BROWN WOOD

ONE WORLD TRADE CENTER

555 CALIFORNIA STREET NEW YORK N.Y 0048-0557 95 CONNECrCIji AVENUC.N.W

SAN FRANCISCO CA 9410417I5 WASHINGTON D.C 20006-4004

TELEPHONE 415-399-3909 21-639-5300 TELEPHONE 202-223-0220

FACSIMILE 415-397-4621 C51M 295599 ACSlMILE 2022230495

0900 WILSH IRE SOULEVARO SLACKWELL MOUSE

LOS ANGELES CA 90024-6532 OUILOHALL YARD

TELEPHONE 213-209-4343 LONDON EC2V lAB

FAcSIMILE 3-209-5740 TELEPHONE 071-606-1969

rAC5IMILE 07 1-796-1607

Investment Company Act of 1940

Section

-- ici 1/

--

Office of Chief Counsel

Division of Investment Managexnen1

Securities and Exchange Commissi

450 Fifth Street N.W

Judiciary Plaza

Washington D.C 20549

Ladies and Gentlemen

We are writing on behalf of Greenwich Capital Acceptance Inc the Company in connection with its establishment of

certain trusts the Trusts whose assets consist primarily of

loans secured by ownership interests in cooperative housing the

Coop Loans The Coop Loans were acquired from the Resolution

Trust Corporation the RTC to facilitate the RTCs disposition of assets as means of resolving the savings and loan crisis

This letter hereby amends and restates our prior request dated

March 1991 that you confirm that the Division of Investment

Management the Division will not recommend that the

Securities and Exchange Commission the Commission take any enforcement action under the Investment Company Act of 1940 the Investment Company Act if the Trusts offer passthrough certificates the Certificates evidencing undivided interests

in the assets of the Trusts without registration as investment

companies in reliance on Section 3c5 of the Investment

Company Act This amendment and restatement is intended

primarily to update certain information discussed in our prior letter and to provide certain additional information requested by

August 1991
Julia Ulstrup of the Division in conversation with Brian

Kaplowitz of this firm

FACTS

The Company as sponsor of the Trust has purchased through affiliates the RTCs interest in approximately $700 million

principal amount of existing Coop Loans The Company has formed

several Trusts and has sold Certificates representing interests

therein in reliance on Section 3c1 of the Investment Company Act Section 3c1 generally provides an exception from the

definition of an investment company to any issuer whose

outstanding securities other than short-term paper are

beneficially owned by not more than one hundred persons and which

is not making and does not presently propose to make public offering of its securities The Company wishes contingent upon receipt of the no-action position that we request to be

permitted to sell Certificates and facilitate the sale and

resale of Certificates in the secondary market without being subject to the constraints of that Section In particular the

Company wishes to permit the sale and transfer of existing Certificates without being subject to the 100 beneficial owner limitation

Each Coop Loan is purchase money loan secured fully and

exclusively by shares of stock the Shares in coopera tive housing corporation and proprietary lease the Lease accompanying the Shares and entitling the owner of the

Shares to reside in the subject apartment described below The

Coop Loans were originated by Empire of America Federal Savings Bank predecessor of Empire Federal Savings Bank of America to

finance or refinance the purchase of cooperative apartments the Coop Apartments and represent in effect first liens on the

Shares and Leases

The Trusts were formed pursuant to pooling and servicing

agreements similar to those commonly used in the formation of

trusts that publicly offer mortgage-backed pass-through certificates The Coop Loans have been contributed by the

Company to such Trusts As contributor of the Coop Loans the

Company received all of the Certificates issued by the Trusts in

exchange for the contribution of the Coop Loans The Company has

been successful in privately placing certain of the Certificates

with sophisticated investors and with the exception of

relatively small amount of subordinated Certificates which it
proposes to retain would like to place the balance of the

