Exhibit 10.75
EXECUTION COPY
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▇▇▇▇▇▇ ABS CORPORATION,
as Depositor
and
UNITED PANAM MORTGAGE CORPORATION,
as Seller
and
PAN AMERICAN BANK, FSB,
as Master Servicer
and
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee
_______________________
POOLING AND SERVICING AGREEMENT
Dated as of December 1, 1997
______________________
United PanAm Mortgage Loan Asset Backed Certificates,
Series 1997-1
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Table of Contents
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ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms........................................... 2
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
SECTION 2.01. Conveyance of Mortgage Loans............................. 40
SECTION 2.02. Acceptance by Trustee.................................... 42
SECTION 2.03. Repurchase or Substitution of Mortgage Loans by the
Bank..................................................... 43
SECTION 2.04. Representations and Warranties of the Seller............. 45
SECTION 2.05. Representations, Warranties and Covenants of the Master
Servicer................................................. 54
SECTION 2.06. Issuance of Certificates................................. 56
SECTION 2.07. Representations and Warranties with Respect to Subsequent
Mortgage Loans........................................... 56
ARTICLE III
ADMINISTRATION AND SERVICING
OF THE TRUST FUND
SECTION 3.01. Master Servicer and Sub-Servicers........................ 57
SECTION 3.02. Collection of Certain Mortgage Loan Payments............. 59
SECTION 3.03. Sub-Servicing Agreements Between Master Servicer and
Sub-Servicers............................................ 59
SECTION 3.04. Successor Sub-Servicers.................................. 60
SECTION 3.05. Liability of Master Servicer; Indemnification............ 60
SECTION 3.06. No Contractual Relationship Between Sub-Servicer, Trustee
or the Certificateholders................................ 61
SECTION 3.07. Assumption or Termination of Sub-Servicing Agreement by
Trustee.................................................. 61
SECTION 3.08. Sub-Servicing Accounts................................... 62
SECTION 3.09. Collection of Taxes, Assessments and Similar Items;
Servicing Accounts....................................... 62
SECTION 3.10. Collection Account and Distribution Account.............. 63
SECTION 3.11. Withdrawals from the Collection Account and Distribution
Account.................................................. 65
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SECTION 3.12. Investment of Funds in the Collection Account, the Expense
Account and the Distribution Account..................... 66
SECTION 3.13. Maintenance of Insurance................................. 67
SECTION 3.14. Due-on-Sale Clauses; Assumption and Substitution
Agreements............................................... 70
SECTION 3.15. Realization Upon Defaulted Mortgage Loans................ 71
SECTION 3.16. Trustee to Cooperate; Release of Files................... 73
SECTION 3.17. Servicing Compensation................................... 74
SECTION 3.18. Annual Statement as to Compliance........................ 74
SECTION 3.19. Annual Independent Certified Public Accountants' Reports. 75
SECTION 3.20. Access to Certain Documentation and Information Regarding
the Mortgage Loans....................................... 75
SECTION 3.21. Assignment and Delegation by Master Servicer; Resignation
of Master Servicer....................................... 75
SECTION 3.22. Inspections by the Trustee and the Certificate Insurer;
Errors and Omissions Insurance........................... 77
SECTION 3.23. Title, Management and Disposition of REO Property........ 77
SECTION 3.24. Obligations of the Master Servicer in Respect of
Prepayment Interest Shortfalls........................... 80
SECTION 3.25. Expense Account.......................................... 81
SECTION 3.26. Obligations of the Master Servicer in Respect of Mortgage
Rates and Monthly Payments............................... 81
ARTICLE IV
PAYMENTS TO CERTIFICATEHOLDERS
SECTION 4.01. Distributions............................................ 82
SECTION 4.02. Statements to Certificateholders......................... 85
SECTION 4.03. Remittance Reports; Monthly Advances..................... 89
SECTION 4.04. Allocation of Realized Losses............................ 90
SECTION 4.05. Compliance with Withholding Requirements................. 91
SECTION 4.06. REMIC 1 and REMIC 2 Allocations.......................... 92
SECTION 4.07. Basis Risk Reserve Fund.................................. 92
SECTION 4.08. Initial Interest Coverage Account and Funding Account.... 93
ARTICLE V
THE CERTIFICATES
SECTION 5.01. The Certificates......................................... 95
SECTION 5.02. Registration of Transfer and Exchange of Certificates.... 95
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SECTION 5.03. Mutilated, Destroyed, Lost or Stolen Certificates........ 100
SECTION 5.04. Persons Deemed Owners.................................... 100
SECTION 5.05. Appointment of Paying Agent.............................. 101
ARTICLE VI
THE SELLER, THE MASTER SERVICER AND THE DEPOSITOR
SECTION 6.01. Liability of the Seller, the Master Servicer and the
Depositor................................................ 102
SECTION 6.02. Obligations of, the Seller, the Master Servicer or the
Merger or Consolidation of, or Assumption of the
Depositor................................................ 102
SECTION 6.03. Limitation on Liability of the Master Servicer and
Others................................................... 102
SECTION 6.04. Master Servicer Not to Resign............................ 103
SECTION 6.05. Delegation of Duties..................................... 103
SECTION 6.06. Indemnification of the Trust by the Master Servicer...... 104
ARTICLE VII
MASTER SERVICER EVENTS OF DEFAULT
SECTION 7.01. Master Servicer Events of Default........................ 105
SECTION 7.02. Trustee to Act; Appointment of Successor................. 107
SECTION 7.03. Waiver of Defaults....................................... 108
SECTION 7.04. Notification to Certificateholders....................... 108
ARTICLE VIII
THE TRUSTEE
SECTION 8.01. Duties of Trustee........................................ 109
SECTION 8.02. Certain Matters Affecting the Trustee.................... 110
SECTION 8.03. Trustee Not Liable for Certificates or Mortgage Loans.... 111
SECTION 8.04. Trustee May Own Certificates............................. 112
SECTION 8.05. Master Servicer to Pay Trustee's Fees and Expenses....... 112
SECTION 8.06. Eligibility Requirements for Trustee..................... 113
SECTION 8.07. Resignation or Removal of Trustee........................ 113
SECTION 8.08. Successor Trustee........................................ 114
SECTION 8.09. Merger or Consolidation of Trustee....................... 115
SECTION 8.10. Appointment of Co-Trustee or Separate Trustee............ 115
SECTION 8.11. Limitation of Liability.................................. 116
SECTION 8.12. Trustee May Enforce Claims Without Possession of
Certificates............................................. 116
SECTION 8.13. Suits for Enforcement.................................... 116
SECTION 8.14. Trustee to File Securities Exchange Act Reports.......... 117
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ARTICLE IX
CERTAIN MATTERS REGARDING THE CERTIFICATE INSURER
SECTION 9.01. Rights of the Certificate Insurer To Exercise Rights of
Class A Certificateholders.................................. 118
SECTION 9.02. Trustee To Act Solely with Consent of the Certificate
Insurer..................................................... 118
SECTION 9.03. Trust Fund and Accounts Held for Benefit of the Certificate
Insurer..................................................... 119
SECTION 9.04. Claims Upon the Policy; Policy Payments Account............. 119
SECTION 9.05. Effect of Payments by the Certificate Insurer; Subrogation.. 121
SECTION 9.06. Notices to the Certificate Insurer.......................... 121
SECTION 9.07. Third-Party Beneficiary..................................... 121
SECTION 9.08. Trustee to Hold the Policy.................................. 122
SECTION 9.09. Termination of the Master Servicer.......................... 122
ARTICLE X
TERMINATION
SECTION 10.01. Termination................................................ 123
SECTION 10.02. Additional Termination Requirements........................ 124
ARTICLE XI
REMIC PROVISIONS
SECTION 11.01. REMIC Administration....................................... 126
SECTION 11.02. Prohibited Transactions and Activities..................... 129
ARTICLE XII
MISCELLANEOUS PROVISIONS
SECTION 12.01. Amendment................................................... 130
SECTION 12.02. Recordation of Agreement.................................... 132
SECTION 12.03. Limitation on Rights of Certificateholders.................. 132
SECTION 12.04. Governing Law............................................... 133
SECTION 12.05. Notices..................................................... 133
SECTION 12.06. Severability of Provisions.................................. 135
SECTION 12.07. Assignment.................................................. 135
SECTION 12.08. Certificates Nonassessable and Fully Paid................... 135
SECTION 12.09. Third-Party Beneficiaries................................... 135
SECTION 12.10. Intention of the Parties.................................... 135
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SECTION 12.11. Counterparts................................................ 135
SECTION 12.12. Effect of Headings and Table of Contents.................... 136
EXHIBITS
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A-1 - Form of Class A Certificate
A-2 - Form of Class X Certificate
A-3 - Form of Class R Certificate
B - Financial Guaranty Insurance Policy
C-1 - Form of Trustee Certification
C-2 - Form of Final Trustee Certificate
D - Form of Mortgage Loan Purchase Agreement
E - Form of Request for Release of Documents
F - Form of Mortgage Note
G - Form of Mortgage
H - Form of Lost Note Affidavit
I - Form of Transfer Affidavit
J - Form of Transferor Certificate
K - Form of Investment Letter
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This Pooling and Servicing Agreement, is dated and effective as of December
1, 1997, among ▇▇▇▇▇▇ ABS CORPORATION, as Depositor, UNITED PANAM MORTGAGE
CORPORATION as Seller, PAN AMERICAN BANK, FSB, as Master Servicer, and BANKERS
TRUST COMPANY OF CALIFORNIA, N.A., as Trustee.
PRELIMINARY STATEMENT:
The Depositor intends to sell pass-through certificates (collectively, the
"Certificates"), to be issued hereunder in multiple classes, which in the
aggregate will evidence the entire beneficial ownership interest in the Trust
Fund created hereunder. The Certificates will consist of three classes of
certificates, designated as (i) the Class A Certificates, (ii) the Class X
Certificates and (iii) the Class R Certificates.
As provided herein, the Trustee shall elect that the Trust Fund be treated
for federal income tax purposes as three separate real estate mortgage
investment conduits (each a "REMIC" or, in the alternative, "REMIC 1", "REMIC 2"
and "REMIC 3", respectively). The Class A Certificates (other than the
contractual rights to receive payments from the Basis Risk Reserve Fund) and the
interests represented by the Class X Certificates constitute all of the "regular
interests" in REMIC 3 and the Class R1 Interest represents the sole class of
"residual interest" in REMIC 3 for purposes of the REMIC Provisions. Each of
the Class R2 Interest and the Class R3 Interest represents the sole class of
"residual interest" in REMIC 1 and REMIC 2, respectively, for purposes of the
REMIC Provisions. There are also three classes of uncertificated REMIC 1
Regular Interests issued under this Agreement (the Class LT1, Class LT2 and
Class LT3 Interests), each of which will constitute regular interests in REMIC
1, and four classes of uncertificated REMIC 2 Regular Interests (the Class MT1,
Class MT2, Class MT3 and Class MT4 Interests), each of which will constitute
regular interests in REMIC 2. The REMIC 1 Regular Interests will be held as
assets of REMIC 2 and the REMIC 2 Regular Interests will be held as assets of
REMIC 3.
The following table irrevocably sets forth the Pass-Through Rate, initial
Aggregate Certificate Principal Balance (or, with respect to the Class X
Certificates, the Class X Notional Balance) and "latest possible maturity date"
for each Class of Certificates comprising interests in REMIC 3.
Initial Aggregate Latest Possible
Description Pass-Through Rate Certificate Principal Balance Maturity Date(1)
------------- -------------------- ----------------------------- ---------------------------
Class A Variable(2) $114,425,00 The Distribution Date in
December 2027
Class X N/A $0 The Distribution Date in
December 2027
Class R N/A $0 The Distribution Date in
December 2027
(1) Solely for purposes of Section 1.860G-l(a)(4)(iii) of the Treasury
regulations, the Distribution Date immediately following the maturity date
for the Mortgage Loan with the latest maturity date has been designated as
the "latest possible maturity date for the Class A Certificates.
(2) Calculated in accordance with the definition of "Class A Pass-Through Rate"
herein.
As of the Cut-off Date, the Initial Mortgage Loans had an aggregate
principal balance equal to $95,041,505.27.
In consideration of the mutual agreements herein contained, the Depositor,
the Seller, the Master Servicer and the Trustee agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms.
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Whenever used in this Agreement, including, without limitation, in the
Preliminary Statement hereto, the following words and phrases, unless the
context otherwise requires, shall have the meanings specified in this Article.
Unless otherwise specified, all calculations described herein shall be made on
the basis of a 360-day year consisting of twelve 30-day months.
"Accrued Certificate Interest": With respect to each Distribution Date,
one month's interest accrued during the related Interest Accrual Period at the
Class A Pass-Through Rate for such Distribution Date on the Certificate
Principal Balance of such Certificate immediately prior to such Distribution
Date, reduced by an amount equal to the portion allocable to such Certificate of
the aggregate amount of any Relief Act Interest Shortfall, if any, for such
Distribution Date. All distributions of interest on the Class A Certificates
will be calculated on the basis of a 360-day year and the actual number of days
in the applicable Interest Accrual Period.
"Adjustment Date": With respect to each Mortgage Loan, each Adjustment
Date, on which the Mortgage Rate of a Mortgage Loan changes pursuant to the
related Mortgage Note. The first Adjustment Date following the Cut-off Date as
to each Mortgage Loan is set forth in the Mortgage Loan Schedule.
"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, "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 meanings correlative to the foregoing.
"Agreement": This Pooling and Servicing Agreement and all amendments
hereof and supplements hereto.
"Aggregate Expense Rate": With respect to any Distribution Date, the sum
of (i) the Minimum Spread, (ii) the Trustee's Fee Rate, (iii) the Servicing Fee
Rate and (iv) the rate obtained by dividing the Certificate Insurer Premium
Amount for such Distribution Date by the aggregate
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Stated Principal Balance of the Mortgage Loans prior to giving effect to the
distribution of principal pursuant to Section 4.01(ii) on such Distribution Date
"Assignment": An assignment of Mortgage, notice of transfer or equivalent
instrument, in recordable form, which is sufficient under the laws of the
jurisdiction wherein the related Mortgaged Property is located to reflect of
record the sale of the Mortgage.
"Available Distribution Amount": With respect to any Distribution Date, an
amount equal to the excess of (i) the sum of (a) the aggregate of the Monthly
Payments received on or prior to the Determination Date, (b) Liquidation
Proceeds, Insurance Proceeds, Principal Prepayments and other unscheduled
recoveries of principal or interest in respect of the Mortgage Loans during the
related Prepayment Period, (c) the aggregate of any amounts received in respect
of an REO Property withdrawn from any REO Account and deposited in the
Distribution Account for such Distribution Date pursuant to Section 3.23, (d)
the aggregate of any amounts deposited in the Distribution Account by the Master
Servicer in respect of Prepayment Interest Shortfalls for such Distribution Date
pursuant to Section 3.24, (e) the aggregate of any Monthly Advances made by the
Master Servicer for such Distribution Date pursuant to Section 4.03 and (f) the
aggregate of any advances made by the Trustee for such Distribution Date
pursuant to Section 7.02, over (ii) the sum of (a) amounts reimbursable or
payable to the Depositor, the Master Servicer, the Trustee, the Seller or any
Sub-Servicer pursuant to Section 3.11 or Section 3.12 or otherwise payable in
respect of extraordinary Trust Fund expenses, (b) amounts deposited in the
Collection Account or the Distribution Account, as the case may be, in error,
(c) the Certificate Insurer Premium payable to the Certificate Insurer pursuant
to Section 3.25(b), and (d) the Trustee Fee payable from the Distribution
Account pursuant to Section 8.05.
"Bank": Pan American Bank, FSB, or its successor in interest.
"Bankruptcy Amount": As of any date of determination, $100,000 minus the
aggregate amount of Bankruptcy Losses on the Mortgage Loans, if any, previously
allocated to the Class X and Residual Certificates in accordance with Section
4.04.
"Bankruptcy Code": The Bankruptcy Reform Act of 1978 (Title 11 of the
United States Code), as amended.
"Bankruptcy Loss": With respect to any Mortgage Loan, a Realized Loss
resulting from a Deficient Valuation or Debt Service Reduction.
"Basis Risk Reserve Fund": The reserve fund established pursuant to
Section 4.07 hereof.
"Basis Risk Shortfall": With respect to any Distribution Date on which the
Class A Pass-Through Rate is calculated pursuant to clause (ii) of the
definition thereof, an amount equal to interest accrued during the related
Interest Accrual Period on the Certificate Principal Balance of the Class A
Certificates immediately prior to such Distribution Date at a rate equal to the
excess of (a) the lesser of (x) the Class A Pass-Through Rate calculated
pursuant to clause (i) of the definition thereof and (y) the Maximum Class A
Pass-Through Rate over (b) the Class A Pass-Through Rate calculated pursuant to
clause (ii) of the definition thereof.
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"Book-Entry Certificate": The Class A Certificates for so long as the
Certificates shall be registered in the name of the Depository or its nominee.
"Business Day": Any day other than a Saturday, a Sunday or a day on which
banking or savings and loan institutions in the State of Florida, the State of
New York, or the State of California, or in the city in which the Corporate
Trust Office of the Trustee is located, are authorized or obligated by law or
executive order to be closed.
"Call Option Date": The Distribution Date on which the aggregate principal
balance of the Mortgage Loans is reduced to 5% or less of the Maximum Collateral
Amount.
"Cap Agreement": As defined in Section 11.01 hereof.
"Cash-Out Refinancing": A Refinanced Mortgage Loan the proceeds of which
were more than $1000 or 1%, whichever is greater, in excess of the sum of (i)
the principal balance of any existing first mortgage and any subordinate
mortgage on the related Mortgaged Property, (ii) the aggregate amount of
consumer debt paid off through escrow and (iii) the related closing costs.
"Certificate": Any one of the United PanAm Mortgage Loan Asset Backed
Certificates, Series 1997-1, Class A, Class X or Class R, issued under this
Agreement.
"Certificate Factor": With respect to any Class of Regular Certificates
(other than the Class X Certificates) as of any Distribution Date, a fraction,
expressed as a decimal carried to six places, the numerator of which is the
aggregate Certificate Principal Balance of such Class of Certificates on such
Distribution Date (after giving effect to any distributions of principal and
allocations of Realized Losses, in reduction of the Certificate Principal
Balance of such Class of Certificates to be made on such Distribution Date), and
the denominator of which is the initial aggregate Certificate Principal Balance
of such Class of Certificates as of the Closing Date.
"Certificate Insurer": Financial Security Assurance Inc., a stock
insurance company organized and created under the laws of the State of New York,
and any successors thereto.
"Certificate Insurer Default": The existence and continuance of any of the
following:
(a) The Certificate Insurer fails to make a payment required under the
Policy in accordance with its terms; or
(b) the Certificate Insurer shall have (i) filed a petition or
commenced any case or proceeding under any provision of chapter of the
United States Bankruptcy Code, the New York State Insurance Law or any
other similar federal or state law relating to insolvency, bankruptcy,
rehabilitation, liquidation, or reorganization, (ii) made a general
assignment for the benefit of its creditors or (iii) had an order for
relief entered against it under the United States Bankruptcy Code, the New
York State Insurance Law or any other similar federal or state law relating
to insolvency, bankruptcy, rehabilitation, liquidation, or reorganization
that is final and nonappealable; or
4
(c) a court of competent jurisdiction, the New York Department of
Insurance or any other competent regulatory authority shall have entered a
final and nonappealable order, judgment or decree (i) appointing a
custodian, trustee, agent, or receiver for the Certificate Insurer or for
all or any material portion of its property or (ii) authorizing the taking
of possession by a custodian, trustee, agent, or receiver of the
Certificate Insurer of all or any material portion of its property.
"Certificate Insurer Premium Amount": With respect to any Distribution
Date, the amount payable to the Certificate Insurer pursuant to the Premium
Letter with respect to such Distribution Date.
"Certificate Insurer Premium Rate": 0.25% per annum.
"Certificateholder" or "Holder": The Person in whose name a Certificate is
registered in the Certificate Register, and the Certificate Insurer to the
extent of Cumulative Insurance Payments, except that a "disqualified
organization" (as defined in Section 860E(e)(5) of the Code) or a Non-United
States Person shall not be a Holder of a Residual Certificate for any purposes
hereof and, solely for the purposes of giving any consent pursuant to this
Agreement, any Certificate registered in the name of the Depositor, the Seller
or the Master Servicer or any Affiliate thereof shall be deemed not to be
outstanding and the Voting Rights to which it is entitled shall not be taken
into account in determining whether the requisite percentage of Voting Rights
necessary to effect any such consent has been obtained, except as otherwise
provided in Section 12.01. The Trustee may conclusively rely upon a certificate
of the Depositor, the Seller or the Master Servicer in determining whether a
Certificate is held by an Affiliate thereof. All references herein to "Holders"
or "Certificateholders" shall reflect the rights of Certificate Owners as they
may indirectly exercise such rights through the Depository and participating
members thereof, except as otherwise specified herein; provided, however, that
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the Trustee shall be required to recognize as a "Holder" or "Certificateholder"
only the Person in whose name a Certificate is registered in the Certificate
Register.
"Certificate Owner": With respect to a Book-Entry Certificate, the Person
who is the beneficial owner of such Certificate as reflected on the books of the
Depository or on the books of a Depository Participant or on the books of an
indirect participating brokerage firm for which a Depository Participant acts as
agent.
"Certificate Principal Balance": With respect to each Class A Certificate
as of any date of determination, the Certificate Principal Balance of such Class
A Certificate on the Distribution Date immediately prior to such date of
determination, minus all distributions allocable to principal made thereon
(other than any such distribution pursuant to Section 4.01(a)(iii) in respect of
previously allocated Realized Losses) and Realized Losses allocated thereto on
such immediately prior Distribution Date (or, in the case of any date of
determination up to and including the first Distribution Date, the initial
Certificate Principal Balance of such Class A Certificate, as stated on the face
thereof). The Class X Certificates and Class R Certificates shall not have a
principal balance.
"Certificate Register" and "Certificate Registrar": The register
maintained and the registrar appointed pursuant to Section 5.02.
5
"Class": With respect to Certificates or Interests, all of the
Certificates, REMIC 1 Regular Interests or REMIC 2 Regular Interests bearing the
same alphabetical and numerical class designation.
"Class A Adjusted Pass-Through Rate": With respect to the Class A
Certificates and any Distribution Date after the first Distribution Date, a rate
per annum equal to the lesser of (i) One-Month LIBOR plus 0.28%, in the case of
each Distribution Date through and including the Call Option Date or One-Month
LIBOR plus 0.56% per annum, in the case of any Distribution Date thereafter and
(ii) the Net WAC Rate. The Class A Adjusted Pass-Through Rate with respect to
the first Distribution Date shall equal the Class A Pass-Through Rate for such
date.
"Class A Certificate": Any one of the Class A Certificates executed by the
Trustee, and authenticated and delivered by the Certificate Registrar,
substantially in the form annexed hereto as Exhibit A-1 and evidencing a Regular
Interest in the Trust Fund for purposes of the REMIC Provisions.
"Class A Pass-Through Rate": With respect to the Class A Certificates and
any Distribution Date after the first Distribution Date, a rate per annum equal
to the lesser of (i) One-Month LIBOR plus 0.28%, in the case of each
Distribution Date through and including the Call Option Date, or One-Month LIBOR
plus 0.56% per annum, in the case of any Distribution Date thereafter and (ii)
the Net Funds Cap. The "Class A Pass-Through Rate" with respect to the initial
Distribution Date shall be 6.24875%.
"Class LT1 Interest": A regular interest in REMIC 1 that is held as an
asset of REMIC 2 that has an initial principal balance equal to 98% of the
aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off Date
and bears interest at the Net WAC Rate and has such other terms as are described
in Section 4.06 hereof.
"Class LT2 Interest": A regular interest in REMIC 1 that is held as an
asset of REMIC 2 that has an initial principal balance equal to 1% of the
aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off Date
and bears interest at the Net WAC Rate and has such other terms as are described
in Section 4.06 hereof.
"Class LT3 Interest": A regular interest in REMIC 1 that is held as an
asset of REMIC 2 that has an initial principal balance equal to 1% of the
aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off Date
and bears interest at the Net WAC Rate and has such other terms as are described
in Section 4.06 hereof.
"Class MT1 Interest": A regular interest in REMIC 2 that is held as an
asset of REMIC 3 that has an initial principal balance equal to 98% of the
aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off Date
and bears interest at the Net WAC Rate and has such other terms as are described
in Section 4.06 hereof.
"Class MT2 Interest": A regular interest in REMIC 2 that is held as an
asset of REMIC 3 that has an initial principal balance equal to 1% of the
aggregate Stated Principal Balance of the Mortgage
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Loans as of the Cut-off Date and has the terms described in Section 4.06 hereof
and bears interest at a rate per annum equal to the Class A Adjusted Pass-
Through Rate.
"Class MT3 Interest": A regular interest in REMIC 2 that is held as an
asset of REMIC 3 that has an initial principal balance equal to 1% of the
aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off Date
and bears interest at the Net WAC Rate and has such other terms as are described
in Section 4.06 hereof.
"Class MT4 Interest": A regular interest in REMIC 2 that is held as an
asset of REMIC 3 as of the Cut off Date and is entitled to 100% of the interest
accruals on the Class LT2 Interest in excess of the Class A Adjusted Pass-
Through Rate and has such other terms as are described in Section 4.06 hereof.
The Class MT4 Interest shall not have a principal balance.
"Class R Certificate": Any one of the Class R Certificates executed by the
Trustee, and authenticated and delivered by the Certificate Registrar,
substantially in the form annexed hereto as Exhibit A-3 and evidencing the
ownership of the Class R1 Interest, the Class R2 Interest and the Class R3
Interest.
"Class R1 Interest": The uncertificated Residual Interest in REMIC 3.
"Class R2 Interest": The uncertificated Residual Interest in REMIC 1.
"Class R3 Interest": The uncertificated Residual Interest in REMIC 2.
"Class UT1 Interest": A regular interest in REMIC 3 ownership of which is
evidenced by the Class X Certificates.
"Class UT1 Distributable Amount": With respect to any Distribution Date,
an amount equal to the product of (i) a fraction, the numerator of which is the
number of days in the related Interest Accrual Period and the denominator of
which is 360, (ii) the Class UT1 Notional Balance immediately prior
distributions of principal on such Distribution Date and (iii) the Class UT1
Pass-Through Rate.
"Class UT1 Notional Balance": A notional principal balance equal to the
principal balance of the Class MT1 Interest.
"Class UT1 Pass-Through Rate": With respect to any Distribution Date, a
per annum rate equal to the excess of (i) the Net WAC Rate over (ii) the product
of (x) two and (y) a fraction, the numerator of which is the product of the
Class A Adjusted Pass-Through Rate and the principal balance of the Class MT2
Interest immediately prior to distributions of principal in respect thereof on
such Distribution Date and the denominator of which is the sum of the principal
balances of the Class MT2 and Class MT3 Interests immediately prior to
distributions of principal in respect thereof on such Distribution Date.
"Class UT2 Interest": A regular interest in REMIC 3 ownership of which is
evidenced by the Class X Certificates.
7
"Class UT2 Distributable Amount": With respect to any Distribution Date,
an amount equal to the product of (i) a fraction, the numerator of which is the
number of days in the related Interest Accrual Period and the denominator of
which is 360, (ii) the Class UT2 Notional Balance immediately prior to
distributions of principal in respect thereof on such Distribution Date and
(iii) the Class UT2 Pass-Through Rate.
"Class UT2 Notional Balance": A notional principal balance equal to the
principal balance of the Class MT2 Interest.
"Class UT2 Pass-Through Rate": With respect to any Distribution Date, a
per annum rate equal to the excess of (i) the Class A Adjusted Pass-Through Rate
over (ii) the product of (x) two and (y) a fraction, the numerator of which is
the product of the Class A Adjusted Pass-Through Rate and the principal balance
of the Class MT2 Interest immediately prior to distributions of principal in
respect thereof on such Distribution Date and the denominator of which is the
sum of the principal balances of the Class MT2 and Class MT3 Interests
immediately prior to distributions of principal in respect thereof on such
Distribution Date.
"Class UT3 Interest": A regular interest in REMIC 3 ownership of which is
evidenced by the Class X Certificates.
"Class UT3 Distributable Amount": With respect to any Distribution Date,
an amount equal to the product of (i) a fraction, the numerator of which is the
number of days in the related Interest Accrual Period and the denominator of
which is 360, (ii) the Class UT3 Notional Balance immediately prior to
distributions of principal in respect thereof on such Distribution Date and
(iii) the Class UT3 Pass-Through Rate.
"Class UT3 Notional Balance": A notional principal balance equal to the
principal balance of the Class MT3 Interest.
"Class UT3 Pass-Through Rate": With respect to any Distribution Date, a
per annum rate equal to the excess of (i) the Net WAC Rate over (ii) the product
of (x) two and (y) a fraction, the numerator of which is the product of the
Class A Adjusted Pass-Through Rate and the principal balance of the Class MT2
Interest immediately prior to distributions of principal in respect thereof on
such Distribution Date and the denominator of which is the sum of the principal
balances of the Class MT2 and Class MT3 Interests immediately prior to
distributions of principal in respect thereof on such Distribution Date.
"Class UT4 Interest": A regular interest in REMIC 3 ownership of which is
evidenced by the Class X Certificates.
"Class UT4 Distributable Amount": With respect to any Distribution Date an
amount equal to the Class MT4 Distributable Amount for such Distribution Date.
"Class X Carry-Forward Amount": With respect to any Distribution Date the
sum of (a) the amount, if any, by which (x) the Class X Distributable Amount as
of the immediately preceding
8
Distribution Date exceeded (y) the amount of the actual distribution made to
Owners of the Class X Certificates on such immediately preceding Distribution
Date.
"Class X Certificate": Any one of the Class X Certificates executed by the
Trustee, and authenticated and delivered by the Certificate Registrar,
substantially in the form annexed hereto as Exhibit A-2 and evidencing a Regular
Interest in the Trust Fund for purposes of the REMIC Provisions.
"Class X Distributable Amount": With respect to any Distribution Date, the
sum of the Class UT1 Distributable Amount, the Class UT2 Distributable Amount,
the Class UT3 Distributable Amount and the Class UT4 Distributable Amount plus
any Class X Carry-Forward Amount from the preceding Distribution Date.
"Closing Date": December 30, 1997.
"Code": The Internal Revenue Code of 1986, as amended.
"Collection Account": The account or accounts created and maintained by
the Master Servicer or a Sub-Servicer pursuant to Section 3.10(a), which shall
be entitled "Pan American Bank, FSB, as Master Servicer for Bankers Trust
Company of California, N.A., as Trustee, in trust for (A) registered holders of
United PanAm Mortgage Loan Asset Backed Certificates, Series 1997-1, and (B)
Financial Security Assurance Inc." and which must be an Eligible Account.
Amounts held in the Collection Account shall be held as assets of REMIC 1.
"Collection Period": With respect to any Distribution Date, the calendar
month preceding the calendar month in which such Distribution Date occurs.
"Compensating Interest": As defined in Section 3.24 hereof.
"Corporate Trust Office": The principal corporate trust office of the
Trustee at which at any particular time its corporate trust business in
connection with this Agreement shall be administered, which office at the date
of the execution of this instrument is located at ▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: Corporate Trust: United PanAm 1997-1, or
at such other address as the Trustee may designate from time to time by notice
to the Certificateholders, the Depositor, the Master Servicer, the Seller and
the Certificate Insurer.
"Cumulative Insurance Payments": As of any time of determination, the
aggregate of all Insurance Payments previously made by the Certificate Insurer
under the Policy plus interest thereon from the date such amount became due
until paid in full, at a rate of interest calculated as provided in the
Insurance Agreement minus the sum of (i) all payments previously made to the
Certificate Insurer pursuant to Section 4.01 hereof as reimbursement for such
amounts and (ii) any payments made by the Certificate Insurer attributable to
Excess Bankruptcy Losses, Excess Fraud Losses and Excess Special Hazard Losses.
9
"Cumulative Loss Percentage": For any Distribution Date, the percentage
equivalent of a fraction, the numerator of which is the aggregate amount of
Realized Losses incurred from and including the first Collection Period to and
including the most recently ended Collection Period, and the denominator of
which is the Maximum Collateral Amount.
"Cut-off Date": With respect to each Initial Mortgage Loan, December 1,
1997. With respect to all Qualified Substitute Mortgage Loans, their respective
dates of substitution. References herein to the "Cut-off Date," when used with
respect to more than one Mortgage Loan, shall be to the respective Cut-off Dates
for such Mortgage Loans. With respect to any Mortgage Loan originated after
December 1, 1997 (other than a Qualified Substitute Mortgage Loan), the date of
the origination of such Mortgage Loan.
"Debt Service Reduction": With respect to any Mortgage Loan, a reduction
in the scheduled Monthly Payment for such Mortgage Loan by a court of competent
jurisdiction in a proceeding under the Bankruptcy Code, except such a reduction
resulting from a Deficient Valuation.
"Deficiency Amount": With respect to the Class A Certificates as of any
Distribution Date (i) any shortfall in amounts available in the Distribution
Account to pay interest on the Class A Certificates for the related Interest
Accrual Period on the Certificate Principal Balance at the then applicable Class
A Pass-Through Rate thereon, net of any Relief Act Interest Shortfalls allocated
to such Class, (ii) the principal portion of any Realized Loss allocated to the
Class A Certificates, and, without duplication, the excess, if any, of (a) the
aggregate Certificate Principal Balances of the Class A Certificates then
outstanding over (b) the aggregate Stated Principal Balances of the Mortgage
Loans then outstanding, and (iii) without duplication of the amount specified in
clause (ii), the aggregate Certificate Principal Balance of the Class A
Certificates to the extent unpaid on the final Distribution Date or earlier
termination of the Trust Fund pursuant to the terms of this Agreement.
"Deficiency Event": The inability of the Trustee to make the Guaranteed
Distribution on any Distribution Date due to a shortage of funds for such
purpose then held in the Distribution Account and the failure of the Certificate
Insurer to pay in full a claim made in accordance with the Policy with respect
to such Distribution Date.
"Deficient Valuation": With respect to any Mortgage Loan, a valuation of
the related Mortgaged Property by a court of competent jurisdiction in an amount
less than the then outstanding principal balance of the Mortgage Loan, which
valuation results from a proceeding initiated under the Bankruptcy Code.
"Definitive Certificates": As defined in Section 5.02(c).
"Deleted Mortgage Loan": A Mortgage Loan replaced or to be replaced by a
Qualified Substitute Mortgage Loan.
"Delinquency Percentage": As of the last day of any Collection Period, the
percentage equivalent of a fraction, the numerator of which equals the aggregate
Stated Principal Balances of all Mortgage Loans that are 60 or more days
delinquent on a contractual basis, in foreclosure or converted
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to REO Properties as of such last day of such Collection Period, and the
denominator of which is the aggregate Stated Principal Balance of the Mortgage
Loans as of the last day of such Collection Period.
"Depositor": ▇▇▇▇▇▇ ABS Corporation, a Delaware corporation, or its
successor in interest.
"Depository": The Depository Trust Company, or any successor Depository
hereafter named. The nominee of the initial Depository, for purposes of
registering those Certificates that are to be Book-Entry Certificates, is Cede &
Co. The Depository shall at all times be a "clearing corporation" as defined in
Section 8-102(3) of the Uniform Commercial Code of the State of New York and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended.
"Depository Institution": Any depository institution or trust company,
including the Trustee, that (a) is incorporated under the laws of the United
States of America or any State thereof, (b) is subject to supervision and
examination by federal or state banking authorities and (c) has outstanding
unsecured commercial paper or other short-term unsecured debt obligations (or,
in the case of a depository institution that is the principal subsidiary of a
holding company, such holding company has unsecured commercial paper or other
short-term unsecured debt obligations) that are rated P-1 by ▇▇▇▇▇'▇ and A-1 by
S&P (or comparable ratings if ▇▇▇▇▇'▇ and S&P are not the Rating Agencies).
"Depository Participant": A broker, dealer, bank or other financial
institution or other Person for whom from time to time a Depository effects
book-entry transfers and pledges of securities deposited with the Depository.
"Determination Date": With respect to each Distribution Date, the fifth
Business Day preceding such Distribution Date.
"Directly Operate": With respect to any REO Property, the furnishing or
rendering of services to the tenants thereof, the management or operation of
such REO Property, the holding of such REO Property primarily for sale to
customers, the performance of any construction work thereon or any use of such
REO Property in a trade or business conducted by the Trust Fund other than
through an Independent Contractor; provided, however, that the Trustee (or the
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Master Servicer on behalf of the Trustee) shall not be considered to Directly
Operate an REO Property solely because the Trustee (or the Master Servicer on
behalf of the Trustee) establishes rental terms, chooses tenants, enters into or
renews leases, deals with taxes and insurance, or makes decisions as to repairs
or capital expenditures with respect to such REO Property.
"Disqualified Organization": Any of the following: (i) the United States,
any State or political subdivision thereof, any possession of the United States,
or any agency or instrumentality of any of the foregoing (other than an
instrumentality which is a corporation if all of its activities are subject to
tax and, except for the FHLMC, a majority of its board of directors is not
selected by such governmental unit), (ii) any foreign government, any
international organization, or any agency or instrumentality of any of the
foregoing, (iii) any organization (other than certain farmers' cooperatives
described in Section 521 of the Code) which is exempt from the tax imposed by
Chapter 1 of the Code (including the tax imposed by Section 511 of the Code on
unrelated business taxable income), (iv)
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rural electric and telephone cooperatives described in Section 1381(a)(2)(C) of
the Code and (v) any other Person so designated by the Trustee based upon an
Opinion of Counsel that the holding of an Ownership Interest in a Residual
Certificate by such Person may cause the Trust Fund or any Person having an
Ownership Interest in any Class of Certificates (other than such Person) to
incur a liability for any federal tax imposed under the Code that would not
otherwise be imposed but for the Transfer of an Ownership Interest in a Residual
Certificate to such Person. The terms "United States," "State" and
"international organization" shall have the meanings set forth in Section 7701
of the Code or successor provisions.
"Distribution Account": The trust account or accounts created and
maintained by the Trustee pursuant to Section 3.10(b) which shall be entitled
"Bankers Trust Company of California, N.A., as Trustee, in trust for (A)
registered holders of United PanAm Mortgage Loan Asset Backed Certificates,
Series 1997-1, and (B) Financial Security Assurance Inc." and which must be an
Eligible Account. Amounts held in the Distribution Account shall be deemed
assets of REMIC 1.
"Distribution Date": The 25th day of any month, or if such 25th day is not
a Business Day, the Business Day immediately following such 25th day, commencing
in January 1998.
"Due Date": With respect to each Distribution Date, the day of the month
on which the Monthly Payment is due on a Mortgage Loan during the related Due
Period, exclusive of any days of grace.
"Due Period": With respect to any Distribution Date, the period commencing
on the second day of the month preceding the month in which such Distribution
Date occurs and ending on the first day of the month in which such Distribution
Date occurs.
"Eligible Account": Any of a segregated account that is (i) maintained
with a depository institution whose debt obligations at the time of any deposit
therein have the short-term debt rating of A-1 by Standard & Poor's and P-1 by
▇▇▇▇▇'▇ and whose accounts are insured to the maximum extent provided by either
the Savings Association Insurance Fund or the Bank Insurance Fund of the Federal
Deposit Insurance Corporation established by such fund with a minimum long-term
unsecured debt rating of "A2" by ▇▇▇▇▇'▇ and "A" by Standard & Poor's and which
is any of (a) a federal savings and loan association duly organized, validly
existing and in good standing under the applicable banking laws of any state,
(b) an institution duly organized, validly existing and in good standing under
the applicable banking laws of any state, (c) a national banking association
duly organized, validly existing and in good standing under the federal banking
laws or (d) a principal subsidiary of a bank holding company, and in each case
of (a) through (d), approved in writing by the Certificate Insurer, (ii)
maintained with the corporate trust department of a federal or state chartered
depository institution or trust company, having capital and surplus of not less
than $50,000,000, acting in its fiduciary capacity or (iii) otherwise acceptable
to each Rating Agency and the Certificate Insurer as evidenced by a letter from
each Rating Agency and the Certificate Insurer to the Trustee, without reduction
or withdrawal of their then current ratings of the Certificates. Eligible
Accounts may bear interest.
"Estate in Real Property": A fee simple estate in a parcel of land.
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"Excess Bankruptcy Loss": Any Bankruptcy Loss, or portion thereof, which
exceeds the then applicable Bankruptcy Amount.
"Excess Basis Risk Shortfall": The sum of (a) the Basis Risk Shortfall for
such Distribution Date and (b) the Unpaid Basis Risk Shortfall for such
Distribution Date less (c) the outstanding amount of REMIC Basis Risk Shortfall.
The outstanding amount of Excess Basis Risk Shortfall shall accrue interest at
the lesser of (a) the Class A Pass-Through Rate without regard to clause (ii)
thereof and (b) the Maximum Class A Pass-Through Rate.
"Excess Fraud Loss": Any Fraud Loss, or portion thereof, which exceeds the
then applicable Fraud Loss Amount.
"Excess Losses": Any Realized Loss that is an Excess Fraud Loss, an Excess
Special Hazard Loss or an Excess Bankruptcy Loss.
"Excess Special Hazard Loss": Any Special Hazard Loss, or portion thereof,
that exceeds the then applicable Special Hazard Amount.
"Excess Subordinated Amount": With respect to the Class A Certificates and
any Distribution Date, the excess, if any, of (i) the Subordinated Amount for
such Distribution Date over (ii) the Required Subordinated Amount for such
Distribution Date.
"Expense Account": The account established and maintained pursuant to
Section 3.25.
"Expense Adjusted Maximum Mortgage Rate": With respect to any Mortgage
Loan and Distribution Date, an amount equal to the excess of (x) the Maximum
Mortgage Rate thereon, over (y) the sum of (i) the Minimum Spread, (ii) the
Trustee's Fee Rate, (iii) the Servicing Fee Rate and (iv) the rate obtained by
dividing the Certificate Insurer Premium Amount for such Distribution Date by
the aggregate Stated Principal Balance of the Mortgage Loans prior to giving
effect to the distribution of principal pursuant to Section 4.01(ii) on such
Distribution Date.
"Expense Adjusted Mortgage Rate": With respect to any Mortgage Loan and
any Distribution Date, an amount equal to the Mortgage Rate thereon minus the
sum of (i) the Minimum Spread, (ii) the Trustee's Fee Rate, (iii) the Servicing
Fee Rate and (iv) the rate obtained by dividing the Certificate Insurer Premium
Amount for such Distribution Date by the aggregate Stated Principal Balance of
the Mortgage Loans prior to giving effect to the distribution of principal
pursuant to Section 4.01(ii) on such Distribution Date.
"Extraordinary Loss": Any Realized Loss or portion thereof caused by or
resulting from:
(i) wear and tear, deterioration, rust or corrosion, mold, wet or dry
rot; inherent vice or latent defect; animals, birds, vermin,
insects;
(ii) smog, smoke, vapor, liquid or dust discharge from agricultural or
industrial operations; pollution; contamination;
13
(iii) settling, subsidence, cracking, shrinkage, bulging or expansion
of pavements, foundations, walls, floors, roofs or ceilings;
(iv) errors in design, faulty workmanship or faulty materials,
unless the collapse of the property or a part thereof ensues
and then only for the ensuing loss;
(v) nuclear or chemical reaction or nuclear radiation or
radioactive or chemical contamination, all whether controlled
or uncontrolled and whether such loss be direct or indirect,
proximate or remote or be in whole or in part caused by,
contributed to or aggravated by a peril covered by the
definition of the term "Special Hazard Loss";
(vi) hostile or warlike action in time of peace or war, including
action in hindering, combating or defending against an actual,
impending or expected attack by any government or sovereign
power, de jure or de facto, or by any authority maintaining or
using military, naval or air forces, or by military, naval or
air forces, or by an agent of any such government, power,
authority or forces;
(vii) any weapon of war employing atomic fission or radioactive
forces whether in time of peace or war, and
(viii) insurrection, rebellion, revolution, civil war, usurped power
or action taken by governmental authority in hindering,
combating or defending against such an occurrence, seizure or
destruction under quarantine or customs regulations,
confiscation by order of any government or public authority, or
risks of contraband or illegal transactions or trade.
"FDIC": Federal Deposit Insurance Corporation or any successor thereto.
"FHLMC": Federal Home Loan Mortgage Corporation or any successor thereto.
