ARD loans, the mortgage pool
includes [__] fully amortizing mortgage loans, which represent [__]% of the
initial pool balance. [__] mortgage loans, which represent [__]% of the initial
pool balance, are step amortization mortgage loans, each of which amortizes on
an initial amortization schedule for a specified period following origination,
and then amortizes at a different amortization schedule until maturity.
Due Dates
A due date is the date in the month on which a monthly payment on a
mortgage loan is first due. [__] of the mortgage loans, which represent [__]% of
the initial pool balance, provide for scheduled monthly payments of principal or
interest or both to be due on the first day of each month.[__] of the mortgage
loans, which represent [__]% of the initial pool balance, provide for due dates
on the tenth
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<PAGE>
day of each month. See "Servicing of the Mortgage Loans--Servicing and Other
Compensation and Payment of Expenses" in this prospectus supplement.
None of the mortgage loans provide for a grace period for the payment of
monthly payments of more than [__] days.
Defeasance
All of the mortgage loans provide that after a specified period, if no
default exists under the mortgage loan, the borrower may exercise a defeasance
option to obtain the release of one or more of the mortgaged properties, from
the lien of the mortgage upon satisfaction of conditions, including that the
borrower:
(1) pays on any due date
o all interest accrued and unpaid on the principal balance of the
mortgage note to and, including that due date,
o all other sums, excluding scheduled interest or principal
payments not yet due and owing, due under the mortgage loan, and
o any costs and expenses related to the release,
(2) delivers or pledges to the trustee defeasance collateral
o that consists of direct, non-callable obligations of, or
non-callable obligations, fully guaranteed as to timely payment
by, the United States of America; and
o that provides payments:
o on or before all successive scheduled payment dates from that due
date to the related maturity date, or anticipated repayment date
in the case of any ARD loan, and
o in an amount equal to or greater than the scheduled payments due
on those dates under the mortgage loan, or, for
cross-collateralized mortgage loans or mortgage loans secured by
multiple mortgaged properties which permit defeasance, an amount
equal to not less than the portion of the scheduled payments
allocable to the released mortgaged property, and
(3) delivers a security agreement granting the trust a first priority
security interest in the defeasance collateral and an opinion of
counsel to that effect.
The 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 when these conditions are met. The depositor makes no
representation as to the enforceability of the defeasance provisions of any
mortgage loan.
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<PAGE>
Prepayment Provisions
Each mortgage loan prohibits voluntary principal prepayments at any time
except during an open period following the expiration of the lockout period and
defeasance period for that mortgage loan. See Annex A for information regarding
the lockout and defeasance periods for each mortgage loan.
Any 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" in this
prospectus supplement. The obligation to make a prepayment premium with an
involuntary prepayment may not be enforceable under applicable law or, if
enforceable, the foreclosure proceeds may not be sufficient to make the payment.
Liquidation proceeds recovered from any defaulted mortgage loan will, in
most cases, be applied to cover outstanding servicing expenses and unpaid
principal and interest before being applied to cover any prepayment premium due.
See "Legal Aspects of Mortgage Loans--Default Interest and Limitations on
Prepayments" in the prospectus.
In most cases, no prepayment premium will be payable upon any mandatory
prepayment of a mortgage loan caused by a casualty or condemnation. No
prepayment premium will be payable with the repurchase of a mortgage loan by the
seller for a breach of representation or warranty or any failure to deliver any
related documentation. No prepayment premium will be payable with the purchase
of all of the mortgage loans and any REO properties in connection with the
termination of the trust fund or 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 Loan;
Repurchases and Substitutions" and "--Representations and Warranties;
Repurchases" and "Description of the Certificates--Termination; Retirement of
Certificates" in this prospectus supplement.
Related Borrowers, Cross-Collateralized Mortgage Loans and Mortgage Loans
Collateralized by Multiple Properties
[__] mortgage loans, which represent [__]% of the initial pool balance, are
cross-collateralized mortgage loans among groups of related borrowers. [__]
mortgage loans, other than the cross-collateralized mortgage loans, which
represent [__] of the initial pool balance, are secured by one or more mortgages
encumbering multiple mortgaged properties. Each of these mortgage loans are
evidenced by a separate mortgage note, and are not treated as a set of
cross-collateralized mortgage loans. Because of this, the total number of
mortgage loans in the mortgage pool is [__], while the total number of mortgaged
properties in the mortgage pool is [__]. In most cases, we treat a mortgage loan
that is secured by mortgaged properties that are located in more than one state
as an individual mortgage loan, except that when we describe the geographic
concentration and property type distribution of the mortgage pool, we treat
these mortgage loans as multiple mortgage loans that are allocated a cut-off
date balance based on the allocated loan amount. For a discussion of risks
related to cross-collateralized loans, see "Risk Factors" in this prospectus
supplement. See Annex A for information regarding the cross-collateralized
mortgage loans.
In addition to the cross-collateralized loans and the loans secured by
multiple mortgaged properties, some sets of mortgage loans were made to
borrowers who are affiliated or under common control with
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one another. None of these sets of mortgage loans represents more than [__]% of
the initial pool balance.
Due-on-Sale and Due-on-Encumbrance Provisions
All of the mortgage loans contain both due-on-sale and due-on-encumbrance
clauses. With limited exceptions, these clauses either:
o permit the holder of the mortgage to accelerate the maturity of the
related mortgage loan if the borrower sells or transfers or encumbers
the mortgaged property in violation of the terms of the mortgage or
other loan documents, or
o prohibit the borrower from doing so without the consent of the holder
of the mortgage. See "--Secured Subordinate Financing" in this
prospectus supplement.
Some of the mortgage loans permit either:
o transfer of the related mortgaged property if specified conditions are
satisfied or if the transfer is to a borrower reasonably acceptable to
the lender, or
o transfers to specified 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 have under a
due-on-sale or due-on-encumbrance clause to accelerate payment of the related
mortgage loan or to withhold its consent to the transfer or encumbrance of the
mortgaged property. See "The Pooling and Servicing Agreements--Due-on-Sale and
Due-on-Encumbrance Provisions" and "Legal Aspects of Mortgage Loans--Due-on-Sale
and Due-on-Encumbrance" in the prospectus.
Secured Subordinate Financing
[__] mortgage loans representing [__]% of the initial pool balance are
secured by mortgaged properties known to be encumbered by subordinated debt that
is not part of the mortgage pool. In 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 is not pursuing a foreclosure action.
Substantially all of the remaining mortgage loans either prohibit the borrower
from encumbering the mortgaged property with additional secured debt or will
require the consent of the trustee before so encumbering the property. In
addition, on [__] mortgage loans, representing [__]% of the initial pool
balance, the principals of the borrowers are known to have incurred debt secured
by interests in the borrower. See "Risk Factors--Subordinate financing on the
mortgaged property may increase risks" in this prospectus supplement and "Legal
Aspects of Mortgage Loans--Subordinate Financing" in the prospectus.
The following table indicates those mortgaged properties that are known to
the depositor to be encumbered by secured subordinate debt, the initial
principal amount of the secured subordinate debt and the cut-off date principal
balances of the related mortgage loans.
Secured Subordinate Debt
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<PAGE>
<TABLE>
<CAPTION>
INITIAL
PRINCIPAL
AMOUNT OF
CUT-OFF % OF INITIAL SECURED
CONTROL LOAN DATE POOL SUBORDINATE
NUMBER NUMBER PROPERTY NAME BALANCE BALANCE DEBT
- ------ ------ ------------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
</TABLE>
Some of the mortgage loans may permit the borrower to incur unsecured
subordinated debt in the future, conditioned upon delivery of a subordination
agreement or standstill agreement or both and requirements that limit the use of
proceeds to refurbishing or renovating the property or acquiring furniture,
fixtures and equipment for the property or both.
Except as described above, the depositor has not been able to confirm
whether the respective borrowers under the mortgage loans have any other debt
outstanding.
Significant Mortgage Loans
[describe any significant mortgage loans included in the trust]
The Seller
The seller is GMAC Commercial Mortgage Corporation, a corporation organized
under the laws of the State of California. The seller is an affiliate of the
depositor and an indirect wholly-owned subsidiary of GMAC Mortgage Group, Inc.,
which is a wholly-owned direct subsidiary of General Motors Acceptance
Corporation.
The seller provided the information in this prospectus supplement
concerning the seller and the underwriting conducted by it for the mortgage
loans. Neither the depositor nor the underwriters make any representation or
warranty as to the accuracy or completeness of this information.
Underwriting Matters
Environmental Assessments
Phase I environmental site assessments or updates of previously conducted
assessments were performed on all of the mortgaged properties. Phase II
environmental site assessments were performed on some mortgaged properties.
These environmental site assessments were performed for the seller or the report
was delivered to the seller as part of its acquisition or origination of the
mortgage loan. For all but [__] of the mortgaged properties which represent
[__]% of the initial pool balance, these environmental assessments were
performed during the 12-month period before the cut-off date.
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<PAGE>
Material adverse environmental conditions or circumstances revealed by
these environmental assessments for the mortgaged properties are described in
"Risk Factors--Adverse environmental conditions may reduce or delay your
payments."
The information contained in this prospectus supplement is based on the
environmental assessments and has not been independently verified by the
depositor, the seller, the servicer, the underwriters or any of their respective
affiliates.
Property Condition Assessments
Inspections or updates of previously conducted inspections of all except
[__] of the mortgaged properties were conducted for the seller by independent
licensed engineers or architects or both. For all but [__] of the mortgaged
properties, which secure mortgage loans representing [__]% of the initial pool
balance, the inspections were conducted within the 12-month period before the
cut-off date for the related mortgage loan. The inspections were conducted 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. The resulting reports on some of
the mortgaged properties indicated a variety of deferred maintenance items and
recommended capital expenditures. In some instances, repairs or maintenance were
completed before closing or cash reserves were established to fund the deferred
maintenance or replacement items or both.
Appraisals
An appraisal for each mortgaged property was performed or an existing
appraisal updated on behalf of the seller in connection with origination of the
related mortgage loan. For all but [__] of the mortgaged properties, which
secures mortgage loans representing [__]% of the initial pool balance, the
appraisals were performed during the 12-month period before the cut-off date.
The appraised value of the mortgaged property or properties is greater than the
original principal balance of the mortgage loan or the aggregate original
principal balance of any set of cross-collateralized loans. All appraisals
except [__] were conducted by an independent appraiser that is state certified
or designated as a member of the Appraisal Institute. The appraisal for each
mortgaged property or a separate letter contains a statement by the appraiser to
the effect that the appraisal guidelines of Title XI of the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, were followed in
preparing the appraisal. However, none of the depositor, the underwriters, or
the seller has independently verified the accuracy of the appraiser's statement.
For a discussion of the risks related to appraisals, see "Risk Factors--Losses
may result if the servicer is unable to sell a mortgaged property for its
appraised value."
For information about the values of the mortgaged properties available to
the depositor as of the cut-off date, see Annex A to this prospectus supplement.
Hazard, Liability and Other Insurance
The mortgage loans require that the mortgaged property be insured by a
hazard insurance policy with a customary deductible and in an amount at least
equal to the lesser of the outstanding principal balance of the mortgage loan
and 100% of the full insurable replacement cost of the improvements located on
the mortgaged property. If applicable, the policy contains appropriate
endorsements to avoid the application of co-insurance and does not permit
reduction in insurance proceeds for depreciation.
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Flood insurance, if available, must be in effect for any mortgaged property
that at the time of origination included any area identified in the Federal
Register by the Federal Emergency Management Agency as having special flood
hazards. The flood insurance policy must meet the requirements of the then
current guidelines of the Federal Insurance Administration, be provided by a
generally acceptable insurance carrier and be in an amount representing coverage
not less than the least of:
o the outstanding principal balance of the mortgage loan,
o the full insurable value of the mortgaged property,
o the maximum amount of insurance available under the National Flood
Insurance Act of 1968, and
o 100% of the replacement cost of the improvements located on the
mortgaged property, except in some cases where self-insurance was
permitted.
The standard form of hazard insurance policy covers physical damage or
destruction of the improvements on the mortgaged property caused by fire,
lightning, explosion, smoke, windstorm and hail, riot or strike and civil
commotion. The policies may contain some conditions and exclusions to coverage.
Each mortgage also requires the borrower to maintain comprehensive general
liability insurance against claims for personal and bodily injury, death or
property damage occurring on, in or about the mortgaged property in an amount
customarily required by institutional lenders.
Each mortgage 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
twelve months.
The mortgaged properties are typically not insured for earthquake risk. For
mortgaged properties located in California and some other seismic zones, except
for __ mortgaged properties that secure mortgage loans representing ___% of the
initial pool balance, the seller conducted seismic studies to assess the
"probable maximum loss" for the related mortgaged properties. In some
circumstances, the related borrower was required to obtain earthquake insurance
covering the mortgaged properties. Some of these mortgaged properties may be
insured for earthquake risk in amounts less than the outstanding principal
balances of the mortgage loan.
Earnouts and Additional Collateral Loans
Some of the mortgage loans are additionally secured by cash reserves or
irrevocable letters of credit that will be released upon satisfaction by the
borrower of leasing-related or other conditions, including, in some cases,
achieving specified debt service coverage ratios or loan-to-value ratios. If
these conditions are not met, under some mortgage loans, the related reserve or
credit enhancement amount will be applied to partially defease or prepay the
related mortgage loan. Any resulting partial prepayment may not be required to
be accompanied by payment of a prepayment premium or yield maintenance payment.
Under other mortgage loans, amounts will be retained as additional collateral.
For a description of the cash reserves or letters of credit and related earnout
information, see Annex A.
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Assignment of the Mortgage Loan; Repurchases and Substitutions
On or before [__], the depositor will acquire the mortgage loans directly
or indirectly from the seller, under a mortgage loan purchase agreement dated as
of the delivery date to be entered into by or assigned to the depositor, who
will then assign its interests in the mortgage loans, without recourse, to the
trustee for the benefit of the holders of the certificates.
The seller is a "mortgage asset seller" for purposes of the prospectus.
The seller is required to deliver or cause to be delivered the following
documents, to the trustee:
o the original mortgage note, endorsed, without recourse, in blank or to
the order of the trustee;
o the original or a copy of the mortgage(s), together with originals or
copies of any intervening assignments of the document(s), in each case
with evidence of recording thereon unless the document(s) have not
been returned by the applicable recorder's office;
o the original or a copy of any assignment(s) of rents and leases, if
the assignment is a document separate from the mortgage, together with
originals or copies of any intervening assignments, in each case with
evidence of recording thereon, unless the document(s) have not been
returned by the applicable recorder's office;
o an assignment of each mortgage in blank or in favor of the trustee, in
recordable form;
o an assignment of any assignment(s) of rents and leases, if the item is
a document separate from the mortgage, in blank or in favor of the
trustee, in recordable form;
o any UCC financing statements and related original assignments to the
trustee;
o 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 the mortgage loan;
and
o when relevant, the ground lease or a copy.
If the seller cannot deliver the original mortgage note for any mortgage
loan, the seller will deliver a copy or duplicate original of the mortgage note,
together with an affidavit certifying that the related original has been lost or
destroyed.
The trustee will be required to review the documents delivered to it for
each mortgage loan within 60 days following the delivery date. The trustee will
hold the documents in trust. Within 45 days following the delivery date, the
trustee, at the expense of the seller, will cause the assignment of each
mortgage and any assignments of rents and leases 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.
If the trustee determines that any of the required documents were not
delivered or that any document is defective, and the omission or defect
materially and adversely affects the value of the
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related mortgage loan or the interests of certificateholders in the mortgage
loan, the seller will have 90 days after its receipt of notice of the omission
or defect to deliver the document or cure the defect. If the seller does not
cure the omission or defect within the 90 day period, the seller will be
required to repurchase the affected mortgage loan or substitute a replacement
mortgage loan for the affected mortgage loan and pay any substitution shortfall
amount. The purchase price for any mortgage loan required to be repurchased will
be at least equal to the unpaid principal balance of the mortgage loan, together
with any accrued but unpaid interest to but not including the due date in the
collection period of the repurchase and any related unreimbursed servicing
advances. The seller's repurchase or substitution obligation will be the sole
remedy available to the certificateholders and the trustee. None of the
depositor or any other person or entity will be obligated to repurchase the
affected mortgage loan if the seller defaults on its obligation to do so.
Instead of repurchasing a mortgage loan, the seller is permitted for two
years following the delivery date to substitute a new replacement mortgage loan
for the affected mortgage loan. To qualify as a replacement mortgage loan, the
replacement mortgage loan must have financial terms substantially similar to the
deleted mortgage loan and meet a number of specific requirements.
A replacement mortgage loan must:
o have a stated principal balance of not more than the stated principal
balance of the deleted mortgage loan,
o accrue interest at a rate of interest at least equal to that of the
deleted mortgage loan,
o be a fixed-rate mortgage loan,
o have a remaining term to stated maturity or anticipated repayment
date, in the case of an ARD loan, of not greater than, and not more
than two years less than, the deleted mortgage loan, and
o be a "qualified replacement mortgage" within the meaning of 860G(a)(4)
of the Code.
In addition, the seller must deposit in the distribution account a
substitution shortfall amount, equal to any excess of the purchase price of the
deleted mortgage loan over the initial stated principal balance of the
replacement mortgage loan.
Representations and Warranties; Repurchases
In the mortgage loan purchase agreement or in related documentation, with
some exceptions, the seller makes representations and warranties for each of the
mortgage loans, as of the delivery date, or as of the date stated in the
representation and warranty. Some of these representations and warranties are
listed below.
(1) Immediately before the transfer to the depositor, the seller had good and
marketable title to, and was the sole owner and holder of, the mortgage
loan, free and clear of any and all liens, encumbrances and other interests
on, in or to the mortgage loan other than, in some cases, the right of a
sub-servicer to primary service the mortgage loan.
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(2) The seller has full right and authority to sell, assign and transfer the
mortgage loan.
(3) The information pertaining to the mortgage loan provided in the mortgage
loan schedule attached to the mortgage loan purchase agreement was true and
correct in all material respects as of the cut-off date for the mortgage
loan.
(4) The mortgage loan was not, as of the cut-off date for the mortgage loan, 30
days or more delinquent in respect of any monthly payment required
thereunder, without giving effect to any applicable grace period.
(5) 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 mortgage loan, its successors and assigns,
as to the first priority lien of the mortgage in the original principal
amount of the mortgage loan after all advances of principal, subject only
to permitted encumbrances including:
o the lien of current real property taxes and assessments not yet due
and payable,
o covenants, conditions and restrictions, rights of way, easements and
other matters of public record, and
o 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 for the mortgage loan.
The permitted encumbrances 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 the mortgaged property
to generate net operating income sufficient to service the mortgage loan.
(6) The seller has not waived any material default, breach, violation or event
of acceleration existing under the related mortgage or mortgage note.
(7) There is no valid offset, defense or counterclaim to the mortgage loan.
(8) The related mortgaged property is, except as otherwise stated in the
related engineering report, to the knowledge of the seller, free and clear
of any damage that would materially and adversely affect its value as
security for the mortgage loan and the seller has no actual notice of the
commencement of a proceeding for the condemnation of all or any material
portion of the mortgaged property.
(9) At origination, the mortgage loan complied with all applicable usury laws.
(10) The proceeds of the mortgage loan have been fully disbursed and there is no
requirement for future advances.
(11) The mortgage note and mortgage for the mortgage loan and all other
documents and instruments evidencing, guaranteeing, insuring or otherwise
securing the mortgage loan
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have been duly and properly executed by the parties thereto, and each is
the legal, valid and binding obligation of its maker, subject to any
applicable non-recourse provisions and any applicable state anti-deficiency
legislation, enforceable in accordance with its terms, except as
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 the enforcement is considered in a proceeding in equity or at law.
(12) All improvements upon the mortgaged property are insured against loss by
hazards of extended coverage in an amount, with a customary deductible, at
least equal to the lesser of the outstanding balance of the mortgage loan
and 100% of the full replacement cost of the improvements located on the
mortgaged property, and the related hazard insurance policy contains
appropriate endorsements to avoid the application of co-insurance
provisions and does not permit reduction in insurance proceeds for
depreciation.
(13) The mortgaged property was the subject of one or more environmental site
assessments or an update of a previously conducted assessment, which was
performed on behalf of the seller, or for which the related report was
delivered to the seller in connection with its origination or acquisition
of the mortgage loan; and the seller, having made no independent inquiry
other than reviewing the resulting report(s) or employing an environmental
consultant to perform that assessment(s) or both, has no knowledge of any
material and adverse environmental condition or circumstance affecting the
mortgaged property that was not disclosed in the related report(s).
(14) The mortgage loan is not cross-collateralized with a mortgage loan other
than another mortgage loan included in the mortgage pool.
(15) All escrow deposits relating to the 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.
(16) As of the date of origination of the mortgage loan and, to the actual
knowledge of the seller, as of the delivery date, the related mortgaged
property was and is free and clear of any mechanics' and materialmen's
liens or similar liens which create a lien before that created by the
related mortgage, except those which are insured against by the title
policy referred to in (5) above.
(17) No holder of the mortgage loan has, to the 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.
(18) To the seller's knowledge, based on due diligence customarily performed in
the origination of comparable mortgage loans by the seller, as of the date
of origination of the mortgage loan, the related mortgagor or operator was
in possession of all material licenses, permits and authorizations required
by applicable laws for the ownership and operation of the mortgaged
property as it was then operated.
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(19) The mortgage or mortgage note, together with applicable state law, contains
customary and enforceable provisions, with the exceptions listed in
paragraph (11) above, such as to render the rights and remedies of its
holders adequate for the practical realization against the related
mortgaged property of the principal benefits of the security intended to be
provided thereby.
(20) In connection with the origination or acquisition of the mortgage loan, the
seller has inspected or caused to be inspected the mortgaged property.
(21) The mortgage loan contains provisions for the acceleration of the payment
of the unpaid principal balance of the mortgage loan if, without complying
with the requirements of the mortgage loan, the related mortgaged property
is directly or indirectly transferred or sold.
(22) The related mortgagor is an entity, other than an individual, whose
organizational documents or the mortgage loan documents provide
substantially to the effect that the mortgagor:
o is formed or organized solely for the purpose of owning and operating
one or more of the mortgaged properties securing the mortgage loan;
o may not engage in any business unrelated to the mortgaged property or
properties;
o may not incur indebtedness other than as permitted by the mortgage or
other mortgage loan documents;
o has its own books and records separate and apart from any other
person;
o holds itself out as a legal entity, separate and apart from any other
person; and
o does not have any material assets other than those related to its
interest in and the operation of the mortgaged property or properties.
If any of the foregoing representations and warranties of the seller are
materially breached for any of the mortgage loans, the seller may cure the
breach within 90 days after its receipt of notice of the breach. If the seller
does not cure the breach, the mortgage loan purchase agreement requires the
seller to repurchase the affected mortgage loan or substitute a replacement
mortgage loan. The seller will be obligated to repurchase the affected mortgage
loan within that 90-day period at the applicable purchase price or, for two
years following the delivery date, substitute a replacement mortgage loan for
the affected mortgage loan and pay any substitution shortfall amount. The
seller's repurchase or substitution obligation will be the sole remedy available
to the certificateholders and the trustee for any breach of the seller's
representations and warranties regarding any of the mortgage loans. The seller
will be the sole warranting party for each mortgage loan. None of the depositor
nor any other person or entity will be obligated to repurchase any affected
mortgage loan as a result of a breach of the seller's representations and
warranties if the seller defaults on its obligation to do so. See "The Pooling
and Servicing Agreements--Representations and Warranties; Repurchases" in the
prospectus.
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Pool Characteristics; Changes in Mortgage Pool
The description in this prospectus supplement of the mortgage pool and the
mortgaged properties is based upon the mortgage loans that are expected to
constitute the mortgage pool at the time the offered certificates are issued.
The principal balances of the mortgage loans are reduced to reflect the
scheduled principal payments due on or before the cut-off date. Before the
issuance of the offered certificates, a mortgage loan may be removed from the
mortgage pool if the depositor deems the removal necessary or appropriate or if
it is prepaid. A limited number of other mortgage loans may be included in the
mortgage pool before the issuance of the offered certificates, unless including
these mortgage loans would materially alter the characteristics of the mortgage
pool as described in this prospectus supplement. As a result, the range of
mortgage rates and maturities and some other characteristics of the mortgage
pool may vary depending on the actual composition of the mortgage pool at the
time the offered certificates are issued.
A Current Report on 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 and the mortgage loan purchase
agreement, with the SEC within fifteen days after the initial issuance of the
offered certificates. If mortgage loans are removed from or added to the
mortgage pool as described in the preceding paragraph, the removal or addition
will be noted in the Form 8-K.
SERVICING OF THE MORTGAGE LOANS
The Servicer
As of [__], GMAC Commercial Mortgage Corporation had a total commercial and
multifamily mortgage loan servicing portfolio of approximately $[__] billion.
See "GMAC Commercial Mortgage Corporation" in the prospectus.
Set forth below is a description of 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 is a "master servicer" and a "special servicer" for purposes of the
prospectus. You should read the information provided in the prospectus taking
account of all supplemental information contained in this prospectus supplement.
Servicing Standard
The servicer will be responsible for the servicing and administration of
the mortgage loans. The servicer, either directly or through sub-servicers, will
be required to service and administer the mortgage loans under the following
servicing standard:
o in the best interests of and for the benefit of the certificateholders
as determined by the servicer in its good faith and reasonable
judgment,
o in accordance with applicable law, the terms of the pooling and
servicing agreement and the terms of the respective mortgage loans,
and
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o 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 for mortgage loans and REO properties that are
comparable to those for which it is responsible under the pooling and
servicing agreement.
Specially Serviced Mortgage Loans
A specially serviced mortgage loan is any mortgage loan as to which any of
the following special servicing events has occurred:
(1) any balloon payment is more than 30 days late;
(2) any monthly payment or other payment required under the mortgage note
or the mortgage(s), other than a balloon payment, is more than 60 days
late;
(3) 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 mortgage note or the mortgage 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;
(4) a default under the loan documents, other than as described in clause
(1) or (2) above, that materially impairs the value of the mortgaged
property as security for the mortgage loan, or otherwise materially
and adversely affects the interests of certificateholders, exists for
the applicable grace period under the terms of the mortgage loan or,
if no grace period is specified, 60 days;
(5) a decree or order of a court or agency or supervisory authority in an
involuntary case under any federal or state bankruptcy, insolvency or
similar law or the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshaling of
assets and liabilities or similar proceedings, or for the winding-up
or liquidation of its affairs, has been entered against the borrower
and the decree or order has remained in force undischarged or unstayed
for 60 days;
(6) the borrower has consented to the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt,
marshaling of assets and liabilities or similar proceedings of or
relating to the borrower or of or relating to all or substantially all
of its property;
(7) the borrower has 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
(8) the servicer has received notice of the commencement of foreclosure or
similar proceedings for the related mortgaged property or properties.
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A specially serviced mortgage loan will become a corrected mortgage loan if
each special servicing event that applies to that mortgage loan is remedied as
follows:
o for the circumstances described in clauses (1) and (2) of the
preceding paragraph, the related borrower has made three consecutive
full and timely monthly payments under the terms of the mortgage loan,
as the terms may be changed or modified in 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;
o for the circumstances described in clauses (3), (5), (6) and (7) of
the preceding paragraph, the circumstances cease to exist in the good
faith and reasonable judgment of the servicer;
o for the circumstances described in clause (4) of the preceding
paragraph, the default is cured; and
o for the circumstances described in clause (8) of the preceding
paragraph, the 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 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 will
also become a specially serviced mortgage loan. Similarly, no
cross-collateralized mortgage loan will become a corrected mortgage loan unless
all special servicing events related to each other mortgage loan that is
cross-collateralized with it are corrected as described in the preceding
paragraph.
Termination of the Servicer for 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 may at any time terminate
substantially all of the rights and duties of the servicer to service specially
serviced mortgage loans and REO properties and appoint a replacement special
servicer to perform the duties under substantially the same terms and conditions
as applicable to the servicer. The holder(s) entitled to more than 50% of the
voting rights allocated to the controlling class will designate a replacement by
delivering to the trustee a written notice stating the designation. The trustee
will, promptly after receiving that notice, notify the rating agencies and the
servicer.
The controlling class will be the most subordinate class of principal
balance certificates outstanding, with the Class [__] 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. 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 class of
principal balance certificates with the largest certificate balance then
outstanding, provided that if two or more classes of principal balance
certificates have the largest certificate balance, the most subordinate class
will be the controlling class. Initially the controlling class will be the Class
[__] certificates. It is anticipated that the servicer or an affiliate will
acquire some subordinate certificates, including the Class [__] certificates.
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The designated replacement will become the replacement special servicer as
of the date the trustee has received:
o 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
ratings of the outstanding classes of the certificates would be
qualified, downgraded or withdrawn as a result;
o a written acceptance of all obligations of a replacement special
servicer, executed by the designated replacement; and
o an opinion of counsel to the effect that the designation of the
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 the designated replacement in accordance with its
terms, except as 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 in a proceeding in equity or at law.
The servicer will resign from its duties in respect of specially serviced
mortgage loans and REO properties simultaneously with the designated
replacement's becoming the replacement special servicer under the pooling and
servicing agreement. Any replacement special servicer may be similarly replaced
by the holder or holders of certificates entitled to more than 50% of the voting
rights allocated to the controlling class.
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 "--Matters Regarding the Master Servicer and the Depositor." A replacement
special servicer will also be responsible for performing the servicing and other
administrative duties of the servicer in this prospectus supplement or a master
servicer under "The Pooling and Servicing Agreements" in the prospectus, to the
extent the duties relate to specially serviced mortgage loans and REO
properties.
Following any appointment of a replacement special servicer, the servicer
will continue to collect information and prepare all reports to the trustee and
to pay the trustee's fee based on the trustee fee rate provided in the pooling
and servicing agreement for any specially serviced mortgage loans and REO
properties. The servicer will also provide incidental services on specially
serviced mortgage loans and REO properties as required by the pooling and
servicing agreement. Unless the same person acts in the capacity as both
servicer and special servicer, the servicer and the replacement special servicer
will not have any responsibility for the performance of each other's duties
under the pooling and servicing agreement.
The controlling class may have special relationships and interests that
conflict with those of the holders of one or more classes of certificates. In
addition, the controlling class does not have any duties to the holders of any
class of certificates. It may act solely in the interests of the
certificateholders of the controlling class and will have no liability to any
other certificateholders for having done so.
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No certificateholder may take any action against the controlling class for
having acted solely in the interests of the certificateholders of the
controlling class.
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.
Servicing Fee
The servicing fee will be payable monthly on a loan-by-loan basis from
amounts received or advanced for 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. The servicing fee will accrue for
each mortgage loan at the annual servicing fee rate set forth in Annex A. The
servicing fee will be computed on the same basis and the same principal amount
as any related interest payment due or deemed due on the related mortgage loan
is computed.
Special Servicing Fee
The special servicing fee will accrue solely for each specially serviced
mortgage loan and each mortgage loan for which the related mortgaged property
has become an REO property. The special servicing fee will accrue at a rate
equal to [__]% per annum, on the same basis and the same principal amount as any
related interest payment due or deemed due on the mortgage loan is computed, and
will be payable monthly from general collections on the mortgage loans then on
deposit in the certificate account.
Workout Fee
A workout fee will be payable for each corrected mortgage loan. For each
corrected mortgage loan, the workout fee will be [__]% of each collection of
interest and principal, including scheduled payments, prepayments, balloon
payments and payments at maturity, received on the mortgage loan for so long as
it remains a corrected mortgage loan. The workout fee for any corrected mortgage
loan will cease to be payable if the loan again becomes a specially serviced
mortgage loan or if the related mortgaged property becomes an REO property.
However, a new workout fee will become payable if the mortgage loan again
becomes a corrected mortgage loan. If the servicer is terminated other than for
cause or resigns from any or all of its servicing duties, it will retain the
right to receive all workout fees payable for 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 the termination or resignation. The successor
servicer or replacement special servicer will not be entitled to any portion of
these workout fees, in each case until the workout fee for the loan ceases to be
payable in accordance with the preceding sentence.
Liquidation Fee
A liquidation fee will be payable for each specially serviced mortgage loan
for which the servicer obtains a full or discounted payoff from the related
borrower and, except as described below, for each specially serviced mortgage
loan or REO property for which the servicer receives any
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liquidation proceeds. For each of these specially serviced mortgage loans and
REO properties, the liquidation fee will be [__]% of the related payment or
proceeds. No liquidation fee will be payable on liquidation proceeds received
from 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 as a
result of the termination of the trust. If, however, liquidation proceeds are
received on any corrected mortgage loan and the servicer is properly entitled to
a workout fee, the workout fee will be payable based on the portion of the
liquidation proceeds that constitute principal or interest or both.
Additional Compensation
The servicer will be entitled to 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 under a
mortgage loan.
The servicer will be entitled to Prepayment Interest Excesses and Balloon
Payment Interest Excesses collected on the mortgage loans. The servicer will
also be entitled to any default interest actually collected on the mortgage
loans that is not allocable to cover interest on any advances made in respect of
the related mortgage loan.
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 be authorized to invest or direct the investment of funds
held in any and all accounts maintained by it that constitute part of the
certificate account, the interest reserve account and the REO account, if
established. Any replacement special servicer will be authorized to invest or
direct the investment of funds held in the REO account, if established. The
servicer and replacement special servicer, respectively, will be entitled to
retain any interest or other income earned on those funds, but will be required
to cover any losses from its own funds without any right to reimbursement. The
servicer and replacement special servicer will have these rights and obligations
whether or not the servicer or replacement special servicer, as applicable,
actually directs the investment of those funds.
As compensation for performing its duties for specially serviced mortgage
loans and REO properties, a 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
those duties. A replacement special servicer will also be entitled to any
default interest actually collected on the mortgage loans that is allocable to
the period that the mortgage loan constituted a specially serviced mortgage loan
and that is not allocable to cover interest on any advances made on the mortgage
loan.
The servicer and any replacement special servicer will be required to pay
their respective overhead and general and administrative expenses incurred as a
result of servicing activities under the pooling and servicing agreement,
including the fees of any sub-servicers retained by it. The servicer and any
replacement special servicer will not be entitled to reimbursement for these
expenses unless expressly provided in the pooling and servicing agreement.
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The servicer and any replacement special servicer will each be permitted to
pay, or to direct the payment of, some servicing expenses directly out of the
certificate account or the REO account, as applicable. Payments for some
servicing expenses, such as remediation of any adverse environmental
circumstance or condition at a mortgaged property or an REO property, may be
made without regard to the relationship between the expense and the funds from
which it is being paid. The servicer, however, may instead advance those
expenses.
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,
the replacement special servicer may, in its sole discretion, request that the
servicer make the advance. The request must be made in writing and in a timely
manner that does not adversely affect the interests of any certificateholder.
The servicer is required to make any servicing advance other than a
nonrecoverable advance or an advance that would be in violation of the servicing
standard requested by a replacement special servicer within ten days of the
servicer's receipt of the request. A replacement special servicer will have no
obligation to make an advance that it requests the servicer to make.
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 the servicing advance is required to be made, then if the
trustee has actual knowledge of the failure, the trustee will be required to
make the servicing advance. The servicer, any replacement special servicer and
the trustee are required to make servicing advances only to the extent that the
servicing advances are, in the reasonable and good faith judgment of that
person, ultimately recoverable from related proceeds.
As described in this prospectus supplement, the servicer, any replacement
special servicer and the trustee are each entitled to receive interest at the
reimbursement rate on servicing advances. The servicing fee includes the
compensation of the trustee which will be withdrawn by the trustee from the
distribution account. 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" in this
prospectus supplement.
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 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:
(1) with limited exceptions, the servicer may not agree to
o any modification, waiver or amendment of any term of, or take any of
the other actions described above on any mortgage loan that would
affect the amount or timing of any related payment of principal,
interest or other amount payable thereunder or affect the obligation
of the related borrower to pay a prepayment premium or permit a
principal prepayment during the applicable lockout period or, in the
servicer's good faith and reasonable judgment, would materially impair
the security for mortgage loan or reduce the likelihood of timely
payment of amounts due thereon,
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unless, in the servicer's judgment, a material default on the mortgage
loan has occurred or a default in respect of payment on the mortgage
loan is reasonably foreseeable, and the modification, waiver, amendment
or other action is reasonably likely to produce a greater recovery to
certificateholders on a present value basis than would liquidation;
(2) the servicer may not extend the maturity of any mortgage loan beyond the
date that is two years before [__], which is the rated final distribution
date;
(3) the servicer will not make or permit any modification, waiver or amendment
of any term of, or take any of the other above-referenced actions on, any
mortgage loan that would:
o 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 of
those REMICs under the REMIC Provisions, or
o 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 will not be liable for decisions related to the status of a
mortgage loan as a "qualified mortgage" that are 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 these decisions;
(4) the servicer will not permit any borrower to add or substitute any
collateral for an outstanding mortgage loan, if the collateral constitutes
real property, unless the servicer has first determined in its good faith
and reasonable judgment, based upon a Phase I environmental assessment and
the additional environmental testing as the servicer deems necessary and
appropriate, that the additional or substitute collateral is in compliance
with applicable environmental laws and regulations and that there are no
circumstances or conditions present related to the 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 or
regulations; and
(5) with limited exceptions, the servicer may not release any collateral
securing an outstanding mortgage loan;
provided that:
o the limitations, conditions and restrictions in clauses (1) through
(5) above will not apply to any modification of any term of any
mortgage loan that is required under the terms of the mortgage loan in
effect on the delivery date or that is solely within the control of
the related borrower, and
o 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, opposition would not
ultimately prevent the confirmation of the plan or one substantially
similar.
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Enforcement of ARD Loans
The servicer and any replacement special servicer may not take any
enforcement action on ARD loans for payment of excess interest or principal in
excess of the principal component of the constant monthly payment, other than
request for collection, until the maturity date of the ARD loan. The servicer or
replacement special servicer will still be obligated to direct the related
borrower to establish a lockbox account under the provisions of the pooling and
servicing agreement. If a borrower elects not to repay the principal due and
outstanding on an ARD loan on its anticipated repayment date, the servicer will
notify the borrower of the revised rate, which may not exceed the related
initial mortgage rate plus 2.00%.
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 defaulted
mortgage loans that are subject to foreclosure proceedings. 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 notify in writing the trustee. Within 10 days after receipt
of that notice, the trustee will notify the holders of the controlling class.