Certificates with third party investors

The Trusts are passive entities and with the exception of

reinvesting distributions on the Coop Loans in narrowly defined

list of permitted investments perform no investment functions

The assets of each Trust consist of separate fixed pool of Coop Loans The existing Trusts will not acquire new Coop Loans

except in substitution for existing Coop Loans where the

documentation for such Coop Loans may be deemed defective or

where breach of warranty concerning such Coop Loans is found to

exist.2 Documents would be deemed to be defective for example where it is determined that there was insufficient documentation

for conveyance of ownership of the Coop Loans breach of

warranty may exist where certain material representations made in

such documentation prove to be false

The Coop Loans in each Trust are serviced by an independent third party servicer The servicer collects all payments due

under the Coop Loans sends and receives any notices required or

permitted under the terms of the Coop Loans and generally takes

any other servicing actions required under the terms of the Coop Loans

All of the income of the Trusts net of fees paid to the

servicer and other similar expenses of the Trusts are

distributed periodically to the Certificateholders

The Certificates of each series have been issued on both

senior and subordinated basis There are different classes

Such permitted investments consist generally of U.S

government and U.S government agency obligations short

term money market instruments and obligations rated in the

highest rating category by nationally recognized statistical rating agency or whose rating will not adversely affect the ratings assigned any rated Certificates

The Company may acquire new Coop Loans in the future and

establish additional trusts in reliance on any noaction

position taken by the Division on this letter or on any applicable statutory exception under the Investment Company Act or exception or exemption created by any rule

thereunder
within series with varying levels of seniority The more

senior Certificates have been rated in one of the top two rating categories by at least one nationally recognized statistical

rating organization Subordinated Certificates are unrated or

rated in lower than one of the two top rating categories

II LEGAL ANALYSIS

Section 3a of the Investment Company Act defines an in

vestment company as

Any issuer which --

is or holds itself out as being engaged primarily

or proposes to engage primarily in the business of

investing reinvesting or trading in securities

is engaged or proposes to engage in the business

of investing reinvesting owning holding or trading in

securities and owns or proposes to acquire investment

securities having value exceeding 40 per centum of the

value of such issuers total assets exclusive of Government

securities and cash items on an unconsolidated basis

Investment securities are defined as

All securities except Government securities

securities issued by employees securities companies and securities issued by majority-owned

subsidiaries of the owner which are not investment

companies

The Trusts may be viewed as investment companies within the

meaning of Section 3a since the Trusts have issued securities

in the form of the Certificates and have assets that consist

primarily of securities to the extent that the Coop Loans may be

considered securities We believe however that the Trusts may

rely on the exception from the definition of an investment com

pany provided by Section 3c5 of the Investment Company Act

Section 3c5 excepts from the definition of an investment

company person who is not engaged in the business of
issuing redeemable securities face-amount certificates of the

installment type or periodic payment plan certificates and who

is primarily engaged in one or more of the following businesses

purchasing or otherwise acquiring notes drafts acceptances

open accounts receivable and other obligations representing part or all of the sales price of merchandise insurance and ser

vices and purchasing or otherwise acquiring mortgages and other liens on and interests in real estate It is our

opinion that the Trusts fall within Subsection or alterna

tively within Subsection of Section 3c5 it is our

further opinion that if the Trusts are viewed as holding combination of assets falling under both Subsections the Trusts

may nevertheless be viewed as excepted under Section 3c5

Citytrust available December 19 1990 In that regard we

note that the Section extends to issuers engaged primarily in

one or more of the specified businesses We would like the

Division to confirm our view that the Coop Loans are the types of

assets intended to be covered by Section 3c5 qualifying assets

The Certificates do not constitute any of the proscribed

types of securities i.e they are neither redeemable

securities periodic payment plan certificates or face amount

certificates Further if Coop Loans are considered to be

qualifying assets the Trusts maintain sufficient percentage of

such assets so as to be deemed to be engaged primarily in one of

the excepted businesses Thus at least 80% of the assets of

each Trust consists of Coop Loans The most recent Division

no-action positions under Section 3c5C generally require that at least 55% of the issuers assets consist of real

estate fee interests or loans secured exclusively by real estate and at least 25% of the issuers assets consist of real

estate related investments subject to reduction to the extent

that assets described in exceed 55% e.g NAB Asset

Corporation available June 20 1991 United Bankers Inc

available March 23 1988

For purposes of our analysis we will discuss Subsection

separately from Subsection We will begin with Subsec

tion given that the Coop Loans are for most practical pur

poses identical to mortgage loans i.e they both involve liens on what is commonly viewed as real estate in the present case

