EXHIBIT 99.1
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EXECUTION
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SALE AND SERVICING AGREEMENT
Dated as of August 29, 2002
among
HFC REVOLVING CORPORATION
(Depositor)
HOUSEHOLD HOME EQUITY LOAN TRUST 2002-3
(Trust)
HOUSEHOLD FINANCE CORPORATION
(Master Servicer)
and
BANK ONE, NATIONAL ASSOCIATION
(Indenture Trustee)
Household Home Equity Loan Trust 2002-3
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Table of Contents
Page
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ARTICLE I. DEFINITIONS...........................................................................2
Section 1.01 Definitions.......................................................................2
Section 1.02 Other Definitional Provisions....................................................21
Section 1.03 Interest Calculations............................................................22
ARTICLE II. Conveyance of Home Equity Loans; Tax Treatment.......................................23
Section 2.01 Acknowledgment; Conveyance of Home Equity Loans;
Custody of Mortgage Files........................................................23
Section 2.02 Acceptance by Indenture Trustee; Repurchase of Home Equity Loans;
Conveyance of Eligible Substitute Home Equity Loans..............................27
Section 2.03 Representations, Warranties and Covenants of the Master Servicer.................29
Section 2.04 Representations and Warranties of the Depositor Regarding this
Agreement and the Home Equity Loans; Repurchases and Substitutions...............30
Section 2.05 Tax Treatment....................................................................36
ARTICLE III. ADMINISTRATION AND SERVICING OF HOME EQUITY LOANS....................................37
Section 3.01 The Master Servicer..............................................................37
Section 3.02 Collection of Certain Home Equity Loan Payments..................................40
Section 3.03 Withdrawals from the Collection Account..........................................42
Section 3.04 Maintenance of Hazard Insurance; Property Protection Expenses....................43
Section 3.05 Assumption and Modification Agreements...........................................44
Section 3.06 Realization Upon Defaulted Home Equity Loans.....................................44
Section 3.07 [Reserved].......................................................................45
Section 3.08 Indenture Trustee to Cooperate...................................................45
Section 3.09 Servicing Compensation; Payment of Certain Expenses by Master Servicer...........46
Section 3.10 Annual Statement as to Compliance................................................46
Section 3.11 Annual Servicing Report..........................................................47
Section 3.12 Access to Certain Documentation and Information Regarding
the Home Equity Loans............................................................47
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Section 3.13 Maintenance of Certain Servicing Insurance Policies..............................48
Section 3.14 Reports to the Securities and Exchange Commission................................48
Section 3.15 [Reserved].......................................................................48
Section 3.16 Information Required by the Internal Revenue Service Generally and Reports
of Foreclosures and Abandonments of Mortgaged Property...........................48
Section 3.17 Additional Covenants of HFC......................................................48
Section 3.18 Servicing Certificate............................................................49
ARTICLE IV. INSURER..............................................................................53
Section 4.01 Claims upon the Note Guaranty Insurance Policy...................................53
Section 4.02 Effect of Payments by the Insurer; Subrogation...................................54
Section 4.03 Insurer's Rights Regarding Actions, Proceedings or Investigations................54
ARTICLE V. PRIORITY OF payments; STATEMENTS TO NOTEHOLDERS; RIGHTS OF NOTEHOLDERS...............56
Section 5.01 Payments.........................................................................56
Section 5.02 Calculation of LIBOR and the Formula Rate........................................58
Section 5.03 Statements to Noteholders........................................................59
ARTICLE VI. THE MASTER SERVICER AND THE DEPOSITOR................................................63
Section 6.01 Liability of the Master Servicer and the Depositor...............................63
Section 6.02 Merger or Consolidation of, or Assumption of the Obligations of,
the Master Servicer or the Depositor.............................................63
Section 6.03 Limitation on Liability of the Master Servicer, the Depositor and Others.........63
Section 6.04 Master Servicer Not to Resign....................................................64
Section 6.05 Delegation of Duties.............................................................64
ARTICLE VII. MASTER SERVICER TERMINATION..........................................................66
Section 7.01 Master Servicer Termination Events...............................................66
Section 7.02 Indenture Trustee to Act; Appointment of Successor...............................67
Section 7.03 Waiver of Defaults...............................................................69
Section 7.04 Notification to Noteholders......................................................69
ARTICLE VIII. TERMINATION..........................................................................70
Section 8.01 Termination......................................................................70
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ARTICLE IX. MISCELLANEOUS PROVISIONS.............................................................73
Section 9.01 Amendment........................................................................73
Section 9.02 Recordation of Agreement.........................................................75
Section 9.03 Duration of Agreement............................................................75
Section 9.04 Governing Law....................................................................75
Section 9.05 Notices..........................................................................75
Section 9.06 Severability of Provisions.......................................................75
Section 9.07 No Partnership...................................................................76
Section 9.08 Counterparts.....................................................................76
Section 9.09 Successors and Assigns...........................................................76
Section 9.10 Headings.........................................................................76
Section 9.11 Indenture Trustee................................................................76
Section 9.12 Inconsistencies Among Transaction Documents......................................76
Section 9.13 Rights of the Insurer to Exercise Rights of Noteholders..........................76
Section 9.14 Limitation on Voting of Preferred Stock..........................................77
Section 9.15 Perfection Representations.......................................................77
Section 9.16 Limitation of Liability..........................................................77
Section 9.17 Inspection of Mortgage Files.....................................................77
Section 9.18 Consent of Insurer...............................................................77
ARTICLE X. MISCELLANEOUS PROVISIONS.............................................................79
Section 10.01 Administrative Duties............................................................79
Section 10.02 Records..........................................................................81
Section 10.03 Additional Information to be Furnished to the Trust..............................81
EXHIBITS
SCHEDULE 1 Perfection Representations, Warranties and Covenants
EXHIBIT A Home Equity Loan Schedule
EXHIBIT B [Reserved]
EXHIBIT C [Reserved]
EXHIBIT D [Reserved]
EXHIBIT E Form of Notes
EXHIBIT F Specimen of the Note Guaranty Insurance Policy
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This Sale and Servicing Agreement (the "Agreement") is entered into
effective as of August 29, 2002, among Home Equity Loan Trust 2002-3, a
Delaware business trust (the "Trust"), HFC Revolving Corporation, a Delaware
corporation, as depositor (the "Depositor"), Household Finance Corporation, a
Delaware corporation, as master servicer (the "Master Servicer"), and Bank
One, National Association, a national banking association, as Indenture
Trustee on behalf of the Noteholders (in such capacity, the "Indenture
Trustee").
PRELIMINARY STATEMENT
WHEREAS, the Trust desires to purchase from the Depositor a pool of
Home Equity Loans which were acquired by the Depositor from various sellers;
WHEREAS, the Depositor, concurrently with the execution of this
Agreement, purchased the Home Equity Loans from the sellers pursuant to the
Home Equity Loan Purchase Agreement;
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 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.
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 weighted average of the Net Loan Rates of each Home Equity
Loan less 0.75% per annum, in each case outstanding as of the first day of the
related Collection Period, multiplied by a fraction of which the numerator is
30 and the denominator is the number of days in the related Accrual Period.
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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.
Avoided Payment: As defined in Section 4.01 hereto.
Base Targeted Overcollateralization Amount: An amount equal to 9.75%
of the Cut-Off Date Pool Balance.
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 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.
Closing Date: August 29, 2002.
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, the Ownership Interest and the
Insurer 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 August 31, 2002.
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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.
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, by (ii) the Cut-Off Date Pool Balance.
Cumulative Loss Percentage Trigger: As to any Collection Period,
means (i) for the first twelve (12) Collection Periods, 0.75%; (ii) for the
thirteenth (13th) Collection Period through and including the twenty-fourth
(24th) Collection Period, 2.00%; (iii) for the twenty-fifth (25th) Collection
Period through and including the thirty-sixth (36th) Collection Period, 3.50%;
(iv) for the thirty-seventh (37th) Collection Period through and including the
forty-eighth (48th) Collection Period, 5.00%; (v) for the forty-ninth (49th)
Collection Period through and including the sixtieth (60th) Collection Period,
6.50%; and (vi) for the sixty-first (61st) Collection Period and each
Collection Period thereafter, 8.00%.
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 related Collection
Period.
Current Interest: As to the Notes and any Payment Date, the interest
accrued at the Note Rate during the Accrual Period on the aggregate Note
Principal Amount as of the beginning of the Accrual Period.
Cut-Off Date: As to a Home Equity Loan, the close of business on
August 13, 2002.
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.
Deficiency Amount: As defined in the Note Guaranty Insurance Policy,
the sum of (i) with respect to any Payment Date, the amount by which the
Current Interest plus the Interest Carry Forward Amount with respect to the
Notes exceeds the amount on deposit in the Collection Account available for
interest payments to the Noteholders on such Payment Date and
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(ii)(a) with respect to any Payment Date that is not the Final Scheduled
Payment Date, the Overcollateralization Deficit Amount or (b) with respect to
the Final Scheduled Payment Date, the Note Principal Amount to the extent
otherwise not paid on such date.
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 $977,470,000 in initial aggregate principal amount of the 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.
Distributable Excess Cashflow: As to any Payment Date, the lesser of
(i) the Excess Cashflow for such Payment Date and (ii) the Interim
Overcollateralization Deficiency, if any, for 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
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the Indenture Trustee and the Insurer, without reduction or withdrawal of the
then-current ratings of the Notes without taking into account the existence of
the Note Guaranty Insurance Policy.
Eligible Substitute Home Equity Loan: A Home Equity Loan substituted
(a) by the Depositor or the Master Servicer for a Defective Home Equity Loan
pursuant to Section 2.02(a) or 2.04 or (b) by the Master Servicer pursuant to
Section 2.02(b), which on the date of such substitution must
(i) have a Principal Balance not substantially greater or
less than the Principal Balance of such Defective Home Equity Loan or
such elected substituted Home Equity Loan;
(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 Final Scheduled Payment
Date;
(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.
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Excess Cashflow: With respect to any Payment Date, the positive
excess, if any, of (a) the sum of the Available Payment Amount for such
Payment Date and any Insured Amount for such Payment Date over (b) the
aggregate of amounts required to be paid pursuant to subclauses (i) through
(iii) of Section 5.01(a) herein on such Payment Date.
Excess Spread: With respect to any Payment Date, the excess (if any)
of (a) the aggregate interest received for the related Collection Period, with
respect to the Home Equity Loans at their respective Net Loan Rates over (b)
the interest accrued on the Notes at the Formula Rate during the related
Accrual Period.
▇▇▇▇▇▇ ▇▇▇: ▇▇▇▇▇▇ ▇▇▇, formerly known as The Federal National
Mortgage Association, or any successor thereto.
FDIC: The Federal Deposit Insurance Corporation and any successor
thereto.
Final Scheduled Payment Date: The Payment Date in July 2032.
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.
Formula Rate: With respect to the Notes and any Accrual Period, a per
annum rate equal to the sum of (i) LIBOR for such Accrual Period and (ii) the
Note Margin for such Accrual Period.
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 and pursuant to the Transfer Agreement, 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 home equity loan purchase
agreement dated August 29, 2002 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 Home Equity Loans,
including all interest and principal payments in respect thereof received on
or after the Cut-Off Date, and certain other rights with respect to the
collateral supporting the Home Equity Loans.
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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.
Indemnification Agreement: The Indemnification Agreement dated as of
August 29, 2002 among the Insurer, Credit Suisse First Boston Corporation,
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Co. Incorporated, Banc One Capital Markets, Inc., Deutsche
Bank Securities Inc., and ▇▇▇▇▇▇▇ ▇▇▇▇▇ Barney Inc., including any amendments
and supplements thereto in accordance with the terms thereof.
