EXHIBIT 4.1
EXECUTION COPY
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SALE AND SERVICING AGREEMENT
Dated as of December 18, 2003
among
HFC REVOLVING CORPORATION
(Depositor)
HOUSEHOLD HOME EQUITY LOAN TRUST 2003-2
(Trust)
HOUSEHOLD FINANCE CORPORATION
(Master Servicer)
and
JPMORGAN CHASE BANK
(Indenture Trustee)
Household Home Equity Loan Trust 2003-2
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Table of Contents
Page
ARTICLE I. DEFINITIONS...................................................2
SECTION 1.01 Definitions..........................................2
SECTION 1.02 Other Definitional Provisions.......................20
SECTION 1.03 Interest Calculations...............................21
ARTICLE II. CONVEYANCE OF HOME EQUITY LOANS; TAX TREATMENT...............22
SECTION 2.01 Acknowledgment; Conveyance of Home Equity
Loans; Custody of Mortgage Files....................22
SECTION 2.02 Acceptance by Indenture Trustee; Repurchase of
Home Equity Loans; Conveyance of Eligible
Substitute Home Equity Loans........................26
SECTION 2.03 Representations, Warranties and Covenants of
the Master Servicer.................................27
SECTION 2.04 Representations and Warranties of the Depositor
Regarding this Agreement and the Home Equity
Loans; Repurchases and Substitutions................29
SECTION 2.05 Tax Treatment.......................................34
ARTICLE III. ADMINISTRATION AND SERVICING OF HOME EQUITY LOANS............35
SECTION 3.01 The Master Servicer.................................35
SECTION 3.02 Collection of Certain Home Equity Loan Payments.....38
SECTION 3.03 Withdrawals from the Collection Account.............40
SECTION 3.04 Maintenance of Hazard Insurance; Property
Protection Expenses.................................41
SECTION 3.05 Assumption and Modification Agreements..............41
SECTION 3.06 Realization Upon Defaulted Home Equity Loans........42
SECTION 3.07 [Reserved]..........................................43
SECTION 3.08 Indenture Trustee to Cooperate......................43
SECTION 3.09 Servicing Compensation; Payment of Certain
Expenses by Master Servicer.........................43
SECTION 3.10 Annual Statement as to Compliance...................44
SECTION 3.11 Annual Servicing Report.............................44
SECTION 3.12 Access to Certain Documentation and Information
Regarding the Home Equity Loans.....................45
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Table of Contents
(continued)
Page
SECTION 3.13 Maintenance of Certain Servicing Insurance
Policies............................................45
SECTION 3.14 Reports to the Securities and Exchange
Commission..........................................45
SECTION 3.15 [Reserved]..........................................45
SECTION 3.16 Information Required by the Internal Revenue
Service Generally and Reports of Foreclosures
and Abandonments of Mortgaged Property..............45
SECTION 3.17 Additional Covenants of HFC.........................46
SECTION 3.18 Servicing Certificate...............................46
ARTICLE IV. [RESERVED]...................................................50
ARTICLE V. PRIORITY OF PAYMENTS; STATEMENTS TO NOTEHOLDERS; RIGHTS
OF NOTEHOLDERS...............................................51
SECTION 5.01 Payments............................................51
SECTION 5.02 Calculation of LIBOR, the Class A Formula Rate
and Class M Formula Rate............................53
SECTION 5.03 Statements to Noteholders...........................54
ARTICLE VI. THE MASTER SERVICER AND THE DEPOSITOR........................58
SECTION 6.01 Liability of the Master Servicer and the
Depositor...........................................58
SECTION 6.02 Merger or Consolidation of, or Assumption of
the Obligations of, the Master Servicer or the
Depositor...........................................58
SECTION 6.03 Limitation on Liability of the Master Servicer,
the Depositor and Others............................58
SECTION 6.04 Master Servicer Not to Resign.......................59
SECTION 6.05 Delegation of Duties................................59
ARTICLE VII. MASTER SERVICER TERMINATION..................................60
SECTION 7.01 Master Servicer Termination Events..................60
SECTION 7.02 Indenture Trustee to Act; Appointment of
Successor...........................................61
SECTION 7.03 Waiver of Defaults..................................63
SECTION 7.04 Notification to Noteholders.........................63
ARTICLE VIII. TERMINATION..................................................64
SECTION 8.01 Termination.........................................64
ARTICLE IX. MISCELLANEOUS PROVISIONS.....................................67
SECTION 9.01 Amendment...........................................67
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Table of Contents
(continued)
Page
SECTION 9.02 Recordation of Agreement............................68
SECTION 9.03 Duration of Agreement...............................68
SECTION 9.04 Governing Law.......................................68
SECTION 9.05 Notices.............................................68
SECTION 9.06 Severability of Provisions..........................69
SECTION 9.07 No Partnership......................................69
SECTION 9.08 Counterparts........................................69
SECTION 9.09 Successors and Assigns..............................69
SECTION 9.10 Headings............................................69
SECTION 9.11 Indenture Trustee...................................69
SECTION 9.12 Inconsistencies Among Transaction Documents.........70
SECTION 9.13 [Reserved]..........................................70
SECTION 9.14 Limitation on Voting of Preferred Stock.............70
SECTION 9.15 Perfection Representations..........................70
SECTION 9.16 Limitation of Liability.............................70
SECTION 9.17 Inspection of Mortgage Files........................70
SECTION 9.18 [Reserved]..........................................70
ARTICLE X. MISCELLANEOUS PROVISIONS.....................................71
SECTION 10.01 Administrative Duties...............................71
SECTION 10.02 Records.............................................73
SECTION 10.03 Additional Information to be Furnished to the
Trust...............................................73
EXHIBITS
SCHEDULE 1 Perfection Representations, Warranties and Covenants
SCHEDULE 2 Sellers
EXHIBIT A Home Equity Loan Schedule
EXHIBIT A-1 Conduit Home Equity Loans
EXHIBIT A-2 Term Home Equity Loans
EXHIBIT B Form of Class A and Class M Notes
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This Sale and Servicing Agreement (the "Agreement") is entered into
effective as of December 18, 2003, among Home Equity Loan Trust 2003-2, a
Delaware statutory trust (the "Trust"), HFC Revolving Corporation, a Delaware
corporation, as depositor (the "Depositor"), Household Finance Corporation, a
Delaware corporation, as master servicer (the "Master Servicer"), and JPMorgan
Chase Bank, a New York banking corporation, as Indenture Trustee on behalf of
the Noteholders (in such capacity, the "Indenture Trustee").
PRELIMINARY STATEMENT
WHEREAS, the Trust desires to purchase from the Depositor a pool of Home
Equity Loans which were acquired by the Depositor from certain sellers and an
existing warehouse trust;
WHEREAS, the Depositor, concurrently with the execution of this
Agreement, acquired the Home Equity Loans from certain sellers and the
existing warehouse trust pursuant to the Term Loan Purchase Agreement and the
Reassignment;
WHEREAS, the Master Servicer is willing to service such Home Equity
Loans in accordance with the terms of this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto hereby agree as follows:
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ARTICLE I.
DEFINITIONS
SECTION 1.01 Definitions. Whenever used in this Agreement, the following
words and phrases, unless the context otherwise requires, shall have the
meanings specified in this Article.
Accrual Period: As to the Class A and Class M Notes, for the initial
Payment Date is the period from and including the Closing Date through and
including the day immediately preceding the initial Payment Date, and for each
Payment Date thereafter is the period from and including the Payment Date in
the month immediately preceding the month in which the Payment Date occurs and
ending on and including the day immediately preceding the Payment Date.
Additional Principal Reduction Amount: As to any Payment Date, the
outstanding Pool Balance as of the first day of the related Collection Period
less the sum of (x) the outstanding Pool Balance as of the last day of the
related Collection Period and (y) the Principal Collections for such Payment
Date.
Affiliate: With respect to any Person, any other Person controlling,
controlled by or under common control with such Person. For purposes of this
definition, "control" means the power to direct the management and policies of
a Person, directly or indirectly, whether through ownership of voting
securities, by contract or otherwise and "controlling" and "controlled" shall
have meanings correlative to the foregoing.
Agreement: This Sale and Servicing Agreement and all amendments hereof
and supplements hereto.
Appraised Value: As to any Home Equity Loan, the appraised value of the
related Mortgaged Property based upon the appraisal used by the applicable
Seller at the time of origination of such Home Equity Loan (or any mortgage
loan made by the Seller on the Mortgaged Property that the Home Equity Loan
replaced); provided that if the Home Equity Loan was originated simultaneously
with or not more than 12 months after another mortgage was placed on the
related Mortgaged Property, the lesser of the Appraised Value at origination
of the other mortgage and the sales price, if any, of the related Mortgaged
Property.
Assignment of Mortgage: With respect to any Mortgage, an assignment,
notice of transfer or equivalent instrument, in recordable form, sufficient
under the laws of the jurisdiction in which the related Mortgaged Property is
located to reflect the sale of the Mortgage to the Indenture Trustee, which
assignment, notice of transfer or equivalent instrument may be in the form of
one or more blanket assignments covering the Home Equity Loans secured by
Mortgaged Properties located in the same jurisdiction.
Auction Date. As defined in Section 8.01(c).
Available Funds Cap: With respect to any Payment Date, a per annum rate
equal to the product of (x) the weighted average of the Net Loan Rates of each
Home Equity Loan, in each case outstanding as of the first day of the related
Collection Period, and (y) a fraction, the
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numerator of which is 30 and the denominator of which is the number of days in
the related Accrual Period.
Available Payment Amount: As to any Payment Date, the sum, without
duplication, of all amounts described in clauses (i) through (iv), inclusive,
of Section 3.02(b) received by the Master Servicer with respect to the related
Collection Period and deposited in the Collection Account.
BIF: The Bank Insurance Fund, as from time to time constituted, created
under the Financial Institutions Reform, Recovery and Enhancement Act of 1989,
or if at any time after the execution of this instrument the Bank Insurance
Fund is not existing and performing duties now assigned to it, the body
performing such duties on such date.
Book-Entry Note: Any Class A or Class M Note registered in the name of
the Depository or its nominee, ownership of which is reflected on the books of
the Depository or on the books of a Person maintaining an account with such
Depository (directly or as an indirect participant in accordance with the
rules of such Depository).
Business Day: Any day other than (i) a Saturday or a Sunday or (ii) a
day on which banking institutions in the State of New York or Illinois are
required or authorized by law to be closed.
Charge Off Amount: As to any Charged Off Home Equity Loan and Collection
Period, an amount equal to the amount of the Principal Balance that the Master
Servicer has charged off on its servicing records during such Collection
Period.
Charged Off Home Equity Loan: A defaulted Home Equity Loan that is not a
Liquidated Home Equity Loan and as to which (i) collection procedures are
ongoing and (ii) the Master Servicer has charged off all or a portion of the
related Principal Balance.
Class: Either the Class A or Class M Notes.
Class A Formula Rate: With respect to the Class A Notes and any Accrual
Period, a per annum rate equal to LIBOR plus 0.33%.
Class A Note: Any Note designated as a Class A Note on the face thereof,
substantially in the form of Exhibit B hereto.
Class A Noteholder: A Holder of a Class A Note.
Class A Note Rate: With respect to any Payment Date and Accrual Period,
the lesser of (i) the Class A Formula Rate and (ii) the Available Funds Cap
for such Payment Date.
Class A Supplemental Interest Amount: As of any Payment Date, the sum of
(i) the excess, if any, of (a) interest accrued on the Class A Notes during
the related Collection Period at the Class A Formula Rate over (b) interest
due on the Class A Notes at Class A Note Rate, (ii) any Class A Supplemental
Interest Amount remaining unpaid from prior Payment Dates and (iii) interest
on the amount in clause (ii) at the Class A Formula Rate.
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Class M Formula Rate: With respect to the Class M Notes and any Accrual
Period, a per annum rate equal to LIBOR plus 0.58%.
Class M Note: Any Note designated as a Class M Note on the face thereof,
substantially in the form of Exhibit B hereto.
Class M Noteholder: A Holder of a Class M Note.
Class M Note Rate: With respect to any Payment Date and Accrual Period,
the lesser of (i) the Class M Formula Rate and (ii) the Available Funds Cap
for such Payment Date.
Class M Supplemental Interest Amount: As of any Payment Date, the sum of
(i) the excess, if any, of (a) interest accrued on the Class M Notes during
the related Collection Period at the Class M Formula Rate over (b) interest
due on the Class M Notes at the Class M Note Rate, (ii) any Class M
Supplemental Interest Amount remaining unpaid from prior Payment Dates and
(iii) interest on the amount in clause (ii) at the Class M Formula Rate.
Closing Date: December 18, 2003.
Code: The Internal Revenue Code of 1986, as amended from time to time,
and any Treasury Regulations promulgated thereunder.
Collection Account: The custodial account or accounts created and
maintained for the benefit of the Noteholders and the Ownership Interest
pursuant to Section 3.02(b). The Collection Account shall be an Eligible
Account.
Collection Period: As to any Payment Date and Home Equity Loan, the
calendar month immediately preceding the month in which such Payment Date
occurs, except that with respect to the initial Payment Date, the Collection
Period is the period from the Cut-Off Date to December 31, 2003.
Combined Loan-to-Value Ratio or CLTV: As to each Home Equity Loan, a
ratio, expressed as a percentage, the numerator of which is the sum of (a) the
original Principal Balance of the Home Equity Loan and (b) the aggregate
unpaid principal balance, at the time of origination of the Home Equity Loan,
of all other mortgage loans, if any, secured by liens senior to that Home
Equity Loan on the related Mortgaged Property, and the denominator of which is
the Appraised Value of the Mortgaged Property.
Conduit Home Equity Loans: All of the Home Equity Loans transferred to
the Depositor by the Conduit Trustee pursuant to the Reassignment.
Conduit Loan Purchase Agreement: The home equity loan purchase agreement
dated as of June 28, 2002, as amended, supplemented or otherwise modified
prior to the date hereof, between the Depositor and the Sellers pursuant to
which the Sellers conveyed to the Depositor all of their right, title and
interest in and to the unpaid Principal Balance of the Conduit Home Equity
Loans, including all interest and principal payments in respect thereof
received on or after the applicable cut-off date, and certain other rights
with respect to the collateral supporting the Conduit Home Equity Loans.
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Conduit Pooling and Servicing Agreement: The pooling and servicing
agreement, dated as of June 28, 2002, as amended, supplemented or otherwise
modified prior to the date hereof, by and between Household Finance
Corporation, HFC Revolving Corporation and ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ Bank, as successor
trustee to Bank One, N.A.
Conduit Transfer Agreement: The transfer agreement dated as of June 28,
2002, as amended, supplemented or otherwise modified prior to the date hereof,
between ▇▇ ▇▇▇▇▇▇ Chase Bank, as successor trustee to Bank One, N.A., and the
Sellers pursuant to which the Sellers assigned to the Conduit Trustee all of
their right, title and interest in and to all aspects, rights, title or
interests of, in, to or under the Conduit Home Equity Loans not transferred to
the Depositor pursuant to the Conduit Loan Purchase Agreement.
Conduit Transferred Assets: As defined in the Reassignment.
Conduit Trustee: ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ Bank, as successor trustee to Bank
One, N.A., in its capacity as trustee under the Conduit Pooling and Servicing
Agreement.
Corporate Trust Office: As defined in the Indenture.
Cumulative Loss Percentage: As to any Collection Period, the fraction
(expressed as a percentage) obtained by dividing (i) the Cumulative Realized
Losses for such Collection Period, by (ii) the Cut-Off Date Pool Balance.
Cumulative Loss Percentage Trigger: As to any Payment Date on or after
the Stepdown Date, means (i) for the January 2007 Payment Date through the
December 2007 Payment Date, 10.50%; (ii) for the January 2008 Payment Date
through the December 2008 Payment Date, 15.00%; and (iii) for the January 2009
Payment Date and each Payment Date thereafter, 20.00%.
Cumulative Realized Losses: With respect to the Home Equity Loans and
any Collection Period, the sum of the aggregate Realized Losses on the Home
Equity Loans from the Cut-Off Date through the last day of such Collection
Period.
Current Interest: As to the Class A and Class M Notes and any Payment
Date, the interest accrued at the applicable Note Rate during the applicable
Accrual Period on the aggregate Note Principal Amount of such Class of Notes
as of the beginning of the Accrual Period.
Cut-Off Date: As to a Home Equity Loan, the close of business on
December 8, 2003.
Cut-Off Date Pool Balance: The aggregate of the Cut-Off Date Principal
Balances of the Home Equity Loans.
Cut-Off Date Principal Balance: As to any Home Equity Loan, the unpaid
principal balance thereof as of the Cut-Off Date or, as to any Eligible
Substitute Home Equity Loan, as of the date of substitution of such Eligible
Substitute Home Equity Loan.
Defective Home Equity Loan: Any Home Equity Loan subject to repurchase
or substitution pursuant to Section 2.02 or 2.04.
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Definitive Notes: As defined in the Indenture.
Delaware Trustee: The Bank of New York (Delaware), as Delaware trustee
under the Trust Agreement, and any successor Delaware trustee under the Trust
Agreement appointed in accordance with the terms thereof.
Deposit Date: As to any Payment Date, the Business Day immediately
preceding such Payment Date.
Deposit Event: The lowering of the Master Servicer's short-term debt
rating below "P-1" by ▇▇▇▇▇'▇, "A-1" by Standard & Poor's or "F1" by Fitch or
any time in which HFC shall cease to be the Master Servicer.
Depositor: HFC Revolving Corporation, a Delaware corporation.
Depository: The initial Depository shall be The Depository Trust
Company, the nominee of which is Cede & Co., as the registered Holder of Notes
evidencing $615,130,000 in initial aggregate principal amount of the Class A
Notes and evidencing $121,352,000 in initial aggregate principal amount of the
Class M Notes. The Depository shall at all times be a "clearing corporation"
as defined in Section 8-102(a)(5) of the UCC of the State of New York.
Depository Participant: A broker, dealer, bank or other financial
institution or other Person for whom from time to time the Depository effects
book-entry transfers and pledges of securities deposited with the Depository.
Determination Date: As to any Payment Date, the second Business Day
prior to such Payment Date.
Electronic Ledger: The electronic master record of home equity loans
(including the Home Equity Loans) maintained by the Master Servicer.
Eligible Account: An account that is either (i) maintained with a
depository institution whose short-term debt obligations at the time of any
deposit therein are rated in the highest short-term debt rating category by
the Rating Agencies, (ii) an account or accounts maintained with a depository
institution with a long-term unsecured debt rating by each Rating Agency that
is at least investment grade, provided that the deposits in such account or
accounts are fully insured by either the BIF or the SAIF, (iii) a segregated
trust account maintained on the corporate trust side with the Indenture
Trustee in its fiduciary capacity, or (iv) an account otherwise acceptable to
each Rating Agency, as evidenced by a letter to such effect from each such
Rating Agency to the Indenture Trustee, without reduction or withdrawal of the
then-current ratings of the Class A or Class M Notes.
Eligible Substitute Home Equity Loan: A Home Equity Loan substituted (a)
by the Depositor or the Master Servicer for a Defective Home Equity Loan
pursuant to Section 2.02(a) or 2.04 or (b) by the Master Servicer pursuant to
Section 2.02(b), which on the date of such substitution must
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(i) have a Principal Balance not substantially greater or less
than the Principal Balance of such Defective Home Equity Loan or such
elected substituted Home Equity Loan;
(ii) have a current Loan Rate of not less than the Loan Rate of
the Defective Home Equity Loan or elected substituted Home Equity Loan
and not more than 500 basis points in excess thereof;
(iii) have a (A) remaining term to maturity not more than six
months earlier or later than the remaining term to maturity of the
Defective Home Equity Loan or elected substituted Home Equity Loan and
(B) maturity date not later than the last day of the Collection Period
immediately preceding the month in which the Final Scheduled Payment
Date occurs;
(iv) comply with the representations and warranties set forth in
Section 2.04(b), to the extent such representations and warranties do
not pertain exclusively to the Home Equity Loans transferred on the
Closing Date;
(v) have a Combined Loan-to-Value Ratio that is not greater than
the Combined Loan-to-Value Ratio of the Defective Home Equity Loan or
elected substituted Home Equity Loan as of the date of origination of
such Defective Home Equity Loan or elected substituted Home Equity Loan;
(vi) have a lien position at least equal to the lien position of
the Mortgage relating to the Defective Home Equity Loan or elected
substituted Home Equity Loan; and
(vii) be the obligation of a Mortgagor whose credit profile is
substantially similar to that of the Mortgagor under the Defective Home
Equity Loan or elected substituted Home Equity Loan,
provided, however, that with respect to (i) through (vii) above, a home equity
loan may qualify as an Eligible Substitute Home Equity Loan if each of the
Rating Agencies confirms such substitution.
ERISA: The Employee Retirement Income Security Act of 1974, as amended.
Event of Default: As defined in the Indenture.
Extra Principal Payment Amount: As to any Payment Date, the lesser of
(x) the Monthly Excess Cashflow for such Payment Date and (y) the Interim
Overcollateralization Deficiency, if any, for such Payment Date.
▇▇▇▇▇▇ ▇▇▇: ▇▇▇▇▇▇ ▇▇▇, formerly known as The Federal National Mortgage
Association, or any successor thereto.
FDIC: The Federal Deposit Insurance Corporation and any successor
thereto.
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Final Scheduled Payment Date: With respect to the Class A and Class M
Notes, the Payment Date occurring in September 2033.
Fitch: Fitch, Inc., or its successor in interest.
Foreclosure Profit: As to any Liquidated Home Equity Loan, the amount,
if any, by which (i) the aggregate of its Liquidation Proceeds less
Liquidation Expenses exceeds (ii) the Principal Balance thereof immediately
prior to the final recovery of its Liquidation Proceeds, together with the sum
of (x) accrued and unpaid interest thereon at the applicable Loan Rate from
the date interest was last paid through the date of receipt of the final
Liquidation Proceeds and (y) the related Charge Off Amounts.
HFC: Household Finance Corporation, a Delaware corporation, and its
successors.
Home Equity Loan: Such of the home equity loans (together with the
related Mortgage Notes and Mortgages) transferred and assigned to the Trust
pursuant to Section 2.01, pursuant to the Term Transfer Agreement and pursuant
to clause (ii) of the Reassignment, together with the Related Documents, as
from time to time are held as a part of the Trust, the home equity loans
originally so held being identified in the Home Equity Loan Schedule delivered
on the Closing Date. As applicable, the term Home Equity Loan shall be deemed
to refer to the Mortgaged Property that has been converted to ownership by the
Master Servicer prior to the final recovery of related Liquidation Proceeds.
Home Equity Loan Purchase Agreement: The Term Loan Purchase Agreement
and the Conduit Loan Purchase Agreement.
Home Equity Loan Schedule: As to any date, the schedule of Home Equity
Loans, including any Eligible Substitute Home Equity Loans, included in the
Trust on such date. The initial Home Equity Loan Schedule is the schedule
delivered by the Depositor to the Indenture Trustee on the Closing Date and
delivered as Exhibit A hereto, which schedule may be in the form of a computer
file or an electronic or magnetic tape and sets forth as to each Home Equity
Loan (i) the account number, (ii) the Cut-Off Date Principal Balance, (iii)
the Loan Rate, (iv) the lien position of the related Mortgage and (v) the
CLTV. The Home Equity Loan Schedule will be amended from time to time to
reflect the removal of Home Equity Loans and the addition of any Eligible
Substitute Home Equity Loans to the Trust, and when so amended shall include
the information set forth above with respect to each Eligible Substitute Home
Equity Loan as of its related date of substitution.
Indenture: The Indenture dated December 18, 2003 between the Issuer
and the Indenture Trustee.
Indenture Trustee: JPMorgan Chase Bank, a New York banking corporation,
as Indenture Trustee under the Indenture or any successor indenture trustee
under the Indenture appointed in accordance with such agreement.
Indenture Trustee's Statement to Noteholders: As defined in Section
5.03.
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Initial Home Equity Loan: Each Home Equity Loan transferred and
assigned to the Trust on the Closing Date.
Insurance Proceeds: Proceeds paid by any insurer pursuant to any
insurance policy covering a Home Equity Loan, or by the Master Servicer
pursuant to the last sentence of Section 3.04, net of any component thereof
covering any expenses incurred by or on behalf of the Master Servicer in
connection with obtaining such Insurance Proceeds and exclusive of any portion
thereof that is applied to the restoration or repair of the related Mortgaged
Property, released to the Mortgagor in accordance with the Master Servicer's
normal servicing procedures or required to be paid to any holder of a mortgage
senior to such Home Equity Loan.
Interest Carry Forward Amount: As to each Class of Notes and any Payment
Date, the sum of (x) the amount, if any, by which (i) the sum of the Current
Interest and the Interest Carry Forward Amount for such Class of Notes as of
the immediately preceding Payment Date exceeded (ii) the amount of the actual
payments in respect to such amounts made to such Class of Notes on such
preceding Payment Date plus (y) interest on such amount calculated for the
related Accrual Period at the related Note Rate.