the interests in the Coop Apartments Subsection remains

important since if the Coop Apartments are not considered real

estate they may be considered merchandise and thus the Coop
Loans would be obligations representing part or all of the sales

price of merchandise within the meaning of that

Subsection

Section 3c

To provide better understanding of our analysis under

Section 3c5C it may be helpful to first provide more

complete explanation of the nature of the Coop Apartments

Cooperative housing has arisen as means of exercising control

over ones neighbors and in order to enable the cooperative to

retain the benefits of existing favorable financing upon conversion of rental apartment building and the subsequent sale

of such building to cooperative corporation the coop corporation As sununarized in relatively recent request for

no-action advice ownership of any cooperative housing unit

including the Coop Apartments is essentially real estate

interest represented by proprietary lease entitling the owner

to reside in the unit When prospective purchaser is

considering the purchase of an apartment he would view

cooperative housing unit in largely the same manner as he would

view the purchase of house or condominium which is

undeniably real estate interest including in New York the

requirement for coop owners to pay real property transfer taxes

documentary stamps on deeds and real property taxes See D.BG Property Investors Inc available December 29 1986

The shares of stock attributable to ownership of coopera tive housing unit are essentially technical addition to real

estate ownership and do not have the characteristics generally attributable to conventional shares of stock The cooperative shares are not freely transferable except in connection with the

sale and delivery of lease corresponding to such shares and

only upon the approval of the coop corporations board of

directors The cooperative shares do not pay dividends The

shares may generally be pledged only with the above board of

directors approval which is usually provided in connection with

loan for the purchase of the housing unit relating to such

shares or refinancing of such loan Real property taxes and

mortgage payments with respect to the cooperative building are

paid proportionately by each tenant/shareholder to the coop corporation in the form of maintenance payments Each

tenant/shareholder would likewise pay its proportionate share of

the costs of repairs and capital improvements to the building

Finally as with any homeowner or condominium owner the owner of
the shares and proprietary lease would be entitled to his

proportionate share of the equity in the building represented by the net proceeds of sale of the building or condemnation award

Inasmuch as the Trusts succeed to the rights of the original lender in the Coop Loans it is also useful to consider the

rights of lenders in those and similar loans including their

rights upon default and the rights and obligations of borrowers

under such loans Related to this discussion is the relationship between the lender and the coop corporation and its board of

directors We will refer to New York practice for purposes of

this discussion since at the time the Trusts were created in

excess of 99% of the principal amount of Coop Loans related to

Coop Apartments located in New York

Each loan for the purchase of cooperative housing unit is

secured by pledge of the borrowers interest in the stock of

the coop corporation and the proprietary lease Thus the lenders rights are determined not only by its agreement with the

borrower but also by the borrowers status as tenant of and

shareholder in the coop corporation In that regard the lender

stands in much the same position as mortgagee in leasehold

mortgage which is mortgage on real estate

When the proprietary lease contains no specific provisions

permitting financing the borrowers pledge of the stock and

lease is generally acknowledged by the coop corporation pursuant to document known as the Recognition Agreement The

Recognition Agreement sets forth the terms of the relationship between the lender and the coop corporation providing what may generally be regarded as the basic financing provisions which

would be required by any leasehold mortgagee providing financing

on real property

Specifically pursuant to the Recognition Agreement the

lenders interest in its collateral is protected by the coop corporations obligation to provide notice of its intention

to terminate any proprietary lease by reason of the default of

the tenant/shareholder and to accept cure of such defaults by the

lender or allow the lender to cause the tenant shareholder to so

cure and ii refrain from selling or subletting the Coop

Apartment without the lenders consent unless the net proceeds thereof are sufficient to pay of the loan Further even if

lender does not cure monetary defaults under the lease the coop

corporation agrees to recognize lenders rights as lienor upon
the net proceeds of sale or subletting of the apartment after

reimbursement of the coop corporation of any sums outstanding under the lease

In addition the lenders right to dispossess the borrower as permitted by law or realize upon its security in accordance with the Recognition Agreement is expressly set forth in the

Recognition Agreement subject to the coop corporations right of

approval

transfer

of

of the

the transfer

shares and

of the shares and the lease i.e

proprietary lease whether to the

lender or third party requires consent of the coop corporation in the same manner as would any sale of the cooperative housing unit