Any holder or holders of certificates evidencing a majority interest in the
controlling class may purchase that defaulted mortgage loan from the trust for a
price equal to the purchase price. If those certificateholders have not
purchased the defaulted mortgage loan within 15 days after they received notice,
either the servicer or any replacement special servicer may purchase that
defaulted mortgage loan from the trust, at a price equal to the purchase price.
If neither the servicer nor the replacement special servicer purchases the
defaulted mortgage loan, the servicer may offer to sell the defaulted mortgage
loan if the servicer determines, consistent with the servicing standard, that a
sale would be in the best economic interests of the trust. The offer to sell is
required to be made in a commercially reasonable manner for a period of not less
than 10 days or more than 90 days. Unless the servicer determines that
acceptance of any offer would not be in the best economic interests of the
trust, the servicer will accept the highest cash offer received from any person
that constitutes a fair price even if that offer is for less than the purchase
price. However, none of the servicer, any replacement special servicer, the
depositor, the holder of any certificate or any of their affiliates may purchase
the mortgage loan for less than the purchase price unless it is the highest bid
received and 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
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's net after-tax proceeds from the REO
property. After the servicer reviews the operation of the REO property and
consults with the trustee to determine the trust's federal income tax reporting
position for income it is anticipated that the trust would derive from the
property, the servicer could determine that it would not be commercially
feasible to manage and operate the 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
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transactions" under Section 860F of the Code -- either tax referred to in this
prospectus supplement as an REO tax.
To the extent that income the trust receives from an REO property is
subject to a tax on (1) "net income from foreclosure property," that income
would be subject to federal tax at the highest marginal corporate tax rate and
(2) "prohibited transactions," that 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.
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 that 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 that 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's income from an REO property would reduce the amount
available for distribution to certificateholders. Certificateholders are advised
to consult their tax advisors regarding the possible imposition of REO taxes
resulting from the operation of commercial REO properties by REMICs. The
servicer will be required to sell any REO property acquired on behalf of the
trust 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, will
establish and maintain one or more eligible REO accounts, to be held on behalf
of the trustee in trust for the benefit of the certificateholders, for the
retention of revenues, net liquidation proceeds, other than excess liquidation
proceeds, and insurance proceeds derived from each REO property. The servicer or
replacement special servicer, as applicable, will use the funds in the REO
account to pay for the proper operation, management, maintenance, disposition
and liquidation of any REO property, but from amounts on deposit in the REO
account that relate to the REO property. If amounts in the REO account in
respect of any REO property are insufficient to make those payments, the
servicer or replacement special servicer will make a servicing advance to cover
any insufficiency, unless it determines the servicing advance would be
nonrecoverable. Within one business day following the end of each collection
period, the servicer or replacement special servicer will deposit all amounts
collected or received for each REO property during the collection period, net of
any amounts withdrawn to make any permitted disbursements, to the certificate
account. The servicer and the replacement special servicer, however, may retain
permitted reserves in the REO account.
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 and, if the related mortgage loan is a
credit lease loan, once every three years if the related credit tenant or
guarantor has a published rating of not less than BBB-or its equivalent, every
two years if the related credit tenant or guarantor has a published rating
between BB+ and BB-or its equivalent, and annually if the related credit tenant
or guarantor has a published rating of less than BB-or its equivalent. The
servicer will inspect or cause to be inspected annually each mortgaged property
for which no published rating is publicly available for
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the related credit tenant if the related credit lease loan represents 5% or more
of the aggregate initial pool balance of the mortgage loans, and will inspect or
cause to be inspected every second year each other mortgaged property for which
the related credit tenant has no published, publicly available rating. If the
published rating for any credit tenant or guarantor is downgraded by any rating
agency by one or more rating increment -- e.g., AA to A, or BBB-to BB-, and no
inspection of the related mortgaged property has been performed due to a ratings
downgrade in the preceding 12 months, then the servicer will cause all mortgaged
properties leased to that credit tenant to be inspected as soon as reasonably
practical. In addition, the servicer, subject to statutory limitations or
limitations in the related loan documents, is required to perform a physical
inspection of each mortgaged property as soon as practicable after the mortgage
loan becomes a specially serviced mortgage loan. The servicer will be required
to prepare or cause to be prepared a written report of each inspection performed
that describes the condition of the mortgaged property.
For each mortgage loan, other than any credit lease loan, that requires the
borrower to deliver operating statements for the related mortgaged property, the
servicer will also make reasonable efforts to collect and review those
statements. However, any operating statements required to be delivered may not
in fact be delivered, and the servicer is not likely to have any practical means
of compelling delivery if the mortgage loan is not in default.
DESCRIPTION OF THE CERTIFICATES
The certificates will be issued under the pooling and servicing agreement
and will represent in the aggregate the entire beneficial ownership interest in
the trust consisting of:
(1) the mortgage loans and all payments under and proceeds of the mortgage
loans received after the cut-off date for that mortgage loan,
exclusive of payments of principal and interest due on or before the
cut-off date for that mortgage loan;
(2) any mortgaged property acquired on behalf of the certificateholders
through foreclosure, deed in lieu of foreclosure or otherwise -- upon
acquisition, called an REO property;
(3) the funds or assets that are deposited in the certificate account, any
REO account and the interest reserve account;
(4) the rights of the mortgagee under all insurance policies relating to
the mortgage loans; and
(5) rights of the depositor under the mortgage loan purchase agreement
relating to mortgage loan document delivery requirements and the
representations and warranties of the seller regarding the mortgage
loans.
Denominations
The trust will offer the Class X certificates in minimum denominations of
$[__] initial notional amount and multiples of $[__] in excess thereof. The
trust will offer all of the other classes of offered certificates in minimum
denominations of $[__] and multiples of $[__] in excess thereof.
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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
described 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 in
this prospectus supplement 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 under DTC's procedures. Until definitive certificates are issued
for any class of offered certificates, interests in those certificates will be
transferred on the book-entry records of DTC and its participants. The
certificate owners may hold their certificates through DTC, in the United
States, or Cedelbank or Euroclear, in Europe, through participants in the
systems, or indirectly through organizations which are participants in the
systems. See "Description of the Certificates--Book-Entry Registration and
Definitive Certificates" in the prospectus.
Book-Entry Registration of the Offered Certificates
The offered certificates are expected to be available only in book-entry
form through the facilities of The Depository Trust Company in the United States
or through Cedelbank or the Euroclear System in Europe.
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
certificates from the trustee through DTC and its direct and indirect
participants. Accordingly, certificate owners may experience delays in their
receipt of payments. Unless definitive certificates are issued for any class,
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. Except under the limited circumstances
described in this prospectus supplement, 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, 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 similarly are required to
make book-entry transfers and receive and transmit payments on behalf of their
respective certificate owners. Although certificate owners will not hold
physical certificates evidencing their interests in the offered certificates,
the DTC rules, regulations and procedures 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 servicer, the trustee or the depositor 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
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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 their beneficial ownership
interest.
Euroclear and Cedelbank
The offered certificates will be initially issued to investors through the
book-entry facilities of DTC, or Cedelbank or the Euroclear system in Europe if
the investors are participants of those systems, or indirectly through
organizations that are participants in the systems. For any of these classes of
offered certificates, the record holder will be DTC's nominee. Cedelbank and
Euroclear will hold omnibus positions on behalf of their participants through
customers' securities accounts in Cedelbank's and Euroclear's names on the books
of their respective depositories. The depositories in turn, will hold positions
in customers' securities accounts in the depositories' names on the books of
DTC.
Because of time zone differences, the securities account of a Cedelbank or
Euroclear participant as a result of a transaction with a participant, other
than a depositary holding on behalf of Cedelbank or Euroclear, will be credited
during the securities settlement processing day, which must be a business day
for Cedelbank or Euroclear, as the case may be, immediately following the DTC
settlement date. These credits or any transactions in the securities settled
during the processing will be reported to the relevant Euroclear participant or
Cedelbank participant on that business day. Cash received in Cedelbank or
Euroclear as a result of sales of securities by or through a Cedelbank
participant or Euroclear participant to a DTC Participant, other than the
depository for Cedelbank or Euroclear, will be received with value on the DTC
settlement date, but will be available in the relevant Cedelbank 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 Cedelbank 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 Cedelbank
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, cross-market transactions
will require delivery of instructions to the relevant European international
clearing system by the counterparty in the 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 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. Cedelbank
participants or Euroclear participants may not deliver instructions directly to
the depositories.
Cedelbank, as a professional depository, holds securities for its
participating organizations and facilitates the clearance and settlement of
securities transactions between Cedelbank participants through electronic
book-entry changes in accounts of Cedelbank participants, thereby eliminating
the need for physical movement of certificates. As a professional depository,
Cedelbank is subject to regulation by the Luxembourg Monetary Institute.
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Euroclear was created to hold securities for participants of Euroclear 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. The operator of Euroclear is the
Brussels, Belgium office of Morgan Guaranty Trust Company of New York, under
contract with Euroclear Clearance Systems S.C., a Belgian co-operative
corporation that serves as 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. 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. The terms and conditions govern transfers of
securities and cash within Euroclear, withdrawals of securities and cash from
Euroclear, and receipts of payments for 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 offered certificates will be forwarded by
the trustee to DTC, and DTC will be responsible for forwarding those payments to
participants, each of which will be responsible for disbursing 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 offered certificates under the
pooling and servicing agreement only at the direction of one or more
participants to whose account the offered 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
as to any action of certificateholders of any class to the extent that
participants authorize the 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 offered certificates or for maintaining, supervising or
reviewing any records relating to the beneficial ownership interests.
Certificate owners will not be recognized by the trustee or servicer as
certificateholders, as that term is used in the pooling and servicing agreement.
Certificate owners that provide the trustee with a certification acceptable to
the trustee stating that the person requesting the information is a certificate
owner will be permitted to request and receive information furnished to
certificateholders by the trustee.
DTC, Cedelbank and Euroclear have agreed to the foregoing procedures to
facilitate transfers of the offered certificates among participants of DTC,
Cedelbank and Euroclear, but are under no obligation to perform or continue to
perform these procedures, these procedures may be discontinued at any time. See
Annex D hereto.
Year 2000
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DTC has informed its participants and other members of the financial
community that it has developed and is implementing a program to deal with the
year 2000 problem so that its systems, as the same relate to the timely payment
of distributions to certificateholders, book-entry deliveries, and settlement of
trades within DTC, continue to function appropriately.
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 described 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 affected class, and thereafter the trustee and the servicer will
recognize the holders of the 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
On each distribution date, the certificate balance of each class of
certificates with a certificate principal balance will be reduced by any
distributions of principal actually made to that class of certificates on that
distribution date. The certificate balances will be further reduced by any
realized losses and additional trust expenses allocated to that class of
certificates on that distribution date.
The notional amount of the Class X certificates will equal the aggregate
certificate balance of the principal balance certificates outstanding from time
to time. The Class X certificates consist of [__] Class X components each
corresponding to a different class of principal balance certificates.
No class of REMIC residual certificates will have a certificate balance.
Pass-Through Rates
The annual rate at which any class of certificates accrues interest from
time to time is referred to as its pass-through rate.
The pass-through rate applicable to the Class [__] certificates will be
fixed and, at all times, will be equal to the pass-through rate specified for
that class on page S-[__].
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The pass-through rate applicable to the Class [__] certificates for any
distribution date will be equal to the lesser of the specified fixed rate
described in footnote 7 on page S-[__] and the Weighted Average Net Mortgage
Rate for that distribution date.
The pass-through rates applicable to the Class [__] certificates for any
distribution date will be equal to the Weighted Average Net Mortgage Rate for
that distribution date.
The pass-through rate applicable to the Class X certificates for the
initial distribution date will equal approximately [__]% 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 rates then applicable to each Class X component. The pass-through
rate of each Class X component for any distribution date will equal the excess,
if any, of the Weighted Average Net Mortgage Rate for that distribution date
over the pass-through rate for that distribution date applicable to the related
class of principal balance certificates. If a class of principal balance
certificates has a pass-through rate equal to the Weighted Average Net Mortgage
Rate, the pass-through rate of the related Class X component will be zero.
The pass-through rates for the Class [__] certificates for any distribution
date will be equal to the lesser of a specified fixed rate described in footnote
7 on page S-[__] and the Weighted Average Net Mortgage Rate for that
distribution date.
No class of REMIC residual certificates will have a specified pass-through
rate.
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 that mortgage loan for
any one-month period before a related due date will be equal to:
o the annualized rate at which interest would have to accrue on the loan on
the basis of a 360-day year of twelve 30-day months to produce the
aggregate amount of interest actually accrued on that loan during that
one-month period at the related mortgage rate minus the related servicing
fee rate for that mortgage loan specified on Annex A.
However, for each interest reserve loan, the net mortgage rate for the
one-month period before the due dates in January and February in each year that
is not a leap year, or February only in each year that is a leap year, will be
determined net of the withheld amounts. The net mortgage rate for each interest
reserve loan for the one-month period before the due date in March will be
determined after taking into account the addition of the withheld amounts for
the mortgage loan. See "Servicing of the Mortgage Loans--Servicing and Other
Compensation and Payment of Expenses" and "--Modifications, Waivers, Amendments
and Consents" in this prospectus supplement.
The stated principal balance of each mortgage loan will generally equal its
cut-off date balance, or for 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
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o any payments or other collections or advances of principal of the mortgage
loan that have been or, if they had not been applied to cover additional
trust expenses, would have been distributed on the certificates on that
date, and
o the principal portion of any realized loss incurred on or allocable to the
mortgage loan during the related collection period.
Distributions
The trustee will make distributions on certificates, to the extent of
available funds, on each distribution date. Except for the final distribution on
any certificate, the trustee will make distributions to the persons in whose
names the certificates are registered on the record date, which is the close of
business on the last business day of the preceding month. The trustee will make
distributions by wire transfer in immediately available funds to the account
specified by the certificateholder at a bank or other entity, if the
certificateholder has given the trustee wiring instructions at least five
business days before the related record date. Distributions not made by wire
transfer will be made by check mailed to the certificateholder.
The final distribution on any certificate, determined without regard to any
possible future reimbursement of any realized losses or additional trust expense
previously allocated to that certificate, will also be made by wire transfer or
check, but only upon presentation and surrender of the certificate at the
location that will be specified in a notice of the final distribution. In the
unlikely case of any distribution made on a certificate to reimburse a realized
loss or additional trust expense after the date the certificate is surrendered,
the distribution will be made by check mailed to the certificateholder that
surrendered the certificate at the address last shown on the books of the
trustee. All distributions made on a class of certificates will be allocated pro
rata among those certificates based on their respective percentage interests in
that class.
The Available Distribution Amount
The amount of funds that will be available for distribution to
certificateholders on each distribution date is the Available Distribution
Amount for that distribution date. 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 that date in the following order of priority:
(1) to pay interest to the holders of the classes of senior certificates,
up to an amount equal to all distributable certificate interest for
each of those classes of certificates for that distribution date and,
to the extent not previously paid, for each prior distribution date,
if any, or, if the Available Distribution Amount is not sufficient to
pay all those amounts, pro rata among the classes in accordance with
the amounts due to each class;
(2) to pay principal: first to the holders of the Class [__] certificates,
and then to the holders of the Class [__] certificates, in each case,
up to an amount equal to the lesser of:
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o the then outstanding certificate balance of that class of
certificates, and
o the Principal Distribution Amount for that distribution date;
(3) to reimburse the holders of the classes of Class [__]certificates, up to an
amount equal to the respective amounts of realized losses and additional
trust expenses, if any, previously allocated to those classes of
certificates and for which no reimbursement has previously been paid, or,
if the Available Distribution Amount is not sufficient to pay all those
amounts, pro rata among the classes in accordance with the amounts due to
each class;
(4) to make payments to the holders of each class of subordinate certificates,
after all required distributions to any subordinated class of certificates
with an earlier alphabetical class designation have been made under this
clause (4) as follows:
o first, to pay interest, up to an amount equal to all distributable
certificate interest on that class of certificates for that
distribution date and, to the extent not previously paid, for each
prior distribution date, if any;
o second, if the certificate balances of the Class [__] certificates and
each 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
o the then outstanding certificate balance of that class of
certificates, and
o the remaining portion, if any, of the Principal Distribution Amount
for that distribution date, or, on the final distribution date
resulting from the termination of the trust, up to an amount equal to
the then outstanding certificate balance of that class of
certificates; and
o third, to distributions for purposes of reimbursement, up to an amount
equal to all realized losses and additional trust expenses, if any,
previously allocated to that class of certificates and for which no
reimbursement has previously been paid; and
(5) the remaining portion, if any, of the Available Distribution Amounts to the
holders of the REMIC residual certificates.
However, 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 resulting from a termination of the trust, the
payments of principal to be made as contemplated by clause (2) above on the
Class [__] certificates, will be made to the holders of the respective classes
of those certificates, and pro rata as among those classes in accordance with
the respective then outstanding certificate balances of those classes of
certificates until paid in full.
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Distributable Certificate Interest
The distributable certificate interest for each class of REMIC regular
certificates for each distribution date is equal to the accrued certificate
interest for that class of certificates for that distribution date, reduced by
that class of certificates' allocable share of any Net Aggregate Prepayment
Interest Shortfall for that distribution date.
The accrued certificate interest for each class of REMIC regular
certificates for each distribution date is equal to one month's interest at the
pass-through rate applicable to that class of certificates for that distribution
date accrued on the certificate balance or notional amount, as the case may be,
of that class of certificates outstanding immediately before that distribution
date. Accrued certificate interest will be calculated on the basis of a 360-day
year consisting of twelve 30-day months.
The servicer is required to make a nonreimbursable payment on each
distribution date to cover the aggregate of any Balloon Payment Interest
Shortfalls, Prepayment Interest Shortfalls and Extraordinary Prepayment Interest
Shortfalls incurred on the mortgage loans during the related collection period.
However, for mortgage loans with due dates that fall on or before the related
determination date, the servicer will cover Prepayment Interest Shortfalls only
to the extent of its aggregate master servicing fee for the same collection
period calculated at the master servicing fee rate of [__]%. See "Servicing of
the Mortgage Loans--Servicing and Other Compensation and Payment of Expenses" in
this prospectus supplement.
The Net Aggregate Prepayment Interest Shortfall, if any, for each
distribution date will be allocated on that distribution date among each class
of REMIC regular certificates, pro rata, in accordance with the respective
amounts of accrued certificate interest for each class of certificates for that
distribution date.
An assumed monthly payment is an amount deemed due for:
o any balloon loan that is delinquent on its balloon payment beyond the
first determination date that follows its stated maturity date and for
which no arrangements have been agreed to for collection of the
delinquent amounts;
o the stated maturity date of any balloon loan that has a due date after
the determination date in any month; or
o any mortgage loan for which the related mortgaged property or
properties have become REO property or properties.
The assumed monthly payment deemed due on any balloon loan on its stated
maturity date and on any successive due date that it remains or is deemed to
remain outstanding will equal the monthly payment that would have been due on
that date if the related balloon payment had not come due, but rather the
mortgage loan had continued to amortize in accordance with the loan's
amortization schedule, if any, in effect immediately before maturity and had
continued to accrue interest in accordance with the loan's terms in effect
immediately before maturity. The assumed monthly payment deemed due on any
mortgage loan for which the related mortgaged property or properties have become
REO property or properties, on each due date for so long as that REO property or
properties remain part of the trust, will
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equal the monthly payment, or, in the case of a balloon loan described in the
prior sentence, the assumed monthly payment, due or deemed due on the last due
date before the acquisition of that REO property or properties.
Distributions of Prepayment Premiums
Any prepayment premium actually collected on a mortgage loan during any
collection period will be distributed on the related distribution date to the
holders of the Class [__] certificates as additional interest and not in
reduction of their certificate balances in an amount up to, in the case of each
class, the product of
the prepayment x discount rate fraction x principal allocation fraction
premium for that class of that class
The discount rate fraction for any class of certificates is a fraction not
greater than 1.0 or less than 0.0 equal to:
pass-through rate for
that class of certificates - relevant discount rate
---------------------------------------------------
mortgage rate of the related mortgage loan -
relevant discount rate
The principal allocation fraction for each class of certificates for any
distribution date is:
the portion, if any, of the principal distribution
amount allocated to that class of certificates for
that distribution date
---------------------------------------------------
entire Principal Distribution Amount
for that distribution 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.
For any prepaid mortgage loan, 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 that
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 mortgage loan, then the
discount rate will be equal to the linear interpolation of the yields of the
constant maturity treasuries with maturities next longer and shorter than the
remaining term to maturity or anticipated repayment date. For some of the
mortgage loans, the discount rate is a semiannual rate.
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.
Distributions of Excess Interest
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No excess interest collected on an ARD loan will be available for
distribution to the holders of the offered certificates.
Distributions of Excess Liquidation Proceeds
Except to the extent realized losses have been allocated to classes of
certificates that include the offered certificates, excess liquidation proceeds
will not be available for distribution to the holders of the offered
certificates.
Excess liquidation proceeds are the excess of:
o proceeds from the sale or liquidation of a mortgage loan or REO
property, net of expenses and related advances and interest on
advances, over
o the amount that would have been received if a prepayment in full had
been made on the mortgage loan on the date the proceeds were received.
Treatment of REO Properties
A mortgage loan secured by mortgaged property that is acquired as part of
the trust through foreclosure, deed in lieu of foreclosure or otherwise, will be
treated as remaining outstanding until the related REO property is liquidated
for the following purposes:
o determining distributions on the certificates,
o allocating of realized losses and additional trust expenses to the
certificates, and
o calculating the amount of servicing fees and special servicing fees
payable under the pooling and servicing agreement.
Among other things, the mortgage loan will be taken into account when
determining pass-through rates and the Principal Distribution Amount. Operating
revenues and other proceeds from an REO property, after payment of costs and
taxes, including some reimbursements payable to the servicer, any replacement
special servicer or the trustee, incurred in connection with the operation and
disposition of the REO property, will be applied by the servicer as principal,
interest and other amounts deemed due on the mortgage loan, and, except as
otherwise described under "--P&I Advances" below, the servicer will be required
to make P&I advances on the mortgage loans as if the mortgage loan had remained
outstanding.
Interest Reserve Account
The trustee will establish and maintain an interest reserve account in the
name of the trustee for the benefit of the holders of the certificates. For each
distribution date in February and each distribution date in any January in a
year that is not a leap year, the servicer will deposit in the interest reserve
account for each mortgage loan bearing interest computed on an actual/360 basis,
an interest reserve loan, an amount equal to one day's interest at the related
mortgage rate, net of any servicing fee, on the stated principal balance for
that mortgage loan as of the immediately preceding due date, to the
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extent a monthly payment or P&I advance is made on that mortgage loan. Amounts
so deposited in any January, if applicable, and February are referred to as
withheld amounts. For each distribution date in March, the servicer will
withdraw an amount from the interest reserve account for each interest reserve
loan equal to the related withheld amounts from the preceding January, if
applicable, and February, if any, and deposit this amount into the certificate
account.
Subordination; Allocation of Losses and Expenses
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 on their certificates on
each distribution date, and the ultimate receipt by holders of each class of
Class [__] certificates of principal equal to the entire certificate balance of
that class of certificates.
Similarly, but to decreasing degrees, this subordination is also intended
to enhance the likelihood of timely receipt by holders of each other class of
offered certificates of the full amount of distributable certificate interest
payable on their certificates on each distribution date, and the ultimate
receipt by holders of the other classes of offered certificates of principal
equal to the entire certificate balance of that 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.
A deficit will exist on a distribution date if the aggregate stated
principal balance of the mortgage pool outstanding immediately following that
distribution date is less than the aggregate certificate balance of the
principal balance certificates after giving effect to distributions on the
certificates on that distribution date. If a deficit exists on a distribution
date, the respective certificate balances of the Class [__] certificates will be
reduced, sequentially in that order class until the deficit or the related
certificate balance of a class is reduced to zero, whichever occurs first. If
any portion of the deficit remains after the certificate balances of those
classes of certificates are reduced to zero, then the certificate balances of
the Class [__] certificates will be reduced, pro rata in accordance with the
remaining certificate balances of those certificates, until the deficit or each
of those certificate balances is reduced to zero.
Realized losses are losses on the mortgage loans arising from the inability
of the servicer to collect all amounts due and owing under the 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 on a liquidated mortgage loan, or related REO property or
properties, is an amount equal to the excess, if any, of:
o the outstanding principal balance of the mortgage loan as of the date
of liquidation, together with all accrued and unpaid interest thereon
at the related mortgage rate to but not including
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the due date in the month in which the liquidation proceeds are
distributed and all related unreimbursed servicing advances and
outstanding liquidation expenses, over
o the aggregate amount of liquidation proceeds, if any, recovered in
connection with the liquidation.
If any portion of the debt, other than excess interest, 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 expenses will reduce amounts payable to certificateholders
and, consequently, may result in a loss on the offered certificates. Additional
trust expenses include, among other things:
o special servicing fees, workout fees and liquidation fees,
o interest on unreimbursed advances,
o the cost of various opinions of counsel required or permitted to be
obtained for the servicing of the mortgage loans and the administration of
the trust,
o unanticipated, nonmortgage loan specific expenses of the trust, including
indemnities and reimbursements to the trustee as described under "The
Pooling and Servicing Agreements--Matters Regarding the Trustee" in the
prospectus, indemnities and reimbursements to the servicer and the
depositor and indemnities and reimbursements to a replacement special
servicer comparable to those for the servicer as described under "The
Pooling and Servicing Agreements--Matters Regarding the Master Servicer and
the Depositor" in the prospectus and federal, state and local taxes, and
tax-related expenses, payable out of the trust as described under
"Servicing of the Mortgage Loans--REO Properties" in this prospectus
supplement and "Federal Income Tax Consequences--REMICs--Taxation of Owners
of REMIC Residual Certificates--Prohibited Transactions Tax and Other
Taxes" in the prospectus,
o any amounts expended on behalf of the trust 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
o any other expense of the trust not specifically included in the calculation
of "realized loss" for which there is no corresponding collection from a
borrower.
P&I Advances
On each distribution date, the servicer will be obligated to make P&I
advances consisting of advances of delinquent principal and interest on the
mortgage loans, other than balloon payments. Servicing advances and P&I advances
are referred to as "advances." The servicer will make P&I advances out of its
own funds or, consistent with 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 that distribution
date. Any funds advanced from the certificate
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account are required to be replaced by the servicer by the next distribution
date. P&I advances for any distribution date will be in an amount approximately
equal to the aggregate of all monthly payments, other than balloon payments or
excess interest, and any assumed monthly payments, in each case net of any
related workout fee, that were due or deemed due on the mortgage loans during
the same month as that distribution date and that were not paid by or on behalf
of the related borrowers or otherwise collected as of the close of business on
the later of that due date or the last day of the related collection period or
other specified date before that distribution date. The servicer's obligations
to make P&I advances on any mortgage loan will continue through liquidation of
that mortgage loan or disposition of any related REO property.
If the servicer fails to make a required P&I advance, the trustee will be
required to make that P&I advance. However, neither the servicer nor the trustee
will be required to make a P&I advance if it, in its reasonable judgment,
believes that the funds would not be recoverable from related proceeds and
consistent with the recoverability standard described in the prospectus.
If it is determined that an appraisal reduction amount exists for any
required appraisal mortgage loan and subsequent delinquencies occur on the
mortgage loan, the interest portion of the P&I advance for that mortgage loan
will be reduced on each distribution date for so long as the appraisal reduction
amount exists. No reduction will be made in the principal portion of any P&I
advance. The reduction in the interest portion of the P&I advance will be equal
to the product of
o the amount of the interest portion of the P&I advance that would be
required to be made for that distribution date without regard to this
sentence, multiplied by
o a fraction, the numerator of which is equal to the stated principal
balance of that mortgage loan, net of the appraisal reduction amount,
and the denominator of which is equal to the stated principal balance
of that mortgage loan.
See "--Appraisal Reductions" below.
The servicer and the trustee will each be entitled to recover any P&I
advance made by it from related proceeds collected on the mortgage loan for
which that P&I advance was made. If at any time, a P&I advance made by the
servicer or the trustee is determined to be a nonrecoverable advance, the
servicer or the trustee will be entitled to recover the amount of that P&I
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, the trustee and any replacement special servicer each will be
entitled to interest accrued on the amount of any advance it makes at a
reimbursement rate per annum equal to the "prime rate" as published in the
"Money Rates" section of The Wall Street Journal, as that "prime rate" may
change from time to time. Interest on any advance will be payable to the party
making the advance out of default interest collected on the related mortgage
loan or, if the advance is determined to be nonrecoverable, together with the
reimbursement of that advance, out of any amounts then on deposit in the
certificate account. Interest accrued on outstanding advances will result in a
reduction in amounts payable on the certificates unless the amount of default
interest collected on the related mortgage loan is sufficient to pay that
interest in full.
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Appraisal Reductions
A mortgage loan will become a required appraisal loan upon the earliest of
o the date on which the mortgage loan becomes a modified mortgage loan,
o the 90th day following the occurrence of any uncured delinquency in monthly
payments on the mortgage loan,
o the date on which a receiver is appointed and continues in that capacity
for a mortgaged property securing the mortgage loan, and
o the date on which a mortgaged property securing the mortgage loan becomes
an REO property.
Within 30 days of a mortgage loan becoming a required appraisal loan, or
longer period if the servicer is diligently and in good faith proceeding to
obtain the appraisal, the servicer is required to obtain an appraisal of the
related mortgaged property from an independent MAI-designated appraiser. No
appraisal will be required if an appraisal had been obtained within the prior
twelve months. The cost of the appraisal will be advanced by the servicer and
will be reimbursed to the servicer as a servicing advance.
As a result of this appraisal, the servicer may determine that an appraisal
reduction amount exists on the 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
o the sum of:
(1) the stated principal balance of the required appraisal loan,
(2) 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 before that determination date at a
per annum rate equal to the related mortgage rate,
(3) all related unreimbursed advances made for that required appraisal
loan plus interest accrued on those advances at the reimbursement
rate, and
(4) all currently due and unpaid real estate taxes and assessments,
insurance premiums, and, if applicable, ground rents on the related
mortgaged property, net of any escrow reserves held by the servicer to
cover any of these items,
o over:
90% of the appraised value of the related mortgaged property or REO
property as determined by the appraisal, net of the amount of any
obligation secured by liens on the property that are prior to the lien of
the required appraisal loan, and are not amounts related to items included
in clause (4) above and were not taken into account in the calculation of
the appraised value.
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If a required appraisal is not obtained within 120 days of the date that
the mortgage loan became a required appraisal loan, then until the appraisal is
obtained, the appraisal reduction amount will equal 25% of the stated principal
balance of the related required appraisal loan. Upon receipt of the required
appraisal, the appraisal reduction amount for the required appraisal loan will
be recalculated based upon the formula described above.
Within 30 days of each anniversary of the date a loan became a required
appraisal loan, the servicer is required to order an update of the prior
appraisal. Based on the update, the servicer will redetermine and report to the
trustee the appraisal reduction amount, if any, for that mortgage loan. No
update is required for a mortgage loan that has become a corrected mortgage loan
and has remained current for twelve consecutive monthly payments, and for which
no other special servicing event has occurred during the preceding twelve
months. The cost of the updates will be covered by and reimbursable as a
servicing advance.
A modified mortgage loan is any mortgage loan for which any special
servicing event has occurred and that has been modified by the servicer in a
manner that:
o affects the amount or timing of any payment of principal or interest due on
the mortgage loan, other than, or in addition to, bringing current monthly
payments on that mortgage loan;
o 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
o in the reasonable good faith judgment of the servicer, materially impairs
the security for that mortgage loan or reduces the likelihood of timely
payment of amounts due on that mortgage loan.
Reports to Certificateholders; Available Information
Trustee Reports
On each distribution date, the trustee will be required to provide or make
available to each holder of an offered certificate as of the related record date
a distribution date statement providing information relating to distributions
made on that date for the relevant class and the recent status of the mortgage
pool. For a discussion of the particular items of information included in each
distribution date statement, as well as a discussion of 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 provide or make
available on each distribution date to each offered certificateholder, the
following trustee reports, substantially in the forms provided in Annex B, which
forms are subject to change, and, including substantially the following
information:
(1) A report as of the close of business on the immediately preceding
determination date, containing some categories of information
regarding the mortgage loans provided in Annex A
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of this prospectus supplement in the tables under the caption
"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
presented in a loan-by-loan and tabular format substantially similar
to the formats utilized in Annex A.
(2) A delinquent loan status report including those mortgage loans that,
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 that have become REO property.
(3) An historical loan modification report including those mortgage loans
that, as of the close of business on the immediately preceding
determination date, have been modified under the pooling and servicing
agreement
o during the collection period ending on that determination date
and
o since the cut-off date for that mortgage loan, showing its
original and the revised terms.
(4) An historical loss estimate report including as of the close of
business on the immediately preceding determination date,
o the aggregate amount of liquidation proceeds and liquidation
expenses, both for the collection period ending on that
determination date and for all prior collection periods, and
o the amount of realized losses occurring both during that
collection period and historically, set forth on a mortgage
loan-by-mortgage loan basis.
(5) An REO status report including for each REO property included in the
trust as of the close of business on the immediately preceding
determination date,
o the acquisition date of that REO property,
o the amount of income collected on that REO property, net of
related expenses, and other amounts, if any, received on that REO
property during the collection period ending on that
determination date, and
o the value of the REO property based on the most recent appraisal
or other valuation thereof available to the servicer as of that
date of determination, including any prepared internally by the
servicer.
(6) A servicer watch list including a list of mortgage loans that have
experienced a material decrease in debt service coverage, a loss of or
bankruptcy of the largest tenant of which the servicer has actual
knowledge, or are approaching maturity.
None of these reports will include any information that the servicer
regards as confidential. Neither the servicer nor the trustee will be
responsible for the accuracy or completeness of any information
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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. Some information will be made available
to certificateholders by electronic transmission as may be agreed upon between
the depositor and the trustee.
Before each distribution date, the servicer will deliver to the trustee by
electronic means:
o a comparative financial status report containing substantially the
content provided in Annex B, including the occupancy, revenue, net
operating income and debt service coverage ratio for each mortgage
loan, other than the credit lease loans, or related mortgaged property
as of the determination date immediately preceding the preparation of
the report for each of the following three periods, 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, that
information:
o the most current available year-to-date;
o each of the previous two full fiscal years stated separately; and
o the base year, representing the original analysis of information used
as of the cut-off date for the mortgage loan; and
o a CSSA loan file containing information on the mortgage loans and the
mortgaged properties.
In addition, the servicer is also required to perform for each mortgaged
property and REO property, except any mortgaged property securing a credit lease
loan:
o Within 30 days after receipt of a quarterly operating statement, if any,
beginning with the calendar quarter ended [__], 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, that information, for the
mortgaged property or REO property as of the end of that calendar quarter.
The servicer will deliver to the trustee by electronic means the operating
statement analysis upon request.
o Within 30 days after receipt by the servicer of an annual operating
statement, an NOI adjustment analysis containing substantially the content
provided in 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, that 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 to satisfy its reporting
obligation described in clause (1) above. The servicer will deliver to the
trustee by electronic means the NOI adjustment analysis upon request.
Certificate owners who have certified to the trustee their beneficial
ownership of any offered certificate may also obtain copies of any of the
trustee reports upon request. Otherwise, until the time definitive certificates
are issued to evidence the offered certificates, the information described above
will be available to the related certificate owners only if DTC and its
participants provide the information to
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certificate owners. Communications by DTC to participants, and by participants
to certificate owners, will be governed by arrangements among them, consistent
with 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, during normal business
hours, for review by any holder, certificate owner or prospective purchaser of
an offered certificate, originals or copies of the following items to the extent
they are held by the trustee:
o the pooling and servicing agreement and any amendments,
o all trustee reports delivered to holders of each relevant class of offered
certificates since the delivery date,
o all officers' 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,
o the most recent property inspection report prepared by or on behalf of the
servicer and delivered to the trustee for each mortgaged property,
o the most recent annual operating statements, if any, collected by or on
behalf of the servicer and delivered to the trustee for each mortgaged
property, and
o 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.
The trustee will provide copies of the items described above upon
reasonable written request. The trustee may require payment for the reasonable
costs and expenses of providing the copies and may also require a confirmation
executed by the requesting person or entity, in a form reasonably acceptable to
the trustee, to the effect that the person or entity making the request is a
beneficial owner or prospective purchaser of offered certificates, is requesting
the information solely for use in evaluating its investment in the certificates
and will otherwise keep the information confidential.
Certificateholders, by the acceptance of their certificates, will be deemed
to have agreed to keep this information confidential. The servicer may, but is
not required to, make information available over the internet.
Voting Rights
At all times during the term of the pooling and servicing agreement, the
voting rights for the certificates will be allocated as follows:
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o 98% among the holders of the classes of principal balance certificates in
proportion to the certificate balances of their certificates, adjusted as
described below,
o 1% among the holders of the Class X certificates, and
o 1% allocated equally among the holders of the respective classes of REMIC
residual certificates.
Voting rights allocated to a class of certificateholders will be allocated
among those certificateholders in proportion to the percentage interests in the
class evidenced by their respective certificates. Appraisal reduction amounts
will be allocated to reduce the respective certificate balances of the Class [
]certificates pro rata between the [__] 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:
o the final payment, or advance of that payment, or other liquidation of the
last mortgage loan or REO property, and
o the purchase of all of the assets of the trust by the servicer or, if the
servicer elects not to make the purchase, the depositor, when the then
aggregate stated principal balance of the mortgage pool is less than [__]%
of the initial pool balance.
Any purchase by the servicer or the depositor of all the mortgage loans and
other assets in the trust is required to be made at a price equal to:
o the aggregate purchase price of all the mortgage loans, exclusive of
mortgage loans for which the related mortgaged properties have become REO
properties, then included in the trust; plus
o the aggregate fair market value of all REO properties then included in the
trust, 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; minus
o if the purchase is by the servicer, the aggregate of all amounts payable or
reimbursable to the servicer under the pooling and servicing agreement.
Written notice of termination of the pooling and servicing agreement will
be given to each certificateholder. 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 the notice of termination.
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, if the trust is to be terminated as a result of the purchase of all
of the assets, together with all other amounts on deposit in the certificate
account, net of any portion of the foregoing not otherwise payable to a person
other than the certificateholders, will
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be applied as described above under "--Distributions--Application of the
Available Distribution Amount."
