================================================================================
SALE AND SERVICING AGREEMENT
Dated as of December 1, 1997
among
EMPIRE FUNDING HOME LOAN OWNER TRUST 1997-5
(Issuer)
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION IV
(Depositor)
EMPIRE FUNDING CORP.
(Transferor and Servicer)
and
U.S. BANK NATIONAL ASSOCIATION, d/b/a FIRST BANK NATIONAL ASSOCIATION
(Indenture Trustee and Grantor Trustee)
EMPIRE FUNDING HOME LOAN OWNER TRUST 1997-5
HOME LOAN ASSET BACKED NOTES
SERIES 1997-5
================================================================================
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
Section 1.01 Definitions......................................................1
Section 1.02 Other Definitional Provisions...................................30
ARTICLE II
CONVEYANCE OF THE GRANTOR TRUST CERTIFICATE
Section 2.01 Conveyance of the Grantor Trust Certificate.....................31
Section 2.02 Ownership and Possession of Grantor Trust Certificate...........32
Section 2.03 Books and Records; Principal Place of Business..................32
Section 2.04 Delivery of Grantor Trust Certificate; Further
Assurances...................................................32
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01 Representations and Warranties of the Depositor.................33
Section 3.02 Representations and Warranties of the Transferor................35
Section 3.03 Representations, Warranties and Covenants of the
Servicer.....................................................38
Section 3.04 Representations and Warranties Regarding Individual
Home Loans...................................................40
Section 3.05 Purchase and Substitution.......................................48
ARTICLE IV
ADMINISTRATION AND SERVICING OF THE HOME LOANS
Section 4.01 Duties of the Servicer..........................................50
Section 4.02 Payment of Taxes, Insurance and Other Charges...................52
Section 4.03 Fidelity Bond; Errors and Omissions Insurance...................53
Section 4.04 Filing of Continuation Statements...............................53
Section 4.05 Superior Liens..................................................54
Section 4.06 Subservicing....................................................54
Section 4.07 Successor Servicers.............................................57
Section 4.08 Maintenance of Insurance........................................57
Section 4.09 Reports to the Securities and Exchange Commission;
144A Information.............................................58
Section 4.10 Foreclosure; Foreclosure Alternatives...........................58
Section 4.11 Title, Management and Disposition of Foreclosure
Property.....................................................59
ARTICLE V
ESTABLISHMENT OF TRUST ACCOUNTS
Section 5.01 Collection Account and Note Payment Account.....................62
Section 5.02 Certificate Distribution Account................................67
Section 5.03 Trust Accounts; Trust Account Property..........................68
Section 5.04 Allocation of Losses............................................71
Section 5.05 Pre-Funding Account.............................................71
Section 5.06 Capitalized Interest Account....................................72
ARTICLE VI
STATEMENTS AND REPORTS; WITHHOLDING
Section 6.01 Statements......................................................73
Section 6.02 Withholding.....................................................76
ARTICLE VII
GENERAL SERVICING PROCEDURE
Section 7.01 Due-On-Sale; Due-on-Encumbrance.................................76
Section 7.02 Release of Home Loan Files......................................77
Section 7.03 Servicing Compensation..........................................78
Section 7.04 Statement as to Compliance and Financial Statements.............78
Section 7.05 Independent Public Accountants' Servicing Report................79
Section 7.06 Right to Examine Servicer Records...............................80
Section 7.07 Reports to the Indenture Trustee; Collection Account
Statements...................................................80
Section 7.08 Financial Statements............................................81
ARTICLE VIII
(RESERVED)
ARTICLE IX
THE SERVICER
Section 9.01 Indemnification; Third Party Claims.............................81
Section 9.02 Merger or Consolidation of the Servicer.........................83
Section 9.03 Limitation on Liability of the Servicer and Others..............83
Section 9.04 Servicer Not to Resign; Assignment..............................84
Section 9.05 Relationship of Servicer to the Grantor Trust and
the Grantor Trustee..........................................84
Section 9.06 Servicer May Own Securities.....................................85
ARTICLE X
DEFAULT
Section 10.01 Events of Default..............................................85
Section 10.02 Grantor Trustee to Act; Appointment of Successor...............87
Section 10.03 Waiver of Defaults.............................................89
Section 10.04 Accounting Upon Termination of Servicer........................89
ARTICLE XI
TERMINATION
Section 11.01 Termination....................................................90
Section 11.02 Optional Termination...........................................90
Section 11.03 Notice of Termination..........................................91
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.01 Acts of Noteholders............................................91
Section 12.02 Amendment......................................................91
Section 12.03 Recordation of Agreement.......................................92
Section 12.04 Duration of Agreement..........................................92
Section 12.05 Governing Law..................................................92
Section 12.06 Notices........................................................93
Section 12.07 Severability of Provisions.....................................93
Section 12.08 No Partnership.................................................93
Section 12.09 Counterparts...................................................94
Section 12.10 Successors and Assigns.........................................94
Section 12.11 Headings.......................................................94
Section 12.12 Actions of Securityholders.....................................94
Section 12.13 Reports to Rating Agencies.....................................95
Section 12.14 Holders of the Residual Interest Certificates..................95
EXHIBIT A - Home Loan Schedule
EXHIBIT B - Form of Servicer's Monthly Remittance Report to Trustee
This Sale and Servicing Agreement is entered into effective as of December
1, 1997, among EMPIRE FUNDING HOME LOAN OWNER TRUST 1997-5, a Delaware business
trust (the "Issuer" or the "Owner Trust"), PAINEWEBBER MORTGAGE ACCEPTANCE
CORPORATION IV, a Delaware corporation, as Depositor (the "Depositor"), EMPIRE
FUNDING CORP., an Oklahoma corporation ("Empire Funding"), as Transferor (in
such capacity, the "Transferor") and Servicer (in such capacity, the
"Servicer"), and U.S. BANK NATIONAL ASSOCIATION, d/b/a FIRST BANK NATIONAL
ASSOCIATION, a national banking association, as Indenture Trustee on behalf of
the Noteholders (in such capacity, the "Indenture Trustee") and as Grantor
Trustee on behalf of the holder of the Grantor Trust Certificate (in such
capacity, the "Grantor Trustee").
W I T N E S S E T H:
In consideration of the mutual agreements herein contained, the Issuer, the
Depositor, the Transferor, the Servicer, the Grantor Trustee and the Indenture
Trustee hereby agree as follows for the benefit of each of them and for the
benefit of the holders of the Notes issued under the Indenture, the Residual
Interest Certificates issued under the Owner Trust Agreement and the Grantor
Trust Certificate issued under the Grantor Trust Agreement:
ARTICLE I
DEFINITIONS
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. Unless otherwise specified, all calculations of interest described
herein shall be made on the basis of a 360-day year consisting of twelve 30-day
months, except that with respect to the Class A-1 Notes, calculations of accrued
interest shall be made on the basis of a 360-day year and the actual number of
days elapsed in each Accrual Period.
Accepted Servicing Procedures: Servicing procedures that meet at least the
same standards the Servicer would follow in servicing mortgage loans such as the
Home Loans held for its own account, giving due consideration to standards of
practice of prudent mortgage lenders and loan servicers that originate and
service mortgage loans comparable to the Home Loans and the reliance placed by
the Securityholders on the Servicer for the servicing of the Home Loans but
without regard to:
(i) any relationship that the Servicer, any Subservicer or any Affiliate of
the Servicer or any Subservicer may have with the related Obligor;
(ii) the ownership of any Notes or the Residual Interest Certificates by
the Servicer or any Affiliate of the Servicer;
(iii) the Servicer's obligation to make Servicing Advances; or
(iv) the Servicer's or any Subservicer's right to receive compensation for
its services hereunder with respect to any particular transaction.
Account Agreement: The Account Agreement, dated as of December 1, 1997,
among the Issuer, the Indenture Trustee and the Intermediary.
Accrual Period: With respect to the Class A-1 Notes, the period beginning
on the Payment Date in the calendar month preceding the month in which the
related Payment Date occurs (or, in the case of the first Payment Date, December
22, 1997) and ending on the day preceding the related Payment Date. With respect
to the other Classes of Notes, the calendar month preceding the month in which
the related Payment Date occurs.
Addition Notice: For any date during the Pre-Funding Period, a notice
(which may be verbal or written) given to the Rating Agencies, the Indenture
Trustee and the Grantor Trustee pursuant to Section 2.07 of the Grantor Trust
Agreement.
Affiliate: With respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, the term "control", when used with respect
to any specified Person, means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have corresponding meanings.
Agreement: This Sale and Servicing Agreement and all amendments hereof and
supplements hereto.
Allocable Loss Amount: With respect to each Payment Date, the excess, if
any, of (a) the aggregate of the Class Principal Balances of all Classes of
Notes (after giving effect to all payments on such Payment Date) over (b) the
sum of the Pool Principal Balance and the Pre-Funding Amount, each as of the end
of the preceding Due Period.
Allocable Loss Amount Priority: With respect to any Payment Date,
sequentially, to the Class B-2 Notes, the Class B-1 Notes, the Class M-2 Notes
and the Class M-1 Notes, in that order.
Assignment of Mortgage: With respect to each Home Loan secured by a
Mortgage, an assignment, notice of transfer or equivalent instrument sufficient
under the laws of the jurisdiction wherein the related Mortgaged Property is
located to reflect or record the sale of the related Home Loan which assignment,
notice of transfer or equivalent instrument may be in the form of one or more
blanket assignments covering Mortgages secured by Mortgaged Properties located
in the same county, if permitted by law.
Available Collection Amount: With respect to any Payment Date, an amount
without duplication equal to the sum of: (i) all amounts received on the Home
Loans or required to be paid by the Servicer or the Transferor during the
related Due Period (exclusive of amounts not required to be deposited by the
Servicer in the Collection Account pursuant to Section 5.01(b)(1) hereof and
amounts permitted to be withdrawn by the Indenture Trustee from the Collection
Account pursuant to Section 5.01(b)(3) hereof) as reduced by any portion thereof
that may not be withdrawn therefrom pursuant to an order of a United States
bankruptcy court of competent jurisdiction imposing a stay pursuant to section
362 of the United States Bankruptcy Code; (ii) any and all income or gain from
investments in the Collection Account, Note Payment Account and Certificate
Distribution Account; (iii) upon exercise of optional termination of the Notes
pursuant to Section 11.02 hereof, the Termination Price; (iv) the Purchase Price
paid for any Home Loans required to be purchased pursuant to Section 3.05 hereof
prior to the related Determination Date and the Substitution Adjustment to be
deposited in the Collection Account in connection with any substitution, in each
case prior to the related Determination Date; and (v) the Capitalized Interest
Requirement, if any, with respect to such Payment Date.
Available Payment Amount: With respect to any Payment Date, the Available
Collection Amount minus the amount required to be paid from the Note Payment
Account pursuant to Section 5.01(c)(i), plus on the Payment Date relating to the
Due Period in which the termination of the Pre-Funding Period shall have
occurred, the amount on deposit in the Pre-Funding Account at such time net of
any Pre-Funding Earnings.
Business Day: Any day other than (i) a Saturday or Sunday, or (ii) a day on
which banking institutions in The City of New York or in the city in which the
corporate trust office of the Indenture Trustee or Grantor Trustee is located or
the city in which the Servicer's servicing operations are located and are
authorized or obligated by law or executive order to be closed.
Capitalized Interest Account: The account designated as such, established
and maintained pursuant to Section 5.06 hereof.
Capitalized Interest Initial Deposit: $1,041,919.06
Capitalized Interest Requirement: With respect to the thirty day period
commencing on the Closing Date (a) the Pre-Funding Amount on the Closing Date
and (b) one-twelfth and (c) the weighted average of the applicable Note Interest
Rates for the Notes weighted on the basis of their relative Class Principal
Balances as of such Payment Date (or in the case of the Class A-4 IO Notes, the
Notional Amount thereof) (assuming that the Class A-1 Notes bear interest at
6.165% per annum) less 2.5%, minus (ii) in the case of any Subsequent Loan
transferred to the Grantor Trustee during the related Due Period, the amount of
any interest collected after the Cut-Off Date applicable to such Subsequent Loan
and during such related Due Period.
With respect to the thirty day period commencing 31 days following the
Closing Date (a) the Pre-Funding Amount on the Closing Date and (b) one-twelfth
and (c) the weighted average of the applicable Note Interest Rates for the Notes
weighted on the basis of their relative Class Principal Balances as of such
Payment Date (or in the case of the Class A-4 IO Notes, the Notional Amount
thereof) (assuming that the Class A-1 Notes bear interest at 8.00% per annum)
less 2.5%, minus (ii) in the case of any Subsequent Loan transferred to the
Grantor Trustee during the related Due Period, the amount of any interest
collected after the Cut-Off Date applicable to such Subsequent Loan and during
such related Due Period.
With respect to the thirty day period commencing 61 days following the
Closing Date, (i) the product of (a) the Pre-Funding Amount on the Closing Date
and (b) one-twelfth and (c) the weighted average of the applicable Note Interest
Rates for the Notes weighted on the basis of their relative Class Principal
Balances as of such Payment Date (or in the case of the Class A-4 IO Notes, the
Notional Amount thereof) (assuming that the Class A-1 Notes bear interest at
8.00% per annum) less 2.5%, minus (ii) in the case of any Subsequent Loan
transferred to the Grantor Trustee during the related Due Period, the amount of
any interest collected after the Cut-Off Date applicable to such Subsequent Loan
and during such related Due Period.
The Capitalized Interest Requirement with respect to the Payment Date in
January 1998 will be that portion of the amount described above attributable to
the period commencing on the Closing Date and ending on December 31, 1997,
assuming that such month is comprised of 30 days.
The Capitalized Interest Requirement with respect to the Payment Date in
February 1998 will be that portion of the amount described above attributable to
the period commencing on January 1, 1998 and ending on January 30, 1997,
assuming that such month is comprised of 30 days.
The Capitalized Interest Requirement with respect to the Payment Date in
March 1998 will be that portion of the amount described above attributable to
the period commencing on February 1, 1998 and ending on February 28, 1997,
assuming that such month is comprised of 30 days.
The Capitalized Interest Requirement with respect to the Payment Date in
April 1998 will be that portion of the amount described above attributable to
the period commencing on March 1, 1998 and ending on March 22, 1997, assuming
that such month is comprised of 30 days.
Capitalized Interest Subsequent Deposit: As defined in Section
2.07(b)(vii)(B)(IV) of the Grantor Trust Agreement.
Certificate Distribution Account: The account designated as such,
established and maintained pursuant to Section 5.02 hereof.
Certificate Register: The register established pursuant to Section 3.4 of
the Owner Trust Agreement.
Certificateholder: A holder of a Residual Interest Certificate.
Class: With respect to the Notes, all Notes bearing the same class
designation.
Class A Notes: Collectively the Class A-1, Class A-2, Class A-3 and Class
A-4 Notes.
Class A-1 Note, Class A-2 Note, Class A-3 Note, Class A-4 Note, Class A-4
IO Note, Class M-1 Note, Class M-2 Note, Class B-1 Note and Class B-2 Note: The
respective meanings assigned thereto in the Indenture.
Class B-1 Optimal Principal Balance: With respect to any Payment Date prior
to the Stepdown Date, zero; and with respect to any other Payment Date, the Pool
Principal Balance as of the related Determination Date minus the sum of (i) the
aggregate Class Principal Balance of the Class A Notes and the Mezzanine Notes
(after taking into account any payments made on such Payment Date in reduction
of the Class Principal Balances of the Classes of Class A Notes and Mezzanine
Notes) and (ii) the greater of (x) the sum of (1) 6.0% of the Pool Principal
Balance as of the related Determination Date and (2) the Overcollateralization
Target Amount for such Payment Date (calculated without giving effect to the
proviso in the definition thereof) and (y) 0.50% of the Maximum Collateral
Amount; provided, however, that such amount shall never be less than zero or
greater than the Original Class Principal Balance of the Class B-1 Notes.
Class B-2 Optimal Principal Balance: With respect to any Payment Date prior
to the Stepdown Date, zero; and with respect to any other Payment Date, the Pool
Principal Balance as of the related Determination Date minus the sum of (i) the
aggregate Class Principal Balance of the Class A Notes, the Mezzanine Notes and
the Class B-1 Notes (after taking into account any payments made on such Payment
Date in reduction of the Class Principal Balances of the Classes of Class A
Notes, Mezzanine Notes and Class B-1 Notes) and (ii) the Overcollateralization
Target Amount for such Payment Date; provided, however, that such amount shall
never be less than zero or greater than the Original Class Principal Balance of
the Class B-2 Notes.
Class Factor: With respect to each Class and any date of determination, the
then applicable Class Principal Balance or Notional Amount of such Class divided
by the Original Class Principal Balance or Notional Amount thereof.
Class M-1 Optimal Principal Balance: With respect to any Payment Date prior
to the Stepdown Date, zero; and with respect to any other Payment Date, the Pool
Principal Balance as of the related Determination Date minus the sum of (i) the
aggregate Class Principal Balance of the Class A Notes (after taking into
account payments made on such Payment Date in reduction of the Class Principal
Balances of the Classes of Class A Notes) and (ii) the greater of (x) the sum of
(1) 33.5% of the Pool Principal Balance as of the related Determination Date and
(2) the Overcollateralization Target Amount for such Payment Date (calculated
without giving effect to the proviso in the definition thereof) and (y) 0.50% of
the Maximum Collateral Amount; provided, however, that such amount shall never
be less than zero or greater than the Original Class Principal Balance of the
Class M-1 Notes.
Class M-2 Optimal Principal Balance: With respect to any Payment Date prior
to the Stepdown Date, zero; with respect to any other Payment Date, the Pool
Principal Balance as of the related Determination Date minus the sum of (i) the
aggregate Class Principal Balance of the Class A Notes (after taking into
account any payments made on such Payment Date in reduction of the Class
Principal Balances of the Classes of Class A Notes) plus the Class Principal
Balance of the Class M-1 Notes (after taking into account any payments made on
such Payment Date in reduction of the Class Principal Balance of the Class M-1
Notes) and (ii) the greater of (x) the sum of (1) 19.0% of the Pool Principal
Balance as of the related Determination Date and (2) the Overcollateralization
Target Amount for such Payment Date (without giving effect to the proviso in the
definition thereof) and (y) 0.50% of the Maximum Collateral Amount; provided,
however, that such amount shall never be less than zero or greater than the
Original Class Principal Balance of the Class M-2 Notes.
Class Principal Balance: With respect to each Class of Notes other than the
Class A-4 IO Notes, and as of any date of determination, the Original Class
Principal Balance of such Class reduced by the sum of (i) all amounts previously
distributed in respect of principal of such Class on all previous Payment Dates
and (ii) with respect to the Class M-1, Class M-2, Class B-1 and Class B-2
Notes, all Allocable Loss Amounts applied in reduction of principal of such
Classes on all previous Payment Dates.
Clean-up Call Date: The first Payment Date on which the Pool Principal
Balance declines to 10% or less of the Maximum Collateral Amount.
Closing Date: December 22, 1997.
Code: The Internal Revenue Code of 1986, as amended from time to time, and
Treasury Regulations promulgated thereunder.
Collection Account: The account designated as such, established and
maintained by the Servicer, for the benefit of the Grantor Trust Holder, in
accordance with Section 5.01 hereof.
Combination Loan: A loan, the proceeds of which were used by the Obligor in
combination to finance property improvements and for debt consolidation or other
purposes.
Combined Loan-to-Value Ratio: With respect to any Home Loan that is a
Mortgage Loan, the fraction, expressed as a percentage, the numerator of which
is the principal balance of such Mortgage Loan at origination plus, in the case
of a junior lien Mortgage Loan, the aggregate outstanding principal balance of
each related Superior Lien on the date of origination of such Mortgage Loan, and
the denominator of which is the stated value of the related Mortgaged Property
at the time of origination of such Mortgage Loan.
Credit Score: The credit evaluation scoring methodology developed by Fair,
▇▇▇▇▇ and Company.
Custodial Agreement: The custodial agreement dated as of December 1, 1997
by and among the Depositor, Empire Funding, as the Transferor and the Servicer,
and U.S. Bank National Association, d/b/a First Bank National Association, a
national banking association, as the Custodian and the Grantor Trustee,
providing for the retention of the Grantor Trustee's Home Loan Files by the
Custodian on behalf of the Grantor Trustee.
Custodian: Any custodian appointed by the Grantor Trustee pursuant to the
Custodial Agreement, which custodian shall not be affiliated with the Servicer,
the Transferor, any Subservicer or the Depositor. U.S. Bank National
Association, d/b/a First Bank National Association, shall be the initial
Custodian pursuant to the terms of the Custodial Agreement.
Custodian Fee: If applicable, the annual fee payable to the Custodian,
calculated and payable monthly on each Payment Date pursuant to Section
5.01(c)(i) hereof equal to the fee, if any, set forth in the Custodial
Agreement.
Custodian's Final Certification: As defined in Section 2.06(c) of the
Grantor Trust Agreement.
Custodian's Initial Certification: As defined in Section 2.06(a) of the
Grantor Trust Agreement.
Custodian's Updated Certification: As defined in Section 2.06(c) of the
Grantor Trust Agreement.
Cut-Off Date: With respect to the Initial Loans, the close of business on
November 30, 1997 (or with respect to any Initial Loan originated or acquired by
the Transferor after November 30, 1997, the date of origination or acquisition
of such Initial Loan) and, with respect to any Subsequent Loan, the date
designated as such in the related Subsequent Transfer Agreement.
DCR: Duff & ▇▇▇▇▇▇ Credit Rating Co.
Debt Consolidation Loan: A loan, the proceeds of which were primarily used
by the related Obligor for debt consolidation purposes or purposes other than to
finance property improvements.
Debt Instrument: The note or other evidence of indebtedness evidencing the
indebtedness of an Obligor under a Home Loan.
Defaulted Home Loan: With respect to any date of determination, any Home
Loan, including, without limitation, any Liquidated Home Loan with respect to
which any of the following has occurred as of the end of the preceding Due
Period: (a) foreclosure or similar proceedings have been commenced; (b) any
portion of a Monthly Payment becomes 180 days past due by the related Obligor;
or (c) the Servicer or any Subservicer has determined in good faith and in
accordance with customary servicing practices that such Home Loan is in default
or imminent default.
Defective Home Loan: As defined in Section 3.05 hereof.
Deleted Home Loan: A Home Loan replaced or to be replaced by one or more
than one Qualified Substitute Home Loan.
Delinquent: A Home Loan is "Delinquent" if any Monthly Payment due thereon
is not made by the close of business on the day such Monthly Payment is
scheduled to be paid. A Home Loan is "30 days Delinquent" if such Monthly
Payment has not been received by the close of business on the corresponding day
of the month immediately succeeding the month in which such Monthly Payment was
due or, if there is no such corresponding day (e.g., as when a 30-day month
follows a 31-day month in which a payment was due on the 31st day of such
month), then on the last day of such immediately succeeding month. The
determination of whether a Home Loan is "60 days Delinquent," "90 days
Delinquent", etc. shall be made in like manner.
Delivery: When used with respect to Trust Account Property means:
(a) with respect to bankers' acceptances, commercial paper, negotiable
certificates of deposit and other obligations that constitute "instruments"
within the meaning of Section 9-105(1)(i) of the UCC and are susceptible of
physical delivery, transfer thereof to the Indenture Trustee or its nominee
or custodian by physical delivery to the Indenture Trustee or its nominee
or custodian endorsed to, or registered in the name of, the Indenture
Trustee or its nominee or custodian or endorsed in blank, and, with respect
to a certificated security (as defined in Section 8-102 of the UCC),
transfer thereof (i) by delivery of such certificated security endorsed to,
or registered in the name of, the Indenture Trustee or its nominee or
custodian or endorsed in blank to a financial intermediary (as defined in
Section 8-313 of the UCC) and the making by such financial intermediary of
entries on its books and records identifying such certificated securities
as belonging to the Indenture Trustee or its nominee or custodian and the
sending by such financial intermediary of a confirmation of the purchase of
such certificated security by the Indenture Trustee or its nominee or
custodian, or (ii) by delivery thereof to a "clearing corporation" (as
defined in Section 8-102(3) of the UCC) and the making by such clearing
corporation of appropriate entries on its books reducing the appropriate
securities account of the transferor and increasing the appropriate
securities account of a financial intermediary by the amount of such
certificated security, the identification by the clearing corporation of
the certificated securities for the sole and exclusive account of the
financial intermediary, the maintenance of such certificated securities by
such clearing corporation or a "custodian bank" (as defined in Section
8-102(4) of the UCC) or the nominee of either subject to the clearing
corporation's exclusive control, the sending of a confirmation by the
financial intermediary of the purchase by the Indenture Trustee or its
nominee or custodian of such securities and the making by such financial
intermediary of entries on its books and records identifying such
certificated securities as belonging to the Indenture Trustee or its
nominee or custodian (all of the foregoing, "Physical Property") and, in
any event, any such Physical Property in registered form shall be in the
name of the Indenture Trustee or its nominee or custodian; and such
additional or alternative procedures as may hereafter become appropriate to
effect the complete transfer of ownership of any such Trust Account
Property (as defined herein) to the Indenture Trustee or its nominee or
custodian, consistent with changes in applicable law or regulations or the
interpretation thereof;
(b) with respect to any security issued by the U.S. Treasury, FNMA
or FHLMC that is a book-entry security held through the Federal Reserve
System pursuant to federal book-entry regulations, the following
procedures, all in accordance with applicable law, including applicable
federal regulations and Articles 8 and 9 of the UCC: the making by a
Federal Reserve Bank of an appropriate entry crediting such Trust Account
property to an account of a financial intermediary that is also a
"participant" pursuant to applicable federal regulations; the making by
such financial intermediary of entries in its books and records crediting
such book-entry security held through the Federal Reserve System pursuant
to federal book-entry regulations to the securities account of the
Indenture Trustee or its nominee or custodian and indicating that such
custodian holds such Trust Account Property solely as agent for the
Indenture Trustee or its nominee or custodian and the sending by such
financial intermediary of confirmation of the purchase by the Indenture
Trustee or its nominee or custodian of such book-entry security; and such
additional or alternative procedures as may hereafter become appropriate to
effect complete transfer of ownership of any such Trust Account Property to
the Indenture Trustee or its nominee or custodian, consistent with changes
in applicable law or regulations or the interpretation thereof including,
without limitation, Article 8 of the UCC; and
(c) with respect to any item of Trust Account Property that is an
uncertificated security under Article 8 of the UCC and that is not governed
by clause (b) above, registration on the books and records of the issuer
thereof in the name of the financial intermediary, the sending of a
confirmation by the financial intermediary of the purchase by the Indenture
Trustee or its nominee or custodian of such uncertificated security, and
the making by such financial intermediary of entries on its books and
records identifying such uncertificated certificates as belonging to the
Indenture Trustee or its nominee or custodian.
Denomination: With respect to a Note, the portion of the Original Class
Principal Balance represented by such Note as specified on the face thereof.
Depositor: PaineWebber Mortgage Acceptance Corporation IV, a Delaware
corporation, and any successor thereto.
Determination Date: With respect to any Payment Date, the 14th calendar day
of the month in which such Payment Date occurs or if such day is not a Business
Day, the immediately preceding Business Day.
Due Date: The day of the month on which the Monthly Payment is due from the
Obligor on a Home Loan.
Due Period: With respect to any Determination Date or Payment Date, the
calendar month immediately preceding such Determination Date or Payment Date, as
the case may be.
Eligible Account: At any time, an account which is any of the following:
(i) an account maintained with a depository institution (A) the long-term debt
obligations of which are at such time rated by each Rating Agency in one of
their two highest long-term rating categories or (B) the short-term debt
obligations of which are then rated by each Rating Agency in their highest
short-term rating category; (ii) an account the deposits in which are fully
insured by either the Bank Insurance Fund or the Savings Association Insurance
Fund of the FDIC; (iii) a trust account (which shall be a "segregated trust
account") maintained with the corporate trust department of a federal or state
chartered depository institution or trust company with trust powers and acting
in its fiduciary capacity for the benefit of the Indenture Trustee and the
Issuer, which depository institution or trust company shall have capital and
surplus of not less than $50,000,000; or (iv) an account that will not cause any
Rating Agency to downgrade or withdraw its then-current rating(s) assigned to
the Notes, as evidenced in writing by such Rating Agency. (Each reference in
this definition of "Eligible Account" to the Rating Agency shall be construed as
a reference to Standard & Poor's, Fitch and DCR).
Eligible Servicer: A Person that (i) has demonstrated the ability
professionally and competently to service a portfolio of mortgage loans similar
to the Home Loans and (ii) has a net worth calculated in accordance with GAAP of
at least $500,000.
Empire Funding: Empire Funding Corp., an Oklahoma corporation.
Event of Default: As described in Section 10.01 hereof.
Excess Spread: With respect to any Payment Date, the excess of (a) the
Available Payment Amount over (b) the Regular Payment Amount.
