EXHIBIT 4.1
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EXECUTION COPY
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SALE AND SERVICING AGREEMENT
Dated as of August 28, 2003
among
HFC REVOLVING CORPORATION
(Depositor)
HOUSEHOLD HOME EQUITY LOAN TRUST 2003-1
(Trust)
HOUSEHOLD FINANCE CORPORATION
(Master Servicer)
and
BANK ONE, NATIONAL ASSOCIATION
(Indenture Trustee)
Household Home Equity Loan Trust 2003-1
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Table of Contents
Page
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ARTICLE I. DEFINITIONS................................................................................2
SECTION 1.01 Definitions..................................................................2
SECTION 1.02 Other Definitional Provisions...............................................20
SECTION 1.03 Interest Calculations.......................................................21
ARTICLE II. CONVEYANCE OF HOME EQUITY LOANS; TAX TREATMENT............................................22
SECTION 2.01 Acknowledgment; Conveyance of Home Equity Loans; Custody of Mortgage
Files.......................................................................22
SECTION 2.02 Acceptance by Indenture Trustee; Repurchase of Home Equity Loans;
Conveyance of Eligible Substitute Home Equity Loans.........................26
SECTION 2.03 Representations, Warranties and Covenants of the Master Servicer............27
SECTION 2.04 Representations and Warranties of the Depositor Regarding this
Agreement and the Home Equity Loans; Repurchases and Substitutions..........29
SECTION 2.05 Tax Treatment...............................................................34
ARTICLE III. ADMINISTRATION AND SERVICING OF HOME EQUITY LOANS.........................................35
SECTION 3.01 The Master Servicer.........................................................35
SECTION 3.02 Collection of Certain Home Equity Loan Payments.............................38
SECTION 3.03 Withdrawals from the Collection Account.....................................40
SECTION 3.04 Maintenance of Hazard Insurance; Property Protection Expenses...............41
SECTION 3.05 Assumption and Modification Agreements......................................41
SECTION 3.06 Realization Upon Defaulted Home Equity Loans................................42
SECTION 3.07 [Reserved]..................................................................43
SECTION 3.08 Indenture Trustee to Cooperate..............................................43
SECTION 3.09 Servicing Compensation; Payment of Certain Expenses by Master Servicer......43
SECTION 3.10 Annual Statement as to Compliance...........................................44
SECTION 3.11 Annual Servicing Report.....................................................44
SECTION 3.12 Access to Certain Documentation and Information Regarding the Home
Equity Loans................................................................45
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Table of Contents
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(continued)
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SECTION 3.13 Maintenance of Certain Servicing Insurance Policies.........................45
SECTION 3.14 Reports to the Securities and Exchange Commission...........................45
SECTION 3.15 [Reserved]..................................................................45
SECTION 3.16 Information Required by the Internal Revenue Service Generally and
Reports of Foreclosures and Abandonments of Mortgaged Property..............45
SECTION 3.17 Additional Covenants of HFC.................................................46
SECTION 3.18 Servicing Certificate.......................................................46
ARTICLE IV. [RESERVED]................................................................................50
ARTICLE V. PRIORITY OF PAYMENTS; STATEMENTS TO NOTEHOLDERS; RIGHTS OF NOTEHOLDERS....................51
SECTION 5.01 Payments....................................................................51
SECTION 5.02 Calculation of LIBOR, the Class A Formula Rate and Class M Formula
Rate........................................................................53
SECTION 5.03 Statements to Noteholders...................................................54
ARTICLE VI. THE MASTER SERVICER AND THE DEPOSITOR.....................................................58
SECTION 6.01 Liability of the Master Servicer and the Depositor..........................58
SECTION 6.02 Merger or Consolidation of, or Assumption of the Obligations of, the
Master Servicer or the Depositor............................................58
SECTION 6.03 Limitation on Liability of the Master Servicer, the Depositor and
Others......................................................................58
SECTION 6.04 Master Servicer Not to Resign...............................................59
SECTION 6.05 Delegation of Duties........................................................59
ARTICLE VII. MASTER SERVICER TERMINATION...............................................................60
SECTION 7.01 Master Servicer Termination Events..........................................60
SECTION 7.02 Indenture Trustee to Act; Appointment of Successor..........................61
SECTION 7.03 Waiver of Defaults..........................................................63
SECTION 7.04 Notification to Noteholders.................................................63
ARTICLE VIII. TERMINATION...............................................................................64
SECTION 8.01 Termination.................................................................64
ARTICLE IX. MISCELLANEOUS PROVISIONS..................................................................67
SECTION 9.01 Amendment...................................................................67
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SECTION 9.02 Recordation of Agreement....................................................68
SECTION 9.03 Duration of Agreement.......................................................68
SECTION 9.04 Governing Law...............................................................68
SECTION 9.05 Notices.....................................................................68
SECTION 9.06 Severability of Provisions..................................................69
SECTION 9.07 No Partnership..............................................................69
SECTION 9.08 Counterparts................................................................69
SECTION 9.09 Successors and Assigns......................................................69
SECTION 9.10 Headings....................................................................69
SECTION 9.11 Indenture Trustee...........................................................69
SECTION 9.12 Inconsistencies Among Transaction Documents.................................70
SECTION 9.13 [RESERVED]..................................................................70
SECTION 9.14 Limitation on Voting of Preferred Stock.....................................70
SECTION 9.15 Perfection Representations..................................................70
SECTION 9.16 Limitation of Liability.....................................................70
SECTION 9.17 Inspection of Mortgage Files................................................70
SECTION 9.18 [RESERVED]..................................................................70
ARTICLE X. MISCELLANEOUS PROVISIONS..................................................................71
SECTION 10.01 Administrative Duties.......................................................71
SECTION 10.02 Records.....................................................................73
SECTION 10.03 Additional Information to be Furnished to the Trust.........................73
EXHIBITS
SCHEDULE 1 Perfection Representations, Warranties and Covenants
SCHEDULE 2 Sellers
EXHIBIT A Home Equity Loan Schedule
EXHIBIT A-1 Conduit Home Equity Loans
EXHIBIT A-2 Term Home Equity Loans
EXHIBIT B Form of Class A and Class M Notes
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This Sale and Servicing Agreement (the "Agreement") is entered into
effective as of August 28, 2003, among Home Equity Loan Trust 2003-1, a
Delaware statutory trust (the "Trust"), HFC Revolving Corporation, a Delaware
corporation, as depositor (the "Depositor"), Household Finance Corporation, a
Delaware corporation, as master servicer (the "Master Servicer"), and Bank
One, National Association, a national banking association, as Indenture
Trustee on behalf of the Noteholders (in such capacity, the "Indenture
Trustee").
PRELIMINARY STATEMENT
WHEREAS, the Trust desires to purchase from the Depositor a pool of
Home Equity Loans which were acquired by the Depositor from certain sellers
and an existing warehouse trust;
WHEREAS, the Depositor, concurrently with the execution of this
Agreement, acquired the Home Equity Loans from certain sellers and the
existing warehouse trust pursuant to the Term Loan Purchase Agreement and the
Reassignment;
WHEREAS, the Master Servicer is willing to service such Home Equity
Loans in accordance with the terms of this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto hereby agree as follows:
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ARTICLE I.
DEFINITIONS
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SECTION 1.01 Definitions. Whenever used in this Agreement, the
following words and phrases, unless the context otherwise requires, shall have
the meanings specified in this Article.
Accrual Period: As to the Class A and Class M Notes, for the initial
Payment Date is the period from and including the Closing Date through and
including the day immediately preceding the initial Payment Date, and for each
Payment Date thereafter is the period from and including the Payment Date in
the month immediately preceding the month in which the Payment Date occurs and
ending on and including the day immediately preceding the Payment Date.
Additional Principal Reduction Amount: As to any Payment Date, the
outstanding Pool Balance as of the first day of the related Collection Period
less the sum of (x) the outstanding Pool Balance as of the last day of the
related Collection Period and (y) the Principal Collections for such Payment
Date.
Affiliate: With respect to any Person, any other Person controlling,
controlled by or under common control with such Person. For purposes of this
definition, "control" means the power to direct the management and policies of
a Person, directly or indirectly, whether through ownership of voting
securities, by contract or otherwise and "controlling" and "controlled" shall
have meanings correlative to the foregoing.
Agreement: This Sale and Servicing Agreement and all amendments
hereof and supplements hereto.
Appraised Value: As to any Home Equity Loan, the appraised value of
the related Mortgaged Property based upon the appraisal used by the applicable
Seller at the time of origination of such Home Equity Loan (or any mortgage
loan made by the Seller on the Mortgaged Property that the Home Equity Loan
replaced); provided that if the Home Equity Loan was originated simultaneously
with or not more than 12 months after another mortgage was placed on the
related Mortgaged Property, the lesser of the Appraised Value at origination
of the other mortgage and the sales price, if any, of the related Mortgaged
Property.
Assignment of Mortgage: With respect to any Mortgage, an assignment,
notice of transfer or equivalent instrument, in recordable form, sufficient
under the laws of the jurisdiction in which the related Mortgaged Property is
located to reflect the sale of the Mortgage to the Indenture Trustee, which
assignment, notice of transfer or equivalent instrument may be in the form of
one or more blanket assignments covering the Home Equity Loans secured by
Mortgaged Properties located in the same jurisdiction.
Auction Date. As defined in Section 8.01(c).
Available Funds Cap: With respect to any Payment Date, a per annum
rate equal to the product of (x) the weighted average of the Net Loan Rates of
each Home Equity Loan, in each case outstanding as of the first day of the
related Collection Period, and (y) a fraction, the
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numerator of which is 30 and the denominator of which is the number of days in
the related Accrual Period.
Available Payment Amount: As to any Payment Date, the sum, without
duplication, of all amounts described in clauses (i) through (iv), inclusive,
of Section 3.02(b) received by the Master Servicer with respect to the related
Collection Period and deposited in the Collection Account.
BIF: The Bank Insurance Fund, as from time to time constituted,
created under the Financial Institutions Reform, Recovery and Enhancement Act
of 1989, or if at any time after the execution of this instrument the Bank
Insurance Fund is not existing and performing duties now assigned to it, the
body performing such duties on such date.
Book-Entry Note: Any Class A or Class M Note registered in the name
of the Depository or its nominee, ownership of which is reflected on the books
of the Depository or on the books of a Person maintaining an account with such
Depository (directly or as an indirect participant in accordance with the
rules of such Depository).
Business Day: Any day other than (i) a Saturday or a Sunday or (ii) a
day on which banking institutions in the State of New York or Illinois are
required or authorized by law to be closed.
Charge Off Amount: As to any Charged Off Home Equity Loan and
Collection Period, an amount equal to the amount of the Principal Balance that
the Master Servicer has charged off on its servicing records during such
Collection Period.
Charged Off Home Equity Loan: A defaulted Home Equity Loan that is
not a Liquidated Home Equity Loan and as to which (i) collection procedures
are ongoing and (ii) the Master Servicer has charged off all or a portion of
the related Principal Balance.
Class: Either the Class A or Class M Notes.
Class A Formula Rate: With respect to the Class A Notes and any
Accrual Period, a per annum rate equal to LIBOR plus 0.35%.
Class A Note: Any Note designated as a Class A Note on the face
thereof, substantially in the form of Exhibit B hereto.
Class A Noteholder: A Holder of a Class A Note.
Class A Note Rate: With respect to any Payment Date and Accrual
Period, the lesser of (i) the Class A Formula Rate and (ii) the Available
Funds Cap for such Payment Date.
Class A Supplemental Interest Amount: As of any Payment Date, the sum
of (i) the excess, if any, of (a) interest accrued on the Class A Notes during
the related Collection Period at the Class A Formula Rate over (b) interest
due on the Class A Notes at Class A Note Rate, (ii) any Class A Supplemental
Interest Amount remaining unpaid from prior Payment Dates and (iii) interest
on the amount in clause (ii) at the Class A Formula Rate.
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Class M Formula Rate: With respect to the Class M Notes and any
Accrual Period, a per annum rate equal to LIBOR plus 0.63%.
Class M Note: Any Note designated as a Class M Note on the face
thereof, substantially in the form of Exhibit B hereto.
Class M Noteholder: A Holder of a Class M Note.
Class M Note Rate: With respect to any Payment Date and Accrual
Period, the lesser of (i) the Class M Formula Rate and (ii) the Available
Funds Cap for such Payment Date.
Class M Supplemental Interest Amount: As of any Payment Date, the sum
of (i) the excess, if any, of (a) interest accrued on the Class M Notes during
the related Collection Period at the Class M Formula Rate over (b) interest
due on the Class M Notes at the Class M Note Rate, (ii) any Class M
Supplemental Interest Amount remaining unpaid from prior Payment Dates and
(iii) interest on the amount in clause (ii) at the Class M Formula Rate.
Closing Date: August 28, 2003.
Code: The Internal Revenue Code of 1986, as amended from time to
time, and any Treasury Regulations promulgated thereunder.
Collection Account: The custodial account or accounts created and
maintained for the benefit of the Noteholders and the Ownership Interest
pursuant to Section 3.02(b). The Collection Account shall be an Eligible
Account.
Collection Period: As to any Payment Date and Home Equity Loan, the
calendar month immediately preceding the month in which such Payment Date
occurs, except that with respect to the initial Payment Date, the Collection
Period is the period from the Cut-Off Date to September 30, 2003.
Combined Loan-to-Value Ratio or CLTV: As to each Home Equity Loan, a
ratio, expressed as a percentage, the numerator of which is the sum of (a) the
original Principal Balance of the Home Equity Loan and (b) the aggregate
unpaid principal balance, at the time of origination of the Home Equity Loan,
of all other mortgage loans, if any, secured by liens senior to that Home
Equity Loan on the related Mortgaged Property, and the denominator of which is
the Appraised Value of the Mortgaged Property.
Conduit Home Equity Loans: All of the Home Equity Loans transferred
to the Depositor by the Conduit Trustee pursuant to the Reassignment.
Conduit Loan Purchase Agreement: The home equity loan purchase
agreement dated as of March 28, 2002, as amended, supplemented or otherwise
modified prior to the date hereof, between the Depositor and the Sellers and
certain affiliated entities pursuant to which the Sellers conveyed to the
Depositor all of their right, title and interest in and to the unpaid
Principal Balance of the Conduit Home Equity Loans, including all interest and
principal payments in respect thereof received on or after the applicable
cut-off date, and certain other rights with respect to the collateral
supporting the Conduit Home Equity Loans.
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Conduit Pooling and Servicing Agreement: The pooling and servicing
agreement, dated as of March 28, 2002, as amended, supplemented or otherwise
modified prior to the date hereof, by and between Household Finance
Corporation, HFC Revolving Corporation and Bank One, N.A., as trustee.
Conduit Transfer Agreement: The transfer agreement dated as of March
28, 2002, as amended, supplemented or otherwise modified prior to the date
hereof, between Bank One, N.A., as trustee, and the Sellers and certain
affiliated entities pursuant to which the Sellers assigned to the Conduit
Trustee all of their right, title and interest in and to all aspects, rights,
title or interests of, in, to or under the Conduit Home Equity Loans not
transferred to the Depositor pursuant to the Conduit Loan Purchase Agreement.
Conduit Trustee: Bank One, N.A.
Corporate Trust Office: As defined in the Indenture.
Cumulative Loss Percentage: As to any Collection Period, the fraction
(expressed as a percentage) obtained by dividing (i) the Cumulative Realized
Losses for such Collection Period, by (ii) the Cut-Off Date Pool Balance.
Cumulative Loss Percentage Trigger: As to any Payment Date on or
after the Stepdown Date, means (i) for the October 2006 Payment Date through
the September 2007 Payment Date, 11.75% (ii) for the October 2007 Payment Date
through the September 2008 Payment Date, 15.50%; (iii) for the October 2008
Payment Date through the September 2009 Payment Date, 18.00%; and (iv) for the
October 2009 Payment Date and each Payment Date thereafter, 19.00%.
Cumulative Realized Losses: With respect to the Home Equity Loans and
any Collection Period, the sum of the aggregate Realized Losses on the Home
Equity Loans from the Cut-Off Date through the last day of such Collection
Period.
Current Interest: As to the Class A and Class M Notes and any Payment
Date, the interest accrued at the applicable Note Rate during the applicable
Accrual Period on the aggregate Note Principal Amount of such Class of Notes
as of the beginning of the Accrual Period.
Cut-Off Date: As to a Home Equity Loan, the close of business on
August 20, 2003.
Cut-Off Date Pool Balance: The aggregate of the Cut-Off Date
Principal Balances of the Home Equity Loans.
Cut-Off Date Principal Balance: As to any Home Equity Loan, the
unpaid principal balance thereof as of the Cut-Off Date or, as to any Eligible
Substitute Home Equity Loan, as of the date of substitution of such Eligible
Substitute Home Equity Loan.
Defective Home Equity Loan: Any Home Equity Loan subject to
repurchase or substitution pursuant to Section 2.02 or 2.04.
Definitive Notes: As defined in the Indenture.
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Delaware Trustee: The Bank of New York (Delaware), as Delaware
trustee under the Trust Agreement, and any successor Delaware trustee under
the Trust Agreement appointed in accordance with the terms thereof.
Deposit Date: As to any Payment Date, the Business Day immediately
preceding such Payment Date.
Deposit Event: The lowering of the Master Servicer's short-term debt
rating below "P-1" by ▇▇▇▇▇'▇, "A-1" by Standard & Poor's or "F1" by Fitch or
any time in which HFC shall cease to be the Master Servicer.
Depositor: HFC Revolving Corporation, a Delaware corporation.
Depository: The initial Depository shall be The Depository Trust
Company, the nominee of which is Cede & Co., as the registered Holder of Notes
evidencing $547,610,000 in initial aggregate principal amount of the Class A
Notes and evidencing $105,872,000 in initial aggregate principal amount of the
Class M Notes. The Depository shall at all times be a "clearing corporation"
as defined in Section 8-102(a)(5) of the UCC of the State of New York.
Depository Participant: A broker, dealer, bank or other financial
institution or other Person for whom from time to time the Depository effects
book-entry transfers and pledges of securities deposited with the Depository.
Determination Date: As to any Payment Date, the second Business Day
prior to such Payment Date.
Electronic Ledger: The electronic master record of home equity loans
(including the Home Equity Loans) maintained by the Master Servicer.
Eligible Account: An account that is either (i) maintained with a
depository institution whose short-term debt obligations at the time of any
deposit therein are rated in the highest short-term debt rating category by
the Rating Agencies, (ii) an account or accounts maintained with a depository
institution with a long-term unsecured debt rating by each Rating Agency that
is at least investment grade, provided that the deposits in such account or
accounts are fully insured by either the BIF or the SAIF, (iii) a segregated
trust account maintained on the corporate trust side with the Indenture
Trustee in its fiduciary capacity, or (iv) an account otherwise acceptable to
each Rating Agency, as evidenced by a letter to such effect from each such
Rating Agency to the Indenture Trustee, without reduction or withdrawal of the
then-current ratings of the Class A or Class M Notes.
Eligible Substitute Home Equity Loan: A Home Equity Loan substituted
(a) by the Depositor or the Master Servicer for a Defective Home Equity Loan
pursuant to Section 2.02(a) or 2.04 or (b) by the Master Servicer pursuant to
Section 2.02(b), which on the date of such substitution must
(i) have a Principal Balance not substantially greater or
less than the Principal Balance of such Defective Home Equity Loan or
such elected substituted Home Equity Loan;
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(ii) have a current Loan Rate of not less than the Loan Rate
of the Defective Home Equity Loan or elected substituted Home Equity
Loan and not more than 500 basis points in excess thereof;
(iii) have a (A) remaining term to maturity not more than
six months earlier or later than the remaining term to maturity of
the Defective Home Equity Loan or elected substituted Home Equity
Loan and (B) maturity date not later than the last day of the
Collection Period immediately preceding the month in which the Final
Scheduled Payment Date occurs;
(iv) comply with the representations and warranties set
forth in Section 2.04(b), to the extent such representations and
warranties do not pertain exclusively to the Home Equity Loans
transferred on the Closing Date;
(v) have a Combined Loan-to-Value Ratio that is not greater
than the Combined Loan-to-Value Ratio of the Defective Home Equity
Loan or elected substituted Home Equity Loan as of the date of
origination of such Defective Home Equity Loan or elected substituted
Home Equity Loan;
(vi) have a lien position at least equal to the lien
position of the Mortgage relating to the Defective Home Equity Loan
or elected substituted Home Equity Loan; and
(vii) be the obligation of a Mortgagor whose credit profile
is substantially similar to that of the Mortgagor under the Defective
Home Equity Loan or elected substituted Home Equity Loan,
provided, however, that with respect to (i) through (vii) above, a home equity
loan may qualify as an Eligible Substitute Home Equity Loan if each of the
Rating Agencies confirms such substitution.
ERISA: The Employee Retirement Income Security Act of 1974, as
amended.
Event of Default: As defined in the Indenture.
Excess Spread: With respect to any Payment Date, the excess (if any)
of (a) the aggregate interest received for the related Collection Period, with
respect to the Home Equity Loans at their respective Net Loan Rates over (b)
the interest accrued on the Notes at the Formula Rate during the related
Accrual Period.
Extra Principal Payment Amount: As to any Payment Date, the lesser of
(x) the Monthly Excess Cashflow for such Payment Date and (y) the Interim
Overcollateralization Deficiency, if any, for such Payment Date.
▇▇▇▇▇▇ ▇▇▇: ▇▇▇▇▇▇ ▇▇▇, formerly known as The Federal National
Mortgage Association, or any successor thereto.
FDIC: The Federal Deposit Insurance Corporation and any successor
thereto.
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Final Scheduled Payment Date: With respect to the Class A and Class M
Notes, the Payment Date occurring in October 2032.
Fitch: Fitch Ratings, or its successor in interest.
Foreclosure Profit: As to any Liquidated Home Equity Loan, the
amount, if any, by which (i) the aggregate of its Liquidation Proceeds less
Liquidation Expenses exceeds (ii) the Principal Balance thereof immediately
prior to the final recovery of its Liquidation Proceeds, together with the sum
of (x) accrued and unpaid interest thereon at the applicable Loan Rate from
the date interest was last paid through the date of receipt of the final
Liquidation Proceeds and (y) the related Charge Off Amounts.
HFC: Household Finance Corporation, a Delaware corporation, and its
successors.
Home Equity Loan: Such of the home equity loans (together with the
related Mortgage Notes and Mortgages) transferred and assigned to the Trust
pursuant to Section 2.01, pursuant to the Term Transfer Agreement and pursuant
to clause (ii) of the Reassignment, together with the Related Documents, as
from time to time are held as a part of the Trust, the home equity loans
originally so held being identified in the Home Equity Loan Schedule delivered
on the Closing Date. As applicable, the term Home Equity Loan shall be deemed
to refer to the Mortgaged Property that has been converted to ownership by the
Master Servicer prior to the final recovery of related Liquidation Proceeds.
Home Equity Loan Purchase Agreement: The Term Loan Purchase Agreement
and the Conduit Loan Purchase Agreement.
Home Equity Loan Schedule: As to any date, the schedule of Home
Equity Loans, including any Eligible Substitute Home Equity Loans, included in
the Trust on such date. The initial Home Equity Loan Schedule is the schedule
delivered by the Depositor to the Indenture Trustee on the Closing Date and
delivered as Exhibit A hereto, which schedule may be in the form of a computer
file or an electronic or magnetic tape and sets forth as to each Home Equity
Loan (i) the account number, (ii) the Cut-Off Date Principal Balance, (iii)
the Loan Rate, (iv) the lien position of the related Mortgage and (v) the
CLTV. The Home Equity Loan Schedule will be amended from time to time to
reflect the removal of Home Equity Loans and the addition of any Eligible
Substitute Home Equity Loans to the Trust, and when so amended shall include
the information set forth above with respect to each Eligible Substitute Home
Equity Loan as of its related date of substitution.
Indenture: The Indenture dated August 28, 2003 between the Issuer and
the Indenture Trustee.
Indenture Trustee: Bank One, National Association, a national banking
association, as Indenture Trustee under the Indenture or any successor
indenture trustee under the Indenture appointed in accordance with such
agreement.
Indenture Trustee's Statement to Noteholders: As defined in Section
5.03.
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Initial Home Equity Loan: Each Home Equity Loan transferred and
assigned to the Trust on the Closing Date.
Insurance Proceeds: Proceeds paid by any insurer pursuant to any
insurance policy covering a Home Equity Loan, or by the Master Servicer
pursuant to the last sentence of Section 3.04, net of any component thereof
covering any expenses incurred by or on behalf of the Master Servicer in
connection with obtaining such Insurance Proceeds and exclusive of any portion
thereof that is applied to the restoration or repair of the related Mortgaged
Property, released to the Mortgagor in accordance with the Master Servicer's
normal servicing procedures or required to be paid to any holder of a mortgage
senior to such Home Equity Loan.
Interest Carry Forward Amount: As to each Class of Notes and any
Payment Date, the sum of (x) the amount, if any, by which (i) the sum of the
Current Interest and the Interest Carry Forward Amount for such Class of Notes
as of the immediately preceding Payment Date exceeded (ii) the amount of the
actual payments in respect to such amounts made to such Class of Notes on such
preceding Payment Date plus (y) interest on such amount calculated for the
related Accrual Period at the related Note Rate.