Interest Collections: As to any Payment Date, the sum, without
duplication of:
(i) the portion allocable to interest of all scheduled monthly payments
on the Home Equity Loans received during the related Collection Period, minus
the Servicing Fee for the related Collection Period;
(ii) all Net Liquidation Proceeds actually collected by the Master
Servicer during the related Collection Period (to the extent such Net
Liquidation Proceeds relate to interest and including Recovered Charge Off
Amounts);
(iii) the interest portion of the Purchase Price for any Home Equity
Loan repurchased from the Trust pursuant to the terms of this Agreement during
the related Collection Period;
(iv) the interest portion of all Substitution Adjustment Amounts with
respect to the related Collection Period; and
(v) to the extent advanced by the Master Servicer pursuant to Section
3.01(f) and not previously distributed, the amount of any Skip-A-Pay Advance
deposited by the Master Servicer into the Collection Account with respect to
such Payment Date.
Interim Overcollateralization Amount: As to any Payment Date, the
excess, if any, of (x) the Pool Balance as of the last day of the related
Collection Period over (y) (i) the aggregate Note Principal Amount of all
Class A and Class M Notes (before taking into account any payments of
principal on such Payment Date) less (ii) the sum of (x) the Principal
Collections for such Payment Date, (y) the Additional Principal Reduction
Amount to be paid with respect to such Payment Date and (z) the Principal
Carry Forward Amount for each Class of Notes to be paid with respect to such
Payment Date.
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Interim Overcollateralization Deficiency: As to any Payment Date, the
excess, if any, of (x) the Targeted Overcollateralization Amount for such
Payment Date over (y) the Interim Overcollateralization Amount for such
Payment Date.
Issuer: Household Home Equity Loan Trust 2003-2.
LIBOR: The per annum rate established by the Indenture Trustee in
accordance with Section 5.02.
LIBOR Business Day: Any day on which dealings in United States dollars
are transacted in the London interbank market.
LIBOR Determination Date: As to any Payment Date, the second LIBOR
Business Day before the first day of the related Accrual Period.
Lien: Any mortgage, deed of trust, pledge, conveyance, hypothecation,
assignment, participation, deposit arrangement, encumbrance, lien (statutory
or other), preference, priority right or interest or other security agreement
or preferential arrangement of any kind or nature whatsoever, including,
without limitation, any conditional sale or other title retention agreement,
any financing lease having substantially the same economic effect as any of
the foregoing or the filing of any financing statement under the UCC (other
than any such financing statement filed for informational purposes only) or
comparable law of any jurisdiction to evidence any of the foregoing.
Liquidated Home Equity Loan: As to any Payment Date, any Home Equity
Loan in respect of which the Master Servicer has determined as of the end of
the related Collection Period that all Liquidation Proceeds which it expects
to recover on such Home Equity Loan have been recovered (exclusive of any
possibility of a deficiency judgment).
Liquidation Expenses: Out-of-pocket expenses (exclusive of overhead)
that are incurred by the Master Servicer in connection with the liquidation of
any Home Equity Loan and not recovered under any insurance policy, such
expenses including, without limitation, reasonable legal fees and expenses,
any unreimbursed amount expended pursuant to Section 3.06 (including, without
limitation, amounts advanced to correct defaults on any mortgage loan that is
senior to such Home Equity Loan and amounts advanced to keep current or pay
off a mortgage loan that is senior to such Home Equity Loan) with respect to
the related Home Equity Loan and any related and unreimbursed expenditures for
real estate property taxes, mechanic's liens, title perfection, property
management or for property restoration, preservation or insurance against loss
or damage.
Liquidation Proceeds: Proceeds (including Insurance Proceeds) received
in connection with the liquidation of any Home Equity Loan, whether through
trustee's sale, foreclosure sale or otherwise.
Loan Rate: As to any Home Equity Loan and day, the per annum rate of
interest applicable under the related Mortgage Note to the calculation of
interest for such day on the Principal Balance (adjusted as required by the
Relief Act and/or any other federal, state or local legislation or
regulation).
10
Majority Noteholder: The Holder or Holders of Notes representing at
least 51% of the aggregate Note Principal Amount of the Class A and Class M
Notes.
Master Servicer: HFC, or its successor in interest, or any successor
master servicer appointed as herein provided.
Master Servicer Termination Events: As defined in Section 7.01.
MERS: Mortgage Electronic Registration Systems, Inc., a corporation
organized and existing under the laws of the State of Delaware, or any
successor thereto.
MERS(R) System: The system of recording transfers of Mortgages
electronically maintained by MERS.
MIN: The Mortgage Identification Number for Home Equity Loans
registered with MERS on the MERS(R)System.
Monthly Excess Cashflow: As to any Payment Date, the excess, if any, of
(i) Interest Collections (for clarity purposes only, net of any Servicing Fee)
received during the related Collection Period over (ii) the sum of (x) the
Current Interest plus the Interest Carry Forward Amount, if any, for each
Class of Notes for such Payment Date (after taking into account all payments
of interest on such Payment Date), (y) the Additional Principal Reduction
Amount for such Payment Date and (z) the Principal Carry Forward Amount for
each Class of Notes for such Payment Date, if any.
Moody's: ▇▇▇▇▇'▇ Investors Service, Inc., or any successor thereto.
Mortgage: The mortgage, deed of trust or other instrument creating a
first, second or third lien on an estate in fee simple interest in real
property securing a Home Equity Loan.
Mortgage File: The mortgage documents (including without limitation the
related Mortgage Note) listed in Section 2.01 pertaining to a particular Home
Equity Loan and any additional documents required to be added to the Mortgage
File pursuant to this Agreement, which documents may be physical documents or,
pursuant to the terms of Section 2.01, may be optical images or other
representations thereof.
Mortgage Note: As to a Home Equity Loan, the mortgage note or other
evidence of indebtedness under which the related Mortgagor agrees to pay the
indebtedness evidenced thereby and secured by the related Mortgage.
Mortgaged Property: The underlying property securing a Home Equity
Loan.
Mortgagor: The obligor or obligors under a Mortgage.
Net Liquidation Proceeds: As to any Liquidated Home Equity Loan, an
amount equal to the excess, if any, of (x) Liquidation Proceeds over (y)
Liquidation Expenses.
Net Loan Rate: As to any Home Equity Loan, the Loan Rate less the
Servicing Fee Rate.
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Note: Any Class A or Class M Note.
Note Owner: The Person who is the beneficial owner of a Book-Entry
Note.
Note Principal Amount: As to any Class A or Class M Note and any date of
determination, (a) the Original Note Principal Amount of such Note less (b)
the aggregate of amounts paid as principal to the Holder of such Note on
previous Payment Dates pursuant to Section 5.01 hereto.
Note Rate: Either the Class A Note Rate or the Class M Note Rate, as the
context requires.
Note Register and Note Registrar: As defined in the Indenture.
Noteholder or Holder: The Person in whose name a Note is registered in
the Note Register, except that, solely for the purpose of giving any consent,
direction, waiver or request pursuant to this Agreement or the Indenture, (x)
any Note registered in the name of the Depositor, the Master Servicer or any
Person actually known to a Responsible Officer to be an Affiliate of the
Depositor and (y) any Note for which the Depositor, the Master Servicer or any
Person actually known to a Responsible Officer to be an Affiliate of the
Depositor or the Master Servicer is the Note Owner shall be deemed not to be
outstanding (unless to the actual knowledge of a Responsible Officer (i) the
Master Servicer or the Depositor, or such Affiliate, is acting as trustee or
nominee for a Person who is not an Affiliate of the Depositor or the Master
Servicer and who makes the voting decision with respect to such Note or (ii)
the Depositor, or the Master Servicer, or such Affiliate, is the Note Owner of
all the Notes) and the Percentage Interest evidenced thereby shall not be
taken into account in determining whether the requisite amount of Percentage
Interests necessary to effect any such consent, direction, waiver or request
has been obtained.
Officer's Certificate: A certificate signed by the President, an
Executive Vice President, a Senior Vice President, a Vice President, an
Assistant Vice President, the Treasurer, Assistant Treasurer, Controller or
Assistant Controller of the Master Servicer or the Depositor, as the case may
be, and delivered to the Indenture Trustee.
Opinion of Counsel: A written opinion of counsel reasonably acceptable
to the Indenture Trustee, who may be in-house counsel for the Master Servicer
(or its affiliate).
Original Note Principal Amount: With respect to the Class A and Class M
Notes, the amount set forth below:
Original Note Principal
Class Amount
-------------------- ------------------------------------------
A $615,130,000
M $121,352,000
Overcollateralization Amount: As to any Payment Date, the excess, if
any, of (x) the Pool Balance as of the last day of the related Collection
Period over (y) the aggregate Note
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Principal Amount of all Class A and Class M Notes calculated after taking into
account all payments in respect of principal on such Payment Date.
Overcollateralization Release Amount: As to any Payment Date, the amount
(but not in excess of Principal Collections for such Payment Date) equal to
the excess, if any, of (i) the Interim Overcollateralization Amount over (ii)
the Targeted Overcollateralization Amount.
Owner Trustee: The Bank of New York, as owner trustee under the Trust
Agreement, and any successor owner trustee under the Trust Agreement appointed
in accordance with the terms thereof.
Ownership Interest: As defined in the Trust Agreement.
Paying Agent: Any paying agent appointed pursuant to the Indenture.
Payment Date: The 20th day of each month or, if such day is not a
Business Day, then the next Business Day, beginning in January 2004.
Percentage Interest: As to the Class A and the Class M Notes, the
percentage obtained by dividing the principal denomination of such Note by the
aggregate of the principal denominations of all Notes of such Class.
Perfection Representations: The representations, warranties and
covenants set forth in Schedule 1 attached hereto.
Permitted Investments: One or more of the following (excluding any
callable investments purchased at a premium):
(i) direct obligations of, or obligations fully guaranteed as to
timely payment of principal and interest by, the United States or any
agency or instrumentality thereof, provided that such obligations are
backed by the full faith and credit of the United States;
(ii) repurchase agreements on obligations specified in clause (i)
maturing not more than three months from the date of acquisition
thereof, provided that the short-term unsecured debt obligations of the
party agreeing to repurchase such obligations are at the date of
acquisition rated by each Rating Agency in its highest short-term rating
category (which is "F1" for Fitch, "A-1+" for Standard & Poor's and
"P-1" for Moody's);
(iii) certificates of deposit, time deposits and bankers'
acceptances (which, if ▇▇▇▇▇'▇ is a Rating Agency, shall each have an
original maturity of not more than 90 days and, in the case of bankers'
acceptances, shall in no event have an original maturity of more than
365 days) of any U.S. depository institution or trust company
incorporated under the laws of the United States or any state thereof
and subject to supervision and examination by federal and/or state
banking authorities, provided that the unsecured short-term debt
obligations of such depository institution or trust company at the date
of acquisition thereof have been rated by each of Moody's, Standard &
Poor's and Fitch in its highest unsecured short-term debt rating
category;
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(iv) commercial paper (having original maturities of not more than
270 days) of any corporation incorporated under the laws of the United
States or any state thereof which on the date of acquisition has been
rated by Fitch, Standard & Poor's and Moody's in their highest
short-term rating categories;
(v) short term investment funds sponsored by any trust company or
national banking association incorporated under the laws of the United
States or any state thereof which on the date of acquisition has been
rated by Fitch, Standard & Poor's and Moody's in their respective
highest rating category for long-term unsecured debt, or any other
short-term investment fund the funds in which are invested in securities
rated in the highest rating category by Fitch, Standard & Poor's and
Moody's and which mature on demand or prior to the next Payment Date;
(vi) interests in any money market fund or mutual fund which at
the date of acquisition has a rating of "Aaa" by Moody's, "AAA" by Fitch
and "AAA" (or "AAAm" or "AAAm-G" with respect to money market funds) by
Standard & Poor's or such lower rating as will not result in the
qualification, downgrading or withdrawal of the then current rating
assigned to the Class A and Class M Notes by each Rating Agency; and
(vii) other obligations or securities that are indebtedness in
registered form for U.S. federal income tax purposes and that are
reasonably acceptable to each Rating Agency as a Permitted Investment
hereunder and will not result in a reduction in the then-current rating
of the Class A or Class M Notes, as evidenced by a confirmation or
letter to such effect from such Rating Agency;
provided that no instrument described hereunder shall evidence either the
right to receive (a) only interest with respect to the obligations underlying
such instrument or (b) both principal and interest payments derived from
obligations underlying such instrument if such interest and principal payments
provide a yield to maturity at par greater than 120% of the yield to maturity
at par of the underlying obligations; and provided, further, that no
instrument described hereunder may be purchased at a price greater than par if
such instrument may be prepaid or called at a price less than its purchase
price prior to its stated maturity.
Person: Any individual, corporation, partnership, joint venture, limited
partnership, limited liability company, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
Pool Balance: With respect to any date of determination, the aggregate
of the Principal Balances of all Home Equity Loans as of such date.
Preferred Stock: As defined in Section 9.14.
Principal Balance: As to any Home Equity Loan (other than a Liquidated
Home Equity Loan) and date, the related Cut-Off Date Principal Balance, minus
the sum of (x) all collections credited against the principal balance of such
Home Equity Loan in accordance with the terms of the related Mortgage Note and
(y) any related Charge Off Amounts credited against the principal balance of
such Home Equity Loan prior to such date. For purposes of this definition, a
Liquidated Home Equity Loan shall be deemed to have a Principal Balance equal
to the Principal
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Balance of the related Home Equity Loan immediately prior to the final
recovery of related Liquidation Proceeds and a Principal Balance of zero
thereafter.
Principal Carry Forward Amount: As to the Class A or Class M Notes and
any Payment Date, the amount, if any, by which (i) the amounts payable to such
Class pursuant to Section 5.01(a)(iv) and (v) (with respect to the Class A
Notes) or pursuant to Section 5.01(a)(vii) and (viii) (with respect to the
Class M Notes), as applicable, as of the preceding Payment Date exceeded (ii)
the amount of the actual payments made to such Class on such prior Payment
Date pursuant to Section 5.01(a)(iv) and (v) (with respect to the Class A
Notes) or pursuant to Section 5.01(a)(vii) and (viii) (with respect to the
Class M Notes), as applicable.
Principal Collections: As to any Payment Date, the sum, without
duplication, of:
(i) the principal portion of all scheduled monthly payments on the Home
Equity Loans received by the Master Servicer during the related Collection
Period;
(ii) the principal portion of the Purchase Price for any Home Equity
Loan repurchased from the Trust pursuant to the terms of this Agreement during
the related Collection Period;
(iii) the principal portion of all Substitution Adjustment Amounts with
respect to the related Collection Period;
(iv) all Net Liquidation Proceeds (excluding Foreclosure Profits and
Recovered Charge Off Amounts) actually received by the Master Servicer during
the related Collection Period (to the extent such Net Liquidation Proceeds
relate to principal); and
(v) the principal portion of all other unscheduled collections on the
Home Equity Loans received by the Master Servicer during the related
Collection Period (including, without limitation, full and partial prepayments
of principal made by the Mortgagors), to the extent not previously
distributed.
Principal Payment Amount: As to any Payment Date, (i) the Principal
Collections for such Payment Date minus (ii) for Payment Dates occurring on
and after the Stepdown Date and for which a Trigger Event is not in effect,
the Overcollateralization Release Amount, if any.
Purchase Price: As to any Home Equity Loan purchased from the Trust on
any date pursuant to Section 2.02, 2.04 or 3.01 an amount equal to the sum of
(i) the Principal Balance thereof plus any related Charge Off Amount as of the
end of the related Collection Period preceding the date of repurchase, and
(ii) accrued and unpaid interest to the end of such Collection Period computed
on a daily basis at the Net Loan Rate on the Principal Balance outstanding
from time to time.
Rating Agencies: Moody's, Standard & Poor's and Fitch. If such agency or
a successor is no longer in existence, "Rating Agency" shall be such
nationally recognized statistical credit rating agency, or other comparable
Person, designated by the Depositor, notice of which designation shall be
given to the Indenture Trustee. References herein to the highest short term
unsecured rating category of a Rating Agency shall mean "P-1" or better in the
case of Moody's, "A-1+" or better in the case of Standard & Poor's and "F1" in
the case of Fitch and in the case of
15
any other Rating Agency shall mean such equivalent ratings. References herein
to the highest long-term rating category of a Rating Agency shall mean "AAA"
in the case of Fitch and Standard & Poor's and "Aaa" in the case of Moody's
and in the case of any other Rating Agency, such equivalent rating.
Realized Loss: With respect to (i) any Liquidated Home Equity Loan, the
unrecovered Principal Balance thereof at the end of the related Collection
Period in which such Home Equity Loan became a Liquidated Home Equity Loan and
(ii) any Charged-Off Home Equity Loan, the Charge Off Amount for the related
Collection Period.
Reassignment: The reassignment dated December 18, 2003, by the Conduit
Trustee pursuant to which (i) the Conduit Trustee will convey to the Depositor
all of its right, title and interest in and to the unpaid Principal Balance of
the Conduit Home Equity Loans, including all interest and principal payments
in respect thereof received on or after the applicable cut-off date, and
certain other rights with respect to the collateral supporting the Conduit
Home Equity Loans and (ii) the Conduit Trustee will assign to the Trust all of
its right, title and interest in and on the Conduit Home Equity Loans
originally transferred to the Conduit Trustee pursuant to the Conduit Transfer
Agreement.
Record Date: As to any Payment Date, the Business Day immediately
preceding such Payment Date; provided, however, that if any Notes become
Definitive Notes, the record date for such Notes will be the last Business Day
of the month immediately preceding the month in which the related Payment Date
occurs.
Recovered Charge Off Amount: As to any Home Equity Loan that became a
Liquidated Home Equity Loan in a Collection Period, the amount, if any, by
which (i) its Net Liquidation Proceeds that are allocable to principal in
accordance with the related Mortgage Note exceeds (ii) its Principal Balance
immediately prior to foreclosure up to an amount of all related Charge Off
Amounts, but in no event less than zero.
Related Documents: As defined in Section 2.01(c).
REO: A Mortgaged Property that is acquired by the Trust in a
foreclosure or by grant of deed in lieu of foreclosure.
Required Excess Cashflow: As to any Payment Date, means 2.5%, divided
by 12, multiplied by the Pool Balance as of the first day of the related
Collection Period.
Responsible Officer: With respect to the Indenture Trustee, any officer
assigned to the corporate trust group (or any successor thereto), including
any vice president, assistant vice president, trust officer, assistant
secretary or any other officer of the Indenture Trustee customarily performing
functions similar to those performed by any of the above designated officers,
in each case having direct responsibility for the administration of this
Agreement. When used with respect to any Seller or the Master Servicer, the
President or any Vice President, Assistant Vice President, Treasurer,
Assistant Treasurer or any Secretary or Assistant Secretary.
SAIF: The Savings Association Insurance Fund, as from time to time
constituted, created under the Financial Institutions Reform, Recovery and
Enhancement Act of 1989, or if at any
16
time after the execution of this instrument the Savings Association Insurance
Fund is not existing and performing duties now assigned to it, the body
performing such duties on such date.
Sellers: The sellers set forth in Schedule 2 attached hereto.
Servicer: As to each Home Equity Loan, the related Seller that sold
such Home Equity Loan to the Depositor pursuant to the applicable Home Equity
Loan Purchase Agreement.
Servicing Certificate: A certificate completed by and executed on
behalf of the Master Servicer in accordance with Section 3.18.
Servicing Fee: The fee payable to the Master Servicer pursuant to
Section 3.09, equal to 1/12th of the Servicing Fee Rate for each Home Equity
Loan in the Home Equity Loan Schedule multiplied by the outstanding Principal
Balance of such Home Equity Loan as of the first day of the related Collection
Period, except with respect to the first calendar month in which the fee
payable shall be multiplied by a fraction the numerator of which is the number
of days from the Cut-Off Date to December 31, 2003 and the denominator of
which is 360.
Servicing Fee Rate: A rate equal to 0.50% per annum.
Servicing Officer: Any officer of the Master Servicer or other
individual designated by an officer of the Master Servicer involved in, or
responsible for, the administration and servicing of the Home Equity Loans,
whose name and specimen signature appear on a list of servicing officers
furnished to the Indenture Trustee on the Closing Date by the Master Servicer,
as such list may be amended from time to time.
Settlement Agreement: The consent decrees entered into between Household
International Inc. and participating States (and agencies of such States) in
accordance with the agreement reached between Household International Inc. and
a multi-state working group of state attorneys general and regulatory
agencies, which became effective on January 19, 2003 and reflected in the
Specified Filing.
Skip-A-Pay Advance: For any Collection Period in which the Master
Servicer has elected to defer a scheduled monthly interest and principal
payment on any Home Equity Loan that is not in default or (in the judgment of
the Master Servicer) for which a default is not imminent, means the positive
result, if any, of the Required Excess Cashflow on the related Payment Date,
minus the Monthly Excess Cashflow on the related Payment Date. For the
avoidance of doubt, if the result of the foregoing calculation is not a
positive number, the Skip-A-Pay Advance for the related Collection Period
shall be zero.
Skip-A-Pay Reimbursement Amount: As of any Payment Date means, the
positive result, if any, of the Monthly Excess Cashflow on such Payment Date,
minus the Required Excess Cashflow on such Payment Date.
Specified Filing: The filing by Household International Inc. with the
S.E.C. on Form 8-K dated October 11, 2002.
17
Standard & Poor's: Standard & Poor's Ratings Services, a division of
The ▇▇▇▇▇▇-▇▇▇▇ Companies, Inc., or any successor thereto.
Statistical Cut-Off Date: The close of business on November 19, 2003.
Stepdown Date: The later to occur of (a) the Payment Date in January
2007 and (b) the first Payment Date on which the Pool Balance has been reduced
to 50.00% of the Cut-Off Date Pool Balance.
Subsequent Cut-Off Date: As to each Eligible Substitute Home Equity
Loan, the close of business on the day designated as the "Subsequent Cut-Off
Date" with respect to the Eligible Substitute Home Equity Loan.
Substitution Adjustment Amount: As to any Defective Home Equity Loan or
any Home Equity Loan for which the Master Servicer elects to substitute
pursuant to Section 2.02(b) and the date on which a substitution thereof
occurs pursuant to Sections 2.02 or 2.04, the sum of:
(i) the excess, if any, of (a) the Principal Balance of such
Defective Home Equity Loan or such elected Home Equity Loan plus any
related Charge Off Amount as of the end of the related Collection Period
preceding the date of substitution (after the application of any
principal payments received on such Defective Home Equity Loan or such
elected Home Equity Loan on or before the date of the substitution of
the applicable Eligible Substitute Home Equity Loan or Loans) over (b)
the aggregate Principal Balance of the applicable Eligible Substitute
Home Equity Loan or Loans, plus
(ii) accrued and unpaid interest to the end of such Collection
Period computed on a daily basis at the Net Loan Rate on the Principal
Balance of such Defective Home Equity Loan or such elected Home Equity
Loan outstanding from time to time.
Supplemental Interest Amount: The Class A Supplemental Interest Amount
or Class M Supplemental Interest Amount, as applicable.
Targeted Overcollateralization Amount: As to any Payment Date, (x) prior
to the Stepdown Date, 16.75% of the Cut-Off Date Pool Balance, and (y) on and
after the Stepdown Date and assuming a Trigger Event is not in effect, the
greater of (i) 33.50% of the Pool Balance as of the last day of the related
Collection Period and (ii) 1.00% of the Cut-Off Date Pool Balance. If a
Trigger Event is in effect on any Payment Date on or after the Stepdown Date,
the Targeted Overcollateralization Amount for such Payment Date shall be equal
to the Targeted Overcollateralization Amount for the immediately preceding
Payment Date.
Term Home Equity Loans: All of the Home Equity Loans transferred to
the Depositor pursuant to the Term Loan Purchase Agreement.
Term Loan Purchase Agreement: The home equity loan purchase agreement
dated December 18, 2003 between the Depositor and the Sellers pursuant to
which the Sellers convey to the Depositor all of their right, title and
interest in and to the unpaid Principal Balance of the Term Home Equity Loans,
including all interest and principal payments in respect thereof
18
received on or after the Cut-Off Date, and certain other rights with respect
to the collateral supporting the Term Home Equity Loans.
Term Transfer Agreement: The transfer agreement dated as of December 18,
2003 between the Trust and the Sellers pursuant to which the Sellers will
assign to the Trust all of their right, title and interest in and on the Term
Transferred Assets not otherwise transferred pursuant to the Term Loan
Purchase Agreement.
Term Transferred Assets: All aspects, rights, title or interests of, in,
to or under the Term Home Equity Loans that are not otherwise conveyed
hereunder pursuant to Section 2.01, including, without limitation, all
agreements, instruments and other documents evidencing or governing the
Mortgagor's obligations under such Home Equity Loans or otherwise related
thereto or establishing or setting forth the terms and conditions thereof, and
any amendments or modifications thereto, and all property and collateral
securing the borrowers obligations thereunder.