FDIC: The Federal Deposit Insurance Corporation and any successor thereto.
FHLMC: The Federal Home Loan Mortgage Corporation and any successor
thereto.
Fidelity Bond: As described in Section 4.03 hereof.
Fitch: Fitch IBCA, Inc. or any successor thereto.
FNMA: The Federal National Mortgage Association and any successor thereto.
Foreclosed Loan: As of any date of determination, any Mortgage Loan that
has been discharged as a result of (i) the completion of foreclosure or
comparable proceedings; (ii) the Grantor Trustee's acceptance of the deed or
other evidence of title to the related Property in lieu of foreclosure or other
comparable proceeding; or (iii) the acquisition by the Grantor Trustee of title
to the related Property by operation of law.
Foreclosure Property: Any real property securing a Foreclosed Loan that has
been acquired by the Servicer through foreclosure, deed in lieu of foreclosure
or similar proceedings in respect of the related Mortgage Loan.
GAAP: Generally accepted accounting principles as in effect in the United
States.
Grantor Trust: Empire Funding Grantor Trust 1997-5, formed pursuant to the
Grantor Trust Agreement.
Grantor Trust Agreement: The Grantor Trust Agreement dated as of December
1, 1997, among PaineWebber Mortgage Acceptance Corporation IV, as Depositor,
Empire Funding and the Grantor Trustee.
Grantor Trust Certificate: The trust certificate issued by the Grantor
Trust evidencing an undivided beneficial ownership interest of 100% of the
Grantor Trust.
Grantor Trust Holder: Any holder of the Grantor Trust Certificate.
Grantor Trustee: U.S. Bank National Association, d/b/a First Bank National
Association, a national banking association, as Grantor Trustee under the
Grantor Trust Agreement, or any successor Grantor Trustee hereunder.
Grantor Trustee Fee: As to any Payment Date, $0.0
Grantor Trustee's Home Loan File: As defined in Section 2.05(a) of the
Grantor Trust Agreement.
Home Loan: Any Debt Consolidation Loan or Combination Loan that is included
in the Home Loan Pool. As applicable, a Home Loan shall be deemed to refer to
the related Debt Instrument, the Mortgage, if any, and any related Foreclosure
Property. The term "Home Loan" includes each Subsequent Loan.
Home Loan File: As to each Home Loan, the Grantor Trustee's Home Loan File
and the Servicer's Home Loan File.
Home Loan Interest Rate: The fixed annual rate of interest borne by a Debt
Instrument, as shown on the related Home Loan Schedule as the same may be
modified by the Servicer in accordance with Section 4.01(c) or 4.10 hereof.
Home Loan Pool: The pool of Home Loans conveyed to the Grantor Trustee
pursuant to the Grantor Trust Agreement on the Closing Date and pursuant to the
Subsequent Transfer Agreements on the Subsequent Transfer Dates, together with
the rights and obligations of a holder thereof, and the payments thereon and
proceeds therefrom received after the applicable Cut-Off Date, as identified on
the Home Loan Schedule annexed hereto as Exhibit A.
Home Loan Purchase Agreement: The Home Loan Purchase Agreement between the
Transferor and the Depositor, dated as of December 1, 1997.
Home Loan Schedule: The schedule of Home Loans set forth on Exhibit A
attached hereto, as amended or supplemented from time to time specifying, with
respect to each Home Loan, the following information: (i) the Transferor's Home
Loan number; (ii) the Obligor's name and the street address; (iii) the current
principal balance; (iv) the original principal amount with respect to any Home
Loan originated by the Transferor and the principal amount purchased by the
Transferor with respect to a Home Loan acquired by the Transferor subsequent to
its origination; (v) the Combined Loan-to-Value Ratio as of the date of the
origination of the related Home Loan; (vi) the paid through date; (vii) the Home
Loan Interest Rate; (viii) the final maturity date under the Debt Instrument;
(ix) the Monthly Payment; (x) the occupancy status of the Mortgaged Property, if
any; (xi) the lien priority of the Mortgage, if any; (xii) the original term of
the Debt Instrument; (xiii) the Credit Score, if applicable; and (xiv) the debt
to income ratio of the related Obligor.
Indenture: The Indenture, dated as of December 1, 1997, between the Issuer
and the Indenture Trustee.
Indenture Trustee: U.S. Bank National Association, d/b/a First Bank
National Association, a national banking association, as Indenture Trustee under
the Indenture and this Agreement acting on behalf of the Noteholders, or any
successor indenture trustee under the Indenture or this Agreement.
Indenture Trustee Fee: As to any Payment Date, the greater of (a)
one-twelfth of 0.008% times the Pool Principal Balance as of the opening of
business on the first day of the calendar month preceding the calendar month of
such Payment Date (or, with respect to the first Payment Date, the Original Pool
Principal Balance) and (b) one-twelfth of $10,000.
Independent: When used with respect to any specified Person, such Person
(i) is in fact independent of the Transferor, the Servicer, the Depositor or any
of their respective Affiliates, (ii) does not have any direct financial interest
in, or any material indirect financial interest in, any of the Transferor, the
Servicer, the Depositor or any of their respective Affiliates and (iii) is not
connected with any of the Transferor, the Servicer, the Depositor or any of
their respective Affiliates, as an officer, employee, promoter, underwriter,
trustee, partner, director or Person performing similar functions; provided,
however, that a Person shall not fail to be Independent of the Transferor, the
Servicer, the Depositor or any of their respective Affiliates merely because
such Person is the beneficial owner of 1% or less of any class of securities
issued by the Transferor, the Servicer, the Depositor or any of their respective
Affiliates, as the case may be.
Independent Accountants: A firm of nationally recognized certified public
accountants which is Independent.
Initial Loan: Each Home Loan conveyed to the Grantor Trustee pursuant to
the Grantor Trust Agreement on the Closing Date.
Insurance Policies: With respect to any Property, any related insurance
policy.
Insurance Proceeds: With respect to any Property, all amounts collected in
respect of Insurance Policies and not required to be applied to the restoration
of the related Property or paid to the related Obligor.
Intermediary: The Bank of Nova Scotia Trust Company (Cayman) Limited.
LIBOR: With respect to each Accrual Period (other than the initial Accrual
Period) and each Class of LIBOR Notes, the rate for United States dollar
deposits for one month that appears on the Telerate Screen Page 3750 as of 11:00
a.m., London time, on the related LIBOR Determination Date. 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 reasonably selected by the
Indenture Trustee), LIBOR for the applicable Accrual Period will be the
Reference Bank Rate. If no such quotations can be obtained by the Indenture
Trustee and no Reference Bank Rate is available, LIBOR will be LIBOR applicable
to the preceding Accrual Period. LIBOR for the initial Accrual Period will be
5.965%.
LIBOR Business Day: Any day on which banks are open for dealing in foreign
currency and exchange in London and New York City.
LIBOR Determination Date: With respect to each Accrual Period, the second
LIBOR Business Day before the first day of such Accrual Period, as determined by
the Indenture Trustee.
LIBOR Notes: The Class A-1 Notes.
Liquidated Home Loan: With respect to any date of determination, any
Foreclosure Property or any Home Loan in respect of which a Monthly Payment is
in excess of 30 days past due and as to which the Servicer has determined that
all amounts which it reasonably and in good faith expects to collect have been
recovered from or on account of such Home Loan or the related Foreclosure
Property; provided, however, that in any event such Home Loan or the related
Foreclosure Property shall be deemed uncollectible and therefore be a Liquidated
Home Loan upon the earliest to occur of: (a) the liquidation of the related
Foreclosure Property, (b) the determination by the Servicer in accordance with
customary servicing practices that no further amounts are collectible from the
Home Loan and any related Mortgaged Property, or (c) the date on which any
portion of a Monthly Payment on any Home Loan is in excess of 180 days past due.
Liquidation Proceeds: With respect to a Liquidated Home Loan, any cash
amounts received in connection with the liquidation of such Liquidated Home
Loan, whether through trustee's sale, foreclosure sale or other disposition, any
cash amounts received in connection with the management of the Mortgaged
Properties from Defaulted Home Loans and any other amounts required to be
deposited in the Collection Account pursuant to Section 5.01(b) hereof, in each
case other than Insurance Proceeds and Released Mortgaged Property Proceeds.
Loss Reimbursement Deficiency: With respect to any Payment Date and the
Class M-1 Notes, Class M-2 Notes, Class B-1 Notes or the Class B-2 Notes, the
amount of Allocable Loss Amounts applied to the reduction of the Class Principal
Balance of such Class and not reimbursed pursuant to Section 5.01 hereof as of
such Payment Date plus interest accrued on the unreimbursed portion thereof at
the applicable Note Interest Rate through the end of the Due Period immediately
preceding such Payment Date; provided, however, that no interest shall accrue on
any amount of such accrued and unpaid interest.
Majority Noteholders: Until such time as the sum of the Class Principal
Balances of all Classes of Notes has been reduced to zero, the holder or holders
of in excess of 50% of the Class Principal Balance of all Classes of Notes.
Majority Residual Interestholders: The holder or holders of in excess of
50% of the Residual Interest.
Mandatory Redemption Date: The Payment Date immediately following the end
of the Pre-Funding Period.
Maturity Date: With respect to each Class of Notes, the applicable maturity
date set forth below:
Class Maturity Date
----- -------------
▇-▇ ▇▇▇▇▇▇ ▇▇, ▇▇▇▇
▇-▇ May 25, 2014
A-3 April 25, 2016
▇-▇ ▇▇▇▇▇ ▇▇, ▇▇▇▇
▇-▇ IO February 25, 2000
M-1 April 25, 2024
M-2 April 25, 2024
▇-▇ ▇▇▇▇▇ ▇▇, ▇▇▇▇
▇-▇ April 25, 2024
Maximum Collateral Amount: The sum of the Original Pool Principal Balance
and the Original Pre-Funding Amount.
Mezzanine Noteholders' Interest Carry-Forward Amount: With respect to any
Payment Date, the excess, if any, of (A) the Mezzanine Noteholders' Monthly
Interest Payment Amount for the preceding Payment Date plus any outstanding
Mezzanine Noteholders' Interest Carry-Forward Amount for preceding Payment
Dates, over (B) the amount in respect of interest that is actually deposited in
the Note Payment Account on such preceding Payment Date net of the Senior
Noteholders' Interest Payment Amount for such preceding Payment Date; it being
understood that the interest of the Class M-1 Noteholders in the Mezzanine
Noteholders' Interest Carry-Forward Amount is senior to that of the Class M-2
Noteholders.
Mezzanine Noteholders' Interest Payment Amount: With respect to any Payment
Date, the sum of the Mezzanine Noteholders' Monthly Interest Payment Amount for
such Payment Date and the Mezzanine Noteholders' Interest Carry-Forward Amount
for such Payment Date.
Mezzanine Noteholders' Monthly Interest Payment Amount: With respect to
each Payment Date and the Classes of Mezzanine Notes, the interest accrued at
the respective Note Interest Rates on the respective Class Principal Balances of
such Classes immediately preceding such Payment Date (or, in the case of the
first Payment Date, on the Closing Date) after giving effect to all payments of
principal to the holders of such Classes of Notes on or prior to such preceding
Payment Date.
Mezzanine Notes: The Class M-1 Notes and Class M-2 Notes.
Monthly Cut-Off Date: The last day of any calendar month and, with respect
to any Payment Date, the last day of the calendar month immediately preceding
such Payment Date.
Monthly Payment: The scheduled monthly payment of principal and/or interest
required to be made by an Obligor on the related Home Loan, as set forth in the
related Debt Instrument.
Mortgage: The mortgage, deed of trust or other security instrument creating
a lien in accordance with applicable law on a Mortgaged Property to secure the
Debt Instrument which evidences a secured Home Loan.
Mortgage Loan: As of any date of determination, each of the Home Loans,
secured by an interest in a Property, transferred and assigned to the Grantor
Trustee pursuant to the Grantor Trust Agreement.
Mortgaged Property: The real property encumbered by the Mortgage which
secures the Debt Instrument evidencing a secured Home Loan.
Mortgaged Property States: Each state in which any Mortgaged Property
securing a Home Loan is located as set forth in the Home Loan Schedule.
Multiplier: The Multiplier will initially equal 1.5 and may from time to
time be permanently modified to a lesser amount (including zero) in the event
that the Issuer shall have delivered to the Indenture Trustee written
confirmation from each Rating Agency that the rating assigned by it to each
Class of Notes which it originally rated will not be downgraded or withdrawn as
a result of such reduction.
Net Delinquency Calculation Amount: With respect to any Payment Date, the
excess, if any, of (x) the product of the Multiplier and the Six-Month Rolling
Delinquency Average over (y) the aggregate of the amounts of Excess Spread for
the three preceding Payment Dates.
Net Liquidation Proceeds: With respect to any Payment Date, Liquidation
Proceeds received during the related Due Period, net of any reimbursements to
the Servicer made from such amounts for any unreimbursed Servicing Compensation
and Servicing Advances (including Nonrecoverable Servicing Advances) made and
any other fees and expenses paid in connection with the foreclosure,
conservation and liquidation of the related Liquidated Home Loans or Foreclosure
Properties pursuant to Section 4.11 hereof.
Net Loan Losses: With respect to any Defaulted Home Loan that is subject to
a modification pursuant to Section 4.01(c) hereof, an amount equal to the
portion of the Principal Balance, if any, released in connection with such
modification.
Net Loan Rate: With respect to each Home Loan, the related Home Loan
Interest Rate, less the rate at which the Servicing Fee is calculated.
Net Weighted Average Rate: With respect to any Accrual Period, a rate per
annum equal to the weighted average (by principal balance) of the Home Loan
Interest Rates as of the first day of the related Due Period less 0.758%.
Nonrecoverable Servicing Advance: With respect to any Foreclosure Property,
(a) any Servicing Advance previously made and not reimbursed from late
collections, Liquidation Proceeds, Insurance Proceeds or the Released Mortgaged
Property Proceeds or (b) a Servicing Advance proposed to be made in respect of a
Home Loan or Foreclosure Property either of which, in the good faith business
judgment of the Servicer, as evidenced by an Officer's Certificate delivered to
the Indenture Trustee, would not be ultimately recoverable.
Note: Any of the Senior Notes, the Mezzanine Notes or the Subordinate
Notes.
Note Interest Rate: With respect to each Class of Notes, the annual rate of
interest payable to the holders of such Class of Notes, as specified below:
Class Note Interest Rate
----- ------------------
Class A-1 (1)
Class A-2 6.59%
Class A-3 6.86%
Class A-4 7.29% through the last day of
the month immediately
preceding the Clean-up Call
Date; thereafter the Note
Interest Rate shall be
increased by 0.50% per annum
Class A-4 IO 6.00%
Class M-1 7.41% through the last day of
the month immediately
preceding the Clean-up Call
Date; thereafter the Note
Interest Rate shall be
increased by 0.50% per annum
Class M-2 7.65% through the last day of
the month immediately
preceding the Clean-up Call
Date; thereafter the Note
Interest Rate shall be
increased by 0.50% per annum
Class B-1 8.49% through the last day of
the month immediately
preceding the Clean-up Call
Date; thereafter the Note
Interest Rate shall be
increased by 0.50% per annum
Class B-2 9.28% through the last day of
the month immediately
preceding the Clean-up Call
Date; thereafter the Note
Interest Rate shall be
increased by 0.50% per annum
(1) Interest will accrue on the Class A-1 Notes during each Accrual Period
at a per annum interest rate equal to LIBOR for the related LIBOR
Determination Date plus 0.20%, subject to a maximum rate equal to the
Net Weighted Average Rate. The Note Interest Rate applicable to the
Class A-1 Notes for the initial Accrual Period will be approximately
6.165% per annum.
Note Payment Account: The Eligible Account established and maintained
pursuant to Section 5.01(a)(2) hereof.
Note Redemption Amount: As of any date of determination, an amount without
duplication equal to the sum of (i) the then outstanding Class Principal
Balances of the Classes of Notes plus all accrued and unpaid interest thereon,
or in the case of the Class A-4 IO Notes, all accrued and unpaid interest on
their applicable Outstanding Notional Amount (ii) any Trust Fees and Expenses
due and unpaid on such date and (iii) any Servicing Advance Reimbursement
Amount.
Noteholder: A holder of a Note.
Noteholders' Interest Payment Amount: The sum of the Senior Noteholders'
Interest Payment Amount, the Mezzanine Noteholders' Interest Payment Amount and
the Subordinate Noteholders' Interest Payment Amount.
Notional Amount: With respect to each Payment Date and the Class A-4 IO
Notes, through and including February 25, 2000, the Class Principal Balance of
the Class A-4 Notes on the immediately preceding Payment Date, or, in the case
of the first Payment Date, on the Closing Date; with respect to each Payment
Date after February 25, 2000, zero.
Obligor: Each obligor on a Debt Instrument.
Officer's Certificate: A certificate delivered to the Indenture Trustee or
the Issuer signed by the President or a Vice President or an Assistant Vice
President of the Depositor, the Servicer or the Transferor, in each case, as
required by this Agreement.
Opinion of Counsel: A written opinion of counsel (who is acceptable to the
Rating Agencies), who may be employed by the Transferor, the Servicer, the
Depositor or any of their respective Affiliates.
Original Class Principal Balance: With respect to the Classes of Notes, as
follows: Class A-1: $59,910,000; Class A-2: $61,590,000; Class A-3: $16,490,000;
Class A-4: $25,210,000; Class M-1: $36,600,000; Class M-2: $17,400,000; Class
B-1: $15,600,000; and Class B-2: $7,200,000. Class A-4 IO will not have an
Original Class Principal Balance.
Original Pool Principal Balance: $180,191,204, which is the Pool Principal
Balance as of the Cut-Off Date.
Original Pre-Funding Amount: $59,808,796.
Outstanding: As defined in the Indenture.
Overcollateralization Amount: With respect to any Payment Date, the amount
equal to the excess of (A) the sum of the Pool Principal Balance and the
Pre-Funding Amount, each as of the end of the preceding Due Period, over (B) the
aggregate of the Class Principal Balances of the Notes (after giving effect to
the payments made on such date pursuant to Section 5.01(d)) hereof.
Overcollateralization Deficiency Amount: With respect to any Payment Date,
the excess, if any, of the Overcollateralization Target Amount over the
Overcollateralization Amount (after giving effect to all prior payments on the
Classes of Notes and to any prior distribution on the Residual Interest
Certificates on such Payment Date pursuant to Section 5.01(d) hereof).
Overcollateralization Target Amount: (I) With respect to any Payment Date
occurring prior to the Stepdown Date, an amount equal to the greater of (x) 4.0%
of the Maximum Collateral Amount and (y) the Net Delinquency Calculation Amount;
and (II) with respect to any other Payment Date, an amount equal to the greater
of (x) 8.0% of the Pool Principal Balance as of the end of the related Due
Period and (y) the Net Delinquency Calculation Amount; provided, however, that
the Overcollateralization Target Amount shall in no event be less than 0.50% of
the Maximum Collateral Amount or greater than the sum of the aggregate Class
Principal Balances of all Classes of Notes.
Owner Trust: The Issuer.
Owner Trust Agreement: The Owner Trust Agreement dated as of December 1,
1997, among the Depositor, the Company and the Owner Trustee.
Owner Trust Estate: The assets subject to this Agreement, the Owner Trust
Agreement and the Indenture and assigned to the Issuer, which assets consist of:
(i) the contribution of $1 referred to in Section 2.5 of the Owner Trust
Agreement, (ii) the Grantor Trust Certificate, (iii) all payments on and
distributions in respect of the Grantor Trust Certificate, (iv) all right, title
and interest of the Depositor in and to the Collection Account and the
Pre-Funding Account (such accounts were collaterally assigned to the Depositor
by the Grantor Trustee in connection with the conveyance of the Grantor Trust
Certificate to the Depositor pursuant to the Grantor Trust Agreement), (v) such
assets and funds as are from time to time deposited in the Note Payment Account,
the Capitalized Interest Account and the Certificate Distribution Account,
including amounts on deposit in such accounts which are invested in Permitted
Investments, and (vi) all proceeds of every kind and nature whatsoever in
respect of any or all of the foregoing.
Owner Trustee: Wilmington Trust Company, as owner trustee under the Owner
Trust Agreement, and any successor owner trustee under the Owner Trust
Agreement.
Owner Trustee Fee: The annual fee of $4,000 in equal monthly installments
to the Servicer which shall in turn pay such $4,000 to the Owner Trustee on the
Payment Date occurring in December each year during the term of this Agreement
commencing in December 1998; provided, however, that the initial Owner Trustee
Fee shall be paid by the Transferor on the Closing Date.
Ownership Interest: As to any Note, any ownership or security interest in
such Note, including any interest in such Note as the holder thereof and any
other interest therein, whether direct or indirect, legal or beneficial, as
owner or as pledgee.
Payment Date: The 25th day of any month or if such 25th day is not a
Business Day, the first Business Day immediately following such day, commencing
in January 1998.
Payment Statement: As defined in Section 6.01 hereof.
Percentage Interest: As defined in the Owner Trust Agreement.
Permitted Investments: Each of the following:
(1) obligations of, or guaranteed as to principal and interest by, the
United States or any agency or instrumentality thereof when such
obligations are backed by the full faith and credit of the United States;
(2) a repurchase agreement that satisfies the following criteria: (A)
it must be between the Indenture Trustee and either (x) primary dealers on
the Federal Reserve reporting dealer list which are rated in one of the two
highest categories for long-term unsecured debt obligations by each Rating
Agency or (y) banks rated in the highest categories for long-term unsecured
debt obligations by each Rating Agency; and (B) it must be in writing and
include the following terms: (a) the securities acceptable for transfer are
either (i) direct U.S. government obligations or (ii) obligations of a
federal agency that are backed by the full faith and credit of the U.S.
government or by FNMA or FHLMC; (b) a term no greater than 60 days for any
repurchase transaction; (c) the collateral must be delivered to the
Indenture Trustee or a third party custodian acting as agent for the
Indenture Trustee by appropriate book entries and confirmation statements,
and must have been delivered before or simultaneously with payment (i.e.,
perfection by possession of certificated securities); and (d) the
securities sold thereunder must be valued weekly, marked-to-market at
current market price plus accrued interest and the value of the collateral
must be equal to at least 104% of the amount of cash transferred by the
Indenture Trustee under the repurchase agreement and, if the value of the
securities held as collateral declines to an amount below 104% of the cash
transferred by the Indenture Trustee plus accrued interest (i.e., a margin
call), then additional cash and/or acceptable securities must be
transferred to the Indenture Trustee to satisfy such margin call; provided,
however, that if the securities used as collateral are obligations of FNMA
or FHLMC, then the value of the securities held as collateral must equal at
least 105% of the cash transferred by the Indenture Trustee under such
repurchase agreement;
(3) certificates of deposit, time deposits and bankers acceptances of
any United States depository institution or trust company incorporated
under the laws of the United States or any state, including the Indenture
Trustee; provided, however, that the debt obligations of such depository
institution or trust company at the date of the acquisition thereof have
been rated by each Rating Agency in the highest long-term rating
categories;
(4) deposits, including deposits with the Indenture Trustee, which are
fully insured by the Bank Insurance Fund or the Savings Association
Insurance Fund of the FDIC, as the case may be;
(5) commercial paper of any corporation incorporated under the laws of
the United States or any state thereof, including corporate Affiliates of
the Indenture Trustee, which at the date of acquisition is rated by each
Rating Agency in its highest short-term rating category and which has an
original maturity of not more than 365 days;
(6) debt obligations rated by each Rating Agency at the time at which
the investment is made in its highest long-term rating category (or those
investments specified in (3) above with depository institutions which have
debt obligations rated by each Rating Agency in the highest long-term
rating categories);
(7) money market funds which are rated by each Rating Agency at the
time at which the investment is made in its highest long-term rating
category, any such money market funds which provide for demand withdrawals
being conclusively deemed to satisfy any maturity requirements for
Permitted Investments set forth in this Agreement; or
(8) any other demand, money market or time deposit obligation,
security or investment as may be acceptable to each Rating Agency at the
time at which the investment is made;
provided, however, that no instrument described in the foregoing subparagraphs
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 where the interest
and principal payments with respect to such instrument 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 in
the foregoing subparagraphs 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 stated maturity.
Each reference in this definition of "Permitted Investments" to the Rating
Agency shall be construed, in the case of each subparagraph above referring to
each Rating Agency, as a reference to each of Standard & Poor's, Fitch and DCR.
Person: Any individual, corporation, partnership, joint venture, limited
liability company, association, joint-stock company, trust, estate, national
banking association, unincorporated organization or government or any agency or
political subdivision thereof.
Physical Property: As defined in the definition of "Delivery" above.
Pool Principal Balance: With respect to any date of determination, the
aggregate Principal Balances of the Home Loans as of the end of the preceding
Due Period; provided, however, that the Pool Principal Balance on any Payment
Date on which the Termination Price is to be paid to Noteholders will be deemed
to have been equal to zero as of such date.
Pre-Funding Account: The account created and maintained by the Indenture
Trustee, for the benefit of the Grantor Trust Holder, pursuant to Section 5.05
hereof.
Pre-Funding Amount: With respect to any date, the amount on deposit in the
Pre-Funding Account (net of any Pre-Funding Earnings).
Pre-Funding Earnings: With respect to the Payment Date in February 1998,
the actual investment earnings earned on amounts on deposit in the Pre-Funding
Account during the period from December 22, 1997 through and including January
31, 1998. With respect to the Payment Date in March 1998, the actual investment
earnings earned on amounts on deposit in the Pre-Funding Account from February
1, 1998 through and including February 28, 1997. With respect to the Payment
Date in April 1998, the actual investment earnings earned on amounts on deposit
in the Pre-Funding Account from March 1, 1998 through and including March 31,
1998.
Pre-Funding Payment Trigger: With respect to the Payment Date following the
Due Period in which the termination of the Pre-Funding Period occurs, a
Pre-Funding Payment Trigger will be deemed to have occurred if, at such time,
the Pre-Funding Amount is greater than or equal to $50,000.
Pre-Funding Period: The period commencing on the Closing Date and ending on
the earliest to occur of (i) the date on which the amount on deposit in the
Pre-Funding Account (exclusive of any Pre-Funding Earnings) is less than
$50,000, (ii) the date on which any Event of Default relating to the Servicer
occurs and (iii) March 22, 1998.
Principal Balance: With respect to any Home Loan or related Foreclosure
Property, (i) at the Cut-Off Date, the outstanding unpaid principal balance of
the Home Loan as of the Cut-Off Date and (ii) with respect to any date of
determination, the outstanding unpaid principal balance of the Home Loan as of
the last day of the preceding Due Period (after giving effect to all payments
received thereon and the allocation of any Net Loan Losses with respect thereto
for a Defaulted Home Loan which relates to such Due Period), without giving
effect to amounts received in respect of such Home Loan or related Foreclosure
Property after such Due Period; provided, however, that any Liquidated Home Loan
shall have a Principal Balance of zero.
Principal Prepayment: With respect to any Home Loan and any Due Period, any
principal amount received on a Home Loan in excess of the principal of the
Monthly Payment due in such Due Period.
Private Placement Memorandum: The Private Placement Memorandum to be
prepared by the Depositor in connection with the Class B-2 Notes.
Property: The property (real, personal or mixed) encumbered by the Mortgage
which secures the Debt Instrument evidencing a secured Home Loan.
Prospectus: The Depositor's final Prospectus dated November 18, 1997 as
supplemented by the Prospectus Supplement dated December 16, 1997.
Prospectus Supplement: The Prospectus Supplement dated December 16, 1997 to
be prepared by the Depositor in connection with the issuance and sale of the
Class ▇-▇, ▇▇▇▇▇ ▇-▇, Class A-3, Class A-4, Class A-4 IO, Class M-1, Class M-2
and Class B-1 Notes.
Purchase Price: With respect to a Defective Home Loan, the Principal
Balance thereof as of the date of purchase, plus all accrued and unpaid interest
on such Defective Home Loan to and including the date of repurchase computed at
the applicable Home Loan Interest Rate, plus the amount of any unreimbursed
Servicing Advances made by the Servicer with respect to such Defective Home Loan
(after deducting therefrom any amounts received in respect of such repurchased
Defective Home Loan and being held in the Collection Account for future
distribution to the extent such amounts represent recoveries of principal not
yet applied to reduce the related Principal Balance or interest (net of the
Servicing Fee) for the period from and after the date of repurchase).