Indenture: The Indenture dated August 29, 2002 between the Issuer and
the Indenture Trustee.
Indenture Trustee: Bank One, National Association, a national banking
association, as Indenture Trustee under the Indenture or any successor
indenture trustee under the Indenture appointed in accordance with such
agreement.
Indenture Trustee's Statement to Noteholders: As defined in Section
5.03.
Initial Home Equity Loan: Each Home Equity Loan transferred and
assigned to the Trust on the Closing Date.
Initial Targeted Overcollateralization Amount: An amount equal to
2.25% of the Cut-Off Date Pool Balance.
Insurance and Indemnity Agreement: The Insurance and Indemnity
Agreement dated as of August 29, 2002 among the Indenture Trustee, the Issuer,
the Master Servicer, the Depositor and the Insurer, including any amendments
and supplements thereto in accordance with the terms thereof.
Insurance Proceeds: Proceeds paid by any insurer (other than the
Insurer pursuant to the Note Guaranty Insurance Policy) 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.
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Insured Amounts: As of any Payment Date, any Deficiency Amount for
such Payment Date plus any Preference Amount for such Payment Date.
Insurer: Ambac Assurance Corporation, a Wisconsin stock insurance
corporation, and its successors and assigns.
Insurer Default: Any failure by the Insurer to make a payment
required under the Note Guaranty Insurance Policy in accordance with its
terms.
Interest Carry Forward Amount: As to the Notes and any Payment Date,
the sum of (x) the amount, if any, by which (i) the sum of the Current
Interest and all prior unpaid Interest Carry Forward Amounts for such Notes as
of the immediately preceding Payment Date exceeded (ii) the amount of the
actual payment with respect to interest made to such Notes on such Payment
Date plus (y) interest on such amount calculated for the related Accrual
Period at the 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.
Interest Payment Amount: With respect to any Payment Date and the
Notes, the sum of (a) the Current Interest for such Notes for such Payment
Date, and (b) any Interest Carry Forward Amount for such Notes for 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 preceding
Collection Period over (y) (i) the Note Principal Amount (before taking into
account any payments of principal on such Payment Date) less (ii) the
Principal Collections for 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 over (y) the
Interim Overcollateralization Amount.
Issuer: Household Home Equity Loan Trust 2002-3.
LIBOR: The per annum rate established by the Indenture Trustee in
accordance with Section 5.02.
LIBOR Business Day: Any day on which dealings in United States
dollars are transacted in the London interbank market.
LIBOR Determination Date: As to any Payment Date, the second LIBOR
Business Day before the first day of the related Accrual Period.
Lien: Any mortgage, deed of trust, pledge, conveyance, hypothecation,
assignment, participation, deposit arrangement, encumbrance, lien (statutory
or other), preference, priority right or interest or other security agreement
or preferential arrangement of any kind or nature whatsoever, including,
without limitation, any conditional sale or other title retention agreement,
any financing lease having substantially the same economic effect as any of
the foregoing or the filing of any financing statement under the UCC (other
than any such financing statement filed for informational purposes only) or
comparable law of any jurisdiction to evidence any of the foregoing.
Liquidated Home Equity Loan: As to any Payment Date, any Home Equity
Loan in respect of which the Master Servicer has determined as of the end of
the related Collection Period that all Liquidation Proceeds which it expects
to recover on such Home Equity Loan have been recovered (exclusive of any
possibility of a deficiency judgment).
Liquidation Expenses: Out-of-pocket expenses (exclusive of overhead)
that are incurred by the Master Servicer in connection with the liquidation of
any Home Equity Loan and not recovered under any insurance policy, such
expenses including, without limitation, reasonable legal fees and expenses,
any unreimbursed amount expended pursuant to Section 3.06 (including, without
limitation, amounts advanced to correct defaults on any mortgage loan that is
senior to such Home Equity Loan and amounts advanced to keep current or pay
off a mortgage loan that is senior to such Home Equity Loan) with respect to
the related Home Equity Loan and any related and unreimbursed expenditures for
real estate property taxes, mechanics liens, title perfection, property
management or for property restoration, preservation or insurance against
casualty loss or damage.
Liquidation Proceeds: Proceeds (including Insurance Proceeds)
received in connection with the liquidation of any Home Equity Loan, whether
through trustee's sale, foreclosure sale or otherwise.
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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.
Majority Noteholder: The Holder or Holders of Notes representing at
least 51% of the aggregate Note Principal Amount.
Master Servicer: HFC, or its successor in interest, or any successor
master servicer appointed as herein provided.
Master Servicer Termination Events: As defined in Section 7.01.
MERS: Mortgage Electronic Registration Systems, Inc., a corporation
organized and existing under the laws of the State of Delaware, or any
successor thereto.
MERS(R) System: The system of recording transfers of Mortgages
electronically maintained by MERS.
MIN: The Mortgage Identification Number for Home Equity Loans
registered with MERS on the MERS(R) System.
MOM Loan: With respect to any Home Equity Loan, MERS acting as the
mortgagee of such Home Equity Loan, solely as nominee for the originator of
such Home Equity Loan and its successors and assigns, at the origination
thereof.
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,
Liquidation Proceeds less Liquidation Expenses.
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Net Loan Rate: As to any Home Equity Loan, the Loan Rate less (i) the
Servicing Fee Rate and (ii) the annual premium rate of the Insurer set forth
in the Insurance and Indemnity Agreement.
Ninety Day-Plus Delinquency Percentage: As to any Collection Period,
(a) the aggregate of the Principal Balances of all Home Equity Loans that are
90 or more days contractually delinquent, such percentage being inclusive of
all Home Equity Loans which are in bankruptcy, in foreclosure and REO as of
the end of such Collection Period, over (b) the Pool Balance as of the end of
such Collection Period.
Ninety Day-Plus Rolling Average: As to any Payment Date, the average
of the Ninety Day-Plus Delinquency Percentage for each of the three (3)
immediately preceding Collection Periods; provided, however, that for the
initial Payment Date, the Ninety Day-Plus Rolling Average shall equal the
Ninety Day-Plus Delinquency Percentage for the immediately preceding
Collection Period and for the Payment Date occurring in September 2002, the
Ninety Day-Plus Rolling Average shall equal the average of the Ninety Day-Plus
Delinquency Percentage for each of the two immediately preceding Collection
Periods.
Note: Any Note executed by the Trust and authenticated by the
Indenture Trustee substantially in the form set forth in Exhibit E hereto.
Note Guaranty Insurance Policy: The Certificate Guaranty Insurance
Policy (No. AB0584BE) with respect to the Notes and all endorsements thereto,
if any, dated the Closing Date, issued by the Insurer for the benefit of the
Holders of the Notes, a copy of which is attached hereto as Exhibit F.
Note Margin: With respect to the Notes and any Accrual Period, 0.45%
per annum.
Note Owner: The Person who is the beneficial owner of a Book-Entry
Note.
Note Principal Amount: With respect to any date of determination, (a)
the Original Note Principal Amount less (b) the aggregate of amounts paid as
principal to the Noteholders on previous Payment Dates pursuant to Section
5.01 hereto.
Note Rate: With respect to any Payment Date and Accrual Period, the
lesser of (i) the Formula Rate and (ii) the Available Funds Cap for such
Payment Date.
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 (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
12
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 and
(z) the Insurer shall be deemed to be the owner of 100% of the Notes so long
as no Insurer Default is then continuing.
Notice for Payment: As defined in Section 4.01.
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 and the Insurer, as applicable.
Opinion of Counsel: A written opinion of counsel reasonably
acceptable to the Indenture Trustee and the Insurer, who may be in-house
counsel for the Master Servicer (or its affiliate) or the Depositor (or its
affiliate), except with regard to tax matters, bankruptcy matters, the Trust
Indenture Act of 1939, security interest matters and as otherwise expressly
provided in this Agreement.
Original Note Principal Amount: $977,470,000.
Overcollateralization Amount: As to any Payment Date, the excess, if
any, of (x) the Pool Balance as of the last day of the preceding Collection
Period over (y) the Note Principal Amount, calculated after taking into
account all payments in respect of principal on such Payment Date.
Overcollateralization Deficit Amount: On any Payment Date, the
excess, if any, of (i) the Note Principal Amount on such Payment Date (after
taking into account the payment to the Notes of all principal from sources
other than the Note Guaranty Insurance Policy on such Payment Date) and (ii)
the Pool Balance as of the close of business on the last day of the related
Collection Period.
Overcollateralization Release Amount: As to any Payment Date, the
amount (but not in excess of the 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.
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Payment Date: The 20th day of each month or, if such day is not a
Business Day, then the next Business Day, beginning in September 2002.
Percentage Interest: As to the Notes and any date of determination,
the percentage obtained by dividing the principal denomination of such Note by
the aggregate of the principal denominations of all Notes.
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;
(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;
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(vi) interests in any money market fund which at the date of
acquisition has a rating of "Aaa" by Moody's and "AAA" by Fitch and
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 Notes by each Rating Agency (without taking into
account the existence of the Note Guaranty Insurance Policy); 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 and the Insurer (so long
as no Insurer Default exists and is continuing) as a Permitted
Investment hereunder and will not result in a reduction in the
then-current rating of the Notes, as evidenced by a confirmation or
letter to such effect from such Rating Agency (without taking into
account the existence of the Note Guaranty Insurance Policy);
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.
Preference Amount: As defined in Section 4.01(c).
Preferred Stock: As defined in Section 9.14.
Premium Amount: The premium payable to the Insurer pursuant to the
Insurance and Indemnity Agreement.
Principal Balance: As to any Home Equity Loan (other than a
Liquidated Home Equity Loan) and date, the related Cut-Off Date Principal
Balance, minus the sum of (x) all collections credited against the principal
balance of such Home Equity Loan in accordance with the terms of the related
Mortgage Note and (y) any related Charge Off Amounts credited against the
principal balance of such Home Equity Loan prior to such date. For purposes of
this definition, a Liquidated Home Equity Loan shall be deemed to have a
Principal Balance equal to the Principal Balance of the related Home Equity
Loan immediately prior to the final recovery of related Liquidation Proceeds
and a Principal Balance of zero thereafter.
Principal Collections: As to any Payment Date, the sum, without
duplication, of:
15
(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, the Overcollateralization Release Amount, if any.
Prospectus Supplement: The Prospectus Supplement, dated August 27,
2002, to the Prospectus, dated August 27, 2002, relating to the offer and sale
of the Notes.
Purchase Price: As to any Home Equity Loan purchased from the Trust
on any date pursuant to Section 2.02, 2.04 or 3.01 an amount equal to the sum
of (i) the Principal Balance 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: ▇▇▇▇▇'▇, 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 and reasonably acceptable to the Insurer
(so long as no Insurer Default exists and is continuing), notice of which
designation shall be given to the Indenture Trustee. References herein to the
highest short term unsecured rating category of a Rating Agency shall mean
"P-1" or better in the case of Moody's, "A-1+" or better in the case of
Standard & Poor's and "F1" in the case of Fitch and in the case of any other
Rating Agency shall mean such equivalent ratings. References herein to the
highest long-term rating category of a Rating Agency shall mean "AAA" in the
case of Fitch and Standard & Poor's and "Aaa" in the case of Moody's and in
the case of any other Rating Agency, such equivalent rating.
Realized Loss: With respect to (i) any Liquidated Home Equity Loan,
the unrecovered Principal Balance thereof at the end of the related Collection
Period in which such Home Equity
16
Loan became a Liquidated Home Equity Loan and (ii) any Charged-Off Home Equity
Loan, the Charge Off Amount for the related Collection Period.
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.