Termination Price: As defined in Section 8.01(b).
Transaction Documents: This Agreement, each Home Equity Loan Purchase
Agreement, the Term Transfer Agreement, the Reassignment, the Trust Agreement
and the Indenture.
Transfer Date: As to any Home Equity Loan transferred to or
retransferred from the Trust hereunder, the date on which such transfer or
retransfer is made under the terms hereof, which date shall be (i) in the case
of the Home Equity Loans originally listed on the Home Equity Loan Schedule,
the Closing Date, and (ii) in the case of any Eligible Substitute Home Equity
Loan, the date on which such Eligible Substitute Home Equity Loan is conveyed
to the Trust under the terms hereof.
Transferor: The Depositor, or any such permitted holder of the
Ownership Interest.
Trigger Event: Will be in effect on any Payment Date on or after the
Stepdown Date on which either (i) the Two Payment-Plus Rolling Average for
such Payment Date equals or exceeds 10.00%, or (ii) the Cumulative Loss
Percentage for such Payment Date exceeds the Cumulative Loss Percentage
Trigger for such Collection Period.
Trust: The trust created by the Trust Agreement, the corpus of which
consists of the Home Equity Loans, such assets as shall from time to time be
identified as deposited in the Collection Account (exclusive of net earnings
thereon), the Mortgage Notes and other Mortgage File documents for the Home
Equity Loans, any property that secured a Home Equity Loan and that has become
REO, the interest of the Depositor in certain hazard insurance policies
maintained by the Mortgagors or the Master Servicer in respect of the Home
Equity Loans, the Collection Account, the proceeds of each of the foregoing
and one share of Preferred Stock of the Depositor.
Trust Agreement: The Trust Agreement dated as of December 11, 2003, and
amended and restated as of December 18, 2003 among Household Finance
Corporation, the Depositor, ▇.▇. ▇▇▇▇▇▇ Trust Company, National Association,
as co-trustee and not in its individual capacity, the Delaware Trustee and the
Owner Trustee.
19
Two Payment-Plus Delinquency Percentage: As to any Collection Period,
(a) the aggregate of the Principal Balances of all Mortgage Loans that are two
(2) or more payments contractually delinquent, including those Mortgage Loans
in bankruptcy, foreclosure and REO as of the end of such Collection Period,
over (b) the Pool Balance as of the end of such Collection Period.
Two Payment-Plus Rolling Average: As to any Payment Date, the average of
the Two Payment-Plus Delinquency Percentage for each of the three (3)
immediately preceding Collection Periods.
UCC: The Uniform Commercial Code, as amended from time to time, as in
effect in any specified jurisdiction.
SECTION 1.02 Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined herein have
the meanings assigned to them in the Indenture and the Trust Agreement, as
applicable.
(b) All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant
hereto unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other document
made or delivered pursuant hereto or thereto, accounting terms not defined in
this Agreement or in any such certificate or other document, and accounting
terms partly defined in this Agreement or in any such certificate or other
document to the extent not defined, shall have the respective meanings given
to them under generally accepted accounting principles. To the extent that the
definitions of accounting terms in this Agreement or in any such certificate
or other document are inconsistent with the meanings of such terms under
generally accepted accounting principles, the definitions contained in this
Agreement or in any such certificate or other document shall control.
(d) The words "hereof", "herein", "hereunder" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not
to any particular provision of this Agreement; Article, Section, Schedule and
Exhibit references contained in this Agreement are references to Articles,
Sections, Schedules and Exhibits in or to this Agreement unless otherwise
specified; and the terms "including" and "includes" shall mean "including
without limitation."
(e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as
well as to the feminine genders of such terms.
(f) Any agreement, instrument or statute defined or referred to herein or
in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments)
references to all attachments thereto and instruments incorporated therein;
references to a Person are also to its permitted successors and assigns.
20
SECTION 1.03 Interest Calculations. All calculations of interest
hereunder that are made in respect of the Principal Balance of a Home Equity
Loan shall be made based on the number of days elapsed between the date that
interest was last paid on such Home Equity Loan and the date of receipt of the
related Mortgagor's most current payment. All calculations of interest on the
Class A and Class M Notes shall be made on the basis of a 360-day year and the
actual number of days in the related Accrual Period. All dollar amounts
calculated hereunder shall be rounded to the nearest ▇▇▇▇▇ with one-half of
one ▇▇▇▇▇ being rounded down.
21
ARTICLE II.
CONVEYANCE OF HOME EQUITY LOANS; TAX TREATMENT
SECTION 2.01 Acknowledgment; Conveyance of Home Equity Loans; Custody of
Mortgage Files.
(a) The Depositor, concurrently with the execution and delivery of this
Agreement, does hereby irrevocably transfer, assign, sell, set over and
otherwise convey to the Trust for the benefit of the Noteholders without
recourse (subject to Sections 2.02 and 2.04) (i) all of its right, title and
interest in and to the unpaid principal balance of each Home Equity Loan and
each Eligible Substitute Home Equity Loan, including all Interest Collections
and Principal Collections in respect of any such Home Equity Loan received
after the Cut-Off Date with respect to each Initial Home Equity Loan and after
the Subsequent Cut-Off Date with respect to each Eligible Substitute Home
Equity Loan pursuant to the Term Loan Purchase Agreement; (ii) property which
secured such Home Equity Loan and which has been acquired by foreclosure or
deed in lieu of foreclosure; (iii) its interest in any insurance policies in
respect of the Home Equity Loans (including any Insurance Proceeds); (iv) all
other assets included or to be included in the Trust for the benefit of the
Noteholders and the Transferor; (v) all proceeds of any of the foregoing; and
(vi) one share of the Depositor's Preferred Stock.
(b) The Depositor agrees to take, or to cause to be taken, such actions
and to execute such documents, including without limitation the filing of all
necessary continuation statements for the UCC-1 financing statement filed in
the State of Illinois and the State of Delaware, as applicable (which shall
have been filed as promptly as practicable, but in no event later than 10 days
following the effective date of this Agreement), describing the Home Equity
Loans and naming the Depositor as seller and the Trust as buyer, and any
amendments or other filings to the UCC-1 financing statement required to
reflect a change in the applicable UCC, or a change of the name or corporate
structure of the Depositor, as are necessary to perfect and protect the
Noteholders' interests in the Trust created hereunder, including each Home
Equity Loan and the proceeds thereof (other than delivering to the Indenture
Trustee possession of the Mortgage Files, which possession will, subject to
the terms hereof, be maintained by the Servicers on behalf of the Master
Servicer as custodian and bailee for the Indenture Trustee). The parties
hereto intend that the transactions set forth herein constitute a sale and not
a pledge by the Depositor to the Trust of all the Depositor's right, title and
interest in and to the Home Equity Loans and other Trust property as and to
the extent described above. In the event the transactions set forth herein are
characterized as a pledge and not a sale, the Depositor hereby grants to the
Trust a security interest in all of the Depositor's right, title and interest
in, to and under the Home Equity Loans and such other Trust property, to
secure all of the Depositor's obligations hereunder, and this Agreement shall
constitute a security agreement under applicable law. With respect to the Home
Equity Loans sold by each Seller to the Depositor, the Master Servicer shall
cause such Seller to file as promptly as practicable, but in no event later
than ten days following the effective date of this Agreement, in the
appropriate public filing office or offices UCC-1 financing statements and
continuation statements describing such Home Equity Loans and naming such
Seller as seller and the Depositor as buyer, to file appropriate continuation
statements thereto, to file amendments thereto in the case of a change in the
22
applicable UCC, name change or change in corporate structure and to file
appropriate additional UCC-1 financing statements, if any, if such Seller
changes its jurisdiction of incorporation.
(c) In connection with such transfer and assignment by the Depositor and
the Master Servicer, acting through the Servicers, the Indenture Trustee and
the Master Servicer hereby acknowledge that the Servicers are holding, with
respect to the Home Equity Loans transferred on the Closing Date, and will
hold, with respect to each Eligible Substitute Home Equity Loan, on and from
the applicable Transfer Date, as custodian and bailee for the Indenture
Trustee, the following documents or instruments with respect to each such Home
Equity Loan (the "Related Documents"):
(i) the original Mortgage Note with all intervening endorsements
showing a complete chain of title from the originator of such Home Equity
Loan to the Seller or a copy of such original Mortgage Note with an
accompanying lost note affidavit;
(ii) the original Mortgage, with evidence of recording thereon,
provided that if the original Mortgage has been delivered for recording
to the appropriate public recording office of the jurisdiction in which
the Mortgaged Property is located but has not yet been returned to the
Seller by such recording office, the Seller may hold a copy of such
original Mortgage;
(iii) originals of any amendments to the Mortgage Note or Mortgage,
any modification or assumption agreements and any previous assignments of
such Home Equity Loan; and
(iv) for each Mortgage Loan registered on the MERS(R) System, the
original assignment into the name of MERS(R) including the related MIN of
the Mortgage Loan;
provided, however, that as to any Home Equity Loan, if, as evidenced by an
Opinion of Counsel delivered to and in form and substance reasonably
satisfactory to the Owner Trustee and the Indenture Trustee, (x) an optical
image or other electronic representation of the related documents specified in
clauses (i) through (iv) above are enforceable in the relevant jurisdictions
to the same extent as the original of such document and (y) such optical image
or other representation does not impair the ability of an owner of such Home
Equity Loan to transfer its interest in such Home Equity Loan, such optical
image or other representation may be held by the Master Servicer, acting
through the Servicers, as custodian and bailee for the Indenture Trustee, in
lieu of the physical documents specified above.
(d) Except as hereinafter provided, the Master Servicer, acting through
the Servicers, shall be entitled to maintain possession of all of the
foregoing documents and instruments, shall not be required to deliver any of
them to the Indenture Trustee or the Owner Trustee and shall not be required
to record an Assignment of Mortgage in favor of the Indenture Trustee or the
Owner Trustee with respect to any Home Equity Loan. In the event, however,
that possession of any of such documents or instruments is required by any
Person (including the Indenture Trustee) acting as successor master servicer
pursuant to Section 6.04 or 7.02 in order to carry out the duties of Master
Servicer hereunder, then such successor shall be entitled to request delivery,
at the expense of the Master Servicer, of such documents or instruments by the
Master Servicer
23
and to retain such documents or instruments for servicing purposes; provided
that the Indenture Trustee or such servicers shall maintain such documents at
such offices as may be required by any regulatory body having jurisdiction
over such Home Equity Loans.
(e) The Master Servicer's right to maintain possession, directly or
through each Servicer, of the related Mortgage Files shall continue so long as
(x) at least two of ▇▇▇▇▇'▇, Standard & Poor's and Fitch assign a long-term
senior unsecured debt rating to HFC of at least "Baa3", in the case of
▇▇▇▇▇'▇, "BBB", in the case of Fitch, and "BBB-", in the case of Standard &
Poor's, (or such lower rating acceptable and assigned by at least two of
▇▇▇▇▇'▇, Standard & Poor's and Fitch) and (y) such Servicer remains an
Affiliate of HFC. At such time as either of the conditions specified in the
preceding sentence is not satisfied, as promptly as practicable, but in no
event more than 90 days thereafter in the case of clause (i) below, 60 days in
the case of clause (ii) below and 60 days in the case of clause (iii) below,
the Master Servicer shall cause each Servicer, at such Servicer's expense or,
to the extent the Servicer fails to pay, the Master Servicer's expense, to (i)
either (x) record an Assignment of Mortgage in favor of the Trust (which may
be a blanket assignment if permitted by applicable law) with respect to each
of the Home Equity Loans being serviced by such Servicer in the appropriate
real property or other records or (y) deliver to the Indenture Trustee the
assignment of such Mortgage in favor of the Trust in form for recordation,
together with an Opinion of Counsel addressed to the Indenture Trustee to the
effect that recording is not required to protect the Trust's right, title and
interest in and to the related Home Equity Loan or to perfect a first priority
security interest in favor of the Trust in the related Home Equity Loan, which
Opinion of Counsel also shall be reasonably acceptable to each of the Rating
Agencies, the Owner Trustee and the Indenture Trustee (as evidenced in
writing), (ii) unless an Opinion of Counsel, reasonably acceptable to the
Owner Trustee, the Indenture Trustee and the Rating Agencies (as evidenced in
writing), is delivered to the Indenture Trustee to the effect that delivery of
the Mortgage Files is not necessary to protect the Trust's right, title and
interest in and to the related Home Equity Loans or to perfect a first
priority security interest in favor of the Trust in the related Home Equity
Loans, deliver the related Mortgage Files to the Indenture Trustee to be held
by the Indenture Trustee in trust, upon the terms herein set forth, for the
use and benefit of the Trust and all present and future Noteholders, and the
Indenture Trustee shall retain possession thereof except to the extent the
Master Servicer or Servicers require any Mortgage Files for normal servicing
as contemplated by Section 3.08, and (iii) have a Responsible Officer of the
applicable Seller endorse the original Mortgage Note with respect to each of
the Home Equity Loans being serviced by the Servicer to "Pay to the order of
____________ without recourse" with all intervening endorsements showing a
complete chain of title from the originator of such Home Equity Loan to the
applicable Seller. The Master Servicer shall cause the Servicers to appoint
the Indenture Trustee their attorney-in-fact to prepare, execute and record
any assignments of Mortgages required under this Section 2.01 in the event
that the Servicers or the Master Servicer should fail to do so on a timely
basis.
(f) Within 90 days following delivery, if any, of the Mortgage Files to
the Indenture Trustee pursuant to the preceding subsection, the Indenture
Trustee shall review each such Mortgage File to ascertain that all required
documents set forth in this Section 2.01 have been executed and received and
that such documents relate to the Home Equity Loans identified on the Home
Equity Loan Schedule, and in so doing the Indenture Trustee may rely on the
purported due execution and genuineness of any signature thereon. If within
such 90-day period
24
the Indenture Trustee finds any document constituting a part of a Mortgage
File not to have been executed or received or to be unrelated to the Home
Equity Loans identified in said Home Equity Loan Schedule or, if in the course
of its review, the Indenture Trustee determines that such Mortgage File is
otherwise defective in any material respect, the Indenture Trustee shall
promptly upon the conclusion of its review notify the Owner Trustee, the
Depositor and the Master Servicer and the Depositor and the Master Servicer
shall have a period of 90 days after such notice within which to correct or
cure any such defect; provided, however, that if such defect shall not have
been corrected or cured within such 90-day period due to the failure of the
related office of real property or other records to return any document
constituting a part of a Mortgage File, the Depositor or the Master Servicer
shall so notify the Owner Trustee and the Indenture Trustee and the period
during which such defect may be corrected or cured shall be extended for one
additional 90-day period.
(g) The Indenture Trustee shall have no responsibility for reviewing any
Mortgage File except as expressly provided in this Section 2.01. In reviewing
any Mortgage File pursuant to this Section 2.01, the Indenture Trustee shall
have no responsibility for determining whether any document is valid and
binding, whether the text of any assignment or endorsement is in proper or
recordable form (except, if applicable, to determine if the Trust is the
assignee or endorsee), whether any document has been recorded in accordance
with the requirements of any applicable jurisdiction, or whether a blanket
assignment is permitted in any applicable jurisdiction, whether any Person
executing any document is authorized to do so or whether any signature thereon
is genuine, but shall only be required to determine whether a document has
been executed, that it appears to be what it purports to be and, where
applicable, that it purports to be recorded
(h) The Master Servicer hereby confirms to the Indenture Trustee and the
Owner Trustee that on or prior to the Closing Date and on or prior to the
applicable Transfer Date with respect to any Eligible Substitute Home Equity
Loan, the portions of the Electronic Ledger relating to such Home Equity Loans
have been or will have been clearly and unambiguously marked, and the
appropriate entries have been or will have been made in its general accounting
records, to indicate that such Home Equity Loans have been transferred to the
Trust and constitute part of the Trust in accordance with the terms hereof.
(i) In connection with the assignment, pursuant to Section 2.01(e)(i), of
any Home Equity Loan registered on the MERS(R) System, the Master Servicer
shall cause each Servicer, at such Servicer's expense or, to the extent the
Servicer fails to pay, the Master Servicer's expense, at the time specified in
the second sentence of Section 2.01(e)(i), to cause the MERS(R) System to
indicate that such Home Equity Loans have been assigned to the Trust in
accordance with this Agreement by including (or deleting, in the case of Home
Equity Loans which are repurchased in accordance with this Agreement) in such
computer files (a) the code "[IDENTIFY TRUST SPECIFIC CODE]" in the field
"[IDENTIFY THE FIELD NAME FOR TRUST]" which identifies the Trust and (b) the
code "[IDENTIFY SERIES SPECIFIC CODE NUMBER]" in the field "Pool Field" which
identifies the series of the Notes issued in connection with such Home Equity
Loans. The Master Servicer agrees that it will not alter the codes referenced
in this paragraph with respect to any Home Equity Loan during the term of this
Agreement unless and until such Home Equity Loan is repurchased in accordance
with the terms of this Agreement, and there is filed any financing statement
or amendment thereof necessary to comply with the New York UCC or the UCC of
any applicable jurisdiction.
25
SECTION 2.02 Acceptance by Indenture Trustee; Repurchase of Home Equity
Loans; Conveyance of Eligible Substitute Home Equity Loans.
(a) The Indenture Trustee hereby acknowledges receipt of all the right,
title and interest of the Depositor in and to the assets described Section
2.01(a)(i) through (vi), all of the right, title and interest of the Conduit
Trustee in and to the Conduit Transferred Assets pursuant to the Reassignment
and all of the right, title and interest of the Sellers in and to the Term
Transferred Assets pursuant to the Term Transfer Agreement, including but not
limited to the transfer and assignment of the Mortgage Notes and the
Mortgages, and declares that it holds and will hold such documents and
interests and all amounts received by it in trust, upon the terms herein set
forth, for the use and benefit of the Trust and all present and future
Noteholders. If the time to cure any defect of which the Indenture Trustee has
notified the Depositor and the Master Servicer following the Indenture
Trustee's review of the Home Equity Loan files pursuant to Section 2.01 has
expired or if any loss is suffered by the Indenture Trustee, on behalf of the
Noteholders, in respect of any Home Equity Loan as a result of (i) a defect in
any document constituting a part of a Mortgage File or (ii) the related
Seller's retention of such Mortgage File or an Assignment of Mortgage not
having been recorded, the Depositor or, to the extent the Depositor fails to
perform, the Master Servicer shall, in the case of a defect in such document
and the Master Servicer shall, in the case of a loss resulting from such
Seller's retention of a Mortgage File or Assignment of Mortgage not having
been recorded, on the Business Day next preceding the Payment Date in the
month following the end of the Collection Period in which the time to cure
such defect expired or such loss occurred, either (i) repurchase the related
Home Equity Loan (a "Defective Home Equity Loan") (including any property
acquired in respect thereof and any insurance policy or insurance proceeds
with respect thereto) from the Trust at a price equal to the Purchase Price
which shall be accomplished by deposit by the Depositor or the Master
Servicer, as applicable, in the Collection Account pursuant to Section 3.02 on
such next preceding Business Day, or (ii) remove such Defective Home Equity
Loan from the Trust and substitute in its place an Eligible Substitute Home
Equity Loan or Loans.
(b) The Master Servicer, in its sole discretion, shall have the right,
but not the obligation, to elect (by written notice sent to the Indenture
Trustee and the Owner Trustee) to substitute in the place of any Home Equity
Loan an Eligible Substitute Home Equity Loan or Loans; provided that the
aggregate Principal Balance as of the related subsequent Cut-Off Date of all
Eligible Substitute Home Equity Loans substituted pursuant to this Section
shall not exceed 2% of the Cut-Off Date Pool Balance; provided further that
prior to any such substitution the Master Servicer shall give prompt written
notice to each Rating Agency of any such substitution.
(c) As to any Eligible Substitute Home Equity Loan or Loans, the Master
Servicer shall cause the related Seller to deliver to the Indenture Trustee
with respect to such Eligible Substitute Home Equity Loan or Loans an
acknowledgment that the related Seller is holding as custodian for the
Indenture Trustee such documents and agreements, if any, as are permitted to
be held by the related Seller in accordance with Section 2.01. An assignment
of the Mortgage in favor of the Trust with respect to such Eligible Substitute
Home Equity Loan or Loans shall be required to be recorded in the appropriate
real property or other records or delivered to the Indenture Trustee with the
Opinion of Counsel referred to in Section 2.01 under the same circumstances
that all other assignments of Mortgage are required to be recorded hereunder.
For any Collection Period during which the Depositor or the Master Servicer
substitutes one or more
26
Eligible Substitute Home Equity Loans, the Master Servicer shall determine the
Substitution Adjustment Amount. The Depositor or the Master Servicer, as
applicable, shall deposit the Substitution Adjustment Amount in the Collection
Account no later than the Business Day immediately preceding the Payment Date
in the month following the end of the Collection Period in which such
substitution occurs. The Master Servicer shall amend the Home Equity Loan
Schedule to reflect the removal of the Defective Home Equity Loan or Home
Equity Loan for which the Master Servicer has made a substitution election
pursuant to Section 2.02(b) from the terms of this Agreement and the
substitution of the Eligible Substitute Home Equity Loan or Loans. Upon such
substitution, the Eligible Substitute Home Equity Loan or Loans shall be
subject to the terms of this Agreement in all respects, and the Depositor
shall be deemed to have made with respect to such Eligible Substitute Home
Equity Loan or Loans, as of the date of substitution, the covenants,
representations and warranties set forth in Section 2.04(b). The Indenture
Trustee shall upon satisfaction of the conditions in this subsection
immediately take any action requested by the Depositor, if any, to effect the
reconveyance of such Defective Home Equity Loan or such Home Equity Loan for
which the Master Servicer has made a substitution election so removed from the
Trust to the Depositor or the Master Servicer, as applicable. The procedures
applied by the Depositor or the Master Servicer in selecting each Eligible
Substitute Home Equity Loan shall not be adverse to the interests of the
Noteholders and shall be comparable to the selection procedures applicable to
the Home Equity Loans originally conveyed hereunder.
(d) Upon receipt by the Indenture Trustee of (i) in the case of a
repurchase, a Servicing Certificate to the effect that the Purchase Price for
any such Defective Home Equity Loan or such Home Equity Loan for which the
Master Servicer has made a substitution election has been so deposited in the
Collection Account or (ii) in the case of a substitution, (A) a Servicing
Certificate to the effect that the Substitution Adjustment Amount, if any, has
been so deposited in the Collection Account and (B) an Officer's Certificate
reciting the transfer and assignment of the Eligible Substitute Home Equity
Loan(s) to the Indenture Trustee and, if required at such time, that the
related Mortgage File(s) for such Eligible Substitute Home Equity Loan(s) have
been delivered to the Indenture Trustee and the assignment(s) of Mortgage have
been recorded, the Indenture Trustee shall execute and deliver such instrument
of transfer or assignment presented to it by the Master Servicer, in each case
without recourse, as shall be necessary to vest in the Depositor or the Master
Servicer, as applicable, legal and beneficial ownership of such Defective Home
Equity Loan or such Home Equity Loan for which the Master Servicer has made a
substitution election (including any property acquired in respect thereof or
proceeds of any insurance policy with respect thereto). It is understood and
agreed that the obligation of the Depositor or the Master Servicer to
repurchase or substitute for (to the extent permitted herein) any Defective
Home Equity Loan shall constitute the sole and exclusive remedy respecting
such defect available to Noteholders or the Indenture Trustee against the
Depositor or the Master Servicer, and such obligation on the part of the
Master Servicer shall survive any resignation or termination of the Master
Servicer hereunder.
SECTION 2.03 Representations, Warranties and Covenants of the Master
Servicer. The Master Servicer represents, warrants and covenants that as of
the Closing Date:
(a) The Master Servicer is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has the
corporate power to own its assets
27
and to transact the business in which it is currently engaged. The Master
Servicer is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the character of the business
transacted by it or properties owned or leased by it require such
qualification and in which the failure to so qualify would have a material
adverse effect on the business, properties, assets, or condition (financial or
other) of the Master Servicer;
(b) The Master Servicer has the power and authority to make, execute,
deliver and perform its obligations under this Agreement and to perform its
obligations with respect to all of the transactions contemplated under this
Agreement, and has taken all necessary corporate action to authorize the
execution, delivery and performance of its obligations under this Agreement.