Qualified Substitute Home Loan: A home loan or home loans substituted for a
Deleted Home Loan pursuant to Section 2.06 of the Grantor Trust Agreement or
Section 3.05 hereof, which (i) has or have an interest rate or rates of not less
than, and not more than two percentage points greater than, the Home Loan
Interest Rate for the Deleted Home Loan, (ii) matures or mature not more than
one year than, and not more than one year earlier, than the maturity date of
Deleted Home Loan, (iii) has or have a principal balance or principal balances
(after application of all payments received on or prior to the date of
substitution) equal to or less than the Principal Balance or Balances of the
Deleted Home Loan or Loans as of such date, (iv) has or have a lien priority
equal or superior to that of the Deleted Home Loan or Loans, (v) has or have a
borrower or borrowers with a comparable credit grade classification to the
credit grade classification of the Obligor on the Deleted Home Loan or Loans,
including a Credit Score equal to or greater than such Deleted Home Loan, (vi)
has or have a borrower or borrowers with a debt-to-income ratio no higher than
the debt-to-income ratio of the Obligor with respect to the Deleted Loan, and
(vii) complies or comply as of the date of substitution with each representation
and warranty set forth in Section 3.04 hereof and is or are not more than 29
days delinquent as of the date of substitution for such Deleted Home Loan or
Loans. For purposes of determining whether multiple mortgage loans proposed to
be substituted for one or more Deleted Home Loans pursuant to Section 2.06 of
the Grantor Trust Agreement or Section 3.05 hereof are in fact "Qualified
Substitute Home Loans" as provided above, the criteria specified in clauses (i)
and (iii) above may be considered on an aggregate or weighted average basis,
rather than on a loan-by-loan basis (i.e., so long as the weighted average Home
Loan Interest Rate of any loans proposed to be substituted is not less than two
percentage points less than and not more than two percentage points greater than
the Home Loan Interest Rate for the designated Deleted Home Loan or Loans, the
requirements of clause (i) above would be deemed satisfied).
Rating Agencies: Standard & Poor's, Fitch and DCR. If no such organization
or successor is any longer in existence, "Rating Agency" shall be a nationally
recognized statistical rating organization or other comparable person designated
by the Servicer, notice of which designation shall have been given to the
Indenture Trustee and the Issuer.
Ratings: The ratings initially assigned to the Notes by the Rating
Agencies, as evidenced by letters from the Rating Agencies.
Record Date: With respect to each Payment Date, the close of business on
the last Business Day of the month immediately preceding the month in which such
Payment Date occurs.
Reference Bank Rate: With respect to any Accrual Period, the arithmetic
mean (rounded upwards, if necessary, to the nearest one sixteenth of a percent)
of the offered rates for United States dollar deposits for one month that are
offered by the Reference Banks as of 11:00 a.m., New York City time, on the
second LIBOR Business Day prior to the first day of such Accrual Period to prime
banks in the London interbank market for a period of one month in amounts
approximately equal to the outstanding Class Principal Balance of the Class A-1
Notes, provided that at least two such Reference Banks provide such rate. If
fewer than two offered rates appear, the Reference Bank Rate will be arithmetic
mean of the rates quoted by one or more major banks in New York City, selected
by the Indenture Trustee, as of 11:00 a.m., New York City time, on such date for
loans in U.S. Dollars to leading European Banks for a period of one month in
amounts approximately equal to the outstanding Class Principal Balance of the
Class A-1 Notes. If no such quotation can be obtained, the Reference Bank Rate
will be the Reference Bank Rate applicable to the preceding Accrual Period.
Reference Banks: Three money center banks selected by the Indenture
Trustee.
Regular Payment Amount: With respect to any Payment Date, the lesser of (a)
the Available Payment Amount and (b) the sum of (i) the Noteholders' Interest
Payment Amount and (ii) the Regular Principal Payment Amount.
Regular Principal Payment Amount: On each Payment Date, an amount equal to
the lesser of:
(A) the aggregate of the Class Principal Balances of the Classes of
Notes immediately prior to such Payment Date; and
(B) the sum of (i) each scheduled payment of principal collected by
the Servicer in the related Due Period, (ii) all full and partial principal
prepayments applied by the Servicer during such related Due Period, (iii)
the principal portion of all Net Liquidation Proceeds, Insurance Proceeds
and Released Mortgaged Property Proceeds received during the related Due
Period, (iv) that portion of the Purchase Price of any repurchased Home
Loan which represents principal received prior to the related Determination
Date, (v) the principal portion of any Substitution Adjustments required to
be deposited in the Collection Account as of the related Determination
Date, (vi) if such Payment Date relates to the Due Period in which the
Pre-Funding Period shall have ended and at the termination of such
Pre-Funding Period a Pre-Funding Payment Trigger shall have occurred, the
amount on deposit in the Pre-Funding Account on such date, and (vii) on the
Payment Date on which the Issuer and the Grantor Trust are to be terminated
pursuant to Section 11.02 hereof, the Termination Price (net of any accrued
and unpaid interest, Trust Fees and Expenses due and unpaid on such date
and Servicing Advance Reimbursement Amount).
Released Mortgaged Property Proceeds: With respect to any secured Home
Loan, proceeds received by the Servicer in connection with (i) a taking of an
entire Mortgaged Property by exercise of the power of eminent domain or
condemnation or (ii) any release of part of the Mortgaged Property from the lien
of the related Mortgage, whether by partial condemnation, sale or otherwise;
which proceeds in either case are not released to the Obligor in accordance with
applicable law, Accepted Servicing Procedures and this Agreement.
Residual Interest: The meaning assigned thereto in the Owner Trust
Agreement.
Residual Interest Certificate: The meaning assigned thereto in the Owner
Trust Agreement.
Responsible Officer: When used with respect to the Indenture Trustee or
Grantor Trustee, any officer within the Corporate Trust Office of the Indenture
Trustee or Grantor Trustee, as the case may be, including any Vice President,
Assistant Vice President, Secretary, Assistant Secretary or any other officer of
the Indenture Trustee or Grantor Trustee, as the case may be, customarily
performing functions similar to those performed by any of the above designated
officers and also, with respect to a particular matter, any other officer to
whom such matter is referred because of such officer's knowledge of and
familiarity with the particular subject. When used with respect to the Issuer,
any officer in the Corporate Trust Administration Department of the Owner
Trustee with direct responsibility for the administration of the Owner Trust
Agreement and this Agreement on behalf of the Issuer. When used with respect to
the Depositor, the Transferor, the Servicer or the Custodian, the President or
any Vice President, Assistant Vice President, or any Secretary or Assistant
Secretary.
Securities: The Notes or Residual Interest Certificates.
Securityholder: Any Noteholder or Certificateholder.
Senior Noteholders' Interest Carry-Forward Amount: With respect to any
Payment Date, the excess, if any, of (A) the Senior Noteholders' Monthly
Interest Payment Amount for the preceding Payment Date plus any outstanding
Senior Noteholders' Interest Carry-Forward Amount for preceding Payment Dates,
over (B) the amount in respect of interest that is actually deposited in the
Note Payment Account on such preceding Payment Date.
Senior Noteholders' Interest Payment Amount: With respect to any Payment
Date, the sum of the Senior Noteholders' Monthly Interest Payment Amount for
such Payment Date and the Senior Noteholders' Interest Carry-Forward Amount for
such Payment Date.
Senior Noteholders' Monthly Interest Payment Amount: With respect to each
Payment Date and the Classes of Class A Notes, the interest accrued at the
respective Note Interest Rates on the respective Class Principal Balances of
such Classes immediately preceding such Payment Date (or, in the case of the
first Payment Date, on the Closing Date) after giving effect to all payments of
principal to the holders of such Classes of Notes on or prior to such preceding
Payment Date and, with respect to each Payment Date and each Class A-4 IO Note,
the interest accrued at the respective Note Interest Rate on the applicable
Notional Amount of such Class immediately preceding such Payment Date (or, in
the case of the first Payment Date, on the Closing Date) after giving effect to
all payments of principal to the holders of the other Classes of Notes on or
prior to such preceding Payment Date.
Senior Notes: The Class A Notes and the Class A-4 IO Notes.
Senior Optimal Principal Balance: With respect to any Payment Date prior to
the Stepdown Date, zero; with respect to any other Payment Date, an amount equal
to the Pool Principal Balance as of the related Determination Date minus the
greater of (a) the sum of (1) 64.0% of the Pool Principal Balance as of the
related Determination Date and (2) the Overcollateralization Target Amount for
such Payment Date (without giving effect to the proviso in the definition
thereof) and (b) 0.50% of the Maximum Collateral Amount; provided, however, that
such amount shall never be less than zero or greater than the sum of the
Original Class Principal Balances of the Notes.
Series or Series 1997-5: Empire Funding Home Loan Asset Backed Notes,
Series 1997-5.
Servicer: Empire Funding, in its capacity as the servicer hereunder, or any
successor appointed as herein provided.
Servicer Termination Event: The termination of the Servicer pursuant to
Section 10.01(b) hereof.
Servicer's Fiscal Year: January 1st through December 31st of each year.
Servicer's Home Loan Files: In respect of each Home Loan, all documents
customarily included in the servicer's loan file for the related type of Home
Loan as specifically set forth in Section 2.05(b) of the Grantor Trust
Agreement.
Servicer's Monthly Remittance Report: A report prepared and computed by the
Servicer in substantially the form of Exhibit B attached hereto.
Servicing Advance Reimbursement Amount: With respect to any date of
determination, the amount of any Servicing Advances that have not been
reimbursed as of such date, including Nonrecoverable Servicing Advances.
Servicing Advances: Subject to Section 4.01(b) hereof, all reasonable,
customary and necessary "out of pocket" costs and expenses advanced or paid by
the Servicer with respect to the Home Loans in accordance with the performance
by the Servicer of its servicing obligations hereunder, including, but not
limited to, the costs and expenses for (i) the preservation, restoration and
protection of a Mortgaged Property, including without limitation advances in
respect of real estate taxes and assessments, (ii) any collection, enforcement
or judicial proceedings, including without limitation foreclosures, collections
and liquidations pursuant to Section 4.10 hereof, (iii) the conservation,
management and sale or other disposition of a Foreclosure Property pursuant to
Section 4.11 hereof, (iv) the preservation of the security for a Home Loan if
any lienholder under a Superior Lien has accelerated or intends to accelerate
the obligations secured by such Superior Lien pursuant to Section 4.05 hereof;
provided, however, that such Servicing Advances are reimbursable to the Servicer
out of Net Liquidation Proceeds.
Servicing Compensation: The Servicing Fee and other amounts to which the
Servicer is entitled pursuant to Section 7.03 hereof.
Servicing Fee: As to each Home Loan (including any Home Loan that has been
foreclosed and has become a Foreclosure Property, but excluding any Liquidated
Home Loan), the fee payable monthly to the Servicer on each Payment Date, which
shall be the product of 0.75% (75 basis points) and the Principal Balance of
such Home Loan as of the beginning of the immediately preceding Due Period,
divided by 12. The Servicing Fee includes any servicing fees owed or payable to
any Subservicer, which fees shall be paid from the Servicing Fee.
Servicing Officer: Any officer of the Servicer or Subservicer involved in,
or responsible for, the administration and servicing of the Home Loans whose
name and specimen signature appears on a list of servicing officers annexed to
an Officer's Certificate furnished by the Servicer or the Subservicer,
respectively, to the Grantor Trustee and the Indenture Trustee, on behalf of the
Noteholders, as such list may from time to time be amended.
Six-Month Rolling Delinquency Average: With respect to any Payment Date,
the average of the applicable 60-Day Delinquency Amounts for each of the six
immediately preceding Due Periods, where the 60-Day Delinquency Amount for any
Due Period is the aggregate of the Principal Balances of all Home Loans that are
60 or more days delinquent, in foreclosure or Foreclosure Property as of the end
of such Due Period.
Standard & Poor's: Standard & Poor's, a division of The ▇▇▇▇▇▇-▇▇▇▇
Companies, or any successor thereto.
Stepdown Date: The first Payment Date occurring after December 2000, upon
which all of the following conditions exist:
(1) the Pool Principal Balance has been reduced to 50.0% of the
Maximum Collateral Amount;
(2) the Net Delinquency Calculation Amount is less than 4.0% of the
Maximum Collateral Amount; and
(3) the aggregate of the Class Principal Balances of the Class A Notes
will be able to be reduced on such Payment Date (such determination to be
made by the Indenture Trustee prior to giving effect to payment of
principal on such Payment Date) to the excess of:
(I) the Pool Principal Balance as of the related Determination Date
over
(II) the greater of
(a) the sum of
(1) 64.0% of the Pool Principal Balance as of the related
Determination Date and
(2) the Overcollateralization Target Amount for such
Payment Date (such amount to be calculated (x) without
giving effect to the proviso in the definition thereof
and (y) pursuant only to clause (II) of the definition
thereof); and
(b) 0.50% of the Maximum Collateral Amount.
Subordinate Noteholders' Interest Carry-Forward Amount: With respect to any
Payment Date, the excess, if any, of (A) the Subordinate Noteholders' Monthly
Interest Payment Amount for the preceding Payment Date plus any outstanding
Subordinate Noteholders' Interest Carry-Forward Amount for preceding Payment
Dates, over (B) the amount in respect of interest that is actually deposited in
the Note Payment Account on such preceding Payment Date net of the Senior
Noteholders' Interest Payment Amount and the Mezzanine Noteholders' Interest
Payment Amount for such preceding Payment Date; it being understood that the
interest of the Class B-1 Noteholders in the Subordinate Noteholders' Interest
Carry-Forward Amount is senior to that of the Class B-2 Noteholders.
Subordinate Noteholders' Interest Payment Amount: With respect to any
Payment Date, the sum of the Subordinate Noteholders' Monthly Interest Payment
Amount for such Payment Date and the Subordinate Noteholders' Interest
Carry-Forward Amount for such Payment Date.
Subordinate Noteholders' Monthly Interest Payment Amount: With respect to
each Payment Date and the Classes of Subordinate Notes, the interest accrued at
the respective Note Interest Rates on the respective Class Principal Balances of
such Classes immediately preceding such Payment Date (or, in the case of the
first Payment Date, on the Closing Date) after giving effect to all payments of
principal to the holders of such Classes of Notes on or prior to such preceding
Payment Date.
Subordinate Notes: The Class B-1 Notes and Class B-2 Notes.
Subsequent Cut-Off Date Deposit: With respect to any Subsequent Transfer
Date and any Subsequent Loan transferred to the Grantor Trustee during any
month, which Subsequent Loan does not have a Monthly Payment due until the
second Due Period following such month, an amount equal to the product of (a)
the Loan Balance of such Subsequent Loan on the related Cut-Off Date and (b)
one-twelfth of the Net Loan Rate on such Subsequent Loan.
Subsequent Loan: Each Home Loan sold to the Grantor Trustee for inclusion
pursuant to Section 2.07 of the Grantor Trust Agreement and the related
Subsequent Transfer Agreement, which Home Loan shall be listed on the related
Subsequent Loan Schedule.
Subsequent Loan Schedule: The schedule of Subsequent Loans transferred to
the Grantor Trustee pursuant to the related Subsequent Transfer Agreement and
attached thereto.
Subsequent Transfer Agreement: Each Subsequent Transfer Agreement executed
by the Grantor Trustee, Indenture Trustee and the Transferor substantially in
the form of Exhibit C attached to the Grantor Trust Agreement by which
Subsequent Loans are sold and assigned to the Grantor Trustee.
Subsequent Transfer Date: The date specified in each Subsequent Transfer
Agreement; provided, however, that in no event shall there be more than three
(3) such Subsequent Transfer Agreements.
Subservicer: Any Person with which the Servicer has entered into a
Subservicing Agreement and which is an Eligible Servicer and satisfies any
requirements set forth in Section 4.06(a) hereof in respect of the
qualifications of a Subservicer.
Subservicing Account: An account established by a Subservicer pursuant to a
Subservicing Agreement, which account must be an Eligible Account.
Subservicing Agreement: Any agreement between the Servicer and any
Subservicer relating to subservicing and/or administration of any or all Home
Loans as provided in Section 4.06(a) hereof, copies of which shall be made
available, along with any modifications thereto, to the Issuer, the Grantor
Trustee and the Indenture Trustee.
Substitution Adjustment: As to any date on which a substitution occurs
pursuant to Sections 2.06 of the Grantor Trust Agreement or Section 3.05 hereof,
the amount, if any, by which (a) the sum of the aggregate principal balance
(after application of principal payments received on or before the date of
substitution) of any Qualified Substitute Home Loans as of the date of
substitution, plus any accrued and unpaid interest thereon to the date of
substitution, is less than (b) the sum of the aggregate of the Principal
Balances, together with accrued and unpaid interest thereon to the date of
substitution, of the related Deleted Home Loans.
Superior Lien: With respect to any Home Loan which is secured by a lien
other than a first priority lien, the mortgage loan(s) having a superior
priority lien on the related Mortgaged Property.
Termination Price: As of any date of determination, an amount without
duplication equal to the greater of (A) the Note Redemption Amount and (B) the
sum of (i) the Principal Balance of each Home Loan included in the Grantor Trust
as of the applicable Monthly Cut-Off Date; (ii) all unpaid interest accrued on
the Principal Balance of each such Home Loan at the related Net Loan Rate to
such Monthly Cut-Off Date; and (iii) the aggregate fair market value of each
Foreclosure Property included in the Grantor Trust on such Monthly Cut-Off Date,
as determined by an Independent appraiser acceptable to the Indenture Trustee as
of a date not more than 30 days prior to such Monthly Cut-Off Date.
Transferor: Empire Funding, in its capacity as the transferor hereunder.
Treasury Regulations: Regulations, including proposed or temporary
regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
Trust: The Issuer.
Trust Account Property: The Trust Accounts, all amounts and investments
held from time to time in the Trust Accounts and all proceeds of the foregoing.
Trust Accounts: The Note Payment Account, the Certificate Distribution
Account, the Collection Account, the Pre-Funding Account and the Capitalized
Interest Account.
Trust Fees and Expenses: As of each Payment Date, an amount equal to the
Servicing Compensation, the Indenture Trustee Fee, the Grantor Trustee Fee, the
Owner Trustee Fee and the Custodian Fee, if any.
UCC: The Uniform Commercial Code as in effect in the State of New York.
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 Owner Trust Agreement.
(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
GAAP. 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 GAAP, 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 otherwise
specified; and the term "including" 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 and neuter 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.
ARTICLE II
CONVEYANCE OF THE GRANTOR TRUST CERTIFICATE
Section 2.01 Conveyance of the Grantor Trust Certificate.
(a) As of the Closing Date, in consideration of the Issuer's delivery of
the Notes and the Residual Interest Certificates to the Depositor or its
designee, upon the order of the Depositor, the Depositor, as of the Closing Date
and concurrently with the execution and delivery hereof, does hereby sell,
transfer, assign, set over and otherwise convey to the Issuer, without recourse,
but subject to the other terms and provisions of this Agreement, all of the
right, title and interest of the Depositor in and to the Owner Trust Estate. The
foregoing sale, transfer, assignment, set over and conveyance does not, and is
not intended to, result in a creation or an assumption by the Issuer of any
obligation of the Depositor, the Transferor or any other person in connection
with the Owner Trust Estate or under any agreement or instrument relating
thereto except as specifically set forth herein.
(b) As of the Closing Date, the Issuer acknowledges the conveyance to it of
the Owner Trust Estate, including all right, title and interest of the Depositor
in and to the Owner Trust Estate, receipt of which is hereby acknowledged by the
Issuer. Concurrently with such delivery and in exchange therefor, the Issuer has
pledged the Owner Trust Estate to the Indenture Trustee, and the Indenture
Trustee, pursuant to the written instructions of the Issuer, has executed and
caused the Notes to be authenticated and delivered to the Depositor or its
designee, upon the order of the Issuer. In addition, concurrently with such
delivery and in exchange therefor, the Owner Trustee, pursuant to the
instructions of the Depositor, has executed (not in its individual capacity, but
solely as Owner Trustee on behalf of the Issuer) and caused the Residual
Interest Certificates to be authenticated and delivered to the Depositor or its
designee, upon the order of the Depositor.
Section 2.02 Ownership and Possession of Grantor Trust Certificate.
Upon the issuance of the Notes, the ownership of the Grantor Trust
Certificate shall be vested in the Indenture Trustee for the benefit of the
Securityholders.
Section 2.03 Books and Records; Principal Place of Business.
The sale of the Grantor Trust Certificate shall be reflected on the balance
sheets and other financial statements of the Depositor, as a sale of assets by
the Depositor under GAAP. Until January 1, 1998, the Indenture Trustee shall
maintain its principal place of business in the Cayman Islands at the offices of
the Intermediary located at Cardinal Avenue, Grand Cayman, Cayman Islands,
B.W.I., which shall consist of holding executed copies of this Agreement and the
Owner Trust Agreement at such offices.
It is the intention of the parties hereto that the transfers and
assignments contemplated by this Agreement shall constitute a sale of the
Grantor Trust Certificate and the other property specified in Section 2.01(a)
hereof from the Depositor to the Issuer and such property shall not be property
of the Depositor. If the assignment and transfer of the Grantor Trust
Certificate and the other property specified in Section 2.01(a) hereof to the
Owner Trustee pursuant to this Agreement or the conveyance of the Grantor Trust
Certificate or any of such other property to the Owner Trustee is held or deemed
not to be a sale or is held or deemed to be a pledge of security for a loan, the
Depositor intends that the rights and obligations of the parties shall be
established pursuant to the terms of this Agreement and that, in such event, (i)
the Depositor shall be deemed to have granted and does hereby grant to the Owner
Trustee a first priority security interest in the entire right, title and
interest of the Depositor in and to the Grantor Trust Certificate and all other
property conveyed to the Owner Trustee pursuant to Section 2.01 hereof and all
proceeds thereof and (ii) this Agreement shall constitute a security agreement
under applicable law. Within ten (10) days of the Closing Date, the Depositor
shall cause to be filed UCC-1 financing statements naming the Owner Trustee as
"secured parties" and describing the Grantor Trust Certificate being sold by the
Depositor to the Issuer with the office of the Secretary of State of the state
in which the Depositor is located.
Section 2.04 Delivery of Grantor Trust Certificate; Further Assurances.
(a) The Depositor shall, on the Closing Date, upon the order of the Issuer,
deliver or cause to be delivered, the Grantor Trust Certificate registered in
the name of U.S. Bank National Association, d/b/a First Bank National
Association, as Indenture Trustee, to the Intermediary, on behalf of the
Indenture Trustee, pursuant to the terms of the Account Agreement.
(b) The Depositor shall execute and deliver all such other instruments,
documents and certificates and take all such other actions deemed necessary by
the Owner Trustee in connection with, or in furtherance of, the transactions
contemplated hereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01 Representations and Warranties of the Depositor.
The Depositor hereby represents and warrants to the Transferor, the
Servicer, the Grantor Trustee, the Indenture Trustee, the Owner Trustee and the
Noteholders that as of the Closing Date:
(a) The Depositor is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has, and
had at all relevant times, full power to own its property, to carry on its
business as currently conducted, to enter into and perform its obligations
under this Agreement and to create the Owner Trust pursuant to the Owner
Trust Agreement;
(b) The execution and delivery of this Agreement by the Depositor and
its performance of and compliance with the terms of this Agreement will not
violate the Depositor's certificate of incorporation or by-laws or
constitute a default (or an event which, with notice or lapse of time, or
both, would constitute a default) under, or result in the breach or
acceleration of, any material contract, agreement or other instrument to
which the Depositor is a party or which may be applicable to the Depositor
or any of its assets;
(c) The Depositor has the full power and authority to enter into and
consummate the transactions contemplated by this Agreement, has duly
authorized the execution, delivery and performance of this Agreement and
has duly executed and delivered this Agreement. This Agreement, assuming
due authorization, execution and delivery by the Owner Trustee, the
Indenture Trustee, the Grantor Trustee, the Transferor and the Servicer,
constitutes a valid, legal and binding obligation of the Depositor,
enforceable against it in accordance with the terms hereof, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
receivership, moratorium or other similar laws relating to or affecting the
rights of creditors generally, and by general equity principles (regardless
of whether such enforcement is considered in a proceeding in equity or at
law);
(d) The Depositor is not in violation of, and the execution and
delivery of this Agreement by the Depositor and its performance and
compliance with the terms of this Agreement will not constitute a violation
with respect to, any order or decree of any court or any order or
regulation of any federal, state, municipal or governmental agency having
jurisdiction, which violation would materially and adversely affect the
condition (financial or otherwise) or operations of the Depositor or its
properties or materially and adversely affect the performance of its duties
hereunder;
(e) There are no actions or proceedings against, or investigations of,
the Depositor currently pending with regard to which the Depositor has
received service of process and no action or proceeding against, or
investigation of, the Depositor is, to the knowledge of the Depositor,
threatened or otherwise pending before any court, administrative agency or
other tribunal that (A) if determined adversely, would prohibit its
entering into this Agreement or render the Notes invalid, (B) seek to
prevent the issuance of the Notes or the consummation of any of the
transactions contemplated by this Agreement or (C) if determined adversely,
would prohibit or materially and adversely affect the performance by the
Depositor of its obligations under, or the validity or enforceability of,
this Agreement or the Notes;
(f) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Depositor of, or compliance by the Depositor with, this
Agreement or the Notes, or for the consummation of the transactions
contemplated by this Agreement, except for such consents, approvals,
authorizations and orders, if any, that have been obtained prior to the
Closing Date;
(g) The Depositor is solvent, is able to pay its debts as they become
due and has capital sufficient to carry on its business and its obligations
hereunder; it will not be rendered insolvent by the execution and delivery
of this Agreement or its obligations hereunder; no petition of bankruptcy
(or similar insolvency proceeding) has been filed by or against the
Depositor prior to the date hereof;
(h) The Depositor did not sell (i) the Home Loans to the Grantor
Trustee or (ii) the Grantor Trust Certificate to the Issuer, with any
intent to hinder, delay or defraud any of its creditors; the Depositor will
not be rendered insolvent as a result of the sale of the Home Loans to the
Grantor Trustee and the sale of the Grantor Trust Certificate to the
Issuer;
(i) As of the Closing Date, the Depositor had good title to, and was
the sole beneficial owner of, the Grantor Trust Certificate and had good
and marketable title thereto, free and clear of any lien or options in
favor of, or claims of, any other Person, other than any such lien released
simultaneously with the sale contemplated herein, and, immediately upon
each transfer and assignment herein contemplated, the Depositor will have
delivered to the Issuer good title to, and the Issuer will be the sole
beneficial owner of, the Grantor Trust Certificate free and clear of any
lien or options in favor of, or claims of, any other Person;
(j) The Grantor Trust Certificate has been validly issued, and is
fully paid and non-assessable and not subject to preemptive rights, and the
Grantor Trust Certificate has been offered, issued and sold in compliance
with all applicable laws and (A) there are no outstanding rights, options,
warrants or agreements for the purchase from, or sale or issuance, in
connection with the Grantor Trust Certificate; (B) there are no agreements
on the part of the Depositor to issue, sell or distribute the Grantor Trust
Certificate; and (C) the Depositor has no obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any securities or any
interest therein or to pay any dividend or make any distribution in respect
of the Grantor Trust Certificate.
(k) The Depositor acquired title to each of the Grantor Trust
Certificate in good faith, without notice of any adverse claim;
(l) No Officers' Certificate, statement, report or other document
prepared by the Depositor and furnished or to be furnished by it pursuant
to this Agreement or in connection with the transactions contemplated
hereby contains any untrue statement of material fact or omits to state a
material fact necessary to make the statements contained herein or therein
not misleading; and
(m) The Depositor is not required to be registered as an "investment
company" under the Investment Company Act of 1940, as amended.
Section 3.02 Representations and Warranties of the Transferor.