Reimbursement Amount: The sum of (a) the aggregate unreimbursed
amount of any payments made by the Insurer under the Note Guaranty Insurance
Policy, together with interest on such amount from the date of payment by the
Insurer until paid in full at a rate of interest equal to the Late Payment
Rate (as defined in the Insurance and Indemnity Agreement), (b) all costs and
expenses of the Insurer in connection with any action, proceeding or
investigation affecting the Trust (or the assets of the Trust) or the rights
or obligations of the Insurer hereunder or under the Note Guaranty Insurance
Policy or the Transaction Documents, including (without limitation) any
judgment or settlement entered into affecting the Insurer or the Insurer's
interests, together with interest thereon at a rate equal to the Late Payment
Rate and (c) any other amounts owed to the Insurer under the Insurance and
Indemnity Agreement, together with interest thereon at a rate equal to the
Late Payment Rate.
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 and having direct responsibility for the administration of this
Agreement. When used with respect to the Master Servicer, the President or any
Vice President, Assistant Vice President, Treasurer, Assistant Treasurer or
any Secretary or Assistant Secretary.
SAIF: The Savings Association Insurance Fund, as from time to time
constituted, created under the Financial Institutions Reform, Recovery and
Enhancement Act of 1989, or if at any time after the execution of this
instrument the Savings Association Insurance Fund is not existing and
performing duties now assigned to it, the body performing such duties on such
date.
17
Sellers: Household Realty Corporation, Household Finance Corporation
of Alabama, Household Finance Corporation of California, Household Finance
Corporation II, Household Finance Corporation III, Household Finance
Corporation of West Virginia, Beneficial West Virginia, Inc., Household
Finance Realty Corporation of New York, Household Financial Center Inc.,
Household Finance Realty Corporation of Nevada, Household Finance Industrial
Loan Company of Iowa, Household Finance Consumer Discount Company, Household
Industrial Finance Company and Mortgage One Corporation, doing business as HFC
Mortgage Company.
Servicer: As to each Home Equity Loan, the related Seller that sold
such Home Equity Loan to the Depositor pursuant to the 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.
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 (with a copy to the Insurer) on the Closing
Date by the Master Servicer, as such list may be amended from time to time.
Skip-A-Pay Advance: For any Collection Period, means the positive
result, if any, of the Required Excess Cashflow on the related Payment Date,
minus the 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 Excess Cashflow on such Payment Date, minus
the Required Excess Cashflow on such Payment Date.
Standard & Poor's: Standard & Poor's Ratings Services, a division of
The ▇▇▇▇▇▇-▇▇▇▇ Companies, Inc., or any successor thereto.
Statistical Cut-Off Date: The close of business on August 13, 2002.
Stepdown Date: The later to occur of (a) the Payment Date in February
2005 and (b) the first Payment Date on which the Pool Balance has been reduced
to 50.00% of the Cut-Off Date Pool Balance.
18
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: As of any Payment Date, the sum of (i)
the excess, if any, of (a) interest due on the Notes at the Formula Rate over
(b) interest due on the Notes at an interest rate equal to the Available Funds
Cap, (ii) any Supplemental Interest Amount remaining unpaid from prior Payment
Dates and (iii) interest on the amount in clause (ii) at the Formula Rate.
Targeted Overcollateralization Amount:
(a) On the Closing Date, the Targeted Overcollateralization Amount
shall be an amount equal to the Initial Targeted Overcollateralization Amount;
(b) For each Payment Date prior to the Stepdown Date, the Targeted
Overcollateralization Amount shall be an amount equal to the Base Targeted
Overcollateralization Amount;
(c) For each Payment Date occurring on and after the Stepdown Date,
the Targeted Overcollateralization Amount shall be an amount equal to the
greatest of (i) two times the excess of (A) 50.00% of the aggregate of the
Principal Balances of all Home Equity Loans that are 90 or more days
contractually delinquent, such percentage being inclusive of all Home Equity
Loans which are in bankruptcy, in foreclosure and REO as of the end of the
related Collection Period over (B) five times the Excess Spread, (ii) 0.50% of
the Cut-Off Date Pool Balance, (iii) the sum of outstanding Principal Balances
of the three largest Home Equity Loans as of the end of the related Collection
Period and (iv) 19.50% of the Pool Balance as of the end of the related
Collection Period.
19
The Insurer may, in its sole discretion, and at the request of Master
Servicer, modify the definition of Targeted Overcollateralization Amount,
including any of the defined terms contained therein, for the purpose of
reducing or eliminating, in whole or in part, its application, and the
Indenture Trustee, the Owner Trustee and each of the Rating Agencies shall be
notified, in writing, of such modifications prior to the related Payment Date
and such modification shall not result in a downgrading of the then-current
rating on the Notes.
Termination Price: As defined in Section 8.01(b).
Transaction Documents: This Agreement, the Home Equity Loan Purchase
Agreement, the Transfer Agreement, the Insurance and Indemnity Agreement, the
Indemnification Agreement, the Trust Agreement and the Indenture.
Transfer Agreement: The transfer agreement dated as of August 29,
2002 between the Trust and each Seller pursuant to which the Sellers will
assign to the Trust all of their right, title and interest in and on the
Transferred Assets not otherwise transferred pursuant to the Home Equity Loan
Purchase Agreement.
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.
Transferred Assets: All aspects, rights, title or interests of, in,
to or under the 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 the 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.
Trigger Event: Any Payment Date on which either (i) the Ninety
Day-Plus Rolling Average equals or exceeds 8.00% of the Pool Balance as of the
end of the preceding Collection Period or, on or after the Stepdown Date,
7.50% of the Pool Balance as of the end of the preceding Collection Period or
(ii) the Cumulative Loss Percentage for the preceding Collection Period
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
20
maintained by the Mortgagors or the Master Servicer in respect of the Home
Equity Loans, the Collection Account, the Note Guaranty Insurance Policy, the
proceeds of each of the foregoing and one share of Preferred Stock of the
Depositor.
Trust Agreement: The Trust Agreement dated as of August 19, 2002, and
amended and restated as of August 29, 2002 among Household Finance
Corporation, the Depositor, Bank One, National Association, as co-trustee and
not in its individual capacity, the Delaware Trustee and the Owner Trustee.
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
21
agreements or instruments) references to all attachments thereto and
instruments incorporated therein; references to a Person are also to its
permitted successors and assigns.
Section 1.03 Interest Calculations. All calculations of interest
hereunder that are made in respect of the Principal Balance of a Home Equity
Loan shall be made based on the number of days elapsed between the date that
interest was last paid on such Home Equity Loan and the date of receipt of the
related Mortgagor's most current payment. All calculations of interest on the
Notes shall be made on the basis of a 360-day year and the actual number of
days in the related Accrual Period. The calculation of the Premium Amount
shall be made on the basis of a 360-day year consisting of twelve 30-day
months. All dollar amounts calculated hereunder shall be rounded to the
nearest ▇▇▇▇▇ with one-half of one ▇▇▇▇▇ being rounded down.
22
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 and the
Insurer 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 Home Equity 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, the Insurer and the
Transferor; (v) all proceeds of any of the foregoing; and (vi) one share of
the Depositor's Preferred Stock. In addition, on or prior to the Closing Date,
the Depositor shall cause the Insurer to deliver the Note Guaranty Insurance
Policy to the Indenture Trustee.
(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' and the Insurer's 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
23
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 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, noting the presence of
the MIN of the Home Equity Loan, if the Mortgage is
registered on the MERS(R) System, and language
indicating that the Home Equity Loan is a MOM Loan
if the Home Equity Loan is a MOM Loan, 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; and
(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;
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, the Indenture Trustee and the Insurer, (x)
an optical image or other electronic representation of the related documents
specified in clauses (i) through (iii) above are enforceable in the relevant
jurisdictions to the same extent as the original of such document and (y) such
optical image or other representation does not impair the ability of an owner
of such Home Equity Loan to transfer its interest in such Home Equity Loan,
such optical image or other representation may be held by the Master Servicer,
acting through the Servicers, as custodian and bailee for the Indenture
Trustee, in lieu of the physical documents specified above.
(d) Except as hereinafter provided, the Master Servicer, acting
through the Servicers, shall be entitled to maintain possession of all of the
foregoing documents and instruments, shall not be required to deliver any of
them to the Indenture Trustee or the Owner Trustee and shall
24
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 and to retain such documents
or instruments for servicing purposes; provided that the Indenture Trustee or
such servicers shall maintain such documents at such offices as may be
required by any regulatory body having jurisdiction over such Home Equity
Loans.
(e) The Master Servicer's right to maintain possession, directly or
through the Servicers, of the Mortgage Files shall continue so long as (x) at
least two of ▇▇▇▇▇'▇, Standard & Poor's and Fitch assign an acceptable minimum
long-term senior unsecured debt rating to HFC of (currently "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, so long as no Insurer Default
exists and is continuing, acceptable to the Insurer) and (y) each of the
Servicers remains an Affiliate of HFC. At such time as either of the
conditions specified in the preceding sentence is not satisfied, as promptly
as practicable, but in no event more than 90 days thereafter in the case of
clause (i) below and 60 days in the case of clause (ii) 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 and the
Insurer 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, the Indenture Trustee and the
Insurer (as evidenced in writing), and (ii) unless an Opinion of Counsel,
reasonably acceptable to the Owner Trustee, the Indenture Trustee and the
Rating Agencies and the Insurer (as evidenced in writing), is delivered to the
Indenture Trustee and the Insurer 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
all present and future Noteholders and the Insurer, 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. 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.
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(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 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, the Insurer and the Master Servicer, 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, the
Indenture Trustee and the Insurer 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, the
Owner Trustee and the Insurer 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
26
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.
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), and all of the right, title and interest of
the Sellers in and to the Transferred Assets pursuant to the 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 and the Insurer. If the time to cure any defect of
which the Indenture Trustee or the Insurer has notified the Depositor, the
Master Servicer and the Insurer 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 or the
Insurer, in respect of any Home Equity Loan as a result of (i) a defect in any
document constituting a part of a Mortgage File or (ii) the related Seller's
retention of such Mortgage File or an Assignment of Mortgage not having been
recorded, the Depositor or, to the extent the Depositor fails to perform, the
Master Servicer shall, in the case of a defect in such document and the Master
Servicer shall, in the case of a loss resulting from such Seller's retention
of a Mortgage File or Assignment of Mortgage not having been recorded, on the
Business Day next preceding the Payment Date in the month following the end of
the Collection Period in which the time to cure such defect expired or such
loss occurred, either (i) repurchase the related Home Equity Loan (a
"Defective Home Equity Loan") (including any property acquired in respect
thereof and any insurance policy or insurance proceeds with respect thereto)
from the Trust at a price equal to the Purchase Price which shall be
accomplished by deposit by the Depositor or the Master Servicer, as
applicable, in the Collection Account pursuant to Section 3.02 on such next
preceding Business Day, or (ii) remove such Defective Home Equity Loan from
the Trust and substitute in its place an Eligible Substitute Home Equity Loan
or Loans.
(b) The Master Servicer, in its sole discretion, shall have the
right, but not the obligation, to elect (by written notice sent to the
Indenture Trustee and the Owner Trustee) to substitute in the place of any
Home Equity Loan an Eligible Substitute Home Equity Loan or Loans; provided
that the aggregate Principal Balance as of the related subsequent Cut-Off Date
of all Eligible Substitute Home Equity Loans substituted pursuant to this
Section shall not exceed 30% of the Cut-Off Date Pool Balance; provided
further that prior to any such substitution the
27
Master Servicer shall give prompt written notice to each Rating Agency and the
Insurer 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 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 or, so long as no Insurer Default exists and is continuing, the
Insurer 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
28
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, the Insurer (except as provided in Section 3.03 of the Insurance
and Indemnity Agreement) 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 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
29
(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 or the
Insurer, the Person discovering such breach shall give prompt written notice
to the other parties and the Insurer. 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.