Interest Collections: As to any Payment Date, the sum, without
duplication of:
(i) the portion allocable to interest of all scheduled monthly
payments on the Home Equity Loans received during the related Collection
Period, minus the Servicing Fee for the related Collection Period;
(ii) all Net Liquidation Proceeds actually collected by the Master
Servicer during the related Collection Period (to the extent such Net
Liquidation Proceeds relate to interest and including Recovered Charge Off
Amounts);
(iii) the interest portion of the Purchase Price for any Home Equity
Loan repurchased from the Trust pursuant to the terms of this Agreement during
the related Collection Period;
(iv) the interest portion of all Substitution Adjustment Amounts with
respect to the related Collection Period; and
(v) to the extent advanced by the Master Servicer pursuant to Section
3.01(f) and not previously distributed, the amount of any Skip-A-Pay Advance
deposited by the Master Servicer into the Collection Account with respect to
such Payment Date.
Interim Overcollateralization Amount: As to any Payment Date, the
excess, if any, of (x) the Pool Balance as of the last day of the related
Collection Period over (y) (i) the aggregate Note Principal Amount of all
Class A and Class M Notes (before taking into account any payments of
principal on such Payment Date) less (ii) the sum of (x) the Principal
Collections for such Payment Date, (y) the Additional Principal Reduction
Amount to be paid with respect to such Payment Date and (z) the Principal
Carryforward Amount for each Class of Notes to be paid with respect to such
Payment Date.
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Interim Overcollateralization Deficiency: As to any Payment Date, the
excess, if any, of (x) the Targeted Overcollateralization Amount for such
Payment Date over (y) the Interim Overcollateralization Amount for such
Payment Date.
Issuer: Household Home Equity Loan Trust 2003-1.
LIBOR: The per annum rate established by the Indenture Trustee in
accordance with Section 5.02.
LIBOR Business Day: Any day on which dealings in United States
dollars are transacted in the London interbank market.
LIBOR Determination Date: As to any Payment Date, the second LIBOR
Business Day before the first day of the related Accrual Period.
Lien: Any mortgage, deed of trust, pledge, conveyance, hypothecation,
assignment, participation, deposit arrangement, encumbrance, lien (statutory
or other), preference, priority right or interest or other security agreement
or preferential arrangement of any kind or nature whatsoever, including,
without limitation, any conditional sale or other title retention agreement,
any financing lease having substantially the same economic effect as any of
the foregoing or the filing of any financing statement under the UCC (other
than any such financing statement filed for informational purposes only) or
comparable law of any jurisdiction to evidence any of the foregoing.
Liquidated Home Equity Loan: As to any Payment Date, any Home Equity
Loan in respect of which the Master Servicer has determined as of the end of
the related Collection Period that all Liquidation Proceeds which it expects
to recover on such Home Equity Loan have been recovered (exclusive of any
possibility of a deficiency judgment).
Liquidation Expenses: Out-of-pocket expenses (exclusive of overhead)
that are incurred by the Master Servicer in connection with the liquidation of
any Home Equity Loan and not recovered under any insurance policy, such
expenses including, without limitation, reasonable legal fees and expenses,
any unreimbursed amount expended pursuant to Section 3.06 (including, without
limitation, amounts advanced to correct defaults on any mortgage loan that is
senior to such Home Equity Loan and amounts advanced to keep current or pay
off a mortgage loan that is senior to such Home Equity Loan) with respect to
the related Home Equity Loan and any related and unreimbursed expenditures for
real estate property taxes, mechanics liens, title perfection, property
management or for property restoration, preservation or insurance against
casualty loss or damage.
Liquidation Proceeds: Proceeds (including Insurance Proceeds)
received in connection with the liquidation of any Home Equity Loan, whether
through trustee's sale, foreclosure sale or otherwise.
Loan Rate: As to any Home Equity Loan and day, the per annum rate of
interest applicable under the related Mortgage Note to the calculation of
interest for such day on the Principal Balance.
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Majority Noteholder: The Holder or Holders of Notes representing at
least 51% of the aggregate Note Principal Amount of the Class A and Class M
Notes.
Master Servicer: HFC, or its successor in interest, or any successor
master servicer appointed as herein provided.
Master Servicer Termination Events: As defined in Section 7.01.
MERS: Mortgage Electronic Registration Systems, Inc., a corporation
organized and existing under the laws of the State of Delaware, or any
successor thereto.
MERS(R) System: The system of recording transfers of Mortgages
electronically maintained by MERS.
MIN: The Mortgage Identification Number for Home Equity Loans
registered with MERS on the MERS(R)System.
MOM Loan: With respect to any Home Equity Loan, MERS acting as the
mortgagee of such Home Equity Loan, solely as nominee for the originator of
such Home Equity Loan and its successors and assigns, at the origination
thereof.
Monthly Excess Cashflow: As to any Payment Date, the excess, if any,
of (i) Interest Collections (for clarity purposes only, net of any Servicing
Fee) received during the related Collection Period over (ii) the sum of (x)
the Current Interest plus the Interest Carry Forward Amount, if any, for each
Class of Notes for such Payment Date (after taking into account all payments
of interest on such Payment Date), (y) the Additional Principal Reduction
Amount for such Payment Date and (z) the Principal Carry Forward Amount for
each Class of Notes for such Payment Date, if any.
Moody's: ▇▇▇▇▇'▇ Investors Service, Inc., or any successor thereto.
Mortgage: The mortgage, deed of trust or other instrument creating a
first, second or third lien on an estate in fee simple interest in real
property securing a Home Equity Loan.
Mortgage File: The mortgage documents (including without limitation
the related Mortgage Note) listed in Section 2.01 pertaining to a particular
Home Equity Loan and any additional documents required to be added to the
Mortgage File pursuant to this Agreement, which documents may be physical
documents or, pursuant to the terms of Section 2.01, may be optical images or
other representations thereof.
Mortgage Note: As to a Home Equity Loan, the mortgage note or other
evidence of indebtedness under which the related Mortgagor agrees to pay the
indebtedness evidenced thereby and secured by the related Mortgage.
Mortgaged Property: The underlying property securing a Home Equity
Loan.
Mortgagor: The obligor or obligors under a Mortgage.
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Net Liquidation Proceeds: As to any Liquidated Home Equity Loan,
Liquidation Proceeds less Liquidation Expenses.
Net Loan Rate: As to any Home Equity Loan, the Loan Rate less the
Servicing Fee Rate.
Note: Any Class A or Class M Note.
Note Owner: The Person who is the beneficial owner of a Book-Entry
Note.
Note Principal Amount: As to any Class A or Class M Note and any date
of determination, (a) the Original Note Principal Amount of such Note less (b)
the aggregate of amounts paid as principal to the Holder of such Note on
previous Payment Dates pursuant to Section 5.01 hereto.
Note Rate: Either the Class A Note Rate or the Class M Note Rate, as
the context requires.
Note Register and Note Registrar: As defined in the Indenture.
Noteholder or Holder: The Person in whose name a Note is registered
in the Note Register, except that, solely for the purpose of giving any
consent, direction, waiver or request pursuant to this Agreement or the
Indenture, (x) any Note registered in the name of the Depositor, the Master
Servicer or any Person actually known to a Responsible Officer to be an
Affiliate of the Depositor and (y) any Note for which the Depositor, the
Master Servicer or any Person actually known to a Responsible Officer to be an
Affiliate of the Depositor or the Master Servicer is the Note Owner shall be
deemed not to be outstanding (unless to the actual knowledge of a Responsible
Officer (i) the Master Servicer or the Depositor, or such Affiliate, is acting
as trustee or nominee for a Person who is not an Affiliate of the Depositor or
the Master Servicer and who makes the voting decision with respect to such
Note or (ii) the Depositor, or the Master Servicer, or such Affiliate, is the
Note Owner of all the Notes) and the Percentage Interest evidenced thereby
shall not be taken into account in determining whether the requisite amount of
Percentage Interests necessary to effect any such consent, direction, waiver
or request has been obtained.
Officer's Certificate: A certificate signed by the President, an
Executive Vice President, a Senior Vice President, a Vice President, an
Assistant Vice President, the Treasurer, Assistant Treasurer, Controller or
Assistant Controller of the Master Servicer or the Depositor, as the case may
be, and delivered to the Indenture Trustee.
Opinion of Counsel: A written opinion of counsel reasonably
acceptable to the Indenture Trustee, who may be in-house counsel for the
Master Servicer (or its affiliate).
Original Note Principal Amount: With respect to the Class A and Class
M Notes, the amount set forth below:
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Original Note Principal
Class Amount
-------------------- -----------------------------------
A $547,610,000
M $105,872,000
Overcollateralization Amount: As to any Payment Date, the excess, if
any, of (x) the Pool Balance as of the last day of the related Collection
Period over (y) the aggregate Note Principal Amount of all Class A and Class M
Notes calculated after taking into account all payments in respect of
principal on such Payment Date.
Overcollateralization Release Amount: As to any Payment Date, the
amount (but not in excess of Principal Collections for such Payment Date)
equal to the excess, if any, of (i) the Interim Overcollateralization Amount
over (ii) the Targeted Overcollateralization Amount.
Owner Trustee: The Bank of New York, as owner trustee under the Trust
Agreement, and any successor owner trustee under the Trust Agreement appointed
in accordance with the terms thereof.
Ownership Interest: As defined in the Trust Agreement.
Paying Agent: Any paying agent appointed pursuant to the Indenture.
Payment Date: The 20th day of each month or, if such day is not a
Business Day, then the next Business Day, beginning in October 2003.
Percentage Interest: As to the Class A and the Class M Notes, the
percentage obtained by dividing the principal denomination of such Note by the
aggregate of the principal denominations of all Notes of such Class.
Perfection Representations: The representations, warranties and
covenants set forth in Schedule 1 attached hereto.
Permitted Investments: One or more of the following (excluding any
callable investments purchased at a premium):
(i) direct obligations of, or obligations fully guaranteed
as to timely payment of principal and interest by, the United States
or any agency or instrumentality thereof, provided that such
obligations are backed by the full faith and credit of the United
States;
(ii) repurchase agreements on obligations specified in
clause (i) maturing not more than three months from the date of
acquisition thereof, provided that the short-term unsecured debt
obligations of the party agreeing to repurchase such obligations are
at the date of acquisition rated by each Rating Agency in its highest
short-term rating category (which is "F1" for Fitch, "A-1+" for
Standard & Poor's and "P-1" for Moody's);
(iii) certificates of deposit, time deposits and bankers'
acceptances (which, if ▇▇▇▇▇'▇ is a Rating Agency, shall each have an
original maturity of not more than 90
13
days and, in the case of bankers' acceptances, shall in no event
have an original maturity of more than 365 days) of any U.S.
depository institution or trust company incorporated under the laws
of the United States or any state thereof and subject to supervision
and examination by federal and/or state banking authorities,
provided that the unsecured short-term debt obligations of such
depository institution or trust company at the date of acquisition
thereof have been rated by each of Moody's, Standard & Poor's and
Fitch in its highest unsecured short-term debt rating category;
(iv) commercial paper (having original maturities of not
more than 270 days) of any corporation incorporated under the laws of
the United States or any state thereof which on the date of
acquisition has been rated by Fitch, Standard & Poor's and Moody's in
their highest short-term rating categories;
(v) short term investment funds sponsored by any trust
company or national banking association incorporated under the laws
of the United States or any state thereof which on the date of
acquisition has been rated by Fitch, Standard & Poor's and Moody's in
their respective highest rating category for long-term unsecured
debt, or any other short-term investment fund the funds in which are
invested in securities rated in the highest rating category by Fitch,
Standard & Poor's and Moody's and which mature on demand or prior to
the next Payment Date;
(vi) interests in any money market fund or mutual fund which
at the date of acquisition has a rating of "Aaa" by Moody's, "AAA" by
Fitch and "AAA" (or "AAAm" or "AAAm-G" with respect to money market
funds) by Standard & Poor's or such lower rating as will not result
in the qualification, downgrading or withdrawal of the then current
rating assigned to the Class A and Class M Notes by each Rating
Agency; and
(vii) other obligations or securities that are indebtedness
in registered form for U.S. federal income tax purposes and that are
reasonably acceptable to each Rating Agency as a Permitted Investment
hereunder and will not result in a reduction in the then-current
rating of the Class A or Class M Notes, as evidenced by a
confirmation or letter to such effect from such Rating Agency;
provided that no instrument described hereunder shall evidence either the
right to receive (a) only interest with respect to the obligations underlying
such instrument or (b) both principal and interest payments derived from
obligations underlying such instrument if such interest and principal payments
provide a yield to maturity at par greater than 120% of the yield to maturity
at par of the underlying obligations; and provided, further, that no
instrument described hereunder may be purchased at a price greater than par if
such instrument may be prepaid or called at a price less than its purchase
price prior to its stated maturity.
Person: Any individual, corporation, partnership, joint venture,
limited partnership, limited liability company, association, joint-stock
company, trust, unincorporated organization or government or any agency or
political subdivision thereof.
Pool Balance: With respect to any date of determination, the
aggregate of the Principal Balances of all Home Equity Loans as of such date.
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Preferred Stock: As defined in Section 9.14.
Principal Balance: As to any Home Equity Loan (other than a
Liquidated Home Equity Loan) and date, the related Cut-Off Date Principal
Balance, minus the sum of (x) all collections credited against the principal
balance of such Home Equity Loan in accordance with the terms of the related
Mortgage Note and (y) any related Charge Off Amounts credited against the
principal balance of such Home Equity Loan prior to such date. For purposes of
this definition, a Liquidated Home Equity Loan shall be deemed to have a
Principal Balance equal to the Principal Balance of the related Home Equity
Loan immediately prior to the final recovery of related Liquidation Proceeds
and a Principal Balance of zero thereafter.
Principal Carry Forward Amount: As to the Class A or Class M Notes
and any Payment Date, the amount, if any, by which (i) the amounts payable to
such Class pursuant to Section 5.01(a)(iv) and (v) (with respect to the Class
A Notes) or pursuant to Section 5.01(a)(vii) and (viii) (with respect to the
Class M Notes), as applicable, as of the preceding Payment Date exceeded (ii)
the amount of the actual payments made to such Class on such prior Payment
Date pursuant to Section 5.01(a)(iv) and (v) (with respect to the Class A
Notes) or pursuant to Section 5.01(a)(vii) and (viii) (with respect to the
Class M Notes), as applicable.
Principal Collections: As to any Payment Date, the sum, without
duplication, of:
(i) the principal portion of all scheduled monthly payments on the
Home Equity Loans received by the Master Servicer during the related
Collection Period;
(ii) the principal portion of the Purchase Price for any Home Equity
Loan repurchased from the Trust pursuant to the terms of this Agreement during
the related Collection Period;
(iii) the principal portion of all Substitution Adjustment Amounts
with respect to the related Collection Period;
(iv) all Net Liquidation Proceeds (excluding Foreclosure Profits and
Recovered Charge Off Amounts) actually received by the Master Servicer during
the related Collection Period (to the extent such Net Liquidation Proceeds
relate to principal); and
(v) the principal portion of all other unscheduled collections on the
Home Equity Loans received by the Master Servicer during the related
Collection Period (including, without limitation, full and partial prepayments
of principal made by the Mortgagors), to the extent not previously
distributed.
Principal Payment Amount: As to any Payment Date, (i) the Principal
Collections for such Payment Date minus (ii) for Payment Dates occurring on
and after the Stepdown Date and for which a Trigger Event is not in effect,
the Overcollateralization Release Amount, if any.
Prospectus Supplement: The Prospectus Supplement, dated August 25,
2003, to the Prospectus, dated August 25, 2003, relating to the offer and sale
of the Notes.
Purchase Price: As to any Home Equity Loan purchased from the Trust
on any date pursuant to Section 2.02, 2.04 or 3.01 an amount equal to the sum
of (i) the Principal Balance
15
thereof plus any related Charge Off Amount as of the end of the related
Collection Period preceding the date of repurchase, and (ii) accrued and
unpaid interest to the end of such Collection Period computed on a daily basis
at the Net Loan Rate on the Principal Balance outstanding from time to time.
Rating Agencies: Moody's, Standard & Poor's and Fitch. If such agency
or a successor is no longer in existence, "Rating Agency" shall be such
nationally recognized statistical credit rating agency, or other comparable
Person, designated by the Depositor, notice of which designation shall be
given to the Indenture Trustee. References herein to the highest short term
unsecured rating category of a Rating Agency shall mean "P-1" or better in the
case of Moody's, "A-1+" or better in the case of Standard & Poor's and "F1" in
the case of Fitch and in the case of any other Rating Agency shall mean such
equivalent ratings. References herein to the highest long-term rating category
of a Rating Agency shall mean "AAA" in the case of Fitch and Standard & Poor's
and "Aaa" in the case of Moody's and in the case of any other Rating Agency,
such equivalent rating.
Realized Loss: With respect to (i) any Liquidated Home Equity Loan,
the unrecovered Principal Balance thereof at the end of the related Collection
Period in which such Home Equity Loan became a Liquidated Home Equity Loan and
(ii) any Charged-Off Home Equity Loan, the Charge Off Amount for the related
Collection Period.
Reassignment: The reassignment dated August 28, 2003, by the Conduit
Trustee pursuant to which (i) the Conduit Trustee will convey to the Depositor
all of its right, title and interest in and to the unpaid Principal Balance of
the Conduit Home Equity Loans, including all interest and principal payments
in respect thereof received on or after the applicable cut-off date, and
certain other rights with respect to the collateral supporting the Conduit
Home Equity Loans and (ii) the Conduit Trustee will assign to the Trust all of
its right, title and interest in and on the Conduit Home Equity Loans
originally transferred to the Conduit Trustee pursuant to the Conduit Transfer
Agreement.
Record Date: As to any Payment Date, the Business Day immediately
preceding such Payment Date; provided, however, that if any Notes become
Definitive Notes, the record date for such Notes will be the last Business Day
of the month immediately preceding the month in which the related Payment Date
occurs.
Recovered Charge Off Amount: As to any Home Equity Loan that became a
Liquidated Home Equity Loan in a Collection Period, the amount, if any, by
which (i) its Net Liquidation Proceeds that are allocable to principal in
accordance with the related Mortgage Note exceeds (ii) its Principal Balance
immediately prior to foreclosure up to an amount of all related Charge Off
Amounts, but in no event less than zero.
Related Documents: As defined in Section 2.01(c).
REO: A Mortgaged Property that is acquired by the Trust in a
foreclosure or by grant of deed in lieu of foreclosure.
Required Excess Cashflow: As to any Payment Date, means 2.5%, divided
by 12, multiplied by the Pool Balance as of the first day of the related
Collection Period.
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Responsible Officer: With respect to the Indenture Trustee, any
officer assigned to the corporate trust group (or any successor thereto),
including any vice president, assistant vice president, trust officer,
assistant secretary or any other officer of the Indenture Trustee customarily
performing functions similar to those performed by any of the above designated
officers and having direct responsibility for the administration of this
Agreement. When used with respect to any Seller or the Master Servicer, the
President or any Vice President, Assistant Vice President, Treasurer,
Assistant Treasurer or any Secretary or Assistant Secretary.
SAIF: The Savings Association Insurance Fund, as from time to time
constituted, created under the Financial Institutions Reform, Recovery and
Enhancement Act of 1989, or if at any time after the execution of this
instrument the Savings Association Insurance Fund is not existing and
performing duties now assigned to it, the body performing such duties on such
date.
Sellers: The sellers set forth in Schedule 2 attached hereto.
Servicer: As to each Home Equity Loan, the related Seller that sold
such Home Equity Loan to the Depositor pursuant to the applicable Home Equity
Loan Purchase Agreement.
Servicing Certificate: A certificate completed by and executed on
behalf of the Master Servicer in accordance with Section 3.18.
Servicing Fee: The fee payable to the Master Servicer pursuant to
Section 3.09, equal to 1/12th of the Servicing Fee Rate for each Home Equity
Loan in the Home Equity Loan Schedule multiplied by the outstanding Principal
Balance of such Home Equity Loan as of the first day of the related Collection
Period, except with respect to the first calendar month in which the fee
payable shall be multiplied by a fraction the numerator of which is the number
of days from the Cut-Off Date to September 30, 2003 and the denominator of
which 360.
Servicing Fee Rate: A rate equal to 0.50% per annum.
Servicing Officer: Any officer of the Master Servicer or other
individual designated by an officer of the Master Servicer involved in, or
responsible for, the administration and servicing of the Home Equity Loans,
whose name and specimen signature appear on a list of servicing officers
furnished to the Indenture Trustee on the Closing Date by the Master Servicer,
as such list may be amended from time to time.
Settlement Agreement: The consent decrees entered into between
Household International Inc. and participating States (and agencies of such
States) in accordance with the agreement reached between Household
International Inc. and a multi-state working group of state attorneys general
and regulatory agencies, which became effective on January 19, 2003 and
reflected in the Specified Filing.
Skip-A-Pay Advance: For any Collection Period in which the Master
Servicer has elected to defer a scheduled monthly interest and principal
payment on any Home Equity Loan that is not in default or (in the judgment of
the Master Servicer) for which a default is not imminent, means the positive
result, if any, of the Required Excess Cashflow on the related Payment Date,
minus the Monthly Excess Cashflow on the related Payment Date. For the
17
avoidance of doubt, if the result of the foregoing calculation is not a
positive number, the Skip-A-Pay Advance for the related Collection Period
shall be zero.
Skip-A-Pay Reimbursement Amount: As of any Payment Date means, the
positive result, if any, of the Monthly Excess Cashflow on such Payment Date,
minus the Required Excess Cashflow on such Payment Date.
Specified Filing: The filing by Household International Inc. with the
S.E.C. on Form 8-K dated October 11, 2002.
Standard & Poor's: Standard & Poor's Ratings Services, a division of
The ▇▇▇▇▇▇-▇▇▇▇ Companies, Inc., or any successor thereto.
Statistical Cut-Off Date: The close of business on August 3, 2003.
Stepdown Date: The later to occur of the Payment Date in October 2006
and the first Payment Date on which the Pool Balance has been reduced to
50.00% of the Cut-Off Date Pool Balance.
Subsequent Cut-Off Date: As to each Eligible Substitute Home Equity
Loan, the close of business on the day designated as the "Subsequent Cut-Off
Date" with respect to the Eligible Substitute Home Equity Loan.
Substitution Adjustment Amount: As to any Defective Home Equity Loan
or any Home Equity Loan for which the Master Servicer elects to substitute
pursuant to Section 2.02(b) and the date on which a substitution thereof
occurs pursuant to Sections 2.02 or 2.04, the sum of:
(i) the excess, if any, of (a) the Principal Balance of such
Defective Home Equity Loan or such elected Home Equity Loan plus any
related Charge Off Amount as of the end of the related Collection
Period preceding the date of substitution (after the application of
any principal payments received on such Defective Home Equity Loan or
such elected Home Equity Loan on or before the date of the
substitution of the applicable Eligible Substitute Home Equity Loan
or Loans) over (b) the aggregate Principal Balance of the applicable
Eligible Substitute Home Equity Loan or Loans, plus
(ii) accrued and unpaid interest to the end of such
Collection Period computed on a daily basis at the Net Loan Rate on
the Principal Balance of such Defective Home Equity Loan or such
elected Home Equity Loan outstanding from time to time.
Supplemental Interest Amount: The Class A Supplemental Interest
Amount or Class M Supplemental Interest Amount, as applicable.
Targeted Overcollateralization Amount: As to any Payment Date, (x)
prior to the Stepdown Date, 16.75% of the Cut-Off Date Pool Balance, and (y)
on and after the Stepdown Date and assuming a Trigger Event is not in effect,
the greater of (i) 33.50% of the Pool Balance as of the last day of the
related Collection Period and (ii) 1.00% of the Cut-Off Date Pool Balance. If
a Trigger Event is in effect on and after the Stepdown Date, the Targeted
18
Overcollateralization Amount shall be equal to the Targeted
Overcollateralization Amount for the immediately preceding Payment Date.
Term Home Equity Loans: All of the Home Equity Loans transferred to
the Depositor pursuant to the Term Loan Purchase Agreement.
Term Loan Purchase Agreement: The home equity loan purchase agreement
dated August 28, 2003 between the Depositor and the Sellers pursuant to which
the Sellers convey to the Depositor all of their right, title and interest in
and to the unpaid Principal Balance of the Term Home Equity Loans, including
all interest and principal payments in respect thereof received on or after
the Cut-Off Date, and certain other rights with respect to the collateral
supporting the Term Home Equity Loans.
Term Transfer Agreement: The transfer agreement dated as of August
28, 2003 between the Trust and the Seller pursuant to which the Sellers will
assign to the Trust all of their right, title and interest in and on the Term
Transferred Assets not otherwise transferred pursuant to the Term Loan
Purchase Agreement.
Term Transferred Assets: All aspects, rights, title or interests of,
in, to or under the Term Home Equity Loans that are not otherwise conveyed
hereunder pursuant to Section 2.01, including, without limitation, all
agreements, instruments and other documents evidencing or governing the
Mortgagor's obligations under such Home Equity Loans or otherwise related
thereto or establishing or setting forth the terms and conditions thereof, and
any amendments or modifications thereto, and all property and collateral
securing the borrowers obligations thereunder.
Termination Price: As defined in Section 8.01(b).