With

by tenant/shareholder pursuant to the terms of the lease

respect to these rights of the lender vis-a-vis the coop corporation it should be noted that the lender upon acquisition of the shares and lease will be in exactly the same position as

though it foreclosed on mortgage on any other leasehold

property it will replace the tenant/shareholder under the

proprietary lease

As is evident from the foregoing the relative rights of the

lender and coop corporation are primarily that of leasehold

mortgagee and fee owner respectively Indeed although lenders

in New York do not typically place mortgages on cooperative apartment leases the opening sentence of the form of Recognition Agreement most commonly in use contains statement by the lender

that it has been requested to make loan to be secured by pledge security interest mortgage and/or assignment of

shares of your Corporation and of the Proprietary Lease

contemplating that mortgage interest may be so granted It is interesting to note in this regard that although pledge of stock would ordinarily be perfected merely by possession of

such stock New York has required pursuant to legislation adopted in 1988 that the pledge of stock in cooperative corporation may be perfected only by filing UCC-l Financing Statement in the land records where mortgages would be so

recorded and that like mortgages such filings shall be

effective until terminated if they so state The filing requirement however does not change the nature of the lenders

interest which remains security interest enforceable pursuant to the Uniform Commercial Code rather than true mortgage As

consequence the procedures pursuant to which the lender can

realize upon its collateral will differ from those in mortgage foreclosure Nevertheless the end result is the same i.e in
either case the lender acquires the collateral being in this

instance the shares and the proprietary lease

While the security interest held by lenders in Coop Loans is

not technically mortgage we believe that it falls under the

rubric of other liens on and interests in real estate within the meaning of Section 3c5C given the nature of the Coop Apartments and the rights of the various parties as described above We reach this Conclusion based on the treatment of

cooperative housing in the context of other Federal legislation decisions of the Supreme Court and of the lower Federal courts

and state courts and on positions previously taken by the

Division It bears repeating that while much of that authority focuses primarily on the share ownership aspect of cooperative housing the proprietary lease aspect especially reveals the real

estate nature thereof The lease effectively provides the owner

of such shares with residence and is clearly to use the words

of Section 3c5c an interest in real estate

Two pieces of legislation in particular reflect Congress view of loans for cooperative housing as the equivalent of

mortgage loans secured by residential real estate In the

Secondary Mortgage Market Enhancement Act of 1984 SMNEA Pub No 98440 98 Stat 1689 1984 Congress amended several of the Federal securities laws to encourage the development of

private secondary market in mortgages as means of addressing the nations housing needs In connection with that legislation Section 3a41 of the Securities Exchange Act of 1934 was

enacted to define the type of security that would receive the

special securities law treatment afforded by SMNEA Section 3a41 thus sets forth the term mortgage related security which specifically includes certain notes and participation certificates that are directly secured by first lien on

single parcel of real estate including stock allocated to

dwelling unit in residential cooperative housing corporation emphasis added Similarly in amendments

to the Internal Revenue Code regarding the tax treatment of real

estate mortgage investment conduits loan secured by stock in

cooperative housing corporation is treated as qualified mortgage i.e is specifically considered as being secured by an

interest in real property See I.R.C 860Gc3A It is

also worth mentioning that the Internal Revenue Code treats

payments under loan for the purchase of shares in cooperative housing as equivalent to payments on mortgage loan for purposes of the deductibility of interest See I.R.C 163h
Federal courts also have addressed the nature of instruments

such as the Leases and Shares The Supreme Court in holding that the purchase of stock representing an interest in

government subsidized cooperative housing corporation does not

constitute the purchase of security stated that such trans action involves the purchase of housing United Housing Founda tion Inc Forman 421 U.s 837 1975 The Forman principles have been applied by the lower Federal courts e.a Grenader Spitz 537 F2d 612 2d Cir 1976 cert denied 429

645

U.S 1009 1976 Malken U.S Dept of Treasury I.R.S Supp 229 231 S.D.N.y 1986 Echotree Associates

Limited Partnership et al 1990 U.S Dist Lexis 7732 E.D Penn June 20 1990

State courts also often treat the interests created by cooperative apartment leases and shares in the same manner as

realty although the result may differ depending on the context

Div e.g Presten Sailer 542 A.2d N.J Super Ct App 1988 Generas Hotel Des Artjstes Inc 117 A.D.2d 563