"Final Recovery Determination": With respect to any defaulted Mortgage
Loan or any REO Property (other than a Mortgage Loan or REO Property purchased
by the Seller, the Master Servicer or the Certificate Insurer pursuant to or as
contemplated by Section 2.03, 3.15(c) or 10.01), a determination made by the
Master Servicer in the form of a Servicing Officer's Certificate that all
Insurance Proceeds, Liquidation Proceeds and other payments or recoveries which
the Master Servicer, in its reasonable good faith judgment, expects to be
finally recoverable in respect thereof have been so recovered. The Master
Servicer shall maintain records, prepared by a Servicing Officer, of each Final
Recovery Determination made thereby.
"FNMA": Federal National Mortgage Association or any successor thereto.
"Fraud Loss": Any Realized Loss or portion thereof sustained by reason of
a default arising from intentional fraud, dishonesty or misrepresentation in
connection with the related Mortgage Loan.
14
"Fraud Loss Amount": As of any date of determination after the Cut-off
Date, an amount equal to: (X) prior to the first anniversary of the Cut-off
Date, 3.0% (initially, $3,432,750) of the aggregate outstanding principal
balance of all of the Mortgage Loans as of the Cut-off Date minus the aggregate
amount of Fraud Losses on the Mortgage Loans allocated solely to the Class X and
Residual Certificates in accordance with Section 4.04 since the Cut-off Date up
to such date of determination, (Y) from the first to the second anniversary of
the Cut-off Date, (1) the lesser of (a) the Fraud Loss Amount as of the most
recent anniversary of the Cut-off Date and (b) 2.0% of the aggregate outstanding
principal balance of all of the Mortgage Loans as of the most recent anniversary
of the Cut-off Date minus (2) the Fraud Losses on the Mortgage Loans allocated
solely to the Class X and Residual Certificates in accordance with Section 4.04
since the most recent anniversary of the Cut-off Date up to such date of
determination and (Z) from the second anniversary to the fifth anniversary of
the Cut-off Date, (1) the lesser of (a) the Fraud Loss Amount as of the most
recent anniversary of the Cut-off Date and (b) 1.0% of the aggregate out
standing principal balance of all of the Mortgage Loans as of the most recent
anniversary of the Cut-off Date minus (2) the Fraud Losses on the Mortgage Loans
allocated solely to the Class X and Residual Certificates in accordance with
Section 4.04 since the most recent anniversary of the Cut-off Date up to such
date of determination. On and after the fifth anniversary of the Cut-off Date,
the Fraud Loss Amount shall be zero.
"Funding Account": The Funding Account established pursuant to Section
4.08.
"Gross Margin": With respect to each Mortgage Loan, the fixed percentage
set forth in the related Mortgage Note that is added to the Index on each
Adjustment Date in accordance with the terms of the related Mortgage Note used
to determine the Mortgage Rate for such Mortgage Loan.
"Guaranteed Distribution": As defined in the Policy.
"Independent": When used with respect to any specified Person, any such
Person who (a) is in fact independent of the Depositor, the Master Servicer and
their respective Affiliates, (b) does not have any direct financial interest in
or any material indirect financial interest in the Depositor or the Master
Servicer or any Affiliate thereof, and (c) is not connected with the Depositor
or the Master Servicer or any Affiliate thereof as an officer, employee,
promoter, underwriter, trustee, partner, director or Person performing
similar functions; provided, however, that a Person shall not fail to be
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Independent of the Depositor or the Master Servicer or any Affiliate thereof
merely because such Person is the beneficial owner of 1% or less of any class
of securities issued by the Depositor or the Master Servicer or any Affiliate
thereof, as the case may be.
"Independent Contractor": Either (i) any Person (other than the Master
Servicer) that would be an "independent contractor" with respect to the Trust
Fund within the meaning of Section 856(d)(3) of the Code if the Trust Fund were
a real estate investment trust (except that the ownership tests set forth in
that section shall be considered to be met by any Person that owns, directly or
indirectly, 35 percent or more of any Class of Certificates), so long as the
Trust Fund does not receive or derive any income from such Person and provided
that the relationship between such Person and the Trust Fund is at arm's length,
all within the meaning of Treasury Regulation Section 1.856-4(b)(5), or (ii) any
other Person (including the Master Servicer) if the Trustee has received an
Opinion of Counsel, which Opinion of Counsel shall be an expense of the Trust
Fund, to the effect that the taking of any action
15
in respect of any REO Property by such Person, subject to any conditions therein
specified, that is otherwise herein contemplated to be taken by an Independent
Contractor will not cause such REO Property to cease to qualify as "foreclosure
property" within the meaning of Section 860G(a)(8) of the Code (determined
without regard to the exception applicable for purposes of Section 860D(a) of
the Code), or cause any income realized in respect of such REO Property to fail
to qualify as Rents from Real Property.
"Index": With respect to each Mortgage Loan and each related Adjustment
Date the average of the interbank offered rates for six-month United States
dollar-denominated deposits in the London market as published in The Wall Street
Journal and as most recently available as of the first Business Day of the month
preceding the month of such Adjustment Date, as specified in the related
Mortgage Note.
"Initial Interest Coverage Account": The Interest Coverage Account
established pursuant to Section 4.08.
"Initial Mortgage Loan": Each Mortgage Loan originated and identified as
of December 1, 1997.
"Insurance Agreement": The Insurance and Indemnity Agreement, dated as of
December 30, 1997, among the Depositor, the Master Servicer, the Certificate
Insurer and the Seller, as amended or supplemented in accordance with the
provisions thereof.
"Insurance Payment": Any payment made by the Certificate Insurer under the
Policy with respect to the Class A Certificates.
"Insurance Proceeds": Proceeds of any title policy, hazard policy or other
insurance policy covering a Mortgage Loan, to the extent such proceeds are not
to be applied to the restoration of the related Mortgaged Property or released
to the Mortgagor in accordance with the procedures that the Master Servicer
would follow in servicing mortgage loans held for its own account, subject to
the terms and conditions of the related Mortgage Note and Mortgage.
"Interest Accrual Period": With respect to any Distribution Date, the
period commencing on the preceding Distribution Date (or in the case of the
first Interest Accrual Period, commencing on the Closing Date) and ending on the
day preceding the current Distribution Date.
"Interest Determination Date": With respect to the Class A Certificates
and any Interest Accrual Period therefor, the second London Business Day
preceding the commencement of such Interest Accrual Period.
"Interest Distribution Amount": With respect to any Distribution Date and
the Class A Certificates, the aggregate Accrued Certificate Interest on the
Certificates for such Distribution Date.
"Late Collections": With respect to any Mortgage Loan, all amounts
received subsequent to the Determination Date immediately following any
Collection Period, whether as late payments of
16
Monthly Payments or as Insurance Proceeds, Liquidation Proceeds or otherwise,
which represent late payments or collections of principal and/or interest due
(without regard to any acceleration of payments under the related Mortgage and
Mortgage Note) but delinquent on a contractual basis for such Collection Period
and not previously recovered.
"Liquidation Event": With respect to any Mortgage Loan, any of the
following events: (i) such Mortgage Loan is paid in full; (ii) a Final Recovery
Determination is made as to such Mortgage Loan; or (iii) such Mortgage Loan is
removed from the Trust Fund by reason of its being purchased, sold or replaced
pursuant to or as contemplated by Section 2.03, Section 3.15(c) or Section
10.01. With respect to any REO Property, either of the following events: (i) a
Final Recovery Determination is made as to such REO Property; or (ii) such REO
Property is removed from the Trust Fund by reason of its being purchased
pursuant to Section 10.01.
"Liquidation Proceeds": The amount (other than amounts received in respect
of the rental of any REO Property prior to REO Disposition) received by the
Master Servicer in connection with (i) the taking of all or a part of a
Mortgaged Property by exercise of the power of eminent domain or condemnation,
(ii) the liquidation of a defaulted Mortgage Loan by means of a trustee's sale,
foreclosure sale or otherwise, or (iii) the repurchase, substitution or sale of
a Mortgage Loan or an REO Property pursuant to or as contemplated by Section
2.03, Section 3.15(c), Section 3.23 or Section 10.01.
"Loan-to-Value Ratio": As of any date of determination, the fraction,
expressed as a percentage, the numerator of which is the principal balance of
the related Mortgage Loan at such date and the denominator of which is the Value
of the related Mortgaged Property.
"London Business Day": Any day on which banks in the City of London are
open and conducting transactions in United States dollars.
"Lost Note Affidavit": With respect to any Mortgage Loan as to which the
original Mortgage Note has been permanently lost or destroyed and has not been
replaced, an affidavit from the Seller certifying that the original Mortgage
Note has been lost, misplaced or destroyed (together with a copy of the related
Mortgage Note) in the form of Exhibit H hereto.
"Majority Class R Certificateholder": Any single Holder of Class R
Certificates representing a greater than 50% Percentage Interest in such Class.
"Master Servicer": Pan American Bank, FSB, a federal savings bank, or any
successor master servicer appointed as herein provided, in its capacity as
Master Servicer hereunder.
"Master Servicer Affiliate": A Person (i) controlling, controlled by or
under common control with the Master Servicer or which is 50% or more owned by
the Master Servicer and (ii) which is qualified to service residential mortgage
loans.
"Master Servicer Event of Default": One or more of the events described in
Section 7.01.
17
"Master Servicer Remittance Date": With respect to any Distribution Date,
noon New York time on the fourth Business Day prior to such Distribution Date.
"Maximum Class A Pass-Through Rate": With respect to each Distribution
Date, the weighted average of the Expense Adjusted Maximum Mortgage Rates plus
the Minimum Spread of the then outstanding Mortgage Loans weighted on the basis
of the Stated Principal Balances of such Mortgage Loans immediately prior to
such Distribution Date.
"Maximum Collateral Amount": $115,000,000.
"Maximum Mortgage Rate": With respect to each Mortgage Loan, the
percentage set forth in the related Mortgage Note as the maximum Mortgage Rate
thereunder.
"Minimum Mortgage Rate": With respect to each Mortgage Loan, the
percentage set forth in the related Mortgage Note as the minimum Mortgage Rate
thereunder.
"Minimum Spread": With respect to the 1st through the 12th Distribution
Dates, 0.00% per annum; with respect to the 13th Distribution Date and each
Distribution Date thereafter, 0.50% per annum.
"Monthly Advance": As to any Mortgage Loan or REO Property, any advance
made by the Master Servicer in respect of any Distribution Date pursuant to
Section 4.03.
"Monthly Payment": With respect to any Mortgage Loan, the scheduled
monthly payment of principal and interest on such Mortgage Loan which is payable
by the related Mortgagor from time to time under the related Mortgage Note,
determined: (a) after giving effect to (i) any Deficient Valuation and/or Debt
Service Reduction with respect to such Mortgage Loan and (ii) any reduction in
the amount of interest collectible from the related Mortgagor pursuant to the
Relief Act; (b) without giving effect to any extension granted or agreed to by
the Master Servicer pursuant to Section 3.02; and (c) on the assumption that all
other amounts, if any, due under such Mortgage Loan are paid when due.
"Moody's": ▇▇▇▇▇'▇ Investors Service, Inc. or its successor in interest.
"Mortgage": The mortgage, deed of trust or other instrument creating a
first lien on, or first priority security interest in, a Mortgaged Property
securing a Mortgage Note.
"Mortgage File": The mortgage documents listed in Section 2.01 pertaining
to a particular Mortgage Loan and any additional documents required to be added
to the Mortgage File pursuant to this Agreement.
"Mortgage Loan": Each mortgage loan transferred and assigned to the
Trustee pursuant to Section 2.01 or Section 2.03(d) as from time to time held as
a part of the Trust Fund, the Mortgage Loans so held being identified in the
Mortgage Loan Schedule.
18
"Mortgage Loan Purchase Agreement": The agreement between the Seller and
the Depositor, regarding the transfer of the Mortgage Loans by the Seller to or
at the direction of the Depositor, substantially in the form of Exhibit D
annexed hereto.
"Mortgage Loan Schedule": As of any date, the list of Mortgage Loans
included in the Trust Fund on such date, attached hereto as Schedule 1. The
Mortgage Loan Schedule shall be in an electronic format mutually acceptable to
the Master Servicer and the Trustee and shall be prepared by the Master Servicer
and shall set forth the following information with respect to each Mortgage
Loan:
(i) the Seller's Mortgage Loan identifying number;
(ii) the Mortgagor's name;
(iii) the street address of the Mortgaged Property including the
state and zip code;
(iv) a code indicating whether the Mortgaged Property is owner-
occupied;
(v) the type of Residential Dwelling constituting the Mortgaged
Property;
(vi) the original months to maturity;
(vii) the stated remaining months to maturity from the Cut-off
Date based on the original amortization schedule;
(viii) the Loan-to-Value Ratio at origination;
(ix) the Mortgage Rate in effect immediately following the Cut-off
Date;
(x) (A) the date on which the first Monthly Payment was due on the
Mortgage Loan and, (B) if such date is not consistent with the
Due Date currently in effect, such Due Date;
(xi) the stated maturity date;
(xii) the amount of the Monthly Payment due on the first Due Date
on or after the Cut-off Date;
(xiii) the last Due Date on which a Monthly Payment was actually
applied to the unpaid Principal Balance;
(xiv) the original principal amount of the Mortgage Loan;
(xv) the outstanding principal balance of the Mortgage Loan as of
the close of business on the Cut-off Date;
19
(xvi) the Gross Margin;
(xvii) a code indicating the purpose of the Mortgage Loan (i.e.,
purchase financing, Rate/Term Refinancing, Cash-Out
Refinancing);
(xviii) the Maximum Mortgage Rate;
(xix) the Minimum Mortgage Rate;
(xx) the Mortgage Rate at origination;
(xxi) the Periodic Rate Cap and the maximum first Adjustment Date
Mortgage Rate adjustment;
(xxii) a code indicating the documentation style program (i.e.,
Full Documentation, Flex Documentation or Stated Income
Documentation);
(xxiii) the Index;
(xxiv) the first Adjustment Date immediately following the Cut-off
Date;
(xxv) the risk grade;
(xxvi) [intentionally omitted];
(xxvii) the Value of the Mortgaged Property;
(xxviii) [intentionally omitted];
(xxix) the prepayment penalty term;
(xxx) [intentionally omitted];
(xxxi) [intentionally omitted];
(xxxii) the rounding code (nearest 0.125%);
(xxxiii) whether the Mortgage Loan is assumable; whether the
Mortgage Loan has a due-on-sale clause; and
(xxxiv) the program code.
The Mortgage Loan Schedule shall set forth the following information, as of
the Cut-off Date with respect to the Mortgage Loans in the aggregate: (1) the
number of Mortgage Loans; (2) the current principal balance of the Mortgage
Loans; (3) the weighted average Mortgage Rate of the
20
Mortgage Loans; and (4) the weighted average maturity of the Mortgage Loans. The
Mortgage Loan Schedule shall be amended from time to time by the Seller in
accordance with the provisions of this Agreement. With respect to any Qualified
Substitute Mortgage Loan, Cut-off Date shall refer to the related Cut-off Date
for such Mortgage Loan, determined in accordance with the definition of Cut-off
Date herein.
"Mortgage Note": The original executed note or other evidence of
indebtedness evidencing the indebtedness of a Mortgagor under a Mortgage Loan.
"Mortgage Pool": The pool of Mortgage Loans, identified on Schedule 1
from time to time, and any REO Properties acquired in respect thereof.
"Mortgage Rate": With respect to each Mortgage Loan, the annual rate at
which interest accrues on such Mortgage Loan from time to time in accordance
with the provisions of the related Mortgage Note, which rate (A) as of any date
of determination until the first Adjustment Date following the Cut-off Date
shall be the rate set forth in the Mortgage Loan Schedule as the Mortgage Rate
in effect immediately following the Cut-off Date and (B) as of any date of
determination thereafter shall be the rate determined in accordance with the
terms of the related Mortgage Note. With respect to each Mortgage Loan that
becomes an REO Property, as of any date of determination, the annual rate
determined in accordance with the immediately preceding sentence as of the date
such Mortgage Loan became an REO Property.
"Mortgaged Property": The underlying property securing a Mortgage Loan,
including any REO Property, consisting of an Estate in Real Property improved
by a Residential Dwelling.
"Mortgagor": The obligor on a Mortgage Note.
"Net Excess Spread": With respect to any Distribution Date, a fraction,
expressed as a percentage, the numerator of which is equal to the excess of (x)
the aggregate Stated Principal Balance of the then outstanding Mortgage Loans
(after giving effect to distributions of principal of the Certificates on such
Distribution Date) times the weighted average of the Expense Adjusted Mortgage
Rates (other than clause (i) thereof) on the then outstanding Mortgage Loans
over (y) the sum of the Interest Distribution Amount for such Distribution Date
and the Certificate Insurer Premium with respect to the Class A Certificates
payable to the Certificate Insurer with respect to the Policy for such
Distribution Date, and the denominator of which is an amount equal to (1) the
aggregate Stated Principal Balance (after giving effect to distributions of
principal of the Certificates on such Distribution Date) of the then outstanding
Mortgage Loans multiplied by (2) the actual number of days elapsed in the
related Interest Accrual Period divided by 360.
"Net Funds Cap": With respect to any Distribution Date, the weighted
average of the Mortgage Rates as of the first day of the related Due Period less
the Aggregate Expense Rate, weighted on the basis of the Stated Principal
Balances as of such date.
"Net Monthly Excess Cashflow": With respect to any Distribution Date, an
amount equal to the sum of (A) any Subordination Reduction Amount for such
Distribution Date and (B) the excess
21
of (x) the Available Distribution Amount for such Distribution Date over (y) the
sum for such Distribution Date of (A) the Interest Distribution Amount payable
to the holders of the Class A Certificates and (B) the amount described in
clauses (b)(i) through (iii) of the definition of Principal Distribution Amount.
"Net Mortgage Rate": With respect to any Mortgage Loan (or the related REO
Property), as of any date of determination, a per annum rate of interest equal
to the then applicable Mortgage Rate for such Mortgage Loan minus the Servicing
Fee Rate.
"Net WAC Rate": As to any Distribution Date, the Net Funds Cap for such
Distribution Date plus the Minimum Spread.
"New Lease": Any lease of REO Property entered into on behalf of the Trust
Fund, including any lease renewed or extended on behalf of the Trust Fund if the
Trust Fund has the right to renegotiate the terms of such lease.
"Nonrecoverable Monthly Advance": Any Monthly Advance previously made or
proposed to be made in respect of a Mortgage Loan or REO Property that, in the
good faith business judgment of the Master Servicer, will not or, in the case of
a proposed Monthly Advance, would not be ultimately recoverable from related
late payments, Insurance Proceeds or Liquidation Proceeds on such Mortgage Loan
or REO Property as provided herein.
"Non-United States Person": (i) A person other than a citizen or resident
of the United States, (ii) a partnership, corporation, or entity treated as a
partnership or corporation for United States federal income tax purposes not
formed under the laws of the United States, any State thereof or the District of
Columbia (unless in the case of a partnership Treasury regulations provide
otherwise), (iii) any estate the income of which is not subject to United States
income taxation regardless of sources, and (iv) any trust other than a trust
that a court within the United States is able to exercise primary supervision
over the administration of the trust and one or more United States persons have
the authority to control all substantial decisions of the trust or that is
eligible to and has elected to be treated as a United States Person.
"Officers' Certificate": A certificate signed by the Chairman of the
Board, the Vice Chairman of the Board, the President or a vice president
(however denominated), and by the Treasurer, the Secretary, or one of the
assistant treasurers or assistant secretaries of the Master Servicer, the Seller
or the Depositor, as applicable.
"One-Month LIBOR": The rate for one month United States dollar deposits
quoted on Telerate Page 3750 as of 11:00 A.M., London time, on the second London
Business Day prior to the first day of any Interest Accrual Period relating to
the Class A Certificates (or the second London Business Day prior to the Closing
Date, in the case of the first Distribution Date). "Telerate Page 3750" means
the display designated as page 3750 on the Telerate Service (or such other page
as may replace page 3750 on that service for the purpose of displaying London
interbank offered rates of major banks). 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
22
comparable rates as may be reasonably selected by the Trustee after consultation
with the Master Servicer), the rate will be the Reference Bank Rate. On the
second London Business Day immediately preceding each Distribution Date, the
Trustee shall determine the Class A Pass-Through Rate for the Interest Accrual
Period commencing on such Distribution Date and inform the Master Servicer of
such rate.
"Opinion of Counsel": A written opinion of counsel, who may, without
limitation, be a salaried counsel for the Depositor or the Master Servicer
acceptable to the Trustee and the Certificate Insurer, except that any opinion
of counsel relating to (a) the qualification of the Trust Fund as a REMIC or (b)
compliance with the REMIC Provisions which must be an opinion of Independent
counsel.
"Original Mortgage Loan": Any of the Mortgage Loans included in the Trust
Fund as of the Closing Date.
"Ownership Interest": As to any Certificate, any ownership or security
interest in such Certificate, including any interest in such Certificate as the
Holder thereof and any other interest therein, whether direct or indirect, legal
or beneficial, as owner or as pledgee.
"Percentage Interest": With respect to Class A Certificates, the undivided
percentage ownership in such Class evidenced by such Certificate, expressed as a
percentage, the numerator of which is the initial Certificate Principal Balance
represented by such Certificate and the denominator of which is the aggregate
initial Certificate Principal Balance of all of the Class A Certificates. The
Class A Certificates are issuable only in minimum Percentage Interests
corresponding to minimum initial Certificate Principal Balances of $100,000 and
increments of $1 in excess thereof. With respect to any Class X Certificate or
Class R Certificate, the undivided percentage ownership in such Class evidenced
by such Certificate, as set forth on the face of such Class X Certificate or
Class R Certificate. The Class R Certificates are issuable only in minimum
Percentage Interests of 25%.
"Periodic Rate Cap": With respect to any Adjustment Date therefor, the
fixed percentage set forth in the related Mortgage Note, which is the maximum
amount by which the Mortgage Rate for such Mortgage Loan may increase or
decrease (without regard to the Maximum Mortgage Rate or the Minimum Mortgage
Rate) on such Adjustment Date from the Mortgage Rate in effect immediately prior
to such Adjustment Date.
"Permitted Investments": Any one or more of the following obligations or
securities acquired at a purchase price of not greater than par, regardless of
whether issued by the Depositor, the Master Servicer, the Trustee or any of
their respective Affiliates:
(i) direct obligations of, or obligations fully guaranteed as to
timely payment of principal and interest by, the United States or any agency
or instrumentality thereof, provided such obligations are backed by the full
faith and credit of the United States, provided, however, that any
obligation of, or guaranteed by, FHLMC or FNMA, other than a senior debt or
a mortgage participation or pass-through
23
certificate guaranteed by FHLMC or FNMA shall be a Permitted Investment only
if, at the time of investment, such investment is acceptable to the
Certificate Insurer.
(ii) demand and time deposits in, certificates of deposit of, or
bankers' acceptances issued by, any Depository Institution;
(iii) repurchase obligations with respect to any security described
in clause (i) above entered into with a Depository Institution (acting as
principal);
(iv) securities bearing interest or sold at a discount that are
issued by any corporation incorporated under the laws of the United States
of America or any State thereof and that are rated by each Rating Agency in
its highest long-term unsecured rating categories at the time of such
investment or contractual commitment providing for such investment;
(v) commercial paper (including both non-interest-bearing discount
obligations and interest-bearing obligations payable on demand or on a
specified date not more than 30 days after the date of acquisition thereof)
that is rated by each Rating Agency in its highest short-term unsecured debt
rating available at the time of such investment;
(vi) units of money market funds that have been rated "Aaa" by
Moody's and "AAA" by S&P; and
(vii) if previously confirmed in writing to the Trustee, any other
demand, money market or time deposit, or any other obligation, security or
investment, as may be acceptable to the Rating Agencies and the Certificate
Insurer as a permitted investment of funds backing securities having ratings
equivalent to its highest initial rating of the Class A Certificates;
provided that no instrument described hereunder shall evidence either the right
to receive (a) only interest with respect to the obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument and 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.
"Permitted Transferee": Any Transferee of a Residual Certificate other
than a Disqualified Organization or Non-United States Person.
"Person": Any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Policy": The Financial Guaranty Insurance Policy (No. 50660-N) issued by
the Certificate Insurer relating to the Class A Certificates, including any
endorsements thereto, attached hereto as Exhibit B.
"Policy Payments Account": The account established pursuant to Section
9.04 hereof.
24
"Prepayment Assumption": A prepayment rate for the Mortgage Loans of 125%
of the Prepayment Vector. The Prepayment Assumption is used solely for
determining the accrual of original issue discount and market discount and the
amortization of bond premium on the Certificates for applicable tax purposes. A
100% Prepayment Vector assumes that the outstanding balance of a pool of
mortgage loans prepays at a rate of 4.00% CPR in the first month of the life of
such pool, such rate increasing by an additional approximate 1.455% CPR (exactly
16/11) each month thereafter through the twelfth month of the life of such pool,
and such rate thereafter remaining at 20% CPR for the remainder of the life of
such pool. A CPR (or Constant Prepayment Rate) represents an annualized
constant assumed rate of prepayment each month of a pool of mortgage loans
relative to its outstanding principal balance for the life of such pool.
"Prepayment Interest Shortfall": With respect to any Distribution Date,
for each Mortgage Loan that was during the related Prepayment Period the subject
of a Principal Prepayment in full or in part that was applied by the Master
Servicer to reduce the outstanding principal balance of such loan on a date
preceding the related Due Date, an amount equal to interest at the applicable
Net Mortgage Rate on the amount of such Principal Prepayment for the number of
days commencing on the date on which the prepayment is applied and ending on the
last day of the related Due Period. The obligations of the Master Servicer in
respect of any Prepayment Interest Shortfall are set forth in Section 3.24.
"Prepayment Period": With respect to any Distribution Date, the period
commencing on and including the Business Day following the Determination Date in
the month preceding the month in which the related Distribution Date occurs (or,
in the case of the first Distribution Date, the day following the Cut-off Date)
and ending on the Determination Date in the month in which the related
Distribution Date occurs.
"Prepayment Vector": The prepayment scenario assumed for Mortgage Loans in
determining the accrual of original issue discount on the Certificates for
federal income tax purposes. The Prepayment Vector is described in the
Prospectus Supplement, dated December 22, 1997, pursuant to which the Class A
Certificates were offered.
"Principal Distribution Amount": With respect to any Distribution Date,
the lesser of:
(a) the excess of the Available Distribution Amount over the amount
payable on the Class A Certificates pursuant to Section 4.01(a)(i);
and
(b) the sum of:
(i) the principal portion of each Monthly Payment due during the
related Due Period, to the extent received, on each Mortgage Loan;
(ii) the Stated Principal Balance of any Mortgage Loan that was
purchased during the related Prepayment Period pursuant to or as
contemplated by Section 2.03, 3.15(c) or 10.01 and the amount of any
shortfall deposited in the Collection Account in
25
connection with the substitution of a Deleted Mortgage Loan pursuant
to Section 2.03 during the related Collection Period;
(iii) the principal portion of all other unscheduled collections
(including, without limitation, Principal Prepayments, Insurance
Proceeds, Liquidation Proceeds and REO Principal Amortization)
received during the related Prepayment Period, net of any portion
thereof that represents a recovery of principal for which an advance
was made by the Master Servicer pursuant to Section 4.03 in respect of
a preceding Distribution Date; and
(iv) the principal portion of any Realized Losses incurred on any
Mortgage Loans in the calendar month preceding such Distribution Date,
and the principal portion of any Realized Losses previously allocated
to the Class A Certificates and with respect to which a distribution
has not previously been made pursuant to this clause, in each case to
the extent covered by Net Monthly Excess Cashflow for such
Distribution Date; and
(v) the amount of any Subordination Increase Amount for the Class A
Certificates for such Distribution Date;
minus:
-----
(vi) the amount of any Subordination Reduction Amount for the Class A
Certificates for such Distribution Date.
"Principal Prepayment": Any payment of principal made by the Mortgagor on
a Mortgage Loan which is received in advance of its scheduled Due Date and which
is not accompanied by an amount of interest representing the full amount of
scheduled interest due on any Due Date in any month or months subsequent to the
month of prepayment.
"Purchase Price": With respect to any Mortgage Loan or REO Property to be
purchased pursuant to or as contemplated by Section 2.03, 3.15(c) or 10.01, and
as confirmed by an Officers' Certificate from the Master Servicer to the
Trustee, an amount equal to the sum of (i) 100% of the Stated Principal Balance
thereof as of the date of purchase (or such other price as provided in Section
10.01), (ii) in the case of (x) a Mortgage Loan, accrued interest on such Stated
Principal Balance at the applicable Net Mortgage Rate in effect from time to
time from the Due Date as to which interest was last covered by a payment by the
Mortgagor or an advance by the Master Servicer, which payment or advance had as
of the date of purchase been distributed pursuant to Section 4.01, through the
end of the calendar month in which the purchase is to be effected, and (y) an
REO Property, the sum of (1) accrued interest on such Stated Principal Balance
at the applicable Net Mortgage Rate in effect from time to time from the Due
Date as to which interest was last covered by a payment by the Mortgagor or an
advance by the Master Servicer through the end of the calendar month immediately
preceding the calendar month in which such REO Property was acquired, plus (2)
REO Imputed Interest for such REO Property for each calendar month commencing
with the calendar month in which such REO Property was acquired and ending with
the calendar month in which such purchase
26
is to be effected, net of the total of all net rental income, Insurance
Proceeds, Liquidation Proceeds and Monthly Advances that as of the date of
purchase had been distributed as or to cover REO Imputed Interest pursuant to
Section 4.01, (iii) any unreimbursed Servicing Advances and Monthly Advances and
any unpaid Servicing Fees allocable to such Mortgage Loan or REO Property, (iv)
any amounts previously withdrawn from the Collection Account in respect of such
Mortgage Loan or REO Property pursuant to Sections 3.11(ix) and 3.15(b), and (v)
in the case of a Mortgage Loan required to be purchased pursuant to Section
2.03, expenses reasonably incurred or to be incurred by the Master Servicer or
the Trustee in respect of the breach or defect giving rise to the purchase
obligation.
"Qualified Substitute Mortgage Loan": A mortgage loan substituted for a
Deleted Mortgage Loan pursuant to the terms of this Agreement which must, on the
date of such substitution, (i) have an outstanding principal balance, after
application of all scheduled payments of principal and interest due during or
prior to the month of substitution, not in excess of the outstanding principal
balance of the Deleted Mortgage Loan as of the Due Date in the calendar month
during which the substitution occurs, (ii) have a Mortgage Rate not less than
(and not more than one percentage point in excess of) the Mortgage Rate of the
Deleted Mortgage Loan, (iii) have a Maximum Mortgage Rate not less than the
Maximum Mortgage Rate on the Deleted Mortgage Loan, (iv) have a Minimum Mortgage
Rate not less than the Minimum Mortgage Rate of the Deleted Mortgage Loan, (v)
have a Gross Margin equal to the Gross Margin of the Deleted Mortgage Loan, (vi)
have a next Adjustment Date not more than two months later than the next
Adjustment Date on the Deleted Mortgage Loan, (vii) have a remaining term to
maturity not greater than (and not more than one year less than) that of the
Deleted Mortgage Loan, (viii) have the same Due Date as the Due Date on the
Deleted Mortgage Loan, (ix) have a Loan-to-Value Ratio as of the date of
substitution equal to or lower than the Loan-to-Value Ratio of the Deleted
Mortgage Loan as of such date, (x) have a risk grading determined by the Seller
at least equal to the risk grading assigned on the Deleted Mortgage Loan and
(xi) conform to each representation and warranty set forth in Section 2.04
hereof applicable to the Deleted Mortgage Loan. In the event that one or more
mortgage loans are substituted for one or more Deleted Mortgage Loans, the
amounts described in clause (i) hereof shall be determined on the basis of
aggregate principal balances, the Mortgage Rates described in clause (ii) hereof
shall be determined on the basis of weighted average Mortgage Rates, the risk
gradings described in clause (x) hereof shall be satisfied as to each such
mortgage loan, the terms described in clause (vii) hereof shall be determined on
the basis of weighted average remaining term to maturity, the Loan-to-Value
Ratios described in clause (ix) hereof shall be satisfied as to each such
mortgage loan and, except to the extent otherwise provided in this sentence, the
representations and warranties described in clause (xi) hereof must be satisfied
as to each Qualified Substitute Mortgage Loan or in the aggregate, as the case
may be.
"Rate/Term Refinancing": A Refinanced Mortgage Loan, the proceeds of which
are not more than $1000 or 1%, whichever is greater, in excess of the sum of (i)
the existing first mortgage loan and any subordinate mortgage loan on the
related Mortgaged Property, (ii) the aggregate amount of consumer debt paid
through escrow and (iii) related closing costs, and were used exclusively
(except for up to $1000) to satisfy the then existing first mortgage loan, any
subordinate mortgage loan of the Mortgagor on the related Mortgaged Property,
payment of consumer debt and to pay related closing costs.
27
"Rating Agency or Rating Agencies": ▇▇▇▇▇'▇ and S&P or their successors.
If such agencies or their successors are no longer in existence, "Rating
Agencies" shall be such nationally recognized statistical rating agencies, or
other comparable Persons, designated by the Depositor and the Certificate
Insurer, notice of which designation shall be given to the Trustee and Master
Servicer.
"Realized Loss": With respect to each Mortgage Loan as to which a Final
Recovery Determination has been made an amount (not less than zero) equal to (i)
the unpaid principal balance of such Mortgage Loan as of the commencement of the
calendar month in which the Final Recovery Determination was made, plus (ii)
accrued interest from the Due Date as to which interest was last paid by the
Mortgagor through the end of the calendar month in which such Final Recovery
Determination was made, calculated in the case of each calendar month during
such period (A) at an annual rate equal to the annual rate at which interest was
then accruing on such Mortgage Loan and (B) on a principal amount equal to the
Stated Principal Balance of such Mortgage Loan as of the close of business on
the Distribution Date during such calendar month, plus (iii) any amounts
previously withdrawn from the Collection Account in respect of such Mortgage
Loan pursuant to Sections 3.11(x) and 3.15(b), minus (iv) the proceeds, if any,
received in respect of such Mortgage Loan during the calendar month in which
such Final Recovery Determination was made, net of amounts that are payable
therefrom to the Master Servicer with respect to such Mortgage Loan pursuant to
clause (iii) of Section 3.11.
With respect to any REO Property as to which a Final Recovery Determination
has been made an amount (not less than zero) equal to (i) the unpaid principal
balance of the related Mortgage Loan as of the date of acquisition of such REO
Property on behalf of the Trust Fund, plus (ii) accrued interest from the Due
Date as to which interest was last paid by the Mortgagor in respect of the
related Mortgage Loan through the end of the calendar month immediately
preceding the calendar month in which such REO Property was acquired, calculated
in the case of each calendar month during such period (A) at an annual rate
equal to the annual rate at which interest was then accruing on the related
Mortgage Loan and (B) on a principal amount equal to the Stated Principal
Balance of the related Mortgage Loan as of the close of business on the
Distribution Date during such calendar month, plus (iii) REO Imputed Interest
for such REO Property for each calendar month commencing with the calendar month
in which such REO Property was acquired and ending with the calendar month in
which such Final Recovery Deter mination was made, plus (iv) any amounts
previously withdrawn from the Collection Account in respect of the related
Mortgage Loan pursuant to Sections 3.11(x) and 3.15(b), minus (v) the aggregate
of all Monthly Advances made by the Master Servicer in respect of such REO
Property or the related Mortgage Loan for which the Master Servicer has been or,
in connection with such Final Recovery Determination, will be reimbursed
pursuant to Section 3.23 out of rental income, Insurance Proceeds and
Liquidation Proceeds received in respect of such REO Property, minus (vi) the
total of all net rental income, Insurance Proceeds and Liquidation Proceeds
received in respect of such REO Property that has been, or in connection with
such Final Recovery Determination, will be transferred to the Distribution
Account pursuant to Section 3.23.
With respect to each Mortgage Loan which has become the subject of a
Deficient Valuation, the difference between the principal balance of the
Mortgage Loan outstanding immediately prior to such Deficient Valuation and the
principal balance of the Mortgage Loan as reduced by the Deficient Valuation.
28
With respect to each Mortgage Loan which has become the subject of a Debt
Service Reduction, the portion, if any, of the reduction in each affected
Monthly Payment attributable to a reduction in the Mortgage Rate imposed by a
court of competent jurisdiction. Each such Realized Loss shall be deemed to
have been incurred on the Due Date for each affected Monthly Payment.
With respect to any Mortgage Loan as to which any principal payment or
portion thereof is forgiven pursuant to Section 3.02, the amount of any such
forgiven principal payment.
"Record Date": With respect to each Distribution Date, the last Business
Day of the month immediately preceding the month in which such Distribution Date
occurs.
"Reference Bank Rate": As to any Interest Accrual Period relating to the
Class A Certificates as follows: 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 which are offered by the Reference
Banks as of 11:00 A.M., London time, on the second London Business Day prior to
the first day of such Interest Accrual Period to prime banks in the London
interbank market for a period of one month in amounts approximately equal to the
Certificate Principal Balance of the Class A Certificates; provided that at
--------
least two such Reference Banks provide such rate. If fewer than two offered
rates appear, the Reference Bank Rate will be the arithmetic mean of the rates
quoted by one or more major banks in New York City, selected by the Trustee
after consultation with the Master Servicer, as of 11:00 A.M., New York 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 Certificate Principal Balance of
the Class A Certificates. If no such quotations can be obtained, the Reference
Bank Rate shall be the Reference Bank Rate applicable to the preceding Interest
Accrual Period.
"Reference Banks": Three major banks that are engaged in the London
interbank market, selected by the Trustee after consultation with the Master
Servicer.
"Refinanced Mortgage Loan": A Mortgage Loan the proceeds of which were not
used to purchase the related Mortgaged Property.
"Regular Certificate": Any Class A or Class X Certificate.
"Regular Interest": A "regular interest" in a REMIC within the meaning of
Section 860G(a)(l) of the Code.
"Relief Act": The Soldiers' and Sailors' Civil Relief Act of 1940, as
amended.
"Relief Act Interest Shortfall": With respect to any Distribution Date and
any Mortgage Loan, any reduction in the amount of interest collectible on such
Mortgage Loan for the most recently ended calendar month as a result of the
application of the Relief Act.
"REMIC": A "real estate mortgage investment conduit" within the meaning of
Section 860D of the Code.
29
"REMIC Basis Risk Shortfall": With respect to any Distribution Date on
which the Class A Pass-Through Rate is calculated pursuant to clause (ii) of the
definition thereof, an amount equal to interest accrued during the related
Interest Accrual Period on the Certificate Principal Balance of the Class A
Certificates immediately prior to such Distribution Date at a rate equal to the
excess of the Class A Adjusted Pass-Through Rate over the Class A Pass-Through
Rate calculated pursuant to clause (ii) of the definition thereof. The
outstanding amount of REMIC Basis Risk Shortfall with respect to any
Distribution Date shall be the aggregate of all REMIC Basis Risk Shortfalls for
the current Distribution Date and any previous Distribution Date less all
payments made in respect of such REMIC Basis Risk Shortfalls on or prior to such
Distribution Date pursuant to Section 4.01(a). The outstanding amount of REMIC
Basis Risk Shortfalls shall accrue interest at the Class A Adjusted Pass Through
Rate.
"REMIC Provisions": Provisions of the federal income tax law relating to
real estate mortgage investment conduits, which appear at Sections 860A-860G of
the Code, and related provisions, and proposed, temporary and final regulations
and published rulings, notices and announcements promulgated thereunder, as the
foregoing may be in effect from time to time.
"Remittance Report": A report in form and substance acceptable to the
Trustee on a magnetic disk or tape prepared by the Master Servicer pursuant to
Section 4.03 with such additions, deletions and modifications as agreed to by
the Trustee and the Master Servicer.
"Rents from Real Property": With respect to any REO Property, gross income
of the character described in Section 856(d) of the Code as being included in
the term "rents from real property.
"REO Account": The account or accounts maintained by the Master Servicer
in respect of an REO Property pursuant to Section 3.23.
"REO Disposition": The sale or other disposition of an REO Property on
behalf of the Trust Fund.
"REO Imputed Interest": As to any REO Property, for any calendar month
during which such REO Property was at any time part of the Trust Fund, one
month's interest at the applicable Net Mortgage Rate on the Stated Principal
Balance of such REO Property (or, in the case of the first such calendar month,
of the related Mortgage Loan if appropriate) as of the close of business on the
Distribution Date in such calendar month.
"REO Principal Amortization": With respect to any REO Property, for any
calendar month, the excess, if any, of (a) the aggregate of all amounts received
in respect of such REO Property during such calendar month, whether in the form
of rental income, sale proceeds (including, without limitation, that portion of
the Termination Price paid in connection with a purchase of all of the Mortgage
Loans and REO Properties pursuant to Section 10.01 that is allocable to such REO
Property) or otherwise, net of any portion of such amounts (i) payable pursuant
to Section 3.23(c) in respect of the proper operation, management and
maintenance of such REO Property or (ii) payable or reimbursable to the Master
Servicer pursuant to Section 3.23(d) for unpaid Servicing Fees in respect of the
related Mortgage Loan and unreimbursed Servicing Advances and Monthly Advances
in respect
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of such REO Property or the related Mortgage Loan, over (b) the REO Imputed
Interest in respect of such REO Property for such calendar month.
"REO Property": A Mortgaged Property acquired by the Master Servicer on
behalf of the Trust Fund through foreclosure or deed-in-lieu of foreclosure, as
described in Section 3.23.
"Request for Release": A release signed by a Servicing Officer, in the
form of Exhibit E-1 or Exhibit E-2 attached hereto.
"Required Reserve Fund Deposit": With respect to any Distribution Date on
which the Net Excess Spread is less than 0.25%, the excess of (i) the product of
0.50% and the aggregate Stated Principal Balance of the Mortgage Loans over (ii)
the amount of funds on deposit in the Basis Risk Reserve Fund prior to deposits
thereto on such Distribution Date. With respect to any Distribution Date on
which the Net Excess Spread is equal to or greater than 0.25%, the excess of (i)
$10,000 over (ii) the amount of funds on deposit in the Basis Risk Reserve Fund
prior to deposits thereto on such Distribution Date.
"Required Subordinated Amount": With respect to any Distribution Date, an
amount equal to 4.00% of the Maximum Collateral Amount, subject to the
following: (i) if the Step Up Trigger has occurred, the Required Subordinated
Amount for such Distribution Date will be an amount equal to the product of
8.00% and the Maximum Collateral Amount, (ii) if the Step Up Trigger has not
occurred but the Step Up Spread Squeeze Trigger has occurred, the Required
Subordinated Amount for such Distribution Date will be an amount equal to the
sum of (A) the Required Subordinated Amount for such Distribution Date
determined as though the Step Up Spread Squeeze Trigger had not occurred plus
(B) the Spread Squeeze Subordination Increase Amount, or (iii) if neither the
Step Up Trigger nor the Step Up Spread Squeeze Trigger has occurred but the Step
Down Trigger has occurred, the Required Subordinated Amount for such
Distribution Date will be an amount equal to the greater of (A) 0.50% of the
Maximum Collateral Amount and (B) the lesser of (x) 4.00% of the Maximum
Collateral Amount and (y) the Stepped Down Required Subordinated Percentage of
the aggregate Stated Principal Balance of the Mortgage Loans as of such
Distribution Date.
"Residential Dwelling": Any one of the following: (i) a detached one-
family dwelling, (ii) a detached two- to four-family dwelling, (iii) a one-
family dwelling unit in a FNMA eligible condominium project, or (iv) a detached
one-family dwelling in a planned unit development, none of which is a co-
operative, mobile or manufactured home (as defined in ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ Code,
Section 5402(6)).
"Residual Certificate": Any one of the Class R Certificates.
"Residual Interest": The sole class of "residual interests" in a REMIC
within the meaning of Section 860G(a)(2) of the Code.
"Responsible Officer": When used with respect to the Trustee, the Chairman
or Vice Chairman of the Board of Directors or Trustees, the Chairman or Vice
Chairman of the Executive or Standing Committee of the Board of Directors or
Trustees, the President, the Chairman of the
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Committee on Trust Matters, any vice president, any assistant vice president,
the Secretary, any assistant secretary, the Treasurer, any assistant treasurer,
the Cashier, any assistant cashier, any trust officer or assistant trust
officer, the Controller and any assistant controller or any other officer of the
Trustee customarily performing functions similar to those performed by any of
the above designated officers and, with respect to a particular matter, to whom
such matter is referred because of such officer's knowledge of and familiarity
with the particular subject.