Transaction Documents: This Agreement, each Home Equity Loan Purchase
Agreement, the Term Transfer Agreement, the Reassignment, the Trust Agreement
and the Indenture.
Transfer Date: As to any Home Equity Loan transferred to or
retransferred from the Trust hereunder, the date on which such transfer or
retransfer is made under the terms hereof, which date shall be (i) in the case
of the Home Equity Loans originally listed on the Home Equity Loan Schedule,
the Closing Date, and (ii) in the case of any Eligible Substitute Home Equity
Loan, the date on which such Eligible Substitute Home Equity Loan is conveyed
to the Trust under the terms hereof.
Transferor: The Depositor, or any such permitted holder of the
Ownership Interest.
Trigger Event: Will be in effect on any Payment Date on or after the
Stepdown Date on which either (i) the Two Payment-Plus Rolling Average for
such Payment Date equals or exceeds 10.00%, or (ii) the Cumulative Loss
Percentage for such Payment Date exceeds the Cumulative Loss Percentage
Trigger for such Collection Period.
Trust: The trust created by the Trust Agreement, the corpus of which
consists of the Home Equity Loans, such assets as shall from time to time be
identified as deposited in the Collection Account (exclusive of net earnings
thereon), the Mortgage Notes and other Mortgage File documents for the Home
Equity Loans, any property that secured a Home Equity Loan and that has become
REO, the interest of the Depositor in certain hazard insurance policies
maintained by the Mortgagors or the Master Servicer in respect of the Home
Equity Loans, the Collection Account, the proceeds of each of the foregoing
and one share of Preferred Stock of the Depositor.
19
Trust Agreement: The Trust Agreement dated as of August 21, 2003, and
amended and restated as of August 28, 2003 among Household Finance
Corporation, the Depositor, Bank One, National Association, as co-trustee and
not in its individual capacity, the Delaware Trustee and the Owner Trustee.
Two Payment-Plus Delinquency Percentage: As to any Collection Period,
(a) the aggregate of the Principal Balances of all Mortgage Loans that are two
or more payments contractually delinquent, including those Mortgage Loans in
bankruptcy, foreclosure and REO as of the end of such Collection Period, over
(b) the Pool Balance as of the end of such Collection Period.
Two Payment-Plus Rolling Average: As to any Payment Date, the average
of the Two Payment-Plus Delinquency Percentage for each of the three (3)
immediately preceding Collection Periods.
UCC: The Uniform Commercial Code, as amended from time to time, as in
effect in any specified jurisdiction.
SECTION 1.02 Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined herein
have the meanings assigned to them in the Indenture and the Trust Agreement,
as applicable.
(b) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Agreement or in any such certificate or other document, and
accounting terms partly defined in this Agreement or in any such certificate
or other document to the extent not defined, shall have the respective
meanings given to them under generally accepted accounting principles. To the
extent that the definitions of accounting terms in this Agreement or in any
such certificate or other document are inconsistent with the meanings of such
terms under generally accepted accounting principles, the definitions
contained in this Agreement or in any such certificate or other document shall
control.
(d) The words "hereof", "herein", "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole
and not to any particular provision of this Agreement; Article, Section,
Schedule and Exhibit references contained in this Agreement are references to
Articles, Sections, Schedules and Exhibits in or to this Agreement unless
20
otherwise specified; and the terms "including" and "includes" shall mean
"including without limitation."
(e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as
well as to the feminine genders of such terms.
(f) Any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented and includes (in the case of agreements or
instruments) references to all attachments thereto and instruments
incorporated therein; references to a Person are also to its permitted
successors and assigns.
SECTION 1.03 Interest Calculations. All calculations of interest
hereunder that are made in respect of the Principal Balance of a Home Equity
Loan shall be made based on the number of days elapsed between the date that
interest was last paid on such Home Equity Loan and the date of receipt of the
related Mortgagor's most current payment. All calculations of interest on the
Class A and Class M Notes shall be made on the basis of a 360-day year and the
actual number of days in the related Accrual Period. All dollar amounts
calculated hereunder shall be rounded to the nearest ▇▇▇▇▇ with one-half of
one ▇▇▇▇▇ being rounded down.
21
ARTICLE II.
CONVEYANCE OF HOME EQUITY LOANS; TAX TREATMENT
SECTION 2.01 Acknowledgment; Conveyance of Home Equity Loans; Custody
of Mortgage Files.
(a) The Depositor, concurrently with the execution and delivery of
this Agreement, does hereby irrevocably transfer, assign, sell, set over and
otherwise convey to the Trust for the benefit of the Noteholders without
recourse (subject to Sections 2.02 and 2.04) (i) all of its right, title and
interest in and to the unpaid principal balance of each Home Equity Loan and
each Eligible Substitute Home Equity Loan, including all Interest Collections
and Principal Collections in respect of any such Home Equity Loan received
after the Cut-Off Date with respect to each Initial Home Equity Loan and after
the Subsequent Cut-Off Date with respect to each Eligible Substitute Home
Equity Loan pursuant to the Term Loan Purchase Agreement; (ii) property which
secured such Home Equity Loan and which has been acquired by foreclosure or
deed in lieu of foreclosure; (iii) its interest in any insurance policies in
respect of the Home Equity Loans (including any Insurance Proceeds); (iv) all
other assets included or to be included in the Trust for the benefit of the
Noteholders and the Transferor; (v) all proceeds of any of the foregoing; and
(vi) one share of the Depositor's Preferred Stock.
(b) The Depositor agrees to take, or to cause to be taken, such
actions and to execute such documents, including without limitation the filing
of all necessary continuation statements for the UCC-1 financing statement
filed in the State of Illinois and the State of Delaware, as applicable (which
shall have been filed as promptly as practicable, but in no event later than
10 days following the effective date of this Agreement), describing the Home
Equity Loans and naming the Depositor as seller and the Trust as buyer, and
any amendments or other filings to the UCC-1 financing statement required to
reflect a change in the applicable UCC, or a change of the name or corporate
structure of the Depositor, as are necessary to perfect and protect the
Noteholders' interests in the Trust created hereunder, including each Home
Equity Loan and the proceeds thereof (other than delivering to the Indenture
Trustee possession of the Mortgage Files, which possession will, subject to
the terms hereof, be maintained by the Servicers on behalf of the Master
Servicer as custodian and bailee for the Indenture Trustee). The parties
hereto intend that the transactions set forth herein constitute a sale and not
a pledge by the Depositor to the Trust of all the Depositor's right, title and
interest in and to the Home Equity Loans and other Trust property as and to
the extent described above. In the event the transactions set forth herein are
characterized as a pledge and not a sale, the Depositor hereby grants to the
Trust a security interest in all of the Depositor's right, title and interest
in, to and under the Home Equity Loans and such other Trust property, to
secure all of the Depositor's obligations hereunder, and this Agreement shall
constitute a security agreement under applicable law. With respect to the Home
Equity Loans sold by each Seller to the Depositor, the Master Servicer shall
cause such Seller to file as promptly as practicable, but in no event later
than ten days following the effective date of this Agreement, in the
appropriate public filing office or offices UCC-1 financing statements and
continuation statements describing such Home Equity Loans and naming such
Seller as seller and the Depositor as buyer, to file appropriate continuation
statements thereto, to file amendments thereto in the case of a change in the
22
applicable UCC, name change or change in corporate structure and to file
appropriate additional UCC-1 financing statements, if any, if such Seller
changes its jurisdiction of incorporation.
(c) In connection with such transfer and assignment by the Depositor
and the Master Servicer, acting through the Servicers, the Indenture Trustee
and the Master Servicer hereby acknowledge that the Servicers are holding,
with respect to the Home Equity Loans transferred on the Closing Date, and
will hold, with respect to each Eligible Substitute Home Equity Loan, on and
from the applicable Transfer Date, as custodian and bailee for the Indenture
Trustee, the following documents or instruments with respect to each such Home
Equity Loan (the "Related Documents"):
(i) the original Mortgage Note with all intervening
endorsements showing a complete chain of title from the originator
of such Home Equity Loan to the Seller or a copy of such original
Mortgage Note with an accompanying lost note affidavit;
(ii) the original Mortgage, with evidence of recording thereon,
provided that if the original Mortgage has been delivered for
recording to the appropriate public recording office of the
jurisdiction in which the Mortgaged Property is located but has not
yet been returned to the Seller by such recording office, the Seller
may hold a copy of such original Mortgage;
(iii) originals of any amendments to the Mortgage Note or
Mortgage, any modification or assumption agreements and any previous
assignments of such Home Equity Loan; and
(iv) for each Mortgage Loan registered on the MERS(R) System,
the original assignment into the name of MERS(R) including the
related MIN of the Mortgage Loan;
provided, however, that as to any Home Equity Loan, if, as evidenced by an
Opinion of Counsel delivered to and in form and substance reasonably
satisfactory to the Owner Trustee and the Indenture Trustee, (x) an optical
image or other electronic representation of the related documents specified in
clauses (i) through (iii) above are enforceable in the relevant jurisdictions
to the same extent as the original of such document and (y) such optical image
or other representation does not impair the ability of an owner of such Home
Equity Loan to transfer its interest in such Home Equity Loan, such optical
image or other representation may be held by the Master Servicer, acting
through the Servicers, as custodian and bailee for the Indenture Trustee, in
lieu of the physical documents specified above.
(d) Except as hereinafter provided, the Master Servicer, acting
through the Servicers, shall be entitled to maintain possession of all of the
foregoing documents and instruments, shall not be required to deliver any of
them to the Indenture Trustee or the Owner Trustee and shall not be required
to record an Assignment of Mortgage in favor of the Indenture Trustee or the
Owner Trustee with respect to any Home Equity Loan. In the event, however,
that possession of any of such documents or instruments is required by any
Person (including the Indenture Trustee) acting as successor master servicer
pursuant to Section 6.04 or 7.02 in order to carry out the duties of Master
Servicer hereunder, then such successor shall be entitled to request delivery,
at the expense of the Master Servicer, of such documents or instruments by the
Master Servicer
23
and to retain such documents or instruments for servicing purposes; provided
that the Indenture Trustee or such servicers shall maintain such documents at
such offices as may be required by any regulatory body having jurisdiction
over such Home Equity Loans.
(e) The Master Servicer's right to maintain possession, directly or
through the Servicers, of the Mortgage Files shall continue so long as (x) at
least two of ▇▇▇▇▇'▇, Standard & Poor's and Fitch assign a long-term senior
unsecured debt rating to HFC of at least "Baa3", in the case of ▇▇▇▇▇'▇,
"BBB", in the case of Fitch, and "BBB-", in the case of Standard & Poor's, (or
such lower rating acceptable and assigned by at least two of ▇▇▇▇▇'▇, Standard
& Poor's and Fitch) and (y) each of the Servicers remains an Affiliate of HFC.
At such time as either of the conditions specified in the preceding sentence
is not satisfied, as promptly as practicable, but in no event more than 90
days thereafter in the case of clause (i) below, 60 days in the case of clause
(ii) below and 60 days in the case of clause (iii) below, the Master Servicer
shall cause each Servicer, at such Servicer's expense or, to the extent the
Servicer fails to pay, the Master Servicer's expense, to (i) either (x) record
an Assignment of Mortgage in favor of the Trust (which may be a blanket
assignment if permitted by applicable law) with respect to each of the Home
Equity Loans being serviced by such Servicer in the appropriate real property
or other records or (y) deliver to the Indenture Trustee the assignment of
such Mortgage in favor of the Trust in form for recordation, together with an
Opinion of Counsel addressed to the Indenture Trustee to the effect that
recording is not required to protect the Trust's right, title and interest in
and to the related Home Equity Loan or to perfect a first priority security
interest in favor of the Trust in the related Home Equity Loan, which Opinion
of Counsel also shall be reasonably acceptable to each of the Rating Agencies,
the Owner Trustee and the Indenture Trustee (as evidenced in writing), (ii)
unless an Opinion of Counsel, reasonably acceptable to the Owner Trustee, the
Indenture Trustee and the Rating Agencies (as evidenced in writing), is
delivered to the Indenture Trustee to the effect that delivery of the Mortgage
Files is not necessary to protect the Trust's right, title and interest in and
to the related Home Equity Loans or to perfect a first priority security
interest in favor of the Trust in the related Home Equity Loans, deliver the
related Mortgage Files to the Indenture Trustee to be held by the Indenture
Trustee in trust, upon the terms herein set forth, for the use and benefit of
the Trust and all present and future Noteholders, and the Indenture Trustee
shall retain possession thereof except to the extent the Master Servicer or
Servicers require any Mortgage Files for normal servicing as contemplated by
Section 3.08, and (iii) have a Responsible Officer of the applicable Seller
endorse the original Mortgage Note with respect to each of the Home Equity
Loans being serviced by the Servicer to "Pay to the order of ____________
without recourse" with all intervening endorsements showing a complete chain
of title from the originator of such Home Equity Loan to the applicable
Seller. The Master Servicer shall cause the Servicers to appoint the Indenture
Trustee their attorney-in-fact to prepare, execute and record any assignments
of Mortgages required under this Section 2.01 in the event that the Servicers
or the Master Servicer should fail to do so on a timely basis.
(f) Within 90 days following delivery, if any, of the Mortgage Files
to the Indenture Trustee pursuant to the preceding subsection, the Indenture
Trustee shall review each such Mortgage File to ascertain that all required
documents set forth in this Section 2.01 have been executed and received and
that such documents relate to the Home Equity Loans identified on the Home
Equity Loan Schedule, and in so doing the Indenture Trustee may rely on the
purported due execution and genuineness of any signature thereon. If within
such 90-day period
24
the Indenture Trustee finds any document constituting a part of a Mortgage
File not to have been executed or received or to be unrelated to the Home
Equity Loans identified in said Home Equity Loan Schedule or, if in the course
of its review, the Indenture Trustee determines that such Mortgage File is
otherwise defective in any material respect, the Indenture Trustee shall
promptly upon the conclusion of its review notify the Owner Trustee, the
Depositor and the Master Servicer and the Depositor and the Master Servicer
shall have a period of 90 days after such notice within which to correct or
cure any such defect; provided, however, that if such defect shall not have
been corrected or cured within such 90-day period due to the failure of the
related office of real property or other records to return any document
constituting a part of a Mortgage File, the Depositor or the Master Servicer
shall so notify the Owner Trustee and the Indenture Trustee and the period
during which such defect may be corrected or cured shall be extended for one
additional 90-day period.
(g) The Indenture Trustee shall have no responsibility for reviewing
any Mortgage File except as expressly provided in this Section 2.01. In
reviewing any Mortgage File pursuant to this Section 2.01, the Indenture
Trustee shall have no responsibility for determining whether any document is
valid and binding, whether the text of any assignment or endorsement is in
proper or recordable form (except, if applicable, to determine if the Trust is
the assignee or endorsee), whether any document has been recorded in
accordance with the requirements of any applicable jurisdiction, or whether a
blanket assignment is permitted in any applicable jurisdiction, whether any
Person executing any document is authorized to do so or whether any signature
thereon is genuine, but shall only be required to determine whether a document
has been executed, that it appears to be what it purports to be and, where
applicable, that it purports to be recorded.
(h) The Master Servicer hereby confirms to the Indenture Trustee and
the Owner Trustee that on or prior to the Closing Date and on or prior to the
applicable Transfer Date with respect to any Eligible Substitute Home Equity
Loan, the portions of the Electronic Ledger relating to such Home Equity Loans
have been or will have been clearly and unambiguously marked, and the
appropriate entries have been or will have been made in its general accounting
records, to indicate that such Home Equity Loans have been transferred to the
Trust and constitute part of the Trust in accordance with the terms hereof.
(i) In connection with the assignment, pursuant to Section
2.01(e)(i), of any Home Equity Loan registered on the MERS(R) System, the
Master Servicer shall cause each Servicer, at such Servicer's expense or, to
the extent the Servicer fails to pay, the Master Servicer's expense, at the
time specified in the second sentence of Section 2.01(e)(i), to cause the
MERS(R) System to indicate that such Home Equity Loans have been assigned to
the Trust in accordance with this Agreement by including (or deleting, in the
case of Home Equity Loans which are repurchased in accordance with this
Agreement) in such computer files (a) the code "[IDENTIFY TRUST SPECIFIC
CODE]" in the field "[IDENTIFY THE FIELD NAME FOR TRUST]" which identifies the
Trust and (b) the code "[IDENTIFY SERIES SPECIFIC CODE NUMBER]" in the field
"Pool Field" which identifies the series of the Notes issued in connection
with such Home Equity Loans. The Master Servicer agrees that it will not alter
the codes referenced in this paragraph with respect to any Home Equity Loan
during the term of this Agreement unless and until such Home Equity Loan is
repurchased in accordance with the terms of this Agreement, and there is filed
any financing statement or amendment thereof necessary to comply with the New
York UCC or the UCC of any applicable jurisdiction.
25
SECTION 2.02 Acceptance by Indenture Trustee; Repurchase of Home
Equity Loans; Conveyance of Eligible Substitute Home Equity Loans.
(a) The Indenture Trustee hereby acknowledges receipt of all the
right, title and interest of the Depositor in and to the assets described
Section 2.01(a)(i) through (vi), all of the right, title and interest of the
Conduit Trustee in and to the Conduit Transferred Assets pursuant to the
Reassignment and all of the right, title and interest of the Sellers in and to
the Term Transferred Assets pursuant to the Term Transfer Agreement, including
but not limited to the transfer and assignment of the Mortgage Notes and the
Mortgages, and declares that it holds and will hold such documents and
interests and all amounts received by it in trust, upon the terms herein set
forth, for the use and benefit of the Trust and all present and future
Noteholders. If the time to cure any defect of which the Indenture Trustee has
notified the Depositor and the Master Servicer following the Indenture
Trustee's review of the Home Equity Loan files pursuant to Section 2.01 has
expired or if any loss is suffered by the Indenture Trustee, on behalf of the
Noteholders, in respect of any Home Equity Loan as a result of (i) a defect in
any document constituting a part of a Mortgage File or (ii) the related
Seller's retention of such Mortgage File or an Assignment of Mortgage not
having been recorded, the Depositor or, to the extent the Depositor fails to
perform, the Master Servicer shall, in the case of a defect in such document
and the Master Servicer shall, in the case of a loss resulting from such
Seller's retention of a Mortgage File or Assignment of Mortgage not having
been recorded, on the Business Day next preceding the Payment Date in the
month following the end of the Collection Period in which the time to cure
such defect expired or such loss occurred, either (i) repurchase the related
Home Equity Loan (a "Defective Home Equity Loan") (including any property
acquired in respect thereof and any insurance policy or insurance proceeds
with respect thereto) from the Trust at a price equal to the Purchase Price
which shall be accomplished by deposit by the Depositor or the Master
Servicer, as applicable, in the Collection Account pursuant to Section 3.02 on
such next preceding Business Day, or (ii) remove such Defective Home Equity
Loan from the Trust and substitute in its place an Eligible Substitute Home
Equity Loan or Loans.
(b) The Master Servicer, in its sole discretion, shall have the
right, but not the obligation, to elect (by written notice sent to the
Indenture Trustee and the Owner Trustee) to substitute in the place of any
Home Equity Loan an Eligible Substitute Home Equity Loan or Loans; provided
that the aggregate Principal Balance as of the related subsequent Cut-Off Date
of all Eligible Substitute Home Equity Loans substituted pursuant to this
Section shall not exceed 30% of the Cut-Off Date Pool Balance; provided
further that prior to any such substitution the Master Servicer shall give
prompt written notice to each Rating Agency of any such substitution.
(c) As to any Eligible Substitute Home Equity Loan or Loans, the
Master Servicer shall cause the related Seller to deliver to the Indenture
Trustee with respect to such Eligible Substitute Home Equity Loan or Loans an
acknowledgment that the related Seller is holding as custodian for the
Indenture Trustee such documents and agreements, if any, as are permitted to
be held by the related Seller in accordance with Section 2.01. An assignment
of the Mortgage in favor of the Trust with respect to such Eligible Substitute
Home Equity Loan or Loans shall be required to be recorded in the appropriate
real property or other records or delivered to the Indenture Trustee with the
Opinion of Counsel referred to in Section 2.01 under the same circumstances
that all other assignments of Mortgage are required to be recorded hereunder.
For any Collection Period during which the Depositor or the Master Servicer
substitutes one or more
26
Eligible Substitute Home Equity Loans, the Master Servicer shall determine the
Substitution Adjustment Amount. The Depositor or the Master Servicer, as
applicable, shall deposit the Substitution Adjustment Amount in the Collection
Account no later than the Business Day immediately preceding the Payment Date
in the month following the end of the Collection Period in which such
substitution occurs. The Master Servicer shall amend the Home Equity Loan
Schedule to reflect the removal of the Defective Home Equity Loan or Home
Equity Loan for which the Master Servicer has made a substitution election
pursuant to Section 2.02(b) from the terms of this Agreement and the
substitution of the Eligible Substitute Home Equity Loan or Loans. Upon such
substitution, the Eligible Substitute Home Equity Loan or Loans shall be
subject to the terms of this Agreement in all respects, and the Depositor
shall be deemed to have made with respect to such Eligible Substitute Home
Equity Loan or Loans, as of the date of substitution, the covenants,
representations and warranties set forth in Section 2.04(b). The Indenture
Trustee shall upon satisfaction of the conditions in this subsection
immediately take any action requested by the Depositor, if any, to effect the
reconveyance of such Defective Home Equity Loan or such Home Equity Loan for
which the Master Servicer has made a substitution election so removed from the
Trust to the Depositor or the Master Servicer, as applicable. The procedures
applied by the Depositor or the Master Servicer in selecting each Eligible
Substitute Home Equity Loan shall not be adverse to the interests of the
Noteholders and shall be comparable to the selection procedures applicable to
the Home Equity Loans originally conveyed hereunder.
(d) Upon receipt by the Indenture Trustee of (i) in the case of a
repurchase, a Servicing Certificate to the effect that the Purchase Price for
any such Defective Home Equity Loan or such Home Equity Loan for which the
Master Servicer has made a substitution election has been so deposited in the
Collection Account or (ii) in the case of a substitution, (A) a Servicing
Certificate to the effect that the Substitution Adjustment Amount, if any, has
been so deposited in the Collection Account and (B) an Officer's Certificate
reciting the transfer and assignment of the Eligible Substitute Home Equity
Loan(s) to the Indenture Trustee and, if required at such time, that the
related Mortgage File(s) for such Eligible Substitute Home Equity Loan(s) have
been delivered to the Indenture Trustee and the assignment(s) of Mortgage have
been recorded, the Indenture Trustee shall execute and deliver such instrument
of transfer or assignment presented to it by the Master Servicer, in each case
without recourse, as shall be necessary to vest in the Depositor or the Master
Servicer, as applicable, legal and beneficial ownership of such Defective Home
Equity Loan or such Home Equity Loan for which the Master Servicer has made a
substitution election (including any property acquired in respect thereof or
proceeds of any insurance policy with respect thereto). It is understood and
agreed that the obligation of the Depositor or the Master Servicer to
repurchase or substitute for (to the extent permitted herein) any Defective
Home Equity Loan shall constitute the sole and exclusive remedy respecting
such defect available to Noteholders or the Indenture Trustee against the
Depositor or the Master Servicer, and such obligation on the part of the
Master Servicer shall survive any resignation or termination of the Master
Servicer hereunder.
SECTION 2.03 Representations, Warranties and Covenants of the Master
Servicer. The Master Servicer represents, warrants and covenants that as of
the Closing Date:
(a) The Master Servicer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the corporate power to own its assets
27
and to transact the business in which it is currently engaged. The Master
Servicer is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the character of the business
transacted by it or properties owned or leased by it require such
qualification and in which the failure to so qualify would have a material
adverse effect on the business, properties, assets, or condition (financial or
other) of the Master Servicer;
(b) The Master Servicer has the power and authority to make, execute,
deliver and perform its obligations under this Agreement and to perform its
obligations with respect to all of the transactions contemplated under this
Agreement, and has taken all necessary corporate action to authorize the
execution, delivery and performance of its obligations under this Agreement.
When executed and delivered, this Agreement will constitute the legal, valid
and binding obligation of the Master Servicer enforceable in accordance with
its terms, except as enforcement of such terms may be limited by bankruptcy,
insolvency or similar laws affecting the enforcement of creditors' rights
generally and by the availability of equitable remedies (whether in a
proceeding at law or in equity);
(c) The Master Servicer is not required to obtain the consent of any
other Person or any consent, license, approval or authorization from, or
registration or declaration with, any governmental authority, bureau or agency
in connection with the execution, delivery, performance, validity or
enforceability of this Agreement, except for such consents, licenses,
approvals or authorizations, or registrations or declarations, as shall have
been obtained or filed, as the case may be;
(d) The execution and delivery of this Agreement and the performance
of the transactions contemplated hereby by the Master Servicer will not
violate any provision of any existing law or regulation or any order or decree
of any court applicable to the Master Servicer or any provision of the
Certificate of Incorporation or Bylaws of the Master Servicer, or constitute a
material breach of any mortgage, indenture, contract or other agreement to
which the Master Servicer is a party or by which the Master Servicer may be
bound; and
(e) No litigation or administrative proceeding of or before any
court, tribunal or governmental body is currently pending, or to the knowledge
of the Master Servicer threatened, against the Master Servicer or any of its
properties or with respect to this Agreement or the Notes which in the opinion
of the Master Servicer has a reasonable likelihood of resulting in a material
adverse effect on the transactions contemplated by this Agreement.