When executed and delivered, this Agreement will constitute the legal, valid
and binding obligation of the Master Servicer enforceable in accordance with
its terms, except as enforcement of such terms may be limited by bankruptcy,
insolvency or similar laws affecting the enforcement of creditors' rights
generally and by the availability of equitable remedies (whether in a
proceeding at law or in equity);
(c) The Master Servicer is not required to obtain the consent of any
other Person or any consent, license, approval or authorization from, or
registration or declaration with, any governmental authority, bureau or agency
in connection with the execution, delivery, performance, validity or
enforceability of this Agreement, except for such consents, licenses,
approvals or authorizations, or registrations or declarations, as shall have
been obtained or filed, as the case may be;
(d) The execution and delivery of this Agreement and the performance of
the transactions contemplated hereby by the Master Servicer will not violate
any provision of any existing law or regulation or any order or decree of any
court applicable to the Master Servicer or any provision of the Certificate of
Incorporation or Bylaws of the Master Servicer, or constitute a material
breach of any mortgage, indenture, contract or other agreement to which the
Master Servicer is a party or by which the Master Servicer may be bound; and
(e) No litigation or administrative proceeding of or before any court,
tribunal or governmental body is currently pending, or to the knowledge of the
Master Servicer threatened, against the Master Servicer or any of its
properties or with respect to this Agreement or the Notes which in the opinion
of the Master Servicer has a reasonable likelihood of resulting in a material
adverse effect on the transactions contemplated by this Agreement.
(f) The Master Servicer is a member of MERS in good standing, and will
comply in all material respects with the rules and procedures of MERS in
connection with the servicing of the Home Equity Loans that are registered
with MERS.
The representations and warranties set forth in this Section 2.03 shall
survive the sale and assignment of the Home Equity Loans to the Trust. Upon
discovery of a breach of any representations and warranties which materially
and adversely affects the interests of the Noteholders, the Person discovering
such breach shall give prompt written notice to the other parties. Within 60
days (or such longer period as permitted by prior written consent of a
Responsible Officer of the Indenture Trustee) of its discovery or its receipt
of notice of such breach, the Master Servicer shall cure such breach in all
material respects.
28
SECTION 2.04 Representations and Warranties of the Depositor Regarding
this Agreement and the Home Equity Loans; Repurchases and Substitutions.
(a) The Depositor represents and warrants that as of the Closing Date:
(i) The Depositor is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has the
corporate power to own its assets and to transact the business in which
it is currently engaged. The Depositor is duly qualified to do business
as a foreign corporation and is in good standing in each jurisdiction in
which the character of the business transacted by it or properties owned
or leased by it require such qualification and in which the failure to so
qualify would have a material adverse effect on the business, properties,
assets or condition (financial or other) of the Depositor;
(ii) The Depositor has the power and authority to make, execute,
deliver and perform its obligations under this Agreement and to perform
its obligations with respect to all of the transactions contemplated
under this Agreement, and has taken all necessary corporate action to
authorize the execution, delivery and performance of its obligations
under this Agreement. When executed and delivered, this Agreement will
constitute the legal, valid and binding obligation of the Depositor
enforceable in accordance with its terms, except as enforcement of such
terms may be limited by bankruptcy, insolvency or similar laws affecting
the enforcement of creditors' rights generally and by the availability of
equitable remedies (whether in a proceeding at law or in equity);
(iii) The Depositor is not required to obtain the consent of any
other Person or any consent, license, approval or authorization from, or
registration or declaration with, any governmental authority, bureau or
agency in connection with the execution, delivery, performance, validity
or enforceability of this Agreement, except for such consents, licenses,
approvals or authorizations, or registrations or declarations, as shall
have been obtained or filed, as the case may be;
(iv) The execution and delivery of this Agreement and the
performance of the transactions contemplated hereby by the Depositor will
not violate any provision of any existing law or regulation or any order
or decree of any court applicable to the Depositor or any provision of
the Certificate of Incorporation or Bylaws of the Depositor, or
constitute a material breach of any mortgage, indenture, contract or
other agreement to which the Depositor is a party or by which the
Depositor may be bound; and
(v) No litigation or administrative proceeding of or before any
court, tribunal or governmental body is currently pending, or to the
knowledge of the Depositor threatened, against the Depositor or any of
its properties or with respect to this Agreement which in the opinion of
the Depositor has a reasonable likelihood of resulting in a material
adverse effect on the transactions contemplated by this Agreement.
(b) The Depositor represents and warrants with respect to each Home
Equity Loan that as of the Closing Date with respect to the Initial Home
Equity Loans and the applicable Transfer
29
Date with respect to any Eligible Substitute Home Equity Loans (or to the
extent expressly stated herein as of such other time):
(i) This Agreement and the Term Transfer Agreement constitute a
valid transfer and assignment to the Trust of all right, title and
interest of the Depositor and the related Sellers, respectively, in and
to the Term Home Equity Loans, and this Agreement and the Reassignment
constitute a valid transfer and assignment to the Trust of all right
title and interest of the Depositor and the Conduit Trustee,
respectively, in and to the Conduit Home Equity Loans, all monies due or
to become due with respect thereto, all proceeds thereof, such funds as
are from time to time deposited in the Collection Account (excluding any
investment earnings thereon) and all other property specified in the
definition of "Trust" as being part of the corpus of the Trust conveyed
to the Trust by the Depositor;
(ii) The information set forth in the Home Equity Loan Schedule with
respect to such Home Equity Loan is true and correct in all material
respects;
(iii) (A) Immediately prior to the transfer and assignment by the
related Seller to the Depositor and the Trust pursuant to the Term Loan
Purchase Agreement and the Term Transfer Agreement, the Home Equity Loan
has not been assigned or pledged, and the related Seller has good and
marketable title thereto, and the related Seller is the sole owner and
holder of such Home Equity Loan free and clear of any and all liens,
claims, encumbrances, participation interests, equities, pledges, charges
or security interests of any nature, and has full right and authority,
under all governmental and regulatory bodies having jurisdiction over the
ownership of such Home Equity Loan, to transfer and assign the same
pursuant to the Term Loan Purchase Agreement and the Term Transfer
Agreement, (B) immediately prior to the transfer and assignment by the
related Seller to the Depositor and the Conduit Trustee pursuant to the
Conduit Loan Purchase Agreement and the Conduit Transfer Agreement, each
Conduit Home Equity Loan had not been assigned or pledged, and the
related Seller had good and marketable title thereto, and the related
Seller was the sole owner and holder of such Home Equity Loan free and
clear of any and all liens, claims, encumbrances, participation
interests, equities, pledges, charges or security interests of any
nature, and had full right and authority, under all governmental and
regulatory bodies having jurisdiction over the ownership of such Home
Equity Loan, to transfer and assign the same pursuant to the Conduit Loan
Purchase Agreement and the Conduit Transfer Agreement and (C) after the
transfer and assignment by the Conduit Trustee to the Trust pursuant to
clause (ii) of the Reassignment, the Trust will have good and marketable
title to the Conduit Transferred Assets, and the Trust will be the sole
owner and holder of the Conduit Transferred Assets free and clear of any
and all liens;
(iv) Immediately prior to the transfer and assignment by the
Depositor to the Trust pursuant to this Agreement, the Home Equity Loan
has not been assigned or pledged, and the Depositor has good and
marketable title thereto, and the Depositor is the sole owner and holder
of such Home Equity Loan free and clear of any and all liens, claims,
encumbrances, participation interests, equities, pledges, charges or
security interests of any nature, and has full right and authority, under
all governmental and
30
regulatory bodies having jurisdiction over the ownership of such Home
Equity Loan, to transfer and assign the same pursuant to this Agreement;
(v) The related Mortgage is a valid and existing first or second
lien (and, if such Mortgage is a second lien and HFC or any of its
affiliates originated the related first lien mortgage loan, such Mortgage
was not originated within 90 days of such first lien mortgage loan), as
set forth on the Home Equity Loan Schedule with respect to such Home
Equity Loan, on the property therein described, and the related Mortgaged
Property is free and clear of all encumbrances and liens having priority
over the first or second lien, as applicable, of such Mortgage except for
liens for (a) real estate taxes and special assessments not yet
delinquent; (b) any first and, if applicable, second mortgage loan
secured by such Mortgaged Property and specified on the Home Equity Loan
Schedule; (c) covenants, conditions and restrictions, rights of way,
easements and other matters of public record as of the date of recording
that are acceptable to mortgage lending institutions generally; and (d)
other matters to which like properties are commonly subject which do not
materially interfere with the benefits of the security intended to be
provided by such Mortgage;
(vi) To the best knowledge of the Depositor, each Mortgage is not
subject to any offset, defense or counterclaim of any obligor under the
Mortgage;
(vii) To the best knowledge of the Depositor, there is no delinquent
recording or other tax or fee or assessment lien against the related
Mortgaged Property;
(viii)To the best knowledge of the Depositor, there is no proceeding
pending or threatened for the total or partial condemnation of the
related Mortgaged Property, and such property is free of material damage
and is in good repair;
(ix) There are no mechanics' or similar liens or claims which have
been filed for work, labor or material affecting the related Mortgaged
Property which are, or may be, liens prior or equal to the lien of the
related Mortgage, except (a) liens which are fully insured against by the
title insurance policy referred to in clause (xiii) or (b) liens which do
not materially interfere with the collection of the Home Equity Loan upon
foreclosure or otherwise;
(x) As of the Cut-Off Date for the Initial Home Equity Loans (or as
of the applicable Transfer Date for any Eligible Substitute Home Equity
Loan), no scheduled monthly payment is more than 30 days delinquent
(measured on a contractual basis);
(xi) The related Mortgage File contains each of the documents and
instruments specified to be included therein (including, if applicable,
an appraisal (which may be an appraisal prepared using a statistical data
base));
(xii) The related Mortgage Note and the related Mortgage at the time
they were made complied in all material respects with applicable local,
state and federal laws, including, without limitation, usury,
truth-in-lending, real estate settlement procedures, consumer credit
protection (including, without limitation, the Home Ownership and
31
Equity Protection Act of 1994 ("HOEPA") and all other applicable
anti-predatory lending laws), equal credit opportunity or disclosure laws
applicable to the Home Equity Loan;
(xiii)A lender's title insurance policy or binder was issued on the
date of origination of each Home Equity Loan for home equity loans in
excess of $50,000 (in excess of $75,000 in Oklahoma), and each such
policy is valid and remains in full force and effect, and a title search
or other assurance of title customary in the relevant jurisdiction was
obtained with respect to each Home Equity Loan as to which no title
insurance policy or binder was issued;
(xiv) The related Mortgaged Property is not a mobile home or a
manufactured housing unit that is not permanently attached to its
foundation;
(xv) The Principal Balance of which, when included in the Pool
Balance (in each case for the Initial Home Equity Loans as of the
Statistical Cut-Off Date), would not cause the aggregate Principal
Balance of the Initial Home Equity Loans that are secured by Mortgaged
Properties located in one United States postal zip code to exceed 0.25%;
(xvi) As of the Statistical Cut-Off Date, the Combined Loan-to-Value
Ratio for each Initial Home Equity Loan was not in excess of 115%;
(xvii)No selection procedure reasonably believed by the Depositor to
be adverse to the interests of the Noteholders was utilized in selecting
the Home Equity Loan;
(xviii) The Depositor has not transferred the Home Equity Loans to
the Trust with any intent to hinder, delay or defraud any of its
creditors;
(xix) Each Mortgage Note and each Mortgage is in substantially the
form previously provided to the Indenture Trustee by the Depositor and
each Home Equity Loan is an enforceable obligation of the related
Mortgagor;
(xx) The Depositor has not received a notice of default of any
senior mortgage loan with respect to the related Mortgaged Property that
has not been cured by a party other than the related Seller;
(xxi) The Initial Home Equity Loan does not have an original term to
maturity in excess of 360 months; and the Principal Balance of which,
when included in the Pool Balance (in each case for the Initial Home
Equity Loans as of the Statistical Cut-Off Date), would not cause the
weighted average remaining term to maturity of the Initial Home Equity
Loans on a contractual basis to be greater than 306 months;
(xxii)The related Mortgaged Property consists of a single parcel of
real property with a one-to-four unit single family residence erected
thereon, or an individual condominium unit, planned unit development unit
or townhouse;
(xxiii) The Principal Balance of which, when included in the Pool
Balance (in each case for the Initial Home Equity Loans as of the
Statistical Cut-Off Date), would not
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cause the average Principal Balance of such Home Equity Loans to be
greater than $117,709.31;
(xxiv)The Principal Balance of which, when included in the Pool
Balance (in each case for the Initial Home Equity Loans as of the Cut-Off
Date), would not cause the weighted average percentage of the Initial
Home Equity Loans secured by first liens to be less than 95.7%; and would
not cause the weighted average percentage of the Initial Home Equity
Loans secured by second liens to be greater than 4.3%;
(xxv) The Initial Home Equity Loans were originated in accordance
with HFC's underwriting guidelines and procedures including full and
reduced documentation programs;
(xxvi)No Home Equity Loan is covered by HOEPA and no such Home
Equity Loan is in violation of any comparable state law;
(xxvii) No Home Equity Loan is a "high cost home," "high risk home"
or "predatory" loan under any other applicable state, federal or local
law (or similarly classified loan using different terminology under a law
imposing heightened regulatory scrutiny or additional legal liability for
residential mortgage loans having high interest rates, points and/or
fees); and
(xxviii) With respect to each Mortgage Note, an appraisal on Form
1004, an appraisal on Form 2055 with interior inspection or a valuation
using an automated valuation model has been obtained.
(c) It is understood and agreed that the representations and warranties
set forth in this Section 2.04 shall survive the transfer and assignment of
the Home Equity Loans to the Trust and the pledge of the Home Equity Loans to
the Indenture Trustee. Upon discovery by the Depositor, the Master Servicer,
the Owner Trustee or the Indenture Trustee of a breach of any of the
representations and warranties set forth in this Section 2.04, without regard
to any limitation set forth in such representation or warranty concerning the
knowledge of the Depositor as to the facts stated therein, which materially
and adversely affects the interests of the Noteholders or the Transferor in
respect of the Ownership Interest in the related Home Equity Loan, the person
discovering such breach shall give prompt written notice to the other parties
and each Rating Agency. Within 60 days of its discovery or its receipt of
notice of such breach, or, with the prior written consent of a Responsible
Officer of the Indenture Trustee, such longer period not to exceed 90 days
specified in such consent, the Depositor or, as necessary, the Master Servicer
shall cure such breach in all material respects. With regard to any such
breach of the representations and warranties set forth in Section 2.04(b),
unless, at the expiration of such 60 day or longer period, such breach has
been cured in all material respects or otherwise does not exist or continue to
exist, the Depositor or the Master Servicer shall, not later than the Business
Day next preceding the Payment Date in the month following the end of the
Collection Period in which any such cure period expired, either (i) repurchase
such Defective Home Equity Loan (including any property acquired in respect
thereof and any insurance policy or insurance proceeds with respect thereto)
or (ii) remove such Home Equity Loan from the Trust and substitute in its
place an Eligible Substitute Home Equity Loan or Loans, in the same manner and
33
subject to the same conditions as set forth in Section 2.02. Upon making any
such repurchase or substitution the Depositor or the Master Servicer, as
applicable, shall be entitled to receive an instrument of assignment or
transfer from the Indenture Trustee to the same extent as set forth in Section
2.02 with respect to the repurchase or replacement of Home Equity Loans under
that Section. It is understood and agreed that the obligation of the Depositor
or the Master Servicer to purchase or substitute for any such Defective Home
Equity Loan (or property acquired in respect thereof) shall constitute the
sole and exclusive remedy against the Depositor or the Master Servicer
respecting such breach of the foregoing representations or warranties
available to Noteholders, the Transferor in respect of the Ownership Interest,
the Owner Trustee or the Indenture Trustee against the Depositor or the Master
Servicer, and such obligation on the part of the Master Servicer shall survive
any resignation or termination of the Master Servicer hereunder.
(d) The Depositor and the Master Servicer, jointly and not severally,
agree to indemnify and hold harmless the Trust against any and all
out-of-pocket financial losses, claims, expenses, damages or liabilities to
which the Trust may become subject, insofar as such out-of-pocket financial
losses, claims, expenses, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any representation or warranty made by
the Depositor in this Section 2.04 on which the Trust has relied, being, or
alleged to be, untrue or incorrect in any material respect. This indemnity
will be in addition to any liability which the Depositor or the Master
Servicer may otherwise have.
(e) Promptly after receipt by the Owner Trustee on behalf of the Trust of
notice of the commencement of any action or proceeding in any way relating to
or arising from this Agreement, the Owner Trustee will notify the Indenture
Trustee, the Depositor and the Master Servicer of the commencement thereof,
but the omission so to notify the party from whom indemnification is sought
(the "Indemnifying Party") will not relieve the Indemnifying Party from any
liability which it may have to the party seeking indemnification (the
"Indemnified Party") except to the extent that the Indemnifying Party is
materially adversely affected by the lack of notice. In case any such action
is brought against the Indemnified Party, and it notifies the Indemnifying
Party of the commencement thereof, the Indemnifying Party will be entitled to
participate in the defense (with the consent of the Indemnified Party which
shall not be unreasonably withheld) of such action at the Indemnifying Party's
expense.
SECTION 2.05 Tax Treatment. It is the intention of the Depositor and the
Noteholders that the Notes will be indebtedness for federal, state and local
income and franchise tax purposes and for purposes of any other tax imposed on
or measured by income. The terms of this Agreement shall be interpreted to
further the intent of the parties hereto. The Depositor, the Indenture Trustee
and each Noteholder (or Note Owner) by acceptance of its Note (or, in the case
of a Note Owner, by virtue of such Note Owner's acquisition of a beneficial
interest therein) agrees to treat the Note (or beneficial interest therein),
for purposes of federal, state and local income or franchise taxes and any
other tax imposed on or measured by income, as indebtedness secured by the
Trust Estate and to report the transactions contemplated by this Agreement on
all applicable tax returns in a manner consistent with such treatment. Each
Noteholder agrees that it will cause any Note Owner acquiring an interest in a
Class A or Class M Note through it to comply with this Agreement as to
treatment of the Notes as indebtedness for federal, state and local income and
franchise tax purposes and for purposes of any other tax imposed on or
34
measured by income. The Master Servicer will prepare and file all tax reports,
if any, required hereunder on behalf of the Trust.
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ARTICLE III.
ADMINISTRATION AND SERVICING OF HOME EQUITY LOANS
SECTION 3.01 The Master Servicer.
(a) The Master Servicer shall, or shall cause the Servicers to, service
and administer the Home Equity Loans in a manner consistent with the terms of
this Agreement and the Settlement Agreement (to the extent that no term or
provision of the Settlement Agreement (excluding those terms identified in the
Specified Filing) shall adversely affect in any material respect the interests
of the Noteholders) and with general industry practice and shall have full
power and authority, acting alone or through the Servicers, to do any and all
things in connection with such servicing and administration which it may deem
necessary or desirable, it being understood, however, that the Master Servicer
shall at all times remain responsible to the Indenture Trustee and the
Noteholders for the performance of its duties and obligations hereunder in
accordance with the terms hereof. Any amounts received by the related Servicer
in respect of a Home Equity Loan shall be deemed to have been received by the
Master Servicer whether or not actually received by it. Without limiting the
generality of the foregoing, the Master Servicer shall continue, and is hereby
authorized and empowered by the Indenture Trustee, (i) in its own name or in
the name of any Servicer, when the Master Servicer or the Servicer, as the
case may be, believes it appropriate in its best judgment to register any Home
Equity Loan on the MERS(R) System, or cause the removal from the registration
of any Home Equity Loan on the MERS(R) System, to execute and deliver, on
behalf of the Trust, any and all instruments of assignment and other
comparable instruments with respect to such assignment or re-recording of a
Mortgage in the name of MERS, solely as nominee for the Trust and its
successors and assigns, and (ii) to execute and deliver, on behalf of itself,
the Noteholders and the Indenture Trustee or any of them, any and all
instruments of satisfaction or cancellation, or of partial or full release or
discharge and all other comparable instruments, with respect to the Home
Equity Loans and with respect to the Mortgaged Properties. Upon the written
request of the Master Servicer, the Depositor and the Indenture Trustee shall
furnish the Master Servicer with any powers of attorney and other documents
necessary or appropriate to enable the Master Servicer to carry out its
servicing and administrative duties hereunder. The Master Servicer in such
capacity may also consent to the placing of a proposed lien senior to that of
the Mortgage on the related Mortgaged Property, provided that such proposed
lien is not secured by a note providing for negative amortization and:
(x) (i) the Mortgage relating to the Home Equity Loan was in a
first lien position as of the Cut-Off Date and was in a first lien
position immediately prior to the placement of the proposed senior lien,
and (ii) the ratio of (a) the sum of the Principal Balance of the Home
Equity Loan and the principal balance of the mortgage loan to be secured
by the proposed senior lien to (b) the Appraised Value of the Mortgaged
Property at the time the Home Equity Loan was originated is not greater
than (1) with respect to Home Equity Loans with an original CLTV of 85%
or less, 85%, (2) with respect to Home Equity Loans with an original
CLTV in excess of 85% and not greater than 95%, 95% and (3) with respect
to Home Equity Loans with an original CLTV in excess of 95% and not
greater than 115%, 115%;
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(y) (i) the Mortgage relating to the Home Equity Loan was in a
first or second lien position at the time the related Home Equity Loan
was conveyed to the Trust and, immediately following the placement of
such proposed senior lien, such Mortgage will be in a second or, if such
Mortgage was in a second lien position at the time the related Home
Equity Loan was conveyed to the Trust, a third lien position and (ii)
the principal balance of the mortgage loan to be secured by the proposed
senior lien and the rate at which interest accrues thereon are no
greater than those of the related Home Equity Loan as of the date it was
first conveyed to the Trust; or
(z) the Mortgage relating to the Home Equity Loan was in a second
lien position as of the Cut-Off Date and the proposed senior lien
secures a mortgage loan that refinances an existing first mortgage loan
and the outstanding principal amount of such mortgage loan immediately
following such refinancing and the rate at which interest accrues
thereon are not greater than that of such existing first mortgage loan
at the date the mortgage loan was originated.
(b) If (i) foreclosure proceedings are commenced with respect to any Home
Equity Loan with respect to which the Master Servicer has consented to the
placing of a subsequent senior lien pursuant to clause (x) in Section 3.01(a),
or (ii) any loss is suffered by the Indenture Trustee on behalf of the
Noteholders or the Transferor in respect of the Ownership Interest in respect
of any Home Equity Loan as a result of (x) a failure to file on or within ten
days following the effective date of this Agreement the UCC-l financing
statements referred to in Section 2.01 or (y) a failure to publish on or prior
to the Closing Date such notices reflecting the sale of the Home Equity Loans
as are described in Section 3440.1(h) of the California Civil Code, then the
Master Servicer shall repurchase or substitute for any adversely affected Home
Equity Loan on the Business Day preceding the next Payment Date following the
end of the Collection Period during which such foreclosure proceedings were
commenced or such losses were suffered. Such repurchase or substitution shall
be accomplished in the same manner and subject to the same conditions as set
forth in Section 2.02. Upon making any such repurchase or substitution the
Master Servicer shall be entitled to receive an instrument of assignment or
transfer from the Indenture Trustee to the same extent as set forth in Section
2.02.
(c) Upon the request of a Mortgagor or at the Master Servicer's own
initiative, the Master Servicer (or the related Servicer on behalf of the
Master Servicer) may waive, modify or vary any term of any Home Equity Loan or
consent to the postponement of strict compliance with any such term or in any
manner grant indulgence to any Mortgagor if:
(i) in the Master Servicer's (or such Servicer's) good faith
determination such waiver, modification, postponement or indulgence will
enhance recovery with respect to such Home Equity Loan; and
(ii) the Mortgagor is in default with respect to the Home Equity
Loan, or such default is, in the judgment of the Master Servicer (or such
Servicer) imminent.
(d) Subject to subparagraph (e) below, in addition to the circumstances
described under Section 3.01(c), the Master Servicer (or the related Servicer
on behalf of the Master Servicer) may waive, modify or vary any term of any
Home Equity Loan, if the purpose of such action is
37
to reduce the likelihood of prepayment or of default of such Home Equity Loan,
to increase the likelihood of repayment or repayment upon default of such Home
Equity Loan, to increase the likelihood of repayment in full of or recoveries
under such Home Equity Loan, or to otherwise benefit the Noteholders and the
Transferor in respect of the Ownership Interest, all in the reasonable
judgment of the Master Servicer.
(e) Notwithstanding any provision in this Agreement to the contrary, the
Master Servicer may not defer the scheduled monthly interest and principal
payment on any Home Equity Loan that is not in default or (in the judgment of
the Master Servicer (or the related Servicer on behalf of the Master
Servicer)) for which default is not imminent unless (i) the Master Servicer
elects to make a Skip-A-Pay Advance pursuant to subparagraph (f) below or (ii)
each Rating Agency advises that as a result of such deferment the then current
rating of the Class A and Class M Notes will not be withdrawn, suspended or
reduced; provided, however, that the Master Servicer may not defer the
scheduled monthly payment on any Home Equity Loan in reliance on clause (i)
above unless the Master Servicer determines, in its good faith judgment, that
such Skip-A-Pay Advance will be recoverable from future payments on the Home
Equity Loans.