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);
30
(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 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 Transfer Agreement
constitute a valid transfer and assignment to the
Trust of all right, title and interest of the
Depositor and the Sellers, respectively, in and to
the 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) Immediately prior to the transfer and
assignment by the related Seller to the Depositor
and the Trust pursuant to the Home Equity Loan
Purchase Agreement and the 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
31
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 Home Equity Loan Purchase
Agreement and the Transfer Agreement;
(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 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, 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;
32
(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 state and federal
laws, including, without limitation, usury,
truth-in-lending, real estate settlement
procedures, consumer credit protection, 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 0.45%;
(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%;
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(xvii) No selection procedure reasonably believed
by the Depositor to be adverse to the interests of
the Noteholders or the Insurer 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 cause the average
Principal Balance of such Home Equity Loans to be
greater than $103,549; and
(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 86.64%; and would not cause
the weighted average percentage of the Initial Home
Equity Loans secured by second liens to be greater
than 13.36%.
(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 Insurer, 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
34
Noteholders, the Insurer 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, the Insurer 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 and the Insurer (so long as no Insurer Default exists
and is continuing), such longer period not to exceed 90 days specified in such
consent, the Depositor or, as necessary, the Master Servicer shall cure such
breach in all material respects. With regard to any such breach of the
representations and warranties set forth in Section 2.04(b), unless, at the
expiration of such 60 day or longer period, such breach has been cured in all
material respects or otherwise does not exist or continue to exist, the
Depositor or the Master Servicer shall, not later than the Business Day next
preceding the Payment Date in the month following the end of the Collection
Period in which any such cure period expired, either (i) repurchase such
Defective Home Equity Loan (including any property acquired in respect thereof
and any insurance policy or insurance proceeds with respect thereto) or (ii)
remove such Home Equity Loan from the Trust and substitute in its place an
Eligible Substitute Home Equity Loan or Loans, in the same manner and subject
to the same conditions as set forth in Section 2.02. Upon making any such
repurchase or substitution the Depositor or the Master Servicer, as
applicable, shall be entitled to receive an instrument of assignment or
transfer from the Indenture Trustee to the same extent as set forth in Section
2.02 with respect to the repurchase or replacement of Home Equity Loans under
that Section. Subject to Section 2.04(d) and, with respect to the Insurer,
except as provided in Section 3.03 of the Insurance and Indemnity Agreement,
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 Insurer, 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, the Insurer 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
35
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 Note through it to comply with this
Agreement as to treatment of the Notes as indebtedness for federal, state and
local income and franchise tax purposes and for purposes of any other tax
imposed on or measured by income. The Indenture Trustee will prepare and file
all tax reports, if any, required hereunder on behalf of the Trust.
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ARTICLE III.
ADMINISTRATION AND SERVICING OF HOME EQUITY LOANS
Section 3.01. The Master Servicer.
(a) The Master Servicer shall, or shall cause the Servicers to,
service and administer the Home Equity Loans in a manner consistent with the
terms of this Agreement and 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, the
Noteholders, and to the Insurer (so long as no Insurer Default exists and is
continuing) 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%;
37
(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, the Insurer 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.
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(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 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, the
Insurer 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 Notes without taking into account the existence of the Note
Guaranty Insurance Policy 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.
39
(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 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) treat a Home Equity Loan as
current if the Mortgagor has made two scheduled payment (which, for the
purposes of this Section 3.02(a)(iv) only, is in accordance with the Master
Servicer's customary servicing practices and may be less than 100% of the
scheduled payment) to cure the delinquency status of such Home Equity Loan.
(b) The Master Servicer shall establish and maintain with the
Indenture Trustee a separate trust account (the "Collection Account") titled
"Bank One, National Association, as Indenture Trustee, in trust for the
registered holders of Household Home Equity Loan Asset Backed Notes, Series
2002-3". 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 2002-3", 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 and, so long as no
Insurer Default exists and is continuing, the Insurer, 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;
40
(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 and the Insurer), the 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, the Insurer 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
without taking into account the existence of the Note Guaranty Insurance
Policy (except that any investment in an obligation of the institution with
which the Collection Account is maintained may mature on or before 12:00 noon,
Chicago time, on such Payment Date) and shall not be sold or disposed of prior
to its maturity. In the event the Indenture Trustee is at any time maintaining
the Collection Account, any request by the Master Servicer to invest funds on
deposit in the Collection Account shall be in writing, shall be delivered to
the Indenture Trustee at or before 10:30 A.M., Chicago time, if such
investment is to be made on such day, and shall certify that the requested
investment is a Permitted Investment that matures at or prior to the time
required hereby. Any such investment shall be registered in the name of or
controlled by the Indenture Trustee as trustee hereunder or in the name of its
nominee and to the extent such investments are certificated they shall be
maintained in the
41
possession or control of the Indenture Trustee in the state of its Corporate
Trust Office. Except as provided above, all income and gain realized from any
such investment shall be for the benefit of the Master Servicer and shall be
subject to its withdrawal or order from time to time. The amount of any losses
incurred in respect of the principal amount of any such investments shall be
deposited in the Collection Account by the Master Servicer out of its own
funds immediately as realized.
(e) The Indenture Trustee is hereby authorized to execute purchases
and sales of Permitted Investments as directed by the Master Servicer through
the facilities of its own trading or capital markets operations. The Indenture
Trustee shall send to the Master Servicer statements reflecting the monthly
activity for each such purchase and sale made for the preceding month.
Although the Master Servicer recognizes that it may obtain a broker
confirmation or written monthly statement containing comparable information at
no additional cost, the Master Servicer hereby agrees that confirmations of
investments are not required to be issued by the 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 Insurer, 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;
42
(vi) to clear and terminate the Collection Account upon
the termination of this Agreement and the Indenture
and to pay any amounts remaining therein to the
Transferor in respect of the Ownership Interest; and
(vii) to reimburse the Master Servicer for Skip-A-Pay
Advances to the extent permitted by Section 3.01(f).
(b) If the Master Servicer deposits in the Collection Account any
amount not required to be deposited therein or credited thereto or any amount
in respect of payments by Mortgagors made by checks subsequently returned for
insufficient funds or other reason for non-payment, it may at any time
withdraw such amount from the Collection Account pursuant to Section
3.03(a)(iv), and any such amounts shall not be included in Interest
Collections and Principal Collections, any provision herein to the contrary
notwithstanding. Any withdrawal or debit permitted by Section 3.03(a) may be
accomplished by delivering an Officer's Certificate to the Indenture Trustee
which describes the purpose of such withdrawal (including, without limitation,
that any such amount was deposited in the Collection Account in error or, in
the case of returned checks, that such amounts were properly debited,
respectively). Upon receipt of any 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, the Insurer 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
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to Mortgaged Properties acquired by the Master Servicer as provided herein, the
Master Servicer may satisfy its obligation set forth in the first sentence of
this Section 3.04 by self insuring Mortgaged Properties for which the
aggregate unpaid principal balance of the related Home Equity Loans plus the
outstanding balance of any mortgage loans senior to such Home Equity Loans at
the time title was acquired, plus accrued interest (the "Combined Exposure"),
was less than $500,000 (or such other amount as the Master Servicer may in
good faith determine from time to time) and by causing hazard policies to be
maintained with respect to Mortgaged Properties for which the Combined
Exposure equals or exceeds the self insurance threshold established from time
to time by the Master Servicer by maintaining a blanket policy consistent with
prudent industry standards insuring against hazard losses on the Mortgaged
Properties. Such policy may contain a deductible clause, in which case the
Master Servicer shall, in the event that there shall not have been maintained
on the related Mortgaged Property a policy complying with the first sentence
of this Section 3.04, and there shall have been a loss which would have been
covered by such policy, deposit in the Collection Account the amount not
otherwise payable under the blanket policy because of such deductible clause.
Section 3.05 Assumption and Modification Agreements. In any case in
which a Mortgaged Property has been or is about to be conveyed by the
Mortgagor, the Master Servicer shall exercise or refrain from exercising its
right to accelerate the maturity of such Home Equity 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 (with a
copy to the Insurer) 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 Agreement) shall
foreclose upon or otherwise comparably convert to ownership Mortgaged
Properties securing such of the Home Equity Loans
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as come into and continue in default when, in the opinion of the Master
Servicer based upon the practices and procedures referred to in the following
sentence, no satisfactory arrangements can be made for collection of
delinquent payments pursuant to Section 3.02; provided that if the Master
Servicer has actual knowledge or reasonably believes that any Mortgaged
Property is affected by hazardous or toxic wastes or substances and that the
acquisition of such Mortgaged Property would not be commercially reasonable,
then the Master Servicer will not cause the Trust to acquire title to such
Mortgaged Property in a foreclosure or similar proceeding. In connection with
such foreclosure or other conversion, the Master Servicer shall follow such
practices (including, in the case of any default on a related senior mortgage
loan, the advancing of funds to correct such default) and procedures as it
shall deem necessary or advisable and as shall be normal and usual in its
general mortgage servicing activities. The foregoing is subject to the proviso
that the Master Servicer shall not be required to expend its own funds in
connection with any foreclosure or towards the correction of any default on a
related senior mortgage loan or restoration of any property unless it shall
determine that such expenditure will increase Net Liquidation Proceeds. The
Master Servicer will be reimbursed out of Liquidation Proceeds for advances of
its own funds to pay Liquidation Expenses before any Net Liquidation Proceeds
are deposited in the Collection Account.
(b) In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall (i) so long as at least two of ▇▇▇▇▇'▇, Standard & Poor's and Fitch
assign an acceptable minimum long-term unsecured debt rating to the Master
Servicer (currently "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
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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
Indenture Trustee shall, if the Master Servicer so requests in writing and
supplies the Indenture Trustee with appropriate forms therefor, assign such
Home Equity Loan for the purpose of collection to the Master Servicer or to
the related Servicer (any such assignment shall unambiguously indicate that
the assignment is for the purpose of collection only), and, upon such
assignment, such assignee for collection will thereupon bring all required
actions in its own name and otherwise enforce the terms of the Home Equity
Loan and deposit or credit the Net Liquidation Proceeds received with respect
thereto in the Collection Account. In the event that all delinquent payments
due under any such Home Equity Loan are paid by the Mortgagor and any other
defaults are cured then the assignee for collection shall promptly reassign
such Home Equity Loan to the Indenture Trustee and return it to the place
where the related Mortgage File was being maintained.
Section 3.09 Servicing Compensation; Payment of Certain Expenses by
Master Servicer. The Master Servicer shall be entitled to receive the
Servicing Fee as compensation for its services in connection with servicing
the Home Equity Loans. The Servicing Fee for each Collection Period shall be
paid to the Master Servicer out of Interest Collections prior to their deposit
in the Collection Account and shall not be the responsibility or liability of
the Trust, the Owner Trustee, the Indenture Trustee, the Insurer, the
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 and the Insurer, on or before March 31 of
each year, beginning March 31, 2003, 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 2003,
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 2003, 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
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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 and the Insurer, 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, 2003, 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 and the Insurer to
the effect that such firm has examined certain documents and records relating
to the servicing of home equity loans by the Master Servicer during the most
recent calendar year (or in the case of the report delivered in 2003, from the
Closing Date) then ended under pooling and servicing agreements or sale and
servicing agreements (including this Agreement) substantially similar to this
Agreement and that such examination, which has been conducted substantially in
compliance with the audit guide for audits of non-supervised mortgagees
approved by the Department of Housing and Urban Development for use by
independent public accountants (to the extent that the procedures in such
audit guide are applicable to the servicing obligations set forth in such
agreements), has disclosed no items of noncompliance with the provisions of
this Agreement which, in the opinion of such firm, are material, except for
such items of noncompliance as shall be set forth in such report.