(f) The Master Servicer is a member of MERS in good standing, and
will comply in all material respects with the rules and procedures of MERS in
connection with the servicing of the Home Equity Loans that are registered
with MERS.
The representations and warranties set forth in this Section 2.03
shall survive the sale and assignment of the Home Equity Loans to the Trust.
Upon discovery of a breach of any representations and warranties which
materially and adversely affects the interests of the Noteholders, the Person
discovering such breach shall give prompt written notice to the other parties.
Within 60 days (or such longer period as permitted by prior written consent of
a Responsible Officer of the Indenture Trustee) of its discovery or its
receipt of notice of such breach, the Master Servicer shall cure such breach
in all material respects.
28
SECTION 2.04 Representations and Warranties of the Depositor
Regarding this Agreement and the Home Equity Loans; Repurchases and
Substitutions.
(a) The Depositor represents and warrants that as of the Closing
Date:
(i) The Depositor is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware and has the corporate power to own its assets and to
transact the business in which it is currently engaged. The
Depositor is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction in which the character
of the business transacted by it or properties owned or leased by it
require such qualification and in which the failure to so qualify
would have a material adverse effect on the business, properties,
assets or condition (financial or other) of the Depositor;
(ii) The Depositor has the power and authority to make,
execute, deliver and perform its obligations under this Agreement
and to perform its obligations with respect to all of the
transactions contemplated under this Agreement, and has taken all
necessary corporate action to authorize the execution, delivery and
performance of its obligations under this Agreement. When executed
and delivered, this Agreement will constitute the legal, valid and
binding obligation of the Depositor enforceable in accordance with
its terms, except as enforcement of such terms may be limited by
bankruptcy, insolvency or similar laws affecting the enforcement of
creditors' rights generally and by the availability of equitable
remedies (whether in a proceeding at law or in equity);
(iii) The Depositor is not required to obtain the consent of
any other Person or any consent, license, approval or authorization
from, or registration or declaration with, any governmental
authority, bureau or agency in connection with the execution,
delivery, performance, validity or enforceability of this Agreement,
except for such consents, licenses, approvals or authorizations, or
registrations or declarations, as shall have been obtained or filed,
as the case may be;
(iv) The execution and delivery of this Agreement and the
performance of the transactions contemplated hereby by the Depositor
will not violate any provision of any existing law or regulation or
any order or decree of any court applicable to the Depositor or any
provision of the Certificate of Incorporation or Bylaws of the
Depositor, or constitute a material breach of any mortgage,
indenture, contract or other agreement to which the Depositor is a
party or by which the Depositor may be bound; and
(v) No litigation or administrative proceeding of or before any
court, tribunal or governmental body is currently pending, or to the
knowledge of the Depositor threatened, against the Depositor or any
of its properties or with respect to this Agreement which in the
opinion of the Depositor has a reasonable likelihood of resulting in
a material adverse effect on the transactions contemplated by this
Agreement.
(b) The Depositor represents and warrants with respect to each
Home Equity Loan that as of the Closing Date with respect to the
Initial Home Equity Loans and the applicable Transfer
29
Date with respect to any Eligible Substitute Home Equity Loans (or
to the extent expressly stated herein as of such other time):
(i) This Agreement and the Term Transfer Agreement constitute a
valid transfer and assignment to the Trust of all right, title and
interest of the Depositor and the related Sellers, respectively, in
and to the Term Home Equity Loans, and this Agreement and the
Reassignment constitute a valid transfer and assignment to the Trust
of all right title and interest of the Depositor and the Conduit
Trustee, respectively, in and to the Conduit Home Equity Loans, all
monies due or to become due with respect thereto, all proceeds
thereof, such funds as are from time to time deposited in the
Collection Account (excluding any investment earnings thereon) and
all other property specified in the definition of "Trust" as being
part of the corpus of the Trust conveyed to the Trust by the
Depositor;
(ii) The information set forth in the Home Equity Loan Schedule
with respect to such Home Equity Loan is true and correct in all
material respects;
(iii) (A) Immediately prior to the transfer and assignment by
the related Seller to the Depositor and the Trust pursuant to the
Term Loan Purchase Agreement and the Term Transfer Agreement, the
Home Equity Loan has not been assigned or pledged, and the related
Seller has good and marketable title thereto, and the related Seller
is the sole owner and holder of such Home Equity Loan free and clear
of any and all liens, claims, encumbrances, participation interests,
equities, pledges, charges or security interests of any nature, and
has full right and authority, under all governmental and regulatory
bodies having jurisdiction over the ownership of such Home Equity
Loan, to transfer and assign the same pursuant to the Term Loan
Purchase Agreement and the Term Transfer Agreement, (B) immediately
prior to the transfer and assignment by the related Seller to the
Depositor and the Conduit Trustee pursuant to the Conduit Loan
Purchase Agreement and the Conduit Transfer Agreement, each Conduit
Home Equity Loan had not been assigned or pledged, and the related
Seller had good and marketable title thereto, and the related Seller
was the sole owner and holder of such Home Equity Loan free and
clear of any and all liens, claims, encumbrances, participation
interests, equities, pledges, charges or security interests of any
nature, and had full right and authority, under all governmental and
regulatory bodies having jurisdiction over the ownership of such
Home Equity Loan, to transfer and assign the same pursuant to the
Conduit Loan Purchase Agreement and the Conduit Transfer Agreement
and (C) after the transfer and assignment by the Conduit Trustee to
the Depositor and the Trust pursuant to the Reassignment, the
Conduit Trustee will have good and marketable title to each Conduit
Home Equity Loan, and the Conduit Trustee is the sole owner and
holder of such Home Equity Loan free and clear of any and all liens;
(iv) Immediately prior to the transfer and assignment by the
Depositor to the Trust pursuant to this Agreement, the Home Equity
Loan has not been assigned or pledged, and the Depositor has good
and marketable title thereto, and the Depositor is the sole owner
and holder of such Home Equity Loan free and clear of any and all
liens, claims, encumbrances, participation interests, equities,
pledges, charges or security interests of any nature, and has full
right and authority, under all governmental and
30
regulatory bodies having jurisdiction over the ownership of such
Home Equity Loan, to transfer and assign the same pursuant to this
Agreement;
(v) The related Mortgage is a valid and existing first or
second lien (and, if such Mortgage is a second lien and HFC or any
of its affiliates originated the related first lien mortgage loan,
such Mortgage was not originated within 90 days of such first lien
mortgage loan), as set forth on the Home Equity Loan Schedule with
respect to such Home Equity Loan, on the property therein described,
and the related Mortgaged Property is free and clear of all
encumbrances and liens having priority over the first or second
lien, as applicable, of such Mortgage except for liens for (a) real
estate taxes and special assessments not yet delinquent; (b) any
first and, if applicable, second mortgage loan secured by such
Mortgaged Property and specified on the Home Equity Loan Schedule;
(c) covenants, conditions and restrictions, rights of way, easements
and other matters of public record as of the date of recording that
are acceptable to mortgage lending institutions generally; and (d)
other matters to which like properties are commonly subject which do
not materially interfere with the benefits of the security intended
to be provided by such Mortgage;
(vi) To the best knowledge of the Depositor, each Mortgage is
not subject to any offset, defense or counterclaim of any obligor
under the Mortgage;
(vii) To the best knowledge of the Depositor, there is no
delinquent recording or other tax or fee or assessment lien against
the related Mortgaged Property;
(viii) To the best knowledge of the Depositor, there is no
proceeding pending or threatened for the total or partial
condemnation of the related Mortgaged Property, and such property is
free of material damage and is in good repair;
(ix) There are no mechanics' or similar liens or claims which
have been filed for work, labor or material affecting the related
Mortgaged Property which are, or may be, liens prior or equal to the
lien of the related Mortgage, except (a) liens which are fully
insured against by the title insurance policy referred to in clause
(xiii) or (b) liens which do not materially interfere with the
collection of the Home Equity Loan upon foreclosure or otherwise;
(x) As of the Cut-Off Date for the Initial Home Equity Loans
(or as of the applicable Transfer Date for any Eligible Substitute
Home Equity Loan), no scheduled monthly payment is more than 30 days
delinquent (measured on a contractual basis);
(xi) The related Mortgage File contains each of the documents
and instruments specified to be included therein (including, if
applicable, an appraisal (which may be an appraisal prepared using a
statistical data base));
(xii) The related Mortgage Note and the related Mortgage at the
time they were made complied in all material respects with
applicable local, state and federal laws, including, without
limitation, usury, truth-in-lending, real estate settlement
procedures, consumer credit protection (including, without
limitation, the Home Ownership
31
Protection Act and all other applicable anti-predatory lending
laws), equal credit opportunity or disclosure laws applicable to the
Home Equity Loan;
(xiii) A lender's title insurance policy or binder was issued
on the date of origination of each Home Equity Loan for home equity
loans in excess of $50,000 (in excess of $75,000 in Oklahoma), and
each such policy is valid and remains in full force and effect, and
a title search or other assurance of title customary in the relevant
jurisdiction was obtained with respect to each Home Equity Loan as
to which no title insurance policy or binder was issued;
(xiv) The related Mortgaged Property is not a mobile home or a
manufactured housing unit that is not permanently attached to its
foundation;
(xv) The Principal Balance of which, when included in the Pool
Balance (in each case for the Initial Home Equity Loans as of the
Statistical Cut-Off Date), would not cause the aggregate Principal
Balance of the Initial Home Equity Loans that are secured by
Mortgaged Properties located in one United States postal zip code to
exceed 0.33%;
(xvi) As of the Statistical Cut-Off Date, the Combined
Loan-to-Value Ratio for each Initial Home Equity Loan was not in
excess of 115%;
(xvii) No selection procedure reasonably believed by the
Depositor to be adverse to the interests of the Noteholders was
utilized in selecting the Home Equity Loan;
(xviii) The Depositor has not transferred the Home Equity Loans
to the Trust with any intent to hinder, delay or defraud any of its
creditors;
(xix) Each Mortgage Note and each Mortgage is in substantially
the form previously provided to the Indenture Trustee by the
Depositor and each Home Equity Loan is an enforceable obligation of
the related Mortgagor;
(xx) The Depositor has not received a notice of default of any
senior mortgage loan with respect to the related Mortgaged Property
that has not been cured by a party other than the related Seller;
(xxi) The Initial Home Equity Loan does not have an original
term to maturity in excess of 360 months; and the Principal Balance
of which, when included in the Pool Balance (in each case for the
Initial Home Equity Loans as of the Statistical Cut-Off Date), would
not cause the weighted average remaining term to maturity of the
Initial Home Equity Loans on a contractual basis to be greater than
290 months;
(xxii) The related Mortgaged Property consists of a single
parcel of real property with a one-to-four unit single family
residence erected thereon, or an individual condominium unit,
planned unit development unit or townhouse;
(xxiii) The Principal Balance of which, when included in the
Pool Balance (in each case for the Initial Home Equity Loans as of
the Statistical Cut-Off Date), would not
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cause the average Principal Balance of such Home Equity Loans to be
greater than $94,681.08;
(xxiv) The Principal Balance of which, when included in the
Pool Balance (in each case for the Initial Home Equity Loans as of
the Cut-Off Date), would not cause the weighted average percentage
of the Initial Home Equity Loans secured by first liens to be less
than 94%; and would not cause the weighted average percentage of the
Initial Home Equity Loans secured by second liens to be greater than
5.80%; and
(xxv) The Initial Home Equity Loans were originated in
accordance with HFC's underwriting guidelines and procedures
including full and reduced documentation programs.
(c) It is understood and agreed that the representations and
warranties set forth in this Section 2.04 shall survive the transfer and
assignment of the Home Equity Loans to the Trust and the pledge of the Home
Equity Loans to the Indenture Trustee. Upon discovery by the Depositor, the
Master Servicer, the Owner Trustee or the Indenture Trustee of a breach of any
of the representations and warranties set forth in this Section 2.04, without
regard to any limitation set forth in such representation or warranty
concerning the knowledge of the Depositor as to the facts stated therein,
which materially and adversely affects the interests of the Noteholders or the
Transferor in respect of the Ownership Interest in the related Home Equity
Loan, the person discovering such breach shall give prompt written notice to
the other parties and each Rating Agency. Within 60 days of its discovery or
its receipt of notice of such breach, or, with the prior written consent of a
Responsible Officer of the Indenture Trustee, such longer period not to exceed
90 days specified in such consent, the Depositor or, as necessary, the Master
Servicer shall cure such breach in all material respects. With regard to any
such breach of the representations and warranties set forth in Section
2.04(b), unless, at the expiration of such 60 day or longer period, such
breach has been cured in all material respects or otherwise does not exist or
continue to exist, the Depositor or the Master Servicer shall, not later than
the Business Day next preceding the Payment Date in the month following the
end of the Collection Period in which any such cure period expired, either (i)
repurchase such Defective Home Equity Loan (including any property acquired in
respect thereof and any insurance policy or insurance proceeds with respect
thereto) or (ii) remove such Home Equity Loan from the Trust and substitute in
its place an Eligible Substitute Home Equity Loan or Loans, in the same manner
and subject to the same conditions as set forth in Section 2.02. Upon making
any such repurchase or substitution the Depositor or the Master Servicer, as
applicable, shall be entitled to receive an instrument of assignment or
transfer from the Indenture Trustee to the same extent as set forth in Section
2.02 with respect to the repurchase or replacement of Home Equity Loans under
that Section. It is understood and agreed that the obligation of the Depositor
or the Master Servicer to purchase or substitute for any such Defective Home
Equity Loan (or property acquired in respect thereof) shall constitute the
sole and exclusive remedy against the Depositor or the Master Servicer
respecting such breach of the foregoing representations or warranties
available to Noteholders, the Transferor in respect of the Ownership Interest,
the Owner Trustee or the Indenture Trustee against the Depositor or the Master
Servicer, and such obligation on the part of the Master Servicer shall survive
any resignation or termination of the Master Servicer hereunder.
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(d) The Depositor and the Master Servicer, jointly and not severally,
agree to indemnify and hold harmless the Trust against any and all
out-of-pocket financial losses, claims, expenses, damages or liabilities to
which the Trust may become subject, insofar as such out-of-pocket financial
losses, claims, expenses, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any representation or warranty made by
the Depositor in this Section 2.04 on which the Trust has relied, being, or
alleged to be, untrue or incorrect in any material respect. This indemnity
will be in addition to any liability which the Depositor or the Master
Servicer may otherwise have.
(e) Promptly after receipt by the Owner Trustee on behalf of the
Trust of notice of the commencement of any action or proceeding in any way
relating to or arising from this Agreement, the Owner Trustee will notify the
Indenture Trustee, the Depositor and the Master Servicer of the commencement
thereof, but the omission so to notify the party from whom indemnification is
sought (the "Indemnifying Party") will not relieve the Indemnifying Party from
any liability which it may have to the party seeking indemnification (the
"Indemnified Party") except to the extent that the Indemnifying Party is
materially adversely affected by the lack of notice. In case any such action
is brought against the Indemnified Party, and it notifies the Indemnifying
Party of the commencement thereof, the Indemnifying Party will be entitled to
participate in the defense (with the consent of the Indemnified Party which
shall not be unreasonably withheld) of such action at the Indemnifying Party's
expense.
SECTION 2.05 Tax Treatment. It is the intention of the Depositor and
the Noteholders that the Notes will be indebtedness for federal, state and
local income and franchise tax purposes and for purposes of any other tax
imposed on or measured by income. The terms of this Agreement shall be
interpreted to further the intent of the parties hereto. The Depositor, the
Indenture Trustee and each Noteholder (or Note Owner) by acceptance of its
Note (or, in the case of a Note Owner, by virtue of such Note Owner's
acquisition of a beneficial interest therein) agrees to treat the Note (or
beneficial interest therein), for purposes of federal, state and local income
or franchise taxes and any other tax imposed on or measured by income, as
indebtedness secured by the Trust Estate and to report the transactions
contemplated by this Agreement on all applicable tax returns in a manner
consistent with such treatment. Each Noteholder agrees that it will cause any
Note Owner acquiring an interest in a Class A or Class M Note through it to
comply with this Agreement as to treatment of the Notes as indebtedness for
federal, state and local income and franchise tax purposes and for purposes of
any other tax imposed on or measured by income. The Indenture Trustee will
prepare and file all tax reports, if any, required hereunder on behalf of the
Trust.
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ARTICLE III.
ADMINISTRATION AND SERVICING OF HOME EQUITY LOANS
SECTION 3.01 The Master Servicer.
(a) The Master Servicer shall, or shall cause the Servicers to,
service and administer the Home Equity Loans in a manner consistent with the
terms of this Agreement and the Settlement Agreement (to the extent that no
term or provision of the Settlement Agreement (excluding those terms
identified in the Specified Filing) shall adversely affect in any material
respect the interests of the Noteholders and with general industry practice
and shall have full power and authority, acting alone or through the
Servicers, to do any and all things in connection with such servicing and
administration which it may deem necessary or desirable, it being understood,
however, that the Master Servicer shall at all times remain responsible to the
Indenture Trustee and the Noteholders for the performance of its duties and
obligations hereunder in accordance with the terms hereof. Any amounts
received by the related Servicer in respect of a Home Equity Loan shall be
deemed to have been received by the Master Servicer whether or not actually
received by it. Without limiting the generality of the foregoing, the Master
Servicer shall continue, and is hereby authorized and empowered by the
Indenture Trustee, (i) in its own name or in the name of any Servicer, when
the Master Servicer or the Servicer, as the case may be, believes it
appropriate in its best judgment to register any Home Equity Loan on the
MERS(R) System, or cause the removal from the registration of any Home Equity
Loan on the MERS(R) System, to execute and deliver, on behalf of the Trust,
any and all instruments of assignment and other comparable instruments with
respect to such assignment or re-recording of a Mortgage in the name of MERS,
solely as nominee for the Trust and its successors and assigns, and (ii) to
execute and deliver, on behalf of itself, the Noteholders and the Indenture
Trustee or any of them, any and all instruments of satisfaction or
cancellation, or of partial or full release or discharge and all other
comparable instruments, with respect to the Home Equity Loans and with respect
to the Mortgaged Properties. Upon the written request of the Master Servicer,
the Depositor and the Indenture Trustee shall furnish the Master Servicer with
any powers of attorney and other documents necessary or appropriate to enable
the Master Servicer to carry out its servicing and administrative duties
hereunder. The Master Servicer in such capacity may also consent to the
placing of a proposed lien senior to that of the Mortgage on the related
Mortgaged Property, provided that such proposed lien is not secured by a note
providing for negative amortization and:
(x) (i) the Mortgage relating to the Home Equity Loan was in
a first lien position as of the Cut-Off Date and was in a first lien
position immediately prior to the placement of the proposed senior
lien, and (ii) the ratio of (a) the sum of the Principal Balance of
the Home Equity Loan and the principal balance of the mortgage loan
to be secured by the proposed senior lien to (b) the Appraised Value
of the Mortgaged Property at the time the Home Equity Loan was
originated is not greater than (1) with respect to Home Equity Loans
with an original CLTV of 85% or less, 85%, (2) with respect to Home
Equity Loans with an original CLTV in excess of 85% and not greater
than 95%, 95% and (3) with respect to Home Equity Loans with an
original CLTV in excess of 95% and not greater than 115%, 115%;
35
(y) (i) the Mortgage relating to the Home Equity Loan was in
a first or second lien position at the time the related Home Equity
Loan was conveyed to the Trust and, immediately following the
placement of such proposed senior lien, such Mortgage will be in a
second or, if such Mortgage was in a second lien position at the time
the related Home Equity Loan was conveyed to the Trust, a third lien
position and (ii) the principal balance of the mortgage loan to be
secured by the proposed senior lien and the rate at which interest
accrues thereon are no greater than those of the related Home Equity
Loan as of the date it was first conveyed to the Trust; or
(z) the Mortgage relating to the Home Equity Loan was
in a second lien position as of the Cut-Off Date and the proposed
senior lien secures a mortgage loan that refinances an existing first
mortgage loan and the outstanding principal amount of such mortgage
loan immediately following such refinancing and the rate at which
interest accrues thereon are not greater than that of such existing
first mortgage loan at the date the mortgage loan was originated.
(b) If (i) foreclosure proceedings are commenced with respect to any
Home Equity Loan with respect to which the Master Servicer has consented to
the placing of a subsequent senior lien pursuant to clause (x) in Section
3.01(a), or (ii) any loss is suffered by the Indenture Trustee on behalf of
the Noteholders or the Transferor in respect of the Ownership Interest in
respect of any Home Equity Loan as a result of (x) a failure to file on or
within ten days following the effective date of this Agreement the UCC-l
financing statements referred to in Section 2.01 or (y) a failure to publish
on or prior to the Closing Date such notices reflecting the sale of the Home
Equity Loans as are described in Section 3440.1(h) of the California Civil
Code, then the Master Servicer shall repurchase or substitute for any
adversely affected Home Equity Loan on the Business Day preceding the next
Payment Date following the end of the Collection Period during which such
foreclosure proceedings were commenced or such losses were suffered. Such
repurchase or substitution shall be accomplished in the same manner and
subject to the same conditions as set forth in Section 2.02. Upon making any
such repurchase or substitution the Master Servicer shall be entitled to
receive an instrument of assignment or transfer from the Indenture Trustee to
the same extent as set forth in Section 2.02.
(c) Upon the request of a Mortgagor or at the Master Servicer's own
initiative, the Master Servicer (or the related Servicer on behalf of the
Master Servicer) may waive, modify or vary any term of any Home Equity Loan or
consent to the postponement of strict compliance with any such term or in any
manner grant indulgence to any Mortgagor if:
(i) in the Master Servicer's (or such Servicer's) good faith
determination such waiver, modification, postponement or indulgence
will enhance recovery with respect to such Home Equity Loan; and
(ii) the Mortgagor is in default with respect to the Home
Equity Loan, or such default is, in the judgment of the Master
Servicer (or such Servicer) imminent.
(d) Subject to subparagraph (e) below, in addition to the
circumstances described under Section 3.01(c), the Master Servicer (or the
related Servicer on behalf of the Master Servicer) may waive, modify or vary
any term of any Home Equity Loan, if the purpose of such action is
36
to reduce the likelihood of prepayment or of default of such Home Equity Loan,
to increase the likelihood of repayment or repayment upon default of such Home
Equity Loan, to increase the likelihood of repayment in full of or recoveries
under such Home Equity Loan, or to otherwise benefit the Noteholders and the
Transferor in respect of the Ownership Interest, all in the reasonable
judgment of the Master Servicer.
(e) Notwithstanding any provision in this Agreement to the contrary,
the Master Servicer may not defer the scheduled monthly interest and principal
payment on any Home Equity Loan that is not in default or (in the judgment of
the Master Servicer (or the related Servicer on behalf of the Master
Servicer)) for which default is not imminent unless (i) the Master Servicer
elects to make a Skip-A-Pay Advance pursuant to subparagraph (f) below or (ii)
each Rating Agency advises that as a result of such deferment the then current
rating of the Class A and Class M Notes will not be withdrawn, suspended or
reduced; provided, however, that the Master Servicer may not defer the
scheduled monthly payment on any Home Equity Loan in reliance on clause (i)
above unless the Master Servicer determines, in its good faith judgment, that
such Skip-A-Pay Advance will be recoverable from future payments on the Home
Equity Loans.
(f) If during any Collection Period the Master Servicer deferred the
scheduled monthly payment on any Home Equity Loan that was not in default or
for which default was not imminent in reliance on clause (i) of subparagraph
(e) above, no later than 12:00 noon Chicago time on each Deposit Date, the
Master Servicer shall deposit into the Collection Account an amount equal to
the Skip-A-Pay Advance for such Collection Period. On each Payment Date, the
Master Servicer shall be entitled to reimburse itself for all previously
unreimbursed Skip-A-Pay Advances from funds on deposit in the Collection
Account, before making any payments to Noteholders pursuant to Section 5.01,
up to an amount equal to the Skip-A-Pay Reimbursement Amount on such Payment
Date; provided, however, that the Skip-A-Pay Reimbursement Amount that the
Master Servicer is entitled to receive on such Payment Date shall be reduced
by the portion of such amount, if any, that was applied to reduce the amount
of funds that the Master Servicer was required to deposit or to cause to be
deposited into the Collection Account on the preceding Deposit Date pursuant
to Section 3.02(b).
(g) The relationship of the Master Servicer (and of any successor to
the Master Servicer as master servicer under this Agreement) to the Indenture
Trustee under this Agreement is intended by the parties to be that of an
independent contractor and not that of a joint venturer, partner or agent.
(h) In the event that the rights, duties and obligations of the
Master Servicer are terminated hereunder, any successor to the Master Servicer
in its sole discretion may, to the extent permitted by applicable law,
terminate the existing subservicer arrangements with any Servicer or assume
the terminated Master Servicer's rights under such subservicing arrangements
which termination or assumption will not violate the terms of such
arrangements.
(i) Any expenses incurred in connection with the actions described in
Section 3.01(a)(i) shall be borne by the Master Servicer in accordance with
Section 3.09, with no right of reimbursement; provided that if, as a result of
MERS discontinuing or becoming unable to continue operations in connection
with the MERS System, it becomes necessary to remove any Home Equity Loan from
registration on the MERS System and to arrange for the assignment of
37
the related Mortgages to the Trust, then any related expenses shall be
reimbursable to the Master Servicer.