The Transferor hereby represents and warrants to the Servicer, the
Indenture Trustee, the Owner Trustee, the Grantor Trustee, the Noteholders and
the Depositor that as of the Closing Date or the Subsequent Transfer Date, as
the case may be (except as otherwise specifically provided herein):
(a) The Transferor is a corporation licensed as a mortgage lender duly
organized, validly existing and in good standing under the laws of the
State of Oklahoma and has and had at all relevant times, full corporate
power to originate or purchase the Home Loans, to own its property, to
carry on its business as presently conducted and to enter into and perform
its obligations under this Agreement;
(b) The execution and delivery of this Agreement by the Transferor and
its performance of and compliance with the terms of this Agreement will not
violate the Transferor's articles of incorporation or by-laws or constitute
a default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, or result in the breach or acceleration of,
any material contract, agreement or other instrument to which the
Transferor is a party or which may be applicable to the Transferor or any
of its assets;
(c) The Transferor has the full power and authority to enter into and
consummate all transactions contemplated by this Agreement to be
consummated by it, has duly authorized the execution, delivery and
performance of this Agreement and has duly executed and delivered this
Agreement. This Agreement, assuming due authorization, execution and
delivery by the Owner Trustee, the Indenture Trustee, the Grantor Trustee
and the Depositor, constitutes a valid, legal and binding obligation of the
Transferor, enforceable against it in accordance with the terms hereof,
except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, receivership, moratorium or other similar laws relating to
or affecting the rights of creditors generally, and by general equity
principles (regardless of whether such enforcement is considered in a
proceeding in equity or at law);
(d) The Transferor is not in violation of, and the execution and
delivery of this Agreement by the Transferor and its performance and
compliance with the terms of this Agreement will not constitute a violation
with respect to, any order or decree of any court or any order or
regulation of any federal, state, municipal or governmental agency having
jurisdiction, which violation would materially and adversely affect the
condition (financial or otherwise) or operations of the Transferor or its
properties or materially and adversely affect the performance of its duties
hereunder;
(e) There are no actions or proceedings against, or investigations of,
the Transferor currently pending with regard to which the Transferor has
received service of process and no action or proceeding against, or
investigation of, the Transferor is, to the knowledge of the Transferor,
threatened or otherwise pending, before any court, administrative agency or
other tribunal that (A) if determined adversely, would prohibit its
entering into this Agreement or render the Notes invalid, (B) seek to
prevent the issuance of the Notes or the consummation of any of the
transactions contemplated by this Agreement or (C) if determined adversely,
would prohibit or materially and adversely affect the sale of the Home
Loans to the Depositor, the performance by the Transferor of its
obligations under, or the validity or enforceability of, this Agreement or
the Notes;
(f) No consent, approval, authorization or order of any court or
governmental agency or body is required for: (1) the execution, delivery
and performance by the Transferor of, or compliance by the Transferor with,
this Agreement or the Grantor Trust Agreement, (2) the issuance of the
Notes, (3) the sale of the Home Loans under the Home Loan Purchase
Agreement or (4) the consummation of the transactions required of it by
this Agreement, except such as shall have been obtained before the Closing
Date;
(g) The Transferor acquired title to the Home Loans in good faith,
without notice of any adverse claim;
(h) The collection practices used by the Transferor with respect to
the Home Loans have been, in all material respects, legal, proper, prudent
and customary in the non-conforming mortgage servicing business;
(i) No Officer's Certificate, statement, report or other document
prepared by the Transferor and furnished or to be furnished by it pursuant
to this Agreement or in connection with the transactions contemplated
hereby contains any untrue statement of material fact or omits to state a
material fact necessary to make the statements contained herein or therein
not misleading;
(j) The Transferor is solvent, is able to pay its debts as they become
due and has capital sufficient to carry on its business and its obligations
hereunder; it will not be rendered insolvent by the execution and delivery
of this Agreement or by the performance of its obligations hereunder; no
petition of bankruptcy (or similar insolvency proceeding) has been filed by
or against the Transferor prior to the date hereof;
(k) The Prospectus Supplement (other than (i) the statements set forth
in the paragraph immediately preceding the final paragraph of the cover of
the Prospectus Supplement and the first sentence of the final paragraph of
the cover of the Prospectus Supplement and (ii) the statements under the
following captions: "SUMMARY -- Securities Issued", "-- Priority of
Payments", "--Maturity Date", "-- Credit Enhancement", "-- Tax Status", "--
ERISA", "-- Legal Investment", "DESCRIPTION OF THE OFFERED SECURITIES",
"DESCRIPTION OF CREDIT ENHANCEMENT", "FEDERAL INCOME TAX CONSEQUENCES",
"ERISA CONSIDERATIONS", "LEGAL INVESTMENT MATTERS" and "UNDERWRITING", as
to which the Transferor makes no statement) does not contain an untrue
statement of a material fact and does not omit to state a material fact
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading;
(l) The Transferor has transferred the Home Loans without any intent
to hinder, delay or defraud any of its creditors; and
(m) The Private Placement Memorandum (other than (i) the statements
set forth in the first sentence of the second paragraph immediately
preceding the final paragraph of the cover of the Private Placement
Memorandum and (ii) the statements under the following captions:
"DESCRIPTION OF THE OFFERED NOTES", "FEDERAL INCOME TAX CONSEQUENCES",
"ERISA CONSIDERATIONS", "LEGAL INVESTMENT CONSIDERATIONS" and "PLAN OF
OFFERING", as to which the Transferor makes no statement) does not contain
an untrue statement of a material fact and does not omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
It is understood and agreed that the representations and warranties set
forth in this Section 3.02 shall survive delivery of the respective Grantor
Trustee's Home Loan Files to the Custodian (as the agent of the Grantor Trustee)
and shall inure to the benefit of the Securityholders, the Depositor, the
Servicer, the Indenture Trustee, the Owner Trustee, the Grantor Trustee, the
Grantor Trust and the Owner Trust. Upon discovery by any of the Transferor, the
Depositor, the Servicer, the Indenture Trustee, the Grantor Trustee or the Owner
Trustee of a breach of any of the foregoing representations and warranties that
materially and adversely affects the value of any Home Loan or the interests of
the Grantor Trust Holder therein, the party discovering such breach shall give
prompt written notice (but in no event later than two Business Days following
such discovery) to the other parties. The obligations of the Transferor set
forth in Section 3.05 hereof to cure any breach or to substitute for or
repurchase an affected Home Loan shall constitute the sole remedies available
hereunder to the Securityholders, the Depositor, the Servicer, the Indenture
Trustee, the Grantor Trustee or the Owner Trustee respecting a breach of the
representations and warranties contained in this Section 3.02.
Section 3.03 Representations, Warranties and Covenants of the Servicer.
The Servicer hereby represents and warrants to and covenants with the Owner
Trustee, the Indenture Trustee, the Grantor Trustee, the Noteholders, the
Depositor and the Transferor that as of the Closing Date or as of such date
specifically provided herein:
(a) The Servicer is a corporation duly organized, validly existing and
in good standing under the laws of the State of Oklahoma and is or will be
in compliance with the laws of each state in which any Mortgaged Property
is located to the extent necessary to ensure the enforceability of each
Loan in accordance with the terms of this Agreement;
(b) The execution and delivery of this Agreement by the Servicer and
its performance of and compliance with the terms of this Agreement will not
violate the Servicer's articles of incorporation or by-laws or constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, or result in the breach or acceleration of,
any material contract, agreement or other instrument to which the Servicer
is a party or which may be applicable to the Servicer or any of its assets;
(c) The Servicer has the full power and authority to enter into and
consummate all transactions contemplated by this Agreement, has duly
authorized the execution, delivery and performance of this Agreement and
has duly executed and delivered this Agreement. This Agreement, assuming
due authorization, execution and delivery by the Indenture Trustee, the
Owner Trustee, the Grantor Trustee and the Depositor, constitutes a valid,
legal and binding obligation of the Servicer, enforceable against it in
accordance with the terms hereof, except as such enforcement may be limited
by bankruptcy, insolvency, reorganization, receivership, moratorium or
other similar laws relating to or affecting the rights of creditors
generally, and by general equity principles (regardless of whether such
enforcement is considered in a proceeding in equity or at law);
(d) The Servicer is not in violation of, and the execution and
delivery of this Agreement by the Servicer and its performance and
compliance with the terms of this Agreement will not constitute a violation
with respect to, any order or decree of any court or any order or
regulation of any federal, state, municipal or governmental agency having
jurisdiction, which violation would materially and adversely affect the
condition (financial or otherwise) or operations of the Servicer or
materially and adversely affect the performance of its duties hereunder;
(e) There are no actions or proceedings against, or investigations of,
the Servicer currently pending with regard to which the Servicer has
received service of process and no action or proceeding against, or
investigation of, the Servicer is to the knowledge of the Servicer,
threatened or otherwise pending, before any court, administrative agency or
other tribunal that (A) if determined adversely, would prohibit its
entering into this Agreement or render the Notes invalid, (B) seek to
prevent the issuance of the Notes or the consummation of any of the
transactions contemplated by this Agreement or (C) if determined adversely,
would prohibit or materially and adversely affect the performance by the
Servicer of its obligations under, or the validity or enforceability of,
this Agreement or the Notes;
(f) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Servicer of, or compliance by the Servicer with, this
Agreement or the Notes, or for the consummation of the transactions
contemplated by this Agreement, except for such consents, approvals,
authorizations and orders, if any, that have been obtained prior to the
Closing Date;
(g) The Servicer is duly licensed where required as a "Licensee" or is
otherwise qualified in each state in which it transacts business and is not
in default of such state's applicable laws, rules and regulations, except
where the failure to so qualify or such default would not have a material
adverse effect on the ability of the Servicer to conduct its business or
perform its obligations hereunder;
(h) The Servicer is an Eligible Servicer and services mortgage loans
in accordance with Accepted Servicing Procedures;
(i) No Officer's Certificate, statement, report or other document
prepared by the Servicer and furnished or to be furnished by it pursuant to
this Agreement or in connection with the transactions contemplated hereby
contains any untrue statement of material fact or omits to state a material
fact necessary to make the statements contained herein or therein not
misleading;
(j) The Servicer is solvent and will not be rendered insolvent as a
result of the performance of its obligations pursuant to this Agreement;
(k) The Servicer has not waived any default, breach, violation or
event of acceleration existing under any Debt Instrument or the related
Mortgage;
(l) The Servicer will cause to be performed any and all acts required
to be performed by the Servicer to preserve the rights and remedies of the
Grantor Trustee, the Owner Trustee and the Indenture Trustee in any
Insurance Policies applicable to the Home Loans including, without
limitation, in each case, any necessary notifications of insurers,
assignments of policies or interests therein, and establishments of
co-insured, joint loss payee and mortgagee rights in favor of the Grantor
Trustee, the Owner Trustee and the Indenture Trustee;
(m) The Servicer shall comply with, and shall service, or cause to be
serviced, each Home Loan, in accordance with all applicable laws; and
(n) The Servicer agrees that, so long as it shall continue to serve in
the capacity contemplated under the terms of this Agreement, it shall
remain in good standing under the laws governing its creation and existence
and qualified under the laws of each state in which it is necessary to
perform its obligations under this Agreement or in which the nature of its
business requires such qualification; it shall maintain all licenses,
permits and other approvals required by any law or regulations as may be
necessary to perform its obligations under this Agreement and to retain all
rights to service the Loans; and it shall not dissolve or otherwise dispose
of all or substantially all of its assets.
It is understood and agreed that the representations, warranties and
covenants set forth in this Section 3.03 shall survive delivery of the
respective Grantor Trustee's Home Loan Files to the Indenture Trustee and shall
inure to the benefit of the Depositor, the Noteholders, the Owner Trustee, the
Grantor Trustee and the Indenture Trustee. Upon discovery by any of the
Transferor, the Depositor, the Servicer, the Indenture Trustee, the Grantor
Trustee or the Owner Trustee of a breach of any of the foregoing
representations, warranties and covenants that materially and adversely affects
the value of any Home Loan or the interests of such Person therein, the party
discovering such breach shall give prompt written notice (but in no event later
than two Business Days following such discovery) to the other parties.
Section 3.04 Representations and Warranties Regarding Individual Home
Loans.
The Transferor hereby represents and warrants to the Depositor, the Issuer,
the Indenture Trustee, the Grantor Trustee, the Owner Trustee and the
Noteholders, with respect to each Home Loan as of the Closing Date, and with
respect to each Subsequent Loan, as of the related Subsequent Transfer Date,
except as otherwise expressly stated:
(a) The information pertaining to each Home Loan set forth in the Home
Loan Schedule was true and correct in all material respects as of the
Cut-Off Date;
(b) As of the applicable Cut-Off Date, none of the Home Loans was 30
or more days past due (without giving effect to any grace period); the
Transferor has not advanced funds, induced, solicited or knowingly received
any advance of funds from a party other than the Obligor, directly or
indirectly, for the payment of any amount required by any Home Loan;
(c) The terms of the Debt Instrument and any related Mortgage contain
the entire agreement of the parties thereto and have not been impaired,
waived, altered or modified in any respect, except by written instruments
reflected in the related Grantor Trustee's Home Loan File and recorded, if
necessary, to maintain the lien priority of the any related Mortgage; no
instrument of waiver, alteration, expansion or modification has been
executed, and no Obligor has been released, in whole or in part, except in
connection with an assumption agreement which assumption agreement is part
of the related Grantor Trustee's Home Loan File and the payment terms of
which are reflected in the related Home Loan Schedule;
(d) The Debt Instrument and any related Mortgage are not subject to
any set-off, claims, counterclaim or defense, including the defense of
usury or of fraud in the inducement, and will not be so subject in the
future with respect to the goods and services provided under the Debt
Instrument; and neither the operation of any of the terms of the Debt
Instrument and any related Mortgage, nor the exercise of any right
thereunder, will render such Debt Instrument or Mortgage unenforceable, in
whole or in part, or subject to any right of rescission, set-off,
counterclaim or defense, including the defense of usury, and no such right
of rescission, set-off, counterclaim or defense has been asserted with
respect thereto;
(e) Any and all requirements of any federal, state or local law
applicable to the Home Loan (including any law applicable to the
origination, servicing and collection practices with respect thereto) have
been complied with;
(f) No Debt Instrument or Mortgage has been satisfied, canceled,
rescinded or subordinated, in whole or part; and the Transferor, except as
otherwise permitted by clause (c) of this Section 3.04, has not waived the
performance by the Obligor of any action, if the Obligor's failure to
perform such action would cause the Debt Instrument or Mortgage Loan to be
in default; and with respect to a Mortgage Loan, the related Property has
not been released from the lien of the Mortgage, in whole or in part, nor
has any instrument been executed that would effect any such satisfaction,
subordination, release, cancellation or rescission;
(g) Each related Mortgage is a valid, subsisting and enforceable lien
on the related Property, including the land and all buildings on the
Property;
(h) The Debt Instrument and any related Mortgage are genuine and each
is the legal, valid and binding obligation of the maker thereof,
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization or other similar laws
affecting creditors' rights in general and by general principles of equity;
(i) To the best of the Transferor's knowledge, all parties to the Debt
Instrument and any related Mortgage had legal capacity at the time to enter
into the Home Loan and to execute and deliver the Debt Instrument and any
related Mortgage, and the Debt Instrument and any related Mortgage have
been duly and properly executed by such parties;
(j) As of the applicable Cut-Off Date, the proceeds of the Home Loan
have been fully disbursed and there is no requirement for future advances
thereunder, and any and all applicable requirements set forth in the Home
Loan documents have been complied with; the Obligor is not entitled to any
refund of any amounts paid or due under the Debt Instrument or any related
Mortgage;
(k) Immediately prior to the sale, transfer and assignment to the
Depositor, the Transferor will have good and indefeasible legal title to
the Home Loan, the related Debt Instrument and any related Mortgage and the
full right to transfer such Home Loan, the related Debt Instrument and any
related Mortgage, and the Transferor will have been the sole owner thereof,
subject to no liens, pledges, charges, mortgages, encumbrances or rights of
others, except for such liens as will be released simultaneously with the
transfer and assignment of the Home Loans to the Depositor (and the Grantor
Trustee's Home Loan File will contain no evidence inconsistent with the
foregoing); and immediately upon the sale, transfer and assignment
contemplated by the Home Loan Purchase Agreement, the Depositor will hold
good title to, and be the sole owner of each Home Loan, the related Debt
Instrument and any related Mortgage, free of all liens, pledges, charges,
mortgages, encumbrances or rights of others;
(l) Except for those Home Loans referred to in clause (b) of this
Section 3.04 that are delinquent as of the Cut-Off Date, there is no
default, breach, violation or event of acceleration known to the Transferor
under the Home Loan, the related Debt Instrument and any related Mortgage
and there is no event known to the Transferor which, with the passage of
time or with notice and the expiration of any grace or cure period, would
constitute a default, breach, violation or event of acceleration thereunder
and neither the Transferor nor its predecessors have waived any such
default, breach, violation or event of acceleration;
(m) The Debt Instrument and any related Mortgage contain customary and
enforceable provisions so as to render the rights and remedies of the
holder thereof adequate for the realization against the Property of the
benefits of the security provided thereby, including, (A) in the case of
any Mortgage designated as a deed of trust, by trustee's sale, and (B)
otherwise by judicial foreclosure;
(n) Each Home Loan is a fixed rate loan; the Debt Instrument shall
mature within not more than 25 years from the date of origination of the
Home Loan; the Debt Instrument is payable in substantially equal Monthly
Payments, with interest payable in arrears, and requires a Monthly Payment
which is sufficient to fully amortize the original principal balance over
the original term and to pay interest at the related Home Loan Interest
Rate; interest on each Home Loan is calculated on the basis of a 360-day
year consisting of twelve 30-day months, and the Debt Instrument does not
provide for any extension of the original term;
(o) The related Debt Instrument is not and has not been secured by any
collateral except, in the case of a Mortgage Loan, the lien of the
corresponding Mortgage;
(p) With respect to any Mortgage Loan, if the related Mortgage
constitutes a deed of trust, a trustee, duly qualified under applicable law
to serve as such, has been properly designated and currently so serves and
is named in the Mortgage, or a valid substitution of trustee has been
recorded, and no extraordinary fees or expenses are or will become payable
to the trustee under the deed of trust, except in connection with default
proceedings and a trustee's sale after default by the Obligor;
(q) With respect to any Mortgage Loan, the Transferor has no knowledge
of any circumstances or conditions not reflected in the representations set
forth herein, or in the Home Loan Schedule, or in the related Grantor
Trustee's Home Loan File with respect to the related Mortgage, the related
Property or the Obligor which could reasonably be expected to materially
and adversely affect the value of the related Property or the marketability
of the Mortgage Loan or cause the Mortgage Loan to become delinquent or
otherwise be in default;
(r) Assuming no material change to the applicable law or regulations
in effect as of the Closing Date, after the consummation of the
transactions contemplated by this Agreement, the Grantor Trustee will have
the ability to foreclose or otherwise realize upon a Property, if the Home
Loan is a Mortgage Loan, or to enforce the provisions of the related Home
Loan against the Obligor thereunder, if the foreclosure upon any such
Property or enforcement of the provisions of the related Home Loan against
the Obligor is undertaken as set forth in Section 4.10 hereof;
(s) There exists a Home Loan File relating to each Home Loan and such
Home Loan File contains all of the original or certified documentation
listed in Section 2.04 hereof for such Home Loan. Each Grantor Trustee's
Home Loan File has been delivered to the Custodian and each Servicer's Home
Loan File is being held in trust by the Servicer for the benefit of, and as
agent for, the Grantor Trust Holder and the Grantor Trustee as their
respective interest appear herein. Each document included in the Home Loan
File which is required to be executed by the Obligor has been executed by
the Obligor in the appropriate places. With respect to each Mortgage Loan,
the related Assignment of Mortgage to the Grantor Trustee is in recordable
form and is acceptable for recording under the laws of the jurisdiction in
which the Property is located. All blanks on any form required to be
completed have been so completed;
(t) Each Property is improved by a residential dwelling and is not a
Home Loan in respect of a manufactured home or mobile home or the land on
which a manufactured home or mobile home has been placed, unless such
manufactured home or mobile home is treated as real estate under applicable
law;
(u) Each Home Loan was underwritten by the Transferor in accordance
with the Transferor's underwriting guidelines;
(v) If the Property securing any Mortgage Loan is in an area
identified by the Federal Emergency Management Agency ("FEMA") as having
special flood hazards, unless the community in which the area is situated
is not participating in the National Flood Insurance Program and the
regulations thereunder or less than a year has passed since FEMA
notification regarding such hazards, a flood insurance policy is in effect
with respect to such Property with a generally acceptable carrier which
complies with section 102(a) of the Flood Disaster Protection Act of 1973;
all improvements upon each Property securing a Home Loan are insured by a
generally acceptable insurer against loss by fire, hazards of extended
coverage and such other hazards as are customary in the area where the
Property is located, pursuant to insurance policies conforming to the
requirements of the Agreement; all such policies contain a standard
mortgagee clause naming the Transferor or its predecessor in interest, its
successors and assigns, as loss payee;
(w) All costs, fees and expenses incurred in originating and closing
the Home Loan and in recording any related Mortgage were paid and the
Obligor is not entitled to any refund of any amounts paid or due to the
lender pursuant to the Debt Instrument or any related Mortgage;
(x) There is no obligation on the part of the Transferor or any other
party other than the Obligor to make payments with respect to the Home
Loan;
(y) At the time of origination of the Home Loan, each related Superior
Lien, if any, was certified by the Obligor as not being 30 or more days
delinquent;
(z) To the best of the Transferor's knowledge, all parties which have
had any interest in the Home Loan, whether as mortgagee, assignee, pledgee
or otherwise, are (or, during the period in which they held and disposed of
such interest, were) (i) in compliance with any and all applicable
licensing requirements of the laws of the state wherein the Property is
located, and (ii) (A) organized under the laws of such state, or (B)
qualified to do business in such state, or (C) federal savings and loan
associations or national banks having principal offices in such state, or
(D) not doing business in such state;
(aa) With respect to each Mortgage Loan, the related Mortgage contains
an enforceable provision requiring the consent of the mortgagee to
assumption of the related Mortgage Loan upon sale of the Property;
(ab) With respect to each Mortgage Loan, there is no homestead or
other exemption available to the mortgagor which would materially interfere
with the right to sell the related Property at a trustee's sale or the
right to foreclose the Mortgage; no relief has been requested or allowed to
the mortgagor under the Soldiers' and Sailors' Civil Relief Act of 1940;
(ac) The related Servicer's Home Loan File for each Home Loan that is
a Mortgage Loan contains a title document with respect to such Home Loan
reflecting that title to the related Mortgaged Property is vested at least
50% in the related Obligor;
(ad) To the best of the Transferor's knowledge, each Property
(including each residential dwelling improvement thereon) is free of damage
which materially and adversely affects the value thereof and there is no
proceeding pending for the total or partial condemnation of any Property;
(ae) Each Home Loan was originated in compliance with all applicable
laws and, to the best of the Transferor's knowledge, no fraud or
misrepresentation was committed by any Person in connection therewith;
(af) Each Home Loan has been serviced in accordance with all
applicable laws and, to the best of the Transferor's knowledge, no fraud or
misrepresentation was committed by any Person in connection therewith;
(ag) The transfer, assignment and conveyance of the Debt Instruments
and the Mortgages by the Transferor to the Depositor were not subject to
the bulk transfer laws or any similar statutory provisions in effect in any
applicable jurisdiction;
(ah) Any Home Loan originated in the State of Texas, was originated
pursuant to either Chapter 3 or Chapter 6 of the Texas Consumer Credit
Code;
(ai) As of the applicable Cut-Off Date, no Obligor is a debtor under
proceedings under the United States Bankruptcy Code, and no Obligor has
defaulted in payments on a Home Loan after the filing of such bankruptcy
case, whether under a plan or reorganization or otherwise;
(aj) To the best of the Transferor's knowledge, the Transferor has not
advanced funds, or induced, solicited or knowingly received any advance of
loan payments from a party other than, with respect to a Mortgage Loan, the
owner of the Property subject to the Mortgage;
(ak) The Home Loans were originated by the Transferor or through the
Transferor's network of dealers and correspondents (including Home Loans
acquired by such correspondents); no Home Loan was originated earlier than
January 1985;
(al) Each Home Loan either complies with the Home Ownership and Equity
Protection Act of 1994 or is not subject to such act;
(am) The Transferor has caused to be performed or shall cause to be
performed within one month of the Closing Date any and all acts required to
preserve the rights and remedies of the Grantor Trustee in any insurance
policies applicable to each Home Loan including, without limitation, any
necessary notifications of insurers, assignments of policies or interests
therein, and establishment of coinsured, joint loss payee and mortgagee
rights in favor of the Grantor Trustee;
(an) With respect to any Mortgage Loan, to the best of the
Transferor's knowledge, the Property is free from any and all toxic and
hazardous substances and there exists no violation of any environmental
law, rule or regulation (whether local, state or federal) in respect of the
Property which violation has or could have a material adverse effect on the
market value of such Property. The Transferor has no knowledge of any
pending action or proceeding directly involving the related Property in
which compliance with any environmental law, rule or regulation is in
issue; and, to the Transferor's best knowledge, nothing further remains to
be done to satisfy in full all requirements of each such law, rule or
regulation constituting a prerequisite to the use and enjoyment of such
Property;
(ao) At the time of its origination no Home Loan was secured by a
Mortgage on a non-owner occupied Mortgaged Property;
(ap) With respect to the Initial Loans, on the Closing Date, and with
respect to the Subsequent Loans, as of the Subsequent Transfer Date, 55% or
more (by aggregate Principal Balance) of the Home Loans do not constitute
"real estate mortgages" for the purpose of Treasury Regulations Section
301.7701(i). For this purpose a Home Loan does not constitute a "real
estate mortgage" if:
(i) The Home Loan is not secured by an interest in real property,
or
(ii) The Home Loan is not an "obligation principally secured by
an interest in real property." For this purpose an "obligation is
principally secured by an interest in real property" if it satisfies
either test set out in paragraph (1) or paragraph (2) below.
(1) The 80-percent test. An obligation is principally
secured by an interest in real property if the fair
market value of the interest in real property securing
the obligation (A) was at least equal to 80 percent of
the adjusted issue price of the obligation at the time
the obligation was originated (or, if later, the time
the obligation was significantly modified); or (B) is
at least equal to 80 percent of the adjusted issue
price of the obligation on the Closing Date.
For purposes of this paragraph (1), the fair market value of the real
property interest must be first reduced by the amount of any lien on
the real property interest that is senior to the obligation being
tested, and must be further reduced by a proportionate amount of any
lien that is in parity with the obligation being tested, in each case
before the percentages set forth in (1)(A) and (1)(B) are determined.
The adjusted issue price of an obligation is its issue price plus the
amount of accrued original issue discount, if any, as of the date of
determination.
(2) Alternative test. An obligation is principally secured
by an interest in real property if substantially all of
the proceeds of the obligation were used to acquire or
to improve or protect an interest in real property
that, at the origination date, is the only security for
the obligation. For purposes of this test, loan
guarantees made by the United States or any state (or
any political subdivision, agency, or instrumentality
of the United States or of any state), or other third
party credit enhancement are not viewed as additional
security for a loan. An obligation is not considered to
be secured by property other than real property solely
because the obligor is personally liable on the
obligation. For this purpose only, substantially all of
the proceeds of the obligations means 66 2/3% or more
of the gross proceeds.
(aq) No Home Loan was adversely selected as to credit risk from the
pool of home loans owned by the Transferor;
(ar) With respect to each Home Loan that is not a first lien mortgage
loan, either (i) no consent for the Home Loan was required by the holder of
the related Superior Lien or (ii) such consent has been obtained and has
been delivered to the Indenture Trustee;
(as) Each Home Loan is a home improvement loan for goods or services,
a debt consolidation loan or a home equity loan;
(at) Each Debt Instrument is comprised of an original promissory note
and each promissory note constitutes an "instrument" or "chattel paper" for
purposes of Article 9 of the UCC; each Debt Instrument has been delivered
to the Custodian;
(au) To the best of the Transferor's knowledge, all improvements which
were considered in determining the appraised value of the Property lay
wholly within the boundaries and building restriction lines of the Property
and no improvements on adjoining properties encroach upon the Mortgaged
Property. No improvement located on or being part of the Mortgaged Property
is in violation of any applicable zoning law or regulation;
(av) To the best of the Transferor's knowledge, all inspections,
licenses and certificates required to be made, obtained and issued as of
the Closing Date with respect to the improvements and the use and occupancy
of all occupied portions of all Properties have been made, obtained or
issued as applicable;
(aw) In the event that the Mortgage Loan was originated by an entity
(such entity, the "Originator") other than the Transferor or an affiliate
of the Transferor, the Grantor Trustee and the Indenture Trustee may
enforce any remedies for breach of representations and warranties made by
the Transferor with respect to such Mortgage Loan;
(ax) The Mortgage Loan does not contain provisions pursuant to which
Monthly Payments are paid or partially paid with funds deposited in any
separate account established by the Transferor, the Obligor or anyone on
behalf of the Obligor, or paid by any source other than the Obligor nor
does it contain any other similar provisions currently in effect which may
constitute a "buydown" provision. The Mortgage Loan is not a graduated
payment Mortgage Loan and the Mortgage Loan does not have a shared
appreciation or other contingent interest feature; and
(ay) The Transferor has reviewed all of the documents constituting the
Mortgage File and has made such inquiries as it deems necessary to make and
confirm the accuracy of the representations set forth herein.
Section 3.05 Purchase and Substitution.
(a) It is understood and agreed that the representations and warranties set
forth in Section 3.04 hereof shall survive the conveyance of the Home Loans to
the Grantor Trustee, the conveyance of the Grantor Trust Certificate to the
Issuer, the pledge of the Grantor Trust Certificate to the Indenture Trustee and
the delivery of the Notes to the Noteholders. Upon discovery by the Depositor,
the Servicer, the Transferor, the Custodian, the Issuer, the Indenture Trustee,
the Grantor Trustee, the Owner Trustee or any Securityholder of a breach of any
of such representations and warranties or the representations and warranties set
forth in Section 3.02 which materially and adversely affects the value of the
Home Loans or the interests of the Grantor Trustee, the Owner Trustee or the
Indenture Trustee in the related Home Loan (notwithstanding that such
representation and warranty was made to the Transferor's best knowledge), the
party discovering such breach shall give prompt written notice to the others.