"Rolling Delinquency Percentage": For any Distribution Date, the average
of the Delinquency Percentages as of the last day of each of the six (or one,
two, three, four or five, in the case of the first, second, third, fourth or
fifth Distribution Dates, respectively) most recently ended Collection Periods.
"Rolling Loss Percentage": As of any Distribution Date, the percentage
equivalent of a fraction, the numerator of which is the aggregate amount of
Realized Losses incurred during the preceding twelve Collection Periods, and the
denominator of which is the aggregate Stated Principal Balance of the Mortgage
Loans as of the first day of the twelfth preceding Collection Period.
"Seller": United PanAm Mortgage Corporation, or its successor in interest,
in its capacity as seller under the Mortgage Loan Purchase Agreement.
"Servicing Account": The account or accounts created and maintained
pursuant to Section 3.09.
"Servicing Advances": The reasonable "out-of-pocket" costs and expenses
incurred by the Master Servicer in connection with a default, delinquency or
other unanticipated event by the Master Servicer in the performance of its
servicing obligations, including, but not limited to, the cost of (i) the
preservation, restoration and protection of a Mortgaged Property, (ii) any
enforcement or judicial proceedings, including foreclosures, in respect of a
particular Mortgage Loan, (iii) the management (including reasonable fees in
connection therewith) and liquidation of any REO Property, and (iv) the
performance of its obligations under Sections 3.01, 3.09, 3.14, 3.15 and 3.23
(in the case of Section 3.23, including but not limited to the cost of obtaining
any Opinion of Counsel of the kind described in Section 3.23(a)). The Master
Servicer shall not be required to make any Servicing Advance in respect of a
Mortgage Loan or REO Property that, in the good faith business judgment of the
Master Servicer, would not be ultimately recoverable from related Insurance
Proceeds or Liquidation Proceeds on such Mortgage Loan or REO Property as
provided herein.
"Servicing Fee": With respect to each Mortgage Loan and for any calendar
month, an amount equal to one month's interest (or in the event of any payment
of interest which accompanies a Principal Prepayment in full made by the
Mortgagor during such calendar month, interest for the number of days covered by
such payment of interest) at the Servicing Fee Rate on the same principal amount
on which interest on such Mortgage Loan accrues for such calendar month. A
portion of such Servicing Fee may be retained by any Sub-Servicer as its
servicing compensation.
"Servicing Fee Rate": .50% per annum.
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"Servicing Officer": Any officer of the Master Servicer involved in, or
responsible for, the administration and servicing of Mortgage Loans, whose name
and specimen signature appear on a list of servicing officers furnished by the
Master Servicer to the Trustee and the Certificate Insurer and the Depositor on
the Closing Date, as such list may from time to time be amended.
"Servicing Standard": As defined in Section 3.01.
"Single Certificate": With respect to any Class of Certificates (other
than the Class X and Residual Certificates), a hypothetical Certificate of such
Class evidencing a Percentage Interest for such Class corresponding to an
initial Certificate Principal Balance of $100,000. With respect to the Class X
Certificates and the Residual Certificates, a hypothetical Certificate of such
Class evidencing a 100% Percentage Interest in such Class.
"Special Hazard Amount": As of any Distribution Date, an amount equal to
$1,144,250 minus the sum of (i) the aggregate amount of Special Hazard Losses on
the Mortgage Loans allocated solely to the Class X and Class R Certificates in
accordance with Section 4.04 and (ii) the Adjustment Amount (as defined below)
as most recently calculated. For each anniversary of the Cut-off Date, the
Adjustment Amount shall be equal to the amount, if any, by which the amount
calculated in accordance with the preceding sentence (without giving effect to
the deduction of the Adjustment Amount for such anniversary) exceeds the
greatest of (i) twice the outstanding principal balance of the Mortgage Loan
which has the largest outstanding principal balance on the Distribution Date
immediately preceding such anniversary, (ii) the product of 1.0% multiplied by
the outstanding principal balance of all Mortgage Loans on the Distribution Date
immediately preceding such anniversary and (iii) the aggregate outstanding
principal balance (as of the immediately preceding Distribution Date) of the
Mortgage Loans in any five-digit California zip code area with the largest
amount of Mortgage Loans by aggregate principal balance as of such anniversary.
"Special Hazard Loss": Any Realized Loss or portion thereof not in excess
of the lesser of the cost of repair or replacement of a Mortgaged Property
suffered by such Mortgaged Property by reason of damage caused by certain
hazards (including earthquakes, mudflows, and, to a limited extent, floods) not
insured against under the hazard insurance policies or fire or flood insurance
policies required to be maintained in respect of such Mortgaged Property
pursuant to Section 3.13, or by reason of the application of any co-insurance
provision, in any event exclusive of any Extraordinary Loss.
"Spread Squeeze Subordination Increase Amount": For any Distribution Date
on which the Step Up Spread Squeeze Trigger has occurred, an amount equal to the
product obtained by multiplying (i) three times (ii) the excess, if any, of (x)
3.0% over (y) the percentage equivalent of a fraction, the numerator of which is
the product of (A) the Net Monthly Excess Cashflow (without regard to clause (A)
thereof) and (B) 12, and the denominator of which is the aggregate Stated
Principal Balance of the Mortgage Loans as of such Distribution Date times (iii)
the Maximum Collateral Amount. Each reduction in the Spread Squeeze
Subordination Increase Amount shall occur ratably (1/6 for each Distribution
Date) over the six month period beginning with the Distribution Date immediately
succeeding the Distribution Date on which such reduction first occurs and ending
on the
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sixth succeeding Distribution Date; provided, however, that no such reduction
shall occur on any Distribution Date on whcih the Subordinated Amount is less
than the Required Subordinated Amount.
"S&P": Standard & Poor's Ratings Services, a division of The ▇▇▇▇▇▇-▇▇▇▇
Companies, Inc., or its successor in interest.
"Startup Day": The day designated as such pursuant to Section 11.01(b)
hereof.
"Stated Principal Balance": With respect to any Mortgage Loan: (a) as of
any date of determination up to but not including the Distribution Date on which
the proceeds, if any, of a Liquidation Event with respect to such Mortgage Loan
would be distributed, the outstanding principal balance of such Mortgage Loan as
of the Cut-off Date, as shown in the Mortgage Loan Schedule, minus the sum of
(i) the principal portion of each Monthly Payment due on a Due Date subsequent
to the Cut-off Date, to the extent received from the Mortgagor and distributed
pursuant to Section 4.01 on or before such date of determination, (ii) all
Principal Prepayments received after the Cut-off Date, to the extent distributed
pursuant to Section 4.01 on or before such date of determination, (iii) all
Liquidation Proceeds and Insurance Proceeds applied by the Master Servicer as
recoveries of principal in accordance with the provisions of Section 3.15, to
the extent distributed pursuant to Section 4.01 on or before such date of
determination, and (iv) any Realized Loss incurred with respect thereto as a
result of a Deficient Valuation made during or prior to the Collection Period
for the most recent Distribution Date coinciding with or preceding such date of
determination; and (b) as of any date of determination coinciding with or
subsequent to the Distribution Date on which the proceeds, if any, of a
Liquidation Event with respect to such Mortgage Loan would be distributed, zero.
With respect to any REO Property: (a) as of any date of determination up to but
not including the Distribution Date on which the proceeds, if any, of a
Liquidation Event with respect to such REO Property would be distributed, an
amount (not less than zero) equal to the Stated Principal Balance of the related
Mortgage Loan as of the date on which such REO Property was acquired on behalf
of the Trust Fund, minus the aggregate amount of REO Principal Amortization in
respect of such REO Property for all previously ended calendar months, to the
extent distributed pursuant to Section 4.01 on or before such date of
determination; and (b) as of any date of determination coinciding with or
subsequent to the Distribution Date on which the proceeds, if any, of a
Liquidation Event with respect to such REO Property would be distributed, zero.
"Step Down Cumulative Loss Test": The Step Down Cumulative Loss Test will
be met with respect to a Distribution Date as follows: (i) for the 30th through
the 41st Distribution Dates, if the Cumulative Loss Percentage for such
Distribution Date is 1.25% or less, (ii) for the 42nd through the 53rd
Distribution Dates, if the Cumulative Loss Percentage for such Distribution Date
is 1.75% or less, (iii) for the 54th through the 65th Distribution Dates, if the
Cumulative Loss Percentage for such Distribution Date is 2.50% or less and (iv)
for the 66th Distribution Date and any Distribution Date thereafter, if the
Cumulative Loss Percentage for such Distribution Date is 3.15% or less.
"Step Down Rolling Delinquency Test": The Step Down Rolling Delinquency
Test will be met with respect to a Distribution Date if the Rolling Delinquency
Percentage for such Distribution Date is 10.00% or less.
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"Step Down Rolling Loss Test": The Step Down Rolling Loss Test will be met
with respect to a Distribution Date if the Rolling Loss Percentage for such
Distribution Date is less than 1.00%.
"Step Down Trigger": For any Distribution Date after the 30th Distribution
Date, the Step Down Trigger will have occurred if each of the Step Down
Cumulative Loss Test, the Step Down Rolling Delinquency Test and the Step Down
Rolling Loss Test is met. In no event will the Step Down Trigger be deemed to
have occurred for the 30th Distribution Date or any preceding Distribution
Date.
"Stepped Down Required Subordinated Percentage": For any Distribution Date
for which the Step Down Trigger has occurred, a percentage equal to (i) the
percentage equivalent of a fraction, the numerator of which is 4.0% of the
Maximum Collateral Amount, and the denominator of which is the aggregate Stated
Principal Balance of the Mortgage Loans as of such Distribution Date, minus (ii)
the percentage equivalent of a fraction, the numerator of which is the product
of (A) the percentage calculated under clause (i) above minus 8.00%, multiplied
by (B) the number of consecutive Distribution Dates through and including the
Distribution Date for which the Stepped Down Required Subordinated Percentage is
being calculated, up to a maximum of six, for which the Step Down Trigger has
occurred, and the denominator of which is six.
"Step Up Cumulative Loss Test": The Step Up Cumulative Loss Test will be
met with respect to a Distribution Date as follows: (i) for the 1st through the
12th Distribution Dates, if the Cumulative Loss Percentage for such Distribution
Date is more than 0.75%, (ii) for the 13th through the 24th Distribution Dates,
if the Cumulative Loss Percentage for such Distribution Date is more than 1.25%,
(iii) for the 25th through the 36th Distribution Dates, if the Cumulative Loss
Percentage for such Distribution Date is more than 3.00%, (iv) for the 37th
through the 48th Distribution Dates, if the Cumulative Loss Percentage for such
Distribution Date is more than 3.75% and (v) for the 49th Distribution Date and
any Distribution Date thereafter, if the Cumulative Loss Percentage for such
Distribution Date is more than 4.25%.
"Step Up Rolling Delinquency Test": The Step Up Rolling Delinquency Test
will be met with respect to a Distribution Date if the Rolling Delinquency
Percentage for such Distribution Date is more than 11.50%.
"Step Up Rolling Loss Test": The Step Up Rolling Loss Test will be met
with respect to a Distribution Date if the Rolling Loss Percentage for such
Distribution Date 1.65% or more.
"Step Up Spread Squeeze Trigger": The Step Up Spread Squeeze Trigger will
have occurred with respect to a Distribution Date if the percentage equivalent
of a fraction, the numerator of which is the product of (x) 12 and (y) the Net
Monthly Excess Cashflow (calculated without regard to clause (A) thereof), and
the denominator of which is the aggregate Stated Principal Balance of the
Mortgage Loans as of such Distribution Date, is less than 3.00%.
"Step Up Trigger": For any Distribution Date, the Step Up Trigger will
have occurred if any one of the Step Up Cumulative Loss Test, the Step Up
Rolling Delinquency Test or the Step Up Rolling Loss Test is met.
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"Subordinated Adjusted Amount": With respect to any Distribution Date, the
excess, if any, of (a) the aggregate Stated Principal Balances of the Mortgage
Loans immediately following such Distribution Date over (b) the aggregate sum of
(i) the Certificate Principal Balance of the Class A Certificates and (ii) any
outstanding amount of REMIC Basis Risk Shortfall each as of such Distribution
Date (after taking into account the payment of amounts described in clauses
(b)(i) through (iv) of the definition of Principal Distribution Amount on such
Distribution Date).
"Subordinated Amount": With respect to any Distribution Date, the excess,
if any, of (a) the aggregate Stated Principal Balances of the Mortgage Loans
immediately following such Distribution Date over (b) the aggregate Certificate
Principal Balance of the Class A Certificates as of such Distribution Date
(after taking into account the payment of the amounts described in clauses
(b)(i) through (iv) of the definition of Principal Distribution Amount on such
Distribution Date).
"Subordination Deficiency Amount": With respect to any Distribution Date,
the excess, if any, of (a) the Required Subordinated Amount applicable to such
Distribution Date over (b) the Subordinated Amount applicable to such
Distribution Date prior to taking into account the payment of any Subordination
Increase Amounts on such Distribution Date.
"Subordination Increase Amount": With respect to any Distribution Date,
the lesser of (a) the Subordination Deficiency Amount as of such Distribution
Date (after taking into account the payment of the Principal Distribution
Amount, on such Distribution Date, exclusive of the payment of any Subordination
Increase Amount) and (b) the amount of Net Monthly Excess Cashflow on such
Distribution Date as reduced by any Cumulative Insurance Payments or Realized
Losses allocated thereto with respect to such Distribution Date pursuant to
Section 4.04.
"Subordination Reduction Amount": With respect to any Distribution Date,
an amount equal to the lesser of (a) the Excess Subordinated Amount and (b) the
sum of the amounts available for distribution specified in clauses (b)(i)
through (iii) of the definition of Principal Distribution Amount.
"Sub-Servicer": Any Person with which the Master Servicer has entered into
a Sub-Servicing Agreement and which meets the qualifications of a Sub-Servicer
pursuant to Section 3.03.
"Sub-Servicing Account": An account established by a Sub-Servicer which
meets the requirements set forth in Section 3.08 and is otherwise acceptable to
the Master Servicer.
"Sub-Servicing Agreement": The written contract between the Master
Servicer and a Sub-Servicer relating to servicing and administration of certain
Mortgage Loans as provided in Section 3.03.
"Subsequent Mortgage Loan": Each Mortgage Loan originated or acquired by
the Seller during the period from December 1, 1997 through the Closing Date.
"Tax Matters Person": As defined in Section 11.01 hereof.
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"Tax Matters Person Residual Interest": The Residual Interest held by the
Tax Matters Person in its capacity as such.
"Tax Returns": The federal income tax return on Internal Revenue Service
Form 1066, U.S. Real Estate Mortgage Investment Conduit Income Tax Return,
including Schedule Q thereto, Quarterly Notice to Residual Interest Holders of
REMIC Taxable Income or Net Loss Allocation, or any successor forms, to be filed
on behalf of the Trust Fund under the REMIC Provisions for REMIC 1, REMIC 2 and
REMIC 3, together with any and all other information reports or returns that may
be required to be furnished to the Certificateholders or filed with the Internal
Revenue Service or any other governmental taxing authority under any applicable
provisions of federal, state or local tax laws consistent with the intended
treatment of the Class A and Class X Certificates described in Section 11.01.
"Termination Price": As defined in Section 10.01.
"Transfer": Any direct or indirect transfer, sale, pledge, hypothecation,
or other form of assignment of any Ownership Interest in a Certificate.
"Transferee": Any Person who is acquiring by Transfer any Ownership
Interest in a Certificate.
"Transferor": Any Person who is disposing by Transfer of any Ownership
Interest in a Certificate.
"Trust Fund": The segregated pool of assets subject hereto, constituting
the primary trust created hereby and to be administered hereunder, with respect
to a portion of which a REMIC election is to be made, such entire Trust Fund
consisting of: (i) such Mortgage Loans as from time to time are subject to this
Agreement, together with the Mortgage Files relating thereto, and together with
all collections thereon and proceeds thereof, (ii) any REO Property, together
with all collections thereon and proceeds thereof, (iii) the Trustee's rights
with respect to the Mortgage Loans under all insurance policies required to be
maintained pursuant to this Agreement and any proceeds thereof, (iv) the
Depositor's rights under the Mortgage Loan Purchase Agreement (including any
security interest created thereby) and (v) the Collection Account, the
Distribution Account, the Basis Risk Reserve Fund, any REO Account and the
Expense Account and such assets that are deposited therein from time to time and
any investments thereof, together with any and all income, proceeds and payments
with respect thereto. Notwithstanding the foregoing, however, the Trust Fund
specifically excludes the Policy and all payments and other collections of
principal and interest due on the Mortgage Loans on or before the Cut-off Date.
"Trustee": Bankers Trust Company of California, N.A., a national banking
association, or its successor in interest, or any successor trustee appointed as
herein provided.
"Trustee's Fee": The amount payable to the Trustee on each Distribution
Date pursuant to Section 8.05 as compensation for all services rendered by it in
the execution of the trust hereby created and in the exercise and performance of
any of the powers and duties of the Trustee here under, which amount shall equal
the product of (i) the Trustee's Fee Rate, multiplied by (ii) the aggregate
Stated
37
Principal Balance of the Mortgage Loans and any REO Properties as of the
preceding Distribution Date (or, in the case of the initial Distribution Date,
as of the Cut-off Date).
"Trustee's Fee Rate": 0.014% per annum.
"Uninsured Cause": 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 Section 3.13.
"Unpaid Basis Risk Shortfalls": With respect to any Distribution Date, the
aggregate of all Basis Risk Shortfalls for any previous Distribution Dates plus
interest accrued at the lesser of the related Class A Adjusted Pass-Through Rate
(without regard to clause (ii) thereof) and the Maximum Class A Pass-Through
Rate on each such Basis Risk Shortfall less all payments made in respect of such
Basis Risk Shortfalls on or prior to such Distribution Date pursuant to Section
4.01(a)
"Value": With respect to any Mortgaged Property, the lesser of (i) the
lesser of (a) the value thereof as determined by an appraisal made for the
originator of the Mortgage Loan at the time of origination of the Mortgage Loan
by an appraiser who met the minimum requirements of FNMA and FHLMC, and (b) the
value thereof as determined by a review appraisal conducted by the Seller in the
event any such review appraisal determines an appraised value ten percent or
more lower than the value thereof as determined by the appraisal referred to in
clause (i)(a) above and (ii) the purchase price paid for the related Mortgaged
Property by the Mortgagor with the proceeds of the Mortgage Loan, provided,
however, (A) in the case of a Refinanced Mortgage Loan, such value of the
Mortgaged Property is based solely upon the lesser of (1) the value determined
by an appraisal made for the originator of such Refinanced Mortgage Loan at the
time of origination of such Refinanced Mortgage Loan by an appraiser who met the
minimum requirements of FNMA and FHLMC and (2) the value thereof as determined
by a review appraisal conducted by the Seller in the event any such review
appraisal determines an appraised value ten percent or more lower than the value
thereof as determined by the appraisal referred to in clause (ii)(A)(l) above
and (B) in the case of a Mortgage Loan originated in connection with a "lease-
option purchase", such value of the Mortgaged Property is based on the lower of
the value determined by an appraisal made for the originator of such Mortgage
Loan at the time of origination or the sale price of such Mortgaged Property if
the "lease option purchase price" was set less than 12 months prior to
origination, and is based on the value determined by an appraisal made for the
originator of such Mortgage Loan at the time of origination if the "lease option
purchase price" was set 12 months or more prior to origination.
"Voting Rights": The portion of the voting rights of all of the
Certificates which is allocated to any Certificate. The voting rights shall be
allocated to the Class A Certificates in the proportion that the aggregate
Certificate Principal Balance of the Class A Certificates bears to the aggregate
Stated Principal Balance of the Mortgage Loans. The balance of the voting
rights shall be allocated to the Class X Certificates. The Class R Certificates
shall not possess voting rights. The Voting Rights allocated to each Class of
Certificate shall be allocated among Holders of each such Class in accordance
with their respective Percentage Interests as of the most recent Distribution
Date.
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ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
SECTION 2.01. Conveyance of Mortgage Loans.
----------------------------
The Depositor, concurrently with the execution and delivery hereof, does
hereby transfer, assign, set over and otherwise convey to the Trustee without
recourse for the benefit of the Certificateholders and the Certificate Insurer
all the right, title and interest of the Depositor, including any security
interest therein for the benefit of the Depositor, in and to the Mortgage Loans
identified on the Mortgage Loan Schedule, the rights of the Depositor under the
Mortgage Loan Purchase Agreement, and all other assets included or to be
included in the Trust Fund. Such assignment includes all interest and principal
due after the Cut-off Date (whether or not received) with respect to the
Mortgage Loans.
In connection with such transfer and assignment, the Depositor does hereby
deliver to, and deposit with, the Trustee the following documents or instruments
with respect to each Mortgage Loan (a "Mortgage File") so transferred and
assigned:
(i) the original Mortgage Note, endorsed in the following form: "Pay
to the order of Bankers Trust Company of California, N.A., as Trustee,
without recourse" or in blank, with all prior and intervening endorsements
showing a complete chain of endorsement from the originator to the Person
so endorsing to the Trustee;
(ii) the original Mortgage with evidence of recording thereon, and
the original recorded power of attorney, if the Mortgage was executed
pursuant to a power of attorney, with evidence of recording thereon;
(iii) an original Assignment of the Mortgage executed in the
following form: "Bankers Trust Company of California, N.A., as Trustee" or
in blank;
(iv) the original recorded Assignment or Assignments of the Mortgage
showing a complete chain of assignment from the originator to the Person
assigning the Mortgage to the Trustee as contemplated by the immediately
preceding clause (iii);
(v) the original or copies of each assumption, modification, written
assurance or substitution agreement, if any; and
(vi) the original lender's title insurance policy or attorney's
opinion of title or a copy thereof certified as true and correct by the
applicable insurer, together with all endorsements or riders that were
issued with or subsequent to the issuance of such policy, insuring the
priority of the Mortgage as a first lien on the Mortgaged Property
represented therein as a fee interest vested in the Mortgagor, or in the
event such original title policy is unavailable, a
39
written commitment or uniform binder or preliminary report of title issued
by the title insurance or escrow company or a copy thereof certified by the
title company, with the original policy of title insurance to be delivered
within one year of the Closing Date.
The Seller shall promptly (and in no event later than five Business Days
following the Closing Date) submit or cause to be submitted for recording, at
the Seller's expense and at no expense to the Trust Fund, the Trustee or the
Certificate Insurer, in the appropriate public office for real property records,
each Assignment referred to in Sections 2.01(iii) and (iv) above. In the event
that any such Assignment is lost or returned unrecorded because of a defect
therein, the Seller shall promptly prepare or cause to be prepared a substitute
Assignment or cure or cause to be cured such defect, as the case may be, and
thereafter cause each such Assignment to be duly recorded.
If any original Mortgage Note referred to in Section 2.01(i) cannot be
located, the obligations of the Seller to deliver such documents shall be deemed
to be satisfied upon delivery to the Trustee of a photocopy of the original of
such Mortgage Note, with an original Lost Note Affidavit to follow within one
Business Day. If any of the documents referred to in Sections 2.01(ii), (iii)
or (iv) above has as of the Closing Date been submitted for recording but either
(x) has not been returned from the applicable public recording office or (y) has
been lost or such public recording office has retained the original of such
document, the obligations of the Seller to deliver such documents shall be
deemed to be satisfied upon (1) delivery to the Trustee of a copy of each such
document certified by the Seller in the case of (x) above or the applicable
public recording office in the case of (y) above to be a true and complete copy
of the original that was submitted for recording and (2) if such copy is
certified by the Seller, delivery to the Trustee promptly upon receipt thereof
of either the original or a copy of such document certified by the applicable
public recording office to be a true and complete copy of the original. Notice
shall be provided to the Trustee, the Certificate Insurer and the Rating
Agencies by the Seller if delivery pursuant to clause (2) above will be made
more than 180 days after the Closing Date. If the original lender's title
insurance policy was not delivered pursuant to Section 2.01(vi) above, the
Seller shall deliver or cause to be delivered to the Trustee, promptly after
receipt thereof, the original lender's title insurance policy. The Seller shall
deliver or cause to be delivered to the Trustee promptly upon receipt thereof
any other original documents constituting a part of a Mortgage File received
with respect to any Mortgage Loan, including, but not limited to, any original
documents evidencing an assumption or modification of any Mortgage Loan.
All original documents relating to the Mortgage Loans that are not
delivered to the Trustee are and shall be held by or on behalf of the Seller or
the Master Servicer, as the case may be, in trust for the benefit of the Trustee
on behalf of the Certificateholders and the Certificate Insurer. In the event
that any such original document is required pursuant to the terms of this
Section to be a part of a Mortgage File, such document shall be delivered
promptly to the Trustee. Any such original document delivered to or held by the
Seller that is not required pursuant to the terms of this Section to be a part
of a Mortgage File, shall be delivered promptly to the Master Servicer.
The Depositor herewith delivers to the Trustee an executed copy of the
Mortgage Loan Purchase Agreement.
40
In addition to the foregoing, the Depositor shall cause the Certificate
Insurer to deliver the Policy to the Trustee for the benefit of the
Certificateholders.
SECTION 2.02. Acceptance by Trustee.
---------------------
The Trustee acknowledges receipt of the Policy and, subject to the
provisions of Section 2.01 and subject to the review described below and any
exceptions noted on the exception report described in the next paragraph below,
the documents referred to in Section 2.01 (other than such documents described
in Section 2.01(v)) above and all other assets included in the definition of
"Trust Fund" under clauses (i), (iii), (iv) and (v) (to the extent of amounts
deposited into the Distribution Account) and declares that it holds and will
hold such documents and the other documents delivered to it constituting a
Mortgage File, and that it holds or will hold all such assets and such other
assets included in the definition of "Trust Fund" in trust for the exclusive use
and benefit of all present and future Certificateholders and the Certificate
Insurer.
The Trustee agrees, for the benefit of the Certificateholders and the
Certificate Insurer, to review each Mortgage File within 45 days after the
Closing Date (or, with respect to any document delivered after the Startup Day,
within 45 days of receipt and with respect to any Qualified Substitute Mortgage,
within 45 days after the assignment thereof) and to certify in substantially the
form attached hereto as Exhibit C-1 that, as to each Mortgage Loan listed in the
Mortgage Loan Schedule (other than any Mortgage Loan paid in full or any
Mortgage Loan specifically identified in the exception report annexed thereto as
not being covered by such certification), (i) all documents required to be
delivered to it pursuant Section 2.01 of this Agreement are in its possession,
(ii) such documents have been reviewed by it and have not been mutilated,
damaged or torn and appear to relate to such Mortgage Loan, (iii) based on its
examination and only as to the foregoing, the information set forth in the
Mortgage Loan Schedule that corresponds to items (i) and (ii) of the Mortgage
Loan Schedule accurately reflects information set forth in the Mortgage File.
It is herein acknowledged that, in conducting such review, the Trustee is under
no duty or obligation (i) to inspect, review or examine any such documents,
instruments, certificates or other papers to determine that they are genuine,
enforceable, or appropriate for the represented purpose or that they have
actually been recorded or that they are other than what they purport to be on
their face, or (ii) to determine whether any Mortgage File should include any of
the documents specified in clause (v) of Section 2.01.
Prior to the first anniversary date of this Agreement the Trustee shall
deliver to the Depositor, the Master Servicer and the Certificate Insurer a
final certification in the form annexed hereto as Exhibit C-2 evidencing the
completeness of the Mortgage Files, with any applicable exceptions noted
thereon.
If in the process of reviewing the Mortgage Files and making or preparing,
as the case may be, the certifications referred to above, the Trustee finds any
document or documents constituting a part of a Mortgage File to be missing or
defective in any material respect, at the conclusion of its review the Trustee
shall so notify the Depositor, the Master Servicer and the Certificate Insurer.
In addition, upon the discovery by the Depositor or the Master Servicer (or upon
receipt by the Trustee of written notification of such breach) of a breach of
any of the representations and warranties made by the Seller in the related
Mortgage Loan Purchase Agreement in respect of any Mortgage Loan which
materially
41
adversely affects such Mortgage Loan or the interests of the related
Certificateholders in such Mortgage Loan, the party discovering such breach
shall give prompt written notice to the other parties and the Certificate
Insurer.
SECTION 2.03. Repurchase or Substitution of Mortgage Loans by the Bank.
--------------------------------------------------------
(a) Upon discovery or receipt of written notice of any materially defective
document in, or that a document is missing from, a Mortgage File or of the
breach by the Seller or the Bank of any representation, warranty or covenant
under the Mortgage Loan Purchase Agreement or this Agreement in respect of any
Mortgage Loan which materially adversely affects the value of such Mortgage Loan
or the interest therein of the Certificateholders and the Certificate Insurer
(in the case of any such representation or warranty made to the knowledge or the
best knowledge of the Seller as to which the Seller has no knowledge, without
regard to the Seller's lack of knowledge with respect to the substance of such
representation or warranty being inaccurate at the time it was made), the
Trustee shall promptly notify the Seller, the Bank, the Master Servicer and the
Certificate Insurer of such defect, missing document or breach and request that
(i) the Bank deliver such missing document or cure such defect or breach within
60 days from the date the Seller was notified of such missing document, defect
or breach, and if the Bank does not deliver such missing document or cure such
defect or breach in all material respects during such period, if the Bank shall
have commenced to cure such breach within such 60 day period, to proceed
thereafter diligently and expeditiously to cure the same within the additional
period provided under the Mortgage Loan Purchase Agreement and (ii) in
connection with any such breach (subject to clause (i) above) or in connection
with any missing document or defect, to repurchase such Mortgage Loan from the
Trust Fund at the Purchase Price within 120 days after the date on which the
Bank was notified (subject to Section 2.03(e)) of such missing document, defect
or breach, if and to the extent that the Bank is obligated to do so under the
Mortgage Loan Purchase Agreement. The Purchase Price for the repurchased
Mortgage Loan shall be deposited in the Collection Account and the Trustee, upon
receipt of written certification from the Master Servicer of such deposit, shall
release to the Seller the related Mortgage File and shall execute and deliver
such instruments of transfer or assignment, in each case without recourse, as
the Bank shall furnish to it and as shall be necessary to vest in the Bank any
Mortgage Loan released pursuant hereto and the Trustee shall have no further
responsibility with regard to such Mortgage File. In lieu of repurchasing any
such Mortgage Loan as provided above, if so provided in the Mortgage Loan
Purchase Agreement, the Bank may cause such Mortgage Loan to be removed from the
Trust Fund (in which case it shall become a Deleted Mortgage Loan) and
substitute one or more Qualified Substitute Mortgage Loans in the manner and
subject to the limitations set forth in Section 2.03(d). It is understood and
agreed that the obligation of the Bank to cure or to repurchase (or to
substitute for) any Mortgage Loan as to which a document is missing, a material
defect in a constituent document exists or as to which such a breach has
occurred and is continuing shall constitute the sole remedy against the Bank
respecting such omission, defect or breach available to the Trustee on behalf of
the Certificateholders and the Certificate Insurer.
(b) [RESERVED]
(c) Within 90 days of the earlier of discovery by the Master Servicer or
receipt of notice by the Master Servicer of the breach of any representation,
warranty or covenant of the Master Servicer
42
set forth in Section 2.05 which materially and adversely affects the interests
of the Certificateholders in any Mortgage Loan, the Master Servicer shall cure
such breach in all material respects.
(d) Any substitution of Qualified Substitute Mortgage Loans for Deleted
Mortgage Loans made pursuant to Section 2.03(a) must be effected prior to the
last Business Day that is within two years after the Closing Day.
As to any Deleted Mortgage Loan for which the Seller substitutes a
Qualified Substitute Mortgage Loan or Loans, such substitution shall be effected
by the Seller delivering to the Trustee, for such Qualified Substitute Mortgage
Loan or Loans, the Mortgage Note, the Mortgage, the Assignment to the Trustee,
and such other documents and agreements, with all necessary endorsements
thereon, as are required by Section 2.01, together with an Officers' Certificate
providing that each such Qualified Substitute Mortgage Loan satisfies the
definition thereof and specifying the Substitution Shortfall Amount (as
described below), if any, in connection with such substitution. The Trustee
shall acknowledge receipt for such Qualified Substitute Mortgage Loan or Loans
and, within ten Business Days thereafter, review such documents as specified in
Section 2.02 and deliver to the Master Servicer and the Certificate Insurer,
with respect to such Qualified Substitute Mortgage Loan or Loans, a
certification substantially in the form attached hereto as Exhibit C-1, with any
applicable exceptions noted thereon. Within one year of the date of
substitution, the Trustee shall deliver to the Master Servicer and the
Certificate Insurer a certification substantially in the form of Exhibit C-2
hereto with respect to such Qualified Substitute Mortgage Loan or Loans, with
any applicable exceptions noted thereon. Monthly Payments due with respect to
Qualified Substitute Mortgage Loans in the month of substitution are not part of
the Trust Fund and will be retained by the Seller. For the month of
substitution, distributions to Certificateholders will reflect the collections
and recoveries in respect of such Deleted Mortgage Loan in the Collection Period
preceding the month of substitution and the Seller shall thereafter be entitled
to retain all amounts subsequently received in respect of such Deleted Mortgage
Loan. The Seller shall give or cause to be given written notice to the
Certificateholders that such substitution has taken place, shall amend the
Mortgage Loan Schedule to reflect the removal of such Deleted Mortgage Loan from
the terms of this Agreement and the substitution of the Qualified Substitute
Mortgage Loan or Loans and shall deliver a copy of such amended Mortgage Loan
Schedule to the Trustee. Upon such substitution, such Qualified Substitute
Mortgage Loan or Loans shall constitute part of the Mortgage Pool and shall be
subject in all respects to the terms of this Agreement and, in the case of a
substitution effected by the Seller, the Mortgage Loan Purchase Agreement,
including, in the case of a substitution effected by the Seller all applicable
representations and warranties thereof included in the Mortgage Loan Purchase
Agreement as of the date of substitution.
For any month in which the Seller substitutes one or more Qualified
Substitute Mortgage Loans for one or more Deleted Mortgage Loans, the Master
Servicer will determine the amount (the "Substitution Shortfall Amount"), if
any, by which the aggregate Purchase Price of all such Deleted Mortgage Loans
exceeds the aggregate, as to each such Qualified Substitute Mortgage Loan, of
the principal balance thereof as of the date of substitution, together with one
month's interest on such principal balance at the applicable Net Mortgage Rate.
On the date of such substitution, the Seller will deliver or cause to be
delivered to the Master Servicer for deposit in the Collection Account an amount
equal to the Substitution Shortfall Amount, if any, and the Trustee, upon
receipt of the related
43
Qualified Substitute Mortgage Loan or Loans and certification by the Master
Servicer of such deposit in the form of Exhibit E hereto, shall release to the
Seller the related Mortgage File or Files and shall execute and deliver such
instruments of transfer or assignment, in each case without recourse, as the
Seller shall deliver to it and as shall be necessary to vest therein any Deleted
Mortgage Loan released pursuant hereto.
In addition, the Seller shall obtain at its own expense and deliver to the
Trustee and the Certificate Insurer an Opinion of Counsel to the effect that
such- substitution will not cause (a) any federal tax to be imposed on the Trust
Fund, including without limitation, any federal tax imposed on "prohibited
transactions" under Section 860F(a)(l) of the Code or on "contributions after
the startup date" under Section 860G(d)(l) of the Code, or (b) the Trust Fund to
fail to qualify as a REMIC at any time that any Certificate is outstanding. If
such Opinion of Counsel can not be delivered, then such substitution may only be
effected at such time as the required Opinion of Counsel can be given.
(e) Upon discovery by the Depositor, the Seller, the Master Servicer, the
Trustee or the Certificate Insurer that any Mortgage Loan does not constitute a
"qualified mortgage" within the meaning of Section 860G(a)(3) of the Code, the
party discovering such fact shall within two Business Days give written notice
thereof to the other parties and the Certificate Insurer. In connection
therewith, the Bank shall repurchase or, subject to the limitations set forth in
Section 2.03(d), substitute one or more Qualified Substitute Mortgage Loans for
the affected Mortgage Loan within 90 days of the earlier of discovery or receipt
of such notice with respect to such affected Mortgage Loan. Such repurchase or
substitution shall be made by the Seller. Any such repurchase or substitution
shall be made in the same manner as set forth in Section 2.03(a), if made by the
Bank. The Trustee shall reconvey to the Seller the Mortgage Loan to be released
pursuant hereto in the same manner, and on the same terms and conditions, as it
would a Mortgage Loan repurchased for breach of a representation or warranty.
SECTION 2.04. Representations and Warranties of the Seller.
--------------------------------------------
(a) The Seller hereby represents and warrants to the Trustee for the
benefit of the Certificateholders and the Certificate Insurer that as of the
Closing Date or as of such other date specifically provided herein:
(i) The information set forth in the Mortgage Loan Schedule for the
Original Mortgage Loans is complete, true and correct in all material
respects at the date or dates respecting which such information is
furnished;
(ii) As of the Cut-off Date, each Scheduled Payment required to be
made prior to November 1, 1997 has been paid and no Mortgage Loan has been
dishonored. No Mortgage Loan has been thirty or more days delinquent more
than one time in the twelve months preceding the Cut-off Date (assuming
that a "rolling" thirty day delinquency is considered to be one time
delinquent).
(iii) Each Original Mortgage Loan had an original term to maturity of
30 years; each Original Mortgage Loan is an adjustable-rate mortgage loan
with payments due on the first day
44
of each month and each such Mortgage Loan is fully amortizing; effective
with the first payment due after each Adjustment Date, the monthly payment
amount for each Mortgage Loan will be adjusted to an amount which would
amortize fully the outstanding principal balance of such Mortgage Loan over
its remaining term and pay interest at the Mortgage Rate so adjusted; on
the first Adjustment Date and on each Adjustment Date thereafter the
Mortgage Rate on each Original Mortgage Loan will be adjusted to equal the
sum of the Index and the related Gross Margin, rounded to the nearest
multiple of 0.125%, subject to the Periodic Rate Cap (the "Initial
Adjustment Rate Cap"), the Maximum Mortgage Rate and the Minimum Mortgage
Rate applicable to such Mortgage Loan;
(iv)(A) no more than approximately 42.14% and approximately 13.55%,
respectively, of the Initial Mortgage Loans, by outstanding principal
balance of the Initial Mortgage Loans as of the Cut-off Date, will be
secured by Mortgaged Properties located in California and Washington,
respectively, and no more than approximately 7.11% of the Initial Mortgage
Loans, by outstanding principal balance of the Initial Mortgage Loans as of
the Cut-off Date, will be secured by Mortgaged Properties located in any
one other state; (B) as of the Cut-off Date, no more than approximately
1.55% of the Initial Mortgage Loans, by outstanding principal balance of
the related Initial Mortgage Loans as of the Cut-off Date, are secured by
Mortgaged Properties located in the 92640 zip code area, and no more than
approximately 19.19% of the Initial Mortgage Loans, by outstanding
principal balance of the related Initial Mortgage Loans as of the Cut-off
Date, are secured by units in two- to four-family dwellings, condominiums,
planned unit developments or manufactured housing and (C) at least
approximately 80.81% of the Initial Mortgage Loans, in each case by
outstanding principal balance of the related Initial Mortgage Loans as of
the Cut-off Date, are secured by real property with a single family
residence erected thereon;
(v) If the Mortgaged Property securing a Mortgage Loan is identified
in the Federal Register by the Federal Emergency Management Agency ("FEMA")
as having special flood hazards, a flood insurance policy is in effect at
the Closing Date which met the requirements of FEMA at the time such policy
was issued;
(vi) With respect to each Mortgage Loan, the Loan-to-Value Ratio was
less than or equal to 90% at the origination of such Mortgage Loan;
(vii) With respect to at least approximately 85.98% of the Initial
Mortgage Loans, by outstanding principal balance as of the Cut-off Date, at
the time that the Mortgage Loan was made, the Mortgagor represented that
the Mortgagor would occupy the Mortgaged Property as the Mortgagor's
primary residence. With respect to approximately 14.03% of the Initial
Mortgage Loans, by outstanding principal balance as of the Cut-off Date, at
the time that the Mortgage Loan was made, the Mortgagor represented that
the Mortgagor would occupy the Mortgaged Property as the Mortgagor's
secondary residence or that the Mortgaged Property would be an investor
property;
(viii) The Seller is duly organized, validly existing and in good
standing under the laws of its state of incorporation and has the power and
authority to own its assets and to
45
transact the business in which it is currently engaged. The Seller is duly
qualified to do business and is in good standing in each jurisdiction in
which the character of the business transacted by it or properties owned or
leased by it requires such qualification and in which the failure so to
qualify would have a material adverse effect on (a) its business,
properties, assets or condition (financial or other), (b) its performance
of its obligations under this Agreement or (c) the value or marketability
of the Mortgage Loans;
(ix) The Seller has the power and authority to make, execute, deliver
and perform this Agreement and to consummate all of the transactions
contemplated under this Agreement, and has taken all necessary action to
authorize the execution, delivery and performance of this Agreement. When
executed and delivered, this Agreement will constitute its legal, valid and
binding obligation enforceable in accordance with its terms, except as
enforcement of such terms may be limited by bankruptcy, insolvency,
reorganization, receivership, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by the availability of
equitable remedies;
(x) The Seller holds all necessary licenses, certificates and permits
from all government authorities necessary for conducting its business as it
is presently conducted. It is not required to obtain the consent of any
other party or any consent, license, approval or authorization from, or
registration or declaration with, any governmental authority, bureau or
agency in connection with the execution, delivery, performance, validity or
enforceability of this Agreement, except for such consents, licenses,
approvals or authorizations, or registrations or declarations, as shall
have been obtained or filed, as the case may be, prior to the related
Transfer Date;
(xi) The execution, delivery and performance of this Agreement by it
will not conflict with or result in a breach of, or constitute a default
under, any provision of any existing law or regulation or any order or
decree of any court applicable to the Seller or any of its properties or
any provision of its Articles of Incorporation or Bylaws, or constitute a
material breach of, or result in the creation or imposition of any lien,
charge or encumbrance upon any of its properties pursuant to, any mortgage,
indenture, contract or other agreement to which it is a party or by which
it may be bound;
(xii) No certificate of an officer, statement furnished in writing or
written report, in each case, delivered pursuant to the terms hereof by the
Seller contains any untrue statement of a material fact or omits to state
any material fact necessary to make the certificate, statement or report
not misleading;
(xiii) The transactions contemplated by this Agreement are in the
ordinary course of the Seller's business;
(xiv) The Seller is not insolvent, nor will the Seller be made
insolvent by the transfer of the Mortgage Loans, nor is the Seller aware of
any pending insolvency;
46
(xv) The Seller is not in violation of, and the execution and delivery
of this Agreement by it 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 Seller's condition
(financial or otherwise) or operations or any of the Seller's properties or
materially and adversely affect the performance of any of its duties
hereunder;
(xvi) There are no actions or proceedings against, or investigations
of it, pending or, to its knowledge, threatened, before any court,
administrative agency or other tribunal (A) that, if determined adversely,
would prohibit the Seller from entering into this Agreement, (B) seeking
to prevent the consummation of any of the transactions contemplated by this
Agreement or (C) that, if determined adversely, would prohibit or
materially and adversely affect the Seller's performance of its obligations
under, or the validity or enforceability of, this Agreement;
(xvii) The Seller represents and warrants that it did not sell the
Mortgage Loans to the Depositor as Purchaser under the Purchase Agreement
with any intent to hinder, delay or defraud any of its creditors; and the
Seller will not be rendered insolvent as a result of the sale of the
Mortgage Loans to the Depositor as Purchaser under the Purchase Agreement;
(xviii) The Seller represents and warrants that it acquired title to
the Mortgage Loans in good faith, without notice of any adverse claim to
the Mortgage Loans; and
(xix) The Seller represents and warrants that the transfer,
assignment and conveyance of the Mortgage Notes and the Mortgages by the
Seller pursuant to the Purchase Agreement and this Agreement are not
subject to the bulk transfer laws or any similar statutory provisions in
effect in any applicable jurisdiction.