SECTION 2.02 Collection of Certain Home Equity Loan Payments.
(a) The Master Servicer shall make reasonable efforts to collect all
payments called for under the terms and provisions of the Home Equity Loans,
and shall, to the extent such procedures shall be consistent with this
Agreement, follow such collection procedures as it follows with respect to
home equity loans in its servicing portfolio comparable to the Home Equity
Loans. Consistent with, and without limiting the generality of, the foregoing,
the Master Servicer may in its discretion (i) waive any late payment charge or
any assumption fees or other fees that may be collected in the ordinary course
of servicing the Home Equity Loans, (ii) arrange with a Mortgagor a schedule
for the payment of delinquent amounts, so long as such arrangement is
consistent with the Master Servicer's policies with respect to the home equity
loans it owns, (iii) sell the Home Equity Loan at its fair market value to a
third party for collection activity or (iv) reset the delinquency status of a
contractually delinquent Home Equity Loan to current in accordance with the
Master Servicer's customary account management policies and practices.
(b) The Master Servicer shall establish and maintain with the
Indenture Trustee a separate trust account (the "Collection Account") titled
"Bank One, National Association, as Indenture Trustee, in trust for the
registered holders of Household Home Equity Loan Asset Backed Notes, Series
2003-1". In the event that a successor Indenture Trustee is appointed as
provided in Section 6.8 of the Indenture, a new Collection Account shall be
promptly established at and maintained by such successor Indenture Trustee,
and the title of the new Collection Account shall be "[Successor Indenture
Trustee], as Indenture Trustee, in trust for the registered holders of
Household Home Equity Loan Asset Backed Notes, Series 2003-1", and any amounts
in the old Collection Account shall be transferred to the new Collection
Account. The Collection Account shall be an Eligible Account. No later than
12:00 noon Chicago time on each Deposit Date (or, if a Deposit Event has
occurred and the Master Servicer has not provided credit enhancement
reasonably acceptable to each of the Rating Agencies within two (2) Business
Days following receipt thereof by the Servicers), the Master Servicer shall
deposit or cause to be deposited into the Collection Account the following
payments and collections received or made by it with respect to the Home
Equity Loans (without duplication):
(i) Interest Collections (net of any Servicing Fee) on the Home
Equity Loans;
(ii) Principal Collections on the Home Equity Loans;
(iii) Insurance Proceeds (including, for this purpose, any
amount required to be paid by the Master Servicer pursuant to
Section 3.04 and excluding any portion thereof constituting
Principal Collections); and
(iv) amounts required to be paid by the Master Servicer in
connection with the termination of the Trust pursuant to Section
8.01;
provided, however, that so long as a Deposit Event has not occurred` (unless
the Master Servicer has provided credit enhancement reasonably acceptable to
each of the Rating Agencies), the
38
amount of funds that the Master Servicer is required to deposit or to cause to
be deposited into the Collection Account on or before such Deposit Date shall
be reduced by the Skip-A-Pay Reimbursement Amount the Master Servicer is
entitled to receive on the next Payment Date.
The foregoing requirements respecting deposits to the Collection
Account are exclusive, it being understood that, without limiting the
generality of the foregoing, fees (including annual fees) or late charge
penalties payable by Mortgagors, prepayment penalties, or amounts received by
the Master Servicer or a Servicer for the accounts of Mortgagors for
application towards the payment of taxes, insurance premiums, assessments and
similar items for the account of the related Servicer, if any, need not be
deposited in the Collection Account.
(c) The Indenture Trustee shall hold amounts deposited in the
Collection Account as trustee for the Noteholders and the Transferor in
respect of the Ownership Interest. In addition, the Master Servicer shall
notify the Indenture Trustee in writing on each Determination Date of the
amount of payments and collections to be deposited in the Collection Account
with respect to the related Payment Date.
(d) The Master Servicer may cause the institution maintaining the
Collection Account to invest any funds in the Collection Account in Permitted
Investments (including obligations of the Master Servicer or of any of its
affiliates, if such obligations otherwise qualify as Permitted Investments),
which shall mature or otherwise be available not later than the Business Day
next preceding the Payment Date or on the Payment Date next following the date
of such investment as long as such action does not result in a withdrawal or
downgrading of the then current ratings on the Notes by the Rating Agencies
(except that any investment in an obligation of the institution with which the
Collection Account is maintained may mature on or before 12:00 noon, Chicago
time, on such Payment Date) and shall not be sold or disposed of prior to its
maturity. In the event the Indenture Trustee is at any time maintaining the
Collection Account, any request by the Master Servicer to invest funds on
deposit in the Collection Account shall be in writing, shall be delivered to
the Indenture Trustee at or before 10:30 A.M., Chicago time, if such
investment is to be made on such day, and shall certify that the requested
investment is a Permitted Investment that matures at or prior to the time
required hereby. Any such investment shall be registered in the name of or
controlled by the Indenture Trustee as trustee hereunder or in the name of its
nominee and to the extent such investments are certificated they shall be
maintained in the possession or control of the Indenture Trustee in the state
of its Corporate Trust Office. Except as provided above, all income and gain
realized from any such investment shall be for the benefit of the Master
Servicer and shall be subject to its withdrawal or order from time to time.
The amount of any losses incurred in respect of the principal amount of any
such investments shall be deposited in the Collection Account by the Master
Servicer out of its own funds immediately as realized.
(e) The Indenture Trustee is hereby authorized to execute purchases
and sales of Permitted Investments as directed by the Master Servicer through
the facilities of its own trading or capital markets operations. The Indenture
Trustee shall send to the Master Servicer statements reflecting the monthly
activity for each such purchase and sale made for the preceding month.
Although the Master Servicer recognizes that it may obtain a broker
confirmation or written monthly statement containing comparable information at
no additional cost, the Master Servicer hereby agrees that confirmations of
investments are not required to be issued by the
39
Indenture Trustee for each month in which a monthly statement is rendered. No
statement need be rendered pursuant to the provision of this subsection if no
activity occurred in the account for such month.
SECTION 3.03 Withdrawals from the Collection Account.
(a) The Indenture Trustee shall withdraw or cause to be withdrawn
funds from the Collection Account for the following purposes:
(i) On each Payment Date, to make distributions and payments to
the Noteholders and the Transferor in respect of the Ownership
Interest pursuant to Section 5.01;
(ii) From time to time, to make investments in Permitted
Investments and to pay to the Master Servicer all income and gain
earned in respect of Permitted Investments or on funds deposited in
the Collection Account;
(iii) To reimburse the Depositor or the Master Servicer to the
extent permitted by Section 6.03;
(iv) To withdraw any funds deposited in the Collection Account
that were not required to be deposited therein or were deposited
therein in error and to pay such funds to the appropriate Person;
(v) To pay to the party legally entitled by a final order of a
court of competent jurisdiction in an insolvency proceeding an
amount equal to any preference claim made with respect to amounts
paid with respect to the Home Equity Loans; provided that, if any
such amount is later determined not to be a preference by such court
of competent jurisdiction and is returned to the Master Servicer or
any Servicer, such amount shall be redeposited into the Collection
Account by the Master Servicer;
(vi) to clear and terminate the Collection Account upon the
termination of this Agreement and the Indenture and to pay any
amounts remaining therein to the Transferor in respect of the
Ownership Interest; and
(vii) to reimburse the Master Servicer for Skip-A-Pay Advances
to the extent permitted by Section 3.01(f).
(b) If the Master Servicer deposits in the Collection Account any
amount not required to be deposited therein or credited thereto or any amount
in respect of payments by Mortgagors made by checks subsequently returned for
insufficient funds or other reason for non-payment, it may at any time
withdraw such amount from the Collection Account pursuant to Section
3.03(a)(iv), and any such amounts shall not be included in Interest
Collections and Principal Collections, any provision herein to the contrary
notwithstanding. Any withdrawal or debit permitted by Section 3.03(a) may be
accomplished by delivering an Officer's Certificate to the Indenture Trustee
which describes the purpose of such withdrawal (including, without limitation,
that any such amount was deposited in the Collection Account in error or, in
the case of returned checks, that such amounts were properly debited,
respectively). Upon receipt of any
40
such Officer's Certificate, the Indenture Trustee shall withdraw such amount
for the account of the Master Servicer. All funds deposited by the Master
Servicer in the Collection Account shall be held by the Indenture Trustee in
trust for the Noteholders and the Transferor in respect of the Ownership
Interest, until disbursed in accordance with Section 5.01 or Section 5.4(b) of
the Indenture or withdrawn or debited in accordance with this Section.
SECTION 3.04 Maintenance of Hazard Insurance; Property Protection
Expenses. Each Home Equity Loan requires that the borrower thereunder maintain
hazard insurance naming the Master Servicer or the related Servicer as loss
payee providing extended coverage in an amount which is at least equal to the
lesser of (i) 100% of the insurable value of the Mortgaged Property or (ii)
the combined principal balance owing on such Home Equity Loan and any mortgage
loan senior to such Home Equity Loan from time to time. The Master Servicer
represents and warrants that it or the applicable Seller verified the
existence of such hazard insurance at the origination of the Home Equity Loan.
The Master Servicer shall also maintain on property acquired upon foreclosure,
or by grant of deed in lieu of foreclosure, hazard insurance with extended
coverage in an amount which is at least equal to the lesser of (i) 100% of the
insurable value of the Mortgaged Property or (ii) the combined unpaid
principal balance owing on such Home Equity Loan and any mortgage loans senior
to such Home Equity Loans at the time of such foreclosure or grant of deed in
lieu of foreclosure plus accrued interest thereon. Amounts collected by the
Master Servicer under any such policies shall be deposited in the Collection
Account to the extent called for by Section 3.02. In cases in which any
Mortgaged Property is located in a federally designated flood area, the hazard
insurance to be maintained for the related Home Equity Loan shall include
flood insurance. All such flood insurance shall be in such amounts as are
required under applicable guidelines of ▇▇▇▇▇▇ ▇▇▇. The Master Servicer shall
be under no obligation to require that any Mortgagor maintain earthquake or
other additional insurance and shall be under no obligation itself to maintain
any such additional insurance on property acquired in respect of a Home Equity
Loan, other than pursuant to such applicable laws and regulations as shall at
any time be in force and as shall require such additional insurance. As to
Mortgaged Properties acquired by the Master Servicer as provided herein, the
Master Servicer may satisfy its obligation set forth in the first sentence of
this Section 3.04 by self insuring Mortgaged Properties for which the
aggregate unpaid principal balance of the related Home Equity Loans plus the
outstanding balance of any mortgage loans senior to such Home Equity Loans at
the time title was acquired, plus accrued interest (the "Combined Exposure"),
was less than $500,000 (or such other amount as the Master Servicer may in
good faith determine from time to time) and by causing hazard policies to be
maintained with respect to Mortgaged Properties for which the Combined
Exposure equals or exceeds the self insurance threshold established from time
to time by the Master Servicer by maintaining a blanket policy consistent with
prudent industry standards insuring against hazard losses on the Mortgaged
Properties. Such policy may contain a deductible clause, in which case the
Master Servicer shall, in the event that there shall not have been maintained
on the related Mortgaged Property a policy complying with the first sentence
of this Section 3.04, and there shall have been a loss which would have been
covered by such policy, deposit in the Collection Account the amount not
otherwise payable under the blanket policy because of such deductible clause.
SECTION 3.05 Assumption and Modification Agreements. In any case in
which a Mortgaged Property has been or is about to be conveyed by the
Mortgagor, the Master Servicer shall exercise or refrain from exercising its
right to accelerate the maturity of such Home Equity
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Loan consistent with the then-current practice of the Master Servicer and
without regard to the inclusion of such Home Equity Loan in the Trust and not
in the Master Servicer's portfolio. If it elects not to enforce its right to
accelerate or if it is prevented from doing so by applicable law, the Master
Servicer (so long as such action conforms with the Master Servicer's
underwriting standards at the time for new originations) is authorized to take
or enter into an assumption and modification agreement from or with the Person
to whom such Mortgaged Property has been or is about to be conveyed, pursuant
to which such Person becomes liable under the Mortgage Note and, to the extent
permitted by applicable law, the Mortgagor remains liable thereon. The Master
Servicer shall notify the Indenture Trustee that any assumption and
modification agreement has been completed by delivering to the Indenture
Trustee an Officer's Certificate certifying that such agreement is in
compliance with this Section and by forwarding to the applicable Servicer on
behalf of the Depositor or the Indenture Trustee, as applicable, the original
copy of such assumption and modification agreement. Any such assumption and
modification agreement shall, for all purposes, be considered a part of the
related Mortgage File to the same extent as all other documents and
instruments constituting a part thereof. No change in the terms of the related
Mortgage Note may be made by the Master Servicer in connection with any such
assumption to the extent that such change would not be permitted to be made in
respect of the original Mortgage Note pursuant to Section 3.01 unless the
conditions specified in Section 3.01 are satisfied. Any fee collected by the
Master Servicer for entering into any such agreement will be retained by the
Master Servicer as additional servicing compensation.
SECTION 3.06 Realization Upon Defaulted Home Equity Loans.
(a) The Master Servicer (or the Master Servicer together with the
related Seller as called for by the Home Equity Loan Purchase Agreements)
shall foreclose upon or otherwise comparably convert to ownership Mortgaged
Properties securing such of the Home Equity Loans as come into and continue in
default when, in the opinion of the Master Servicer based upon the practices
and procedures referred to in the following sentence, no satisfactory
arrangements can be made for collection of delinquent payments pursuant to
Section 3.02; provided that if the Master Servicer has actual knowledge or
reasonably believes that any Mortgaged Property is affected by hazardous or
toxic wastes or substances and that the acquisition of such Mortgaged Property
would not be commercially reasonable, then the Master Servicer will not cause
the Trust to acquire title to such Mortgaged Property in a foreclosure or
similar proceeding. In connection with such foreclosure or other conversion,
the Master Servicer shall follow such practices (including, in the case of any
default on a related senior mortgage loan, the advancing of funds to correct
such default) and procedures as it shall deem necessary or advisable and as
shall be normal and usual in its general mortgage servicing activities. The
foregoing is subject to the proviso that the Master Servicer shall not be
required to expend its own funds in connection with any foreclosure or towards
the correction of any default on a related senior mortgage loan or restoration
of any property unless it shall determine that such expenditure will increase
Net Liquidation Proceeds. The Master Servicer will be reimbursed out of
Liquidation Proceeds for advances of its own funds to pay Liquidation Expenses
before any Net Liquidation Proceeds are deposited in the Collection Account.
(b) In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall (i) so long as at least two of ▇▇▇▇▇'▇, Standard & Poor's and Fitch
assign a long-term unsecured debt rating to the Master Servicer of
42
at least "Baa3", in the case of ▇▇▇▇▇'▇, "BBB", in the case of Fitch, and
"BBB-" in the case of Standard & Poor's, be issued in the name of the related
Servicer or (ii) if the rating requirements in clause (i) are not satisfied,
be issued to the Indenture Trustee, or to its nominee on behalf of
Noteholders.
SECTION 3.07 [Reserved].
SECTION 3.08 Indenture Trustee to Cooperate.
(a) Upon any payment in full of the Principal Balance of any Home
Equity Loan, the Master Servicer is authorized to execute, pursuant to the
authorization contained in Section 3.01, if the assignments of Mortgage have
been recorded as required hereunder, an instrument of satisfaction regarding
the related Mortgage or written evidence of cancellation thereon and to cause
the removal from the registration on the MERS(R) System of such Mortgage,
which instrument of satisfaction shall be recorded by the Master Servicer if
required by applicable law and be delivered to the Person entitled thereto. It
is understood and agreed that no expenses incurred in connection with such
instrument of satisfaction or transfer shall be reimbursed from amounts
deposited in the Collection Account. If the Indenture Trustee is holding the
Mortgage Files, from time to time and as appropriate for the servicing or
foreclosure of any Home Equity Loan, the Indenture Trustee shall, upon request
of the Master Servicer and delivery to the Indenture Trustee of a trust
receipt signed by a Servicing Officer, release the related Mortgage File to
the Master Servicer, and the Indenture Trustee shall execute such documents as
shall be necessary to the prosecution of any such proceedings or the taking of
other servicing actions. Such trust receipt shall obligate the Master Servicer
to return the Mortgage File to the Indenture Trustee when the need therefor by
the Master Servicer no longer exists unless the Home Equity Loan shall be
liquidated, in which case, upon receipt of an Officer's Certificate of the
Master Servicer, the trust receipt shall be released by the Indenture Trustee
to the Master Servicer.
(b) In order to facilitate the foreclosure of the Mortgage securing
any Home Equity Loan that is in default following recordation of the
assignments of Mortgage in accordance with the provisions hereof, the Trust
shall, if the Master Servicer so requests in writing and supplies the Trust
with appropriate forms therefor, assign such Home Equity Loan for the purpose
of collection to the Master Servicer or to the related Servicer (any such
assignment shall unambiguously indicate that the assignment is for the purpose
of collection only), and, upon such assignment, such assignee for collection
will thereupon bring all required actions in its own name and otherwise
enforce the terms of the Home Equity Loan and deposit or credit the Net
Liquidation Proceeds received with respect thereto in the Collection Account.
In the event that all delinquent payments due under any such Home Equity Loan
are paid by the Mortgagor and any other defaults are cured then the assignee
for collection shall promptly reassign such Home Equity Loan to the Indenture
Trustee and return it to the place where the related Mortgage File was being
maintained.
SECTION 3.09 Servicing Compensation; Payment of Certain Expenses by
Master Servicer. The Master Servicer shall be entitled to receive the
Servicing Fee as compensation for its services in connection with servicing
the Home Equity Loans. The Servicing Fee for each Collection Period shall be
paid to the Master Servicer out of Interest Collections prior to their deposit
in the Collection Account and shall not be the responsibility or liability of
the Trust, the
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Owner Trustee, the Indenture Trustee, the Class A or Class M Noteholders or
the Transferor in respect of the Ownership Interest. Additional servicing
compensation in the form of late payment charges or other receipts not
required to be deposited in the Collection Account shall be retained by the
Master Servicer. The Master Servicer shall be required to pay all expenses
incurred by it in connection with its activities hereunder (including payment
of Owner Trustee, Delaware Trustee and Indenture Trustee fees, expenses and
indemnifications due to the Indenture Trustee under Section 6.7 of the
Indenture and all other fees and expenses not expressly stated hereunder to be
for the account of the Noteholders and the Transferor in respect of the
Ownership Interest) and shall not be entitled to reimbursement therefor except
as specifically provided herein.
SECTION 3.10 Annual Statement as to Compliance.
(a) The Master Servicer will deliver to the Indenture Trustee and a
copy to each of the Rating Agencies, on or before March 31 of each year,
beginning March 31, 2004, an Officer's Certificate stating that (i) a review
of the activities of the Master Servicer during the preceding calendar year
(or in the case of the Officer's Certificate delivered in 2004, from the
Closing Date) and of its performance under this Agreement has been made under
such officer's supervision and (ii) to the best of such officer's knowledge,
based on such review, the Master Servicer has fulfilled all its material
obligations under this Agreement throughout such year (or in the case of the
Officer's Certificate delivered in 2004, from the Closing Date), or, if there
has been a default in the fulfillment of any such obligation, specifying each
such default known to such officer and the nature and status thereof. Copies
of such Officer's Certificate shall be provided by the Master Servicer to any
Noteholder upon written request at the Master Servicer's expense.
(b) The Master Servicer shall deliver to the Indenture Trustee and a
copy to each of the Rating Agencies, promptly after having obtained knowledge
thereof, but in no event later than five Business Days thereafter, written
notice by means of an Officer's Certificate of any event which with the giving
of notice or the lapse of time or both, would become a Master Servicer
Termination Event.
SECTION 3.11 Annual Servicing Report. On or before March 31 of each
year, beginning March 31, 2004, the Master Servicer at its expense shall cause
a firm of nationally recognized independent public accountants (who may also
render other services to the Master Servicer) to furnish a report to the
Indenture Trustee and a copy to each of the Rating Agencies to the effect that
such firm has examined certain documents and records relating to the servicing
of home equity loans by the Master Servicer during the most recent calendar
year (or in the case of the report delivered in 2004, from the Closing Date)
then ended under pooling and servicing agreements or sale and servicing
agreements (including this Agreement) substantially similar to this Agreement
and that such examination, which has been conducted substantially in
compliance with the audit guide for audits of non-supervised mortgagees
approved by the Department of Housing and Urban Development for use by
independent public accountants (to the extent that the procedures in such
audit guide are applicable to the servicing obligations set forth in such
agreements), has disclosed no items of noncompliance with the provisions of
this Agreement which, in the opinion of such firm, are material, except for
such items of noncompliance as shall be set forth in such report.
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SECTION 3.12 Access to Certain Documentation and Information
Regarding the Home Equity Loans.
(a) The Master Servicer and the Servicers shall provide to the
Indenture Trustee, the Owner Trustee, the Transferor in respect of the
Ownership Interest, the Class A and Class M Noteholders that are federally
insured savings and loan associations, the Office of Thrift Supervision, the
successor to the Federal Home Loan Bank Board, the FDIC and the supervisory
agents and examiners of the Office of Thrift Supervision access to the
documentation regarding the Home Equity Loans required by applicable
regulations of the Office of Thrift Supervision and the FDIC (acting as
operator of the SAIF or the BIF), such access being afforded without charge
but only upon reasonable request and during normal business hours at the
offices of the Master Servicer or the Servicers. Nothing in this Section shall
derogate from the obligation of the Master Servicer to observe any applicable
law prohibiting disclosure of information regarding the Mortgagors, and the
failure of the Master Servicer to provide access as provided in this Section
as a result of such obligation shall not constitute a breach of this Section.
(b) No later than the Determination Date preceding the related
Payment Date, the Master Servicer shall supply information in such form as the
Indenture Trustee shall reasonably request to the Indenture Trustee and the
Paying Agent as is required in the Indenture Trustee's reasonable judgment to
enable the Paying Agent or the Indenture Trustee, as the case may be, to make
the required payments and to furnish the required reports to Noteholders on
such Payment Date.
SECTION 3.13 Maintenance of Certain Servicing Insurance Policies. The
Master Servicer shall during the term of its service as master servicer
maintain in force (i) a policy or policies of insurance covering errors and
omissions in the performance of its obligations as master servicer hereunder
and (ii) a fidelity bond in respect of its officers, employees or agents. Each
such policy or policies and bond shall, together, comply with the requirements
from time to time of ▇▇▇▇▇▇ ▇▇▇ for Persons performing servicing for mortgage
loans purchased by such association.
SECTION 3.14 Reports to the Securities and Exchange Commission. The
Master Servicer shall, on behalf of the Trust, cause to be filed with the
Securities and Exchange Commission any periodic reports required to be filed
under the provisions of the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Securities and Exchange Commission
thereunder.
SECTION 3.15 [Reserved].
SECTION 3.16 Information Required by the Internal Revenue Service
Generally and Reports of Foreclosures and Abandonments of Mortgaged Property.
The Master Servicer shall prepare and deliver, or cause to be prepared, mailed
and filed all federal and state information reports for the Home Equity Loans
when and as required by all applicable state and federal income tax laws
including, to the extent applicable, returns reporting a cancellation of
indebtedness as prescribed by Section 6050P of the Code. In particular, with
respect to the requirement under Section 6050J of the Code, to the effect that
a lender shall be required to report foreclosures and abandonments of any
mortgaged property for each year beginning in
45
2003, the Master Servicer shall prepare, mail and file in a timely fashion
each year as required by law information statements in accordance with the
reporting requirements imposed by Section 6050J with respect to each instance
occurring during the previous calendar year in which the Master Servicer or
any Servicer (i) on behalf of the Indenture Trustee acquired an interest in
any Mortgaged Property through foreclosure or other comparable conversion in
full or partial satisfaction of a Home Equity Loan or (ii) knew or had reason
to know that any Mortgaged Property has been abandoned. The information
statements from the Master Servicer shall be in form and substance sufficient
to meet the reporting requirements imposed by Section 6050J of the Code.
SECTION 3.17 Additional Covenants of HFC. HFC hereby agrees that:
(a) it will maintain its books and records to clearly note the
separate corporate existence of the Depositor, each Servicer and the Master
Servicer;
(b) the Depositor, the Servicers and HFC will share certain overhead
expenses, although the amount the Depositor will be charged for such use will
be based on actual use to the extent practicable and, to the extent such
allocation is not practicable, on a basis reasonably related to use;
(c) separate financial records will be maintained to reflect the
assets and liabilities of the Depositor, HFC and each Servicer, which
financial records are and will be subject to audit by independent public
accountants at the reasonable request of the Board of Directors of the
Depositor, HFC or such Servicer, as the case may be;
(d) except as permitted hereunder, there will be no commingling of
the assets of the Depositor with the assets of HFC or any Servicer. All demand
deposit accounts and other bank accounts of the Depositor will be maintained
separately from those of HFC and the Servicers. Monetary transactions between
the Depositor and HFC or any Servicer are and will continue to be properly
reflected in their respective financial records;
(e) HFC at all times will recognize, and will take all steps within
its power to maintain, the corporate existence of the Depositor and Servicers
as being separate and apart from its own corporate existence and will not
refer to the Depositor or any Servicer as a department or division of HFC; and
(f) Except as otherwise expressly provided herein, the Depositor and
HFC will not guaranty or advance the proceeds for payment of any obligations
of the Trust.