The Trustee
The trustee is [__]. The trustee is at all times required to be, and will
be required to resign if it fails to be,
o a corporation or association, organized and doing business under the laws
of the United States of America or any state thereof or the District of
Columbia, authorized under those laws to exercise corporate trust powers,
having a combined capital and surplus of not less than $100,000,000, or, in
some cases, a lesser amount that each rating agency has confirmed would not
cause it to qualify, downgrade or withdraw its rating on any class of
certificates, and subject to supervision or examination by federal or state
authority and
o an institution whose long-term senior unsecured debt, or that of its fiscal
agent, if applicable, is rated not less than "AA" or its equivalent by the
rating agencies, or lower ratings that the rating agencies would permit
without causing them to qualify, downgrade or withdraw any of the
then-current ratings of the certificates.
The corporate trust office of the trustee responsible for administration of
the trust is located at [__].
YIELD AND MATURITY CONSIDERATIONS
Yield Considerations
The yield to maturity of each class of certificates will depend on, among
other things:
o the purchase price of the certificates;
o the applicable pass-through rate;
o the actual performance of the mortgage loans; and
o the rate and timing of payments on the mortgage loans.
The Purchase Price of the Certificates
The amount by which the yield to maturity of an offered certificate may
vary from the anticipated yield will depend upon the degree to which that
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 that certificate. You 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 that certificate could result in an
actual yield to you 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 that certificate could result in an
actual yield to you that is lower than the anticipated yield. Typically, the
earlier a payment of
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principal is made on an offered certificate purchased at a discount or premium,
the greater will be the effect on the yield to maturity of that certificate. As
a result, the effect on yield of principal payments on an offered certificates
occurring at a rate higher or lower than the rate anticipated during any
particular period would not be fully offset by a subsequent like reduction or
increase in the rate of principal payments during a later period. 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 the mortgage loans. If you invest in the Class X certificates,
you 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 your failure to fully recoup your initial investment.
Applicable Pass-Through Rate
The pass-through rate for each class of offered certificates will be as
specified in "Description of the Certificates--Pass-Through Rates." The yield on
the offered certificates, other than the Class [__] 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 net mortgage rates could
result in a reduction in the Weighted Average Net Mortgage Rate, thereby
reducing the pass-through rates for the Class [__] certificates and, to the
extent that the Weighted Average Net Mortgage Rate is reduced below the
specified fixed rate for the Class [__] certificates, reducing the pass-through
rates on those classes of offered certificates.
See "Description of the Mortgage Pool" in this prospectus supplement and
"--Yield Considerations--Rate and Timing of Principal Payments on the Mortgage
Loans" and "--Yield Sensitivity of the Class X Certificates" below.
Actual Performance of the Mortgage Loans
The yield to holders of the offered certificates will also depend on the
extent to which 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 be borne as described in "Risk Factors--Allocations of losses on the
mortgage loans would reduce your payments and yield on your certificates."
Rate and Timing of Payments on the Mortgage Loans
The yield to holders of the offered certificates 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,
their amortization schedules, the dates on which balloon payments are due and
the rate and timing of principal prepayments and other unscheduled collections
on the mortgage loans, including for this purpose collections resulting from
liquidations of mortgage loans due to defaults, casualties or condemnations
affecting the mortgaged properties, or purchases of mortgage loans out of the
trust. Prepayments and 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
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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" in this prospectus
supplement and "The Pooling and Servicing Agreements--Realization Upon Defaulted
Mortgage Loans" and "Legal Aspects of Mortgage Loans--Foreclosure" in the
prospectus.
The failure on the part of any borrower to pay its ARD loan on its
anticipated repayment date may result in significant delays in payments of
principal on that ARD loan and on the offered certificates. Because the rate of
principal payments or prepayments on the mortgage loans will depend on future
events and a variety of factors, no assurance can be given as to the actual rate
of principal payments or prepayments. The depositor is not aware of any publicly
available or authoritative statistics that address the historical prepayment
experience of a large group of mortgage loans comparable to the mortgage loans.
Factors that Affect the Rate and Timing of Payments and Defaults
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,
prevailing interest rates, the terms of the mortgage loans, including prepayment
premiums, prepayment lock-out periods 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 commercial space in those areas, the quality of
management of the mortgaged properties, the servicing of the mortgage loans,
possible changes in tax laws and other opportunities for investment. See "Risk
Factors" and "Description of the Mortgage Pool" in this prospectus supplement
and "Risk Factors" and "Yield and Maturity Considerations--Yield and Prepayment
Considerations" in the prospectus.
The rate of prepayment on the mortgage pool is likely to be affected by
prevailing market interest rates for mortgage loans of a comparable type, term
and risk level. When the prevailing market interest rate is below a mortgage
coupon, a borrower may have an increased incentive to refinance its mortgage
loan. See "Description of the Mortgage Pool--Terms and Conditions of the
Mortgage Loans" in this prospectus supplement.
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 the 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 those prices did
not account for that delay.
Unpaid Distributable Certificate Interest
As described under "Description of the Certificates--Distributions--
Application of the Available Distribution Amount" in this prospectus supplement,
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 that class, the
shortfall will be distributable to holders of that class of certificates on
subsequent distribution dates, to the extent of available funds. Any
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shortfall will not bear interest, however, and will therefore negatively affect
the yield to maturity of that class of certificates for so long as it is
outstanding.
Weighted Average Life
The weighted average life of a certificate refers to the average amount of
time that will elapse from the date of its issuance until each dollar allocable
to principal or the notional amount of that certificate is distributed to you or
the notional amount is reduced to zero, in the case of the Class X certificates.
For purposes of this prospectus supplement, the weighted average life of a
balance certificate is determined by
o multiplying the amount of each principal distribution or reduction of the
notional amount on the certificate by the number of years from the delivery
date to the related distribution date,
o summing the results, and
o dividing the sum by the aggregate amount of the reductions in the principal
balance or notional amount of that certificate.
The weighted average life of any 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 those payments,
collections and advances of principal are in turn applied in reduction of the
certificate balance or notional amount of the class of certificates to which the
certificate belongs. If the balloon payment on a balloon loan having a due date
after the determination date in any month is received on the stated maturity
date thereof, the excess of that payment over the related assumed monthly
payment will not be included in the available distribution amount until the
distribution date in the following month. As a result, the weighted average life
of the certificates may be extended.
Prepayments on mortgage loans may be measured by a prepayment standard or
model. The model used in this prospectus supplement is the CPR or constant
prepayment rate model. The CPR model assumes that a group of mortgage loans
experiences prepayments each month at a specified constant annual rate. As used
in each of the following sets of tables for any particular class, the column
headed "0%" assumes that none of the mortgage loans is prepaid before maturity,
or the anticipated repayment date, in the case of an ARD loan. The columns
headed "[__]%," "[__]%," "[]%," and "[]%" assume that no prepayments are made on
any mortgage loan during that mortgage loan's prepayment lock-out or defeasance
period and are otherwise made on each of the mortgage loans at the indicated CPR
percentages. There is no assurance, however, that prepayments of the mortgage
loans, whether or not in a prepayment lock-out or defeasance period, will
conform to any particular CPR percentages, and no representation is made that
the mortgage loans will prepay in accordance with the assumptions at any of the
CPR percentages 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 or defeasance 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
defeasance period is any period during which the borrower may, under the terms
of the mortgage loan, exercise a defeasance option.
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The following tables indicate the percentage of the initial certificate
balance or initial notional amount of each class of offered certificates that
would be outstanding after each of the dates shown at the indicated CPR
percentages and the corresponding weighted average life of each of that class of
certificates. The tables have been prepared on the basis of the information set
forth on Annex A and the following maturity assumptions:
(1) the initial certificate balance or notional amount, as the case may be, and
the pass-through rate for each class of certificates are as provided in
this prospectus supplement,
(2) the scheduled monthly payments for each mortgage loan are based on payments
of principal and interest described on Annex A,
(3) all scheduled monthly payments, including balloon payments, timely received
on the first day of each month beginning in [__],
(4) there are no delinquencies or losses, extensions of maturity or appraisal
reduction amounts on the mortgage loans and there are no casualties or
condemnations affecting the mortgaged properties,
(5) prepayments are made on each of the mortgage loans at the indicated CPR
percentages provided in the table without regard to any limitations in the
mortgage loans on partial voluntary principal prepayments, except to the
extent modified below by the assumption numbered (13),
(6) the ARD loans mature on their respective anticipated repayment dates,
(7) each mortgage loan accrues interest under the method specified in Annex A,
(8) neither the servicer nor the depositor exercises its right of optional
termination described in this prospectus supplement,
(9) no mortgage loan is required to be repurchased by the depositor,
(10) no Prepayment Interest Shortfalls are incurred and no prepayment premiums
are collected,
(11) there are no additional trust expenses,
(12) distributions on the certificates are made on the 15th calendar day of each
month, beginning in [__],
(13) no prepayments are received on any mortgage loan during that mortgage
loan's prepayment lock-out period or defeasance period,
(14) the prepayment provisions for each mortgage loan are as described on Annex
A,
(15) the requirements to release earnout amounts are satisfied for each earnout
loan, and
(16) the delivery date is [__].
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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 principal balances of the certificates may be reduced to zero and the
right of the Class X certificates to receive distributions of interest may end
on a date 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. For
example, some of the mortgage loans may not permit voluntary partial
prepayments. In addition, variations in the actual prepayment experience and the
balance of the specific mortgage loans that prepay may affect the rate of
principal payments to the certificates even if the average prepayment experience
of the mortgage loans is equal to the specified CPR percentages. In addition,
the actual pre-tax yields on, or any other payment characteristics of, any class
of offered certificates may not correspond to any of the information shown in
the yield tables in this prospectus supplement, and the aggregate purchase
prices of the offered certificates may not be as assumed. You must make your own
decisions as to the appropriate assumptions, including prepayment assumptions to
be used in deciding whether to purchase the offered certificates.
You are urged to conduct your 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 [__] certificates and the
percentage of the initial certificate balance or notional amount of each class
of certificates that would be outstanding after the closing date and each of the
distribution dates shown under the applicable assumptions at the indicated CPR
percentages.
[add tables in this format]
Percentages of the Initial Certificate Balance of
the Class [__] Certificates at [__]% CPR during lockout and
defeasance and otherwise at indicated CPR
Prepayment Assumption (CPR)
----------------------------------------------
Date % CPR % CPR % CPR % CPR 100% PP*
----- ----- ----- ----- --------
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Weighted Average Life
(in years).....................
First Principal Payment Date...
Last Principal Payment Date....
* "100% PP" means 100% of each loan prepays when it becomes freely prepayable.
"*" Indicates an outstanding notional amount greater than 0.0% and less than
0.5% of the original notional amount.
Price/Yield Tables
The tables set forth below show the corporate bond equivalent or CBE yield
and weighted average life in years for each class of offered certificates, other
than the Class X certificates, under the maturity assumptions.
The yields provided 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 the assumed stream of
cash flows as of [__] to equal the assumed purchase prices, plus accrued
interest at the applicable pass-through rate on page S-[__] from and including
[__] to but excluding the delivery date, and converting the monthly rates to
semi-annual corporate bond equivalent rates. That calculation does not take into
account variations that may occur in the interest rates at which you may be able
to reinvest funds received by them as reductions of the certificate balances of
classes of offered certificates and consequently does not purport to reflect the
return on any investment in those classes of offered certificates when
reinvestment rates are considered. Purchase prices are expressed in 32nds as a
percentage of the initial certificate balance of the specified class (i.e.,
99-16 means 99 16/32%) and are exclusive of accrued interest.
[add tables in this format]
Pre-Tax Yield to Maturity (CBE), Weighted Average Life,
First Principal Payment Date and Last Principal Payment Date
for the Class [__] Certificates at the Specified CPRs
% CPR During Lockout and Defeasance
Otherwise at Indicated CPR
----------------------------------------------
Assumed Price (32nds) % CPR % CPR % CPR % CPR 100% PP*
----- ----- ----- ----- --------
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% CPR During Lockout and Defeasance
Otherwise at Indicated CPR
----------------------------------------------
Assumed Price (32nds) % CPR % CPR % CPR % CPR 100% PP*
----- ----- ----- ----- --------
Weighted Average Life (yrs.)
First Principal Payment Date
Last Principal Payment Date
* "100% PP" means 100% of each loan prepays when it becomes freely prepayable.
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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, each of which may fluctuate significantly from time to time. A rapid rate
of principal payments will have a material negative effect on the yield to
maturity of the Class X certificates. The mortgage loans may prepay at a
different rate. In addition, the pass-through rate for any Class X component
relating to a class of principal balance certificates having a pass-through rate
equal to the Weighted Average Net Mortgage Rate will be zero. Prospective
investors in the Class X certificates should fully consider the associated
risks, including the risk that investors may not fully recover their initial
investment.
The following table indicates the sensitivity of the pre-tax yield to
maturity on the Class X certificates to various CPR percentages 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. It was
further assumed that the aggregate purchase price of the Class X certificates
are as specified below, in each case expressed in 32nds and interpreted as a
percentage (i.e., 4-16 is 4 16/32%) of the initial notional amount without
accrued interest. Any differences between these 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 the 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 provided in the following table 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 the assumed stream of cash flows as of [__] to equal the
assumed aggregate purchase price plus accrued interest at the initial
pass-through rate for the Class X certificates from and including [__] to but
excluding the delivery date, and by converting these monthly rates to
semi-annual corporate bond equivalent rates. The calculation does not take into
account shortfalls in the collection of interest due to prepayments or other
liquidations of the mortgage loans or the interest rates at which you may be
able to reinvest funds you receive 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 the reinvestment rates are considered.
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 following table, even
if all of the mortgage loans prepay at the indicated CPR percentages over any
given time period or over the entire life of the certificates.
The mortgage loans may not prepay in accordance with the maturity
assumptions at any particular rate and the yield on the Class X certificates may
not conform to the yields described in this prospectus supplement. You are urged
to make your investment decision based on the determinations as to anticipated
rates of prepayment under a variety of scenarios. You should fully consider the
risk that a rapid rate of prepayments on the mortgage loans could result in your
failure to fully recover your investments.
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In addition, holders of the Class X certificates have rights to relatively
larger portions of interest payments on mortgage loans with higher mortgage
rates. As a result, 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.
Pre-Tax Yield to Maturity (CBE), Weighted Average Life,
First Payment Date and Last Payment Date
for the Class X Certificates at the Specified CPRs
% CPR During Lockout and Defeasance
Otherwise at Indicated CPR
----------------------------------------------
Assumed Price (32nds) % CPR % CPR % CPR % CPR 100% PP*
----- ----- ----- ----- --------
Weighted Average Life (yrs.)**..
First Payment Date..............
Last Payment Date...............
*"100% PP" means 100% of each loan prepays when it becomes freely prepayable.
**Based on reduction in the notional amount of the Class X certificates.
FEDERAL INCOME TAX CONSEQUENCES
The following summary of the anticipated material federal income tax
consequences of the purchase, ownership and disposition of offered certificates
is based on laws, regulations, including the REMIC regulations promulgated by
the Treasury Department, rulings and decisions now in effect or, for
regulations, proposed, all of which may change, possibly retroactively. To the
extent that the following summary relates to matters of law or legal conclusions
with respect thereto, the summary represents the opinion of [__], special United
States federal tax counsel for the depositor. This summary does not address the
federal income tax consequences of an investment in offered certificates
applicable
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to all categories of investors. For example, it does not discuss the federal
income tax consequences of the purchase, ownership and disposition of offered
certificates by investors that are subject to special treatment under the
federal income tax laws, including banks and thrifts, insurance companies,
regulated investment companies, dealers in securities, holders that will hold
the offered certificates as a position in a "straddle" for tax purposes or as
part of a "synthetic security" or "conversion transaction" or other integrated
investment comprised of the offered certificates and one or more other
investments, foreign investors, trusts and estates and pass-through entities,
the equity holders of which are any of the foregoing. Prospective investors
should consult their tax advisors regarding the federal, state, local and any
other tax consequences to them of the purchase, ownership and disposition of
offered certificates.
For federal income tax purposes, three separate REMIC elections will be
made for segregated asset pools which make up the trust, other than any excess
interest collected on the ARD loans. The resulting REMICs will be referred to in
this prospectus supplement as "REMIC I", "REMIC II" and "REMIC III",
respectively. Upon the issuance of the offered certificates, [__], counsel to
the depositor, will deliver its opinion 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 Internal Revenue Code of 1986, called 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; except to the extent
representing the right to excess interest on the ARD loans, the certificates,
other than the REMIC residual 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 "Federal Income Tax Consequences--REMICs" in the prospectus.
Original Issue Discount and Premium
The Class X certificates will be, and other offered certificates may be,
treated as having been issued with original issue discount for federal income
tax reporting purposes. For purposes of computing the rate of accrual of
original issue discount, market discount and premium, if any, for federal income
tax purposes it will be assumed that there are no prepayments on the mortgage
loans, except that it is assumed that the ARD loans will pay their respective
outstanding principal balances on their related anticipated repayment dates. No
representation is made as to the actual expected rate of prepayment of any
mortgage loan. See "Federal Income Tax Consequences--REMICs--Taxation of Owners
of REMIC Regular Certificates--Original Issue Discount" in the prospectus. The
Class [__] certificates, in addition to evidencing REMIC regular interests, will
also evidence undivided beneficial interests in the portion of the trust
consisting of any excess interest collected on ARD loans. Those beneficial
interests will constitute interests in a grantor trust for federal income tax
purposes.
The IRS has issued OID Regulations under Sections 1271 to 1275 of the Code
addressing the treatment of debt instruments issued with original issue
discount. You should be aware that the OID Regulations and Section 1272(a)(6) of
the Code do not adequately address issues relevant to, or are not applicable to,
securities such as the certificates. For example, because classes [__] of
certificates bear interest at the lesser of a fixed rate or a rate based on the
weighted average mortgage rate, it is not entirely clear that the method
intended to be used by the trust fund in reporting that interest (i.e., as
"qualified stated interest") would be recognized by the IRS. In addition, there
is considerable uncertainty concerning the application of Section 1272(a)(6) of
the Code and the OID Regulations to
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REMIC certificates such as the Class X certificates. 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 that premium only if it has in effect an election under
Section 171 of the Code for all taxable debt instruments held by that holder, as
described in the prospectus under "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 the 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 on the Class X certificates would be to report all
income for those certificates as original issue discount for each period,
computing the original issue discount
o 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, the certificates, thereby treating the
certificates as fixed rate instruments to which the original issue discount
computation rules described in the prospectus can be applied, and
o 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 for that period.
See "Federal Income Tax Consequences--REMICs--Taxation of Owners of REMIC
Regular Certificates--Original Issue Discount" in the prospectus.
If the method for computing original issue discount described in the
prospectus results in a negative amount to a holder of a Class X certificate for
any period, the amount of original issue discount allocable to that period would
be zero and the certificateholder will be permitted to offset the negative
amount only against future original issue discount, if any, on the 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 remaining basis
in the certificate exceeds the maximum amount of future payments to which the
certificateholder is entitled, assuming no further prepayments of the mortgage
loans. That 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 certificates may
be able to select a method for recognizing original issue discount that differs
from that used by the trustee in preparing reports to certificateholders and the
IRS. Prospective investors are advised to consult their tax advisors concerning
the treatment of any original issue discount on purchased certificates.
Prepayment premiums collected on the mortgage loans will be distributed to
the holders of each class of certificates entitled to the prepayment premiums as
described in this prospectus supplement. It is not 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,
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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 that the class of certificates is entitled to
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 that income is not clear and
certificateholders should consult their tax advisors concerning the treatment of
prepayment premiums.
Some classes of certificates may be treated for federal income tax purposes
as having been issued at a premium. Whether any holder of a class of
certificates will be treated as holding a certificate with amortizable bond
premium will depend on the certificateholder's purchase price and the
distributions remaining to be made on the certificate at the time of its
acquisition by the certificateholder. Holders of each affected class of
certificates should consult their tax advisors regarding the possibility of
making an election to amortize that premium. See "Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Regular Certificates--Premium"
in the prospectus.
New Withholding Regulations
The Treasury Department has issued new regulations which make modifications
to the withholding, backup withholding, and information reporting rules
described in the prospectus. The new regulations attempt to unify certification
requirements and to modify reliance standards. The new regulations will be
effective for payments made after December 31, 2000. Prospective investors are
urged to consult their tax advisors regarding the new regulations.
Characterization of Investments in Offered Certificates
Class [__] certificateholders' right to receive excess interest will be
treated as "stripped coupons" under Section 1286 of the Code. Because excess
interest will arise on the ARD loans only if, contrary to the prepayment
assumption utilized in determining the rate of accrual of original issue
discount, as described above, they do not prepay on their related anticipated
repayment dates, for federal income tax information reporting purposes it will
initially be assumed that no excess interest will be paid. Consequently, excess
interest will not be reported as income in federal income tax information
reports sent to certificateholders entitled thereto until excess interest
actually accrues. Similarly, no portion of that holders' purchase price of their
certificates will be treated as allocable to their right to receive possible
distributions of excess interest. However, the Internal Revenue Service might
conceivably disagree with this treatment and assert that additional income
should be accrued for projected possible payments of excess interest in advance
of its actual accrual, that additional original issue discount income should be
accrued for the affected certificates, or both. Class [__] certificateholders
should consult with their tax advisors regarding the overall tax consequences of
their right to receive excess interest.
The offered certificates will be "real estate assets" within the meaning of
Section 856(c)(4)(A) of the Code generally in the same proportion that the
assets of the trust 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 generally to the extent that the
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.
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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 Pool" in this prospectus supplement.
For further information regarding the federal income tax consequences of
investing in the offered certificates, see "Federal Income Tax
Consequences--REMICs" in the prospectus.
METHOD OF DISTRIBUTION
The depositor has agreed to sell, and [the underwriters] have each agreed
to purchase, the portion of the certificates of each class listed opposite its
name in the table below. The terms of these purchases are governed by an
underwriting agreement, [__], among the depositor, the seller, and each of the
underwriters.
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,
Cedelbank and Euroclear on or about [__], against payment therefor in
immediately available funds.
Allocation Table
Underwriter CLASS [__] CLASS [__] CLASS [__]2
----------- ---------- ---------- -----------
Total 100% 100% 100%
The underwriters have agreed, provided the terms and conditions of the
underwriting agreement are met, to purchase all of the offered certificates if
any are purchased. If any underwriter defaults, the underwriting agreement
provides that, in specified circumstances, the purchase commitment of the
nondefaulting underwriter(s) may be increased or the underwriting may be
terminated.
Under the underwriting agreement, each underwriter must pay for and accept
delivery of its certificates provided that specified conditions are met,
including the receipt of legal opinions, that no stop order suspending the
effectiveness of the depositor's registration statement is in effect, and that
no proceedings for that purpose are pending before or threatened by the SEC.
The distribution of the offered certificates by any underwriter may be
effected from time to time in one or more negotiated transactions, or otherwise,
at varying prices to be determined at the time of the sale. Proceeds to the
depositor from the sale of the offered certificates, before deducting expenses
payable by the depositor to the underwriters, will be approximately [__]% of the
aggregate certificate balance of the offered certificates, plus accrued
interest. Each underwriter may effect transactions by selling its certificates
to or through dealers. Dealers may receive compensation in the form of
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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 the 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.
The depositor will indemnify the underwriters, and under limited
circumstances the underwriters will indemnify the depositor, against specified
civil liabilities under the Securities Act of 1933 or contribute to payments to
be made in respect thereof.
A secondary market for the offered certificates may not develop and, if it
does develop, it may not continue. The primary source of ongoing information
available to investors concerning the offered certificates will be the trustee
reports discussed in this prospectus supplement under "Description of the
Certificates--Reports to Certificateholders; Available Information." Except as
described in this prospectus supplement under "Description of the
Certificates--Reports to Certificateholders; Available Information," any
additional information regarding the offered certificates may not 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 available
on an ongoing basis. The limited nature of that 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 [__], and
for the underwriters by [__].
RATINGS
The offered certificates are required to receive ratings from [__] that are
not lower than those indicated under "Summary of Series [__] Certificates and
Pool Characteristics."
The ratings of the offered certificates address the likelihood of the
timely receipt by holders thereof of all payments of interest, other than excess
interest, to which they are entitled on each distribution date and the ultimate
receipt by holders thereof of all payments of principal to which they are
entitled, if any, by the [__] distribution date. The ratings take into
consideration the credit quality of the mortgage pool, structural and legal
aspects associated with the certificates, and the extent to which the payment
stream from the mortgage pool is adequate to make payments of principal and
interest required under the offered certificates.
The ratings of the offered certificates do not, however, address any of the
following:
o the likelihood or frequency of voluntary or involuntary principal
prepayments on the mortgage loans,
o the degree to which prepayments might differ from those originally
anticipated,
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o whether and to what extent prepayment premiums will be collected with
prepayments or the corresponding effect on yield to investors,
o whether and to what extent excess interest will be collected on any ARD
loan,
o whether and to what extent default interest will be collected on the
mortgage loans, and
o the tax treatment of payments on the offered certificates.
The ratings address credit risk and not prepayment risk. As described in
this prospectus supplement, the amounts payable on the Class X certificates do
not include principal. If all the mortgage loans were to prepay in the initial
month, the Class X certificates would receive only a single month's interest,
without regard to any prepayment premiums that may be collected. As a result,
the Class X certificateholders would suffer a nearly complete loss of their
investment. However, all amounts due to the Class X certificateholders have been
paid, and this result would be consistent with the ratings assigned by the
rating agencies to the Class X certificates. The ratings of the Class X
certificates by the rating agencies 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 it may be reduced from time to time as described in this
prospectus supplement. The 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 if rapid prepayments
of the mortgage loans, including both voluntary and involuntary prepayments,
occur. The notional amount upon which interest is calculated for the Class X
certificates is reduced by the allocation of realized losses and prepayments,
whether voluntary or involuntary. The rating does not address the timing or
magnitude of reductions of the notional amount, but only the obligation to pay
interest timely on the notional amount as reduced from time to time. As a
result, you should evaluate the ratings of the Class X certificates
independently from similar ratings on other types of securities.
Any rating agency not requested to rate the offered certificates may
nonetheless issue any rating to any class thereof. 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 by any rating
agency rating that class.
You should evaluate the ratings on the offered certificates independently
from similar ratings on other types of securities. A security rating is not a
recommendation to buy, sell or hold a security and may be changed or withdrawn
at any time by the assigning rating agency.
LEGAL INVESTMENT
As of the date of their issuance, any offered certificates rated in the
category of "AAA" or "AA" or the equivalent by at least one rating agency will
be "mortgage related securities" for the purposes of the Secondary Mortgage
Market Enhancement Act of 1984 or "SMMEA". No other offered certificates will be
"mortgage related securities" for purposes of SMMEA. As a result, the
appropriate characterization of the Non-SMMEA certificates under various legal
investment restrictions, and thus the ability of investors subject to these
restrictions to purchase the non-SMMEA certificates of any class, may be subject
to significant interpretative uncertainties. In addition, institutions whose
investment activities are
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subject to review by federal or state regulatory authorities may be or may
become subject to restrictions in certain forms of mortgage related securities.
The depositor makes no representation 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
If you are a fiduciary of any employee benefit plan or other retirement
plan or arrangement, including individual retirement accounts and annuities,
Keogh plans and some entities in which those plans have invested, such as
collective investment funds, insurance company separate accounts and those
insurance company general accounts, you should review with your counsel whether
your 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 to those "prohibited transactions."
If you purchase or hold the Class [__] and Class X certificates by, on
behalf of or with "plan assets" of a plan, your purchase may qualify for
exemptive relief under the exemption, as described under "ERISA
Considerations--Prohibited Transaction Exemption" in the prospectus and similar
exemptions granted to each of the underwriters (see Prohibited Transaction
Exemption [add exemption numbers for relevant underwriters]), each as amended by
Prohibited Transaction Exemption 97-34, 62 Fed. Reg. 39021 (1997)). To qualify
for the exemption, however, the plan must meet a number of conditions, including
the requirement that it 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, and that at the time of acquisition, the certificates
are rated in one of the top three rating categories by at least one rating
agency. When it issued the exemption, the DOL did not consider mortgages
containing defeasance provisions as described in this prospectus supplement.
Accordingly, it is not clear what the impact on the exemption would be if those
defeasance provisions were exercised. In addition, neither the exemption nor any
similar exemption issued to the underwriters will apply to the Class [__]
certificates.
As a result, if you purchase a [__] certificate or any interest in a
certificate, you will be deemed to have represented by your purchase that
either:
o you are not a plan and you are not purchasing your certificates by or on
behalf of, or with "plan assets" of, any plan or
o your purchase of any of those certificates by or on behalf of, or with
"plan 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:
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(1) the source of funds that you used to purchase your certificate is
an "insurance company general account" as defined in PTCE 95-60 and
(2) the conditions of Sections I and III of PTCE 95-60 have been
satisfied as of the date of the acquisition of your certificates. See
"ERISA Considerations--Representation From Investing Plans" in the
prospectus.
If you are an insurance company and you would like to invest your general
account assets in the offered certificates, you should consult with your legal
advisors about whether Section 401(c) of ERISA, as described under "ERISA
Considerations--Insurance Company General Accounts" in the prospectus, may apply
to you. The DOL issued proposed regulations under Section 401(c) on December 22,
1997, but the required final regulations have not been issued as of the date of
this prospectus supplement.
If you are a plan fiduciary or other person considering whether to purchase
an offered certificate on behalf of or with "plan assets" of a plan, you should
consult with your counsel about whether the fiduciary responsibility provisions
of ERISA and the prohibited transaction provisions of ERISA and Section 4975 of
the Code may apply to your investment, and whether the exemption or any other
prohibited transaction exemption may be available in connection with your
purchase. See "ERISA Considerations" in the prospectus.
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Glossary
Available Distribution Amount--The Available Distribution Amount will
generally equal:
(1) all amounts on deposit in the certificate account as of the close of
business on the related determination date, excluding:
o monthly payments collected but due on a due date after the
related collection period;
o prepayment premiums;
o 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 to reimburse outstanding advances and amounts
payable for additional trust expenses;
o amounts deposited in the certificate account in error;
o for any distribution date in February, and in any January in a
year that is not a leap year, the withheld amounts for the
interest reserve loans to be deposited in the interest reserve
account and held for future distribution; and
o amounts that represent excess interest or excess liquidation
proceeds; plus
(2) to the extent not already included in clause (1), any P&I advances
made for that distribution date and payments made by the servicer to
cover Prepayment Interest Shortfalls, Balloon Payment Interest
Shortfalls and Extraordinary Prepayment Interest Shortfalls incurred
during the related collection period; plus
(3) for the distribution date occurring in each March, the withheld
amounts for the interest reserve loans then on deposit in the interest
reserve account as described under "--Interest Reserve Account" in
this prospectus supplement plus
(4) for any mortgage loan with a due date after the determination date in
each month, the monthly payment, other than any balloon payment, due
in the same month as that distribution date if received by the related
due date in that month.
Balloon Payment Interest Excess---If the due date for any balloon payment
occurs after the normal due date in any collection period, the amount of
interest net of related servicing fees and, if applicable, excess interest
accrued on the related balloon loan from the normal due date to the maturity
date will, to the extent actually collected in connection with the payment of
the balloon payment on or before the succeeding determination date, constitute a
Balloon Payment Interest Excess.
Balloon Payment Interest Shortfall--If the due date for any balloon payment
occurs before the due date for monthly payments in any collection period, the
amount of interest net of related servicing fees and, if applicable, excess
interest that would have accrued on the related balloon loan from the stated
maturity date through that due date will, to the extent not paid by the
borrower, constitute a Balloon Payment Interest Shortfall.
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Extraordinary Prepayment Interest Shortfall--An Extraordinary Prepayment
Interest Shortfall may occur if a mortgage loan with a due date after the
determination date in any month is prepaid in full or in part and the prepayment
is applied to the mortgage loan before the mortgage loan's due date in the next
collection period. Any part of the interest that would have accrued at the
related net mortgage rate on the prepayment amount from the date of receipt of
the prepayment to, but not including, the mortgage loan's due date in the next
collection period, that is not collected from the related borrower, without
regard to any prepayment premium or excess interest that may have been
collected, and that does not represent a balloon payment interest shortfall will
be an Extraordinary Prepayment Interest Shortfall.
Net Aggregate Prepayment Interest Shortfall--The Net Aggregate Prepayment
Interest Shortfall for any distribution date will be the amount, if any, by
which the aggregate of all Prepayment Interest Shortfalls incurred on the
mortgage pool during the related collection period, exceeds any payment made by
the servicer for that distribution date to cover those Prepayment Interest
Shortfalls.
Net Mortgage Rate--The Net Mortgage Rate for any mortgage loan is an annual
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 will be determined without regard to any
modification, waiver or amendment of the terms of the mortgage loan, whether
agreed to by the servicer or resulting from a bankruptcy, insolvency or similar
proceeding involving the related borrower or the application of the revised rate
to any ARD loan.
Prepayment Interest Excess--If a borrower voluntarily prepays a mortgage
loan, in whole or in part, after the due date in any collection period, the
amount of interest, net of related servicing fees and, if applicable, excess
interest, accrued on the prepayment from that 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.
Prepayment Interest Shortfall--Conversely, if a borrower prepays a mortgage
loan, in whole or in part, before the due date in any collection period and does
not pay interest on that prepayment through the due date, then the shortfall in
a full month's interest net of related servicing fees and, if applicable, excess
interest on the prepayment will constitute a Prepayment Interest Shortfall.
Principal Distribution Amount--The Principal Distribution Amount for any
distribution date will, generally, equal the aggregate of the following, without
duplication:
(1) 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, on the mortgage loans for their respective due dates
occurring during the same calendar month as that distribution date;
(2) all voluntary principal prepayments received on the mortgage loans
during the related collection period;
(3) for any balloon loan for which the stated maturity date occurred, or
any ARD loan for which the anticipated repayment date occurred, during
or before the related collection period, any payment of principal,
exclusive of any voluntary principal prepayment and
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any amount described in clause (4) below, made by or on behalf of the
related borrower during the related collection period, net of any
portion of the 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, for
that mortgage loan on a due date during or before the same calendar
month as that distribution date and not previously recovered;
(4) 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, in each case, exclusive of any portion of
those amounts that represents a recovery of the principal portion of
any monthly payment, other than a balloon payment, due and any excess
liquidation proceeds, or the principal portion of any assumed monthly
payment deemed due, for the related mortgage loan on a due date during
or before the same calendar month as that distribution date and not
previously recovered; and
(5) if that distribution date is after the initial distribution date, the
excess, if any, of the principal distribution amount for the
immediately preceding distribution date, over the aggregate
distributions of principal made on the principal balance certificates
from the principal distribution amount on that immediately preceding
distribution date.
Weighted Average Net Mortgage 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 beginning of the related collection period,
weighted on the basis of their respective stated principal balances outstanding
immediately before that distribution date.
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ANNEX A
CHARACTERISTICS OF THE MORTGAGE LOANS
The schedule and tables appearing in this Annex A set forth information for
the mortgage loans and mortgaged properties. The information is presented, where
applicable, as of the cut-off date for each mortgage loan and the related
mortgaged properties.
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Distribution of Cut-Off Date Balances
<TABLE>
<CAPTION>
Percentage Weighted
of Minimum Maximum Average
Number Aggregate Minimum Maximum Average Debt Debt Debt
Cut-off Date of Cut-off Cut-off Cut-off Cut-off Cut-off Service Service Service
Balance Mortgage Date Date Date Date Date Coverage Coverage Coverage
Distribution Loans Balance Balance Balance Balance Balance Ratio Ratio Ratio
------------ ----- ------- ------- ------- ------- ------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total/Avg./Wtd. 121
Avg./Min/Max:
<CAPTION>
Weighted
Average Weighted
Weighted Remaining Minimum Maximum Average
Cut-off Date Average Term to Cut-off Cut-off Cut-off
Balance Mortgage Maturity Date Date Date
Distribution Rate (Mos) LTV LTV LTV
----------- ---- ----- --- --- ---
<S> <C> <C> <C> <C> <C>
Total/Avg./Wtd.
Avg./Min/Max:
</TABLE>
Distribution of Property Types
<TABLE>
<CAPTION>
Percentage Weighted
of Minimum Maximum Average
Number Aggregate Minimum Maximum Average Debt Debt Debt
Cut-off Date of Cut-off Cut-off Cut-off Cut-off Cut-off Service Service Service
Balance Mortgaged Date Date Date Date Date Coverage Coverage Coverage
Distribution Properties Balance Balance Balance Balance Balance Ratio Ratio Ratio
------------ ---------- ------- ------- ------- ------- ------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Office
Multifamily
Retail
Other
Hospitality
Industrial
Mixed Use
Total/Avg./Wtd.
Avg./Min/Max:
<CAPTION>
Weighted
Average Weighted
Weighted Remaining Minimum Maximum Average
Cut-off Date Average Term to Cut-off Cut-off Cut-off
Balance Mortgage Maturity Date Date Date
Distribution Rate (Mos) LTV LTV LTV
------------ ---- ----- --- --- ---
<S> <C> <C> <C> <C> <C>
Office
Multifamily
Retail
Other
Hospitality
Industrial
Mixed Use
Total/Avg./Wtd.
Avg./Min/Max:
</TABLE>
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<PAGE>
Range of Debt Service Coverage Ratios
<TABLE>
<CAPTION>
PERCENTAGE
OF MINIMUM MAXIMUM AVERAGE
RANGE OF DEBT NUMBER OF CUT-OFF CUT-OFF CUT-OFF CUT-OFF CUT-OFF
SERVICE COVERAGE MORTGAGE DATE DATE DATE DATE DATE
RATIOS LOANS BALANCE BALANCE BALANCE BALANCE BALANCE
------ ----- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Total/Avg./Wtd.
Avg./Min/Max:
<CAPTION>
WEIGHTED WEIGHTED
MAXIMUM AVERAGE AVERAGE WEIGHTED
DEBT DEBT WEIGHTED REMAINING MINIMUM MAXIMUM AVERAGE
RANGE OF DEBT SERVICE SERVICE AVERAGE TERM TO CUT-OFF CUT-OFF CUT-OFF
SERVICE COVERAGE COVERAGE COVERAGE MORTGAGE MATURITY DATE DATE DATE
RATIOS RATIO RATIO RATE (MOS) LTV LTV LTV
------ ----- ----- ---- ----- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Total/Avg./Wtd.