1st Dept 1986 app den 68 N.Y.2d 606 498 N.E.2d 150 506

N.Y.S.2d 1030 1986 Moloney Weingarten 118 A.D 2d 836 2d Dept 1986 ap den 69 N.Y.2d 608 1987 Chiang Chang 137 A.D2d 371 1st Dept 1988 also Note Legal

Characterization of the Individuals Interest in Cooperative Apartment Realty or Persona1ty 73 Column Rev 250 1973 But see e.g State Tax Commission Shor 43 N.Y.2d 151 1977 Silverman Alcoa Plaza Associates 37 A.D.2d 166 1st Dept 1971 Moreover state courts in New York have

predominately viewed the landlord/tenant relationship created

between cooperative corporations and shareholders and their

tenants in the same manner as owners and occupants of other

residential properties Southridge Cooperative Section No Inc Menendez 535 N.Y.S.2d 299 N.Y City Civ Ct 1988 Linden Hill No Cooperative Corp Kleiner 478 N.Y.S.2d 519 N.Y City Civ Ct 1984 See also Star 308 Owners Corp 130 Misc.2d 732 497 N.Y.S.2d 282 N.Y City Civ Ct 1985 in

which the court recognized the shareholder of cooperative apartment to be responsible as an owner with respect to the

non-purchasing tenant residing in it and McMunn Steppingstone

Management Corp 131 Misc.2d 340 500 N.Y.S.2d 219 N.Y City Civ Ct 1986 in which the court acknowledged that proprietary leasehold provisions placing responsibilities of an owner on

the tenant/shareholder are enforceable Further other statutory provisions governing real property such as N.Y Real Prop Action S721 regarding the right to bring summary dispossess

10
action and N.Y Real Prop Law S235b regarding the warranty of

habitability have been found applicable in the cooperative setting Curtis Le May 186 Misc.2d 853 60 N.Y.S.2d 768 1945 Suarez Rivercross Tenants Corp 107 Misc.2d 135 Sup 438 N.Y.S.2d 164 1st Dept 1981 and Minton Doinb 63

A.D.2d 36 406 N.Y.S.2d 772 1st Dept 1978 Section 5206 of

the Civil Practice Law and Rules of New York the homestead

exemption is also applicable to cooperative apartments In this regard we note that the Division in construing Section 3c5C has in the past often looked to state law as relevant

in determining whether note or other debt instrument may be

considered to be secured by real estate under the Section

e.g Apache Petroleum Co available April 30 1982 Great

American Management and Investment Inc available September 27 1982

The Division has previously recognized the real estate

nature of cooperative housing in the context of the Investment

Company Act Specifically in the D.B.G letter supra page the Division took no-action position with respect to

partnership that wished to invest the proceeds of public offering in condominium units and occupied cooperative residential apartments by purchasing the shares of stock and

proprietary leases attributable thereto without registering under the Investment Company Act While the Division did not

express its rationale the letter requesting such position focused primarily on the argument that the proposed investments

constituted investments in real estate In addition the

Division has recognized other types of leasehold interests as real estate for purposes of Section 3c5C See e.g NAB

Asset Corporation available June 20 1991 Health Facility Credit Corp available February 1985 It is logical

corollary to those positions to say that the Coop Loans which

are purchase money or refinancing loans secured by Coop Apartments constitute liens on and other interests in real

estate thus falling plainly under the Section

We do not believe that the earlier letter of PB Realty Development Corp available December 1985 the PB Realty letter leads to different conclusion In that letter the

Division took no-action position with respect to partnership that wished to invest at least 55% of its assets in debt secured

by mortgages and in fee interests and up to 45% of its assets in

debt secured by shares in cooperative apartments together with

assignments of proprietary leases To the extent that the

11
Realty letter may appear inconsistent with the position that loans such as the Coop Loans are Section 3c5C qualifying assets the letter apparently was superseded by the D.B.G

letter Moreover the Division was not asked in the PB Realty letter to address the nature of the shares or leases complete evaluation of the nature of those instruments was not necessary to reaching conclusion under the Section