SECTION 3.18 Servicing Certificate. Not later than each Determination
Date, the Master Servicer shall deliver to the Indenture Trustee, the Paying
Agent and each Rating Agency a Servicing Certificate containing the
information set forth below with respect to the Home Equity Loans on an
aggregate basis as of the end of the preceding Collection Period and such
other information as the Indenture Trustee shall reasonably require (in
written form or the form of computer readable media or such other form as may
be agreed to by the Indenture Trustee and the Master Servicer, together with
an Officer's Certificate to the effect that such Servicing Certificate is true
and correct in all material respects, stating the related Collection Period,
Payment Date, the series number of the Notes, the date of this Agreement, and:
46
(i) the Available Payment Amount for such Payment Date,
separately stating the amount of Interest Collections and Principal
Collections;
(ii) the amount of the payments to Holders of the Class A and
Class M Notes for such Payment Date, separately stating the portions
thereof allocable to interest and allocable to principal;
(iii) the amount of any Interest Carry Forward Amount and
Supplemental Interest Amount for each Class of Notes paid on such
Payment Date and the amount of any Interest Carry Forward Amount or
Supplemental Interest Amount for each Class of Notes remaining after
giving effect to the payments on such Payment Date;
(iv) the amount of any Extra Principal Payment Amount for such
Payment Date;
(v) the Principal Payment Amount for such Payment Date,
separately stating the components thereof;
(vi) the Principal Carry Forward Amount for each Class for such
Payment Date and the amount of any Principal Carry Forward Amount
for each Class remaining after giving effect to the payments on such
Payment Date;
(vii) the Note Principal Amount of each Class of Notes, the
Pool Balance as reported in the prior Indenture Trustee's Statement
to Noteholders or, in the case of the first Determination Date, the
Original Note Principal Amount for each Class and the Cut-Off Date
Pool Balance;
(viii) the number and aggregate Principal Balance of any Home
Equity Loan purchased or substituted by the Depositor or the Master
Servicer with respect to the related Collection Period pursuant to
Section 2.02;
(ix) the number and aggregate Principal Balance of any Home
Equity Loan purchased or substituted by the Depositor or the Master
Servicer with respect to the related Collection Period pursuant to
Section 2.04;
(x) the number and aggregate Principal Balance of any Home
Equity Loan purchased or substituted by the Depositor or the Master
Servicer with respect to the related Collection Period pursuant to
Section 3.01;
(xi) the number and aggregate Principal Balance of any Home
Equity Loan that the Master Servicer has consented to the placement
of a senior lien during the related Collection Period pursuant to
Section 3.01(a);
(xii) the amount of any Substitution Adjustment Amounts for
such Payment Date;
(xiii) the amount to be paid to the Transferor in respect of
the Ownership Interest for the related Payment Date pursuant to
Section 5.01(a)(xii);
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(xiv) the Note Principal Amount for each Class of Notes after
giving effect to the payment to be made on the related Payment Date;
(xv) the Servicing Fee for the related Collection Period and
any accrued amounts thereof that remain unpaid for previous
Collection Periods;
(xvi) the amount of all payments or reimbursements to the
Master Servicer pursuant to Sections 3.03;
(xvii) the Overcollateralization Amount, the Interim
Overcollateralization Amount, the Interim Overcollateralization
Deficiency, the Overcollateralization Release Amount, the Targeted
Overcollateralization Amount, and the Monthly Excess Cashflow for
such Payment Date;
(xviii) the number of Home Equity Loans outstanding at the
beginning and at the end of the related Collection Period;
(xix) the Pool Balance as of the end of the related Collection
Period;
(xx) the number and aggregate Principal Balances of Home Equity
Loans (x) as to which one, two or three or more scheduled monthly
payments, respectively, are contractually delinquent, and (y) that
have become REO, in each case as of the end of such Collection
Period;
(xxi) the unpaid principal amount of all Home Equity Loans that
became Liquidated Home Equity Loans during such Collection Period;
(xxii) the Cumulative Realized Losses on the Home Equity Loans;
(xxiii) the book value of any real estate acquired through
foreclosure or grant of a deed in lieu of foreclosure;
(xxiv) the Two Payment-Plus Delinquency Percentage for the
related Collection Period;
(xxv) the Two Payment-Plus Rolling Average for such Payment
Date;
(xxvi) LIBOR for such Payment Date;
(xxvii) whether a Master Servicer Termination Event has
occurred since the prior Determination Date, specifying each such
Master Servicer Termination Event if one has occurred;
(xxviii) whether an Event of Default has occurred and is
continuing;
(xxix) the Class A Formula Rate, Class A Note Rate, Class M
Formula Rate, Class M Note Rate and the Available Funds Cap for such
Payment Date;
(xxx) the amount of any Skip-A-Pay Advances for the related
Collection Period;
48
(xxxi) the Skip-A-Pay Reimbursement Amount for such Payment
Date;
(xxxii) the Cumulative Loss Percentage;
(xxxiii) whether a Trigger Event has occurred and is
continuing; and
(xxxiv) such other information as is required by the Code and
regulations thereunder to be made available to Holders of the Class
A and Class M Notes.
The Indenture Trustee shall conclusively rely upon the information
contained in a Servicing Certificate for purposes of making payments pursuant
to Section 5.01, shall have no duty to inquire into such information and shall
have no liability in so relying. The format and content of the Servicing
Certificate may be modified by the mutual agreement of the Master Servicer and
the Indenture Trustee or as may be required by the rules and regulations of
the Securities and Exchange Commission. The Master Servicer shall give notice
of any such change to the Rating Agencies.
49
ARTICLE IV.
[RESERVED]
50
ARTICLE V.
PRIORITY OF PAYMENTS; STATEMENTS TO
NOTEHOLDERS; RIGHTS OF NOTEHOLDERS
SECTION 5.01 Payments.
(a) Payments of Interest and Principal Collections. Pursuant to
Section 3.1 of the Indenture, on each Payment Date, the Indenture Trustee,
with respect to the Notes, and the Paying Agent, with respect to the Ownership
Interest, shall distribute out of the Collection Account, to the extent of the
Available Payment Amount, the following amounts and in the following order of
priority to the following Persons (based on the information set forth in the
Servicing Certificate):
(i) to the Class A Notes, the Current Interest plus the Interest
Carry Forward Amount with respect to the Class A Notes for such Payment Date;
(ii) to the Class M Notes, the Current Interest plus the Interest
Carry Forward Amount with respect to the Class M Notes for such Payment Date;
(iii) to the Class A Notes until the Note Principal Amount of such
Class A Notes has been reduced to zero, 83.79878864% of the Principal Payment
Amount for such Payment Date;
(iv) to the Class A Notes, the Principal Carry Forward Amount with
respect to the Class A Notes for such Payment Date;
(v) to the Class A Notes until the Note Principal Amount of such
Class A Notes has been reduced to zero, 83.79878864% of the Additional
Principal Reduction Amount for such Payment Date;
(vi) to the Class M Notes until the Note Principal Amount of such
Class M Notes has been reduced to zero, 16.20121136% of the Principal Payment
Amount for such Payment Date;
(vii) to the Class M Notes, the Principal Carry Forward Amount with
respect to the Class M Notes for such Payment Date;
(viii) to the Class M Notes until the Note Principal Amount of such
Class M Notes has been reduced to zero, 16.20121136% of the Additional
Principal Reduction Amount for such Payment Date;
(ix) concurrently, to the Class A Notes and to the Class M Notes
until the Note Principal Amount of each such Class A and Class M Notes has
been reduced to zero, 83.79878864% of the Extra Principal Payment Amount for
such Payment Date to the Class A Notes and 16.20121136% of the Extra Principal
Payment Amount for such Payment Date to the Class M Notes;
(x) to the Class A and Class M Notes, pro rata based on unpaid
Supplemental Interest Amounts, the outstanding Class A Supplemental Interest
Amount and Class M Supplemental
51
Interest Amount, the outstanding Class A Supplemental Interest Amount and the
outstanding Class M Supplemental Interest Amount for such Payment Date;
(xi) to the Owner Trustee on behalf of the Trust, an amount
sufficient to pay any judgment or settlement affecting the Trust; and
(xii) to the Transferor in respect of the Ownership Interest, any
remaining Available Payment Amount; provided, however, that on any Payment
Date after the earlier of (i) the date on which the first auction conducted by
the Indenture Trustee pursuant to Section 8.01(c) does not produce any bid at
least equal to the Termination Price or (ii) the September 2013 Payment Date,
any remaining amount available for payment pursuant to this Section
5.01(a)(xii) shall instead be paid concurrently, 83.79878864% to the Class A
Notes and 16.20121136% to the Class M Notes, in reduction of the applicable
Note Principal Amount of each Class.
provided, that if the Indenture Trustee collects any money or
property pursuant to Article V of the Indenture, the Indenture Trustee and the
Paying Agent shall pay out the money or property as provided in Section 5.4(b)
of the Indenture; and provided, further, that to the extent the Note Principal
Amount of the Class A Notes has been reduced to zero, then 100% of any
applicable amounts described above will be paid to the Class M Notes until the
Note Principal Amount of the Class M Notes has been reduced to zero.
(b) Method of Payment. The Indenture Trustee shall make payments in
respect of a Payment Date to each Noteholder of record on the related Record
Date (other than as provided in Section 8.01 respecting the final payment) by
check or money order mailed to such Noteholder at the address appearing in the
Note Register, or upon written request by a Noteholder delivered to the
Indenture Trustee at least five Business Days prior to such Record Date, by
wire transfer (but only if such Noteholder is the Depository or such
Noteholder owns of record one or more Class of Notes having principal
denominations aggregating at least $1,000,000), or by such other means of
payment as such Noteholder and the Indenture Trustee shall agree. Payments
among Noteholders shall be made in proportion to the Percentage Interests
evidenced by the Notes held by such Noteholders. The Indenture Trustee, acting
in its capacity as Paying Agent, shall make payments in respect of a Payment
Date to the Transferor of record on the related Record Date, in respect of the
Ownership Interest by wire transfer or by such other means of payment as the
Transferor and the Paying Agent shall agree.
(c) Payments on Book-Entry Notes. Each payment with respect to a
Book-Entry Note shall be paid to the Depository, which shall credit the amount
of such payment to the accounts of its Depository Participants in accordance
with its normal procedures. Each Depository Participant shall be responsible
for disbursing such payment to the Note Owners that it represents and to each
indirect participating brokerage firm (a "brokerage firm" or "indirect
participating firm") for which it acts as agent. Each brokerage firm shall be
responsible for disbursing funds to the Note Owners that it represents. All
such credits and disbursements with respect to a Book-Entry Note are to be
made by the Depository and the Depository Participants in accordance with the
provisions of the Class A or Class M Notes. None of the Indenture Trustee, the
Paying Agent, the Note Registrar, the Trust or the Master Servicer shall have
any responsibility therefor except as otherwise provided by applicable law.
52
SECTION 5.02 Calculation of LIBOR, the Class A Formula Rate and Class
M Formula Rate.
(a) Calculation of the Class A Formula Rate and Class M Formula Rate.
On or prior to each LIBOR Determination Date, the Indenture Trustee shall
determine the Class A Formula Rate and Class M Formula Rate for the related
Payment Date.
(b) Calculation of LIBOR. Until the Principal Balance of each Class
of the Notes has been reduced to zero, the Indenture Trustee shall establish
LIBOR on each LIBOR Determination Date as follows:
(i) If on such LIBOR Determination Date a rate for United
States dollar deposits for one month appears on the Dow ▇▇▇▇▇
Telerate System, page 3750, LIBOR for the next Accrual Period shall
be equal to such rate as of 11:00 A.M., London time;
(ii) If such rate does not appear on such page (or such other
page as may replace that page on that service, or if such service is
no longer offered, such other service for displaying LIBOR or
comparable rates as may be selected by the Indenture Trustee after
consultation with the Master Servicer), the rate shall be determined
as follows:
(A) (x) The Indenture Trustee on the LIBOR Determination Date will
request the principal London offices of each of four major
reference banks in the London interbank market, as selected by
the Indenture Trustee, to provide the Indenture Trustee with
its offered quotation for deposits in United States dollars for
the upcoming one-month period, commencing on the second LIBOR
Business Day immediately following such LIBOR Determination
Date, to prime banks in the London interbank market at
approximately 11:00 a.m. London time on such LIBOR
Determination Date and in a principal amount that is
representative for a single transaction in United States
dollars in such market at such time. If at least two such
quotations are provided, LIBOR determined on such LIBOR
Determination Date will be the arithmetic mean of such
quotations.
(B) (y) If fewer than two quotations are provided, LIBOR determined
on such LIBOR Determination Date will be the arithmetic mean of
the rates quoted at approximately 11:00 a.m. in New York City
on such LIBOR Determination Date by three major banks in New
York City selected by the Indenture Trustee for one-month
United States dollar loans to leading European banks, in a
principal amount that is representative for a single
transaction in United States dollars in such market at such
time; provided, however, that if the banks so selected by the
Indenture Trustee are not quoting as mentioned in this
sentence, LIBOR determined on such LIBOR Determination Date
will continue to be LIBOR as then currently in effect on such
LIBOR Determination Date.
(iii) The establishment of LIBOR on each LIBOR Determination
Date by the Indenture Trustee and the Indenture Trustee's
calculation of the rate of interest applicable to the Notes for the
related Accrual Period shall (in the absence of manifest error) be
final
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and binding. The Indenture Trustee shall, upon determination of
LIBOR for the relevant Accrual Period, inform the Master Servicer
(at the facsimile number given to the Indenture Trustee in writing)
of such rates.
SECTION 5.03 Statements to Noteholders. (a) On each Payment Date, the
Indenture Trustee shall deliver a copy of the applicable Servicing Certificate
delivered to the Indenture Trustee pursuant to Section 3.18 to each Noteholder
concurrently with each payment to Noteholders (the "Indenture Trustee's
Statement to Noteholders") containing the information set forth below with
respect to such Payment Date:
(i) the Available Payment Amount for such Payment Date,
separately stating the amount of Interest Collections and Principal
Collections;
(ii) the amount of the payments to Holders of the Class A and
Class M Notes for such Payment Date, separately stating the portions
thereof allocable to interest and allocable to principal;
(iii) the amount of any Interest Carry Forward Amount and
Supplemental Interest Amount for each Class paid on such Payment
Date and the amount of any Interest Carry Forward Amount or
Supplemental Interest Amount for each Class remaining after giving
effect to the payments on such Payment Date;
(iv) the amount of any Extra Principal Payment Amount for each
Class for such Payment Date;
(v) the Principal Payment Amount for such Payment Date,
separately stating the components thereof;
(vi) the Principal Carry Forward Amount for each Class for such
Payment Date and the amount of any Principal Carry Forward Amount
for each Class remaining after giving effect to the payments on each
Payment Date;
(vii) the Note Principal Amount of each Class of Notes, the
Pool Balance as reported in the prior Indenture Trustee's Statement
to Noteholders or, in the case of the first Determination Date, the
Original Note Principal Amount of each Class and the Cut-Off Date
Pool Balance;
(viii) the number and aggregate Principal Balance of any Home
Equity Loans purchased by the Depositor or the Master Servicer with
respect to the related Collection Period pursuant to Sections 2.02,
2.04 and 3.01;
(ix) the amount of any Substitution Adjustment Amounts for such
Payment Date;
(x) the amount to be paid to the Transferor in respect of the
Ownership Interest for the related Payment Date pursuant to Section
5.01(a)(xii);
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(xi) the Note Principal Amount of each Class of Notes after
giving effect to the payment to be made on the related Payment Date;
(xii) the Servicing Fee for the related Collection Period and
any accrued amounts thereof that remain unpaid for previous
Collection Periods;
(xiii) the amount of all payments or reimbursements to the
Master Servicer pursuant to Sections 3.03;
(xiv) the Overcollateralization Amount, the Interim
Overcollateralization Amount, the Interim Overcollateralization
Deficiency, the Overcollateralization Release Amount, the Targeted
Overcollateralization Amount and the Monthly Excess Cashflow for
each Class for such Payment Date;
(xv) the number of Home Equity Loans outstanding at the
beginning and at the end of the related Collection Period;
(xvi) the Pool Balance as of the end of the related Collection
Period;
(xvii) the number and aggregate Principal Balances of Home
Equity Loans (x) as to which one, two or three or more scheduled
monthly payments, respectively, are contractually delinquent and (y)
that have become REO, in each case as of the end of such Collection
Period;
(xviii) the unpaid principal amount of all Home Equity Loans
that became Liquidated Home Equity Loans during such Collection
Period;
(xix) the Cumulative Realized Losses on the Home Equity Loans;
(xx) the book value of any real estate acquired through
foreclosure or grant of a deed in lieu of foreclosure;
(xxi) such other information as is required by the Code and
regulations thereunder to be made available to Holders of the Class
A and Class M Notes;
(xxii) the Two Payment-Plus Delinquency Percentage for the
related Collection Period;
(xxiii) the Two Payment-Plus Rolling Average for such Payment
Date;
(xxiv) LIBOR for such Payment Date;
(xxv) whether a Master Servicer Termination Event has occurred
since the prior Determination Date, specifying each such Master
Servicer Termination Event if one has occurred;
(xxvi) whether an Event of Default has occurred and is
continuing;
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(xxvii) the Class A Formula Rate, the Class A Note Rate, the
Class M Formula Rate, the Class M Note Rate and the Available Funds
Cap and the Note Rate for such Payment Date;
(xxviii) the amount of any Skip-A-Pay Advances for the related
Collection Period;
(xxix) the Skip-A-Pay Reimbursement Amount for such Payment
Date;
(xxx) the Cumulative Loss Percentage; and
(xxxi) whether a Trigger Event has occurred and is continuing.
In the case of information furnished pursuant to clauses (ii) and
(iii) above, the amounts shall be expressed, in a separate section of the
report, as a dollar amount per Class A Note or Class M Note, as applicable,
for each Note for each $1,000 original dollar amount as of the Cut-Off Date.
To the extent that there are inconsistencies between the telecopy of
the Indenture Trustee's Statement to Noteholders and the hard copy thereof,
the Master Servicer may rely upon the latter.
The Indenture Trustee will make the reports referred to in this
section (and, at its option, any additional files containing the same
information in an alternative format) available each month to Noteholders and
other parties to this Agreement via the Indenture Trustee's website, which is
presently located at ▇▇▇.▇▇▇.▇▇▇▇▇▇▇.▇▇▇. Persons that are unable to use the
above website are entitled to have a paper copy mailed to them via first class
mail by calling the Indenture Trustee at (▇▇▇) ▇▇▇-▇▇▇▇. The Indenture Trustee
shall have the right to change the way the reports referred to in this section
are distributed in order to make such distribution more convenient and/or more
accessible to the above parties and to the Noteholders. The Indenture Trustee
shall provide timely and adequate notification to all above parties and to the
Noteholders regarding any such change.
(b) The Indenture Trustee shall prepare or cause to be prepared (in a
manner consistent with the treatment of the Notes as indebtedness of the
Trust, or as may be otherwise required by Section 3.16 herein) Internal
Revenue Service Form 1099 (or any successor form) and any other tax forms
required to be filed or furnished to Noteholders in respect of payments by the
Indenture Trustee (or the Paying Agent) on the Notes and shall file and
distribute such forms as required by law.
(c) Reports and computer tapes furnished by the Master Servicer
pursuant to this Agreement shall be deemed confidential and of a proprietary
nature, and shall not be copied or distributed except to the extent provided
in this Agreement and to the extent required by law or to the Rating Agencies,
the Depositor and to the extent the Seller instructs the Indenture Trustee in
writing to furnish information regarding the Trust or the Home Equity Loans to
third-party information providers. No Person entitled to receive copies of
such reports or tapes or lists of Noteholders shall use the information
therein for the purpose of soliciting the customers of the Seller or for any
other purpose except as set forth in this Agreement.
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(d) Within 60 days after the end of each calendar year, the Master
Servicer shall prepare or cause to be prepared and shall forward or give
access to the Indenture Trustee the information set forth in clauses (i) and
(ii) above aggregated for such calendar year. Such obligation of the Master
Servicer shall be deemed to have been satisfied to the extent that
substantially comparable information shall be provided by the Master Servicer
pursuant to any requirements of the Code.
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ARTICLE VI.
THE MASTER SERVICER AND THE DEPOSITOR
SECTION 6.01 Liability of the Master Servicer and the Depositor. The
Master Servicer shall be liable in accordance herewith only to the extent of
the obligations specifically imposed upon and undertaken by the Master
Servicer herein. The Depositor shall be liable in accordance herewith only to
the extent of the obligations specifically imposed upon and undertaken by the
Depositor herein.
SECTION 6.02 Merger or Consolidation of, or Assumption of the
Obligations of, the Master Servicer or the Depositor. Any corporation into
which the Master Servicer or Depositor may be merged or consolidated, or any
corporation resulting from any merger, conversion or consolidation to which
the Master Servicer or the Depositor shall be a party, or any corporation
succeeding to the business of the Master Servicer or the Depositor, shall be
the successor of the Master Servicer or the Depositor, as the case may be,
hereunder, without the execution or filing of any paper or any further act on
the part of any of the parties hereto so long as such entity is investment
grade rated, anything herein to the contrary notwithstanding.
SECTION 6.03 Limitation on Liability of the Master Servicer, the
Depositor and Others. None of the Master Servicer, the Depositor, or any
director, officer, employee or agent of the Master Servicer or the Depositor
shall be under any liability to the Trust or the Noteholders for any action
taken or for refraining from the taking of any action by the Master Servicer
or the Depositor, as applicable, in good faith pursuant to this Agreement, or
for errors in judgment; provided, however, that this provision shall not
protect the Master Servicer, the Depositor or any such person against any
liability which would otherwise be imposed by reason of willful misfeasance,
bad faith or gross negligence in the performance of duties or by reason of
reckless disregard of obligations and duties hereunder, and that this
provision shall not be construed to entitle the Master Servicer to indemnity
in the event that amounts advanced by the Master Servicer to retire any senior
Lien exceed Net Liquidation Proceeds realized with respect to the related Home
Equity Loan. The Master Servicer, the Depositor and any director, officer,
employee or agent of the Master Servicer or the Depositor may rely in good
faith on any document of any kind prima facie properly executed and submitted
by any Person respecting any matters arising hereunder. The Master Servicer,
the Depositor and any director, officer, employee or agent of the Master
Servicer or the Depositor shall be indemnified by the Trust and held harmless
against any loss, liability or expense incurred in connection with any legal
action relating to this Agreement or the Notes, other than any loss, liability
or expense related to any specific Home Equity Loan or Home Equity Loans
(except as any such loss, liability or expense shall be otherwise reimbursable
pursuant to this Agreement) and any loss, liability or expense incurred by
reason of willful misfeasance, bad faith or gross negligence in the
performance of duties hereunder or by reason of reckless disregard of
obligations and duties hereunder. Neither the Master Servicer nor the
Depositor shall be under any obligation to appear in, prosecute or defend any
legal action which is not incidental to its respective duties under this
Agreement, and which in its opinion may involve it in any expense or
liability; provided, however, that the Master Servicer or the Depositor may,
in its sole discretion, undertake any such action which it may deem necessary
or desirable in respect of this Agreement and the rights and duties of the
parties hereto and the interests of the Noteholders hereunder. In such event,
the reasonable legal
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expenses and costs of such action and any liability resulting therefrom and
any claims by the Master Servicer or the Depositor hereunder for
indemnification shall be expenses, costs and liabilities of the Trust, and the
Master Servicer or the Depositor, as the case may be, shall be entitled to be
reimbursed therefor and indemnified pursuant to the terms hereof from amounts
deposited in the Collection Account as provided by Section 3.03. The Master
Servicer's and the Depositor's right to indemnity or reimbursement pursuant to
this Section shall survive any resignation or termination of the Master
Servicer pursuant to Section 6.04 or 7.01 with respect to any losses,
expenses, costs or liabilities arising prior to such resignation or
termination (or arising from events that occurred prior to such resignation or
termination). The Master Servicer shall have no claim (whether by subrogation
or otherwise) or other action against any Noteholder for any amounts paid by
the Master Servicer pursuant to any provision of this Agreement.
SECTION 6.04 Master Servicer Not to Resign. Subject to the provisions
of Section 6.02, the Master Servicer shall not resign from the obligations and
duties hereby imposed on it except (i) upon determination that the performance
of its obligations or duties hereunder are no longer permissible under
applicable law or are in material conflict by reason of applicable law with
any other activities carried on by it or its subsidiaries or Affiliates, the
other activities of the Master Servicer so causing such a conflict being of a
type and nature carried on by the Master Servicer or its subsidiaries or
Affiliates at the date of this Agreement or (ii) upon satisfaction of the
following conditions: (a) the Master Servicer has proposed a successor
servicer to the Indenture Trustee in writing and such proposed successor
servicer is reasonably acceptable to the Indenture Trustee; (b) each Rating
Agency shall have confirmed to the Indenture Trustee that the appointment of
such proposed successor servicer as Master Servicer hereunder will not result
in the reduction or withdrawal of the then-current rating of the Class A or
Class M Notes; and (c) such proposed successor servicer has agreed in writing
to assume the obligations of Master Servicer hereunder and the Master Servicer
has delivered to the Indenture Trustee an Opinion of Counsel to the effect
that all conditions precedent to the resignation of the Master Servicer and
the appointment of and acceptance by the proposed successor servicer have been
satisfied; provided, however, that in the case of clause (i) above no such
resignation by the Master Servicer shall become effective until the Indenture
Trustee shall have assumed the Master Servicer's responsibilities and
obligations hereunder or the Indenture Trustee shall have designated a
successor servicer in accordance with Section 7.02. Any such resignation shall
not relieve the Master Servicer of responsibility for any of the obligations
specified in Sections 7.01 and 7.02 as obligations that survive the
resignation or termination of the Master Servicer. Any such determination
permitting the resignation of the Master Servicer pursuant to clause (i) above
shall be evidenced by an Opinion of Counsel to such effect delivered to the
Indenture Trustee.