Avg./Min/Max:
</TABLE>
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Range of Mortgage Rates
<TABLE>
<CAPTION>
PERCENTAGE
OF MINIMUM
AGGREGATE MINIMUM MAXIMUM AVERAGE DEBT
RANGE OF NUMBER OF CUT-OFF CUT-OFF CUT-OFF CUT-OFF CUT-OFF SERVICE
MORTGAGE MORTGAGE DATE DATE DATE DATE DATE COVERAGE
RATES LOANS BALANCE BALANCE BALANCE BALANCE BALANCE RATIO
----- ----- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Total/Avg./Wtd.
Avg./Min/Max:
<CAPTION>
WEIGHTED WEIGHTED
MAXIMUM AVERAGE AVERAGE WEIGHTED
DEBT DEBT WEIGHTED REMAINING MINIMUM MAXIMUM AVERAGE
RANGE OF SERVICE SERVICE AVERAGE TERM TO CUT-OFF CUT-OFF CUT-OFF
MORTGAGE COVERAGE COVERAGE MORTGAGE MATURITY DATE DATE DATE
RATES RATIO RATIO RATE (MOS) LTV LTV LTV
----- ----- ----- ---- ----- --- --- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Total/Avg./Wtd.
Avg./Min/Max:
</TABLE>
S-105
<PAGE>
Range of Amortization Types
<TABLE>
<CAPTION>
PERCENTAGE
OF MINIMUM
AGGREGATE MINIMUM MAXIMUM AVERAGE DEBT
NUMBER OF CUT-OFF CUT-OFF CUT-OFF CUT-OFF CUT-OFF SERVICE
AMORTIZATION MORTGAGE DATE DATE DATE DATE DATE COVERAGE
TYPE LOANS BALANCE BALANCE BALANCE BALANCE BALANCE RATIO
---- ----- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balloon
Fully Amortizing
Hyperamortizing
Total/Avg./Wtd.
Avg./Min/Max:
<CAPTION>
WEIGHTED WEIGHTED
MAXIMUM AVERAGE AVERAGE WEIGHTED
DEBT DEBT WEIGHTED REMAINING MINIMUM MAXIMUM AVERAGE
SERVICE SERVICE AVERAGE TERM TO CUT-OFF CUT-OFF CUT-OFF
AMORTIZATION COVERAGE COVERAGE MORTGAGE MATURITY DATE DATE DATE
TYPE RATIO RATIO RATE (MOS) LTV LTV LTV
---- ----- ----- ---- ----- --- --- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balloon
Fully Amortizing
Hyperamortizing
Total/Avg./Wtd.
Avg./Min/Max:
</TABLE>
S-106
<PAGE>
Ranges of Cut-Off Date Loan-to-Value Ratios
<TABLE>
<CAPTION>
PERCENTAGE
OF MINIMUM
RANGE OF AGGREGATE MINIMUM MAXIMUM AVERAGE DEBT
CUT-OFF DATE NUMBER OF CUT-OFF CUT-OFF CUT-OFF CUT-OFF CUT-OFF SERVICE
LOAN-TO-VALUE MORTGAGE DATE DATE DATE DATE DATE COVERAGE
RATIOS LOANS BALANCE BALANCE BALANCE BALANCE BALANCE RATIO
------ ----- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Total/Avg./Wtd.
Avg./Min/Max:
<CAPTION>
WEIGHTED WEIGHTED
MAXIMUM AVERAGE AVERAGE WEIGHTED
RANGE OF DEBT DEBT WEIGHTED REMAINING MINIMUM MAXIMUM AVERAGE
CUT-OFF DATE SERVICE SERVICE AVERAGE TERM TO CUT-OFF CUT-OFF CUT-OFF
LOAN-TO-VALUE COVERAGE COVERAGE MORTGAGE MATURITY DATE DATE DATE
RATIOS RATIO RATIO RATE (MOS) LTV LTV LTV
------ ----- ----- ---- ----- --- --- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Total/Avg./Wtd.
Avg./Min/Max:
</TABLE>
S-107
<PAGE>
Distribution of Mortgaged Properties by State
<TABLE>
<CAPTION>
PERCENTAGE
OF MINIMUM
AGGREGATE MINIMUM MAXIMUM AVERAGE DEBT
NUMBER OF CUT-OFF CUT-OFF CUT-OFF CUT-OFF CUT-OFF SERVICE
MORTGAGED DATE DATE DATE DATE DATE COVERAGE
STATE LOANS BALANCE BALANCE BALANCE BALANCE BALANCE RATIO
----- ----- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Total/Avg./Wtd.
Avg./Min/Max:
<CAPTION>
WEIGHTED WEIGHTED
MAXIMUM AVERAGE AVERAGE WEIGHTED
DEBT DEBT WEIGHTED REMAINING MINIMUM MAXIMUM AVERAGE
SERVICE SERVICE AVERAGE TERM TO CUT-OFF CUT-OFF CUT-OFF
COVERAGE COVERAGE MORTGAGE MATURITY DATE DATE DATE
STATE RATIO RATIO RATE (MOS) LTV LTV LTV
----- ----- ----- ---- ----- --- --- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Total/Avg./Wtd.
Avg./Min/Max:
</TABLE>
S-108
<PAGE>
Distribution of Prepayment Provisions
<TABLE>
<CAPTION>
PERCENTAGE
OF MINIMUM
AGGREGATE MINIMUM MAXIMUM AVERAGE DEBT
NUMBER OF CUT-OFF CUT-OFF CUT-OFF CUT-OFF CUT-OFF SERVICE
PREPAYMENT MORTGAGE DATE DATE DATE DATE DATE COVERAGE
PROVISION LOANS BALANCE BALANCE BALANCE BALANCE BALANCE RATIO
---------- ----- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Lockout/
Defeasance
Total/Avg./Wtd.
Avg./Min/Max:
<CAPTION>
WEIGHTED WEIGHTED
MAXIMUM AVERAGE AVERAGE WEIGHTED
DEBT DEBT WEIGHTED REMAINING MINIMUM MAXIMUM AVERAGE
SERVICE SERVICE AVERAGE TERM TO CUT-OFF CUT-OFF CUT-OFF
PREPAYMENT COVERAGE COVERAGE MORTGAGE MATURITY DATE DATE DATE
PROVISION RATIO RATIO RATE (MOS) LTV LTV LTV
---------- ----- ----- ---- ----- --- --- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Lockout/
Defeasance
Total/Avg./Wtd.
Avg./Min/Max:
</TABLE>
Distribution of Mortgaged Properties by Top Five States
<TABLE>
<CAPTION>
PERCENTAGE
OF MINIMUM
AGGREGATE MINIMUM MAXIMUM AVERAGE DEBT
TOP FIVE NUMBER OF CUT-OFF CUT-OFF CUT-OFF CUT-OFF CUT-OFF SERVICE
STATE MORTGAGED DATE DATE DATE DATE DATE COVERAGE
DISTRIBUTION PROPERTIES BALANCE BALANCE BALANCE BALANCE BALANCE RATIO
------------ ---------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Total/Avg./Wtd.
Avg./Min/Max:
<CAPTION>
WEIGHTED WEIGHTED
MAXIMUM AVERAGE AVERAGE WEIGHTED
DEBT DEBT WEIGHTED REMAINING MINIMUM MAXIMUM AVERAGE
TOP FIVE SERVICE SERVICE AVERAGE TERM TO CUT-OFF CUT-OFF CUT-OFF
STATE COVERAGE COVERAGE MORTGAGE MATURITY DATE DATE DATE
DISTRIBUTION RATIO RATIO RATE (MOS) LTV LTV LTV
------------ ----- ----- ---- ----- --- --- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Total/Avg./Wtd.
Avg./Min/Max:
</TABLE>
S-109
<PAGE>
Range of Remaining Amortization Terms
<TABLE>
<CAPTION>
PERCENTAGE
OF MINIMUM
RANGE OF AGGREGATE MINIMUM MAXIMUM AVERAGE DEBT
REMAINING NUMBER OF CUT-OFF CUT-OFF CUT-OFF CUT-OFF CUT-OFF SERVICE
AMORTIZATION MORTGAGE DATE DATE DATE DATE DATE COVERAGE
TERMS (MOS.) LOANS BALANCE BALANCE BALANCE BALANCE BALANCE RATIO
------------ ----- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Total/Avg./Wtd.
Avg./Min/Max:
<CAPTION>
WEIGHTED WEIGHTED
MAXIMUM AVERAGE AVERAGE WEIGHTED
RANGE OF DEBT DEBT WEIGHTED REMAINING MINIMUM MAXIMUM AVERAGE
REMAINING SERVICE SERVICE AVERAGE TERM TO CUT-OFF CUT-OFF CUT-OFF
AMORTIZATION COVERAGE COVERAGE MORTGAGE MATURITY DATE DATE DATE
TERMS (MOS.) RATIO RATIO RATE (MOS) LTV LTV LTV
------------ ----- ----- ---- ----- --- --- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Total/Avg./Wtd.
Avg./Min/Max:
</TABLE>
S-110
<PAGE>
Range of Remaining Terms to Maturity
<TABLE>
<CAPTION>
PERCENTAGE
OF MINIMUM
RANGE OF AGGREGATE MINIMUM MAXIMUM AVERAGE DEBT
REMAINING NUMBER OF CUT-OFF CUT-OFF CUT-OFF CUT-OFF CUT-OFF SERVICE
TERMS TO MORTGAGE DATE DATE DATE DATE DATE COVERAGE
MATURITY (MOS.) LOANS BALANCE BALANCE BALANCE BALANCE BALANCE RATIO
------------- ----- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Total/Avg./Wtd.
Avg./Min/Max:
<CAPTION>
WEIGHTED WEIGHTED
MAXIMUM AVERAGE AVERAGE WEIGHTED
RANGE OF DEBT DEBT WEIGHTED REMAINING MINIMUM MAXIMUM AVERAGE
REMAINING SERVICE SERVICE AVERAGE TERM TO CUT-OFF CUT-OFF CUT-OFF
TERMS TO COVERAGE COVERAGE MORTGAGE MATURITY DATE DATE DATE
MATURITY (MOS.) RATIO RATIO RATE (MOS) LTV LTV LTV
- --------------- ----- ----- ---- ----- --- --- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Total/Avg./Wtd.
Avg./Min/Max:
</TABLE>
S-111
<PAGE>
Range of Original Terms to Maturity
<TABLE>
<CAPTION>
PERCENTAGE
OF MINIMUM
RANGE OF AGGREGATE MINIMUM MAXIMUM AVERAGE DEBT
ORIGINAL NUMBER OF CUT-OFF CUT-OFF CUT-OFF CUT-OFF CUT-OFF SERVICE
TERMS TO MORTGAGE DATE DATE DATE DATE DATE COVERAGE
MATURITY (MOS.) LOANS BALANCE BALANCE BALANCE BALANCE BALANCE RATIO
------------- ----- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Total/Avg./Wtd.
Avg./Min/Max:
<CAPTION>
WEIGHTED WEIGHTED
MAXIMUM AVERAGE AVERAGE WEIGHTED
RANGE OF DEBT DEBT WEIGHTED REMAINING MINIMUM MAXIMUM AVERAGE
ORIGINAL SERVICE SERVICE AVERAGE TERM TO CUT-OFF CUT-OFF CUT-OFF
TERMS TO COVERAGE COVERAGE MORTGAGE MATURITY DATE DATE DATE
MATURITY (MOS.) RATIO RATIO RATE (MOS) LTV LTV LTV
- --------------- ----- ----- ---- ----- --- --- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Total/Avg./Wtd.
Avg./Min/Max:
</TABLE>
S-112
<PAGE>
ANNEX B
S-113
<PAGE>
ANNEX C
S-114
<PAGE>
ANNEX D
GLOBAL CLEARANCE, SETTLEMENT AND TAX
DOCUMENTATION PROCEDURES
Except in limited circumstances, the globally offered GMAC Commercial
Mortgage Securities, Inc. Mortgage Pass-Through Certificates, Series [__] (the
"global securities") will be available only in book-entry form. Investors in the
global securities may hold those global securities through any of DTC, Cedelbank
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. Terms used but not defined in
this Annex D have the meanings assigned to them in the prospectus supplement and
the prospectus.
Secondary market trading between investors holding global securities
through Cedelbank and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating 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 Cedelbank or Euroclear and DTC
participants holding certificates will be effected on a delivery-against-payment
basis through the respective depositaries of Cedelbank and Euroclear (in that
capacity) and as DTC participants.
Non-U.S. holders (as described below) of global securities will be subject
to U.S. withholding taxes unless those 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, Cedelbank and Euroclear will hold
positions on behalf of their participants through their respective depositaries,
which in turn will hold those 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 Cedelbank 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.
S-115
<PAGE>
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 Cedelbank or Euroclear Participants. Secondary market
trading between Cedelbank participants or Euroclear participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedelbank or Euroclear purchaser. When
global securities are to be transferred from the account of a DTC participant to
the account of a Cedelbank participant or a Euroclear participant, the purchaser
will send instructions to Cedelbank or Euroclear through a Cedelbank participant
or Euroclear participant at least one business day before settlement. Cedelbank
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
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 Cedelbank 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 Cedelbank or
Euroclear cash debit will be valued instead as of the actual settlement date.
Cedelbank 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 Cedelbank or Euroclear. Under
this approach, they may take on credit exposure to Cedelbank or Euroclear until
the global securities are credited to their accounts one day later.
As an alternative, if Cedelbank or Euroclear has extended a line of credit
to them, Cedelbank 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, Cedelbank 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 the overdraft charges, although this result will depend
on each Cedelbank 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 Cedelbank 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 Cedelbank or Euroclear seller and DTC purchaser. Due to
time zone differences in their favor, Cedelbank 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 Cedelbank or Euroclear through a Cedelbank participant or
Euroclear participant at least one business day before settlement. In these
cases, Cedelbank 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
S-116
<PAGE>
excluding the settlement date. The payment will then be reflected in the account
of the Cedelbank participant or Euroclear participant the following day, and
receipt of the cash proceeds in the Cedelbank 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 Cedelbank
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
Cedelbank participant's or Euroclear participant's account would instead be
valued as of the actual settlement date. Finally, day traders that use Cedelbank
or Euroclear and that purchase global securities from DTC participants for
delivery to Cedelbank 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 Cedelbank or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedelbank or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the global securities in the U.S. from a DTC participant no
later than one day before settlement, which would give the global securities
sufficient time to be reflected in their Cedelbank or Euroclear account 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 before the value date for the sale to the Cedelbank participant or Euroclear
participant.
U.S. Federal Income Tax Documentation Requirements
A beneficial owner of global securities holding securities through
Cedelbank 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 (1) 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 that beneficial owner and the
U.S. entity required to withhold tax complies with applicable certification
requirements and (2) that 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 that 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.
S-117
<PAGE>
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 (1) a citizen or resident of the United
States, (2) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof or (3) 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.
S-118
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
PAGE
Summary
Risk Factors
Description of the Mortgage Pool
Servicing of the Mortgage Loans
Description of the Certificates
Yield and Maturity Considerations
Federal Income Tax Consequences
Method of Distribution
Legal Matters Ratings
Legal Investment
ERISA
Considerations Index of Significant Definitions
Annex A--Characteristics of the Mortgage Loans A-1
Annex B--Form of Statement to Certificateholders and B-1
Servicer Reports
Annex C--Structural and Collateral Term Sheet C-1
Annex D--Global Clearance, Settlement and Tax D-1
Documentation Procedures
Prospectus
Prospectus Supplement
Available Information
Incorporation of Information by Reference
Summary of Prospectus
Risk Factors
Description of the Trust Funds
Yield and Maturity Considerations
The Depositor
GMAC Commercial Mortgage Corporation
Description of the Certificates
The Pooling and Servicing Agreements
S-119
<PAGE>
Description of Credit Support
Legal Aspects of Mortgage Loans
Federal Income Tax Consequences
State and Other Tax Consequences
ERISA Considerations
Legal Investment
Use of Proceeds
Method of Distribution
Legal Matters
Financial Information
Rating
Index of Principal Terms
S-120
<PAGE>
$[__]
(Approximate)
GMAC Commercial
Mortgage Securities, Inc.
Mortgage Pass-Through
Certificates, Series [__]
S-121
<PAGE>
PROSPECTUS SUPPLEMENT
[names of underwriters]
[date]
S-122
<PAGE>
Prospectus
GMAC Commercial Mortgage Securities, Inc.
Depositor
Mortgage Pass-through Certificates
The depositor may from time to time establish a trust and issue a series of
certificates representing interests in that trust.
The certificates in a series:
o will be paid only from the assets of the trust created for that series; and
o may be divided into multiple classes of certificates having different
rights as to payments, security and priority.
The assets underlying the certificates in a series will include:
o multifamily or commercial mortgage loans; or
o securities that evidence interests in or are secured by multifamily or
commercial mortgage loans; or
o a combination of mortgage loans and mortgage-backed securities.
You should consider carefully the risk factors beginning on page __ in this
prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved these certificates or determined that this prospectus is
accurate or complete. Any representation to the contrary is a criminal offense.
This prospectus may be used to offer and sell a series of certificates only if
accompanied by the prospectus supplement for that series.
The date of this prospectus is ___________ _, 1999
<PAGE>
Important notice about information presented in this
prospectus and the accompanying prospectus supplement
We provide information to you about the certificates in two separate
documents that progressively provide more detail:
o this prospectus, which provides general information, some of which may not
apply to your series of certificates; and
o the accompanying prospectus supplement, which describes the specific terms
of your series of certificates, including:
o the timing of interest and principal payments;
o financial and other information about the mortgage loans;
o any credit enhancement for each class;
o the ratings for each class; and
o the method for selling the certificates.
The prospectus and the prospectus supplement, together, provide a description of
the material terms of your certificates. You should rely on the information in
the prospectus supplement to the extent it provides a more specific description
of your certificates.
You should rely only on the information provided in this prospectus and the
accompanying prospectus supplement, including the information incorporated by
reference. You can request information incorporated by reference from GMAC
Commercial Mortgage Securities, Inc. at (215) 328-4622 or 650 Dresher Road,
Horsham, Pennsylvania 19044-8015. See "Where You Can Find Additional
Information" and "Incorporation of Information by Reference" in this prospectus.
We have not authorized anyone to provide you with different information. We are
not offering the certificates in any state where the offer is not permitted.
We include cross-references in this prospectus and the accompanying
prospectus supplement to captions in these materials where you can find further
related discussions. The following table of contents and the table of contents
included in the accompanying prospectus supplement provide the pages on which
these captions are located.
2
<PAGE>
PROSPECTUS SUMMARY
o This summary highlights selected information from this document. To
understand all of the terms of the offering of the certificates, you should
carefully read this entire document and the accompanying prospectus
supplement.
THE MORTGAGE ASSET POOLS AND
OTHER ASSETS OF THE TRUSTS
The depositor will from time to time deposit a pool of mortgage assets and
related property and interests into a trust.
The mortgage assets for each series of certificates may consist of mortgage
loans with various payment provisions and related rights and limitations. See
"The Mortgage Loans--Payment Provisions of the Mortgage Loans" in this
prospectus.
The mortgage assets for each series of certificates also may include or consist
of mortgage-backed securities. These mortgage-backed securities will represent
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 in this prospectus. See
"Description of the Trust--MBS" in this prospectus.
The mortgage loans will be secured by first or junior liens on multifamily
residential properties or commercial properties. The mortgage loans may be
secured by liens on real estate projects under construction. See "Description of
the Mortgage Pool" in your prospectus supplement for a description of the
mortgage asset pool applicable to your series of certificates.
The Mortgage Loan Sellers
The depositor will purchase the mortgage loans for each series of
certificates from the mortgage asset seller or sellers specified in your
prospectus supplement., Some or all of the mortgage loans in any trust may have
been originated by GMAC Commercial Mortgage Corporation, another affiliate of
the depositor or the depositor. See "Description of the Trust--Mortgage Loans"
in this prospectus.
The Master Servicer, the Special
Servicer and the Administration of the
Trusts
If a trust includes mortgage loans, then your prospectus supplement will name
the servicer or the master servicer for that trust. The master servicer for
any series of certificates may be GMAC Commercial Mortgage Corporation or
another affiliate of the depositor. If a trust includes mortgage loans, then
your prospectus supplement will also name
3
<PAGE>
any special servicer for that trust or will describe the circumstances under
which a special servicer may be appointed or replaced.
The master servicer may also be the special servicer for that series and, in
that dual capacity, would be referred to as the servicer. A special servicer for
any series may be an affiliate of the depositor, the master servicer or an
underwriter. See "GMAC Commercial Mortgage Corporation" and "The Pooling and
Servicing Agreements--Matters Regarding the Master Servicer and the depositor
and --Special Servicers" in this prospectus.
If a trust includes mortgage-backed securities, then your prospectus supplement
will name the entity responsible for administering those mortgage-backed
securities. If an entity other than the trustee or the master servicer is the
mortgage-backed securities administrator, that entity will be referred to as the
manager in this prospectus. The manager for any series of certificates may be an
affiliate of either the depositor or the master servicer. See your prospectus
supplement for a description of the servicing and administration of the
mortgage-backed certificates and the trust related to your certificates.
The Certificates
Each trust will issue a series of certificates. A series of certificates may
consist of a single class of certificates entitled to all of the principal and
interest up to a specified rate on the mortgage assets in the related trust.
Alternatively, a series of certificates may consist of multiple classes. If the
series of certificates has multiple classes, the prospectus supplement for that
series will set forth for each class of certificates:
o the initial principal balance if that class receives principal;
o the initial interest rate if that class receives interest;
o whether that class is subordinated;
o whether each class will receive distributions from all or a portion of the
mortgage loans; and
o any other characteristics of that class and any limitations on the payments
to be made to each class of certificates. See "Description of the
Certificates" in this prospectus.
Distributions to the Certificateholders
Principal and interest will be paid on a distribution date which may occur
monthly or on other scheduled dates over the life of the certificates. The
distribution date or dates for each will be described in the related prospectus
supplement.
Interest
Each certificate of a series will be entitled to receive payments of interest to
the extent described in the accompanying prospectus supplement. If a series of
certificates consists of more than one class, each class may differ in, among
other things:
o priority in receiving interest payments;
o payment dates;
o interest rates; or
o methods for computing interest.
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Each class of certificates may have a fixed or variable interest rate. Some
classes may not be entitled to receive any distributions of interest. Some
classes may not be entitled to distributions of interest until after the
occurrence of specific events, such as the retirement of one or more other
classes of certificates. The interest that is accrued on these certificates will
either be added to their certificate balance or otherwise deferred as described
in your prospectus supplement. Distributions of interest on some classes may be
reduced to the extent of delinquencies, losses or other contingencies described
in this prospectus and in your prospectus supplement. See "Risk Factors--Each
Class of Certificates Will Have Different Yield and Prepayment Considerations,"
"Yield and Maturity Considerations--Shortfalls in Collections of Interest" and
"Description of the Certificates--Distributions of Interest on the Certificates"
in this prospectus.
Principal
Each certificate of a series will be entitled to receive payments of principal
as described in your prospectus supplement. If a series of certificates consists
of more than one class, each class may differ in, among other things:
o its priority of principal payments;
o periods during which certificateholders receive principal payments;
o the amount of scheduled principal it is entitled to receive on each payment
date; or
o the amount of prepayments it is entitled to receive on each payment date.
Not all certificates will receive principal on each distribution date and some
classes may not be entitled to receive any distributions of principal.
Credit Support and Cash Flow
Agreements
One or more classes of certificates in a series may be protected in part by some
form of credit support.
The accompanying prospectus supplement will provide the following information:
o whether credit support covers any classes of certificates;
o the type, amount and extent of coverage;
o the identity of any entity providing the coverage; and
o the terms of any subordination.
Any credit enhancement will be limited and certificateholders will bear any
losses allocated after the credit enhancement coverage for a particular class is
depleted.
See "Risk Factors--Credit Support Is Limited," "Mortgage Loans--Credit Support"
and "--Cash Flow Agreements" in this prospectus.
Ratings
At issuance, each class of offered certificates will be rated not lower than
investment grade by one or more nationally recognized statistical rating
agencies. See "Rating" in this prospectus and in your prospectus supplement.
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Risk Factors
You should consider the following risk factors in addition to the risk
factors in the prospectus supplement in deciding whether to purchase any of the
certificates.
It may not be possible to
find an investor to
purchase your
certificates The underwriters may assist in resales
of certificates, but they are not
required to do so. A secondary market
for your certificates may not develop.
If a secondary market does develop, it
might not continue or it might not be
sufficiently liquid to allow you to
resell any of your certificates.
Illiquidity also could have an adverse
effect on the market value of your
certificates. The related prospectus
supplement will state whether the
certificates will be listed on any
securities exchange.
The certificates will only
be paid from trust assets The certificates will represent
interests only in the trust established
for that series. The certificates will
not represent an obligation of the
depositor, GMAC Commercial Mortgage
Corporation or any of their affiliates.
Payments on the mortgage assets included
in the trust and any credit support will
be the only source of payments to you.
If those amounts are insufficient to
make required payments of interest or
principal or both to you, there is no
other source of payments. As a result,
payments to you may be reduced or
delayed and you may experience losses on
your certificates.
The certificates are not
guaranteed OSC supplement, no governmental agency
or any other person guarantees or
insures payments on the certificates of
a particular series or any of the
underlying mortgage assets. The
depositor, the mortgage loan seller(s),
the master servicer and the special
servicer will have limited obligations
and will not be obligated to make
payments on the certificates. See "The
certificates will only be paid from
trust assets" above.
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Investment in commercial
and multifamily mortgage
loans is riskier than
investment in single-
family mortgage loans Each trust generally will consist of a
smaller number of higher balance loans
than would a pool of single- family
loans of comparable aggregate unpaid
than principal balance. Accordingly, the
concentration of default, foreclosure
and loss risks in individual mortgage
loans in a particular trust generally
will be greater than for pools of
single-family loans. A description of
material considerations associated with
investments in mortgage loans is
included in this prospectus under "Legal
Aspects of Mortgage Loans."
See also "Description of the
Trust--Mortgage Loans--Default and Loss
Considerations for the Mortgage Loans"
in this prospectus.
In contrast to single-family loans, the
ability of a borrower to repay a loan
secured by an income-producing property
typically depends mainly on the
operating income produced by that
property, not on the independent income
or assets of the borrower. If the net
operating income of the property is
reduced, the borrower's ability to repay
the loan may be impaired and losses may
be realized on the mortgage loans. As a
result, 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, delinquency
and foreclosure than loans made on the
security of owner-occupied single-family
residential property.
Your investment in the certificates will
subject you to the risks of owning an
interest in commercial and multifamily
real estate. Your investment in the
mortgage assets may be adversely
affected by factors that affect the
value of interests in real property and
of loans secured by those interests
including:
o changes in general or local
economic conditions or specific
industry segments;
o declines in real estate values;
o declines in rental or occupancy
rates;
o increases in interest rates, real
estate tax rates and other
operating expenses;
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<PAGE>
o changes in governmental rules,
regulations and fiscal policies,
including environmental
legislation; and
o natural disasters and civil
disturbances such as earthquakes,
hurricanes, floods, eruptions or
riots.
Factors that adversely affect the
mortgage assets for a particular series
may cause the rates of delinquencies,
foreclosures and losses on those
mortgage assets to be higher than would
otherwise be the case. To the extent
your certificates are not covered by
credit support, you will bear all of the
risks resulting from defaults by
borrowers.
Modifications to
mortgage loans or
extensions of the
maturity date agreed to
by the servicer may not
ultimately increase the
present value of proceeds
to certificateholders To maximize recoveries on defaulted
mortgage loans, the master servicer or a
special servicer may, under certain
limited circumstances, extend the
maturity date of and otherwise modify
mortgage loans that are in default or as
to which a payment default is reasonably
foreseeable. See "The Pooling and
Servicing Agreements--Realization upon
Defaulted Mortgage Loans" in this
prospectus. There is no guarantee,
however, that an extension or
modification will in fact increase the
present value of receipts from, or
proceeds of, the affected mortgage
loans.
See "Description of the Mortgage Pool"
in the accompanying prospectus
supplement for a description of these or
other types of special risk loans in the
mortgage asset pool applicable to your
certificates.
Credit support is limited The prospectus supplement for your
series of certificates may specify that
credit support will provide protection
against losses on the underlying
mortgage assets up to specified amounts
and for the benefit of specified classes
of certificates. If any losses are
incurred on the mortgage loans that are
not covered by the credit enhancement
for your class of certificates, you will
bear the risk of these losses. See
"Credit Support" in your prospectus
supplement for a description of any
forms of credit support that apply to
your certificates.
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<PAGE>
Although credit support is intended to
reduce the likelihood of temporary
shortfalls on the certificates, you
should be aware that:
o The amount of coverage usually is
limited.
o The amount of coverage usually will
be reduced over time according to a
schedule or formula.
o Credit support may not cover all
potential losses on the mortgage
loans. For example, credit support
may not cover loss by reason of
fraud or negligence by a mortgage
loan originator or other parties.
o Credit support may provide coverage
only to some certificates and not
other certificates of the same
series. If principal payments on
one or more classes are made in a
specified order of priority, any
related credit support may be
exhausted before the principal of
the later paid classes has been
repaid in full. As a result, losses
and shortfalls experienced on the
mortgage assets may have a greater
impact upon those classes having a
later right of payment.
o If the applicable rating agencies
believe that the rating on the
certificates will not be adversely
affected, credit support may be
reduced or terminated without the
consent of certificateholders.
o The loss experience on the related
mortgage assets underlying your
certificates may exceed the levels
of losses covered by the amount of
credit support for your
certificates. If this happens, you
will bear the losses on the
mortgage assets in excess of
available credit support for your
class. See "Description of the
Certificates--Allocation of Losses
and Shortfalls" and "Description of
Credit Support" in this prospectus.
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<PAGE>
The price you paid for your certificates
and the rate of principal payments on
the mortgage assets in the applicable
trust will affect the yield to maturity
of your certificates. The rate of
principal payments depends on scheduled
payments of interest and principal, the
rate of prepayments, liquidations due to
defaults and repurchases. If the rate of
prepayments on the mortgage assets
related to your certificates is higher
or lower than you anticipated, the yield
to maturity on your certificates may be
adversely affected. The yield on some
types of certificates is more sensitive
to variations in prepayments than
Each class of certificates others. For example, certificates that
will have different yield receive only payments of interest are
and prepayment especially sensitive to variations in
considerations the rate of prepayments. If the rate of
prepayments is high, or if a redemption
or call feature of the certificates or
the underlying mortgage assets occurs,
the holders of these certificates may
not fully recover their initial
investment. In addition, the following
types of certificates also may be
particularly sensitive to the rate of
prepayment on the related mortgage
assets:
o classes that receive distributions
of interest or principal commencing
only after the occurrence of
specific events;
o classes that are only entitled to
receive distributions of interest
accrued on a notional principal
balance;
o classes that are entitled to
receive disproportionately small or
no interest distributions;
o certificates with a pass-through
rate that fluctuates inversely with
an index; or
o classes of a series that includes
multiple classes of certificates.
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<PAGE>
The rate of principal payments on groups
of mortgage loans varies within and
among pools. Principal payments are
influenced by economic, demographic,
geographic, social, tax, legal and other
factors, including prevailing mortgage
market interest rates and the particular
terms of the mortgage loans, such as
provisions that prohibit voluntary
prepayments during specified periods or
impose penalties on voluntary
prepayments. There is no guarantee as to
the actual rate of prepayment on the
mortgage assets in any trust, or that
the rate of prepayment will conform to
any model described in this prospectus
or in any prospectus supplement. See
"Yield and Maturity Considerations: in
this prospectus. See also "Risk Factors"
and "Yield and Maturity Considerations"
in your prospectus supplement for more
information concerning the prepayment
risks applicable to your certificates.
Assignments of leases
and rents may affect
payments to
certificateholders If a mortgaged property is subject to
leases, the related mortgage loan
typically will be secured by an
assignment of leases and rents. Under
this assignment, the borrower assigns
its right under the leases to the lender
and upon default, the lender is entitled
to collect rents.
Some state laws may require the lender
to take possession of the mortgaged
property and obtain a judicial
appointment of a receiver before the
lender is entitled to collect rents. The
lender's ability to collect rents also
may be adversely affected if bankruptcy
or similar proceedings are commenced by
or against a borrower. If a lender is
prevented or delayed in collecting
rents, payments on your certificates may
be reduced or delayed. See "Legal
Aspects of Mortgage Loans--Leases
and Rents" in this prospectus.
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<PAGE>
Environmental
conditions
may subject the
mortgaged property to
liens or impose costs on
the property owner Real property pledged as security for a
mortgage loan may be subject to
environmental risks. Under some state
laws, contamination of real property may
give rise to a lien on the property to
assure the costs of cleanup. In several
states, that lien has priority over an
existing mortgage lien on the property.
In addition, under the laws of some
states and under the federal
Comprehensive Environmental Response,
Compensation and Liability Act of 1980,
a lender, either before or after
foreclosure of the mortgage, may be
liable, as an "owner" or "operator," for
costs of addressing releases or
threatened releases of hazardous
substances at a property. This liability
may exist if agents or employees of the
lender have become sufficiently involved
in the operations of the borrower. This
liability may exist regardless of
whether the environmental damage or
threat was caused by the borrower or a
prior owner.
You can find a Glossary where capitalized terms used in this prospectus are
defined beginning on page [ ] in this prospectus.
Description of the Trust
Each series of certificates will represent in the aggregate the entire
beneficial ownership interest in a trust to be formed by the depositor. The
primary assets of each trust will be mortgage loans or a combination of mortgage
loans and mortgage-backed securities or MBS. Each mortgage asset will be
selected by the depositor for inclusion in a trust from among those purchased,
either directly or indirectly, from a mortgage asset seller. The mortgage asset
seller may or may not be the originator of that mortgage loan or the issuer of
that MBS. The discussion below under the heading "--mortgage loans," unless
otherwise noted, applies equally to mortgage loans underlying any MBS included
in a particular trust.
Mortgage Loans
The mortgage loans will be evidenced by promissory notes secured by
mortgages, deeds of trust or similar security instruments that create first or
junior liens on fee or leasehold estates in properties consisting of:
o multifamily properties that are 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, or
o commercial properties that are 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 other types of income-producing properties or
unimproved land.
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<PAGE>
The multifamily properties may include mixed commercial and residential
structures and apartment buildings owned by private cooperative housing
corporations. Each mortgage will create a 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 the term of any leasehold will exceed the term of the
mortgage note by the period specified in the related prospectus supplement. The
originator of any mortgage loan may be the depositor, GMAC Commercial Mortgage
Corporation, another affiliate of the depositor, an affiliate of the underwriter
or an unrelated party.
Mortgage assets for a series of certificates may include mortgage loans
secured by junior liens. The loans secured by the related senior liens may not
be included in the mortgage pool. The primary risk to holders of mortgage loans
secured by junior liens is the possibility that adequate funds will not be
received in connection with a foreclosure of the related senior liens to satisfy
fully both the senior liens and the mortgage loan.
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 the certificates are issued. The related
prospectus supplement will include as to each delinquent or non-performing
mortgage loan,
o available information as to the period of the delinquency or non-
performance;
o any forbearance arrangement then in effect;
o the condition of the related mortgaged property; and
o the ability of the mortgaged property to generate income to service
the mortgage debt.
Default and Loss Considerations for the Mortgage Loans
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 the loan.
Annual debt service means for any mortgage loan, 12 times the monthly
payment in effect as of the cut-off date or, for any mortgage loans that pay
interest only for a period of time, 12 times the monthly payment in effect at
the end of the interest only period.
The Underwritten Cash Flow of a mortgaged property will fluctuate over time
and may or may not be sufficient to cover debt service on the 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 for 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 or area economy or both. In addition, properties
typically leased, occupied or used on a short-term basis, such as some 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
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<PAGE>
buildings and industrial plants. Commercial properties may be owner-occupied or
leased to a small number of tenants. As a result, the Underwritten Cash Flow of
a commercial property may depend substantially on the financial condition of the
borrower or a tenant, and mortgage loans secured by liens on those 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 to changes in governmental rules, regulations and fiscal
policies, may also affect the likelihood of default on a mortgage loan. In some
cases leases of mortgaged properties may provide that the lessee, rather than
the borrower/landlord, is responsible for payment of operating expenses.
However, the existence of 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 more specifically described 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 the loan. The lower
the Loan-to-value Ratio, the greater the borrower's equity in a mortgaged
property, and the greater the incentive of the borrower to perform under the
terms of the related mortgage loan to protect its equity and 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
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 typically based on:
o the market comparison method based on recent resale values of
comparable properties at the date of the appraisal;
o the cost replacement method based on the cost of replacing the
property at that date;
o the income capitalization method based on a projection of value of the
property's projected net cash flow; or
o a selection from or interpolation of the values derived from these
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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<PAGE>
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 also be
affected and a liquidation loss may occur.
While the depositor believes that the considerations described above are
important factors in assessing credit risk on loans secured by liens on
income-producing real estate, there can be no assurance that all of these
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 Is Subject to Risks" and "--Balloon Payments; Borrower Default."
Payment Provisions of the Mortgage Loans
To the extent specified in the related prospectus supplement, all of the
mortgage loans will have had original terms to maturity of not more than 40
years and provide for scheduled payments of principal, interest or both, to be
made on specified due dates that occur monthly, quarterly, semi-annually or
annually.
A mortgage loan:
o may provide for no accrual of interest or for accrual of interest at a
mortgage rate that is fixed over its term, 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,
o 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 specific events, and may permit negative amortization,
o may be fully amortizing or may be partially amortizing or non-amortizing,
with a balloon payment due on its stated maturity date, and
o may prohibit prepayments over its term or for a specified lock-out period
which ends on a lock-out date or may require payment of a prepayment
premium consisting of a premium or a yield maintenance penalty in
connection with prepayments, or both, in each case as described in the
related prospectus supplement.
A mortgage loan may also contain an equity participation provision that
entitles the lender to a share of appreciation in value of the related mortgaged
property, or profits realized from the operation or disposition of the mortgaged
property or the benefit, if any, resulting from the refinancing of the mortgage
loan.