Section 3c

Even if one were to conclude that the Coop Loans are not

qualifying assets under Section we submit that the

Trusts could rely upon Section 3c5A The only alternative

to considering the Shares and Leases comprising the Coop Apart ments to be real estate is to consider them to be form of

merchandise Thus the Trusts would be primarily engaged in the

business of purchasing or otherwise acquiring .. obligations representing part or all of the sales price merchandise..

within the meaning of that Subsection In this regard we note that for example the courts in the Shor and Silverman cases

cited above supra at page 10 treated similar shares and leases as goods falling under the ambit of the Uniform Commercial Code

The Division has previously taken no-action positions with

respect to pools of leases e.g State of New Jersey available May 21 1984 U.S Municipal Lease Acceptance Corn

available April 11 1983 City National Bank available March

1984 Woodside Group available April 14 1982 The Leases

in the instant case should be treated no differently and the

Shares even more closely resemble merchandise as that term is

commonly understood We also make particular reference to the

no-action position under Section 3c5A taken by the Division

in Ziegler Mortgage Securities Inc available October 1984 Ziegler Ziegler involved company formed to issue debt

securities secured by portfolio of GNNA certificates which in

turn were to be backed by installment sale contracts creating

security interests in manufactured homes The Trusts in the

instant case have much closer nexus to the underlying merchandise than did the company in Ziegler.3

In addition the Division has taken the position that

refinancing loans are qualifying assets under

Section 3c5A e.g State of Israel available

continued..

12
The Divisions emphasis under Section 3c5A has been

placed primarily on whether the notes or other obligations repre senting the sales price of merchandise were tied to sales finan cing See e.g Raymond James Associates available July 14 1988 Australian Industry Development Corporation available

August 11 1980 The Coop Loans meet that test since they were

made to finance or refinance the purchase of the Coop Apartments

Policy Considerations

While we firmly believe that the Trusts may rely upon Sec

tion 3c5 as matter of proper legal interpretation we would

be remiss if we failed to point out that there are profound policy considerations in support of the noaction position that

we request The activities of the Trusts and of their sponsor the Company are in furtherance of the goals of the RTC

Congress established the RTC as means of addressing the

savings and loan crisis.4 Specifically the RTC is authorized by law to resolve that crisis through the orderly disposition of

assets which are held by failed savings and loan associations H.R Rep No 10154I 101st Cong 1st Sess 308 1989

Among the RTCs primary objectives in liquidating the assets

under its jurisdiction the RTC is required to maximize the

returns on the disposed assets minimize the adverse effects of

its activities on local markets and make efficient use of the

continued

August 17 1988 Republic of Turkey available November

1988 Hashemite Kingdom of Jordan available November 21 1988 Islamic Republic of Pakistan available January 18

1989 and Hellenic Republic available January 10 1991

refinancing loans made in connection with the sale of

military equipment and services

The RTC was established by S5011 of the Financial

Institutions Reform Recovery and Enforcement Act

FIRREA of 1989 which amended the Federal Home Loan Bank

Act by adding Section 21A

13
funds which it receives from the proceeds of sale H.R Conf

Rep No 101222 101st Cong 1st Sess 411 1989 To achieve

these goals the drafters of FIRREA expressly authorized the RTC

to enter into business arrangements for the sale of assets with

nongovernment entities H.R Rep No 101-54I 101st Cong 1st Sess 441 1989 The private firms with which the RTC was

authorized to enter into contractual relationships are expected to demonstrate level of expertise in the marketplace when

assisting the RTC in disposing of its assets The RTC is thus

encouraged to examine the usefulness of public/private part nerships and risksharing arrangements among mortgage origina tors credit intermediaries and federally chartered secondary market entity at 447 Programs should then be designed between the RTC and private companies to dispose of assets

through secondary mortgage market products at 447

The Company was formed for the very purpose of and is

engaged exclusively in the sponsoring of secondary mortgage market products and its affiliates have expertise in the

marketplace described above Moreover the transactions

described above resulting in the RTCs disposal of the Coop Loans

serve the goals of the drafters of FIRREA By buying the assets

from the RTC at fair value and then selling them through the

Trusts the Company serves useful function in maximizing the

returns which the RTC will realize from the sale of similar

assets and minimizing the adverse effects on local markets

Similarly the RTC will indirectly benefit from the enhanced

liquidity of securities such as the Certificates derived from the

ability of the initial purchasers of such securities to sell them

without regard to the 100 beneficial owner limitation of Section 3c1 Conversely effectively precluding the sale or resale