SECTION 6.05 Delegation of Duties. In the ordinary course of
business, the Master Servicer at any time may delegate any of its duties
hereunder to any Person, including any of its Affiliates, who agrees to
conduct such duties in accordance with standards comparable to those with
which the Master Servicer complies pursuant to Section 3.01. Such delegation
shall not relieve the Master Servicer of its liabilities and responsibilities
with respect to such duties and shall not constitute a resignation within the
meaning of Section 6.04. The Master Servicer shall provide each Rating Agency
and the Indenture Trustee with written notice prior to the delegation of any
of its duties to any Person other than any of the Master Servicer's Affiliates
or their respective successors and assigns.
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ARTICLE VII.
MASTER SERVICER TERMINATION
SECTION 7.01 Master Servicer Termination Events.
If any one of the following events ("Master Servicer Termination
Events") shall occur and be continuing:
(a) Any failure by the Master Servicer to deposit in the Collection
Account any deposit required to be made under the terms of this Agreement
which continues unremedied for a period of five (5) Business Days after the
date upon which written notice of such failure shall have been given to the
Master Servicer by the Indenture Trustee or the Depositor, or to the Master
Servicer, the Depositor and the Indenture Trustee by the Majority Noteholder;
or
(b) Any failure on the part of the Master Servicer duly to observe or
perform in any material respect any other covenants or agreements of the
Master Servicer set forth in the Notes or in this Agreement (including
covenants in Section 2.03), which failure (A) materially and adversely affects
the interests of Noteholders and (B) continues unremedied for a period of
sixty (60) days after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to the Master
Servicer by the Indenture Trustee or the Depositor, or to the Master Servicer,
the Depositor and the Indenture Trustee by the Majority Noteholder; or
(c) The entry against the Master Servicer of a decree or order by a
court or agency or supervisory authority having jurisdiction in the premises
for the appointment of a trustee, conservator, receiver or liquidator in any
insolvency, conservatorship, receivership, readjustment of debt, marshalling
of assets and liabilities or similar proceedings, or for the winding up or
liquidation of its affairs, and the continuance of any such decree or order
unstayed and in effect for a period of 60 consecutive days; or
(d) The consent by the Master Servicer to the appointment of a
trustee, conservator, receiver or liquidator in any insolvency,
conservatorship, receivership, readjustment of debt, marshalling of assets and
liabilities or similar proceedings of or relating to the Master Servicer or of
or relating to substantially all of its property; or the Master Servicer shall
admit in writing its inability to pay its debts generally as they become due,
file a petition to take advantage of any applicable insolvency or
reorganization statute, make an assignment for the benefit of its creditors,
or voluntarily suspend payment of its obligations;
then, and in each and every case, so long as a Master Servicer Termination
Event shall not have been remedied by the Master Servicer, either the
Indenture Trustee or the Depositor may, and at the direction of the Majority
Noteholder, the Indenture Trustee shall, by notice then given in writing to
the Master Servicer, the Depositor and the Indenture Trustee, as applicable,
terminate all of the rights and obligations of the Master Servicer as master
servicer under this Agreement; provided, however, that the responsibilities
and duties of the initial Master Servicer with respect to the purchase of Home
Equity Loans pursuant to Sections 2.02, 2.04(c) and 3.01 shall not terminate.
Any such notice to the Master Servicer shall also be given to each Rating
Agency.
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On or after the receipt by the Master Servicer of such written notice, all
authority and power of, and all benefits accruing to, the Master Servicer
under this Agreement, whether with respect to the Notes or the Home Equity
Loans or otherwise, shall pass to and be vested in the Indenture Trustee or,
if a successor Master Servicer has been appointed under Section 7.02, such
successor Master Servicer pursuant to and under this Section 7.01; and,
without limitation, the Indenture Trustee is hereby authorized and empowered
to execute and deliver, on behalf of the Master Servicer, as attorney-in-fact
or otherwise, any and all documents and other instruments, and to do or
accomplish all other acts or things necessary or appropriate to effect the
purposes of such notice of termination, whether to complete the transfer and
endorsement of each Home Equity Loan and related documents, or otherwise. The
Master Servicer agrees to cooperate with the Indenture Trustee in effecting
the termination of the responsibilities and rights of the Master Servicer
hereunder, including, without limitation, the transfer to the Indenture
Trustee for the administration by it of all cash amounts that shall at the
time be held by the terminated Master Servicer and to be deposited by it in
the Collection Account, or that have been deposited by the terminated Master
Servicer in the Collection Account or thereafter received by the terminated
Master Servicer with respect to the Home Equity Loans, and the recordation of
Assignments of Mortgages to the Trust if MERS is not the mortgagee of a Home
Equity Loan or otherwise in accordance with Section 7.02(c).
Notwithstanding the foregoing, a delay in or failure of performance
under Section 7.01(a) for a period of five (5) Business Days or under Section
7.01(b) for a period of sixty (60) days, shall not constitute a Master
Servicer Termination Event if such delay or failure could not be prevented by
the exercise of reasonable diligence by the Master Servicer and such delay or
failure was caused by an act of God, acts of declared or undeclared war,
public disorder, terrorism, rebellion or sabotage, epidemics, landslides,
lightning, fire, hurricanes, earthquakes, floods or similar causes. The
preceding sentence shall not relieve the Master Servicer from using its best
efforts to perform its obligations in a timely manner in accordance with the
terms of this Agreement, and the Master Servicer shall provide the Indenture
Trustee, the Depositor and the Noteholders with an Officer's Certificate
giving prompt notice of such failure or delay by it, together with a
description of its efforts to so perform its obligations. The Master Servicer
shall immediately notify the Indenture Trustee and each Rating Agency in
writing of any Master Servicer Termination Events.
SECTION 7.02 Indenture Trustee to Act; Appointment of Successor.
(a) On and after the time the Master Servicer receives a notice of
resignation or termination pursuant to Section 6.04 or 7.01, the Indenture
Trustee shall be the successor in all respects to the Master Servicer in its
capacity as servicer under this Agreement and the transactions set forth or
provided for herein and shall be subject to all the responsibilities, duties
and liabilities relating thereto placed on the Master Servicer by the terms
and provisions hereof; provided, however, that the responsibilities and duties
of HFC as Master Servicer with respect to the purchase of the Home Equity
Loans pursuant to Sections 2.02, 2.04(c) and 3.01 shall not terminate. As
compensation therefor, the Indenture Trustee shall be entitled to such
compensation as the Master Servicer would have been entitled to hereunder if
no such notice of termination had been given. Notwithstanding the above, (i)
if the Indenture Trustee is unwilling to act as successor Master Servicer, or
(ii) if the Indenture Trustee is legally unable so to act, the Indenture
Trustee may (in the situation described in clause (i)) or shall (in the
situation described
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in clause (ii)) appoint, or petition a court of competent Fjurisdiction to
appoint, any housing and home finance institution or other mortgage loan or
home equity loan servicer having all licenses and permits required in order to
perform its obligations hereunder and a net worth of not less than $50,000,000
as the successor to the Master Servicer hereunder in the assumption of all or
any part of the responsibilities, duties or liabilities of the Master Servicer
hereunder; provided that the appointment of any such successor Master Servicer
will not result in the qualification, reduction or withdrawal of the
then-current rating assigned to either the Class A or Class M Notes by the
Rating Agencies, as evidenced by a writing to such effect delivered to the
Indenture Trustee, and any successor Master Servicer appointed hereunder shall
be reasonably acceptable to the Depositor. Pending appointment of a successor
to the Master Servicer hereunder, unless the Indenture Trustee is prohibited
by law from so acting, the Indenture Trustee shall act in such capacity as
hereinabove provided. In connection with such appointment and assumption, the
successor shall be entitled to receive compensation out of payments on Home
Equity Loans in an amount equal to the compensation which the Master Servicer
would otherwise have received pursuant to Section 3.09 (or such lesser
compensation as the Indenture Trustee and such successor shall agree). The
Indenture Trustee and such successor shall take such action, consistent with
this Agreement, as shall be necessary to effectuate any such succession.
(b) Any successor, including the Indenture Trustee, to the Master
Servicer as master servicer shall during the term of its service as master
servicer (i) continue to service and administer the Home Equity Loans for the
benefit of Noteholders and (ii) maintain in force a policy or policies of
insurance covering errors and omissions in the performance of its obligations
as Master Servicer hereunder and a fidelity bond in respect of its officers,
employees and agents to the same extent as the Master Servicer is so required
pursuant to Section 3.13. The appointment of a successor Master Servicer shall
not affect any liability of the predecessor Master Servicer which may have
arisen under this Agreement prior to its termination as Master Servicer
(including, without limitation, any deductible under an insurance policy
pursuant to Section 3.04), nor shall any successor Master Servicer be liable
for any acts or omissions of the predecessor Master Servicer or for any breach
by such Master Servicer or the Depositor of any of their representations or
warranties contained herein or in any related document or agreement.
(c) In connection with the termination or resignation of the Master
Servicer hereunder, either (i) the successor Master Servicer, including the
Indenture Trustee if the Indenture Trustee is acting as successor Master
Servicer, shall represent and warrant that it is a member of MERS in good
standing and shall agree to comply in all material respects with the rules and
procedures of MERS in connection with the servicing of the Home Equity Loans
that are registered with MERS, in which case the predecessor Master Servicer
shall cooperate with the successor Master Servicer in causing MERS to revise
its records to reflect the transfer of servicing to the successor Master
Servicer as necessary under MERS' rules and regulations, or (ii) the
predecessor Master Servicer shall cooperate with the successor Master Servicer
in causing MERS to execute and deliver an Assignment of Mortgage in recordable
form to transfer the Mortgage from MERS to the Trust and to execute and
deliver such other notices, documents and other instruments as may be
necessary or desirable to effect a transfer of such Home Equity Loan or
servicing of such Home Equity Loan on the MERS(R) System to the successor
Master Servicer. The predecessor Master Servicer shall file or cause to be
filed any such assignment in the appropriate recording office. The predecessor
Master Servicer shall bear any and all fees of MERS, costs of preparing any
Assignments of Mortgage, and fees and costs of filing any assignments of
Mortgage that
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may be required under this subsection (c). The successor Master Servicer shall
cause such assignment to be delivered to the Indenture Trustee promptly upon
receipt of the original with evidence of recording thereon or a copy certified
by the public recording office in which such Assignment of Mortgage was
recorded.
SECTION 7.03 Waiver of Defaults. The Majority Noteholder may, on
behalf of all Noteholders, waive any events permitting removal of the Master
Servicer as master servicer pursuant to this Article VII, provided, however,
that the Majority Noteholder may not waive a default in making a required
payment on a Note without the consent of each Holder of such Note. Upon any
waiver of a past default, such default shall cease to exist and any Master
Servicer Termination Event arising therefrom shall be deemed to have been
remedied for every purpose of this Agreement. No such waiver shall extend to
any subsequent or other default or impair any right consequent thereto except
to the extent expressly so waived. Notice of any such waiver shall be given by
the Indenture Trustee to the Rating Agencies.
SECTION 7.04 Notification to Noteholders. Upon any termination or
appointment of a successor to the Master Servicer pursuant to this Article VII
or Section 6.04 above, the Indenture Trustee shall give prompt written notice
thereof to the Noteholders at their respective addresses appearing in the Note
Register and each Rating Agency.
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ARTICLE VIII.
TERMINATION
-----------
SECTION 7.01 Termination.
(a) The respective obligations and responsibilities of the Depositor,
the Seller, the Master Servicer, the Trust and the Indenture Trustee created
hereby (other than the obligation of the Indenture Trustee to make certain
payments to Noteholders after the Final Scheduled Payment Date and the
obligation of the Master Servicer to send certain notices as hereinafter set
forth) shall terminate upon notice to the Indenture Trustee of the earliest of
(i) the final payment or other liquidation of the last Home Equity Loan
remaining in the Trust; (ii) the sale of the Home Equity Loans as described in
Section 10.2 of the Indenture and the corresponding redemption of the Notes,
(iii) the optional purchase by the Master Servicer of the Home Equity Loans as
described below in this Section 8.01 and (iv) the Payment Date in September
2013.
(b) The Master Servicer may, at its option, terminate this Agreement
on any Payment Date following the first Payment Date on which the sum of the
Note Principal Amounts of the Class A and Class M Notes (after giving effect
to payments made on such Payment Date) is less than or equal to 15% of the sum
of the Original Note Principal Amounts of the Class A and Class M Notes by
purchasing, on the next succeeding Payment Date, all of the outstanding Home
Equity Loans and REO Properties at a price (the "Termination Price") equal the
greatest of (A) the sum of (x) 100% of the Principal Balance of each Home
Equity Loan (other than any Home Equity Loan as to which title to the
underlying Mortgaged Property has been acquired and whose fair market value is
included pursuant to clause (y) below) as of the first day of the Collection
Period preceding the Payment Date upon which the proceeds of any repurchase
are to be paid and (y) the fair market value of such acquired property (as
determined by the Master Servicer as of the close of business on the third
Business Day next preceding the date upon which notice of any such termination
is furnished to Noteholders pursuant to Section 8.01(e)) plus, in each case,
one month's interest at the applicable Net Loan Rate on the Principal Balance
of each Home Equity Loan (including any Home Equity Loan as to which title to
the underlying Mortgaged Property has been acquired), (B) the aggregate fair
market value (as determined by the Master Servicer as of the close of business
on such third preceding Business Day) of all of the assets of the Trust, or
(C) the sum of the Note Principal Amounts of the Class A and Class M Notes,
together with any unpaid Interest Carry Forward Amounts and Supplemental
Interest Amounts allocable to such Classes, plus one month's interest on such
Note Principal Amounts and any unpaid Interest Carry Forward Amounts and
Supplemental Interest Amounts at the Class A Formula Rate or Class M Formula
Rate, as applicable.
Any such purchase shall be accomplished by deposit into the
Collection Account on the Determination Date before such Payment Date of the
Termination Price.
(c) If the Master Servicer does not repurchase all of the Home Equity
Loans pursuant to Section 8.01(b) above within three (3) months of the first
Payment Date upon which such repurchase option may occur, then promptly on the
following Payment Date the Indenture Trustee shall begin a process for
soliciting bids in connection with an auction of the Home Equity Loans for an
auction to occur on or before the next succeeding Payment Date (the "First
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Auction Date") and, if necessary, any date after the First Auction Date (the
"Subsequent Auction Date" and together with the First Auction Date, the
"Auction Date"). The Indenture Trustee shall provide the Master Servicer
written notice of such auctions at least ten (10) Business Days prior to the
applicable Auction Date. The auctions shall be conducted as follows:
(i) If at least two bids are received, the Indenture Trustee
shall solicit and resolicit new bids from all participating bidders
until only one bid remains or the remaining bidders decline to
resubmit bids. The Indenture Trustee shall accept the highest of
such remaining bids if it is equal to or in excess of the
Termination Price. If less than two bids are received or the highest
bid after the resolicitation process is completed is not equal to or
in excess of the Termination Price, the Indenture Trustee shall not
consummate such sale. If a bid equaling the Termination Price is
received, then the Indenture Trustee may, and if so requested by the
Master Servicer shall, consult with a financial advisor, which may
be an underwriter of the Notes, to determine if the fair market
value of the Home Equity Loans and related property has been
offered.
(ii) If the first auction conducted by the Indenture Trustee
does not produce any bid at least equal to the Termination Price,
then the Indenture Trustee shall, beginning on the Payment Date
occurring approximately three months after the Auction Date for the
failed first auction, commence another auction in accordance with
the requirements of this subsection (c). If such second auction does
not produce any bid at least equal to the Termination Price, then
the Indenture Trustee shall, beginning on the Payment Date occurring
approximately three months after the Auction Date for the failed
second auction, commence another auction in accordance with the
requirements of this subsection (c), and shall continue to conduct
similar auctions approximately every three months thereafter until
the earliest of (i) delivery by the Master Servicer of notice of
exercise of its repurchase option pursuant to Section 8.01(b) above,
(ii) receipt by the Indenture Trustee of a bid meeting the
conditions specified in the preceding paragraph, or (iii) the
Payment Date on which the Principal Balance of all the Home Equity
Loans is reduced to zero.
(d) If the Indenture Trustee receives a bid meeting the conditions
specified in subsection (c), then the Indenture Trustee shall release, or
cause to be released, to the winning bidder, upon payment of the bid purchase
price and satisfaction of any other terms and conditions of the auction sale,
the Mortgage Files pertaining to the Home Equity Loans being purchased and the
Trust and the Indenture Trustee shall take such other actions as the winning
bidder may reasonably request to effect the transfer of the Home Equity Loans
by the Trust to the winning bidder.
(e) Notice of any termination, specifying the Payment Date (which
shall be a date that would otherwise be a Payment Date) upon which the
Noteholders may surrender their Notes to the Indenture Trustee for payment of
the final payment and cancellation, shall be given promptly by the Indenture
Trustee (upon receipt of written directions from the Master Servicer, if the
Master Servicer is exercising its right to transfer of the Home Equity Loans,
given not later than the first day of the month preceding the month of such
final payment) to the Master Servicer by letter to the Noteholders mailed not
earlier than the 15th day and not later than the 25th day of the month next
preceding the month of such final payment specifying (i) the Payment Date upon
65
which final payment of the Notes will be made upon presentation and surrender
of Notes at the office or agency of the Indenture Trustee therein designated,
(ii) the amount of any such final payment and (iii) that the Record Date
otherwise applicable to such Payment Date is not applicable, payments being
made only upon presentation and surrender of the Notes at the office or agency
of the Indenture Trustee therein specified.
(f) Upon presentation and surrender of the Notes, the Indenture
Trustee shall cause to be paid to the Noteholders on the Payment Date for such
final payment, in proportion to their respective Percentage Interests an
amount equal to (i) as to the Class A or Class M Notes, such Class'
appropriate share of the Principal Payment Amount, any Interest Carry Forward
Amounts and one month's interest at the related Note Rate on the applicable
Note Principal Amount and (ii) as to Transferor in respect of the Ownership
Interest, the amount which remains on deposit in the Collection Account (other
than the amounts retained to meet claims) after application pursuant to clause
(i) above.
(g) In the event that all of the Noteholders shall not surrender
their Notes for final payment and cancellation on or before such Final
Scheduled Payment Date, the Indenture Trustee shall promptly following such
date cause all funds in the Collection Account not paid in final payment to
Noteholders, to be withdrawn therefrom and credited to the remaining
Noteholders by depositing such funds in a separate escrow account for the
benefit of such Noteholders, and the Master Servicer (if the Master Servicer
has exercised its right to purchase the Home Equity Loans) or the Indenture
Trustee (in any other case) shall give a second written notice to the
remaining Noteholders to surrender their Notes for cancellation and receive
the final payment with respect thereto. If within nine months after the second
notice all the Notes shall not have been surrendered for cancellation, the
Ownership Interest will be entitled to all remaining unclaimed funds and other
assets which remain subject hereto, and the Indenture Trustee upon transfer of
such funds shall be discharged of any responsibility for such funds and the
Noteholders shall look to the holder of the Ownership Interest for payment.
66
ARTICLE VIX.
MISCELLANEOUS PROVISIONS
------------------------
SECTION 9.01 Amendment.
(a) This Agreement may be amended from time to time by the Depositor,
the Master Servicer, the Trust and the Indenture Trustee by written agreement,
without the consent of any of the Noteholders (i) to cure any ambiguity, (ii)
to correct or supplement any provisions herein that may be inconsistent with
any other provisions herein or to correct any error, (iii) to add to the
duties of the Depositor, the Indenture Trustee or the Master Servicer, (iv) to
add, amend or modify any other provisions with respect to matters or questions
arising under this Agreement which shall not be inconsistent with the
provisions of this Agreement, (v) to add or amend any provisions of this
Agreement as required by any Rating Agency or any other nationally recognized
statistical rating agency in order to maintain or improve any rating of the
Class A or Class M Notes (it being understood that, after obtaining the
ratings in effect on the Closing Date, neither the Indenture Trustee, the
Depositor nor the Master Servicer is obligated to obtain, maintain or improve
any such rating), (vi) to comply with any requirement imposed by changes in
accounting policies that do not materially impact the Notes, or (vii) to
comply with any requirements imposed by the Code; provided, however, that as
evidenced by an Opinion of Counsel (at the expense of the party requesting
such amendment) in each case (other than a case arising under clause (vi) or
(vii)) such action shall not adversely affect in any material respect the
interest of any Class A or Class M Noteholder, and provided, further, that the
amendment shall not be deemed to adversely affect in any material respect the
interests of the Class A and Class M Noteholders and no Opinion of Counsel to
that effect shall be required, if the Person requesting the amendment obtains
a letter from each Rating Agency stating that the amendment would not result
in the downgrading or withdrawal of the respective ratings then assigned to
the Class A and Class M Notes.
(b) This Agreement also may be amended from time to time by the
Master Servicer, the Depositor, the Trust and the Indenture Trustee, with the
consent of the Holders of the Class A and Class M Notes that are affected by
such amendment, evidencing Percentage Interests aggregating not less than 51%
in Percentage Interests of the related Class or in the case of an amendment
that affects all Classes, the Majority Noteholder, for the purpose of adding
any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement or of modifying in any manner the rights of the
Noteholders or the Transferor in respect of the Ownership Interest; provided,
however, that no such amendment shall (i) reduce in any manner the amount of,
or delay the timing of, payments on any Class A or Class M Note without the
consent of the Holder of such Note or (ii) reduce the aforesaid percentage
required to consent to any such amendment, or (iii) result in a downgrading of
the ratings of the Class A or Class M Notes without the consent of all Holders
of each Class of Notes affected thereby.
Prior to the solicitation of consent of Noteholders in connection
with any such amendment, the party seeking such amendment shall furnish the
Indenture Trustee with an Opinion of Counsel stating whether such amendment
would create a material risk of the Trust incurring taxes imposed under the
Code and notice of the conclusion expressed in such Opinion of Counsel shall
be included with any such solicitation. An amendment made with the consent
67
of all Noteholders and executed in accordance with this Section 9.01 shall be
permitted or authorized by this Agreement notwithstanding that such Opinion of
Counsel may conclude that such amendment would create a material risk of the
Trust incurring taxes imposed under the Code.
Prior to the execution of any such amendment, the Indenture Trustee
shall furnish written notification of the substance of such amendment to each
Rating Agency. In addition, promptly after the execution of any such amendment
made with the consent of the Class A and/or Class M Noteholders, the Indenture
Trustee shall furnish written notification of the substance of such amendment
to each applicable Noteholder.
(c) It shall not be necessary for the consent of Noteholders under
this Section 9.01 to approve the particular form of any proposed amendment,
but it shall be sufficient if such consent shall approve the substance
thereof. The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Noteholders shall be subject to such
reasonable requirements as the Indenture Trustee may prescribe.
Prior to the execution of any amendment to this Agreement, each of
the Indenture Trustee and the Owner Trustee shall be entitled to receive and
conclusively rely upon an Opinion of Counsel stating that the execution of
such amendment is authorized or permitted by this Agreement and all conditions
precedent to the execution of such amendment have been met. The Indenture
Trustee may, but shall not be obligated to, enter into any such amendment
which affects the Indenture Trustee's own rights, duties, indemnities or
immunities under this Agreement.
SECTION 9.02 Recordation of Agreement. To the extent permitted by
applicable law, this Agreement, or a memorandum thereof if permitted under
applicable law, is subject to recordation in all appropriate public offices
for real property records in all of the counties or other comparable
jurisdictions in which any or all of the Mortgaged Properties are situated,
and in any other appropriate public recording office or elsewhere, such
recordation to be effected by the Master Servicer at the Noteholders' expense
on direction of the Indenture Trustee or the Majority Noteholder, but only
when accompanied by an opinion of counsel delivered to the Indenture Trustee
and the Owner Trustee to the effect that such recordation materially and
beneficially affects the interests of the Noteholders or is necessary for the
administration or servicing of the Home Equity Loans.
SECTION 9.03 Duration of Agreement. This Agreement shall continue in
existence and effect until terminated as herein provided.