(xx) No Mortgage Loan is a construction loan;
(xxi) Each Mortgage is a valid and subsisting first lien of record on
the Mortgaged Property subject in all cases to the exceptions to title set
forth in the title insurance policy with respect to the related Mortgage
Loan, which exceptions are generally acceptable to second mortgage lending
companies, and such other exceptions to which similar properties are
commonly subject and which do not individually, or in the aggregate,
materially and adversely affect the benefits of the security intended to be
provided by such Mortgage;
(xxii) Except with respect to liens released immediately prior to the
transfer herein contemplated, each Mortgage Note and related Mortgage have
not been assigned or pledged and immediately prior to the transfer and
assignment herein contemplated, the Seller held good, marketable and
indefeasible title to, and was the sole owner and holder of, each Mortgage
Loan subject to no liens, charges, mortgages, claims, participation
interests, equities, pledges or security interests of any nature,
encumbrances or rights of others (collectively, a "Lien"); the Seller has
full right and authority under all governmental and regulatory bodies
47
having jurisdiction over the Seller, subject to no interest or
participation of, or agreement with, any party, to sell and assign the same
pursuant to this Agreement; and immediately upon the transfer and
assignment herein contemplated, the Seller shall have transferred all of
its right, title and interest in and to each Mortgage Loan to the Depositor
(or its assignee) and the Purchaser (or its assignee) will hold good,
marketable and indefeasible title, to, and be the sole owner of, each
Mortgage Loan subject to no Liens;
(xxiii) There is no delinquent tax, fee or assessment lien on any
Mortgaged Property, and each Mortgaged Property is free of material damage
and is in good repair;
(xxiv) No Mortgage Loan is subject to any right of rescission, set-
off, counterclaim or defense, including the defense of usury, nor will the
operation of any of the terms of any Mortgage Note or Mortgage, or the
exercise of any right thereunder, render either the Mortgage Note or the
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;
(xxv) There is no mechanics' lien or claim for work, labor or
material affecting any Mortgaged Property which is or may be a lien prior
to, or equal or coordinate with, the lien of the related Mortgage, and, to
the Seller's best knowledge, no rights are outstanding that under law could
give rise to such a lien except those which are insured against by the
title insurance policy referred to in paragraph (xxvii) below;
(xxvi) Each Mortgage Loan at the time it was made complied with, and
each Mortgage Loan at all times was serviced in compliance with, in each
case, in all material respects, applicable state and federal laws and
regulations, including, without limitation, usury, equal credit
opportunity, consumer credit, truth-in-lending and disclosure laws;
(xxvii) With respect to each Mortgage Loan, a lender's title
insurance policy, issued in standard American Land Title Association or
California Land Title Association form, or other form acceptable in a
particular jurisdiction, by a title insurance company authorized to
transact business in the state in which the related Mortgaged Property is
situated, together with a condominium endorsement, if applicable, in an
amount at least equal to the original principal balance of such Mortgage
Loan insuring the Seller and its successor's and assignees' interest under
the related Mortgage Loan as the holder of a valid first mortgage lien of
record on the real property described in the Mortgage, subject only
to the exceptions of the character referred to in paragraph (xxv) above,
was valid and in full force and effect on the date of the origination of
such Mortgage Loan;
(xxviii) Each Mortgage and Mortgage Note is the legal, valid and
binding obligation of the related Mortgagor and is enforceable in
accordance with its terms, except only as such enforcement may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity (whether considered in a proceeding or action in
equity or at law), and all parties to each Mortgage Loan and the Mortgagee
had full legal capacity to execute all Mortgage Loan
48
documents and to convey the estate therein purported to be conveyed. The
Mortgagor is a natural person who is a party to the Mortgage Note and the
Mortgage in an individual capacity, and not in the capacity of a trustee or
otherwise;
(xxix) The terms of the Mortgage Note and the Mortgage have not been
impaired, altered or modified in any material respect, except by a written
instrument which has been recorded or is in the process of being recorded,
if necessary, to protect the interests of the Certificateholders and the
Certificate Insurer and which has been or will be delivered to the Trustee.
The substance of any such alteration or modification is reflected on the
related Mortgage Loan Schedule and was approved, if required, by the
related primary mortgage guaranty insurer, if any. Each original Mortgage
was recorded, and all subsequent assignments of the original Mortgage have
been recorded in the appropriate jurisdictions wherein such recordation is
necessary to perfect the lien thereof as against creditors of the Seller,
or are in the process of being recorded;
(xxx) No instrument of release or waiver has been executed in
connection with the Mortgage Loan, and no Mortgagor has been released, in
whole or in part;
(xxxi) Other than delinquencies, if any, as described in paragraph
(ii) above, there are no defaults in complying with the terms of the
Mortgage, and either (1) any taxes, governmental assessments, insurance
premiums, water, sewer and municipal charges or ground rents which
previously became due and owing have been paid, or (2) an escrow of funds
has been established in an amount sufficient to pay for every such item
which remains unpaid and which has been assessed but is not yet due and
payable. Except for payments in the nature of escrow payments, including
without limitation, taxes and insurance payments, the Seller has not
advanced funds, or induced, solicited or knowingly received any advance of
funds by a party other than the Mortgagor, directly or indirectly, for the
payment of any amount required by the Mortgage Note, except for interest
accruing from the date of the Mortgage Note or date of disbursement of the
Mortgage proceeds, whichever is later, to the day which precedes by one
month the Due Date of the first installment of principal and interest;
(xxxii) There is no proceeding pending or threatened for the total or
partial condemnation of any Mortgaged Property, nor is such a proceeding
currently occurring;
(xxxiii) All of the improvements which were included for the purpose
of determining the appraised value of the Mortgaged Property lie wholly
within the boundaries and building restriction lines of such property, and
no improvements on adjoining properties encroach upon the Mortgaged
Property;
(xxxiv) No improvement located on or being part of the Mortgaged
Property is in violation of any applicable zoning law or regulation. All
inspections, licenses and certificates required to be made or issued with
respect to all occupied portions of the Mortgaged Property and, with
respect to the use and occupancy of the same, including but not limited to
certificates of occupancy and fire underwriting certificates, have been
made or obtained from
49
the appropriate authorities and the Mortgaged Property is lawfully occupied
under applicable law;
(xxxv) The proceeds of each Mortgage Loan have been fully disbursed,
and there is no obligation on the part of the mortgagee to make future
advances thereunder. Any and all requirements as to completion of any on-
site or off-site improvements and as to disbursements of any escrow funds
therefor have been complied with. All costs, fees and expenses incurred in
making or closing or recording the Mortgage Loans were paid;
(xxxvi) Each Mortgage Note is not and has not been secured by any
collateral, pledged account or other security except the lien of the
corresponding Mortgage;
(xxxvii) No Mortgage Loan was originated under a buydown plan or is
subject to the Home Ownership and Equity Protection Act of 1994;
(xxxviii) There is no obligation on the part of the Seller or any
other party to make payments on any Mortgage Loan in addition to those made
by the Mortgagor;
(xxxix) With respect to each Mortgage constituting 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 such Mortgage,
and no fees or expenses are or will become payable by the
Certificateholders to the trustee under the deed of trust, except in
connection with a trustee's sale after default by the Mortgagor;
(xl) No Mortgage Loan has a shared appreciation feature, or other
contingent interest feature;
(xli) Each Mortgage Loan was originated by a savings and loan
association, a savings bank, a commercial bank or similar banking
institution which is supervised and examined by a federal or state
authority, or by a mortgagee approved by the Secretary of HUD;
(xlii) There was no fraud involved in the origination of the Mortgage
Loan by the mortgagee or, to the Seller's knowledge, by the Mortgagor, any
appraiser or any other party involved in the origination of the Mortgage
Loan;
(xliii) No Mortgaged Property was, as of the related Cut-Off Date,
located within a one-mile radius of any site listed in the National
Priorities List as defined under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, or on any similar state
list of hazardous waste sites which are known to contain any hazardous
substance or hazardous waste;
(xliv) No Mortgage Loan provides for negative amortization;
(xlv) All parties which have had any interest in the Mortgage Loan,
whether as originator, mortgagee, assignee, pledgee, servicer or otherwise,
are (or, during the period in
50
which they held and disposed of such interest, were) (1) in compliance with
any and all applicable licensing requirements of the laws of the state
wherein the Mortgaged Property is located in light of such person's status,
and (2)(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 so as to require qualification or licensing;
(xlvi) The Mortgage contains a customary provision for the
acceleration of the payment of the unpaid principal balance of the
Mortgage Loan in the event the related security for the Mortgage Loan is
sold without the prior consent of the mortgagee thereunder;
(xlvii) Any future advances made prior to the related Cut-Off Date
have been consolidated with the outstanding principal amount secured by the
Mortgage, and the secured principal amount, as consolidated, bears a single
interest rate and single repayment term reflected on the related Mortgage
Loan Schedule. The consolidated principal amount does not exceed the
original principal amount of the Mortgage Loan. The Mortgage Note does not
permit or obligate the Seller to make future advances to the Mortgagor at
the option of the Mortgagor;
(xlviii) The Mortgage contains customary and enforceable provisions
which render the rights and remedies of the holder thereof adequate for the
realization against the Mortgaged Property of the benefits of the security,
including, (i) in the case of a Mortgage designated as a deed of trust, by
trustee's sale, and (ii) otherwise by judicial or non-judicial foreclosure.
There is no homestead or other exemption available to the Mortgagor which
would materially interfere with the right to sell the Mortgaged Property at
a trustee's sale or the right to foreclose the Mortgage;
(xlix) There is no default, breach, violation or event of
acceleration existing under any Mortgage or the related Mortgage Note and
no event 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; and the Seller has not waived any default,
breach, violation or event of acceleration;
(l) (A) All parties to the Mortgage Note and the Mortgage had legal
capacity to execute the Mortgage Note and the Mortgage and (B) each
Mortgage Note and Mortgage have been duly and properly executed by such
parties;
(li) All amounts received after the related Cut-Off Date with respect
to the Mortgage Loans to which the Seller is not entitled have been
deposited into the Collection Account and are, as of the related Transfer
Date, in the Collection Account;
(lii) All of the Mortgage Loans were originated in accordance with
the underwriting criteria set forth in the Prospectus Supplement;
51
(liii) Each Mortgage Loan conforms, and all such Mortgage Loans in
the aggregate conform in all material respects to the description thereof
set forth in the Prospectus Supplement; each Mortgage Note and Mortgage is
in substantially one of the forms attached as Exhibit F and Exhibit G
hereto;
(liv) The Mortgage Loans were not selected by the Seller for
inclusion in the Trust on any basis intended to adversely affect the Trust
or the Certificate Insurer;
(lv) A full appraisal on forms approved by FNMA or FHLMC was
performed in connection with the origination of each Mortgage Loan. Each
appraisal meets guidelines that would be generally acceptable to prudent
mortgage lenders that regularly originate or purchase mortgage loans
comparable to the Mortgage Loans for sale to prudent investors in the
secondary market that invest in mortgage loans such as the Mortgage Loans;
(lvi) Each hazard insurance policy required to be maintained under
Section 3.13 with respect to the Mortgage Loan is a valid, binding,
enforceable and subsisting insurance policy of its respective kind and is
in full force and effect;
(lvii) Each Mortgage Loan was originated by the Seller or an
affiliate of the Seller or purchased by the Seller;
(lviii) None of the Mortgage Loans are subject to a bankruptcy
proceeding;
(lix) Each Mortgage Loan constitutes a "qualified mortgage" within
the meaning of Section 860G(a)(3) of the Code; and
(lx) Each of the documents and instruments included in a Mortgage
File is duly executed and in due and proper form and each such document or
instrument is in a form generally acceptable to prudent institutional
mortgage lenders that regularly originate or purchase mortgage loans
similar to the Mortgage Loans.
(b) It is understood and agreed that the representations and warranties set
forth in this Section 2.04 shall survive delivery of the Mortgage Files to the
Trustee and shall inure to the benefit of the Certificateholders and the
Certificate Insurer notwithstanding any restrictive or qualified endorsement or
assignment. Upon discovery by any of the Depositor, the Master Servicer or the
Trustee of a breach of any of the foregoing representations and warranties which
materially and adversely affects the value of any Mortgage Loan or the interests
therein of the Certificateholders and the Certificate Insurer, the party
discovering such breach shall give prompt written notice to the other parties
and to the Certificate Insurer, and in no event later than two Business Days
from the date of such discovery. It is understood and agreed that the
obligations of the Seller and the Bank set forth in Section 2.03(a) to cure,
substitute for or repurchase a Mortgage Loan pursuant to the Mortgage Loan
Purchase Agreement constitute the sole remedies available to the
Certificateholders or to the Trustee on their behalf respecting a breach of the
representations and warranties contained in this Section 2.04.
52
SECTION 2.05. Representations, Warranties and Covenants of the Master
-------------------------------------------------------
Servicer.
--------
The Master Servicer hereby represents, warrants and covenants to the
Trustee, for the benefit of each of the Trustee, the Certificateholders, the
Certificate Insurer and to the Depositor that as of the Closing Date or as of
such date specifically provided herein:
(i) The Master Servicer is duly organized, validly existing and in
good standing as a federal savings bank under the laws of the United States
and is and will remain 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 Mortgage Loan and the servicing of the Mortgage Loan
in accordance with the terms of this Agreement;
(ii) The Master Servicer has the full power and authority to conduct
its business as presently conducted by it and to execute, deliver and
perform, and to enter into and consummate, all transactions contemplated by
this Agreement. The Master Servicer has duly authorized the execution,
delivery and performance of this Agreement, has duly executed and delivered
this Agreement, and this Agreement, assuming due authorization, execution
and delivery by the Depositor and the Trustee, constitutes a legal, valid
and binding obligation of the Master Servicer, enforceable against it in
accordance with its terms except as the enforceability thereof may be
limited by bankruptcy, insolvency, reorganization or similar laws affecting
the enforcement of creditors' rights generally and by general principles of
equity;
(iii) The execution and delivery of this Agreement by the Master
Servicer and the performance of and compliance with the terms of this
Agreement will not (a) violate the Master Servicer's charter or by-laws or
any law, rule, regulation, order, judgment, award, administrative
interpretation, injunction, writ, decree or the like affecting the Master
Servicer or by which the Master Servicer is bound or (b) result in a breach
of or constitute a default under any indenture or other material agreement
to which the Master Servicer is a party or by which the Master Servicer is
bound, which in the case of either clause (a) or (b) will have a material
adverse effect on the Master Servicer's ability to perform its obligations
under this Agreement;
(iv) The Master Servicer is an approved servicer for FHLMC or FNMA
in good standing and is a HUD approved mortgagee pursuant to Section 203 of
the National Housing Act; no event has occurred, including but not limited
to a change in insurance coverage, which would make the Master Servicer
unable to comply with FHLMC, FNMA or HUD eligibility requirements or which
would require notification to FHLMC, FNMA or HUD;
(v) The Master Servicer does not believe, nor does it have any
reason or cause to believe, that it cannot perform each and every covenant
contained in this Agreement;
(vi) With respect to each Mortgage Loan, the Master Servicer is in
possession of a complete mortgage file, except for such documents as have
been delivered to the Trustee;
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(vii) There are no actions or proceedings against, investigations
known to it of, the Master Servicer before any court, administrative or
other tribunal (A) that might prohibit its entering into this Agreement,
(B) seeking to prevent the consummation of the transactions contemplated by
this Agreement or (C) that might prohibit or materially and adversely
affect the performance by the Master Servicer of its obligations under, or
validity or enforceability of, this Agreement;
(viii) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Master Servicer of, or compliance by the Master Servicer
with, this Agreement or the consummation of the transactions contemplated
by this Agreement, except for such consents, approvals, authorizations or
orders, if any, that have been obtained prior to the Closing Date;
(ix) No litigation or administrative proceeding of or before any
court, tribunal or government body is currently pending, or to its
knowledge threatened, against the Seller or any of its properties or with
respect to this Agreement or the Certificates which in its opinion has a
reasonable likelihood of resulting in a material adverse effect on the
transactions contemplated by this Agreement; and
(x) So long as the Certificates remain outstanding, this Agreement
shall be treated as an official record of the Master Servicer within the
meaning of Section 13(e) of the Federal Deposit Insurance Act (12 USC
1823(e)).
It is understood and agreed that the representations, warranties and
covenants set forth in this Section 2.05 shall survive delivery of the Mortgage
Files to the Trustee and shall inure to the benefit of the Trustee, the
Depositor, the Certificateholders and the Certificate Insurer. Upon discovery
by any of the Depositor, the Master Servicer or the Trustee of a breach of any
of the foregoing representations, warranties and covenants which materially and
adversely affects the value of any Mortgage Loan or the interests therein of the
Certificateholders and the Certificate Insurer, the party discovering such
breach shall give prompt written notice (but in no event later than two Business
Days following such discovery) to the Trustee and the Certificate Insurer.
SECTION 2.06. Issuance of Certificates.
------------------------
The Trustee acknowledges the assignment to it of the Mortgage Loans and the
delivery to it of the Mortgage Files, subject to the provisions of Sections 2.01
and 2.02, together with the assignment to it of all other assets included in the
Trust Fund, receipt of which is hereby acknowledged. Concurrently with such
assignment and delivery and in exchange therefor, the Trustee, pursuant to the
written request of the Depositor executed by an officer of the Depositor, has
executed, authenticated and delivered to or upon the order of the Depositor, the
Certificates in authorized denominations. The interests evidenced by the
Certificates, constitute the entire beneficial ownership interest in the Trust
Fund.
54
SECTION 2.07. Representations and Warranties with Respect to Subsequent
---------------------------------------------------------
Mortgage Loans.
--------------
The Seller hereby represents and warrants to the Trustee for the benefit of
the Certificateholders and the Certificate Insurer that as of the Closing Date
or as of such date specified herein and after the inclusion of the Subsequent
Mortgage Loans in the Trust Fund:
(i) No Subsequent Mortgage Loan is 30 days or more delinquent as of
the related Cut-off Date;
(ii) No Subsequent Mortgage Loan has a remaining term to maturity
of more than 30 years;
(iii) No Subsequent Mortgage Loan has a Combined Loan-to Value
Ratio in excess of 85%;
(iv) No Subsequent Mortgage Loan has a Gross Margin of less than
4.25%;
(v) The Mortgage Loans have a weighted average Mortgage Rate of at
least 9.59%;
(vi) The Mortgage Loans have a weighted average Loan-to Value Ratio
of 77.00%;
(vii) The weighted average remaining term to maturity of the
Mortgage Loans is not more than 360 months; and
(viii) Each Mortgage Loan has a Principal Balance not in excess of
$450,000 as of the Cut-off Date.
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ARTICLE III
ADMINISTRATION AND SERVICING
OF THE TRUST FUND
SECTION 3.01. Master Servicer and Sub-Servicers.
---------------------------------
Acting directly or through one or more Sub-Servicers as provided in Section
3.03, the Master Servicer shall service and administer the Mortgage Loans on
behalf of the Trustee and in the best interests of and for the benefit of the
Certificateholders and the Certificate Insurer (as determined by the Master
Servicer in its reasonable judgment) in accordance with the terms of this
Agreement and the respective Mortgage Loans and, to the extent consistent with
such terms, in the same manner in which it services and administers similar
mortgage loans for its own portfolio, giving due consideration to customary and
usual standards of practice of prudent mortgage lenders and loan servicers
administering similar mortgage loans but without regard to:
(i) any relationship that the Master Servicer, any Sub-Servicer or
any Affiliate of the Master Servicer or any Sub-Servicer may
have with the related Mortgagor;
(ii) the ownership of any Certificate by the Master Servicer or any
Master Servicer Affiliate;
(iii) the Master Servicer's obligation to make Monthly Advances or
Servicing Advances; or
(iv) the Master Servicer's or any Sub-Servicer's right to receive
compensation for its services hereunder or with respect to any
particular transaction.
To the extent consistent with the foregoing, the Master Servicer shall also
seek to maximize the complete and timely recovery of principal and interest on
the Mortgage Loans. The standards set forth in the immediately preceding
sentence shall be referred to herein as the "Servicing Standard".
Subject to Section 3.03 hereof, the Master Servicer may, and is hereby
authorized to, perform any of its servicing responsibilities with respect to all
or certain of the Mortgage Loans through a Sub-Servicer as it may from time to
time designate, but no such designation of a Sub-Servicer shall serve to release
the Master Servicer from any of its obligations under this Agreement. Such Sub-
Servicer shall have all the rights and powers of the Master Servicer with
respect to such Mortgage Loans under this Agreement.
Without limiting the generality of the foregoing, but subject to Sections
3.15 and 3.16, the Master Servicer shall direct the Trustee in writing in the
form of a Servicing Officer's Certificate in a form reasonably agreed upon by
the Master Servicer and the Trustee to execute and deliver (i) 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 Mortgage
Loans and with respect to the Mortgaged
56
Properties, and (ii) documents to institute foreclosure proceedings or obtain a
deed in lieu of foreclosure so as to effect ownership of any Mortgaged Property
in the name of the Trustee; provided, however, that to the extent any
-------- -------
instrument described in clause (i) preceding would be delivered by the Master
Servicer outside of its usual procedures for mortgage loans held in its own
portfolio, the Master Servicer shall, prior to executing and delivering such
instrument, obtain the prior written consent of the Certificate Insurer, and
provided further, however, that Section 3.16(a) shall constitute an
authorization from the Trustee to the Master Servicer to execute an instrument
of satisfaction (or assignment of mortgage without recourse) with respect to any
Mortgage Loan paid in full (or with respect to which payment in full has been
escrowed). The Trustee shall, at the written direction of the Master Servicer in
the form of a Servicing Officer's Certificate in a form reasonably agreed upon
by the Master Servicer and the Trustee, execute any documentation furnished to
it by the Master Servicer for recordation by the Master Servicer in the
appropriate jurisdictions as shall by necessary to effectuate the foregoing.
Subject to Sections 3.14 and 3.15, the Trustee shall execute any authorizations
and other documents as the Master Servicer or such Sub-Servicer shall reasonably
request that are furnished to the Trustee to enable the Master Servicer and such
Sub-Servicer to carry out their respective servicing and administrative duties
hereunder.
In accordance with the Servicing Standard, the Master Servicer shall
advance or cause to be advanced funds as necessary for the purpose of effecting
the timely payment of taxes and assessments on the Mortgaged Properties, which
advances shall be reimbursable in the first instance from related collections
from the Mortgagors pursuant to Section 3.09, and further as provided in Section
3.11. Any cost incurred by the Master Servicer or by Sub-Servicers in effecting
the timely payment of taxes and assessments on a Mortgaged Property shall not,
for the purpose of calculating distributions to Certificateholders, be added to
the unpaid principal balance of the related Mortgage Loan, notwithstanding that
the terms of such Mortgage Loan so permit.
The Master Servicer shall give prompt notice to the Trustee and the
Certificate Insurer of any action, of which the Master Servicer has actual
knowledge, to (i) assert a claim against the Trust Fund or (ii) assert
jurisdiction over the Trust Fund.
Servicing Advances incurred by the Master Servicer or any Sub-Servicer in
connection with the servicing of the Mortgage Loans (including any penalties in
connection with the payment of any taxes and assessments or other charges) on
any Mortgaged Property shall be recoverable by the Master Servicer or such Sub-
Servicer to the extent described in Sections 3.11 and 3.23(d) hereof.
The Trustee may execute such powers of attorney as may be provided by the
Master Servicer to the extent necessary for the Master Servicer to perform the
Master Servicer's obligations hereunder.
SECTION 3.02. Collection of Certain Mortgage Loan Payments.
--------------------------------------------
The Master Servicer shall make reasonable efforts to collect all payments
called for under the terms and provisions of the Mortgage Loans, and shall, to
the extent such procedures shall be consistent with this Agreement, follow such
collection procedures for all Mortgage Loans that are consistent with the
Servicing Standard. The Master Servicer may waive, modify or vary terms of the
Mortgage Loans provided that no such action will (A) decrease the Mortgage Rate
on the Mortgage
57
Loan, (B) defer or forgive the payment of principal or interest (except with
respect to liquidation of such Mortgage Loan) or (C) extend the final maturity
date of such Mortgage Loan, provided, however, that no such modification shall
be permitted to the extent that it would (a) affect adversely the status of the
Trust Fund as a REMIC or (b) cause the Trust Fund to be subject to a tax on
"prohibited transactions" or "contributions" pursuant to the REMIC Provisions.
Notwithstanding the foregoing, in the event that any Mortgage Loan is in default
or, in the judgment of the Master Servicer, such default is reasonably
foreseeable, the Master Servicer, consistent with the Servicing Standard, may
also waive, modify or vary any term of such Mortgage Loan (including
modifications that would change the Mortgage Rate, defer or forgive the payment
of principal or interest or extend the final maturity date of such Mortgage
Loan), accept payment from the related Mortgagor of an amount less than the
Stated Principal Balance in final satisfaction of such Mortgage or consent to
the postponement of strict compliance with any such term or otherwise grant
indulgence to any Mortgagor if in the Master Servicer's determination such
waiver, modification, postponement or indulgence is not materially adverse to
the interests of the Certificateholders (taking into account any estimated
Realized Loss that might result absent such action).
SECTION 3.03. Sub-Servicing Agreements Between Master Servicer and Sub-
--------------------------------------------------------
Servicers.
---------
The Master Servicer, with the consent of the Certificate Insurer, may (and
so long as the Certificate Insurer deems it necessary, the Master Servicer
shall) enter into Sub-Servicing Agreements for any servicing and administration
of Mortgage Loans with one or more institutions that are in compliance with the
laws of each state necessary to enable each of them to perform its obligations
under such Sub-Servicing Agreements and each of which (x) has been designated an
approved seller-servicer by FHLMC or FNMA for mortgage loans and has equity of
at least $1,500,000 or (y) is a Master Servicer Affiliate. The Master Servicer
shall give notice to the Trustee, the Certificate Insurer and the Rating
Agencies of the appointment of any Sub-Servicer and shall provide the
Certificate Insurer with copies of any Sub-Servicing Agreements and any
amendments or modifications thereof. For purposes of this Agreement, the Master
Servicer shall be deemed to have received payments on Mortgage Loans when any
Sub-Servicer has received such payments. Each Sub-Servicer shall be required to
service the Mortgage Loans in accordance with this Agreement and any such Sub-
Servicing Agreement shall be consistent with and not violate the provisions of
this Agreement. Each Sub-Servicing Agreement shall provide that the Trustee
(with the consent of the Certificate Insurer) shall have the option to terminate
such agreement without payment of any termination fees if the original Master
Servicer is terminated or resigns, except that such Sub-Servicing Agreement may
provide that such termination fees shall be payable by Pan American Bank, FSB
and such Sub-Servicing Agreement may provide that any third party costs and
expenses associated with the transfer of servicing and collateral files by any
Sub-Servicer shall not be paid by Pan American Bank, FSB nor the Trustee and
shall not be an expense of the Trust.
SECTION 3.04. Successor Sub-Servicers.
-----------------------
The Master Servicer, with the consent of the Certificate Insurer, shall be
entitled to terminate any Sub-Servicing Agreement in accordance with the terms
and conditions of such Sub-Servicing Agreement. Upon termination and with the
consent of the Certificate Insurer, the Master Servicer may
58
itself directly service the related Mortgage Loans or enter into a Sub-Servicing
Agreement with a successor Sub-Servicer which qualifies under Section 3.03.
SECTION 3.05. Liability of Master Servicer; Indemnification.
---------------------------------------------
(a) The Master Servicer shall not be relieved of its obligations under this
Agreement notwithstanding any Sub-Servicing Agreement or any of the provisions
of this Agreement relating to agreements or arrangements between the Master
Servicer and a Sub-Servicer and the Master Servicer shall be obligated to the
same extent and under the same terms and conditions as if it alone were
servicing and administering the Mortgage Loans. The Master Servicer shall be
entitled to enter into any agreement with a Sub-Servicer for indemnification of
the Master Servicer by such Sub-Servicer and nothing contained in such Sub-
Servicing Agreement shall be deemed to limit or modify this Agreement.
(b) The Master Servicer (except the Trustee if it is required to succeed
the Master Servicer hereunder) indemnifies and holds the Trustee, the Depositor,
the Seller, the Certificate Insurer and each Certificateholder harmless against
any and all claims, losses, penalties, fines, forfeitures, reasonable legal fees
and related costs, judgments, and any other costs, fees and expenses that the
Trustee, the Depositor, the Certificate Insurer and any Certificateholder may
sustain in any way related to the failure of the Master Servicer to perform its
duties and service the Mortgage Loans in compliance with the terms of this
Agreement. The Master Servicer shall immediately notify the Trustee, the
Depositor, the Certificate Insurer and each Certificateholder if a claim is made
that may result in such claims, losses, penalties, fines, forfeitures, legal
fees or related costs, judgments, or any other costs, fees and expenses, and the
Master Servicer shall assume (with the consent of the Trustee and the
Certificate Insurer) the defense of any such claim and pay all expenses in
connection therewith, including reasonable counsel fees, and promptly pay,
discharge and satisfy any judgment or decree which may be entered against the
Master Servicer, the Trustee, the Depositor, the Certificate Insurer and/or
Certificateholder in respect of such claim. The provisions of this Section 3.05
shall survive the termination of this Agreement and the payment of the
outstanding Certificates.
(c) Neither the Depositor, the Seller, the Master Servicer, nor any of the
directors, officers, employees or agents of the Depositor, the Seller or the
Master Servicer shall be under any liability to the Trust Fund or the
Certificateholders for any action taken, or for refraining from the taking of
any action, in good faith pursuant to this Agreement, or for errors in judgment;
provided, however, that this provision shall not protect the Depositor, the
-------- -------
Seller or Master Servicer or any such Person against any breach of warranties or
representations made herein, or against any specific liability imposed on the
Master Servicer for a breach of the Servicing Standard, or against any liability
which would otherwise be imposed by reason of its respective willful
misfeasance, bad faith, fraud or negligence in the performance of its duties or
by reasons of negligent disregard of its respective obligations or duties
hereunder.
The Depositor, the Master Servicer, the Seller, and any director, officer,
employee or agent of the Depositor, the Seller or the Master Servicer, may rely
in good faith on any document of any kind which, prima facie, is properly
executed and submitted by any appropriate Person with respect to any matters
arising hereunder. The Depositor, the Seller, the Master Servicer and any
director, officer,
59
employee or agent of the Depositor, the Seller or the Master Servicer shall be
indemnified and held harmless by the Trust Fund against any loss, liability or
expense incurred in connection with any legal action relating to this Agreement
or the Certificates, other than any loss, liability or expense incurred in
connection with any legal action incurred by reason of its respective
misfeasance, bad faith, fraud or negligence, a breach of a representation or
warranty hereunder or (in the case of the Master Servicer) a breach of the
Servicing Standard in the performance of its respective duties or by reason of
negligent disregard of its respective obligations or duties hereunder. Neither
the Depositor nor the Master Servicer shall be under any obligation to appear
in, prosecute or defend any legal action unless such action is related to its
respective duties under this Agreement and in its opinion does not expose it to
any expense or liability; provided, however, that the Depositor or the Master
-------- -------
Servicer may in its discretion undertake any action related to its obligations
hereunder 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 Certificateholders hereunder.
SECTION 3.06. No Contractual Relationship Between Sub-Servicer, Trustee or
------------------------------------------------------------
the Certificateholders.
----------------------
Any Sub-Servicing Agreement and any other transactions or services relating
to the Mortgage Loans involving a Sub-Servicer shall be deemed to be between the
Sub-Servicer and the Master Servicer alone and the Trustee, the
Certificateholders and the Certificate Insurer shall not be deemed parties
thereto and shall have no claims, rights, obligations, duties or liabilities
with respect to any Sub-Servicer except as set forth in Section 3.07.
SECTION 3.07. Assumption or Termination of Sub-Servicing Agreement by
-------------------------------------------------------
Trustee.
-------
In connection with the assumption of the responsibilities, duties and
liabilities and of the authority, power and rights of the Master Servicer
hereunder by the Trustee pursuant to Section 7.02, it is understood and agreed
that the Master Servicer's rights and obligations under any Sub-Servicing
Agreement then in force between the Master Servicer and a Sub-Servicer shall be
assumed simultaneously by the Trustee without act or deed on the part of the
Trustee; provided, however, that the Trustee may terminate the Sub-Servicer as
-------- -------
provided in Section 3.03.
The terminated Master Servicer shall, upon the reasonable request of the
Trustee, but at the expense of the Master Servicer, deliver to the assuming
party documents and records relating to each Sub-Servicing Agreement and an
accounting of amounts collected and held by it and otherwise use its best
reasonable efforts to effect the orderly and efficient transfer of the Sub-
Servicing Agreements to the assuming party.
SECTION 3.08. Sub-Servicing Accounts.
----------------------
On behalf of the Trust Fund and the Certificate Insurer, Ocwen Federal Bank
FSB, as Sub-Servicer, shall establish an account held in trust for the
Certificateholders and the Certificate Insurer. In those cases where a Sub-
Servicer is servicing a Mortgage Loan pursuant to a Sub-Servicing Agreement, the
Sub-Servicer will be required to establish and maintain one or more accounts
(collectively, the "Sub-Servicing Account"). The Sub-Servicing Account shall be
an Eligible Account
60
and shall comply with all requirements of this Agreement relating to the
Collection Account. The Sub-Servicer will be required to deposit into the Sub-
Servicing Account no later than the first Business Day after receipt all
proceeds of Mortgage Loans received by the Sub-Servicer, less its servicing
compensation to the extent permitted by the Sub-Servicing Agreement and to remit
such proceeds to the Trustee for deposit in the Distribution Account not later
than the first Business Day prior to each Distribution Date. For purposes of
this Agreement, the Master Servicer shall be deemed to have received payments on
the Mortgage Loans when the Sub-Servicer receives such payments.
SECTION 3.09. Collection of Taxes, Assessments and Similar Items;
---------------------------------------------------
Servicing Accounts.
------------------
The Master Servicer shall establish and maintain, or shall cause to be
established and maintained, one or more accounts (the "Servicing Accounts"),
into which all collections from the Mortgagors (or related advances from Sub-
Servicers) for the payment of taxes, assessments, hazard insurance premiums, and
comparable items for the account of the Mortgagors ("Escrow Payments") shall be
deposited and retained. Servicing Accounts shall be Eligible Accounts. The
Master Servicer shall deposit in the Servicing Accounts on a daily basis, and
retain therein, all Escrow Payments collected on account of the Mortgage Loans,
for the purpose of effecting the timely payment of any such items as required
under the terms of this Agreement. Withdrawals of amounts 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 Master
Servicer (or a Sub-Servicer to the extent provided in the related Sub-Servicing
Agreement) out of related collections for any advances made pursuant to Section
3.01 (with respect to taxes and assessments) and Section 3.13 (with respect to
hazard insurance); (iii) refund to Mortgagors any sums as may be determined to
be overages; (iv) pay interest, if required and as described below, to
Mortgagors on balances in the Servicing Account; or (v) clear and terminate the
Servicing Account at the termination of the Master Servicer's obligations and
responsibilities in respect of the Mortgage Loans under this Agreement in
accordance with Article X. As part of its servicing duties, the Master Servicer
or Sub-Servicers shall pay to the Mortgagors 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 therefor. The Master Servicer
assumes full responsibility for the timely payment of all such bills and shall
effect timely payments of all such bills irrespective of the Mortgagor's
faithful performance in the payment of same or the making of the Escrow Payments
and shall make advances from its own funds to effect such payments.
SECTION 3.10. Collection Account and Distribution Account.
-------------------------------------------
(a) On behalf of the Trust Fund, the Master Servicer shall establish and
maintain, or cause to be established and maintained, one or more accounts (such
account or accounts, the "Collection Account"), held in trust for the benefit of
the Trustee, the Certificateholders and the Certificate Insurer. On behalf of
the Trust Fund, the Master Servicer shall deposit or cause to be deposited in
the Collection Account on a daily basis, as and when received or as otherwise
required hereunder, the following payments and collections received or made by
it on or subsequent to the Cut-off Date:
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(i) all payments on account of principal, including Principal
Prepayments, on the Mortgage Loans;
(ii) all payments on account of interest (net of the related
Servicing Fee and any Servicing Fees and other servicing compensation for
prior months not paid in full) on each Mortgage Loan;
(iii) all Insurance Proceeds and Liquidation Proceeds (other than
proceeds collected in respect of any particular REO Property and amounts
paid by the Master Servicer in connection with a purchase of Mortgage Loans
and REO Properties pursuant to Section 10.01);
(iv) any amounts required to be deposited pursuant to Section 3.12
in connection with any losses realized on Permitted Investments with
respect to funds held in the Collection Account; and
(v) any amounts required to be deposited by the Master Servicer
pursuant to the first paragraph of Section 3.13(b) in respect of any
blanket policy deductibles.
For purposes of the immediately preceding sentence, the Cut-off Date with
respect to any Qualified Substitute Mortgage Loan shall be deemed to be the date
of substitution.
The foregoing requirements for deposit in the Collection Account shall be
exclusive, it being understood and agreed that, without limiting the generality
of the foregoing, payments in the nature of prepayment or late payment charges
or assumption fees need not be deposited by the Master Servicer in the
Collection Account. In the event the Master Servicer shall deposit in the
Collection Account any amount not required to be deposited therein, it may at
any time withdraw such amount from the Collection Account, any provision herein
to the contrary notwithstanding.
(b) On behalf of the Trust Fund, the Trustee shall establish and maintain
one or more accounts (such account or accounts, the "Distribution Account"),
held in trust for the benefit of the Certificateholders and the Certificate
Insurer. On behalf of the Trust Fund, the Master Servicer shall deliver to the
Trustee in immediately available funds for deposit in the Distribution Account
on or before noon New York time on the Master Servicer Remittance Date, that
portion of the Available Distribution Amount (calculated without regard to the
references in the definition thereof to amounts that may be deposited to the
Distribution Account from a different source as provided herein) for the related
Distribution Date then on deposit in the Collection Account. On each Business
Day as of the commencement of which the balance on deposit in the Collection
Account exceeds $75,000 following any withdrawals pursuant to the next
succeeding sentence, the amount of such excess, but only if the Collection
Account constitutes an Eligible Account, the deposits of which are fully insured
by the FDIC (to the limits established by the FDIC). If the balance on deposit
in the Collection Account exceeds $75,000 as of the commencement of business on
any Business Day and the Collection Account constitutes an Eligible Account
solely pursuant to clause (ii) of the definition of "Eligible
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Account," the Master Servicer shall, on or before 3:00 p.m. New York time on
such Business Day, withdraw such amounts from the Collection Account and deposit
them in the Distribution Account.
(c) Funds in the Collection Account and the Distribution Account may be
invested in Permitted Investments in accordance with the provisions set forth in
Section 3.12. The Master Servicer shall give notice to the Trustee and the
Certificate Insurer of the location of the Collection Account maintained by it
when established and prior to any change thereof. The Trustee shall give notice
to the Master Servicer, the Depositor and the Certificate Insurer of the
location of the Distribution Account when established and prior to any change
thereof.
(d) Funds held in the Collection Account at any time may be delivered by
the Master Servicer to the Trustee for deposit in an account (which may be the
Distribution Account and must satisfy the standards for the Distribution Account
as set forth in the definition thereof) and for all purposes of this Agreement
shall be deemed to be a part of the Collection Account; provided, however, that
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the Trustee shall have the sole authority to withdraw any funds held pursuant to
this subsection (d). In the event the Master Servicer shall deliver to the
Trustee for deposit in the Distribution Account any amount not required to be
deposited therein, it may at any time request in writing in the form of a
Servicing Officer's Certificate that the Trustee withdraw such amount from the
Distribution Account and remit to it any such amount, any provision herein to
the contrary notwithstanding. In addition, the Master Servicer shall deliver to
the Trustee from time to time for deposit, and the Trustee shall so deposit, in
the Distribution Account:
(i) any Monthly Advances, as required pursuant to Section 4.03;
(ii) any amounts required to be deposited pursuant to Section 3.23(d)
or (f) in connection with any REO Property;
(iii) any amounts to be paid in connection with a purchase of
Mortgage Loans and REO Properties pursuant to Section 10.01; and
(iv) any amounts required to be deposited pursuant to Section 3.24 in
connection with any Prepayment Interest Shortfalls.
(e) Promptly upon receipt of any Stayed Funds, whether from the Master
Servicer, a trustee in bankruptcy, or federal bankruptcy court or other source,
the Trustee shall deposit such funds in the Distribution Account, subject to
withdrawal thereof as otherwise permitted hereunder. In addition, the Trustee
shall deposit in the Distribution Account any amounts required to be deposited
pursuant to Section 3.12 in connection with losses realized on Permitted
Investments with respect to funds held in the Distribution Account.
SECTION 3.11. Withdrawals from the Collection Account and Distribution
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Account.
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(a) The Master Servicer shall, from time to time, make withdrawals from
the Collection Account for any of the following purposes or as described in
Section 4.03:
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(i) to remit to the Trustee for deposit in the Distribution Account
the amounts required to be so remitted pursuant to Section 3.10(b) or
permitted to be so remitted pursuant to the first sentence of Section
3.10(d);
(ii) subject to Section 3.15(d), to reimburse the Master Servicer
for Monthly Advances, but only to the extent of amounts received which
represent Late Collections, Insurance Proceeds or Liquidation Proceeds (net
of the related Servicing Fees) of Monthly Payments on Mortgage Loans with
respect to which such Monthly Advances were made in accordance with the
provisions of Section 4.03;
(iii) subject to Section 3.15(d), to pay the Master Servicer or any
Sub-Servicer any unpaid Servicing Fees and reimburse any unreimbursed
Servicing Advances with respect to each Mortgage Loan, but only to the
extent of any Late Collection, Liquidation Proceeds and Insurance Proceeds
received with respect to such Mortgage Loan (provided, however, that if, in
the good faith business judgment of the Master Servicer, any unreimbursed
Servicing Advance will not be ultimately recoverable from related Late
Collections, Liquidation Proceeds or Insurance Proceeds on such Mortgage
Loan (which determination shall be evidenced by an Officer's Certificate of
the Master Servicer delivered to Trustee and the Certificate Insurer) on or
prior to the related Master Servicer Remittance Date, then withdrawal from
the general funds in the Collection Account, Liquidation Proceeds and
Insurance Proceeds, without regard to the limitation set forth above, will
be permitted);
(iv) to pay to the Master Servicer as servicing compensation (in
addition to the Servicing Fee) on the Master Servicer Remittance Date any
interest or investment income earned on funds deposited in the Collection
Account;
(v) to pay to the Master Servicer or the Seller, as the case may be,
with respect to each Mortgage Loan that has previously been purchased or
replaced pursuant to Section 2.03 or Section 3.15(c) all amounts received
thereon subsequent to the date of purchase or substitution, as the case may
be;
(vi) to reimburse the Master Servicer for any Monthly Advance
previously made which the Master Servicer has determined to be a
Nonrecoverable Monthly Advance in accordance with the provisions of Section
4.03;
(vii) to reimburse the Master Servicer for expenses incurred by or
reimbursable to the Master Servicer pursuant to Section 6.03;
(viii) to reimburse the Master Servicer or the Trustee, as the case
may be, for expenses reasonably incurred in respect of the breach or defect
giving rise to the purchase obligation under Section 2.03 or Section 2.04
of this Agreement that were included in the Purchase Price of the Mortgage
Loan, including any expenses arising out of the enforcement of the purchase
obligation;
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(ix) to reimburse the Trustee for expenses incurred pursuant to
Section 11.01(c) of this Agreement;
(x) to pay, or to reimburse the Master Servicer for advances in
respect of, expenses incurred in connection with any Mortgage Loan pursuant
to Section 3.15(b); and
(xi) to clear and terminate the Collection Account pursuant to
Section 10.01.
The Master Servicer shall keep and maintain separate accounting, on a
Mortgage Loan by Mortgage Loan basis, for the purpose of justifying any
withdrawal from the Collection Account, to the extent held by or on behalf of
it, pursuant to subclauses (ii), (iii), (iv), (v), (vi), (viii), (x) and (xi)
above. The Master Servicer shall provide written notification to the Trustee,
on or prior to the next succeeding Master Servicer Remittance Date, upon making
any withdrawals from the Collection Account pursuant to subclauses (vi) and
(vii) above.
(b) In addition to the foregoing, the Trustee shall be entitled to
withdraw amounts from the Distribution Account to transfer funds to the Expense
Account on each Distribution Date pursuant to Section 3.25(b) prior to any
payments pursuant to Section 4.01.
SECTION 3.12. Investment of Funds in the Collection Account, the Expense
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Account and the Distribution Account.
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(a) The Master Servicer may direct any depository institution maintaining
the Collection Account, the Expense Account and the Basis Risk Reserve Fund and
the Trustee may direct any depository institution maintaining the Distribution
Account (each, for purposes of this Section 3.12, an "Investment Account"), to
invest the funds in such Investment Account in one or more Permitted Investments
bearing interest or sold at a discount, and maturing, unless payable on demand,
(i) no later than the Business Day immediately preceding the date on which such
funds are required to be withdrawn from such account pursuant to this Agreement,
if a Person other than the Trustee is the obligor thereon, and (ii) no later
than the date on which such funds are required to be withdrawn from such account
pursuant to this Agreement, if the Trustee is the obligor thereon. All such
Permitted Investments shall be held to maturity, unless payable on demand. Any
investment of funds in an Investment Account shall be made in the name of the
Trustee (in its capacity as such) or in the name of a nominee of the Trustee.