(f) If during any Collection Period the Master Servicer deferred the
scheduled monthly payment on any Home Equity Loan that was not in default or
for which default was not imminent in reliance on clause (i) of subparagraph
(e) above, no later than 12:00 noon Chicago time on each Deposit Date, the
Master Servicer shall deposit into the Collection Account an amount equal to
the Skip-A-Pay Advance for such Collection Period. On each Payment Date, the
Master Servicer shall be entitled to reimburse itself for all previously
unreimbursed Skip-A-Pay Advances from funds on deposit in the Collection
Account, before making any payments to Noteholders pursuant to Section 5.01,
up to an amount equal to the Skip-A-Pay Reimbursement Amount on such Payment
Date; provided, however, that the Skip-A-Pay Reimbursement Amount that the
Master Servicer is entitled to receive on such Payment Date shall be reduced
by the portion of such amount, if any, that was applied to reduce the amount
of funds that the Master Servicer was required to deposit or to cause to be
deposited into the Collection Account on the preceding Deposit Date pursuant
to Section 3.02(b).
(g) The relationship of the Master Servicer (and of any successor to the
Master Servicer as master servicer under this Agreement) to the Indenture
Trustee under this Agreement is intended by the parties to be that of an
independent contractor and not that of a joint venturer, partner or agent.
(h) In the event that the rights, duties and obligations of the Master
Servicer are terminated hereunder, any successor to the Master Servicer in its
sole discretion may, to the extent permitted by applicable law, terminate the
existing subservicer arrangements with any Servicer or assume the terminated
Master Servicer's rights under such subservicing arrangements which
termination or assumption will not violate the terms of such arrangements.
(i) Any expenses incurred in connection with the actions described in
Section 3.01(a)(i) shall be borne by the Master Servicer in accordance with
Section 3.09, with no right of reimbursement; provided that if, as a result of
MERS discontinuing or becoming unable to continue operations in connection
with the MERS System, it becomes necessary to remove any Home Equity Loan from
registration on the MERS System and to arrange for the assignment of
38
the related Mortgages to the Trust, then any related expenses shall be
reimbursable to the Master Servicer.
SECTION 3.02 Collection of Certain Home Equity Loan Payments.
(a) The Master Servicer shall make reasonable efforts to collect all
payments called for under the terms and provisions of the Home Equity Loans,
and shall, to the extent such procedures shall be consistent with this
Agreement, follow such collection procedures as it follows with respect to
home equity loans in its servicing portfolio comparable to the Home Equity
Loans. Consistent with, and without limiting the generality of, the foregoing,
the Master Servicer may in its discretion (i) waive any late payment charge or
any assumption fees or other fees that may be collected in the ordinary course
of servicing the Home Equity Loans, (ii) arrange with a Mortgagor a schedule
for the payment of delinquent amounts, so long as such arrangement is
consistent with the Master Servicer's policies with respect to the home equity
loans it owns, (iii) sell the Home Equity Loan at its fair market value to a
third party for collection activity or (iv) reset the delinquency status of a
contractually delinquent Home Equity Loan to current in accordance with the
Master Servicer's customary account management policies and practices.
(b) The Master Servicer shall establish and maintain with the Indenture
Trustee a separate trust account (the "Collection Account") titled "JPMorgan
Chase Bank, as Indenture Trustee, in trust for the registered holders of
Household Home Equity Loan Asset Backed Notes, Series 2003-2". In the event
that a successor Indenture Trustee is appointed as provided in Section 6.8 of
the Indenture, a new Collection Account shall be promptly established at and
maintained by such successor Indenture Trustee, and the title of the new
Collection Account shall be "[Successor Indenture Trustee], as Indenture
Trustee, in trust for the registered holders of Household Home Equity Loan
Asset Backed Notes, Series 2003-2", and any amounts in the old Collection
Account shall be transferred to the new Collection Account. The Collection
Account shall be an Eligible Account. No later than 12:00 noon Chicago time on
each Deposit Date (or, if a Deposit Event has occurred and the Master Servicer
has not provided credit enhancement reasonably acceptable to each of the
Rating Agencies within two (2) Business Days following receipt thereof by the
Servicers), the Master Servicer shall deposit or cause to be deposited into
the Collection Account the following payments and collections received or made
by it with respect to the Home Equity Loans (without duplication):
(i) Interest Collections (net of any Servicing Fee) on the Home
Equity Loans;
(ii) Principal Collections on the Home Equity Loans;
(iii) Insurance Proceeds (including, for this purpose, any amount
required to be paid by the Master Servicer pursuant to Section 3.04 and
excluding any portion thereof constituting Principal Collections); and
(iv) amounts required to be paid by the Master Servicer in
connection with the termination of the Trust pursuant to Section 8.01;
provided, however, that so long as a Deposit Event has not occurred (unless
the Master Servicer has provided credit enhancement reasonably acceptable to
each of the Rating Agencies), the
39
amount of funds that the Master Servicer is required to deposit or to cause to
be deposited into the Collection Account on or before such Deposit Date shall
be reduced by the Skip-A-Pay Reimbursement Amount the Master Servicer is
entitled to receive on the next Payment Date.
The foregoing requirements respecting deposits to the Collection Account
are exclusive, it being understood that, without limiting the generality of
the foregoing, fees (including annual fees) or late charge penalties payable
by Mortgagors, prepayment penalties, or amounts received by the Master
Servicer or a Servicer for the accounts of Mortgagors for application towards
the payment of taxes, insurance premiums, assessments and similar items for
the account of the related Servicer, if any, need not be deposited in the
Collection Account.
(c) The Indenture Trustee shall hold amounts deposited in the Collection
Account as trustee for the Noteholders and the Transferor in respect of the
Ownership Interest. In addition, the Master Servicer shall notify the
Indenture Trustee in writing on each Determination Date of the amount of
payments and collections to be deposited in the Collection Account with
respect to the related Payment Date.
(d) The Master Servicer may cause the institution maintaining the
Collection Account to invest any funds in the Collection Account in Permitted
Investments (including obligations of the Master Servicer or of any of its
affiliates, if such obligations otherwise qualify as Permitted Investments),
which shall mature or otherwise be available not later than the Business Day
next preceding the Payment Date or on the Payment Date next following the date
of such investment as long as such action does not result in a withdrawal or
downgrading of the then current ratings on the Notes by the Rating Agencies
(except that any investment in an obligation of the institution with which the
Collection Account is maintained may mature on or before 12:00 noon, Chicago
time, on such Payment Date) and shall not be sold or disposed of prior to its
maturity. In the event the Indenture Trustee is at any time maintaining the
Collection Account, any request by the Master Servicer to invest funds on
deposit in the Collection Account shall be in writing, shall be delivered to
the Indenture Trustee at or before 10:30 A.M., Chicago time, if such
investment is to be made on such day, and shall certify that the requested
investment is a Permitted Investment that matures at or prior to the time
required hereby. In the absence of such investment instructions, the amounts
on deposit in the Collection Account shall remain uninvested. Any such
investment shall be registered in the name of or controlled by the Indenture
Trustee as trustee hereunder or in the name of its nominee and to the extent
such investments are certificated they shall be maintained in the possession
or control of the Indenture Trustee in the state of its Corporate Trust
Office. Except as provided above, all income and gain realized from any such
investment shall be for the benefit of the Master Servicer and shall be
subject to its withdrawal or order from time to time. The amount of any losses
incurred in respect of the principal amount of any such investments shall be
deposited in the Collection Account by the Master Servicer out of its own
funds immediately as realized.
(e) The Indenture Trustee is hereby authorized to execute purchases and
sales of Permitted Investments as directed by the Master Servicer through the
facilities of its own trading or capital markets operations. The Indenture
Trustee shall send to the Master Servicer statements reflecting the monthly
activity for each such purchase and sale made for the preceding month.
Although the Master Servicer recognizes that it may obtain a broker
confirmation or written monthly statement containing comparable information at
no additional cost, the Master
40
Servicer hereby agrees that confirmations of investments are not required to
be issued by the Indenture Trustee for each month in which a monthly statement
is rendered. No statement need be rendered pursuant to the provision of this
subsection if no activity occurred in the account for such month.
SECTION 3.03 Withdrawals from the Collection Account.
(a) The Indenture Trustee shall withdraw or cause to be withdrawn funds
from the Collection Account for the following purposes:
(i) On each Payment Date, to make distributions and payments to the
Noteholders and the Transferor in respect of the Ownership Interest
pursuant to Section 5.01;
(ii) From time to time, to make investments in Permitted Investments
and to pay to the Master Servicer all income and gain earned in respect
of Permitted Investments or on funds deposited in the Collection Account;
(iii) To reimburse the Depositor or the Master Servicer to the
extent permitted by Section 6.03;
(iv) To withdraw any funds deposited in the Collection Account that
were not required to be deposited therein or were deposited therein in
error and to pay such funds to the appropriate Person;
(v) To pay to the party legally entitled by a final order of a court
of competent jurisdiction in an insolvency proceeding an amount equal to
any preference claim made with respect to amounts paid with respect to
the Home Equity Loans; provided that, if any such amount is later
determined not to be a preference by such court of competent jurisdiction
and is returned to the Master Servicer or any Servicer, such amount shall
be redeposited into the Collection Account by the Master Servicer;
(vi) to clear and terminate the Collection Account upon the
termination of this Agreement and the Indenture and to pay any amounts
remaining therein to the Transferor in respect of the Ownership Interest;
and
(vii) to reimburse the Master Servicer for Skip-A-Pay Advances to
the extent permitted by Section 3.01(f).
(b) If the Master Servicer deposits in the Collection Account any amount
not required to be deposited therein or credited thereto or any amount in
respect of payments by Mortgagors made by checks subsequently returned for
insufficient funds or other reason for non-payment, it may at any time
withdraw such amount from the Collection Account pursuant to Section
3.03(a)(iv), and any such amounts shall not be included in Interest
Collections and Principal Collections, any provision herein to the contrary
notwithstanding. Any withdrawal or debit permitted by Section 3.03(a) may be
accomplished by delivering an Officer's Certificate to the Indenture Trustee
which describes the purpose of such withdrawal (including, without limitation,
that any such amount was deposited in the Collection Account in error or, in
the case
41
of returned checks, that such amounts were properly debited, respectively).
Upon receipt of any such Officer's Certificate, the Indenture Trustee shall
withdraw such amount for the account of the Master Servicer. All funds
deposited by the Master Servicer in the Collection Account shall be held by
the Indenture Trustee in trust for the Noteholders and the Transferor in
respect of the Ownership Interest, until disbursed in accordance with Section
5.01 or Section 5.4(b) of the Indenture or withdrawn or debited in accordance
with this Section.
SECTION 3.04 Maintenance of Hazard Insurance; Property Protection
Expenses. Each Home Equity Loan requires that the borrower thereunder maintain
hazard insurance naming the Master Servicer or the related Servicer as loss
payee providing extended coverage in an amount which is at least equal to the
lesser of (i) 100% of the insurable value of the Mortgaged Property or (ii)
the combined principal balance owing on such Home Equity Loan and any mortgage
loan senior to such Home Equity Loan from time to time. The Master Servicer
represents and warrants that it or the applicable Seller verified the
existence of such hazard insurance at the origination of the Home Equity Loan.
The Master Servicer shall also maintain on property acquired upon foreclosure,
or by grant of deed in lieu of foreclosure, hazard insurance with extended
coverage in an amount which is at least equal to the lesser of (i) 100% of the
insurable value of the Mortgaged Property or (ii) the combined unpaid
principal balance owing on such Home Equity Loan and any mortgage loans senior
to such Home Equity Loans at the time of such foreclosure or grant of deed in
lieu of foreclosure plus accrued interest thereon. Amounts collected by the
Master Servicer under any such policies shall be deposited in the Collection
Account to the extent called for by Section 3.02. In cases in which any
Mortgaged Property is located in a federally designated flood area, the hazard
insurance to be maintained for the related Home Equity Loan shall include
flood insurance. All such flood insurance shall be in such amounts as are
required under applicable guidelines of ▇▇▇▇▇▇ ▇▇▇. The Master Servicer shall
be under no obligation to require that any Mortgagor maintain earthquake or
other additional insurance and shall be under no obligation itself to maintain
any such additional insurance on property acquired in respect of a Home Equity
Loan, other than pursuant to such applicable laws and regulations as shall at
any time be in force and as shall require such additional insurance. As to
Mortgaged Properties acquired by the Master Servicer as provided herein, the
Master Servicer may satisfy its obligation set forth in the first sentence of
this Section 3.04 by self insuring Mortgaged Properties for which the
aggregate unpaid principal balance of the related Home Equity Loans plus the
outstanding balance of any mortgage loans senior to such Home Equity Loans at
the time title was acquired, plus accrued interest (the "Combined Exposure"),
was less than $500,000 (or such other amount as the Master Servicer may in
good faith determine from time to time) and by causing hazard policies to be
maintained with respect to Mortgaged Properties for which the Combined
Exposure equals or exceeds the self insurance threshold established from time
to time by the Master Servicer by maintaining a blanket policy consistent with
prudent industry standards insuring against hazard losses on the Mortgaged
Properties. Such policy may contain a deductible clause, in which case the
Master Servicer shall, in the event that there shall not have been maintained
on the related Mortgaged Property a policy complying with the first sentence
of this Section 3.04, and there shall have been a loss which would have been
covered by such policy, deposit in the Collection Account the amount not
otherwise payable under the blanket policy because of such deductible clause.
SECTION 3.05 Assumption and Modification Agreements. In any case in which
a Mortgaged Property has been or is about to be conveyed by the Mortgagor, the
Master Servicer
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shall exercise or refrain from exercising its right to accelerate the maturity
of such Home Equity Loan consistent with the then-current practice of the
Master Servicer and without regard to the inclusion of such Home Equity Loan
in the Trust and not in the Master Servicer's portfolio. If it elects not to
enforce its right to accelerate or if it is prevented from doing so by
applicable law, the Master Servicer (so long as such action conforms with the
Master Servicer's underwriting standards at the time for new originations) is
authorized to take or enter into an assumption and modification agreement from
or with the Person to whom such Mortgaged Property has been or is about to be
conveyed, pursuant to which such Person becomes liable under the Mortgage Note
and, to the extent permitted by applicable law, the Mortgagor remains liable
thereon. The Master Servicer shall notify the Indenture Trustee that any
assumption and modification agreement has been completed by delivering to the
Indenture Trustee an Officer's Certificate certifying that such agreement is
in compliance with this Section and by forwarding to the applicable Servicer
on behalf of the Depositor or the Indenture Trustee, as applicable, the
original copy of such assumption and modification agreement. Any such
assumption and modification agreement shall, for all purposes, be considered a
part of the related Mortgage File to the same extent as all other documents
and instruments constituting a part thereof. No change in the terms of the
related Mortgage Note may be made by the Master Servicer in connection with
any such assumption to the extent that such change would not be permitted to
be made in respect of the original Mortgage Note pursuant to Section 3.01
unless the conditions specified in Section 3.01 are satisfied. Any fee
collected by the Master Servicer for entering into any such agreement will be
retained by the Master Servicer as additional servicing compensation.
SECTION 3.06 Realization Upon Defaulted Home Equity Loans.
(a) The Master Servicer (or the Master Servicer together with the related
Seller as called for by the Home Equity Loan Purchase Agreements) shall
foreclose upon or otherwise comparably convert to ownership Mortgaged
Properties securing such of the Home Equity Loans as come into and continue in
default when, in the opinion of the Master Servicer based upon the practices
and procedures referred to in the following sentence, no satisfactory
arrangements can be made for collection of delinquent payments pursuant to
Section 3.02; provided that if the Master Servicer has actual knowledge or
reasonably believes that any Mortgaged Property is affected by hazardous or
toxic wastes or substances and that the acquisition of such Mortgaged Property
would not be commercially reasonable, then the Master Servicer will not cause
the Trust to acquire title to such Mortgaged Property in a foreclosure or
similar proceeding. In connection with such foreclosure or other conversion,
the Master Servicer shall follow such practices (including, in the case of any
default on a related senior mortgage loan, the advancing of funds to correct
such default) and procedures as it shall deem necessary or advisable and as
shall be normal and usual in its general mortgage servicing activities. The
foregoing is subject to the proviso that the Master Servicer shall not be
required to expend its own funds in connection with any foreclosure or towards
the correction of any default on a related senior mortgage loan or restoration
of any property unless it shall determine that such expenditure will increase
Net Liquidation Proceeds. The Master Servicer will be reimbursed out of
Liquidation Proceeds for advances of its own funds to pay Liquidation Expenses
before any Net Liquidation Proceeds are deposited in the Collection Account.
(b) In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall (i) so long as at least two of ▇▇▇▇▇'▇,
43
Standard & Poor's and Fitch assign a long-term unsecured debt rating to the
Master Servicer of at least "Baa3", in the case of ▇▇▇▇▇'▇, "BBB", in the case
of Fitch, and "BBB-" in the case of Standard & Poor's, be issued in the name
of the related Servicer or (ii) if the rating requirements in clause (i) are
not satisfied, be issued to the Indenture Trustee, or to its nominee on behalf
of Noteholders.
SECTION 3.07 [Reserved].
SECTION 3.08 Indenture Trustee to Cooperate.
(a) Upon any payment in full of the Principal Balance of any Home Equity
Loan, the Master Servicer is authorized to execute, pursuant to the
authorization contained in Section 3.01, if the assignments of Mortgage have
been recorded as required hereunder, an instrument of satisfaction regarding
the related Mortgage or written evidence of cancellation thereon and to cause
the removal from the registration on the MERS(R) System of such Mortgage,
which instrument of satisfaction shall be recorded by the Master Servicer if
required by applicable law and be delivered to the Person entitled thereto. It
is understood and agreed that no expenses incurred in connection with such
instrument of satisfaction or transfer shall be reimbursed from amounts
deposited in the Collection Account. If the Indenture Trustee is holding the
Mortgage Files, from time to time and as appropriate for the servicing or
foreclosure of any Home Equity Loan, the Indenture Trustee shall, upon request
of the Master Servicer and delivery to the Indenture Trustee of a trust
receipt signed by a Servicing Officer, release the related Mortgage File to
the Master Servicer, and the Indenture Trustee shall execute such documents as
shall be necessary to the prosecution of any such proceedings or the taking of
other servicing actions. Such trust receipt shall obligate the Master Servicer
to return the Mortgage File to the Indenture Trustee when the need therefor by
the Master Servicer no longer exists unless the Home Equity Loan shall be
liquidated, in which case, upon receipt of an Officer's Certificate of the
Master Servicer, the trust receipt shall be released by the Indenture Trustee
to the Master Servicer.
(b) In order to facilitate the foreclosure of the Mortgage securing any
Home Equity Loan that is in default following recordation of the assignments
of Mortgage in accordance with the provisions hereof, the Trust shall, if the
Master Servicer so requests in writing and supplies the Trust with appropriate
forms therefor, assign such Home Equity Loan for the purpose of collection to
the Master Servicer or to the related Servicer (any such assignment shall
unambiguously indicate that the assignment is for the purpose of collection
only), and, upon such assignment, such assignee for collection will thereupon
bring all required actions in its own name and otherwise enforce the terms of
the Home Equity Loan and deposit or credit the Net Liquidation Proceeds
received with respect thereto in the Collection Account. In the event that all
delinquent payments due under any such Home Equity Loan are paid by the
Mortgagor and any other defaults are cured then the assignee for collection
shall promptly reassign such Home Equity Loan to the Indenture Trustee and
return it to the place where the related Mortgage File was being maintained.
SECTION 3.09 Servicing Compensation; Payment of Certain Expenses by
Master Servicer. The Master Servicer shall be entitled to receive the
Servicing Fee as compensation for its services in connection with servicing
the Home Equity Loans. The Servicing Fee for each Collection Period shall be
paid to the Master Servicer out of Interest Collections prior to their
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deposit in the Collection Account and shall not be the responsibility or
liability of the Trust, the Owner Trustee, the Indenture Trustee, the Class A
or Class M Noteholders or the Transferor in respect of the Ownership Interest.
Additional servicing compensation in the form of late payment charges or other
receipts not required to be deposited in the Collection Account shall be
retained by the Master Servicer. The Master Servicer shall be required to pay
all expenses incurred by it in connection with its activities hereunder
(including payment of Owner Trustee, Delaware Trustee and Indenture Trustee
fees, expenses and indemnifications due to the Indenture Trustee under Section
6.7 of the Indenture and all other fees and expenses not expressly stated
hereunder to be for the account of the Noteholders and the Transferor in
respect of the Ownership Interest) and shall not be entitled to reimbursement
therefor except as specifically provided herein.
SECTION 3.10 Annual Statement as to Compliance.
(a) The Master Servicer will deliver to the Indenture Trustee and a copy
to each of the Rating Agencies, on or before March 31 of each year, beginning
March 31, 2005, an Officer's Certificate stating that (i) a review of the
activities of the Master Servicer during the preceding calendar year (or in
the case of the Officer's Certificate delivered in 2005, from the Closing
Date) and of its performance under this Agreement has been made under such
officer's supervision and (ii) to the best of such officer's knowledge, based
on such review, the Master Servicer has fulfilled all its material obligations
under this Agreement throughout such year (or in the case of the Officer's
Certificate delivered in 2005, from the Closing Date), or, if there has been a
default in the fulfillment of any such obligation, specifying each such
default known to such officer and the nature and status thereof. Copies of
such Officer's Certificate shall be provided by the Master Servicer to any
Noteholder upon written request at the Master Servicer's expense.
(b) The Master Servicer shall deliver to the Indenture Trustee and a copy
to each of the Rating Agencies, promptly after having obtained knowledge
thereof, but in no event later than five Business Days thereafter, written
notice by means of an Officer's Certificate of any event which with the giving
of notice or the lapse of time or both, would become a Master Servicer
Termination Event.
SECTION 3.11 Annual Servicing Report. On or before March 31 of each year,
beginning March 31, 2005, the Master Servicer at its expense shall cause a
firm of nationally recognized independent public accountants (who may also
render other services to the Master Servicer) to furnish a report to the
Indenture Trustee and a copy to each of the Rating Agencies to the effect
that, for the prior calendar year (or in the case of the report delivered in
2005, from the Closing Date) (i) such firm has performed procedures in order
to provide a report on the Master Servicer's assertion that the servicing of
Home Equity Loans by the Master Servicer during the relevant period under this
Agreement has been conducted in compliance with the terms and conditions set
forth in this Agreement related to the servicing of the Home Equity Loans and
the reporting thereof and (ii) that the Master Servicer's assertion is fair
and accurate in all material respects.
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SECTION 3.12 Access to Certain Documentation and Information Regarding
the Home Equity Loans.
(a) The Master Servicer and the Servicers shall provide to the Indenture
Trustee, the Owner Trustee, the Transferor in respect of the Ownership
Interest, the Class A and Class M Noteholders that are federally insured
savings and loan associations, the Office of Thrift Supervision, the successor
to the Federal Home Loan Bank Board, the FDIC and the supervisory agents and
examiners of the Office of Thrift Supervision access to the documentation
regarding the Home Equity Loans required by applicable regulations of the
Office of Thrift Supervision and the FDIC (acting as operator of the SAIF or
the BIF), such access being afforded without charge but only upon reasonable
request and during normal business hours at the offices of the Master Servicer
or the Servicers. Nothing in this Section shall derogate from the obligation
of the Master Servicer to observe any applicable law prohibiting disclosure of
information regarding the Mortgagors, and the failure of the Master Servicer
to provide access as provided in this Section as a result of such obligation
shall not constitute a breach of this Section.
(b) No later than the Determination Date preceding the related Payment
Date, the Master Servicer shall supply information in such form as the
Indenture Trustee shall reasonably request to the Indenture Trustee and the
Paying Agent as is required in the Indenture Trustee's reasonable judgment to
enable the Paying Agent or the Indenture Trustee, as the case may be, to make
the required payments and to furnish the required reports to Noteholders on
such Payment Date.
SECTION 3.13 Maintenance of Certain Servicing Insurance Policies. The
Master Servicer shall during the term of its service as master servicer
maintain in force (i) a policy or policies of insurance covering errors and
omissions in the performance of its obligations as master servicer hereunder
and (ii) a fidelity bond in respect of its officers, employees or agents. Each
such policy or policies and bond shall, together, comply with the requirements
from time to time of ▇▇▇▇▇▇ ▇▇▇ for Persons performing servicing for mortgage
loans purchased by such association.
SECTION 3.14 Reports to the Securities and Exchange Commission. The
Master Servicer shall, on behalf of the Trust, cause to be filed with the
Securities and Exchange Commission any periodic reports required to be filed
under the provisions of the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Securities and Exchange Commission
thereunder.
SECTION 3.15 [Reserved].
SECTION 3.16 Information Required by the Internal Revenue Service
Generally and Reports of Foreclosures and Abandonments of Mortgaged Property.