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 Insurer, the Transferor in respect
of the Ownership Interest, the 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
47
make the required payments and to furnish the required reports to Noteholders
and the Insurer 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 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;
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(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, the Insurer 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, the Master Servicer and (so long as no
Insurer Default exists and is continuing) the Insurer), 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:
(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 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 the Notes paid on such Payment
Date and the amount of any Interest Carry Forward Amount or
Supplemental Interest Amount for the Notes remaining after
giving effect to the payments on such Payment Date;
(iv) the Note Principal Amount, the Pool Balance as
reported in the prior Indenture Trustee's Statement to
Noteholders or, in the case of the first
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Determination Date, the Original Note Principal Amount and the
Cut-Off Date Pool Balance;
(v) 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;
(vi) 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;
(vii) 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;
(viii) 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);
(ix) the amount of any Substitution Adjustment Amounts for
such Payment Date;
(x) the amount of the Insured Amounts, if any, to be paid
on the related Payment Date;
(xi) 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)(viii);
(xii) the Note Principal Amount after giving effect to the
payment to be made on the related Payment Date;
(xiii) the Servicing Fee for the related Collection Period
and any accrued amounts thereof that remain unpaid for previous
Collection Periods;
(xiv) the amount of all payments or reimbursements to the
Master Servicer pursuant to Sections 3.03;
(xv) the Overcollateralization Amount, the Interim
Overcollateralization Amount, the Interim Overcollateralization
Deficiency, the Overcollateralization Release Amount, the
Targeted Overcollateralization Amount, the Excess Cashflow and
the Distributable Excess Cashflow for such Payment Date;
(xvi) the amount of Distributable Excess Cashflow to be
paid to the Noteholders on such Payment Date pursuant to
Section 5.01(a)(iv) on such Payment Date;
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(xvii) the number of Home Equity Loans outstanding at the
beginning and at the end of the related Collection Period;
(xviii) the Pool Balance as of the end of the related
Collection Period;
(xix) the number and aggregate Principal Balances of Home
Equity Loans (x) as to which the scheduled monthly payment is
contractually delinquent for 30-59 days, 60-89 days and 90 or
more days, respectively, and (y) that have become REO, in each
case as of the end of such Collection Period;
(xx) the unpaid principal amount of all Home Equity Loans
that became Liquidated Home Equity Loans during such Collection
Period;
(xxi) the Cumulative Realized Losses on the Home Equity
Loans;
(xxii) the book value of any real estate acquired through
foreclosure or grant of a deed in lieu of foreclosure;
(xxiii) the Ninety Day-Plus Delinquency Percentage for the
related Collection Period;
(xxiv) the Ninety Day-Plus Rolling Average for such
Payment Date;
(xxv) LIBOR for such Payment Date;
(xxvi) whether a Master Servicer Termination Event has
occurred since the prior Determination Date, specifying each
such Master Servicer Termination Event if one has occurred;
(xxvii) whether an Event of Default has occurred and is
continuing;
(xxviii) the Formula Rate, the Available Funds Cap and the
Note Rate for such Payment Date;
(xxix) the amount of any Skip-A-Pay Advances for the
related Collection Period;
(xxx) the Skip-A-Pay Reimbursement Amount for such Payment
Date; and
(xxxi) the Cumulative Loss Percentage.
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,
the Indenture Trustee and, so long as no Insurer Default exists and is
continuing, the
51
Insurer 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 and the Insurer.
52
ARTICLE IV
INSURER
Section 4.01 Claims upon the Note Guaranty Insurance Policy. (a) As
soon as possible, and in no event later than 10:00 a.m. New York City time on
the second Business Day immediately preceding the Payment Date, the Indenture
Trustee shall furnish the Insurer and the Master Servicer with a completed
notice in the form set forth as Exhibit A to the Note Guaranty Insurance
Policy (the "Notice for Payment") in the event that the Insured Amounts for
such Payment Date are greater than zero. The Notice for Payment shall specify
the Insured Amounts and shall constitute a claim for Insured Amounts pursuant
to the Note Guaranty Insurance Policy. Upon receipt of Insured Amounts on
behalf of the Holders of the Notes under the Note Guaranty Insurance Policy,
the Indenture Trustee shall deposit such Insured Amounts in the Collection
Account and shall distribute such Insured Amounts pursuant to Section 5.01.
(b) The Indenture Trustee shall keep a complete and accurate record
of the amount of interest and principal paid in respect of the Notes from
moneys received under the Note Guaranty Insurance Policy. So long as no
Insurer Default exists and is continuing, the Insurer shall have the right to
inspect such records at reasonable times during normal business hours upon
four Business Day's prior written notice to the Indenture Trustee.
(c) The Insurer shall pay any Preference Amount when due to be paid
pursuant to the Order referred to below, but in any event on the Payment Date
next following receipt on a Business Day by the Insurer of (i) a certified
copy of a final, non-appealable order of a court or other body exercising
jurisdiction in such insolvency proceeding to the effect that the Indenture
Trustee or the Noteholder, as applicable, is required to return such
Preference Amount paid during the term of the Note Guaranty Insurance Policy
because such payments were avoided as a preferential transfer or otherwise
rescinded or required to be restored by the Indenture Trustee or the
Noteholder (the "Order"), (ii) a certificate by or on behalf of the Indenture
Trustee that the Order has been entered and is not subject to any stay, (iii)
an assignment, in form and substance satisfactory to the Insurer, duly
executed and delivered by the Indenture Trustee or the Noteholder, as
applicable, irrevocably assigning to the Insurer all rights and claims of the
Indenture Trustee or the Noteholder, as applicable, relating to or arising
under the Indenture and this Agreement against the estate of the Indenture
Trustee or otherwise with respect to such Preference Amount and (iv) a Notice
of Nonpayment (attached to the Note Guaranty Insurance Policy as Exhibit A)
appropriately completed and executed by the Indenture Trustee. Such payment
shall be disbursed to the receiver, conservator, debtor-in-possession or
trustee in bankruptcy named in the Order, and not to the Indenture Trustee or
the Noteholder, as applicable, directly, unless the Indenture Trustee or the
Noteholder, as applicable, has made a payment of the Preference Amount to the
court or such receiver, conservator, debtor-in-possession or trustee in
bankruptcy named in the Order, in which case the Insurer will pay the
Indenture Trustee on behalf of the Noteholder, subject to the delivery of (a)
the items referred to in clauses (i), (ii), (iii) and (iv) above to the
Insurer and (b) evidence satisfactory to the Insurer that payment has been
made to such court or receiver, conservator, debtor-in-possession or trustee
in bankruptcy named in the Order. Notwithstanding the foregoing two sentences,
the
53
Insurer shall not be obligated to pay any Preference Amount in respect of
principal (other than principal paid in connection with Overcollateralization
Deficit Amounts) except on the Final Scheduled Payment Date or earlier
termination of the Trust pursuant to the terms of the Indenture or this
Agreement.
(d) Any amounts received by the Indenture Trustee pursuant to the
Note Guaranty Insurance Policy in respect of the Notes shall be deposited to
the Collection Account for payment pursuant to Section 5.01.
Section 4.02 Effect of Payments by the Insurer; Subrogation. Anything
herein to the contrary notwithstanding, solely for the purposes of determining
the Insurer's reimbursement rights as subrogee pursuant to Section 5.01, any
payment with respect to principal of or interest on any of the Notes which are
made with moneys received pursuant to the terms of the Note Guaranty Insurance
Policy, but only to the extent that such payment has not been reimbursed to
the Insurer pursuant to Section 5.01(a)(v), shall not be considered payment of
such Notes, as applicable, from the Trust and shall not result in the payment
of or the provision for the payment of the principal of or interest on such
Notes, as applicable, within the meaning of Section 5.01 herein. The Master
Servicer and the Indenture Trustee acknowledge, and each Holder by its
acceptance of a Note agrees, that without the need for any further action on
the part of the Insurer, the Depositor, the Master Servicer, the Indenture
Trustee or the Note Registrar (a) to the extent the Insurer makes payments,
directly or indirectly, on account of principal of or interest on any Notes to
the Holders of such Notes, the Insurer will be fully subrogated to the rights
of such Holders to receive such principal and interest, as applicable, from
the Trust in accordance with the priorities of payment set forth in Section
5.01, and (b) the Insurer shall be paid such principal and interest but only
from the sources and in the manner provided herein and in the Insurance and
Indemnity Agreement for the payment of such principal and interest.
So long as no Insurer Default exists and is continuing, the Indenture
Trustee and the Master Servicer shall cooperate in all respects with any
reasonable request by the Insurer for action to preserve or enforce the
Insurer's rights or interests under this Agreement without limiting the rights
or affecting the interests of the Holders of the Notes as otherwise set forth
herein.
Section 4.03 Insurer's Rights Regarding Actions, Proceedings or
Investigations. Until the Notes have been paid in full, all amounts owed to
the Insurer have been paid in full, the Insurance and Indemnity Agreement has
terminated and the Note Guaranty Insurance Policy has been returned to the
Insurer for cancellation, so long as no Insurer Default exists and is
continuing the following provisions shall apply:
(a) Notwithstanding anything contained herein or in the other
Transaction Documents to the contrary, the Insurer shall have the right to
participate in, or to direct the enforcement or defense of, any action,
proceeding or investigation that could adversely affect the Trust, or the
rights or obligations of the Insurer hereunder or under the Note Guaranty
Insurance Policy or this Agreement or the other Transaction Documents,
including (without limitation) any insolvency or bankruptcy proceeding in
respect of the Trust. All costs and expenses of the Insurer in
54
connection with such action, proceeding or investigation, including (without
limitation) any judgment or settlement entered into affecting the Insurer or
the Insurer's interests, shall be included in Reimbursement Amount.
(b) In connection with any action, proceeding or investigation that
could adversely affect the Trust or the rights or obligations of the Insurer
hereunder or under the Note Guaranty Insurance Policy, this Agreement or the
other Transaction Documents, including (without limitation) any insolvency or
bankruptcy proceeding in respect of the Trust, the Trust hereby agrees to
cooperate with the Noteholders, the Insurer and the Transferor.
Notwithstanding any other provision herein or in any of the other Transaction
Documents, the Trust shall not require any bond or indemnification from any
Person for taking of any action at the direction of the Insurer, and the Owner
Trustee shall not be liable to the Insurer or any Noteholders and the
Transferor for any such action that conforms to the direction of the Insurer.
The Owner Trustee's reasonable out-of-pocket costs and expenses (including
attorneys' fees and expenses) with respect to any such action shall be
reimbursed pursuant to Section 8.1 of the Trust Agreement.
(c) Any judgment or settlement entered against or affecting the Trust
or the Owner Trustee, on behalf of the Noteholders, in connection with any
action, proceeding or investigation shall be paid by the Trust pursuant to
Section 5.01.
(d) The Trust hereby agrees to provide to the Insurer prompt written
notice of any action, proceeding or investigation that names the Trust or the
Owner Trustee as a party or that could adversely affect the Trust or the
rights or obligations of the Insurer hereunder or under the Note Guaranty
Insurance Policy, this Agreement or the other Transaction Documents, including
(without limitation) any insolvency or bankruptcy proceeding in respect of the
Master Servicer, the Depositor, any of the Servicers, the Trust or any
affiliate thereof.
(e) Each Noteholder, by acceptance of its Note, the Trust, and the
Owner Trustee agree that Insurer shall have such rights as set forth in this
Section, which are in addition to any rights of the Insurer pursuant to the
other provisions of the Transaction Documents and the Note Guaranty Insurance
Policy, that the rights set forth in this Section may be exercised by the
Insurer, in its sole discretion, without the need for the consent or approval
of any Noteholder, the Trust or the Owner Trustee, notwithstanding any other
provision contained herein or in any of the other Transaction Documents, and
that nothing contained in this Section shall be deemed to be an obligation of
the Insurer to exercise any of the rights provided for herein.