SECTION 9.04 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH
SUCH LAWS, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
SECTION 9.05 Notices. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered at or mailed by
68
overnight mail, certified mail or registered mail, postage prepaid, to (a) in
the case of the Depositor or the Master Servicer, ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: Treasurer, (b) in the case of the
Indenture Trustee, at the Corporate Trust Office, Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇,
(c) in the case of the Owner Trustee, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇, ▇▇▇ ▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: Asset Backed Securities, (d) in the case of
Moody's, ABS Monitoring Department, ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇, (e) in the case of Standard & Poor's, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: Structured Finance Surveillance, and (f) in
the case of Fitch, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇, Attention: RMBS Surveillance Department or, as to each party, at such
other address as shall be designated by such party in a written notice to each
other party. Any notice required or permitted to be mailed to a Noteholder
shall be given by first class mail, postage prepaid, at the address of such
Holder as shown in the Note Register. Any notice so mailed within the time
prescribed in this Agreement shall be conclusively presumed to have been duly
given, whether or not the Noteholder receives such notice.
SECTION 9.06 Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be held
invalid for any reason whatsoever, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity
or enforceability of the other covenants, agreements, provisions or terms of
this Agreement.
SECTION 9.07 No Partnership. Nothing herein contained shall be deemed
or construed to create any partnership or joint venture between the parties
hereto and the services of the Master Servicer shall be rendered as an
independent contractor.
SECTION 9.08 Counterparts. This Agreement may be executed in one or
more counterparts and by the different parties hereto on separate
counterparts, each of which, when so executed, shall be deemed to be an
original; such counterparts, together, shall constitute one and the same
Agreement.
SECTION 9.09 Successors and Assigns. This Agreement shall inure to
the benefit of and be binding upon the Depositor, the Master Servicer, each
Seller, the Trust, the Indenture Trustee and the Noteholders and their
respective successors and permitted assigns.
The parties hereto hereby agree that all rights of the Trust under
this Agreement are pledged by the Trust to the Indenture Trustee under the
Indenture, and that the Indenture Trustee on behalf of the Noteholders has the
right to directly enforce all rights of the Trust under this Agreement.
SECTION 9.10 Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not
be deemed to be part of this Agreement.
SECTION 9.11 Indenture Trustee. All privileges, rights and immunities
given to the Indenture Trustee in the Indenture are hereby extended to and
applicable to the Indenture Trustee's obligations hereunder.
69
SECTION 9.12 Inconsistencies Among Transaction Documents. In the
event certain provisions of a Transaction Document conflict with the
provisions of this Sale and Servicing Agreement, the parties hereto agree that
the provisions of this Sale and Servicing Agreement shall be controlling.
SECTION 9.13 [RESERVED].
SECTION 9.14 Limitation on Voting of Preferred Stock. The Indenture
Trustee shall hold all of the preferred stock ("Preferred Stock") of the
Depositor in trust, for the benefit of the Noteholders, and during the
continuance of a Master Servicer Termination Event, shall vote such stock only
pursuant to the written instructions of the Majority Noteholder. The Indenture
Trustee shall not permit a transfer of any of the Preferred Stock to HFC or
any of its Affiliates. Concurrently with any transfer of the Home Equity Loans
to the Master Servicer pursuant to Section 8.01, the Indenture Trustee shall
transfer to the Depositor for cancellation all shares of Preferred Stock held
by the Indenture Trustee.
SECTION 9.15 Perfection Representations. The Perfection
Representations shall be a part of this Agreement for all purposes.
SECTION 9.16 Limitation of Liability. It is understood by each party
hereto that the sole recourse of each party hereto in respect of the
obligations of the Trust hereunder and under the other Transaction Documents
to which it is a party shall be to the assets of the Trust. In addition, The
Bank of New York ("BNY") is entering into this Agreement and the other
Transaction Documents to which the Trust is a party solely in its capacity as
trustee under the Trust Agreement and not in its individual capacity and in no
case shall BNY (or any Person acting as successor trustee under the Trust
Agreement) be personally liable for or on account of any of the statements,
representations, warranties, covenants or obligations stated to be those of
the Trust hereunder or thereunder, all such liability, if any, being expressly
waived by the parties hereto and any person claiming by, through or under such
party.
SECTION 9.17 Inspection of Mortgage Files. Following the time that
the Mortgage Files have been delivered to the Indenture Trustee upon
reasonable prior notice and during regular business hours, the Indenture
Trustee shall permit representatives of applicable state regulatory agencies
to inspect the Mortgage Files on the Indenture Trustee's premises or shall
provide such documents at such places required by state regulations, including
the offices of the Servicers. Any loss incurred by the Indenture Trustee in
fulfilling such obligations shall be paid by the Master Servicer.
SECTION 9.18 [RESERVED].
70
ARTICLE X.
MISCELLANEOUS PROVISIONS
------------------------
SECTION 10.01 Administrative Duties.
(a) Duties with Respect to the Indenture. The Master Servicer shall
perform all its duties and the duties of the Issuer under the Indenture. In
addition, the Master Servicer shall consult with the Owner Trustee as the
Master Servicer deems appropriate regarding the duties of the Issuer under the
Indenture. The Master Servicer shall monitor the performance of the Issuer and
shall advise the Owner Trustee when action is necessary to comply with the
Issuer's duties under the Indenture. The Master Servicer shall prepare for
execution by the Issuer or shall cause the preparation by other appropriate
Persons of all such documents, reports, filings, instruments, certificates and
opinions as it shall be the duty of the Issuer to prepare, file or deliver
pursuant to the Indenture. In furtherance of the foregoing, the Master
Servicer shall take all necessary action that is the duty of the Issuer to
take pursuant to the Indenture, including, without limitation, pursuant to
Sections 3.1, 3.3, 3.4, 3.5, 3.6, 3.7, 3.9, 3.16, 3.17, 7.3, 8.6, 9.2, 9.3,
11.1 and 11.15 of the Indenture.
(b) Duties with Respect to the Issuer.
(i) In addition to the duties of the Master Servicer set forth
in this Agreement or any of the Transaction Documents, the Master
Servicer shall perform such calculations and shall prepare for
execution by the Issuer or the Owner Trustee, or shall cause the
preparation by other appropriate Persons of all such documents,
reports, filings, instruments, certificates and opinions as it shall
be the duty of the Issuer or the Owner Trustee, to prepare, file or
deliver pursuant to this Agreement or any of the Transaction
Documents or under state and federal tax and securities laws, and at
the request of the Owner Trustee shall take all appropriate action
that it is the duty of the Issuer to take pursuant to this Agreement
or any of the Transaction Documents, including, without limitation,
pursuant to Sections 2.6 of the Trust Agreement. In accordance with
the directions of the Issuer or the Owner Trustee, the Master
Servicer shall administer, perform or supervise the performance of
such other activities in connection with the Owner Trust Estate
(including the Transaction Documents) as are not covered by any of
the foregoing provisions and as are expressly requested by the
Issuer or the Owner Trustee and are reasonably within the capability
of the Master Servicer.
(ii) Notwithstanding anything in this Agreement or any of the
Transaction Documents to the contrary, the Master Servicer shall be
responsible for promptly notifying the Owner Trustee and the
Indenture Trustee in the event that any withholding tax is imposed
on the Issuer's payments (or allocations of income) to a Transferor
as contemplated by this Agreement. Any such notice shall be in
writing and specify the amount of any withholding tax required to be
withheld by the Owner Trustee or the Indenture Trustee pursuant to
such provision.
(iii) Notwithstanding anything in this Agreement or the
Transaction Documents to the contrary, the Master Servicer shall be
responsible for performance of
71
the duties of the Issuer or the Depositor set forth in Section 5.5
of the Trust Agreement with respect to, among other things,
accounting and reports to the Transferor (as defined in the Trust
Agreement); provided, however, that once prepared by the Master
Servicer, the Depositor shall retain responsibility under the Trust
Agreement for the distribution of the Schedule K-1s, if any,
necessary to enable the Transferor to prepare its federal and state
income tax returns.
(iv) The Master Servicer shall perform the duties of the
Depositor specified in Section 10.2 of the Trust Agreement required
to be performed in connection with the resignation or removal of the
Owner Trustee, and any other duties expressly required to be
performed by the Master Servicer under this Agreement or any of the
Transaction Documents.
(v) The Master Servicer, on behalf of the Depositor, shall
direct the Issuer to request the tender of all or a portion of the
Notes in accordance with the Indenture or this Agreement.
(vi) In carrying out the foregoing duties or any of its other
obligations under this Agreement, the Master Servicer may enter into
transactions with or otherwise deal with any of its Affiliates;
provided, however, that the terms of any such transactions or
dealings shall be in accordance with any directions received from
the Issuer and shall be, in the Master Servicer's opinion, no less
favorable to the Issuer in any material respect.
(vii) The Master Servicer shall take all necessary action that
is the duty of the Issuer to take pursuant to Section 7.8 of the
Trust Agreement.
(c) Tax Matters. The Master Servicer shall prepare and file, or cause
to be prepared and filed, on behalf of the Depositor, all required tax
returns, tax elections, financial statements and such annual or other reports
of the Issuer as are necessary for preparation of tax reports as provided in
Article V of the Trust Agreement, including without limitation Form 1099. All
tax returns will be signed by the Depositor.
(d) Non-Ministerial Matters. With respect to matters that in the
reasonable judgment of the Master Servicer are non-ministerial, the Master
Servicer shall not take any action pursuant to this Article X unless within a
reasonable time before the taking of such action, the Master Servicer shall
have notified the Owner Trustee and the Indenture Trustee of the proposed
action and the Owner Trustee and the Indenture Trustee shall not have withheld
consent or provided an alternative direction. For the purpose of the preceding
sentence, "non-ministerial matters" shall include
(i) the initiation of any claim or lawsuit by the Issuer and
the compromise of any action, claim or lawsuit brought by or against
the Issuer (other than in connection with the collection of the Home
Equity Loans);
(ii) the appointment of successor Note Registrars, successor
Note Paying Agents and successor Indenture Trustees pursuant to the
Indenture or the consent to the assignment by the Note Registrar,
Note Paying Agent or Indenture Trustee of its obligations under the
Indenture; and
72
(iii) the removal of the Indenture Trustee.
(e) Exceptions. Notwithstanding anything to the contrary in this
Agreement, except as expressly provided herein or in the Transaction
Documents, the Master Servicer, in its capacity hereunder, shall not be
obligated to, and shall not, (1) make any payments to the Noteholders or the
Transferor under the Transaction Documents, (2) sell any of the assets of the
Trust, (3) take any other action that the Issuer directs the Master Servicer
not to take on its behalf or (4) in connection with its duties hereunder
assume any indemnification obligation of any other Person.
(f) Neither the Indenture Trustee nor any successor Master Servicer
shall be responsible for any obligations or duties of a predecessor Master
Servicer under this Section 10.1.
SECTION 10.02 Records. The Master Servicer shall maintain appropriate
books of account and records relating to services performed under this
Agreement, which books of account and records shall be accessible for
inspection by the Issuer and the Indenture Trustee at any time during normal
business hours.
SECTION 10.03 Additional Information to be Furnished to the Trust.
The Master Servicer shall furnish to the Issuer and the Indenture Trustee,
from time to time such additional information regarding the Owner Trust Estate
as the Issuer and the Indenture Trustee shall reasonably request.
73
IN WITNESS WHEREOF, the following have caused their names to be
signed by their respective officers thereunto duly authorized, as of the day
and year first above written, to this Sale and Servicing Agreement.
HOUSEHOLD HOME EQUITY LOAN TRUST 2003-1,
By: The Bank of New York, not in its individual
capacity but solely as Owner Trustee
By: /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------------------------
Name: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: ASSISTANT TREASURER
S-1
HOUSEHOLD FINANCE CORPORATION,
as Master Servicer
By: /s/ ▇. ▇. ▇▇▇▇, ▇▇.
---------------------------------------------
Name: ▇. ▇. ▇▇▇▇, ▇▇.
Title: Vice President and Treasurer
S-2
HFC REVOLVING CORPORATION,
as Depositor
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice President and Assistant Treasurer
S-3
BANK ONE, NATIONAL ASSOCIATION,
as Indenture Trustee
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: VICE PRESIDENT
S-4
THE STATE OF NY )
)
COUNTY OF QUEENS )
BEFORE ME, on 8/25/03, the undersigned authority, a Notary
Public, on this day personally appeared ▇▇▇▇ ▇▇▇▇▇▇, known to me to be a
person and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said The Bank of New York
not in its individual capacity but in its capacity as Owner Trustee of
HOUSEHOLD HOME EQUITY LOAN TRUST 2003-1, as the Trust, and that he executed
the same as the act of such corporation for the purpose and consideration
therein expressed, and in the capacity therein stated.
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
--------------------------------
Notary Public, State of New York
[SEAL OMITTED]
S-5
THE STATE OF ILLINOIS)
)
COUNTY OF LAKE )
BEFORE ME, on August 27, 2003, the undersigned authority, a
Notary Public, on this day personally appeared ▇. ▇. ▇▇▇▇, ▇▇., known to me
to be a person and officer whose name is subscribed to the foregoing
instrument and acknowledged to me that the same was the act of the said
Household Finance Corporation, as the Master Servicer, and that he executed
the same as the act of such corporation for the purpose and consideration
therein expressed, and in the capacity therein stated.
/s/ ▇▇▇▇▇ ▇▇▇▇▇
----------------------------------
Notary Public, State of Illinois
[SEAL OMITTED]
S-6
THE STATE OF ILLINOIS)
)
COUNTY OF LAKE )
BEFORE ME, on August 27, 2003, the undersigned authority, a Notary
Public, on this day personally appeared ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, known to me to be a
person and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said HFC Revolving
Corporation, as the Depositor, and that he executed the same as the act of
such corporation for the purpose and consideration therein expressed, and in
the capacity therein stated.
/s/ ▇▇▇▇▇ ▇▇▇▇▇
----------------------------------
Notary Public, State of Illinois
[SEAL OMITTED]
S-7
THE STATE OF ILLINOIS)
)
COUNTY OF ▇▇▇▇ )
BEFORE ME, on August 28, 2003, the undersigned authority, a Notary
Public, on this day personally appeared ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, known to me to be
the person and officer whose name is subscribed to the foregoing instrument
and acknowledged to me that the same was the act of the said Bank One,
National Association, as Indenture Trustee, and that he executed the same as
the act of such corporation for the purposes and consideration therein
expressed, and in the capacity therein stated.
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------------
Notary Public, State of Illinois
[SEAL OMITTED]
S-8
SCHEDULE 1
----------
PERFECTION REPRESENTATIONS, WARRANTIES AND COVENANTS
The Depositor hereby represents, warrants, and covenants to the Indenture
Trustee as to itself and the Sellers as follows on the Closing Date and on
each Payment Date thereafter:
General
-------
1. This Agreement creates a valid and continuing security interest (as
defined in the applicable UCC) in the Home Equity Loans in favor of the
Indenture Trustee, and the Indenture creates a valid and continuing security
interest (as defined in the applicable UCC), each of which security interest
is prior to all other Liens, and is enforceable as such as against creditors
of and purchasers from the Depositor.
2. The Home Equity Loans constitute "general intangibles" or "instruments"
within the meaning of the applicable UCC.
3. The Collection Account and all subaccounts thereof constitute
either a deposit account or a securities account.
4. To the extent that payments and collections received or made with respect
to the Home Equity Loans constitute securities entitlements, such payments and
collections have been and will have been credited to the Collection Account.
The securities intermediary for the Collection Account has agreed to treat all
assets credited to the Collection Account as "financial assets" within the
meaning of the applicable UCC.
Creation
--------
5. The Depositor owns and has good and marketable title to the Home Equity
Loans free and clear of any Lien, claim or encumbrance of any Person,
excepting only liens for taxes, assessments or similar governmental charges or
levies incurred in the ordinary course of business that are not yet due and
payable or as to which any applicable grace period shall not have expired, or
that are being contested in good faith by proper proceedings and for which
adequate reserves have been established, but only so long as foreclosure with
respect to such a lien is not imminent and the use and value of the property
to which the Lien attaches is not impaired during the pendency of such
proceeding.
6. The Depositor has received all consents and approvals to the sale of the
Home Equity Loans hereunder to the Trust required by the terms of the Home
Equity Loans that constitute instruments.
7. To the extent the Collection Account or subaccounts thereof constitute
securities entitlements, certificated securities or uncertificated securities,
the Depositor has received all consents and approvals required to transfer to
the Indenture Trustee its interest and rights in the Collection Account
hereunder.
2-1
Perfection
----------
8. The Depositor has caused or will have caused, within ten days after
the effective date of this Agreement, the filing of all appropriate financing
statements in the proper filing office in the appropriate jurisdictions under
applicable law in order to perfect the sale of the Home Equity Loans from the
Depositor to the Trust, the security interest in the Home Equity Loans granted
to the Trust hereunder, the pledge of the Home Equity Loans from the Trust to
the Indenture Trustee, and the security interest in the Home Equity Loans
granted to the Indenture Trustee under the Indenture.
9. With respect to the Collection Account and all subaccounts that constitute
deposit accounts, either:
(i) the Depositor has delivered to the Indenture Trustee a
fully-executed agreement pursuant to which the bank maintaining the
deposit accounts has agreed to comply with all instructions
originated by the Indenture Trustee directing disposition of the
funds in the Collection Account without further consent by the
Depositor; or
(ii) the Depositor has taken all steps necessary to cause the
Indenture Trustee to become the account holder of the Collection
Account.
10. With respect to the Collection Account or subaccounts thereof that
constitute securities accounts or securities entitlements, either:
(i) the Depositor has caused or will have caused, within ten days
after the effective date of this Agreement, the filing of all
appropriate financing statements in the proper filing office in the
appropriate jurisdictions under applicable law in order to perfect
the security interest in the Collection Account granted by the
Depositor to the Trust and by the Trust to the Indenture Trustee; or
(ii) the Depositor has delivered to the Indenture Trustee a
fully-executed agreement pursuant to which the securities
intermediary has agreed to comply with all instructions originated by
the Indenture Trustee relating to the Collection Account without
further consent by the Depositor; or
(iii) the Depositor has taken all steps necessary to cause the
securities intermediary to identify in its records the Indenture
Trustee as the person having a security entitlement against the
securities intermediary in the Collection Account.
Priority
--------
11. Other than the transfer of the Term Transferred Assets to the Trust
under the Term Transfer Agreement, the transfer of the Home Equity Loans to
the Depositor under the Home Equity Loan Purchase Agreements, the transfer of
the Conduit Home Equity Loans to the Conduit Trustee pursuant to the Conduit
Pooling and Servicing Agreement and the Conduit Transfer Agreement, the
transfer of the Conduit Home Equity Loans to the Depositor and the Trust
pursuant to the Reassignment, and the transfer of the Home Equity Loans to the
Trust pursuant to this Agreement, neither the Depositor nor the Sellers have
pledged, assigned, sold,
2-2
granted a security interest in, or otherwise conveyed any of the Home Equity
Loans. Neither the Depositor nor the Sellers have authorized the filing of, or
are aware of any financing statements against the Depositor or any of the
Sellers that include a description of collateral covering the Home Equity
Loans other than any financing statement relating to the security interest
granted to the Indenture Trustee hereunder or that has been terminated.
12. The Depositor is not aware of any judgment, ERISA or tax lien filings
against either the Depositor or any of the Sellers.
13. The Sellers have in their possession all original copies of the Mortgage
Notes that constitute or evidence the Home Equity Loans. To the Depositor's
knowledge, none of the instruments that constitute or evidence the Home Equity
Loans has any marks or notations indicating that they have been pledged,
assigned or otherwise conveyed to any Person other than the Trust. All
financing statements filed or to be filed against the Depositor, and the
Sellers in favor of the Indenture Trustee in connection herewith describing
the Home Equity Loans contain a statement to the following effect: "A purchase
of or security interest in any collateral described in this financing
statement will violate the rights of the Indenture Trustee."
14. Neither the Collection Account nor any subaccount thereof is in the
name of any person other than the Depositor or the Indenture Trustee as
trustee under the Indenture or in the name of its nominee. The Depositor has
not consented for the securities intermediary of the Collection Account to
comply with entitlement orders of any person other than the Indenture Trustee.
15. Survival of Perfection Representations. Notwithstanding any other
provision of this Agreement or any other transaction document, the Perfection
Representations contained in this Schedule shall be continuing, and remain in
full force and effect (notwithstanding any replacement of the Master Servicer
or termination of the Master Servicer's rights to act as such) until such time
as all obligations under this Agreement have been finally and fully paid and
performed.
16. No Waiver. The parties to this Agreement (i) shall not, without
obtaining a confirmation of the then-current rating of the Notes, waive any of
the Perfection Representations, and (ii) shall provide the Rating Agencies
with prompt written notice of any breach of the Perfection Representations,
and shall not, without obtaining a confirmation of the then-current rating of
the Notes (as determined after any adjustment or withdrawal of the ratings
following notice of such breach) waive a breach of any of the Perfection
Representations.
17. Master Servicer to Maintain Perfection and Priority. The Master
Servicer covenants that, in order to evidence the interests of the Depositor,
the Trust and the Indenture Trustee under this Agreement, the Master Servicer
shall take such action, or execute and deliver such instruments (other than
effecting a Filing (as defined below), unless such Filing is effected in
accordance with this paragraph) as may be necessary or advisable (including,
without limitation, such actions as are requested by the Indenture Trustee) to
maintain and perfect, as a first priority interest, the Indenture Trustee's
security interest in the Home Equity Loans. The Master Servicer shall, from
time to time and within the time limits established by law, prepare and
present to the Indenture Trustee for the Indenture Trustee to authorize (based
in reliance on the Opinion of Counsel hereinafter provided for) the Master
Servicer to file, all financing statements,
2-3
amendments, continuations, initial financing statements in lieu of a
continuation statement, terminations, partial terminations, releases or
partial releases, or any other filings necessary or advisable to continue,
maintain and perfect the Indenture Trustee's security interest in the Home
Equity Loans as a first-priority interest (each a "Filing"). The Master
Servicer shall present each such Filing to the Indenture Trustee together with
(x) an Opinion of Counsel to the effect that such Filing is (i) consistent
with grant of the security interest to the Trust pursuant to Section 2.01 of
this Agreement and the grant of the security interest to the Indenture Trustee
pursuant to the Indenture, (ii) satisfies all requirements and conditions to
such Filing in this Agreement and (iii) satisfies the requirements for a
Filing of such type under the Uniform Commercial Code in the applicable
jurisdiction (or if the Uniform Commercial Code does not apply, the applicable
statute governing the perfection of security interests), and (y) a form of
authorization for the Indenture Trustee's signature. Upon receipt of such
Opinion of Counsel and form of authorization, the Indenture Trustee shall
promptly authorize in writing the Master Servicer to, and the Master Servicer
shall, effect such Filing under the Uniform Commercial Code without the
signature of the Depositor or the Trust or the Indenture Trustee where allowed
by applicable law. Notwithstanding anything else in the transaction documents
to the contrary, the Master Servicer shall not have any authority to effect a
Filing without obtaining written authorization from the Indenture Trustee.
2-4
SCHEDULE 2
----------
SELLERS
Beneficial California Inc.
Beneficial Consumer Discount Company
Beneficial Delaware Inc.
Beneficial Florida Inc.
Beneficial Hawaii Inc.
Beneficial Homeowner Service Corporation
Beneficial Illinois Inc.
Beneficial Indiana Inc.
Beneficial Iowa Inc.
Beneficial Kentucky Inc.
Beneficial Maine Inc.
Beneficial Massachusetts Inc.
Beneficial Michigan Inc.
Beneficial Montana Inc.
Beneficial Mortgage Co. of Kansas, Inc.
Beneficial Mortgage Co. of Louisiana
Beneficial Mortgage Co. of Maryland
Beneficial Mortgage Co. of Missouri, Inc.
Beneficial Mortgage Co. of Nevada
Beneficial Mortgage Co. of New Hampshire
Beneficial Mortgage Co. of North Carolina
Beneficial Mortgage Co. of Rhode Island
Beneficial Mortgage Co. of South Carolina
Beneficial Mortgage Co. of Utah
Beneficial Mortgage Co. of Virginia
Beneficial Mortgage Co. of Arizona
Beneficial Mortgage Co. of Colorado
Beneficial Mortgage Co. of Connecticut
Beneficial Mortgage Co. of Georgia
Beneficial Mortgage Co. of Idaho
Beneficial Nebraska Inc.
Beneficial New Jersey Inc.
Beneficial New Mexico Inc.
Beneficial Ohio Inc.
Beneficial Oklahoma Inc.
Beneficial Oregon Inc.
Beneficial South Dakota Inc.
Beneficial Tennessee Inc.
Beneficial Texas Inc.
Beneficial West Virginia, Inc.
Beneficial Wisconsin Inc.
Beneficial Wyoming Inc.
Household Finance Consumer Discount Company
2-1
Household Finance Corporation II
Household Finance Corporation III
Household Finance Corporation of Alabama
Household Finance Corporation of California
Household Finance Industrial Loan Company of Iowa
Household Finance Realty Corporation of Nevada
Household Finance Realty Corporation of New York
Household Financial Center Inc.
Household Realty Corporation
Mortgage One Corporation
2-2
EXHIBIT A
---------
HOME EQUITY LOAN SCHEDULE
▇-▇
▇▇▇▇▇▇▇ ▇-▇
-----------
CONDUIT HOME EQUITY LOANS
[On File with the Indenture Trustee]
A-2
EXHIBIT A-2
-----------
TERM HOME EQUITY LOANS
[On File with the Indenture Trustee]
A-3
EXHIBIT B
---------
Form of Class A and Class M Notes
[Attached as Exhibit A to the Indenture]
B-1