The Trustee shall be entitled to sole possession (except with respect to
investment direction of funds held in the Collection Account, the Basis Risk
Reserve Fund and the Expense Account and any income or gain realized thereon)
over each such investment, and any certificate or other instrument evidencing
any such investment shall be delivered directly to the Trustee or its agent,
together with any document of transfer necessary to transfer title to such
investment to the Trustee or its nominee. In the event amounts on deposit in an
Investment Account are at any time invested in a Permitted Investment payable on
demand, the Trustee shall at the direction of the Master Servicer:
(x) consistent with any notice required to be given thereunder,
demand that payment thereon be made on the last day such
Permitted Investment may otherwise mature hereunder in an amount
equal to the lesser of (1) all amounts
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then payable thereunder and (2) the amount required to be
withdrawn on such date; and
(y) demand payment of all amounts due thereunder promptly upon
determination by a Responsible Officer of the Trustee that such
Permitted Investment would not constitute a Permitted Investment
in respect of funds thereafter on deposit in the Investment
Account.
(b) All income and gain realized from the investment of funds deposited in
the Collection Account and the Expense Account held by or on behalf of the
Master Servicer or the Trustee, shall be for the benefit of the Master Servicer
and shall be subject to its withdrawal in accordance with Section 3.11. The
Master Servicer shall deposit in the Collection Account, the Expense Account or
the Basis Risk Reserve Fund as applicable, the amount of any loss incurred in
respect of any such Permitted Investment made with funds in such accounts
immediately upon realization of such loss. All income and gain realized from
the investment of funds in the Distribution Account shall be for the benefit of
the Trustee. The Trustee shall deposit in the Distribution Account the amount
of any loss incurred on Permitted Investments in the Distribution Account.
(c) Except as otherwise expressly provided in this Agreement, if any
default occurs in the making of a payment due under any Permitted Investment, or
if a default occurs in any other performance required under any Permitted
Investment, the Trustee may and, subject to Section 8.01 and Section 8.02(a)(v),
upon the request of the Certificate Insurer or the Holders of Certificates
representing more than 50% of the Voting Rights allocated to any Class of
Certificates, shall take such action as may be appropriate to enforce such
payment or performance, including the institution and prosecution of appropriate
proceedings.
SECTION 3.13. Maintenance of Insurance.
------------------------
(a) The Master Servicer on behalf of the Trustee, as mortgagee, shall use
its reasonable efforts in accordance with the Servicing Standard to cause the
related Mortgagor to maintain for each Mortgage Loan (other than any Mortgage
Loan as to which the related Mortgaged Property has become an REO Property), and
if the Mortgagor does not so maintain, shall itself maintain (subject to the
provisions of this Agreement concerning Nonrecoverable Advances) to the extent
the Trustee as mortgagee has an insurable interest (A) fire and hazard insurance
with extended coverage on the related Mortgaged Property in an amount which is
at least equal to the lesser of (i) 100% of the then "full replacement cost" of
the improvements and equipment (excluding foundations, footings and excavation
costs), without deduction for physical depreciation, and (ii) the outstanding
principal balance of the related Mortgage Loan or such other amount as is
necessary to prevent any reduction in such policy by reason of the application
of co-insurance and to prevent the Trustee thereunder from being deemed to be a
co-insurer, and (B) such other insurance as provided in the related Mortgage
Loan. The Master Servicer shall maintain fire and hazard insurance from an
insurer having a General Policy Rating of A or better in Best's Key Rating Guide
(a "Qualified Insurer") with extended coverage on each REO Property in an amount
which is at least equal to the lesser of (i) 100% of the then "full replacement
cost" of the improvements which are a part of such property or (ii) the
outstanding principal balance of the related Mortgage Loan at the time it became
an REO Property plus accrued
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interest at the Mortgage Rate and related Servicing Advances. The Master
Servicer shall maintain, from a Qualified Insurer, with respect to each REO
Property such other insurance as provided in the related Mortgage Loan. Any
amounts collected by the Master Servicer under any such policies (other than
amounts to be applied to the restoration and repair of the related Mortgaged
Property or amounts to be released to the Mortgagor in accordance with the terms
of the related Mortgage) shall be deposited into the Collection Account pursuant
to Section 3.10(a), subject to withdrawal pursuant to Section 3.11. Any cost
incurred by the Master Servicer in maintaining any such insurance shall not, for
the purpose of calculating distributions to Certificateholders, be added to the
unpaid principal balance of the related Mortgage Loan, notwithstanding that the
terms of such Mortgage Loan so permit. It is understood and agreed that no
earthquake or other additional insurance other than flood insurance is to be
required of any Mortgagor or to be maintained by the Master Servicer other than
pursuant to the terms of the related Mortgage, Mortgage Note or other Mortgage
Loan documents and pursuant to such applicable laws and regulations as shall at
any time be in force and as shall require such additional insurance. If the
Mortgaged Property is located in a federally designated special flood hazard
area, the Master Servicer will use its reasonable efforts in accordance with the
Servicing Standard to cause the related Mortgagor to maintain or will itself
obtain (subject to the provisions of this Agreement concerning Nonrecoverable
Advances) flood insurance in respect thereof. Such flood insurance shall be in
an amount equal to the lesser of (i) the unpaid principal balance of the related
Mortgage Loan and (ii) the maximum amount of such insurance required by the
terms of the related Mortgage and as is available for the related property under
the national flood insurance program (assuming that the area in which such
property is located is participating in such program). If an REO Property is
located in a federally designated special flood hazard area, the Master Servicer
will obtain flood insurance in respect thereof providing substantially the same
coverage as described in the preceding sentences. If at any time during the term
of this Agreement a recovery under a flood or fire and hazard insurance policy
in respect of an REO Property is not available but would have been available if
such insurance were maintained thereon in accordance with the standards applied
to Mortgaged Properties described herein, the Master Servicer shall either (i)
immediately deposit into the Collection Account from its own funds the amount
that would have been recovered or (ii) apply to the restoration and repair of
the property from its own funds the amount that would have been recovered, if
such application would be consistent with the servicing standard set forth in
Section 3.01; provided, however, that the Master Servicer shall not
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be responsible for any shortfall in insurance proceeds resulting from an
insurer's refusal or inability to pay a claim. Costs of the Master Servicer of
maintaining insurance policies pursuant to this Section 3.13 shall be paid by
the Master Servicer as a Servicing Advance and shall be reimbursable to the
Master Servicer.
The Master Servicer agrees to prepare and present, on behalf of itself, the
Trustee, the Certificate Insurer and the Certificateholders, claims under each
related insurance policy maintained pursuant to this Section 3.13 in a timely
fashion in accordance with the terms of such policy and to take such reasonable
steps as are necessary to receive payment or to permit recovery thereunder.
The Master Servicer shall require that all insurance policies required
hereunder shall name the Trustee or the Master Servicer, on behalf of the
Trustee as the mortgagee, as loss payee and that all such insurance policies
require that 30 days' notice be given to the Master Servicer before termination
to the extent required by the related Mortgage, Mortgage Note, or other Mortgage
Loan documents.
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(b)(I) If the Master Servicer obtains and maintains a blanket insurance
policy with a Qualified Insurer at its own expense insuring against fire and
hazard losses or other required insurance on all of the Mortgage Loans, it shall
conclusively be deemed to have satisfied its obligations concerning the
maintenance of such insurance coverage set forth in Section 3.13(a), it being
understood and agreed that such policy may contain a deductible clause, in which
case the Master Servicer shall, in the event that (i) there shall not have been
maintained on one or more of the related Mortgaged Properties a policy otherwise
complying with the provisions of Section 3.13(a), and (ii) there shall have been
one or more losses which would have been covered by such a policy had it been
maintained, immediately deposit into the Collection Account from its own funds
the amount not otherwise payable under the blanket policy because of such
deductible clause. In connection with its activities as Master Servicer
hereunder, the Master Servicer agrees to prepare and present, on behalf of
itself, the Trustee, the Certificate Insurer and Certificateholders, claims
under any such blanket policy which it maintains in a timely fashion in
accordance with the terms of such policy and to take such reasonable steps as
are necessary to receive payment or permit recovery thereunder.
(II) If the Master Servicer causes any Mortgaged Property or REO Property
to be covered by a master force placed insurance policy, which policy is issued
by a Qualified Insurer and provides no less coverage in scope and amount for
such Mortgaged Property or REO Mortgaged Property than the insurance required to
be maintained pursuant to Section 3.13(a), the Master Servicer shall
conclusively be deemed to have satisfied its obligations to maintain insurance
pursuant to Section 3.13(a). Such policy may contain a deductible clause, in
which case the Master Servicer shall, in the event that (i) there shall not have
been maintained on the related Mortgaged Property or REO Property a policy
otherwise complying with the provisions of Section 3.13(a), and (ii) there shall
have been one or more losses which would have been covered by such a policy had
it been maintained, immediately deposit into the Collection Account from its own
funds the amount not otherwise payable under such policy because of such
deductible.
SECTION 3.14. Due-on-Sale Clauses; Assumption and Substitution Agreements.
-----------------------------------------------------------
When a Mortgaged Property has been or is about to be conveyed by the
Mortgagor, the Master Servicer shall, to the extent it has knowledge of such
conveyance or prospective conveyance, exercise its rights to accelerate the
maturity of the related Mortgage Loan under any "due-on-sale" clause contained
in the related Mortgage or Mortgage Note; provided, however, that the Master
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Servicer shall not exercise any such right if the "due-on-sale" clause, in the
reasonable belief of the Master Servicer, is not enforceable under applicable
law. An Opinion of Counsel at the expense of the Master Servicer delivered to
the Trustee, the Depositor and the Certificate Insurer to the foregoing effect
shall conclusively establish the reasonableness of such belief. In such event,
the Master Servicer shall make reasonable efforts to enter into an assumption
and modification agreement with the Person to whom such property has been or is
about to be conveyed, pursuant to which such Person becomes liable under the
Mortgage Note and, unless prohibited by applicable law or the Mortgage, the
Mortgagor remains liable thereon. If the foregoing is not permitted under
applicable law, the Master Servicer is authorized to enter into a substitution
of liability agreement with such Person, pursuant to which the original
Mortgagor is released from liability and such Person is substituted as Mortgagor
and becomes liable under the Mortgage Note; provided, however, that such person
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satisfies the underwriting criteria of the Master Servicer and has a credit risk
rating at least equal to that of the original Mortgagor and
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that to the extent any such substitution of liability agreement would be
delivered by the Master Servicer outside of its usual procedures for mortgage
loans held in its own portfolio the Master Servicer shall, prior to executing
and delivering such agreement, obtain the prior written consent of the
Certificate Insurer. The Mortgage Loan, as assumed, shall conform in all
respects to the requirements, representations and warranties of this Agreement.
The Master Servicer shall notify the Trustee that any such assumption or
substitution agreement has been completed by forwarding to the Trustee the
original copy of such assumption or substitution agreement (indicating the
Mortgage File to which it relates) which copy shall be added by the Trustee to
the related Mortgage File and which shall, for all purposes, be considered a
part of such Mortgage File to the same extent as all other documents and
instruments constituting a part thereof. The Master Servicer shall be
responsible for recording any such assumption or substitution agreements. In
connection with any such assumption or substitution agreement, the Monthly
Payment on the related Mortgage Loan shall not be changed but shall remain as in
effect immediately prior to the assumption or substitution, the stated maturity
or outstanding principal amount of such Mortgage Loan shall not be changed nor
shall any required monthly payments of principal or interest be deferred or
forgiven. Any fee collected by the Master Servicer or the Sub-Servicer for
consenting to any such conveyance or entering into an assumption or substitution
agreement shall be retained by or paid to the Master Servicer as additional
servicing compensation.
Notwithstanding the foregoing paragraph or any other provision of this
Agreement, the Master Servicer shall not be deemed to be in default, breach or
any other violation of its obligations hereunder by reason of any assumption of
a Mortgage Loan by operation of law or any assumption which the Master Servicer
may be restricted by law from preventing, for any reason whatsoever.
SECTION 3.15. Realization Upon Defaulted Mortgage Loans.
-----------------------------------------
(a) The Master Servicer shall use its best efforts, consistent with the
Servicing Standard set forth in Section 3.01, to foreclose upon or otherwise
comparably convert the ownership of properties securing such of the Mortgage
Loans as come into and continue in default and as to which no satisfactory
arrangements can be made for collection of delinquent payments pursuant to
Section 3.02. The Master Servicer shall be responsible for all costs and
expenses incurred by it in any such proceedings; provided, however, that such
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costs and expenses will be recoverable as Servicing Advances by the Master
Servicer as contemplated in Section 3.11 and 3.23. The foregoing is subject to
the provision that, in any case in which Mortgaged Property shall have suffered
damage from an Uninsured Cause, the Master Servicer shall not be required to
expend its own funds toward the restoration of such property unless it shall
determine in its discretion that such restoration will increase the proceeds of
liquidation of the related Mortgage Loan after reimbursement to itself for such
expenses.
(b) Notwithstanding the foregoing provisions of this Section 3.15 or any
other provision of this Agreement, with respect to any Mortgage Loan as to which
the Master Servicer has received actual notice of, or has actual knowledge of,
the presence of any toxic or hazardous substance on the related Mortgaged
Property, the Master Servicer shall not, on behalf of the Trust Fund, either (i)
obtain title to such Mortgaged Property as a result of or in lieu of foreclosure
or otherwise, or (ii) otherwise acquire possession of, or take any other action
with respect to, such Mortgaged Property, if, as a result
69
of any such action, the Trustee, the Certificateholders or the Certificate
Insurer would be considered to hold title to, to be a "mortgagee-in-possession"
of, or to be an "owner" or "operator" of such Mortgaged Property within the
meaning of the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended from time to time, or any comparable law, unless the
Master Servicer has also previously determined, based on its reasonable judgment
and a report prepared by a Person who regularly conducts environmental audits
using customary industry standards, in the exercise of prudent judgment, that:
(1) such Mortgaged Property is in compliance with applicable
environmental laws or, if not, that it would be in the best
economic interest of the Trust Fund to take such actions as are
necessary to bring the Mortgaged Property into compliance
therewith; and
(2) there are no circumstances present at such Mortgaged Property
relating to the use, management or disposal of any hazardous
substances, hazardous materials, hazardous wastes or petroleum-
based materials for which investigation, testing, monitoring,
containment, clean-up or remediation could be required under any
federal, state or local law or regulation, or that if any such
materials are present for which such action could be required,
that it would be in the best economic interest of the Trust Fund
to take such actions with respect to the affected Mortgaged
Property.
The cost of the environmental audit report contemplated by this Section
3.15 shall be advanced by the Master Servicer, subject to the Master Servicer's
right to be reimbursed therefor from the Collection Account as provided in
Section 3.11(x), such right of reimbursement being prior to the rights of
Certificateholders to receive any amount in the Collection Account received in
respect of the affected Mortgage Loan or other Mortgage Loans.
If the Master Servicer determines, as described above, that it is in the
best economic interest of the Trust Fund to take such actions as are necessary
to bring any such Mortgaged Property into compliance with applicable
environmental laws, or to take such action with respect to the containment,
clean-up or remediation of hazardous substances, hazardous materials, hazardous
wastes, or petroleum-based materials affecting any such Mortgaged Property, then
the Master Servicer shall take such action as it deems to be in the best
economic interest of such Trust Fund. The cost of any such compliance,
containment, cleanup or remediation shall be advanced by the Master Servicer,
subject to the Master Servicer's right to be reimbursed therefor from the
Collection Account as provided in Section 3.11(x), such right of reimbursement
being prior to the rights of Certificateholders to receive any amount in the
Collection Account received in respect of the affected Mortgage Loan or other
Mortgage Loans.
(c) The Master Servicer may at its option purchase from the Trust Fund any
Mortgage Loan that is 90 days or more delinquent on a contractual basis, which
the Master Servicer determines in good faith will otherwise become subject to
foreclosure proceedings (evidence of such determination to be delivered in
writing to the Trustee and the Certificate Insurer prior to purchase), at a
price equal to the greater of fair market value of such Mortgage Loan and the
Purchase Price;
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provided that, unless otherwise consented to by the Certificate Insurer,
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the Master Servicer may purchase such Mortgage Loans only in the sequence in
which such Mortgage Loans first became delinquent by 90 days, and shall give
prompt notice of each such purchase to the Certificate Insurer and each Rating
Agency; and, provided further that, in the event that the aggregate Stated
Principal Balance of all Mortgage Loans previously repurchased pursuant to this
Section 3.15(c) exceeds 1% of the aggregate principal balance of the Original
Mortgage Loans as of the Cut-off Date, the Master Servicer shall not repurchase
any additional such Mortgage Loans pursuant to this Section 3.15(c) without the
consent of the Certificate Insurer. The Purchase Price for any Mortgage Loan
purchased hereunder shall be deposited in the Collection Account, and the
Trustee, upon receipt of written certification from the Master Servicer of such
deposit in the form of Exhibit E, shall release or cause to be released to the
Master Servicer the related Mortgage File and shall execute and deliver such
instruments of transfer or assignment, in each case without recourse, as the
Master Servicer shall furnish and as shall be necessary to vest in the Master
Servicer title to any Mortgage Loan released pursuant hereto.
(d) Proceeds received in connection with any Final Recovery Determination,
as well as any recovery resulting from a partial collection of Insurance
Proceeds or Liquidation Proceeds, in respect of any Mortgage Loan, will be
applied in the following order of priority: first, to reimburse the Master
Servicer or any Sub-Servicer for any related unreimbursed Servicing Advances and
Monthly Advances, pursuant to Section 3.11(ii) or (iii); second, to accrued and
unpaid interest on the Mortgage Loan, to the date of the Final Recovery
Determination, or to the Due Date prior to the Distribution Date on which such
amounts are to be distributed if not in connection with a Final Recovery
Determination; and third, as a recovery of principal of the Mortgage Loan. If
the amount of the recovery so allocated to interest is less than the full amount
of accrued and unpaid interest due on such Mortgage Loan, the amount of such
recovery will be allocated by the Master Servicer as follows: first, to unpaid
Servicing Fees; and second, to the balance of the interest then due and owing.
The portion of the recovery so allocated to unpaid Servicing Fees shall be
reimbursed to the Master Servicer or any Sub-Servicer pursuant to Section
3.11(iii). The portion of the recovery allocated to interest (net of unpaid
Servicing Fees) and the portion of the recovery allocated to principal of the
Mortgage Loan shall be applied as follows: first, to reimburse the Master
Servicer for any related unreimbursed Monthly Advances in accordance with
Section 3.11(ii), and second, as part of the amounts to be transferred to the
Distribution Account in accordance with Section 3.10(b).
SECTION 3.16. Trustee to Cooperate; Release of Files.
--------------------------------------
(a) Upon the payment in full of any Mortgage Loan (including any
liquidation of such Mortgage Loan through foreclosure or otherwise, or the
receipt by the Master Servicer of a notification that payment in full will be
escrowed in a manner customary for such purposes), the Master Servicer shall
deliver to the Trustee a completed "Request for Release of Documents" in the
form of Exhibit E. Upon receipt of such Request for Release of Documents, the
Trustee shall promptly release the related Mortgage File, in trust to (i) the
Master Servicer, or (ii) such other party identified in the related Request for
Release. Upon any such payment in full, or the receipt of such notification
that such funds have been placed in escrow, the Master Servicer shall direct the
Trustee in writing to execute an instrument of satisfaction (or assignment of
Mortgage without recourse) regarding the Mortgaged Property relating to such
Mortgage, which instrument of satisfaction or assignment, as the
71
case may be, shall be delivered to the Person or Persons entitled thereto
against receipt therefor of payment in full, it being understood and agreed that
no expense incurred in connection with such instrument of satisfaction or
assignment, as the case may be, shall be chargeable to the Collection Account.
In lieu of executing any such satisfaction or assignment, as the case may be,
the Master Servicer may prepare and submit to the Trustee a satisfaction (or
assignment without recourse, if requested by the Person or Persons entitled
thereto) in form for execution by the Trustee with all requisite information
completed by the Master Servicer; in such event, the Trustee shall execute and
acknowledge such satisfaction or assignment, as the case may be, and deliver the
same with the related Mortgage File, as aforesaid.
(b) From time to time and as appropriate in the servicing of any Mortgage
Loan, including, without limitation, foreclosure or other comparable conversion
of a Mortgage Loan or collection under any insurance policy relating to a
Mortgage Loan, the Trustee shall (except in the case of the payment or
liquidation pursuant to which the related Mortgage File is released to an escrow
agent or an employee, agent or attorney of the Trustee), upon written request of
the Master Servicer and delivery to the Trustee of a Request for Release of
Documents in the form of Exhibit E signed by a Servicing Officer, release the
related Mortgage File to the Master Servicer and shall execute such documents as
shall be necessary to the prosecution of any such proceedings, including,
without limitation, an assignment without recourse of the related Mortgage to
the Master Servicer. Such receipt shall obligate the Master Servicer to return
the Mortgage File to the Trustee when the need therefor by the Master Servicer
no longer exists unless the Mortgage Loan shall be liquidated, in which case,
upon receipt of a Request for Release evidencing such liquidation, the receipt
shall be released by the Trustee to the Master Servicer.
(c) The Master Servicer shall have the right to accept applications of
Mortgagors for consent to (i) partial releases of Mortgages, (ii) alterations,
(iii) removal, demolition or division of properties subject to Mortgages and
(iv) second mortgage subordination agreements. No application for approval
shall be considered by the Master Servicer unless: (w) it has received an
Opinion of Counsel, addressed to the Certificate Insurer and the Trustee (which
opinion shall not be an expense of the Trust Fund or the Certificate Insurer)
that such sale, disposition, substitution, acquisition or contribution will not
affect adversely the status of the Trust Fund as a REMIC or cause the Trust Fund
to be subject to a tax on "prohibited transactions" or "contributions" pursuant
to the REMIC Provisions; (x) the provisions of the related Note and Mortgage
have been compiled with; (y) the Loan-to-Value Ratio and debt-to-income ratio
after any release does not exceed the maximum Loan-to-Value Ratio and debt-to-
income ratio established in accordance with the underwriting standards of the
Mortgage Loans; and (z) the lien priority of the related Mortgage is not
affected. Upon receipt by the Trustee of a Servicing officer's certificate
setting forth the action proposed to be taken in respect of a particular
Mortgage Loan and certifying that the criteria set forth in the immediately
preceding sentence have been satisfied, the Trustee shall execute and deliver to
the Master Servicer the consent or partial release so requested by the Master
Server. A proposed form of consent or partial release, as the case may be,
shall accompany any Servicing Officer's certificate delivered by the Master
Server pursuant to this paragraph. The Master Servicer shall notify the
Certificate Insurer and the Rating Agencies if an application is approved under
clause (y) above without approval in writing by the Certificate Insurer.
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SECTION 3.17. Servicing Compensation.
----------------------
As compensation for its activities hereunder, the Master Servicer shall be
entitled to retain the amount of the Servicing Fee with respect to each Mortgage
Loan subject to Section 3.24. The Master Servicer shall be entitled to retain
fees, bad check charges, assumption fees, modification or extension fees, late
payment charges, or any other service-related fees, Insurance Proceeds and
Liquidation Proceeds not required to be deposited in the Collection Account
pursuant to Section 3.10(a)(iii) and similar items, to the extent collected from
Mortgagors.
SECTION 3.18. Annual Statement as to Compliance.
---------------------------------
The Master Servicer, at its own expense, will deliver to the Trustee, the
Depositor, the Certificate Insurer and the Rating Agencies, not later than 90
days following the end of the fiscal year of the Master Servicer which as of the
Startup Day ends on the last day of December, commencing in 1999 (to cover the
fiscal year 1998), an Officer's Certificate stating, as to each signer thereof,
that (i) a review of the activities of the Master Servicer during such preceding
fiscal year and of performance under this Agreement has been made under such
officers' supervision, (ii) to the best of such officers' knowledge, based on
such review, the Master Servicer has fulfilled all its obligations under this
Agreement for such year, or, if there has been a default in the fulfillment of
all such obligations, specifying each such default known to such officers and
the nature and status thereof including the steps being taken by the Master
Servicer to remedy such default, and (iii) the Master Servicer's short-term
commercial paper rating.
SECTION 3.19. Annual Independent Certified Public Accountants' Reports.
--------------------------------------------------------
Not later than 90 days following the end of each fiscal year of the Master
Servicer, the Master Servicer commencing in 1999 (to cover the fiscal year
1998), at its expense, shall cause a nationally recognized firm of independent
certified public accountants to furnish to the Master Servicer a report stating
that (i) it has obtained a letter of representation regarding certain matters
from the management of the Master Servicer which includes an assertion that the
Master Servicer has complied with certain minimum residential mortgage loan
servicing standards, identified in either the Uniform Single Attestation Program
for Mortgage Bankers established by the Mortgage Bankers Association of America
or the Audit Program for Mortgages serviced by FHLMC, with respect to the
servicing of residential mortgage loans during the most recently completed
fiscal year and (ii) on the basis of an examination conducted by such firm in
accordance with standards established by the American Institute of Certified
Public Accountants, such representation is fairly stated in all material
respects, subject to such exceptions and other qualifications that may be
appropriate. In rendering its report such firm may rely, as to matters relating
to the direct servicing of residential mortgage loans by Sub-Servicers, upon
comparable reports of firms of independent certified public accountants rendered
on the basis of examinations conducted in accordance with the same standards
(rendered within one year of such report) with respect to those Sub-Servicers.
Immediately upon receipt of such report, the Master Servicer shall furnish a
copy of such report to the Trustee, the Certificate Insurer, the Depositor and
each Rating Agency. Copies of such statement shall be provided by the Trustee
to any
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Certificateholder upon request at the Master Servicer's expense, provided
that such statement is delivered by the Master Servicer to the Trustee.
SECTION 3.20. Access to Certain Documentation and Information Regarding
---------------------------------------------------------
the Mortgage Loans.
------------------
The Master Servicer shall provide to the Trustee, the Certificate Insurer
and the supervisory agents and examiners of each of the foregoing (which, in the
case of supervisory agents and examiners, may be required by applicable state
and federal regulations) access to the documentation regarding the Mortgage
Loans, such access being afforded without charge but only upon reasonable
request and during normal business hours at the offices of the Master Servicer
designated by it.
SECTION 3.21. Assignment and Delegation by Master Servicer; Resignation of
------------------------------------------------------------
Master Servicer.
---------------
(a) The Master Servicer may assign its rights and delegate its duties and
obligations under this Agreement in connection with the sale or transfer of a
substantial portion of its mortgage servicing or asset management portfolio with
the written consent of the Certificate Insurer, provided that: (i) the purchaser
or transferee accepting such assignment and delegation (A) shall be satisfactory
to the Trustee and the Certificate Insurer, (B) shall be (I) an established
mortgage finance institution, bank or mortgage servicing institution, organized
and doing business under the laws of any state of the United States or the
District of Columbia, authorized under such laws to perform the duties of a
servicer of mortgage loans or (II) a Person resulting from a merger,
consolidation or succession that is permitted under Section 6.02, and (C) shall
execute and deliver to the Trustee and the Certificate Insurer an agreement, in
form and substance reasonably satisfactory to the Trustee and the Certificate
Insurer, which contains an assumption by such Person of the due and punctual
performance and observance of each covenant and condition to be performed or
observed by the Master Servicer under this Agreement from and after the date of
such agreement; (ii) as evidenced by a letter from each Rating Agency delivered
to the Trustee and the Certificate Insurer, each Rating Agency's rating or
ratings of the Certificates in effect immediately prior to such assignment and
delegation will not be qualified, downgraded or withdrawn as a result of such
assignment and delegation; (iii) the Master Servicer shall not be released from
its obligations under this Agreement that arose prior to the effective date of
such assignment and delegation under this Section 3.21(a); and (iv) the rate at
which the Servicing Fee (or any component thereof) is calculated shall not
exceed the rate in effect prior to such assignment and delegation. Upon
acceptance of such assignment and delegation, the purchaser or transferee shall
be the successor Master Servicer hereunder.
(b) The Trustee and any successor Master Servicer shall take such action,
consistent with this Agreement, as shall be necessary to effectuate any such
succession, including the notification to all Mortgagors of the transfer of
servicing. The Master Servicer agrees to cooperate with the Trustee and any
successor Master Servicer in effecting the termination of the Master Servicer's
servicing responsibilities and rights hereunder and shall promptly provide the
Trustee or such successor Master Servicer, as applicable, all documents and
records reasonably requested by it to enable it to assume the Master Servicer's
functions hereunder and shall promptly also transfer to the Trustee or such
successor Master Servicer, as applicable, all amounts which then have been or
should have been
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deposited in the Collection Account by the Master Servicer or which are
thereafter received with respect to the Mortgage Loans. Neither the Trustee
nor any other successor Master Servicer shall be held liable by reason of any
failure to make, or any delay in making, any distribution hereunder or any
portion thereof caused by (i) the failure of the Master 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 Master
Servicer. Subject to subsection (c), if the Master Servicer is replaced
hereunder, the Master Servicer agrees to reimburse the Trust Fund, the
Certificateholders and the Certificate Insurer for the costs and expenses
associated with the transfer of servicing to the replacement Master Servicer.
(c) Any successor Master Servicer (other than the Trustee), upon assuming
the duties of Master Servicer hereunder, shall immediately make all required
Monthly Advances and deposit them to the Collection Account which the Master
Servicer has theretofore failed to remit with respect to the Mortgage Loans;
provided, however, that if the Trustee is acting as successor Master Servicer,
-------- -------
the Trustee shall only be required to make Monthly Advances (including the
Monthly Advances described in this clause (c)) if, in the Trustee's reasonable
good faith judgment, such Monthly Advances will ultimately be recoverable from
the Mortgage Loans.
(d) The successor Master Servicer shall give notice to the Certificate
Insurer, to the Mortgagors, to ▇▇▇▇▇'▇ and to Standard & Poor's of the transfer
of the servicing to the successor Master Servicer.
SECTION 3.22. Inspections by the Trustee and the Certificate Insurer;
-------------------------------------------------------
Errors and Omissions Insurance.
------------------------------
(a) Upon reasonable notice, the Trustee, the Certificate Insurer or any
agents thereof may inspect the Master Servicer's servicing operations and
discuss the servicing operations of the Master Servicer during the Master
Servicer's normal business hours with any of its officers or directors;
provided, however, that the costs and expenses incurred by the Master Servicer
-------- -------
or its agents or representatives in connection with any such examinations or
discussions shall be paid by the Master Servicer.
(b) The Master Servicer shall keep in force during the term of this
Agreement a policy or policies of insurance covering errors and omissions for
failure in the performance of the Master Servicer's obligations under this
Agreement, which policy or policies shall be in such form and amount that would
meet the requirements of FNMA or FHLMC if it were the purchaser of the Mortgage
Loans, unless the Master Servicer has obtained a waiver of such requirements
from FNMA or FHLMC. The Master Servicer shall also maintain a fidelity bond in
the form and amount that would meet the requirements from FNMA or FHLMC, unless
the Master Servicer has obtained a waiver of such requirements from FNMA or
FHLMC. The Master Servicer shall be deemed to have complied with this provision
if a Master Servicer Affiliate has such errors and omissions policy and fidelity
bond coverage and, by the terms of such insurance policy and fidelity bond, the
coverage afforded thereunder extends to the Master Servicer. Any such errors
and omissions policy or fidelity bond shall by its terms not be cancelable
without thirty days' prior written notice to the Trustee. The Master Servicer
shall also cause each Sub-Servicer to maintain a policy of insurance covering
errors
75
and omissions and a fidelity bond which would meet such requirements. Upon the
request of the Trustee or the Certificate Insurer, the Master Servicer shall
cause to be delivered to such requesting Person a certified true copy of such
fidelity bond or errors and omission policy.
SECTION 3.23. Title, Management and Disposition of REO Property.
-------------------------------------------------
(a) The deed or certificate of sale of any REO Property shall be taken in
the name of the Trustee, or its nominee, on behalf of the Certificateholders and
the Certificate Insurer. The Master Servicer, on behalf of the Trust Fund,
shall either sell any REO Property not later than the latest of (i) three years
following the end of the calendar year in which the acquisition occurred, (ii)
the date to which the Internal Revenue Service grants an extension of time to
sell such property or is deemed to have granted an such an extension under
applicable Treasury regulations, and (iii) a date later than those described in
clauses (i) and (ii) if the Master Servicer obtains an Opinion of Counsel (at
the expense of the Trust Fund), addressed to the Trustee, the Depositor and the
Certificate Insurer, to the effect that the holding by the Trust Fund of such
REO Property for a period later than that described in clauses (i) and/or (ii)
will not result in the imposition on the Trust Fund of taxes on "prohibited
transactions" thereof, as defined in Section 860F of the Code, or cause the
Trust Fund to fail to qualify as a REMIC under Federal law at any time that any
Certificates are outstanding. The Master Servicer shall manage, consent,
protect and operate each REO Property for the Certificateholders solely for the
purpose of its prompt disposition and sale in a manner which does not cause such
REO Property to fail to qualify as "foreclosure property" within the meaning of
Section 860G(a)(8) of the Code or result in the receipt by the Trust Fund of
any "income from non-permitted assets" within the meaning of Section
860F(a)(2)(B) of the Code, or any "net income from foreclosure property" which
is subject to taxation under the REMIC Provisions.
(b) The Master Servicer shall segregate and hold all funds collected and
received in connection with the operation of any REO Property separate and apart
from its own funds and general assets and shall establish and maintain with
respect to REO Properties an account held in trust for the Trustee for the
benefit of the Certificateholders and the Certificate Insurer (the "REO
Account"), which shall be an Eligible Account. The Master Servicer shall be
permitted to allow the Collection Account to serve as the REO Account, subject
to separate ledgers for each REO Property. The Master Servicer shall be
entitled to retain or withdraw any interest income paid on funds deposited in
the REO Account.
(c) The Master Servicer shall have full power and authority, subject only
to the specific requirements and prohibitions of this Agreement, to do any and
all things in connection with any REO Property as are consistent with the manner
in which the Master Servicer manages and operates similar property owned by the
Master Servicer or any of its Affiliates, all on such terms and for such period
as the Master Servicer deems to be in the best interests of Certificateholders.
In connection therewith, the Master Servicer shall deposit, or cause to be
deposited, on a daily basis in the REO Account all revenues received by it with
respect to an REO Property and shall withdraw therefrom funds necessary for the
proper operation, management and maintenance of such REO Property including,
without limitation:
(i) all insurance premiums due and payable in respect of such REO
Property;
76
(ii) all real estate taxes and assessments in respect of such REO
Property that may result in the imposition of a lien thereon; and
(iii) all costs and expenses necessary to maintain such REO
Property.
To the extent that amounts on deposit in the REO Account with respect to an REO
Property are insufficient for the purposes set forth in clauses (i) through
(iii) above with respect to such REO Property, the Master Servicer shall advance
from its own funds such amount as is necessary for such purposes if, but only
if, the Master Servicer would make such advances if the Master Servicer owned
the REO Property and if in the Master Servicer's judgment, the payment of such
amounts will be recoverable from the rental or sale of the REO Property.
Notwithstanding the foregoing, the Master Servicer shall not:
(i) permit the Trust Fund to enter into, renew or extend any New
Lease with respect to any REO Property, if the New Lease by its terms will
give rise to any income that does not constitute Rents from Real Property;
(ii) permit any amount to be received or accrued under any New Lease
other than amounts that will constitute Rents from Real Property;
(iii) authorize or permit any construction on any REO Property,
other than the completion of a building or other improvement thereon, and
then only if more than ten percent of the construction of such building or
other improvement was completed before default on the related Mortgage Loan
became imminent, all within the meaning of Section 856(e)(4)(B) of the
Code; or
(iv) allow any Person to Directly Operate any REO Property on any
date more than 90 days after its date of acquisition by the Trust Fund;
unless, in any such case, the Master Servicer has obtained an Opinion of
Counsel, provided to the Trustee and the Certificate Insurer, to the effect that
such action will not cause such REO Property to fail to qualify as "foreclosure
property" within the meaning of Section 860G(a)(8) of the Code at any time that
it is held by the Trust Fund, in which case the Master Servicer may take such
actions as are specified in such Opinion of Counsel.
The Master Servicer may contract with any Independent Contractor for the
operation and management of any REO Property, provided that:
(i) the terms and conditions of any such contract shall not be
inconsistent herewith;
(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
77
and management of such REO Property, including those listed above and
remit all related revenues (net of such costs and expenses) to the Master
Servicer as soon as practicable, but in no event later than thirty days
following the receipt thereof by such Independent Contractor;
(iii) none of the provisions of this Section 3.23(c) relating to
any such contract or to actions taken through any such Independent
Contractor shall be deemed to relieve the Master Servicer of any of its
duties and obligations to the Trustee on behalf of the Certificateholders
and the Certificate Insurer with respect to the operation and management of
any such REO Property; and
(iv) the Master 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 REO Property.
The Master 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 Master Servicer by such
Independent Contractor, and nothing in this Agreement shall be deemed to limit
or modify such indemnification. The Master Servicer shall be solely liable for
all fees owed by it to any such Independent Contractor, irrespective of whether
the Master Servicer's compensation pursuant to Section 3.17 is sufficient to
pay such fees.
(d) In addition to the withdrawals permitted under Section 3.23(c), the
Master Servicer may from time to time make withdrawals from the REO Account for
any REO Property: (i) to pay itself or any Sub-Servicer unpaid Servicing Fees in
respect of the related Mortgage Loan; and (ii) to reimburse itself or any Sub-
Servicer for unreimbursed Servicing Advances and Monthly Advances made in
respect of such REO Property or the related Mortgage Loan. On the Master
Servicer Remittance Date, the Master Servicer shall withdraw from each REO
Account maintained by it and deposit into the Distribution Account in accordance
with Section 3.10(d)(ii), for distribution on the related Distribution Date in
accordance with Section 4.01, the income from the related REO Property received
during the prior calendar month, net of any withdrawals made pursuant to Section
3.23(c) or this Section 3.23(d).
(e) Subject to the time constraints set forth in Section 3.23(a), each REO
Disposition shall be carried out by the Master Servicer at such price and upon
such terms and conditions as the Master Servicer shall deem necessary or
advisable, as shall be normal and usual in its general servicing activities and
as are in accordance with general FNMA guidelines.
(f) The proceeds from the REO Disposition, net of any amount required by
law to be remitted to the Mortgagor under the related Mortgage Loan and net of
any payment or reimbursement to the Master Servicer or any Sub-Servicer as
provided above, shall be deposited in the Distribution Account in accordance
with Section 3.10(d)(ii) on the Master Servicer Remittance Date in the month
following the receipt thereof for distribution on the related Distribution Date
in accordance with Section 4.01. Any REO Disposition shall be for cash only
(unless changes in the REMIC Provisions
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made subsequent to the Startup Day allow a sale for other consideration and the
Certificate Insurer consents thereto).
(g) On or before February 28 of each year, the Master Servicer shall file
information returns with respect to the receipt of mortgage interest received in
a trade or business, reports of foreclosures and abandonments of any Mortgaged
Property and cancellation of indebtedness income with respect to any Mortgaged
Property as required by Sections 6050H, 6050J and 6050P of the Code,
respectively. Such reports shall be in form and substance sufficient to meet
the reporting requirements imposed by such Sections 6050H, 6050J and 6050P of
the Code and a copy thereof shall be sent to the Trustee promptly after the
filing thereof.
SECTION 3.24. Obligations of the Master Servicer in Respect of Prepayment
-----------------------------------------------------------
Interest Shortfalls.
-------------------
If a Prepayment of a Mortgage Loan occurs during any Prepayment Period
which gives rise to a Prepayment Interest Shortfall, any difference between the
interest collected from the Mortgagor and the full month's interest at the
Mortgage Rate less the Servicing Fee (such difference, "Compensating Interest")
that is due shall be deposited by the Master Servicer to the extent of the
Servicing Fee to the Collection Account on or before noon New York time on the
related Master Servicer Remittance Date and shall be included in the monthly
remittance to be made available to the Trustee on such Master Servicer
Remittance Date. Compensating Interest for any Distribution Date shall be
limited to the Servicing Fee for such Distribution Date.
SECTION 3.25. Expense Account.
---------------
(a) The Trustee shall establish and maintain in its name, for the benefit
of the Trustee in trust for (1) the Certificateholders and (2) the Certificate
Insurer, the Expense Account. The Expense Account shall be an Eligible Account,
and funds on deposit therein shall be held separate and apart from, and shall
not be commingled with, any other moneys, including, without limitation, other
moneys of the Trustee held pursuant to this Agreement.
(b) On each Distribution Date, the Trustee shall withdraw from the
Distribution Account and deposit into the Expense Account an amount equal to the
Certificate Insurer Premium Amount for such Distribution Date.
(c) The Trustee shall make withdrawals from the Expense Account to pay the
Certificate Insurer Premium Amount on each Distribution Date.
(d) Funds in the Expense Account may be invested in Permitted Investments
in accordance with the provisions set forth in Section 3.12. Any earnings on
such amounts shall be payable to the Master Servicer as additional servicing
compensation. The Trustee shall give notice to the Depositor and the
Certificate Insurer of the location of the Expense Account on the Closing Date
and prior to any change thereof.
79
(e) Upon termination of the Trust Fund in accordance with Section 10.01,
any amounts remaining in the Expense Account following the payment of all unpaid
Certificate Insurer Premiums and any amounts due under the Insurance Agreement
shall be released to the Master Servicer as additional servicing compensation.
SECTION 3.26. Obligations of the Master Servicer in Respect of Mortgage
---------------------------------------------------------
Rates and Monthly Payments.
--------------------------
In the event that a shortfall in any collection on or liability with
respect to any Mortgage Loan results from or is attributable to adjustments to
Mortgage Rates, Monthly Payments or Stated Principal Balances that were made by
the Master Servicer in a manner not consistent with the terms of the related
Mortgage Note and this Agreement, the Master Servicer, upon discovery or receipt
of notice thereof, immediately shall deliver to the Trustee for deposit in the
Distribution Account from its own funds the amount of any such shortfall and
shall indemnify and hold harmless the Trust Fund, the Trustee, the Certificate
Insurer, the Depositor and any successor master servicer in respect of any such
liability. Such indemnities shall survive the termination or discharge of this
Agreement.
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ARTICLE IV
PAYMENTS TO CERTIFICATEHOLDERS
SECTION 4.01. Distributions.
-------------
(a) On each Distribution Date, the Trustee shall withdraw from the
Distribution Account to the extent of amounts on deposit therein an amount equal
to the Available Distribution Amounts (other than any amount in the Distribution
Account that was transferred from the Policy Payments Account to the
Distribution Account pursuant to Section 9.04), shall allocate such amounts to
the interests issued in respect of REMIC 1 and REMIC 2 in accordance with the
terms hereof and shall distribute to the Certificateholders the following
amounts (together with amounts withdrawn from the Basis Risk Reserve Fund
pursuant to Section 4.07 of this Agreement), in the following order of priority:
(i) to the Holders of the Class A Certificates an amount equal to
(A) the Interest Distribution Amount for such Distribution Date, plus (B)
any undistributed amount described in the immediately preceding clause
(i)(A) from any previous Distribution Date for which no Insurance Payment
has been previously paid to Holders of the Class A Certificates;
(ii) to the Holders of the Class A Certificates in an amount equal
to the Principal Distribution Amount (except for any portion thereof
consisting of any related Subordination Increase Amount or related Realized
Losses), applied to reduce the Certificate Principal Balances of the Class
A Certificates until the aggregate Certificate Principal Balance of the
Class A Certificates is reduced to zero;
(iii) to the Holders of the Class A Certificates, payable from the
Net Monthly Excess Cashflow, the principal portion of any Realized Losses
incurred or deemed to have been incurred during the related Collection
Period on the Mortgage Loans;
(iv) to the Certificate Insurer, to reimburse the Certificate
Insurer for claims under the Policy, to the extent of Cumulative Insurance
Payments;
(v) to the Holders of the Class A Certificates, payable from the Net
Monthly Excess Cashflow remaining, an amount equal to the portion of the
Principal Distribution Amount consisting of any Subordination Increase
Amount;
(vi) to the Holders of the Class A Certificates, payable from the
Net Monthly Excess Cashflow remaining, an amount equal to any Relief Act
Interest Shortfalls that were allocated to such holders and therefore not
distributed pursuant to clause (i) above;
(vii) to the Holders of the Class A Certificates, payable from the
Net Monthly Excess Cashflow remaining, an amount equal to any of the
outstanding amount of REMIC Basis Risk Shortfall for such Distribution
Date;
81
(viii) to the Basis Risk Reserve Fund, payable from the Net
Monthly Excess Cashflow remaining, and then to the Holders of the Class A
Certificates, payable from the Basis Risk Reserve Fund (including from any
amounts on deposit in such fund that were so deposited on prior
Distribution Dates), in an amount equal to the unpaid amount of any
outstanding Excess Basis Risk Shortfall such Distribution Date;
(ix) to the Certificate Insurer, any amounts remaining due to the
Insurer under the terms of the Insurance Agreement (other than those
attributable to Excess Bankruptcy Losses, Excess Fraud Losses and Excess
Special Hazard Losses);
(x) to the Basis Risk Reserve Fund in an amount equal to the
Required Reserve Fund Deposit;
(xi) to the Holders of the Class X Certificates, in an amount equal
to the Class X Distributable Amount;
(xii) to the Holders of the Class R Certificates, the balance, if
any, of the amount so withdrawn from the Distribution Account for such
Distribution Date, together with amounts withdrawn from the Basis Risk
Reserve Fund pursuant to Section 4.07(d) and distributable to the Class X
Certificates
(xiii) to the Holders of the Class R Certificates, any remaining
amounts.