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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 (except that amounts paid under the Note Guaranty
Insurance Policy shall only be available for payment to Noteholders), 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 Insurer, the Premium Amount (to the
extent not previously paid by the Master Servicer);
(ii) to the holders of the Notes, an amount equal
to the Interest Payment Amount for the Notes for
such Payment Date;
(iii) to the holders of the Notes, the Principal
Payment Amount for such Payment Date until the Note
Principal Amount has been reduced to zero;
(iv) to the holders of the Notes, to the extent of
the Available Payment Amount remaining, the
Distributable Excess Cashflow for such Payment Date
until the Note Principal Amount has been reduced to
zero;
(v) to the Insurer, any Reimbursement Amounts due
and owing to the Insurer under the Insurance and
Indemnity Agreement;
(vi) to the Notes, the Supplemental Interest Amount
for such Payment Date;
(vii) to the Owner Trustee on behalf of the Trust,
an amount sufficient to pay any judgment or
settlement affecting the Trust; and
(viii) to the Transferor in respect of the
Ownership Interest, any remaining Available Payment
Amount provided, however, that on any Payment Date
after the earlier of (i) the date on which the
first auction conducted by the Indenture Trustee
pursuant to Section 8.01(c) does not produce any
bid at least equal to the Termination Price or (ii)
the August 2012 Payment Date, any remaining amount
available for payment pursuant to this Section
5.01(a)(viii) shall instead be paid to the Notes in
reduction of the Note Principal Amount;
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provided, that in the event that on a Payment Date an Insurer Default shall
have occurred and be continuing, then the priorities of payments described
above will be adjusted such that payments of any amounts to be paid to the
Insurer will not be paid until the full amount of interest and principal in
accordance with clauses (ii) through (iv) above that are due and required to
be paid by the Issuer on the Notes on such Payment Date have been paid;
provided, further that so long as an Insurer Default has occurred and is
continuing the Premium Amount shall be zero; provided, further, that on the
Final Scheduled Payment Date, the amount to be paid pursuant to clause (iii)
above shall be equal to the Note Principal Amount immediately prior to such
Payment Date; and provided, further, 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.
In addition, on each Payment Date, the Indenture Trustee will pay
amounts on deposit in the Collection Account in respect of and to the extent
of any Insured Amounts deposited in the Collection Account in the order of
priority as set forth above in subsections 5.01(a)(ii), 5.01(a)(iii) and, to
the extent of any Overcollateralization Deficit Amount, 5.01(a)(iv).
(b) Method of Payment. The Indenture Trustee shall make payments in
respect of a Payment Date to each Noteholder of record on the related Record
Date (other than as provided in Section 8.01 respecting the final payment) by
check or money order mailed to such Noteholder at the address appearing in the
Note Register, or upon written request by a Noteholder delivered to the
Indenture Trustee at least five Business Days prior to such Record Date, by
wire transfer (but only if such Noteholder is the Depository or such
Noteholder owns of record one or more Notes having principal denominations
aggregating at least $1,000,000), or by such other means of payment as such
Noteholder and the Indenture Trustee shall agree. Payments among Noteholders
shall be made in proportion to the Percentage Interests evidenced by the Notes
held by such Noteholders. The Indenture Trustee, acting in its capacity as
Paying Agent, shall make payments in respect of a Payment Date to the
Transferor of record on the related Record Date, in respect of the Ownership
Interest by wire transfer or by such other means of payment as the Transferor
and the Paying Agent shall agree.
(c) Payments on Book-Entry Notes. Each payment with respect to a
Book-Entry Note shall be paid to the Depository, which shall credit the amount
of such payment to the accounts of its Depository Participants in accordance
with its normal procedures. Each Depository Participant shall be responsible
for disbursing such payment to the Note Owners that it represents and to each
indirect participating brokerage firm (a "brokerage firm" or "indirect
participating firm") for which it acts as agent. Each brokerage firm shall be
responsible for disbursing funds to the Note Owners that it represents. All
such credits and disbursements with respect to a Book-Entry Note are to be
made by the Depository and the Depository Participants in accordance with the
provisions of the Notes. None of the Indenture Trustee, the Paying Agent, the
Note Registrar, the Insurer, 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 and the Formula Rate.
(a) Calculation of the Formula Rate. On or prior to each LIBOR
Determination Date, the Indenture Trustee shall determine the applicable
Formula Rate for the related Payment Date.
(b) Calculation of LIBOR. Until the Principal Balance of each 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
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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 and binding. The Indenture Trustee
shall, upon determination of LIBOR for the relevant
Accrual Period, inform the Master Servicer (at the
facsimile number given to the Indenture Trustee in
writing) of such rates.
Section 5.03 Statements to Noteholders. (a) On each Payment Date, the
Indenture Trustee shall deliver a copy of the applicable Servicing Certificate
delivered to the Indenture Trustee pursuant to Section 3.18 to each Noteholder
concurrently with each payment to Noteholders (the "Indenture Trustee's
Statement to Noteholders") containing the information set forth below with
respect to such Payment Date:
(i) the Available Payment Amount for such Payment
Date, separately stating the amount of Interest
Collections and Principal Collections;
(ii) the amount of the payments to Holders of the
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 the
Notes paid on such Payment Date and the amount of
any Interest Carry Forward Amount or Supplemental
Interest Amount for the Notes remaining after
giving effect to the payments on such Payment Date;
(iv) the Note Principal Amount, 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 and the Cut-Off Date Pool Balance;
(v) the number and aggregate Principal Balance of
any Home Equity Loans purchased by the Depositor or
the Master Servicer with respect to the related
Collection Period pursuant to Sections 2.02, 2.04
and 3.01;
(vi) the amount of any Substitution Adjustment
Amounts for such Payment Date;
(vii) the amount of the Insured Amounts, if any, to
be made on the related Payment Date;
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(viii) 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)(viii);
(ix) the Note Principal Amount after giving effect
to the payment to be made on the related Payment
Date;
(x) the Servicing Fee for the related Collection
Period and any accrued amounts thereof that remain
unpaid for previous Collection Periods;
(xi) the amount of all payments or reimbursements
to the Master Servicer pursuant to Sections 3.03;
(xii) the Overcollateralization Amount, the Interim
Overcollateralization Amount, the Interim
Overcollateralization Deficiency, the
Overcollateralization Release Amount, the Targeted
Overcollateralization Amount, the Excess Cashflow
and the Distributable Excess Cashflow for such
Payment Date;
(xiii) the amount of Distributable Excess Cashflow
to be paid to the Noteholders on such Payment Date
pursuant to Section 5.01(a)(iv) on such Payment
Date;
(xiv) the number of Home Equity Loans outstanding
at the beginning and at the end of the related
Collection Period;
(xv) the Pool Balance as of the end of the related
Collection Period;
(xvi) the number and aggregate Principal Balances
of Home Equity Loans (x) as to which the scheduled
monthly payment is contractually delinquent for
30-59 days, 60-89 days and 90 or more days,
respectively, and (y) that have become REO, in each
case as of the end of such Collection Period;
(xvii) the unpaid principal amount of all Home
Equity Loans that became Liquidated Home Equity
Loans during such Collection Period;
(xviii) the Cumulative Realized Losses on the Home
Equity Loans;
(xix) the book value of any real estate acquired
through foreclosure or grant of a deed in lieu of
foreclosure;
(xx) the Ninety Day-Plus Delinquency Percentage for
the related Collection Period;
(xxi) the Ninety Day-Plus Rolling Average for such
Payment Date;
(xxii) LIBOR for such Payment Date;
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(xxiii) whether a Master Servicer Termination Event
has occurred since the prior Determination Date,
specifying each such Master Servicer Termination
Event if one has occurred;
(xxiv) whether an Event of Default has occurred and
is continuing;
(xxv) the Formula Rate, the Available Funds Cap and
the Note Rate for such Payment Date;
(xxvi) the amount of any Skip-A-Pay Advances for
the related Collection Period;
(xxvii) the Skip-A-Pay Reimbursement Amount for
such Payment Date; and
(xxviii) the Cumulative Loss Percentage.
In the case of information furnished pursuant to clauses (i) and (ii)
above, the amounts shall be expressed, in a separate section of the report, as
a dollar amount for each Note for each $1,000 original dollar amount as of the
Cut-Off Date.
To the extent that there are inconsistencies between the telecopy of
the Indenture Trustee's Statement to Noteholders and the hard copy thereof,
the Master Servicer may rely upon the latter.
The Indenture Trustee will make the reports referred to in this
section (and, at its option, any additional files containing the same
information in an alternative format) available each month to Noteholders and
other parties to this Agreement via the Indenture Trustee's website, which is
presently located at ▇▇▇.▇▇▇.▇▇▇▇▇▇▇.▇▇▇. Persons that are unable to use the
above website are entitled to have a paper copy mailed to them via first class
mail by calling the Indenture Trustee at (▇▇▇) ▇▇▇-▇▇▇▇. The Indenture Trustee
shall have the right to change the way the reports referred to in this section
are distributed in order to make such distribution more convenient and/or more
accessible to the above parties and to the Noteholders. The Indenture Trustee
shall provide timely and adequate notification to all above parties and to the
Noteholders regarding any such change.
(b) The Indenture Trustee shall prepare or cause to be prepared (in a
manner consistent with the treatment of the Notes as indebtedness of the
Trust, or as may be otherwise required by Section 3.16 herein) Internal
Revenue Service Form 1099 (or any successor form) and any other tax forms
required to be filed or furnished to Noteholders in respect of payments by the
Indenture Trustee (or the Paying Agent) on the Notes and shall file and
distribute such forms as required by law.
(c) Reports and computer tapes furnished by the Master Servicer
pursuant to this Agreement shall be deemed confidential and of a proprietary
nature, and shall not be copied or distributed except to the extent provided
in this Agreement and to the extent required by law or
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to the Rating Agencies, the Depositor, the Insurer's reinsurers, parent,
regulators, liquidity providers and auditors and to the extent the Seller
instructs the Indenture Trustee in writing to furnish information regarding
the Trust or the Home Equity Loans to third-party information providers. No
Person entitled to receive copies of such reports or tapes or lists of
Noteholders shall use the information therein for the purpose of soliciting
the customers of the Seller or for any other purpose except as set forth in
this Agreement.
(d) Within 60 days after the end of each calendar year, the Master
Servicer shall prepare or cause to be prepared and shall forward or give
access to the Indenture Trustee the information set forth in clauses (i) and
(ii) above aggregated for such calendar year. Such obligation of the Master
Servicer shall be deemed to have been satisfied to the extent that
substantially comparable information shall be provided by the Master Servicer
pursuant to any requirements of the Code.
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ARTICLE VI.
THE MASTER SERVICER AND THE DEPOSITOR
Section 6.01 Liability of the Master Servicer and the Depositor. The
Master Servicer shall be liable in accordance herewith only to the extent of
the obligations specifically imposed upon and undertaken by the Master
Servicer herein. The Depositor shall be liable in accordance herewith only to
the extent of the obligations specifically imposed upon and undertaken by the
Depositor herein.
Section 6.02 Merger or Consolidation of, or Assumption of the
Obligations of, the Master Servicer or the Depositor. Any corporation into
which the Master Servicer or Depositor may be merged or consolidated, or any
corporation resulting from any merger, conversion or consolidation to which
the Master Servicer or the Depositor shall be a party, or any corporation
succeeding to the business of the Master Servicer or the Depositor, shall be
the successor of the Master Servicer or the Depositor, as the case may be,
hereunder, without the execution or filing of any paper or any further act on
the part of any of the parties hereto so long as such entity is investment
grade rated, anything herein to the contrary notwithstanding.