Mortgage Loan Information in Prospectus Supplements
Each prospectus supplement will contain information about the mortgage
loans in the related trust, which may include the following:
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<PAGE>
o the aggregate outstanding principal balance and the largest, smallest and
average outstanding principal balance of the mortgage loans,
o the type or types of property that provide security for repayment of the
mortgage loans,
o the earliest and latest origination date and maturity date of the mortgage
loans,
o the original and remaining terms to maturity of the mortgage loans, or
ranges of assigned and remaining terms to maturity, and the weighted
average original and remaining terms to maturity of the mortgage loans,
o the Loan-to-value Ratios of the mortgage loans either at origination or as
of a more recent date, or the range of Loan-to-value Ratios, and the
weighted average of the Loan-to-value Ratios,
o the mortgage rates borne by the mortgage loans, or range of mortgage rates,
and the weighted average mortgage rate borne by the mortgage loans,
o for mortgage loans with adjustable mortgage rates or ARM loans, the index
or indices upon which the 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 mortgage loan,
o information regarding the payment characteristics of the mortgage loans,
such as balloon payment and other amortization provisions, lock-out periods
and prepayment premiums,
o the Debt Service Coverage Ratios of the mortgage loans either at
origination or as of a more recent date, or the range of Debt Service
Coverage Ratios, and the weighted average of the Debt Service Coverage
Ratios,
o the geographic distribution of the mortgaged properties on a state-by-state
basis, and
o information describing material provisions of leases and the nature of
tenants of the mortgaged properties.
If the depositor is unable to provide the specific information described
above at the time offered certificates of a series are initially offered, more
general information of the nature described above will be provided in the
related prospectus supplement. Specific information will be provided in a report
which will be available to purchasers of those certificates at or before their
initial issuance and prior to sales of the offered certificates and will be
filed as part of a Current Report on Form 8-K with the SEC within fifteen days
following the issuance.
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MBS
MBS may include:
o private-label mortgage participations, mortgage pass-through certificates
or other mortgage-backed securities that are not guaranteed or insured by
the United States or any agency or instrumentality of the United States; or
o certificates insured or guaranteed by the Federal Home Loan Mortgage
Corporation or FHLMC, the Federal National Mortgage Association or the
Governmental National Mortgage Association or the Federal Agricultural
Mortgage Corporation. To the extent described 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 in this prospectus.
Any MBS will have been issued under an MBS agreement consisting of a
participation and servicing agreement, a pooling and servicing agreement, an
indenture or similar agreement. Either or both of the issuer of the MBS and the
servicer of the underlying mortgage loans will have entered into the MBS
agreement, with a 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 in this prospectus.
Distributions on 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 specified 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 for the MBS. The type, characteristics and amount of credit
support, if any, will be a function of the characteristics of the underlying
mortgage loans and other factors and usually will have been established on the
basis of the requirements of any nationally recognized statistical 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,
o the aggregate approximate initial and outstanding principal amount and type
of the MBS to be included in the trust,
o the original and remaining term to stated maturity of the MBS, if
applicable,
o the pass-through or bond rate of the MBS or the formula for determining
those rates,
o the payment characteristics of the MBS,
o the MBS issuer, MBS servicer and MBS trustee, as applicable,
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<PAGE>
o a description of the credit support, if any,
o the circumstances under which the related underlying mortgage loans, or the
MBS themselves, may be purchased before their maturity,
o the terms on which mortgage loans may be substituted for those originally
underlying the MBS,
o the type of mortgage loans underlying the MBS and, to the extent available
to the depositor and appropriate under the circumstances, other information
about the underlying mortgage loans described under "-Mortgage
Loans-Mortgage Loan Information in Prospectus Supplements," and
o the characteristics of any cash flow agreements that relate to the MBS.
Certificate Accounts
Each trust will include one or more certificate accounts established and
maintained on behalf of the certificateholders, All payments and collections
received or advanced or the mortgage assets and other assets in the trust will
be deposited into the certificate account(s) to the extent described in this
prospectus and in the related prospectus supplement. See "The Pooling and
Servicing Agreements-Certificate Account."
Cash Flow Agreements
If so provided in the prospectus supplement for a series of certificates,
the related trust will include guaranteed investment contracts under which
moneys held in the funds and accounts established for the series will be
invested at a specified rate. The trust may also include 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 cash flow agreement, including 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
The yield on any certificate offered hereby will depend on the price paid
by the holder, the pass-through rate of interest at which the certificate
accrues interest and the amount and timing of distributions on the certificate.
See "Risk Factors-Each Class of Certificates Will Have Different Yield and
Prepayment Considerations." The following discussion contemplates a trust that
consists solely of mortgage loans. While the characteristics and behavior of
mortgage loans underlying an MBS can be expected to have the same effect on the
yield to maturity and 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 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.
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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. The prospectus
supplement for any series of certificates will specify the pass-through rate for
each class of offered certificates of the 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, as well as the effect, if any, of the
prepayment of any mortgage loan on the pass-through rate of one or more classes
of offered certificates.
The prospectus supplement will also indicate 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 any cash flow agreement
consisting of:
o guaranteed investment contracts under which moneys held in the funds
and accounts established for the related series will be invested at a
specified rate; or
o 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 fluctuation on the mortgage assets or on
one or more classes of certificates.
Purchase Price Consideration
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
are in turn distributed on those certificates or, in the case of a class of
stripped interest certificates, result in the reduction of the notional amount
thereof. You 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 could result in an actual
yield to you that is lower than the anticipated yield. You should also consider,
in the case of any offered certificate purchased at a premium, the risk that a
faster than anticipated rate of principal payments on those mortgage loans could
result in an actual yield to you that is lower than the anticipated yield. In
addition, if you purchase an offered certificate at a discount or premium, and
principal payments are made in reduction of the principal balance or notional
amount of your offered certificates at a rate slower or faster than the rate you
anticipated during any particular period, the consequent adverse effects on your
yield would not be fully offset by a subsequent like increase or decrease in the
rate of principal payments.
Payment Delays
For each series of certificates, a period of time will elapse between the
date upon which payments on the mortgage loans in the related trust are due and
the distribution date on which the payments are passed through to
certificateholders. That delay will effectively reduce the yield that would
otherwise be produced if payments on the mortgage loans were distributed to
certificateholders on the date they were due.
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Shortfalls in Collections of Interest
When a principal prepayment in full or in part is made on a mortgage loan,
the borrower is typically charged interest on the amount of the prepayment only
through the date of the prepayment, instead of through the due date for the next
succeeding scheduled payment. However, interest accrued and distributable on any
series of certificates on any distribution date will typically correspond to
interest accrued on the mortgage loans to their respective due dates during the
related due period. As more specifically described in the prospectus supplement
for a series of certificates, a due period will be a specified time period
running from a specified day of one month to the immediately preceding day of
the next month, inclusive. All scheduled payments on the mortgage loans in the
related trust that are due during a given due period will, to the extent
received by a specified date called the determination date or otherwise advanced
by the related master servicer or other specified person, be distributed to the
holders of the certificates of the series on the next distribution date.
Consequently, if a prepayment on any mortgage loan is distributable to
certificateholders on a particular distribution date, but the prepayment is not
accompanied by interest thereon to the due date for that mortgage loan in the
related due period, then the interest charged to the borrower net of servicing
and administrative fees may be less than the corresponding amount of interest
accrued and otherwise payable on the certificates of the related series. To the
extent that any prepayment interest shortfall is allocated to a class of offered
certificates, the yield on that class will be adversely affected. The prospectus
supplement for each series of certificates will describe the manner in which any
shortfalls will be allocated among the classes of certificates of that series.
The related prospectus supplement will also describe any amounts available to
offset shortfalls.
The Effects of Prepayments on Yield
A certificate's yield to maturity will be affected by the rate of principal
payments on the mortgage loans in the related trust and the allocation of those
payments to reduce the principal balance or notional amount, if applicable, of
the certificate. The rate of principal payments on the mortgage loans in any
trust will be affected by the amortization schedules thereof. In the case of ARM
loans, amortization schedules may change periodically to accommodate adjustments
to the mortgage rates of those loans, the dates on which any balloon payments
are due, and the rate of principal prepayments. Because the rate of principal
prepayments on the mortgage loans in any trust will depend on future events and
a variety of factors, no assurance can be given as to that rate.
Principal prepayments include:
o voluntary prepayments by borrowers;
o prepayments resulting from liquidations of mortgage loans due to defaults,
casualties or condemnations affecting the mortgaged properties; and
o purchases of mortgage loans out of the related trust.
A lower than anticipated rate of principal prepayments on the mortgage
loans in the related trust will negatively affect the yield to investors in any
class of certificates that are stripped principal certificates. A higher than
anticipated rate of principal prepayments on those mortgage loans will
negatively affect the yield to investors in any class of certificates that are
stripped interest certificates. In general, the notional amount of a class of
stripped interest certificates will either be based on the principal balances of
some or all of the mortgage assets in the related trust or equal the initial
stated principal amounts or certificate balance of one or more of the other
classes of certificates of the same series. If
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the offered certificates of a series include any stripped interest certificates,
the related prospectus supplement will include a table showing the effect of
various constant assumed levels of prepayment on yields on those certificates.
The purpose of the tables are to illustrate the sensitivity of yields to various
constant assumed prepayment rates and are not intended to predict, or to provide
information that will enable you to predict, yields or prepayment rates.
The depositor is not aware of any publicly available or authoritative
statistics that relate 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 may be affected by a number of
factors, including:
o the availability of mortgage credit,
o the relative economic vitality of the area in which the mortgaged
properties are located,
o the quality of management of the mortgaged properties,
o the servicing of the mortgage loans,
o possible changes in tax laws, and
o other opportunities for investment.
In addition, the rate of principal payments on the mortgage loans in any
trust may be affected by
o the existence of lock-out periods;
o requirements that principal prepayments be accompanied by prepayment
premiums; and
o the extent to which those prepayment premium provisions may be
practicably enforced.
To the extent enforceable, prepayment premium 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 the
interest rate specified in the mortgage loan, 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 those ARM loans decline in a manner consistent therewith, the
related borrowers may have an increased incentive to refinance for purposes of
either converting to a fixed rate loan and thereby locking in the rate or 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, some borrowers may sell mortgaged
properties to realize their equity therein, to meet cash flow needs or to make
other investments. In addition, some
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borrowers may be motivated by federal and state tax laws which are subject to
change to sell mortgaged properties before 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, as to the
relative importance of those factors, as to the percentage of the principal
balance of those mortgage loans that will be paid as of any date or as to the
overall rate of prepayment on those mortgage loans.
Weighted Average Life and Maturity
The rate at which principal payments are received on the mortgage loans in
any trust will affect the ultimate maturity and the weighted average life of one
or more classes of the certificates of the series. Unless more specifically
described 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 that 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 is paid to
that class. For this purpose, the term prepayment includes voluntary
prepayments, liquidations due to default and purchases of mortgage loans out of
the related trust. Prepayment rates on loans are commonly measured relative to a
prepayment standard or model, such as the Constant Prepayment Rate or CPR
prepayment model or the Standard Prepayment Assumption or 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 those loans. SPA represents an assumed variable rate of
prepayment each month expressed as an annual percentage of 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 those 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. As a result, it is unlikely that the prepayment
experience of the mortgage loans included in any trust will conform to any
particular level of CPR or SPA.
The prospectus supplement for each series of certificates will contain
tables, if applicable, specifying the projected weighted average life of each
class of offered certificates of that series and the percentage of the initial
certificate balance of each class that would be outstanding on specified
distribution dates based on the assumptions stated in the prospectus supplement.
The assumptions will include assumptions that prepayments on the related
mortgage loans are made at rates corresponding to various percentages of CPR or
SPA, or at other rates specified in that prospectus supplement. The 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.
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Other Factors Affecting Yield, Weighted Average Life and Maturity
Balloon Payments; Extensions of Maturity.
Some or all of the mortgage loans included in a trust 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, mortgage loans that require
balloon payments may default at maturity, or the maturity of 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. To minimize
losses on defaulted mortgage loans, the master servicer or a special servicer,
to the extent and under the circumstances set forth in this prospectus 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 those certificates and, if those
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 on the loan 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. A 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 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 is allocated among
the respective classes of certificates of the related series. The portion of any
mortgage loan negative amortization allocated to a class of certificates may
result in a deferral of some or all of the interest payable thereon, which
deferred interest may be added to the certificate balance thereof. Accordingly,
the weighted average lives of mortgage loans that permit negative amortization
and that of the classes of certificates to which any negative amortization would
be allocated or that would bear the effects of a slower rate of amortization on
the mortgage loans may increase as a result of that feature.
Negative amortization also may occur in respect of an ARM loan that:
o limits the amount by which its scheduled payment may adjust in response to
a change in its mortgage rate,
o provides that its scheduled payment will adjust less frequently than its
mortgage rate, or
o provides for constant scheduled payments even if its mortgage rate has been
adjusted.
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Conversely, during a period of declining interest rates, the scheduled
payment on 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
the mortgage loan. Any acceleration in amortization of its principal balance
will shorten the weighted average life of a mortgage loan and, correspondingly,
the weighted average lives of those classes of certificates entitled to a
portion of the principal payments on that mortgage loan.
The extent to which the yield on any offered certificate will be affected
by the inclusion in the related trust of mortgage loans that permit negative
amortization, will depend upon whether that offered certificate was purchased at
a premium or a discount and the extent to which the payment characteristics of
those mortgage loans delay or accelerate the distributions of principal on that
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 for the mortgage loans, including the use of payment plans before
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 on 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 those 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 and the timing of those losses and
shortfalls. The earlier that any loss or shortfall occurs, usually the greater
will be the negative effect on yield for any class of certificates that is
required to bear its effects.
The amount of any losses or shortfalls in collections on the mortgage
assets in any trust, 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, allocations may
be effected by a reduction in the entitlements to interest and certificate
balances of one or more of those classes of certificates, or by establishing a
priority of payments among those classes of certificates or both.
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.
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Additional Certificate Amortization.
In addition to entitling the holders thereof to a specified portion, which
may, during specified periods, range from none to all, of the principal payments
received on the mortgage assets in the related trust, one or more classes of
certificates of any series, including one or more classes of offered
certificates of that series, may provide for distributions of principal from:
o amounts attributable to interest accrued but not currently distributable on
one or more classes of accrual certificates on which distributions of
interest may not commence until the occurrence of specific events, such as
the retirement of one or more other classes of certificates,
o Excess Funds or
o any other amounts described in the related prospectus supplement.
The amortization of any class of certificates out of the sources described
in the preceding paragraph would shorten the weighted average life of those
certificates and, if those certificates were purchased at a premium, reduce the
yield on those certificates. 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 those sources is likely to have
any material effect on the rate at which the certificates are amortized and the
yield to be realized on the certificates.
Optional Early Termination.
If provided in the related prospectus supplement, the master servicer, the
depositor or the holder of the residual interest in a REMIC may at its option
either effect early retirement of a series of certificates through the purchase
of the assets in the related trust or purchase, in whole but not in part, the
certificates specified in the related prospectus supplement. The optional
termination would occur under the circumstances and in the manner described
under "Description of the Certificates-Termination; Retirement of Certificates"
in this prospectus and in the related prospectus supplement. Any early
retirement of a class of offered certificates would shorten their weighted
average life and, if those certificates were purchased at premium, reduce the
yield realized on those certificates.
The Depositor
GMAC Commercial Mortgage Securities, Inc. is a wholly-owned subsidiary of
GMAC Commercial Mortgage Corporation which is an indirect 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) 328-3164. The
depositor does not have, nor is it expected in the future to have, any
significant assets.
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GMAC Commercial Mortgage Corporation
Unless we tell you otherwise in the related prospectus supplement, GMAC
Commercial Mortgage Corporation, an affiliate of GMAC Commercial Mortgage
Corporation and a corporation duly organized and existing under the laws of the
State of California, will act as the master servicer or manager for each series
of certificates.
GMAC Commercial Mortgage Corporation originates mortgage loans through its
own originating network and buys mortgage loans primarily through its branch
network and also from mortgage loan originators or sellers nationwide. GMAC
Commercial Mortgage Corporation services mortgage loans for its own account and
for others. GMAC Commercial Mortgage Corporation's principal executive offices
are located at 650 Dresher Road, Horsham, Pennsylvania 19044. Its telephone
number is (215) 328-4622. GMAC Commercial Mortgage Corporation 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.
Description of the Certificates
Each series of certificates will represent the entire beneficial ownership
interest in the trust created under the related pooling and servicing agreement
or other agreement specified in the related prospectus supplement. Either
agreement is referred to as a pooling and servicing agreement. The certificates
of each series may consist of one or more classes of certificates that:
o provide for the accrual of interest on the certificate balance or notional
amount at a fixed, variable or adjustable rate;
o constitute senior certificates or subordinate certificates;
o constitute stripped interest certificates or stripped principal
certificates;
o provide for distributions of interest or principal that begins only after
the occurrence of specified events, such as the retirement of one or more
other classes of certificates of the series;
o provide for distributions of principal to be made, from time to time or for
designated periods, at a rate that is faster or slower than the rate at
which payments or other collections of principal are received on the
mortgage assets in the related trust;
o provide for distributions of principal to be made, subject to available
funds, based on a specified principal payment schedule or other
methodology; or
o provide for distributions based on collections on the mortgage assets in
the related trust attributable to prepayment premiums and equity
participations.
A class of certificates may have two or more component parts that each have
different characteristics. For example, a class of certificates may have a
certificate balance on which it accrues interest at a fixed, variable or
adjustable rate. The same class of certificates may also have features of a
stripped interest certificate that entitles its holders to
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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 classes of
stripped interest certificates or REMIC residual certificates, notional amounts
or percentage interests, specified in the related prospectus supplement. One or
more classes of offered certificates of any series may be issued as definitive
certificates in fully registered, definitive form or may be offered as
book-entry certificates in book-entry format through the facilities of The
Depository Trust Company or DTC. If issued as definitive certificates, the
offered certificates of each series may be transferred or exchanged 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. Any transfer or exchange of the certificates must comply
with any restrictions on transfer described in the related prospectus
supplement. Interests in a class of book-entry certificates will be transferred
on the book-entry records of DTC and its participating organizations.
Distributions
The trustee will make distributions on the certificates of each series on
each distribution date from the Available Distribution Amount for that series on
that distribution date. The distribution date for a series of certificates will
be a specified day of each month, or, if that day is not a business day, the
next business day, beginning in the month specified in the related prospectus
supplement.
To the extent specified in the related prospectus supplement, distributions
on the certificates of each series, other than the final distribution in
retirement of any certificate, will be made to the persons in whose names the
certificates are registered at the close of business on the record date or last
business day of the month preceding the month in which the applicable
distribution date occurs. All distributions on each class of certificates on
each distribution date will be allocated pro rata among the outstanding
certificates in the class in proportion to the respective percentage interests
evidenced thereby to the extent specified in the related prospectus supplement.
Payments may be made by wire transfer in immediately available funds to the
account of a certificateholder at a bank or other entity having appropriate
facilities, if the certificateholder has provided the person required to make
the payments with wiring instructions no later than the related record date or
another date specified in the related prospectus supplement and the
certificateholder holds certificates in any requisite amount or denomination
specified in the related prospectus supplement. Otherwise, payments will be made
by check mailed to the address of the certificateholder as it appears on the
certificate register. However, 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 the certificates at the
location specified in the notice to certificateholders of the final
distribution.
Distributions of Interest on the Certificates
Each class of certificates of each series, other than stripped principal
certificates that are entitled to distributions of principal, with
disproportionate, nominal or no distributions of interest and other than some
classes of REMIC residual certificates that have no pass-through rate, may have
a different pass-through rate, which in each case may
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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. Interest
on the certificates of each series will be calculated on the basis described in
the related prospectus supplement.
A class of accrual certificates will be entitled to distributions of
accrued interest beginning only on the distribution date, or under the
circumstances, specified in the related prospectus supplement. Some classes of
stripped principal certificates or REMIC residual certificates are not entitled
to any distributions of interest. Distributions of interest on all other classes
of certificates will be made on each distribution date based on the Accrued
Certificate Interest for that class and that distribution date, to the extent of
the portion of the Available Distribution Amount allocable to that class on that
distribution date.
Before the time interest is distributable on any class of accrual
certificates, the amount of Accrued Certificate Interest otherwise distributable
on that class will be added to the certificate balance thereof on each
distribution date or otherwise deferred as described in the related prospectus
supplement.
Stripped interest certificates are entitled to distributions of interest,
with disproportionate, nominal or no distributions or principal. To the extent
described in the related prospectus supplement, the Accrued Certificate Interest
for each distribution date on a class of stripped interest certificates will be
calculated like the Accrued Certificate Interest for other classes except that
it will accrue on a notional amount rather than a certificate balance. The
notional amount is either based on the principal balances of some or all of the
mortgage assets in the related trust or equal to the certificate balances of one
or more other classes of certificates of the same series. Reference to a
notional amount for a class of stripped interest certificates is solely for
convenience in making calculations and does not represent the right to receive
any distributions of principal.
The amount of Accrued Certificate Interest that is otherwise distributable
on, or, in the case of accrual certificates, that may otherwise be added to the
certificate balance of, one or more classes of the certificates of a series may
be reduced to the extent that any prepayment interest shortfalls, as described
under "Yield and Maturity Considerations-Shortfalls in Collections of Interest,"
exceed the amount of any sums that are applied to offset the amount of those
shortfalls. The particular manner in which the 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. These contingencies include delinquencies,
losses and deferred interest on or in respect of the mortgage assets in the
related trust. 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 that
class of a portion of any deferred interest on or in respect of the mortgage
assets in the related trust will result in a corresponding increase in the
certificate balance of that class. See "Risk Factors-Each Class of Certificates
Will Have Different Yield and Prepayment Considerations" and "Yield and Maturity
Considerations-Shortfalls in Collections of Interest."
Distributions of Principal of the Certificates
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Each class of certificates of each series, other than some classes of
stripped interest certificates and some classes of REMIC residual certificates,
will have a certificate balance. The certificate balance for a class, at any
time, will equal the then maximum amount that the holders of certificates of
that 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. The
outstanding certificate balance of a class of certificates will be reduced by
distributions of principal made to that class. If provided in the related
prospectus supplement, the outstanding certificate balance of a class will be
reduced further by any losses incurred on the related mortgage assets allocated
to that class.
The outstanding certificate balance of a class of certificates may be
increased as a result of any deferred interest on or for the related mortgage
assets being allocated to that class. The outstanding certificate balance of
each class of accrual certificates will be increased before the distribution
date on which distributions of interest thereon are required to begin, by the
amount of any Accrued Certificate Interest on that class, as reduced by any
prepayment interest shortfalls.
Except to the extent specified 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 cut-off date, after taking into
account all scheduled payments due on or before that 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. To the
extent described in the related prospectus supplement, distributions of
principal on a series of certificates will be made on each distribution date to
the holders of the class or classes of certificates of that series entitled
thereto until the certificate balances of those certificates have been reduced
to zero. Distributions of principal on one or more classes of certificates may
be made at a rate that is faster than the rate at which payments or other
collections of principal are received on the mortgage assets in the related
trust. Distributions of principal on one or more classes of certificates may not
begin until the occurrence of specific 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 than the rate at which payments or other collections of principal
are received on the mortgage assets in the related trust. Distributions of
principal on one or more controlled amortization classes of certificates may be
made, subject to available funds, based on a specified principal payment
schedule. Distributions of principal on one or more companion classes of
certificates 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
are received. Distributions of principal of any class of offered certificates
will be made on a pro rata basis among all of the certificates of that class or
on another basis specified in the related prospectus supplement.
Allocation of Losses and Shortfalls
The amount of any losses or shortfalls in collections on the mortgage
assets in any trust, to the extent not covered by any credit support, will be
allocated among the respective classes of certificates of the related series in
the priority and manner specified in the related prospectus supplement. The
allocations may be effected by a reduction in the entitlements to interest or
the certificate balances of one or more classes of certificates, or both, or by
establishing a priority of payments among those classes of certificates. See
"Description of Credit Support."
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Advances in Respect of Delinquencies
If provided in the related prospectus supplement and, if a trust includes
mortgage loans, the master servicer, a special servicer, the trustee, the fiscal
agent, if any, any provider of credit support or any other specified person may
be obligated to advance, or have the option of advancing 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 for those mortgage loans
during the related due period and were delinquent on the related determination
date. The person responsible will make advances on or before each distribution
date, from its 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 that distribution 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
to receive those amounts, rather than to guarantee or insure against losses.
Consistent with this principle, all advances made out of an entity's own funds
will be reimbursable out of related proceeds consisting of liquidation proceeds,
insurance proceeds and condemnation proceeds on the mortgage loans on which
payments are delinquent and any credit support or other specific sources that
are identified in the related prospectus supplement. One source, in the case of
a series that includes one or more classes of subordinate certificates, is
collections on other mortgage assets in the related trust that would otherwise
be distributable to the holders of one or more classes of the 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 that person,
the advance would not be recoverable from related proceeds or another
specifically identified source. If previously made by a master servicer, special
servicer, fiscal agent or trustee, a nonrecoverable advance will be reimbursable
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, that
person will be required to replace those funds in the certificate account on any
future distribution date to the extent that funds in the certificate account on
that distribution date are less than payments required to be made to the related
series of certificateholders on that date. 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 surety bond, will be provided in the related prospectus supplement.
If provided in the related prospectus supplement, any entity making
advances will be entitled to receive interest on advances for a specified period
during which the advances are outstanding at the rate specified in the
prospectus supplement. The entity making advances will be entitled to payment of
that interest periodically from general collections on the mortgage loans in the
related trust before any payment to the related series of certificateholders or
as described in the prospectus supplement.
The prospectus supplement for any series of certificates evidencing an
interest in a trust that includes MBS will describe any comparable advancing
obligation of a party to the related pooling and servicing agreement or of a
party to the related MBS agreement.
Reports to Certificateholders
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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 holder, a distribution date statement that will set forth, among other
things, in each case to the extent applicable and to the extent described in the
related prospectus supplement:
o the amount of that distribution to holders of that class of offered
certificates that was applied to reduce the certificate balance thereof;
o the amount of that distribution to holders of that class of offered
certificates that was applied to pay Accrued Certificate Interest;
o the amount, if any, of that distribution to holders of that class of
offered certificates that was allocable to:
o prepayment premiums; and
o payments for equity participations;
o the amount, if any, by which that distribution is less than the amounts to
which holders of that class of offered certificates are entitled;
o if the related trust includes mortgage loans, the aggregate amount of
advances included in that distribution;
o if the related trust includes mortgage loans, the amount of servicing
compensation received by the related master servicer, and, if payable
directly out of the related trust, by any special servicer and any
sub-servicer;
o if the related trust includes MBS, the amount of administrative
compensation received by the REMIC administrator;
o information regarding the aggregate principal balance of the related
mortgage assets on or about that distribution date;
o if the related trust includes mortgage loans, information regarding the
number and aggregate principal balance of those mortgage loans that are
delinquent;
o if the related trust includes mortgage loans, information regarding the
aggregate amount of losses incurred and principal prepayments made on those
mortgage loans during the related Prepayment Period,;
o the certificate balance or notional amount, as the case may be, of that
class of certificates at the close of business on that distribution date--
separately identifying any reduction in the certificate balance or notional
amount due to the allocation of any losses on the related mortgage assets,
any increase in the 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, if Accrued Certificate Interest has been added to
that balance;
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o if that class of offered certificates has a variable pass-through rate or
an adjustable pass-through rate, the pass-through rate applicable thereto
for that distribution date and, if determinable, for the next succeeding
distribution date;
o the amount deposited in or withdrawn from any reserve fund on that
distribution date, and the amount remaining on deposit in that reserve fund
as of the close of business on that distribution date;
o if the related trust includes one or more instruments of credit support,
such as a letter of credit, an insurance policy or a surety bond, the
amount of coverage under each instrument as of the close of business on
that distribution date; and
o the amount of credit support being afforded by any classes of subordinate
certificates.
In the case of information furnished under clauses (1)-(3) 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 that
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 that series a statement
containing the information provided in the first three points above, aggregated
for that calendar year or the applicable portion thereof during which that
person was a certificateholder. This obligation will be deemed to have been
satisfied to the extent that substantially comparable information is provided
under any requirements of the Internal Revenue Code of 1986 as are from time to
time in force. See, however, "--Book-Entry Registration and Definitive
Certificates" below.
If the trust 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 the MBS will depend on the reports received for the 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 under the pooling and servicing
agreement following the earlier of:
o the final payment or other liquidation or disposition, or any advance made
for the last mortgage asset in the trust for that series or of any property
acquired upon foreclosure or deed in lieu of foreclosure of any mortgage
loan in the trust for that series, and
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o the purchase by the master servicer, the depositor or, if specified in the
related prospectus supplement, by the holder of the REMIC residual
certificates from the trust for that series of all remaining mortgage
assets therein and property, if any, acquired in respect of the mortgage
loans therein. See "Federal Income Tax Consequences" below .
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 provided in the
related prospectus supplement. Upon the purchase of those certificates or at any
time thereafter, at the option of the master servicer or the depositor, the
mortgage assets may be sold, the certificates retired and the trust terminated,
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 the persons named in
the pooling and servicing agreement. 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 any special servicer because of the
termination.
Any purchase of mortgage assets and other property will 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. Before the right to purchase can be exercised, however, the
aggregate principal balance of the mortgage assets for that series must be less
than the percentage specified in the related prospectus supplement of the
aggregate principal balance of the mortgage assets at the cut-off date for that
series. The prospectus supplement for each series of certificates will describe
the amounts that the holders of those certificates will be entitled to receive
upon early retirement. Early termination may adversely affect the yield to
holders of some classes of certificates. If a REMIC election has been made, the
termination of the related trust 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 the series will be offered in
book-entry format through the facilities of DTC, and each class so offered 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 under the provisions of Section 17A of the Exchange Act. DTC was
created to hold securities for its participating organizations 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," maintain accounts with DTC and include securities brokers and
dealers, banks, trust companies and clearing corporations and 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 other indirect participants, such as banks,
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brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a direct participant, either directly or indirectly. The rules
applicable to DTC and its participants are on file with the SEC.
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 or 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 those
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 if
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 the 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 that date.
Disbursement of distributions by participants to certificate owners will be
governed by standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered in
"street name", and will be the responsibility of each participant, and not of
DTC, the depositor or any trustee or master servicer, consistent with 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 the 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.
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Because DTC can act only on behalf of participants, who in turn act on
behalf of indirect participants and 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 that interest.
If provided 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:
o the depositor advises the trustee in writing that DTC is no longer willing
or able to discharge properly its responsibilities as depository for those
certificates and the depositor is unable to locate a qualified successor or
o the depositor, at its option, elects to terminate the book-entry system
through DTC for those 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 those instructions the definitive certificates to which they are entitled,
and thereafter the holders of those definitive certificates will be recognized
as certificateholders under the related pooling and servicing agreement.
The Pooling and Servicing Agreements
The certificates of each series will be issued under a pooling and
servicing agreement. The parties to a pooling and servicing agreement will
typically 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. A pooling and servicing agreement that relates to a trust 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. An affiliate of the depositor, or the
mortgage asset seller or an affiliate thereof, may perform the functions of a
special servicer, manager or a master servicer called either a servicer or
master servicer. Any party to a pooling and servicing agreement or any affiliate
thereof may own certificates issued under that agreement.
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. The following summaries describe provisions that may appear in a pooling
and servicing agreement under which certificates that evidence interests in
mortgage loans will be issued. The prospectus supplement for a series of
certificates will describe any provision of the related pooling and servicing
agreement that materially differs from the description thereof contained in this
prospectus and, if the related trust includes MBS, will summarize all of the
material provisions of the related pooling and servicing agreement. These
summaries do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, all of the provisions of
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the pooling and servicing agreement for each series of certificates and the
description of those 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 that series addressed to it at
its principal executive offices specified 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, together with, to the extent described in the
related prospectus supplement, all principal and interest to be received on or
for those 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
that 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 for that series. Each mortgage loan will be identified in a
schedule appearing as an exhibit to the related pooling and servicing agreement.
The schedule will include detailed information that pertains to each mortgage
loan included in the related trust, which information will typically include:
o the address of the related mortgaged property and type of property;
o the mortgage rate and, if applicable, the applicable index, gross margin,
adjustment date and any rate cap information;
o the original and remaining term to maturity;
o the original amortization term; and
o the original and outstanding principal balance.
In addition, to the extent provided in the related prospectus supplement,
the depositor will, as to each mortgage loan to be included in a trust, deliver,
or cause to be delivered, to the related trustee or to a custodian appointed by
the trustee:
o the mortgage note endorsed, without recourse, either in blank or to the
order of the trustee or its nominee, the mortgage with evidence of
recording indicated thereon, except for any mortgage not returned from the
public recording office;
o an assignment, which may be a blanket assignment covering mortgages on
mortgaged properties located in the same county if permitted by law, 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 assignment not returned from the public
recording office; and
o if applicable, any riders or modifications to the mortgage note and
mortgage, together with other documents at the times provided in the
related pooling and servicing agreement.
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A trust 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 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, for
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 custodian a true and correct photocopy of the mortgage or
assignment as submitted for recording. The depositor will deliver, or cause to
be delivered to the related trustee or custodian the mortgage or assignment with
evidence of recording after receipt from the public recording office. If the
depositor cannot deliver, for any mortgage loan, the mortgage or any intervening
assignment with evidence of recording concurrently with the execution and
delivery of the related pooling and servicing agreement because the mortgage or
assignment has been lost, the depositor will deliver, or cause to be delivered,
to the related trustee or custodian a true and correct photocopy of that
mortgage or assignment with evidence of recording.
As specified in the related prospectus supplement, assignments of mortgage
to the trustee or its nominee will be recorded in the appropriate public
recording office, except in states where, in the opinion of counsel acceptable
to the trustee, the 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 the 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, and the trustee or custodian
will hold those documents in trust for the benefit of the certificateholders of
that series. Unless we tell you otherwise in the related prospectus supplement,
if any mortgage loan document is found to be missing or defective, and the
omission or defect, as the case may be, materially and adversely affects the
interests of the certificateholders of the related series, the trustee or
custodian will be required to notify the master servicer and the depositor, and
one of them will be required to notify the relevant mortgage asset seller. If
the mortgage asset seller cannot deliver the document or cure the defect within
a specified number of days after receipt of the 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.
If so provided in the prospectus supplement for a series of certificates, a
mortgage asset seller, instead of repurchasing a mortgage loan for which there
is missing or defective loan documentation, will have the option, exercisable
upon specific conditions or within a specified period after initial issuance of
the series of certificates, to replace that mortgage loan with one or more other
mortgage loans. Any replacement of a mortgage loan must comply with standards
that will be described in the 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 when the related prospectus supplement
provides for additional remedies. 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.
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The trustee will be authorized at any time to appoint one or more
custodians under a custodial agreement to hold title to the mortgage loans in
any trust and to maintain possession and review the documents relating to those
mortgage loans as the agent of the trustee. The identity of any custodian to be
appointed on the date of initial issuance of the certificates will be provided
in the related prospectus supplement. Any custodian may be an affiliate of the
depositor or the master servicer.
Representations and Warranties; Repurchases
To the extent provided in the prospectus supplement for a series of
certificates, the depositor will, for each mortgage loan in the related trust,
make or assign, or cause to be made or assigned, representations and warranties
made by a warranting party covering, for example:
o the accuracy of the information for the mortgage loan on the schedule of
mortgage loans appearing as an exhibit to the related pooling and servicing
agreement;
o the enforceability of the related mortgage note and mortgage and the
existence of title insurance insuring the lien priority of the related
mortgage;
o the warranting party's title to the mortgage loan and the authority of the
warranting party to sell the mortgage loan; and
o 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.
If provided in the related prospectus supplement, the master servicer or
the trustee or both will be required to notify promptly any warranting party of
any breach of any representation or warranty made by it in respect of a mortgage
loan that materially and adversely affects the interests of the
certificateholders of the related series. If the warranting party cannot cure
the breach within a specified period following the date on which it was notified
of the breach, then, if provided in the related prospectus supplement, it will
be obligated to repurchase the mortgage loan from the trustee at the applicable
Purchase Price.
If provided in the related prospectus supplement, a warranting party,
instead of repurchasing a mortgage loan for which a breach has occurred, will
have the option to replace the mortgage loan with one or more other mortgage
loans, in accordance with standards that will be described in the prospectus
supplement. This option will be exercisable upon the conditions and within the
time period 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 unless the related
prospectus supplement provides for additional remedies. Unless it is the
warranting party, neither the depositor nor the master servicer will be
obligated to purchase or replace a mortgage loan if a warranting party defaults
on its obligation to do so.
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Representations and warranties may be made in respect of a mortgage loan as
of a date before the date upon which the related series of certificates is
issued, and therefore 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 were made will be specified
in the related prospectus supplement.
Collection and other Servicing Procedures
As more specifically described 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 that mortgage pool. The master servicer will
act for the benefit of the related certificateholders, in accordance with
applicable law and with the terms of the pooling and servicing agreement, the
mortgage loans and any instrument of credit support included in the related
trust. Subject to these servicing obligations, the master servicer will have
full power and authority to do any and all things in connection with the
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 the collection procedures as it would follow for mortgage loans that are
comparable to the mortgage loans and held for its own account. These procedures
must be consistent with the terms of the related pooling and servicing agreement
and not impair recovery under any instrument of credit support included in the
related trust. Consistent with these servicing obligations, the master servicer
will be permitted to waive any prepayment premium, late payment charge or other
charge in connection with any mortgage loan to the extent provided in the
related prospectus supplement.
Under a pooling and servicing agreement, a master servicer or special
servicer will be granted discretion to extend relief to mortgagors whose
payments become delinquent. To the extent provided in the related prospectus
supplement, if a material default occurs or a payment default is reasonably
foreseeable on a mortgage loan, the master servicer or special servicer will be
permitted, subject to any specific limitations provided in the related pooling
and servicing agreement and described in the related prospectus supplement, to
modify, waive or amend any term of the mortgage loan. These modifications,
waivers or amendments may include deferring payments, extending the stated
maturity date or otherwise adjusting the payment schedule. Each modification,
waiver or amendment must be reasonably likely to produce a greater recovery on
the mortgage loan on a present value basis than would liquidation and will not
adversely affect the coverage under any applicable instrument of credit support.
A mortgagor's failure to make required mortgage loan payments may mean that
operating income is insufficient to service the mortgage debt, or may reflect
the diversion of that income from the servicing of the mortgage debt. In
addition, a mortgagor that is unable to make mortgage loan payments may also be
unable to make timely payment of taxes and otherwise to maintain and insure the
related mortgaged property. In general, the master servicer will be required:
o to monitor any mortgage loan that is in default;
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o 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;
o initiate corrective action in cooperation with the mortgagor if cure is
likely;
o inspect the related mortgaged property; and
o take 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 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.