The Transferor shall within 60 days of the earlier of its discovery or its
receipt of notice of any breach of a representation or warranty, including any
breach of the representation set forth in Section 3.04(ap) hereof as a result of
an aggregate of Home Loans which would not otherwise cause a breach of any other
representation or warranty, promptly cure such breach in all material respects.
If within 60 days after the earlier of the Transferor's discovery of such breach
or the Transferor's receiving notice thereof such breach has not been remedied
by the Transferor and such breach materially and adversely affects the interests
of the Grantor Trustee, the Owner Trustee or the Indenture Trustee in, or the
value of, the related Home Loan (the "Defective Home Loan"), the Transferor
shall on or before the Determination Date next succeeding the end of such 60-day
period either (i) remove such Defective Home Loan from the Grantor Trust (in
which case it shall become a Deleted Home Loan) and substitute one or more
Qualified Substitute Home Loans in the manner and subject to the conditions set
forth in this Section 3.05 or (ii) purchase such Defective Home Loan at a
purchase price equal to the Purchase Price by depositing such Purchase Price in
the Collection Account. The Transferor shall provide the Servicer, the Indenture
Trustee, the Grantor Trustee and the Owner Trustee with a certification of a
Responsible Officer on the Determination Date next succeeding the end of such
60-day period indicating whether the Transferor is purchasing the Defective Home
Loan or substituting in lieu of such Defective Home Loan a Qualified Substitute
Home Loan.
Any substitution of Home Loans pursuant to this Section 3.05(a) shall be
accompanied by payment by the Transferor of the Substitution Adjustment, if any,
to be deposited in the Collection Account. For purposes of calculating the
Available Collection Amount for any Payment Date, amounts paid by the Transferor
pursuant to this Section 3.05 in connection with the repurchase or substitution
of any Defective Home Loan that are on deposit in the Collection Account as of
the Determination Date for such Payment Date shall be deemed to have been paid
during the related Due Period and shall be transferred to the Note Payment
Account as part of the Available Collection Amount to be retained therein or
transferred to the Certificate Distribution Account, if applicable, pursuant to
Section 5.01(c) hereof.
It is understood and agreed that the obligation of the Transferor to
repurchase or substitute any such Home Loan pursuant to this Section 3.05 shall
constitute the sole remedy against it with respect to such breach of the
foregoing representations or warranties or the existence of the foregoing
conditions. With respect to representations and warranties made by the
Transferor pursuant to Section 3.04 hereof that are made to the Transferor's
best knowledge, if it is discovered by any of the Depositor, the Transferor, the
Indenture Trustee, the Grantor Trustee or the Owner Trustee that the substance
of such representation and warranty is inaccurate and such inaccuracy materially
and adversely affects the value of the related Home Loan, notwithstanding the
Transferor's lack of knowledge, such inaccuracy shall be deemed a breach of the
applicable representation and warranty.
(b) As to any Deleted Home Loan for which the Transferor substitutes a
Qualified Substitute Home Loan or Loans, the Transferor shall effect such
substitution by delivering to the Indenture Trustee and Grantor Trustee (i) a
certification executed by a Responsible Officer of the Transferor to the effect
that the Substitution Adjustment has been credited to the Collection Account and
(ii) the documents constituting the Grantor Trustee's Home Loan File for such
Qualified Substitute Home Loan or Loans.
The Servicer shall deposit in the Collection Account all payments received
in connection with such Qualified Substitute Home Loan or Loans after the date
of such substitution. Monthly Payments received with respect to Qualified
Substitute Home Loans on or before the date of substitution will be retained by
the Transferor. The Grantor Trustee will be entitled to all payments received on
the Deleted Home Loan on or before the date of substitution and the Transferor
shall thereafter be entitled to retain all amounts subsequently received in
respect of such Deleted Home Loan. The Transferor shall give written notice to
the Grantor Trustee, the Servicer (if the Transferor is not then acting as
such), the Indenture Trustee and Owner Trustee that such substitution has taken
place and the Servicer shall amend the Home Loan Schedule to reflect (i) the
removal of such Deleted Home Loan from the terms of this Agreement and (ii) the
substitution of the Qualified Substitute Home Loan. The Transferor shall
promptly deliver to the Grantor Trustee, the Servicer (if the Transferor is not
then acting as such), the Indenture Trustee and Owner Trustee, a copy of the
amended Home Loan Schedule. Upon such substitution, such Qualified Substitute
Home Loan or Loans shall be subject to the terms of this Agreement in all
respects, and the Transferor shall be deemed to have made with respect to such
Qualified Substitute Home Loan or Loans, as of the date of substitution, the
covenants, representations and warranties set forth in Section 3.04 hereof. On
the date of such substitution, the Transferor will deposit into the Collection
Account an amount equal to the related Substitution Adjustment, if any.
(c) With respect to all Defective Home Loans or other Home Loans
repurchased by the Transferor pursuant to this Agreement, upon the deposit of
the Purchase Price therefor into the Collection Account, the Grantor Trustee
shall assign to the Transferor, without recourse, representation or warranty,
all the Grantor Trustee's right, title and interest in and to such Defective
Home Loans or Home Loans, which right, title and interest were conveyed to the
Grantor Trustee pursuant to the Grantor Trust Agreement. The Grantor Trustee
shall take any actions as shall be reasonably requested by the Transferor to
effect the repurchase of any such Home Loans.
(d) It is understood and agreed that the obligations of the Transferor set
forth in this Section 3.05 to cure, purchase or substitute for a Defective Home
Loan (and to indemnify the Grantor Trustee for certain losses as described
herein in connection with a Defective Home Loan) constitute the sole remedies
hereunder of the Depositor, the Indenture Trustee, the Grantor Trustee, the
Owner Trustee and the Securityholders respecting a breach of the representations
and warranties contained in Section 3.02 and Section 3.04 hereof. Any cause of
action against the Transferor relating to or arising out of a defect in a
Grantor Trustee's Home Loan File as contemplated by Section 2.06 of the Grantor
Trust Agreement or against the Transferor relating to or arising out of a breach
of any representations and warranties made in Section 3.04 hereof shall accrue
as to any Home Loan upon (i) discovery of such defect or breach by any party and
notice thereof to the Transferor or notice thereof by the Transferor to the
Indenture Trustee, (ii) failure by the Transferor to cure such defect or breach
or purchase or substitute such Home Loan as specified above, and (iii) demand
upon the Transferor, as applicable, by the Grantor Trustee or the Grantor Trust
Holder for all amounts payable in respect of such Home Loan.
(e) Neither the Grantor Trustee, the Owner Trustee nor the Indenture
Trustee shall have any duty to conduct any affirmative investigation other than
as specifically set forth in this Agreement as to the occurrence of any
condition requiring the repurchase or substitution of any Home Loan pursuant to
this Section or the eligibility of any Home Loan for purposes of this Agreement.
ARTICLE IV
ADMINISTRATION AND SERVICING OF THE HOME LOANS
Section 4.01 Duties of the Servicer.
(a) Servicing Standard. The Servicer, as an independent contractor, shall
service and administer the Home Loans and shall have full power and authority,
acting alone, to do any and all things in connection with such servicing and
administration which the Servicer may deem necessary or desirable and consistent
with the terms of this Agreement and the ordinary servicing practices of prudent
mortgage lending institutions. Notwithstanding anything to the contrary
contained herein, the Servicer, in servicing and administering the Home Loans,
shall employ or cause to be employed procedures (including collection,
foreclosure, liquidation and Foreclosure Property management and liquidation
procedures) and exercise the same care that it customarily employs and exercises
in servicing and administering loans of the same type as the Home Loans for its
own account, all in accordance with Accepted Servicing Procedures of prudent
lending institutions and servicers of loans of the same type as the Home Loans
and giving due consideration to the Grantor Trust Holder's and Securityholders'
reliance on the Servicer. The Servicer has and shall maintain the facilities,
procedures and experienced personnel necessary to comply with the servicing
standard set forth in this subsection (a) and the duties of the Servicer set
forth in this Agreement relating to the servicing and administration of the Home
Loans. In performing its obligations hereunder the Servicer shall at all times
act in good faith in a commercially reasonable manner in accordance with
applicable law and the Debt Instruments and Mortgages.
(b) Servicing Advances. In accordance with the preceding general servicing
standard, the Servicer, or any Subservicer on behalf of the Servicer, shall make
all Servicing Advances in connection with the servicing of each Home Loan
hereunder. Notwithstanding any provision to the contrary herein, neither the
Servicer nor any Subservicer on behalf of the Servicer shall have any obligation
to advance its own funds for any delinquent scheduled payments of principal and
interest on any Home Loan or to satisfy or keep current the indebtedness secured
by any Superior Liens on the related Mortgaged Property. No costs incurred by
the Servicer or any Subservicer in respect of Servicing Advances shall, for the
purposes of distributions in respect of the Grantor Trust Certificate to
Securityholders, be added to the amount owing under the related Home Loan.
Notwithstanding any obligation by the Servicer to make a Servicing Advance
hereunder with respect to a Home Loan, before making any Servicing Advance that
is material in relation to the outstanding principal balance of such Home Loan,
the Servicer shall assess the reasonable likelihood of (i) recovering such
Servicing Advance and any prior Servicing Advances for such Home Loan and (ii)
recovering any amounts attributable to outstanding interest and principal owing
on such Home Loan for the benefit of the Securityholders in excess of the costs,
expenses and other deductions to obtain such recovery, including without
limitation any Servicing Advances therefor and, if applicable, the outstanding
indebtedness of all Superior Liens. The Servicer shall only make a Servicing
Advance with respect to a Home Loan to the extent that the Servicer determines
in its reasonable, good faith judgment that such Servicing Advance would likely
be recovered as aforesaid; provided, however, that the Servicer will be entitled
to be reimbursed for any Nonrecoverable Servicing Advance pursuant to this
Agreement.
(c) Waivers, Modifications and Extensions; Subordination. The Servicer
shall make reasonably diligent efforts to collect all payments called for under
the terms and provisions of the Home Loans and shall, to the extent such
procedures shall be consistent with this Agreement, follow Accepted Servicing
Procedures. The Servicer may in its discretion waive or permit to be waived any
penalty interest or any other fee or charge which the Servicer would be entitled
to retain hereunder as servicing compensation and extend the Due Date on a Debt
Instrument for a period (with respect to each payment as to which the Due Date
is extended) not greater than 90 days after the initially scheduled due date for
such payment. Notwithstanding anything in this Agreement to the contrary, the
Servicer shall not permit any additional extension or modification with respect
to any Home Loan other than that permitted by the immediately preceding sentence
unless the Home Loan is a Defaulted Home Loan. The Servicer may in its
discretion enter in subordination agreements with respect to any Home Loan,
provided that the Servicer determines, consistent with this Agreement and
Accepted Servicing Procedures, that the entering into of such subordination
agreement is in the best interests of the Grantor Trust.
(d) Instruments of Satisfaction or Release. Without limiting the generality
of subsection (c) of this Section 4.01, the Servicer, in its own name or in the
name of a Subservicer, is hereby authorized and empowered, when the Servicer
believes it appropriate in its best judgment, to execute and deliver, on behalf
of the Grantor Trust Holder and the Grantor Trustee or any of them, and upon
notice to the Grantor Trustee, 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 Loans and the Mortgaged
Properties and to institute foreclosure proceedings or obtain a deed in lieu of
foreclosure so as to convert the ownership of such properties, and to hold or
cause to be held title to such properties, on behalf of the Grantor Trustee and
Grantor Trust Holder. The Servicer shall service and administer the Home Loans
in accordance with applicable state and federal law and shall provide to the
Obligors any reports required to be provided to them thereby. The Grantor
Trustee shall execute, at the written direction of the Servicer, any limited or
special powers of attorney and other documents reasonably acceptable to the
Grantor Trustee to enable the Servicer or any Subservicer to carry out their
servicing and administrative duties hereunder, including, without limitation,
limited or special powers of attorney with respect to any Foreclosure Property,
and the Grantor Trustee shall not be accountable for the actions of the Servicer
or any Subservicers under such powers of attorney and shall be indemnified by
such parties with respect to such actions.
Section 4.02 Payment of Taxes, Insurance and Other Charges.
The Servicer may and, if required by the Servicer, the Subservicers shall,
establish and maintain one or more accounts (each, a "Servicing Account") into
which any collections from the Obligors (or related advances from Subservicers)
for the payment of taxes, assessments, hazard insurance premiums and comparable
items for the account of the Obligors shall be deposited and retained. Servicing
Accounts shall be Eligible Accounts. Withdrawals of amounts so collected from a
Servicing Account may be made only to (i) effect timely payment of taxes,
assessments, hazard insurance premiums and comparable items; (ii) reimburse the
Servicer (or a Subservicer to the extent provided in the related Subservicing
Agreement) out of related collections for any advances with respect to taxes,
assessments, hazard insurance premiums and comparable items; (iii) refund to
Obligors any sums as may be determined to be overages; (iv) pay interest, if
required and as described below, to Obligors on balances in the Servicing
Account; or (v) clear and terminate the Servicing Account at the termination of
this Agreement in accordance with Section 11.01 hereof. As part of its servicing
duties, the Servicer or Subservicers shall pay to the Obligors interest on funds
in Servicing Accounts to the extent required by law and, to the extent that
interest earned on funds in the Servicing Accounts is insufficient, to pay such
interest from its or their own funds, without any reimbursement from the
Indenture Trustee, the Grantor Trustee, the Owner Trustee or the Depositor. Upon
request of the Indenture Trustee or Grantor Trustee, the Transferor or the
Servicer shall cause the bank, savings association or other depository for each
Servicing Account to forward to the Indenture Trustee or Grantor Trustee, as the
case may be, copies of such statements or reports as the Indenture Trustee or
Grantor Trustee, the Depositor or any Grantor Trust Holder shall reasonably
request.
Section 4.03 Fidelity Bond; Errors and Omissions Insurance.
The Servicer shall maintain with a responsible company, and at its own
expense, a blanket fidelity bond and an errors and omissions insurance policy in
such amounts as required by, and satisfying any other requirements of, the
Federal Housing Administration and the FHLMC, with broad coverage on all
officers, employees or other persons acting in any capacity requiring such
persons to handle funds, money, documents or papers relating to the Home Loans
("Servicer Employees"). Any such fidelity bond and errors and omissions
insurance shall protect and insure the Servicer against losses, including losses
resulting from forgery, theft, embezzlement, fraud, errors and omissions and
negligent acts (including acts relating to the origination and servicing of
loans of the same type as the Home Loans) of such Servicer Employees. Such
fidelity bond shall also protect and insure the Servicer against losses in
connection with the release or satisfaction of a Home Loan without having
obtained payment in full of the indebtedness secured thereby. In the event of
any loss of principal or interest on a Home Loan for which reimbursement is
received from the Servicer's fidelity bond or errors and omissions insurance,
the proceeds from any such insurance will be deposited in the Collection
Account. No provision of this Section 4.03 requiring such fidelity bond and
errors and omission insurance shall diminish or relieve the Servicer from its
duties and obligations as set forth in this Agreement. Upon the request of the
Grantor Trustee or the Indenture Trustee, the Servicer shall cause to be
delivered to the requesting party a certified true copy of such fidelity bond
and insurance policy.
Section 4.04 Filing of Continuation Statements.
On or before the fifth anniversary of the filing of any financing
statements by the Transferor and the Depositor, respectively, with respect to
the assets conveyed to the Grantor Trustee or to the Owner Trust, the Transferor
and the Depositor shall prepare, have executed by the necessary parties and file
in the proper jurisdictions all financing and continuation statements necessary
to maintain the liens, security interests and priorities of such liens and
security interests that have been granted by the Transferor and the Depositor,
respectively, the Transferor and the Depositor shall continue to file on or
before each fifth anniversary of the filing of any financing and continuation
statements such additional financing and continuation statements until the Owner
Trust and Grantor Trust have terminated pursuant to Section 9.1 of the Owner
Trust Agreement and Section 7.01 of the Grantor Trust Agreement, respectively.
The Indenture Trustee and Grantor Trustee agree to cooperate with the Transferor
and the Depositor in preparing, executing and filing such statements. The
Indenture Trustee and Grantor Trustee agree to notify the Transferor and the
Depositor on the third Payment Date prior to each such fifth anniversary of the
requirement that they file such financing and continuation statements. The
filing of any such statement with respect to the Transferor and the Depositor
shall not be construed as any indication of an intent of any party contrary to
the expressed intent set forth in Section 2.03 hereof and Section 2.04 of the
Grantor Trust Agreement. If the Transferor or the Depositor has ceased to do
business whenever any such financing and continuation statements must be filed
or the Transferor or the Depositor fails to file any such financing statements
or continuation statements at least one month prior to the expiration thereof,
each of the Transferor and the Depositor does hereby make, constitute and
appoint the Grantor Trustee its attorney-in-fact, with full power and authority,
to execute and file in its name and on its behalf any such financing statements
or continuation statements required under this Section 4.04 relating to assets
conveyed to the Grantor Trustee and the Depositor does hereby make, constitute
and appoint the Indenture Trustee its attorney-in-fact, with full power and
authority, to execute and file in its name and on its behalf any such financing
statements or continuation statements required under this Section 4.04 relating
to assets conveyed to the Owner Trust.
Section 4.05 Superior Liens.
If the Servicer is notified that any lienholder under a Superior Lien has
accelerated or intends to accelerate the obligations secured by such Superior
Lien, or has declared or intends to declare a default under the related mortgage
or the promissory note secured thereby, or has filed or intends to file an
election to have any Mortgaged Property sold or foreclosed, the Servicer shall
take, on behalf of the Grantor Trust and the Grantor Trustee, all reasonable
actions that are necessary to protect the interests of the Grantor Trust Holder
and/or to preserve the security of the related Home Loan, including making any
Servicing Advances that are necessary to cure the default or reinstate the
Superior Lien. The Servicer shall promptly notify the Grantor Trustee if it
takes any such action. Any Servicing Advances by the Servicer pursuant to its
obligations in this Section 4.05 shall comply with requirements set forth in
Section 4.01(b) hereof.
Section 4.06 Subservicing.
(a) The Servicer may enter into Subservicing Agreements for any servicing
and administration of Home Loans with any institution that is an Eligible
Servicer and in compliance with the laws of each state necessary to enable it to
perform its obligations under such Subservicing Agreement. The Servicer shall
give prior written notice to the Grantor Trustee of the appointment of any
Subservicer. The Servicer shall be entitled to terminate any Subservicing
Agreement in accordance with the terms and conditions of such Subservicing
Agreement and to either service the related Home Loans directly or enter into a
Subservicing Agreement with a successor subservicer which qualifies hereunder.
In the event of termination of any Subservicer, and unless a successor
Subservicer has otherwise been appointed, all servicing obligations of such
Subservicer shall be assumed simultaneously by the Servicer without any
additional act or deed on the part of such Subservicer or the Servicer, and the
Servicer shall service directly the related Home Loans.
Each Subservicing Agreement shall include the provision that such agreement
may be immediately terminated by the Grantor Trustee in the event that the
Servicer shall, for any reason, no longer be the Servicer. In no event shall any
Subservicing Agreement require the Grantor Trustee, as Successor Servicer, for
any reason whatsoever to pay compensation to a Subservicer in order to terminate
such Subservicer.
(b) Notwithstanding any Subservicing Agreement, any of the provisions of
this Agreement relating to agreements or arrangements between the Servicer and a
Subservicer or reference to actions taken through a Subservicer or otherwise,
the Servicer shall remain obligated and primarily liable to the Grantor Trustee
and the Grantor Trust Holder for the servicing and administration of the Home
Loans in accordance with the provisions of this Agreement without diminution of
such obligation or liability by virtue of such Subservicing Agreements or
arrangements or by virtue of indemnification from the Subservicer and to the
same extent and under the same terms and conditions as if the Servicer alone
were servicing and administering the Home Loans. For purposes of this Agreement,
the Servicer shall be deemed to have received payments on Home Loans when the
Subservicer has actually received such payments and, unless the context
otherwise requires, references in this Agreement to actions taken or to be taken
by the Servicer in servicing the Home Loans include actions taken or to be taken
by a Subservicer on behalf of the Servicer. The Servicer shall be entitled to
enter into any agreement with a Subservicer for indemnification of the Servicer
by such Subservicer, and nothing contained in this Agreement shall be deemed to
limit or modify such indemnification.
(c) In the event the Servicer shall for any reason no longer be the
Servicer (including by reason of an Event of Default), the successor Servicer,
on behalf of the Grantor Trustee, the Indenture Trustee, the Securityholders and
the Grantor Trust Holder pursuant to Section 4.07 hereof, shall thereupon assume
all of the rights and obligations of the Servicer under each Subservicing
Agreement that the Servicer may have entered into, unless the successor Servicer
elects to terminate any Subservicing Agreement in accordance with its terms. The
successor Servicer shall be deemed to have assumed all of the Servicer's
interest therein and to have replaced the Servicer as a party to each
Subservicing Agreement to the same extent as if the Subservicing Agreements had
been assigned to the assuming party, except that the Servicer shall not thereby
be relieved of any liability or obligations under the Subservicing Agreements
which accrued prior to the transfer of servicing to the successor Servicer. The
Servicer, at its expense and without right of reimbursement therefor, shall,
upon request of the successor Servicer, deliver to the assuming party all
documents and records relating to each Subservicing Agreement and the Home Loans
then being serviced and an accounting of amounts collected and held by it and
otherwise use its best efforts to effect the orderly and efficient transfer of
the Subservicing Agreements to the assuming party.
(d) As part of its servicing activities hereunder, the Servicer for the
benefit, of the Grantor Trust, the Grantor Trustee, the Grantor Trust Holder and
the Securityholders, shall enforce the obligations of each Subservicer under the
related Subservicing Agreement. Such enforcement, including, without limitation,
the legal prosecution of claims and the pursuit of other appropriate remedies,
shall be in such form and carried out to such an extent and at such time as the
Servicer, in its good faith business judgment, would require were it the owner
of the related Home Loans. The Servicer shall pay the costs of such enforcement
at its own expense and shall be reimbursed therefor only (i) from a general
recovery resulting from such enforcement to the extent, if any, that such
recovery exceeds all amounts due in respect of the related Home Loan or (ii)
from a specific recovery of costs, expenses or attorneys' fees against the party
against which such enforcement is directed.
(e) Any Subservicing Agreement that may be entered into and any other
transactions or services relating to the Home Loans involving a Subservicer
shall be deemed to be between the Subservicer and the Servicer alone and none of
the Grantor Trustee, the Owner Trustee, the Indenture Trustee, the
Securityholders or the Grantor Trust Holder shall be deemed parties thereto or
shall have any claims, rights, obligations, duties or liabilities with respect
to the Subservicer in its capacity as such except as set forth in subsection (c)
of this Section 4.06.
(f) In those cases where a Subservicer is servicing a Home Loan pursuant to
a Subservicing Agreement, the Subservicer will be required to establish and
maintain one or more accounts (collectively, the "Subservicing Account"). The
Subservicing Account shall be an Eligible Account. The Subservicer will be
required to deposit into the Subservicing Account, no later than the first
Business Day after receipt, all proceeds of Home Loans received by the
Subservicer and remit such proceeds to the Servicer for deposit in the
Collection Account not later than the Business Day following receipt thereof by
the Subservicer. Notwithstanding anything in this subsection (f) to the
contrary, the Subservicer shall only be able to withdraw funds from the
Subservicing Account for the purpose of remitting such funds to the Servicer for
deposit into the Collection Account. The Servicer shall require the Subservicer
to cause any collection agent of the Subservicer to send a copy to the Servicer
of each statement of monthly payments collected by or on behalf of the
Subservicer within five Business Days after the end of every month, and the
Servicer shall compare the information provided in such reports with the
deposits made by the Subservicer into the Collection Account for the same
period. The Servicer shall be deemed to have received payments on the Home Loans
on the date on which the Subservicer has received such payments.
Section 4.07 Successor Servicers.
In the event that the Servicer is terminated pursuant to Section 10.01
hereof, or resigns pursuant to Section 9.04 hereof or otherwise becomes unable
to perform its obligations under this Agreement, the Grantor Trustee will become
the successor servicer or will appoint a successor servicer in accordance with
the provisions of Section 10.02 hereof; provided, however, that any successor
servicer, excluding the Grantor Trustee, shall satisfy the requirements of an
Eligible Servicer and shall be approved by the Rating Agencies.
Section 4.08 Maintenance of Insurance.
(a) The Servicer shall cause to be maintained for each Foreclosure Property
acquired by the Grantor Trustee such types and amounts of insurance coverage as
the Servicer shall deem reasonable.
(b) Any amounts collected by the Servicer under any Insurance Policies
shall be paid over or applied by the Servicer as follows:
(i) In the case of amounts received in respect of any Home Loan:
(A) for the restoration or repair of the affected Property, in
which event such amounts shall be released to the Obligor in
accordance with the terms of the related Debt Instrument or
(B) to the extent not so used, in reduction of the Principal
Balance of the related Home Loan, in which event such
amounts shall be deposited into the Collection Account,
unless the related instruments require a different application, in which case
such amounts shall be applied in the manner provided therein; and
(ii) Subject to Section 4.10 hereof, in the case of amounts received
in respect of any Foreclosure Property, for the restoration or repair of
such Foreclosure Property, unless the Servicer determines, consistent with
the servicing standard set forth in Section 4.01 hereof, that such
restoration or repair is not in the best economic interest of the Grantor
Trust Holder, in which event such amounts shall be deposited into the
Collection Account as a payment received from the operation of such
Foreclosure Property.
Section 4.09 Reports to the Securities and Exchange Commission; 144A
Information.
(a) The Indenture Trustee shall, on behalf of the Issuer, cause to be filed
with the Securities and Exchange Commission all monthly reports on Form 8-K and
annual reports on Form 10-K 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. Upon the request of the
Indenture Trustee, each of the Servicer and the Transferor shall cooperate with
the Indenture Trustee in the preparation of any such report and shall provide to
the Indenture Trustee in a timely manner all such information or documentation
as the Indenture Trustee may reasonably request in connection with the
performance of its duties and obligations under this Section 4.09. The Indenture
Trustee shall indemnify and hold harmless each of the Issuer and the Depositor
for any costs, expenses or liability arising as a result of the failure of the
Indenture Trustee to perform its duties and obligations under this Section 4.09.
(b) The Servicer shall provide to the Indenture Trustee, if requested,
information regarding the Class B-2 Notes and the Home Loans and such other
information as the Indenture Trustee shall be required to deliver to any holder
of a Class B-2 Note and any prospective transferee designated by any such holder
to satisfy the condition of eligibility set forth in Rule 144A(d)(4) under the
Securities Act.
Section 4.10 Foreclosure; Foreclosure Alternatives.
(a) If any monthly payment due under any Home Loan is not paid when the
same is due and payable, or if the Obligor fails to perform any other covenant
or obligation under such Home Loan and such failure continues beyond any
applicable grace period, the Servicer shall, in accordance with the standard of
care specified in Section 4.01(a), take such action as it shall deem to be in
the best interest of the Grantor Trust Holder, including but not limited to
proceeding against the Mortgaged Property securing such Home Loan, accepting
short pay offs, short sales, entering into assumptions and modifications,
pursuing collection litigation or alternative court proceedings to foreclosure
actions. In the event that the Servicer determines not to proceed against the
Mortgaged Property or Obligor, as applicable, on or before the Determination
Date following such determination, the Servicer shall determine in good faith in
accordance with customary servicing practices that all amounts which it expects
to receive with respect to such Home Loan have been received. If the Servicer
makes such a determination, it shall give notice to such effect to the Grantor
Trustee and the Indenture Trustee.
(b) In accordance with the criteria for proceeding against the Mortgaged
Property set forth in subsection (a) of this Section 4.10, unless otherwise
prohibited by applicable law or court or administrative order, the Servicer, on
behalf of the Grantor Trust Holders, may, at any time, institute foreclosure
proceedings to the extent permitted by law, exercise any power of sale to the
extent permitted by law, obtain a deed in lieu of foreclosure, or otherwise
acquire possession of or title to the related Mortgaged Property, by operation
of law or otherwise.
In accordance with the criteria for proceeding against the Mortgaged
Property set forth in subsection (a) of this Section 4.10, the Servicer shall
institute foreclosure proceedings, repossess, exercise any power of sale to the
extent permitted by law, obtain a deed in lieu of foreclosure or otherwise
acquire possession of or title to any Property, by operation of law or
otherwise, only in the event that in the Servicer's reasonable judgment such
action is likely to result in a positive economic benefit to the Grantor Trust
by creating net liquidation proceeds (after reimbursement of all amounts owed
with respect to such Home Loan to the Servicer).