Section 6.03 Limitation on Liability of the Master Servicer, the
Depositor and Others. None of the Master Servicer, the Depositor, or any
director, officer, employee or agent of the Master Servicer or the Depositor
shall be under any liability to the Trust or the Noteholders for any action
taken or for refraining from the taking of any action by the Master Servicer
or the Depositor, as applicable, in good faith pursuant to this Agreement, or
for errors in judgment; provided, however, that this provision shall not
protect the Master Servicer, the Depositor or any such person against any
liability which would otherwise be imposed by reason of willful misfeasance,
bad faith or gross negligence in the performance of duties or by reason of
reckless disregard of obligations and duties hereunder, and that this
provision shall not be construed to entitle the Master Servicer to indemnity
in the event that amounts advanced by the Master Servicer to retire any senior
Lien exceed Net Liquidation Proceeds realized with respect to the related Home
Equity Loan. The Master Servicer, the Depositor and any director, officer,
employee or agent of the Master Servicer or the Depositor may rely in good
faith on any document of any kind prima facie properly executed and submitted
by any Person respecting any matters arising hereunder. The Master Servicer,
the Depositor and any director, officer, employee or agent of the Master
Servicer or the Depositor shall be indemnified by the Trust and held harmless
against any loss, liability or expense incurred in connection with any legal
action relating to this Agreement or the Notes, other than any loss, liability
or expense related to any specific Home Equity Loan or Home Equity Loans
(except as any such loss, liability or expense shall be otherwise reimbursable
pursuant to this Agreement) and any loss, liability or expense incurred by
reason of willful misfeasance, bad faith or gross negligence in the
performance of duties hereunder or by reason of reckless disregard of
obligations and duties hereunder. Neither the Master Servicer nor the
Depositor shall be under any obligation to appear in, prosecute or defend any
legal action which is not incidental to its respective duties under this
Agreement, and which in its opinion may involve it in any expense or
liability; provided, however, that the Master Servicer or the Depositor may,
in its sole discretion, undertake any such action which it
63
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 and the
Insurer hereunder. In such event, the reasonable legal 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 or the Insurer 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 and, so long as no
Insurer Default exists and is continuing, the Insurer; (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 Notes without
taking into account the existence of the Note Guaranty Insurance Policy; 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 and the Insurer 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 and the Insurer.
Section 6.05 Delegation of Duties. In the ordinary course of
business, the Master Servicer at any time may delegate any of its duties
hereunder to any Person, including any of its Affiliates, who agrees to
conduct such duties in accordance with standards comparable to those
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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, the Insurer 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 (i) the Insurer, so long
as no Insurer Default exists and is continuing, or (ii) during the existence
of an Insurer Default, the Majority Noteholder (without the consent of the
Insurer so long as an Insurer Default is continuing); 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 or, so long as no Insurer Default exists and is
continuing, the Insurer 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 (i) the Insurer, so long as no Insurer Default
exists and is continuing, or (ii) during the existence of an Insurer Default,
the Majority Noteholder (without the consent of the Insurer so long as an
Insurer Default is continuing); 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; or
(e) a Trigger Event shall have occurred;
66
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, the Insurer, so long as no Insurer Default is continuing or
the Depositor may, and at the direction of (i) the Insurer, so long as no
Insurer Default is existing, or (ii) the Majority Noteholder (without the
consent of the Insurer so long as Insurer Default exists and is continuing),
the Indenture Trustee shall, by notice then given in writing to the Master
Servicer, the Depositor, the Insurer 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. 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, the Insurer 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, the Insurer and each
Rating Agency in writing of any Master Servicer Termination Events.
Section 7.02 Indenture Trustee to Act; Appointment of Successor.
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(a) On and after the time the Master Servicer receives a notice of
resignation or termination pursuant to Section 6.04 or 7.01, the Indenture
Trustee shall be the successor in all respects to the Master Servicer in its
capacity as servicer under this Agreement and the transactions set forth or
provided for herein and shall be subject to all the responsibilities, duties
and liabilities relating thereto placed on the Master Servicer by the terms
and provisions hereof; provided, however, that the responsibilities and duties
of HFC as Master Servicer with respect to the purchase of the Home Equity
Loans pursuant to Sections 2.02, 2.04(c) and 3.01 shall not terminate. As
compensation therefor, the Indenture Trustee shall be entitled to such
compensation as the Master Servicer would have been entitled to hereunder if
no such notice of termination had been given. Notwithstanding the above, (i)
if the Indenture Trustee is unwilling to act as successor Master Servicer, or
(ii) if the Indenture Trustee is legally unable so to act, the Indenture
Trustee may (in the situation described in clause (i)) or shall (in the
situation described 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 the Notes by the Rating
Agencies without taking into account the existence of the Note Guaranty
Insurance Policy, as evidenced by a writing to such effect delivered to the
Indenture Trustee and the Insurer, and (so long as no Insurer Default exists
and is continuing) any successor Master Servicer appointed hereunder shall be
reasonably acceptable to the Insurer, as evidenced in writing to the Indenture
Trustee, the Depositor and the successor Master Servicer by the Insurer.
Pending appointment of a successor to the Master Servicer hereunder, unless
the Indenture Trustee is prohibited by law from so acting, the Indenture
Trustee shall act in such capacity as hereinabove provided. In connection with
such appointment and assumption, the successor shall be entitled to receive
compensation out of payments on Home Equity Loans in an amount equal to the
compensation which the Master Servicer would otherwise have received pursuant
to Section 3.09 (or such lesser compensation as the Indenture Trustee and such
successor shall agree). The Indenture Trustee and such successor shall take
such action, consistent with this Agreement, as shall be necessary to
effectuate any such succession.
(b) Any successor, including the Indenture Trustee, to the Master
Servicer as master servicer shall during the term of its service as master
servicer (i) continue to service and administer the Home Equity Loans for the
benefit of Noteholders and the Insurer 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
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Depositor of any of their representations or warranties contained
herein or in any related document or agreement.
(c) In connection with the termination or resignation of the Master
Servicer hereunder, either (i) the successor Master Servicer, including the
Indenture Trustee if the Indenture Trustee is acting as successor Master
Servicer, shall represent and warrant that it is a member of MERS in good
standing and shall agree to comply in all material respects with the rules and
procedures of MERS in connection with the servicing of the Home Equity Loans
that are registered with MERS, in which case the predecessor Master Servicer
shall cooperate with the successor Master Servicer in causing MERS to revise
its records to reflect the transfer of servicing to the successor Master
Servicer as necessary under MERS' rules and regulations, or (ii) the
predecessor Master Servicer shall cooperate with the successor Master Servicer
in causing MERS to execute and deliver an Assignment of Mortgage in recordable
form to transfer the Mortgage from MERS to the Trust and to execute and
deliver such other notices, documents and other instruments as may be
necessary or desirable to effect a transfer of such Home Equity Loan or
servicing of such Home Equity Loan on the MERS(R) System to the successor
Master Servicer. The predecessor Master Servicer shall file or cause to be
filed any such assignment in the appropriate recording office. The predecessor
Master Servicer shall bear any and all fees of MERS, costs of preparing any
Assignments of Mortgage, and fees and costs of filing any assignments of
Mortgage that 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. So long as no Insurer Default exists
and is continuing, the Insurer, or the Majority Noteholder with the consent of
the Insurer (which consent shall not be unreasonably withheld), 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
Insurer and 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, the Insurer 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 later of
(A) payment in full of all amounts owing to the Insurer unless the Insurer
shall otherwise consent and (B) 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 July 2032.
(b) The Master Servicer may, at its option, terminate this Agreement
on any Payment Date on or after the Payment Date on which the Note Principal
Amount is less than or equal to 15% of the Original Note Principal Amount
after giving effect to all payments on such Payment Date 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, and (C) the Note Principal Amount,
together with any unpaid Interest Carry Forward Amounts and Supplemental
Interest Amounts, plus one month's interest on such Note Principal Amount and
any unpaid Interest Carry Forward Amounts and Supplemental Interest Amounts at
the Formula Rate, plus all Reimbursement Amounts due and owing to the Insurer.
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
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Trustee shall begin a process for soliciting bids in connection with an
auction of the Home Equity Loans for an auction to occur on or before the next
succeeding Payment Date (the "First Auction Date") and, if necessary, any date
after the First Auction Date (the "Subsequent Action Date" and together with
the First Auction Date, the "Auction Date"). The Indenture Trustee shall
provide the Master Servicer written notice of such auctions at least ten (10)
Business Days prior to the applicable Auction Date. The auctions shall be
conducted as follows:
(i) If at least two bids are received, the Indenture Trustee
shall solicit and resolicit new bids from all participating bidders
until only one bid remains or the remaining bidders decline to
resubmit bids. The Indenture Trustee shall accept the highest of such
remaining bids if it is equal to or in excess of the Termination
Price. If less than two bids are received or the highest bid after
the resolicitation process is completed is not equal to or in excess
of the Termination Price, the Indenture Trustee shall not consummate
such sale. If a bid equaling the Termination Price is received, then
the Indenture Trustee may, and if so requested by the Master Servicer
shall, consult with a financial advisor, which may be an underwriter
of the Notes, to determine if the fair market value of the Home
Equity Loans and related property has been offered.
(ii) If the first auction conducted by the Indenture Trustee
does not produce any bid at least equal to the Termination Price,
then the Indenture Trustee shall, beginning on the Payment Date
occurring approximately three months after the Auction Date for the
failed first auction, commence another auction in accordance with the
requirements of this subsection (c). If such second auction does not
produce any bid at least equal to the Termination Price, then the
Indenture Trustee shall, beginning on the Payment Date occurring
approximately three months after the Auction Date for the failed
second auction, commence another auction in accordance with the
requirements of this subsection (c), and shall continue to conduct
similar auctions approximately every three months thereafter until
the earliest of (i) delivery by the Master Servicer of notice of
exercise of its repurchase option pursuant to Section 8.01(b) above,
(ii) receipt by the Indenture Trustee of a bid meeting the conditions
specified in the preceding paragraph, or (iii) the Payment Date on
which the Principal Balance of all the Home Equity Loans is reduced
to zero.
(d) If the Indenture Trustee receives a bid meeting the conditions
specified in subsection (c), then the Indenture Trustee shall release, or
cause to be released, to the winning bidder, upon payment of the bid purchase
price and satisfaction of any other terms and conditions of the auction sale,
the Mortgage Files pertaining to the Home Equity Loans being purchased and the
Trust and the Indenture Trustee shall take such other actions as the winning
bidder may reasonably request to effect the transfer of the Home Equity Loans
by the Trust to the winning bidder.
(e) Notice of any termination, specifying the Payment Date (which
shall be a date that would otherwise be a Payment Date) upon which the
Noteholders may surrender their Notes to the Indenture Trustee for payment of
the final payment and cancellation, shall be given
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promptly by the Indenture Trustee (upon receipt of written directions
from the Master Servicer, if the Master Servicer is exercising its right to
transfer of the Home Equity Loans, given not later than the first day of the
month preceding the month of such final payment) to the Insurer and 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 Holders of the Notes on the Payment Date
for such final payment, in proportion to the Percentage Interests of their
respective Notes and to the extent that funds are available for such purpose,
an amount equal to the amount required to be paid to Noteholders pursuant to
Section 5.01 for such Payment Date. On the final Payment Date prior to having
made the payments called for above, the Indenture Trustee shall, based upon
the information set forth in the Servicing Certificate for such Payment Date,
withdraw from the Collection Account and remit to the Insurer the lesser of
(x) the amount available for payment on such final Payment Date, net of any
portion thereof necessary to pay the Noteholders pursuant to Section 5.01(a)
and due and unpaid Skip-A-Pay Advances and Servicing Fees, and (y) the unpaid
amounts due and owing to the Insurer pursuant to the Insurance and Indemnity
Agreement.