The variation will depend 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 "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 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 the approval will not adversely affect
the security for, or the timely and full collectibility of, the related mortgage
loan. The master servicer will not approve a request if a REMIC election has
been made and the request would, in the opinion of independent counsel, result
in the imposition of a tax on the trust or cause the trust 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 the request will be retained by the master servicer as additional
servicing compensation.
For mortgage loans secured by junior liens on the related mortgaged
properties, to the extent 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. This request for notice
will be filed 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 to foreclose the junior lienholder's equity of
redemption. To the extent provided 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 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:
o has accelerated or intends to accelerate the obligations secured by the
related senior lien;
o has declared or intends to declare a default under the mortgage or the
promissory note secured thereby; or
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o has filed or intends to file an election to have the related mortgaged
property sold or foreclosed,
then, to the extent provided in the related prospectus supplement, the master
servicer will be required to take, on behalf of the related trust, whatever
actions are necessary to protect the interests of the related certificateholders
or to preserve the security of the related mortgage loan or both, subject to the
application of the REMIC provisions.
Unless we tell you otherwise 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 the advance is in the best interests of
the related certificateholders and the master servicer determines the advances
are recoverable out of payments on or proceeds of the related mortgage loan.
The master servicer for any trust, directly or through sub-servicers, will
also be required to perform various other customary functions of a servicer of
mortgage loans, including:
o 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;
o attempting to collect delinquent payments;
o supervising foreclosures;
o negotiating modifications;
o conducting property inspections on a periodic or other basis; managing or
overseeing the management of REO properties or mortgaged properties
acquired on behalf of the trust through foreclosure, deed-in-lieu of
foreclosure or otherwise; and
o maintaining servicing records relating to the mortgage loans.
To the extent provided 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 it services to one or more third-party sub-servicers. To the
extent specified in the related prospectus supplement, the 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. To the extent specified in the related prospectus
supplement, each sub-servicing agreement between a master servicer and a
sub-servicer 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 the removal to be in the best interests of certificateholders.
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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, even
if the master servicer's compensation under the related pooling and servicing
agreement is insufficient to pay those fees. Each sub-servicer will be
reimbursed by the master servicer that retained it for expenditures which it
makes, 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
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 the series. A special servicer
may be entitled to any of the rights, and subject to any of the obligations,
described in this prospectus for 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, provided in the
related prospectus supplement. The master servicer may be appointed the special
servicer.
Certificate Account
For each trust that includes mortgage loans, the master servicer, the
trustee or a special servicer will establish and maintain a certificate account
that will 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 in the account may be invested pending each succeeding distribution
date in permitted investments consisting of 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. To the extent
provided in the related prospectus supplement, any interest or other income
earned on funds in a certificate account will be paid to the related master
servicer, trustee or special servicer, if any, as additional compensation. A
certificate account may be maintained with the related master servicer, special
servicer or mortgage asset seller or with a depository institution that is an
affiliate of any of them or of the depositor if the account complies with
applicable rating agency standards. If permitted by each applicable rating
agency, a certificate account may contain funds relating to more than one series
of mortgage pass-through certificates and other funds representing payments on
mortgage loans owned by the related master servicer or special servicer, or
serviced by either of them on behalf of others.
Deposits.
To the extent described in the related prospectus supplement, the following
payments and collections received or made by the master servicer, the trustee or
any special servicer after 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 that includes mortgage loans. Each deposit will be made within a specified
period following receipt:
(1) all payments of principal, including principal prepayments, on the mortgage
loans;
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(2) all payments of interest on the mortgage loans, including any default
interest collected, in each case net of any portion retained by the master
servicer or any special servicer as its servicing compensation or as
compensation to the trustee;
(3) all insurance proceeds received under any hazard, title or other insurance
policy that provides coverage for a mortgaged property or the related
mortgage loan, other than proceeds applied to the restoration of the
property or released to the related borrower;
(4) all condemnation 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;
(5) any other amounts disposition proceeds received and retained in connection
with the liquidation of defaulted mortgage loans or property acquired by
foreclosure or otherwise;
(6) together with the net operating income, less reasonable reserves for future
expenses, derived from the operation of any mortgaged properties acquired
by the trust through foreclosure or otherwise;
(7) any amounts paid under any instrument or drawn from any fund that
constitutes credit support for the related series of certificates;
(8) any advances made for delinquent scheduled payments of principal and
interest on the mortgage loans;
(9) any amounts paid under any cash flow agreement;
(10) all proceeds of the purchase of any mortgage loan, or REO property 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", together with insurance proceeds, condemnation
proceeds and disposition proceeds, liquidation proceeds;
(11) to the extent that any 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 for the mortgage
loans;
(12) all payments required to be deposited in the certificate account for any
deductible clause in any blanket insurance policy described under "-Hazard
Insurance Policies";
(13) any amount required to be deposited by the master servicer or the trustee
to cover 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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(14) any other amounts required to be deposited in the certificate account as
described in the related prospectus supplement.
Withdrawals.
To the extent described in the related prospectus supplement, a master
servicer, trustee or special servicer may make withdrawals from the certificate
account for a trust that includes mortgage loans for any of the following
purposes:
o to make distributions to the certificateholders on each distribution date;
o to pay the master servicer or a special servicer any servicing fees out of
payments and other collections of interest on the particular mortgage loans
on which those fees were earned;
o to pay costs and expenses incurred by the trust for environmental site
assessments performed for mortgaged properties that constitute security for
defaulted mortgage loans, and for any containment, clean-up or remediation
of hazardous wastes and materials present on those mortgaged properties, as
described under "-Realization Upon Defaulted Mortgage Loans";
o to reimburse the master servicer, the depositor, the trustee, or any of
their respective directors, officers, employees and agents for specified
expenses, costs and liabilities incurred by them, as described under
"-Matters Regarding the Master Servicer and the Depositor" and "-Matters
Regarding the Trustee";
o to the extent described in the related prospectus supplement, to pay the
fees of the trustee and any provider of credit support;
o to the extent described in the related prospectus supplement, to reimburse
prior draws on any form of credit support;
o 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;
o to pay any servicing expenses not otherwise required to be advanced by the
master servicer, a special servicer or any other specified person;
o if one or more elections have been made to treat the trust or designated
portions thereof as a REMIC, to pay any federal, state or local taxes
imposed on the trust or its assets or transactions, as described under
"Federal Income Tax Consequences-REMICs-Prohibited Transactions Tax and
Other Taxes";
o to pay the cost of various opinions of counsel obtained under the related
pooling and servicing agreement for the benefit of certificateholders;
o to make any other withdrawals described in the related prospectus
supplement; and
o to clear and terminate the certificate account upon the termination of the
trust.
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To the extent provided in the related prospectus supplement, withdrawals
from the certificate account can also be made 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
specified unreimbursed servicing expenses incurred by it, for mortgage loans in
the trust and REO properties. This reimbursement is available from amounts that
represent late payments and liquidation proceeds on the particular mortgage
loans or which advances were made, and net income collected on any REO
properties for which the advances were made or the expenses were incurred.
Reimbursements of advances can also be made from amounts drawn under any form of
credit support. If in the judgment of the person making the advance, those
advances or expenses or both will not be recoverable from those amounts, the
reimbursement will be available from amounts collected on other mortgage loans
in the same trust or to the extent described in the related prospectus
supplement, only from that portion of amounts collected on those other mortgage
loans that is otherwise distributable on one or more classes of subordinate
certificates of the related series.
To the extent described in the related prospectus supplement, withdrawals
can also be made to pay the master servicer, a special servicer or any other
specified person interest accrued on these advances and servicing expenses while
they remain outstanding and unreimbursed.
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
o institute foreclosure proceedings,
o exercise any power of sale contained in the related mortgage,
o obtain a deed in lieu of foreclosure, or
o otherwise acquire title to the related mortgaged property, by operation of
law or otherwise.
Except to the extent specified in the related prospectus supplement, unless
the master servicer has previously received a report prepared by a person who
regularly conducts environmental audits, the master servicer may not acquire
title to any mortgaged property or take any other action relating to any
mortgaged property that would cause the trustee, for the benefit of the related
series of certificateholders, or any other specified person to hold title to, to
be a "mortgagee-in-possession" of, or to be an "owner" or an "operator" of the
mortgaged property within the meaning of federal environmental laws. The
environmental report will be an expense of the trust, and the report must
indicate that either:
(1) (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
(2) the master servicer, based solely, as to environmental matters and related
costs, on the information provided in the report, determines that taking
actions as are necessary to bring the mortgaged property into compliance
with applicable environmental laws and regulations and/or taking the
actions contemplated by
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clause (1)(B) above, is reasonably likely to produce a greater recovery,
taking into account the time value of money, than not taking the actions.
See "Legal Aspects of Mortgage Loans-Environmental Considerations."
A pooling and servicing agreement may grant to any or all of the master
servicer, a special servicer, a provider of credit support and the holder or
holders of classes of the related series of certificates a right of first
refusal to purchase from the trust, at a predetermined Purchase Price any
mortgage loan on which a specified number of scheduled payments are delinquent.
The predetermined Purchase Price will be specified on the prospectus supplement
if it is insufficient to fully cover all amounts due on the related mortgage
loan. In addition, to the extent provided in the related prospectus supplement,
the master servicer may offer to sell any defaulted mortgage loan if the master
servicer determines, consistent with its normal servicing procedures, that a
sale would produce a greater recovery, taking into account the time value of
money, than would liquidation of the related mortgaged property. If the master
servicer does not sell the mortgage loan, it will proceed against the related
mortgaged property, subject to the discussion below.
If title to any mortgaged property is acquired by a trust as to which a
REMIC election has been made, the master servicer, on behalf of the trust, will
be required to sell the mortgaged property within three full years after the
taxable year of acquisition or within another period specified in the related
prospectus supplement, unless:
o the IRS grants an extension of time to sell the property or
o the trustee receives an opinion of independent counsel to the effect that
the holding of the property by the trust for longer than that period will
not result in the imposition of a tax on the trust or cause the trust, 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 this and any other tax-related limitations, the master servicer
will generally be required to attempt to sell any REO property on the same terms
and conditions it would if it were the owner. To the extent provided in the
related prospectus supplement, if title to any mortgaged property is acquired by
a trust 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 the property does not result in the
receipt by the trust of any income from non-permitted assets as described in
Code Section 860F(a)(2)(B), and that the trust does not derive any "net income
from foreclosure property" within the meaning of Code Section 860G(c)(2), for
the property. If the trust acquires title to any mortgaged property, the master
servicer, on behalf of the trust, may retain an independent contractor to manage
and operate the property. The retention of an independent contractor, however,
will not relieve the master servicer of its obligation to manage the mortgaged
property as required under the related pooling and servicing agreement.
If liquidation proceeds collected on a defaulted mortgage loan are less
than the outstanding principal balance of the defaulted mortgage loan plus
interest accrued on that mortgage loan plus the aggregate amount of reimbursable
expenses incurred by the master servicer related to that mortgage loan, then the
trust will realize a loss in the amount of the shortfall to the extent that the
shortfall is not covered by any instrument or fund constituting
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credit support. The master servicer will be entitled to reimbursement from the
liquidation proceeds recovered on any defaulted mortgage loan, of any:
o amounts that represent unpaid servicing compensation for the mortgage loan,
o unreimbursed servicing expenses incurred on the mortgage loan, and
o any unreimbursed advances of delinquent payments made on the mortgage loan.
The master servicer will be entitled to receive these reimbursements before
any distributions of liquidation proceeds are made to certificateholders. In
addition, if provided in the related prospectus supplement, amounts otherwise
distributable on the certificates may be further reduced by interest payable to
the master servicer on any servicing expenses and advances.
If any mortgaged property suffers damage and 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
restore the property unless, and to the extent not otherwise provided in the
related prospectus supplement, it determines that:
o the restoration will increase the proceeds to certificateholders on
liquidation of the mortgage loan after reimbursement of the master servicer
for its expenses and
o the expenses will be recoverable by it from related insurance proceeds,
condemnation proceeds, liquidation proceeds or amounts drawn on any
instrument or fund constituting credit support.
Hazard Insurance Policies
Unless we tell you otherwise 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 the coverage as is required under the related
mortgage if the mortgage permits the holder of the mortgage to dictate to the
borrower the insurance coverage to be maintained on the related mortgaged
property, the coverage as is consistent with the master servicer's normal
servicing procedures. The coverage will typically be in an amount equal to the
lesser of the principal balance owing on the mortgage loan and the replacement
cost of the related mortgaged property.
The ability of a master servicer to assure that insurance proceeds are
appropriately applied may be dependent upon its being named as an additional
insured under any insurance policy and upon whether information concerning
covered losses is furnished by borrowers. All amounts collected by a master
servicer under any insurance policy covering the mortgaged property, except for
amounts to be applied to the restoration or repair of the mortgaged property or
released to the borrower consistent with the master servicer's normal servicing
procedures or the terms and conditions of the related mortgage and mortgage
note, will be deposited in the related certificate account.
The pooling and servicing agreement may provide that the master servicer
may satisfy its obligation to cause each borrower to maintain a hazard insurance
policy by maintaining a blanket policy insuring against hazard losses on all of
the mortgage loans in a trust. If the blanket policy contains a deductible
clause, the master servicer will be required,
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if a casualty covered by the blanket policy occurs, to deposit in the related
certificate account all additional sums that would have been deposited in that
account under an individual policy but were not because of the deductible
clause.
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 and different applicable state forms,
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. As a result, a mortgaged property may not be insured for
losses arising from any of these causes unless the related mortgage specifically
requires, or permits the holder thereof to require, that 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 of typically 80% to 90% of
the full replacement value of the improvements on the property to recover the
full amount of any partial loss. If the insured's coverage falls below this
specified percentage, the clauses typically provide that the insurer's liability
if there is a partial loss does not exceed the lesser of:
o the replacement cost of the improvements less physical depreciation; and
o the proportion of the loss that the amount of insurance carried bears to
the specified percentage of the full replacement cost of the improvements.
Due-on-Sale and Due-on-Encumbrance Provisions
Some 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.
Some 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
due-on-sale provision in a manner consistent with the master servicer's normal
servicing procedures. To the extent provided 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 "Legal Aspects of Mortgage
Loans-Due-on-Sale and Due-on-Encumbrance."
Servicing Compensation and Payment of Expenses
As described in the related prospectus supplement, a master servicer's
primary servicing compensation for 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. Because this compensation is based on a
percentage of the principal balance of each mortgage loan outstanding from time
to time, it will decrease with the amortization of the mortgage loans.
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A master servicer's compensation may also include:
o an additional specified portion of the interest payments on each defaulted
mortgage loan serviced by the master servicer;
o a fixed percentage of some or all of the collections and proceeds received
on any defaulted mortgage loan for which it negotiated a work-out or that
it liquidated; and
o any other amounts specified in the related prospectus supplement.
To the extent provided in the related prospectus supplement, the master
servicer may retain, as additional compensation, all or a portion of late
payment charges, prepayment premiums, modification fees and other fees collected
from borrowers and any interest or other income that may be earned on funds held
in the certificate account. Any sub-servicer will receive a portion of the
master servicer's compensation as its sub-servicing compensation.
In addition to amounts payable to any sub-servicer, a master servicer may
be required, to the extent provided in the related prospectus supplement, to pay
from amounts that represent its servicing compensation specified expenses
incurred in the administration of the related trust, including:
o payment of the fees and disbursements of independent accountants,
o payment of fees and disbursements of the trustee and any custodians, and
o payment of expenses incurred related to distributions and delivery of
reports to certificateholders.
Other expenses, including expenses related to mortgage loan defaults and
liquidations and, to the extent so provided in the related prospectus
supplement, interest on these expenses at the rate specified therein, and the
fees of any special servicer, may be borne by the trust.
Servicing advances will be reimbursable from future payments and other
collections, including related proceeds, in any event on or in respect of the
related mortgage loan or REO property. Servicing advances include customary,
reasonable and necessary out-of-pocket costs and expenses incurred by the
servicer or a replacement special servicer as a result of the servicing of a
mortgage loan after a default, delinquency or other unanticipated event or a
mortgage loan on which a default is imminent, or in connection with the
administration of any REO property.
Evidence as to Compliance
Each pooling and servicing agreement will require that on or before a
specified date in each year, beginning the first specified 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 regarding the
servicing of the mortgage loans. The statement will be to the effect that, on
the basis of an examination by that firm conducted substantially in compliance
with the Uniform Single Attestation Program for Mortgage Bankers established by
the Mortgage Bankers Association of America for the servicing of commercial and
multifamily mortgage loans or the Audit Program for Mortgages serviced
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for FHLMC, the servicing of mortgage loans under the agreements, including the
related pooling and servicing agreement, substantially similar to each other was
conducted in compliance with the agreements except for 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 the firm may rely,
regarding 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 that statement, of firms of independent public accountants for those
sub-servicers which also have been the subject of an examination.
Each pooling and servicing agreement will also provide that, on or before a
specified date in each year, beginning the first specified date that is at least
a specified number of months after the cut-off date, the master servicer will
deliver to the trustee a statement regarding its servicing. The statement will
be signed by one or more of its officers and be to the effect that, to the best
knowledge of that officer, the master servicer has fulfilled in all material
respects its obligations under the pooling and servicing agreement throughout
the preceding year. If, however, there has been a material default in the
fulfillment of any of its obligations, the statement will specify each known
default and the nature and status of the default. The statement may be provided
as a single form making the required statements for more than one pooling and
servicing agreement.
If provided 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.
Matters Regarding the Master Servicer and the Depositor
Any master servicer may have other normal business relationships with the
depositor or the depositor's affiliates. To the extent provided in the related
prospectus supplement, the master servicer for that series will not be permitted
to resign from its obligations and duties under the pooling and servicing
agreement unless performance of those duties is no longer permissible under
applicable law or unless there is a permitted transfer of servicing. No
resignation of the master servicer 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.
To the extent provided in the related prospectus supplement, each pooling
and servicing agreement will provide that 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 or the
certificateholders for any action taken or for refraining from taking any action
in good faith under the pooling and servicing agreement, or for errors in
judgment. No person, however, 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
its obligations and duties.
To the extent provided 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 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
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or the related series of certificates, other than any loss, liability or expense
related to any specific mortgage loan or mortgage loans. No person, however,
will be protected against any loss, liability or expense otherwise reimbursable
under the pooling and servicing agreement or 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 obligated 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 that in its
opinion may involve it in any expense or liability. The master servicer or the
depositor may, however, in its discretion, undertake an action that it deems
necessary or desirable for the rights and duties of the parties to the pooling
and servicing agreement and the interests of the certificateholders. The legal
expenses and costs of those actions and any resulting liability will be covered
by the trust, and the master servicer or the depositor, as the case may be, will
be reimbursed out of funds otherwise distributable to certificateholders.
If provided in the related pooling and servicing agreement, 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:
(1) the person is qualified to service mortgage loans on behalf of Federal
National Mortgage Association or FHLMC; and
(2) the 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.
Notwithstanding the prohibition on its resignation, the master servicer may
assign its rights under the pooling and servicing agreement to any person to
whom the master servicer is transferring a substantial portion of its mortgage
servicing portfolio, provided clauses (1) and (2) above are satisfied. The
master servicer will then be released from its obligations under the pooling and
servicing agreement, other than liabilities and obligations incurred by it
before the time of the assignment.
Events of Default
If provided in the related prospectus supplement, events of default under
the pooling and servicing agreement in respect of a series of certificates, will
include:
o 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 the series any
required payment, for 5 or more days after written notice of the failure is
given 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 the class evidencing 25% or more of the aggregate
percentage interests of that class;
o 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 for that
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series of certificates that continues unremedied for 30 days after written
notice of the failure is given 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 the series evidencing 25% or more
of the aggregate percentage interests of that class; and
o specified events of insolvency, readjustment of debt, marshaling of assets
and liabilities or similar proceedings regarding the master servicer and
specified 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 under the terms of any MBS included in any
trust will not constitute an event of default under the related pooling and
servicing agreement.
Rights Upon Event of Default
As 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
51% or more of the aggregate undivided interests, or, if so specified in the
related prospectus supplement, voting rights, in the related trust, the trustee
will, 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 that trust
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 or reimbursement for previously earned
servicing fees and outstanding advances. Then, 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 that
pooling and servicing agreement, other than the obligation to purchase mortgage
loans, and will be entitled to similar compensation arrangements.
If the trustee would be obligated, but is unwilling to succeed the master
servicer, 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 Federal
National Mortgage Association- 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 provided in
the pooling and servicing agreement. Pending the appointment, the trustee is
obligated to act in that capacity. The trustee and the successor may agree upon
the servicing compensation to be paid, which may not 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 under that pooling and servicing agreement
unless:
o the holder previously gave the trustee written notice of default and the
continuance thereof; and
o the holders of certificates of any class evidencing 25% or more of the
aggregate percentage interests constituting that class have :
o made written request upon the trustee to institute that proceeding in
its own name as trustee;
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o offered to the trustee reasonable indemnity; and
o for 60 days after receipt of the request and indemnity, the trustee
has neglected or refused to institute the 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 under or in relation to it at the
request, order or direction of any of the holders of certificates covered by
that pooling and servicing agreement, unless those certificateholders have
offered to the trustee reasonable security or indemnity against the related
costs, expenses and liabilities that may be incurred.
Amendment
Each pooling and servicing agreement may be amended by its parties, without
the consent of any of the certificateholders covered by that pooling and
servicing agreement,
(1) to cure any ambiguity,
(2) to correct or supplement any provision that may be inconsistent with any
other provision in the agreement or to correct any error,
(3) to change the timing, the nature or both, of deposits in the certificate
account, provided that:
o the change would not adversely affect in any material respect the
interests of any certificateholder, as evidenced by an opinion of
counsel; and
o the 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,
(4) if a REMIC election has been made for the related trust, to modify,
eliminate or add to any of its provisions
o to the extent necessary or desirable to maintain the qualification of
the trust as a REMIC or to avoid or minimize the risk of imposition of
any tax on the related trust, provided that the trustee has received
an opinion of counsel to the effect that:
o the action is necessary or desirable to maintain the
qualification or to avoid or minimize that risk, and
o the action will not adversely affect in any material respect the
interests of any certificateholder covered by the pooling and
servicing agreement, or
o to restrict the transfer of the REMIC residual certificates, provided that:
o the depositor has determined that the then-current ratings of the
classes of the certificates that have been rated will not be adversely
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affected, as evidenced by a letter from each applicable rating agency,
and
o that the amendment will not give rise to any tax on the transfer of
the REMIC residual certificates to a non-permitted transferee,
(5) to make any other provisions as to matters or questions arising under the
pooling and servicing agreement or any other change, provided that the
action will not adversely affect in any material respect the interests of
any certificateholder, or
(6) to amend specified provisions that are not material to holders of any class
of offered certificates.
Unless more specifically described in the related prospectus supplement,
the parties to a pooling and servicing agreement may amend it with the consent
of the holders of certificates of each class affected thereby evidencing, in
each case, 66% or more of the aggregate percentage interests constituting that
class. The amendment may be for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of that pooling and
servicing agreement or of modifying in any manner the rights of the
certificateholders covered by that pooling and servicing agreement, except that
the amendment may not:
o reduce in any manner the amount of, or delay the timing of, payments
received on mortgage loans that are required to be distributed on a
certificate of any class without the consent of the holder of that
certificate; or
o reduce the percentage of certificates of any class the holders of
which are required to consent to the amendment without the consent of
the holders of all certificates of that class covered by that pooling
and servicing agreement then outstanding.
Notwithstanding the foregoing, if a REMIC election has been made for the
related trust, 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 the amendment or the exercise of any power granted to
the master servicer, the depositor, the trustee or any other specified person in
accordance with the amendment will not result in the imposition of a tax on the
related trust or cause the trust 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. The
trustee will not be accountable for the use or application by or on behalf of
any master servicer or special servicer of any funds
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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 under the related
pooling and servicing agreement, a trustee will be required to examine those
documents and to determine whether they conform to the requirements of the
agreement.
Matters Regarding the Trustee
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.
Unless more specifically described 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 that 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. Indemnification, however, 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 under the agreement, or by reason of its reckless disregard of those
obligations or duties.
Unless more specifically described 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 its duties under the agreement either directly or by or through
agents or attorneys.
Resignation and Removal of the Trustee
The trustee may resign at any time. The depositor will then be obligated to
appoint a successor trustee. The depositor may also remove the trustee and
appoint a successor trustee if the trustee ceases to be eligible to continue as
trustee under the pooling and servicing agreement or if the trustee becomes
insolvent. The holders of certificates evidencing 51% or more of the aggregate
undivided interests, or, if so specified in the related prospectus supplement,
voting rights, in the related trust may remove the trustee at any time. 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
Credit support may be provided for one or more classes of the certificates
of any series, or for the related mortgage assets. Credit support may be in the
form of:
o a letter of credit,
o the subordination of one or more classes of certificates,
o the use of a pool insurance policy or guarantee insurance,
o the establishment of one or more reserve funds,
o another method of credit support described in the related prospectus
supplement, or
o any combination of these.
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To the extent provided in the related prospectus supplement, any of the
forms of credit support may provide credit enhancement for one or more classes
or series.
Unless more specifically described 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 that 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 the credit
support, it is possible that the holders of offered certificates of one or more
series will be disproportionately benefited by the credit support to the
detriment of the holders of offered certificates of one or more other series.
If credit support is provided for one or more classes of certificates of a
series, or for the related mortgage assets, the related prospectus supplement
will include a description of:
o the nature and amount of coverage under the credit support,
o any conditions to payment thereunder not otherwise described in this
prospectus,
o the conditions, if any, under which the amount of coverage under the credit
support may be reduced and under which the credit support may be terminated
or replaced, and
o the material provisions relating to the credit support.
The related prospectus supplement will provide information regarding the
obligor, if any, under any instrument of credit support. See "Risk
Factors-Credit Support Is Limited."
Subordinate Certificates
One or more classes of certificates of a series may be subordinate to one
or more other classes of certificates in entitlement to distributions on the
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 classes that are senior in entitlement.
If so provided in the related prospectus supplement, the subordination of a
class may apply only if specific types of losses or shortfalls occur. The
related prospectus supplement will provide 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 the subordination
will be available.
If the mortgage assets in any trust 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 before distributions on subordinate certificates evidencing
interests in a different group of mortgage assets within the trust. The
prospectus supplement for a series that includes a cross-support provision will
describe the manner and conditions for applying those provisions.
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Insurance or Guarantees for Mortgage Loans
Mortgage loans included in a trust may be covered for some default risks by
insurance policies or guarantees. The related prospectus supplement will
describe the nature of the default risks and the extent of any coverage.
Letter of Credit
Deficiencies in amounts otherwise payable on certificates in a series or
classes may be covered by one or more letters of credit, issued by a bank or
other financial institution. 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. The letter
of credit may permit draws only if specific types of losses and shortfalls
occur. 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 a series of
certificates will expire at the earlier of the date specified in the related
prospectus supplement or the termination of the trust.
Certificate Insurance and Surety Bonds
Deficiencies in amounts otherwise payable on certificates in a series or
classes may be covered by insurance policies or surety bonds provided by one or
more insurance companies or sureties. Those instruments may cover, for 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 provided 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 instrument.
Reserve Funds
Deficiencies in amounts otherwise payable on certificates in a series or
classes may be covered, to the extent of available funds, by one or more reserve
funds in which cash, a letter of credit, permitted investments, a demand note or
a combination thereof will be deposited, in the amounts specified in the related
prospectus supplement. The reserve fund for a series may also be funded over
time by a specified amount of some 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. Reserve funds may be established to provide protection only against
specific 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.
Amounts deposited in any reserve fund may be invested in permitted
investments. Unless more specifically described in the related prospectus
supplement, any reinvestment income or other gain from those investments will be
credited to the related reserve fund for that series, and any loss resulting
from those investments will be charged to that reserve
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fund. However, the 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 unless we
tell you otherwise in the related prospectus supplement.
Credit Support for MBS
Any MBS included in the related trust or the related underlying mortgage
loans or both may be covered by one or more of the types of credit support
described in this prospectus. The related prospectus supplement will specify, as
to each form of credit support, the information indicated above for each type of
credit support, to the extent that information is material and available.
Legal Aspects of Mortgage Loans
The following discussion contains general summaries of some legal aspects
of loans secured by commercial and multifamily residential properties. Because
these 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
Trusts-Mortgage Loans." For purposes of the following discussion, mortgage loan
includes a mortgage loan underlying an MBS.
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 collectively
referred to as "mortgages" in this prospectus. 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 may depend on:
o the terms of the mortgage,
o the terms of separate subordination agreements or intercreditor agreements
with others that hold interests in the real property,
o the knowledge of the parties to the mortgage, and
o the order of recordation of the mortgage in the appropriate public
recording office.
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
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There are two parties to a mortgage: a mortgagor that is the borrower and
usually the owner of the subject property and a mortgagee that is the lender. In
contrast, a deed of trust is a three-party instrument, among a trustor that is
the equivalent of a borrower, a trustee to whom the real property is conveyed,
and a beneficiary that is 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 typically 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, under which the borrower,
or grantor, conveys title to the real property to the grantee, or lender,
typically with a power of sale, until the debt is repaid. If the borrower is a
land trust, there is 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. The
land trustee is not 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, 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 may be accompanied by a separate assignment
of rents and leases, under 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 or obtain a court-appointed receiver or both before
becoming entitled to collect the rents.
In most states, hotel and motel room rates are considered accounts
receivable under the Uniform Commercial Code; in cases where hotels or motels
constitute loan security, the rates are usually pledged by the borrower as
additional security for the loan. In general, the lender must file financing
statements to perfect its security interest in the room rates and must file
continuation statements, usually every five years, to maintain perfection of the
security interest. Mortgage loans secured by hotels or motels may be included in
a trust 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
usually be required to commence a foreclosure action or otherwise take
possession of the property 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 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. Adequate protection may take the form of 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."
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Personalty
In the case of some 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 usually must file UCC financing
statements to perfect its security interest therein, and must file continuation
statements, usually every five years, to maintain that perfection. Mortgage
loans secured in part by personal property may be included in a trust even if
the security interest in the personal property was not perfected or the
requisite UCC filings were allowed to lapse.
Foreclosure
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 under 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. Typically, 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 typically 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.
Sales are made in accordance with procedures that vary from state to state.
Equitable and Other Limitations on Enforceability of Provisions.
United States courts have traditionally imposed general equitable
principles to limit the remedies available to lenders in foreclosure actions.
These principles are designed to relieve borrowers from the effects of mortgage
defaults perceived as harsh or unfair. Relying on these 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
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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 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 before a foreclosure sale.
Non-Judicial Foreclosure/Power of Sale.
In states permitting non-judicial foreclosure proceedings, foreclosure of a
deed of trust is typically accomplished by a non- judicial trustee's sale under
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 typically 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, before the sale, the trustee under the deed of trust must
record a notice of default and notice of sale and send a copy to the borrower
and to any other party who has recorded a request for a copy of a notice of
default and notice of sale. In addition, in some states the trustee must provide
notice to any other party having an interest of record in the real property,
including junior lienholders. A notice of sale must be posted in a public place
and, in most states, published for a specified period of time in one or more
newspapers. The borrower or junior lienholder may then have the right, during a
reinstatement period required in some states, to cure the default by paying the
entire actual amount in arrears, without regard to the acceleration of the
indebtedness, plus the lender's expenses incurred in enforcing the obligation.
In other states, the borrower or the junior lienholder is not provided a period
to reinstate the loan, but has only the right to pay off the entire debt to
prevent the foreclosure sale. Typically, 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
to preserve its right to seek a deficiency judgment if it is available under
state law and under the terms of the mortgage loan documents. The mortgage
loans, however,
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are expected to be non-recourse. See "Risk Factors-Investment in Commercial and
Multifamily Mortgage Loans Is Subject to Risks".
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 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 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 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 under a deed of trust or foreclosure of a mortgage, the borrower and
foreclosed junior lienors are given a statutory period in which to redeem the
property. In some states, statutory redemption may occur only upon payment of
the foreclosure sale price. In other states, redemption may be permitted if the
former borrower pays only a portion of the sums due. The effect of a statutory
right of redemption is to diminish the ability of the lender to sell the
foreclosed property because the exercise of a right of redemption would defeat
the title of any purchaser through a foreclosure. Consequently, the practical
effect of the redemption right is to force the lender to maintain the property
and pay the expenses of ownership until the redemption period has expired. In
some states, a post-sale statutory right of redemption may exist following a
judicial foreclosure, but not following a trustee's sale under a deed of trust.
Anti-Deficiency Legislation.
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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
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 other states, the lender has the option
of bringing a personal action against the borrower on the debt without first
exhausting that security; however, in some of those states, the lender,
following judgment on the 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 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 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
other protective provisions typically included in a mortgageable ground lease.
Some mortgage loans, however, may be secured by ground leases which do not
contain these provisions.
Cross-Collateralization.
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 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 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
the automatic stay can be significant. Also, under the Bankruptcy Code, the
filing of a
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petition in bankruptcy by or on behalf of a junior lienor may stay the senior
lender from taking action to foreclose out the junior lien.
Under the Bankruptcy Code, if specific 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 some
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, under a confirmed plan or lien
avoidance proceeding, thus leaving the lender a general unsecured creditor for
the difference between that 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 or an alteration of the
repayment schedule or both, with or without affecting the unpaid principal
balance of the loan, 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
arrearage 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 before 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 some states until the lender has taken some further action,
such as commencing foreclosure or obtaining a receiver before 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 the 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 before the filing of the
lessee's petition. In addition, the Bankruptcy Code provides that a trustee or
debtor-in-possession may, subject to approval of the court,
o assume the lease and retain it or assign it to a third party or
o 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. These remedies may be insufficient, and any assurances provided to
the lessor may, in fact, be inadequate. If the
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lease is rejected, the lessor will be treated as an unsecured creditor as 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.
Under federal and most state fraudulent conveyance statutes, a lien granted
by a borrower to secure repayment of another borrower's mortgage loan could be
voided if a court were to determine that:
o the 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 unable to pay its debts as they matured; and
o when it allowed its mortgaged property to be encumbered by a lien securing
the entire indebtedness represented by the other mortgage loan, the
borrower did not receive fair consideration or reasonably equivalent value
in return.
Environmental Considerations
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.
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. 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, that 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 a "superlien."
CERCLA.
The federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980 or CERCLA, imposes strict liability on present and past
"owners" and "operators" of contaminated real property for the costs of
clean-up. A secured lender may be liable as an "owner" or "operator" of a
contaminated mortgaged property if agents or employees of the lender have
participated in the management of the mortgaged property or the operations of
the borrower. 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, 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."
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The Asset Conservation, Lender Liability and Deposit Insurance Act of 1996
or the Act amended, among other things, the provisions of CERCLA for 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.
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 or 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 before 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 those 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 those costs could become a liability of the trust and result in
a loss to certificateholders.
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To reduce the likelihood of a loss, unless we tell you otherwise in the
related prospectus supplement, the pooling and servicing agreement will provide
that the master servicer, acting on behalf of the trustee, may not acquire title
to a mortgaged property or take over its operation unless the master servicer,
based solely, as to environmental matters, on a report prepared by a person who
regularly conducts environmental audits, has made the determination that it is
appropriate to do so, as described under "The Pooling and Servicing
Agreements-Realization Upon Defaulted Mortgage Loans."
If a lender forecloses on a mortgage secured by a property, the operations
on which are subject to environmental laws and regulations, the lender will be
required to operate the property in accordance with those laws and regulations.
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 to prospective buyers, including
prospective buyers at a foreclosure sale or following foreclosure. 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 before 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
Some 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 those clauses in many states. However, the
Garn-St Germain depository Institutions Act of 1982 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 some
limitations as provided 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 some 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 the 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
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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 either or both of the senior loan
and any junior loan or loans, the existence of junior loans and actions taken by
junior lenders can impair the security available to the senior lender and can
interfere with or delay the taking of action by the senior lender. Moreover, the
bankruptcy of a junior lender may operate to stay foreclosure or similar
proceedings by the senior lender.
Default Interest and Limitations on Prepayments
Notes and mortgages may contain provisions that obligate the borrower to
pay a late charge or additional interest if payments are not timely made, and in
some circumstances, may prohibit prepayments for a specified period or condition
prepayments upon the borrower's payment of prepayment fees or yield maintenance
penalties or both. In some states, there are or may be specific limitations upon
the late charges which a lender may collect from a borrower for delinquent
payments. Some 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 provides that state usury limitations do not apply to some types of
residential, including multifamily, first mortgage loans originated by specified
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. Some states have taken action to reimpose interest rate limits or to
limit discount points or other charges or both.
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 unless:
o the mortgage loan provides for the interest rate, discount points and
charges as are permitted in that state or
o the mortgage loan provides that its terms are to be construed in accordance
with the laws of another state under which the interest rate, discount
points and charges would not be usurious and the borrower's counsel has
rendered an opinion that the choice of law provision would be given effect.
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Soldiers' and Sailors' Civil Relief Act of 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, a
borrower who enters military service after the origination of the 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 the
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 affected 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 we tell you
otherwise in the related prospectus supplement, any form of credit support
provided in connection with the 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 some circumstances, during an
additional three month period thereafter.
Federal Income Tax Consequences
The following is a summary of the material federal income tax consequences
of the purchase, ownership and disposition of offered certificates. The summary
is based on current provisions of the Internal Revenue Code of 1986, called the
Code, as well as Treasury regulations and administrative and judicial rulings
and practice. The current tax laws and regulations, rulings and court decisions
may be changed, possibly retroactively. Any of these changes could alter or
modify the validity of the statements and conclusions set forth below. This
summary does not address all federal income tax matters that may be relevant to
particular holders. For example, it does not address all relevant tax
consequences to investors subject to special rules under the federal income tax
laws, such as
o banks,
o insurance companies,
o tax-exempt organizations,
o electing large partnerships,
o dealers in securities or currencies,
o mutual funds,
o REITs,
o RICs,
o S corporations,
o estates and trusts,
o investors that hold the certificates as part of a hedge, straddle,
integrated or conversion transaction, or
o holders whose "functional currency" is not the United States dollar.
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Additionally, this summary is addressed only to original purchasers of the
certificates who are United States investors, and who hold the certificates as
capital assets within the meaning of Section 1221 of the Code. 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. We recommend that you consult your own tax advisers about the
federal, state, local, or other tax consequences of the purchase, ownership and
disposition of the certificates.
The master servicer or the trustee may elect to have a trust, or a portion
of the trust, treated as a "real estate mortgage investment conduit", called a
REMIC under Sections 860A through 860G of the Code, referred to in this summary
as the REMIC Provisions. Beneficial ownership interests in a trust that has made
a REMIC election are referred to in this summary as REMIC certificates, and are
divided into regular interests, called REMIC regular certificates and residual
interests, called REMIC residual certificates. The prospectus supplement for
each series of certificates will indicate whether a REMIC election(s) will be
made for the related trust and, if 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, the federal income tax consequences of the purchase,
ownership and disposition of the related certificates will be provided in the
related prospectus supplement. In the following summary, references to a
certificateholder or a holder are to the beneficial owner of a certificate.
The following discussion applies only to offered certificates. Further,
this discussion applies only if the mortgage assets held by a trust consisting
solely of mortgage loans. If other mortgage assets, including REMIC certificates
and mortgage pass-through certificates, are to be held by a trust, the tax
consequences of the inclusion of these 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, the tax consequences
associated with these cash flow agreements also will be disclosed in the related
prospectus supplement. See "Description of the trust-cash flow agreements."
Additionally, the following discussion is based in part upon the rules
governing original issue discount, called OID, that are provided in Sections
1271-1273 and 1275 of the Code and in the Treasury regulations issued
thereunder, called the OID Regulations, and in part upon the "REMIC Provisions"
and the Treasury regulations issued thereunder, called the "REMIC Regulations."
The "OID Regulations do not adequately address some issues relevant to, and in
some instances provide that they are not applicable to, securities like the
certificates.
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REMICs
Classification of REMICs.
Upon the issuance of each series of REMIC certificates, counsel to the
depositor will deliver its opinion that, assuming compliance with all provisions
of the related pooling and servicing agreement, the related trust, or each
applicable portion of the trust, will qualify as a REMIC and the REMIC
certificates issued by the REMIC 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 requirements for REMIC status during any taxable year, the entity
will not be treated as a REMIC for that year or for any following year. If the
electing entity is not a REMIC, the 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 if there is an
inadvertent termination of REMIC status, these regulations have not been issued.
If relief is provided, it may be accompanied by sanctions, including the
imposition of a corporate tax on all or a portion of the trust's income for the
period in which the requirements for REMIC status are not satisfied. The pooling
and servicing agreement related to each REMIC will include provisions designed
to maintain the trust's status as a REMIC under the REMIC Provisions. It is not
anticipated that the status of any trust as a REMIC will be inadvertently
terminated.
Tiered REMIC Structures.
For some series of REMIC Certificates, two or more separate elections may
be made to treat portions of the trust as REMICs, called "Tiered REMICs," for
federal income tax purposes. Upon the issuance of any series of REMIC
Certificates representing an interest in a Tiered REMIC, counsel to the
depositor will deliver its opinion 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.
Except as otherwise stated in this discussion, the certificates of each
series that constitute regular interests in a REMIC, called 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. Further, if you are a holder of a REMIC regular certificate, and you
otherwise report income under a cash method of accounting, you will be required
to report income for REMIC regular certificates under an accrual method.
Original Issue Discount.
Some REMIC regular certificates may be issued with OID, within the meaning
of Section 1273(a) of the Code. If you hold REMIC regular certificates issued
with OID, you will generally be required to include OID in income as it accrues,
under the method described below, in advance of the receipt of the cash on that
income. In addition, the Code
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provides special rules for REMIC regular certificates and other debt instruments
issued with OID. Regulations have not been issued under these rules.
The Code requires that a prepayment assumption be used for mortgage loans
held by a REMIC in computing the accrual of OID on REMIC regular certificates
issued by that REMIC, and that adjustments be made in the amount and rate of
accrual of the OID 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, called the committee report, indicates that the regulations
will provide that the prepayment assumption used for a REMIC regular certificate
must be the same as that used in pricing the initial offering of the REMIC
regular certificate. The prepayment assumption used in reporting OID for each
series of REMIC regular certificates will be consistent with this standard and
will be disclosed in the related prospectus supplement. However, neither the
depositor nor any other person will make any representation that the mortgage
loans will in fact prepay at a rate conforming to the prepayment assumption or
at any other rate.
The OID, 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
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 class of REMIC regular certificates is sold for cash on
or before the date of their initial issuance, the closing date, the issue price
for that class will be the fair market value of that class on the closing date.
Under Code provisions and the OID Regulations, the stated redemption price of a
REMIC regular certificate is equal to the total of all payments to be made on
the 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 the
REMIC regular certificate.
In the case of REMIC regular certificates with adjustable interest rates,
the determination of the total amount of OID and the timing of the inclusion of
that OID will vary according to the characteristics of the REMIC regular
certificates. If the OID rules apply to the certificates, the related prospectus
supplement will describe the manner in which the OID rules will be applied to
those certificates in preparing information returns for the certificateholders
and the IRS.
Some classes of the REMIC regular certificates may provide for the first
interest payment on those certificates to be made more than one month after the
date of issuance, a longer period than the remaining monthly intervals between
interest payments. Assuming the accrual period defined below for OID 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 OID. Because interest on REMIC regular certificates must 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.
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In addition, if the accrued interest to be paid on the first distribution
date is computed for a period that begins before the closing date, a portion of
the purchase price paid for a REMIC regular certificate will reflect this
accrued interest. If the purchase price includes this accrued interest,
information returns provided to you and to the IRS will be based on the position
that the portion of the purchase price paid for the interest accrued for periods
before the closing date is part of the overall cost of the 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 the
REMIC regular certificate. However, the OID Regulations state that all or some
portion of this 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 this election could be made unilaterally by a certificateholder.
OID 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. The weighted average life
of the REMIC regular certificate is computed as the sum of the amounts
determined, for payment included in the stated redemption price of the REMIC
regular certificate, by multiplying
o the number of complete years, rounding down for partial years, from the
issue date until the payment is expected to be made, presumably taking into
account the prepayment assumption, by
o 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 the
REMIC regular certificate.
Under the OID Regulations, OID of only a de minimis amount, other than de
minimis OID attributable to a so-called "teaser" interest rate or an initial
interest holiday, will be included in income as each payment of stated principal
is made, based on the product of the total amount of this de minimis OID and a
fraction, the numerator of which is the amount of the principal payment and the
denominator of which is the outstanding stated principal amount of the REMIC
regular certificate. The OID Regulations also would permit you to elect to
accrue de minimis OID into income currently based on a constant yield method.
See "--Taxation of Owners of REMIC regular certificates-Market Discount" for a
description of this election under the OID Regulations.
If OID on a REMIC regular certificate is in excess of a de minimis amount,
you must include in ordinary gross income the sum of the daily portions of OID
for each day during your taxable year that you held the 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 OID will be determined as described in the next two paragraphs.
As to each accrual period, meaning, 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 accrual period, begins on
the closing date, a calculation will be made of
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the portion of the OID that accrued during the accrual period. The portion of
OID that accrues in any accrual period will equal the excess, if any, of
o the sum of
o 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
o the distributions made on the REMIC regular certificate during the
accrual period of amounts included in the stated redemption price,
over
o the adjusted issue price of the 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:
o 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
o 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 the certificate, increased by the aggregate amount of
OID that accrued for the certificate in prior accrual periods, and reduced by
the amount of any distributions made on the REMIC regular certificate in prior
accrual periods of amounts included in the state redemption price. The OID
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 OID for each day.
A subsequent purchaser of a REMIC regular certificate that purchases the
certificate at a cost, excluding any portion of the 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 OID for
the certificate. However, each daily portion will be reduced, if the cost is in
excess of its "adjusted issue price," in proportion to the ratio this excess
bears to the aggregate OID remaining to be accrued on the REMIC regular
certificate. The adjusted issue price of a REMIC regular certificate on any
given day equals the sum of:
o the adjusted issue price, or, in the case of the first accrual period, the
issue price, of the certificate at the beginning of the accrual period
which includes that day, and
o the daily portions of OID for all days during the accrual period before
that day.
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Market Discount.
If you purchase a REMIC regular certificate at a market discount, meaning,
in the case of a REMIC regular certificate issued without OID, at a purchase
price less than its remaining stated principal amount, or in the case of a REMIC
regular certificate issued with OID, at a purchase price less than its adjusted
issue price, you will recognize gain upon receipt of each distribution
representing stated redemption price. In particular, under Section 1276 of the
Code you will generally be required to allocate the portion of each distribution
representing stated redemption price first to accrued market discount not
previously included in income, and to recognize ordinary income to that extent.
You may elect to include market discount in income currently as it accrues
rather than including it on a deferred basis as prescribed in the preceding
sentence. If made, this election will apply to all market discount bonds
acquired by you on or after the first day of the first taxable year to which the
election applies. In addition, the OID Regulations permit you to elect to accrue
all interest, discount, including de minimis market discount or OID, and premium
in income as interest, based on a constant yield method. If this election were
made for a REMIC regular certificate with market discount, you would be deemed
to have made an election to include market discount in income currently for all
other debt instruments having market discount that you acquire during the
taxable year of the election or any following year and possibly for instruments
acquired before the election. Similarly, if you made this election for a
certificate that is acquired at a premium, you would be deemed to have made an
election to amortize bond premium for all debt instruments having amortizable
bond premium that you own or acquire. See "--Taxation of Owners of REMIC Regular
Certificates-Premium" below. Each of these elections to accrue interest,
discount and premium for a certificate on a constant yield method or as interest
would be irrevocable.
However, the market discount on a REMIC regular certificate will be
considered de minimis for purposes of Section 1276 of the Code if the market
discount is less than 0.25% of the remaining stated redemption price of the
REMIC regular certificate multiplied by the number of complete years to maturity
after the date of its purchase. Under a similar rule regarding OID on
obligations payable in installments, the OID Regulations refer to the weighted
average maturity of obligations, and it is likely that the same rule would apply
for market discount, presumably taking into account the prepayment assumption.
If market discount is treated as de minimis under this rule, it appears that the
discount would be treated in a manner similar to de minimis OID. See "--Taxation
of Owners of REMIC Regular Certificates--Original Issue Discount" above. This
treatment would result in the inclusion of discount in income more slowly than
discount would be included in income using the method described above.
Section 1276(b)(3) of the Code authorizes the Treasury Department to issue
regulations providing the method for accruing market discount on debt
instruments with principal payable in installments. Until regulations are
issued, 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 your option:
o on the basis of a constant yield method,
o in the case of a REMIC regular certificate issued without OID, 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
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o in the case of a REMIC regular certificate issued with OID, in an amount
that bears the same ratio to the total remaining market discount as the OID
accrued in the accrual period bears to the total OID remaining on the REMIC
regular certificate at the beginning of the accrual period.
Further, the prepayment assumption used in calculating the accrual of OID
is also used in calculating the accrual of market discount. Because the
regulations described in this paragraph have not been issued, it is not possible
to predict what effect these regulations might have on the tax treatment of a
REMIC regular certificate purchased at a discount in the secondary market.
The effect of these rules on REMIC regular certificates which provide for
monthly or other periodic distributions throughout their term may be to require
market discount to be included in income at a rate that is not significantly
slower than the rate at which the discount would accrue if it were OID. In any
event, you will generally be required to treat a portion of any gain on the sale
or exchange of the certificate as ordinary income equal to the amount of the
market discount accrued to the date of disposition under one of the methods
described above, less any accrued market discount previously reported as
ordinary income.
Further, under Section 1277 of the Code you may be required to defer a
portion of your 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 deferred interest expense would not exceed
the market discount that accrues during the taxable year and is, in general,
allowed as a deduction not later than the year in which the market discount is
includible in income. If you elect to include market discount in income
currently as it accrues on all market discount instruments you acquire 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 amount
attributable to accrued qualified stated interest, greater than its remaining
stated redemption price will be considered to be purchased at a premium. In this
event, you may elect under Section 171 of the Code to amortize the premium under
the constant yield method over the life of the certificate. If made, the
election will apply to all debt instruments with amortizable bond premium that
you own or subsequently acquire. Amortizable premium will be treated as an
offset to interest income on the related debt instrument, and not as a separate
interest deduction. The OID Regulations also permit you to elect to include all
interest, discount and premium in income based on a constant yield method,
further treating you 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 require use of a prepayment assumption in accruing market
discount on REMIC Regular Certificates without regard to whether the
certificates have OID, 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 the certificates in connection with a trade or business should be
allowed to deduct, as ordinary
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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 the 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 OID for the 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 of these
reductions 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 the 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 as to the timing and
character of this loss or reduction in income.
Taxation of Owners of REMIC Residual Certificates.
The certificates of each series that constitute the residual interests in a
REMIC, called 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.
As a holder of a REMIC residual certificate, you will generally be required
to report your 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 you owned the REMIC residual certificate. For
this purpose, the taxable income or net loss of the REMIC will be allocated to
each day in the calendar quarter ratably using a "30 days per month/90 days per
quarter/360 days per year" convention unless otherwise disclosed in the related
prospectus supplement. The daily amounts so allocated will then be allocated
among the REMIC residual certificateholders in proportion to their respective
ownership interests on that 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."
If you purchased your REMIC residual certificate from a prior holder of the
certificate, you will also be required to report on your federal income tax
return amounts representing your daily share of the taxable income, or net loss,
of the REMIC for each day that you hold the 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 its REMIC residual certificate from a prior
holder of the
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certificate at a price greater than, or less than, the adjusted basis defined
below, such REMIC residual certificate would have had in the hands of an
original holder of the certificate. The REMIC Regulations, however, do not
provide for these modifications.
Any payments received by you in connection with the acquisition of the
REMIC residual certificate will be taken into account in determining your income
for federal income tax purposes. Although it appears likely that any of these
payments would be includible in income immediately upon its receipt, the IRS
might assert that the 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 these payments, holders of REMIC
residual certificates should consult their tax advisors concerning the treatment
of these payments for income tax purposes.
The amount of income you will be required to report, or the tax liability
associated with this income, may exceed the amount of cash distributions
received from the REMIC for the corresponding period. Consequently, you should
have other sources of funds sufficient to pay any federal income taxes due as a
result of your 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 you may exceed the cash distributions received by
you for the corresponding period may significantly adversely affect your
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 OID, and reduced by any
premium on issuance, on the REMIC regular certificates, and on 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 on
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. That 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 by this prospectus will be determined in the manner described above
under "--Taxation of Owners of REMIC Regular Certificates-OID." The issue price
of a REMIC certificate received in exchange for an interest in the mortgage
loans or other property will equal the fair market value of the 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 the interests 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 OID income and market discount income on mortgage loans
that it holds will be equivalent to the method for accruing OID income for
holders of REMIC regular certificates, that is, under the constant yield method
taking into account the prepayment
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assumption. However, a REMIC that acquires loans at a market discount must
include the 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 discount income that is analogous to that
required to be used by a REMIC holding mortgage loans with market discount.
A mortgage loan will be deemed to have been acquired with discount, or
premium, to the extent that the REMIC's basis in the mortgage loan, determined
as described in the preceding paragraph, is less than, or greater than, its
stated redemption price. Any discount will be includible in the income of the
REMIC as it accrues, in advance of receipt of the cash attributable to that
income, under a method similar to the method described above for accruing OID on
the REMIC regular certificates. It is anticipated that each REMIC will elect to
amortize any premium on the mortgage loans. Premium on any mortgage loan to
which an election applies may be amortized under a constant yield method,
presumably taking into account a prepayment assumption. Further, an election
would not apply to any mortgage loan originated on or before September 27, 1985.
Instead, premium on these mortgage loans should be allocated among the principal
payments on those loans and be deducted by the REMIC as those payments become
due or upon the prepayment of the mortgage loan.
A REMIC will be allowed deductions for interest, including OID, on the
REMIC regular certificates, and including any other class of REMIC certificates
constituting regular interests in the REMIC not offered by this prospectus,
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 by this prospectus, were indebtedness of the REMIC. OID
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 by this prospectus
described in that section will not apply.
If a class of REMIC regular certificates is issued at a price in excess of
the stated redemption price of that class, with this excess being called issue
premium, the net amount of interest deductions that are allowed the REMIC in
each taxable year on the REMIC regular certificates of that 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 OID
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 these 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 of these expenses will be allocated as a
separate item to the holders of REMIC Certificates, subject to the limitation of
Section 67 of
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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, this 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 the REMIC residual certificate, increased by amounts included in
your income with respect to a REMIC residual certificate and decreased, but not
below zero, by distributions made, and by net losses allocated, to you.
You will not be allowed to take into account any net loss for any calendar
quarter in the amount that the net loss exceeds your adjusted basis in your
REMIC residual certificate as of the close of the calendar quarter, determined
without regard to the 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. Your ability to deduct net losses may be
subject to additional limitations under the Code. You should consult your tax
advisor about these limitations.
Any distribution on a REMIC residual certificate will be treated as a
non-taxable return of capital to the extent it does not exceed your adjusted
basis in the REMIC residual certificate. To the extent a distribution on a REMIC
residual certificate exceeds its adjusted basis, it will be treated as gain from
the sale of the REMIC residual certificate. You may be entitled to distributions
early in the term of a REMIC in which you own certain REMIC residual
certificates under circumstances in which your bases in the REMIC residual
certificates will not be sufficiently large that the distributions will be
treated as non-taxable returns of capital. Your bases in the REMIC residual
certificates will initially equal the amount paid for the REMIC residual
certificates and will be increased by your allocable shares of taxable income of
the REMIC. However, these bases increases may not occur until the end of the
calendar quarter, or perhaps the end of the calendar year, for which the REMIC
taxable income is allocated to you. To the extent your initial bases are less
than the distributions to you, and increases in your initial bases either occur
after the distributions or, together with your initial bases, are less than the
amount of the distributions, gain will be recognized to you on the distributions
and will be treated as gain from the sale of your REMIC residual certificates.
The effect of these rules is that you may not amortize your basis in a
REMIC residual certificate, but may only recover your basis through
distributions, through the deduction of any net losses of the REMIC or upon the
sale of your 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 to reflect any difference between the cost of the REMIC
residual certificate to the REMIC residual certificateholder and the adjusted
basis the 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 for a REMIC residual certificate will be subject to
federal income tax in all events.
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In general, the excess inclusions for a REMIC residual certificate for any
calendar quarter will be the excess, if any, of the daily portions of REMIC
taxable income allocable to the REMIC residual certificate over the sum of the
daily accruals for each day during the quarter that the REMIC residual
certificate was held by you. Your daily accruals will be determined by
allocating to each day during a calendar quarter your 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 its issue price increased by the sum of the daily accruals for all
prior quarters and decreased, but not below zero, by any distributions on the
REMIC residual certificate before the beginning of the 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:
o will not be permitted to be offset by deductions, losses or loss carryovers
from other activities,
o will be treated as unrelated business taxable income to an otherwise
tax-exempt organization, and
o will not be eligible for any rate reduction or exemption under any
applicable tax treaty as 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.
Additionally, for purposes of the alternative minimum tax, excess
inclusions will not be permitted to be offset by the alternative tax net
operating loss deduction, and 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, called a REIT, the aggregate excess inclusions for those REMIC
residual certificates, reduced, but not below zero, by the REIT 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 the REIT in proportion to the
dividends received by those shareholders from the REIT, and any amount so
allocated will be treated as an excess inclusion on a REMIC residual certificate
as if held directly by the shareholder. Treasury regulations yet to be issued
could apply a similar rule to regulated investment companies, common trust and
some cooperatives; the REMIC Regulations currently do not address this subject.
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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 a transfer is disregarded, the purported
transferor will continue to remain liable for any taxes due on the income on a
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:
o 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 on the
REMIC residual certificate, and 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
o the transferor reasonably expects that the transferee will receive
distributions on 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 restrictions under
the terms of the related pooling and servicing agreement that are intended to
reduce the possibility of any transfer being disregarded. These restrictions
will require each party to a transfer to provide an affidavit that no purpose of
the transfer is to impede the assessment or collection of tax, including
representations as to the financial condition of the prospective transferee. In
this regard, the transferor is also required to make a reasonable investigation
to determine the transferee's historic payment of its debts and ability to
continue to pay its debts as they come due in the future. Before purchasing a
REMIC residual certificate, prospective purchasers should consider the
possibility that a purported transfer of a REMIC residual certificate by the
purchaser to another purchaser at some future date may be disregarded in
accordance with these rules, resulting in the retention of tax liability by the
purchaser.
The related prospectus supplement will disclose whether offered REMIC
residual certificates may be considered noneconomic residual interests under the
REMIC Regulations; provided, however, that any disclosure that a REMIC residual
certificate will not be considered noneconomic will be based upon 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 on transfers of REMIC residual certificates to
foreign persons.
Mark-to-Market Rules.
On December 23, 1996, the IRS released final regulations called 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, unless the dealer has
specifically identified a security as held for investment. The mark-to-
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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 REMIC residual certificates of that REMIC. The applicable Treasury
regulations indicate, however, that as to a REMIC that is similar to a single
class grantor trust, all or a portion of those fees and expenses should be
allocated to the holders of the REMIC regular certificates. Unless otherwise
stated in the related prospectus supplement, these fees and expenses will be
allocated to holders of the REMIC residual certificates in their entirety and
not to the holders of the REMIC regular certificates.
For holders of REMIC residual certificates or REMIC regular certificates
that receive an allocation of fees and expenses in accordance with the preceding
discussion and that is an individual, estate or trust, or a "pass-through
entity" beneficially owned by one or more individuals, estates or trusts, an
amount equal to the individual's, estate's or trust's share of the fees and
expenses will be added to the gross income of the holder, and the individual's,
estate's or trust's share of the fees and expenses will be treated as a
miscellaneous itemized deduction allowable subject to the limitation of Section
67 of the Code, which permits these 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 3% of the excess of the individual's
adjusted gross income over the specified amount or 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.
In addition, in determining the alternative minimum taxable income of 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 that holder's allocable portion of
servicing fees and other miscellaneous itemized deductions of the REMIC, even
though an amount equal to the amount of those fees and other deductions will be
included in the holder's gross income. Accordingly, these 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. Any of these investors should consult with their tax advisors before
making an investment in the certificates.
Sales of REMIC Certificates.
If you sell a REMIC certificate, you will recognize gain or loss equal to
the difference between the amount realized on the sale and your adjusted basis
in the REMIC certificate. The adjusted basis of a REMIC regular certificate
generally will equal your cost for the REMIC regular certificate, increased by
income on the REMIC regular certificate reported by you, including original
issue discount and market discount income, and reduced, but not below zero, by
distributions on the REMIC regular certificate received by you 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 gain or loss from a sale will be capital gain
or loss, provided the REMIC certificate is held as a capital asset within the
meaning of Section 1221 of the Code. Currently, the maximum tax rate on ordinary
income and short term capital gains for
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individuals is 39.6% and the maximum tax rate for long term capital gains of
individuals is 20%. There is no rate differential for corporations. Generally,
you will receive long-term capital gain treatment on the sale of a REMIC regular
certificate if you have held the certificate for at least 12 months.
Gain from the sale of a REMIC regular certificate that might otherwise be
capital gain will be treated as ordinary income in the amount by which the gain
does not exceed the excess, if any, of the amount that would have been
includible in your income with respect to the REMIC regular certificate assuming
that income had accrued thereon at a rate equal to 110% of the applicable
Federal rate determined as of the date of purchase of the REMIC regular
certificate, over the amount of ordinary income actually includible in your
income before the sale. In addition, gain recognized on the sale of a REMIC
regular certificate that you purchased at a market discount will be taxable as
ordinary income in an amount not exceeding the portion of the discount that
accrued during the period you held the REMIC certificate, 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 that section
applies will be ordinary income or loss.
Except as may be provided in Treasury regulations yet to be issued, if you
sell and reacquire a REMIC residual certificate, or you acquire 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 that sale, the sale
will be subject to the "wash sale" rules of Section 1091 of the Code. In that
event, any loss you realize on the sale will not be deductible, but instead will
be added to your 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" called a prohibited transactions tax. In general,
subject to specified exceptions, a prohibited transaction includes the
disposition of a mortgage loan, the receipt of income from a source other than a
mortgage loan or 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, some 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, called a
contributions tax. Each pooling and servicing agreement will include provisions
designed to prevent the acceptance of any contributions that would be subject to
this 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 REITs. Net income from foreclosure property generally includes
gain from the sale of a foreclosure property that is inventory property and
gross income from foreclosure property other than
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qualifying rents and other qualifying income for a REIT. Unless otherwise
disclosed in the related prospectus supplement, it is not anticipated that any
REMIC will recognize net income from foreclosure property subject to federal
income tax.
Unless otherwise disclosed in the related prospectus supplement, it is not
anticipated that any material state or local income or franchise tax will be
imposed on any REMIC.
Unless otherwise stated in the related prospectus supplement, and to the
extent permitted by then applicable laws, any prohibited transactions tax,
contributions tax, tax on net income from foreclosure property or state or local
income or franchise tax that may be imposed on the REMIC will be borne by the
related master servicer, special servicer, manager or trustee in any case out of
its own funds, provided that person has sufficient assets to do so, and provided
further that the tax arises out of a breach of that person's obligations under
the related pooling and servicing agreement and in respect of compliance with
applicable laws and regulations. Any tax not borne by a master servicer, special
servicer, manager or trustee will be charged against the related trust 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 equal to
the product of:
o the present value, discounted using the applicable Federal rate, computed
and published monthly by the IRS, for obligations whose term ends on the
close of the last quarter in which excess inclusions are expected to accrue
on the REMIC residual certificate, of the total anticipated excess
inclusions for the REMIC residual certificate for periods after the
transfer, and
o 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 the transfer, the prepayment assumption and any
required or permitted clean up calls or required liquidation provided for in the
REMIC's organizational documents. If imposed, this tax generally would be
imposed on the transferor of the REMIC residual certificate, except that where
the transfer is through an agent for a disqualified organization, the tax would
instead be imposed on the agent. However, a transferor of a REMIC residual
certificate would in no event be liable for this tax on 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 the affidavit is false. Further, an entity
will not qualify as a REMIC unless there are reasonable arrangements designed to
ensure that residual interests in the entity are not held by disqualified
organizations and information necessary for the application of the tax described
in this paragraph will be made available. Restrictions on the transfer of REMIC
residual certificates and other provisions 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.
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In addition, if a pass-through entity includes in income excess inclusions
with respect to a REMIC residual certificate, and a disqualified organization is
the record holder of an interest in that entity, then a tax will be imposed on
that entity equal to the product of:
o the amount of excess inclusions on the REMIC residual certificate that are
allocable to the interest in the pass-through entity held by the
disqualified organization, and
o 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 the pass-through entity
furnishes to the pass-through entity the holder's social security number and a
statement under penalties of perjury that social security number is that of the
record holder or a statement under penalties of perjury that the record holder
is not a disqualified organization.
For these purposes, a disqualified organization means:
o the United States, any State or political subdivision of the United States,
any foreign government, any international organization, or any agency or
instrumentality of the entities just listed, but would not include
instrumentalities described in Section 168(h)(2)(D) of the Code or the
Federal Home Loan Mortgage Corporation,
o 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
o any organization described in Section 1381(a)(2)(C) of the Code.
For these purposes, a pass-through entity means any regulated investment
company, REIT, trust, partnership or 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 be treated as a
pass-through entity for these purposes.
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. If the last
distribution on a REMIC residual certificate is less than the REMIC residual
certificateholder's adjusted basis in the certificate, the REMIC residual
certificateholder should, but may not, be treated as realizing a loss equal to
the amount of the difference, and the loss may be treated as a capital loss.
Reporting and Other Administrative Matters.
For purposes of the administrative provisions of the Code only, 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 for the REMIC.
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As the tax matters person, the trustee or the master servicer, subject to
notice requirements and various restrictions and limitations, generally will
have the authority to act on behalf of the REMIC and on behalf of you for any
administrative and judicial review of items of income, deduction, gain or loss
of the REMIC, as well as the REMIC's classification. You will generally be
required to report these REMIC items consistently with their treatment on the
REMIC's tax return and you may in some circumstances be bound by a settlement
agreement between the trustee or the master servicer, as tax matters person, and
the IRS concerning any REMIC item. Adjustments made to the REMIC tax return may
require you to make corresponding adjustments on your return, and an audit of
the REMIC's tax return, or the adjustments resulting from an audit, could result
in an audit of your return. No REMIC will be registered as a tax shelter under
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 that person and other information.
Reporting of interest income, including any OID, on any 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
some other non-individuals will be provided interest and OID income information
and the information provided 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 OID to disclose on its face the amount of OID and the issue date,
and requiring this information to be reported to the IRS. Reporting for 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 for computing the accrual of any market
discount. Because exact computation of the accrual of market discount on a
constant yield method would require information about the holder's purchase
price that the REMIC may not have, the regulations only require that information
about the appropriate method of accruing market discount be provided. See
"--Taxation of Owners of REMIC Regular Certificates--Market Discount."
Unless we tell you otherwise in the related prospectus supplement, the
responsibility for complying with the reporting rules discussed above 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 a backup withholding tax at a
rate of 31% if you fail to furnish to the payor information, including your
taxpayer identification numbers, or otherwise fail to establish an exemption
from this tax. Any amounts deducted and withheld from a distribution to you
would be allowed as a credit against your federal income tax.
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Penalties may be imposed on you by the IRS if you fail to supply required
information in the proper manner. We advise you to consult your tax advisors
about the backup withholding tax rules, including your eligibility for, and the
procedure for obtaining, exemption from this tax.
Foreign Investors in REMIC Certificates.
A REMIC regular certificateholder that is not a "United States Person" 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 on a
distribution on a REMIC regular certificate, provided that the holder complies
with identification requirements, including delivery of a statement, signed by
the certificateholder under penalties of perjury, certifying that the
Certificateholder is not a United States Person and providing the name and
address of the certificateholder. For these purposes, "United States Person"
means:
o a citizen or resident of the United States,
o a corporation, partnership or other entity created or organized in, or
under the laws of, the United States or any political subdivision of
the United States,
o an estate whose income is subject to United States income tax
regardless of its source, or
o 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 tax exemption discussed
above should not apply 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 OID, to
the holder may be subject to a tax rate of 30%, unless reduced by an applicable
tax treaty.
In addition, these rules will not apply to exempt a United States
shareholder of a controlled foreign corporation from taxation on the United
States shareholder's allocable portion of the interest income received by the
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
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Classification of Grantor Trusts.
Counsel to the depositor will deliver its opinion upon issuance of each
series of grantor trust certificates, to the effect that, assuming compliance
with all provisions of the related pooling and servicing agreement, the related
grantor trust 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.
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, together with interest
thereon at a pass-through rate, will be referred to as a "grantor trust
fractional interest certificate". A grantor trust certificate representing
ownership of all or a portion of the difference between interest paid on the
mortgage loans constituting the related grantor trust, net of normal
administration fees, and interest paid to the holders of grantor trust
fractional interest certificates 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.
Taxation of Owners of Grantor Trust Fractional Interest Certificates.
As a holder of a grantor trust fractional interest certificate, you will
generally be required to report on your federal income tax return your share of
the entire income from the mortgage loans and will be entitled to deduct your
share of any reasonable servicing fees and other expenses. Because of stripped
interests, market discount, OID, or premium, the amount includible in income on
a grantor trust fractional interest certificate may differ significantly from
the amount distributable on that certificate from 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 reasonable servicing fees
and expenses only in the amount of the holder's aggregate miscellaneous itemized
deductions less two percent of the 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 3% of the excess of the individual's
adjusted gross income over the specified amount or 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 the 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, fees and expenses should be
allocated among the classes of grantor trust certificates using a method that
recognizes that each class of certificates benefits from the services. In the
absence of statutory or administrative clarification as to the method to be
used, it is currently intended to base information returns or reports to the IRS
and certificateholders on a method that allocates expenses among classes of
grantor trust certificates for each period based on the distributions made to
each class during that period.
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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 a class of grantor trust
strip certificates is issued as part of the same series of certificates or the
depositor or any of its affiliates retains 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. The IRS has established safe harbors for purposes of
determining what constitutes reasonable servicing fees for various types of
mortgages. The servicing fees paid for servicing of the mortgage loans for some
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 OID, subject, however, to
the discussion below regarding the treatment of some 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, you will be required to report
interest income from your grantor trust fractional interest certificate for each
month in an amount equal to the income that accrues on the certificate in that
month calculated under a constant yield method, in accordance with the rules of
the Code relating to OID.
The OID on a grantor trust fractional interest certificate will be the
excess of the certificate's stated redemption price over its issue price. The
issue price of a grantor trust fractional interest certificate will be equal to
the price you paid for 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 the certificate, other than qualified
stated interest, if any, as well as the 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 income that
accrues in any month would equal the product of your adjusted basis in the
grantor trust fractional interest certificate at the beginning of the month (see
"--Sales of Grantor Trust Certificates" below) and your yield on the grantor
trust fractional interest certificate. The yield would be computed as the rate,
compounded based on the regular interval between payment dates, that, if used to
discount your share of future payments on the mortgage loans, would cause the
present value of those future payments to equal your price for the certificate.
In computing yield under the stripped bond rules, your share of future payments
on the mortgage loans will not include any payments made on 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 your share of any reasonable servicing fees and other expenses.
Section 1272(a)(6) of the Code requires the use of a reasonable prepayment
assumption in accruing OID and adjustments in the accrual of OID when
prepayments do not conform to the prepayment assumption, for some categories of
debt instruments. Regulations could be adopted applying those provisions to the
grantor trust fractional
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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 at the time of purchase of the grantor trust fractional
interest certificate by each specific holder. You are advised to consult your
tax advisor about OID in general and, in particular, whether a prepayment
assumption should be used in reporting OID 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 that
certificate, the use of a prepayment assumption generally would not have any
significant effect on the yield used in calculating accruals of interest income.
However, for a grantor trust fractional interest certificate acquired at a
discount or premium, the use of a reasonable prepayment assumption would
increase or decrease the yield, and thus accelerate or decelerate, respectively,
the reporting of income.
If a prepayment assumption is not used, when a mortgage loan prepays in
full, if your grantor trust fractional interest certificate was acquired at a
discount or a premium, you will generally 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 the certificate and the portion of the
adjusted basis of the certificate that is allocable to your interest in the
mortgage loan. If a prepayment assumption is used, it appears that no separate
item of income or loss should be recognized upon a prepayment. Instead, a
prepayment should be treated as a partial payment of the stated redemption price
of the grantor trust fractional interest certificate and accounted for under a
method similar to that described for taking account of OID 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 the prepayment assumption or any other
rate and you should be aware that the use of a representative initial offering
price will mean that information returns or reports, even if otherwise accepted
as accurate by the IRS, will be accurate only as to the initial
certificateholders of each series who bought at that price.
Under Treasury regulation Section 1.1286-1(b), some stripped bonds are to
be treated as market discount bonds and, accordingly, any purchaser of these
bonds is to account for any discount on the bond as market discount rather than
OID. 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:
o there is no OID, or only a de minimis amount of OID, or
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o 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.
The related prospectus supplement will disclose whether 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. If the
OID 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 this OID or market discount will be considered de minimis. OID or
market discount of only a de minimis amount will be included in income in the
same manner as de minimis OID 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 OID, if the stripped bond rules do not
apply to a grantor trust fractional interest certificate, you will be required
to report your share of the interest income on the mortgage loans in accordance
with your normal method of accounting. The OID rules will apply, even if the
stripped bond rules do not apply, to a grantor trust fractional interest
certificate if it evidences an interest in mortgage loans issued with OID.
The OID, if any, on the mortgage loans will equal the difference between
the stated redemption price of the mortgage loans and their issue price. 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 OID 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 with adjustable or variable interest rates,
the related prospectus supplement will describe the manner that the OID rules
will be applied to those mortgage loans by the trustee or master servicer, in
preparing information returns to you and to the IRS.
If OID is in excess of a de minimis amount, all OID with respect to a
mortgage loan will be required to be accrued and reported in income each month,
based on a constant yield. The OID Regulations suggest that no prepayment
assumption is appropriate in computing the yield on prepayable obligations
issued with OID. In the absence of statutory or administrative clarification, it
currently is not intended to base information reports or returns to you and to
the IRS on the use of a prepayment assumption in transactions not subject to the
stripped bond rules. However, a prepayment assumption may be required for
computing yield on all mortgage-backed securities. You are advised to consult
your own tax advisors about the use of a prepayment assumption in reporting OID
on grantor trust fractional interest certificates. The prospectus supplement for
each series will specify whether and in what manner the OID rules will apply to
mortgage loans in each series.
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If you purchased a grantor trust fractional interest certificate at a cost
less than the certificate's allocable portion of the aggregate remaining stated
redemption price of the mortgage loans held in the related trust, you will also
be required to include in gross income the certificate's daily portions of any
OID on the mortgage loans. However, each daily portion will be reduced, if your
cost for the grantor trust fractional interest certificate is in excess of the
certificate's allocable portion of the aggregate adjusted issue prices of the
mortgage loans held in the related trust, approximately in proportion to the
ratio the excess bears to the certificate's allocable portion of the aggregate
OID remaining to be accrued on the mortgage loans. The adjusted issue price of a
mortgage loan on any given day equals the sum of:
o the adjusted issue price, or, in the case of the first accrual period, the
issue price, of that mortgage loan at the beginning of the accrual period
that includes that day, and
o the daily portions of OID for all days during the accrual period before
that day.
The adjusted issue price of a mortgage loan at the beginning of any accrual
period will equal the issue price of that mortgage loan, increased by the
aggregate amount of OID on that mortgage loan that accrued in prior accrual
periods, and reduced by the amount of any payments made on that 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, will provide to any holder of a grantor trust fractional
interest certificate any information as the holder may reasonably request from
time to time about OID 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, you may be subject to the market discount rules of the
Code if an interest in a mortgage loan is considered to have been purchased at a
market discount, that is, for a mortgage loan issued without OID, at a purchase
price less than its remaining stated redemption price, or for a mortgage loan
issued with OID, at a purchase price less than its adjusted issue price. If
market discount is in excess of a de minimis amount, you will generally be
required to include in income in each month the amount of discount that has
accrued through that month that has not previously been included in income, but
limited, in the case of the portion of that discount that is allocable to any
mortgage loan, to the payment of stated redemption price on the mortgage loan
that is received by, or, for accrual basis certificateholders, due to, the trust
in that month. You 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 you rather than including it on a deferred basis in accordance with this
paragraph under rules similar to those described in "--Taxation of Owners of
REMIC Regular Interests-Market Discount" above.