Prior to acquiring any Foreclosure Property, however, the Servicer shall
cause a review to be performed, in accordance with Accepted Servicing
Procedures, on the related Mortgaged Property by a company such as Equifax, Inc.
or Toxicheck, and the scope of such review shall be limited to the review of
public records and documents for indications that such Mortgaged Property has on
it, has under it, or is near hazardous or toxic material or waste. If such
review reveals that the Mortgaged Property has on it, under it or is near
hazardous or toxic material or waste or reveals any other environmental problem,
the Servicer shall provide a copy to the Grantor Trustee and the Indenture
Trustee of the related report with an attached certification of a Responsible
Officer that based on an analysis of all available information (including
potential clean up costs and liability claims) at the time it is the best
judgment of such Responsible Officer that such foreclosure shall increase Net
Liquidation Proceeds to the Grantor Trust and the Grantor Trustee shall take
title to such Mortgaged Property. The Grantor Trustee shall promptly forward
such report and certification to the Grantor Trust Holder.
(c) The Grantor Trustee shall furnish the Servicer, within 5 days after
request of the Servicer therefor, any powers of attorney and other documents
necessary and appropriate to carry out its duties hereunder, including any
documents or powers of attorney necessary to foreclose any Mortgage. The forms
of any such powers or documents shall be appended to such requests.
Section 4.11 Title, Management and Disposition of Foreclosure Property.
In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure (a "Foreclosure Property"), the
deed or certificate of sale shall be taken in the name of the Grantor Trustee
for the benefit of the Grantor Trust Holder. The Servicer shall manage,
conserve, protect and operate each Foreclosure Property for the Grantor Trustee
and the Grantor Trust Holder solely for the purpose of the prudent and prompt
disposition and sale of such Foreclosure Property. The Servicer shall, either
itself or through an agent selected by the Servicer, manage, conserve, protect
and operate the Foreclosure Property in the same manner that it manages,
conserves, protects and operates other foreclosure property for its own account.
Subject to Section 4.10 hereof, the Servicer shall, consistent with the
servicing standards set forth herein, foreclose upon or otherwise comparably
convert the ownership of Properties securing such of the Home Loans as come into
and continue in default and as to which no satisfactory arrangements can be made
for collection of delinquent payments. In connection with realization upon
defaulted Home Loans, the Servicer shall follow such practices and procedures as
it shall deem necessary or advisable, as shall be normal and usual in accordance
with Accepted Servicing Procedures and as shall meet the requirements of
insurers under any insurance policy required to be maintained hereunder with
respect to the related Home Loan. The Servicer shall be responsible for all
costs and expenses incurred by it in any such proceedings; provided, however,
that such costs and expenses will be recoverable as Servicing Advances by the
Servicer as contemplated herein.
The Servicer shall not be required to make any Servicing Advance, to
foreclose upon any Mortgaged Property, or otherwise expend its own funds toward
the restoration of any Mortgaged Property that shall have suffered damage from
any cause of damage to a Mortgaged Property such that the complete restoration
of such property is not fully reimbursable by the hazard insurance policies
required to be maintained pursuant to this Agreement unless it shall determine
in its reasonable judgment, as evidenced by a certificate of a Servicing
Officer, that such foreclosure or restoration, as the case may be, will increase
the proceeds of liquidation of the related Home Loan after reimbursement to
itself of Servicing Advances. Any Servicing Advances made with respect to a Home
Loan shall be recoverable by the Servicer only from recoveries on such Home Loan
except to the extent such Servicing Advance is deemed a Nonrecoverable Servicing
Advance.
The Servicer may offer to sell to any Person any Foreclosure Property, if
and when the Servicer determines, in a manner consistent with Accepted Servicing
Procedures, that such a sale would be in the best interests of the Grantor
Trust. The Servicer shall give the Grantor Trustee and the Indenture Trustee not
less than five days' prior notice of its intention to sell any Foreclosure
Property and shall accept the highest bid received from any Person for any
Foreclosure Property in an amount at least equal to the sum of:
(1) the Principal Balance of the related foreclosed Home Loan plus the
outstanding amount of any Superior Liens; and
(2) all unpaid interest accrued thereon at the related Home Loan
Interest Rate through the date of sale.
In the absence of any such bid, the Servicer shall accept the highest bid
received from any Person that is determined to be a fair price for such
Foreclosure Property by the Servicer, if the highest bidder is a Person other
than an Interested Person, or by an Independent appraiser retained by the
Servicer, if the highest bidder is an Interested Person. In the absence of any
bid determined to be fair as aforesaid, the Servicer shall offer the affected
Foreclosure Property for sale to any Person, other than an Interested Person, in
a commercially reasonable manner for a period of not less than 10 or more than
30 days, and shall accept the highest cash bid received therefor in excess of
the highest bid previously submitted. If no such bid is received, any Interested
Person may resubmit its original bid and the Servicer shall accept the highest
outstanding cash bid, regardless of from whom received. No Interested Person
shall be obligated to submit a bid to purchase any Foreclosure Property and,
notwithstanding anything to the contrary herein, neither the Grantor Trustee,
the Owner Trustee or the Indenture Trustee, in its individual capacity, nor any
of its Affiliates may bid for or purchase any Foreclosure Property pursuant
hereto.
In determining whether any bid constitutes a fair price for any Foreclosure
Property, the Servicer shall take into account, and any appraiser or other
expert in real estate matters shall be instructed to take into account, as
applicable, among other factors, the financial standing of any tenant of the
Foreclosure Property, the physical condition of the Foreclosure Property and the
state of the local and national economies.
Subject to the provisions of Section 4.10 hereof, the Servicer shall act on
behalf of the Grantor Trustee in negotiating and taking any other action
necessary or appropriate in connection with the sale of any Foreclosure
Property, including the collection of all amounts payable in connection
therewith. Any sale of a Foreclosure Property shall be without recourse to the
Grantor Trustee, the Servicer or the Grantor Trust and, if consummated in
accordance with the terms of this Agreement, neither the Servicer nor the
Grantor Trustee shall have any liability to any Grantor Trust Holder or
Securityholder with respect to the purchase price therefor accepted by the
Servicer or the Grantor Trustee.
The Servicer may contract with any independent contractor for the operation
and management of any Foreclosure Property; provided, however, that:
(i) the terms and conditions of any such contract shall not be
inconsistent with this Agreement;
(ii) any such contract shall require, or shall be administered to
require, that the independent contractor pay all costs and expenses
incurred in connection with the operation and management of such
Foreclosure Property, remit all related revenues (net of such costs and
expenses) to the Servicer as soon as practicable, but in no event later
than 30 days following the receipt thereof by such independent contractor;
(iii) none of the provisions of this Section 4.11 relating to any such
contract or to actions taken through any such independent contractor shall
be deemed to relieve the Servicer of any of its duties and obligations
hereunder with respect to the operation and management of any such
Foreclosure Property; and
(iv) the Servicer shall be obligated with respect thereto to the same
extent as if it alone were performing all duties and obligations in
connection with the operation and management of such Foreclosure Property.
The Servicer shall be entitled to enter into any agreement with any
independent contractor performing services for it related to its duties and
obligations hereunder for indemnification of the Servicer by such
independent contractor, and nothing in this Agreement shall be deemed to
limit or modify such indemnification. The Servicer shall not be liable for
any fees owed by it to any such independent contractor and any amounts so
expended shall be deemed Servicing Advances. Each liquidation of a
Foreclosure Property shall be carried by the Servicer at such price and
upon such terms and conditions as the Servicer shall deem necessary or
advisable and as shall be normal and usual in its several servicing
activities, and the resulting Liquidation Proceeds shall be distributed in
accordance with Section 5.01 hereof.
ARTICLE V
ESTABLISHMENT OF TRUST ACCOUNTS
Section 5.01 Collection Account and Note Payment Account.
(a) (1) Establishment of Collection Account. The Servicer, for the benefit
of the Grantor Trust Holder, shall cause to be established and maintained
one or more Collection Accounts (collectively, the "Collection Account"),
which shall be separate Eligible Accounts and may be interest-bearing,
entitled "Collection Account, U.S. Bank National Association, as Indenture
Trustee, in trust for the Empire Funding Home Loan Asset Backed Notes,
Series 1997-5". The Collection Account may be maintained with the Indenture
Trustee or any other depository institution which satisfies the
requirements set forth in the definition of Eligible Account. The creation
of any Collection Account other than one maintained with the Indenture
Trustee shall be evidenced by a letter agreement between the Servicer and
the depository institution acceptable to the Indenture Trustee. A copy of
such letter agreement shall be furnished to the Indenture Trustee and, upon
request of any Grantor Trust Holder, to such Grantor Trust Holder. Funds in
the Collection Account shall be invested in accordance with Section 5.03
hereof.
The Collection Account shall be established, as of the Closing Date, with
the Indenture Trustee as an Eligible Account pursuant to the definition thereof.
The Collection Account may, upon written notice to the Grantor Trustee and the
Indenture Trustee, be transferred to a different depository institution so long
as such transfer is to an Eligible Account acceptable to the Indenture Trustee.
The Depositor hereby collaterally assigns the Collection Account to the Issuer
in connection with the sale of the Grantor Trust Certificate to the Issuer
hereunder.
(2) Establishment of Note Payment Account. No later than the Closing
Date, the Servicer, for the benefit of the Noteholders, shall cause to be
established and maintained with the Indenture Trustee one or more Note
Payment Accounts (collectively, the "Note Payment Account"), which shall be
separate Eligible Accounts and may be interest-bearing, entitled "Note
Payment Account, U.S. Bank National Association, as Indenture Trustee, in
trust for the Empire Funding Home Loan Asset Backed Notes, Series 1997-5".
Funds in the Note Payment Account shall be invested in accordance with
Section 5.03 hereof.
(b) (1) Deposits to Collection Account. The Servicer shall use its best
efforts to deposit or cause to be deposited (without duplication), within
two (2) Business Days after receipt thereof, into the Collection Account
and retain therein in trust for the benefit of the Grantor Trust Holder:
(i) all payments on account of principal and interest on the Home
Loans collected after the Cut-Off Date, including any amounts required
to be deposited in the Collection Account pursuant to Section
2.07(b)(vii)(B)(IV) of the Grantor Trust Agreement;
(ii) all Net Liquidation Proceeds pursuant to Section 4.11
hereof;
(iii) all Insurance Proceeds;
(iv) all Released Mortgaged Property Proceeds;
(v) any amounts payable in connection with the repurchase of any
Home Loan and the amount of any Substitution Adjustment pursuant to
Section 2.06 of the Grantor Trust Agreement and Section 3.05 hereof;
(vi) the deposit of the Termination Price under Section 11.01
hereof;
(vii) any amount to be deposited from the Pre-Funding Account or
the Capitalized Interest Account; and
(viii) interest and gains on funds held in the Collection
Account.
The Servicer shall be entitled to retain and not deposit into the
Collection Account any amounts received with respect to a Home Loan that
constitute additional servicing compensation pursuant to Section 7.03 hereof,
and such amounts retained by the Servicer during a Due Period shall be excluded
from the calculation of the Servicing Compensation that is distributable to the
Servicer from the Note Payment Account on the next Payment Date following such
Due Period.
(2) Deposits to Note Payment Account. On the second Business Day prior
to each Payment Date, the Indenture Trustee (based on information provided
by the Servicer for such Payment Date) shall withdraw from the Collection
Account the Available Collection Amount as a distribution in respect of the
Grantor Trust Certificate pursuant to Section 5.02 of the Grantor Trust
Agreement and deposit such into the Note Payment Account for such Payment
Date.
(3) Withdrawals from Collection Account. The Indenture Trustee, at the
direction of the Servicer, shall also make the following withdrawals from
the Collection Account, in no particular order of priority:
(i) to withdraw any amount not required to be deposited in the
Collection Account or deposited therein in error;
(ii) to withdraw the Servicing Advance Reimbursement Amount;
(iii) to clear and terminate the Collection Account in connection
with the termination of this Agreement; and
(iv) to make the payments set forth in Section 9.01(e) hereof.
(c) Withdrawals from Note Payment Account. To the extent funds are
available in the Note Payment Account, the Indenture Trustee (based on the
information provided by the Servicer contained in the Servicer's Monthly
Remittance Report for such Payment Date) shall make withdrawals therefrom by
9:00 a.m. (New York City time) on each Payment Date, for application in the
following order of priority:
(i) to distribute on such Payment Date the following amounts pursuant
to the Indenture in the following order: (a) to the Servicer on behalf of
the Grantor Trustee, an amount equal to (i) the Servicing Compensation (net
of any amounts retained prior to deposit into the Collection Account
pursuant to subsection (b)(1) above) and all unpaid Servicing Compensation
from prior Payment Dates and (ii) all Nonrecoverable Servicing Advances not
previously reimbursed, (b) to the Indenture Trustee, an amount equal to the
Indenture Trustee Fee and all unpaid Indenture Trustee Fees from prior
Payment Dates, (c) to the Owner Trustee, an amount equal to the Owner
Trustee Fee and all unpaid Owner Trustee Fees from prior Due Periods, (d)
to the Custodian on behalf of the Grantor Trustee, an amount equal to the
Custodian Fee, if any, and all unpaid Custodian Fees from prior Payment
Dates, and (e) to the Grantor Trustee, an amount equal to the Grantor
Trustee Fee, if any, and all unpaid Grantor Trustee Fees from prior Payment
Dates; and
(ii) to deposit into the Certificate Distribution Account the
applicable portions of the Available Payment Amount distributable in
respect of the Residual Interest calculated pursuant to subsections (d) and
(e) of this Section 5.01 on such Payment Date.
Notwithstanding that the Notes have been paid in full, the Indenture
Trustee and the Servicer shall continue to maintain the Collection Account and
the Note Payment Account hereunder until the Class Principal Balance of each
Class of Notes has been reduced to zero.
(d) On each Payment Date, the Indenture Trustee (based on the information
provided by the Servicer contained in the Servicer's Monthly Remittance Report
for such Payment Date) shall distribute the Regular Payment Amount from the Note
Payment Account (in the case of all amounts distributable to Noteholders) and
from the Certificate Distribution Account (in the case of all amounts
distributable to Certificateholders), in the following order of priority:
(i) to the holders of the Senior Notes pro rata, their respective
portions of the Senior Noteholders Interest Payment Amount for such Payment
Date;
(ii) sequentially, to the holders of the Class M-1 and Class M-2
Notes, in that order, their respective portions of the Mezzanine
Noteholders' Interest Payment Amount for such Payment Date;
(iii) sequentially, to the holders of the Class B-1 and Class B-2
Notes, in that order, their respective portions of the Subordinate
Noteholders' Interest Payment Amount for such Payment Date;
(iv) if with respect to such Payment Date the Pre-Funding Payment
Trigger shall have occurred, the amount on deposit in the Pre-Funding
Account at the end of the Pre-Funding Period will be paid as principal to
all Classes of Notes then outstanding (other than the Class A-4 IO Notes),
pro rata, based on the Original Class Principal Balances thereof;
(v) sequentially, to the holders of the Class A-1, Class A-2, Class
A-3, and Class A-4 Notes, in that order, until the respective Class
Principal Balances thereof are reduced to zero, the amount necessary to
reduce the aggregate Class Principal Balance of the Class A Notes to the
Senior Optimal Principal Balance for such Payment Date; provided, however,
that on each Payment Date occurring on or after any reduction of the Class
Principal Balances of the Class M-1 Notes, Class M-2 Notes, Class B-1 Notes
and the Class B-2 Notes to zero through the application of Allocable Loss
Amounts, payments shall be made among the then outstanding Class A Notes
pro rata in accordance with their outstanding Class Principal Balances and
not sequentially, until the respective Class Principal Balances thereof are
reduced to zero;
(vi) sequentially, to the holders of the Class M-1 Notes and Class M-2
Notes in that order, the amount necessary to reduce the Class Principal
Balances thereof to the Class M-1 Optimal Principal Balance and the Class
M-2 Optimal Principal Balance, respectively, for such Payment Date;
(vii) sequentially, to the holders of the Class B-1 and Class B-2
Notes, in that order, the amount necessary to reduce the Class Principal
Balances thereof to the Class B-1 Optimal Principal Balance and the Class
B-2 Optimal Principal Balance, respectively, for such Payment Date;
(viii) to the appropriate Class of Notes, an amount equal to the
Overcollateralization Deficiency Amount, if any, in the priorities and
amounts specified in Section 5.01(e) hereof (after giving effect to
payments made pursuant to clauses (i) through (vii) above), and thereafter
sequentially, to the Class M-1 Notes, Class M-2 Notes, Class B-1 and the
Class B-2 Notes, in that order, until their respective Loss Reimbursement
Deficiencies have been paid in full (first, to the reimbursement of
Allocable Loss Amounts, until completely reimbursed and then, to any
accrued interest thereon); and
(ix) any remaining amount to the holders of the Residual Interest
Certificates.
(e) On each Payment Date, the Indenture Trustee (based on the information
provided by the Servicer contained in the Servicer's Monthly Remittance Report
for such Payment Date) shall distribute the Excess Spread, if any, in the
following order of priority (in each case after giving effect to all payments
specified in Section 5.01(d) hereof):
(i) in an amount equal to the Overcollateralization Deficiency
Amount, if any, as follows:
(A) sequentially, to the holders of the Class A-1, Class
A-2, Class A-3, and Class A-4 Notes, in that order,
until the respective Class Principal Balances thereof
are reduced to zero and until the aggregate of their
Class Principal Balances have been reduced to the
Senior Optimal Principal Balance for such Payment Date;
(B) sequentially, to the holders of the Class M-1 Notes and
Class M-2 Notes, in that order, until the respective
Class Principal Balances thereof have been reduced to
the Class M-1 Optimal Principal Balance and Class M-2
Optimal Principal Balance, respectively, for such
Payment Date; and
(C) sequentially, to the holders of the Class B-1 Notes and
Class B-2 Notes, until the respective Class Principal
Balances thereof have been reduced to the Class B-1
Optimal Principal Balance and the Class B-2 Optimal
Principal Balance for such Payment Date; and
(ii) sequentially, to the Class M-1 Notes, the Class M-2 Notes,
Class B-1 Notes and the Class B-2 Notes, in that order,
until their respective Loss Reimbursement Deficiencies, if
any, have been paid in full (in the case of the Class M-1
Notes and Class M-2 Notes: first, to the reimbursement of
Allocable Loss Amounts until completely reimbursed and,
then, to any accrued interest thereon); and
(iii) any remaining amount to the holders of the Residual Interest
Certificates.
Section 5.02 Certificate Distribution Account.
(a) Establishment of Certificate Distribution Account. No later than the
Closing Date, the Servicer, for the benefit of the Certificateholders, shall
cause to be established and maintained with the Indenture Trustee for the
benefit of the Owner Trustee on behalf of the Certificateholders one or more
Certificate Distribution Accounts (collectively, the "Certificate Distribution
Account"), which shall be separate Eligible Accounts and may be
interest-bearing, entitled "Certificate Distribution Account, U.S. Bank National
Association, as Indenture Trustee, in trust for the Empire Funding Home Loan
Owner Trust Series 1997-5". Funds in the Certificate Distribution Account shall
be invested in accordance with Section 5.03 hereof.
(b) Distributions. On each Payment Date the Indenture Trustee shall
withdraw from the Note Payment Account all amounts required to be deposited into
the Certificate Distribution Account with respect to such Payment Date pursuant
to Section 5.01(c)(ii) hereof and, on behalf of the Owner Trustee, shall deposit
such amounts into the Certificate Distribution Account. The Indenture Trustee
shall make payments of all remaining amounts on deposit in the Note Payment
Account to the holders of the Notes to the extent of amounts due and unpaid on
the Notes for principal thereof and interest thereon. The Indenture Trustee, on
behalf of the Owner Trustee shall distribute all amounts on deposit in the
Certificate Distribution Account to the holders of the Residual Interest
Certificates.
(c) All payments made on each Class of Notes on each Payment Date will be
made on a pro rata basis among the Noteholders of record of such Class of Notes
on the next preceding Record Date based on the Percentage Interest represented
by their respective Notes, without preference or priority of any kind, and,
except as otherwise provided in the next succeeding sentence, shall be made by
wire transfer of immediately available funds to the account of such Noteholder,
if such Noteholder shall own of record Notes in original Denominations
aggregating at least $250,000 and shall have so notified the Indenture Trustee,
and otherwise by check mailed to the address of such Noteholder appearing in the
Notes Register. The final payment on each Note will be made in like manner, but
only upon presentment and surrender of such Note at the location specified in
the notice to Noteholders of such final payment.
(d) All distributions made on the Residual Interest Certificates on each
Payment Date will be made pro rata among the holders of the Residual Interest
Certificates of record on the next preceding Record Date based on their
percentage holdings in the Residual Interest, without preference or priority of
any kind, and, except as otherwise provided in the next succeeding sentence,
shall be made by wire transfer of immediately available funds to the account of
each such holder, if such holder shall own of record a Residual Interest
Certificate in an original denomination aggregating at least a 50% holding of
the Residual Interest and shall have so notified the Indenture Trustee, and
otherwise by check mailed to the address of such Residual Interest holder
appearing in the Certificate Register. The final distribution on each Residual
Interest Certificate will be made in like manner, but only upon presentment and
surrender of such Residual Interest Certificate at the location specified in the
notice to holders of the Residual Interest Certificates of such final
distribution. Any amount distributed to the holders of the Residual Interest
Certificates on any Payment Date shall not be subject to any claim or interest
of holders of the other Classes of Notes.
Section 5.03 Trust Accounts; Trust Account Property.
(a) Control of Trust Accounts. Each of the Trust Accounts (or interests
therein) established hereunder has been pledged by the Issuer to the Indenture
Trustee under the Indenture and shall be subject to the lien of the Indenture.
In addition to the provisions hereunder, each of the Trust Accounts shall also
be established and maintained pursuant to the Indenture. Amounts distributed
from each Trust Account in accordance with the Indenture and this Agreement
shall be released from the lien of the Indenture upon such distribution
thereunder or hereunder. The Indenture Trustee shall possess all right, title
and interest in and to all funds on deposit from time to time in the Trust
Accounts (other than the Certificate Distribution Account) and in all proceeds
thereof (including all income thereon) and all such funds, investments, proceeds
and income shall be part of the Trust Account Property and the Owner Trust
Estate. If, at any time, any Trust Account ceases to be an Eligible Account, the
Indenture Trustee (or the Servicer on its behalf) shall, within ten Business
Days (or such longer period, not to exceed 30 calendar days, as to which each
Rating Agency may consent) (i) establish a new Trust Account as an Eligible
Account, (ii) terminate the ineligible Trust Account, and (iii) transfer any
cash and investments from such ineligible Trust Account to such new Trust
Account.
With respect to the Trust Accounts (other than the Certificate Distribution
Account), the Indenture Trustee agrees, by its acceptance hereof, that each such
Trust Account shall be subject to the sole and exclusive custody and control of
the Indenture Trustee (in the case of the Collection Account and the Pre-Funding
Account, on behalf of the Grantor Trustee) for the benefit of the Noteholders
and the Issuer, as the case may be, and the Indenture Trustee shall have sole
signature and withdrawal authority with respect thereto.
In addition to this Agreement and the Indenture, the Certificate
Distribution Account established hereunder shall also be subject to and
established and maintained in accordance with the Owner Trust Agreement. Subject
to rights of the Indenture Trustee hereunder and under the Indenture, the Owner
Trustee shall possess for the benefit of the Certificateholders all right, title
and interest in all funds on deposit from time to time in the Certificate
Distribution Account and in all proceeds thereof (including all income thereon)
and all such funds, investments, proceeds and income shall be part of the Trust
Account Property and the Owner Trust Estate. Subject to the rights of the
Indenture Trustee, the Owner Trustee agrees, by its acceptance hereof, that such
Certificate Distribution Account shall be subject to the sole and exclusive
custody and control of the Owner Trustee for the benefit of the Issuer and the
parties entitled to payments and distributions therefrom, including, without
limitation, the Certificateholders, and the Owner Trustee shall have sole
signature and withdrawal authority with respect to the Certificate Distribution
Account. Notwithstanding the preceding, the distribution of amounts from the
Certificate Distribution Account in accordance with Section 5.01(c)(ii) hereof
shall also be made for the benefit of the Indenture Trustee (including without
limitation with respect to its duties under the Indenture and this Agreement
relating to the Owner Trust Estate), and the Indenture Trustee (in its capacity
as Indenture Trustee) shall have the right, but not the obligation, to take
custody and control of the Certificate Distribution Account and to cause the
distribution of amounts therefrom in the event that the Owner Trustee fails to
distribute such amounts in accordance with subsections (c) and (d) of Section
5.02.
The Servicer shall have the power, revocable by the Indenture Trustee or by
the Owner Trustee with the consent of the Indenture Trustee, to instruct the
Indenture Trustee or Owner Trustee to make withdrawals and payments from the
Trust Accounts for the purpose of permitting the Servicer to carry out its
duties hereunder or permitting the Indenture Trustee or Owner Trustee to carry
out their respective duties herein or under the Indenture, the Owner Trust
Agreement or the Grantor Trust Agreement, as applicable.
(b) (1) Investment of Funds. So long as no Event of Default shall have
occurred and be continuing, the funds held in any Trust Account may be
invested (to the extent practicable and consistent with any requirements of
the Code) in Permitted Investments, as directed by the Transferor in
writing or by telephone or facsimile transmission confirmed in writing by
the Servicer. In any case, funds in any Trust Account must be available for
withdrawal without penalty, and any Permitted Investments must mature or
otherwise be available for withdrawal, not later than the Business Day
immediately preceding the Payment Date next following the date of such
investment and shall not be sold or disposed of prior to its maturity
subject to subsection (b)(2) of this Section. All interest and any other
investment earnings on amounts or investments held in any Trust Account
shall be deposited into such Trust Account immediately upon receipt by the
Indenture Trustee. All Permitted Investments in which funds in any Trust
Account (other than the Certificate Distribution Account) are invested must
be held by or registered in the name of "U.S. Bank National Association, as
Indenture Trustee, in trust for the Empire Funding Home Loan Asset Backed
Notes, Series 1997-5". While the Indenture Trustee holds the Certificate
Distribution Account, on behalf of the Owner Trustee, all Permitted
Investments in which funds in the Certificate Distribution Account are
invested shall be held by or registered in the name of "U.S. Bank National
Association, as Indenture Trustee, on behalf of the Owner Trustee, in trust
for the Empire Funding Home Loan Asset Backed Notes, Series 1997-5".
(2) Insufficiency and Losses in Trust Accounts. If any amounts are
needed for disbursement from any Trust Account held by or on behalf of the
Indenture Trustee and sufficient uninvested funds are not available to make
such disbursement, the Indenture Trustee shall cause to be sold or
otherwise converted to cash a sufficient amount of the investments in such
Trust Account. The Indenture Trustee shall not be liable for any investment
loss or other charge resulting therefrom, unless such loss or charge is
caused by the failure of the Indenture Trustee or Owner Trustee,
respectively, to perform in accordance with this Section 5.03.
If any losses are realized in connection with any investment in any Trust
Account pursuant to this Agreement and the Indenture, then the Transferor shall
deposit the amount of such losses (to the extent not offset by income from other
investments in such Trust Account) into such Trust Account immediately upon the
realization of such loss. All interest and any other investment earnings on
amounts held in any Trust Account shall be the income of the Issuer (or, when
there is a single beneficial owner of a Residual Interest Certificate, such
owner), and for federal and state income tax purposes the Issuer (or such single
beneficial owner) shall be the owner (or beneficial owner in the case of the
Pre-Funding Account and the Collection Account).
(c) Subject to section 6.01 of the Indenture, the Indenture Trustee shall
not in any way be held liable by reason of any insufficiency in any Trust
Account held by the Indenture Trustee resulting from any investment loss on any
Permitted Investment included therein (except to the extent that the Indenture
Trustee is the obligor and has defaulted thereon).
(d) With respect to the Trust Account Property, the Indenture Trustee
acknowledges and agrees that:
(1) any Trust Account Property that is held in deposit accounts shall
be held solely in the Eligible Accounts, subject to the last sentence of
subsection (a) of this Section 5.03; and each such Eligible Account shall
be subject to the sole and exclusive dominion, custody and control of the
Indenture Trustee; and, without limitation on the foregoing, the Indenture
Trustee shall have sole signature authority with respect thereto;
(2) any Trust Account Property that constitutes Physical Property
shall be delivered to the Indenture Trustee in accordance with paragraph
(a) of the definition of "Delivery" in Section 1.1 hereof and shall be
held, pending maturity or disposition, solely by the Indenture Trustee or a
financial intermediary (as such term is defined in section 8-313(4) of the
UCC) acting solely for the Indenture Trustee;
(3) any Trust Account Property that is a book-entry security held
through the Federal Reserve System pursuant to federal book-entry
regulations shall be delivered in accordance with paragraph (b) of the
definition of "Delivery" in Section 1.1 hereof and shall be maintained by
the Indenture Trustee, pending maturity or disposition, through continued
book-entry registration of such Trust Account Property as described in such
paragraph; and
(4) any Trust Account Property that is an "uncertificated security"
under Article VIII of the UCC and that is not governed by clause (3) above
shall be delivered to the Indenture Trustee in accordance with paragraph
(c) of the definition of "Delivery" in Section 1.1 hereof and shall be
maintained by the Indenture Trustee, pending maturity or disposition,
through continued registration of the Indenture Trustee's (or its
nominee's) ownership of such security.