of Certificates by requiring registration of the Trusts under the

Investment Company Act would frustrate the will of Congress

14
Conclusion

We believe that based on the above-cited legislative his

tory case law and no-action positions the Trusts may correctly rely upon the exception from the definition of an investment

company provided by Section 3c We request that the

Division confirm our views in that regard In light of the

importance of the outcome of this request to our client we

respectfully request response to this letter as soon as practi cable If you have any questions concerning the Trusts or the

issues raised in this letter please do not hesitate to contact

Brian Kaplowitz at 212 8395370 or Edward Fine at 212 8395864

Very truly yours

15
f1111i1

Our Ref No 91-377-CC

Greenwich Capital

RESPONSE OF THE OFFICE OF CHIEF COUNSEL Acceptance Inc

DIVISION OF INVESTMENT MANAGEMENT File No 812-6934

Your letter dated August 1991 requests our assurance

that we would not recommend that the Commission take any

enforcement action if certain trusts the Trusts established

by Greenwich Capital Acceptance Inc the Company and whose

assets consist primarily of loans secured by ownership interests

in cooperative housing the Coop Loans offer pass-through

certificates the Certificates 2/ evidencing undivided

interests in the assets of the Trusts without registering as

investment companies in reliance on Section 3c5C or in the

alternative Section 3c5A of the Investment Company Act of

1940 the 1940 Act ..J

You have indicated that the Company formed the Trusts under

pooling and servicing agreements similar to those commonly used

in the formation of trusts that publicly offer mortgage-backed

pass-through certificates The Company contributed the Coop

Loans it acquired from the Resolution Trust Corporation the RTC j/ to the Trusts in exchange for all of the

.3/ The Trusts are passive entities and with the exception of

reinvesting distributions on the Coop Loans in the list of

permitted investments described in your letter are fixed

2/ You state that the Certificates are neither redeemable

securities periodic payment plan certificates or face

amount certificates

Section 3c5 of the 1940 Act in part excepts from the

definition of an investment company any person that is not

engaged in the business of issuing redeemable securities

face-amount certificates of the installment type or

periodic payment plan certificates and

is primarily engaged in one or more of the following

businesses purchasing or otherwise acquiring

obligations representing part or all of the sales price

of merchandise insurance and services .. and

purchasing or otherwise acquiring mortgages and other

liens on and interests in real estate

j/ The Company as sponsor of the Trusts purchased through

affiliates the RTCs interest in approximately $700 million

in principal amount of existing Coop Loans
Certificates You represent that at least 80% of the assets