Amounts deposited to the Basis Risk Reserve Fund pursuant to the preceding
clauses (viii) and (x) shall be deemed to have been distributed to the Class X
Certificateholders for applicable tax purposes.
All Realized Losses to be allocated to the Certificate Principal Balances
of the Class A Certificates on any Distribution Date shall be so allocated after
the actual distributions to be made on such date as provided above. All
references above to the Certificate Principal Balance of the Class A
Certificates shall be to the Certificate Principal Balance thereof immediately
prior to the relevant Distribution Date, before reduction thereof by any
Realized Losses, in each case to be allocated in accordance with the provisions
of Section 4.04(b) on such Distribution Date pursuant to Section 4.04 .
(b) In addition to making the distributions required pursuant to Section
4.01(a), on each Distribution Date for which there exists a Deficiency Amount,
the Trustee shall withdraw from the Distribution Account any amount therein that
was transferred from the Policy Payments Account to the Distribution Account
pursuant to Section 9.04 and distribute to the Holders of the Class A
Certificates (i) an amount equal to any amount required to be paid to such Class
pursuant to Section 4.01(a)(i) for such Distribution Date remaining unpaid after
giving effect to all distributions made pursuant to Section 4.01(a) for such
Distribution Date, (ii) an amount equal to the principal portion of any Realized
Losses allocated to such Class on such Distribution Date after giving effect to
all distributions made pursuant to Section 4.01(a) for such Distribution Date
and (iii) without duplication, any other amount constituting a Deficiency
Amount.
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(c) Each Holder of a Certificate, by its acceptance of such Certificate,
hereby agrees that, in the event any distribution is made to any Holder of a
Class A Certificate from amounts paid under the Policy, (i) the Certificate
Insurer shall be subrogated in the manner herein provided to the rights of the
Holder of such Class A Certificate to receive from amounts on deposit in the
Distribution Account the distributions allocable to principal and interest that
would have been distributable to such Holder if no such distribution to such
Holder had been made from amounts paid under the Policy; and (ii) in addition to
the rights of the Class A Certificateholders that the Certificate Insurer may
exercise in accordance with the provisions of Section 9.01, the Certificate
Insurer may exercise any option, vote, right, power or the like with respect to
each Class A Certificate for which Cumulative Insurance Payments are
outstanding.
(d) All distributions made with respect to each Class of Certificates on
each Distribution Date shall be allocated pro rata among the outstanding
Certificates in such Class based on their respective Percentage Interests.
Payments in respect of each Class of Certificates on each Distribution Date will
be made to the Holders of the respective Class of record on the related Record
Date (except as otherwise provided in Section 4.01(f) or Section 10.01
respecting the final distribution on such Class), based on the aggregate
Percentage Interest represented by their respective Certificates, and shall be
made by wire transfer of immediately available funds to the account of any such
Holder at a bank or other entity having appropriate facilities therefor, if such
Holder shall have so notified the Trustee in writing at least five Business Days
prior to the Record Date immediately prior to such Distribution Date and is the
registered owner of Certificates having an initial aggregate Certificate
Principal Balance that is in excess of the lesser of (i) $5,000,000 or (ii) two-
thirds of the initial Certificate Principal Balance (or, in the case of the
Class X Certificates or the Class R Certificates, a 66% Percentage Interest) of
such Class of Certificates, or otherwise by check mailed by first class mail to
the address of such Holder appearing in the Certificate Register. The final
distribution on each Certificate will be made in like manner, but only upon
presentment and surrender of such Certificate at the Corporate Trust Office or
such other location specified in the notice to Certificateholders of such final
distribution. Payments to the Certificate Insurer on any Distribution Date will
be made by wire transfer of immediately available funds to the account
designated by the Certificate Insurer.
Each distribution with respect to a Book-Entry Certificate shall be paid to
the Depository, as Holder thereof, and the Depository shall be responsible for
crediting the amount of such distribution to the accounts of its Depository
Participants in accordance with its normal procedures. Each Depository
Participant shall be responsible for disbursing such distribution to the
Certificate Owners that it represents and to each indirect participating
brokerage firm (a "brokerage firm" or "indirect participating firm") for which
it acts as agent. Each brokerage firm shall be responsible for disbursing funds
to the Certificate Owners that it represents. None of the Trustee, the
Certificate Registrar, the Depositor or the Master Servicer shall have any
responsibility therefor except as otherwise provided by this Agreement or
applicable law.
(e) The rights of the Certificateholders to receive distributions in
respect of the Certificates, and all interests of the Certificateholders in such
distributions, shall be as set forth in this Agreement. Neither the Holders of
any Class of Certificates nor the Trustee nor the Master Servicer shall in any
way be responsible or liable to the Holders of any other Class of Certificates
in respect of amounts properly previously distributed on the Certificates.
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(f) Except as otherwise provided in Section 10.01, whenever the Trustee
expects that the final distribution with respect to any Class of Certificates
will be made on the next Distribution Date, the Trustee shall, no later than
five (5) Business Days after the related Determination Date, mail to each Holder
on such date of such Class of Certificates and to the Certificate Insurer a
notice to the effect that:
(i) the Trustee expects that the final distribution with respect to
such Class of Certificates will be made on such Distribution Date but only
upon presentation and surrender of such Certificates at the office of the
Trustee therein specified, and
(ii) no interest shall accrue on such Certificates from and after
the end of the related Interest Accrual Period.
Any funds not distributed to any Holder or Holders of Certificates of such Class
on such Distribution Date because of the failure of such Holder or Holders to
tender their Certificates shall, on such date, be set aside and held in trust
and credited to the account of the appropriate non-tendering Holder or Holders.
If any Certificates as to which notice has been given pursuant to this Section
4.01(f) shall not have been surrendered for cancellation within six months after
the time specified in such notice, the Trustee shall mail a second notice to the
remaining non-tendering Certificateholders to surrender their Certificates for
cancellation in order to receive the final distribution with respect thereto.
If within one year after the second notice all such Certificates shall not have
been surrendered for cancellation, the Trustee shall, directly or through an
agent, contact the remaining non-tendering Certificateholders concerning
surrender of their Certificates in the manner reasonably specified to the
Trustee by the Master Servicer in writing. The costs and expenses of
maintaining the funds in trust and of contacting such Certificateholders shall
be paid out of the assets remaining in the trust fund. If within one year after
the second notice any such Certificates shall not have been surrendered for
cancellation, the Trustee shall pay any such funds to the Master Servicer, the
Master Servicer shall pay to the Certificate Insurer any amount of such funds
that were paid by the Certificate Insurer under the Policy but shall continue to
hold any remaining funds for the benefit of the non-tendering
Certificateholders, and such Certificateholders shall thereafter look solely to
the Master Servicer for payment thereof, and all liability of the Certificate
Insurer and the Trustee with respect to such trust funds shall thereupon cease.
No interest shall accrue or be payable to any Certificateholder on any amount
held in trust by the Master Servicer as a result of such Certificateholder's
failure to surrender its Certificate(s) for final payment thereof in accordance
with this Section 4.01(f).
SECTION 4.02. Statements to Certificateholders.
--------------------------------
On each Distribution Date, the Trustee shall prepare, based solely on
information provided to it by the Master Servicer, and forward by mail to each
Holder of the Regular Certificates, a statement as to the distributions made on
such Distribution Date setting forth:
(i) the amount of the distribution made on such Distribution Date to
the Holders of the Class A Certificates allocable to principal;
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(ii) the amount of the distribution made on such Distribution Date
to the Holders of the Class A Certificates allocable to interest;
(iii) the aggregate amount of servicing compensation received by
the Master Servicer during the related Collection Period and such other
customary information as the Trustee deems necessary or desirable, or which
a Certificateholder reasonably requests, to enable Certificateholders to
prepare their tax returns;
(iv) the Guaranteed Distribution for such Distribution Date and the
respective portions thereof allocable to principal and interest;
(v) the amount of any Insurance Payment made to Class A
Certificateholders on such Distribution Date, the amount of any
reimbursement payment made to the Certificate Insurer on such Distribution
Date pursuant to Section 4.01(a)(iv) and the amount of Cumulative Insurance
Payments after giving effect to any such Insurance Payment to Class A
Certificateholders or any such reimbursement payment to the Certificate
Insurer;
(vi) the aggregate amount of Monthly Advances for such Distribution
Date;
(vii) the aggregate Stated Principal Balance of the Mortgage Loans
and any REO Properties at the close of business on such Determination Date;
(viii) the number, aggregate principal balance, weighted average
remaining term to maturity and weighted average Mortgage Rate of the
Mortgage Loans as of the related Due Date;
(ix) the number and aggregate unpaid principal balance of Mortgage
Loans (a) 30 days past due on a contractual basis as of the related
Determination Date , (b) 60 days past due on a contractual basis as of the
related Determination Date , (c) 90 or more days past due on a contractual
basis as of the related Determination Date and (d) as to which foreclosure
proceedings have been commenced as of the related Determination Date;
(x) with respect to any Mortgage Loan that became an REO Property
during the preceding calendar month, the loan number of such Mortgage Loan,
the unpaid principal balance and the Stated Principal Balance of such
Mortgage Loan as of the date it became an REO Property;
(xi) the book value of any REO Property as of the close of business
on the last Business Day of the calendar month preceding the Distribution
Date;
(xii) the aggregate amount of Principal Prepayments made during the
related Collection Period;
(xiii) the aggregate amount of Realized Losses incurred during the
related Collection Period (or, in the case of Bankruptcy Losses allocable
to interest, during the related Collection
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Period), separately identifying whether such Realized Losses constituted
Extraordinary Losses, Fraud Losses, Special Hazard Losses or Bankruptcy
Losses;
(xiv) the aggregate amount of extraordinary Trust Fund expenses
withdrawn from the Collection Account or the Distribution Account for such
Distribution Date;
(xv) the aggregate Certificate Principal Balance of the Class A
Certificates, after giving effect to the distributions, and allocations of
Realized Losses, made on such Distribution Date, separately identifying any
reduction thereof due to allocations of Realized Losses;
(xvi) the Certificate Factor for each such Class of Certificates
applicable to such Distribution Date;
(xvii) the Interest Distribution Amount in respect of the Class A
Certificates for such Distribution Date and the respective portions
thereof, if any, paid under the Policy or (in the event of a Deficiency
Event) remaining unpaid following the distributions made in respect of such
Certificates on such Distribution Date;
(xviii) the aggregate amount of any Prepayment Interest Shortfalls
for such Distribution Date, to the extent not covered by payments by the
Master Servicer pursuant to Section 3.24;
(xix) the aggregate amount of Relief Act Interest Shortfalls for
such Distribution Date;
(xx) the then-applicable Bankruptcy Amount, Fraud Loss Amount and
Special Hazard Amount and the amount of any Excess Loss;
(xxi) the Basis Risk Shortfall, if any, for such Distribution Date;
(xxii) the Unpaid Basis Risk Shortfalls, if any, outstanding after
reimbursements therefor on such Distribution Date
(xxiii) the Required Subordinated Amount for such Distribution
Date;
(xxiv) the Subordination Increase Amount, if any, for such
Distribution Date;
(xxv) the Subordination Reduction Amount, if any, for such
Distribution Date; and
(xxvi) the Class A Pass-Through Rate for such Distribution Date.
In the case of information furnished pursuant to subclauses (i) through
(ii) above, the amounts shall be expressed as a dollar amount per Single
Certificate of the relevant Class.
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The Master Servicer shall furnish to the Trustee and to the Certificate
Insurer, during the term of this Agreement, such periodic, special, or other
reports or information not specifically provided for herein, as may be
necessary, reasonable, or appropriate with respect to the Trustee or the
Certificate Insurer, as the case may be, or otherwise with respect to the
purposes of this Agreement, all such reports or information to be provided by
and in accordance with such applicable instructions and directions as the
Trustee or the Certificate Insurer may reasonably require.
Within a reasonable period of time after the end of each calendar year, the
Trustee shall furnish to each Person who at any time during the calendar year
was a Holder of a Regular Certificate a statement containing the information set
forth in subclauses (i) through (ii) above, aggregated for such calendar year or
applicable portion thereof during which such person was a Certificateholder.
Such obligation of the Trustee shall be deemed to have been satisfied to the
extent that substantially comparable information shall be provided by the
Trustee pursuant to any requirements of the Code as from time to time are in
force.
On each Distribution Date, the Trustee shall forward to the Depositor, to
each Holder of a Residual Certificate, to the Certificate Insurer and to the
Master Servicer, a copy of the reports forwarded to the Regular
Certificateholders on such Distribution Date and a statement setting forth the
amounts, if any, actually distributed with respect to the Residual Certificates,
respectively, on such Distribution Date.
Within a reasonable period of time after the end of each calendar year, the
Trustee shall furnish to each Person who at any time during the calendar year
was a Holder of a Residual Certificate a statement setting forth the amount, if
any, actually distributed with respect to the Residual Certificates, as
appropriate, aggregated for such calendar year or applicable portion thereof
during which such Person was a Certificateholder.
The Trustee shall, upon request, furnish to each Certificateholder, during
the term of this Agreement, such periodic, special, or other reports or
information, whether or not provided for herein, as shall be reasonable with
respect to the Certificateholder, or otherwise with respect to the purposes of
this Agreement, all such reports or information to be provided at the expense of
the Certificateholder in accordance with such reasonable and explicit
instructions and directions as the Certificateholder may provide. For purposes
of this Section 4.02, the Trustee's duties are limited to the extent that the
Trustee receives timely reports as required from the Master Servicer.
On each Distribution Date the Trustee shall provide Bloomberg Financial
Markets, L.P. ("Bloomberg") Cusip level factors for each class of Certificates
as of such Distribution Date, using a format and media mutually acceptable to
the Trustee and Bloomberg. In connection with providing the information
specified in this Section 4.02 to Bloomberg, the Trustee and any director,
officer, employee or agent of the Trustee shall be indemnified and held harmless
by the Master Servicer, to the extent and in the manner provided in Section
8.05.
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SECTION 4.03. Remittance Reports; Monthly Advances.
------------------------------------
(a) On the Business Day following each Determination Date, the Master
Servicer shall deliver to the Trustee and the Certificate Insurer by telecopy
(or by such other means as the Master Servicer, the Trustee or the Certificate
Insurer, as the case may be, may agree from time to time) a Remittance Report
with respect to the related Distribution Date. On the same date, the Master
Servicer shall forward to the Trustee by overnight mail a computer readable
magnetic tape or diskette containing the information set forth in such
Remittance Report with respect to the related Distribution Date. Not later than
the close of business New York time on the Master Servicer Remittance Date, the
Master Servicer shall deliver or cause to be delivered to the Certificate
Insurer and the Trustee in addition to the information provided on the
Remittance Report, (i) the Guaranteed Distribution for such Distribution Date,
separately identifying the portions thereof allocable to principal and interest;
(ii) the Available Distribution Amount for such Distribution Date; (iii) whether
the Available Distribution Amount expected to be on deposit in the Distribution
Account on such Distribution Date will be sufficient to cover the Guaranteed
Distribution and, if not, the amount of the shortfall; (iv) the amount of
Monthly Advances to be made by the Master Servicer in respect of the related
Distribution Date, the aggregate amount of Monthly Advances outstanding after
giving effect to such Monthly Advances, and the aggregate amount of
Nonrecoverable Monthly Advances in respect of such Distribution Date; (v) with
respect to any reimbursement to be made to the Certificate Insurer on such
Distribution Date pursuant to Section 4.01(a)(iv), the amount, if any, allocable
to principal and the amount allocable to interest; (vi) Cumulative Insurance
Payments after giving effect to the distributions to be made on such
Distribution Date; and (vii) such other information with respect to the Mortgage
Loans as the Trustee may reasonably require to perform the calculations
necessary to make the distributions contemplated by Section 4.01 and to prepare
the statements to Certificateholders contemplated by Section 4.02. The Trustee
shall not be responsible to recompute, recalculate or verify any information
provided to it by the Master Servicer.
(b) The amount of Monthly Advances to be made by the Master Servicer for
any Distribution Date shall equal, subject to Section 4.03(d), the sum of (i)
the aggregate amount of Monthly Payments (net of the related Servicing Fee), due
during the related Collection Period in respect of the Mortgage Loans, which
Monthly Payments were delinquent on a contractual basis as of the close of
business on the related Determination Date and (ii) with respect to each REO
Property, which REO Property was acquired during or prior to the related
Collection Period and as to which REO Property an REO Disposition did not occur
during the related Collection Period, an amount equal to the excess, if any, of
the REO Imputed Interest on such REO Property for the most recently ended
calendar month, over the net income from such REO Property transferred to the
Distribution Account pursuant to Section 3.23 for distribution on such
Distribution Date.
On or before noon New York time on the Master Servicer Remittance Date, the
Master Servicer shall remit in immediately available funds to the Trustee for
deposit in the Distribution Account an amount equal to the aggregate amount of
Monthly Advances, if any, to be made in respect of the Mortgage Loans and REO
Properties for the related Distribution Date either (i) from its own funds or
(ii) from the Collection Account, to the extent of funds held therein for future
distribution (in which case it will cause to be made an appropriate entry in the
records of Collection Account that amounts held for future distribution have
been, as permitted by this Section 4.03, used by the Master
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Servicer in discharge of any such Monthly Advance) or (iii) in the form of any
combination of (i) and (ii) aggregating the total amount of Monthly Advances to
be made by the Master Servicer with respect to the Mortgage Loans and REO
Properties. Any amounts held for future distribution and so used shall be
appropriately reflected in the Master Servicer's records and replaced by the
Master Servicer by deposit in the Collection Account on or before any future
Master Servicer Remittance Date to the extent that the Available Distribution
Amount for the related Distribution Date (determined without regard to Monthly
Advances to be made on the Master Servicer Remittance Date) shall be less than
the total amount that would be distributed to the Classes of Certificateholders
pursuant to Section 4.01 on such Distribution Date if such amounts held for
future distributions had not been so used to make Monthly Advances. The
Trustee will provide notice to the Master Servicer and the Certificate Insurer
by telecopy by the close of business of the Business Day following any Master
Servicer Remittance Date in the event that the amount remitted by the Master
Servicer to the Trustee on such date is less than the Monthly Advances required
to be made by the Master Servicer for the related Distribution Date.
(c) The obligation of the Master Servicer to make such Monthly Advances is
mandatory, notwithstanding any other provision of this Agreement but subject to
(d) below, and, with respect to any Mortgage Loan or REO Property, shall
continue until a Final Recovery Determination in connection therewith or the
removal thereof from the Trust Fund pursuant to any applicable provision of this
Agreement, except as otherwise provided in this Section.
(d) Notwithstanding anything herein to the contrary, no Monthly Advance
shall be required to be made hereunder by the Master Servicer if such Monthly
Advance would, if made, constitute a Nonrecoverable Monthly Advance. The
determination by the Master Servicer that it has made a Nonrecoverable Monthly
Advance or that any proposed Monthly Advance, if made, would constitute a
Nonrecoverable Monthly Advance, shall be evidenced by an Officers' Certificate
of the Master Servicer delivered on or prior to the related Master Servicer
Remittance Date to the Depositor, the Trustee and the Certificate Insurer.
(e) If, at the close of business on the third Business Day prior to any
Distribution Date, the funds on deposit in the Distribution Account are less
than the Guaranteed Distribution for such Distribution Date, the Trustee shall
give notice by telephone or telecopy of the amount of such deficiency, confirmed
in writing in the form set forth as Exhibit A to the Endorsement of the Policy,
to the Certificate Insurer and the Fiscal Agent (as defined in the Policy), if
any, at or before 12:00 noon, New York time, on the second Business Day prior to
such Distribution Date.
SECTION 4.04. Allocation of Realized Losses.
-----------------------------
(a) Prior to each Determination Date, the Master Servicer shall determine
as to each Mortgage Loan and REO Property: (i) the total amount of Realized
Losses, if any, incurred in connection with any Final Recovery Determinations
made during the related Collection Period; (ii) whether and the extent to which
such Realized Losses constituted Fraud Losses, Special Hazard Losses or
Extraordinary Losses; and (iii) the respective portions of such Realized Losses
allocable to interest and allocable to principal. Prior to each Determination
Date, the Master Servicer shall also determine as to each Mortgage Loan: (i)
the total amount of Realized Losses, if any, incurred in
89
connection with any Deficient Valuations made during the related Collection
Period; and (ii) the total amount of Realized Losses, if any, incurred in
connection with Debt Service Reductions in respect of Monthly Payments due
during the related Collection Period. The information described in the two
preceding sentences that is to be supplied by the Master Servicer shall be
evidenced by an Officers' Certificate delivered to the Trustee and the
Certificate Insurer by the Master Servicer prior to the Determination Date
immediately following the end of (i) in the case of Bankruptcy Losses allocable
to interest, the Collection Period during which any such Realized Loss was
incurred, and (ii) in the case of all other Realized Losses, the Collection
Period during which any such Realized Loss was incurred.
(b) All Realized Losses on the Mortgage Loans, other than Excess Special
Hazard Losses, Excess Fraud Losses and Excess Bankruptcy Losses on the Mortgage
Loans shall be allocated on each Distribution Date as follows: first, to the Net
Monthly Excess Cashflow; second, in reduction of the Subordinated Amount; and,
third, to the Class A Certificates. Any Excess Special Hazard Losses, Excess
Bankruptcy Losses and Excess Fraud Losses will be allocated between the Class A
Certificates and the Subordinated Amount on a pro rata basis. No allocations of
Realized Losses pursuant to this Section 4.04 shall affect any liability of the
Certificate Insurer with respect to such amounts under the Policy. Any
allocation of Realized Losses to a Class A Certificate on any Distribution Date
shall be made by reducing the Certificate Principal Balance thereof by the
amount so allocated but only to the extent Guaranteed Distributions in respect
of the allocation of Realized Losses to the Class A Certificates are not made.
All Realized Losses allocated to a Class of Certificates hereunder will be
allocated among the Certificates of such Class in proportion to the Percentage
Interests evidenced thereby.
All Realized Losses and all other losses allocated to a Class of
Certificates hereunder will be allocated among the Certificates of such Class in
proportion to the Percentage Interests evidenced thereby.
(c) Notwithstanding anything to the contrary herein, (i) in no event shall
the Certificate Principal Balance of a Class A Certificate be reduced more than
once in respect of any particular amount both (a) allocated to such Certificate
in respect of Realized Losses pursuant to Section 4.04 and (b) distributed to
the Holder of such Certificate in reduction of the Certificate Principal Balance
thereof pursuant to this Section 4.04 from Net Monthly Excess Cashflow or from
amounts paid under the Policy.
SECTION 4.05. Compliance with Withholding Requirements.
----------------------------------------
Notwithstanding any other provision of this Agreement, the Trustee shall
comply with all federal withholding requirements respecting payments to
Certificateholders of interest that the Trustee reasonably believes are
applicable under the Code. The consent of Certificateholders shall not be
required for such withholding. In the event the Trustee does withhold any
amount from interest or original issue discount payments or advances thereof to
any Certificateholder pursuant to federal withholding requirements, the Trustee
shall indicate the amount withheld to such Certificateholders.
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SECTION 4.06. REMIC 1 and REMIC 2 Allocations.
-------------------------------
(a) The initial principal balances of the Class LT1 Interest, Class LT2
Interest, and Class LT3 Interest shall equal 98%, 1%, and 1%, respectively, of
the Maximum Collateral Amount. All principal payments will be allocated 98% to
the Class LT1 Interest. The remaining principal payments will be allocated
first to the Class LT3 Interest up to an amount equal to 2% of any reduction
(other than a reduction due to Realized Losses) in the Subordinated Adjusted
Amount from the prior Distribution Date and then equally to the Class LT2 and
Class LT3 Interests. Interest accruing on the Class LT3 Interest in an amount
equal to 1% of the increase in the Subordinated Adjusted Amount from the prior
Distribution Date will be deferred and added to the principal balance of the
Class LT3 Interest. The amount of interest accrued and deferred on the Class
LT3 Interest under the preceding sentence shall be distributed as principal to
the Class LT2 Interest.
(b) Realized Losses will be allocated 98% to the Class LT1 Interest. The
remaining 2% of Realized Losses will be allocated to the Class LT3 Interest to
the extent that the principal balance of the Class LT3 Interest exceeds 1% of
the aggregate Stated Principal Balance of the Mortgage Loans and then equally
between the Class LT2 Interest and the Class LT3 Interest.
(c) The initial principal balances of the Class MT1 Interest, Class MT2
Interest, and Class MT3 Interest shall equal 98%, 1%, and 1%, respectively, of
the Maximum Collateral Amount. The Class MT4 shall not have a principal
balance. All principal payments will be allocated 98% to the Class MT1
Interest. The remaining principal payments will be allocated first to the Class
MT3 Interest up to an amount equal to 2% of any reduction (other than a
reduction due to Realized Losses) in the Subordinated Adjusted Amount from the
prior Distribution Date and then equally to the Class MT2 and Class MT3
Interest. Interest accruing on the Class MT3 Interest in an amount equal to 1%
of the increase in the Subordinated Adjusted Amount from the prior Distribution
Date will be deferred and added to the principal balance of the Class MT3
Interest. The amount of interest accrued and deferred on the Class MT3 Interest
under the preceding sentence shall be distributed as principal to the Class MT2
Interest.
(d) Realized Losses will be allocated 98% to the Class MT1 Interest. The
remaining 2% of Realized Losses will be allocated to the Class MT3 Interest to
the extent that the principal balance of the Class MT3 Interest exceeds 1% of
the aggregate Stated Principal Balance of the Mortgage Loans and then equally
between the Class MT2 Interest and the Class MT3 Interest.
SECTION 4.07. Basis Risk Reserve Fund.
-----------------------
(a) The Trustee shall establish and maintain in its name, in trust for the
--------
benefit of the Class A Certificateholders the Basis Risk Reserve Fund treated as
an outside reserve fund within the meaning of Treasury regulation section
1.860G-2(h) in accordance with Section 11.01(a) of this Agreement. The Basis
Risk Reserve Fund shall be an Eligible Account, and funds on deposit therein
shall be held separate and apart from, and shall not be commingled with, any
other moneys, including, without limitation, other moneys of the Trustee held
pursuant to this Agreement.
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(b) On each Distribution Date on which the Net Excess Spread is less than
0.25% the Trustee shall transfer from the Distribution Account to the Basis Risk
Reserve Fund pursuant to Section 4.01(a)(x) an amount equal to the Required
Reserve Fund Deposit.
(c) The Trustee shall make withdrawals from the Basis Risk Reserve Fund to
make distributions pursuant to Sections 4.01(a)(viii) hereof, and shall withdraw
from the Basis Risk Reserve Fund on any Distribution Date on which the Net
Excess Spread is equal to or greater than 0.25% an amount equal to the amount of
funds on deposit in the Basis Risk Reserve Fund in excess of $10,000 and
distribute such excess to the Class A Certificateholders pro rata in accordance
with their respective Percentage Interests. Funds withdrawn from the Basis Risk
Reserve Fund may not be applied pursuant to any other subsection of Section 4.01
other than as expressly provided for in this Section 4.07(c).
(d) Funds in the Basis Risk Reserve Fund may be invested in Permitted
Investments in accordance with the provisions set forth in Section 3.12. Any
earnings on such amounts shall be payable to the Class X Certificateholders.
The Class X Certificateholders shall be the owner of the Basis Risk Reserve Fund
for federal tax purposes and shall direct the Trustee in writing as to which
Permitted Investments such funds shall be invested; provided, that, any such
investment direction provided by the Class X Certificateholders shall remain in
effect until any subsequent Class X Certificateholder provides superseding
written investment direction to the Trustee.
(e) Upon termination of the Trust Fund in accordance with Section 10.01,
any amounts remaining in the Basis Risk Reserve Fund following the payment of
all unpaid Certificate Insurer Premiums shall be distributed to the Class X
Certificateholders in the same manner as if distributed pursuant to Section
4.01(xi).
SECTION 4.08. Initial Interest Coverage Account and Funding Account.
-----------------------------------------------------
(a) The Trustee has heretofore established or caused to be established and
shall hereafter maintain or cause to be maintained a separate account
denominated a Initial Interest Coverage Account, which is and shall continue to
be an Eligible Account in the name of the Trustee and shall be designated
"Bankers Trust Company of California, N.A., as Trustee of the United PanAm
Mortgage Loan Trust 1997-1 Initial Interest Coverage Account". The Initial
Interest Coverage Account shall be treated as an "outside reserve fund" under
applicable Treasury regulations and will not be part of the REMIC. Any
investment earnings on the Initial Interest Coverage Account will be treated as
owned by the Class R Certificateholders and will be taxable to such Holders.
The amount on deposit in the Initial Interest Coverage Account shall be invested
in Permitted Investments. The Class R Certificateholders shall direct any
depository institution maintaining the Initial Interest Coverage Account to
invest the funds in such account in one or more Permitted Investments. All
income and gain realized from the investment of funds in the Initial Interest
Coverage Account shall be for the benefit of the Class R Certificateholders.
(b) The Trustee has heretofore established or caused to be established and
shall hereafter maintain or cause to be maintained a separate account
denominated a Funding Account, which is and shall continue to be an Eligible
Account in the name of the Trustee and shall be designated "Bankers
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Trust Company of California, N.A., as Trustee of the United PanAm Mortgage Loan
Trust 1997-1 Funding Account". The Funding Account shall be treated as an
"outside reserve fund" under applicable Treasury regulations and will not be
part of the REMIC. Any investment earnings on the Funding Account will be
treated as owned by the Class R Certificateholders and will be taxable to such
Holders. The amount on deposit in the Funding Account shall be invested in
Permitted Investments. The Class R Certificateholders shall direct any
depository institution maintaining the Funding Account to invest the funds in
such account in one or more Permitted Investments. All income and gain
realized from the investment of funds in the Funding Account shall be for the
benefit of the Class R Certificateholders.
(c) On the Closing Date, the Seller will cause to be deposited in the
Initial Interest Coverage Account the amount of $0 from the sale of the Class
A Certificates. On the Closing Date, the Seller will cause to be deposited in
the Funding Account the amount of $45,084.33 from the sale of the Class A
Certificates.
(d) On the Business Day prior to the initial Distribution Date, the Trustee
shall transfer from the Funding Account to the Distribution Account the amounts
on deposit therein (exclusive of reinvestment earnings thereon, if any) for such
Distribution Date.
(e) The Initial Interest Coverage Account and Funding Account shall be
closed on the initial Distribution Date after the transfer referred to in clause
(c) above. All amounts, if any, remaining in the Initial Interest Coverage
Account and Funding Account on such day after the transfer referred to in clause
(c) above shall be transferred to the Class R Certificateholder.
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ARTICLE V
THE CERTIFICATES
SECTION 5.01. The Certificates.
----------------
Each of the Class A Certificates, Class X and Class R Certificates shall be
substantially in the forms set forth in Exhibits ▇-▇, ▇-▇ and A-3 hereto,
respectively, and shall, on original issue, be executed, authenticated and
delivered by the Trustee to or upon the order of the Depositor concurrently with
the sale and assignment to the Trustee of the Trust. Each Class of Class A
Certificates shall be initially evidenced by one or more certificates
representing a Percentage Interest with a minimum dollar denominations of
$100,000 and dollar multiples in excess thereof, except that one of each of the
Class A Certificate may be in a different denomination so that the sum of the
denominations of all outstanding Class A Certificates shall equal the
Certificate Principal Balance of the aggregate Class A Certificates on the
Closing Date. The Class X and Class R Certificates shall have a minimum
Percentage Interest of 25% with 1% multiples in excess thereof.
The Certificates shall be executed on behalf of the Trust by manual or
facsimile signature on behalf of the Trustee by a Responsible Officer.
Certificates bearing the manual or facsimile signatures of individuals who were,
at the time when such signatures were affixed, authorized to sign on behalf of
the Trustee shall bind the Trust, notwithstanding that such individuals or any
of them have ceased to be so authorized prior to the authentication and delivery
of such Certificates or did not hold such offices at the date of such
Certificate. No Certificate shall be entitled to any benefit under this
Agreement or be valid for any purpose, unless such Certificate shall have been
manually authenticated by the Trustee substantially in the form provided for
herein, and such authentication upon any Certificate shall be conclusive
evidence, and the only evidence, that such Certificate has been duly
authenticated and delivered hereunder. All Certificates shall be dated the date
of their authentication. Subject to Section 5.02(c), the Class A Certificates
shall be Book-Entry Certificates. The Class X and Class R Certificates shall
not be Book-Entry Certificates.
SECTION 5.02. Registration of Transfer and Exchange of Certificates.
-----------------------------------------------------
(a) The Certificate Registrar shall cause to be kept at the Corporate Trust
Office a Certi ficate Register in which, subject to such reasonable regulations
as it may prescribe, the Certificate Registrar shall provide for the
registration of Certificates and of transfers and exchanges of Certificates as
herein provided. The Trustee shall initially serve as Certificate Registrar for
the purpose of registering Certificates and transfers and exchanges of
Certificates as herein provided.
Upon surrender for registration of transfer of any Certificate at any
office or agency of the Certificate Registrar maintained for such purpose
pursuant to the foregoing paragraph and, in the case of a Class R Certificate,
upon satisfaction of the conditions set forth below, the Trustee on behalf of
the Trust shall execute, authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Certificates of the same aggregate
Percentage Interest.
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At the option of the Certificateholders, Certificates may be exchanged for
other Certificates in authorized denominations and the same aggregate Percentage
Interests, upon surrender of the Certificates to be exchanged at any such office
or agency. Whenever any Certificates are so sur rendered for exchange, the
Trustee shall execute on behalf of the Trust and authenticate and deliver the
Certificates which the Certificateholder making the exchange is entitled to
receive. Every Certificate presented or surrendered for registration of
transfer or exchange shall (if so required by the Trustee or the Certificate
Registrar) be duly endorsed by, or be accompanied by a written instrument of
transfer satisfactory to the Trustee and the Certificate Registrar duly executed
by, the Holder thereof or his attorney duly authorized in writing.
(b) Except as provided in paragraph (c) below, the Book-Entry Certificates
shall at all times remain registered in the name of the Depository or its
nominee and at all times: (i) registration of such Certificates may not be
transferred by the Trustee except to another Depository; (ii) the Depository
shall maintain book-entry records with respect to the Certificate Owners and
with respect to ownership and transfers of such Certificates; (iii) ownership
and transfers of registration of such Certificates on the books of the
Depository shall be governed by applicable rules established by the Depository;
(iv) the Depository may collect its usual and customary fees, charges and
expenses from its Depository Participants; (v) the Trustee shall deal with the
Depository as representative of the Certificate Owners of the Certificates for
purposes of exercising the rights of Holders under this Agreement, and requests
and directions for and votes of such representative shall not be deemed to be
inconsistent if they are made with respect to different Certificate Owners; (vi)
the Trustee may rely and shall be fully protected in relying upon information
furnished by the Depository with respect to its Depository Participants and
furnished by the Depository Participants with respect to indirect participating
firms and Persons shown on the books of such indirect participating firms as
direct or indirect Certificate Owners; and (vii) the direct participants of the
Depository shall have no rights under this Agreement under or with respect to
any of the Certificates held on their behalf by the Depository, and the
Depository may be treated by the Trustee and its agents, employees, officers and
directors as the absolute owner of the Certificates for all purposes whatsoever.
All transfers by Certificate Owners of Book-Entry Certificates shall be
made in accordance with the procedures established by the Depository Participant
or brokerage firm representing such Certificate Owners. Each Depository
Participant shall only transfer Book-Entry Certificates of Certificate Owners
that it represents or of brokerage firms for which it acts as agent in
accordance with the Depository's normal procedures. The parties hereto are
hereby authorized to execute a letter of representations with the Depository or
take such other action as may be necessary or desirable to register a Book-Entry
Certificate to the Depository. In the event of any conflict between the terms
of any such Letter of Representation and this Agreement the terms of this
Agreement shall control.
(c) If (i)(x) the Depository or the Depositor advises the Trustee in
writing that the Depository is no longer willing or able to discharge properly
its responsibilities as Depository and (y) the Trustee or the Depositor is
unable to locate a qualified successor, (ii) the Depositor, at its sole option,
with the consent of the Trustee, elects to terminate the book-entry system
through the Depository or (iii) after the occurrence of a Master Servicer Event
of Default, the Certificate Owners of each Class of Class A Certificates
representing Percentage Interests aggregating not less than 51% advises the
Trustee and Depository through the Financial Intermediaries and the Depository
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Participants in writing that the continuation of a book-entry system through
the Depository to the exclusion of definitive, fully registered certificates
(the "Definitive Certificates") to Certificate Owners is no longer in the best
interests of the Certificate Owners, then upon surrender to the Certificate
Registrar of each Class of Class A Certificates by the Depository, accompanied
by registration instructions from the Depository for registration, the Trustee
shall, at the Depositor's expense, in the case of (ii) above, or the Seller's
expense, in the case of (i) and (iii) above, execute on behalf of the Trust and
authenticate the Definitive Certificates. Neither the Depositor nor the
Trustee shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.
Upon the issuance of Definitive Certificates, the Trustee, the Certificate
Registrar, the Master Servicer, any Paying Agent and the Depositor shall
recognize the Holders of the Definitive Certificates as Certificateholders
hereunder.
(d) Except with respect to the initial transfer of the Class X or Class R
Certificates by the Depositor, no transfer, sale, pledge or other disposition of
any Class X or Class R Certificate shall be made unless such disposition is
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "1933 Act"), and any applicable state securities laws or is made in
accordance with the 1933 Act and laws. In the event of any such transfer, other
than the transfer of the Tax Matters Person Residual Interest to the Trustee (i)
unless such transfer is made in reliance upon Rule 144A (as evidenced by the
investment letter delivered to the Trustee, in substantially the form attached
hereto as Exhibit K) under the 1933 Act, the Trustee, the Certificate Insurer
and the Depositor shall require a written Opinion of Counsel (which may be in-
house counsel) acceptable to and in form and substance reasonably satisfactory
to the Trustee, the Certificate Insurer and the Depositor that such transfer may
be made pursuant to an exemption, describing the applicable exemption and the
basis therefor, from the 1933 Act or is being made pursuant to the 1933 Act,
which Opinion of Counsel shall not be an expense of the Trustee, the Master
Servicer, the Trust, the Certificate Insurer or the Depositor or (ii) the
Trustee shall require the transferor to execute a transferor certificate (in
substantially the form attached hereto as Exhibit J) and the transferee to
execute an investment letter (in substantially the form attached hereto as
Exhibit K) acceptable to and in form and substance reasonably satisfactory to
the Depositor, the Certificate Insurer and the Trustee certifying to the
Depositor, the Master Servicer, the Trust, the Certificate Insurer and the
Trustee the facts surrounding such transfer, which investment letter shall not
be an expense of the Trustee or the Depositor. The Holder of a Class X or Class
R Certificate desiring to effect such transfer shall, and does hereby agree to,
indemnify the Trustee, the Master Servicer, the Trust, the Certificate Insurer
and the Depositor against any liability that may result if the transfer is not
so exempt or is not made in accordance with such federal and state laws.
No transfer of a Class X or Class R Certificate shall be made unless the
Trustee shall have received either (i) a representation from the transferee of
such Certificate, acceptable to and in form and substance satisfactory to the
Trustee, the Certificate Insurer and the Depositor, (such requirement is
satisfied only by the Trustee's receipt of a representation letter from the
transferee substantially in the form of Exhibit H hereto, as appropriate), to
the effect that such transferee is not an employee benefit plan or arrangement
subject to Section 406 of ERISA or a plan subject to Section 4975 of the Code,
nor a person acting on behalf of any such plan or arrangement nor using the
assets of any such plan or arrangement to effect such transfer or (ii) if the
purchaser is an insurance company, a representation that the purchaser is an
insurance company which is purchasing such Certificates with
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funds contained in an "insurance company general account" (as such term is
defined in Section V(e) of Prohibited Transaction Class Exemption 95-60 ("PTCE
95-60") and that the purchase and holding of such Certificates are covered under
PTCE 95-60 or (iii) in the case of any such Class R Certificate presented for
registration in the name of an employee benefit plan subject to ERISA or a plan
or arrangement subject to Section 4975 of the Code (or comparable provisions of
any subsequent enactments), or a trustee of any such plan or any other person
acting on behalf of any such plan or arrangement or using such plan's or
arrangement's assets, an Opinion of Counsel satisfactory to the Trustee, the
Depositor and the Certificate Insurer which Opinion of Counsel shall not be an
expense of either the Trustee, the Depositor, the Master Servicer, the
Certificate Insurer or the Trust, addressed to the Trustee, to the effect that
the purchase or holding of such Class X or Class R Certificate will not result
in the assets of the Trust being deemed to be "plan assets" and subject to the
prohibited transaction provisions of ERISA and the Code and will not subject the
Trustee to any obligation in addition to those expressly under taken in this
Agreement or to any liability. Notwithstanding anything else to the contrary
herein, any purported transfer of a Class R Certificate to or on behalf of an
employee benefit plan subject to ERISA or to the Code without the delivery to
the Trustee of an Opinion of Counsel satisfactory to the Trustee as described
above shall be void and of no effect.
Each Person who has or who acquires any Ownership Interest in a Class R
Certificate shall be deemed by the acceptance or acquisition of such Ownership
Interest to have agreed to be bound by the following provisions and to have
irrevocably appointed the Depositor or its designee as its attorney-in-fact to
negotiate the terms of any mandatory sale under clause (v) below and to execute
all instruments of transfer and to do all other things necessary in connection
with any such sale, and the rights of each Person acquiring any Ownership
Interest in a Class R Certificate are expressly subject to the following
provisions:
(i) Each Person holding or acquiring any Ownership Interest in a
Class R Certificate shall be a Permitted Transferee and shall promptly
notify the Trustee of any change or impending change in its status as a
Permitted Transferee.
(ii) No Person shall acquire an Ownership Interest in a Class R
Certificate unless such Ownership Interest is a pro rata undivided
interest.
(iii) In connection with any proposed transfer of any Ownership
Interest in a Class R Certificate, the Trustee shall as a condition to
registration of the transfer, require delivery to it, in form and substance
satisfactory to it, of each of the following:
A. an affidavit in the form of Exhibit I hereto from the
proposed transferee to the effect that such transferee is a
Permitted Transferee and that it is not acquiring its Ownership
Interest in the Class R Certificate that is the subject of the
proposed transfer as a nominee, trustee or agent for any Person who
is not a Permitted Transferee; and
B. a covenant of the proposed transferee to the effect that
the proposed transferee agrees to be bound by and to abide by the
transfer restrictions applicable to the Class R Certificates.
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(iv) Any attempted or purported transfer of any Ownership Interest
in a Class R Certificate in violation of the provisions of this Section
shall be absolutely null and void and shall vest no rights in the purported
transferee. If any purported transferee shall, in violation of the
provisions of this Section, become a Holder of a Class R Certificate, then
the prior Holder of such Class R Certificate that is a Permitted Transferee
shall, upon discovery that the registration of transfer of such Class R
Certificate was not in fact permitted by this Section, be restored to all
rights as Holder thereof retroactive to the date of registration of
transfer of such Class R Certificate. The Trustee shall be under no
liability to any Person for any registration of transfer of a Class R
Certificate that is in fact not permitted by this Section or for making any
distributions due on such Class R Certificate to the Holder thereof or
taking any other action with respect to such Holder under the provisions of
this Agreement so long as the Trustee received the documents specified in
clause (iii). The Trustee shall be entitled to recover from any Holder of
a Class R Certificate that was in fact not a Permitted Transferee at the
time such distributions were made all distributions made on such Class R
Certificate. Any such distributions so recovered by the Trustee shall be
distributed and delivered by the Trustee to the prior Holder of such Class
R Certificate that is a Permitted Transferee.