The Master Servicer shall prepare and deliver, or cause to be prepared, mailed
and filed all federal and state information reports for the Home Equity Loans
when and as required by all applicable state and federal income tax laws
including, to the extent applicable, returns reporting a cancellation of
indebtedness as prescribed by Section 6050P of the Code. In particular, with
respect to the requirement under Section 6050J of the Code, to the effect that
a lender shall be required to report foreclosures and abandonments of any
mortgaged property for each year beginning in
46
2003, the Master Servicer shall prepare, mail and file in a timely fashion
each year as required by law information statements in accordance with the
reporting requirements imposed by Section 6050J with respect to each instance
occurring during the previous calendar year in which the Master Servicer or
any Servicer (i) on behalf of the Indenture Trustee acquired an interest in
any Mortgaged Property through foreclosure or other comparable conversion in
full or partial satisfaction of a Home Equity Loan or (ii) knew or had reason
to know that any Mortgaged Property has been abandoned. The information
statements from the Master Servicer shall be in form and substance sufficient
to meet the reporting requirements imposed by Section 6050J of the Code.
SECTION 3.17 Additional Covenants of HFC. HFC hereby agrees that:
(a) it will maintain its books and records to clearly note the separate
corporate existence of the Depositor, each Servicer and the Master Servicer;
(b) the Depositor, the Servicers and HFC will share certain overhead
expenses, although the amount the Depositor will be charged for such use will
be based on actual use to the extent practicable and, to the extent such
allocation is not practicable, on a basis reasonably related to use;
(c) separate financial records will be maintained to reflect the assets
and liabilities of the Depositor, HFC and each Servicer, which financial
records are and will be subject to audit by independent public accountants at
the reasonable request of the Board of Directors of the Depositor, HFC or such
Servicer, as the case may be;
(d) except as permitted hereunder, there will be no commingling of the
assets of the Depositor with the assets of HFC or any Servicer. All demand
deposit accounts and other bank accounts of the Depositor will be maintained
separately from those of HFC and the Servicers. Monetary transactions between
the Depositor and HFC or any Servicer are and will continue to be properly
reflected in their respective financial records;
(e) HFC at all times will recognize, and will take all steps within its
power to maintain, the corporate existence of the Depositor and Servicers as
being separate and apart from its own corporate existence and will not refer
to the Depositor or any Servicer as a department or division of HFC; and
(f) Except as otherwise expressly provided herein, the Depositor and HFC
will not guaranty or advance the proceeds for payment of any obligations of
the Trust.
SECTION 3.18 Servicing Certificate. Not later than each Determination
Date, the Master Servicer shall deliver to the Indenture Trustee, the Paying
Agent and each Rating Agency a Servicing Certificate containing the
information set forth below with respect to the Home Equity Loans on an
aggregate basis as of the end of the preceding Collection Period and such
other information as the Indenture Trustee shall reasonably require (in
written form or the form of computer readable media or such other form as may
be agreed to by the Indenture Trustee and the Master Servicer), together with
an Officer's Certificate to the effect that such Servicing Certificate is true
and correct in all material respects, stating the related Collection Period,
Payment Date, the series number of the Notes, the date of this Agreement, and:
47
(i) the Available Payment Amount for such Payment Date, separately
stating the amount of Interest Collections and Principal Collections;
(ii) the amount of the payments to Holders of the Class A and Class
M Notes for such Payment Date, separately stating the portions thereof
allocable to interest and allocable to principal;
(iii) the amount of any Interest Carry Forward Amount and
Supplemental Interest Amount for each Class of Notes paid on such Payment
Date and the amount of any Interest Carry Forward Amount or Supplemental
Interest Amount for each Class of Notes remaining after giving effect to
the payments on such Payment Date;
(iv) the amount of any Extra Principal Payment Amount for such
Payment Date;
(v) the Principal Payment Amount for such Payment Date, separately
stating the components thereof;
(vi) the Principal Carry Forward Amount for each Class of Notes for
such Payment Date and the amount of any Principal Carry Forward Amount
for each Class of Notes remaining after giving effect to the payments on
such Payment Date;
(vii) the Note Principal Amount of each Class of Notes, the Pool
Balance as reported in the prior Indenture Trustee's Statement to
Noteholders or, in the case of the first Determination Date, the Original
Note Principal Amount for each Class of Notes and the Cut-Off Date Pool
Balance;
(viii)the number and aggregate Principal Balance of any Home Equity
Loan purchased or substituted by the Depositor or the Master Servicer
with respect to the related Collection Period pursuant to Section 2.02;
(ix) the number and aggregate Principal Balance of any Home Equity
Loan purchased or substituted by the Depositor or the Master Servicer
with respect to the related Collection Period pursuant to Section 2.04;
(x) the number and aggregate Principal Balance of any Home Equity
Loan purchased or substituted by the Depositor or the Master Servicer
with respect to the related Collection Period pursuant to Section 3.01;
(xi) the number and aggregate Principal Balance of any Home Equity
Loan that the Master Servicer has consented to the placement of a senior
lien during the related Collection Period pursuant to Section 3.01(a);
(xii) the amount of any Substitution Adjustment Amounts for such
Payment Date;
(xiii)the amount to be paid to the Transferor in respect of the
Ownership Interest for the related Payment Date pursuant to Section
5.01(a)(xii);
48
(xiv) the Note Principal Amount for each Class of Notes after giving
effect to the payment to be made on the related Payment Date;
(xv) the Servicing Fee for the related Collection Period and any
accrued amounts thereof that remain unpaid for previous Collection
Periods;
(xvi) the amount of all payments or reimbursements to the Master
Servicer pursuant to Sections 3.03;
(xvii)the Overcollateralization Amount, the Interim
Overcollateralization Amount, the Interim Overcollateralization
Deficiency, the Overcollateralization Release Amount, the Targeted
Overcollateralization Amount, and the Monthly Excess Cashflow for such
Payment Date;
(xviii) the number of Home Equity Loans outstanding at the beginning
and at the end of the related Collection Period;
(xix) the Pool Balance as of the end of the related Collection
Period;
(xx) the number and aggregate Principal Balances of Home Equity
Loans (x) as to which one, two or three or more scheduled monthly
payments, respectively, are contractually delinquent, and (y) that have
become REO, in each case as of the end of such Collection Period;
(xxi) the unpaid principal amount of all Home Equity Loans that
became Liquidated Home Equity Loans during such Collection Period;
(xxii) the Cumulative Realized Losses on the Home Equity Loans;
(xxiii) the book value of any real estate acquired through
foreclosure or grant of a deed in lieu of foreclosure;
(xxiv)the Two Payment-Plus Delinquency Percentage for the related
Collection Period;
(xxv) the Two Payment-Plus Rolling Average for such Payment Date;
(xxvi) LIBOR for such Payment Date;
(xxvii) whether a Master Servicer Termination Event has occurred
since the prior Determination Date, specifying each such Master Servicer
Termination Event if one has occurred;
(xxviii) whether an Event of Default has occurred and is continuing;
(xxix)the Class A Formula Rate, Class A Note Rate, Class M Formula
Rate, Class M Note Rate and the Available Funds Cap for such Payment
Date;
(xxx) the amount of any Skip-A-Pay Advances for the related
Collection Period;
49
(xxxi) the Skip-A-Pay Reimbursement Amount for such Payment Date;
(xxxii) the Cumulative Loss Percentage;
(xxxiii) whether a Trigger Event has occurred and is continuing; and
(xxxiv) such other information as is required by the Code and
regulations thereunder to be made available to Holders of the Class A and
Class M Notes.
The Indenture Trustee shall conclusively rely upon the information
contained in a Servicing Certificate for purposes of making payments pursuant
to Section 5.01, shall have no duty to inquire into such information and shall
have no liability in so relying. The format and content of the Servicing
Certificate may be modified by the mutual agreement of the Master Servicer and
the Indenture Trustee or as may be required by the rules and regulations of
the Securities and Exchange Commission. The Master Servicer shall give notice
of any such change to the Rating Agencies.
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ARTICLE IV.
[RESERVED]
51
ARTICLE V.
PRIORITY OF PAYMENTS; STATEMENTS TO
NOTEHOLDERS; RIGHTS OF NOTEHOLDERS
SECTION 5.01 Payments.
(a) Payments of Interest and Principal Collections. Pursuant to Section
3.1 of the Indenture, on each Payment Date, the Indenture Trustee, with
respect to the Notes, and the Paying Agent, with respect to the Ownership
Interest, shall distribute out of the Collection Account, to the extent of the
Available Payment Amount, the following amounts and in the following order of
priority to the following Persons (based on the information set forth in the
Servicing Certificate):
(i) to the Class A Notes, the Current Interest plus the Interest Carry
Forward Amount with respect to the Class A Notes for such Payment Date;
(ii) to the Class M Notes, the Current Interest plus the Interest Carry
Forward Amount with respect to the Class M Notes for such Payment Date;
(iii) to the Class A Notes until the Note Principal Amount of such Class
A Notes has been reduced to zero, 83.52274733% of the Principal Payment Amount
for such Payment Date;
(iv) to the Class A Notes, the Principal Carry Forward Amount with
respect to the Class A Notes for such Payment Date;
(v) to the Class A Notes until the Note Principal Amount of such Class A
Notes has been reduced to zero, 83.52274733% of the Additional Principal
Reduction Amount for such Payment Date;
(vi) to the Class M Notes until the Note Principal Amount of such Class
M Notes has been reduced to zero, 16.47725267% of the Principal Payment Amount
for such Payment Date;
(vii) to the Class M Notes, the Principal Carry Forward Amount with
respect to the Class M Notes for such Payment Date;
(viii) to the Class M Notes until the Note Principal Amount of such
Class M Notes has been reduced to zero, 16.47725267% of the Additional
Principal Reduction Amount for such Payment Date;
(ix) concurrently, to the Class A Notes and to the Class M Notes until
the Note Principal Amount of each such Class A and Class M Notes has been
reduced to zero, 83.52274733% of the Extra Principal Payment Amount for such
Payment Date to the Class A Notes and 16.47725267% of the Extra Principal
Payment Amount for such Payment Date to the Class M Notes;
(x) to the Class A and Class M Notes, pro rata based on unpaid
Supplemental Interest Amounts, the outstanding Class A Supplemental Interest
Amount and Class M Supplemental Interest Amount, the outstanding Class A
Supplemental
52
Interest Amount and the outstanding Class M Supplemental Interest Amount for
such Payment Date;
(xi) to the Owner Trustee on behalf of the Trust, an amount sufficient
to pay any judgment or settlement affecting the Trust; and
(xii) to the Transferor in respect of the Ownership Interest, any
remaining Available Payment Amount; provided, however, that on any Payment
Date after the earlier of (i) the date on which the first auction conducted by
the Indenture Trustee, or an agent of the Indenture Trustee, pursuant to
Section 8.01(c) does not produce any bid at least equal to the Termination
Price or (ii) the December 2013 Payment Date, any remaining amount available
for payment pursuant to this Section 5.01(a)(xii) shall instead be paid
concurrently, 83.52274733% to the Class A Notes and 16.47725267% to the Class
M Notes, in reduction of the applicable Note Principal Amount of each Class;
provided, that if the Indenture Trustee collects any money or property
pursuant to Article V of the Indenture, the Indenture Trustee and the Paying
Agent shall pay out the money or property as provided in Section 5.4(b) of the
Indenture; and provided, further, that to the extent the Note Principal Amount
of the Class A Notes has been reduced to zero, then 100% of any applicable
amounts described above will be paid to the Class M Notes until the Note
Principal Amount of the Class M Notes has been reduced to zero.
(b) Method of Payment. The Indenture Trustee shall make payments in
respect of a Payment Date to each Noteholder of record on the related Record
Date (other than as provided in Section 8.01 respecting the final payment) by
wire transfer, or upon prior written request by a Noteholder delivered to the
Indenture Trustee at least five Business Days prior to such Record Date, by
check or money order mailed to such Noteholder at the address appearing in the
Note Register, or by such other means of payment as such Noteholder and the
Indenture Trustee shall agree. Payments among Noteholders shall be made in
proportion to the Percentage Interests evidenced by the Notes held by such
Noteholders. The Indenture Trustee, acting in its capacity as Paying Agent,
shall make payments in respect of a Payment Date to the Transferor of record
on the related Record Date, in respect of the Ownership Interest by wire
transfer or by such other means of payment as the Transferor and the Paying
Agent shall agree.
(c) Payments on Book-Entry Notes. Each payment with respect to a
Book-Entry Note shall be paid to the Depository, which shall credit the amount
of such payment to the accounts of its Depository Participants in accordance
with its normal procedures. Each Depository Participant shall be responsible
for disbursing such payment to the Note Owners that it represents and to each
indirect participating brokerage firm (a "brokerage firm" or "indirect
participating firm") for which it acts as agent. Each brokerage firm shall be
responsible for disbursing funds to the Note Owners that it represents. All
such credits and disbursements with respect to a Book-Entry Note are to be
made by the Depository and the Depository Participants in accordance with the
provisions of the Class A or Class M Notes. None of the Indenture Trustee, the
Paying Agent, the Note Registrar, the Trust or the Master Servicer shall have
any responsibility therefor except as otherwise provided by applicable law.
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SECTION 5.02 Calculation of LIBOR, the Class A Formula Rate and Class M
Formula Rate.
(a) Calculation of the Class A Formula Rate and Class M Formula Rate. On
or prior to each LIBOR Determination Date, the Indenture Trustee shall
determine the Class A Formula Rate and Class M Formula Rate for the related
Payment Date.
(b) Calculation of LIBOR. Until the Principal Balance of each Class of
the Notes has been reduced to zero, the Indenture Trustee shall establish
LIBOR on each LIBOR Determination Date as follows:
(i) If on such LIBOR Determination Date a rate for United States
dollar deposits for one month appears on the Dow ▇▇▇▇▇ Telerate System,
page 3750, LIBOR for the next Accrual Period shall be equal to such rate
as of 11:00 A.M., London time;
(ii) If such rate does not appear on such page (or such other page
as may replace that page on that service, or if such service is no longer
offered, such other service for displaying LIBOR or comparable rates as
may be selected by the Indenture Trustee after consultation with the
Master Servicer), the rate shall be determined as follows:
(x) The Indenture Trustee on the LIBOR Determination Date will
request the principal London offices of each of four major reference
banks in the London interbank market, as selected by the Indenture
Trustee, to provide the Indenture Trustee with its offered quotation
for deposits in United States dollars for the upcoming one-month
period, commencing on the second LIBOR Business Day immediately
following such LIBOR Determination Date, to prime banks in the
London interbank market at approximately 11:00 a.m. London time on
such LIBOR Determination Date and in a principal amount that is
representative for a single transaction in United States dollars in
such market at such time. If at least two such quotations are
provided, LIBOR determined on such LIBOR Determination Date will be
the arithmetic mean of such quotations.
(y) If fewer than two quotations are provided, LIBOR determined on
such LIBOR Determination Date will be the arithmetic mean of the
rates quoted at approximately 11:00 a.m. in New York City on such
LIBOR Determination Date by three major banks in New York City
selected by the Indenture Trustee for one-month United States dollar
loans to leading European banks, in a principal amount that is
representative for a single transaction in United States dollars in
such market at such time; provided, however, that if the banks so
selected by the Indenture Trustee are not quoting as mentioned in
this sentence, LIBOR determined on such LIBOR Determination Date
will continue to be LIBOR as then currently in effect on such LIBOR
Determination Date.
(iii) The establishment of LIBOR on each LIBOR Determination Date by
the Indenture Trustee and the Indenture Trustee's calculation of the rate
of interest applicable to the Notes for the related Accrual Period shall
(in the absence of manifest error) be final
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and binding. The Indenture Trustee shall, upon determination of LIBOR for
the relevant Accrual Period, inform the Master Servicer (at the facsimile
number given to the Indenture Trustee in writing) of such rates.
SECTION 5.03 Statements to Noteholders. (a) On each Payment Date, the
Indenture Trustee shall deliver a copy of the applicable Servicing Certificate
delivered to the Indenture Trustee pursuant to Section 3.18 to each Noteholder
concurrently with each payment to Noteholders (the "Indenture Trustee's
Statement to Noteholders").
In the case of information furnished pursuant to clauses (ii) and (iii)
of Section 3.18, the amounts shall be expressed, in a separate section of the
report, as a dollar amount per Class A Note or Class M Note, as applicable,
for each Note for each $1,000 original dollar amount as of the Cut-Off Date.
To the extent that there are inconsistencies between the telecopy of the
Indenture Trustee's Statement to Noteholders and the hard copy thereof, the
Master Servicer may rely upon the latter.
The Indenture Trustee will make the reports referred to in this section
(and, at its option, any additional files containing the same information in
an alternative format) available each month to Noteholders and other parties
to this Agreement via the Indenture Trustee's website, which is presently
located at ▇▇▇.▇▇▇▇▇▇▇▇.▇▇▇/▇▇▇. Persons that are unable to use the above
website are entitled to have a paper copy mailed to them via first class mail
by requesting a paper copy in a written request addressed to the Indenture
Trustee's Corporate Trust Office. The Indenture Trustee shall have the right
to change the way the reports referred to in this section are distributed in
order to make such distribution more convenient and/or more accessible to the
above parties and to the Noteholders. The Indenture Trustee shall provide
timely and adequate notification to all above parties and to the Noteholders
regarding any such change.
(b) The Indenture Trustee shall prepare or cause to be prepared (in a
manner consistent with the treatment of the Notes as indebtedness of the
Trust, or as may be otherwise required by Section 3.16 herein) Internal
Revenue Service Form 1099 (or any successor form) and any other tax forms
required to be filed or furnished to Noteholders in respect of payments by the
Indenture Trustee (or the Paying Agent) on the Notes and shall file and
distribute such forms as required by law.
(c) Reports and computer tapes furnished by the Master Servicer pursuant
to this Agreement shall be deemed confidential and of a proprietary nature,
and shall not be copied or distributed except to the extent provided in this
Agreement and to the extent required by law or to the Rating Agencies, the
Depositor and to the extent the Master Servicer instructs the Indenture
Trustee in writing to furnish information regarding the Trust or the Home
Equity Loans to third-party information providers. No Person entitled to
receive copies of such reports or tapes or lists of Noteholders shall use the
information therein for the purpose of soliciting the customers of the Seller
or for any other purpose except as set forth in this Agreement.
(d) Within 60 days after the end of each calendar year, the Master
Servicer shall prepare or cause to be prepared and shall forward or give
access to the Indenture Trustee the information
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set forth in clauses (i) and (ii) above aggregated for such calendar year.
Such obligation of the Master Servicer shall be deemed to have been satisfied
to the extent that substantially comparable information shall be provided by
the Master Servicer pursuant to any requirements of the Code.
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ARTICLE VI.
THE MASTER SERVICER AND THE DEPOSITOR
SECTION 6.01 Liability of the Master Servicer and the Depositor. The
Master Servicer shall be liable in accordance herewith only to the extent of
the obligations specifically imposed upon and undertaken by the Master
Servicer herein. The Depositor shall be liable in accordance herewith only to
the extent of the obligations specifically imposed upon and undertaken by the
Depositor herein.
SECTION 6.02 Merger or Consolidation of, or Assumption of the Obligations
of, the Master Servicer or the Depositor. Any corporation into which the
Master Servicer or Depositor may be merged or consolidated, or any corporation
resulting from any merger, conversion or consolidation to which the Master
Servicer or the Depositor shall be a party, or any corporation succeeding to
the business of the Master Servicer or the Depositor, shall be the successor
of the Master Servicer or the Depositor, as the case may be, hereunder,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto so long as such entity is investment grade rated,
anything herein to the contrary notwithstanding.
SECTION 6.03 Limitation on Liability of the Master Servicer, the
Depositor and Others. None of the Master Servicer, the Depositor, or any
director, officer, employee or agent of the Master Servicer or the Depositor
shall be under any liability to the Trust or the Noteholders for any action
taken or for refraining from the taking of any action by the Master Servicer
or the Depositor, as applicable, in good faith pursuant to this Agreement, or
for errors in judgment; provided, however, that this provision shall not
protect the Master Servicer, the Depositor or any such person against any
liability which would otherwise be imposed by reason of willful misfeasance,
bad faith or gross negligence in the performance of duties or by reason of
reckless disregard of obligations and duties hereunder, and that this
provision shall not be construed to entitle the Master Servicer to indemnity
in the event that amounts advanced by the Master Servicer to retire any senior
Lien exceed Net Liquidation Proceeds realized with respect to the related Home
Equity Loan. The Master Servicer, the Depositor and any director, officer,
employee or agent of the Master Servicer or the Depositor may rely in good
faith on any document of any kind prima facie properly executed and submitted
by any Person respecting any matters arising hereunder. The Master Servicer,
the Depositor and any director, officer, employee or agent of the Master
Servicer or the Depositor shall be indemnified by the Trust and held harmless
against any loss, liability or expense incurred in connection with any legal
action relating to this Agreement or the Notes, other than any loss, liability
or expense related to any specific Home Equity Loan or Home Equity Loans
(except as any such loss, liability or expense shall be otherwise reimbursable
pursuant to this Agreement) and any loss, liability or expense incurred by
reason of willful misfeasance, bad faith or gross negligence in the
performance of duties hereunder or by reason of reckless disregard of
obligations and duties hereunder. Neither the Master Servicer nor the
Depositor shall be under any obligation to appear in, prosecute or defend any
legal action which is not incidental to its respective duties under this
Agreement, and which in its opinion may involve it in any expense or
liability; provided, however, that the Master Servicer or the Depositor may,
in its sole discretion, undertake any such action which it may deem necessary
or desirable in respect of this Agreement and the rights and duties of the
parties hereto and the interests of the Noteholders hereunder. In such event,
the reasonable legal
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expenses and costs of such action and any liability resulting therefrom and
any claims by the Master Servicer or the Depositor hereunder for
indemnification shall be expenses, costs and liabilities of the Trust, and the
Master Servicer or the Depositor, as the case may be, shall be entitled to be
reimbursed therefor and indemnified pursuant to the terms hereof from amounts
deposited in the Collection Account as provided by Section 3.03. The Master
Servicer's and the Depositor's right to indemnity or reimbursement pursuant to
this Section shall survive any resignation or termination of the Master
Servicer pursuant to Section 6.04 or 7.01 with respect to any losses,
expenses, costs or liabilities arising prior to such resignation or
termination (or arising from events that occurred prior to such resignation or
termination). The Master Servicer shall have no claim (whether by subrogation
or otherwise) or other action against any Noteholder for any amounts paid by
the Master Servicer pursuant to any provision of this Agreement.
SECTION 6.04 Master Servicer Not to Resign. Subject to the provisions of
Section 6.02, the Master Servicer shall not resign from the obligations and
duties hereby imposed on it except (i) upon determination that the performance
of its obligations or duties hereunder are no longer permissible under
applicable law or are in material conflict by reason of applicable law with
any other activities carried on by it or its subsidiaries or Affiliates, the
other activities of the Master Servicer so causing such a conflict being of a
type and nature carried on by the Master Servicer or its subsidiaries or
Affiliates at the date of this Agreement or (ii) upon satisfaction of the
following conditions: (a) the Master Servicer has proposed a successor
servicer to the Indenture Trustee in writing and such proposed successor
servicer is reasonably acceptable to the Indenture Trustee; (b) each Rating
Agency shall have confirmed to the Indenture Trustee that the appointment of
such proposed successor servicer as Master Servicer hereunder will not result
in the reduction or withdrawal of the then-current rating of the Class A or
Class M Notes; and (c) such proposed successor servicer has agreed in writing
to assume the obligations of Master Servicer hereunder and the Master Servicer
has delivered to the Indenture Trustee an Opinion of Counsel to the effect
that all conditions precedent to the resignation of the Master Servicer and
the appointment of and acceptance by the proposed successor servicer have been
satisfied; provided, however, that in the case of clause (i) above no such
resignation by the Master Servicer shall become effective until the Indenture
Trustee shall have assumed the Master Servicer's responsibilities and
obligations hereunder or the Indenture Trustee shall have designated a
successor servicer in accordance with Section 7.02. Any such resignation shall
not relieve the Master Servicer of responsibility for any of the obligations
specified in Sections 7.01 and 7.02 as obligations that survive the
resignation or termination of the Master Servicer. Any such determination
permitting the resignation of the Master Servicer pursuant to clause (i) above
shall be evidenced by an Opinion of Counsel to such effect delivered to the
Indenture Trustee.
SECTION 6.05 Delegation of Duties. In the ordinary course of business,
the Master Servicer at any time may delegate any of its duties hereunder to
any Person, including any of its Affiliates, who agrees to conduct such duties
in accordance with standards comparable to those with which the Master
Servicer complies pursuant to Section 3.01. Such delegation shall not relieve
the Master Servicer of its liabilities and responsibilities with respect to
such duties and shall not constitute a resignation within the meaning of
Section 6.04. The Master Servicer shall provide each Rating Agency and the
Indenture Trustee with written notice prior to the delegation of any of its
duties to any Person other than any of the Master Servicer's Affiliates or
their respective successors and assigns.
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ARTICLE VII.
MASTER SERVICER TERMINATION
SECTION 7.01 Master Servicer Termination Events.