(g) In the event that all of the Noteholders shall not surrender
their Notes for final payment and cancellation on or before such final 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, (i) all unclaimed funds will be paid
to the Insurer to the extent such funds represent reimbursement of a
Reimbursement Amount and (ii) 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.
(h) Upon payment of all amounts owed under the Note Guaranty
Insurance Policy and cancellation of the Notes, the Indenture Trustee shall
provide the Insurer notice of cancellation of the Notes and surrender the Note
Guaranty Insurance Policy to the Insurer.
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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, but, so long as no Insurer
Default exists and is continuing, only with the consent of the Insurer (which
consent shall not be unreasonably withheld) (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 or the Note Guaranty Insurance Policy, as the
case may be, which shall not be inconsistent with the provisions of this
Agreement, (v) to add or amend any provisions of this Agreement as required by
any Rating Agency or any other nationally recognized statistical rating agency
in order to maintain or improve any rating of the Notes (it being understood
that, after obtaining the ratings in effect on the Closing Date, neither the
Indenture Trustee, the Depositor nor the Master Servicer is obligated to
obtain, maintain or improve any such rating), (vi) to comply with any
requirement imposed by changes in accounting policies that do not materially
impact the Notes, or (vii) to comply with any requirements imposed by the
Code; provided, however, that as evidenced by an Opinion of Counsel (at the
expense of the party requesting such amendment) in each case (other than a
case arising under clause (vi) or (vii)) such action shall not adversely
affect in any material respect the interest of any Noteholder or (so long as
no Insurer Default exists and is continuing) the Insurer, and provided,
further, that the amendment shall not be deemed to adversely affect in any
material respect the interests of the Noteholder or (so long as no Insurer
Default exists and is continuing) the Insurer, 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
Notes without regard to the Note Guaranty Insurance Policy.
(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 Majority Noteholder, and (so long as no Insurer Default exists
and is continuing) with the consent of the Insurer (which consent shall not be
unreasonably withheld), 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 the Notes or distributions or payments under the Note Guaranty
Insurance Policy which are required to be made on the Notes without the
consent of the Holder of such Notes or (ii) reduce the aforesaid percentage
required to consent to any such amendment, without the consent of the Holders
of all Notes then outstanding.
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Prior to the solicitation of consent of Noteholders in connection
with any such amendment, the party seeking such amendment shall furnish the
Indenture Trustee with an Opinion of Counsel stating whether such amendment
would create a material risk of the Trust incurring taxes imposed under the
Code and notice of the conclusion expressed in such Opinion of Counsel shall
be included with any such solicitation. An amendment made with the consent of
all Noteholders and the Insurer 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 Noteholders, the Indenture Trustee shall furnish
written notification of the substance of such amendment to each Noteholder and
fully executed original counterparts of the instruments effecting such
amendment to the Insurer.
(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, the Owner Trustee and the Insurer 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.
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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, the Insurer or the Majority Noteholder,
but only when accompanied by an opinion of counsel delivered to the Indenture
Trustee, the Owner Trustee and the Insurer to the effect that such recordation
materially and beneficially affects the interests of the Noteholders or the
Insurer (so long as no Insurer Default exists and is continuing) or is
necessary for the administration or servicing of the Home Equity Loans.
Section 9.03 Duration of Agreement. This Agreement shall continue in
existence and effect until terminated as herein provided.
Section 9.04 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH
SUCH LAWS, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
Section 9.05 Notices. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered at or mailed by overnight mail, certified mail or
registered mail, postage prepaid, to (a) in the case of the Depositor or the
Master Servicer, ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
Attention: Treasurer, (b) in the case of the Indenture Trustee, at the
Corporate Trust Office, Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, (c) in the case of the
Owner Trustee, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇,
Attention: Asset Backed Securities, (d) in the case of Moody's, ABS Monitoring
Department, ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, (e) in the case of
Standard & Poor's, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇,
Attention: Structured Finance Surveillance, (f) in the case of Fitch, ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: RMBS
Surveillance Department and (g) in the case of the Insurer, Ambac Assurance
Corporation, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention:
Consumer Asset-Backed Securities Group, Telephone Number (▇▇▇) ▇▇▇-▇▇▇▇ and
Telecopier Number (▇▇▇) ▇▇▇-▇▇▇▇, 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
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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, the
Seller, the Trust, the Indenture Trustee and the Noteholders and their
respective successors and permitted assigns. The Insurer is an express third
party beneficiary of this Agreement.
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 and, so
long as no Insurer Default exists and is continuing, the Insurer has the right
to directly enforce all rights of the Trust under this Agreement.
Section 9.10 Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not
be deemed to be part of this Agreement.
Section 9.11 Indenture Trustee. All privileges, rights and immunities
given to the Indenture Trustee in the Indenture are hereby extended to and
applicable to the Indenture Trustee's obligations hereunder.
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 Rights of the Insurer to Exercise Rights of Noteholders.
By accepting its Note, each Noteholder agrees that unless an Insurer Default
exists and is continuing, the Insurer shall have the right to exercise all
rights of the Noteholders as specified under this Agreement without any
further consent of the Noteholders; provided that
(i) any direction provided by the Insurer shall not be in
conflict with any rule of law or with any of the Transaction
Documents; and
(ii) the Trust and the Indenture Trustee may take any other
action deemed proper by the Trust or the Indenture that is not
inconsistent with any direction;
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provided, however, that the Trust or the Indenture Trustee need not
take any action that is determined might involve it in liability or
might materially adversely affect the rights of any Noteholders not
consenting to an action.
Notwithstanding any other provision of this Agreement, any right conferred to
the Insurer hereunder shall be suspended and shall run to the benefit of the
Noteholders during any period in which there exists an Insurer Default.
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 the Insurer, and
shall vote such stock only pursuant to the written instructions of the Insurer
(so long as no Insurer Default has occurred and is continuing) or the Majority
Noteholder (so long as an Insurer Default has occurred and is continuing). 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 Consent of Insurer. Unless otherwise specified, whenever
in this Agreement the taking of any action, giving of any instruction or
direction, exercise of any right or remedy or effectiveness of any amendment
is conditioned upon the approval of, acceptance by or consent of the Insurer
(whether written or otherwise), such approval, acceptance or consent
requirement shall be waived so long as an Insurer Default exists and is
continuing; provided, however, that regardless of whether an Insurer Default
has occurred and is continuing, the
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foregoing provision shall not be construed so as to deny any right of the
Insurer under this Agreement to receive any Reimbursement Amounts due and
owing to it under the Insurance and Indemnity Agreement.
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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, the Insurer 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
79
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 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
80
(i) the initiation of any claim or lawsuit by the
Issuer and, subject to the rights of the Insurer under
Section 4.03, 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
(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.
81
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 2002-3,
By: The Bank of New York, not in its
individual capacity but solely as Owner
Trustee
By: /s/ ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Assistant Vice President
S-1
HOUSEHOLD FINANCE CORPORATION,
as Master Servicer
By: /s/ D.J. Mickey
------------------------------------
Name: D.J.Mickey
Title: Assistant Treasurer
S-2
HFC REVOLVING CORPORATION,
as Depositor
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Vice President and Assistant Treasurer
S-3
BANK ONE, NATIONAL ASSOCIATION,
as Indenture Trustee
By : /s/ ▇. ▇▇▇▇▇▇
------------------------------------
Name: ▇. ▇▇▇▇▇▇
Title: Vice President
S-4
THE STATE OF NY )
)
COUNTY OF KINGS )
BEFORE ME, on August 29, 2002, 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 2002-3, 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/ ▇▇▇▇▇▇▇ ▇. Clan
---------------------
Notary Public, State of NY
-----
S-5
THE STATE OF ILLINOIS )
)
COUNTY OF ▇▇▇▇ )
BEFORE ME, on August 29, 2002, the undersigned authority, a Notary
Public, on this day personally appeared D.J. Mickey, 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
---------
S-6
THE STATE OF ILLINOIS )
)
COUNTY OF ▇▇▇▇ )
BEFORE ME, on August 29, 2002, 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
--------
S-7
THE STATE OF ILLINOIS )
)
COUNTY OF ▇▇▇▇ )
BEFORE ME, on August 29, 2002, the undersigned authority, a Notary
Public, on this day personally appeared ▇. ▇▇▇▇▇, known to me to be the person
and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said Bank One, National
Association, as Indenture Trustee, and that he executed the same as the act of
such corporation for the purposes and consideration therein expressed, and in
the capacity therein stated.
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------------
Notary Public, State of Illinois
---------
S-8
SCHEDULE 1
----------
PERFECTION REPRESENTATIONS, WARRANTIES AND COVENANTS
The Depositor hereby represents, warrants, and covenants to the Indenture
Trustee and the Insurer 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 Transferred Assets to the Trust under the
Transfer Agreement, the transfer of the Home Equity Loans to the Depositor
under the Home Equity Loan Purchase Agreement, 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, 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
1-2
Depositor or any of the Sellers that include a description of collateral
covering the Home Equity Loans other than any financing statement relating to
the security interest granted to the Indenture Trustee hereunder or that has
been terminated.
12. The Depositor is not aware of any judgment, ERISA or tax lien filings
against either the Depositor or any of the Sellers.
13. The Sellers have in their possession all original copies of the Mortgage
Notes that constitute or evidence the Home Equity Loans. To the Depositor's
knowledge, none of the instruments that constitute or evidence the Home Equity
Loans has any marks or notations indicating that they have been pledged,
assigned or otherwise conveyed to any Person other than the Trust. All
financing statements filed or to be filed against the Depositor and the
Sellers in favor of the Indenture Trustee in connection herewith describing
the Home Equity Loans contain a statement to the following effect: "A purchase
of or security interest in any collateral described in this financing
statement will violate the rights of the Indenture Trustee."
14. Neither the Collection Account nor any subaccount thereof is in the name
of any person other than the Depositor or the Indenture Trustee as trustee
under the Indenture or in the name of its nominee. The Depositor has not
consented for the securities intermediary of the Collection Account to comply
with entitlement orders of any person other than the Indenture Trustee.
15. Survival of Perfection Representations. Notwithstanding any other
provision of this Agreement or any other transaction document, the Perfection
Representations contained in this Schedule shall be continuing, and remain in
full force and effect (notwithstanding any replacement of the Master Servicer
or termination of the Master Servicer's rights to act as such) until such time
as all obligations under this Agreement have been finally and fully paid and
performed.
16. No Waiver. The parties to this Agreement (i) shall not, without obtaining
a confirmation of the then-current rating of the Notes without taking into
account the existence of the Note Guaranty Insurance Policy and consent of the
Insurer (so long as no Insurer Default exists and is continuing), waive any of
the Perfection Representations, and (ii) shall provide the Rating Agencies and
the Insurer (so long as no Insurer Default exists and is continuing) 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 without taking into account the existence of the Note Guaranty Insurance
Policy (as determined after any adjustment or withdrawal of the ratings
following notice of such breach) and consent of the Insurer (so long as no
Insurer Default exists and is continuing) 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, the Insurer 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
1-3
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, 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 and the Insurer 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.
1-4
EXHIBIT A
----------
HOME EQUITY LOAN SCHEDULE
A-1
EXHIBIT B
---------
[RESERVED]
B-1
EXHIBIT C
---------
[RESERVED]
C-1
EXHIBIT D
---------
[RESERVED]
D-1
EXHIBIT E
---------
FORM OF NOTES
[Attached as Exhibit A to the Indenture]
E-1
EXHIBIT F
---------
SPECIMEN OF THE NOTE GUARANTY INSURANCE POLICY
[Attached]
F-1