The Treasury Department is authorized to issue regulations on the method
for accruing market discount on debt instruments, the principal of which is
payable in installments. Until regulations are issued, 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:
o on the basis of a constant yield method,
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o in the case of a mortgage loan issued without OID, 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
o in the case of a mortgage loan issued with OID, in an amount that bears the
same ratio to the total remaining market discount as the OID accrued in the
accrual period bears to the total OID remaining at the beginning of the
accrual period.
The prepayment assumption, if any, used in calculating the accrual of OID
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 discount income.
Because the regulations referred to in this paragraph have not been issued, it
is not possible to predict what effect these 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, any discount may be required to be included in income at a
rate that is not significantly slower than the rate at which the discount would
be included in income if it were OID.
Market discount on mortgage loans considered to be de minimis 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 with the exception that it is less likely that a prepayment
assumption will be used in the application of these rules 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 OID 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 you are treated as acquiring the underlying mortgage loans at a premium,
that is, at a price in excess of their remaining stated redemption price, you
may elect to amortize using a constant yield method the portion of the 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 these payments are made, or, for a certificateholder using the
accrual method of accounting, when these payments are due.
It is unclear whether a prepayment assumption should be used in computing
amortization of premium. If premium is not subject to amortization using a
prepayment assumption and a mortgage loan prepays in full, if you hold a grantor
trust fractional interest certificate acquired at a premium, you should
recognize a loss equal to the difference between the portion of the prepaid
principal amount of the mortgage loan that is allocable to
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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
the premium, it appears that this 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 OID 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 for differences between the
prepayment assumption and the actual rate of prepayments.
Taxation of Owners of Grantor Trust Strip Certificates.
The stripped coupon rules of Section 1286 of the Code will apply to the
grantor trust strip certificates. Except as described above in "--Taxation of
Owners of Grantor Trust Fractional Interest Certificates --If Stripped Bond
Rules Apply," no regulations or published rulings under these rules have been
issued and some uncertainty exists as to how it will be applied to securities
like the grantor trust strip certificates. Accordingly, you should consult your
tax advisor about the method for reporting income or loss on grantor trust strip
certificates.
The OID Regulations do not apply to stripped coupons, although they provide
general guidance as to how the OID 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 OID will be required to be
accrued in each month on the grantor trust strip certificates based on a
constant yield method. In effect, you would include as interest income in each
month an amount equal to the product of your adjusted basis in the grantor trust
strip certificate at the beginning of the month and the yield of the grantor
trust strip certificate to you. This yield would be calculated based on the
price you paid for that grantor trust strip certificate and the payments
remaining to be made on the certificate at the time of the purchase, plus an
allocable portion of the servicing fees and expenses to be paid on the mortgage
loans. See "--Taxation of Owners of Grantor Trust Fractional Interest
Certificates--If Stripped Bond Rules Apply" above.
As noted above, the Code requires that a prepayment assumption be used in
computing the accrual of OID on some categories of debt instruments, and that
adjustments be made in the amount and rate of accrual of this OID when
prepayments do not conform to the 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 any 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, at the time of purchase of the grantor trust strip
certificate by each specific 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 to you on the prepayment assumption disclosed
in the related prospectus supplement and on a constant
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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 you should be aware that
the use of a representative initial offering price will mean that information
returns or reports, even if otherwise accepted as accurate by the IRS, will be
accurate only as to the initial certificateholders of each series who bought at
that price. You should consult your tax advisor 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 you. 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 on the 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,
you 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 the
prepaid mortgage loan.
Possible Application of Proposed Contingent Payment Rules.
The coupon stripping rules generally treat stripped coupons as newly issued
debt instruments to each purchaser. If 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
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
the proposed regulations, may also be excepted from the proposed regulations.
Like the OID Regulations, the proposed regulations do not specifically address
securities like the grantor trust strip certificates that are subject to the
stripped bond rules of the Code.
If the contingent payment rules under the proposed regulations were to
apply, you 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. You would
be 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 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 you in the manner prescribed by the regulations. The comparable
yield 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. You 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.
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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 on these certificates would be
substantially similar to that described under "Taxation of Owners of Grantor
Trust Strip Certificates."
You should consult your tax advisor concerning the 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 the sale or exchange of a grantor trust certificate will be
capital gain or loss if you hold the grantor trust certificate as a capital
asset, except for any amount 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 you reported on the grantor trust certificate, including
OID and market discount income, and reduced, but not below zero, by any
previously reported losses, any amortized premium and by any distributions on
the grantor trust certificate. Currently, the maximum tax rate for individuals
on ordinary income and short-term capital gains is 39.6% and the maximum tax
rate for long-term capital gains of individuals is 20%. There is no rate
differential 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 some 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 if the grantor trust
certificate is held as part of a "conversion transaction" within the meaning of
Section 1258 of the Code. A conversion transaction generally is one in which the
taxpayer has taken two or more positions in the same or similar property that
reduce or eliminate market risk, if substantially all of the taxpayer's return
is attributable to the time value of the taxpayer's net investment in the
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 at the time the taxpayer enters into the
conversion transaction, subject to 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 to include the net capital gain in
total net investment income for that taxable year. A taxpayer would make this
election 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 will furnish to you with each distribution a statement
setting forth the amount of the distribution allocable to principal and to
interest at the related pass-through
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rate on the underlying mortgage loans. In addition, the trustee or master
servicer will furnish, within a reasonable time after the end of each calendar
year, to you provided you held a grantor trust certificate at any time during
the year, information regarding the amount of servicing compensation received by
the master servicer, the special servicer or any sub-servicer, and other
customary factual information as the depositor or the reporting party deems
necessary or desirable to enable you to prepare your 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 on the grantor
trust certificates are uncertain, there is no assurance the IRS will agree with
the trustee's or master servicer's, information reports of these items of income
and expense. Additionally, the information reports, even if otherwise accepted
as accurate by the IRS, will be accurate only as to the initial
certificateholders that bought their certificates at the initial offering price
used in preparing the 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 that discussion,
only if the related mortgage loans were originated after July 18, 1984.
If the 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, the 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 "Federal
Income Tax Consequences," you 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, you should
consult your own tax advisors about the various tax consequences of investments
in the offered certificates.
ERISA Considerations
The Employee Retirement Income Security Act of 1974 or "ERISA" and the Code
impose requirements on employee benefit plans and on other retirement plans and
arrangements, including individual retirement accounts and annuities, Keogh
plans and some entities in which the plans have invested, such as collective
investment funds, insurance company separate accounts, and some insurance
company general accounts. We refer to the plans collectively, as "benefit
plans." In addition, ERISA imposes duties on
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persons who are fiduciaries of plans subject to ERISA in connection with the
investment of plan assets. Governmental plans and some church plans are not
subject to ERISA requirements but are subject to the provisions of other
applicable federal and state law which may be substantially similar to ERISA and
the Code.
ERISA imposes on plan fiduciaries general fiduciary requirements, including
those of investment prudence and diversification and the requirement that a
benefit plan's investments be made in accordance with the documents governing
the benefit plan. In addition, Section 406 of ERISA and Section 4975 of the Code
prohibit a broad range of transactions involving assets of a benefit plan and
persons called "parties in interest," who have specified relationships to the
benefit plan. Unless an exemption is available, a benefit plan's purchase or
holding of a certificate may 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 benefit plan. If a
party in interest participates in a prohibited transaction that is not exempt,
it may be subject to excise tax and other liabilities under ERISA and the Code.
Plan Asset Regulations
If a benefit plan purchases offered certificates, the underlying mortgage
loans, MBS and other assets included in the related trust may be deemed "plan
assets" of that benefit plan. A regulation of the United States Department of
Labor or "DOL" at 29 C.F.R. Section 2510.3-101 provides that when a benefit plan
acquires an equity interest in an entity, the plan's assets include both the
equity interest and an undivided interest in each of the underlying assets of
the entity, unless some exceptions not applicable here apply, or unless the
equity participation in the entity by "benefit plan investors," i.e., benefit
plans and some employee benefit plans not subject to ERISA or the Code, is not
"significant," both as defined in the regulation. Equity participation in a
trust 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 benefit plan assets, and any person who provides
investment advice with respect to benefit plan assets for a fee, is a fiduciary
of the investing benefit plan. If the mortgage loans, MBS and other assets
included in a trust constitute benefit 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 of those
parties may be deemed to be a plan "fiduciary" and may be subject to the
fiduciary responsibility and 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 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, may result in a prohibited transaction under
ERISA or the Code.
Prohibited Transaction Exemption
On March 29, 1994, the DOL issued an individual exemption (Prohibited
Transaction Exemption 94-29, 59 FR 14674) to certain of the depositor's
affiliates, which was amended by another exemption dated July 21, 1997
(Prohibited Transaction 97-34, 62 FR 39021). We refer to these two exemptions,
together, as the "exemption." The exemption provides relief from the prohibited
transaction provisions of Section 406 of
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ERISA, and the excise taxes imposed on those prohibited transactions under
Sections 4975(a) and (b) of the Code, for certain transactions, among others,
relating to the servicing and operation of mortgage pools and the purchase, sale
and holding of mortgage pass-through certificates or certificates denominated as
debt instruments that represent interests in a REMIC under Section 860 D of the
Code issued by a trust, if:
(1) the depositor, or an affiliate, is the sponsor and an 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
(2) the depositor or an affiliate is the underwriter, provided that
conditions provided in the exemption are satisfied.
The prospectus supplement for each series will indicate whether the
exemption is available for the relevant underwriter.
Each transaction involving the purchase, sale and holding of the offered
certificates must satisfy the following six general conditions before it will be
eligible for relief under the exemption:
o 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.
o the offered certificates must evidence rights and interests that are not
subordinated to the rights and interests evidenced by the other
certificates of the same trust.
o 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 Structured Rating Group, Moody's Investors Service, Inc.,
Duff & Phelps Credit Rating Co. or IBCA.
o 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 the
assets constituting the related trust constituting more than 5% of the
aggregate unamortized principal balance of the trust assets in the related
trust as of the date of initial issuance of the certificates.
o 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
under the assignment of the trust assets to the related trust must
represent not more than the fair market value of these 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 the person's services under the related
pooling and servicing agreement and reimbursement of that person's
reasonable expenses in connection therewith.
o the investing benefit plan must be an accredited investor as defined in
Rule 501(a)(1) of Regulation D under the Securities Act.
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The exemption also requires that each trust meet the following
requirements:
o the corpus of the trust must consist solely of assets of the type that have
been included in other investment pools;
o certificates in 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 before the acquisition of certificates by or with assets
of a plan; and
o certificates in other investment pools must have been purchased by
investors other than plans for at least one year before any acquisition of
certificates by or with assets of a plan.
In addition, the exemption requires that the corpus of the trust consist
solely of some types of assets, including mortgage obligations such as those in
the trusts and property which had secured those obligations. However, it is not
clear whether some certificates that may be offered by this prospectus would
constitute "certificates" for purposes of the exemption, including but not
limited to:
o certificates evidencing an interest in certificates insured or guaranteed
by Federal Agricultural Mortgage Corporation,
o certificates evidencing an interest in mortgage loans secured by liens on
real estate projects under construction,
o certificates evidencing an interest in a trust including equity
participations,
o certificates evidencing an interest in a trust including cash flow
agreements,
o subordinated classes of certificates or "non-exempt certificates", or
o certificates evidencing mortgages containing "defeasance" provisions under
which a borrower may release a mortgaged property from the lien of the
mortgage by substituting treasury securities as collateral.
In promulgating the exemption, the DOL did not consider interests in pools
of the exact nature described in this paragraph.
If you are a fiduciary or other investor using plan assets of a benefit
plan, and you are contemplating purchasing an offered certificate, you must make
your own determination that the general conditions set forth above will be
satisfied with respect to your purchase.
If the general conditions of the exemption are satisfied, the exemption may
provide relief 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 benefit plan. However, no exemption is provided from the
restrictions of Sections 406(a)(1)(E), 406(a)(2) and 407 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 that excluded plan. For purposes of the certificates, an
excluded
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plan is a benefit plan sponsored by any member of the restricted group.
If specific conditions of the exemption are also satisfied, the exemption
may provide relief 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 the direct or
indirect sale, exchange or transfer of certificates in the initial issuance of
certificates between the depositor or an underwriter and a benefit plan when the
fiduciary of that benefit plan is also a mortgagor, only if, among other
requirements,
o the fiduciary, or its affiliate, is a mortgagor with respect to 5% or less
of the fair market value of the trust assets and is otherwise not a member
of the restricted group;
o a benefit plan's investment in offered certificates does not exceed 25% of
all of the offered certificates outstanding at the time of the acquisition;
o immediately after the acquisition, no more than 25% of the assets of the
benefit plan are invested in certificates representing an interest in
trusts, including the relevant trust, containing assets sold or serviced by
the master servicer; and
o in the case of the acquisition of the offered certificates in connection
with their initial issuance, at least 50% of the offered certificates are
acquired by persons independent of the restricted group and at least 50% of
the aggregate interest in the trust is acquired by persons independent of
the restricted group.
Further, the exemption may provide relief 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. This relief requires that, in addition to the general
requirements described above, (a) transactions are carried out in accordance
with the terms of a binding pooling and servicing agreement and (b) the pooling
and servicing agreement is provided to, or described in all material respects in
the prospectus or private placement memorandum provided to, investing benefit
plans before their purchase of offered certificates issued by the trust. The
depositor expects these specific conditions will be satisfied with respect to
the certificates.
The exemption also may provide relief 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 restrictions would 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 that person, solely as a
result of the plan's ownership of certificates.
Before purchasing an offered certificate, if you are a fiduciary or other
investor of plan assets, you should confirm for yourself:
o that the certificates constitute "certificates" for purposes of the
exemption, and
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o that the specific and general conditions required by the exemption and the
other requirements provided in the exemption are satisfied.
Representation from Investing Plans
If you purchase, including by transfer, offered certificates with the
assets of one or more benefit plans in reliance on the Exemption, you will be
deemed to represent that each of those benefit plans qualifies as an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D under the Securities Act.
You may not purchase or hold the offered certificates with the assets of a
benefit plan unless those certificates are rated in one of the top three rating
categories by at least one rating agency at the time of purchase, unless the
benefit plan is an insurance company general account that represents and
warrants that it is eligible for, and meets all of the requirements of, Parts I
and III of Prohibited Transaction Class Exemption ("PTCE") 95-60, which are
described below.
The exemption does not provide relief for the purchase, sale or holding of
subordinate classes of offered certificates. The trustee will not register
transfers of subordinate classes of offered certificates to you if you are a
benefit plan, if you are acting on behalf of any benefit plan, or if you are
using plan assets to effect that acquisition unless you represent and warrant
that:
o the source of funds used to purchase those certificates is an "insurance
company general account" as that term is defined in PTCE 95-60, and
o that general account is eligible for, and satisfies all of the conditions
of Sections I and III of PTCE 95-60 as of the date of the acquisition of
those certificates.
In addition to making your own determination that exemptive relief is
available under the exemption, you should consider your general fiduciary
obligations under ERISA in determining whether to purchase any offered
certificates with assets of a benefit plan. You should also consider whether
other class exemptions granted by the DOL may provide relief from some of the
prohibited transaction provisions of ERISA and the related excise tax provisions
of Section 4975 of the Code. For example, Sections I and III of PTCE 95-60,
regarding transactions by insurance company general accounts may provide relief
in some cases. Insurance company general accounts should also consider the
possible impact of Section 401(c) of ERISA and the proposed regulations under
that section. 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
by that prospectus supplement.
If you are a fiduciary or other plan investor and you would like to
purchase offered certificates on behalf of or with assets of a plan, you should
consult with your counsel about whether ERISA and the Code impose restrictions
on the investment, and whether the exemption or any other prohibited transaction
exemption may provide relief from those restrictions. These exemptions may not
apply to your investment in the certificates. Even if an exemption does apply,
it may not apply to all prohibited transactions that may occur in connection
with an investment.
Tax Exempt Investors
A "tax-exempt investor" or a plan that is exempt from federal income
taxation under Section 501 of the Code nonetheless will be subject to federal
income taxation to the
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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 "Federal
Income Tax Consequences-Taxation of Owners of REMIC Residual Certificates-Excess
Inclusions."
Legal Investment
If so specified in the related prospectus supplement, the offered
certificates will constitute "mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984 or "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.
Usually, only classes of offered certificates that:
o are rated in one of the two highest rating categories by one or more rating
agencies and
o are part of a series evidencing interests in a trust 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 some 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 under 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 before October 3, 1991
that specifically limits the legal investment authority of any such entities as
to "mortgage related securities," offered certificates would constitute legal
investments for entities subject to that legislation only to the extent provided
in the legislation.
SMMEA also amended the legal investment authority of federally chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal with "mortgage
related securities" without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in such securities, and
national banks may purchase such securities for their own account without regard
to the limitations generally applicable to investment securities provided 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 the 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
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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 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 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,
before 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 or 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 "high-risk" mortgage
derivative securities and limitations on the use of such securities by
insolvent, undercapitalized or otherwise "troubled" institutions. According to
the bulletin, high-risk" mortgage derivative securities include securities
having certain specified characteristics, which may include some 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 some
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 investors either to
purchase some 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,
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including the volume of mortgage assets acquired by the depositor, prevailing
interest rates, availability of funds and general market conditions.
Method of Distribution
The certificates offered by this prospectus and by the related prospectus
supplements will be offered in series through one or more of the methods
described below. The prospectus supplement for each series will describe the
method of offering for that series and will state the net proceeds to the
depositor from the 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 the following methods:
o by negotiated firm commitment or best efforts underwriting and public
re-offering by underwriters;
o by placements by the depositor with institutional investors through
dealers; and
o by direct placements by the depositor with institutional investors.
In addition, 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 for those certificates or to one or more of its affiliates.
If underwriters are used in a sale of any offered certificates, other than
in connection with an underwriting on a best efforts basis, the certificates
will be acquired by the underwriters for their own account and may be resold
from time to time in one or more transactions, including negotiated
transactions, at fixed public offering prices or at varying prices to be
determined at the time of sale or at the time of commitment therefor. The
underwriters may be broker-dealers affiliated with the depositor whose
identities and relationships to the depositor will be as provided in the related
prospectus supplement. The depositor or the underwriters may sell certificates
to affiliates of the depositor. The related prospectus supplement will identify
those affiliates and the method or methods by which the affiliates may resell
those certificates. The managing underwriter or underwriters for the offer and
sale of offered certificates of a particular series will be set forth on the
cover of the prospectus supplement relating to that series and the members of
the underwriting syndicate, if any, will be named in the 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 those 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.
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 conditions precedent, that the underwriters will
be obligated to purchase all of those certificates if any are purchased, other
than in connection with an underwriting on a best
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efforts basis, and that, in limited circumstances, the depositor will indemnify
the several underwriters, and the underwriters will indemnify the depositor
against specified civil liabilities, including liabilities under the Securities
Act, or will contribute to payments required to be made in respect thereof.
The prospectus supplement for any series offered by placements through
dealers will contain information regarding the nature of the offering and any
agreements to be entered into between the depositor and purchasers of offered
certificates of that 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 the
purchases, be deemed to be "underwriters" within the meaning of the Securities
Act, in connection with reoffers and sales by them of offered certificates.
Holders of offered certificates should consult with their legal advisors in this
regard before any reoffer or sale.
Legal Matters
Unless we tell you otherwise 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, New York, New York or Orrick, Herrington & Sutcliffe
LLP, New York, New York.
Financial Information
A new trust will be formed for each series of certificates, and no trust
will engage in any business activities or have any assets or obligations before
the issuance of the related series of certificates. Accordingly, no financial
statements for any trust 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.
Where You Can Find Additional Information
The depositor has filed a registration statement with the Commission
relating to the certificates. This prospectus is part of the registration
statement, but the registration statement includes additional information.
We will file with the Commission all required annual, monthly and special
Commission reports, as well as other information about the trusts.
You may read and copy any reports, statements or other information we file
at the Commission's Public Reference Room at 450 Fifth Street, N.W., Washington,
D.C. 20549. You may obtain information on the operation of the Public Reference
Room by calling the Commission at 1-800-Commission-0330. You can also request
copies of these documents, upon payment of a duplicating fee, by writing to the
Commission. The Commission also maintains an Internet site that contains
reports, proxy and information statements, and other information regarding
issuers that file electronically with the Commission. The address of the
Commission's Internet site is www.sec.gov.
Reports to Certificateholders
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Monthly statements will be sent to you by the master servicer, manager or
trustee, as applicable. These statements will keep you informed about the trust
for your series of certificates. See "Description of the Certificates--Reports
to Certificateholders." The These monthly reports will present financial
information that no independent certified public accountant will have examined.
Incorporation of Information by Reference
The Commission allows us to "incorporate by reference" information we file
with it, which means that we can disclose important information to you by
referring you to documents which contain that information. Exhibits to these
documents may be omitted, unless the exhibits are specifically incorporated by
reference in the documents. Information incorporated in this prospectus by
reference is considered to be part of this prospectus. Certain information that
we will file with the Commission in the future will automatically update the
information in this prospectus. In all cases, you should rely on the later
information over different information included in this prospectus or the
prospectus supplement. We incorporate by reference any future annual, monthly
and special Commission reports filed by or on behalf of the trust until we
terminate our offering of the certificates. At your request, we will send you
copies of these documents and reports at no charge. Send your written request
to:
GMAC Commercial Mortgage Securities, Inc.
650 Dresher Road
Horsham, Pennsylvania 19044
(215) 328-3164
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 of all collections on the underlying mortgage assets to
which the holders are entitled. These ratings address the structural, legal and
issuer-related aspects associated with the 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
the 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 the certificates or the
suitability of the 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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Glossary
Accrued Certificate Interest--For each class of certificates, other than
some classes of stripped interest certificates and some 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 that class of certificates immediately before that
distribution date.
Available Distribution Amount--As more specifically described 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 made by the servicer in lieu of those
payments on the mortgage assets and any other assets included in the related
trust that are available for distribution to the holders of certificates of that
series on that date.
Debt Service Coverage Ratio--Unless more specifically described in the
related prospectus supplement, the debt service coverage ratio means, for any
mortgage loan, or for a mortgage loan evidenced by one mortgage note, but
secured by multiple mortgaged properties,
o the Underwritten Cash Flow for the mortgaged property or mortgaged
properties, divided by
o the annual debt service for the mortgage loan.
Excess Funds--Unless we tell you otherwise in the related prospectus
supplement, Excess Funds will, generally, represent that portion of the amounts
distributable in respect of the certificates of any series on any distribution
date that represent
o interest received or advanced on the mortgage assets in the related trust
that is in excess of the interest currently accrued on the certificates of
that series, or
o prepayment premiums, payments from equity participations or any other
amounts received on the mortgage assets in the related trust that do not
constitute interest thereon or principal thereof.
Loan-to-value Ratio--Unless more specifically described 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
o the then outstanding principal balance of the mortgage loan and any loans
senior to the mortgage loan that are secured by the related mortgaged
property; to
o the value of the related mortgaged property.
Prepayment Period--The Prepayment Period 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 must be
received to be distributed on a particular distribution date
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Purchase Price--The Purchase Price will be equal to either the unpaid
principal balance of the mortgage loan, together with accrued but unpaid
interest through a date on or about the date of purchase, or another price
specified in the related prospectus supplement.
Underwritten Cash Flow--Underwritten Cash Flow for any mortgaged property
is an estimate of cash flow available for debt service in a typical year of
stable, normal operations. Unless more specifically described in the related
prospectus supplement, it is the estimated revenue derived from the use and
operation of the mortgaged property less the sum of
o estimated operating expenses, such as utilities, administrative expenses,
repairs and maintenance, management and franchise fees and advertising;
o fixed expenses, such as insurance, real estate taxes and, if applicable,
ground lease payments; and
o 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.
Undivided Percentage Interest--The Undivided Percentage Interest for an
offered certificate of a particular class will be equal to the percentage
obtained by dividing the initial principal balance or notional amount of the
certificate by the initial certificate balance or notional amount of that class.
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TABLE OF CONTENTS
Page
----
Prospectus Summary.............................................................3
The Mortgage Asset Pools and Other
Assets of the Trusts......................................................3
The Mortgage Loan Sellers...................................................3
The Master Servicer, the Special
Servicer and the Administration of the
Trusts....................................................................3
The Certificates............................................................4
Distributions to the Certificateholders.....................................4
Interest....................................................................4
Principal...................................................................5
Not all certificates will receive principal on each distribution
date and some classes may not be entitled to receive
any distributions of principal..............................................5
Credit Support and Cash Flow
Agreements................................................................5
Ratings.....................................................................5
Risk Factors...................................................................6
It may not be possible to find an
investor to purchase your
certificates.............................................................6
The certificates will only be paid from
trust assets..............................................................6
The certificates are not guaranteed.........................................6
Investment in commercial and
multifamily mortgage loans is riskier
than investment in single-family
mortgage loans............................................................6
Modifications to mortgage loans or
extensions of the maturity date agreed
to by the servicer may not ultimately
increase the present value of proceeds
to certificateholders.....................................................8
Credit support is limited...................................................8
Each class of certificates
will have different yield
and prepayment considerations............................................10
Assignments of leases and rents may
affect payments to
certificateholders......................................................11
Environmental conditions
may subject the mortgaged property to
liens or impose costs on the property
owner....................................................................11
Description of the Trust......................................................12
Mortgage Loans................................................................12
Default and Loss Considerations for the
Mortgage Loans...........................................................13
Payment Provisions of the Mortgage
Loans....................................................................15
Mortgage Loan Information in
prospectus supplements...................................................16
MBS......................................................................17
Certificate Accounts.....................................................18
Cash Flow Agreements.....................................................18
Yield and Maturity Considerations.............................................18
Pass-Through Rate........................................................19
Purchase Price Consideration...............................................19
Payment Delays...........................................................19
Shortfalls in Collections of
Interest.................................................................20
The Effects of Prepayments on
Yield..................................................................20
Weighted Average Life and
Maturity..............................................................22
Other Factors Affecting Yield, Weighted
Average Life and Maturity................................................23
The Depositor.................................................................25
GMAC Commercial Mortgage
Corporation................................................................25
Description of the Certificates...............................................26
Distributions............................................................27
Distributions of Interest on the
Certificates.............................................................27
Distributions of Principal of the
Certificates.............................................................28
Allocation of Losses and Shortfalls
........................................................................29
Advances in Respect of
Delinquencies.........................................................29
Reports to Certificateholders............................................30
Termination; Retirement of
Certificates..........................................................32
Book-Entry Registration and Definitive
Certificates.............................................................33
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TABLE OF CONTENTS
(continued)
Page
----
The Pooling and Servicing Agreements..........................................35
Assignment of Mortgage Loans;
Repurchases..............................................................36
Representations and Warranties;
Repurchases..............................................................38
Collection and other Servicing
Procedures...............................................................39
Sub-Servicers............................................................41
Special Servicers........................................................42
Certificate Account......................................................42
Realization Upon Defaulted Mortgage
Loans....................................................................45
Hazard Insurance Policies................................................47
Due-on-Sale and Due-on-
Encumbrance Provisions...................................................48
Servicing Compensation and Payment
of Expenses..............................................................48
Evidence as to Compliance................................................49
Matters Regarding the Master
Servicer and the Depositor...............................................50
Events of Default........................................................51
Rights Upon Event of Default.............................................52
Amendment................................................................53
The Trustee..............................................................54
Duties of the Trustee....................................................54
Matters Regarding the Trustee............................................55
Resignation and Removal of the
Trustee..................................................................55
Description of Credit Support.................................................55
Subordinate Certificates.................................................56
Insurance or Guarantees for Mortgage
Loans....................................................................57
Letter of Credit.........................................................57
Certificate Insurance and Surety
Bonds....................................................................57
Reserve Funds............................................................57
Credit Support for MBS...................................................58
Legal Aspects of Mortgage
Loans....................................................................58
Types of Mortgage Instruments............................................58
Leases and Rents.........................................................59
Personalty...............................................................60
Foreclosure..............................................................60
Bankruptcy Laws..........................................................63
Environmental Considerations.............................................65
Due-on-Sale and Due-on-
Encumbrance..........................................................67
Subordinate Financing....................................................67
Default Interest and Limitations on
Prepayments..............................................................68
Applicability of Usury Laws..............................................68
Soldiers' and Sailors' Civil Relief Act of
1940.....................................................................69
Federal Income Tax
Consequences...........................................................69
REMICs...................................................................71
Grantor Trust............................................................88
State and Other Tax Consequences..............................................98
ERISA Considerations..........................................................98
Plan Asset Regulations...................................................99
Prohibited Transaction Exemption.........................................99
Representation from Investing
Plans..................................................................102
Tax Exempt Investors....................................................103
Legal Investment.............................................................104
Use of Proceeds..............................................................105
Method of Distribution.......................................................105
Legal Matters................................................................107
Financial Information........................................................107
Where You Can Find Additional Information....................................107
Reports to Certificateholders................................................107
Incorporation of Information by
Reference.................................................................108
Rating.......................................................................108
Glossary.....................................................................109
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION (ITEM 14 OF FORM S-3).
The expenses expected to be incurred in connection with the issuance and
distribution of the Certificates being registered, other than underwriting
compensation, are as set forth below.
Filing Fee for Registration Statement 278.00
Legal Fees and Expenses 4,000,000.00
Accounting Fees and Expenses 1,600,000.00
Trustee's Fees and Expenses 800,000.00
(including counsel fees)
Blue Sky Fees and Expenses 200,000.00
Printing and Engraving Fees 800,000.00
Rating Agency Fees 2,000,000.00
Miscellaneous --
400,000.00
-------------
Total $9,800,278.00
-------------
INDEMNIFICATION OF DIRECTORS AND OFFICERS (ITEM 15 OF FORM S-3).
The Pooling and Servicing Agreements will provide that no director,
officer, employee or agent of the Registrant is liable to the Trust Fund or the
Certificateholders, except for such person's own willful misfeasance, bad faith,
negligence in the performance of duties or reckless disregard of obligations and
duties. The Pooling and Servicing Agreements will further provide that, with the
exceptions stated above, a director, officer, employee or agent of the
Registrant is entitled to be indemnified against any loss, liability or expense
incurred in connection with legal action relating to such Pooling and Servicing
Agreements and related Certificates other than such expenses related to
particular Mortgage Assets.
Any underwriters who execute an Underwriting Agreement in the form filed as
Exhibit 1.1 to this Registration Statement will agree to indemnify the
Registrant's directors and its officers who signed this Registration Statement
against certain liabilities which might arise under the Securities Act of 1933
from certain information furnished to the Registrant by or on behalf of such
indemnifying party.
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<PAGE>
Subsection (a) of Section 145 of the General Corporation Law of Delaware
empowers a corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, employee or agent of the corporation or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification may be made
in respect to any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine that despite the adjudication of liability such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper.
Section 145 further provides that to the extent a director, officer,
employee or agent of a corporation has been successful in the defense of any
action, suit or proceeding referred to in subsections (a) and (b) or in the
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith; that indemnification or advancement of expenses provided
for by Section 145 shall not be deemed exclusive of any other rights to which
the indemnified party may be entitled; and empowers the corporation to purchase
and maintain insurance on behalf of a director, officer, employee or agent of
the corporation against any liability asserted against him or incurred by him in
any such capacity or arising out of his status as such whether or not the
corporation would have the power to indemnify him against such liabilities under
Section 145.
The By-Laws of the Registrant provide, in effect, that to the extent and
under the circumstances permitted by subsections (a) and (b) of Section 145 of
the General Corporation Law of the State of Delaware, the Registrant (i) shall
indemnify and hold harmless each person who was or is a party or is threatened
to be made a party to any action, suit or proceeding described in subsections
(a) and (b) by reason of the fact that he is or was a director or officer, or
his testator or intestate is or was a director or officer of the Registrant,
against expenses, judgments, fines and amounts paid in settlement, and (ii)
shall indemnify and hold harmless each person who was or is a party or is
threatened to be made a party to any such action, suit or proceeding if such
person is or was serving at the request of the
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Registrant as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise.
Certain controlling persons of the Registrant may also be entitled to
indemnification from General Motors Acceptance Corporation, an indirect parent
of the Registrant. Under Section 145, General Motors Acceptance Corporation may
or shall, subject to various exceptions and limitations, indemnify its directors
or officers and may purchase and maintain insurance as follows:
The Certificate of Incorporation, as amended, of General Motors Acceptance
Corporation provides that no director shall be personally liable to General
Motors Acceptance Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to General Motors Acceptance Corporation or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174,
or any successor provision thereto, of the Delaware Corporation Law, or (iv) for
any transaction from which the director derived an improper personal benefit.
Under Article VI of its By-Laws, General Motors Acceptance Corporation
shall indemnify and advance expenses to every director and officer (and to such
person's heirs, executors, administrators or other legal representatives) in the
manner and to the full extent permitted by applicable law as it presently
exists, or may hereafter be amended, against any and all amounts (including
judgments, fines, payments in settlement, attorneys' fees and other expenses)
reasonably incurred by or on behalf of such person in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal administrative or investigative (a "proceeding"), in which such
director or officer was or is made or is threatened to be made a party or is
otherwise involved by reason of the fact that such person is or was a director
or officer of General Motors Acceptance Corporation, or is or was serving at the
request of General Motors Acceptance Corporation as a director, officer,
employee, fiduciary or member of any other corporation, partnership, joint
venture, trust, organization or other enterprise. General Motors Acceptance
Corporation shall not be required to indemnify a person in connection with a
proceeding initiated by such person if the proceeding was not authorized by the
Board of Directors of General Motors Acceptance Corporation. General Motors
Acceptance Corporation shall pay the expenses of directors and officers incurred
in defending any proceeding in advance of its final disposition ("advancement of
expenses"); provided, however, that the payment of expenses incurred by a
director or officer in advance of the final disposition of the proceeding shall
be made only upon receipt of an undertaking by the director or officer to repay
full amounts advanced if it should be ultimately determined that the director or
officer is not entitled to be indemnified under Article VI of the By-Laws or
otherwise. If a claim for indemnification or advancement of expenses by an
officer or director under Article VI of the By-Laws is not paid in full within
ninety days after a written claim therefor has been received by General Motors
Acceptance Corporation, the claimant may file suit to recover the unpaid amount
of such claim, and if successful in whole or in part, shall be entitled to the
requested indemnification or advancement of expenses under applicable law. The
rights conferred on any person by Article VI of the By-Laws shall not be
exclusive of any other rights which such person may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation, ByLaws,
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<PAGE>
agreement, vote of stockholders or disinterested directors of General Motors
Acceptance Corporation or otherwise. The obligation, if any, of General Motors
Acceptance Corporation to indemnify any person who was or is serving at its
request as a director, officer or employee of another corporation, partnership,
joint venture, trust, organization or other enterprise shall be reduced by any
amount such person may collect as indemnification from such other corporation,
partnership, joint venture, trust, organization or other enterprise.
As a subsidiary of General Motors Corporation, General Motors Acceptance
Corporation is insured against liabilities which it may incur by reason of the
foregoing provisions of the Delaware General Corporation Law and directors and
officers of General Motors Acceptance Corporation are insured against some
liabilities which might arise out of their employment and not be subject to
indemnification under said General Corporation Law.
Pursuant to resolutions adopted by the Board of Directors of General Motors
Corporation, that company to the fullest extent permissible under law will
indemnify, and has purchased insurance on behalf of, directors and officers of
the company, or any of them, who incur or are threatened with personal
liability, including expenses, under the Employee Retirement Income Security Act
of 1974 or any amendatory or comparable legislation or regulation thereunder.
EXHIBITS (ITEM 16 OF FORM S-3).
Exhibits --
1.1 -- Form of Underwriting Agreement.*
3.1 -- Certificate of Incorporation.*
3.2 -- By-Laws.*
4.1 -- Form of Pooling and Servicing Agreement.*
5.1 -- Opinion of Mayer Brown & Platt with respect to legality.**
5.2 -- Opinion of Orrick, Herrington & Sutcliffe LLP with respect to
legality.**
8.1 -- Opinion of Mayer Brown & Platt with respect to certain tax
matters (included with Exhibit 5.1).**
8.2 -- Opinion of Orrick, Herrington & Sutcliffe LLP with respect to
certain tax matters.**
23.1 -- Consent of Mayer Brown & Platt (included as part of Exhibit 5.1
and Exhibit 8.1).**
23.2 -- Consent of Orrick, Herrington & Sutcliffe LLP (included as part
of Exhibit 5.2 and Exhibit 8.2).**
24.1 -- Power of Attorney.**
* Incorporated by reference from the Registration Statement on Form S-3 (File
No. 33- 94448).
** Previously filed.
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<PAGE>
UNDERTAKINGS (ITEM 17 OF FORM S-3).
A. UNDERTAKINGS PURSUANT TO RULE 415.
The undersigned Registrant hereby undertakes:
(a) (1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933, (ii) to
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement, and (iii) to include
any material information with respect to the plan of distribution not previously
disclosed in this Registration Statement or any material change to such
information in this Registration Statement; PROVIDED HOWEVER, that paragraphs
(a)(1)(i) and (a)(1)(ii) do not apply if the information required to be included
in a post-effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the Commission by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
(c) To provide to the underwriter at the closing specified in the
underwriting agreements certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
B. UNDERTAKING IN RESPECT OF INDEMNIFICATION.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as
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<PAGE>
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3, reasonably believes that the security
rating requirement contained in Transaction Requirement B.5. of Form S-3 will be
met by the time of the sale of the securities registered hereunder and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Township of Horsham, Commonwealth
of Pennsylvania, on the 26th day of October, 1999.
GMAC COMMERCIAL MORTGAGE
SECURITIES, INC.
By: /s/ David E. Creamer
----------------------
David E. Creamer
Director and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ David E. Creamer Director and President October 26, 1999
- ---------------------------- (Chief Executive Officer)
David E. Creamer
* Chief Financial Officer October 26, 1999
- ---------------------------- Controller and Vice President
Wayne D. Hoch (Chief Financial Officer and
Chief Accounting Officer)
* Director October 26, 1999
- ----------------------------
Charles E. Dunleavy, Jr.
* Director October 26, 1999
- ----------------------------
Dennis W. Sheehan, Jr.
* Director October 26, 1999
- ----------------------------
Charles J. Pringle
* Director October 26, 1999
- ----------------------------
Donald J. Puglisi
</TABLE>
*By: /s/ David E. Creamer
--------------------
David E. Creamer
Attorney-in-fact pursuant to a power of attorney
previously filed with the Registration Statement