If any one of the following events ("Master Servicer Termination
Events") shall occur and be continuing:
(a) Any failure by the Master Servicer to deposit in the Collection
Account any deposit required to be made under the terms of this Agreement
which continues unremedied for a period of five (5) Business Days after the
date upon which written notice of such failure shall have been given to the
Master Servicer by the Indenture Trustee or the Depositor, or to the Master
Servicer, the Depositor and the Indenture Trustee by the Majority Noteholder;
or
(b) Any failure on the part of the Master Servicer duly to observe or
perform in any material respect any other covenants or agreements of the
Master Servicer set forth in the Notes or in this Agreement (including
covenants in Section 2.03), which failure (A) materially and adversely affects
the interests of Noteholders and (B) continues unremedied for a period of
sixty (60) days after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to the Master
Servicer by the Indenture Trustee or the Depositor, or to the Master Servicer,
the Depositor and the Indenture Trustee by the Majority Noteholder; or
(c) The entry against the Master Servicer of a decree or order by a court
or agency or supervisory authority having jurisdiction in the premises for the
appointment of a trustee, conservator, receiver or liquidator in any
insolvency, conservatorship, receivership, readjustment of debt, marshalling
of assets and liabilities or similar proceedings, or for the winding up or
liquidation of its affairs, and the continuance of any such decree or order
unstayed and in effect for a period of 60 consecutive days; or
(d) The consent by the Master Servicer to the appointment of a trustee,
conservator, receiver or liquidator in any insolvency, conservatorship,
receivership, readjustment of debt, marshalling of assets and liabilities or
similar proceedings of or relating to the Master Servicer or of or relating to
substantially all of its property; or the Master Servicer shall admit in
writing its inability to pay its debts generally as they become due, file a
petition to take advantage of any applicable insolvency or reorganization
statute, make an assignment for the benefit of its creditors, or voluntarily
suspend payment of its obligations;
then, and in each and every case, so long as a Master Servicer Termination
Event shall not have been remedied by the Master Servicer, either the
Indenture Trustee or the Depositor may, and at the direction of the Majority
Noteholder, the Indenture Trustee shall, by notice then given in writing to
the Master Servicer, the Depositor and the Indenture Trustee, as applicable,
terminate all of the rights and obligations of the Master Servicer as master
servicer under this Agreement; provided, however, that the responsibilities
and duties of the initial Master Servicer with respect to the purchase of Home
Equity Loans pursuant to Sections 2.02, 2.04(c) and 3.01 shall not terminate.
Any such notice to the Master Servicer shall also be given to each Rating
Agency.
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On or after the receipt by the Master Servicer of such written notice, all
authority and power of, and all benefits accruing to, the Master Servicer
under this Agreement, whether with respect to the Notes or the Home Equity
Loans or otherwise, shall pass to and be vested in the Indenture Trustee or,
if a successor Master Servicer has been appointed under Section 7.02, such
successor Master Servicer pursuant to and under this Section 7.01; and,
without limitation, the Indenture Trustee is hereby authorized and empowered
to execute and deliver, on behalf of the Master Servicer, as attorney-in-fact
or otherwise, any and all documents and other instruments, and to do or
accomplish all other acts or things necessary or appropriate to effect the
purposes of such notice of termination, whether to complete the transfer and
endorsement of each Home Equity Loan and related documents, or otherwise. The
Master Servicer agrees to cooperate with the Indenture Trustee in effecting
the termination of the responsibilities and rights of the Master Servicer
hereunder, including, without limitation, the transfer to the Indenture
Trustee for the administration by it of all cash amounts that shall at the
time be held by the terminated Master Servicer and to be deposited by it in
the Collection Account, or that have been deposited by the terminated Master
Servicer in the Collection Account or thereafter received by the terminated
Master Servicer with respect to the Home Equity Loans, and the recordation of
Assignments of Mortgages to the Trust if MERS is not the mortgagee of a Home
Equity Loan or otherwise in accordance with Section 7.02(c).
Notwithstanding the foregoing, a delay in or failure of performance
under Section 7.01(a) for a period of five (5) Business Days or under Section
7.01(b) for a period of sixty (60) days, shall not constitute a Master
Servicer Termination Event if such delay or failure could not be prevented by
the exercise of reasonable diligence by the Master Servicer and such delay or
failure was caused by an act of God, acts of declared or undeclared war,
public disorder, terrorism, rebellion or sabotage, epidemics, landslides,
lightning, fire, hurricanes, earthquakes, floods or similar causes. The
preceding sentence shall not relieve the Master Servicer from using its best
efforts to perform its obligations in a timely manner in accordance with the
terms of this Agreement, and the Master Servicer shall provide the Indenture
Trustee, the Depositor and the Noteholders with an Officer's Certificate
giving prompt notice of such failure or delay by it, together with a
description of its efforts to so perform its obligations. The Master Servicer
shall immediately notify the Indenture Trustee and each Rating Agency in
writing of any Master Servicer Termination Events.
SECTION 7.02 Indenture Trustee to Act; Appointment of Successor.
(a) On and after the time the Master Servicer receives a notice of
resignation or termination pursuant to Section 6.04 or 7.01, the Indenture
Trustee shall be the successor in all respects to the Master Servicer in its
capacity as servicer under this Agreement and the transactions set forth or
provided for herein and shall be subject to all the responsibilities, duties
and liabilities relating thereto placed on the Master Servicer by the terms
and provisions hereof; provided, however, that the responsibilities and duties
of HFC as Master Servicer with respect to the purchase of the Home Equity
Loans pursuant to Sections 2.02, 2.04(c), 3.01 and the indemnification
obligation pursuant to Section 2.04(d) shall not terminate. As compensation
therefor, the Indenture Trustee shall be entitled to such compensation as the
Master Servicer would have been entitled to hereunder if no such notice of
termination had been given. Notwithstanding the above, (i) if the Indenture
Trustee is unwilling to act as successor Master Servicer, or (ii) if the
Indenture Trustee is legally unable so to act, the Indenture Trustee may (in
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the situation described in clause (i)) or shall (in the situation described in
clause (ii)) appoint, or petition a court of competent jurisdiction to
appoint, any housing and home finance institution or other mortgage loan or
home equity loan servicer having all licenses and permits required in order to
perform its obligations hereunder and a net worth of not less than $50,000,000
as the successor to the Master Servicer hereunder in the assumption of all or
any part of the responsibilities, duties or liabilities of the Master Servicer
hereunder; provided that the appointment of any such successor Master Servicer
will not result in the qualification, reduction or withdrawal of the
then-current rating assigned to either the Class A or Class M Notes by the
Rating Agencies, as evidenced by a writing to such effect delivered to the
Indenture Trustee, and any successor Master Servicer appointed hereunder shall
be reasonably acceptable to the Depositor. Pending appointment of a successor
to the Master Servicer hereunder, unless the Indenture Trustee is prohibited
by law from so acting, the Indenture Trustee shall act in such capacity as
hereinabove provided. In connection with such appointment and assumption, the
successor shall be entitled to receive compensation out of payments on Home
Equity Loans in an amount equal to the compensation which the Master Servicer
would otherwise have received pursuant to Section 3.09 (or such lesser
compensation as the Indenture Trustee and such successor shall agree). The
Indenture Trustee and such successor shall take such action, consistent with
this Agreement, as shall be necessary to effectuate any such succession. All
costs incurred in transferring the servicing to a successor servicer shall be
paid by the Master Servicer.
(b) Any successor, including the Indenture Trustee, to the Master
Servicer as master servicer shall during the term of its service as master
servicer (i) continue to service and administer the Home Equity Loans for the
benefit of Noteholders and (ii) maintain in force a policy or policies of
insurance covering errors and omissions in the performance of its obligations
as Master Servicer hereunder and a fidelity bond in respect of its officers,
employees and agents to the same extent as the Master Servicer is so required
pursuant to Section 3.13. The appointment of a successor Master Servicer shall
not affect any liability of the predecessor Master Servicer which may have
arisen under this Agreement prior to its termination as Master Servicer
(including, without limitation, any deductible under an insurance policy
pursuant to Section 3.04), nor shall any successor Master Servicer be liable
for any acts or omissions of the predecessor Master Servicer or for any breach
by such Master Servicer or the Depositor of any of their representations or
warranties contained herein or in any related document or agreement.
(c) In connection with the termination or resignation of the Master
Servicer hereunder, either (i) the successor Master Servicer, including the
Indenture Trustee if the Indenture Trustee is acting as successor Master
Servicer, shall represent and warrant that it is a member of MERS in good
standing and shall agree to comply in all material respects with the rules and
procedures of MERS in connection with the servicing of the Home Equity Loans
that are registered with MERS, in which case the predecessor Master Servicer
shall cooperate with the successor Master Servicer in causing MERS to revise
its records to reflect the transfer of servicing to the successor Master
Servicer as necessary under MERS' rules and regulations, or (ii) the
predecessor Master Servicer shall cooperate with the successor Master Servicer
in causing MERS to execute and deliver an Assignment of Mortgage in recordable
form to transfer the Mortgage from MERS to the Trust and to execute and
deliver such other notices, documents and other instruments as may be
necessary or desirable to effect a transfer of such Home Equity Loan or
servicing of such Home Equity Loan on the MERS(R) System to the successor
Master Servicer. The predecessor Master Servicer shall file or cause to be
filed any such assignment in the appropriate recording office. The predecessor
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Master Servicer shall bear any and all fees of MERS, costs of preparing any
Assignments of Mortgage, and fees and costs of filing any assignments of
Mortgage that may be required under this subsection (c). The successor Master
Servicer shall cause such assignment to be delivered to the Indenture Trustee
promptly upon receipt of the original with evidence of recording thereon or a
copy certified by the public recording office in which such Assignment of
Mortgage was recorded.
SECTION 7.03 Waiver of Defaults. The Majority Noteholder may, on behalf
of all Noteholders, waive any events permitting removal of the Master Servicer
as master servicer pursuant to this Article VII, provided, however, that the
Majority Noteholder may not waive a default in making a required payment on a
Note without the consent of each Holder of such Note. Upon any waiver of a
past default, such default shall cease to exist and any Master Servicer
Termination Event arising therefrom shall be deemed to have been remedied for
every purpose of this Agreement. No such waiver shall extend to any subsequent
or other default or impair any right consequent thereto except to the extent
expressly so waived. Notice of any such waiver shall be given by the Indenture
Trustee to the Rating Agencies.
SECTION 7.04 Notification to Noteholders. Upon any termination or
appointment of a successor to the Master Servicer pursuant to this Article VII
or Section 6.04 above, the Indenture Trustee shall give prompt written notice
thereof to the Noteholders at their respective addresses appearing in the Note
Register and each Rating Agency.
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ARTICLE VIII.
TERMINATION
SECTION 8.01 Termination.
(a) The respective obligations and responsibilities of the Depositor, the
Seller, the Master Servicer, the Trust and the Indenture Trustee created
hereby (other than the obligation of the Indenture Trustee to make certain
payments to Noteholders after the Final Scheduled Payment Date and the
obligation of the Master Servicer to send certain notices as hereinafter set
forth) shall terminate upon notice to the Indenture Trustee of the earliest of
(i) the final payment or other liquidation of the last Home Equity Loan
remaining in the Trust; (ii) the sale of the Home Equity Loans as described in
Section 10.2 of the Indenture and the corresponding redemption of the Notes,
(iii) the optional purchase by the Master Servicer of the Home Equity Loans as
described below in this Section 8.01 and (iv) the Payment Date in December
2013.
(b) The Master Servicer may, at its option, terminate this Agreement on
any Payment Date following the first Payment Date on which the sum of the Note
Principal Amounts of the Class A and Class M Notes (after giving effect to
payments made on such Payment Date) is less than or equal to 15% of the sum of
the Original Note Principal Amounts of the Class A and Class M Notes by
purchasing, on the next succeeding Payment Date, all of the outstanding Home
Equity Loans and REO Properties at a price (the "Termination Price") equal the
greatest of (A) the sum of (x) 100% of the Principal Balance of each Home
Equity Loan (other than any Home Equity Loan as to which title to the
underlying Mortgaged Property has been acquired and whose fair market value is
included pursuant to clause (y) below) as of the first day of the Collection
Period preceding the Payment Date upon which the proceeds of any repurchase
are to be paid and (y) the fair market value of such acquired property (as
determined by the Master Servicer as of the close of business on the third
Business Day next preceding the date upon which notice of any such termination
is furnished to Noteholders pursuant to Section 8.01(e)) plus, in each case,
one month's interest at the applicable Net Loan Rate on the Principal Balance
of each Home Equity Loan (including any Home Equity Loan as to which title to
the underlying Mortgaged Property has been acquired), (B) the aggregate fair
market value (as determined by the Master Servicer as of the close of business
on such third preceding Business Day) of all of the assets of the Trust, or
(C) the sum of the Note Principal Amounts of the Class A and Class M Notes,
together with any unpaid Interest Carry Forward Amounts and Supplemental
Interest Amounts allocable to such Classes, plus one month's interest on such
Note Principal Amounts and any unpaid Interest Carry Forward Amounts and
Supplemental Interest Amounts at the Class A Formula Rate or Class M Formula
Rate, as applicable.
Any such purchase shall be accomplished by deposit into the Collection
Account on the Determination Date before such Payment Date of the Termination
Price.
(c) If the Master Servicer does not repurchase all of the Home Equity
Loans pursuant to Section 8.01(b) above within three (3) months of the first
Payment Date upon which such repurchase option may occur, then promptly on the
following Payment Date the Indenture Trustee shall, on its own behalf or
through the use of an agent, and in either case at the expense of the Master
Servicer, begin a process for soliciting bids in connection with an auction of
the
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Home Equity Loans for an auction to occur on or before the next succeeding
Payment Date (the "First Auction Date") and, if necessary, any date after the
First Auction Date (the "Subsequent Auction Date" and together with the First
Auction Date, the "Auction Date"). The Indenture Trustee shall provide the
Master Servicer written notice of such auctions at least ten (10) Business
Days prior to the applicable Auction Date. The auctions shall be conducted at
the expense of the Master Servicer and as follows:
(i) If at least two bids are received, the Indenture Trustee, or an
agent of the Indenture Trustee, shall solicit and resolicit new bids from
all participating bidders until only one bid remains or the remaining
bidders decline to resubmit bids. The Indenture Trustee, or an agent of
the Indenture Trustee, shall accept the highest of such remaining bids if
it is equal to or in excess of the Termination Price. If less than two
bids are received or the highest bid after the resolicitation process is
completed is not equal to or in excess of the Termination Price, the
Indenture Trustee, or an agent of the Indenture Trustee, shall not
consummate such sale. If a bid equaling the Termination Price is
received, then the Indenture Trustee, or an agent of the Indenture
Trustee, may, and if so requested by the Master Servicer shall, consult
with a financial advisor (at the expense of the Master Servicer), which
may be an underwriter of the Notes, to determine if the fair market value
of the Home Equity Loans and related property has been offered.
(ii) If the first auction conducted by the Indenture Trustee, or an
agent of the Indenture Trustee, does not produce any bid at least equal
to the Termination Price, then the Indenture Trustee, or an agent of the
Indenture Trustee, shall, beginning on the Payment Date occurring
approximately three months after the Auction Date for the failed first
auction, commence another auction in accordance with the requirements of
this subsection (c). If such second auction does not produce any bid at
least equal to the Termination Price, then the Indenture Trustee, or an
agent of the Indenture Trustee, shall, beginning on the Payment Date
occurring approximately three months after the Auction Date for the
failed second auction, commence another auction in accordance with the
requirements of this subsection (c), and shall continue to conduct
similar auctions approximately every three months thereafter until the
earliest of (i) delivery by the Master Servicer of notice of exercise of
its repurchase option pursuant to Section 8.01(b) above, (ii) receipt by
the Indenture Trustee, or an agent of the Indenture Trustee, of a bid
meeting the conditions specified in the preceding paragraph, or (iii) the
Payment Date on which the Principal Balance of all the Home Equity Loans
is reduced to zero.
(d) If the Indenture Trustee, or an agent of the Indenture Trustee,
receives a bid meeting the conditions specified in subsection (c), then the
Indenture Trustee shall release, or cause to be released, to the winning
bidder, upon payment of the bid purchase price and satisfaction of any other
terms and conditions of the auction sale, the Mortgage Files pertaining to the
Home Equity Loans being purchased and the Trust and the Indenture Trustee
shall take such other actions as the winning bidder may reasonably request to
effect the transfer of the Home Equity Loans by the Trust to the winning
bidder.
(e) Notice of any termination, specifying the Payment Date (which shall
be a date that would otherwise be a Payment Date) upon which the Noteholders
may surrender their Notes to the Indenture Trustee for payment of the final
payment and cancellation, shall be given promptly
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by the Indenture Trustee (upon receipt of written directions from the Master
Servicer, if the Master Servicer is exercising its right to transfer of the
Home Equity Loans, given not later than the first day of the month preceding
the month of such final payment) to the Master Servicer by letter to the
Noteholders mailed not earlier than the 15th day and not later than the 25th
day of the month next preceding the month of such final payment specifying (i)
the Payment Date upon which final payment of the Notes will be made upon
presentation and surrender of Notes at the office or agency of the Indenture
Trustee therein designated, (ii) the amount of any such final payment and
(iii) that the Record Date otherwise applicable to such Payment Date is not
applicable, payments being made only upon presentation and surrender of the
Notes at the office or agency of the Indenture Trustee therein specified.
(f) Upon presentation and surrender of the Notes, the Indenture Trustee
shall cause to be paid to the Noteholders on the Payment Date for such final
payment, in proportion to their respective Percentage Interests an amount
equal to (i) as to the Class A or Class M Notes, such Class' appropriate share
of the Principal Payment Amount, any Interest Carry Forward Amounts and one
month's interest at the related Note Rate on the applicable Note Principal
Amount and (ii) as to Transferor in respect of the Ownership Interest, the
amount which remains on deposit in the Collection Account (other than the
amounts retained to meet claims) after application pursuant to clause (i)
above.
(g) In the event that all of the Noteholders shall not surrender their
Notes for final payment and cancellation on or before such Final Scheduled
Payment Date, the Indenture Trustee shall promptly following such date cause
all funds in the Collection Account not paid in final payment to Noteholders,
to be withdrawn therefrom and credited to the remaining Noteholders by
depositing such funds in a separate escrow account for the benefit of such
Noteholders, and the Master Servicer (if the Master Servicer has exercised its
right to purchase the Home Equity Loans) or the Indenture Trustee (in any
other case) shall give a second written notice to the remaining Noteholders to
surrender their Notes for cancellation and receive the final payment with
respect thereto. If within nine months after the second notice all the Notes
shall not have been surrendered for cancellation, the Ownership Interest will
be entitled to all remaining unclaimed funds and other assets which remain
subject hereto, and the Indenture Trustee upon transfer of such funds shall be
discharged of any responsibility for such funds and the Noteholders shall look
to the holder of the Ownership Interest for payment.
65
ARTICLE IX.
MISCELLANEOUS PROVISIONS
SECTION 9.01 Amendment.
(a) This Agreement may be amended from time to time by the Depositor, the
Master Servicer, the Trust and the Indenture Trustee by written agreement,
without the consent of any of the Noteholders (i) to cure any ambiguity, (ii)
to correct or supplement any provisions herein that may be inconsistent with
any other provisions herein or to correct any error, (iii) to add to the
duties of the Depositor, the Indenture Trustee or the Master Servicer, (iv) to
add, amend or modify any other provisions with respect to matters or questions
arising under this Agreement which shall not be inconsistent with the
provisions of this Agreement, (v) to add or amend any provisions of this
Agreement as required by any Rating Agency or any other nationally recognized
statistical rating agency in order to maintain or improve any rating of the
Class A or Class M Notes (it being understood that, after obtaining the
ratings in effect on the Closing Date, neither the Indenture Trustee, the
Depositor nor the Master Servicer is obligated to obtain, maintain or improve
any such rating), (vi) to comply with any requirement imposed by changes in
accounting policies that do not materially impact the Notes, or (vii) to
comply with any requirements imposed by the Code; provided, however, that as
evidenced by an Opinion of Counsel (a copy of which shall be delivered to the
Indenture Trustee) (at the expense of the party requesting such amendment) in
each case (other than a case arising under clause (vi) or (vii)) such action
shall not adversely affect in any material respect the interest of any Class A
or Class M Noteholder, and provided, further, that the amendment shall not be
deemed to adversely affect in any material respect the interests of the Class
A and Class M Noteholders and no Opinion of Counsel to that effect shall be
required, if the Person requesting the amendment obtains a letter from each
Rating Agency stating that the amendment would not result in the downgrading
or withdrawal of the respective ratings then assigned to the Class A and Class
M Notes.
(b) This Agreement also may be amended from time to time by the Master
Servicer, the Depositor, the Trust and the Indenture Trustee, with the consent
of the Holders of the Class A and Class M Notes that are affected by such
amendment, evidencing Percentage Interests aggregating not less than 51% in
Percentage Interests of the related Class or in the case of an amendment that
affects all Classes, the Majority Noteholder, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
of this Agreement or of modifying in any manner the rights of the Noteholders
or the Transferor in respect of the Ownership Interest; provided, however,
that no such amendment shall (i) reduce in any manner the amount of, or delay
the timing of, payments on any Class A or Class M Note without the consent of
the Holder of such Note or (ii) reduce the aforesaid percentage required to
consent to any such amendment, or (iii) result in a downgrading of the ratings
of the Class A or Class M Notes without the consent of all Holders of each
Class of Notes affected thereby.
Prior to the solicitation of consent of Noteholders in connection with
any such amendment, the party seeking such amendment shall furnish the
Indenture Trustee with an Opinion of Counsel stating whether such amendment
would create a material risk of the Trust incurring taxes imposed under the
Code and notice of the conclusion expressed in such Opinion
66
of Counsel shall be included with any such solicitation. An amendment made
with the consent of all Noteholders and executed in accordance with this
Section 9.01 shall be permitted or authorized by this Agreement
notwithstanding that such Opinion of Counsel may conclude that such amendment
would create a material risk of the Trust incurring taxes imposed under the
Code.
Prior to the execution of any such amendment, the Indenture Trustee
shall furnish written notification of the substance of such amendment to each
Rating Agency. In addition, promptly after the execution of any such amendment
made with the consent of the Class A and/or Class M Noteholders, the Indenture
Trustee shall furnish written notification of the substance of such amendment
to each applicable Noteholder.
(c) It shall not be necessary for the consent of Noteholders under this
Section 9.01 to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents and of evidencing the authorization of the
execution thereof by Noteholders shall be subject to such reasonable
requirements as the Indenture Trustee may prescribe.
Prior to the execution of any amendment to this Agreement, each of the
Indenture Trustee and the Owner Trustee shall be entitled to receive and
conclusively rely upon an Opinion of Counsel stating that the execution of
such amendment is authorized or permitted by this Agreement and all conditions
precedent to the execution of such amendment have been met. The Indenture
Trustee may, but shall not be obligated to, enter into any such amendment
which affects the Indenture Trustee's own rights, duties, indemnities or
immunities under this Agreement.
SECTION 9.02 Recordation of Agreement. To the extent permitted by
applicable law, this Agreement, or a memorandum thereof if permitted under
applicable law, is subject to recordation in all appropriate public offices
for real property records in all of the counties or other comparable
jurisdictions in which any or all of the Mortgaged Properties are situated,
and in any other appropriate public recording office or elsewhere, such
recordation to be effected by the Master Servicer at the Noteholders' expense
on direction of the Indenture Trustee or the Majority Noteholder, but only
when accompanied by an opinion of counsel delivered to the Indenture Trustee
and the Owner Trustee to the effect that such recordation materially and
beneficially affects the interests of the Noteholders or is necessary for the
administration or servicing of the Home Equity Loans.
SECTION 9.03 Duration of Agreement. This Agreement shall continue in
existence and effect until terminated as herein provided.
SECTION 9.04 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH
SUCH LAWS, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
67
SECTION 9.05 Notices. All demands, notices and communications hereunder
shall be in writing and shall be deemed to have been duly given if personally
delivered at or mailed by overnight mail, certified mail or registered mail,
postage prepaid, to (a) in the case of the Depositor or the Master Servicer,
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: Treasurer, (b)
in the case of the Indenture Trustee, at the Corporate Trust Office,
Attention: Corporate Trust, Mail Code: IL 1-0481 Household Home Equity Loan
Trust 2003-2, (c) in the case of the Owner Trustee, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: Asset Backed Securities, (d) in the
case of Moody's, ABS Monitoring Department, ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇ ▇▇▇▇▇, (e) in the case of Standard & Poor's, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: Structured Finance Surveillance, and (f)
in the case of Fitch, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇, Attention: RMBS Surveillance Department or, as to each party, at such
other address as shall be designated by such party in a written notice to each
other party. Any notice required or permitted to be mailed to a Noteholder
shall be given by first class mail, postage prepaid, at the address of such
Holder as shown in the Note Register. Any notice so mailed within the time
prescribed in this Agreement shall be conclusively presumed to have been duly
given, whether or not the Noteholder receives such notice.