of each Trust consist of Coop Loans and that the Coop Loans in

each Trust are serviced by an independent third party

servicer Moreover the assets of each Trust consist of

separate fixed pool of Coop Loans 2/

The Company has already sold Certificates representing

interests in several of the Trusts in reliance on Section 3cl

of the 1940 Act However you have stated that the Company

You state that the Company may acquire new Coop Loans in the

future and establish additional Trusts in reliance on any

no-action position taken by the Division in response to your

incoming letter or on any applicable statutory exception

under the 1940 Act or exception or exemption created by any

rule thereunder

We take the view that with respect to issuing noaction

letters under Section 3c5C company is not excepted

under Section 3c5C unless at least 55% of its assets

consist of mortgages and other liens on and interests in

real estate 55% test and the remaining 45% of its

assets consist primarily of real estatetype interests 45%

test See eq NAB Asset Corporation pub avail June

20 1991 Citytrust pub avail Dec 19 1990

PrudentialBache Securities Inc pub avail Aug 19

1985 Salomon Brothers Inc pub avail June 17 1985

To meet the 45% test company must invest at least 25% of

its total assets in real estate-type interests subject to

reduction to the extent that it invests more than 55% of its

total assets in assets meeting the 55% test and may invest

no more than 20% of its total assets in miscellaneous

investments e.g NAB Asset Corporation Citytrust

United Bankers Inc pub avail March 23 1988 La Quinta

Motor Inns Inc pub avail Jan 1989

21 The existing Trusts will not acquire new Coop Loans except

as substitute for existing Coop Loans where the

documentation for such Coop Loans may be deemed defective or

where breach of warranty concerning such Coop Loans is

found to exist

Section 3c1 of the 1940 Act provides an exception to the

definition of an investment company for

any issuer whose outstanding securities other than

shortterm paper are beneficially owned by not more

than one hundred persons and which is not making and

does not presently propose to make public offering of

its securities
wishes to sell Certificates and facilitate the sale and resale

of Certificates in the secondary market without being subject to

the constraints of that Section in particular the 100

beneficial owner limitation ./

Each Coop Loan is purchase money loan secured fully and

exclusively by the borrowers interest in cooperative apartment

Coop Apartment which interest consists of shares of

stock the Shares in cooperative housing corporation and

proprietary lease the Lease accompanying the Shares and

entitling the owner of the Shares to reside in Coop Apartment

The Coop Loans were originated to finance or refinance the

purchase of Coop Apartments and according to your letter

represent in effect first liens on the Shares and Leases IQ/

You state that while the security interest held by lender

in Coop Loan is not technically mortgage it falls under the

rubric of other liens on and interests in real estate within

the meaning of Section 3c5C You note that the treatment

of cooperative housing in Federal legislation jJj Supreme

Court lower Federal court and state court decisions 3.j and

The Certificates of each series have been issued on both

senior and subordinated basis Your letter states that

with the exception of relatively small amount of

subordinated Certificates which it proposes to retain the

Company intends to place the balance of the Certificates

with third party investors

jQJ Although the state law under which lender in Coop Loan

can realize upon its collateral in the event of default

may differ from that in mortgage foreclosure you maintain

that at least with respect to New York law the end result

is the same in either case the lender acquires the

collateral We note that in your discussion of the

lenders rights in Coop Loan you refer to New York

practice because at the time the Trusts were created more

than 99% of the principal amount of the Coop Loans related

to Coop Apartments located in New York

flj Section 3a41 of the Securities Exchange Act of 1934

the 1934 Act and Sections 860Gc and 163h

of the Internal Revenue Code

In United Housing Foundation Inc Forinan 421 U.S 837

1975 the Supreme Court held that shares of stock held in

government subsidized cooperative housing project in New

York City did not constitute securities within the purview

of the Securities Act of 1933 the 1933 Act and the 1934

Act In deciding that the transaction in question was not

continued..
Division noaction responses support considering Coop Loans to be

within Section 3c5C While much of your cited authority

focuses primarily on the share ownership aspect of cooperative

housing you emphasize that the proprietary lease aspect reveals

the real estate nature of cooperative housing 4J You maintain

that the shares of stock attributable to ownership of

cooperative housing unit are essentially technical addition to

such real estate ownership Finally you assert that the

Division previously recognized the real estate nature of

cooperative housing in the context of the 1940 Act in D.B.G

Property Investors Inc pub avail Dec 29 1986 In that

letter the staff stated that it would not recommend any

enforcement action to the Commission under the 1940 Act if

without registering under that act the proposed partnership made

public offering of its securities and invested the proceeds

thereof in condominium units and occupied cooperative and

residential apartments

On the basis of the facts and representations made to us in

your letter and without necessarily agreeing with your legal

analysis we would not recommend any enforcement action to the

Commission if the Trusts offer the Certificates without

registering as investment companies under the 1940 Act in

reliance on Section 3c5C Because this response is based

on representations made to the Division you should note that any

.continued

within the scope of the 1933 Act or the 1934 Act the Court

noted that the purchasers were interested in acquiring

housing rather than making an investment for profit..

You represent that state courts often treat the interests

created by cooperative apartment leases and shares in the

same manner as realty although the result may differ

depending on the context In particular you note that

state courts in New York have found certain statutory

provisions governing real property to apply to cooperative

housing

.jJ The staff has recognized other types of leasehold interests

as real estate for purposes of Section 3c5C in prior

no-action letters e.g NAB Asset Corporation Health

Facility Credit Corp pub avail Feb 1985
different facts or circumstances might require different

conclusion Further this response expresses only the

enforcement position of the Division and does not purport to

express any legal conclusions on the questions presented

UJ0

Julia Ulstrup

Attorney