(e) The Servicer shall have the power, revocable by the Indenture Trustee
or by the Issuer with the consent of the Indenture Trustee, to instruct the
Indenture Trustee to make withdrawals and payments from the Trust Accounts for
the purpose of permitting the Servicer or the Issuer to carry out their
respective duties hereunder or permitting the Indenture Trustee to carry out its
duties under the Indenture.
Section 5.04 Allocation of Losses.
(a) In the event that Net Liquidation Proceeds, Insurance Proceeds or
Released Mortgaged Property Proceeds on a Liquidated Home Loan are less than the
related Principal Balance plus accrued interest thereon, or any Obligor makes a
partial payment of any Monthly Payment due on a Home Loan, such Net Liquidation
Proceeds, Insurance Proceeds, Released Mortgaged Property Proceeds or partial
payment shall be applied to payment of the related Debt Instrument, first, to
interest accrued at the Home Loan Interest Rate and, then, to principal.
(b) On any Payment Date, any Allocable Loss Amounts shall be applied to the
reduction of the Class Principal Balances of the Class B-2 Notes, the Class B-1
Notes, the Class M-1 Notes and Class M-2 Notes in accordance with the Allocable
Loss Amount Priority.
Section 5.05 Pre-Funding Account.
(a) The Servicer, for the benefit of the Grantor Trust Holder, shall cause
to be established and maintained in the name of the Indenture Trustee a
Pre-Funding Account (the "Pre-Funding Account"), which shall be a separate
Eligible Account and may be interest-bearing, entitled "Pre-Funding Account,
U.S. Bank National Association, as Indenture Trustee, in trust for the Empire
Funding Home Loan Asset Backed Notes, Series 1997-5." The Pre-Funding Account
may be maintained with the Indenture Trustee or any other depository institution
which satisfies the requirements set forth in the definition of Eligible
Account. The Depositor hereby collaterally assigns the Pre-Funding Account to
the Issuer in connection with the sale of the Grantor Trust Certificate
hereunder. The creation of a Pre-Funding Account other than one maintained with
the Indenture Trustee shall be evidenced by a letter agreement between the
Servicer and the depository institution acceptable to the Indenture Trustee. A
copy of such letter agreement shall be furnished to the Indenture Trustee and,
upon request of any Grantor Trust Holder, to such Grantor Trust Holder. Funds in
the Pre-Funding Account shall be invested in accordance with Section 5.03
hereof.
On the Closing Date, the Grantor Trustee will deposit in the Pre-Funding
Account the Pre-Funding Amount (which Pre-Funding Amount was received from the
Depositor and derived from the net proceeds of the sale of the Notes). On each
Subsequent Transfer Date, upon satisfaction of the conditions set forth in
Section 2.07 of the Grantor Trust Agreement with respect to such transfer, the
Indenture Trustee shall withdraw from the Pre-Funding Account an amount equal to
the Principal Balances of the Subsequent Loans transferred to the Grantor
Trustee on such Subsequent Transfer Date and distribute such amount to or upon
the order of the Transferor.
(b) If the Pre-Funding Amount has not been reduced to zero on the last day
of the Pre-Funding Period after giving effect to any reductions in the
Pre-Funding Amount on such date pursuant to paragraph (a) above, the Indenture
Trustee in writing shall withdraw from the Pre-Funding Account on the Mandatory
Redemption Date, as a distribution in respect of the Grantor Trust Certificate
(i) if the Pre-Funding Amount is less than $50,000, and deposit such amount in
the Note Payment Account to be applied to reduce the Outstanding Amount of the
Class of Notes then entitled to payments of principal and (ii) if the
Pre-Funding Amount is greater than or equal to $50,000, and deposit such amounts
to the Note Payment Account to be applied in reduction of the Class Principal
Balance of each Class of Notes, pro rata, based on the respective Original Class
Principal Balances.
(c) On the Business Day preceding each of the second and third Payment
Dates, if applicable, the Indenture Trustee shall withdraw the related
Pre-Funding Earnings for the related Due Period and remit such amounts to the
Transferor.
Section 5.06 Capitalized Interest Account.
(a) The Servicer, for the benefit of the Securityholders, shall cause to be
established and maintained in the name of the Indenture Trustee a Capitalized
Interest Account (the "Capitalized Interest Account"), which shall be a separate
Eligible Account and may be interest-bearing, entitled "Capitalized Interest
Account, U.S. Bank National Association, as Indenture Trustee, in trust for the
Empire Funding Home Loan Asset Backed Notes, Series 1997-5." The Capitalized
Interest Account may be maintained with the Indenture Trustee or any other
depository institution which satisfies the requirements set forth in the
definition of Eligible Account. The creation of a Capitalized Interest Account
other than one maintained with the Indenture Trustee shall be evidenced by a
letter agreement between the Servicer and the depository institution acceptable
to the Indenture Trustee. A copy of such letter agreement shall be furnished to
the Indenture Trustee and, upon request of any Securityholder, to such
Securityholder. Funds in the Capitalized Interest Account shall be invested in
accordance with Section 5.03 hereof.
On the Closing Date, the Owner Trustee will deposit in the Capitalized
Interest Account the Capitalized Interest Initial Deposit from the net proceeds
of the sale of the Notes and the Certificates and on each Subsequent Transfer
Date the Owner Trustee will deposit in the Capitalized Interest Account any
applicable Capitalized Interest Subsequent Deposit with respect to each
Subsequent Loan.
(b) On each Determination Date during the Pre-Funding Period (including the
Determination Date in the month following the Due Period during which the
Pre-Funding Period ends), the Indenture Trustee will withdraw from the
Capitalized Interest Account an amount equal to the Capitalized Interest
Requirement and deposit such amount into the Collection Account.
(c) On the Mandatory Redemption Date, any amounts remaining in the
Capitalized Interest Account shall be paid to the Transferor.
ARTICLE VI
STATEMENTS AND REPORTS; WITHHOLDING
Section 6.01 Statements.
(a) No later than each Determination Date, the Servicer shall deliver to
the Indenture Trustee by facsimile, the receipt and legibility of which shall be
confirmed by telephone, and with hard copy thereof to be delivered no later than
one (1) Business Day after such Determination Date, the Servicer's Monthly
Remittance Report, setting forth the date of such Report (day, month and year),
the name of the Issuer (i.e. "Empire Funding Home Loan Owner Trust 1997-5"), the
Series designation of the Notes (i.e. "Series 1997-5") and the date of this
Agreement, all in substantially the form set out in Exhibit B hereto.
Furthermore, no later than each Determination Date, the Servicer shall deliver
to the Indenture Trustee a magnetic tape or computer disk providing such
information regarding the Servicer's activities in servicing the Home Loans
during the related Due Period as the Indenture Trustee may reasonably require.
(b) On each Payment Date, Indenture Trustee shall distribute, based on
information provided by the Servicer, a monthly statement (the "Payment
Statement") to the Depositor, the Securityholders and the Rating Agencies,
stating the date of original issuance of the Notes (day, month and year), the
name of the Issuer (i.e. "Empire Funding Home Loan Owner Trust 1997-5"), the
Series designation of the Notes (i.e., "Series 1997-5"), the date of this
Agreement and the following information:
(i) the Available Collection Amount and Available Payment Amount for
the related Payment Date;
(ii) the Class Principal Balance or Notional Amount of each Class of
Notes before and after giving effect to payments made to the holders of
such Notes on such Payment Date, and the Pool Principal Balance as of the
first and last day of the related Due Period;
(iii) the Class Factor with respect to each Class of the Notes then
outstanding;
(iv) the amount of principal, if any, and interest to be distributed
to each Class of Notes on the related Payment Date;
(v) with respect to each Class of Notes, the Optimal Principal Balance
thereof;
(vi) the Overcollateralization Deficiency Amount, and any amount to be
distributed to the Noteholders or the holders of the Residual Interest on
such Payment Date;
(vii) the Servicing Compensation, the Indenture Trustee Fee, the
Grantor Trustee Fee, the Owner Trustee Fee and, the Custodian Fee, if any,
for such Payment Date;
(viii) the Overcollateralization Amount on such Payment Date, the
Overcollateralization Target Amount as of such Payment Date, the Net Loan
Losses incurred during the related Due Period, the cumulative Net Loan
Losses as of such Payment Date, the Allocable Loss Amount for such Payment
Date and the application of the Allocable Loss Amount Priority for such
Payment Date;
(ix) the weighted average maturity of the Home Loans and the weighted
average Home Loan Interest Rate of the Home Loans;
(x) certain performance information, including, without limitation,
delinquency and foreclosure information with respect to the Home Loans and
60-Day Delinquency Amounts (as defined in the definition of "Six-Month
Rolling Delinquency Average" in Section 1.01 hereof), as set forth in the
Servicer's Monthly Remittance Report;
(xi) the number of and aggregate Principal Balance of all Home Loans
in foreclosure proceedings and the percent of the aggregate Principal
Balances of such Home Loans to the aggregate Principal Balances of all Home
Loans, all as of the close of business on the last day of the related Due
Period;
(xii) the number of and the aggregate Principal Balance of the Home
Loans in bankruptcy proceedings and the percent of the aggregate Principal
Balances of such Home Loans to the aggregate Principal Balances of all Home
Loans, all as of the close of business on the last day of the related Due
Period;
(xiii) the number of Foreclosure Properties, the aggregate Principal
Balance of the related Home Loans, the book value of such Foreclosure
Properties and the percent of the aggregate Principal Balances of such Home
Loans to the aggregate Principal Balances of all Home Loans, all as of the
close of business on the last day of the related Due Period;
(xiv) during the related Due Period (and cumulatively, from the
Closing Date through the most current Due Period), the number and aggregate
Principal Balance of Home Loans for each of the following: (A) that became
Defaulted Home Loans, (B) that became Liquidated Home Loans, (C) that
became Deleted Home Loans pursuant to Section 3.05 hereof as a result of
such Deleted Home Loans being Defective Home Loans, and (D) that became
Deleted Home loans pursuant to Section 3.05 hereof as a result of such
Deleted Home Loans being Defaulted Home Loans or a Home Loan in default or
imminent default, including the foregoing amounts by loan type (i.e.,
Combination Loans, or Debt Consolidation Loans);
(xv) the scheduled principal payments and the principal prepayments
received with respect to the Home Loans during the Due Period; and
(xvi) the number and aggregate Principal Balance of Home Loans that
were 30, 60 or 90 days Delinquent as of the close of business on the last
day of the related Due Period.
In the case of information furnished to Securityholders pursuant to
subclause (b)(iv) of this Section 6.01, the amounts shall be expressed as a
dollar amount per Note with a $1,000 Denomination.
All reports prepared by the Indenture Trustee of the withdrawals from and
deposits into the Collection Account will be based in whole or in part upon the
information provided to the Indenture Trustee by the Servicer, and the Indenture
Trustee may fully rely upon and shall have no liability with respect to such
information provided by the Servicer.
(c) Within a reasonable period of time after the end of each calendar year,
the Indenture Trustee shall prepare and distribute to each Person that at any
time during the calendar year was a Securityholder such information as is
reasonably necessary to provide to such Person a statement containing the
information set forth in subclause (b)(iv) of this Section 6.01, aggregated for
such calendar year or applicable portion thereof during which such Person was a
Securityholder.
(d) On each Payment Date, the Indenture Trustee shall forward to the
holders of the Residual Interest Certificates a copy of the Payment Statement in
respect of such Payment Date and a statement setting forth the amounts actually
distributed to such holders of the Residual Interest Certificates on such
Payment Date, together with such other information as the Indenture Trustee
deems necessary or appropriate.
(e) Within a reasonable period of time after the end of each calendar year,
the Indenture Trustee shall prepare and distribute to each Person that at any
time during the calendar year was a holder of Residual Interest Certificates, if
requested in writing by such Person, a statement containing the information
provided pursuant to the previous paragraph aggregated for such calendar year or
applicable portion thereof during which such Person was a holder of Residual
Interest Certificates.
(f) The Indenture Trustee shall forward to each Noteholder and each holder
of a Residual Interest Certificate, during the term of this Agreement, such
periodic, special or other reports, including information tax returns or reports
required with respect to the Notes and the Residual Interest Certificates, as
shall be necessary, reasonable, or appropriate with respect to the Noteholders
or the holders of Residual Interest Certificates, or otherwise with respect to
the purposes of this Agreement, all such reports or information in the case of
the Residual Interest Certificates to be provided by and in accordance with such
applicable instructions and directions as the Majority Residual Interestholders
may reasonably require.
(g) Reports and computer tapes furnished by the Servicer and the Indenture
Trustee pursuant to this Agreement shall be deemed confidential and of a
proprietary nature and shall not be copied or distributed except in connection
with the purposes and requirements of this Agreement. No Person entitled to
receive copies of such reports or tapes shall use the information therein for
the purpose of soliciting the customers of the Depositor or the Servicer or for
any other purpose except as set forth in this Agreement.
Section 6.02 Withholding.
The Indenture Trustee shall comply with all requirements of the Code and
applicable state and local law with respect to the withholding from any payments
made to any Noteholder of any applicable withholding taxes imposed thereon and
with respect to any applicable reporting requirements in connection therewith,
giving due effect to any applicable exemptions from such withholding and
effective certifications or forms provided by the recipient. Any amounts
withheld pursuant to this Section 6.02 shall be deemed to have been paid to the
Noteholders for all purposes of this Agreement or the Indenture.
ARTICLE VII
GENERAL SERVICING PROCEDURE
Section 7.01 Due-On-Sale; Due-on-Encumbrance.
(a) If any Home Loan contains a provision, in the nature of a "due-on-
sale" clause, which by its terms:
(i) provides that such Home Loan shall (or may at the related lender's
option) become due and payable upon the sale or other transfer of an
interest in the related Property; or
(ii) provides that such Home Loan may not be assumed without the
consent of the related lender in connection with any such sale or other
transfer, then, for so long as such Home Loan is included in the Grantor
Trust, the Servicer, on behalf of the Grantor Trustee, shall exercise any
right the Grantor Trustee may have as the lender of record with respect to
such Home Loan (x) to accelerate the payments thereon or (y) to withhold
its consent to any such sale or other transfer, in a manner consistent with
Accepted Servicing Procedures.
(b) If any Home Loan contains a provision in the nature of a "due-on-
encumbrance" clause, which by its terms:
(i) provides that such Home Loan shall (or may at the related lender's
option) become due and payable upon the creation of any lien or other
encumbrance on the related Property; or
(ii) requires the consent of the related lender to the creation of any
such lien or other encumbrance on the related Property, then, for so long
as such Home Loan is included in the Grantor Trust, the Servicer, on behalf
of the Grantor Trustee, shall exercise any right the Grantor Trustee may
have as the lender of record with respect to such Home Loan (x) to
accelerate the payments thereon or (y) to withhold its consent to the
creation of any such lien or other encumbrance, in a manner consistent with
Accepted Servicing Standards.
(c) Nothing in this Section 7.01 shall constitute a waiver of the Grantor
Trustee's right to receive notice of any assumption of a Home Loan, any sale or
other transfer of the related Mortgaged Property or the creation of any lien or
other encumbrance with respect to such Mortgaged Property.
Section 7.02 Release of Home Loan Files.
(a) If with respect to any Home Loan:
(i) the outstanding Principal Balance of such Home Loan plus all
interest accrued thereon shall have been paid;
(ii) the Servicer shall have received, in escrow, payment in full of
such Home Loan in a manner customary for such purposes;
(iii) such Home Loan has become a Defective Loan and has been
repurchased or a Qualified Substitute Home Loan has been conveyed to the
Grantor Trustee pursuant to Section 3.05 hereof;
(iv) such Home Loan or the related Foreclosure Property has been sold
in connection with the termination of the Issuer and the Grantor Trust
pursuant to Section 11.01 hereof; or
(v) the related Foreclosure Property has been sold pursuant to Section
4.11 hereof.
In each such case, the Servicer shall deliver a certificate to the effect
that the Servicer has complied with all of its obligations under this Agreement
with respect to such Home Loan and requesting that the Grantor Trustee release
to the Servicer the related Grantor Trustee's Home Loan File, and the Grantor
Trustee shall, within five Business Days or such shorter period as may be
required by applicable law, release, or cause the Custodian to release (unless
such Grantor Trustee's Home Loan File has previously been released), the related
Grantor Trustee's Home Loan File to the Servicer and execute and deliver such
instruments of transfer or assignment, in each case without recourse, as shall
be necessary to vest ownership of such Home Loan in the Servicer or such other
Person as may be specified in such certificate, the forms of any such instrument
to be appended to such certificate.
(b) From time to time and as appropriate for the servicing or foreclosure
of any Home Loan, the Grantor Trustee shall, upon request of the Servicer,
release the related Grantor Trustee's Home Loan File (or any requested portion
thereof) to the Servicer in accordance with Section 3(a) of the Custodial
Agreement.
Section 7.03 Servicing Compensation.
As compensation for its services hereunder, the Servicer shall be entitled
to receive from the Collection Account the Servicing Fee (which Servicing Fee is
an expense of the Grantor Trust), out of which the Servicer shall pay any
servicing fees owed or payable to any Subservicer. Additional servicing
compensation in the form of assumption fees, modification fees, and other
administrative fees, insufficient funds charges, amounts remitted pursuant to
Section 7.01 hereof and late payment charges shall be part of the Servicing
Compensation payable to the Servicer hereunder and shall be paid either by the
Servicer's retaining such additional servicing compensation prior to deposit
into the Collection Account pursuant to Section 5.01(b)(1) hereof or, if
deposited into the Collection Account, as part of the Servicing Compensation
withdrawn from the Note Payment Account pursuant to Section 5.01(c)(1) hereof.
The Servicer shall be required to pay all expenses incurred by it in
connection with its servicing activities hereunder and shall not be entitled to
reimbursement therefor except as specifically provided for herein. The
Transferor also agrees to pay (i) all reasonable costs and expenses incurred by
any successor Servicer or the Grantor Trustee in replacing the Servicer in the
event of a default by the Servicer in the performance of its duties under the
terms and conditions of this Agreement and (ii) the annual monitoring fees of
the Rating Agencies.
Section 7.04 Statement as to Compliance and Financial Statements.
The Servicer will deliver to the Indenture Trustee, the Grantor Trustee,
the Depositor and the Rating Agencies not later than 90 days following the end
of each fiscal year of the Servicer (beginning in 1999), an Officer's
Certificate stating that (i) a review of the activities of the Servicer during
the preceding year and of 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 Servicer has fulfilled all of its obligations under
this Agreement throughout such year, 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 and what action the Servicer proposes
to take with respect thereto.
Contemporaneously with the submission of the Officer's Certificate required
by the preceding paragraph, the Servicer shall deliver to the Indenture Trustee
and the Grantor Trustee a copy of its annual audited financial statements
prepared in the ordinary course of business. The Servicer shall, upon the
request of the Depositor, deliver to such party any unaudited quarterly
financial statements of the Servicer.
The Servicer agrees to make available to the Depositor on a reasonable
basis a knowledgeable officer of the Servicer for the purpose of answering
reasonable questions respecting recent developments affecting the Servicer or
the financial statements of the Servicer and to permit the Depositor on
reasonable notice to inspect the Servicer's servicing facilities during normal
business hours for the purpose of satisfying the Depositor that the Servicer has
the ability to service the Home Loans in accordance with this Agreement.
The Servicer shall also furnish and certify to the requesting party such
other information as to (i) its organization, activities and personnel relating
to the performance of the obligations of the Servicer hereunder, (ii) its
financial condition, (iii) the Home Loans and (iv) the performance of the
obligations of any Subservicer under the related Subservicing Agreement, in each
case as the Indenture Trustee, the Grantor Trustee or the Depositor may
reasonably request from time to time.
Section 7.05 Independent Public Accountants' Servicing Report.
Not later than 90 days following the end of each fiscal year of the
Servicer (beginning with fiscal year 1999), the Servicer at its expense shall
cause any of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & Co., Coopers & ▇▇▇▇▇▇▇ LLP, Deloitte & Touche
LLP, Ernst & Young LLP, KPMG Peat Marwick LLP and Price Waterhouse & Co. or some
other nationally recognized firm of Independent Certified Public Accountants
(which may also render other services to the Servicer) to furnish a statement to
the Indenture Trustee, the Grantor Trustee, the Rating Agencies and the
Depositor to the effect that such firm has examined certain documents and
records relating to the servicing of the Home Loans under this Agreement or of
mortgage loans under pooling and servicing agreements (including the Home Loans
and this Agreement) substantially similar to one another (such statement to have
attached thereto a schedule setting forth the pooling and servicing agreements
covered thereby) and that, on the basis of such examination conducted
substantially in compliance with the Uniform Single Attestation Program for
Mortgage Bankers or the Audit Program for Mortgages serviced for FHLMC, such
firm confirms that such servicing has been conducted in compliance with such
pooling and servicing agreements except for such significant exceptions or
errors in records that, in the opinion of such firm, the Uniform Single
Attestation Program for Mortgage Bankers or the Attestation Program for
Mortgages serviced for FHLMC requires it to report, each of which errors and
omissions shall be specified in such statement. In rendering such statement,
such firm may rely, as to matters relating to direct servicing of mortgage loans
by Subservicers, upon comparable statements for examinations conducted
substantially in compliance with the Uniform Single Attestation Program for
Mortgage Bankers or the Audit Program for Mortgages serviced for FHLMC (rendered
within one year of such statement) of independent public accountants with
respect to the related Subservicer.
Section 7.06 Right to Examine Servicer Records.
Each Securityholder, Grantor Trust Holder, the Indenture Trustee, the
Grantor Trustee, the Owner Trustee and each of their respective agents shall
have the right upon reasonable prior notice, during normal business hours and as
often as reasonably required, to examine, audit and copy, at the expense of the
Person making such examination, any and all of the books, records or other
information of the Servicer (including without limitation any Subservicer to the
extent provided in the related Subservicing Agreement), whether held by the
Servicer or by another on behalf of the Servicer, which may be relevant to the
performance or observance by the Servicer of the terms, covenants or conditions
of this Agreement. In the case of the supervisory agents and examiners of the
Issuer, the Indenture Trustee, the Grantor Trustee, the Owner Trustee, the
Grantor Trust Holder and the Securityholders, access to the documentation
regarding the Home Loans required by applicable state and federal regulations
shall be afforded without charge but only upon reasonable request and during
normal business hours at the offices of the Servicer designated by it. Each
Securityholder, Grantor Trust Holder, the Indenture Trustee, the Grantor Trustee
and the Owner Trustee agree that any information obtained pursuant to the terms
of this Agreement shall be held confidential.
The Servicer also agrees to make available on a reasonable basis to the
Securityholders or any prospective Securityholder a knowledgeable financial or
accounting officer for the purpose of answering reasonable questions respecting
recent developments affecting the Servicer or the financial statements of the
Servicer and to permit the Securityholders and any prospective Securityholder to
inspect the Servicer's servicing facilities during normal business hours for the
purpose of satisfying the Securityholders and such prospective Securityholder
that the Servicer has the ability to service the Home Loans in accordance with
this Agreement.
Section 7.07 Reports to the Indenture Trustee; Collection Account
Statements.
If the Collection Account is not maintained with the Indenture Trustee,
then not later than 25 days after each Record Date, the Servicer shall forward
to the Indenture Trustee a statement, certified by a Servicing Officer, setting
forth the status of the Collection Account as of the close of business on the
preceding Record Date and showing, for the period covered by such statement, the
aggregate of deposits into the Collection Account for each category of deposit
specified in Section 5.01(b)(1) hereof, the aggregate of withdrawals from the
Collection Account for each category of withdrawal specified in Section
5.01(b)(2) and (3) hereof, in each case, for the related Due Period.
Section 7.08 Financial Statements.
The Servicer understands that, in connection with the transfer of the
Notes, Noteholders may request that the Servicer make available to the
Noteholders and to prospective Noteholders annual audited financial statements
of the Servicer for one or more of the most recently completed five fiscal years
for which such statements are available, which request shall not be unreasonably
denied.
ARTICLE VIII
(RESERVED)
ARTICLE IX
THE SERVICER
Section 9.01 Indemnification; Third Party Claims.
(a) The Servicer shall indemnify the Transferor, the Owner Trustee, the
Issuer, the Grantor Trust, the Depositor, the Grantor Trustee and the Indenture
Trustee (each an "Indemnified Party") and hold harmless each of them against any
and all claims, losses, damages, penalties, fines, forfeitures, reasonable legal
fees and related costs, judgments, and other costs and expenses resulting from
any claim, demand, defense or assertion based on or grounded upon, or resulting
from, a breach of any of the Servicer's representations and warranties and
covenants contained in this Agreement or in any way relating to the failure of
the Servicer to perform its duties and service the Home Loans in compliance with
the terms of this Agreement; provided, however, that if the Servicer is not
liable pursuant to the provisions of Section 9.01(d) hereof for its failure to
perform its duties and service the Home Loans in compliance with the terms of
this Agreement, then the provisions of this Section 9.01 shall have no force and
effect with respect to such failure.
(b) The Transferor, the Depositor, the Grantor Trustee, the Owner Trustee
or the Indenture Trustee, as the case may be, shall promptly notify the Servicer
if a claim is made by a third party with respect to a breach of any of the
Servicer's representations and warranties and covenants contained in this
Agreement or in any way relating to the failure of the Servicer to perform its
duties and service the Home Loans in compliance with the terms of this
Agreement. The Servicer shall promptly notify the Indenture Trustee, the Grantor
Trustee, the Owner Trustee and the Depositor of any claim of which it has been
notified pursuant to this Section 9.01 by a Person other than the Depositor,
and, in any event, shall promptly notify the Depositor of its intended course of
action with respect to any claim.
(c) The Servicer shall be entitled to participate in and, upon notice to
the Indemnified Party, assume the defense of any such action or claim in
reasonable cooperation with, and with the reasonable cooperation of, the
Indemnified Party. The Indemnified Party will have the right to employ its own
counsel in any such action in addition to the counsel of the Servicer, but the
fees and expenses of such counsel will be at the expense of such Indemnified
Party, unless (i) the employment of counsel by the Indemnified Party at its
expense has been authorized in writing by the Servicer, (ii) the Servicer has
not in fact employed counsel to assume the defense of such action within a
reasonable time after receiving notice of the commencement of the action, or
(iii) the named parties to any such action or proceeding (including any
impleaded parties) include both the Servicer and one or more Indemnified
Parties, and the Indemnified Parties shall have been advised by counsel that
there may be one or more legal defenses available to them which are different
from or additional to those available to the Servicer. The Servicer shall not be
liable for any settlement of any such claim or action unless the Servicer shall
have consented thereto or be in default on its obligations hereunder. Any
failure by an Indemnified Party to comply with the provisions of this Section
9.01 shall relieve the Servicer of liability only if such failure is materially
prejudicial to the position of the Servicer and then only to the extent of such
prejudice.
(d) None of the Transferor, the Depositor, the Servicer or any of the
directors, officers, employees or agents of the Transferor, the Depositor or the
Servicer, or members or Affiliates of the Depositor shall be under any liability
to the Issuer or the Securityholders for any action taken, or for refraining
from the taking of any action, in good faith pursuant to this Agreement, or for
errors in judgment; provided, however, that this provision shall not protect the
Transferor, the Depositor, the Servicer or any such person against the remedies
provided herein for the breach of any warranties, representations or covenants
made herein, or against any specific liability imposed on the Transferor, the
Depositor or the Servicer herein, or against any liability which would otherwise
be imposed by reason of willful misfeasance, bad faith or negligence in the
performance of the duties of the Servicer, the Depositor or the Transferor, as
the case may be, or by reason of reckless disregard of the obligations and
duties of the Servicer, the Depositor or the Transferor, as the case may be,
hereunder. The Transferor, the Depositor, the Servicer and any director,
officer, employee or agent of the Transferor, the Depositor or the Servicer, or
any member or Affiliate of the Depositor may rely in good faith on any document
of any kind which, prima facie, is properly executed and submitted by any Person
respecting any matters arising hereunder.
(e) The Servicer, the Transferor and the Depositor and any director,
officer, employee or agent of the Servicer, the Transferor or the Depositor
shall be indemnified by the Issuer and held harmless against any loss, liability
or expense incurred in connection with any audit, controversy or judicial
proceeding relating to a governmental taxing authority or any legal action
relating to this Agreement or the Securities, other than any loss, liability or
expense related to any specific Home Loan or Home 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 negligence in the performance of duties hereunder or
by reason of reckless disregard of obligations and duties hereunder. Except as
otherwise provided herein, none of the Transferor, the Depositor or the Servicer
shall be under any obligation to appear in, prosecute or defend any legal action
that is not related to its respective duties under this Agreement; provided,
however, that, except as otherwise provided herein, any of the Transferor, the
Depositor or the Servicer may, with the prior consent of the Indenture Trustee,
in its discretion undertake any such action which it may deem necessary or
desirable with respect to this Agreement and the rights and duties of the
parties hereto and the interests of the Securityholders hereunder. In such
event, the legal expenses and costs of such action and any liability resulting
therefrom shall be expenses, costs and liabilities of the Issuer, and the
Transferor, the Depositor and the Servicer shall be entitled to be reimbursed
therefor out of the Collection Account.