SECTION 9.06 Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be held
invalid for any reason whatsoever, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity
or enforceability of the other covenants, agreements, provisions or terms of
this Agreement.
SECTION 9.07 No Partnership. Nothing herein contained shall be deemed or
construed to create any partnership or joint venture between the parties
hereto and the services of the Master Servicer shall be rendered as an
independent contractor.
SECTION 9.08 Counterparts. This Agreement may be executed in one or more
counterparts and by the different parties hereto on separate counterparts,
each of which, when so executed, shall be deemed to be an original; such
counterparts, together, shall constitute one and the same Agreement.
SECTION 9.09 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the Depositor, the Master Servicer, each
Seller, the Trust, the Indenture Trustee and the Noteholders and their
respective successors and permitted assigns.
The parties hereto hereby agree that all rights of the Trust under this
Agreement are pledged by the Trust to the Indenture Trustee under the
Indenture, and that the Indenture Trustee on behalf of the Noteholders has the
right to directly enforce all rights of the Trust under this Agreement.
SECTION 9.10 Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not
be deemed to be part of this Agreement.
68
SECTION 9.11 Indenture Trustee. All privileges, rights and immunities
given to the Indenture Trustee in the Indenture are hereby extended to and
applicable to the Indenture Trustee's obligations hereunder.
SECTION 9.12 Inconsistencies Among Transaction Documents. In the event
certain provisions of a Transaction Document conflict with the provisions of
this Sale and Servicing Agreement, the parties hereto agree that the
provisions of this Sale and Servicing Agreement shall be controlling.
SECTION 9.13 [RESERVED].
SECTION 9.14 Limitation on Voting of Preferred Stock. The Indenture
Trustee shall hold all of the preferred stock ("Preferred Stock") of the
Depositor in trust, for the benefit of the Noteholders, and during the
continuance of a Master Servicer Termination Event, shall vote such stock only
pursuant to the written instructions of the Majority Noteholder. The Indenture
Trustee shall not permit a transfer of any of the Preferred Stock to HFC or
any of its Affiliates. Concurrently with any transfer of the Home Equity Loans
to the Master Servicer pursuant to Section 8.01, the Indenture Trustee shall
transfer to the Depositor for cancellation all shares of Preferred Stock held
by the Indenture Trustee.
SECTION 9.15 Perfection Representations. The Perfection Representations
shall be a part of this Agreement for all purposes.
SECTION 9.16 Limitation of Liability. It is understood by each party
hereto that the sole recourse of each party hereto in respect of the
obligations of the Trust hereunder and under the other Transaction Documents
to which it is a party shall be to the assets of the Trust. In addition, The
Bank of New York ("BNY") is entering into this Agreement and the other
Transaction Documents to which the Trust is a party solely in its capacity as
trustee under the Trust Agreement and not in its individual capacity and in no
case shall BNY (or any Person acting as successor trustee under the Trust
Agreement) be personally liable for or on account of any of the statements,
representations, warranties, covenants or obligations stated to be those of
the Trust hereunder or thereunder, all such liability, if any, being expressly
waived by the parties hereto and any person claiming by, through or under such
party.
SECTION 9.17 Inspection of Mortgage Files. Following the time that the
Mortgage Files have been delivered to the Indenture Trustee upon reasonable
prior notice and during regular business hours, the Indenture Trustee shall
permit representatives of applicable state regulatory agencies to inspect the
Mortgage Files on the Indenture Trustee's premises or shall provide such
documents at such places required by state regulations, including the offices
of the Servicers. Any loss incurred by the Indenture Trustee in fulfilling
such obligations shall be paid by the Master Servicer.
SECTION 9.18 [RESERVED].
69
ARTICLE X.
MISCELLANEOUS PROVISIONS
SECTION 10.01 Administrative Duties.
(a) Duties with Respect to the Indenture. The Master Servicer shall
perform all its duties and the duties of the Issuer under the Indenture. In
addition, the Master Servicer shall consult with the Owner Trustee as the
Master Servicer deems appropriate regarding the duties of the Issuer under the
Indenture. The Master Servicer shall monitor the performance of the Issuer and
shall advise the Owner Trustee when action is necessary to comply with the
Issuer's duties under the Indenture. The Master Servicer shall prepare for
execution by the Issuer or shall cause the preparation by other appropriate
Persons of all such documents, reports, filings, instruments, certificates and
opinions as it shall be the duty of the Issuer to prepare, file or deliver
pursuant to the Indenture. In furtherance of the foregoing, the Master
Servicer shall take all necessary action that is the duty of the Issuer to
take pursuant to the Indenture, including, without limitation, pursuant to
Sections 3.1, 3.3, 3.4, 3.5, 3.6, 3.7, 3.9, 3.16, 3.17, 7.3, 8.6, 9.2, 9.3,
11.1 and 11.15 of the Indenture.
(b) Duties with Respect to the Issuer.
(i) In addition to the duties of the Master Servicer set forth in
this Agreement or any of the Transaction Documents, the Master Servicer
shall perform such calculations and shall prepare for execution by the
Issuer or the Owner Trustee, or shall cause the preparation by other
appropriate Persons of all such documents, reports, filings, instruments,
certificates and opinions as it shall be the duty of the Issuer or the
Owner Trustee, to prepare, file or deliver pursuant to this Agreement or
any of the Transaction Documents or under state and federal tax and
securities laws, and at the request of the Owner Trustee shall take all
appropriate action that it is the duty of the Issuer to take pursuant to
this Agreement or any of the Transaction Documents, including, without
limitation, pursuant to Sections 2.6 of the Trust Agreement. In
accordance with the directions of the Issuer or the Owner Trustee, the
Master Servicer shall administer, perform or supervise the performance of
such other activities in connection with the Owner Trust Estate
(including the Transaction Documents) as are not covered by any of the
foregoing provisions and as are expressly requested by the Issuer or the
Owner Trustee and are reasonably within the capability of the Master
Servicer.
(ii) Notwithstanding anything in this Agreement or any of the
Transaction Documents to the contrary, the Master Servicer shall be
responsible for promptly notifying the Owner Trustee and the Indenture
Trustee in the event that any withholding tax is imposed on the Issuer's
payments (or allocations of income) to a Transferor as contemplated by
this Agreement. Any such notice shall be in writing and specify the
amount of any withholding tax required to be withheld by the Owner
Trustee or the Indenture Trustee pursuant to such provision.
(iii) Notwithstanding anything in this Agreement or the Transaction
Documents to the contrary, the Master Servicer shall be responsible for
performance of
70
the duties of the Issuer or the Depositor set forth in Section 5.5 of the
Trust Agreement with respect to, among other things, accounting and
reports to the Transferor (as defined in the Trust Agreement); provided,
however, that once prepared by the Master Servicer, the Depositor shall
retain responsibility under the Trust Agreement for the distribution of
the Schedule K-1s, if any, necessary to enable the Transferor to prepare
its federal and state income tax returns.
(iv) The Master Servicer shall perform the duties of the Depositor
specified in Section 10.2 of the Trust Agreement required to be performed
in connection with the resignation or removal of the Owner Trustee, and
any other duties expressly required to be performed by the Master
Servicer under this Agreement or any of the Transaction Documents.
(v) The Master Servicer, on behalf of the Depositor, shall direct
the Issuer to request the tender of all or a portion of the Notes in
accordance with the Indenture or this Agreement.
(vi) In carrying out the foregoing duties or any of its other
obligations under this Agreement, the Master Servicer may enter into
transactions with or otherwise deal with any of its Affiliates; provided,
however, that the terms of any such transactions or dealings shall be in
accordance with any directions received from the Issuer and shall be, in
the Master Servicer's opinion, no less favorable to the Issuer in any
material respect.
(vii) The Master Servicer shall take all necessary action that is
the duty of the Issuer to take pursuant to Section 7.8 of the Trust
Agreement.
(c) Tax Matters. The Master Servicer shall prepare and file, or cause to
be prepared and filed, on behalf of the Depositor, all required tax returns,
tax elections, financial statements and such annual or other reports of the
Issuer as are necessary for preparation of tax reports as provided in Article
V of the Trust Agreement, including without limitation Form 1099. All tax
returns will be signed by the Depositor.
(d) Non-Ministerial Matters. With respect to matters that in the
reasonable judgment of the Master Servicer are non-ministerial, the Master
Servicer shall not take any action pursuant to this Article X unless within a
reasonable time before the taking of such action, the Master Servicer shall
have notified the Owner Trustee and the Indenture Trustee of the proposed
action and the Owner Trustee and the Indenture Trustee shall not have withheld
consent or provided an alternative direction. For the purpose of the preceding
sentence, "non-ministerial matters" shall include
(i) the initiation of any claim or lawsuit by the Issuer and the
compromise of any action, claim or lawsuit brought by or against the
Issuer (other than in connection with the collection of the Home Equity
Loans);
(ii) the appointment of successor Note Registrars, successor Note
Paying Agents and successor Indenture Trustees pursuant to the Indenture
or the consent to the assignment by the Note Registrar, Note Paying Agent
or Indenture Trustee of its obligations under the Indenture; and
71
(iii) the removal of the Indenture Trustee.
(e) Exceptions. Notwithstanding anything to the contrary in this
Agreement, except as expressly provided herein or in the Transaction
Documents, the Master Servicer, in its capacity hereunder, shall not be
obligated to, and shall not, (1) make any payments to the Noteholders or the
Transferor under the Transaction Documents, (2) sell any of the assets of the
Trust, (3) take any other action that the Issuer directs the Master Servicer
not to take on its behalf or (4) in connection with its duties hereunder
assume any indemnification obligation of any other Person.
(f) Neither the Indenture Trustee nor any successor Master Servicer shall
be responsible for any obligations or duties of a predecessor Master Servicer
under this Section 10.1.
SECTION 10.02 Records. The Master Servicer shall maintain appropriate
books of account and records relating to services performed under this
Agreement, which books of account and records shall be accessible for
inspection by the Issuer and the Indenture Trustee at any time during normal
business hours.
SECTION 10.03 Additional Information to be Furnished to the Trust. The
Master Servicer shall furnish to the Issuer and the Indenture Trustee, from
time to time such additional information regarding the Owner Trust Estate as
the Issuer and the Indenture Trustee shall reasonably request.
72
IN WITNESS WHEREOF, the following have caused their names to be signed by
their respective officers thereunto duly authorized, as of the day and year
first above written, to this Sale and Servicing Agreement.
HOUSEHOLD HOME EQUITY LOAN TRUST 2003-2, By:
The Bank of New York, not in its individual
capacity but solely as Owner Trustee
By: /s/ ▇▇▇▇▇ ▇▇▇
-------------------------------------------
Name: ▇▇▇▇▇ ▇▇▇
Title: Assistant Treasurer
S-1
HOUSEHOLD FINANCE CORPORATION,
as Master Servicer
By: /s/ ▇.▇. ▇▇▇▇, ▇▇.
-------------------------------------------
Name: ▇.▇. ▇▇▇▇, ▇▇.
Title: Vice President and Treasurer
S-2
HFC REVOLVING CORPORATION,
as Depositor
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice President and
Assistant Treasurer
S-3
JPMORGAN CHASE BANK,
not in its individual capacity, but
solely as Indenture Trustee
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Attorney-In-Fact
▇-▇
▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇ )
)
COUNTY OF NEW YORK )
BEFORE ME, on December 15, 2003, the undersigned authority, a Notary
Public, on this day personally appeared ▇▇▇▇▇ ▇▇▇, known to me to be a person
and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said The Bank of New York
not in its individual capacity but in its capacity as Owner Trustee of
HOUSEHOLD HOME EQUITY LOAN TRUST 2003-2, as the Trust, and that he executed
the same as the act of such corporation for the purpose and consideration
therein expressed, and in the capacity therein stated.
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
Notary Public, State of New York
[SEAL]
S-5
THE STATE OF ILLINOIS )
)
COUNTY OF ▇▇▇▇ )
BEFORE ME, on December 18, 2003, the undersigned authority, a Notary
Public, on this day personally appeared ▇.▇. ▇▇▇▇, ▇▇., known to me to be a
person and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said Household Finance
Corporation, as the Master Servicer, and that he executed the same as the act
of such corporation for the purpose and consideration therein expressed, and
in the capacity therein stated.
/s/ ▇▇▇▇▇ ▇▇▇▇▇
------------------------------------
Notary Public, State of Illinois
[SEAL]
S-6
THE STATE OF ILLINOIS )
)
COUNTY OF ▇▇▇▇ )
BEFORE ME, on December 18, 2003, the undersigned authority, a Notary
Public, on this day personally appeared ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, known to me to be a
person and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said HFC Revolving
Corporation, as the Depositor, and that he executed the same as the act of
such corporation for the purpose and consideration therein expressed, and in
the capacity therein stated.
/s/ ▇▇▇▇▇ ▇▇▇▇▇
------------------------------------
Notary Public, State of Illinois
[SEAL]
S-7
THE STATE OF ILLINOIS )
)
COUNTY OF ▇▇▇▇ )
BEFORE ME, on December 18, 2003, the undersigned authority, a Notary
Public, on this day personally appeared ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, known to me to be
the person and officer whose name is subscribed to the foregoing instrument
and acknowledged to me that the same was the act of the said JPMorgan Chase
Bank, not in its individual capacity, but solely as Indenture Trustee, and
that he executed the same as the act of such corporation for the purposes and
consideration therein expressed, and in the capacity therein stated.
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------
Notary Public, State of Illinois
[SEAL]
S-8
SCHEDULE 1
PERFECTION REPRESENTATIONS, WARRANTIES AND COVENANTS
The Depositor hereby represents, warrants, and covenants to the Indenture
Trustee as to itself and the Sellers as follows on the Closing Date and on
each Payment Date thereafter:
General
1. This Agreement creates a valid and continuing security interest (as defined
in the applicable UCC) in the Home Equity Loans in favor of the Indenture
Trustee, and the Indenture creates a valid and continuing security interest
(as defined in the applicable UCC), each of which security interest is prior
to all other Liens, and is enforceable as such as against creditors of and
purchasers from the Depositor.
2. The Home Equity Loans constitute "general intangibles" or "instruments"
within the meaning of the applicable UCC.
3. The Collection Account and all subaccounts thereof constitute either a
deposit account or a securities account.
4. To the extent that payments and collections received or made with respect
to the Home Equity Loans constitute securities entitlements, such payments and
collections have been and will have been credited to the Collection Account.
The securities intermediary for the Collection Account has agreed to treat all
assets credited to the Collection Account as "financial assets" within the
meaning of the applicable UCC.
Creation
5. The Depositor owns and has good and marketable title to the Home Equity
Loans free and clear of any Lien, claim or encumbrance of any Person,
excepting only liens for taxes, assessments or similar governmental charges or
levies incurred in the ordinary course of business that are not yet due and
payable or as to which any applicable grace period shall not have expired, or
that are being contested in good faith by proper proceedings and for which
adequate reserves have been established, but only so long as foreclosure with
respect to such a lien is not imminent and the use and value of the property
to which the Lien attaches is not impaired during the pendency of such
proceeding.
6. The Depositor has received all consents and approvals to the sale of the
Home Equity Loans hereunder to the Trust required by the terms of the Home
Equity Loans that constitute instruments.
7. To the extent the Collection Account or subaccounts thereof constitute
securities entitlements, certificated securities or uncertificated securities,
the Depositor has received all consents and approvals required to transfer to
the Indenture Trustee its interest and rights in the Collection Account
hereunder.
1-1
Perfection
8. The Depositor has caused or will have caused, within ten days after the
effective date of this Agreement, the filing of all appropriate financing
statements in the proper filing office in the appropriate jurisdictions under
applicable law in order to perfect the sale of the Home Equity Loans from the
Depositor to the Trust, the security interest in the Home Equity Loans granted
to the Trust hereunder, the pledge of the Home Equity Loans from the Trust to
the Indenture Trustee, and the security interest in the Home Equity Loans
granted to the Indenture Trustee under the Indenture.
9. With respect to the Collection Account and all subaccounts that constitute
deposit accounts, either:
(i) the Depositor has delivered to the Indenture Trustee a fully-executed
agreement pursuant to which the bank maintaining the deposit accounts has
agreed to comply with all instructions originated by the Indenture
Trustee directing disposition of the funds in the Collection Account
without further consent by the Depositor; or
(ii) the Depositor has taken all steps necessary to cause the Indenture
Trustee to become the account holder of the Collection Account.
10. With respect to the Collection Account or subaccounts thereof that
constitute securities accounts or securities entitlements, either:
(i) the Depositor has caused or will have caused, within ten days after
the effective date of this Agreement, the filing of all appropriate
financing statements in the proper filing office in the appropriate
jurisdictions under applicable law in order to perfect the security
interest in the Collection Account granted by the Depositor to the Trust
and by the Trust to the Indenture Trustee; or
(ii) the Depositor has delivered to the Indenture Trustee a
fully-executed agreement pursuant to which the securities intermediary
has agreed to comply with all instructions originated by the Indenture
Trustee relating to the Collection Account without further consent by
the Depositor; or
(iii) the Depositor has taken all steps necessary to cause the
securities intermediary to identify in its records the Indenture Trustee
as the person having a security entitlement against the securities
intermediary in the Collection Account.
Priority
11. Other than the transfer of the Term Transferred Assets to the Trust under
the Term Transfer Agreement, the transfer of the Home Equity Loans to the
Depositor under the Home Equity Loan Purchase Agreements, the transfer of the
Conduit Home Equity Loans to the Conduit Trustee pursuant to the Conduit
Pooling and Servicing Agreement and the Conduit Transfer Agreement, the
transfer of the Conduit Home Equity Loans to the Depositor and the Trust
pursuant to the Reassignment, and the transfer of the Home Equity Loans to the
Trust pursuant to this Agreement, neither the Depositor nor the Sellers have
pledged, assigned, sold,
1-2
granted a security interest in, or otherwise conveyed any of the Home Equity
Loans. Neither the Depositor nor the Sellers have authorized the filing of, or
are aware of any financing statements against the Depositor or any of the
Sellers that include a description of collateral covering the Home Equity
Loans other than any financing statement relating to the security interest
granted to the Indenture Trustee hereunder or that has been terminated.
12. The Depositor is not aware of any judgment, ERISA or tax lien filings
against either the Depositor or any of the Sellers.
13. The Sellers have in their possession all original copies of the Mortgage
Notes that constitute or evidence the Home Equity Loans. To the Depositor's
knowledge, none of the instruments that constitute or evidence the Home Equity
Loans has any marks or notations indicating that they have been pledged,
assigned or otherwise conveyed to any Person other than the Trust. All
financing statements filed or to be filed against the Depositor and the
Sellers in favor of the Indenture Trustee in connection herewith describing
the Home Equity Loans contain a statement to the following effect: "A purchase
of or security interest in any collateral described in this financing
statement will violate the rights of the Indenture Trustee."
14. Neither the Collection Account nor any subaccount thereof is in the name
of any person other than the Depositor or the Indenture Trustee as trustee
under the Indenture or in the name of its nominee. The Depositor has not
consented for the securities intermediary of the Collection Account to comply
with entitlement orders of any person other than the Indenture Trustee.
15. Survival of Perfection Representations. Notwithstanding any other
provision of this Agreement or any other transaction document, the Perfection
Representations contained in this Schedule shall be continuing, and remain in
full force and effect (notwithstanding any replacement of the Master Servicer
or Indenture Trustee or termination of the Master Servicer's or Indenture
Trustee's rights to act as such) until such time as all obligations under this
Agreement have been finally and fully paid and performed.
16. No Waiver. The parties to this Agreement (i) shall not, without obtaining
a confirmation of the then-current rating of the Notes, waive any of the
Perfection Representations, and (ii) shall provide the Rating Agencies with
prompt written notice of any breach of the Perfection Representations, and
shall not, without obtaining a confirmation of the then-current rating of the
Notes (as determined after any adjustment or withdrawal of the ratings
following notice of such breach) waive a breach of any of the Perfection
Representations.
17. Master Servicer to Maintain Perfection and Priority. The Master Servicer
covenants that, in order to evidence the interests of the Depositor, the Trust
and the Indenture Trustee under this Agreement, the Master Servicer shall take
such action, or execute and deliver such instruments (other than effecting a
Filing (as defined below), unless such Filing is effected in accordance with
this paragraph) as may be necessary or advisable (including, without
limitation, such actions as are requested by the Indenture Trustee) to
maintain and perfect, as a first priority interest, the Indenture Trustee's
security interest in the Home Equity Loans. The Master Servicer shall, from
time to time and within the time limits established by law, prepare and
present to the Indenture Trustee for the Indenture Trustee to authorize (based
in reliance on the Opinion of Counsel hereinafter provided for) the Master
Servicer to file, all financing statements,
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amendments, continuations, initial financing statements in lieu of a
continuation statement, terminations, partial terminations, releases or
partial releases, or any other filings necessary or advisable to continue,
maintain and perfect the Indenture Trustee's security interest in the Home
Equity Loans as a first-priority interest (each a "Filing"). The Master
Servicer shall present each such Filing to the Indenture Trustee together with
(x) an Opinion of Counsel to the effect that such Filing is (i) consistent
with grant of the security interest to the Trust pursuant to Section 2.01 of
this Agreement and the grant of the security interest to the Indenture Trustee
pursuant to the Indenture, (ii) satisfies all requirements and conditions to
such Filing in this Agreement and (iii) satisfies the requirements for a
Filing of such type under the Uniform Commercial Code in the applicable
jurisdiction (or if the Uniform Commercial Code does not apply, the applicable
statute governing the perfection of security interests), and (y) a form of
authorization for the Indenture Trustee's signature. Upon receipt of such
Opinion of Counsel and form of authorization, the Indenture Trustee shall
promptly authorize in writing the Master Servicer to, and the Master Servicer
shall, effect such Filing under the Uniform Commercial Code without the
signature of the Depositor or the Trust or the Indenture Trustee where allowed
by applicable law. Notwithstanding anything else in the transaction documents
to the contrary, the Master Servicer shall not have any authority to effect a
Filing without obtaining written authorization from the Indenture Trustee.
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SCHEDULE 2
SELLERS
Beneficial Alabama Inc.
Beneficial California Inc.
Beneficial Consumer Discount Company
Beneficial Delaware Inc.
Beneficial Florida Inc.
Beneficial Hawaii Inc.
Beneficial Homeowner Service Corporation
Beneficial Illinois Inc.
Beneficial Indiana Inc.
Beneficial Iowa Inc.
Beneficial Kentucky Inc.
Beneficial Loan & Thrift Co.
Beneficial Maine Inc.
Beneficial Massachusetts Inc.
Beneficial Michigan Inc.
Beneficial Montana Inc.
Beneficial Mortgage Co. of Arizona
Beneficial Mortgage Co. of Colorado
Beneficial Mortgage Co. of Connecticut
Beneficial Mortgage Co. of Georgia
Beneficial Mortgage Co. of Idaho
Beneficial Mortgage Co. of Kansas, Inc.
Beneficial Mortgage Co. of Louisiana
Beneficial Mortgage Co. of Maryland
Beneficial Mortgage Co. of Mississippi
Beneficial Mortgage Co. of Missouri, Inc.
Beneficial Mortgage Co. of Nevada
Beneficial Mortgage Co. of New Hampshire
Beneficial Mortgage Co. of North Carolina
Beneficial Mortgage Co. of Rhode Island
Beneficial Mortgage Co. of South Carolina
Beneficial Mortgage Co. of Utah
Beneficial Mortgage Co. of Virginia
Beneficial Mortgage Corporation
Beneficial Nebraska Inc.
Beneficial New Jersey Inc.
Beneficial New Mexico Inc.
Beneficial Ohio Inc.
Beneficial Oklahoma Inc.
Beneficial Oregon Inc.
Beneficial South Dakota Inc.
Beneficial Tennessee, Inc.
Beneficial Texas Inc.
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Beneficial Washington Inc.
Beneficial West Virginia, Inc.
Beneficial Wisconsin Inc.
Beneficial Wyoming Inc.
Household Finance Consumer Discount Company
Household Finance Corporation II
Household Finance Corporation III
Household Finance Corporation of Alabama
Household Finance Corporation of California
Household Finance Corporation of West Virginia
Household Finance Industrial Loan Company of Iowa
Household Finance Realty Corporation of Nevada
Household Finance Realty Corporation of New York
Household Financial Center Inc.
Household Industrial Finance Company
Household Realty Corporation
Mortgage One Corporation
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EXHIBIT A
HOME EQUITY LOAN SCHEDULE
[On file with the Indenture Trustee]
A-1
EXHIBIT A-1
CONDUIT HOME EQUITY LOANS
[On file with the Indenture Trustee]
A-2
EXHIBIT A-2
TERM HOME EQUITY LOANS
[On file with the Indenture Trustee]
A-3
EXHIBIT B
Form of Class A and Class M Notes
[Attached as Exhibit A to the Indenture]
B-1