(v) If any Person other than a Permitted Transferee acquires any
Ownership Interest in a Class R Certificate in violation of the
restrictions in this Section, then the Trustee shall have the right but not
the obligation, without notice to the Holder of such Class R Certificate or
any other Person having an Ownership Interest therein, to notify the
Depositor to arrange for the sale of such Class R Certificate. The
proceeds of such sale, net of commissions (which may include commissions
payable to the Depositor or its affiliates in connection with such sale),
expenses and taxes due, if any, will be remitted by the Trustee to the
previous Holder of such Class R Certificate that is a Permitted Transferee,
except that in the event that the Trustee determines that the Holder of
such Class R Certificate may be liable for any amount due under this
Section or any other provisions of this Agreement, the Trustee may withhold
a corresponding amount from such remittance as security for such claim.
The terms and conditions of any sale under this clause (v) shall be
determined in the sole discretion of the Trustee and it shall not be liable
to any Person having an Ownership Interest in a Class R Certificate as a
result of its exercise of such discretion.
(vi) If any Person other than a Permitted Transferee acquires any
Ownership Interest in a Class R Certificate in violation of the
restrictions in this Section, then the Trustee will provide to the Internal
Revenue Service, and to the persons specified in Sections 860E(e)(3) and
(6) of the Code, information needed to compute the tax imposed under
Section 860E(e)(5) of the Code on transfers of residual interests to
disqualified organizations.
The foregoing provisions of this Section shall cease to apply to transfers
occurring on or after the date on which there shall have been delivered to the
Trustee, in form and substance satisfactory to the Trustee, (i) written
notification from each Rating Agency that the removal of the restrictions on
Transfer set forth in this Section will not cause such Rating Agency to
downgrade its rating of the Certificates and (ii) an Opinion of Counsel to the
effect that such removal will not cause the Trust to fail to qualify as a REMIC.
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(e) No service charge shall be made for any registration of transfer or
exchange of Certificates of any Class, but the Certificate Registrar may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer or exchange of Certificates.
All Certificates surrendered for registration of transfer or exchange shall
be cancelled by the Certificate Registrar and disposed of pursuant to its
standard procedures.
SECTION 5.03. Mutilated, Destroyed, Lost or Stolen Certificates.
-------------------------------------------------
If (i) any mutilated Certificate is surrendered to the Certificate
Registrar or the Certificate Registrar receives evidence to its satisfaction of
the destruction, loss or theft of any Certificate and (ii) there is delivered to
the Trustee, the Depositor and the Certificate Registrar such security or
indemnity as may be required by them to save each of them harmless, then, in the
absence of notice to the Trustee or the Certificate Registrar that such
Certificate has been acquired by a bona fide purchaser, the Trustee shall
execute on behalf of the Trust, authenticate and deliver, in exchange for or in
lieu of any such mutilated, destroyed, lost or stolen Certificate, a new
Certificate of like tenor and Percentage Interest. Upon the issuance of any new
Certificate under this Section, the Trustee or the Certificate Registrar may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee and the Certificate Registrar) in
connection there with. Any duplicate Certificate issued pursuant to this
Section, shall constitute complete and indefeasible evidence of ownership in the
Trust, as if originally issued, whether or not the lost, stolen or destroyed
Certificate shall be found at any time.
SECTION 5.04. Persons Deemed Owners.
---------------------
The Master Servicer, the Depositor, the Trustee, the Certificate Registrar,
the Certificate Insurer, any Paying Agent and any agent of the Master Servicer,
the Depositor, the Certificate Registrar, any Paying Agent or the Trustee may
treat the Person, including a Depository, in whose name any Certificate is
registered as the owner of such Certificate for the purpose of receiving dis
tributions pursuant to Section 4.01 and for all other purposes whatsoever, and
none of the Master Servicer, the Trust, the Trustee nor any agent of any of them
shall be affected by notice to the contrary.
SECTION 5.05. Appointment of Paying Agent.
---------------------------
(a) The Paying Agent (the "Paying Agent") shall make distributions to
Certificateholders from the Distribution Account pursuant to Section 4.01 and
shall report the amounts of such distributions to the Trustee. The duties of
the Paying Agent may include the obligation (i) to withdraw funds from the
Distribution Account pursuant to Section 4.01 and for the purpose of making the
distributions referred to above and (ii) to distribute statements and provide
information to Certificateholders as required hereunder. The Paying Agent
hereunder shall at all times be a corporation duly incorporated and validly
existing under the laws of the United States of America or any state thereof,
authorized under such laws to exercise corporate trust powers and subject to
supervision or examination by federal or state authorities. The Paying Agent
shall initially be the Trustee. The
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Trustee may appoint a successor to act as Paying Agent, which appointment shall
be reasonably satisfactory to the Depositor and the Certificate Insurer.
(b) The Trustee shall cause the Paying Agent (if other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee that such Paying Agent shall hold all sums, if any,
held by it for payment to the Certificateholders in trust for the benefit of the
Certificateholders entitled thereto until such sums shall be paid to such
Certificateholders and shall agree that it shall comply with all requirements of
the Code regarding the withholding of payments in respect of Federal income
taxes due from Certificate Owners and otherwise comply with the provisions of
this Agreement applicable to it.
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ARTICLE VI
THE SELLER, THE MASTER SERVICER AND THE DEPOSITOR
SECTION 6.01. Liability of the Seller, the Master Servicer and the
----------------------------------------------------
Depositor.
---------
The Seller and the Master Servicer shall be liable in accordance herewith
only to the extent of the obligations specifically imposed upon and undertaken
by the Seller or Master Servicer, as the case may be, herein. The Depositor
shall be liable in accordance herewith only to the extent of the obligations
specifically imposed upon and undertaken by the Depositor.
SECTION 6.02. Merger or Consolidation of, or Assumption of the Obligations
------------------------------------------------------------
of, the Seller, the Master Servicer or the Depositor.
----------------------------------------------------
Any corporation into which the Seller, the Master Servicer or Depositor may
be merged or consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Seller, the Master Servicer or the
Depositor shall be a party, or any corporation succeeding to the business of the
Seller, the Master Servicer or the Depositor, shall be the successor of the
Seller, the Master Servicer or the Depositor, as the case may be, hereunder,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto, anything herein to the contrary notwithstanding;
provided, however, that the successor Master Servicer shall satisfy all the
-------- -------
requirements of Section 7.02 with respect to the qualifications of a successor
Master Servicer.
SECTION 6.03. Limitation on Liability of the Master Servicer and Others.
---------------------------------------------------------
Neither the Master Servicer nor any of the directors or officers or
employees or agents of the Master Servicer shall be under any liability to the
Trust or the Certificateholders for any action taken or for refraining from the
taking of any action by the Master Servicer in good faith pursuant to this
Agreement, or for errors in judgment; provided, however, that this provision
-------- -------
shall not protect the Master Servicer or any such Person against any liability
which would otherwise be imposed by reason of its willful misfeasance, bad faith
or negligence in the performance of duties of the Master Servicer or by reason
of its reckless disregard of its obligations and duties of the Master Servicer
hereunder; provided, further, that this provision shall not be construed to
-------- -------
entitle the Master Servicer to indemnity in the event that amounts advanced by
the Master Servicer to retire any senior lien exceed Liquidation Proceeds
realized with respect to the related Mortgage Loan. The preceding sentence
shall not limit the obligations of the Master Servicer pursuant to Section 8.05.
The Master Servicer and any director or officer or employee or agent of the
Master Servicer may rely in good faith on any document of any kind prima facie
----- -----
properly executed and submitted by any Person respecting any matters arising
hereunder. The Master Servicer and any director or officer or employee or agent
of the Master Servicer shall be indemnified by the Trust and held harmless
against any loss, liability or expense incurred in connection with any legal
action relating to this Agreement or the Certificates, other than any loss,
liability or expense related to any specific Mortgage Loan or Mortgage 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 its willful misfeasance, bad faith or negligence in the performance of
duties hereunder or by reason of its reckless disregard of obligations and
duties
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hereunder. The Master Servicer may with the consent of the Certificate Insurer
undertake any such action which it may deem necessary or desirable in respect
of this Agreement, and the rights and duties of the parties hereto and the
interests of the Certificateholders hereunder. In such event, the reasonable
legal expenses and costs of such action and any liability resulting therefrom
shall be expenses, costs and liabilities of the Trust and the Master Servicer
shall be entitled to be reimbursed therefor only pursuant to Section 3.11(vii).
The Master Servicer's right to indemnity or reimbursement pursuant to this
Section shall survive any resignation or termination of the Master Servicer
pursuant to Section 6.04 or 7.01 with respect to any losses, expenses, costs or
liabilities arising prior to such resignation or termination (or arising from
events that occurred prior to such resignation or termination). This paragraph
shall apply to the Master Servicer solely in its capacity as Master Servicer
hereunder and in no other capacities.
SECTION 6.04. Master Servicer Not to Resign.
-----------------------------
Subject to the provisions of Section 6.02, the Master Servicer shall not
resign from the obli gations and duties hereby imposed on it except (i) upon
determination that the performance of its obligations or duties hereunder are no
longer permissible under applicable law or are in material conflict by reason of
applicable law with any other activities carried on by it or its subsidiaries or
Affiliates, the other activities of the Master Servicer so causing such a
conflict being of a type and nature carried on by the Master Servicer or its
subsidiaries or Affiliates at the date of this Agreement or (ii) upon
satisfaction of the following conditions: (a) the Master Servicer has proposed a
successor servicer to the Trustee in writing and such proposed successor
servicer is reasonably acceptable to the Trustee; (b) each Rating Agency shall
have delivered a letter to the Trustee prior to the appointment of the successor
servicer stating that the proposed appointment of such successor servicer as
Master Servicer hereunder will not result in the reduction or with drawal of the
then current rating of the Class A Certificates without regard to the Policy;
and (c) such proposed successor servicer is reasonably acceptable to the
Certificate Insurer, as evidenced by a letter to the Trustee; provided, however,
-------- -------
that no such resignation by the Master Servicer shall become effective until
such successor servicer or, in the case of (i) above, the Trustee shall have
assumed the Master Servicer's responsibilities and obligations hereunder or the
Trustee shall have designated a successor servicer in accordance with Section
7.02. Any such resignation shall not relieve the Master Servicer of
responsibility for any of the obligations specified in Sections 7.01 and 7.02 as
obligations that survive the resignation or termination of the Master Servicer.
Any such determination permitting the resignation of the Master Servicer shall
be evidenced by an Opinion of Counsel to such effect delivered to the Trustee
and the Certificate Insurer.
SECTION 6.05. Delegation of Duties.
--------------------
In the ordinary course of business, the Master Servicer at any time may
delegate any of its duties hereunder to any Person, including any of its
Affiliates, who agrees to conduct such duties in accordance with standards
comparable to those set forth in Section 3.01. Such delegation shall not
relieve the Master Servicer of its liabilities and responsibilities with respect
to such duties and shall not constitute a resignation within the meaning of
Section 6.04. The Master Servicer shall provide the Certificate Insurer and the
Trustee with written notice prior to the delegation of any of its duties
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to any Person other than any of the Master Servicer's Affiliates or their
respective successors and assigns.
SECTION 6.06. Indemnification of the Trust by the Master Servicer.
---------------------------------------------------
The Master Servicer shall indemnify and hold harmless the Trust, the
Depositor, the Certificate Insurer and the Trustee and its officers, directors,
agents and employees from and against any loss, liability, expense, damage or
injury suffered or sustained by reason of the Master Servicer's willful
misfeasance, bad faith or negligence in the performance of its activities in
servicing or administering the Mortgage Loans pursuant to this Agreement,
including, but not limited to, any judgment, award, settlement, reasonable fees
of, counsel of its selection and other costs or expenses incurred in connection
with the defense of any actual or threatened action, pro ceeding or claim
related to the Master Servicer's misfeasance, bad faith or negligence. Any such
indemnification shall not be payable from the assets of the Trust. The
provisions of this indemnity shall run directly to and be enforceable by an
injured party subject to the limitations hereof. The provisions of this Section
6.06 shall survive termination of the Agreement or the earlier of the
resignation or removal of the Trustee.
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ARTICLE VII
MASTER SERVICER EVENTS OF DEFAULT
SECTION 7.01. Master Servicer Events of Default.
---------------------------------
(a) If any one of the following events ("Master Servicer Events of
Default") shall occur and be continuing:
(i)(A) The failure by the Master Servicer to make any Monthly
Advance; or (B) any other failure by the Master Servicer to deposit in the
Collection Account or Distribution Account any deposit required to be made
under the terms of this Agreement which continues unremedied for a period
of one Business Day after the date upon which written notice of such
failure shall have been given to the Master Servicer and any Sub-Servicer
by the Trustee or to the Master Servicer and the Trustee by the Certificate
Insurer or by any holder of a Regular Certificate evidencing an aggregate
undivided interest in the Trust of a Percentage Interest of at least 25%;
or
(ii) The failure by the Master Servicer to make any required
Servicing Advance which failure continues unremedied for a period of 30
days, or the failure by the Master Servicer duly to observe or perform, in
any material respect, any other covenants, obligations or agreements of the
Master 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, shall have been given
to the Master Servicer and any Sub-Servicer by the Trustee or to the Master
Servicer and the Trustee by the Certificate Insurer or by any holder of a
Regular Certificate evidencing an aggregate undivided interest in the Trust
of a Percentage Interest of at least 25%; or
(iii) The entry against the Master Servicer of a decree or order by
a court or agency or supervisory authority having jurisdiction in the
premises for the appointment of a trustee, conservator, receiver or
liquidator in any insolvency, conservatorship, receivership, readjustment
of debt, marshalling of assets and liabilities or similar proceed ings, or
for the winding up or liquidation of its affairs, and the continuance of
any such decree or order unstayed and in effect for a period of 60
consecutive days;
(iv) The Master Servicer shall voluntarily go into liquidation,
consent to the appointment of a conservator or receiver or liquidator or
similar person in any insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings of or relating to the Master
Servicer or of or relating to all or substantially all of its property, or
a decree or order of a court or agency or supervisory authority having
jurisdiction in the premises for the appointment of a conservator,
receiver, liquidator or similar person in any insolvency, readjustment of
debt, marshalling of assets and liabilities or similar proceedings, or for
the winding-up or liquidation of its affairs, shall have been entered
against the Master Servicer and such decree or order shall have remained in
force undischarged, unbonded or unstayed for a period of 60 days; or the
Master Servicer shall admit in writing its inability to pay its
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debts generally as they become due, file a petition to take advantage of
any applicable insolvency or reorganization statute, make an assignment
for the benefit of its creditors or voluntarily suspend payment of its
obligations;
(v) So long as the Seller is an Affiliate of the Master Servicer,
any failure of the Seller, to repurchase, or substitute an Eligible
Substitute Mortgage Loan for, any Mortgage Loan as required by Sections
2.02, 2.04 and 2.06; or
(vi) The occurrence of an event of default under the Insurance
Agreement.
(b) Then, and in each and every such case, so long as a Master Servicer
Event of Default shall not have been remedied within the applicable grace
period, (x) with respect solely to clause (i)(A) above, if such Monthly Advance
is not made by 4:00 P.M., New York time, on the second Business Day following
written notice to the Master Servicer of such event the Trustee shall terminate
all of the rights and obligations of the Master Servicer under this Agreement
and the Trustee, or a successor servicer appointed in accordance with Section
7.02, shall immediately make such Monthly Advance and assume, pursuant to
Section 7.02, the duties of a successor Master Servicer and (y) in the case of
(i)(B), (ii), (iii), (iv), (v) and (vi) above, the Trustee shall, at the
direction of the Certificate Insurer or the Holders of each Class of Class A
Certificates evidencing Percentage Interests aggregating not less than 51% with
the consent of the Certificate Insurer, by notice then given in writing to the
Master Servicer (and to the Trustee if given by Holders of Certificates),
terminate all of the rights and obligations of the Master Servicer as servicer
under this Agreement. Any such notice to the Master Servicer shall also be
given to each Rating Agency, the Seller, the Depositor and the Certificate
Insurer. On or after the receipt by the Master Servicer of such written notice,
all authority and power of the Master Servicer under this Agreement, whether
with respect to the Certificates or the Mortgage Loans or otherwise, shall pass
to and be vested in the Trustee pursuant to and under this Section; and, without
limitation, the Trustee is hereby authorized and empowered to execute and
deliver, on behalf of the Master Servicer, as attorney-in-fact or otherwise, any
and all documents and other instruments, and to do or accomplish all other acts
or things necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the transfer and endorsement of each Mortgage
Loan and related documents or otherwise. The Master Servicer agrees to
cooperate with the Trustee in effecting the termination of the responsibilities
and rights of the Master Servicer hereunder, in cluding, without limitation, the
transfer to the Trustee for the administration by it of all cash amounts that
shall at the time be held by the Master Servicer and to be deposited by it in
the Collection Account, the Distribution Account, the Policy Payments Account,
any REO Account of any Servicing Account, or that have been deposited by the
Master Servicer in such accounts or thereafter received by the Master Servicer
with respect to the Mortgage Loans. All reasonable costs and expenses
(including attorneys' fees) incurred in connection with transferring the
Mortgage Files to the successor Master Servicer and amending this Agreement to
reflect such succession as Master Servicer pursuant to this Section shall be
paid by the predecessor Master Servicer (or if the predecessor Master Servicer
is the Trustee, the initial Master Servicer) upon presentation of reasonable
documentation of such costs and expenses.
The Master Servicer hereby covenants and agrees to act as the Master
Servicer under this Agreement for an initial term, commencing on the Closing
Date and ending on March 30, 1998, which
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term shall be extendable by the Certificate Insurer for successive terms of
three calendar months thereafter, until the termination of the Master
Servicer's obligations and responsibilities pursuant to Article X. Each such
notice of extension (a "Servicer Extension Notice") shall be delivered by the
Certificate Insurer to the Trust, the Trustee, the Master Servicer and any
Sub-Servicer. The Master Servicer hereby agrees that, upon its receipt of any
such Servicer Extension notice, the Master Servicer shall become bound for the
duration of the term covered by such Servicer Extension Notice to continue as
the Master Servicer subject to and in accordance with the other provisions of
this Agreement. The Trustee agrees that if as of the fifteenth (15th) day
prior to the last day of any term of the Master Servicer the Trustee shall not
have received any Servicer Extension Notice from the Certificate Insurer, the
Trustee will within five (5) days thereafter, give written notice of such
non-receipt to the Trust, the Certificate Insurer, the Master Servicer and any
Sub-Servicer. The failure of the Certificate Insurer to deliver a Servicer
Extension Notice by the end of a calendar term shall result in the termination
of the Master Servicer. The foregoing provision of this paragraph shall not
apply to the Trustee in the event the Trustee succeeds to the rights and
obligations of the Master Servicer and the Trustee shall continue in such
capacity until the earlier of the termination of this Agreement pursuant to
Article X or the appointment of a successor master servicer.
SECTION 7.02. Trustee to Act; Appointment of Successor.
----------------------------------------
(a) On and after the time the Master Servicer receives a notice of
termination pursuant to Section 7.01 or 6.04, the Trustee shall be the
successor in all respects to the Master Servicer in its capacity as servicer
under this Agreement and the transactions set forth or provided for herein and
shall be subject to all the responsibilities, duties and liabilities relating
thereto placed on the Master Servicer by the terms and provisions hereof
arising on and after its succession. As compensation therefor, the Trustee
shall be entitled to such compensation as the Master Servicer would have been
entitled to hereunder if no such notice of termination had been given. Not
withstanding the above, (i) if the Trustee is unwilling to act as successor
Servicer or (ii) if the Trustee is legally unable so to act, the Trustee shall
appoint or petition a court of competent jurisdiction to appoint, any
established housing and home finance institution, bank or other mortgage loan
or home equity loan servicer having a net worth of not less than $50,000,000 as
the successor to the Master Servicer hereunder in the assumption of all or any
part of the responsibilities, duties or liabilities of the Master Servicer
hereunder; provided that any such successor Master Servicer shall be
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acceptable to the Certificate Insurer, as evidenced by the
Certificate Insurer's prior written consent, which consent shall not be
unreasonably withheld and provided, further, that the appointment
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of any such successor Master Servicer will not result in the qualification,
reduction or withdrawal of the ratings assigned to the Certificates by the
Rating Agencies as evidenced by a letter to such effect from the Rating
Agencies. Pending appointment of a successor to the Master Servicer hereunder,
unless the Trustee is prohibited by law from so acting, the Trustee shall act
in such capacity as hereinabove provided. In connection with such appointment
and assumption, the successor shall be entitled to receive compensation out of
payments on Mortgage Loans in an amount equal to the compensation which the
Master Servicer would otherwise have received pur suant to Section 3.17 (or
such lesser compensation as the Trustee and such successor shall agree). The
appointment of a successor Master Servicer shall not affect any liability of
the predecessor Master Servicer which may have arisen under this Agreement
prior to its termination as Master Servicer to pay any deductible under an
insurance policy pursuant to Section 3.13 or to indemnify the Trustee pursuant
to Section 6.06), nor shall any successor Master Servicer
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be liable for any acts or omissions of the predecessor Master Servicer or for
any breach by such Master Servicer of any of its representations or warranties
contained herein or in any related document or agreement. The Trustee and such
successor shall take such action, consistent with this Agreement, as shall be
necessary to effectuate any such succession.
(b) [Reserved]
(c) Any successor, including the Trustee, to the Master Servicer as
servicer shall during the term of its service as servicer (1) continue to
service and administer the Mortgage Loans for the benefit of Certificateholders,
(ii) maintain in force a policy or policies of insurance covering errors and
omissions in the performance of its obligations as Servicer hereunder and a
fidelity bond in respect of its officers, employees and agents to the same
extent as the Master Servicer is so required pursuant to Section 3.22.
SECTION 7.03. Waiver of Defaults.
------------------
The Certificate Insurer or the Majority Certificateholders with the consent
of the Certificate Insurer may, on behalf of all Certificateholders, waive any
events permitting removal of the Master Servicer as servicer pursuant to this
Article VII, provided, however, that the Majority Certificate holders may not
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waive a default in making a required distribution on a Certificate without the
consent of the Holder of such Certificate. Upon any waiver of a past default,
such default shall cease to exist and any Master Servicer 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.
Notice of any such waiver shall be given by the Trustee to the Rating Agencies.
SECTION 7.04. Notification to Certificateholders.
----------------------------------
(a) Upon any termination or appointment of a successor to the Master
Servicer pursuant to this Article VII or Section 6.04, the Trustee shall give
prompt written notice thereof to the Certificateholders at their respective
addresses appearing in the Certificate Register, the Certificate Insurer and
each Rating Agency.
(b) Not later than 60 days after the occurrence of any event which
constitutes or which, with the notice or a lapse of time or both, would
constitute a Master Servicer Event of Default for five Business Days after a
Responsible Officer of the Trustee receives actual knowledge of the occurrence
of such an event, the Trustee shall transmit by mail to all Certificateholders
notice of such occurrence unless such Master Servicer Event of Default shall
have been waived or cured.
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ARTICLE VIII
THE TRUSTEE
SECTION 8.01. Duties of Trustee.
-----------------
The Trustee, prior to the occurrence of a Master Servicer Event of Default
and after the curing of all Master Servicer Events of Default which may have
occurred, undertakes to perform such duties and only such duties as are
specifically set forth in this Agreement. If a Master Servicer Event of Default
has occurred (which has not been cured) of which a Responsible Officer has
knowledge, the Trustee shall exercise such of the rights and powers vested in it
by this Agreement, and use the same degree of care and skill in their exercise,
as a prudent man would exercise or use under the circumstances in the conduct of
his own affairs.
The Trustee, upon receipt of all resolutions, certificates, statements,
opinions, reports, documents, orders or other instruments furnished to the
Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they
conform to the requirements of this Agreement.
No provision of this Agreement shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act or
its own misconduct; provided, however, that:
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(i) prior to the occurrence of a Master Servicer Event of Default,
and after the curing of all such Master Servicer Events of Default which
may have occurred, the duties and obligations of the Trustee shall be
determined solely by the express provisions of this Agreement, the Trustee
shall not be liable except for the performance of such duties and
obligations as are specifically set forth in this Agreement, no implied
covenants or obliga tions shall be read into this Agreement against the
Trustee and, in the absence of bad faith on the part of the Trustee, the
Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Agreement;
(ii) the Trustee shall not be personally liable for an error of
judgment made in good faith by a Responsible Officer of the Trustee, unless
it shall be proved that the Trustee was negligent in ascertaining or
investigating the facts related thereto;
(iii) the Trustee shall not be personally liable with respect to
any action taken, suffered or omitted to be taken by it in good faith in
accordance with the consent or direction of the Certificate Insurer or in
accordance with the direction of the Holders of Class A Certificates
evidencing Percentage Interests aggregating not less than 51% relating to
the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising or omitting to exercise any trust
or power conferred upon the Trustee, under this Agreement; and
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(iv) the Trustee shall not be charged with knowledge of any failure
by the Master Servicer to comply with the obligations of the Master
Servicer referred to in clauses (i) and (ii) of Section 7.01 unless a
Responsible Officer of the Trustee at the Corporate Trust Office obtains
actual knowledge of such failure or the Trustee receives written notice of
such failure from the Master Servicer, the Certificate Insurer or the
Holders of Class A Certificates evidencing Percentage Interests aggregating
not less than 51%.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if there is
reasonable ground for believing that the repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it, and
none of the provisions contained in this Agreement shall in any event require
the Trustee to perform, or be responsible for the manner of performance of, any
of the obligations of the Master Servicer under this Agreement, except during
such time, if any, as the Trustee shall be the successor to, and be vested with
the rights, duties, powers and privileges of, the Master Servicer in accordance
with the terms of this Agreement.
SECTION 8.02. Certain Matters Affecting the Trustee.
-------------------------------------
(a) Except as otherwise provided in Section 8.01:
(i) the Trustee may request and rely upon, and shall be protected in
acting or refraining from acting upon, any resolution, Officer's
Certificate, certificate of auditors or any other certificate, statement,
instrument, opinion, report, notice, request, consent, order, appraisal,
bond or other paper or document reasonably believed by it to be genuine and
to have been signed or presented by the proper party or parties;
(ii) the Trustee may consult with counsel and any Opinion of Counsel
shall be full and complete authorization and protection in respect of any
action taken or suffered or omitted by it hereunder in good faith and in
accordance with such Opinion of Counsel;
(iii) the Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Agreement, or to institute,
conduct or defend any litigation here under or in relation hereto, at the
request, order or direction of any of the Certificate holders, pursuant to
the provisions of this Agreement, unless such Certificateholders shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred therein or thereby; the
right of the Trustee to perform any discretionary act enumerated in this
Agreement shall not be construed as a duty, and the Trustee shall not be
answerable for other than its negligence or willful misconduct in the
performance of any such act; nothing contained herein shall, however,
relieve the Trustee of the obligations, upon the occurrence of a Master
Servicer Event of Default (which has not been cured) of which a Responsible
Officer has knowledge, to exercise such of the rights and powers vested in
it by this Agreement, and to use the same degree of care and skill in their
exercise as a prudent man would exercise or use under the circumstances in
the conduct of his own affairs;
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(iv) the Trustee shall not be personally liable for any action
taken, suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon it
by this Agreement;
(v) prior to the occurrence of a Master Servicer Event of Default
and after the curing of all Master Servicer Events of Default which may
have occurred, the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval,
bond or other paper or documents, unless requested in writing to do so by
the Certificate Insurer or Holders of Certificates evidencing Percentage
Interests aggregating not less than 51%; provided, however, that if the
-------- -------
payment within a reasonable time to the Trustee of the costs, expenses or
liabilities likely to be incurred by it in the making of such investigation
is, in the opinion of the Trustee, not reasonably assured to the Trustee by
the security afforded to it by the terms of this Agreement, the Trustee may
require reasonable indemnity against such cost, expense or liability as a
condition to such proceeding. The reasonable expense of every such
examination shall be paid by the Master Servicer or, if paid by the
Trustee, shall be reimbursed by the Master Servicer upon demand. Nothing
in this clause (v) shall derogate from the obligation of the Master
Servicer to observe any applicable law prohibiting disclosure of
information regarding the Mortgagors;
(vi) the Trustee shall not be accountable, shall have no liability
and makes no representation as to any acts or omissions hereunder of the
Master Servicer until such time as the Trustee may be required to act as
Master Servicer pursuant to Section 7.02;
(vii) the Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents or
attorneys or a custodian; and
(viii) The right of the Trustee to perform any discretionary act
enumerated in this Agreement shall not be construed as a duty, and the
Trustee shall not be answerable for other than its negligence or willful
misconduct in the performance of such act.
SECTION 8.03. Trustee Not Liable for Certificates or Mortgage Loans.
-----------------------------------------------------
The recitals contained herein and in the Certificates (other than the
authentication of the Trustee on the Certificates) shall be taken as the
statements of the Seller, and the Trustee assumes no responsibility for the
correctness of the same. The Trustee makes no representations as to the
validity or sufficiency of this Agreement or of the Certificates (other than the
signature and authentication of the Trustee on the Certificates) or of any
Mortgage Loan or related document. The Trustee shall not be accountable for the
use or application by the Master Servicer, or for the use or application of any
funds paid to the Master Servicer in respect of the Mortgage Loans or deposited
in or withdrawn from the Collection Account by the Master Servicer. The Trustee
shall at no time have any responsibility or liability for or with respect to the
legality, validity and enforceability of any Mortgage or any Mortgage Loan, or
the perfection and priority of any Mortgage or the maintenance of any such
perfection and priority, or for or with respect to the sufficiency of the Trust
or its ability to generate the payments to be distributed to Certificateholders
under this Agreement, including, without
110
limitation: the existence, condition and ownership of any Mortgaged Property;
the existence and enforceability of any hazard insurance thereon (other than if
the Trustee shall assume the duties of the Master Servicer pursuant to Section
7.02); the validity of the assignment of any Mortgage Loan to the Trustee or of
any intervening assignment; the completeness of any Mortgage Loan; the
performance or enforcement of any Mortgage Loan (other than if the Trustee
shall assume the duties of the Master Servicer pursuant to Section 7.02); the
compliance by the Depositor, the Seller or the Master Servicer with any
warranty or representation made under this Agreement or in any related document
or the accuracy of any such warranty or representation prior to the Trustee's
receipt of notice or other discovery of any non-compliance therewith or any
breach thereof; any investment of monies by or at the direction of the Master
Servicer or any loss resulting therefrom, it being understood that the Trustee
shall remain responsible for any Trust property that it may hold in its
individual capacity; the acts or omissions of any of the Master Servicer (other
than if the Trustee shall assume the duties of the Master Servicer pursuant to
Section 7.02), any Sub-Servicer or any Mortgagor; any action of the Master
Servicer (other than if the Trustee shall assume the duties of the Master
Servicer pursuant to Section 7.02), or any Sub- Servicer taken in the name of
the Trustee; the failure of the Master Servicer or any Sub-Servicer to act or
perform any duties required of it as agent of the Trustee hereunder; or any
action by the Trustee taken at the instruction of the Master Servicer (other
than if the Trustee shall assume the duties of the Master Servicer pursuant to
Section 7.02); provided, however, that the foregoing shall
-------- -------
not relieve the Trustee of its obligation to perform its duties under this
Agreement, including, without limitation, the Trustee's duty to review the
Mortgage Files pursuant to Section 2.01(d). The Trustee shall have no
responsibility for filing any financing or continuation statement in any public
office at any time or to otherwise perfect or maintain the perfection of any
security interest or lien granted to it hereunder (unless the Trustee shall
have become the successor Master Servicer).
SECTION 8.04. Trustee May Own Certificates.
----------------------------
The Trustee in its individual or any other capacity may become the owner or
pledgee of Certificates with the same rights as it would have if it were not
Trustee and may transact any banking and trust business with the Seller, the
Master Servicer or the Depositor.
SECTION 8.05. Master Servicer to Pay Trustee's Fees and Expenses.
--------------------------------------------------
The Master Servicer covenants and agrees to pay to the Trustee from time to
time out of the Servicing Fee or out of other funds, and the Trustee shall be
entitled to, reasonable compen sation (which shall not be limited by any
provision of law in regard to the compensation of a trustee of an express trust)
for all services rendered by it in the execution of the trusts hereby created
and in the exercise and performance of any of the powers and duties hereunder of
the Trustee, and the Master Servicer will pay or reimburse, except as provided
in Section 11.01(g), the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any of the provisions of this Agreement (including the reasonable compensation
and the expenses and disbursements of its counsel and of all persons not
regularly in its employ) except any such expense, disbursement or advance as may
arise from its negligence or bad faith or which is the responsibility of
Certificateholders hereunder. In addition, except as provided in Section
11.01(g), the Master Servicer covenants and agrees to indemnify the Trustee and
its officers, directors, employees and agents from, and hold it harmless
against, any and all losses, liabilities, damages,
111
claims or expenses (i) incurred in connection with any legal action relating to
this Agreement or the Certificates, other than any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or negligence of the
Trustee in the performance of its duties hereunder or by reason of the
Trustee's reckless disregard of obligations and duties hereunder or (ii)
resulting from any error in any tax or information return prepared by the
Master Servicer. This section shall survive termination of this Agreement or
the resignation or removal of any Trustee hereunder.
SECTION 8.06. Eligibility Requirements for Trustee.
------------------------------------
The Trustee hereunder shall at all times be a corporation duly incorporated
and validly existing under the laws of the United States of America or any state
thereof, authorized under such laws to exercise corporate trust powers, having a
combined capital and surplus of at least $50,000,000 and a minimum long-term
debt rating of Baa3 by ▇▇▇▇▇'▇ and a short-term rating of at least A-1 by S&P,
and subject to supervision or examination by federal or state authority. If
such corporation publishes reports of condition at least annually, pursuant to
law or to the requirements of the aforesaid supervising or examining authority,
then for the purposes of this Section 8.06, the combined capital and surplus of
such corporation shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published. The principal office
of the Trustee (other than the initial Trustee) shall be in a state with respect
to which an Opinion of Counsel has been delivered to such Trustee at the time
such Trustee is appointed Trustee to the effect that the Trust will not be a
taxable entity under the laws of such state. In case at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section
8.06, the Trustee shall resign immediately in the manner and with the effect
specified in Section 8.07.
SECTION 8.07. Resignation or Removal of Trustee.
---------------------------------
The Trustee may at any time resign and be discharged from the trusts hereby
created by giving written notice thereof to the Depositor, the Master Servicer,
the Certificate Insurer and each Rating Agency. Upon receiving such notice of
resignation, the Depositor shall promptly appoint a successor Trustee (approved
in writing by the Certificate Insurer) by written instrument, in duplicate, one
copy of which instrument shall be delivered to the resigning Trustee and one
copy to the successor Trustee. If no successor Trustee shall have been so
appointed and having accepted appointment within 30 days after the giving of
such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
If at any time the Trustee shall cease to be eligible in accordance with
the provisions of Section 8.06 and shall fail to resign after written request
therefor by the Depositor or the Certificate Insurer, or if at any time the
Trustee shall be legally unable to act, or shall be adjudged a bankrupt or
insolvent, or a receiver of the Trustee or of its property shall be appointed,
or any public officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation, then the Depositor, the Master Servicer or the Certificate
Insurer may remove the Trustee. If the Depositor, the Master Servicer or the
Certificate Insurer removes the Trustee under the authority of the immediately
preceding sentence, the Depositor shall promptly appoint a successor Trustee
(approved in writing by the Certificate Insurer) by written instrument, in
duplicate, one copy of which instrument shall be delivered to the Trustee so
removed and one copy to the successor trustee.
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In the event a Certificate Insurer Default has occurred and is continuing,
the Holders of Certificates evidencing Percentage Interests aggregating over 50%
of all Class A Certificates may remove the Trustee by written instrument or
instruments delivered to the Master Servicer, the Depositor and the Trustee; the
Depositor shall thereupon use its best efforts to appoint a successor trustee in
accordance with this Section.
Any resignation or removal of the Trustee and appointment of a successor
Trustee pursuant to any of the provisions of this Section 8.07 shall not become
effective until acceptance of appointment by the successor Trustee as provided
in Section 8.08.
SECTION 8.08. Successor Trustee.
-----------------
Any successor Trustee appointed as provided in Section 8.07 shall execute,
acknowledge and deliver to the Depositor, the Master Servicer and to its
predecessor Trustee and the Certificate Insurer an instrument accepting such
appointment hereunder, and thereupon the resignation or removal of the
predecessor Trustee shall become effective and such successor Trustee, without
any further act, deed or conveyance, shall become fully vested with all the
rights, powers, duties and obligations of its predecessor hereunder, with like
effect as if originally named as Trustee. The Depositor, the Master Servicer
and the predecessor Trustee shall execute and deliver such instruments and do
such other things as may reasonably be required for fully and certainly vesting
and confirming in the successor Trustee all such rights, powers, duties and
obligations.
No successor Trustee shall accept appointment as provided in this Section
8.08 unless at the time of such acceptance such successor Trustee shall be
eligible under the provisions of Section 8.06 and the appointment of such
successor Trustee shall not result in a downgrading of the Class A Certificates
by either Rating Agency, as evidenced by a letter from each Rating Agency.
Upon acceptance of appointment by a successor Trustee as provided in this
Section 8.08, the Master Servicer shall mail notice of the succession of such
Trustee hereunder to all Holders of Certificates at their addresses as shown in
the Certificate Register and to each Rating Agency. If the Master Servicer
fails to mail such notice within 30 days after acceptance of appointment by the
successor Trustee, the successor Trustee shall cause such notice to be mailed at
the expense of the Master Servicer.
Notwithstanding anything to the contrary contained herein, so long as no
Certificate Insurer Default has occurred and is continuing, the appointment of
any successor Trustee pursuant to any provision of this Agreement will be
subject to the prior written consent of the Certificate Insurer.
SECTION 8.09. Merger or Consolidation of Trustee.
----------------------------------
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to the business of the Trustee, shall be the successor of
the Trustee hereunder, provided such corporation shall be eligible under the
provisions
113
of Section 8.06, 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.
SECTION 8.10. Appointment of Co-Trustee or Separate Trustee.
---------------------------------------------
Notwithstanding any other provisions of this Agreement, at any time, for
the purpose of meeting any legal requirements of any jurisdiction in which any
part of the Trust or any Mortgaged Property may at the time be located, the
Depositor and the Trustee acting jointly shall have the power and shall execute
and deliver all instruments to appoint one or more Persons approved by the
Trustee and the Certificate Insurer to act as co-trustee or co-trustees, jointly
with the Trustee, or separate trustee or separate trustees, of all or any part
of the Trust, and to vest in such Person or Persons, in such capacity and for
the benefit of the Certificateholders, such title to the Trust, or any part
thereof, and, subject to the other provisions of this Section 8.10, such
powers, duties, obligations, rights and trusts as the Master Servicer and the
Trustee may consider necessary or desirable. Any such co-trustee or separate
trustee shall be subject to the written approval of the Master Servicer. If the
Master Servicer shall not have joined in such appointment within 15 days after
the receipt by it of a request so to do, or in the case a Master Servicer Event
of Default shall have occurred and be continuing, the Trustee alone shall have
the power to make such appointment. No co-trustee or separate trustee hereunder
shall be required to meet the terms of eligibility as a successor trustee under
Section 8.06 and no notice to Certificateholders of the appointment of any co-
trustee or separate trustee shall be required under Section 8.08. The Master
Servicer shall be responsible for the fees of any co-trustee or separate trustee
appointed hereunder.
Every separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(1) all rights, powers, duties and obligations conferred or
imposed upon the Trustee shall be conferred or imposed upon and exercised
or performed by the Trustee and such separate trustee or co-trustee jointly
(it being understood that such separate trustee or co-trustee is not
authorized to act separately without the Trustee joining in such act),
except to the extent that under any law of any jurisdiction in which any
particular act or acts are to be performed (whether as Trustee hereunder or
as successor to the Master Servicer hereunder), the Trustee shall be
incompetent or unqualified to perform such act or acts, in which event such
rights, powers, duties and obligations (including the holding of title to
the Trust or any portion thereof in any such jurisdiction) shall be
exercised and performed singly by such separate trustee or co-trustee, but
solely at the direction of the Trustee;
(2) no trustee hereunder shall be held personally liable by
reason of any act or omission of any other trustee hereunder; and
(3) the Master Servicer and the Trustee acting jointly may at
any time accept the resignation of or remove any separate trustee or
co-trustee except that following the occurrence of a Master Servicer Event
of Default, the Trustee acting alone may accept the resignation or remove
any separate trustee or co-trustee.
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Any notice, request or other writing given to the Trustee shall be deemed
to have been given to each of the then separate trustees and co-trustees, as
effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article VIII. Each separate trustee and co-trustee, upon its acceptance
of the trusts conferred, shall be vested with the estates or property specified
in its instrument of appointment, either jointly with the Trustee or separately,
as may be provided therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Every
such instrument shall be filed with the Trustee and a copy thereof given to the
Depositor and the Master Servicer and the Certificate Insurer.
Any separate trustee or co-trustee may, at any time, constitute the
Trustee, its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor Trustee.
SECTION 8.11. Limitation of Liability.
-----------------------
The Certificates are executed by the Trustee, not in its individual
capacity but solely as Trustee of the Trust, in the exercise of the powers and
authority conferred and vested in it by the Trust Agreement. Each of the
undertakings and agreements made on the part of the Trustee in the Certificates
is made and intended not as a personal undertaking or agreement by the Trustee
but is made and intended for the purpose of binding only the Trust.
SECTION 8.12. Trustee May Enforce Claims Without Possession of
------------------------------------------------
Certificates.
------------
All rights of action and claims under this Agreement or the Certificates
may be prosecuted and enforced by the Trustee with the prior written consent of
the Certificate Insurer without the possession of any of the Certificates or the
production thereof in any proceeding relating thereto, and such proceeding
instituted by the Trustee shall be brought in its own name or in its capacity as
Trustee. Any recovery of judgment shall, after provision for the payment of the
reasonable compensation, expenses, disbursement and advances of the Trustee, its
agents and counsel, be for the ratable benefit or the Certificateholders in
respect of which such judgment has been recovered.
SECTION 8.13. Suits for Enforcement.
---------------------
In case a Master Servicer Event of Default or other default by the Master
Servicer or the Depositor hereunder shall occur and be continuing, the Trustee
with the prior written consent of the Certificate Insurer, in its discretion,
may proceed to protect and enforce its rights and the rights of the
Certificateholders and the Certificate Insurer under this Agreement by a suit,
action or proceeding in equity or at law or otherwise, whether for the specific
performance of any covenant or agreement contained in this Agreement or in aid
of the execution of any power granted in this Agreement or for the enforcement
of any other legal, equitable or other remedy, as the Trustee, being advised by
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counsel, shall deem most effectual to protect and enforce any of the rights of
the Trustee, the Certificateholders and the Certificate Insurer.
SECTION 8.14. Trustee to File Securities Exchange Act Reports.
-----------------------------------------------
The Trustee shall, on behalf of the Trust Fund, prepare, sign and file with
the Securities and Exchange Commission any and all reports, statements and
information respecting the Trust which the Depositor determines are required to
be filed with the Securities and Exchange Commission pursuant to Sections 13(a)
or 15(d) of the Securities Exchange Act of 1934, as amended, each such report,
statement and information to be filed on or prior to the required filing date
for such report, statement or information.
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ARTICLE IX
CERTAIN MATTERS REGARDING THE CERTIFICATE INSURER
SECTION 9.01. Rights of the Certificate Insurer To Exercise Rights of
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Class A Certificateholders.
--------------------------
Each of the Depositor, the Master Servicer and the Trustee, and by
accepting its Certificate, each Class A Certificateholder, agrees that unless a
Certificate Insurer Default has occurred and is continuing, the Certificate
Insurer shall have the right to exercise all rights of the Class A
Certificateholder under this Agreement (except as provided in clause (1) of the
second paragraph of Section 12.01) without any further consent of the Class A
Certificateholders, including, without limitation:
(a) the right to direct foreclosures upon Mortgage Loans upon failure
of the Master Servicer to do so;
(b) the right to require the Seller to repurchase or substitute for,
or to require the Master Servicer to purchase, Mortgage Loans pursuant to
Section 2.03;
(c) the right to give notices of breach or to terminate the rights and
obligations of the Master Servicer as Master Servicer pursuant to Section
7.01;
(d) the right to direct the actions of the Trustee during the
continuance of a Master Servicer Event of Default pursuant to Sections 7.01
and 7.02;
(e) the right to consent to or direct any waivers of Master Servicer
Events of Default pursuant to Section 7.03;
(f) the right to direct the Trustee to investigate certain matters
pursuant to Section 8.02(a)(v); and
(g) the right to remove the Trustee pursuant to Section 8.07 hereof.