Section 9.02 Merger or Consolidation of the Servicer.
The Servicer shall keep in full effect its existence, rights and franchises
as a corporation, and will obtain and preserve its qualification to do business
as a foreign corporation and maintain such other licenses and permits in each
jurisdiction necessary to protect the validity and enforceability of this
Agreement or any of the Home Loans and to perform its duties under this
Agreement; provided, however, that the Servicer may merge or consolidate with
any other corporation upon the satisfaction of the conditions set forth in the
following paragraph.
Any Person into which the Servicer may be merged or consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Servicer shall be a party, or any Person succeeding to the business of the
Servicer, shall be an Eligible Servicer and shall be the successor of the
Servicer, as applicable hereunder, without the execution or filing of any paper
or any further act on the part of any of the parties hereto, anything herein to
the contrary notwithstanding. The Servicer shall send notice of any such merger,
conversion, consolidation or succession to the Indenture Trustee, the Grantor
Trustee and the Issuer.
Section 9.03 Limitation on Liability of the Servicer and Others.
The Servicer and any director, officer, employee or agent of the Servicer
may rely on any document of any kind which it in good faith reasonably believes
to be genuine and to have been adopted or signed by the proper authorities
respecting any matters arising hereunder. Subject to the terms of Section 9.01
hereof, the Servicer shall have no obligation to appear with respect to,
prosecute or defend any legal action which is not incidental to the Servicer's
duty to service the Home Loans in accordance with this Agreement.
Section 9.04 Servicer Not to Resign; Assignment.
The Servicer shall not resign from the obligations and duties hereby
imposed on it except (a) with the consent of the Grantor Trustee and Indenture
Trustee or (b) upon determination that its duties hereunder are no longer
permissible under applicable law. Any such determination pursuant to clause (b)
of the preceding sentence permitting the resignation of the Servicer shall be
evidenced by an independent opinion of counsel to such effect delivered (at the
expense of the Servicer) to the Grantor Trustee and the Indenture Trustee. No
resignation of the Servicer shall become effective until the Grantor Trustee or
a successor servicer, appointed pursuant to the provisions of Section 10.02
hereof and satisfying the requirements of Section 4.07 hereof with respect to
the qualifications of a successor Servicer, shall have assumed the Servicer's
responsibilities, duties, liabilities (other than those liabilities arising
prior to the appointment of such successor) and obligations under this
Agreement.
Except as expressly provided herein, the Servicer shall not assign or
transfer any of its rights, benefits or privileges hereunder to any other
Person, or delegate to or subcontract with, or authorize or appoint any other
Person to perform any of the duties, covenants or obligations to be performed by
the Servicer hereunder and any agreement, instrument or act purporting to effect
any such assignment, transfer, delegation or appointment shall be void.
The Servicer agrees to cooperate with any successor Servicer in effecting
the transfer of the Servicer's servicing responsibilities and rights hereunder
pursuant to the first paragraph of this Section 9.04, including, without
limitation, the transfer to such successor of all relevant records and documents
(including any Home Loan Files in the possession of the Servicer) and all
amounts received with respect to the Home Loans and not otherwise permitted to
be retained by the Servicer pursuant to this Agreement. In addition, the
Servicer, at its sole cost and expense, shall prepare, execute and deliver any
and all documents and instruments to the successor Servicer including all Home
Loan Files in its possession and do or accomplish all other acts necessary or
appropriate to effect such termination and transfer of servicing
responsibilities.
Section 9.05 Relationship of Servicer to the Grantor Trust and the Grantor
Trustee.
The relationship of the Servicer (and of any successor to the Servicer as
servicer under this Agreement) to the Grantor Trust and the Grantor Trustee
under this Agreement is intended by the parties hereto to be that of an
independent contractor and not of a joint venturer, agent or partner of the
Issuer or the Indenture Trustee.
Section 9.06 Servicer May Own Securities.
Each of the Servicer and any Affiliate of the Servicer may in its
individual or any other capacity become the owner or pledgee of Securities with
the same rights as it would have if it were not the Servicer or an Affiliate
thereof except as otherwise specifically provided herein. Securities so owned by
or pledged to the Servicer or such Affiliate shall have an equal and
proportionate benefit under the provisions of this Agreement, without
preference, priority, or distinction as among all of the Securities; provided,
however, that any Securities owned by the Servicer or any Affiliate thereof,
during the time such Securities are owned by them, shall be without voting
rights for any purpose set forth in this Agreement. The Servicer shall notify
the Indenture Trustee promptly after it or any of its Affiliates becomes the
owner or pledgee of a Security.
ARTICLE X
DEFAULT
Section 10.01 Events of Default.
In case one or more of the following Events of Default by the Servicer
shall occur and be continuing, that is to say:
(i) any failure by the Servicer to deposit in the Collection Account
in accordance with Section 5.01(b) hereof any payments in respect of the
Home Loans received by the Servicer no later than the second Business Day
following the day on which such payments were received; or
(ii) failure by the Servicer duly to observe or perform, in any
material respect, any other covenants, obligations or agreements of the
Servicer as set forth in this Agreement, which failure continues unremedied
for a period of 30 days after the date on which written notice of such
failure, requiring the same to be remedied and stating that such notice is
a "Notice of Default" hereunder, shall have been given (a) to the Servicer
by the Indenture Trustee, the Grantor Trustee or the Issuer, or (b) to the
Servicer, the Indenture Trustee, the Grantor Trustee or the Issuer by the
Majority Noteholders; or
(iii) a decree or order of a court or agency or supervisory authority
having jurisdiction for the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshaling of assets
and liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against the Servicer
and such decree or order shall have remained in force, undischarged or
unstayed for a period of 60 days; or
(iv) the Servicer shall consent to the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt, marshaling
of assets and liabilities or similar proceedings of or relating to the
Servicer or of or relating to all or substantially all of the Servicer's
property; or
(v) the Servicer shall admit in writing its inability to pay its debts
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; or
(vi) the Majority Noteholders and the Grantor Trust Holder (A) shall
receive notice from the Servicer that the Servicer is no longer able to
discharge its duties under this Agreement or (B) shall determine, in their
reasonable judgment and based upon published reports (including wire
services), which they reasonably believe in good faith to be reliable,
that:
a) the Servicer has experienced a material adverse change in its
business, assets, liabilities, operations, condition (financial or
otherwise) or prospects,
b) the Servicer has defaulted on any of its material obligations,
or
c) the Servicer has ceased to conduct its business in the
ordinary course, or
d) as of any Determination Date, the total Expected Loan Loss
Percentage (as defined below) exceeds (1) up to the fifth (5th)
anniversary of the November 30, 1997 Cut-Off Date, 22.125%, or (2)
thereafter 33.187% (where the "Expected Loan Loss Percentage" shall be
the sum of (A) the cumulative Net Loan Losses divided by the Original
Pool Principal Balance, plus (B) 25% of the aggregate Principal
Balance of the Home Loans which are then more than 30 but less than 60
days delinquent divided by the Original Pool Principal Balance, plus
(C) 50% of the aggregate Principal Balance of the Home Loans which are
then more than 60 but less than 90 days delinquent divided by the
Original Pool Principal Balance, plus (D) 100% of the aggregate
Principal Balance of the Home Loans which are then more than 90 days
delinquent divided by the Original Pool Principal Balance);
then, and in each and every such case, so long as an Event of Default shall not
have been remedied, the Indenture Trustee, the Grantor Trustee, the Grantor
Trust Holder or the Majority Noteholders, by notice in writing to the Servicer
may, in addition to whatever rights such Person may have at law or in equity to
damages, including injunctive relief and specific performance, may terminate all
the rights and obligations of the Servicer under this Agreement and in and to
the Home Loans and the proceeds thereof, as servicer under this Agreement. Upon
receipt by the Servicer of such written notice, all authority and power of the
Servicer under this Agreement, whether with respect to the Home Loans or
otherwise, shall, subject to Section 10.02 hereof, pass to and be vested in a
successor servicer, or the Grantor Trustee if a successor servicer cannot be
retained in a timely manner, and the successor servicer, or Grantor Trustee, as
applicable, is hereby authorized and empowered to execute and deliver, on behalf
of the Servicer, as attorney-in-fact or otherwise, any and all documents and
other instruments and do or cause to be done all other acts or things necessary
or appropriate to effect the purposes of such notice of termination, including,
but not limited to, the transfer and endorsement or assignment of the Home Loans
and related documents. The Servicer agrees to cooperate with the successor
servicer in effecting the termination of the Servicer's responsibilities and
rights hereunder, including, without limitation, the transfer to the successor
servicer for administration by it of all amounts which shall at the time be
credited by the Servicer to each Collection Account or thereafter received with
respect to the Home Loans.
Section 10.02 Grantor Trustee to Act; Appointment of Successor.
On and after the date the Servicer receives a notice of termination
pursuant to Section 10.01 hereof, or the Grantor Trustee receives the
resignation of the Servicer evidenced by an Opinion of Counsel or accompanied by
the consents required by Section 9.04 hereof, or the Servicer is removed as
servicer pursuant to this Article X, then, subject to Section 4.07 hereof, the
Grantor Trustee shall appoint a successor servicer to be the successor in all
respects to the 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
Servicer by the terms and provisions hereof; provided, however, that the
successor servicer shall not be liable for any actions of any servicer prior to
it; and, provided further, that if a successor servicer cannot be retained in a
timely manner, the Grantor Trustee shall act as successor servicer. In the event
the Grantor Trustee assumes the responsibilities of the Servicer pursuant to
this Section 10.02, the Grantor Trustee will make reasonable efforts consistent
with applicable law to become licensed, qualified and in good standing in each
Mortgaged Property State the laws of which require licensing or qualification in
order to perform its obligations as Servicer hereunder or, alternatively, shall
retain an agent that is so licensed, qualified and in good standing in any such
Mortgaged Property State.
In the case that the Grantor Trustee serves as successor servicer, the
Grantor Trustee in such capacity shall not be liable for any servicing of the
Home Loans prior to its date of appointment and shall not be subject to any
obligations to repurchase any Home Loans. The successor servicer shall be
obligated to make Servicing Advances hereunder. As compensation therefor, the
successor servicer appointed pursuant to the following paragraph, shall be
entitled to all funds relating to the Home Loans which the Servicer would have
been entitled to receive from the Note Payment Account pursuant to Section
5.01(c) hereof as if the Servicer had continued to act as servicer hereunder,
together with other Servicing Compensation in the form of assumption fees, late
payment charges or otherwise as provided in Section 7.03 hereof. The Servicer
shall not be entitled to any termination fee if it is terminated pursuant to
Section 10.01 hereof but shall be entitled to any accrued and unpaid Servicing
Fee to the date of termination.
Any collections received by the Servicer after removal or resignation shall
be endorsed by it to the Grantor Trustee or the Indenture Trustee, as assignee
of the Grantor Trust Certificate, and remitted directly to the Grantor Trustee
or the Indenture Trustee or, at the direction of the Grantor Trustee or the
Indenture Trustee, to the successor servicer. The compensation of any successor
servicer (including, without limitation, the Grantor Trustee) so appointed shall
be the Servicing Fee, together with other Servicing Compensation provided for
herein. In the event the Grantor Trustee is required to solicit bids to appoint
a successor servicer, the Grantor Trustee shall solicit, by public announcement,
bids from Eligible Servicers. Such public announcement shall specify that the
successor servicer shall be entitled to the full amount of the Servicing Fee and
Servicing Compensation provided for herein. Within 30 days after any such public
announcement, the Grantor Trustee shall negotiate and effect the sale, transfer
and assignment of the servicing rights and responsibilities hereunder to the
qualified party submitting the highest qualifying bid. The Grantor Trustee shall
deduct from any sum received by the Grantor Trustee from the successor to the
Servicer in respect of such sale, transfer and assignment all costs and expenses
of any public announcement and of any sale, transfer and assignment of the
servicing rights and responsibilities hereunder and the amount of any unpaid
Servicing Fees and unreimbursed Servicing Advances made by the Grantor Trustee.
After such deductions, the remainder of such sum shall be paid by the Grantor
Trustee to the Servicer at the time of such sale, transfer and assignment to the
Servicer's successor. The Grantor Trustee, any Custodian, the Servicer and any
such successor servicer shall take such action, consistent with this Agreement,
as shall be necessary to effect any such succession. The Servicer agrees to
cooperate with the Grantor Trustee and any successor servicer in effecting the
termination of the Servicer's servicing responsibilities and rights hereunder
and shall promptly provide the Grantor Trustee or such successor servicer, as
applicable, all documents and records reasonably requested by it to enable it to
assume the Servicer's functions hereunder and shall promptly also transfer to
the Grantor Trustee or the Indenture Trustee, as assignee of the Grantor Trust
Certificate, or such successor servicer, as applicable, all amounts which then
have been or should have been deposited in any Trust Account maintained by the
Servicer or which are thereafter received with respect to the Home Loans.
Neither the Grantor Trustee nor any other successor servicer shall be held
liable by reason of any failure to make, or any delay in making, any payment or
distribution hereunder or any portion thereof caused by (i) the failure of the
Servicer to deliver, or any delay in delivering, cash, documents or records to
it or (ii) restrictions imposed by any regulatory authority having jurisdiction
over the Servicer hereunder. No appointment of a successor to the Servicer
hereunder shall be effective until written notice of such proposed appointment
shall have been provided by the Grantor Trustee to the Indenture Trustee, each
Securityholder, each Grantor Trust Holder, the Owner Trustee and the Depositor
and, except in the case of the appointment of the Grantor Trustee as successor
to the Servicer (when no consent shall be required), the Depositor, the Grantor
Trust Holder and the Majority Noteholders shall have consented thereto.
Pending appointment of a successor to the Servicer hereunder, the Grantor
Trustee shall act as servicer hereunder as hereinabove provided. In connection
with such appointment and assumption, the Grantor Trustee may make such
arrangements for the compensation of such successor servicer out of payments on
the Home Loans as it and such successor servicer shall agree; provided, however,
that no such compensation shall be in excess of that permitted the Servicer
pursuant to Section 7.03 hereof, together with other Servicing Compensation in
the form of assumption fees, late payment charges or otherwise as provided in
this Agreement.
Section 10.03 Waiver of Defaults.
The Majority Noteholders may waive any events permitting removal of the
Servicer as servicer pursuant to this Article X; provided, however, that the
Majority Noteholders may not waive a default in making a required payment on a
Note or distribution on a Residual Interest Certificate without the consent of
the related Noteholder or holder of the Residual Interest Certificate. Upon any
waiver of a past default, such default shall cease to exist and any Event of
Default 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.
Section 10.04 Accounting Upon Termination of Servicer.
Upon termination of the Servicer under this Article X, the Servicer shall,
at its own expense:
(a) deliver to its successor or, if none shall yet have been appointed, to
the Indenture Trustee the funds in any Trust Account maintained by the Servicer;
(b) deliver to its successor or, if none shall yet have been appointed, to
the Grantor Trustee all Home Loan Files and related documents and statements
held by it hereunder and a Home Loan portfolio computer tape;
(c) deliver to its successor or, if none shall yet have been appointed, to
the Grantor Trustee, the Indenture Trustee, the Grantor Trust Holder and the
Securityholders a full accounting of all funds, including a statement showing
the Monthly Payments collected by it and a statement of monies held in trust by
it for payments or charges with respect to the Home Loans; and
(d) execute and deliver such instruments and perform all acts reasonably
requested in order to effect the orderly and efficient transfer of servicing of
the Home Loans to its successor and to more fully and definitively vest in such
successor all rights, powers, duties, responsibilities, obligations and
liabilities of the Servicer under this Agreement.
ARTICLE XI
TERMINATION
Section 11.01 Termination.
This Agreement shall terminate upon notice to the Indenture Trustee of
either: (a) the later of (i) the satisfaction and discharge of the Indenture and
the provisions thereof or (ii) the disposition of all funds with respect to the
last Home Loan and the remittance of all funds due hereunder and the payment of
all amounts due and payable to the Indenture Trustee, the Grantor Trustee, the
Owner Trustee, the Issuer and the Custodian; or (b) the mutual consent of the
Servicer, the Depositor, the Transferor and all Securityholders in writing.
Section 11.02 Optional Termination.
The Majority Residual Interestholders may, at their option, effect an early
termination of the Issuer and the Grantor Trust on or after any Payment Date on
which the Pool Principal Balance declines to 10% or less of the Maximum
Collateral Amount. The Majority Residual Interestholders shall effect such early
termination by providing notice thereof to the Indenture Trustee, the Grantor
Trustee and Owner Trustee and by purchasing all of the Home Loans from the
Grantor Trustee at a purchase price, payable in cash, equal to or greater than
the Termination Price. The expense of any Independent appraiser required under
this Section 11.02 shall be a nonreimbursable expense of Majority Residual
Interestholders.
Any such early termination by the Majority Residual Interestholders shall
be accomplished by depositing into the Collection Account on the third Business
Day prior to the Payment Date on which the purchase is to occur the amount of
the Termination Price to be paid. The Termination Price and any amounts then on
deposit in the Collection Account (other than any amounts not required to have
been deposited therein pursuant to Section 5.01(b)(1) hereof and any amounts
withdrawable therefrom by the Indenture Trustee pursuant to Section 5.01(b)(3)
hereof) shall be transferred to the Note Payment Account pursuant to Section
5.01(b)(2) hereof as a terminating distribution in respect of the Grantor Trust
Certificate pursuant to Section 5.02 of the Grantor Trust Agreement for payment
to Noteholders on the succeeding Payment Date; and any amounts received with
respect to the Home Loans and Foreclosure Properties subsequent to the Due
Period immediately preceding such final Payment Date shall belong to the
purchaser thereof. For purposes of calculating the Available Payment Amount for
such final Payment Date, amounts transferred to the Note Payment Account
immediately preceding such final Payment Date shall in all cases be deemed to
have been received during the related Due Period, and amounts so transferred
shall be applied pursuant to Section 5.01(d) and (e) hereof.
Section 11.03 Notice of Termination.
Notice of termination of this Agreement or of early redemption and
termination of the Issuer and the Grantor Trust shall be sent (i) by the
Indenture Trustee to the Noteholders in accordance with section 10.02 of the
Indenture, (ii) by the Owner Trustee to the Certificateholders in accordance
with section 9.1(d) of the Owner Trust Agreement, and (iii) by the Grantor
Trustee to the Grantor Trust Holder in accordance with Section 7.02 of the
Grantor Trust Agreement.
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.01 Acts of Noteholders.
Except as otherwise specifically provided herein, whenever action, consent
or approval of the Securityholders is required under this Agreement, such
action, consent or approval shall be deemed to have been taken or given on
behalf of, and shall be binding upon, all Securityholders if the Majority
Securityholders agree to take such action or give such consent or approval.
Section 12.02 Amendment.
(a) This Agreement may be amended from time to time by the Depositor, the
Servicer, the Transferor, the Indenture Trustee, the Grantor Trustee and the
Issuer by written agreement with notice thereof to the Securityholders, without
the consent of any of the Securityholders, to cure any error or ambiguity, to
correct or supplement any provisions hereof which may be defective or
inconsistent with any other provisions hereof or to add any other provisions
with respect to matters or questions arising under this Agreement; provided,
however, that such action will not adversely affect in any material respect the
interests of the Securityholders. An amendment described above shall be deemed
not to adversely affect in any material respect the interests of the
Securityholders if either (i) an Opinion of Counsel is obtained to such effect
and (ii) the party requesting the amendment obtains a letter from each of the
Rating Agencies confirming that the amendment, if made, would not result in the
downgrading or withdrawal of the rating then assigned by the respective Rating
Agency to any Class of Notes then outstanding.
(b) This Agreement may also be amended from time to time by the Depositor,
the Servicer, the Transferor, the Indenture Trustee, the Grantor Trustee and the
Issuer by written agreement, with the prior written consent of the Majority
Noteholders, 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 Securityholders; provided, however, that no such
amendment shall (i) reduce in any manner the amount of, or delay the timing of,
collections of payments on Home Loans or distributions which are required to be
made on any Security, without the consent of the holders of 100% of each Class
of Notes affected thereby, (ii) adversely affect in any material respect the
interests of the holders of any Class of Notes in any manner other than as
described in clause (i), without the consent of the holders of 100% of such
Class of Notes, or (iii) reduce the percentage of any Class of Notes, the
consent of which is required for any such amendment, without the consent of the
holders of 100% of such Class of Notes.
(c) It shall not be necessary for the consent of Securityholders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent shall approve the substance thereof.
Prior to the execution of any amendment to this Agreement, the Issuer, the
Grantor Trustee and the Indenture Trustee shall be entitled to receive and rely
upon an Opinion of Counsel stating that the execution of such amendment is
authorized or permitted by this Agreement. The Issuer, the Grantor Trustee and
the Indenture Trustee may, but shall not be obligated to, enter into any such
amendment which affects the Issuer's own rights, duties or immunities of the
Issuer, the Grantor Trustee or the Indenture Trustee, as the case may be, under
this Agreement.
Section 12.03 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 Servicer at the Noteholders' expense on
direction of the Majority Noteholders but only when accompanied by an Opinion of
Counsel 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 Loans.
Section 12.04 Duration of Agreement.
This Agreement shall continue in existence and effect until terminated as
herein provided.
Section 12.05 Governing Law.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK 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 12.06 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
overnight mail, certified mail or registered mail, postage prepaid, to: (i) in
the case of the Depositor, PaineWebber Mortgage Acceptance Corporation IV, ▇▇▇▇
▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇ ▇▇▇▇▇▇, Esq.,
or such other addresses as may hereafter be furnished to the Securityholders and
the other parties hereto in writing by the Depositor; (ii) in the case of the
Issuer, through and including January 1, 1998, at Empire Funding Home Loan Owner
Trust 1997-5, ▇/▇ ▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇▇▇ Trust Company (Cayman) Limited, P.O.
Box 501 GT, Cardinal Avenue, Grand Cayman, Cayman Islands, B.W.I. and
thereafter, at Empire Funding Home Loan Owner Trust 1997-5, c/o Wilmington Trust
Company, ▇▇▇▇▇▇ Square North, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇, Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, or such other address as may hereafter be
furnished to the Securityholders and the other parties hereto; (iii) in the case
of the Transferor and Servicer, Empire Funding Corp., ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ or such other address as may
hereafter be furnished to the Securityholders and the other parties hereto in
writing by the Servicer or the Transferor; (iv) in the case of the Indenture
Trustee and Grantor Trustee, U.S. Bank National Association, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇. ▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: Structured Finance/Empire Funding
1997-5; and (v) in the case of the Securityholders, as set forth in the
applicable Note Register. Any such notices shall be deemed to be effective with
respect to any party hereto upon the receipt of such notice by such party,
except that notices to the Securityholders shall be effective upon mailing or
personal delivery.
Section 12.07 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 12.08 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
Servicer shall be rendered as an independent contractor.
Section 12.09 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 12.10 Successors and Assigns.
This Agreement shall inure to the benefit of and be binding upon the
Servicer, the Transferor, the Depositor, the Indenture Trustee, the Grantor
Trustee, the Issuer, the Noteholders and the Grantor Trust Holder and their
respective successors and permitted assigns.
Section 12.11 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 12.12 Actions of Securityholders.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Agreement to be given or taken by
Securityholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Securityholders in person or by agent
duly appointed in writing; and except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Depositor, the Servicer or the Issuer. Proof of execution of
any such instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Agreement and conclusive in favor of the
Depositor, the Servicer and the Issuer if made in the manner provided in this
Section 12.12.
(b) The fact and date of the execution by any Securityholder of any such
instrument or writing may be proved in any reasonable manner which the
Depositor, the Servicer or the Issuer deems sufficient.
(c) Any request, demand, authorization, direction, notice, consent, waiver
or other act by a Securityholder shall bind every holder of every Security
issued upon the registration of transfer thereof or in exchange therefor or in
lieu thereof, in respect of anything done, or omitted to be done, by the
Depositor, the Servicer or the Issuer in reliance thereon, whether or not
notation of such action is made upon such Security.
(d) The Depositor, the Servicer or the Issuer may require additional proof
of any matter referred to in this Section 12.12 as it shall deem necessary.
Section 12.13 Reports to Rating Agencies.
(a) The Indenture Trustee shall provide to each Rating Agency copies of
statements, reports and notices, to the extent received or prepared in
connection herewith, as follows:
(i) copies of amendments to this Agreement;
(ii) notice of any substitution or repurchase of any Home Loans;
(iii) notice of any termination, replacement, succession, merger
or consolidation of the Servicer, any Custodian or the Issuer;
(iv) notice of final payment on the Notes;
(v) notice of any Event of Default;
(vi) copies of the annual independent accountants' report
delivered pursuant to Section 7.05 hereof, and copies of any
compliance reports delivered by the Servicer including under Section
7.04 hereof; and
(vii) copies of any Payment Date Statement pursuant to Section
6.01(b) hereof.
(b) With respect to the requirement of the Indenture Trustee to provide
statements, reports and notices to the Rating Agencies, such statements, reports
and notices shall be delivered to the Rating Agencies at the following
addresses: (i) if to Standard & Poor's, ▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, Attention: Asset-Backed Monitoring Department, (ii) if to Duff
& ▇▇▇▇▇▇, ▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention:
MBS Monitoring or (iii) if to Fitch IBCA, Inc., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: Asset Backed Surveillance Department.
Section 12.14 Holders of the Residual Interest Certificates.
(a) Any sums to be distributed or otherwise paid hereunder or under the
Owner Trust Agreement to the holders of the Residual Interest Certificates shall
be paid to such holders pro rata based on their percentage holdings in the
Residual Interest;
(b) Where any act or event hereunder is expressed to be subject to the
consent or approval of the holders of the Residual Interest Certificates, such
consent or approval shall be capable of being given by the holder or holders of
not less than 51% of the Residual Interest in aggregate.
IN WITNESS WHEREOF, the Issuer, the Depositor, the Transferor, the
Servicer, the Grantor Trustee and the Indenture Trustee 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.
EMPIRE FUNDING HOME LOAN OWNER
TRUST 1997-5,
By: Wilmington Trust Company, not in its
individual capacity but solely as Owner
Trustee
By:_________________________________________
Name:
Title:
PAINEWEBBER MORTGAGE ACCEPTANCE
CORPORATION IV, as Depositor
By:_________________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Senior Vice President
EMPIRE FUNDING CORP., as Transferor and
Servicer
By:_________________________________________
Name:
Title:
U.S. BANK NATIONAL ASSOCIATION, as
Indenture Trustee and Grantor Trustee
By:_________________________________________
Name:
Title:
THE STATE OF ___________ )
)
COUNTY OF ______________ )
BEFORE ME, the undersigned authority, a Notary Public, on this _____ day of
December 1997 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 WILMINGTON TRUST
COMPANY, not in its individual capacity but in its capacity as Owner Trustee of
EMPIRE FUNDING HOME LOAN OWNER TRUST 1997-5 as Issuer, and that she executed the
same as the act of such corporation for the purpose and consideration therein
expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF WILMINGTON TRUST COMPANY, this the ____ day
of December, 1997.
_______________________________________
Notary Public, State of _______________
THE STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
BEFORE ME, the undersigned authority, a Notary Public, on this _____ day of
December 1997 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 PAINEWEBBER MORTGAGE
ACCEPTANCE CORPORATION IV, as the Depositor, and that she executed the same as
the act of such corporation for the purpose and consideration therein expressed,
and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION
IV, this the ____ day of December, 1997.
_______________________________________
Notary Public, State of _______________
THE STATE OF ___________ )
)
COUNTY OF ______________ )
BEFORE ME, the undersigned authority, a Notary Public, on this [__] day of
December 1997 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 EMPIRE FUNDING CORP.,
as the Transferor and Servicer, 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.
GIVEN UNDER MY HAND AND SEAL OF EMPIRE FUNDING CORP., this the [____] day
of December, 1997.
_______________________________________
Notary Public, State of _______________
THE STATE OF ___________ )
)
COUNTY OF ______________ )
BEFORE ME, the undersigned authority, a Notary Public, on this [__] day of
December 1997 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 U.S. BANK NATIONAL
ASSOCIATION, a national banking association, as the Indenture Trustee and
Grantor Trustee, and that she executed the same as the act of such entity for
the purposes and consideration therein expressed, and in the capacity therein
stated.
GIVEN UNDER MY HAND AND SEAL OF U.S. BANK NATIONAL ASSOCIATION, this the
[__] day of December, 1997.
_______________________________________
Notary Public, State of _______________