So long as no Certificate Insurer Default shall have occurred and be
continuing, the consent of the Certificate Insurer shall be deemed to also
constitute the consent of the requisite percent of Certificateholders required
by this Agreement in respect of such action or matter.
In addition, each Class A Certificateholder agrees that, unless a
Certificate Insurer Default has occurred and is continuing, the rights
specifically set forth above may be exercised by the Class A Certificateholders
only with the prior written consent of the Certificate Insurer.
SECTION 9.02. Trustee To Act Solely with Consent of the Certificate
-----------------------------------------------------
Insurer.
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Unless a Certificate Insurer Default has occurred and is continuing, the
Trustee shall not:
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(a) agree to any amendment pursuant to Section 12.01;
(b) undertake any litigation pursuant to Section 8.02(a)(iii);
(c) terminate the Master Servicer pursuant to Section 7.01; or
(d) terminate any Sub-Servicing Agreement pursuant to Section 3.03;
without the prior written consent of the Certificate Insurer which consent shall
not be unreasonably withheld. The Trustee and the Master Servicer shall provide
such information as may be reason ably requested by and shall otherwise
cooperate with all reasonable requests of the Certificate Insurer with respect
to the Mortgage Loans or the Certificates; provided, that, such information is
--------
within the control of or reasonably accessible to such party without undue
expenses.
SECTION 9.03. Trust Fund and Accounts Held for Benefit of the Certificate
-----------------------------------------------------------
Insurer.
-------
The Trustee shall hold the Trust Fund and the Mortgage Files for the
benefit of the Certificateholders and the Certificate Insurer and all references
in this Agreement (including, without limitation, in Sections 2.01 and 2.02) and
in the Certificates to the benefit of Holders of the Certificates shall be
deemed to include the Certificate Insurer. The Trustee shall cooperate in all
reasonable respects with any reasonable request by the Certificate Insurer for
action to preserve or enforce the Certificate Insurer's rights or interests
under this Agreement and the Certificates.
The Master Servicer hereby acknowledges and agrees that it shall service
and administer the Mortgage Loans and any REO Properties, and shall maintain the
Collection Account and any REO Account, for the benefit of the
Certificateholders and for the benefit of the Certificate Insurer, and all
references in this Agreement (including, without limitation, in Sections 3.01
and 3.10) to the benefit of or actions on behalf of the Certificateholders shall
be deemed to include the Certificate Insurer. Unless a Certificate Insurer
Default has occurred and is continuing, the Master Servicer shall not terminate
any Sub-Servicing Agreements without cause without the prior consent of the
Certificate Insurer. Unless a Certificate Insurer Default has occurred and is
continuing, neither the Master Servicer nor the Depositor shall undertake any
litigation pursuant to Section 6.03 (other than litigation to enforce their
respective rights hereunder) without the prior consent of the Certificate
Insurer.
SECTION 9.04. Claims Upon the Policy; Policy Payments Account.
-----------------------------------------------
(a) If, by the close of business on the third Business Day prior to a
Distribution Date, the Trustee determines that a Deficiency Amount for any
Distribution Date is greater than zero, then the Trustee shall give notice to
the Certificate Insurer by telephone or telecopy of the amount of such
Deficiency Amount. Such notice of such Deficiency Amount shall be confirmed in
writing in the form set forth as Exhibit A to the Endorsement of the Policy, to
the Certificate Insurer and the Fiscal Agent (as defined in the Policy), if any,
at or before 10:00 a.m., New York time, on the second Business Day prior to such
Distribution Date. Following receipt by the Certificate Insurer of such notice
in such form, the Certificate Insurer or the Fiscal Agent will pay any amount
payable under the Policy on the later to occur of (i) 12:00 noon, New York time,
on the second Business Day following such receipt
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and (ii) 12:00 noon, New York time, on the Distribution Date to which such
deficiency relates, as provided in the Endorsement to the Policy.
(b) The Trustee shall establish a separate special purpose trust account
for the benefit of Holders of the Class A Certificates and the Certificate
Insurer referred to herein as the "Policy Payments Account" over which the
Trustee shall have exclusive control and sole right of withdrawal. The Trustee
shall deposit any amount paid under the Policy in the Policy Payments Account
and distribute such amount only for purposes of payment to Holders of Class A
Certificates of the Guaranteed Distribution for which a claim was made and such
amount may not be applied to satisfy any costs, expenses or liabilities of the
Master Servicer, the Trustee or the Trust Fund. Amounts paid under the Policy
shall be transferred to the Distribution Account in accordance with the next
succeeding paragraph and disbursed by the Trustee to Holders of Class A
Certificates in accordance with Section 4.01(b) or Section 10.01, as applicable.
It shall not be necessary for such payments to be made by checks or wire
transfers separate from the checks or wire transfers used to pay the Guaranteed
Distribution with other funds available to make such payment. However, the
amount of any payment of principal of or interest on the Class A Certificates to
be paid from funds transferred from the Policy Payments Account shall be noted
as provided in paragraph (c) below in the Certificate Register and in the
statement to be furnished to Holders of the Class A Certificates and Residual
Certificates pursuant to Section 4.02. Funds held in the Policy Payments
Account shall not be invested.
On any Distribution Date with respect to which a claim has been made under
the Policy, the amount of any funds received by the Trustee as a result of any
claim under the Policy, to the extent required to make the Guaranteed
Distribution on such Distribution Date, shall be withdrawn from the Policy
Payments Account and deposited in the Distribution Account and applied by the
Trustee, together with the other funds to be withdrawn from the Distribution
Account pursuant to Section 4.01(b) or Section 10.01, as applicable, directly to
the payment in full of the Guaranteed Distribution due on the Class A
Certificates. Funds received by the Trustee as a result of any claim under the
Policy shall be deposited by the Trustee in the Policy Payments Account and used
solely for payment to the Holders of the Class A Certificates and may not be
applied to satisfy any costs, expenses or liabilities of the Master Servicer,
the Trustee or the Trust Fund. Any funds remaining in the Policy Payments
Account on the first Business Day following a Distribution Date shall be
remitted to the Certificate Insurer, pursuant to the instructions of the
Certificate Insurer, by the end of such Business Day.
(c) The Trustee shall keep a complete and accurate record of the amount of
interest and principal paid in respect of any Class A Certificate from moneys
received under the Policy. The Certificate Insurer shall have the right to
inspect such records at reasonable times during normal business hours upon one
Business Day's prior written notice to the Trustee.
(d) The Trustee shall promptly notify the Certificate Insurer and Fiscal
Agent of any proceeding or the institution of any action, of which a Responsible
Officer of the Trustee has actual knowledge, seeking the avoidance as a
preferential transfer under applicable bankruptcy, insolvency, receivership or
similar law (a "Preference Claim") of any distribution made with respect
to the Class A Certificates. Each Class A Certificateholder, by its purchase of
Class A Certificates, the Master
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Servicer and the Trustee hereby agree that the Certificate Insurer (so long as
no Certificate Insurer Default has occurred and is continuing) may at any time
during the continuation of any proceeding relating to a Preference Claim direct
all matters relating to such Preference Claim, including, without limitation,
(i) the direction of any appeal of any order relating to such Preference Claim
and (ii) the posting of any surety, supersedeas or performance bond pending any
such appeal. In addition and without limitation of the foregoing, the
Certificate Insurer shall be subrogated to the rights of the Master Servicer,
the Trustee and each Class A Certificateholder in the conduct of any such
Preference Claim, including, without limitation, all rights of any party to an
adversary proceeding action with respect to any court order issued in connection
with any such Preference Claim.
SECTION 9.05. Effect of Payments by the Certificate Insurer; Subrogation.
----------------------------------------------------------
Anything herein to the contrary notwithstanding, any payment with respect
to principal of or interest on any of the Class A Certificates which is made
with moneys received pursuant to the terms of the Policy shall not be considered
payment of such Class A Certificates from the Trust Fund and shall not result in
the payment of or the provision for the payment of the principal of or interest
on such Class A Certificates within the meaning of Section 4.01. The Depositor,
the Master Servicer and the Trustee acknowledge, and each Holder by its
acceptance of a Certificate agrees, that without the need for any further action
on the part of the Certificate Insurer, the Depositor, the Master Servicer, the
Trustee or the Certificate Registrar (a) to the extent the Certificate Insurer
makes payments, directly or indirectly, on account of principal of or interest
on any Class A Certificates to the Holders of such Certificates, the Certificate
Insurer will be fully subrogated to the rights of such Holders to receive such
principal and interest from the Trust Fund and (b) the Certificate Insurer shall
be paid such principal and interest but only from the sources and in the manner
provided herein for the payment of such principal and interest.
The Trustee and the Master Servicer shall cooperate in all respects with
any reasonable request by the Certificate Insurer for action to preserve or
enforce the Certificate Insurer's rights or interests under this Agreement
without limiting the rights or affecting the interests of the Holders as
otherwise set forth herein.
SECTION 9.06. Notices to the Certificate Insurer.
----------------------------------
All notices, statements, reports, certificates or opinions required by this
Agreement to be sent to any other party hereto or to any of the
Certificateholders shall also be sent to the Certificate Insurer.
SECTION 9.07. Third-Party Beneficiary.
-----------------------
The Certificate Insurer shall be a third-party beneficiary of this
Agreement, entitled to enforce the provisions hereof as if a party hereto.
SECTION 9.08. Trustee to Hold the Policy.
--------------------------
The Trustee will hold the Policy in trust as agent for the Holders of the
Class A Certificates for the purpose of making claims thereon and distributing
the proceeds thereof. Neither the Policy
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nor the amounts paid on the Policy will constitute part of the Trust Fund or
assets of the REMIC created by this Agreement. Each Holder of Class A
Certificates, by accepting its Class A Certificates, appoints the Trustee as
attorney-in-fact for the purpose of making claims on the Policy.
SECTION 9.09. Termination of the Master Servicer.
----------------------------------
Notwithstanding anything this Agreement to the contrary, the Certificate
Insurer may terminate the Master Servicer at such time as permitted under any
separate agreements between them so long as no Certificate Insurer Default has
occurred and is continuing.
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ARTICLE X
TERMINATION
SECTION 10.01. Termination.
-----------
(a) The respective obligations and responsibilities of the Seller, the
Master Servicer, the Depositor and the Trustee created hereby (other than the
obligation of the Trustee to make certain payments to Certificateholders after
the final Distribution Date and the obligation of the Master Servicer to send
certain notices as hereinafter set forth) shall terminate upon written notice to
the Trustee of the later of (A) payment in full of all amounts owing to the
Certificate Insurer unless the Certificate Insurer shall otherwise consent and
(B) the earliest of (i) the Distribution Date on which the Certificate Principal
Balance of the Class A Certificates has been reduced to zero, (ii) the final
payment or other liquidation of the last Mortgage Loan and REO Property in the
Trust, (iii) the optional purchase by the Master Servicer of the Mortgage Loans
as described below and (iv) the Distribution Date in December 2027.
Notwithstanding the foregoing, in no event shall the trust created hereby
continue beyond the expiration of 21 years from the death of the last survivor
of the descendants of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, the late ambassador of the United
States to the Court of St. James's, living on the date hereof.
The Master Servicer may, at its option, terminate this Agreement on any
date on which the aggregate Stated Principal Balance of the Mortgage Loans on
such date is less than 5% of the Maximum Collateral Amount, by purchasing, on
the next succeeding Distribution Date, all of the outstanding Mortgage Loans and
REO Properties at a price equal to the sum of the outstanding Stated Principal
Balance of the Mortgage Loans and accrued and unpaid interest thereon at the
weighted average of the Loan Rates through the end of the Due Period preceding
the final Distribution Date together with all amounts due and owing to the
Certificate Insurer (the "Termination Price").
In connection with any such purchase pursuant to the preceding paragraph,
the Master Servicer shall deposit in the Distribution Account all amounts then
on deposit in the Collection Account (less amounts permitted to be withdrawn by
the Master Servicer pursuant to Section 3.03), which deposit shall be deemed to
have occurred immediately preceding such purchase.
Any such purchase shall be accomplished by deposit of the Termination Price
into the Distribution Account on the Determination Date before such Distribution
Date.
(b) Notice of any termination, specifying the Distribution Date (which
shall be a date that would otherwise be a Distribution Date) upon which the
Certificateholders may surrender their Certificates to the Trustee for payment
of the final distribution and cancellation, shall be given promptly by the
Trustee to the Certificate Insurer and by letter to Class A Certificateholders
mailed not earlier than the 15th day and not later than the 25th day of the
month next preceding the month of such final distribution provided that the
Trustee has received any such notice pursuant to Section 10.01(a) specifying (1)
the Distribution Date upon which final distribution of the Class A Certificates
will be made upon presentation and surrender of Class A Certificates at the
office or agency of the Trustee therein designated, (2) the amount of any such
final distribution and (3) that the Record Date other-
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wise applicable to such Distribution Date is not applicable, distributions being
made only upon presentation and surrender of the Class A Certificates at the
office or agency of the Trustee therein specified.
(c) Upon presentation and surrender of the Class A Certificates, the
Trustee shall cause to be distributed to the holders of Class A Certificates on
the Distribution Date for such final distribution, in proportion to the
Percentage Interests of their respective Class A Certificates and to the extent
that funds are available for such purpose, an amount equal to the amount
required to be distributed to holders of Class A Certificates in accordance with
the provisions of Section 4.01 for such Distribution Date. On the final
Distribution Date, the Trustee will withdraw from the Distribution Account and
remit to the Certificate Insurer the lesser of (x) the amount available for
distribution on such final Distribution Date, net of any portion thereof
necessary to pay holders of Class A Certificates pursuant to Section 4.01(a) and
any amounts owing to the Trustee in respect of the Trustee Fee and (y) the
unpaid amounts due and owing to the Certificate Insurer pursuant to Section
4.01(a).
(d) In the event that all of the Class A Certificateholders shall not
surrender their Class A Certificates for final payment and cancellation on or
before such final Distribution Date, the Trustee shall promptly following such
date cause all funds in the Distribution Account not distributed in final
distribution to Class A Certificateholders to be withdrawn therefrom and
credited to the remaining Class A Certificateholders by depositing such funds in
a separate escrow account for the benefit of such Class A Certificateholders and
the Master Servicer (if the Master Servicer has exercised its right to purchase
the Mortgage Loans) or the Trustee (in any other case) shall give a second
written notice to the remaining Class A Certificateholders to surrender their
Class A Certificates for cancellation and receive the final distribution with
respect thereto. If within nine months after the second notice all the
Certificates shall not have been surrendered for cancellation, the Class R
Certificateholder shall be entitled to all unclaimed funds and other assets
which remain subject hereto and the Trustee upon transfer of such funds shall be
discharged of any responsibility for such funds and the Certificateholders shall
look to the Class R Certificateholder for payment.
(e) No such termination shall be permitted without the prior written
consent of the Certificate Insurer if it would result in a draw under the Policy
or amounts would remain unpaid under the Insurance Agreement.
SECTION 10.02. Additional Termination Requirements.
-----------------------------------
(a) In the event that the Master Servicer exercises its purchase option as
provided in Section 10.01, the Trust shall be terminated in accordance with the
following additional requirements, unless the Trustee shall have been furnished
with an Opinion of Counsel to the effect that the failure of the Trust to comply
with the requirements of this Section will not (i) result in the imposition of
taxes on "prohibited transactions" of the Trust as defined in Section 860F of
the Code or (ii) cause the Trust to fail to qualify as a REMIC at any time that
any Class A Certificates are outstanding:
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(i) Within 90 days prior to the final Distribution Date, the Servicer shall
adopt and the Trustee shall sign a plan of complete liquidation of the
REMIC meeting the requirements of a "Qualified Liquidation" under Section
860F of the Code and any regulations thereunder;
(ii) At or after the time of adoption of such a plan of complete
liquidation and at or prior to the final Distribution Date, the Trustee
shall sell all of the assets of the Trust to the Master Servicer for cash;
and
(iii) At the time of the making of the final payment on the
Certificates, the Trustee shall distribute or credit, or cause to be
distributed or credited (A) to each Class of Class A Certificateholders the
related Class A Principal Balance, plus one month's interest thereon at the
Class A Pass-Through Rate, (B) to the Certificate Insurer, all amounts
owing to the Certificate Insurer under this Agreement and the Insurance
Agreement and (C) to the Class R Certificateholders, all cash on hand after
such payment to the Class A Certificateholders and the Certificate Insurer
(other than cash retained to meet claims) and the Trust shall terminate at
such time.
(b) By their acceptance of the Class A Certificates, the Holders thereof
hereby agree to appoint the Trustee as their attorney in fact to: (i) adopt such
a plan of complete liquidation (and the Certificateholders hereby appoint the
Trustee as their attorney in fact to sign such plan) as appropriate or upon the
written request of the Certificate Insurer and (ii) to take such other action in
connection therewith as may be reasonably required to carry out such plan of
complete liquidation all in accordance with the terms hereof.
(c) The Trustee shall, upon retirement of the Class A Certificates, furnish
to the Certificate Insurer a notice of such retirement and, upon retirement of
the Class A Certificates and the expiration of the term of the Policy, surrender
the Policy to the Certificate Insurer.
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ARTICLE XI
REMIC PROVISIONS
SECTION 11.01. REMIC Administration.
--------------------
(a) The Trustee shall elect that the Trust Fund (other than the Initial
Interest Coverage Account, the Funding Account, and the Basis Risk Reserve Fund)
be treated as three separate REMICs for federal and any applicable state and
local income tax purposes. The assets of REMIC 1 will consist of all of the
assets constituting the Trust Estate Fund other than the Basis Risk Reserve Fund
and rights of the Holders of the Class A Certificates and Class X Certificates
to distributions there from REMIC 1 will issue classes of interests which will
be the REMIC 1 Regular Interests (which will be uncertificated and will
represent the "regular interests" in REMIC 1) and the Class R2 Interest, which
will be the sole class of "residual interests" in REMIC 1. The Trustee will
hold the REMIC 1 Regular Interests in trust for the benefit of REMIC 2. The
assets of REMIC 2 will consist of the REMIC 1 Regular Interests. REMIC 2 will
issue classes of interests, which will be the REMIC 2 Regular Interests (which
will be uncertificated and will represent the "regular interests" in REMIC 2)
and the Class R3 Interest, which will be the sole class of "residual interests"
in REMIC 2. The assets of REMIC 3 will consist of the REMIC 2 Regular
Interests. REMIC 3 will issue the Class A and Class X (which except for the
Class A Certificates' rights to Excess Basis Risk Shortfall will represent the
"regular interests" in REMIC 3) and the Class R1 Interest, which will be the
sole class of "residual interests" in REMIC 3. The Class R Certificates will
represent beneficial ownership of the Class R1 Interest, Class R2 Interest and
Class R3 Interest. The Owner of the Class R Certificate representing the Tax
Matters Person Residual Interest is hereby designated at any time the largest
Percentage Interest in the Class R Certificates shall be the "tax matters
person" as defined in the REMIC Provisions (the "Tax Matters Person") with
respect to each of REMIC 1, REMIC 2 and REMIC 3.
The Trustee shall treat the Class A Certificates as a regular interest with
a principal balance equal to the sum of the outstanding Certificate Principal
Balance for the Class A Certificates for such Distribution Date plus the
outstanding amount of REMIC Basis Risk Shortfalls for such Distribution Date.
The Trustee shall treat the Class A Certificateholders' rights to receive
payments of Excess Basis Risk Shortfall as an interest rate cap agreement (the
"Cap Agreement") that the Trustee holds separate and apart from the portion of
the Class A Certificates treated as a REMIC regular interest and shall treat the
Class A Certificateholders as owning the portion of the Class A Certificate
treated as a REMIC regular interest issued by REMIC 3 and the Cap Agreement
through a trust treated as a grantor trust under subpart E of part 1 of
subchapter J of Chapter 1 of subtitle A of the Code. The Trustee shall treat
the Cap Agreement as having a value of $10,000 for purposes of determining the
issue price of the regular interests issued by each REMIC and calculating the
income of Class A Certificateholders under the Cap Agreement. Notwithstanding
any other provision of this Agreement, the Basis Risk Reserve Fund shall be
treated as an outside reserve fund within the meaning of Treasury regulation
section 1.860G-2(h) and not an asset of any REMIC created pursuant to this
Agreement, the owners of the Basis Risk Reserve Fund shall be the owner(s) of
the Class X Certificates, and for all federal tax purposes, amounts transferred
by REMIC 3 to the Basis Risk Reserve Fund shall be treated as distributed by
REMIC 3 to the owner(s) of the Class X Certificates and owners of the Class
125
X Certificates shall include as income their pro rata share of the income of
such fund including income from the regular interests ownership of which is
represented by the Class X Certificates.
(b) The Closing Date is hereby designated as the "Startup Day" within the
meaning of Section 860G(a)(9) of the Code of each REMIC created pursuant to this
Trust Agreement.
(c) The Trustee, as agent for the Trust Fund's Tax Matters Person, shall
(i) act on behalf of the Trust Fund (including any REMIC created by this
Agreement) in relation to any tax matter or controversy involving the Trust Fund
(including, but not limited to, any administrative or judicial proceedings with
respect to the Trust Fund that involve the Internal Revenue Service or state tax
authorities) and (ii) represent the Trust Fund in any administrative or judicial
proceeding relating to an examination or audit by any governmental taxing
authority with respect thereto. Expenses incurred by the Trustee in so
representing or acting on behalf of the Trust Fund shall be expenses of the
Trust Fund and the Trustee shall be entitled to be reimbursed therefor from the
Collection Account, any such right of reimbursement being prior to the rights of
the Certificateholders to receive any amount in the Collection Account. The
holder of the largest Percentage Interest of the Residual Certificates shall be
designated, in the manner provided under Treasury regulations section 1.860F-
4(d) and temporary Treasury regulations section 301.6231(a)(7)-1T, as the tax
matters person of the Trust Fund. By their acceptance thereof, the holder of
the largest Percentage Interest of the Residual Certificates hereby agrees to
irrevocably appoint the Trustee or an Affiliate as its agent to perform all of
the duties of the tax matters person for the Trust Fund.
(d) The Trustee shall prepare, sign and file all of the Tax Returns in
respect of each REMIC created hereunder and the grantor trust holding the Cap
Agreement. The expenses of preparing and filing such returns shall be borne by
the Trustee without any right of reimbursement therefor. The Master Servicer
shall provide on a timely basis to the Trustee or its designee such information
with respect to the assets of the Trust Fund as is in its possession and
reasonably required by the Trustee to enable it to perform its obligations under
this Article.
(e) The Trustee shall perform on behalf of the Trust Fund all reporting and
other tax compliance duties that are the responsibility of the REMICs under the
Code, the REMIC Provisions or other compliance guidance issued by the Internal
Revenue Service or any state or local taxing authority. Among its other duties,
as required by the Code, the REMIC Provisions or other such compliance guidance,
the Trustee shall provide (i) to any Transferor of a Residual Certificate such
information as is necessary for the application of any tax relating to the
transfer of a Residual Certificate to any Person who is not a Permitted
Transferee, (ii) to the Certificateholders such information or reports as are
required by the Code or the REMIC Provisions including reports relating to
interest, original issue discount and market discount or premium (using the
Prepayment Assumption as required) and (iii) to the Internal Revenue Service the
name, title, address and telephone number of the person who will serve as the
representative of the Trust Fund. The Master Servicer shall provide on a timely
basis to the Trustee such information with respect to the assets of the Trust
Fund, including, without limitation, the Mortgage Loans, as is in its possession
and reasonably required by the Trustee to enable it to perform its obligations
under this subsection. In addition, the Depositor shall provide or cause to be
provided to the Trustee, within ten (10) days after the Closing Date, all
information or data that the Trustee reasonably determines to be relevant for
tax purposes as to the
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valuations and issue prices of the Certificates, including, without limitation,
the price, yield, prepayment assumption and projected cash flow of the
Certificates.
(f) The Trustee shall take such action and shall cause each of the REMICs
created hereunder to take such action as shall be necessary to create or
maintain the status thereof as a REMIC under the REMIC Provisions and the Master
Servicer shall assist the Trustee, to the extent reasonably requested by the
Trustee. The Trustee shall not take any action, cause the Trust Fund to take
any action or fail to take (or fail to cause to be taken) any action that, under
the REMIC Provisions, if taken or not taken, as the case may be, could (i)
endanger the status of the REMICs or (ii) result in the imposition of a tax upon
the Trust Fund and any REMIC created hereunder (including but not limited to the
tax on prohibited transactions as defined in Section 860F(a)(2) of the Code and
the tax on contributions to a REMIC set forth in Section 860G(d) of the Code)
(either such event, an "Adverse REMIC Event") unless the Trustee has received an
Opinion of Counsel, addressed to the Trustee and the Certificate Insurer (at the
expense of the party seeking to take such action but in no event at the expense
of the Trustee) to the effect that the contemplated action will not, with
respect to the REMICs created hereunder, endanger such status or result in the
imposition of such a tax, nor shall the Master Servicer take or fail to take any
action (whether or not authorized hereunder) as to which the Trustee has advised
it in writing that it has received an Opinion of Counsel to the effect that an
Adverse REMIC Event could occur with respect to such action. In addition, prior
to taking any action with respect to the Trust Fund or the assets of the Trust
Fund, or causing the Trust Fund to take any action, which is not expressly
permitted under the terms of this Agreement, the Master Servicer will consult
with the Trustee or its designee, in writing, with respect to whether such
action could cause an Adverse REMIC Event to occur with respect to the Trust
Fund, and the Master Servicer shall not take any such action or cause the Trust
Fund to take any such action as to which the Trustee has advised it in writing
that an Adverse REMIC Event could occur. The Trustee may consult with counsel
to make such written advice, and the cost of same shall be borne by the party
seeking to take the action not permitted by this Agreement, but in no event
shall such cost be an expense of the Trustee. At all times as may be required
by the Code, the Trustee will ensure that substantially all of the assets of
each of the REMICs created hereunder will consist of "qualified mortgages" as
defined in Section 860G(a)(3) of the Code and "permitted investments" as defined
in Section 860G(a)(5) of the Code and may for this purpose conclusively rely
upon the Opinion of Counsel delivered pursuant to Section 2.03(d) hereof.
(g) In the event that any tax is imposed on "prohibited transactions" of
the REMICs created hereunder as defined in Section 860F(a)(2) of the Code, on
the "net income from fore closure property" of the REMIC as defined in Section
860G(c) of the Code, on any contributions to the REMICs after the Startup Day
therefor pursuant to Section 860G(d) of the Code, or any other tax is imposed by
the Code or any applicable provisions of state or local tax laws, such tax shall
be charged (i) to the Trustee pursuant to Section 11.01 hereof, if such tax
arises out of or results from the negligence or willful misconduct of the
Trustee, (ii) to the Master Servicer pursuant to Section 11.01 hereof, if such
tax arises out of or results from a breach by the Master Servicer of any of its
obligations under Article III or this Article XI, or otherwise (iii) against
amounts on deposit in the Distribution Account and shall be paid by withdrawal
therefrom.
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(h) On or before April 15 of each calendar year, commencing April 15, 1998,
the Trustee shall deliver to the Master Servicer and each Rating Agency a
Certificate from a Responsible Officer of the Trustee stating the Trustee's
compliance with this Article XI.
(i) The Trustee and the Master Servicer shall, for federal income tax
purposes, maintain books and records with respect to the Trust Fund on a
calendar year and on an accrual basis. The Closing Date shall be the Start-Up
Date for each REMIC created by this Agreement. The latest possible maturity
date for each REMIC shall be the Distribution Date in December 2027.
(j) Following the Startup Day, the Trustee shall not accept any
contributions of assets to the Trust Fund other than in connection with any
Qualified Substitute Mortgage Loan delivered in accordance with Section 2.03
unless it shall have received an Opinion of Counsel to the effect that the
inclusion of such assets in the REMIC will not cause the REMIC to fail to
qualify as a REMIC at any time that any Certificates are outstanding or subject
the REMIC to any tax under the REMIC Provisions or other applicable provisions
of federal, state and local law or ordinances.
(k) Neither the Trustee nor the Master Servicer shall enter into any
arrangement by which the Trust Fund will receive a fee or other compensation for
services nor permit the REMICs to receive any income from assets other than
"qualified mortgages" as defined in Section 860G(a)(3) of the Code or "permitted
investments" as defined in Section 860G(a)(5) of the Code.
SECTION 11.02. Prohibited Transactions and Activities.
--------------------------------------
None of the Depositor, the Master Servicer, the Seller or the Trustee shall
sell, dispose of or substitute for any of the Mortgage Loans (except in
connection with (i) the foreclosure of a Mortgage Loan, including but not
limited to, the acquisition or sale of a Mortgaged Property acquired by deed in
lieu of foreclosure, (ii) the bankruptcy of the Trust Fund (iii) the termination
of the Trust Fund pursuant to Article X of this Agreement, (iv) a substitution
pursuant to Article III of this Agreement or (v) a purchase of Mortgage Loans
pursuant to Article II or III of this Agreement), nor acquire any assets for the
Trust Fund (other than REO Property acquired in respect of a defaulted Mortgage
Loan), nor sell or dispose of any investments in the Collection Account or the
Distribution Account for gain, nor accept any contributions to the Trust Fund
after the Closing Date (other than a Qualified Substitute Mortgage Loan
delivered in accordance with Section 2.03), unless it has received an Opinion of
Counsel, addressed to the Certificate Insurer and the Trustee (at the expense of
the party seeking to cause such sale, disposition, substitution, acquisition or
contribution but in no event at the expense of the Trustee) that such sale,
disposition, substitution, acquisition or contribution will not (a) affect
adversely the status of the Trust Fund as a REMIC or (b) cause the Trust Fund to
be subject to a tax on "prohibited transactions" or "contributions" pursuant to
the REMIC Provisions.
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ARTICLE XII
MISCELLANEOUS PROVISIONS
SECTION 12.01. Amendment.
---------
This Agreement may be amended from time to time by the Seller, the Master
Servicer, the Depositor and the Trustee, in each case without the consent of any
of the Certificateholders, but only with the consent of the Certificate Insurer,
(i) to cure any ambiguity, (ii) to correct any defective provisions or to
correct or supplement any provisions herein that may be inconsistent with any
other provisions herein, (iii) to add to the duties of the Master Servicer, (iv)
to add any other provisions with respect to matters or questions arising under
this Agreement or the Policy, as the case may be, which shall not be
inconsistent with the provisions of this Agreement, (v) to add or amend any
provisions of this Agreement as required by any Rating Agency or any other
nationally recognized statistical rating agency in order to maintain or improve
any rating of each Class of Class A Certificates (it being understood that,
after obtaining the ratings in effect on the Closing Date, neither the Trustee,
the Seller, the Depositor nor the Master Servicer is obligated to obtain,
maintain or improve any such rating), (vi) to add or amend any provisions of
this Agreement to such extent as shall be necessary to maintain the
qualification of the Trust as a REMIC or (vii) with the consent of the Sub-
Servicer, to provide for separate servicing of certain Mortgage Loans that may
be sub-performing or non-performing by a special servicer or otherwise so long
as (a) any fees to be paid in respect thereof on any Distribution Date in excess
of the Servicing Fee are paid from the Available Distribution Amount for such
Distribution Date remaining after payment of all amounts due the Class A
Certificateholders and the Certificate Insurer, (b) such servicing will be in
accordance with the terms of this Pooling and Servicing Agreement including,
without limitation, the provisions of Section 3.01, (c) the entity performing
such servicing is acceptable to the Certificate Insurer and, as evidenced in
writing from the Rating Agencies, the appointment of such entity will not result
in a downgrading or withdrawal of the respective ratings then assigned to the
Class A Certificates without regard to the Policy and (d) if such provisions
relating to such separate servicing permit the termination, without cause, of
the entity performing such servicing by 51% Percentage Interest of the Class X
Certificateholders, and the appointment of a successor to such entity by such
Class X Certificateholders, the conditions set forth in clauses (a), (b) and (c)
above shall be required to be satisfied with respect to such appointment;
provided, however, that (x) as evidenced by an Opinion of Counsel (at the
-------- -------
expense of the requesting party) in each case such action shall not, adversely
affect in any material respect the interest of any Certificateholder and the
Certificate Insurer, (y) in each case, such action is necessary or desirable to
maintain the qualification of the Trust as a REMIC or shall not adversely affect
such qualification and (z) if the opinion called for in clause (x) cannot be
delivered with regard to an amendment pursuant to clause (vi) above, such
amendment is necessary to maintain the qualification of the Trust as a REMIC;
and provided, further, that the amendment shall not be deemed to adversely
-------- -------
affect in any material respect the interests of the Certificateholders and no
Opinion of Counsel to that effect shall be required if the Person requesting the
amendment obtains a letter from the Rating Agency stating that the amendment
would not result in the downgrading or withdrawal of the respective ratings then
assigned to the Class A Certificates.
129
This Agreement also may be amended from time to time by the Seller, the
Master Servicer, the Depositor and the Trustee, and the Master Servicer and the
Certificate Insurer may from time to time consent to the amendment of the Policy
with the consent of the Holders of each Class of Class A Certificates which is
affected by such amendment, evidencing Percentage Interests aggregating not less
than 51% of such Class or in the case of an amendment which affects all classes,
evidencing Percentage Interests aggregating not less than 51% of all Classes),
and in the case of an amendment to this Agreement, with the consent of the
Certificate Insurer, 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 Certificateholders; provided, however,
-------- -------
that no such amendment shall (1) reduce in any manner the amount of, or delay
the timing of, payments on the Certificates or distributions or payments under
the Policy which are required to be made on any Certificate without the consent
of the Holder of such Certificate or (2) reduce the aforesaid percentage
required to consent to any such amendment, without the consent of the Holders of
all Certificates then outstanding.
Prior to the solicitation of consent of Certificateholders in connection
with any such amendment, the party seeking such amendment shall furnish the
Trustee with an Opinion of Counsel stating whether such amendment would
adversely affect the qualification of the Trust as a REMIC and notice of the
conclusion expressed in such Opinion of Counsel shall be included with any such
solicitation. An amendment made with the consent of all Certificateholders and
executed in accordance with this Section shall be permitted or authorized by
this Agreement notwithstanding that such Opinion of Counsel may conclude that
such amendment would adversely affect the qualification of the Trust as a REMIC.
Prior to the execution of any such amendment, the Trustee shall furnish
written notification of the substance of such amendment to each Rating Agency.
In addition, promptly after the execution of any such amendment made with the
consent of the Certificateholders, the Trustee shall furnish written
notification of the substance of such amendment to each Certificateholder and
fully executed original counterparts of the instruments effecting such amendment
to the Certificate Insurer.
It shall not be necessary for the consent of Certificateholders under this
Section to approve the particular form of any proposed amendment or consent, but
it shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents and of evidencing the authorization of the
execution thereof by Certificateholders shall be subject to such reasonable
requirements as the Trustee may prescribe.
Prior to the execution of any amendment to this Agreement, the 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 Trustee may, but shall not be obligated to, enter into any such amendment
which affects the Trustee's own rights, duties or immunities under this
Agreement.
SECTION 12.02. Recordation of Agreement.
------------------------
This Agreement is subject to recordation in all appropriate public offices
for real property records in all the counties or other comparable jurisdictions
in which any or all of the properties
130
subject to the Mortgages are situated, and in any other appropriate public
recording office or elsewhere, such recordation to be effected by the Seller,
but only upon written direction of Certificateholders accompanied by an Opinion
of Counsel to the effect that such recordation materially and beneficially
affects the interests of Certificateholders. The Seller requesting such
recordation shall bear all costs and expenses of such recordation. The Trustee
shall have no obligation to ascertain whether such recordation so affects the
interests of the Certificateholders.
SECTION 12.03. Limitation on Rights of Certificateholders.
------------------------------------------
The death or incapacity of any Certificateholder shall not operate to
terminate this Agreement or the Trust, nor entitle such Certificateholder's
legal representatives or heirs to claim an accounting or to take any action or
commence any proceeding in any court for a partition or winding up of the Trust,
nor otherwise affect the rights, obligations and liabilities of the parties
hereto or any of them.
No Certificateholder shall have any right to vote (except as provided in
Sections 7.01, 8.01, 8.02 or 12.01) or in any manner otherwise control the
operation and management of the Trust, or the obligations of the parties hereto,
nor shall anything herein set forth, or contained in the terms of the
Certificates, be construed so as to constitute the Certificateholders from time
to time as partners or members of an association; nor shall any
Certificateholder be under any liability to any third person by reason of any
action taken by the parties to this Agreement pursuant to any provision hereof.
No Certificateholder shall have any right by virtue or by availing itself
of any provisions of this Agreement to institute any suit, action or proceeding
in equity or at law upon or under or with respect to this Agreement, unless such
Holder previously shall have given to the Trustee a written notice of default
and of the continuance thereof, as hereinbefore provided, and unless also the
Holders of Class A Certificates evidencing Percentage Interests aggregating not
less than 51% shall have made written request upon the Trustee to institute such
action, suit or proceeding in its own name as Trustee hereunder and shall have
offered to the Trustee such reasonable indemnity as it may require against the
costs, expenses and liabilities to be incurred therein or thereby, and the
Trustee, for 60 days after its receipt of such notice, request and offer of
indemnity, shall have neglected or refused to institute any such action, suit or
proceeding; it being understood and intended, and being expressly covenanted by
each Certificateholder with every other Certificate holder and the Trustee, that
no one or more Holders of Certificates shall have any right in any manner
whatever by virtue or by availing itself or themselves of any provisions of this
Agreement to affect, disturb or prejudice the rights of the Holders of any other
of the Certificates, or to obtain or seek to obtain priority over or preference
to any other such Holder, or to enforce any right under this Agreement, except
in the manner herein provided and for the equal, ratable and common benefit of
all Certificateholders. For the protection and enforcement of the provisions of
this Section, each and every Certificateholder and the Trustee shall be entitled
to such relief as can be given either at law or in equity.
SECTION 12.04. Governing Law.
-------------
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND
131
REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH
LAWS.
SECTION 12.05. Notices.
-------
(a) 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 certified mail, return receipt requested, to: (a) in the case of the
Depositor, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ World Financial Center, New York, New York
10285, Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, (b) in the case of the Seller, ▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, (c)
in the case of the Trustee, ▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention:
Corporate Trust: ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇-▇, ▇▇▇▇▇▇▇▇▇: (▇▇▇) ▇▇▇-▇▇▇▇, (d) in the case
of the Certificate Insurer, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, Attention:
Surveillance Department, Re: United PanAm Mortgage Loan Asset Backed
Certificates, Series 1997-1, (e) in the case of ▇▇▇▇▇'▇, Home Mortgage Loan
Monitoring Group, 4th Floor, ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, (f) in
the case of Standard & Poor's, ▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇, Attention: Residential Mortgage Group, and (g) in the case of the Master
Servicer, ▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
Attention: Secretary, with a copy to Ocwen Federal Bank, FSB, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: Secretary, or, as to
each party, at such other address as shall be designated by such party in a
written notice to each other party. In each case in which a notice or other
communication to the Certificate Insurer refers to a Master Servicer Event of
Default or a claim under the Policy or with respect to which failure on the part
of the Certificate Insurer to respond shall be deemed to constitute consent or
acceptance, then a copy of such notice or other communication should also be
sent to the attention of the General Counsel and the Head-Financial Guaranty
Group and shall be marked to indicate "URGENT MATERIAL ENCLOSED." Any notice
required or permitted to be mailed to a Certificateholder shall be given by
first class mail, postage prepaid, at the address of such Holder as shown in the
Certificate Register. Any notice so mailed within the time prescribed in this
Agreement shall be conclusively presumed to have been duly given, whether or not
the Certificate holder receives such notice. Any notice or other document
required to be delivered or mailed by the Trustee to any Rating Agency shall be
given on a best efforts basis and only as a matter of courtesy and accommodation
and the Trustee shall have no liability for failure to delivery such notice or
document to any Rating Agency.
(b) Notice to S&P, ▇▇▇▇▇'▇ and the Certificate Insurer. The Trustee and
--------------------------------------------------
the Master Servicer shall each be obligated to use its best efforts promptly to
provide notice, at the expense of the Master Servicer, to S&P, ▇▇▇▇▇'▇ and the
Certificate Insurer with respect to each of the following of which a Responsible
Officer of the Trustee or Master Servicer, as the case may be, has actual
knowledge:
(i) Any material change or amendment to this Agreement;
(ii) The occurrence of any Master Servicer Event of Default that
has not been cured or waived;
(iii) The resignation or termination of the Master Servicer or
the Trustee;
132
(iv) The final payment to Holders of the Certificates of any
Class;
(v) Any change in the location of any Account;
(vi) Any event that would result in the inability of the Master
Servicer to make Monthly Advances; and
(vii) The repurchase or substitution of Mortgage Loans
pursuant to or as contemplated by Section 2.03.
(c) In addition, (i) the Trustee shall promptly furnish to each Rating
Agency and the Certificate Insurer copies of the following:
(A) Each annual report to Certificateholders described in Section
4.02; and
(B) Each Statement to Certificateholders described in Section
4.02; and
(ii) The Master Servicer shall promptly furnish to each Rating
Agency and the Certificate Insurer copies of the following:
(A) Each annual statement as to compliance described in Section
3.18;
(B) Each annual independent public accountants' servicing report
described in Section 3.19; and
(C) Each notice delivered pursuant to Section 7.01 which relates
to the fact that the Master Servicer has not made a Monthly Advance.
Any such notice pursuant to this Section shall be in writing and shall be
deemed to have been duly given if personally delivered or mailed by first class
mail, postage prepaid, or by express delivery service to the addresses specified
above for each such Rating Agency.
SECTION 12.06. Severability of Provisions.
--------------------------
If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be for any reason whatsoever held invalid, 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 provisions of this
Agreement or of the Certificates or the rights of the Holders thereof.
SECTION 12.07. Assignment.
----------
Notwithstanding anything to the contrary contained herein, except as
provided in Sections 6.02, 6.04 and 6.05, this Agreement may not be assigned by
the Depositor or the Master Servicer
133
without the prior written consent of the Certificate Insurer and Holders of the
Certificates evidencing Percentage Interests aggregating not less than 66%.
SECTION 12.08. Certificates Nonassessable and Fully Paid.
-----------------------------------------
The parties agree that the Certificateholders shall not be personally
liable for obligations of the Trust, that the beneficial ownership interests
represented by the Certificates shall be non assessable for any losses or
expenses of the Trust or for any reason whatsoever, and that the Certificates
upon execution, authentication and delivery thereof by the Trustee pursuant to
Section 5.01 are and shall be deemed fully paid.
SECTION 12.09. Third-Party Beneficiaries.
-------------------------
This Agreement will inure to the benefit of and be binding upon the parties
hereto, the Certificateholders, the Certificate Owners, the Certificate Insurer
and their respective successors and permitted assigns. Except as otherwise
provided in this Agreement, no other person will have any right or obligation
hereunder.
SECTION 12.10. Intention of the Parties.
------------------------
The parties hereto intend that the transaction set forth herein be a sale
by the Depositor to the Trust or the Seller to the Trust, as applicable, of all
its respective right, title and interest in and to the Mortgage Loans and other
property described herein. In the event the transaction set forth herein is
deemed not to be a sale, the Depositor or the Seller, as applicable, hereby
grants to the Trust a security interest in all of its right, title and interest
in, to and under the Mortgage Loans and other property described above and this
Agreement shall constitute a security agreement under applicable law.
SECTION 12.11. Counterparts.
------------
This Agreement may be executed in any number of counterparts, each of which
so executed shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same instrument.
SECTION 12.12. Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
134
IN WITNESS WHEREOF, the Depositor, the Seller, the Master Servicer and
the Trustee have caused this Agreement to be duly executed by their respective
officers all as of the day and year first above written.
▇▇▇▇▇▇ ABS CORPORATION,
as Depositor
By /s/
---------------------------------
Name:
Title:
UNITED PANAM MORTGAGE CORPORATION
as Seller
By /s/
---------------------------------
Name:
Title
PAN AMERICAN BANK, FSB,
as Master Servicer
By /s/
---------------------------------
Name:
Title
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee
By /s/
---------------------------------
Name:
Title:
With respect to its obligations under Section 2.03
Agreed to and Accepted by:
PAN AMERICAN FEDERAL BANK, FSB
By /s/
_________________________________
Name:
Title: