EXHIBIT 4.2
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SALE AND SERVICING AGREEMENT
Dated as of December 1, 1997
by and among
EMERGENT HOME EQUITY LOAN TRUST 1997-4
(Trust)
PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION
(Depositor)
and
EMERGENT MORTGAGE CORP.,
(Originator and Servicer)
and
FIRST UNION NATIONAL BANK
(Indenture Trustee)
Emergent Home Equity Asset Backed Notes,
Series 1997-4
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TABLE OF CONTENTS
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Page
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ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINED TERMS..................................................1
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS
SECTION 2.01. CONVEYANCE OF INITIAL MORTGAGE LOANS AND ADDITIONAL MORTGAGE
LOANS..........................................................1
SECTION 2.02. CONVEYANCE OF PRE-FUNDED MORTGAGE LOANS........................2
SECTION 2.03. MORTGAGE FILES AND DOCUMENTS...................................4
SECTION 2.04. ACCEPTANCE BY INDENTURE TRUSTEE................................6
SECTION 2.05. REPURCHASE OR SUBSTITUTION OF MORTGAGE LOANS...................7
SECTION 2.06. REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR...............10
SECTION 2.07. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SERVICER.....11
SECTION 2.08. REPRESENTATIONS AND WARRANTIES OF THE TRUST...................13
SECTION 2.09. ISSUANCE OF SECURITIES........................................14
SECTION 2.10. SATISFACTION AND DISCHARGE OF WAREHOUSE LIENS.................14
ARTICLE III
ADMINISTRATION AND SERVICING
OF THE TRUST PROPERTY
SECTION 3.01. SERVICER TO ACT AS SERVICER...................................14
SECTION 3.02. SUB-SERVICING AGREEMENTS BETWEEN SERVICER AND SUB-SERVICERS...16
SECTION 3.03. SUCCESSOR SUB-SERVICERS.......................................17
SECTION 3.04. LIABILITY OF THE SERVICER.....................................18
SECTION 3.05. NO CONTRACTUAL RELATIONSHIP BETWEEN SUB-SERVICERS AND TRUST,
INDENTURE TRUSTEE, NOTEHOLDERS OR INSURER.....................18
SECTION 3.06. ASSUMPTION OR TERMINATION OF SUB-SERVICING AGREEMENTS BY
INDENTURE TRUSTEE.............................................19
SECTION 3.07. COLLECTION OF CERTAIN MORTGAGE LOAN PAYMENTS..................19
SECTION 3.08. SUB-SERVICING ACCOUNTS........................................19
SECTION 3.09. COLLECTION OF TAXES, ASSESSMENTS AND SIMILAR ITEMS;
SERVICING ACCOUNTS............................................20
SECTION 3.10. COLLECTION ACCOUNTS...........................................20
SECTION 3.11. WITHDRAWALS FROM THE COLLECTION ACCOUNT.......................23
SECTION 3.12. [RESERVED]....................................................24
SECTION 3.13. [RESERVED]....................................................24
SECTION 3.14. INVESTMENT OF FUNDS IN THE INVESTMENT ACCOUNTS................24
SECTION 3.15. [INTENTIONALLY OMITTED].......................................26
SECTION 3.16. MAINTENANCE OF HAZARD INSURANCE AND ERRORS AND OMISSIONS AND
FIDELITY COVERAGE.............................................26
SECTION 3.17. ENFORCEMENT OF DUE-ON-SALE CLAUSES, ASSUMPTION AGREEMENTS.....27
SECTION 3.18. REALIZATION UPON DEFAULTED MORTGAGE LOANS.....................28
SECTION 3.19. INDENTURE TRUSTEE TO COOPERATE; RELEASE OF MORTGAGE FILES.....30
SECTION 3.20. SERVICING COMPENSATION........................................31
SECTION 3.21. REPORTS TO THE INDENTURE TRUSTEE; COLLECTION ACCOUNT
STATEMENTS....................................................32
SECTION 3.22. STATEMENT AS TO COMPLIANCE....................................32
SECTION 3.23. INDEPENDENT PUBLIC ACCOUNTANTS' SERVICING REPORT..............33
SECTION 3.24. ACCESS TO CERTAIN DOCUMENTATION...............................33
SECTION 3.25. TITLE, MANAGEMENT AND DISPOSITION OF REO PROPERTY.............33
(i)
SECTION 3.26. OBLIGATIONS OF THE SERVICER IN RESPECT OF PREPAYMENT INTEREST
SHORTFALLS....................................................37
SECTION 3.27. [RESERVED]....................................................37
SECTION 3.28. OBLIGATIONS OF THE SERVICER IN RESPECT OF MONTHLY PAYMENTS....37
SECTION 3.29. [RESERVED]....................................................37
SECTION 3.30. OBLIGATIONS UNDER INDENTURE...................................37
ARTICLE IV
PAYMENTS AND DISTRIBUTIONS; STATEMENTS;
SECTION 4.01. PAYMENTS AND DISTRIBUTIONS....................................38
SECTION 4.02. STATEMENTS TO SECURITYHOLDERS.................................38
SECTION 4.03. MONTHLY ADVANCES..............................................41
SECTION 4.04. DETERMINATION OF REALIZED LOSSES..............................43
SECTION 4.05. COMPLIANCE WITH WITHHOLDING REQUIREMENTS......................43
ARTICLE V
[RESERVED]
ARTICLE VI
THE DEPOSITOR AND THE SERVICER
SECTION 6.01. LIABILITY OF THE DEPOSITOR AND THE SERVICER...................43
SECTION 6.02. MERGER OR CONSOLIDATION OF THE DEPOSITOR OR THE SERVICER......44
SECTION 6.03. LIMITATION ON LIABILITY OF THE DEPOSITOR, THE SERVICER AND
OTHERS................ .......................................44
SECTION 6.04. LIMITATION ON RESIGNATION OF THE SERVICER.....................45
SECTION 6.05. RIGHTS OF THE TRUST, THE DEPOSITOR AND OTHERS IN RESPECT OF THE
SERVICER......................................................46
SECTION 6.06. LIMITATION OF LIABILITY.......................................46
ARTICLE VII
DEFAULT
SECTION 7.01. SERVICER EVENTS OF DEFAULT....................................47
SECTION 7.02. INDENTURE TRUSTEE TO ACT; APPOINTMENT OF SUCCESSOR............50
SECTION 7.03. NOTIFICATION TO NOTEHOLDERS AND TRUST.........................51
SECTION 7.04. WAIVER OF SERVICER EVENTS OF DEFAULT..........................51
ARTICLE VIII
CONCERNING THE INDENTURE TRUSTEE
SECTION 8.01. DUTIES, RESPONSIBILITIES, ETC. OF INDENTURE TRUSTEE...........52
SECTION 8.02. REPLACEMENT OF INDENTURE TRUSTEE; SUCCESSOR INDENTURE
TRUSTEE; APPOINTMENT OF CO- OR SEPARATE INDENTURE TRUSTEE....52
SECTION 8.03. REPRESENTATIONS AND WARRANTIES OF THE INDENTURE TRUSTEE.......52
ARTICLE IX
CERTAIN MATTERS REGARDING THE INSURER
SECTION 9.01. RIGHTS OF THE INSURER TO EXERCISE RIGHTS OF CLASS A
NOTEHOLDERS...................................................53
SECTION 9.02. INDENTURE TRUSTEE TO ACT SOLELY WITH CONSENT OF THE INSURER...54
SECTION 9.03. TRUST PROPERTY AND ACCOUNTS HELD FOR BENEFIT OF THE INSURER...54
SECTION 9.04. NOTICES TO THE INSURER........................................55
SECTION 9.05. THIRD-PARTY BENEFICIARY.......................................55
SECTION 9.06. TERMINATION OF THE SERVICER...................................55
(ii)
ARTICLE X
TERMINATION; SALE AND PURCHASE OF MORTGAGE LOANS
SECTION 10.01. TERMINATION UPON EARLY REDEMPTION OF THE NOTES OR LIQUIDATION
OF ALL MORTGAGE LOANS; RIGHT OF SERVICER AND INSURER TO
PURCHASE MORTGAGE LOANS.......................................55
SECTION 10.02. SALE AND PURCHASE OF MORTGAGE LOANS...........................56
SECTION 10.03. [RESERVED]....................................................57
ARTICLE XI
[RESERVED]
ARTICLE XII MISCELLANEOUS PROVISIONS
SECTION 12.01. AMENDMENT.....................................................57
SECTION 12.02. RECORDATION OF AGREEMENT; COUNTERPARTS........................59
SECTION 12.03. [RESERVED]....................................................60
SECTION 12.04. GOVERNING LAW.................................................60
SECTION 12.05. NOTICES.......................................................60
SECTION 12.06. SEVERABILITY OF PROVISIONS....................................61
SECTION 12.07. NOTICE TO RATING AGENCIES AND INSURER.........................61
SECTION 12.08. ARTICLE AND SECTION REFERENCES................................62
SECTION 12.09. CONFIRMATION OF INTENT........................................62
Exhibit A Glossary of Defined Terms
Exhibit B [Reserved]
Exhibit C-1 Form of Indenture Trustee's Initial Certification
Exhibit C-2 Form of Indenture Trustee's Final Certification
Exhibit D Form of Unaffiliated Seller's Agreement
Exhibit E-1 Form of Temporary Request for Release of Mortgage File
Exhibit E-2 Form of Permanent Request for Release of Mortgage File
Exhibit F Form of Pre-Funded Mortgage Loan Transfer Agreement
Schedule 1 Mortgage Loan Schedule
(iii)
This Sale and Servicing Agreement, dated as of December 1, 1997, among EMERGENT
HOME EQUITY LOAN TRUST 1997-4 (the "Trust"), PRUDENTIAL SECURITIES SECURED
FINANCING CORPORATION, as Depositor, EMERGENT MORTGAGE CORP., as Servicer, and
FIRST UNION NATIONAL BANK, as Indenture Trustee.
PRELIMINARY STATEMENT:
The Depositor desires to transfer, assign, set over and otherwise convey
to the Trust, and the Trust desires to purchase and acquire from the Depositor,
certain mortgage loans acquired or to be acquired by the Depositor and certain
other related property.
The Trust proposes to issue Notes secured by such mortgage loans pursuant
to an indenture entered into with the Indenture Trustee.
The Servicer is willing to service all such mortgage loans.
In consideration of the mutual agreements herein contained, the Trust, the
Depositor, the Servicer and the Indenture Trustee agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Defined Terms.
For purposes of this Agreement, all capitalized terms used but not
otherwise defined herein shall have the respective meanings ascribed thereto in
Exhibit A hereto. Unless otherwise specified, all calculations described herein
shall be made on the basis of a 360-day year consisting of twelve 30-day months.
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS
Section 2.01. Conveyance of Initial Mortgage Loans and Additional Mortgage
Loans.
In consideration of the Trust's delivery of the Certificates issuable
pursuant to Section 4.2 of the Trust Agreement to or upon the written order of
the Depositor, the Depositor, concurrently with the execution and delivery
hereof, does hereby transfer, assign, set over and otherwise convey to the
Trust, subject to the Warehouse Liens thereon, without recourse (except as
provided herein) all the right, title and interest of the Depositor, including
any security interest therein for the benefit of the Depositor, in and to the
Initial Mortgage Loans and the Additional Mortgage Loans, the rights of the
Depositor under the Unaffiliated Seller's Agreement, the
Originator/Contributor Contribution Agreement and the Contributor/Sponsor
Contribution Agreement, and all other assets included or to be included in the
Trust Property. Such assignment includes all interest and principal received by
the Depositor, the Sponsor, the Contributor or the Servicer on or after the
Cut-off Date with respect to the Initial Mortgage Loans and Additional Mortgage
Loans. The Trust shall treat the conveyance of the Mortgage Loans pursuant to
this Section 2.01 and Section 2.02 as a tax free capital contribution.
Section 2.02. Conveyance of Pre-Funded Mortgage Loans.
(a) Subject to the satisfaction of the conditions set forth in paragraph
(b) below, in consideration of the agreement and undertaking of the Trust to
satisfy and discharge the Warehouse Liens on the Pre-Funded Mortgage Loans on
the related Pre-Funded Loan Transfer Dates from all or a portion of the balance
of funds in the Pre-Funding Account (exclusive of Pre-Funding Earnings) as
provided herein and in the Indenture, the Depositor shall on any Pre-Funded Loan
Transfer Date sell to the Trust, subject to the Warehouse Liens thereon, without
recourse (except as provided herein), all of the right, title and interest of
the Depositor in and to additional Mortgage Loans ("Pre-Funded Mortgage Loans"),
including the outstanding principal of and interest due on such Pre-Funded
Mortgage Loans, and all other assets included or to be included in the Trust
Property. The amount released from the Pre-Funding Account with respect to a
transfer of Pre-Funded Mortgage Loans shall be one-hundred percent (100%) of the
aggregate Stated Principal Balances as of the related Cut-off Date of the
Pre-Funded Mortgage Loans so transferred. In connection with each sale of
Pre-Funded Mortgage Loans hereunder, the Trust, the Originator, the Contributor,
the Sponsor, the Depositor and the Indenture Trustee shall execute and deliver
an instrument of transfer substantially in the form of Exhibit F hereto (the
"Pre-Funded Mortgage Loan Transfer Agreement").
(b) The obligation of the Trust to accept any Pre-Funded Mortgage Loans,
and of the Indenture Trustee to release funds in respect thereof from the
Pre-Funding Account, pursuant to this Section 2.02 and the Indenture shall be
subject to the satisfaction of each of the following conditions on or prior to
the related Pre-Funded Loan Transfer Date:
(i) the Sponsor shall have provided the Indenture Trustee, the
Rating Agencies and the Insurer with a timely Addition Notice, which shall
include a Mortgage Loan Schedule listing the Pre-Funded Mortgage Loans,
and shall have provided any other information reasonably requested by any
of the foregoing with respect to the Pre-Funded Mortgage Loans;
(ii) the Originator, the Contributor, the Sponsor, the Depositor and
the Indenture Trustee shall have executed and delivered a Pre-Funded
Mortgage Loan Transfer Agreement with respect to the Pre-Funded Mortgage
Loans;
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(iii) the Sponsor shall have deposited in the Collection Account all
collections of (x) principal in respect of the Pre-Funded Mortgage Loans
received after the related Cut-off Date of the Pre-Funded Mortgage Loans
so transferred and (y) interest due on the Pre-Funded Loan Mortgage Loans
after the related Cut-off Date of such Pre-Funded Mortgage Loans;
(iv) the Depositor shall not be insolvent, aware of any pending
insolvency and the transfer of the Pre-Funded Mortgage Loans as
contemplated hereby shall not result in the insolvency of the Depositor;
(v) such addition will not result in a material adverse tax
consequence to the Trust or the Holders of the Notes;
(vi) the Pre-Funding Period shall not have terminated;
(vii) the Sponsor shall have delivered to the Depositor and the
Indenture Trustee an Officer's Certificate confirming the satisfaction of
each condition precedent specified in Section 2.02(d) of the Unaffiliated
Seller's Agreement in relation to such Pre-Funded Mortgage Loans; and
(viii) there shall have been delivered to the Insurer, the Rating
Agencies and the Indenture Trustee, Opinions of Counsel with respect to
the transfer of the Pre-Funded Loan Mortgage Loans substantially in the
form of the Opinions of Counsel delivered to the Insurer and the Indenture
Trustee on the Closing Date (i.e., bankruptcy, corporate and tax
opinions).
(c) The obligation of the Trust to purchase the Pre-Funded Loan Mortgage
Loans on a Pre-Funded Loan Transfer Date is subject to the following
requirements, any of which requirements (except for the requirement stated in
clause (v) of this paragraph) may be waived or modified in any respect by the
Insurer: (i) such Pre-Funded Mortgage Loan may not be 60 or more days
contractually delinquent as of the related Pre-Funded Loan Transfer Date; (ii)
the remaining term to stated maturity of such Pre-Funded Mortgage Loan will not
exceed 30 years for fully amortizing loans or 15 years for "Balloon Loans";
(iii) such Pre-Funded Mortgage Loan will be secured by a Mortgage in a first
lien position; (iv) such Pre-Funded Mortgage Loan will not have a Mortgage Rate
less than 8.0%; (v) such Pre-Funded Mortgage Loan will be otherwise acceptable
to the Depositor, the Trust and the Insurer; (vi) following the purchase of such
Pre-Funded Mortgage Loan by the Trust, the Mortgage Loans (including Pre-Funded
Mortgage Loans) as of the Pre-Funded Loan Transfer Date: (a) will have a
weighted average Mortgage Rate of at least 11.00%; (b) will have a weighted
average remaining term to stated maturity of less than 205 months; (c) will not
have more than 40% by aggregate principal balance "Balloon Loans"; (d) will have
no Mortgage Loan with a principal balance in excess of $600,000; (e) will have a
state concentration not in excess of 20% for any one state; (f) will have not
more than 2% in aggregate principal
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balance of the Mortgage Loans concentrated in any single ZIP code; and (g) will
have no more than 5% Mortgage Loans relating to non-owner occupied properties.
(d) In connection with the transfer and assignment of the Pre-Funded Loan
Mortgage Loans, the Depositor shall satisfy the document delivery requirements
set forth in Section 2.03(a).
Section 2.03. Mortgage Files and Documents.
(a) In connection with each transfer and assignment contemplated by
Sections 2.01 and 2.02 hereof, the Depositor will cause the Sponsor to deliver
to, and deposit with, the Indenture Trustee the following documents or
instruments with respect to each Mortgage Loan (a "Mortgage File") so
transferred and assigned:
(i) the original Mortgage Note, endorsed in the following form: "Pay
to the order of First Union National Bank, as Indenture Trustee for the
registered holders of Emergent Home Equity Loan Asset Backed Notes, Series
1997-4, without recourse," with all prior and intervening endorsements
showing a complete chain of endorsement from the originator to the Person
so endorsing to the Indenture Trustee;
(ii) the original Mortgage with evidence of recording thereon, and
the original recorded power of attorney, if the Mortgage was executed
pursuant to a power of attorney, with evidence of recording thereon or, if
such Mortgage or power of attorney has been submitted for recording but
has not been returned form the applicable public recording office or is
not otherwise available, a copy of such Mortgage or power of attorney, as
the case may be, certified by the Servicer to be a true and complete copy
of the original submitted for recording with the recorded original to be
delivered by the Servicer to the Indenture Trustee promptly after receipt
thereof;
(iii) an original Assignment of the Mortgage executed in the
following form: "First Union National Bank, as Indenture Trustee for the
registered holders of Emergent Home Equity Loan Asset Backed Notes, Series
1997-4";
(iv) the original recorded Assignment or Assignments of the Mortgage
showing a complete chain of assignment from the originator to the Person
assigning the Mortgage to the Indenture Trustee as contemplated by the
immediately preceding clause (iii) or, if any such Assignment has been
submitted for recording but has not been returned from the applicable
public recording office or is not otherwise available, a copy of such
Assignment certified by the Servicer to be a true and complete copy of the
original submitted for recording with the recorded original to be
delivered by the Servicer to the Indenture Trustee promptly after receipt
thereof;
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(v) the original or copies of each assumption, modification, written
assurance or substitution agreement, if any; and
(vi) the original lender's title insurance policy, together with all
endorsements or riders that were issued with or subsequent to the issuance
of such policy, insuring the priority of the Mortgage as a first lien on
the Mortgaged Property represented therein as a fee interest vested in the
Mortgagor, or in the event such original title policy is unavailable, a
written commitment or uniform binder or preliminary report of title issued
by the title insurance or escrow company.
(b) The Depositor shall cause the Sponsor, no later than 30 days following
the Sponsor's receipt of original recording information and in any event within
one year following the Closing Date, to submit or cause to be submitted for
recording, at no expense to the Trust, the Indenture Trustee or the Insurer, in
the appropriate public office for real property records, each Assignment
referred to in Sections 2.03(a)(iii) and (iv) above. In the event that any such
Assignment is lost or returned unrecorded because of a defect therein, the
Depositor shall promptly prepare or cause to be prepared a substitute Assignment
or cure or cause to be cured such defect, as the case may be, and thereafter
cause each such Assignment to be duly recorded.
(c) If any original Mortgage Note referred to in Section 2.03(a)(i) cannot
be located, the obligations of the Depositor to cause the Sponsor to deliver
such documents shall be deemed to be satisfied upon delivery to the Indenture
Trustee of a photocopy of the original of such Mortgage Note, with a Lost Note
Affidavit to follow within one Business Day. If any of the documents referred to
in Section 2.03(a)(ii), (iii) or (iv) above has as of the Closing Date or
Pre-Funded Loan Transfer Date been submitted for recording but either (x) has
not been returned from the applicable public recording office or (y) such public
recording office has retained the original of such document, the obligations of
the Depositor to cause the Sponsor to deliver such documents shall be deemed to
be satisfied upon (1) delivery to the Indenture Trustee of a copy of each such
document certified by the Sponsor in the case of (x) above or the applicable
public recording office in the case of (y) above to be a true and complete copy
of the original that was submitted for recording and (2) if such copy is
certified by the Sponsor, delivery to the Indenture Trustee promptly upon
receipt thereof of either the original or a copy of such document certified by
the applicable public recording office to be a true and complete copy of the
original. Notice shall be provided to the Indenture Trustee, the Insurer and the
Rating Agencies by the Sponsor if delivery pursuant to clause (2) above will be
made more than 180 days after the Closing Date or Pre-Funded Loan Transfer Date,
as the case may be. If the original lender's title insurance policy was not
delivered pursuant to Section 2.03(a)(vi) above, the Depositor shall cause the
Sponsor to deliver to the Indenture Trustee, promptly after receipt thereof, the
original lender's title insurance policy. The Depositor shall cause the Sponsor
to deliver to the Indenture Trustee promptly upon receipt thereof any other
original documents constituting a part of a Mortgage File received with respect
to any Mortgage Loan, including, but not limited to, any original documents
evidencing an assumption or modification of any Mortgage Loan.
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(d) All original documents relating to the Mortgage Loans that are not
delivered to the Indenture Trustee are and shall be held by or on behalf of the
Trust, the Sponsor, the Contributor, the Depositor or the Servicer, as the case
may be, in trust for the benefit of the Indenture Trustee on behalf of the
Noteholders and the Insurer. In the event that any such original document is
required pursuant to the terms of this Section to be a part of a Mortgage File,
such document shall be delivered promptly to the Indenture Trustee. Any such
original document delivered to or held by the Trust, the Depositor, the Sponsor
or the Contributor that is not required pursuant to the terms of this Section to
be a part of a Mortgage File, shall be delivered promptly to the Servicer.
(e) The Depositor herewith delivers to the Indenture Trustee for the
benefit of the Noteholders and the Insurer an executed copy of the Unaffiliated
Seller's Agreement. In addition to the foregoing, the Depositor shall cause the
Insurer to deliver the Policy to the Indenture Trustee for the benefit of the
Noteholders. Section 2.04. Acceptance by Indenture Trustee.
(a) The Indenture Trustee acknowledges receipt of the Policy and, subject
to the provisions of Section 2.03 and subject to the review described in the
next paragraph below and any exceptions noted on the exception report described
in the next paragraph below, the documents referred to in Section 2.03 (other
than such documents described in Section 2.03(a)(v)) above and all other assets
included in the definition of "Trust Property" (to the extent of amounts
deposited into the Collection Account, the Redemption Account and the
Pre-Funding Account) and declares that it holds and will hold such documents and
the other documents delivered and to be delivered to it constituting a Mortgage
File, and that it holds or will hold all such assets and such other assets
included in the definition of "Trust Property" in trust for the exclusive use
and benefit of all present and future Noteholders and the Insurer in accordance
with the provisions of this Agreement and the Indenture.
(b) The Indenture Trustee agrees, for the benefit of the Noteholders and
the Insurer, to review each Mortgage File relating to the Initial Mortgage Loans
and the Additional Mortgage Loans within 30 days after the Closing Date, and to
review each Mortgage File relating to each Pre-Funded Mortgage Loan within 90
days of the Pre-Funded Loan Transfer Date for such Pre-Funded Mortgage Loan, and
to certify in substantially the form attached hereto as Exhibit C-1 that, as to
each Mortgage Loan (other than any Mortgage Loan which has been certified as
having been paid in full or any Mortgage Loan specifically identified in the
exception report annexed thereto as not being covered by such certification),
(i) all documents constituting part of such Mortgage File required to be
delivered to it pursuant to this Agreement are in its possession, (ii) such
documents have been reviewed by it and appear regular on their face and relate
to such Mortgage Loan, (iii) based on its examination and only as to the
foregoing, the information set forth in the Mortgage Loan Schedule that
corresponds to items (1) through (3), (6), (9)(A), (10), (13) and (16) of the
definition of "Mortgage Loan Schedule" accurately reflects information set forth
in the Mortgage File. It is herein acknowledged that, in conducting such review,
the Indenture Trustee is under no duty or obligation (i) to inspect, review or
examine any such documents, instruments,
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certificates or other papers to determine that they are genuine, enforceable, or
appropriate for the represented purpose or that they have actually been recorded
or that they are other than what they purport to be on their face, or (ii) to
determine whether any Mortgage File should include any of the documents
specified in clause (v) of Section 2.03(a).
(c) Prior to the first anniversary date of this Agreement the Indenture
Trustee shall deliver to the Trust, the Depositor, the Servicer and the Insurer
a final certification in the form annexed hereto as Exhibit C-2 evidencing the
completeness of the Mortgage Files, with any applicable exceptions noted
thereon.
(d) If in the process of reviewing the Mortgage Files and making or
preparing, as the case may be, the certifications referred to above, the
Indenture Trustee finds any document or documents constituting a part of a
Mortgage File to be missing or defective in any material respect, at the
conclusion of its review the Indenture Trustee shall so notify the Trust, the
Depositor, the Sponsor, the Servicer and the Insurer. In addition, upon the
discovery by the Trust, the Depositor, the Servicer or the Indenture Trustee of
a breach of any of the representations and warranties made by the Sponsor in the
Unaffiliated Seller's Agreement, by the Contributor in the Contributor/Sponsor
Contribution Agreement or by the Originator in the Originator/Contributor
Contribution Agreement in respect of any Mortgage Loan which materially
adversely affects such Mortgage Loan or the interests of the Noteholders or the
Insurer in such Mortgage Loan, the party discovering such breach shall give
prompt written notice to the other parties and the Insurer.
Section 2.05. Repurchase or Substitution of Mortgage Loans.
(a) Upon discovery or receipt of notice of any materially defective
document in, or that a document is missing from, a Mortgage File or of the
breach by the Sponsor of any representation, warranty or covenant under the
Unaffiliated Seller's Agreement, by the Contributor of any representation,
warranty or covenant under the Contributor/Sponsor Contribution Agreement or by
the Originator of any representation, warranty or covenant under the
Originator/Contributor Contribution Agreement in respect of any Mortgage Loan
which materially adversely affects the value of such Mortgage Loan or the
interest therein of the Noteholders or the Insurer, the party discovering such
defect, missing document or breach shall promptly notify the Trust, the
Originator, the Sponsor, the Contributor, the Servicer, the Depositor and the
Insurer of such defect, missing document or breach and request that the Sponsor,
the Contributor and the Originator deliver such missing document or cure such
defect or breach within 60 days from the date the Sponsor, the Contributor and
the Originator were notified of such missing document, defect or breach, and if
the Sponsor, the Contributor or the Originator does not deliver such missing
document or cure such defect or breach in all material respects during such
period, the Indenture Trustee shall enforce the Sponsor's obligation under the
Unaffiliated Seller's Agreement, the Contributor's obligation under the
Contributor/Sponsor Contribution Agreement and the Originator's obligation under
the Originator/Contributor Contribution Agreement (i) in connection with any
such breach that could not reasonably have been cured within such
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60-day period, if the Sponsor, the Contributor or the Originator shall have
commenced to cure such breach within such 60-day period, to proceed thereafter
diligently and expeditiously to cure the same within the period provided under
the Unaffiliated Seller's Agreement, the Contributor/Sponsor Purchase Agreement
or the Originator/Contributor Contribution Agreement and (ii) in connection with
any such breach (subject to clause (i) above) or in connection with any missing
document defect, to repurchase such Mortgage Loan from the Trust Property at the
Purchase Price within 60 days after the date on which it was notified (subject
to Section 2.05(e)) of such missing document, defect or breach, if and to the
extent that the Sponsor is obligated to do so under the Unaffiliated Seller's
Agreement, the Contributor is obligated to do so under the Contributor/Sponsor
Contribution Agreement and the Originator is obligated to do so under the
Originator/Contributor Contribution Agreement. The Purchase Price for the
repurchased Mortgage Loan shall be deposited in the Collection Account and the
Indenture Trustee, upon receipt of written certification from the Servicer of
such deposit, shall release the related Mortgage File to the Sponsor, the
Contributor or the Originator, as the case may be, and shall execute and deliver
such instruments of transfer or assignment, in each case without recourse, as
the Sponsor, the Contributor or the Originator shall furnish to it and as shall
be necessary to vest in the Sponsor, the Contributor or the Originator, as the
case may be, any Mortgage Loan released pursuant hereto and the Indenture
Trustee shall have no further responsibility with regard to such Mortgage File.
In lieu of repurchasing any such Mortgage Loan as provided above, if so provided
in the Originator/Contributor Contribution Agreement, the Originator may cause
such Mortgage Loan to be removed from the Trust Property (in which case it shall
become a Deleted Mortgage Loan) and substitute one or more Qualified Substitute
Mortgage Loans in the manner and subject to the limitations set forth in Section
2.05(d). It is understood and agreed that the obligation of the Sponsor, the
Contributor and the Originator to cure or to repurchase (or to substitute for)
any Mortgage Loan as to which a document is missing, a material defect in a
constituent document exists or as to which such a breach has occurred and is
continuing shall constitute the sole remedy respecting such omission, defect or
breach available to the Indenture Trustee on behalf of the Noteholders and the
Insurer.
(b) [Reserved]
(c) [Reserved]
(d) As to any Deleted Mortgage Loan for which the Originator substitutes a
Qualified Substitute Mortgage Loan or Loans, such substitution shall be effected
by the Originator delivering to the Indenture Trustee, for such Qualified
Substitute Mortgage Loan or Loans, the Mortgage Note, the Mortgage, the
Assignment to the Indenture Trustee, and such other documents and agreements,
with all necessary endorsements thereon, as are required by Section 2.03,
together with an Officers' Certificate providing that each such Qualified
Substitute Mortgage Loan satisfies the definition thereof and specifying the
Substitution Shortfall Amount (as described below), if any, in connection with
such substitution. The Indenture Trustee shall acknowledge receipt for such
Qualified Substitute Mortgage Loan or Loans and, within ten Business Days
thereafter, review such documents as specified in Section 2.04 and
8
deliver to the Depositor, the Servicer and the Insurer, with respect to such
Qualified Substitute Mortgage Loan or Loans, a certification substantially in
the form attached hereto as Exhibit C-1, with any applicable exceptions noted
thereon. Within one year of the date of substitution, the Indenture Trustee
shall deliver to the Depositor, the Servicer and the Insurer a certification
substantially in form of Exhibit C-2 hereto with respect to such Qualified
Substitute Mortgage Loan or Loans, with any applicable exceptions noted there.
Monthly Payments due with respect to Qualified Substitute Mortgage Loans in the
month of substitution are part of the Trust and will be retained by the Trust.
For the month of substitution, payments and distributions hereunder and under
the Indenture will reflect the collections and recoveries in respect of such
Deleted Mortgage Loan in the Collection Period preceding the month of
substitution and the Originator shall thereafter be entitled to retain all
amounts from the terms of this Agreement and the substitution of the Qualified
Substitute Mortgage Loan and shall thereafter be entitled all amounts
subsequently received in respect of such Deleted Mortgage Loan. The Servicer
shall amend the Mortgage Loan Schedule to reflect the removal of such Deleted
Mortgage Loan form the terms of this Agreement and the substitution of the
Qualified Substitute Mortgage Loan or Loans and shall deliver a copy of such
amended Mortgage Loan Schedule to the Indenture Trustee. Upon such substitution,
such Qualified Substitute Mortgage Loan or Loans shall constitute part of the
Mortgage Pool and shall be subject in all respects to the terms of this
Agreement and, in the case of a substitution effected by the Originator, the
Originator/Contributor Contribution Agreement, including, in the case of a
substitution effected by the Originator all applicable representations and
warranties thereof included in the Originator/Contributor Contribution Agreement
as of the date of substitution.
For any month in which the Originator substitutes one or more Qualified
Substitute Mortgage Loans for one or more Deleted Mortgage Loans, the Servicer
will determine the amount (the "Substitution Shortfall Amount"), if any, by
which the aggregate Purchase Price of all such Deleted Mortgage Loans exceeds
the aggregate, as to each such Qualified Substitute Mortgage Loan, of the Stated
Principal Balance thereof as of the related Cut-off Date, together with one
month's interest on such principal balance at the applicable Net Mortgage Rate.
On the date of such substitution, the Originator will deliver or cause to be
delivered to the Servicer for deposit in the Collection Account an amount equal
to the Substitution Shortfall Amount, if any, and the Indenture Trustee, upon
receipt of the related Qualified Substitute Mortgage Loan or Loans and
certification by the Servicer of such deposit, shall release to the Originator
the related Mortgage File or Files and shall execute and deliver such
instruments of transfer or assignment, in each case without recourse, as the
Originator shall deliver to it and as shall be necessary to vest therein any
Deleted Mortgage Loan released pursuant hereto.
(e) The Servicer shall monitor the Mortgage Loans to insure that each such
Mortgage Loan constitutes a "Real Estate Asset" within the meaning of Section
856(c)(b)(B) of the Code as required to permit the Issuer to maintain its status
as a REIT. Upon discovery by the Trust, the Depositor, the Originator, the
Contributor, the Sponsor, the Servicer, the Indenture Trustee or the Insurer
that any Mortgage Loan does not constitute a "Real Estate Asset" within the
meaning of Section 856(c)(6)(B) of
9
the Code, the party discovering such fact shall within two Business Days give
written notice thereof to the other such parties and the Insurer. In connection
therewith, the Originator, the Contributor and the Sponsor shall be obligated to
repurchase or, subject to the limitations set forth in Section 2.05(d),
substitute one or more Qualified Substitute Mortgage Loans for the affected
Mortgage Loan within 90 days of the earlier of discovery or receipt of such
notice with respect to such affected Mortgage Loan. Any such repurchase or
substitution shall be made in the same manner as set forth in Section 2.05(a).
The Indenture Trustee shall reconvey to the Sponsor, the Contributor or the
Originator, as the case may be, the Mortgage Loan to be released pursuant hereto
in the same manner, and on the same terms and conditions, as it would a Mortgage
Loan repurchased for breach of a representation or warranty.
Section 2.06. Representations and Warranties of the Depositor.
(a) The Depositor hereby represents and warrants to the Trust and the
Indenture Trustee for the benefit of the Noteholders and the Insurer that as of
the Closing Date the assignment of the Depositor's rights, but none of its
obligations, under the Unaffiliated Seller's Agreement is valid, enforceable and
effective to permit the Indenture Trustee to enforce the obligations of the
Sponsor thereunder.
(b) It is understood and agreed that the representations and warranties
set forth in this Section 2.06 shall survive delivery of the Mortgage Files to
the Indenture Trustee and shall inure to the benefit of the Trust, the
Noteholders and the Insurer notwithstanding any restrictive or qualified
endorsement or assignment. Upon discovery by any of the Trust, the Depositor,
the Servicer or the Indenture Trustee of a breach of any of such representations
and warranties which materially and adversely affects the value of any Mortgage
Loan or the interests therein of the Noteholders and the Insurer, the party
discovering such breach shall give prompt written notice to the other parties
hereto, the Sponsor, the Contributor and the Insurer and in no event later than
two Business Days from the date of such discovery.
(c) The Depositor is duly organized, validly existing and in good standing
as a corporation under the laws of the state of its incorporation.
(d) The Depositor has the full power and authority to conduct its business
as presently conducted by it and to execute, deliver and perform, and to enter
into and consummate, all transactions contemplated by this Agreement. The
Depositor has duly authorized the execution, delivery and performance of this
Agreement, has duly executed and delivered this Agreement, and this Agreement,
assuming due authorization, execution and delivery hereof by the Trust, the
Servicer and the Indenture Trustee, constitutes a legal, valid and binding
obligation of the Depositor, enforceable against it in accordance with its terms
except as the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity.
(e) The execution and delivery of this Agreement by the Depositor and the
performance of and compliance with the terms of this Agreement will not (a)
violate
10
the Depositor's charter or by-laws or any law, rule, regulation, order,
judgment, award, administrative interpretation, injunction, writ, decree or the
like affecting the Depositor or by which the Depositor is bound or (b) result in
a breach of or constitute a default under any indenture or other material
agreement to which the Depositor is a party or by which the Depositor is bound,
which in the case of either clause (a) or (b) will have a material adverse
effect on the Depositor's ability to perform its obligations under this
Agreement.
(f) There are no actions or proceedings against, investigations known to
it of, the Depositor before any court, administrative or other tribunal (A) that
might prohibit its entering into this Agreement, (B) seeking to prevent the
consummation of the transactions contemplated by this Agreement or (C) that
might prohibit or materially and adversely affect the performance by the
Depositor of its obligations under, or validity or enforceability of, this
Agreement.
(g) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Depositor of, or compliance by the Depositor with, this
Agreement or the consummation of the transactions contemplated by this
Agreement, except for such consents, approvals, authorizations or orders, if
any, that have been obtained prior to the Closing Date.
Section 2.07. Representations, Warranties and Covenants of the Servicer.
The Servicer hereby represents, warrants and covenants to the Indenture
Trustee, for the benefit of each of the Indenture Trustee, the Noteholders, the
Insurer and to the Depositor that as of the Closing Date or as of such date
specifically provided herein:
(i) The Servicer is duly organized, validly existing and in good
standing as a corporation under the laws of the state of its incorporation
and is and will remain duly licensed under and in compliance with the laws
of each state in which any Mortgaged Property is located to the extent
necessary to ensure the enforceability of each Mortgage Loan and the
servicing of the Mortgage Loan in accordance with the terms of this
Agreement;
(ii) The Servicer has the full power and authority to conduct its
business as presently conducted by it and to execute, deliver and perform,
and to enter into and consummate, all transactions contemplated by this
Agreement. The Servicer has duly authorized the execution, delivery and
performance of this Agreement, has duly executed and delivered this
Agreement, and this Agreement, assuming due authorization, execution and
delivery hereof by the Trust, the Depositor and the Indenture Trustee,
constitutes a legal, valid and binding obligation of the Servicer,
enforceable against it in accordance
11
with its terms except as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting the
enforcement of creditors' rights generally and by general principles of
equity;
(iii) The execution and delivery of this Agreement by the Servicer
and the performance of and compliance with the terms of this Agreement
will not (a) violate the Servicer's charter or by-laws or any law, rule,
regulation, order, judgment, award, administrative interpretation,
injunction, writ, decree or the like affecting the Servicer or by which
the Servicer is bound or (b) result in a breach of or constitute a default
under any indenture or other material agreement to which the Servicer is a
party or by which the Servicer is bound, which in the case of either
clause (a) or (b) will have a material adverse effect on the Servicer's
ability to perform its obligations under this Agreement;
(iv) [reserved];
(v) The Servicer does not believe, nor does it have any reason or
cause to believe, that it cannot perform each and every covenant of it
contained in this Agreement;
(vi) With respect to each Mortgage Loan, the Servicer will deliver
possession of a complete Mortgage File, except for such documents as have
been delivered to the Indenture Trustee;
(vii) There are no actions or proceedings against, investigations
known to it of, the Servicer before any court, administrative or other
tribunal (A) that might prohibit its entering into this Agreement, (B)
seeking to prevent the consummation of the transactions contemplated by
this Agreement or (C) that might prohibit or materially and adversely
affect the performance by the Servicer of its obligations under, or
validity or enforceability of, this Agreement; and
(viii) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Servicer of, or compliance by the Servicer with, this
Agreement or the consummation of the transactions contemplated by this
Agreement, except for such consents, approvals, authorizations or orders,
if any, that have been obtained prior to the Closing Date.
It is understood and agreed that the representations, warranties and
covenants set forth in this Section 2.07 shall survive delivery of the Mortgage
Files to the Indenture Trustee and shall inure to the benefit of the Trust, the
Indenture Trustee, the Depositor, the Noteholders and the Insurer. Upon
discovery by any of the Trust, the Depositor, the Servicer or the Indenture
Trustee of a breach of any of the foregoing representations, warranties and
covenants which materially and adversely affects the
12
value of any Mortgage Loan or the interests therein of the Noteholders and the
Insurer, the party discovering such breach shall give prompt written notice (but
in no event later than two Business Days following such discovery) to the
parties hereto, the Sponsor, the Contributor and the Insurer.
Section 2.08. Representations and Warranties of the Trust.
(a) It is understood and agreed that the representations and warranties
set forth in this Section 2.08 shall survive delivery of the Mortgage Files to
the Indenture Trustee and shall inure to the benefit of the Noteholders and the
Insurer notwithstanding any restrictive or qualified endorsement or assignment.
Upon discovery by any of the Depositor, the Servicer or the Indenture Trustee of
a breach of any of such representations and warranties which materially and
adversely affects the value of any Mortgage Loan or the interests therein of the
Noteholders and the Insurer, the party discovering such breach shall give prompt
written notice to the other parties hereto, the Sponsor, the Contributor and the
Insurer and in no event later than two Business Days from the date of such
discovery.
(b) The Trust is duly organized, validly existing and in good standing as
a Delaware Business Trust under the laws of the State of Delaware.
(c) The Trust has the full power and authority to conduct its business as
presently conducted by it and to execute, deliver and perform, and to enter into
and consummate, all transactions contemplated by this Agreement. The Trust has
duly authorized the execution, delivery and performance of this Agreement, has
duly executed and delivered this Agreement, and this Agreement, assuming due
authorization, execution and delivery hereof by the Depositor, the Servicer and
the Indenture Trustee, constitutes a legal, valid and binding obligation of the
Trust, enforceable against it in accordance with its terms except as the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization
or similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity.
(d) The execution and delivery of this Agreement by the Trust and the
performance of and compliance with the terms of this Agreement will not (a)
violate the Certificate of Trust, Trust Agreement or other constituent documents
of the Trust or any law, rule, regulation, order, judgment, award,
administrative interpretation, injunction, writ, decree or the like affecting
the Trust or by which the Trust is bound or (b) result in a breach of or
constitute a default under any indenture or other material agreement to which
the Trust is a party or by which the Trust is bound, which in the case of either
clause (a) or (b) will have a material adverse effect on the Trust's ability to
perform its obligations under this Agreement.
(e) There are no actions or proceedings against, investigations known to
it of, the Trust before any court, administrative or other tribunal (A) that
might prohibit its entering into this Agreement, (B) seeking to prevent the
consummation of the transactions contemplated by this Agreement or (C) that
might prohibit or materially
13
and adversely affect the performance by the Trust of its obligations under, or
validity or enforceability of, this Agreement.
(f) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Trust of, or compliance by the Trust with, this Agreement or
the consummation of the transactions contemplated by this Agreement, except for
such consents, approvals, authorizations or orders, if any, that have been
obtained prior to the Closing Date.
Section 2.09. Issuance of Securities
(a) The Trust acknowledges the assignment to it of the Mortgage Loans and
the delivery to it of the Mortgage Files, subject to the provisions of Sections
2.02, 2.03 and 2.04, together with the assignment to it of all other assets
included in the Trust Property, receipt of which is hereby acknowledged.
Concurrently with such assignment and delivery, the Trust and Indenture Trustee,
pursuant to the written request of the Trust, are executing, authenticating and
delivering the Notes to or upon the order of the Trust, in accordance with the
terms of the Indenture.
(b) In consideration of the conveyance to it by the Depositor of the
Initial Mortgage Loans and the Additional Mortgage Loans and the Pre-Funded
Mortgage Loans as contemplated in Sections 2.01 and 2.02, subject to the
provisions of sections 2.02, 2.03 and 2.04, the Owner Trustee is executing,
authenticating and delivering on behalf of the Trust the Certificates issuable
pursuant to Section 4.2 of the Trust Agreement to or upon the written order of
the Depositor.
Section 2.10. Satisfaction and Discharge of Warehouse Liens.
(a) The Trust agrees to satisfy and discharge, effective on the Closing
Date, all Warehouse Liens with respect to the Initial and Additional Mortgage
Loans.
(b) On each Pre-Funded Loan Transfer Date, the Trust shall satisfy all
Warehouse Liens with respect to the related Pre-Funded Mortgage Loans.
ARTICLE III
ADMINISTRATION AND SERVICING
OF THE TRUST PROPERTY
Section 3.01. Servicer to Act as Servicer.
The Servicer shall service and administer the Mortgage Loans on behalf of
the Indenture Trustee and in the best interests of and for the benefit of the
Noteholders and the Insurer (as determined by the Servicer in its reasonable
judgment) in accordance with the terms of this Agreement and the respective
Mortgage Loans and, to the extent consistent with such terms, in the same manner
in which it services and
14
administers similar mortgage loans for its own portfolio, giving due
consideration to customary and usual standards of practice of prudent mortgage
lenders and loan servicers administering similar mortgage loans but without
regard to:
(i) any relationship that the Servicer, any Sub-Servicer or any
Affiliate of the Servicer or any Sub-Servicer may have with the related
Mortgagor;
(ii) the ownership of any Security by the Servicer or any Affiliate
of the Servicer;
(iii) the Servicer's obligation to make Monthly Advances or
Servicing Advances; or
(iv) the Servicer's or any Sub-Servicer's right to receive
compensation for its services hereunder or with respect to any particular
transaction.
To the extent consistent with the foregoing, the Servicer shall also seek to
maximize the timely and complete recovery of principal and interest on the
Mortgage Notes. Subject only to the above-described servicing standards and the
terms of this Agreement and of the respective Mortgage Loans, the Servicer shall
have full power and authority, acting alone or through Sub-Servicers as provided
in Section 3.02, to do or cause to be done any and all things in connection with
such servicing and administration which it may deem necessary or desirable.
Without limiting the generality of the foregoing, the Servicer in its own name
or in the name of a Sub-Servicer is hereby authorized and empowered when the
Servicer believes it reasonably necessary in its best judgment in order to
comply with its servicing duties hereunder, to execute and deliver, on behalf of
the Indenture Trustee and the Noteholders or any of them, and upon notice to the
Indenture Trustee, any and all instruments of satisfaction or cancellation, or
of partial or full release or discharge, and all other comparable instruments,
with respect to the Mortgage Loans and the Mortgaged Properties and to institute
foreclosure proceedings or obtain a deed-in-lieu of foreclosure so as to convert
the ownership of such properties, and to hold or cause to be held title to such
properties, on behalf of the Indenture Trustee, the Noteholders and the Insurer.
The Servicer shall service and administer the Mortgage Loans in accordance with
applicable state and federal law and shall provide to the Mortgagors any reports
required to be provided to them thereby. The Servicer shall also comply in the
performance of this Agreement with all reasonable rules and requirements of each
insurer under any standard hazard insurance policy. Subject to Section 3.19, the
Indenture Trustee shall execute, at the written request of the Servicer, and
furnish the Servicer and any Sub-Servicer any special or limited powers of
attorney and other documents necessary or appropriate to enable the Servicer or
any Sub-Servicer to carry out their servicing and administrative duties
hereunder and the Indenture Trustee shall not be liable for the actions of the
Servicer or any Sub-Servicers under such powers of attorney.
15
In accordance with the standards of the preceding paragraph, the Servicer
shall advance or cause to be advanced funds as necessary for the purpose of
effecting the timely payment of taxes and assessments on the Mortgaged
Properties, which advances shall be reimbursable in the first instance from
related collections from the Mortgagors pursuant to Section 3.09, and further as
provided in Section 3.11. Any cost incurred by the Servicer or by Sub-Servicers
in effecting the timely payment of taxes and assessments on a Mortgaged Property
shall not, for the purpose of calculating the Stated Principal Balance of a
Mortgage Loan or payments to Noteholders, be added to the unpaid principal
balance of the related Mortgage Loan, notwithstanding that the terms of such
Mortgage Loan so permit.
Notwithstanding anything in this Agreement to the contrary, the Servicer
shall carry out its duties and perform its obligations, and will take all
actions permitted hereunder, and refrain from taking actions, in each case in a
manner that will permit the Trust to qualify as a REIT. Without limiting the
foregoing, the Servicer may not make any future advances with respect to a
Mortgage Loan and the Servicer shall not permit any modification with respect to
any Mortgage Loan that would change the Mortgage Rate, reduce or increase the
principal balance (except for reductions resulting from actual payments of
principal) or change the final maturity date on such Mortgage Loan or any
modification, waiver or amendment of any term of any Mortgage Loan that would
both (A) effect an exchange or reissuance of such Mortgage Loan under Section
1001 of the Code (or final, temporary or proposed Treasury regulations
promulgated thereunder) and (B) cause the Trust to fail to qualify as a REIT
under the Code or the imposition of any tax on "prohibited transactions" under
the REIT Provisions.
The Servicer may delegate its responsibilities under this Agreement;
provided, however, that no such delegation shall release the Servicer from the
responsibilities or liabilities arising under this Agreement.
Section 3.02. Sub-Servicing Agreements Between Servicer and Sub-Servicers.
(a) The Servicer may enter into Sub-Servicing Agreements (provided that
the Servicer shall have obtained the consent of the Insurer and provided such
agreements would not result in a withdrawal or a downgrading by any Rating
Agency of the rating or any shadow rating on any Class of Notes) with
Sub-Servicers, for the servicing and administration of the Mortgage Loans. Each
Sub-Servicer shall be (i) authorized to transact business in the state or states
where the related Mortgaged Properties it is to service are situated, if and to
the extent required by applicable law to enable the Sub-Servicer to perform its
obligations hereunder and under the Sub-Servicing Agreement, (ii) an institution
approved as a mortgage loan originator by the Federal Housing Administration or
an institution the deposit accounts in which are insured by the FDIC, and (iii)
a FHLMC or FNMA approved mortgage servicer. Each Sub-Servicing Agreement must
impose on the Sub-Servicer requirements conforming to the provisions set forth
in Section 3.08 and provide for servicing of the Mortgage Loans consistent with
the terms of this Agreement. The Servicer will examine each Sub-Servicing
Agreement and will be familiar with the terms thereof. The terms of any
16
Sub-Servicing Agreement will not be inconsistent with any of the provisions of
this Agreement. The Servicer and the Sub-Servicers may enter into and make
amendments to the Sub-Servicing Agreements or enter into different forms of
Sub-Servicing Agreements; provided, however, that any such amendments or
different forms shall be consistent with and not violate the provisions of this
Agreement, and that no such amendment or different form shall be made or entered
into which could be reasonably expected to be materially adverse to the
interests of the Noteholders, without the consent of the Insurer. Any variation
without the consent of the Insurer from the provisions set forth in Section 3.08
relating to insurance or priority requirements of Sub-Servicing Accounts, or
credits and charges to the Sub-Servicing Accounts or the timing and amount of
remittances by the Sub-Servicers to the Servicer, are conclusively deemed to be
inconsistent with this Agreement and therefore prohibited. The Servicer shall
deliver to the Indenture Trustee and the Insurer copies of all Sub-Servicing
Agreements, and any amendments or modifications thereof, promptly upon the
Servicer's execution and delivery of such instruments.
(b) As part of its servicing activities hereunder, the Servicer, for the
benefit of the Indenture Trustee, the Noteholders and the Insurer, shall enforce
the obligations of each Sub-Servicer under the related Sub-Servicing Agreement,
of the Sponsor under the Unaffiliated Seller's Agreement, of the Contributor
under the Contributor/Sponsor Contribution Agreement and of the Originator under
the Originator/Contributor Contribution Agreement, including, without
limitation, any obligation to make advances in respect of delinquent payments as
required by a Sub-Servicing Agreement, or to purchase a Mortgage Loan on account
of missing or defective documentation or on account of a breach of a
representation, warranty or covenant, as described in Section 2.05(a). Such
enforcement, including, without limitation, the legal prosecution of claims,
termination of Sub-Servicing Agreements, and the pursuit of other appropriate
remedies, shall be in such form and carried out to such an extent and at such
time as the Servicer, in its good faith business judgment, would require were it
the owner of the related Mortgage Loans. The Servicer shall pay the costs of
such enforcement at its own expense, and shall be reimbursed therefor only (i)
from a general recovery resulting from such enforcement, to the extent, if any,
that such recovery exceeds all amounts due in respect of the related Mortgage
Loans, or (ii) from a specific recovery of costs, expenses or attorneys' fees
against the party against whom such enforcement is directed. Enforcement of the
Unaffiliated Seller's Agreement against the Sponsor or the Contributor/Sponsor
Contribution Agreement against the Contributor shall be effected by the Servicer
and the Originator in accordance with the foregoing provisions of this
paragraph. Enforcement of the Originator/Contributor Contribution Agreement
against the Originator shall be effected by the Indenture Trustee in accordance
with the provisions of this paragraph.
Section 3.03. Successor Sub-Servicers.
The Servicer shall be entitled to terminate any Sub-Servicing Agreement
and the rights and obligations of any Sub-Servicer pursuant to any Sub-Servicing
Agreement in accordance with the terms and conditions of such Sub-Servicing
Agreement but only with the prior consent of the Insurer. In the event of
termination of
17
any Sub-Servicer, all servicing obligations of such Sub-Servicer shall be
assumed simultaneously by the Servicer without any act or deed on the part of
such Sub-Servicer or the Servicer, and the Servicer either shall service
directly the related Mortgage Loans or shall enter into a Sub-Servicing
Agreement with a successor Sub-Servicer which qualifies under Section 3.02.
Any Sub-Servicing Agreement shall include the provision that (i) such
agreement may be immediately terminated by the Indenture Trustee without fee, in
accordance with the terms of this Agreement, in the event that the Servicer
shall, for any reason, no longer be the Servicer (including termination due to a
Servicer Event of Default) or (ii) clearly and unambiguously states that any
termination fee is the sole responsibility of the Servicer and none of the
Trust, the Indenture Trustee, the Securityholders or the Insurer, has any
liability therefor, regardless of the circumstances surrounding such
termination.
Section 3.04. Liability of the Servicer.
Notwithstanding any Sub-Servicing Agreement, any of the provisions of this
Agreement relating to agreements or arrangements between the Servicer and a
Sub-Servicer or reference to actions taken through a Sub-Servicer or otherwise,
the Servicer shall remain obligated and primarily liable to the Indenture
Trustee, the Noteholders and the Insurer for the servicing and administering of
the Mortgage Loans in accordance with the provisions of Section 3.01 without
diminution of such obligation or liability by virtue of such Sub-Servicing
Agreements or arrangements or by virtue of indemnification from the Sub-Servicer
and to the same extent and under the same terms and conditions as if the
Servicer alone were servicing and administering the Mortgage Loans. The Servicer
shall be entitled to enter into any agreement with a Sub-Servicer for
indemnification of the Servicer by such Sub-Servicer and nothing contained in
this Agreement shall be deemed to limit or modify such indemnification.
Section 3.05. No Contractual Relationship between Sub-Servicers and Trust,
Indenture Trustee, Noteholders or Insurer.
Any Sub-Servicing Agreement that may be entered into and any transactions
or services relating to the Mortgage Loans involving a Sub-Servicer in its
capacity as such shall be deemed to be between the Sub-Servicer and the Servicer
alone, and none of the Trust, the Indenture Trustee, the Securityholders or the
Insurer shall be deemed to be a party thereto or to have any claims, rights,
obligations, duties or liabilities with respect to the Sub-Servicer except as
set forth in Section 3.06. The Servicer shall be solely liable for all fees owed
by it to any Sub-Servicer, irrespective of whether the Servicer's compensation
pursuant to this Agreement is sufficient pay such fees.
18
Section 3.06. Assumption or Termination of Sub-Servicing Agreements by
Indenture Trustee.
In the event the original Servicer shall for any reason no longer be the
servicer (including by reason of the occurrence of a Servicer Event of Default),
the Indenture Trustee or its designee shall thereupon assume all of the rights
and obligations of the Servicer under each Sub-Servicing Agreement that the
Servicer may have entered into, unless the Indenture Trustee (at the direction
of the Insurer) elects to terminate any Sub-Servicing Agreement in accordance
with its terms as provided in Section 3.03. Upon such assumption, the Indenture
Trustee, its designee or the successor servicer for the Indenture Trustee
appointed pursuant to Section 7.02 shall be deemed, subject to Section 3.03, to
have assumed all of the Servicer's interest therein and to have replaced the
Servicer as a party to each Sub-Servicing Agreement to the same extent as if
each Sub-Servicing Agreement had been assigned to the assuming party, except
that the Servicer shall not thereby be relieved of any liability or obligations
under any Sub-Servicing Agreement.
The Servicer at its expense shall, upon request of the Indenture Trustee,
deliver to the assuming party all documents and records relating to each
Sub-Servicing Agreement and the Mortgage Loans then being serviced and an
accounting of amounts collected and held by or on behalf of it, and otherwise
use its best efforts to effect the orderly and efficient transfer of the
Sub-Servicing Agreements to the assuming party.
Section 3.07. Collection of Certain Mortgage Loan Payments.
The Servicer shall make reasonable efforts to collect all payments called
for under the terms and provisions of the Mortgage Loans, and shall, to the
extent such procedures shall be consistent with this Agreement, follow such
collection procedures as it would follow with respect to mortgage loans
comparable to the Mortgage Loans and held for its own account. Consistent with
the foregoing, the Servicer may in its discretion (i) waive any late payment
charge or, if applicable, penalty interest, (ii) extend the due dates for the
Monthly Payments due on a Mortgage Note for a period of not greater than 90
days, or (iii) if the Servicer provides prior written notice to the Insurer to
which the Insurer does not object within two Business Days, extend the due dates
for Monthly Payments due on a Mortgage Loan for a period of not greater than 180
days; provided, that any extension pursuant to clause (ii) or clause (iii) above
shall not affect the amortization schedule of any Mortgage Loan for purposes of
any computation hereunder, and provided further, that no more than two such
extensions shall be granted with respect to any single Mortgage Loan.
Section 3.08. Sub-Servicing Accounts.
In those cases where a Sub-Servicer is servicing a Mortgage Loan pursuant
to a Sub-Servicing Agreement, the Sub-Servicer will be required to establish and
maintain one or more accounts (collectively, the "Sub-Servicing Account"). The
Sub-Servicing Account shall be an Eligible Account and shall comply with all
requirements of this Agreement relating to the Collection Account. The
Sub-Servicer
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will be required to deposit into the Sub-Servicing Account no later than the
first Business Day after receipt all proceeds of Mortgage Loans received by the
Sub-Servicer, less its servicing compensation to the extent permitted by the
Sub-Servicing Agreement and to remit such proceeds to the Servicer for deposit
in the Collection Account not later than the first Business Day thereafter. For
purposes of this Agreement, the Servicer shall be deemed to have received
payments on the Mortgage Loans when the Sub-Servicer receives such payments.
Section 3.09. Collection of Taxes, Assessments and Similar Items;
Servicing Accounts.
The Servicer shall establish and maintain one or more accounts (the
"Servicing Accounts"), into which all collections from the Mortgagors (or
related advances from Sub-Servicers) for the payment of taxes, assessments,
hazard insurance premiums, and comparable items for the account of the
Mortgagors ("Escrow Payments") shall be deposited and retained. Servicing
Accounts shall be Eligible Accounts. The Servicer shall deposit in the clearing
account in which it customarily deposits payments and collections on mortgage
loans in connection with its mortgage loan servicing activities on a daily
basis, and in no event more than one Business Day after the Servicer's receipt
thereof, all Escrow Payments collected on account of the Mortgage Loans and
shall thereafter deposit such Escrow Payments in the Servicing Account, in no
event more than one Business Day after the deposit of such Escrow Payments, for
the purpose of effecting the timely payment of any such items as required under
the terms of this Agreement. Withdrawals of amounts from a Servicing Account may
be made only to (i) effect timely payment of taxes, assessments, hazard
insurance premiums, and comparable items; (ii) reimburse the Servicer (or a
Sub-Servicer to the extent provided in the related Sub-Servicing Agreement) out
of related collections for any advances made pursuant to Section 3.01 (with
respect to taxes and assessments) and Section 3.16 (with respect to hazard
insurance); (iii) refund to Mortgagors any sums as may be determined to be
overages; (iv) pay interest, if required and as described below, to Mortgagors
on balances in the Servicing Account or, if not required to be paid to
Mortgagors, to the Servicer; or (v) clear and terminate the Servicing Account at
the termination of the Servicer's obligations and responsibilities in respect of
the Mortgage Loans under this Agreement in accordance with Article X. As part of
its servicing duties, the Servicer or Sub-Servicers shall pay to the Mortgagors
interest on funds in Servicing Accounts, to the extent required by law and, to
the extent that interest earned on funds in the Servicing Accounts is
insufficient, to pay such interest from its or their own funds, without any
reimbursement therefor. Notwithstanding the foregoing, neither the Servicer nor
any Sub-Servicer shall be obligated to collect Escrow Payments if the related
Mortgage Loan does not require such payments but the Servicer and each
Sub-Servicer shall nevertheless be obligated to make Servicing Advances as
provided in Section 3.01.
Section 3.10. Collection Accounts.
(a) On behalf of the Indenture Trustee, the Servicer shall establish and
maintain one or more accounts (such account or accounts, the "Collection
Account"),
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held in trust for the benefit of the Indenture Trustee, the
Noteholders and the Insurer. On behalf of the Indenture Trustee, the Servicer
shall deposit or cause to be deposited in the clearing account in which it
customarily deposits payments and collections on mortgage loans in connection
with its mortgage loan servicing activities on a daily basis, and in no event
more than one Business Day after the Servicer's receipt thereof, and shall
thereafter deposit in the Collection Account, in no event more than one Business
Day after the deposit of such payments into such clearing account, the following
payments and collections received or made by it on or subsequent to the Cut-off
Date:
(i) all payments on account of principal, including Principal
Prepayments, on the Mortgage Loans;
(ii) all payments on account of interest (net of the related
Servicing Fee) on each Mortgage Loan;
(iii) all Insurance Proceeds and Liquidation Proceeds (other than
proceeds collected in respect of any particular REO Property and amounts
paid by the Servicer in connection with a purchase of Mortgage Loans and
REO Properties pursuant to Section 10.01);
(iv) any amounts required to be deposited pursuant to Section 3.14
in connection with any losses realized on Permitted Investments with
respect to funds held in the Collection Account;
(v) any amounts required to be deposited by the Servicer pursuant to
the second paragraph of Section 3.16(a) in respect of any blanket policy
deductibles; and
(vi) any Purchase Price or Substitution Shortfall Amount delivered
to the Servicer.
For purposes of the immediately preceding sentence, the Cut-off Date with
respect to any Qualified Substitute Mortgage Loan shall be deemed to be the date
of substitution.
The foregoing requirements for deposit in the Collection Accounts shall be
exclusive, it being understood and agreed that, without limiting the generality
of the foregoing, payments in the nature of prepayment or late payment charges
or assumption fees need not be deposited by the Servicer in the Collection
Account. In the event the Servicer shall deposit in the Collection Account any
amount not required to be deposited therein, it may at any time withdraw such
amount from the Collection Account, any provision herein to the contrary
notwithstanding.
(b) The Indenture Trustee shall establish and maintain the Distribution
Account in accordance with the provisions of Section 8.7 of the Indenture. The
Servicer shall deliver to the Indenture Trustee in immediately available funds
for deposit in the Distribution Account on or before 3:00 p.m. New York time (i)
on the Servicer Remittance Date, that portion of the Available Distribution
Amount for the
21
related Payment Date then on deposit in the Collection Account, and (ii) on each
Business Day as of the commencement of which the balance on deposit in the
Collection Account exceeds $75,000 following any withdrawals pursuant to the
next succeeding sentence, the amount of such excess, but only if the Collection
Account constitutes an Eligible Account solely pursuant to clause (ii) of the
definition of "Eligible Account." If the balance on deposit in the Collection
Account exceeds $75,000 as of the commencement of business on any Business Day
and the Collection Account constitutes an Eligible Account solely pursuant to
clause (ii) of the definition of "Eligible Account," the Servicer shall, on or
before 3:00 p.m. New York time on such Business Day, withdraw from the
Collection Account any and all amounts payable or reimbursable to the Depositor,
the Servicer, the Indenture Trustee, the Sponsor, the Contributor or any
Sub-Servicer pursuant to Section 3.11 and shall pay such amounts to the Persons
entitled thereto.
(c) Funds in the Collection Account may be invested in Permitted
Investments in accordance with the provisions set forth in Section 3.12. The
Servicer shall give notice to the Indenture Trustee and the Insurer of the
location of the Collection Account maintained by it when established and prior
to any change thereof. The Indenture Trustee shall give notice to the Servicer,
the Trust, the Depositor and the Insurer of the location of the Distribution
Account when established and prior to any change thereof.
(d) Funds held in the Collection Account at any time may be delivered by
the Servicer to the Indenture Trustee for deposit in the Distribution Account.
In the event the Servicer shall deliver to the Indenture Trustee for deposit in
the Distribution Account any amount not required to be deposited therein, it may
at any time request that the Indenture Trustee withdraw such amount from the
Distribution Account and remit to it any such amount, any provision herein to
the contrary notwithstanding. In addition, the Servicer shall deliver to the
Indenture Trustee from time to time for deposit the amounts set forth in clauses
(i) through (v) below, and the Indenture Trustee shall deposit such amounts in
the Distribution Account:
(i) any Monthly Advances, as required pursuant to Section 4.03;
(ii) any amounts required to be deposited pursuant to Section
3.25(d) or (f) in connection with any REO Property;
(iii) any amounts to be paid in connection with a purchase of
Mortgage Loans and REO Properties pursuant to Section 10.01;
(iv) any amounts required to be deposited pursuant to Section 3.26
in connection with any Prepayment Interest Shortfalls; and
(v) any Stayed Funds, as soon as permitted by the federal bankruptcy
court having jurisdiction in such matters.
(e) Promptly upon receipt of any Stayed Funds, whether from the Servicer,
a trustee in bankruptcy, or federal bankruptcy court or other source, the
22
Indenture Trustee shall deposit such funds in the Distribution Account, subject
to withdrawal thereof pursuant to Section 7.02(b) or as otherwise permitted
hereunder. In addition, the Servicer shall deposit in the Distribution Account
any amounts required to be deposited pursuant to Section 3.14 in connection with
losses realized on Permitted Investments with respect to funds held in the
Distribution Account.
(f) Notwithstanding any contrary provision of this Agreement (including
the provisions of this Section 3.10), (i) the Servicer shall be deemed to be in
compliance with the provisions of this Section 3.10 if amounts in any clearing
account referred to in Section 3.10(a) which the Servicer would otherwise be
required by this Section 3.10 to deposit or cause to be deposited into the
Collection Account are instead deposited or caused to be deposited into the
Distribution Account provided that such deposit into the Distribution Account is
made within the time period that such amount would otherwise have been required
to be deposited into the Collection Account (i.e., within one Business Day of
the Servicer's receipt thereof), (ii) amounts otherwise payable or distributable
from the Collection Account may be paid or distributed from the Distribution
Account to the extent of any funds deposited into the Distribution Account
rather than the Collection Account pursuant to clause (i) (as certified by the
Servicer), and (iii) the provisions of this Agreement (including references
herein to the Collection Account and the Distribution Account) shall be
interpreted and construed to give effect to the foregoing.
Section 3.11. Withdrawals from the Collection Account.
The Servicer shall, from time to time, make withdrawals from the
Collection Account for any of the following purposes or as described in Section
4.03:
(i) to remit to the Indenture Trustee for deposit in the
Distribution Account the amounts required to be so remitted pursuant to
Section 3.10(b) or permitted to be so remitted pursuant to the first
sentence of Section 3.10(d);
(ii) subject to Section 3.18(d), to reimburse the Servicer for
Monthly Advances, but only to the extent of amounts received which
represent Late Collections (net of the related Servicing Fees) of Monthly
Payments on Mortgage Loans with respect to which such Monthly Advances
were made in accordance with the provisions of Section 4.03;
(iii) subject to Section 3.18(d), to pay the Servicer or any
Sub-Servicer any unpaid Servicing Fees and reimburse any unreimbursed
Servicing Advances with respect to each Mortgage Loan, but only to the
extent of any Liquidation Proceeds and Insurance Proceeds received with
respect to such Mortgage Loan;
(iv) to pay to the Servicer as servicing compensation (in addition
to the Servicing Fee) on the Servicer Remittance Date any interest or
investment income earned on funds deposited in the Collection Account;
23
(v) to pay to the Servicer, the Depositor, the Sponsor or the
Contributor, as the case may be, with respect to each Mortgage Loan that
has previously been purchased or replaced pursuant to Section 2.05 all
amounts received thereon not included in the Purchase Price or the
Substitution Shortfall Amount;
(vi) to reimburse the Servicer for any Monthly Advance or Servicing
Advance previously made which the Servicer has determined to be a
Nonrecoverable Monthly Advance in accordance with the provisions of
Section 4.03;
(vii) to reimburse the Servicer or the Depositor for expenses
incurred by or reimbursable to the Servicer or the Depositor, as the case
may be, pursuant to Section 6.03;
(viii) to reimburse the Servicer or the Indenture Trustee, as the
case may be, for expenses reasonably incurred in respect of the breach or
defect giving rise to the purchase obligation under Section 2.05 or
Section 2.06 of this Agreement that were included in the Purchase Price of
the Mortgage Loan, including any expenses arising out of the enforcement
of the purchase obligation;
(ix) to pay, or to reimburse the Servicer for advances in respect
of, expenses incurred in connection with any Mortgage Loan pursuant to
Section 3.18(b); and
(x) to clear and terminate the Collection Account upon termination
of this Agreement pursuant to Section 10.01(a).
The Servicer shall keep and maintain separate accounting, on a Mortgage
Loan by Mortgage Loan basis, for the purpose of justifying any withdrawal from
the Collection Account, to the extent held by or on behalf of it, pursuant to
subclauses (ii), (iii), (v), (vi), (viii) and (ix) above. The Servicer shall
provide written notification to the Indenture Trustee, on or prior to the next
succeeding Servicer Remittance Date, upon making any withdrawals from the
Collection Account pursuant to subclauses (vi) and (vii) above.
Section 3.12. [Reserved].
Section 3.13. [Reserved].
Section 3.14. Investment of Funds in the Investment Accounts.
(a) The Servicer may direct any depository institution maintaining the
Collection Account, the Expense Account, the Distribution Account, the Servicing
Accounts, the Redemption Account and the Pre-Funding Account (each, for purposes
of this Section 3.14, an "Investment Account"), to invest the funds in such
Investment Account in one or more Permitted Investments bearing interest or sold
at a discount,
24
and maturing, unless payable on demand, (i) no later than the Business Day
immediately preceding the next Payment Date, if a Person other than the
Indenture Trustee is the obligor thereon, and (ii) no later than the next
Payment Date, if the Indenture Trustee is the obligor thereon. All such
Permitted Investments shall be held to maturity, unless payable on demand. Any
investment of funds in an Investment Account shall be made in the name of the
Indenture Trustee (in its capacity as such) or in the name of a nominee of the
Indenture Trustee. The Indenture Trustee on behalf of the Noteholders shall be
entitled to sole possession over each such investment and the income thereon,
and any certificate or other instrument evidencing any such investment shall be
delivered directly to the Indenture Trustee or its agent, together with any
document of transfer necessary to transfer title to such investment to the
Indenture Trustee or its nominee. In the event amounts on deposit in an
Investment Account are at any time invested in a Permitted Investment payable on
demand, the Indenture Trustee shall at the direction of the Servicer:
(x) consistent with any notice required to be given thereunder, demand
that payment thereon be made on the last day such Permitted
Investment may otherwise mature hereunder in an amount equal to the
lesser of (1) all amounts then payable thereunder and (2) the amount
required to be withdrawn on such date; and
(y) demand payment of all amounts due thereunder promptly upon
determination by a Responsible Officer of the Indenture Trustee that
such Permitted Investment would not constitute a Permitted
Investment in respect of funds thereafter on deposit in the
Investment Account.
(b) All income and gain realized from the investment of funds deposited in
the Collection Account, the Expense Account, the Distribution Account and the
Servicing Accounts held by or on behalf of the Servicer or the Indenture
Trustee, shall be for the benefit of the Servicer and shall in the case of the
Servicer Accounts and the Collection Account be subject to its withdrawal in
accordance with Section 3.09 and Section 3.11, respectively. The Servicer shall
deposit in the Collection Account, the Expense Account or the Distribution
Account, as applicable, the amount of any loss incurred in respect of any such
Permitted Investment made with funds in such accounts immediately upon
realization of such loss.
(c) Except as otherwise expressly provided in this Agreement, if any
default occurs in the making of a payment due under any Permitted Investment, or
if a default occurs in any other performance required under any Permitted
Investment, the Indenture Trustee may and, subject to Section 6.1 of the
Indenture and Section 6.2(g) of the Indenture, upon the request of the Insurer,
shall take such action as may be appropriate to enforce such payment or
performance, including the institution and prosecution of appropriate
proceedings.
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Section 3.15. [intentionally omitted]
Section 3.16. Maintenance of Hazard Insurance and Errors and Omissions and
Fidelity Coverage.
(a) The Servicer shall cause to be maintained for each Mortgaged Property
fire and hazard insurance with extended coverage on the related Mortgaged
Property in an amount which is at least equal to the lesser of the current
principal balance of such Mortgage Loan and the amount necessary to fully
compensate for any damage or loss to the improvements which are a part of such
property on a replacement cost basis, in each case in an amount not less than
such amount as is necessary to avoid the application of any coinsurance clause
contained in the related hazard insurance policy. The Servicer shall also cause
to be maintained fire and hazard insurance with extended coverage on each REO
Property in an amount which is at least equal to the lesser of (i) the maximum
insurable value of the improvements which are a part of such property and (ii)
the outstanding principal balance of the related Mortgage Loan at the time it
became an REO Property, plus accrued interest at the Mortgage Rate and related
Servicing Advances. The Servicer will comply in the performance of this
Agreement with all reasonable rules and requirements of each insurer under any
such hazard policies. Any amounts to be collected by the Servicer under any such
policies (other than amounts to be applied to the restoration or repair of the
property subject to the related Mortgage or amounts to be released to the
Mortgagor in accordance with the procedures that the Servicer would follow in
servicing loans held for its own account, subject to the terms and conditions of
the related Mortgage and Mortgage Note) shall be deposited in the Collection
Account, subject to withdrawal pursuant to Section 3.11, if received in respect
of a Mortgage Loan, or in the REO Account, subject to withdrawal pursuant to
Section 3.25, if received in respect of an REO Property. Any cost incurred by
the Servicer in maintaining any such insurance shall not, for the purpose of
calculating distributions to Noteholders and the Insurer, be added to the unpaid
principal balance of the related Mortgage Loan, notwithstanding that the terms
of such Mortgage Loan so permit. It is understood and agreed that no earthquake
or other additional insurance is to be required of any Mortgagor other than
pursuant to such applicable laws and regulations as shall at any time be in
force and as shall require such additional insurance. If the Mortgaged Property
or REO Property is at any time in an area identified in the Federal Register by
the Federal Emergency Management Agency as having special flood hazards, the
Servicer will cause to be maintained a flood insurance policy in respect
thereof. Such flood insurance shall be in an amount equal to the lesser of (i)
the unpaid principal balance of the related Mortgage Loan and (ii) the maximum
amount of such insurance available for the related Mortgaged Property under the
national flood insurance program (assuming that the area in which such Mortgaged
Property is located is participating in such program).
In the event that the Servicer shall obtain and maintain a blanket policy
with an insurer having a General Policy Rating of A:X or better in Best's Key
Rating Guide insuring against hazard losses on all of the Mortgage Loans, it
shall conclusively be deemed to have satisfied its obligations as set forth in
the first two sentences of this Section 3.16, it being understood and agreed
that such policy may contain a deductible
26
clause, in which case the Servicer shall, in the event that there shall not have
been maintained on the related Mortgaged Property or REO Property a policy
complying with the first two sentences of this Section 3.16, and there shall
have been one or more losses which would have been covered by such policy,
deposit to the Collection Account from its own funds the amount not otherwise
payable under the blanket policy because of such deductible clause. In
connection with its activities as administrator and servicer of the Mortgage
Loans, the Servicer agrees to prepare and present, on behalf of itself, the
Indenture Trustee, the Noteholders and the Insurer, claims under any such
blanket policy in a timely fashion in accordance with the terms of such policy.
(b) The Servicer shall keep in force during the term of this Agreement a
policy or policies of insurance covering errors and omissions for failure in the
performance of the Servicer's obligations under this Agreement, which policy or
policies shall be in such form and amount that would meet the requirements of
FNMA or FHLMC if it were the purchaser of the Mortgage Loans. The Servicer shall
also maintain a fidelity bond in the form and amount that would meet the
requirements of FNMA or FHLMC, unless the Servicer has obtained a waiver of such
requirements from FNMA or FHLMC. The Servicer shall be deemed to have complied
with this provision if an Affiliate of the Servicer has such errors and
omissions and fidelity bond coverage and, by the terms of such insurance policy
or fidelity bond, the coverage afforded thereunder extends to the Servicer. Any
such errors and omissions policy and fidelity bond shall by its terms not be
cancelable without thirty days' prior written notice to the Indenture Trustee.
The Servicer shall also cause each Sub-Servicer to maintain a policy of
insurance covering errors and omissions and a fidelity bond which would meet
such requirements.
Section 3.17. Enforcement of Due-On-Sale Clauses, Assumption Agreements.
The Servicer will, to the extent it has knowledge of any conveyance or
prospective conveyance of any Mortgaged Property by any Mortgagor (whether by
absolute conveyance or by contract of sale, and whether or not the Mortgagor
remains or is to remain liable under the Mortgage Note and/or the Mortgage),
exercise its rights to accelerate the maturity of such Mortgage Loan under the
"due-on-sale" clause, if any, applicable thereto; provided, however, that the
Servicer shall not exercise any such rights if prohibited by law from doing so.
If the Servicer reasonably believes it is unable under applicable law to enforce
such "due-on-sale" clause, or if any of the other conditions set forth in the
proviso to the preceding sentence apply, the Servicer will enter into an
assumption and modification agreement from or with the person to whom such
property has been conveyed or is proposed to be conveyed, pursuant to which such
person becomes liable under the Mortgage Note and, to the extent permitted by
applicable state law, the Mortgagor remains liable thereon. The Servicer is also
authorized to enter into a substitution of liability agreement with such person,
pursuant to which the original Mortgagor is released from liability and such
person is substituted as the Mortgagor and becomes liable under the Mortgage
Note, provided that no such substitution shall be effective unless such person
satisfies the underwriting criteria of the Servicer and has a credit risk rating
at least equal to that of the original Mortgagor.
27
In connection with any assumption or substitution, the Servicer shall apply such
underwriting standards and follow such practices and procedures as shall be
normal and usual in its general mortgage servicing activities and as it applies
to other mortgage loans owned solely by it. The Servicer shall not take or enter
into any assumption and modification agreement, however, unless (to the extent
practicable in the circumstances) it shall have received confirmation, in
writing, of the continued effectiveness of any applicable hazard insurance
policy. Any fee collected by the Servicer in respect of an assumption or
substitution of liability agreement will be retained by the Servicer as
additional servicing compensation. In connection with any such assumption, no
material term of the Mortgage Note (including but not limited to the related
Mortgage Rate and the amount of the Monthly Payment) may be amended or modified,
except as otherwise required pursuant to the terms thereof. The Servicer shall
notify the Indenture Trustee that any such substitution or assumption agreement
has been completed by forwarding to the Indenture Trustee the executed original
of such substitution or assumption agreement, which document shall be added to
the related Mortgage File and shall, for all purposes, be considered a part of
such Mortgage File to the same extent as all other documents and instruments
constituting a part thereof.
Notwithstanding the foregoing paragraph or any other provision of this
Agreement, the Servicer shall not be deemed to be in default, breach or any
other violation of its obligations hereunder by reason of any assumption of a
Mortgage Loan by operation of law or by the terms of the Mortgage Note or any
assumption which the Servicer may be restricted by law from preventing, for any
reason whatever. For purposes of this Section 3.17, the term "assumption" is
deemed to also include a sale (of the Mortgaged Property) subject to the
Mortgage that is not accompanied by an assumption or substitution of liability
agreement.
Section 3.18. Realization Upon Defaulted Mortgage Loans.
(a) The Servicer shall use its best efforts, consistent with the servicing
standard set forth in Section 3.01, to foreclose upon or otherwise comparably
convert the ownership of properties securing such of the Mortgage Loans as come
into and continue in default and as to which no satisfactory arrangements can be
made for collection of delinquent payments pursuant to Section 3.07. The
Servicer shall be responsible for all costs and expenses incurred by it in any
such proceedings; provided, however, that such costs and expenses will be
recoverable as Servicing Advances by the Servicer as contemplated in Sections
3.11 and 3.25. The foregoing is subject to the provision that, in any case in
which Mortgaged Property shall have suffered damage from an Uninsured Cause, the
Servicer shall not be required to expend its own funds toward the restoration of
such property unless it shall determine in its discretion that such restoration
will increase the proceeds of liquidation of the related Mortgage Loan after
reimbursement to itself for such expenses.
(b) Notwithstanding the foregoing provisions of this Section 3.18 or any
other provision of this Agreement, with respect to any Mortgage Loan as to which
the Servicer has received actual notice of, or has actual knowledge of, the
presence of any toxic or hazardous substance on the related Mortgaged Property,
the Servicer shall not,
28
on behalf of the Trust, the Indenture Trustee, the Insurer or otherwise, either
(i) obtain title to such Mortgaged Property as a result of or in lieu of
foreclosure or otherwise, or (ii) otherwise acquire possession of, or take any
other action with respect to, such Mortgaged Property, if, as a result of any
such action, the Trust, the Indenture Trustee, the Noteholders or the Insurer
would be considered to hold title to, to be a "mortgagee-in-possession" of, or
to be an "owner" or "operator" of such Mortgaged Property within the meaning of
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended from time to time, or any comparable law, unless the Servicer
has also previously determined, based on its reasonable judgment and a prudent
report prepared by a Person who regularly conducts environmental audits using
customary industry standards, that:
(1) such Mortgaged Property is in compliance with applicable
environmental laws or, if not, that it would be in the best economic
interest of the Indenture Trustee, the Noteholders and the Insurer
to take such actions as are necessary to bring the Mortgaged
Property into compliance therewith; and
(2) there are no circumstances present at such Mortgaged Property
relating to the use, management or disposal of any hazardous
substances, hazardous materials, hazardous wastes or petroleum-based
materials for which investigation, testing, monitoring, containment,
clean-up or remediation could be required under any federal, state
or local law or regulation, or that if any such materials are
present for which such action could be required, that it would be in
the best economic interest of the Indenture Trustee, the Noteholders
and the Insurer to take such actions with respect to the affected
Mortgaged Property.
The cost of the environmental audit report contemplated by this Section
3.18 shall be advanced by the Servicer, subject to the Servicer's right to be
reimbursed therefor from the Collection Account as provided in Section 3.11(ix),
such right of reimbursement being prior to the rights of Noteholders to receive
any amount in the Collection Account received in respect of the affected
Mortgage Loan or other Mortgage Loans.
If the Servicer determines, as described above, that it is in the best
economic interest of the Indenture Trustee, Noteholders and the Insurer to take
such actions as are necessary to bring any such Mortgaged Property into
compliance with applicable environmental laws, or to take such action with
respect to the containment, cleanup or remediation of hazardous substances,
hazardous materials, hazardous wastes, or petroleum-based materials affecting
any such Mortgaged Property, then the Servicer shall take such action as it
deems to be in the best economic interest of the Indenture Trustee, Noteholders
and the Insurer. The cost of any such compliance, containment, cleanup or
remediation shall be advanced by the Servicer, subject to the Servicer's right
29
to be reimbursed therefor from the Collection Account as provided in Section
3.11 (ix), such right of reimbursement being prior to the rights of Noteholders
to receive any amount in the Collection Account received in respect of the
affected Mortgage Loan or other Mortgage Loans.
(c) [Intentionally omitted.]
(d) Proceeds received in connection with any Final Recovery Determination,
as well as any recovery resulting from a partial collection of Insurance
Proceeds or Liquidation Proceeds, in respect of any Mortgage Loan, will be
applied in the following order of priority: first, to reimburse the Servicer or
any Sub-Servicer for any related unreimbursed Servicing Advances and Monthly
Advances, pursuant to Section 3.11(ii) or (iii); second, to accrued and unpaid
interest on the Mortgage Loan, to the date of the Final Recovery Determination,
or to the Due Date prior to the Payment Date on which such amounts are to be
distributed if not in connection with a Final Recovery Determination; and third,
as a recovery of principal of the Mortgage Loan. If the amount of the recovery
allocated to interest is less than the full amount of accrued and unpaid
interest due on such Mortgage Loan, the amount of such recovery will be
allocated by the Servicer as follows: first, to unpaid Servicing Fees; and
second, to the balance of the interest then due and owing. The portion of the
recovery so allocated to unpaid Servicing Fees shall be reimbursed to the
Servicer or any Sub-Servicer pursuant to Section 3.11(iii). The portion of the
recovery allocated to interest (net of unpaid Servicing Fees) and the portion of
the recovery allocated to principal of the Mortgage Loan shall be applied as
follows: first, to reimburse the Servicer for any related unreimbursed Monthly
Advances in accordance with Section 3.11 (ii), and second, as part of the
amounts to be transferred to the Distribution Account in accordance with Section
3.10(b).
Section 3.19. Indenture Trustee to Cooperate; Release of Mortgage Files.
Upon the payment in full of any Mortgage Loan, or the receipt by the
Servicer of a notification that payment in full shall be escrowed in a manner
customary for such purposes, the Servicer will immediately notify the Indenture
Trustee and the Insurer by a certification in the form of Exhibit E-2 (which
certification shall include a statement to the effect that all amounts received
or to be received in connection with such payment which are required to be
deposited in the Collection Account pursuant to Section 3.10 have been or will
be so deposited) of a Servicing Officer and shall request delivery to it of the
Mortgage File. Upon receipt of such certification and request, the Indenture
Trustee shall promptly release the related Mortgage File to the Servicer. No
expenses incurred in connection with any instrument of satisfaction or deed of
reconveyance shall be chargeable to the Collection Account or the Distribution
Account.
Subject to the following sentence from time to time and as appropriate for
the servicing or foreclosure of any Mortgage Loan, including, for this purpose,
collection under any insurance policy relating to the Mortgage Loans, the
Indenture
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Trustee shall, upon request of the Servicer and delivery to the Indenture
Trustee of a Request for Release in the form of Exhibit E-1, release the related
Mortgage File to the Servicer, and the Indenture Trustee shall, at the direction
of the Servicer, execute such documents as shall be necessary to the prosecution
of any such proceedings. Such Request for Release shall obligate the Servicer to
return each and every document previously requested from the Mortgage File to
the Indenture Trustee when the need therefor by the Servicer no longer exists,
unless the Mortgage Loan has been liquidated and the Liquidation Proceeds no
longer exist, unless the Mortgage Loan has been liquidated and the Liquidation
Proceeds relating to the Mortgage Loan have been deposited in the Collection
Account or the Mortgage File or such document has been delivered to an attorney,
or to a public trustee or other public official as required by law, for purposes
of initiating or pursuing legal action or other proceedings for the foreclosure
of the Mortgaged Property either judicially or nonjudicially, and the Servicer
has delivered to the Indenture Trustee a certificate of a Servicing Officer
certifying as to the name and address of the Person to which such Mortgage File
or such document was delivered and the purpose or purposes of such delivery.
Upon receipt of a certificate of a Servicing Officer stating that such Mortgage
Loan was liquidated and that all amounts received or to be received in
connection with such liquidation that are required to be deposited into the
Collection Account have been so deposited, or that such Mortgage Loan has become
an REO Property, a copy of the Request for Release shall be released by the
Indenture Trustee to the Servicer.
Upon written certification of a Servicing Officer, the Indenture Trustee
shall execute and deliver to the Servicer, with copies to the Insurer to be
delivered by the Servicer, any court pleadings, requests for trustee's sale or
other documents necessary to the foreclosure or trustee's sale in respect of a
Mortgaged Property or to any legal action brought to obtain judgment against any
Mortgagor on the Mortgage Note or Mortgage or to obtain a deficiency judgment,
or to enforce any other remedies or rights provided by the Mortgage Note or
Mortgage or otherwise available at law or in equity. Each such certification
shall include a request that such pleadings or documents be executed by the
Indenture Trustee and a statement as to the reason such documents or pleadings
are required and that the execution and delivery thereof by the Indenture
Trustee will not invalidate or otherwise affect the lien of the Mortgage, except
for the termination of such a lien upon completion of the foreclosure or
trustee's sale.
Section 3.20. Servicing Compensation.
As compensation for the activities of the Servicer hereunder, the Servicer
shall be entitled to the Servicing Fee with respect to each Mortgage Loan
payable solely from payments of interest in respect of such Mortgage Loan,
subject to Section 3.26. In addition, the Servicer shall be entitled to recover
unpaid Servicing Fees out of Insurance Proceeds or Liquidation Proceeds to the
extent permitted by Section 3.11(iii) and out of amounts derived from the
operation and sale of an REO Property to the extent permitted by Section 3.25.
The right to receive the Servicing Fee may not be transferred in whole or in
part except in connection with the transfer of all of the Servicer's
responsibilities and obligations under this Agreement; provided, however, that
the Servicer may pay any fee to a Sub-Servicer out of the Servicing Fee.
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Additional servicing compensation in the form of late payment charges or
otherwise shall be retained by the Servicer (subject to Section 3.26) only to
the extent such fees or charges are received by the Servicer. The Servicer shall
also be entitled pursuant to Section 3.11(iv) to withdraw from the Collection
Account, and pursuant to Section 3.25(b) to withdraw from any REO Account, as
additional servicing compensation, interest or other income earned on deposits
therein, subject to Section 3.14 and Section 3.26, and shall also be entitled to
interest or other income earned on other Investment Accounts pursuant to the
Indenture. The Servicer shall be required to pay all expenses incurred by it in
connection with its servicing activities hereunder (including premiums for the
insurance required by Section 3.16, to the extent such premiums are not paid by
the related Mortgagors or by a Sub-Servicer, servicing compensation of each
Sub-Servicer, and to the extent provided in Section 6.7 of the Indenture, the
fees and expenses of the Indenture Trustee) and shall not be entitled to
reimbursement therefor except as specifically provided herein.
Section 3.21. Reports to the Indenture Trustee; Collection Account
Statements.
Not later than fifteen days after each Payment Date, the Servicer shall
forward to the Trust, the Indenture Trustee, the Insurer and the Depositor a
statement prepared by the Servicer setting forth the status of the Collection
Account as of the close of business on such Payment Date and showing, for the
period covered by such statement, the aggregate amount of deposits into and
withdrawals from the Collection Account of each category of deposit specified in
Section 3.10(a) and each category of withdrawal specified in Section 3.11. Such
statement may be in the form of the then current FNMA Monthly Accounting Report
for its Guaranteed Mortgage Pass-Through Program with appropriate additions and
changes, and shall also include information as to the aggregate of the
outstanding principal balances of all of the Mortgage Loans as of the last day
of the calendar month immediately preceding such Payment Date. Copies of such
statement shall be provided by the Indenture Trustee to any Securityholder and
to any Person identified to the Indenture Trustee as a prospective transferee of
a Security, upon request at the expense of the requesting party, provided such
statement is delivered by the Servicer to the Indenture Trustee.
Section 3.22. Statement as to Compliance.
The Servicer will deliver to the Trust, the Indenture Trustee, the Insurer
and the Depositor not later than 90 days following the end of the fiscal year of
the Servicer, which as of the Closing Date ends on the last day in December, an
Officers' Certificate stating, as to each signatory thereof, that (i) a review
of the activities of the Servicer during the preceding year and of performance
under this Agreement has been made under such officers' supervision and (ii) to
the best of such officers' knowledge, based on such review, the Servicer has
fulfilled all of its obligations under this Agreement throughout such year, or,
if there has been a default in the fulfillment of any such obligation,
specifying each such default known to such officer and the nature and status
thereof. Copies of any such report shall be provided by the Indenture Trustee to
any Securityholder and to any Person identified to the Indenture Trustee as a
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prospective transferee of a Security, upon request at the expense of the
requesting party, provided such report is delivered by the Servicer to the
Indenture Trustee.
Section 3.23. Independent Public Accountants' Servicing Report.
Not later than 90 days following the end of each fiscal year of the
Servicer, the Servicer, at its expense, shall cause a nationally recognized firm
of independent certified public accountants to furnish to the Servicer a report
stating that (i) it has obtained a letter of representation regarding certain
matters from the management of the Servicer which includes an assertion that the
Servicer has complied with certain minimum residential mortgage loan servicing
standards, identified in the Uniform Single Audit Program for Mortgage Bankers
established by the Mortgage Bankers Association of America, with respect to the
servicing of residential mortgage loans during the most recently completed
fiscal year and (ii) on the basis of an examination conducted by such firm in
accordance with standards established by the American Institute of Certified
Public Accountants, such representation is fairly stated in all material
respects, subject to such exceptions and other qualifications that may be
appropriate. In rendering its report such firm may rely, as to matters relating
to the direct servicing of residential mortgage loans by Sub-Servicers, upon
comparable reports of firms of independent certified public accountants rendered
on the basis of examinations conducted in accordance with the same standards
(rendered within one year of such report) with respect to those Sub-Servicers.
Immediately upon receipt of such report, the Servicer shall furnish a copy of
such report to the Trust, the Indenture Trustee, the Insurer and each Rating
Agency. Copies of such report shall be provided by the Indenture Trustee to any
Securityholder upon request at the Servicer's expense, provided that such report
is delivered by the Servicer to the Indenture Trustee and such report does not
prohibit such delivery.
Section 3.24. Access to Certain Documentation.
The Servicer shall provide to the Office of Thrift Supervision, the FDIC,
and any other federal or state banking or insurance regulatory authority that
may exercise authority over any Securityholder, access to the documentation
regarding the Mortgage Loans required by applicable laws and regulations. Such
access shall be afforded without charge, but only upon reasonable request and
during normal business hours at the offices of the Servicer designated by it. In
addition, access to the documentation regarding the Mortgage Loans will be
provided to any Securityholder, the Insurer, the Trust, the Indenture Trustee
and to any Person identified to the Servicer as a prospective transferee of a
Security, upon reasonable request during normal business hours at the offices of
the Servicer designated by it at the expense of the Person requesting such
access.
Section 3.25. Title, Management and Disposition of REO Property.
(a) The deed or certificate of sale of any REO Property shall be taken in
the name of the Indenture Trustee, or its nominee, on behalf of the Noteholders
and the Insurer. The Servicer, on behalf of the Trust Property, shall either
sell any REO
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Property within three years after the Trust acquires ownership of such REO
Property for purposes of Section 856(e) of the Code or request from the Internal
Revenue Service, more than 60 days before the day on which the three-year grace
period would otherwise expire an extension of the three-year grace period,
unless the Servicer had delivered to the Indenture Trustee an Opinion of
Counsel, addressed to the Indenture Trustee, the Depositor and the Insurer, to
the effect that the holding by the Indenture Trustee of such REO Property
subsequent to three years after its acquisition will not result in the
imposition on the Trust of taxes on "prohibited transactions" thereof, as
defined in Section 857(b)(6) of the Code, or cause the Trust to fail to qualify
as a REIT under Federal law at any time that any Securities are outstanding. The
Servicer shall manage, conserve, protect and operate each REO Property solely
for the purpose of its prompt disposition and sale in a manner which does not
cause such REO Property to fail to qualify as "foreclosure property" within the
meaning of Section 856(e) of the Code or any "net income from foreclosure
property" which is subject to taxation under the REIT Provisions.
(b) The Servicer shall segregate and hold all funds collected and received
in connection with the operation of any REO Property separate and apart from its
own funds and general assets and shall establish and maintain with respect to
REO Properties an account held in trust for the Indenture Trustee for the
benefit of the Noteholders and the Insurer (the "REO Account"), which shall be
an Eligible Account. The Servicer shall be permitted to allow the Collection
Account to serve as the REO Account, subject to separate ledgers for each REO
Property. The Servicer shall be entitled to retain or withdraw any interest
income paid on funds deposited in the REO Account.
(c) The Servicer shall have full power and authority, subject only to the
specific requirements and prohibitions of this Agreement, to do any and all
things in connection with any REO Property as are consistent with the manner in
which the Servicer manages and operates similar property owned by the Servicer
or any of its Affiliates, on such terms and for such period as the Servicer
deems to be in the best interests of the Noteholders and the Insurer. In
connection therewith, the Servicer shall deposit, or cause to be deposited, on a
daily basis in the REO Account all revenues received by it with respect to an
REO Property and shall withdraw therefrom funds necessary for the proper
operation, management and maintenance of such REO Property including, without
limitation:
(i) all insurance premiums due and payable in respect of such REO
Property;
(ii) all real estate taxes and assessments in respect of such REO
Property that may result in the imposition of a lien thereon; and
(iii) all costs and expenses necessary to maintain such REO
Property.
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To the extent that amounts on deposit in the REO Account with respect to an REO
Property are insufficient for the purposes set forth in clauses (i) through
(iii) above with respect to such REO Property, the Servicer shall advance from
its own funds such amount as is necessary for such purposes if, but only if, the
Servicer would make such advances if the Servicer owned the REO Property and if
in the Servicer's judgment, the payment of such amounts will be recoverable from
the rental or sale of the REO Property.
Notwithstanding the foregoing, the Servicer shall not:
(i) permit the entry into, renewal or extension of any New Lease
with respect to any REO Property, if the New Lease by its terms will give
rise to any income that does not constitute Rents from Real Property;
(ii) permit any amount to be received or accrued under any New Lease
other than amounts that will constitute Rents from Real Property;
(iii) authorize or permit any construction on any REO Property,
other than the completion of a building or other improvement thereon, and
then only if more than ten percent of the construction of such building or
other improvement was completed before default on the related Mortgage
Loan became imminent, all within the meaning of Section 856(e)(4)(B) of
the Code; or
(iv) allow any Person to Directly Operate any REO Property on any
date more than 90 days after its date of acquisition by the Trust
Property;
unless, in any such case, the Servicer has obtained an Opinion of Counsel,
provided to the Indenture Trustee and the Insurer, to the effect that such
action will not cause such REO Property to fail to qualify as "foreclosure
property" within the meaning of Section 856(e) of the Code at any time that it
is held by the Trust Property, in which case the Servicer may take such actions
as are specified in such Opinion of Counsel.
The Servicer may contract with any Independent Contractor for the
operation and management of any REO Property, provided that:
(v) the terms and conditions of any such contract shall not be
inconsistent herewith;
(vi) any such contract shall require, or shall be administered to
require, that the Independent Contractor pay all costs and expenses
incurred in connection with the operation and management of such REO
Property, including those listed above and remit all related revenues (net
of such costs and expenses) to the Servicer soon as practicable, but in no
event later than thirty days following the receipt thereof by such
Independent Contractor;
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(vii) none of the provisions of this Section 3.25(c) relating to any
such contract or to actions taken through any such Independent Contractor
shall be deemed to relieve the Servicer of any of its duties and
obligations to the Indenture Trustee on behalf of the Noteholders and the
Insurer with respect to the operation and management of any such REO
Property; and
(viii) the Servicer shall be obligated with respect thereto to the
same extent as if it alone were performing all duties and obligations in
connection with the operation and management of such REO Property.
The Servicer shall be entitled to enter into any agreement with any Independent
Contractor performing services for it related to its duties and obligations
hereunder for indemnification of the Servicer by such Independent Contractor,
and nothing in this Agreement shall be deemed to limit or modify such
indemnification. The Servicer shall be solely liable for all fees owed by it to
any such Independent Contractor, irrespective of whether the Servicer's
compensation pursuant to Section 3.20 is sufficient to pay such fees, subject to
the Servicer's rights under Section 3.25(c)(iii).
(d) In addition to the withdrawals permitted under Section 3.25(c), the
Servicer may from time to time make withdrawals from the REO Account for any REO
Property: (i) to pay itself or any Sub-Servicer unpaid Servicing Fees in respect
of the related Mortgage Loan; and (ii) to reimburse itself or any Sub-Servicer
for unreimbursed Servicing Advances and Monthly Advances made in respect of such
REO Property or the related Mortgage Loan. On the Servicer Remittance Date, the
Servicer shall withdraw from each REO Account maintained by it and deposit into
the Distribution Account in accordance with Section 3.10(d)(ii), for payment on
the related Payment Date in accordance with Section 8.3 of the Indenture, the
income from the related REO Property received during the prior calendar month,
net of any withdrawals made pursuant to Section 3.25(c) or this Section 3.25(d).
(e) Subject to the time constraints set forth in Section 3.25(a), each REO
Disposition shall be carried out by the Servicer at such price and upon such
terms and conditions as the Servicer shall deem necessary or advisable, as shall
be normal and usual in its general servicing activities and as are in accordance
with general FNMA guidelines.
(f) The proceeds from the REO Disposition, net of any amount required by
law to be remitted to the Mortgagor under the related Mortgage Loan and net of
any payment or reimbursement to the Servicer or any Sub-Servicer as provided
above, shall be deposited in the Distribution Account in accordance with Section
3.10(d)(ii) on the Servicer Remittance Date in the month following the receipt
thereof for payment on the related Payment Date in accordance with Section 8.3
of the Indenture.
(g) The Servicer shall file information returns with respect to the
receipt of mortgage interest received in a trade or business, reports of
foreclosures and abandonments of any Mortgaged Property and cancellation of
indebtedness income with
36
respect to any Mortgaged Property as required by Sections 6050H, 6050J and 6050P
of the Code, respectively. Such reports shall be in form and substance
sufficient meet the reporting requirements imposed by such Sections 6050H, 6050J
and 6050P of the Code.
Section 3.26. Obligations of the Servicer in Respect of Prepayment
Interest Shortfalls.
The Servicer shall deliver to the Indenture Trustee for deposit into the
Distribution Account on or before 3:00 p.m. New York time on the Servicer
Remittance Date from its own funds an amount equal to the lesser of (i) the
aggregate of the Prepayment Interest Shortfalls for the related Payment Date
resulting solely from Principal Prepayments during the related Collection Period
and (ii) the total amount of its Servicing Fee for the most recently ended
calendar month.
Section 3.27. [Reserved].
Section 3.28. Obligations of the Servicer in Respect of Monthly Payments.
In the event that a shortfall in any collection on or liability with
respect to any Mortgage Loan results from or is attributable to adjustments to
Monthly Payments or Stated Principal Balances that were made by the Servicer in
a manner not consistent with the terms of the related Mortgage Note and this
Agreement, the Servicer, upon discovery or receipt of notice thereof,
immediately shall deliver to the Indenture Trustee for deposit in the
Distribution Account from its own funds the amount of any such shortfall and
shall indemnify and hold harmless the Indenture Trustee, the Insurer, the
Depositor and any successor servicer in respect of any such liability. Such
indemnities shall survive the termination or discharge of this Agreement.
Section 3.29. [Reserved].
Section 3.30. Obligations Under Indenture
The Servicer agrees to perform the obligations stated in the Indenture to
be performed by the Servicer, including, without limitation, (i) provision of
the notice of the amounts, if any, that the Insurer has paid in respect of the
Notes pursuant to Section 2.6(d) of the Indenture, (ii) payment of the expenses
and fees referred to in Sections 5.16, 6.7, 6.8 and 6.10(e) of the Indenture,
and (iii) advising the Indenture Trustee with respect to the manner of surrender
of Notes as contemplated in Section 8.3(b) of the Indenture.
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ARTICLE IV
PAYMENTS AND DISTRIBUTIONS; STATEMENTS;
MONTHLY ADVANCES; REALIZED LOSSES; WITHHOLDING
Section 4.01. Payments and Distributions.
The Securityholders shall have the right to receive payments and
distributions in respect of the Securities as set forth in the Indenture and the
Trust Agreement.
Section 4.02. Statements to Securityholders.
On each Servicer Remittance Date, the Servicer shall deliver to the Trust,
the Indenture Trustee, the Insurer and the Rating Agencies by telecopy (or by
such other means as the Servicer and the Trust, the Indenture Trustee, the
Insurer or the Rating Agencies, as the case may be, may agree from time to time)
a report prepared by the Servicer as to the distributions to be made on the
related Payment Date and shall forward to the Indenture Trustee by overnight
mail a computer readable magnetic tape or diskette of such report. Both reports
(each a "Remittance Report") shall contain the following information:
1. the amount of the payment to be made on such Payment Date to the
Holders of each Class of Class A Notes allocable to principal
(separately indicating the amount to be paid as a prepayment of
principal pursuant to Section 8.3(g) of the Indenture);
2. the amount of the payment to be made on such Payment Date to the
Holders of each class of Class A Notes allocable to interest;
3. the aggregate amount of servicing compensation received by the
Servicer during the related Collection Period and such other
customary information within the knowledge of the Indenture Trustee
as the Indenture Trustee deems necessary or desirable, or which a
Securityholder reasonably requests, to enable Securityholders to
prepare their tax returns;
4. the Scheduled Payments for such Payment Date and the respective
provisions thereof allocable to principal and interest;
5. the Available Distribution Amount for such Payment Date (separately
indicating the amount to be distributed as a prepayment of principal
pursuant to Section 8.3(g) of the Indenture);
6. the amount, if any, by which the Scheduled Payments for such Payment
Date exceeds the Available Distribution Amount
38
expected to be on deposit in the Distribution Account on such
Payment Date;
7. the amount of Monthly Advances to be made by the Servicer in respect
of the related Payment Date, the aggregate amount of Monthly
Advances outstanding after giving effect to such Monthly Advances,
and the aggregate amount of Nonrecoverable Monthly Advances in
respect of such Payment Date;
8. with respect to any reimbursement to be made to the Insurer on such
Payment Date pursuant to Sections 8.3(a)(iii) and (v) of the
Indenture, the amount, if any, allocable to principal and the amount
allocable to interest;
9. Cumulative Insurance Payments after giving effect to the
distributions to be made on such Payment Date;
10. the Delinquency Percentage for the related Collection Period;
11. the Cumulative Loss Percentage for such Payment Date;
12. the amount of any Insurance Payment to be made to Class A
Noteholders on such Payment Date, the amount of any reimbursement
payment to be made to the Insurer on such Payment Date pursuant to
Section 8.3(a)(iii) of the Indenture and the amount of Cumulative
Insurance Payments after giving effect to any such Insurance Payment
to Class A Noteholders or any such reimbursement payment to the
Insurer;
13. the aggregate Stated Principal Balance of the Mortgage Loans and any
REO Properties at the close of business on such Payment Date;
14. the number, aggregate principal balance, weighted average remaining
term to maturity and weighted average Mortgage Rate of the Mortgage
Loans as of the related Due Date;
15. the number and aggregate unpaid principal balance of Mortgage Loans
(a) 30 days past due, (b) 60 days past due, (c) 90 or more days past
due and (d) as to which foreclosure proceedings have been commenced;
16. with respect to any Mortgage Loan that became an REO Property during
the preceding calendar month, the loan number of such Mortgage Loan,
the unpaid principal balance and the Stated Principal Balance of
such Mortgage Loan as of the date it became an REO Property;
39
17. the book value of any REO Property as of the close of business on
the last Business Day of the calendar month preceding the Payment
Date;
18. the aggregate amount of Principal Prepayments made during the
related Collection Period;
19. the aggregate amount of Realized Losses incurred during the related
Collection Period;
20. the aggregate amount of extraordinary expenses withdrawn from the
Collection Account or the Distribution Account for such Payment
Date;
21. the Class A-1 Note Principal Balance, Class A-2 Note Principal
Balance, Class A-3 Note Principal Balance, Class A-4 Note Principal
Balance, Class A-5 Note Principal Balance and Class A-6 Note
Principal Balance, after giving effect to the distributions to be
made on such Payment Date;
22. the Note Factor for each such Class of Notes applicable to such
Payment Date;
23. the Interest Distribution Amount in respect of the Class A Notes for
such Payment Date and the respective portions thereof, if any, paid
under the Policy or (in the event of a Deficiency Event) remaining
unpaid following the distributions to be made in respect of such
Notes on such Payment Date;
24. the aggregate amount of any Prepayment Interest Shortfalls for such
Payment Date, to the extent not covered by payments by the Servicer
pursuant to Section 3.26;
25. the aggregate amount of Relief Act Interest Shortfalls for such
Payment Date;
26. the Required Subordinated Amount for such Payment Date;
27. the Subordination Increase Amount, if any, for such Payment Date;
28. the Subordination Reduction Amount, if any, for such Payment Date;
and
29. the amount of the distribution to be made on such Payment Date to
the Holders of the Certificates.
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In the case of information furnished pursuant to clauses (1) through (3)
above, the amounts shall be expressed as a dollar amount per Single Security.
Within a reasonable period of time after the end of each calendar year,
the Servicer shall furnish to the Indenture Trustee, and the Indenture Trustee
shall forward to each Person who at any time during the calendar year was a
Holder of a Note (a) a statement containing the information set forth in clauses
(1) through (3) above, aggregated for such calendar year or applicable portion
thereof during which such person was a Noteholder and (b) such information
contained in the Remittance Reports as required to enable the Holders of the
Notes to prepare their tax returns. Such obligation of the Servicer shall be
deemed to have been satisfied to the extent that substantially comparable
information shall be provided by the Servicer pursuant to any requirements of
the Code as from time to time are in force.
On each Payment Date, the Indenture Trustee shall forward to the Trust,
the Depositor, each Holder of a Certificate, the Insurer and the Servicer, a
copy of the reports forwarded to the Class A Noteholders on such Payment Date
and, if different from the amounts stated in the Remittance Report, a statement
setting forth the amounts, if any, actually distributed with respect to the
Certificates, respectively, on such Payment Date.
Within a reasonable period of time after the end of each calendar year,
the Servicer shall furnish to the Indenture Trustee, and the Indenture Trustee
shall forward to each Person who at any time during the calendar year was a
Holder of a Certificate a statement setting forth the amount, if any, actually
distributed with respect to the Certificates, as appropriate, aggregated for
such calendar year or applicable portion thereof during which such Person was a
Certificateholder.
Upon request, the Servicer shall furnish to the Indenture Trustee, and the
Indenture Trustee shall forward to each Securityholder, during the term of this
Agreement, such periodic, special, or other reports or information, whether or
not provided for herein, as shall be reasonable with respect to the
Securityholder, or otherwise with respect to the purposes of this Agreement, all
such reports or information to be provided at the expense of the Securityholder
in accordance with such reasonable and explicit instructions and directions as
the Securityholder may provide. For purposes of this Section 4.02, the Indenture
Trustee's duties are limited to the extent that the Indenture Trustee receives
timely reports as required from the Servicer.
Section 4.03. Monthly Advances.
(a) [Reserved]
(b) The amount of Monthly Advances to be made by the Servicer for any
Payment Date shall equal, subject to Section 4.03(d), the sum of (i) the
aggregate amount of Monthly Payments allocable to interest (with each interest
portion thereof net of the related Servicing Fee), due during the related
Collection Period in respect of the Mortgage Loans, which Monthly Payments were
delinquent as of the close of business
41
on the related Determination Date and (ii) with respect to each REO Property,
which REO Property was acquired during or prior to the related Collection Period
and as to which REO Property an REO Disposition did not occur during the related
Collection Period, an amount equal to the excess, if any, of the REO Imputed
Interest on such REO Property for the most recently ended calendar month, over
the net income from such REO Property transferred to the Distribution Account
pursuant to Section 3.25 for distribution on such Payment Date. For purposes of
the preceding sentence, the Monthly Payment on each Balloon Mortgage Loan with a
delinquent Balloon Payment is equal to the assumed monthly interest payment that
would have been due on the related Due Date based on the original principal
amortization schedule for such Balloon Mortgage Loan.
On or before 3:00 p.m. New York time on the Servicer Remittance Date, the
Servicer shall remit in immediately available funds to the Indenture Trustee for
deposit in the Distribution Account an amount equal to the aggregate amount of
Monthly Advances, if any, to be made in respect of the Mortgage Loans and REO
Properties for the related Payment Date either (i) from its own funds or (ii)
from the Collection Account, to the extent of funds held therein for future
distribution (in which case it will cause to be made an appropriate entry in the
records of the Collection Account that amounts held for future distribution have
been, as permitted by this Section 4.03, used by the Servicer in discharge of
any such Monthly Advance) or (iii) in the form of any combination of (i) and
(ii) aggregating the total amount of Monthly Advances to be made by the Servicer
with respect to the Mortgage Loans and REO Properties. Any amounts held for
future distribution and so used shall be appropriately reflected in the
Servicer's records and replaced by the Servicer by deposit in the Collection
Account on or before any future Servicer Remittance Date to the extent that the
Available Distribution Amount for the related Payment Date (determined without
regard to Monthly Advances to be made on the Servicer Remittance Date) shall be
less than the total amount that would be distributed to Securityholders pursuant
to Section 8.3 of the Indenture on such Payment Date if such amounts held for
future distributions had not been so used to make Monthly Advances. The
Indenture Trustee will provide notice to the Servicer and the Insurer by
telecopy by the close of business on any Servicer Remittance Date in the event
that the amount remitted by the Servicer to the Indenture Trustee on such date
is less than the Monthly Advances required to be made by the Servicer for the
related Payment Date.
(c) The obligation of the Servicer to make such Monthly Advances is
mandatory, notwithstanding any other provision of this Agreement but subject to
(d) below, and, with respect to any Mortgage Loan or REO Property, shall
continue until a Final Recovery Determination in connection therewith or the
removal thereof from the Trust Property pursuant to any applicable provision of
this Agreement, except as otherwise provided in this Section.
(d) Notwithstanding anything herein to the contrary, no Monthly Advance or
Servicing Advance shall be required to be made hereunder by the Servicer if such
Monthly Advance or Servicing Advance would, if made, constitute a Nonrecoverable
Monthly Advance or Servicing Advance. The determination by the
42
Servicer that it has made a Nonrecoverable Monthly Advance or that any proposed
Monthly Advance, if made, would constitute a Nonrecoverable Monthly Advance,
shall be evidenced by an Officers' Certificate of the Servicer delivered to the
Depositor, the Indenture Trustee and the Insurer.
Section 4.04. Determination of Realized Losses.
Prior to each Determination Date, the Servicer shall determine as to each
Mortgage Loan and REO Property, the total amount of Realized Losses, if any,
incurred in connection with any Final Recovery Determinations made during the
related Collection Period. Prior to each Determination Date, the Servicer shall
also determine as to each Mortgage Loan: (i) the total amount of Realized
Losses, if any, incurred in connection with any Deficient Valuations made during
the related Collection Period; and (ii) the total amount of Realized Losses, if
any, incurred in connection with Debt Service Reductions in respect of Monthly
Payments due during the related Collection Period. Such information shall be
evidenced by an Officer's Certificate delivered to the Trust, the Indenture
Trustee and the Insurer by the Servicer prior to the Determination Date
immediately following the end of the Collection Period during which any such
Realized Loss was incurred.
Section 4.05. Compliance with Withholding Requirements.
Notwithstanding any other provision of this Agreement, the Indenture
Trustee shall comply with all federal withholding requirements respecting
payments to Noteholders of interest or original issue discount that the
Indenture Trustee reasonably believes are applicable under the Code. The consent
of Noteholders shall not be required for such withholding. In the event the
Indenture Trustee does withhold any amount from interest or original issue
discount payments or advances thereof to any Noteholder pursuant to federal
withholding requirements, the Indenture Trustee shall indicate the amount
withheld to such Noteholders.
ARTICLE V
[RESERVED]
ARTICLE VI
THE DEPOSITOR AND THE SERVICER
Section 6.01. Liability of the Depositor and the Servicer.
The Depositor and the Servicer each shall be liable in accordance herewith
only to the extent of the obligations specifically imposed by this Agreement on
and undertaken hereunder by the Depositor and the Servicer, respectively.
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Section 6.02. Merger or Consolidation of the Depositor or the Servicer.
Subject to the following paragraph, each of the Trust, the Depositor and
the Servicer will keep in full effect its existence, rights and franchises as a
trust or corporation, as the case may be, under the laws of the jurisdiction of
its incorporation. The Depositor and the Servicer each will obtain and preserve
its qualification to do business as a foreign corporation in each jurisdiction
in which such qualification is or shall be necessary to protect the validity and
enforceability of this Agreement, the Securities or any of the Mortgage Loans
and to perform its respective duties under this Agreement.
The Depositor or the Servicer may be merged or consolidated with or into
any Person, or transfer all or substantially all of its assets to any Person, in
which case any Person resulting from any merger or consolidation to which the
Depositor or the Servicer shall be a party, or any Person succeeding to the
business of the Depositor or the Servicer, shall be the successor of the
Depositor or the Servicer, as the case may be, hereunder, without the execution
or filing of any paper or any further act on the part of any of the parties
hereto, anything herein to the contrary notwithstanding; provided, however, that
(i) the successor or surviving Person to the Servicer shall be qualified to
service mortgage loans on behalf of FNMA or FHLMC, (ii) that the Rating Agencies
ratings and shadow ratings of the Class A Notes in effect immediately prior to
such merger or consolidation will not be qualified, reduced or withdrawn as a
result thereof (as evidenced by a letter to such effect from the Rating
Agencies) and (iii) in the case of the Servicer, the Insurer delivers its
written consent to such successor.
Section 6.03. Limitation on Liability of the Depositor, the Servicer and
Others.
None of the Depositor, the Servicer or any of the directors, officers,
employees or agents of the Depositor or the Servicer shall be under any
liability to the Trust or the Noteholders for any action taken or for refraining
from the taking of any action in good faith pursuant to this Agreement, or for
errors in judgment; provided, however, that this provision shall not protect the
Depositor, the Servicer or any such person against any breach of warranties,
representations or covenants made herein, or against any specific liability
imposed on the Servicer pursuant hereto, or against any liability which would
otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence in the case of the Depositor, and willful misfeasance, bad faith or
negligence in the case of the Servicer, in the performance of duties or by
reason of reckless disregard of obligations and duties hereunder. The Depositor,
the Servicer and any director, officer, employee or agent of the Depositor or
the Servicer may rely in good faith on any document of any kind which, prima
facie, is properly executed and submitted by any Person respecting any matters
arising hereunder. The Depositor, the Servicer and any director, officer,
employee or agent of the Depositor or the Servicer shall be indemnified and held
harmless by the Trust (to the extent of the Trust Property only) 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
relating to any specific Mortgage Loan or Mortgage Loans (except as any such
loss, liability or
44
expense shall be otherwise reimbursable pursuant to this Agreement) or any loss,
liability or expense incurred by reason of willful misfeasance, bad faith or
gross negligence in the case of the Depositor, and willful misfeasance, bad
faith or negligence in the case of the Servicer, in the performance of duties
hereunder or by reason of reckless disregard of obligations and duties
hereunder. Neither the Depositor nor the Servicer shall be under any obligation
to appear in, prosecute or defend any legal action unless such action is related
to its respective duties under this Agreement and, in its opinion, does not
involve it in any expense or liability; provided, however, that each of the
Depositor and the Servicer may in its discretion undertake any such action which
it may deem necessary or desirable with respect to this Agreement and the rights
and duties of the parties hereto and the interests of the Noteholders hereunder.
In such event, unless the Depositor or the Servicer acts without the consent of
the Insurer prior to an Insurer Default or without the consent of Holders of
Notes entitled to at least 51% of the Voting Rights after an Insurer Default,
the legal expenses and costs of such action and any liability resulting
therefrom (except any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or gross negligence in the case of the Depositor, and
willful misfeasance, bad faith or negligence in the case of the Servicer, in the
performance of duties hereunder or by reason of reckless disregard of
obligations and duties hereunder) shall be expenses, costs and liabilities of
the Trust Property, and the Depositor and the Servicer shall be entitled to be
reimbursed therefor from the Collection Account as and to the extent provided in
Section 3.11, any such right of reimbursement being prior to the rights of the
Noteholders to receive any amount in the Collection Account.
Section 6.04. Limitation on Resignation of the Servicer.
The Servicer shall not resign from the obligations and duties hereby
imposed on it except upon determination that its duties hereunder are no longer
permissible under applicable law. Any such determination pursuant to the
preceding sentence permitting the resignation of the Servicer shall be evidenced
by an Opinion of Counsel to such effect obtained at the expense of the Servicer
and delivered to the Indenture Trustee. No resignation of the Servicer shall
become effective until the Indenture Trustee or a successor servicer shall have
assumed the Servicer's responsibilities, duties, liabilities (other than those
liabilities arising prior to the appointment of such successor) and obligations
under this Agreement.
Except as expressly provided herein, the Servicer shall not assign or
transfer any of its rights, benefits or privileges hereunder to any other
Person, or delegate to or subcontract with, or authorize or appoint any other
Person to perform any of the duties, covenants or obligations to be performed by
the Servicer hereunder. If, pursuant to any provision hereof, the duties of the
Servicer are transferred to a successor servicer, the entire amount of the
Servicing Fee and other compensation payable to the Servicer pursuant hereto
shall thereafter be payable to such successor servicer.
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Section 6.05. Rights of the Trust, the Depositor and Others in Respect of
the Servicer.
The Servicer shall afford the Trust, the Depositor, the Indenture Trustee
and the Insurer, upon reasonable notice, during normal business hours, access to
all records maintained by the Servicer in respect of its rights and obligations
hereunder and access to officers of the Servicer responsible for such
obligations. Upon request, the Servicer shall furnish to the Trust, the
Depositor, the Indenture Trustee and the Insurer its most recent financial
statements and such other information relating to its capacity to perform its
obligations under this Agreement it possesses. To the extent such information is
not otherwise available to the public, the Trust, the Depositor, the Indenture
Trustee and the Insurer shall not disseminate any information obtained pursuant
to the preceding two sentences without the Servicer's written consent, except as
required pursuant to this Agreement or to the extent that it is appropriate to
do so (i) in working with legal counsel, auditors, taxing authorities or other
governmental agencies or (ii) pursuant to any law, rule, regulation, order,
judgment, writ, injunction or decree of any court or governmental authority
having jurisdiction over the Trust, the Depositor, the Indenture Trustee, the
Insurer or the Trust Property, and in either case, the Trust, the Depositor, the
Insurer or the Indenture Trustee, as the case may be, shall use its best efforts
to assure the confidentiality of any such disseminated non-public information.
The Depositor may, but is not obligated to, enforce the obligations of the
Servicer under this Agreement and may, but is not obligated to, perform, or
cause a designee to perform, any defaulted obligation of the Servicer under this
Agreement or exercise the rights of the Servicer under this Agreement; provided
that the Servicer shall not be relieved of any of its obligations under this
Agreement by virtue of such performance by the Depositor or its designee. The
Depositor shall not have any responsibility or liability for any action or
failure to act by the Servicer and is not obligated to supervise the performance
of the Servicer under this Agreement or otherwise.
Section 6.06. Limitation of Liability.
It is expressly understood and agreed by the parties hereto that (a) this
Agreement is executed and delivered by Wilmington Trust Company, not
individually or personally but solely as trustee of Emergent Home Equity Loan
Trust 1997-4 under the Trust Agreement dated as of November 26, 1997, with
Emergent Residual Holding Corp., in the exercise of the powers and authority
conferred and vested in it, (b) each of the representations, undertakings and
agreements herein made on the part of the Trust is made and intended not as
personal representations, undertakings and agreements by Wilmington Trust
Company but is made and intended for the purpose for binding only the Trust, (c)
nothing herein contained shall be construed as creating any liability on
Wilmington Trust Company, individually or personally, to perform any covenant
either expressed or implied contained herein, all such liability, if any, being
expressly waived by the parties hereto and by any Person claiming by, through or
under the parties hereto and (d) under no circumstances shall Wilmington Trust
Company be personally liable for the payment of any indebtedness or expenses of
the Trust or be liable for the breach
46
or failure of any obligation, representation, warranty or covenant made or
undertaken by the Trust under this Agreement or the other Basic Documents.
ARTICLE VII
DEFAULT
Section 7.01. Servicer Events of Default.
"Servicer Event of Default," wherever used herein, means any one of the
following events:
(i) any failure by the Servicer to remit to the Indenture Trustee
for payment to Noteholders any payment (other than a Monthly Advance
required to be made from its own funds on any Servicer Remittance Date
pursuant to Section 4.03) required to be made under the terms of the
Indenture or this Agreement which continues unremedied for the later of
(x) a period of one Business Day after the date upon which written notice
of such failure, requiring the same to be remedied, shall have been given
to the Servicer by the Trust, the Depositor, the Insurer or the Indenture
Trustee (in which case notice shall be provided by telecopy), or to the
Servicer, the Trust, the Depositor, the Insurer and the Indenture Trustee
by the Holders of Notes entitled to at least 25% of the Voting Rights or
(y) five days; or
(ii) any failure (other than a failure identified in clause (vi)
below) on the part of the Servicer duly to observe or perform in any
material respect any other of the covenants or agreements on the part of
the Servicer contained in the Indenture or this Agreement which continues
unremedied for a period of 30 days (or 10 days in the case of a failure to
maintain any insurance policy on any of the Mortgage Loans or Mortgaged
Properties) after the earlier of (I) the date on which written notice of
such failure, requiring the same to be remedied, shall have been given to
the Servicer by the Trust, the Depositor, the Insurer or the Indenture
Trustee, or to the Servicer, the Depositor, the Insurer and the Indenture
Trustee by the Holders of Notes entitled to at least 25% of the Voting
Rights and (II) actual knowledge of such failure by a Servicing Officer of
the Servicer; or
(iii) a decree or order of a court or agency or supervisory
authority having jurisdiction in the premises in an involuntary case under
any present or future federal or state bankruptcy, insolvency or similar
law or the appointment of a conservator or receiver or liquidate in any
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceeding, or for the winding-up or liquidation of its affairs,
shall have been entered against the Servicer and such decree or order
shall have remained in force undischarged or unstayed for a period of 90
days; or
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(iv) the Servicer shall consent to the appointment of a conservator
or receiver or liquidate in any insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings of or
relating to it or of or relating to all or substantially all of its
property; or
(v) the 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
(vi) any failure of the Servicer to make any Monthly Advance on any
Servicer Remittance Date required to be made from its own funds pursuant
to Section 4.03 or failure to make any payment required pursuant to
Section 3.26 which continues unremedied until 3:00 p.m. New York time on
the Business Day immediately following the Servicer Remittance Date; or
(vii) any breach of a representation or warranty of the Servicer
relating to such Servicer's authority to enter into, and its ability to
perform its obligations under, this Agreement; or
(viii) the occurrence of a Performance Test Violation (as defined in
the Insurance Agreement).
Subject to Article IX, if a Servicer Event of Default described in clauses
(i) through (v) and (vii) and (viii) of this Section shall occur, then, and in
each and every such case, so long as such Servicer Event of Default shall not
have been remedied, the Trust, the Depositor, the Insurer or the Indenture
Trustee may, and at the written direction of the Holders of Notes entitled to at
least 25% of Voting Rights (with the consent of the Insurer to the extent there
is no Insurer Default), the Indenture Trustee shall, by notice in writing to the
Servicer (and to the Trust, the Depositor and the Insurer if given by the
Indenture Trustee or to the Indenture Trustee if given by the Trust, the
Depositor or the Insurer), terminate all of the rights and obligations of the
Servicer in its capacity as Servicer under this Agreement, to the extent
permitted by law, and in and to the Mortgage Loans and the proceeds thereof. If
a Servicer Event of Default described in clause (vi) hereof shall occur, the
Indenture Trustee shall, by notice in writing to the Servicer, the Insurer, the
Trust and the Depositor, terminate all of the rights and obligations of the
Servicer in its capacity as Servicer under this Agreement and in and to the
Mortgage Loans and the proceeds thereof. On or after the receipt by the Servicer
of such written notice, all authority and power of the Servicer under this
Agreement, whether with respect to the Securities (other than as a Holder of any
Security) or the Mortgage Loans or the Policy or otherwise, shall pass to and be
vested in the Indenture Trustee pursuant to and under this Section, and, without
limitation, the Indenture Trustee is hereby authorized and empowered, as
attorney-in-fact or otherwise, to execute and deliver, on behalf of and at the
expense of the Servicer, any and all documents and other instruments and to do
or accomplish all other acts or things
48
necessary or appropriate to effect the purposes of such notice of termination,
whether to complete the transfer and endorsement or assignment of the Mortgage
Loans and related documents, or otherwise. The Servicer agrees promptly (and in
any event no later than ten Business Days subsequent to such notice) to provide
the Indenture Trustee with all documents and records requested by it to enable
it to assume the Servicer's functions under this Agreement, and to cooperate
with the Indenture Trustee in effecting the termination of the Servicer's
responsibilities and rights under this Agreement, including, without limitation,
the transfer within one Business Day to the Indenture Trustee for administration
by it of all cash amounts which at the time shall be or should have been
credited by the Servicer to the Collection Account held by or on behalf of the
Servicer, the Distribution Account, the Policy Payments Account or any REO
Account or Servicing Account held by or on behalf of the Servicer or thereafter
be received with respect to the Mortgage Loans or any REO Property serviced by
the Servicer (provided, however, that the Servicer shall continue to be entitled
to receive all amounts accrued or owing to it under this Agreement on or prior
to the date of such termination, whether in respect of Monthly Advances or
otherwise, and shall continue to be entitled to the benefits of Section 6.03
notwithstanding any such termination). For purposes of this Section 7.01, the
Indenture Trustee shall not be deemed to have knowledge of a Servicer Event of
Default unless a Responsible Officer of the Indenture Trustee assigned to and
working in the Indenture Trustee's Corporate Trust Office has actual knowledge
thereof or unless written notice of any event which is in fact such a Servicer
Event of Default is received by the Indenture Trustee and such notice references
the Notes, the Trust Property or this Agreement.
The Servicer hereby covenants and agrees to act as the Servicer under this
Agreement for an initial term, commencing on the Closing Date and ending on
March 23, 1998, which term shall be extendable by the Insurer for successive
terms of three calendar months thereafter, until the termination of the
Servicer's obligations and responsibilities pursuant to Article X. Each such
notice of extension (a "Servicer Extension Notice") shall be delivered by the
Insurer to the Trust, the Indenture Trustee and the Servicer. The Servicer
hereby agrees that, upon its receipt of any such Servicer Extension Notice, the
Servicer shall become bound for the duration of the term covered by such
Servicer Extension Notice to continue as the Servicer subject to and in
accordance with the other provisions of this Agreement. The Indenture Trustee
agrees that if as of the fifteenth (15th) day prior to the last day of any term
of the Servicer the Indenture Trustee shall not have received any Servicer
Extension Notice from the Insurer, the Indenture Trustee will within five (5)
days thereafter, give written notice of such non-receipt to the Trust, the
Insurer and the Servicer. The failure of the Insurer to deliver a Servicer
Extension Notice by the end of a calendar term shall result in the termination
of the Servicer. The foregoing provisions of this paragraph shall not apply to
the Indenture Trustee in the event the Indenture Trustee succeeds to the rights
and obligations of the Servicer and the Indenture Trustee shall continue in such
capacity until the earlier of the termination of this Agreement pursuant to
Article X or the appointment of a successor servicer.
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Section 7.02. Indenture Trustee to Act; Appointment of Successor.
(a) On and after the time the Servicer receives a notice of termination or
the Servicer's term is not extended pursuant to Section 7.01, the Indenture
Trustee shall be the successor in all respects to the Servicer in its capacity
as Servicer under this Agreement and the transactions set forth or provided for
herein and shall be subject to all the responsibilities, duties and liabilities
relating thereto and arising thereafter placed on the Servicer (except for any
representations or warranties of the Servicer under this Agreement and its
obligation to deposit amounts in respect of losses pursuant to Section 3.14) by
the terms and provisions hereof including, without limitation, the Servicer's
obligations to make Monthly Advances pursuant to Section 4.03; provided,
however, that if the Indenture Trustee is prohibited by law or regulation from
obligating itself to make advances regarding delinquent mortgage loans, then the
Indenture Trustee shall not be obligated to make Monthly Advances pursuant to
Section 4.03 or to make payments in respect of Prepayment Interest Shortfalls
pursuant to Section 3.26; and provided, further, that any failure to perform
such duties or responsibilities caused by the Servicer's failure to provide
information required by Section 7.01 shall not be considered a default by the
Indenture Trustee as successor to the Servicer hereunder. As compensation
therefor, the Indenture Trustee shall be entitled to the Servicing Fees and all
funds relating to the Mortgage Loans to which the Servicer would have been
entitled if it had continued to act hereunder. Notwithstanding the above, the
Indenture Trustee may, if it shall be unwilling to so act, or shall, if it is
unable to so act or if it is prohibited by law from making advances regarding
delinquent mortgage loans or if the Insurer or if the Holders of Notes entitled
to at least 51% of the Voting Rights so request in writing to the Indenture
Trustee, promptly appoint, with the consent of the Insurer, or petition a court
of competent jurisdiction to appoint, an established mortgage loan servicing
institution acceptable to each Rating Agency and the Insurer and having a net
worth of not less than $15,000,000 and which is a FNMA and FHLMC approved
Seller/Servicer, as the successor to the Servicer under this Agreement in the
assumption of all or any part of the responsibilities, duties or liabilities of
the Servicer under this Agreement. No appointment of a successor to the Servicer
under this Agreement shall be effective until the assumption by the successor of
all of the Servicer's responsibilities, duties and liabilities hereunder. In
connection with such appointment and assumption described herein, the Indenture
Trustee may make such arrangements for the compensation of such successor out of
payments on Mortgage Loans as it and such successor shall agree; provided,
however, that no such compensation shall be in excess of that permitted the
Servicer as such hereunder. The Depositor, the Indenture Trustee and such
successor shall take such action, consistent with this Agreement, as shall be
necessary to effectuate any such succession. Pending appointment of a successor
to the Servicer under this Agreement, the Indenture Trustee shall act in such
capacity as hereinabove provided.
(b) If the Servicer fails to remit to the Indenture Trustee for payment to
the Noteholders any payment required to be made under the terms of the Indenture
or this Agreement (for purposes of this Section 7.02(b), a "Remittance") because
the Servicer is the subject of a proceeding under the federal Bankruptcy Code
and the making of such Remittance is prohibited by Section 362 of the federal
Bankruptcy
50
Code, the Indenture Trustee shall upon notice of such prohibition, regardless of
whether it has received a notice of termination under Section 7.01, advance the
amount of such Remittance by depositing such amount in the Distribution Account
on the related Payment Date. The Indenture Trustee shall be obligated to make
such advance only if (i) such advance, in the good faith judgment of the
Indenture Trustee, can reasonably be expected to be ultimately recoverable from
funds which are in the custody of the Servicer, a trustee in bankruptcy or a
federal bankruptcy court and should have been the subject of such Remittance
absent such prohibition (the "Stayed Funds") and (ii) the Indenture Trustee is
not prohibited by law from making such advance or obligating itself to do so.
Upon remittance of the Stayed Funds to the Indenture Trustee or the deposit
thereof in the Distribution Account by the Servicer, a trustee in bankruptcy or
a federal bankruptcy court, the Indenture Trustee may recover the amount so
advanced, without interest, by withdrawing such amount from the Distribution
Account; provided, however, that nothing in this Agreement shall be deemed to
affect the Indenture Trustee's rights to recover from the Servicer's own funds
interest at the prime rate (as set forth in the Wall Street Journal) as of the
date of such advance on the amount of any such advance. If the Indenture Trustee
at any time makes an advance under this subsection which it later determines in
its good faith judgment will not be ultimately recoverable from the Stayed Funds
with respect to which such advance was made, the Indenture Trustee shall be
entitled to reimburse itself for such advance, without interest, by withdrawing
from the Distribution Account, out of amounts on deposit therein, an amount
equal to the portion of such advance attributable to the Stayed Funds. The
Servicer shall pay the Indenture Trustee, from the Servicer's own funds,
interest on any advance made by the Indenture Trustee pursuant to this paragraph
at a rate equal to the prime rate (as set forth in the Wall Street Journal) as
of the date of such advance.
Section 7.03. Notification to Noteholders and Trust.
(a) Upon any termination of the Servicer pursuant to Section 7.01 above or
any appointment of a successor to the Servicer pursuant to Section 7.02 above,
the Indenture Trustee shall give prompt written notice thereof to the Trust and
to all Noteholders at their respective addresses appearing in the Note Register.
(b) Not later than the later of 60 days after the occurrence of any event,
which constitutes or which, with notice or lapse of time or both, would
constitute a Servicer Event of Default or five days after a Responsible Officer
of the Indenture Trustee becomes aware of the occurrence of such an event, the
Indenture Trustee shall transmit by mail to the Trust and all Holders of Notes
notice of each such occurrence, unless such default or Servicer Event of Default
shall have been cured or waived.
Section 7.04. Waiver of Servicer Events of Default.
The Holders of Notes evidencing at least 66% of the aggregate Note
Principal Balance of all Classes of Notes affected by any default or Servicer
Event of Default hereunder, with the written consent of the Insurer, may waive
such default or Servicer Event of Default; provided, however, that a default or
Servicer Event of Default under clause (i) or (vi) of Section 7.01 may be waived
only by all of the Holders
51
of the Notes with the written consent of the Insurer. Upon any such waiver of a
default or Servicer Event of Default, such default or Servicer Event of Default
shall cease to exist and shall be deemed to have been remedied for every purpose
hereunder. No such waiver shall extend to any subsequent or other default or
Servicer Event of Default or impair any right consequent thereon except to the
extent expressly so waived.
ARTICLE VIII
CONCERNING THE INDENTURE TRUSTEE
Section 8.01. Duties, Responsibilities, Etc. of Indenture Trustee.
The duties, rights, responsibilities and privileges of the Indenture
Trustee shall be as set forth herein, in the Indenture and in the other Basic
Documents to which the Indenture Trustee is a party and no implied covenants or
obligations on the part of the Indenture Trustee shall be read into this
Agreement, the Indenture or any of the Basic Documents. Without limitation of
the foregoing, it is acknowledged and agreed that the provisions of Sections 6.1
through 6.7 and 6.11 through 6.23 of the Indenture shall apply as if set forth
in full herein.
Section 8.02. Replacement of Indenture Trustee; Successor Indenture
Trustee; Appointment of Co- or Separate Indenture Trustee.
Any successor Indenture Trustee pursuant to Section 6.8 or 6.9 of the
Indenture shall succeed to all the rights, duties, responsibilities of the
Indenture Trustee pursuant to this Agreement and any co-trustee or separate
trustee appointed pursuant to Section 6.10 of the Indenture may, with the
consent of the Insurer, act as co-trustee or separate trustee hereunder.
Section 8.03. Representations and Warranties of the Indenture Trustee.
The Indenture Trustee hereby represents and warrants to the Servicer, the
Depositor and the Insurer, as of the Closing Date, that:
(i) The Indenture Trustee is a national banking association duly
organized, validly existing and in good standing under the laws of the
United States.
(ii) The execution and delivery of this Agreement by the Indenture
Trustee, and the performance and compliance with the terms of this
Agreement by the Indenture Trustee, will not violate the Indenture
Trustee's charter or bylaws or constitute a default (or an event which,
with notice or lapse of time, or both, would constitute a default) under,
or result in the breach of, any material agreement or other instrument to
which it is a party or which is applicable to it or any of its assets.
52
(iii) The Indenture Trustee has the full power and authority to
enter into and consummate all transactions contemplated by this Agreement,
has duly authorized the execution, delivery and performance of this
Agreement, and has duly executed and delivered this Agreement.
(iv) This Agreement, assuming due authorization, execution and
delivery by the Servicer and the Depositor, constitutes a valid, legal and
binding obligation of the Indenture Trustee, enforceable against the
Indenture Trustee in accordance with the terms hereof, subject to (A)
applicable bankruptcy, insolvency, receivership, reorganization,
moratorium and other laws affecting the enforcement of creditors' rights
generally, and (B) general principles of equity, regardless of whether
such enforcement is considered in a proceeding in equity or at law.
(v) The Indenture Trustee is not in violation of, and its execution
and delivery of this Agreement and its performance and compliance with the
terms of this Agreement will not constitute a violation of, any law, any
order or decree of any court or arbiter, or any order, regulation or
demand of any federal, state or local governmental or regulatory
authority, which violation, in the Indenture Trustee's good faith and
reasonable judgment, is likely to affect materially and adversely either
the ability of the Indenture Trustee to perform its obligations under this
Agreement or the financial condition of the Indenture Trustee.
(vi) No litigation is pending or, to the best of the Indenture
Trustee's knowledge, threatened against the Indenture Trustee which would
prohibit the Indenture Trustee from entering into this Agreement or, in
the Indenture Trustee's good faith reasonable judgment, is likely to
materially and adversely affect either the ability of the Indenture
Trustee to perform its obligations under this Agreement or the financial
condition of the Indenture Trustee.
ARTICLE IX
CERTAIN MATTERS REGARDING THE INSURER
Section 9.01. Rights of the Insurer to Exercise Rights of Class A
Noteholders.
Each of the Trust, the Depositor, the Servicer and the Indenture Trustee,
and by accepting a Note, each Noteholder, agrees that unless an Insurer Default
has occurred and is continuing, the Insurer shall have the right to exercise all
rights of the Noteholders under this Agreement, the Indenture and the Basic
Documents (including all Voting Rights) (except as provided in clause (i) of the
second paragraph of Section 12.01) without any further consent of the
Noteholders, including, without limitation:
53
(a) the right to direct foreclosures upon Mortgage Loans upon failure of
the Servicer to do so;
(b) the right to require the Sponsor, the Contributor or the Originator to
repurchase, or substitute for, Mortgage Loans pursuant to Section 2.05;
(c) the right to give notices of breach or to terminate the rights and
obligations of the Servicer as Servicer pursuant to Section 7.01;
(d) the right to direct the actions of the Indenture Trustee during the
continuance of a Servicer Event of Default pursuant to Sections 7.01 and 7.02;
(e) the right to consent to or direct any waivers of Servicer Event of
Defaults pursuant to Section 7.04; and
(f) the right to remove the Indenture Trustee pursuant to Section 6.8 of
the Indenture.
So long as no Insurer Default should have occurred and be continuing, the
consent of the Insurer to any action or matter shall be deemed to also
constitute the consent of the requisite percentage of Noteholders required by
this Agreement or the Indenture in respect of such action or matter.
In addition, each Noteholder agrees that, unless an Insurer Default has
occurred and is continuing, the rights specifically set forth above may be
exercised by the Noteholders only with the prior written consent of the Insurer.
Section 9.02. Indenture Trustee to Act Solely with Consent of the Insurer.
Unless an Insurer Default has occurred and is continuing, the Indenture
Trustee shall not agree to any amendment pursuant to Section 12.01 or terminate
the Servicer pursuant to Section 7.01, in each case without the prior written
consent of the Insurer (which consent shall not be unreasonably withheld).
Section 9.03. Trust Property and Accounts Held for Benefit of the Insurer.
The Servicer hereby acknowledges and agrees that it shall service and
administer the Mortgage Loans and any REO Properties, and shall maintain the
Collection Account and any REO Account, for the benefit of the Trust, the
Noteholders and for the benefit of the Insurer, and all references in this
Agreement (including, without limitation, in Sections 3.01 and 3.10) to the
benefit of or actions on behalf of the Trust, the Noteholders shall be deemed to
include the Insurer. Unless an Insurer Default has occurred and is continuing,
the Servicer shall not terminate any Sub-Servicing Agreements without cause
without the prior consent of the Insurer. Unless an Insurer Default has occurred
and is continuing, neither the Servicer nor the Depositor shall undertake any
litigation pursuant to Section 6.03 (other than litigation to
54
enforce their respective rights hereunder) without the prior consent of the
Insurer. The Indenture Trustee and the Servicer shall provide such information
as may be reasonably requested by, and shall otherwise cooperate with all
reasonable requests of the Insurer with respect to the Mortgage Loans or the
Notes; provided that such information is within the control of or reasonably
accessible to such party without undue expense.
Section 9.04. Notices to the Insurer.
All notices, statements, reports, certificates or opinions required by
this Agreement to be sent to any other party hereto or to any of the Noteholders
shall also be sent to the Insurer.
Section 9.05. Third-Party Beneficiary.
The Insurer shall be a third-party beneficiary of this Agreement, entitled
to enforce the provisions hereof as if a party hereto, provided, however, that
notwithstanding the foregoing, for so long as an Insurer Default has occurred
and is continuing, the Noteholders shall succeed to the Insurer's rights
hereunder.
Section 9.06. Termination of the Servicer.
Notwithstanding anything this Agreement to the contrary, the Insurer may
terminate or refuse to renew the term of the Servicer at such time as permitted
under any separate agreements between them so long as no Insurer Default has
occurred and is continuing.
ARTICLE X
TERMINATION; SALE AND PURCHASE OF MORTGAGE LOANS
Section 10.01. Termination Upon Early Redemption of the Notes or
Liquidation of All Mortgage Loans; Right of Servicer and Insurer to Purchase
Mortgage Loans.
(a) The respective obligations and responsibilities under this Agreement
of the Trust, the Depositor, the Servicer and the Indenture Trustee (other than
the obligations to the Indenture Trustee pursuant to Section 6.7 of the
Indenture and of the Servicer to provide for and the Indenture Trustee to make
payments to Noteholders as contemplated herein and in the Indenture) shall
terminate upon the earlier to occur of (i) satisfaction and discharge of the
indebtedness evidenced by the Notes pursuant to the Indenture; and (ii) the
later of the final payment or other liquidation (or any advance with respect
thereto) of the last Mortgage Loan or REO Property remaining in the Trust
Property; provided, however, that in no event shall the Trust or any trust
created hereby continue beyond the expiration of 21 years from the death of the
last survivor of the descendants of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, the late ambassador of
the United States to the Court of St. ▇▇▇▇▇, living on the date hereof.
55
(b) The Trust agrees not to exercise the option to redeem the Notes
pursuant to Section 10.01(a) of the Indenture prior to any sale of the Mortgage
Loans or REO Property funding such redemption unless the Trust receives an
Opinion of Counsel that either (x) such sale will not subject the Trust to tax
and will not cause the Trust to fail to qualify as a REIT or (y) the proceeds of
such sale after payment of any tax shall be or would have been sufficient to
redeem the Notes in the full amount required under Section 10.1(a) of the
Indenture if the Notes continued to be outstanding.
Section 10.02. Sale and Purchase of Mortgage Loans
(a) Any redemption of the Notes pursuant to Article X of the Indenture may
be funded through the sale of some or all of the Mortgage Loans and REO
Properties remaining in the Trust at a price equal to not less than the greater
of (A) the aggregate Purchase Price of all such Mortgage Loans, plus the
appraised value of each such REO Property, if any, to be sold, such appraisal to
be conducted by an appraiser mutually agreed upon by the Trust, the purchaser
and the Indenture Trustee in their reasonable discretion (and approved by the
Insurer in its reasonable discretion) and (B) the aggregate fair market value of
all of the assets to be sold (as determined by the Trust, the purchaser, the
Insurer (to the extent the Insurer is not the purchaser) and the Indenture
Trustee) as of the close of business on the third Business Day next preceding
the date upon which notice of any such Note Redemption is furnished to
Noteholders.
(b) If the Trust has not effected any redemption directed by the Insurer
pursuant to Section 10.1(b) of the Indenture within sixty (60) days of receipt
of the direction from the Insurer to redeem the Notes, the Insurer may, subject
to Section 10.1(b) of the Indenture, purchase from the Trust some or all of the
Mortgage Loans and REO Property included in the Trust Property, as determined by
the Insurer, for a purchase price equal to the greater of (i) the price thereof
determined in accordance with Section 10.02(a) and (ii) the Redemption Price,
such price to be delivered to the Indenture Trustee for deposit into the
Distribution Account in immediately available funds at the time of such
purchase.
(c) The Insurer shall have the right to purchase all of the Mortgage Loans
and each REO Property remaining in the Trust at the price specified in Section
10.02(a) if the aggregate Stated Principal Balance of the Mortgage Loans and
each REO Property remaining in the Trust at the time of such election is equal
to or less than 5% of the Original Pool Balance, provided that such purchase
will not subject the Trust to tax and will not cause the Trust to fail to
qualify as a REIT. In the event of a purchase of all of the Mortgage Loans and
REO Property remaining in the Trust by the Insurer pursuant to this Section
10.02(c), the Insurer shall deliver to the Indenture Trustee for deposit in the
Distribution Account an amount in immediately available funds equal to the
purchase price at the time of such purchase.
(d) The Servicer shall have the right to purchase all of the Mortgage
Loans and REO Property remaining in the Trust at the greater of (i) the price
specified in Section 10.02(a) and (ii) the Redemption Price, if the aggregate
stated Principal Balance of the Mortgage Loans and each REO Property remaining
in the Trust at the
56
time of such election is equal to a less than 10% of the Original Pool Balance,
provided that either (x) such purchase will not otherwise subject the Trust to
tax and will not cause the Trust to fail to qualify as a REIT or (y) the
purchase price paid by the Servicer is equal to the greater of (i) or (ii) above
on an after-tax basis. In the event of a purchase of all of the Mortgage Loans
and REO Property remaining in the Trust by the Servicer pursuant to this Section
10.02(d), the Servicer shall deliver to the Indenture Trustee for deposit into
the Distribution Account an amount in immediately available funds equal to the
purchase price at the time of such purchase.
(e) Prior to any proposed sale of any Mortgage Loans as REO Property
pursuant to Section 10.02(a), 10.02(b) or 10.02(c), the Trust shall give not
less than ten business days notice thereof to the Servicer, specifying the
proposed purchase price and date for the closing of such sale and offering to
sell such Mortgage Loans and/or REO Property to the Servicer at such price on
such date. The Servicer shall have ten days from its receipt of such notice to
accept or reject such offer. The failure to respond in writing within such ten
day period shall constitute rejection of such offer. If the Servicer accepts
such offer, the Trust shall sell, and the Servicer shall purchase, on the date
specified in the notice from the Trust referred to above, the Mortgage Loans
and/or REO Property described in such notice on the date and at the price
specified in such notice. Upon any such purchase by the Servicer, the Servicer
shall deliver to the Indenture Trustee for deposit in the Distribution Account
such purchase price in immediately available funds.
(f) Upon certification to the Indenture Trustee by a Servicing Officer (a
copy of which certification shall be delivered to the Insurer) of the deposit
into the Distribution Account of the purchase price of any Mortgage Loans and
REO Properties sold pursuant to Section 10.01(a), 10.01(b), 10.01(c), 10.01(d)
or 10.01(e), the Indenture Trustee shall promptly release to the purchaser
thereof the Mortgage Files for such Mortgage Loans, and execute all assignments,
endorsements and other instruments necessary to effectuate such transfer,
subject to the requirements of Section 2.8 of the Indenture. Section 10.03.
[Reserved]
ARTICLE XI
[RESERVED]
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.01. Amendment.
This Agreement may be amended from time to time by the Trust, the
Depositor, the Servicer and the Indenture Trustee without the consent of any of
the Noteholders, (i) to cure any ambiguity, to correct any defect or to give
effect to the
57
expectations of Securityholders, (ii) to correct, modify or supplement any
provisions herein, to modify, eliminate or add to any of its provisions to such
extent as shall be necessary to maintain the qualification of the Trust as a
REIT at all times that any Securities are outstanding or to avoid or lessen the
risk of the imposition of any tax on the Trust pursuant to the Code that would
be a claim against the Trust Property, provided that the Indenture Trustee and
the Insurer have received an Opinion of Counsel to the effect that such action
is necessary or desirable to maintain such qualification or to avoid or minimize
the risk of the imposition of any such tax and such action will not, as
evidenced by such Opinion of Counsel, adversely affect in any material respect
the interests of any Securityholder, (iii) to change the timing and/or nature of
deposits in the Collection Account, provided that such change will not, as
evidenced by an Opinion of Counsel delivered to the Indenture Trustee and the
Insurer, adversely affect in any material respect the interests of any
Noteholder and that such change will not adversely affect the then current
rating or shadow rating assigned to any Class A Notes, as evidenced by a letter
from each Rating Agency to such effect, (iv) to add to, modify or eliminate any
provisions therein restricting transfers of certain Securities, which are
inserted in response to Code provisions, or (v) to make any other provisions
with respect to matters or questions arising under this Agreement which shall
not be inconsistent with the provisions of this Agreement, provided that such
action shall not, as evidenced by an Opinion of Counsel delivered to the
Indenture Trustee and the Insurer, adversely affect in any material respect the
interests of any Noteholder, provided further, that if the Person requesting
such amendment delivers to the Indenture Trustee and the Insurer written
confirmation from each Rating Agency that such amendment will not cause such
Rating Agency to revise or withdraw its then current rating or shadow rating of
the Class A Notes, such amendment will be deemed to not adversely affect in any
material respect the interests of the Noteholders and no such Opinion of Counsel
shall be required.
This Agreement may also be amended from time to time by the Trust, the
Depositor, the Servicer and the Indenture Trustee with the consent of the
Insurer and the Noteholders holding Notes evidencing at least 66% of the
aggregate Note Principal Balance of the Notes 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 Holders of Notes;
provided, however, that no such amendment shall (i) reduce in any manner the
amount of, or delay the timing of, payments received on Mortgage Loans or
payments which are required to be deposited into the Collection Account or
remitted to the Indenture Trustee for deposit into the Distribution Account,
(ii) adversely affect in any material respect the interests of the Holders of
any Class of Notes in a manner, other than as described in (i), without the
consent of the Holders of Notes evidencing at least 66% of the Note Principal
Balance of the Notes of such Class, or (iii) modify the consents required by the
immediately preceding clauses (i) and (ii) without the consent of the Insurer
and the Holders of all Notes then outstanding. Notwithstanding the foregoing,
this Agreement may be amended by the Trust, the Depositor, the Servicer, where
applicable, and the Indenture Trustee provided that such action is approved by
Holders of Notes evidencing 100% of the Note Principal Balance of each Class
that, as evidenced by an Opinion of Counsel, is adversely affected in any
material respect by such action. For purposes of giving any such consent (other
than a
58
consent to an action which would adversely affect in any material respect the
interests of the Noteholders, while the Servicer or any affiliate thereof is the
holder of Notes evidencing not less than 66% of the Note Principal Balance of
the Notes of the relevant Class or Classes), any Notes registered in the name of
the Servicer or any affiliate thereof shall be deemed not to be outstanding.
Notwithstanding any contrary provision of this Agreement, the Indenture
Trustee shall not consent to any amendment to this Agreement unless it shall
have first received an Opinion of Counsel to the effect that such amendment will
not result in the imposition of any tax on the Trust pursuant to the REIT
Provisions or cause the Trust to fail to qualify as a REIT. Any such amendment
pursuant to the first paragraph of this Section 12.01 shall not be deemed to
adversely affect in any material respect the interests of any Noteholder if such
change is required by the Insurer, so long as no Insurer Default has occurred
and is continuing, and the Servicer receives written confirmation from each
Rating Agency that such amendment will not cause such Rating Agency to reduce
the then current rating or any shadow rating of the affected Notes.
Promptly after the execution of any such amendment with the consent of
Holders the Indenture Trustee shall furnish a copy of such amendment to the
Trust and each Noteholder, the Rating Agencies and the Insurer.
It shall not be necessary for the consent of Noteholders under this
Section 12.01 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 regulations
as the Indenture Trustee may prescribe.
The cost of any Opinion of Counsel to be delivered pursuant to this
Section 12.01 shall be borne by the Person seeking the related amendment, but in
no event shall such Opinion of Counsel be an expense of the Indenture Trustee.
The Indenture Trustee may, but shall not be obligated to enter into any
amendment pursuant to this Section that affects its rights, duties and
immunities under this Agreement or otherwise.
Section 12.02. Recordation of Agreement; Counterparts.
To the extent permitted by applicable law, this Agreement is subject to
recordation in all appropriate public offices for real property records in all
the counties or other comparable jurisdictions in which any or all of the
properties subject to the Mortgages are situated, and in any other appropriate
public recording office or elsewhere, such recordation to be effected by the
Servicer at the expense of the Trust, but only upon direction of the Indenture
Trustee accompanied by an Opinion of Counsel to the effect that such recordation
materially and beneficially affects the interests of the Noteholders.
59
For the purpose of facilitating the recordation of this Agreement as
herein provided and for other purposes, this Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts shall
be deemed to be an original, and such counterparts shall constitute but one and
the same instrument.
Section 12.03. [Reserved]
Section 12.04. GOVERNING LAW.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
Section 12.05. Notices.
All directions, demands and notices hereunder shall be in writing and
shall be deemed to have been duly given when received if personally delivered at
or mailed by first class mail, postage prepaid, or by express delivery service
or delivered in any other manner specified herein, to (a) in the case of the
Trust, c/o Wilmington Trust Company, as Owner Trustee, ▇▇▇▇▇▇ Square North, ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, Attention: Corporate Trust
Administration, (b) in the case of the Depositor, ▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: Asset-Backed Finance Group (phone number (212)
▇▇▇-▇▇▇▇), or such other address or telecopy number as may hereafter be
furnished to the Servicer, the Insurer and the Indenture Trustee in writing by
the Depositor, (c) in the case of the Servicer, ▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇ ▇▇▇▇ (telecopy number: (864)
271-8374, or such other address or telecopy number as may hereafter be furnished
to the Indenture Trustee and the Depositor in writing by the Servicer, (d) in
the case of the Indenture Trustee, First Union National Bank, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, Attention: Corporate
Trust Department (telecopy number ▇▇▇-▇▇▇-▇▇▇▇, or such other address or
telecopy number as may hereafter be furnished to the Servicer and the Depositor
in writing by the Indenture Trustee, and (e) in the case of the Insurer,
Financial Security Assurance Inc., ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇,
Attention: Surveillance Department Re: Emergent Home Equity Loan Trust 1997-4
(telecopy number 212-888-5278) or such other address or telecopy number as may
hereafter be furnished to the Indenture Trustee, the Depositor and the Servicer
in writing by the Insurer. Any party hereto may change the address, telephone
number or telecopier number by notice to the other parties hereto in accordance
with the terms hereof. In each case in which a notice or other communication to
the Insurer refers to a Servicer Event of Default or a claim under the Policy or
with respect to which failure on the part of the Insurer to respond shall be
deemed to constitute consent or acceptance, then a copy of such notice or other
communication should also be sent to the attention of the General Counsel and
the Head-Financial Guaranty Group and shall be marked to indicate "URGENT
60
MATERIAL ENCLOSED." Any notice required or permitted to be given to a Noteholder
shall be given in the manner provided in Section ___ of the Indenture. Any
notice so given to a Noteholder within the time prescribed in this Agreement
shall be conclusively presumed to have been duly given, whether or not the
Noteholder receives such notice. A copy of any notice required to be telecopied
hereunder also shall be mailed to the appropriate party in the manner set forth
above.
Section 12.06. Severability of Provisions.
If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be for any reason whatsoever held invalid, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the other provisions of this
Agreement or of the Notes or the rights of the Holders thereof.
Section 12.07. Notice to Rating Agencies and Insurer.
The Indenture Trustee shall use its best efforts promptly to provide
notice to the Rating Agencies and the Insurer with respect to each of the
following of which it has actual knowledge:
1. Any material change or amendment to this Agreement;
2. The occurrence of any Servicer Event of Default that has not been
cured or waived;
3. The resignation or termination of the Servicer or the Indenture
Trustee;
4. The repurchase or substitution of Mortgage Loans pursuant to or as
contemplated by Section 2.05;
5. The final payment to the Holders of any Class of Notes;
6. Any change in the location of the Collection Account;
7. Any event that would result in the inability of the Indenture
Trustee to make advances regarding delinquent Mortgage Loans; and
8. Any Insurer Default that has not been cured.
In addition, the Indenture Trustee shall promptly furnish to each Rating
Agency and the Insurer copies of each report to Noteholders described in Section
4.02 and the Servicer shall promptly furnish to each Rating Agency copies of the
following:
61
1. Each annual statement as to compliance described in Section 3.22;
and
2. Each annual independent public accountants' servicing report
described in Section 3.23.
Any such notice pursuant to this Section 12.07 shall be in writing and
shall be deemed to have been duly given if personally delivered at or mailed by
first class mail, postage prepaid, or by express delivery service to ▇▇▇▇▇'▇
Investors Service, Inc., ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, and to
Standard & Poor's Ratings Services, ▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or
such other addresses as the Rating Agencies may designate in writing to the
parties hereto.
Section 12.08. Article and Section References.
All article and section references used in this Agreement, unless
otherwise provided, are to articles and sections in this Agreement.
Section 12.09. Confirmation of Intent.
It is the express intent of the parties hereto that the conveyance of the
Mortgage Loans and the other assets constituting the Trust Property by the
Depositor to the Trust as contemplated by this Agreement be, and be treated for
all purposes as, a sale by the Depositor to the Trust of the Mortgage Loans and
the other assets constituting the Trust Property. However, in the event that,
notwithstanding the intent of the parties, the Mortgage Loans and the other
assets constituting the Trust Property are held to continue to be property of
the Depositor then (a) this Agreement shall also be deemed to be a security
agreement within the meaning of Articles 8 and 9 of the Uniform Commercial Code;
(b) the transfer of the Mortgage Loans and the other assets constituting the
Trust Property provided for herein shall be deemed to be a grant by the
Depositor to the Trust of a security interest in all of the Depositor's right,
title and interest in and to the Mortgage Loans and the other assets
constituting the Trust Property and all amounts payable on the Mortgage Loans in
accordance with the terms thereof and all proceeds of the conversion, voluntary
or involuntary, of the foregoing into cash, instruments, securities or other
property; (c) the possession by the Trust of Mortgage Loans and such other items
of property as constitute instruments, money, negotiable documents or chattel
paper shall be deemed to be "possession by the secured party" for purposes of
perfecting the security interest pursuant to Section 9-305 of the Uniform
Commercial Code; and (d) notifications to persons holding such property, and
acknowledgments, receipts or confirmations from persons holding such property,
shall be deemed notifications to, or acknowledgments, receipts or confirmations
from, financial intermediaries, bailees or agents (as applicable) of the Trust
for the purpose of perfecting such security interest under applicable law. Any
assignment of the interest of the Trust pursuant to any provision hereof shall
also be deemed to be an assignment of any security interest created hereby. The
Servicer and the Depositor shall, to the extent consistent with this Agreement,
take such actions as may be necessary to ensure that, if this Agreement were
deemed to create a security interest in the Mortgage Loans and the
62
other assets constituting the Trust Property, such security interest would be
deemed to be a perfected security interest of first priority under applicable
law and would be maintained as such throughout the term of this Agreement.
63
IN WITNESS WHEREOF, the Trust, the Depositor, the Servicer and the
Indenture Trustee have caused their names to be signed hereto by their
respective officers thereunto duly authorized, in each case as of the day and
year first above written.
EMERGENT HOME EQUITY LOAN TRUST
1997-4
By: WILMINGTON TRUST COMPANY, not in
its individual capacity but solely as
Owner Trustee
By: ___________________________________
Name:
Title:
PRUDENTIAL SECURITIES SECURED
FINANCING CORPORATION, as Depositor
By: ___________________________________
Name: ▇▇▇▇ ▇▇▇▇▇
Title: Vice President
EMERGENT MORTGAGE CORP., as Servicer
By: ___________________________________
Name: ▇▇▇▇▇ ▇▇▇▇▇
Title: Executive Vice President
FIRST UNION NATIONAL BANK, solely in its
capacity as Indenture Trustee and not in
its individual capacity
By: _____________________________
Name: Pablo de la Canal
Title: Assistant Vice President
[Signature Page for Sale and Servicing Agreement]
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 23rd day of December, 1997, before me, a notary public in and for
said State, personally appeared ___________, known to me to be a __________ of
Wilmington Trust Company, one of the corporations that executed the within
instrument, and also known to me to be the person who executed it on behalf of
said corporation, and acknowledged to me that such corporation executed the
within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
______________________________
Notary Public
[Seal]
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 23rd day of December, 1997, before me, a notary public in and for
said State, personally appeared ▇▇▇▇ ▇▇▇▇▇, known to me to be a Vice President
of Prudential Securities Secured Financing Corporation, one of the corporations
that executed the within instrument, and also known to me to be the person who
executed it on behalf of said corporation, and acknowledged to me that such
corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
______________________________
Notary Public
[Seal]
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 23rd day of December, 1997, before me, a notary public in and for
said State, personally appeared ▇▇▇▇▇ ▇▇▇▇▇, known to me to be a Executive Vice
President of Emergent Mortgage Corp., one of the corporations that executed the
within instrument, and also known to me to be the person who executed it on
behalf of said corporation, and acknowledged to me that such corporation
executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
______________________________
Notary Public
[Seal]
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 23rd day of December, 1997, before me, a notary public in and for
said State, personally appeared Pablo de la Canal, known to me to be an officer
of First Union National Bank, a national banking association that executed the
within instrument, and also known to me to be the person who executed it on
behalf of said banking association, and acknowledged to me that such banking
association executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
______________________________
Notary Public
[Seal]
EXHIBIT A
GLOSSARY OF DEFINED TERMS
The following words and phrases, unless otherwise defined in
the Sale and Servicing Agreement, the Trust Agreement or the Indenture, shall
have the meanings specified herein. For purposes of the Indenture, references to
the term "Trust" as used in this Glossary of Defined Terms shall be deemed to be
references to the Issuer.
"Accrued Note Interest": With respect to each Payment Date and
any Class A Note, interest accrued during the related Interest Accrual Period at
the applicable Class A Note Interest Rate for such Class A Note on the Note
Principal Balance of such Class A Note immediately prior to such Payment Date.
"Accrued Shortfall Interest Carry Forward Amount": With
respect to any Payment Date, the amount of the Shortfall Interest Deferred
Amounts unpaid from preceding Payment Dates together with interest thereon at
the related Interest Rate from such preceding Payment Dates to the current
Payment Date.
"Act": The meaning specified in Section 12.3(a) of the
Indenture.
"Actual Owner": The meaning assigned to such term in Section
4.05 of the Sale and Servicing Agreement.
"Addition Notice": A written notice from the Sponsor to the
Depositor, the Indenture Trustee, the Rating Agencies and the Insurer that the
Sponsor desires to make a Pre-Funded Loan Transfer.
"Additional Mortgage Loans": Any Mortgage Loans included in
the Mortgage Pool as of the Closing Date but not identified by the Originator
before the opening of business on December 1, 1997, but excluding any Qualified
Substitute Mortgage Loans.
"Additional Trustee": Global Securitization Services, LLC, not
in its individual capacity but solely as trustee under the Trust Agreement, and
any successor to it as trustee thereunder.
"Additional Trustee Fees": The fees payable to the Additional
Trustee as contemplated in Section 4.9 of the Trust Agreement.
"Affiliate": With respect to any specified Person, any other
Person controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, "control" when used with respect to
any specified Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Appointment of Additional Trustee Agreement": The Appointment
of Additional Trustee Agreement dated the Closing Date among the Sponsor, the
Owner Trustee and the Additional Trustee relating to the appointment of the
Additional Trustee.
"Assignment": An assignment of Mortgage, notice of transfer or
equivalent instrument, in recordable form, which is sufficient under the laws of
the jurisdiction wherein the related Mortgaged Property is located to reflect of
record the sale of the Mortgage.
"Authorized Newspaper": A newspaper of general circulation in
the Borough of Manhattan, The City of New York, printed in the English language
and customarily published on each Business Day, whether or not published on
Saturdays, Sundays and holidays.
"Authorized Officer": With respect to the Trust, the
Depositor, the Sponsor and the Servicer, any officer or agent acting pursuant to
a power of attorney of the Owner Trustee, the Depositor, the Sponsor or the
Servicer, as applicable, who is authorized to act for the Owner Trustee, the
Depositor, the Sponsor or the Servicer, as applicable, in matters relating to
the Trust, the Depositor, the Sponsor or the Servicer, as the case may be, and
who is identified on the list of Authorized Officers delivered by each of the
Owner Trustee, the Depositor, the Sponsor and the Servicer to the Indenture
Trustee on the Closing Date (as such list may be modified or supplemented from
time to time thereafter).
"Available Distribution Amount": With respect to any Payment
Date, an amount equal to the excess of (i) the sum of (a) the aggregate of the
Monthly Payments, Liquidation Proceeds, Insurance Proceeds, Principal
Prepayments and other unscheduled recoveries of principal and interest in
respect of the Mortgage Loans received during or with respect to the related
Collection Period, (b) the aggregate of any amounts received in respect of an
REO Property withdrawn from any REO Account and deposited in the Distribution
Account for such Payment Date pursuant to Section 3.25 of the Sale and Servicing
Agreement, (c) the aggregate of any amounts deposited in the Distribution
Account by the Servicer in respect of Prepayment Interest Shortfalls for such
Payment Date pursuant to Section 3.26 of the Sale and Servicing Agreement, (d)
the aggregate of any Monthly Advances made by the Servicer for such Payment Date
pursuant to Section 4.03 of the Sale and Servicing Agreement, (e) the aggregate
of any advances made by the Indenture Trustee for such Payment Date pursuant to
Section 7.02 of the Sale and Servicing Agreement, (f) the Stated Principal
Balance of any Mortgage Loan that was purchased during the related Collection
Period pursuant to or as contemplated by Section 2.05, or 10.01 of the Sale and
Servicing Agreement and the amount of any shortfall deposited into the
Collection Account in connection with the substitution of a Deleted Mortgage
Loan pursuant to Section 2.05 of the Sale and Servicing Agreement during the
related Collection Period and (g) the aggregate of any amounts deposited into
the Distribution Account by the Indenture Trustee from the Interest Coverage
Account, the Pre-Funding Account and the Redemption Account over (ii) the sum of
(a) amounts reimbursable or payable to the Depositor, the Servicer, the
Indenture Trustee, the Sponsor or any Sub-Servicer pursuant to Section 3.11 or
Section 3.14 of the Sale and Servicing
2
Agreement or otherwise payable in respect of extraordinary Trust Property
expenses, (b) Stayed Funds, (c) amounts deposited in the Collection Account or
the Distribution Account, as the case may be, in error, (d) amounts reimbursable
to the Indenture Trustee for an advance made pursuant to Section 7.02(b) of the
Sale and Servicing Agreement which advance the Indenture Trustee has determined
to be nonrecoverable from the Stayed Funds in respect of which it was made, (e)
the Insurer Premium payable to the Insurer pursuant to Section 8.10(b) of the
Indenture, and (f) the Indenture Trustee Fee payable from the Distribution
Account pursuant to Section 6.7 of the Indenture.
"Balloon Mortgage Loan": A Mortgage Loan that provides for the
payment of the unamortized principal balance of such Mortgage Loan in a single
payment at the maturity of such Mortgage Loan that is substantially greater than
the preceding monthly payment.
"Balloon Payment": The final payment due on a Balloon Mortgage
Loan.
"Bankruptcy Code": The Bankruptcy Reform Act of 1978 (Title 11
of the United States Code), as amended.
"Basic Documents": The Sale and Servicing Agreement, the
Indenture, the Certificate of Trust, the Trust Agreement, the Indemnification
Agreement, the Insurance Agreement, the Underwriting Agreement, the Trust
Services Agreement, the Appointment of Additional Trustee Agreement and the
other documents and certificates delivered in connection therewith.
"Beneficial Ownership," when used with respect to ownership of
Certificates by any Person, shall mean all Certificates which are (i) directly
owned by such Person, (ii) indirectly owned by such Person (if such Person is an
"individual" as defined in Section 542(a)(2) of the Code) taking into account
the constructive ownership rules of Section 544 of the Code, as modified by
Section 856(h)(1)(B) of the Code, or (iii) beneficially owned by such Person
pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended,
PROVIDED THAT (x) in determining the amount of Certificates Beneficially Owned
by a Person or group, no Certificate shall be counted more than once although
applicable to two or more of clauses (i), (ii) and (iii) of this definition or
(in the case of a group) although Beneficially Owned by more than one Person in
such group.
"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 Notes": A beneficial interest in the Notes,
ownership and transfers of which shall be made through book entries by the
Depository as described in Section 2.9 of the Indenture.
3
"Business Day": Any day other than a Saturday, a Sunday or a
day on which banking or savings and loan institutions in the State of South
Carolina, or in the city in which the Insurer or the Corporate Trust Office of
the Indenture Trustee is located, are authorized or obligated by law or
executive order to be closed.
"Business Trust Statute": Chapter 38 of Title 12 of the
Delaware Code, 12 Del. Code ss. 3801 et. seq. as the same may be amended from
time to time.
"Cash-Out Refinancing": A Refinanced Mortgage Loan the
proceeds of which were more than $1000 in excess of the principal balance of any
existing first mortgage or subordinate mortgage on the related Mortgaged
Property and related closing costs.
"Certificate": Any of the Certificates executed and delivered
by the Owner Trustee on behalf of the Trust, and authenticated by the Owner
Trustee, pursuant to the Trust Agreement.
"Certificate Distribution Account": The trust account
established and maintained by the Trust Servicer pursuant to Section 5.2 of the
Trust Agreement.
"Certificate of Trust": The certificate of trust of the Trust
as filed by the Initial Owner Trustee under the Business Trust Statute on behalf
of the Trust pursuant to the Trust Agreement.
"Certificate Register" and "Certificate Registrar": The
register maintained and the registrar appointed pursuant to Section 4.9 of the
Trust Agreement.
"Certificateholder" or "Holder": The Person in whose name a
Certificate is registered in the Certificate Register.
"Class": Collectively, all of the Notes bearing the same class
designation.
"Class A Fixed Rate Notes": The Notes of each Class other than
the Class A-1 Variable Rate Notes.
"Class A Note": Any of the Class A-1 Notes, Class A-2 Notes,
Class A-3 Notes, Class A-4 Notes, Class A-5 Notes and Class A-6 Notes executed
by the Owner Trustee on behalf of the Trust and authenticated and delivered by
the Indenture Trustee pursuant to the Indenture.
"Class A Noteholder": Any Holder of a Class A-1, Class A-2,
Class A-3, Class A-4, Class A-5 or Class A-6 Note.
"Class A Note Interest Rate": With respect to the Class A-1
Notes, the Class A-1 Interest Rate, with respect to the Class A-2 Notes, the
Class A-2 Interest Rate, with respect to the Class A-3 Notes, the Class A-3
Interest Rate, with respect to the Class A-4 Notes, the Class A-4 Interest Rate,
with respect to the Class A-5 Notes, the Class A-5 Interest Rate, and with
respect to the Class A-6 Notes, the Class A-6 Interest Rate.
4
"Class A Note Principal Balance": The sum of the Class A-1
Note Principal Balance, the Class A-2 Note Principal Balance, the Class A-3 Note
Principal Balance, the Class A-4 Note Principal Balance, the Class A-5 Note
Principal Balance and the Class A-6 Note Principal Balance.
"Class A-1 Variable Rate Notes": The Class A-1 Notes.
"Class A-1 Interest Payment Amount": On any Payment Date, the
amount equal to (i) the aggregate Accrued Note Interest on the Class A-1 Notes
during the related Interest Accrual Period, reduced by the Shortfall Interest
Deferred Amount, if any, for such Payment Date in respect of such Class, plus
(ii) to the extent the remaining Available Distribution Amount for such Payment
Date is sufficient for the payment thereof, the Accrued Shortfall Interest Carry
Forward Amount, if any, for such Payment Date in respect of such Class.
"Class A-1 Interest Rate": For each Payment Date, a rate per
annum equal to the lesser of (i) LIBOR plus 0.16% per annum and (ii) 10.50%.
"Class A-1 Note": Any one of the Class A-1 Notes executed by
the Owner Trustee on behalf of the Trust, and authenticated and delivered by the
Indenture Trustee, pursuant to the Indenture.
"Class A-1 Note Principal Balance": The Class Note Balance for
the Class A-1 Notes.
"Class A-2 Interest Payment Amount": On any Payment Date, the
amount equal to (i) the aggregate Accrued Note Interest on the Class A-2 Notes
during the related Interest Accrual Period, reduced by the Shortfall Interest
Deferred Amount, if any, for such Payment Date in respect of such Class, plus
(ii) to the extent the remaining Available Distribution Amount for such Payment
Date is sufficient for the payment thereof, the Accrued Shortfall Interest Carry
Forward Amount, if any, for such Payment Date in respect of such Class.
"Class A-2 Interest Rate": For each Payment Date, a rate per
annum equal to 6.470%.
"Class A-2 Note": Any one of the Class A-2 Notes executed by
the Owner Trustee on behalf of the Trust, and authenticated and delivered by the
Indenture Trustee, pursuant to the Indenture.
"Class A-2 Note Principal Balance": The Class Note Balance for
the Class A-2 Certificates.
"Class A-3 Interest Payment Amount": On any Payment Date, the
amount equal to (i) the aggregate Accrued Note Interest on the Class A-3 Notes
during the related Interest Accrual Period, reduced by the Shortfall Interest
Deferred Amount, if any, for such Payment Date in respect of such Class, plus
(ii) to the extent the remaining Available Distribution Amount for such Payment
Date is sufficient for the payment
5
thereof, the Accrued Shortfall Interest Carry Forward Amount, if any, for such
Payment Date in respect of such Class.
"Class A-3 Interest Rate": For each Payment Date, a rate per
annum equal to 6.505%.
"Class A-3 Note": Any one of the Class A-3 Notes executed by
the Owner Trustee on behalf of the Trust, and authenticated and delivered by the
Indenture Trustee, pursuant to the Indenture.
"Class A-3 Note Principal Balance": The Class Note Balance for
the Class A-3 Notes.
"Class A-4 Interest Payment Amount": On any Payment Date, the
amount equal to (i) the aggregate Accrued Note Interest on the Class A-4 Notes
during the related Interest Accrual Period, reduced by the Shortfall Interest
Deferred Amount, if any, for such Payment Date in respect of such Class, plus
(ii) to the extent the remaining Available Distribution Amount is sufficient for
the payment thereof, the Accrued Shortfall Interest Carry Forward Amount, if
any, for such Payment Date in respect of such Class.
"Class A-4 Interest Rate": For each Payment Date, a rate per
annum equal to 6.700%.
"Class A-4 Note": Any one of the Class A-4 Notes executed by
the Owner Trustee on behalf of the Trust, and authenticated and delivered by the
Indenture Trustee, pursuant to the Indenture.
"Class A-4 Note Principal Balance": The Class Note Balance for
the Class A-4 Notes.
"Class A-5 Interest Payment Amount": On any Payment Date, the
amount equal to (i) the aggregate Accrued Note Interest on the Class A-5 Notes
during the related Interest Accrual Period, reduced by the Shortfall Interest
Deferred Amount, if any, for such Payment Date in respect of such Class, plus
(ii) to the extent the remaining Available Distribution Amount is sufficient for
the payment thereof, the Accrued Shortfall Interest Carry Forward Amount, if
any, for such Payment Date in respect of such Class.
"Class A-5 Interest Rate": For each Payment Date, a rate per
annum equal to 7.080%.
"Class A-5 Note": Any one of the Class A-5 Notes executed by
the Owner Trustee on behalf of the Trust, and authenticated and delivered by the
Indenture Trustee, pursuant to the Indenture.
"Class A-5 Note Principal Balance": The Class Note Balance for
the Class A-5 Notes.
6
"Class A-6 Interest Payment Amount": On any Payment Date, the
amount equal to (i) the aggregate Accrued Note Interest on the Class A-6 Notes
during the related Interest Accrual Period, reduced by the Shortfall Interest
Deferred Amount, if any, for such Payment Date in respect of such Class, plus
(ii) to the extent the remaining Available Distribution Amount is sufficient for
the payment thereof, the Accrued Shortfall Interest Carry Forward Amount, if
any, for such Payment Date in respect of such Class.
"Class A-6 Interest Rate": For each Payment Date, a rate per
annum equal to 6.685%.
"Class A-6 Lockout Payment Amount": For any Payment Date, an
amount equal to the product of (x) the applicable Class A-6 Lockout Percentage
for such Payment Date and (y) the Class A-6 Lockout Pro-Rata Distribution Amount
for such Payment Date.
"Class A-6 Lockout Percentage": For each Payment Date, the
percentage specified below for the period in which such Payment Date occurs:
Payment Date Lockout Percentage
------------ ------------------
January 1998 - December 2000 0%
January 2001 - December 2002 45%
January 2003 - December 2003 80%
January 2004 - December 2004 100%
Subsequent to December 2004 300%
"Class A-6 Lockout Pro-Rata Distribution Amount": For any
Payment Date, an amount equal to the product of (x) a fraction, the numerator of
which is the Class A-6 Note Principal Balance immediately prior to such Payment
Date and the denominator of which is the Class A Note Principal Balance
immediately prior to such Payment Date, and (y) the Principal Distribution
Amount for such Payment Date.
"Class A-6 Note": Any one of the Class A-6 Notes executed by
the Owner Trustee on behalf of the Trust, and authenticated and delivered by the
Indenture Trustee, pursuant to the Indenture.
"Class A-6 Note Principal Balance": The Class Note Balance for
the Class A-6 Notes.
7
"Class Note Balance": As to any Class of Notes and any date of
determination, the aggregate of the Note Principal Balances of all Notes of such
Class as of such date of determination.
"Closing Date": December 23, 1997.
"Code": The Internal Revenue Code of 1986, as amended from
time to time.
"Collateral": The meaning specified in the Granting Clause of
the Indenture.
"Collection Account": The account or accounts created and
maintained by the Servicer pursuant to Section 3.10(a) of the Sale and Servicing
Agreement, which shall be entitled "Emergent Mortgage Corp., as Servicer for
First Union National Bank, as Indenture Trustee, in trust for (A) registered
holders of Emergent Home Equity Loan Trust Asset Backed Notes, Series 1997-4,
and (B) Financial Security Assurance, Inc." and which must be an Eligible
Account.
"Collection Period": In the case of any Payment Date, the
calendar month immediately preceding the calendar month in which such Payment
Date occurs.
"Company": Emergent Mortgage Corp.
"Constructive Ownership": shall mean ownership of a Trust
Interest by a Person, whether the Trust Interest is held directly or indirectly
(including by a nominee), and shall include interests that would be treated as
owned through the application of Section 544 of the Code, as modified by
Sections 856(h)(1)(B) and 856(h)(3) of the Code. The terms "Constructive Owner,"
"Constructively Owns", "Constructively Owned" and "Constructively Owning" shall
have the correlative meanings.
"Contributor": Emergent Mortgage Holdings Corporation II.
"Contributor/Sponsor Contribution Agent": The Contribution and
Assignment Agreement dated as of December 1, 1997 among the Contributor, the
Sponsor and Emergent Group providing for the contribution of the Mortgage Loans
from the Contributor to the Sponsor.
"Corporate Trust Office": With respect to the Indenture
Trustee, the principal corporate trust office of the Indenture Trustee at which
at any particular time its corporate trust business in connection with the
Indenture shall be administered, which office at the date of the execution of
the Indenture is located at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, Attention: Corporate Trust Department. With respect to the
Owner Trustee, the principal corporate trust office of the Owner Trustee at
which at any particular time its corporate trust business in connection with the
Trust Agreement shall be administered, which office at the date of the execution
of the Trust Agreement is located at ▇▇▇▇▇▇ Square North, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, Attention: Corporate Trust
Administration.
8
"Cumulative Insurance Payments": As of any time of
determination, the aggregate of all Insurance Payments previously made by the
Insurer plus interest thereon from the date such amount became due until paid in
full, at a rate of interest calculated as provided in the Insurance Agreement
minus all payments previously made to the Insurer pursuant to Section 8.3 of the
Indenture hereof as reimbursement for such amounts.
"Cumulative Loss Percentage": For any Payment Date, the
percentage equivalent of a fraction, the numerator of which is aggregate amount
of Realized Losses incurred from and including the first Collection Period to
and including the most recently ended Collection Period, and the denominator of
which is the Maximum Collateral Amount.
"Cut-off Date": With respect to each Initial Mortgage Loan,
the opening of business on December 1, 1997; with respect to each Additional
Mortgage Loan and each Pre-Funded Mortgage Loan, the respective origination
dates thereof; and with respect to all Qualified Substitute Mortgage Loans, the
first day of the calendar month in which the substitution occurs. References
herein to the "Cut-off Date," when used with respect to more than one Mortgage
Loan, shall be to the respective Cut-off Dates for such Mortgage Loans.
"Debt Service Reduction": With respect to any Mortgage Loan, a
reduction in the scheduled Monthly Payment for such Mortgage Loan by a court of
competent jurisdiction in a proceeding under the Bankruptcy Code, except such a
reduction resulting from a Deficient Valuation.
"Default": Any occurrence that is, or with notice or the lapse
of time or both would become, an Event of Default.
"Deficiency Amount": With respect to the Class A Notes as of
any Payment Date (i) any shortfall in amounts available in the Distribution
Account to pay the Interest Payment Amount, net of any Relief Act Interest
Shortfalls and Prepayment Interest Shortfalls allocated to the Class A Notes,
(ii) the Remaining Overcollateralization Deficit, if any, for such Payment Date
and (iii) without duplication of the amount specified in clause (ii), the
applicable Class A Note Principal Balance to the extent unpaid on the final
Payment Date for each Class of the Class A Notes or the earlier termination of
the Trust pursuant to the terms of the Trust Agreement.
"Deficiency Event": The inability of the Indenture Trustee to
make the Scheduled Payment on any Payment Date due to a shortage of funds for
such purpose then held in the Distribution Account and the failure of the
Insurer to pay in full a claim made in accordance with the Policy with respect
to such Payment Date.
"Deficient Valuation": With respect to any Mortgage Loan, a
valuation of the related Mortgaged Property by a court of competent jurisdiction
in an amount less than the then outstanding principal balance of the Mortgage
Loan, which valuation results from a proceeding initiated under the Bankruptcy
Code.
9
"Definitive Notes": The meaning specified in Section 2.9 of
the Indenture.
"Deleted Mortgage Loan": A Mortgage Loan replaced or to be
replaced by a Qualified Substitute Mortgage Loan.
"Delinquency Percentage": As of the last day of any Collection
Period, the percentage equivalent of a fraction, the numerator of which equals
the aggregate Stated Principal Balances of all Mortgage Loans that are 90 or
more days Delinquent, in foreclosure or converted to REO Properties as of such
last day of such Collection Period, and the denominator of which is the
aggregate Stated Principal Balance of the Mortgage Loans as of the last day of
such Collection Period.
"Delinquent": A Mortgage Loan is Delinquent if the Monthly
Payment due on a Due Date is not paid on or before the next succeeding Due Date,
at which time, such Mortgage Loan is 30 days Delinquent. If the Monthly Payment
due on a Due Date is not paid on or before the second or third succeeding Due
Date, respectively, such Mortgage Loan is 60 or 90 days Delinquent, as the case
may be.
"Depositor": Prudential Securities Secured Financing
Corporation, a Delaware corporation, or its successor in interest.
"Depository": The Depository Trust Company, or any successor
Depository hereafter named. The nominee of the initial Depository, for purposes
of registering those Certificates that are to be Book-Entry Certificates, is
CEDE & Co. The Depository shall at all times be a "clearing corporation" as
defined in Section 8-102(3) of the Uniform Commercial Code of the State of New
York and a "clearing agency" registered pursuant to the provisions of Section
17A of the Securities Exchange Act of 1934, as amended.
"Depository Institution": Any depository institution or trust
company, including the Indenture Trustee, that (a) is incorporated under the
laws of the United States of America or any State thereof, (b) is subject to
supervision and examination by federal or state banking authorities and (c) has
outstanding unsecured commercial paper or other short-term unsecured debt
obligations (or, in the case of a depository institution that is the principal
subsidiary of a holding company, such holding company has unsecured commercial
paper or other short-term unsecured debt obligations) that are rated at least
P-1 by ▇▇▇▇▇'▇ and A-1 by S&P (or comparable ratings if ▇▇▇▇▇'▇ and S&P are not
the Rating Agencies).
"Depository Participant": A broker, dealer, bank or other
financial institution or other Person for whom from time to time a Depository
effects book-entry transfers and pledges of securities deposited with the
Depository.
"Determination Date": With respect to each Payment Date, the
fifth Business Day prior to such Payment Date.
10
"Directly Operate": With respect to any REO Property, the
furnishing or rendering of services to the tenants thereof, the management or
operation of such REO Property, the holding of such REO Property primarily for
sale to the performance of any construction work thereon or any use of such REO
Property in a trade or business conducted by the Trust other than through an
Independent Contractor; provided, however, that the Indenture Trustee (or the
Servicer on behalf of the Indenture Trustee) shall not be considered to Directly
Operate an REO Property solely because the Indenture Trustee (or the Servicer on
behalf of the Indenture Trustee) establishes rental terms, chooses tenants,
enters into or renews leases, deals with taxes and insurance, or makes decisions
as to repairs or capital expenditures with respect to such REO Property.
"Disqualified Organization": Any of the following: (i) the
United States, any State or political subdivision thereof, any possession of the
United States, or any agency or instrumentality of any of the foregoing (other
than an instrumentality which is a corporation if all of its activities are
subject to tax and, except for the FHLMC, a majority of its board of directors
is not selected by such governmental unit), (ii) any foreign government, any
international organization, or any agency or instrumentality of any of the
foregoing, (iii) any organization (other than certain farmers' cooperatives
described in Section 521 of the Code) which is exempt from the tax imposed by
Chapter 1 of the Code (including the tax imposed by Section 511 of the Code on
unrelated business taxable income), (iv) rural electric and telephone
cooperatives described in Section 1381(a)(2)(C) of the Code, and (v) any other
Person so designated by the Indenture Trustee based upon an Opinion of Counsel
that the holding of an Ownership Interest in a Note or Certificate, as the case
may be, by such Person may cause the Trust or the Trust Property or any Person
having an Ownership Interest in any Note or Certificate (other than such Person)
to incur a liability for any federal tax imposed under the Code that would not
otherwise be imposed but for the Transfer of an Ownership Interest in a Note or
Certificate to such Person. The terms "United States," "State" and
"international organization" shall have the meanings set forth in Section 7701
of the Code or successor provisions.
"Distribution Account": The trust account established and
maintained by the Indenture Trustee pursuant to Section 8.7 of the Indenture.
"Due Date": With respect to each Payment Date, the day of the
month on which the Monthly Payment is due on a Mortgage Loan during the related
Collection Period, exclusive of any days of grace.
"Eligible Account": Any of (i) an account or accounts
maintained with a federal or state chartered depository institution or trust
company the short-term unsecured debt obligations of which (or, in the case of a
depository institution or trust company that is the principal subsidiary of a
holding company, the short-term unsecured debt obligations of such holding
company) are rated at least P-1 by ▇▇▇▇▇'▇ and A-1 by S&P (or comparable ratings
if ▇▇▇▇▇'▇ and S&P are not the Rating Agencies) at the time any amounts are held
on deposit therein, (ii) an account or accounts the deposits in which are fully
insured by the FDIC or (iii) a trust account or accounts maintained with the
trust
11
department of a federal or state chartered depository institution or trust
company acting in its fiduciary capacity. Eligible Accounts may bear interest.
"Emergent Group": Emergent Group, Inc., a South Carolina
corporation.
"ERISA": Employee Retirement Income Security Act of 1974, as
amended
"Escrow Payments": As defined in Section 3.09 of the Sale and
Servicing Agreement.
"Estate in Real Property": A fee simple estate in a parcel of
land.
"Excess Subordinated Amount": With respect to the Class A
Notes and any Payment Date, the excess, if any, of (i) the Subordinated Amount
for such Payment Date over (ii) the Required Subordinated Amount for such
Payment Date.
"Exchange Act": The Securities Exchange Act of 1934, as
amended.
"Expense Account": The account established and maintained
pursuant to Section 8.10 of the Indenture.
"Expenses": The meaning assigned to such term in Section 8.2
of the Sale and Servicing Agreement.
"FDIC": Federal Deposit Insurance Corporation or any successor
thereto.
"FHLMC": Federal Home Loan Mortgage Corporation or any
successor thereto.
"Final Maturity Date": With respect to any Class of the Class
A Notes, the Final Scheduled Payment Date for such Class or, if earlier, the
Redemption Date.
"Final Payment Date": With respect to any Class of the Class A
Notes, the earlier of the Final Maturity Date with respect to such Class and the
Payment Date on which the principal of and all accrued but unpaid interest on
the Notes of such Class shall be paid in full.
"Final Recovery Determination": With respect to any defaulted
Mortgage Loan or any REO Property (other than a Mortgage Loan or REO Property
purchased by the Sponsor, the Depositor, the Servicer or the Insurer pursuant to
or as contemplated by Section 2.05, 3.18(d) or 10.01) of the Sale and Servicing
Agreement, a determination made by the Servicer that all Insurance Proceeds,
Liquidation Proceeds and other payments or recoveries which the Servicer, in its
reasonable good faith judgment, expects to be finally recoverable in respect
thereof have been so recovered. The Servicer shall maintain records, prepared by
a Servicing Officer, of each Final Recovery Determination made thereby.
12
"Final Scheduled Payment Date": (i) in the case of the Class
A-1 Notes, May 15, 2007, (ii) in the case of the Class A-2 Notes, October 15,
2010, (iii) in the case of the Class A-3 Notes, December 15, 2012, (iv) in the
case of the Class A-4 Notes, January 15, 2013, (v) in the case of the Class A-5
Notes, December 15, 2028, and (vi) in the case of the Class A-6 Notes, December
15, 2028.
"FNMA": Federal National Mortgage Association or any successor
thereto.
"Grant": Mortgage, pledge, bargain, sell, warrant, alienate,
remise, release, convey, assign, transfer, create, ▇▇▇▇▇ ▇ ▇▇▇▇ upon and a
security interest in and right of set-off against, deposit, set over and confirm
pursuant to this Indenture. A Grant of the Collateral or of any other agreement
or instrument shall include all rights, powers and options (but none of the
obligations) of the Granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal
and interest payments in respect of the Collateral and all other monies payable
thereunder, to give and receive notices and other communications, to make
waivers or other agreements, to exercise all rights and options, to bring
proceedings in the name of the Granting party or otherwise and generally to do
and receive anything that the Granting party is or may be entitled to do or
receive thereunder or with respect thereto.
"Indebtedness": With respect to any Person at any time, (a)
indebtedness or liability of such Person for borrowed money whether or not
evidenced by bonds, debentures, notes or other instruments, or for the deferred
purchase price of property or services (including trade obligations); (b)
obligations of such Person as lessee under leases which should have been or
should be, in accordance with generally accepted accounting principles, recorded
as capital leases; (c) current liabilities of such Person in respect of unfunded
vested benefits under plans covered by Title IV of ERISA; (d) obligations issued
for or liabilities incurred on the account of such Person; (e) obligations or
liabilities of such Person arising under acceptance facilities; (f) obligations
of such Person under any guarantees, endorsements (other than for collection or
deposit in the ordinary course of business) and other contingent obligations to
purchase, to provide funds for payment, to supply funds to invest in any Person
or otherwise to assure a creditor against loss; (g) obligations of such Person
secured by any lien on property or assets of such Person, whether or not the
obligations have been assumed by such Person; or (h) obligations of such Person
under any interest rate or currency exchange agreement.
"Indemnification Agreement": The Indemnification Agreement
dated as of December 4, 1997 among the Trust, the Insurer, the Sponsor, the
Company, Emergent Group, Inc., the Contributor, the Depositor and Prudential
Securities Incorporated.
"Indemnified Parties": The meaning assigned to such term in
Section 9.2 of the Sale and Servicing Agreement.
"Indenture": The Indenture dated as of December 1, 1997
between the Trust and the Indenture Trustee relating to the Notes.
13
"Indenture Trustee": First Union National Bank, a national
banking association, or its successor-in-interest, or any successor trustee
appointed as provided in the Indenture.
"Indenture Trustee Trust Secured Obligations": All amounts and
obligations which the Trust may at any time owe to the Indenture Trustee for the
benefit of the Noteholders under this Indenture or the Notes.
"Indenture Trustee's Fee": The amount payable to the Indenture
Trustee on each Payment Date pursuant to Section 6.7 of the Indenture as
compensation for all services rendered by it in the execution of the trust
hereby created and in the exercise and performance of any of the powers and
duties of the Indenture Trustee hereunder, which amount shall equal one twelfth
of the product of (i) the Indenture Trustee's Fee Rate, multiplied by (ii) the
aggregate Stated Principal Balance of the Mortgage Loans and any REO Properties
as of the preceding Payment Date (or, in the case of the initial Payment Date,
as of the Cut-off Date).
"Indenture Trustee's Fee Rate": 0.015% per annum.
"Independent": When used with respect to any specified Person,
any such Person who (a) is in fact independent of the Trust, the Sponsor, the
Depositor, the Servicer and their respective Affiliates, (b) does not have any
direct financial interest or any material indirect financial interest in the
Trust, the Sponsor, the Depositor, the Servicer or any Affiliate thereof, and
(c) is not connected with the Trust, the Sponsor, the Depositor, the Servicer or
any Affiliate thereof as an officer, employee, promoter, underwriter, trustee,
partner, director or Person performing similar functions; provided, however,
that a Person shall not fail to be Independent of the Trust, the Sponsor, the
Depositor or the Servicer or any Affiliate thereof merely because such Person is
the beneficial owner of 1% or less of any class of securities issued by the
Trust, the Sponsor, the Depositor or the Servicer or any Affiliate thereof, as
the case may be.
"Independent Certificate": A certificate or opinion to be
delivered to the Indenture Trustee under the circumstances described in, and
otherwise complying with, the applicable requirements of Section 11.1 of the
Sale and Servicing Agreement, prepared by an Independent appraiser or other
expert appointed pursuant to an Trust Order and approved by the Indenture
Trustee in the exercise of reasonable care, and such opinion or certificate
shall state that the signer has read the definition of "Independent" in this
Indenture and that the signer is Independent within the meaning thereof.
"Independent Contractor": Either (i) any Person (other than
the Servicer) that would be an "independent contractor" with respect to the
Trust within the meaning of Section 856(d)(3) of the Code, so long as the Trust
does not receive or derive any income from such Person and provided that the
relationship between such Person and the Trust Property is at arm's-length, all
within the meaning of Treasury Regulation Section 1.856-4(b)(5), or (ii) any
other Person (including the Servicer) if the Indenture Trustee has received an
Opinion of Counsel to the effect that the taking of any action in respect of any
REO Property by such Person, subject to any conditions therein specified, that
is
14
otherwise herein contemplated to be taken by an Independent Contractor will not
cause such REO Property to cease to qualify as "foreclosure property" within the
meaning of Section 856(e)(1) of the Code, or cause any income realized in
respect of such REO Property to fail to qualify as Rents from Real Property.
"Initial Certificateholders": Shall not mean not less than ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ Persons designated in writing by the Depositor to the Trust on or
prior to the Closing Date.
"Initial Mortgage Loan": Any Mortgage Loan identified by the
Originator as of the opening of business on December 1, 1997.
"Insurance Agreement": The Insurance and Indemnity Agreement,
dated as of December 1, 1997, among the Trust, the Depositor, the Contributor,
the Originator/Servicer, the Sponsor, Emergent Group, and the Insurer, as
amended or supplemented in accordance with the provisions thereof.
"Insurance Payment": Any payment made by the Insurer under the
Policy with respect to the Class A Notes.
"Insurance Proceeds": Proceeds of any title policy, hazard
policy or other insurance policy covering a Mortgage Loan, to the extent such
proceeds are not to be applied to the restoration of the related Mortgaged
Property or released to the Mortgagor in accordance with the procedures that the
Servicer would follow in servicing mortgage loans held for its own account,
subject to the terms and conditions of the related Mortgage Note and Mortgage.
"Insured Payment": With respect to the Class A Notes as of any
Payment Date (i) the Interest Payment Amount, net of any Relief Act Interest
Shortfalls and Prepayment Interest Shortfalls allocated to the Class A Notes for
such Payment Date, (ii) the Remaining Overcollateralization Deficit, if any, for
such Payment Date and (iii) without duplication of the amount specified in
clause (ii), the applicable Class A Note Principal Balance to the extent unpaid
on the final Payment Date for each Class of the Class A Notes or the earlier
termination of the Trust pursuant to the terms of the Trust Agreement.
"Insurer": Financial Security Assurance, Inc. a stock
insurance company organized and created under the laws of the State of New York,
and any successors thereto.
"Insurer Default": The existence and continuance of any of the
following:
(a) the Insurer fails to make a payment required under the
Policy in accordance with its terms; or
(b) the Insurer shall have (i) filed a petition or commenced
any case or proceeding under any provision or chapter of the United
States Bankruptcy Code, the New York State Insurance Law or any other
similar federal or state law
15
relating to insolvency, bankruptcy, rehabilitation, liquidation, or
reorganization, (ii) made a general assignment for the benefit of its
creditors or (iii) had an order for relief entered against it under the
United States Bankruptcy Code, the New York State Insurance Law or any
other similar federal or state law relating to insolvency, bankruptcy,
rehabilitation, liquidation, or reorganization that is final and
nonappealable; or
(c) a court of competent jurisdiction, the New York Department
of Insurance or any other competent regulatory authority shall have
entered a final and nonappealable order, judgment or decree (i)
appointing a custodian, trustee, agent, or receiver for the Insurer or
for all or any material portion of its property or (ii) authorizing the
taking of possession by a custodian, trustee, agent, or receiver of the
Insurer of all or any material portion of its property.
"Insurer Issuer Secured Obligations": All amounts and
obligations which the Trust may at any time owe to or on behalf of the Insurer
under the Indenture, the Insurance Agreement or any other Basic Document.
"Insurer Premium": The Policy premium payable pursuant to
Section 8.10(b) of the Indenture.
"Insurer Premium Rate": 0.17% per annum.
"Interest Accrual Period": With respect to (i) any Payment
Date and the Class A-1 Variable Rate Notes, the period from and including the
immediately preceding Payment Date (or, in the case of the January 15, 1998
Payment Date, December 23, 1997) to and including the day immediately preceding
the current Payment Date, and (ii) any Payment Date and the Class A Fixed Rate
Notes, the calendar month immediately preceding the month in which such Payment
Date occurs.
"Interest Coverage Account": The trust account established and
maintained by the Indenture Trustee pursuant to Section 8.9 of the Indenture.
"Interest Determination Date": In respect of the Class A-1
Notes, the second business day preceding each Payment Date or, in the case of
the January 15, 1998 Payment Date, the second business day preceding the Closing
Date. As used in this definition, "business day" means a day on which banks are
open for dealings in foreign currency and exchange in London and New York City.
"Interest Distribution Amount": With respect to any Payment
Date and the Class A Notes, the aggregate Accrued Note Interest on the Class A
Notes for such Payment Date.
"Interest Payment Amount": The sum of the Class A-1 Interest
payment Amount, the Class A-2 Interest Payment Amount, the Class A-3 Interest
Payment Amount, the Class A-4 Interest Payment Amount, the Class A-5 Interest
Payment Amount and the Class A-6 Interest Payment Amount.
16
"Investment Account": As defined in Section 3.14 of the Sale
and Servicing Agreement.
"Issuer": The Trust until a successor replaces it and,
thereafter, means the successor and, for purposes of any provision contained in
the Indenture and required by the TIA, each other obligor on the Notes.
"Issuer Order" and "Issuer Request": A written order or
request signed in the name of the Issuer by any one of its Authorized Officers
and delivered to the Indenture Trustee.
"Issuer Secured Obligations": The Insurer Issuer Secured
Obligations and the Indenture Trustee Issuer Secured Obligations.
"Issuer Secured Parties": Each of the Indenture Trustee in
respect of the Indenture Trustee Issuer Secured Obligations and the Insurer in
respect of the Insurer Issuer Secured Obligations.
"Late Collections": With respect to any Mortgage Loan, all
amounts received subsequent to the Determination Date immediately following any
Collection Period, whether as late payments of Monthly Payments or as Insurance
Proceeds, Liquidation Proceeds or otherwise, which represent late payments or
collections of principal and/or interest due (without regard to any acceleration
of payments under the related Mortgage and Mortgage Note) but delinquent for
such Collection Period and not previously recovered.
"LIBOR": As of any Interest Determination Date in respect of
the next Class A-1 Note Interest Accrual Period, the London interbank offered
rate for one-month U.S. dollar deposits on the basis of the offered rates of the
Reference Banks for one-month U.S. dollar deposits, as such rates appear on
Telerate Page 3750 as of 11:00 a.m. (London time) on such Interest Determination
Date. If on such Interest Determination Date two or more Reference Banks provide
such offered quotations, LIBOR for the related Interest Accrual Period for the
Class A-1 Variable Rate Notes shall be the arithmetic mean of such offered
quotations (rounded upwards if necessary to the nearest whole multiple of
0.0625%). If on such Interest Determination Date fewer than two Reference Banks
provide such offered quotations, LIBOR for the related Interest Accrual Period
for the Class A-1 Variable Rate Notes shall be the higher of (x) LIBOR as
determined on the previous Interest Determination Date and (y) the Reserve
Interest Rate.
"Liquidation Event": With respect to any Mortgage Loan, any of
the following events: (i) such Mortgage Loan is paid in full; (ii) a Final
Recovery Determination is made as to such Mortgage Loan, or (iii) such Mortgage
Loan is removed from the Trust Property by reason of its being purchased, sold
or replaced pursuant to or as contemplated by Section 2.05 or Section 10.01 of
the Sale and Servicing Agreement. With respect to any REO Property, either of
the following events: (i) a Final Recovery Determination is made as to such REO
Property; or (ii) such REO Property is
17
removed from the Trust Property by reason of its being purchased pursuant to
Section 10.01 of the Sale and Servicing Agreement.
"Liquidation Proceeds": The amount (other than Insurance
Proceeds or amounts received in respect of the rental of any REO Property prior
to REO Disposition) received by the Servicer in connection with (i) the taking
of all or a part of a Mortgaged Property by exercise of the power of eminent
domain or condemnation and (ii) the liquidation of a defaulted Mortgage Loan by
means of a trustee's sale, foreclosure sale or otherwise.
"Loan-to-Value Ratio": As of any date of determination, the
fraction, expressed as a percentage, the numerator of which is the principal
balance of the related Mortgage Loan at such date and the denominator of which
is the Value of the related Mortgaged Property.
"Lost Note Affidavit": With respect to any Mortgage Loan as to
which the original Mortgage Note has been permanently lost or destroyed and has
not been replaced, an affidavit from the Sponsor certifying that the original
Mortgage Note has been lost, misplaced or destroyed (together with a copy of the
related Mortgage Note).
"Majority Certificateholder": Any single Holder of
Certificates representing the greatest Percentage Interest in the Certificates.
"Maximum Collateral Amount": The sum of the Original Pool
Balance and the Original Pre-Funded Amount.
"Monthly Advance": As to any Mortgage Loan or REO Property,
any advance made by the Servicer in respect of any Payment Date pursuant to
Section 4.03 of the Sale and Servicing Agreement.
"Monthly Payment": With respect to any Mortgage Loan, the
scheduled monthly payment of principal and interest on such Mortgage Loan which
is payable by the related Mortgagor from time to time under the related Mortgage
Note, determined: (a) after giving effect to (i) any Deficient Valuation and/or
Debt Service Reduction with respect to such Mortgage Loan and (ii) any reduction
in the amount of interest collectible from the related Mortgagor pursuant to the
Relief Act; (b) without giving effect to any extension granted or agreed to by
the Servicer pursuant to Section 3.07 of the Sale and Servicing Agreement; and
(c) on the assumption that all other amounts, if any, due under such Mortgage
Loan are paid when due.
"Moody's": ▇▇▇▇▇'▇ Investors Service, Inc. or its successor in
interest.
"Mortgage": The mortgage, deed of trust or other instrument
creating a first lien on, or first priority security interest in, a Mortgaged
Property securing a Mortgage Note.
"Mortgage File": The mortgage documents listed in Section 2.03
of the Sale and Servicing Agreement pertaining to a particular Mortgage Loan and
any
18
additional documents required to be added to the Mortgage File pursuant to this
Agreement.
"Mortgage Loan": Each mortgage loan transferred and assigned
to the Indenture Trustee pursuant to Section 2.01, Section 2.02 or Section
2.05(d) of the Sale and Servicing Agreement as from time to time held as a part
of the Trust Property, the Mortgage Loans so held being identified in the
Mortgage Loan Schedule.
"Mortgage Loan Schedule": As of any date, the list of Mortgage
Loans included in the Trust Property on such date. The Mortgage Loan Schedule
shall set forth following information with respect to each Mortgage Loan:
1. the Sponsor's Mortgage Loan identifying number;
2. the Mortgagor's name;
3. the street address of the Mortgaged Property including the state
and zip code;
4. a code indicating whether the Mortgaged Property is
owner-occupied;
5. the type of Residential Dwelling constituting the Mortgaged
Property;
6. the original months to maturity;
7. the remaining months to stated maturity from the Cut-off Date
based on the original amortization schedule;
8. the Loan-to-Value Ratio at origination;
9. the date on which the first Monthly Payment was due on the
Mortgage Loan and, (B) if such date is not consistent with the
Due Date currently in effect, such Due Date;
10. the stated maturity date;
11. the amount of the Monthly Payment due on the first Due Date on or
after the Cut-off Date;
12. the last Due Date on which a Monthly Payment was actually applied
to the unpaid Stated Principal Balance;
13. the original principal amount of the Mortgage Loan;
14. the outstanding principal balance of the Mortgage Loan as of the
close of business on the Cut-off Date;
15. a code indicating the purpose of the Mortgage Loan (i.e.,
purchase financing, Rate/Term Refinancing, Cash-Out Refinancing);
19
16. the Mortgage Rate;
17. a code indicating the documentation style program;
18. the risk grade;
19. the Value of the Mortgaged Property;
20. the sale price of the Mortgaged Property, if applicable;
21. whether the Mortgage Loan has a due-on-sale clause; and
22. the program code.
The Mortgage Loan Schedule shall set forth the following
information, as of the Cut-off Date with respect to the Mortgage Loans in the
aggregate: (1) the number of Mortgage Loans; (2) the current principal balance
of the Mortgage Loans; (3) the weighted average Mortgage Rate of the Mortgage
Loans; and (4) the weighted average maturity of the Mortgage Loans. The Mortgage
Loan Schedule shall be amended from time to time by the Servicer in accordance
with the provisions of this Agreement.
"Mortgage Note": The original executed note or other evidence
of indebtedness evidencing the indebtedness of a Mortgagor under a Mortgage
Loan.
"Mortgage Pool": The pool of Mortgage Loans, identified on the
Mortgage Loan Schedule from time to time, and any REO Properties acquired in
respect thereof.
"Mortgage Rate": With respect to each Mortgage Loan, the
annual rate at which interest accrues on such Mortgage Loan in accordance with
the provisions of the related Mortgage Note.
"Mortgage Schedule": The meaning ascribed thereto in the Sale
and Servicing Agreement.
"Mortgaged Property": The underlying property securing a
Mortgage Loan, including any REO Property, consisting of an Estate in Real
Property.
"Mortgagor": The obligor on a Mortgage Note.
"Net Monthly Excess Cashflow": With respect to any Payment
Date, an amount equal to the excess of (x) the Available Distribution Amount for
such Payment Date over (y) the sum for such Payment Date of (A) the amount
described in Section 8.3(a)(i) of the Indenture and (B) the amount described in
clauses (b)(i)-(iii) of the definition of Principal Distribution Amount minus
the amount of any Subordination Reduction Amount for the Class A Notes for such
Payment Date.
20
"Net Mortgage Rate": With respect to any Mortgage Loan (or the
related REO Property), as of any date of determination, a per annum rate of
interest equal to the then applicable Mortgage Rate for such Mortgage Loan minus
the Servicing Fee Rate.
"New Lease": Any lease of REO Property entered into on behalf
of the Trust Property, including any lease renewed or extended on behalf of the
Trust Property if the Trust Property has the right to renegotiate the terms of
such lease.
"Nonrecoverable Monthly Advance": Any Monthly Advance or
Servicing Advance previously made or proposed to be made in respect of a
Mortgage Loan or REO Property that, in the good faith business judgment of the
Servicer, will not or, in the case of a proposed Monthly Advance, would not be
ultimately recoverable from related late payments, Insurance Proceeds or
Liquidation Proceeds on such Mortgage Loan or REO Property as provided herein.
"Non-Transfer Event": An event other than a purported Transfer
that would cause (a) any Person to Beneficially Own Certificates in excess of
the Ownership Limit. Non-Transfer Events include but are not limited to the
granting of any option or entering into any agreement for the sale, transfer or
other disposition of Certificates.
"Non-United States Person": Any Person other than a United
States Person.
"Note": A Class A-1 Note, Class A-2 Note, Class A-3 Note,
Class A-4 Note, Class A-5 Note or Class A-6 Note.
"Note Factor": With respect to any Class of Notes as of any
Payment Date, a fraction, expressed as a decimal carried to six places, the
numerator of which is the Class Note Balance of such Class of Notes on such
Payment Date (after giving effect to any distributions of principal in reduction
of the Class Note Balance of such Class of Notes to be made on such Payment
Date), and the denominator of which is the initial Class Note Balance of such
Class of Certificates as of the Closing Date.
"Note Owner": With respect to a Book-Entry Note, the Person
who is the beneficial owner of such Note as reflected on the books of the
Depository or on the books of a Depository Participant or on the books of an
indirect participating brokerage firm for which a Depository Participant acts as
agent.
"Note Paying Agent": The Indenture Trustee or any other Person
that meets the eligibility standards for the Indenture Trustee specified in
Section 6.11 and is authorized by the Trust to make payments to and
distributions from the Distribution Account, including payment of principal of
or interest on the Notes on behalf of the Trust.
"Note Principal Balance": With respect to each Class A Note as
of any date of determination, the Note Principal Balance of such Class A Note on
the Payment Date immediately prior to such date of determination, minus all
distributions allocable to principal made thereon on such immediately prior
Payment Date (or, in the case of any
21
date of determination up to and including the first Payment Date, the initial
Note Principal Balance of such Class A Note, as stated on the face thereof).
"Note Register" and "Note Registrar": The register maintained
and the registrar appointed pursuant to Section 2.3 of the Indenture.
"Noteholder" or "Holder": The Person in whose name a Note is
registered in the Note Register, and the Insurer to the extent of Cumulative
Insurance Payments.
"Officers' Certificate": A certificate signed by the Chairman
of the Board, the Vice Chairman of the Board, the President or a vice president
(however denominated), or by the Treasurer, the Secretary, or one of the
assistant treasurers or assistant secretaries of the Trust (or Owner Trustee on
behalf of the Trust), the Servicer, the Sponsor or the Depositor, as applicable.
"Opinion of Counsel": A written opinion of counsel, who may,
without limitation, be salaried counsel for the Depositor or the Servicer
acceptable to the Indenture Trustee, the Insurer or the Owner Trustee, as the
case may be.
"Original Pool Balance": An amount equal to the aggregate of
the Stated Principal Balances of the Mortgage Loans as of the Cut-off Date.
"Original Pre-Funded Amount": US$37,044,344.05, being the
amount of cash to be deposited in the Pre-Funding Account on the Closing Date.
"Originator": Emergent Mortgage Corp.
"Originator/Contributor Contribution Agreement": The
Contribution Agreement and Assignment dated as of December 1, 1997 among the
Originator, the Contributor and Emergent Group providing for the contribution of
the Mortgage Loans by the Originator to the Contributor.
"Outstanding": As of the date of determination, all Notes
theretofore authenticated and delivered under the Indenture except:
(i) Notes theretofore canceled by the Note Registrar or
delivered to the Note Registrar for cancellation;
(ii) Notes or portions thereof the payment for which money in
the necessary amount has been theretofore deposited with the Indenture
Trustee or any Note Paying Agent in trust for the Holders of such Notes
(provided, however, that if such Notes are to be redeemed, notice of
such redemption has been duly given pursuant to this Indenture or
provision therefor, satisfactory to the Indenture Trustee has been
made); and
(iii) Notes in exchange for or in lieu of other Notes which
have been authenticated and delivered pursuant to the Indenture unless
proof satisfactory to
22
the Indenture Trustee is presented that any such Notes are held by a
protected or bona fide purchaser;
provided, however, that Notes which have been paid with proceeds of the Policy
shall continue to remain Outstanding for purposes of this Indenture until the
Insurer has been paid as subrogee or reimbursed pursuant to the Insurance
Agreement as evidenced by a written notice from the Insurer delivered to the
Indenture Trustee, and the Insurer shall be deemed to be the Holder thereof to
the extent of any payments thereon made by the Insurer; provided further, that
in determining whether the Holders of the requisite Outstanding Amount of the
Notes have given any request, demand, authorization, direction, notice, consent
or waiver hereunder or under any Basic Document, Notes owned by the Trust, the
Sponsor or the Servicer or any Affiliate thereof shall be disregarded and deemed
not to be Outstanding, except that, in determining whether the Indenture Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Notes that a Responsible Officer
either actually knows to be so owned or has received written notice thereof
shall be so disregarded and Notes so owned that have been pledged in good faith
may be regarded as Outstanding if the pledgee establishes to the satisfaction of
the Indenture Trustee the pledgee's right so to act with respect to such Notes
and that the pledgee is not the Trust, the Sponsor or the Servicer or any
Affiliate of any thereof.
"Outstanding Amount": The aggregate Note Principal Balance of
all Notes, or Class of Notes, as applicable, Outstanding at the date of
determination.
"Overcollateralization Deficit": With respect to any Payment
Date, the excess, if any, of (i) the Class A Note Principal Balance, after
taking into account the distribution of the Principal Distribution Amount (other
than any portion thereof constituting the Overcollateralization Deficit or the
Subordination Increase Amount) over (ii) the sum of the aggregate Stated
Principal Balances of the Mortgage Loans then outstanding.
"Owner Trustee": Wilmington Trust Company, not in its
individual capacity but solely as owner trustee under the Trust Agreement, and
any successor to it as owner trustee thereunder.
"Owner Trustee Fees": The amounts payable to the Owner Trustee
as contemplated in Section 11.1 of the Trust Agreement.
"Ownership Interest": As to any Note, any ownership or
security interest in such Note, including any interest in such Note as the
Holder thereof and any other interest therein, whether direct or indirect, legal
or beneficial, as owner or as pledgee. As to any Certificate, any ownership or
security interest in such Certificate, including any interest in such
Certificate as the Holder thereof and any other interest therein, whether direct
or indirect, legal or beneficial, as owner or as pledgee.
"Owner Trust Estate": (i) the sum deposited in the Collection
Account pursuant to Section 2.5 of the Sale and Servicing Agreement, (ii) all
right, title and
23
interest of the Trust in and to the property and rights assigned to the Trust
pursuant to Article II of the Sale and Servicing Agreement, (iii) all funds on
deposit from time to time in any of the Trust Accounts or the Certificate
Distribution Account and (iv) all other property of the Trust from time to time,
including any rights of the Owner Trustee and the Trust pursuant to the Sale and
Servicing Agreement.
"Payment Date": The 15th day of any month, or if such 15th day
is not a Business Day, the Business Day immediately following such 15th day,
commencing in January 1998.
"Percentage Interest": With respect to any Certificate, the
undivided percentage ownership of the Certificates evidenced by such
Certificate, as set forth in such Certificate.
"Permitted Investments": Any one or more of the following
obligations or securities acquired at a purchase price of not greater than par,
regardless of whether issued by the Depositor, the Servicer, the Indenture
Trustee or any of their respective Affiliates:
(i) direct obligations of, or obligations fully guaranteed as
to timely payment of principal and interest by, the United States or
any agency or instrumentality thereof, provided such obligations are
backed by the full faith and credit of the United States; provided,
however, that any obligation of, or guaranteed by, FHLMC or FNMA, other
than a senior debt or a mortgage participation or pass-through
certificate guaranteed by FHLMC or FNMA shall be a Permitted Investment
only if, at the time of investment, such investment is acceptable to
the Insurer;
(ii) demand and time deposits in, certificates of deposit of,
or bankers' acceptances issued by, any Depository Institution;
(iii) repurchase obligations with respect to any security
described in clause (i) above entered into with a Depository
Institution (acting as principal);
(iv) securities bearing interest or sold at a discount that
are issued by any corporation incorporated under the laws of the United
States of America or any State thereof and that are rated by each
Rating Agency in its highest long-term unsecured rating categories at
the time of such investment or contractual commitment providing for
such investment;
(v) commercial paper (including both noninterest-bearing
discount obligations and interest-bearing obligations payable on demand
or on a specified date not more than 30 days after the date of
acquisition thereof) that is rated by each Rating Agency in its highest
short-term unsecured debt rating available at the time of such
investment;
(vi) units of money market funds that have been rated "Aaa" by
Moody's and "AAA" by S&P; and
24
(vii) if previously confirmed in writing to the Indenture
Trustee, any other demand, money market or time deposit, or any other
obligation, security or investment, as may be acceptable to the Rating
Agencies and the Insurer as a permitted investment of funds backing
securities that have been rated "Aaa" by Moody's and "AAA" by S&P;
provided that no instrument described hereunder shall evidence either the right
to receive (a) only interest with respect to the obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument and the interest and principal payments with respect
to such instrument provide a yield to maturity at par greater than 120% of the
yield to maturity at par of the underlying obligations.
"Permitted Transferee": shall mean any Person designated as a
Permitted Transferee in accordance with the provisions of Article IV of the
Trust Agreement.
"Permitted Trust Investments": means non-assessable,
non-recourse debt or equity investment securities, held for income and/or
appreciation, in respect of which the Trust, as holder, shall not be liable for
the debts, liabilities or other obligations of the issuer thereof.
"Person": Any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof or, in respect of
provisions of the Trust Agreement relating to matters of Constructive Ownership,
an individual, a trust qualified under Section 501(c)(17) of the Code, the
portion of a trust permanently set aside for or to be used exclusively for the
purposes described in Section 642(c) of the Code or a private foundation within
the meaning of Section 509(a) of the Code.
"Plan": The meaning assigned to such term in Section 4.10 of
the Trust and Servicing Agreement.
"Policy": The Financial Guaranty Insurance Policy (No.
50659-N) issued by the Insurer relating to the Class A Notes, including any
endorsements thereto, attached as Exhibit C to the Indenture.
"Policy Payments Account": The account established pursuant to
Section 11.4(b) of the Indenture.
"Predecessor Note": With respect to any particular Note, every
previous Note evidencing all or a portion of the same debt as that evidenced by
such particular Note; and, for the purpose of this definition, any Note
authenticated and delivered under Section 2.4 of the Sale and Servicing
Agreement in lieu of a mutilated, lost, destroyed or stolen Note shall be deemed
to evidence the same debt as the mutilated, lost, destroyed or stolen Note.
"Preference Claim": The meaning ascribed thereto in the
Indenture.
25
"Pre-Funded Loan Transfer": The transfer and assignment by the
Depositor to the Trust of the Pre-Funded Mortgage Loans pursuant to the terms
hereof.
"Pre-Funded Loan Transfer Date": The Business Day on which a
Pre-Funded Loan Transfer occurs.
"Pre-Funded Mortgage Loans": As defined in Section 2.02 of the
Sale and Servicing Agreement.
"Pre-Funding Account": The trust account established and
maintained by the Indenture Trustee pursuant to Section 8.8 of the Indenture.
"Pre-Funding Amount": With respect to any date, the amount on
deposit in the Pre-Funding Account.
"Pre-Funding Earnings": The actual investment earnings
realized on amounts deposited in the Pre-Funding Account.
"Pre-Funding Period": The period commencing on the Closing
Date and ending on February 28, 1998.
"Prepayment Assumption": The Prepayment Assumption assumes
that the pool of loans prepays in the first month at a constant annual
prepayment rate of 1.7% and increases by an additional 1.7% each month
thereafter until the tenth month, where it remains at a constant annual
prepayment rate equal to 17%.
"Prepayment Interest Shortfall": With respect to any Payment
Date, for each Mortgage Loan that was during the related Collection Period the
subject of a Principal Prepayment in full or in part that was applied by the
Servicer to reduce the outstanding principal balance of such loan on a date
preceding the Due Date in the succeeding Collection Period, an amount equal to
the excess of (i) interest at the applicable Net Mortgage Rate on the amount of
such Principal Prepayment for the number of days commencing on the date on which
the prepayment is applied and ending on the last day of the related Collection
Period over (ii) the amount, if any, of the interest paid by the Mortgagor in
connection with such Principal Prepayment. The obligations of the Servicer in
respect of any Prepayment Interest Shortfall are set forth in Section 3.26 of
the Sale and Servicing Agreement.
"Principal Distribution Amount": With respect to any Payment
Date, the lesser of:
(a) the excess of the Available Distribution Amount over the
amount payable on the Class A Notes pursuant to Sections 8.3 (a)(i) and
8.3 (g) of the Indenture; and
(b) the sum of:
26
(i) the principal portion of each Monthly Payment due
during the related Collection Period, to the extent received,
on each Mortgage Loan;
(ii) the Stated Principal Balance of any Mortgage
Loan that was purchased during the related Collection Period
pursuant to or as contemplated by Section 2.05 or 10.01 of the
Sale and Servicing Agreement and the amount of any shortfall
deposited in the Collection Account in connection with the
substitution of a Deleted Mortgage Loan pursuant to Section
2.05 of the Sale and Servicing Agreement during the related
Collection Period;
(iii) the principal portion of all other unscheduled
collections (including, without limitation, Principal
Prepayments, Insurance Proceeds, Liquidation Proceeds,
payments pursuant to Section 3.28 of the Sale and REO
Principal Amortization) received during the related Collection
Period, net of any portion thereof that represents a recovery
of principal for which an advance was made by the Servicer
pursuant to Section 4.03 of the Sale and Servicing Agreement
in respect of a preceding Payment Date, and deposits into the
Distribution Account from the Pre-Funding Account pursuant to
Section 8.8 of the Indenture and the Redemption Account
pursuant to Section 8.11 of the Indenture, if any, not
required to be distributed pursuant to Section 8.3(g) of the
Indenture;
(iv) the amount of any Overcollateralization Deficit
for such Payment Date; and
(v) the amount of any Subordination Increase Amount
for the Class A Notes for such Payment Date;
minus:
(vi) the amount of any Subordination Reduction Amount
for the Class A Notes for such Payment Date.
"Principal Prepayment": Any payment of principal made by the
Mortgagor on a Mortgage Loan which is received in advance of its scheduled Due
Date and which is not accompanied by an amount of interest representing the full
amount of scheduled interest due on any Due Date in any month or months
subsequent to the month of prepayment.
"Proceeding": Any suit in equity, action at law or other
judicial or administrative proceeding.
"Prohibited Owner": shall mean, with respect to any purported
Transfer or Non-Transfer Event, any Person who is prevented from becoming or
remaining the owner of record title to Certificates by the provisions of Article
IV of the Trust Agreement.
27
"Purchase Price": With respect to any Mortgage Loan or REO
Property to be purchased pursuant to or as contemplated by Section 2.05 or 10.01
of the Sale and Servicing Agreement, and as confirmed by an Officers'
Certificate from the Servicer to the Indenture Trustee, an amount equal to the
sum of (i) 100% of the Stated Principal Balance thereof as of the date of
purchase (or such other price as provided in Section 10.01 of the Sale and
Servicing Agreement), (ii) in the case of (x) a Mortgage Loan, accrued interest
on such Stated Principal Balance at the applicable Net Mortgage Rate in effect
from time to time from the Due Date as to which interest was last covered by a
payment by the Mortgagor or an advance by the Servicer, which payment or advance
had as of the date of purchase been distributed pursuant to Section 8.3 of the
Indenture, through the next date corresponding to such Due Date which is on or
after the date on which such purchase is to be effected, and (y) an REO
Property, the sum of (1) accrued interest on such Stated Principal Balance at
the applicable Net Mortgage Rate in effect from time to time from the Due Date
as to which interest was last covered by a payment by the Mortgagor or an
advance by the Servicer through the next date corresponding to such Due Date
which is on or after the date on which such REO Property was acquired, plus (2)
REO Imputed Interest for such REO Property from such corresponding date through
the next such corresponding date which is on or after the date on which such
purchase is to be effected, net of the total of all net rental income, Insurance
Proceeds, Liquidation Proceeds and Monthly Advances that as of the date of
purchase had been distributed as or to cover REO Imputed Interest pursuant to
Section 8.3 of the Indenture, (iii) any unreimbursed Servicing Advances and
Monthly Advances and any unpaid Servicing Fees allocable to such Mortgage Loan
or REO Property, (iv) any amounts previously withdrawn from the Collection
Account in respect of such Mortgage Loan or REO Property pursuant to Sections
3.11(ix) and 3.18(b) of the Sale and Servicing Agreement, and (v) in the case of
a Mortgage Loan required to be purchased pursuant to Section 2.05 of the Sale
and Servicing Agreement, expenses reasonably incurred or to be incurred by the
Servicer or the Indenture Trustee in respect of the breach or defect giving rise
to the purchase obligation.
"Qualified Substitute Mortgage Loan": A mortgage loan
substituted for a Deleted Mortgage Loan pursuant to the terms of this Agreement
which must, on the date of such substitution, (i) have a Stated Principal
Balance, after application of all scheduled payments of principal and interest
due during or prior to the month of substitution, not in excess of the
outstanding principal balance of the Deleted Mortgage Loan as of the Due Date in
the calendar month during which the substitution occurs, (ii) have a Mortgage
Rate not less than (and not more than one percentage point in excess of) the
Mortgage Rate of the Deleted Mortgage Loan, (iii) have a remaining term to
maturity not greater than (and not more than one year less than) that of the
Deleted Mortgage Loan, (iv) [intentionally left blank], (v) have a Loan-to-Value
Ratio as of the date of substitution equal to or lower than the Loan-to-Value
Ratio of the Deleted Mortgage Loan as of such date, (vi) have a risk grading
determined by the Sponsor, with the approval of the Insurer, at least equal to
the risk grading assigned on the Deleted Mortgage Loan, and (vii) conform to
each representation and warranty set forth in the Unaffiliated Seller's
Agreement applicable to the Deleted Mortgage Loan. In the event that one or more
mortgage loans are substituted for one or more Deleted Mortgage Loans, the
amounts described in clause (i) hereof shall be determined on the basis of
aggregate principal
28
balances, the Mortgage Rates described in clause (ii) hereof shall be determined
on the basis of weighted average Mortgage Rates, the risk gradings described in
clause (vi) hereof shall be satisfied as to each such mortgage loan, the terms
described in clause (iii) hereof shall be determined on the basis of weighted
average remaining term to maturity, the Loan-to-Value Ratios described in clause
(v) hereof shall be satisfied as to each such mortgage loan and, except to the
extent otherwise provided in this sentence, the representations and warranties
described in clause (viii) hereof must be satisfied as to each Qualified
Substitute Mortgage Loan or in the aggregate, as the case may be.
"Rate/Term Refinancing": A Refinanced Mortgage Loan, the
proceeds of which are not more than $1000 in excess of the existing first
mortgage loan and any subordinate mortgage loan on the related Mortgaged
Property and related closing costs, and were used exclusively (except for up to
$1000) to satisfy the then existing first mortgage loan and any subordinate
mortgage loan of the Mortgagor on the related Mortgaged Property and to pay
related closing costs.
"Rating Agency or Rating Agencies": ▇▇▇▇▇'▇ and S&P or their
successors. If such agencies or their successors are no longer in existence,
"Rating Agencies" shall be such nationally recognized statistical rating
agencies, or other comparable Persons, designated by the Depositor and the
Insurer, notice of which designation shall be given to the Indenture Trustee,
the Trust, the Sponsor and the Servicer.
"Realized Loss": With respect to each Mortgage Loan as to
which a Final Recovery Determination has been made an amount (not less than
zero) equal to (i) the unpaid principal balance of such Mortgage Loan as of the
commencement of the calendar month in which the Final Recovery Determination was
made, plus (ii) accrued interest from the Due Date as to which interest was last
paid by the Mortgagor through the end of the calendar month in which such Final
Recovery Determination was made, calculated in the case of each calendar month
during such period (A) at an annual rate equal to the annual rate at which
interest was then accruing on such Mortgage Loan and (B) on a principal amount
equal to the Stated Principal Balance of such Mortgage Loan as of the close of
business on the Payment Date during such calendar month, plus (iii) any amounts
previously withdrawn from the Collection Account in respect of such Mortgage
Loan pursuant to Sections 3.11(ix) and 3.18(b) of the Sale and Servicing
Agreement, minus (iv) the proceeds, if any, received in respect of such Mortgage
Loan during the calendar month in which such Final Recovery Determination was
made, net of amounts that are payable therefrom to the Servicer with respect to
such Mortgage Loan pursuant to clause (iii) of Section 3.11 of the Sale and
Servicing Agreement.
With respect to any REO Property as to which a Final Recovery
Determination has been made an amount (not less than zero) equal to (i) the
unpaid principal balance of the related Mortgage Loan as of the date of
acquisition of such REO Property on behalf of the Trust, plus (ii) accrued
interest from the Due Date as to which interest was last paid by the Mortgagor
in respect of the related Mortgage Loan through the end of the calendar month
immediately preceding the calendar month in which such REO Property was
acquired, calculated in the case of each calendar month during such
29
period (A) at an annual rate equal to the annual rate at which interest was then
accruing on the related Mortgage Loan and (B) on a principal amount equal to the
Stated Principal Balance of the related Mortgage Loan as of the close of
business on the Payment Date during such calendar month, plus (iii) REO Imputed
Interest for such REO Property for each calendar month commencing with the
calendar month in which such REO Property was acquired and ending with the
calendar month in which such Final Recovery Determination was made, plus (iv)
any amounts previously withdrawn from the Collection Account in respect of the
related Mortgage Loan pursuant to Sections 3.11(ix) and 3.18(b) of the Sale and
Servicing Agreement, minus (v) the aggregate of all Monthly Advances made by the
Servicer in respect of such REO Property or the related Mortgage Loan for which
the Servicer has been or, in connection with such Final Recovery Determination,
will be reimbursed pursuant to Section 3.25 of the Sale and Servicing Agreement
out of rental income, Insurance Proceeds and Liquidation Proceeds received in
respect of such REO Property, minus (vi) the total of all net rental income,
Insurance Proceeds and Liquidation Proceeds received in respect of such REO
Property that has been, or in connection with such Final Recovery Determination,
will be transferred to the Distribution Account pursuant to Section 3.25 of the
Sale and Servicing Agreement.
With respect to each Mortgage Loan which has become the
subject of a Deficient Valuation, the difference between the principal balance
of the Mortgage Loan outstanding immediately prior to such Deficient Valuation
and the principal balance of the Mortgage Loan as reduced by the Deficient
Valuation.
With respect to each Mortgage Loan which has become the
subject of a Debt Service Reduction, the portion, if any, of the reduction in
each affected Monthly Payment attributable to a reduction in the Mortgage Rate
imposed by a court of competent jurisdiction. Each such Realized Loss shall be
deemed to have been incurred on the Due Date for each affected Monthly Payment.
A Realized Loss within the meaning of the foregoing provisions
shall constitute a Realized Loss regardless of how such Realized Loss shall have
arisen (e.g., whether by virtue of any default, bankruptcy, fraud, special
hazard or any other reason).
"Record Date": With respect to each Payment Date, the last
Business Day of the month immediately preceding the month in which such Payment
Date occurs.
"Redemption Account": The trust account established and
maintained by the Indenture Trustee pursuant to Section 8.11 of the Indenture.
"Redemption Date": In the case of a redemption of the Notes
pursuant to Article X of the Indenture, the Payment Date for such redemption as
provided in Article X of the Indenture.
"Redemption Price": As of any date, an amount equal to the
unpaid principal amount of the then outstanding principal amount of each class
of Notes plus accrued and unpaid interest thereon to but excluding such date..
30
"Reference Bank": A leading bank designated by the Indenture
Trustee and engaged in transactions in Eurodollar deposits in the international
Eurocurrency market (i) with an established place of business in London, (ii)
whose quotations appear on Telerate Page 3750 on the Interest Determination Date
in question, and (iii) who is not controlling, controlled by, or under common
control with, the Servicer or the Indenture Trustee.
"Refinanced Mortgage Loan": A Mortgage Loan the proceeds of
which were not used to purchase the related Mortgaged Property.
"Relief Act": The Soldiers' and Sailors' Civil Relief Act of
1940, as amended.
"Relief Act Interest Shortfall": With respect to any Payment
Date and any Mortgage Loan, any reduction in the amount of interest collectible
on such Mortgage Loan for the most recently ended calendar month as a result of
the application of the Relief Act.
"Remaining Overcollateralization Deficit": With respect to any
Payment Date, the excess, if any, of (i) the Overcollateralization Deficit for
such Payment Date over (ii) the Net Monthly Excess Cashflow for such Payment
Date.
"REIT": A "real estate investment trust" within the meaning of
Section 856 of the Code.
"REIT Provisions": Provisions of the federal income tax law
relating to real estate investment trusts, which appear at Sections 856-860 of
the Code, and related provisions, and proposed, temporary and final regulations
and published rulings, notices and announcements promulgated thereunder, as the
foregoing may be in effect from time to time.
"Remittance Report": As defined in Section 4.02 of the Sale
and Servicing Agreement.
"Rents from Real Property": With respect to any REO Property,
gross income of the character described in Section 856(d) of the Code as being
included in the term "rents from real property."
"REO Account": The account or accounts maintained by the
Servicer in respect of an REO Property pursuant to Section 3.25 of the Sale and
Servicing Agreement.
"REO Disposition": The sale or other disposition of an REO
Property on behalf of the Trust.
"REO Imputed Interest": As to any REO Property, for any
calendar month during which such REO Property was at any time part of the Trust
Property, one month's interest at the applicable Net Mortgage Rate on the Stated
Principal Balance of
31
such REO Property (or, in the case of the first such calendar month, of the
related Mortgage Loan if appropriate) as of the close of business on the Payment
Date in such calendar month.
"REO Principal Amortization": With respect to any REO
Property, for any calendar month, the excess, if any, of (a) the aggregate of
all amounts received in respect of such REO Property during such calendar month,
whether in the form of rental income, sale proceeds (including, without
limitation, that portion of the price paid in connection with a purchase of some
or all of the Mortgage Loans and REO Properties pursuant to Section 10.01 of the
Sale and Servicing Agreement that is allocable to such REO Property) or
otherwise, net of any portion of such amounts (i) payable pursuant to Section
3.25(c) of the Sale and Servicing Agreement in respect of the proper operation,
management and maintenance of such REO Property or (ii) payable or reimbursable
to the Servicer pursuant to Section 3.25(d) of the Sale and Servicing Agreement
for unpaid Servicing Fees in respect of the related Mortgage Loan and
unreimbursed Servicing Advances and Monthly Advances in respect of such REO
Property or the related Mortgage Loan, over (b) the REO Imputed Interest in
respect of such REO Property for such calendar month.
"REO Property": A Mortgaged Property acquired by the Servicer
on behalf of the Trust through foreclosure or deed-in-lieu of foreclosure, as
described in Section 3.25 of the Sale and Servicing Agreement.
"Request for Release": A release signed by a Servicing
Officer, in the form of Exhibit E -1 or Exhibit E-2.
"Required Subordinated Amount": With respect to any Payment
Date, an amount equal to 3.75% of the Maximum Collateral Amount, subject to the
following: (i) if the Step Up Trigger has occurred with respect to such Payment
Date, the Required Subordinated Amount for such Payment Date will be an amount
equal to 8% of the Maximum Collateral Amount, and (ii) if the Step Down Trigger
has occurred, the Required Subordinated Amount for such Payment Date will be an
amount equal to the greatest of (A) 0.50% of the Original Pool Balance, (B) the
lesser of (x) 3.75%, of the Maximum Collateral Amount and (y) the Stepped Down
Required Subordinated Percentage of the aggregate Stated Principal Balance of
the Mortgage Loans as of such Payment Date, and (C) the product of three and the
Stated Principal Balance of the Mortgage Loan with the highest Stated Principal
Balance as of such Payment Date.
"Reserve Interest Rate": The rate per annum that the Indenture
Trustee determines to be either (i) the arithmetic mean (rounded upwards if
necessary to the nearest whole multiple of 0.0625%) of the one-month U.S. dollar
lending rates which New York City banks selected by the Indenture Trustee are
quoting on the relevant Interest Determination Date to the principal London
offices of leading banks in the London interbank market or, in the event that
the Indenture Trustee can determine no such arithmetic mean, (ii) the lowest
one-month U.S. dollar lending rate which New York City banks selected by the
Indenture Trustee are quoting on such Interest Determination Date to leading
European banks.
32
"Residential Dwelling": Any one of the following: (i) a
detached one-family dwelling, (ii) a detached two- to four-family dwelling,
(iii) a one-family dwelling unit in a FNMA eligible condominium project, (iv) a
detached one-family dwelling in a planned unit development or (v) a manufactured
home treated as real property under local law, none of which is a co-operative,
mobile or manufactured home (as defined in ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ Code, Section
5402(6)).
"Responsible Officer": When used with respect to the Indenture
Trustee, any officer of the Corporate Trust Department of the Indenture Trustee,
including any Senior Vice President, any Assistant Vice President, any Assistant
Secretary, any Trust Officer or any other officer of the Indenture Trustee
customarily performing functions similar to those performed by any of the above
designated officers to whom, with respect to a particular matter, such matter is
referred. When used with respect to the Owner Trustee, either (i) any officer of
the Corporate Trust Department of the Owner Trustee, including any Senior Vice
President, any Assistant Vice President, any Assistant Secretary, any Trust
Officer or any other officer of the Initial Owner Trustee customarily performing
functions similar to those performed by any of the above designated officers to
whom, with respect to a particular matter, such matter is referred, or (ii) any
director or officer of the Additional Trustee, including any Managing Director,
Vice President, Secretary or Assistant Secretary thereof.
"Rolling Delinquency Percentage": For any Payment Date, the
average of the Delinquency Percentages as of the last day of each of the three
(or one or two, in the case of the first and second Payment Dates) most recently
ended Collection Periods.
"Rolling Loss Percentage": As of any Payment Date, the
percentage equivalent of a fraction, the numerator of which is the aggregate
amount of Realized Losses incurred during the preceding twelve Collection
Periods, and the denominator of which is the aggregate Stated Principal Balance
of the Mortgage Loans as of the first day of the twelfth preceding Collection
Period.
"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.
"Sale and Servicing Agreement": The Sale and Servicing
Agreement dated as of December 1, 1997, among the Trust, the Depositor, the
Servicer and the Indenture Trustee, as the same may be amended or supplemented
from time to time.
"Scheduled Payment": As defined in the Policy.
"Secretary of State": The Secretary of State of the State of
Delaware.
"Security Majority": A majority by principal amount of the
Noteholders so long as the Notes are outstanding and a majority by Percentage
Interest of the Certificateholders thereafter.
33
"Securityholder" or "Holder": A Noteholder and/or
Certificateholder, as the context requires.
"Servicer": Emergent Mortgage Corp., a South Carolina
corporation, or any successor servicer appointed as herein provided, in its
capacity as Servicer hereunder.
"Servicer Event of Default": One or more of the events
described in Section 7.01 of the Sale and Servicing Agreement.
"Servicer Extension Notice": As described in Section 7.01 of
the Sale and Servicing Agreement.
"Servicer Remittance Date": With respect to any Payment Date,
12:00 noon New York time on the fourth Business Day prior to such Payment Date.
"Servicing Account": The account or accounts created and
maintained pursuant to Section 3.09 of the Sale and Servicing Agreement.
"Servicing Advances": The reasonable "out-of-pocket" costs and
expenses incurred by the Servicer in connection with a default, delinquency or
other unanticipated event by the Servicer in the performance of its servicing
obligations, including, but not limited to, the cost of (i) the preservation,
restoration and protection of a Mortgaged Property, (ii) any enforcement or
judicial proceedings, including foreclosures, in respect of a particular
Mortgage Loan, (iii) the management (including reasonable fees in connection
therewith) and liquidation of any REO Property, and (iv) the performance of its
obligations under Sections 3.01, 3.09, 3.16, 3.18 and 3.25 of the Sale and
Servicing Agreement. The Servicer shall not be required to make any Servicing
Advance in respect of a Mortgage Loan or REO Property that, in the good faith
business judgment of the Servicer, would not be ultimately recoverable from
related Insurance Proceeds or Liquidation Proceeds on such Mortgage Loan or REO
Property as provided herein.
"Servicing Fee": With respect to each Mortgage Loan and for
any calendar month, an amount equal to one month's interest (or in the event of
any payment of interest which accompanies a Principal Prepayment in full made by
the Mortgagor during such calendar month, interest for the number of days
covered by such payment of interest) at the Servicing Fee Rate on the same
principal amount on which interest on such Mortgage Loan accrues for such
calendar month. A portion of such Servicing Fee may be retained by any
Sub-Servicer as its servicing compensation.
"Servicing Fee Rate": 0.50% per annum.
"Servicing Officer": Any officer of the Servicer involved in,
or responsible for, the administration and servicing of Mortgage Loans, whose
name and specimen signature appear on a list of servicing officers furnished by
the Servicer to the Indenture Trustee and the Insurer and the Depositor on the
Closing Date, as such list may from time to time be amended.
34
"Shortfall Interest Deferred Amount": For any Payment Date
with respect to any Class A Note, the amount, if any, of interest accrued during
the related Interest Accrual Period on the Note Principal Balance of such Class
A Note at the related Class A Note Interest Rate that is not available for
payment on such Payment Date out of the Available Distribution Amount due to
Relief Act Shortfalls and Prepayment Interest Shortfalls.
"Single Security": With respect to any Class of Class A Notes,
a hypothetical Note of such Class evidencing a Percentage Interest for such
Class corresponding to an initial Note Principal Balance of $1,000. With respect
to the Certificates, a hypothetical Certificate evidencing a 100% Percentage
Interest in the Certificates.
"Sponsor": Emergent Residual Holding Corp., or its
successor-in-interest, in its capacity as seller under the Unaffiliated Seller's
Agreement.
"S&P": Standard & Poor's Ratings Services, a division of
▇▇▇▇▇▇-▇▇▇▇ Inc., or its successor in interest.
"Stated Principal Balance": With respect to any Mortgage Loan:
(a) as of any date of determination up to but not including the Payment Date on
which the proceeds, if any, of a Liquidation Event with respect to such Mortgage
Loan would be distributed, the outstanding principal balance of such Mortgage
Loan as of the Cut-off Date, as shown in the Mortgage Loan Schedule, minus the
sum of (i) the principal portion of each Monthly Payment due on a Due Date
subsequent to the Cut-off Date, to the extent received from the Mortgagor or
included in a Monthly Advance and distributed pursuant to Section 8.3 of the
Indenture on or before such date of determination, (ii) all Principal
Prepayments received after the Cut-off Date, to the extent distributed pursuant
to Section 8.3 of the Indenture on or before such date of determination, (iii)
all Liquidation Proceeds and Insurance Proceeds applied by the Servicer as
recoveries of principal in accordance with the provisions of Section 3.18, to
the extent distributed pursuant to Section 8.3 of the Indenture on or before
such date of determination, and (iv) any Realized Loss incurred with respect
thereto coinciding with or preceding such date of determination; and (b) as of
any date of determination coinciding with or subsequent to the Payment Date on
which the proceeds, if any, of a Liquidation Event with respect to such Mortgage
Loan would be distributed, zero. With respect to any REO Property: (a) as of any
date of determination up to but not including the Payment Date on which the
proceeds, if any, of a Liquidation Event with respect to such REO Property would
be distributed, an amount (not less than zero) equal to the Stated Principal
Balance of the related Mortgage Loan as of the date on which such REO Property
was acquired on behalf of the Trust, minus the aggregate amount of REO Principal
Amortization in respect of such REO Property for all previously ended calendar
months, to the extent distributed pursuant to Section 8.3 of the Indenture on or
before such date of determination, and (b) as of any date of determination
coinciding with or subsequent to the Payment Date on which the proceeds, if any,
of a Liquidation Event with respect to such REO Property would be distributed,
zero.
35
"Stayed Funds": As defined in Section 7.02(b) of the Sale and
Servicing Agreement.
"Step Down Cumulative Loss Test": The Step Down Cumulative
Loss Test will be met with respect to a Payment Date as follows: (i) for the
30th through the 41st Payment Dates, if the Cumulative Loss Percentage for such
Payment Date is 2.00% or less, (ii) for the 42nd through the 53rd Payment Dates,
if the Cumulative Loss Percentage for such Payment Date is 2.50% or less, (iii)
for the 54th through the 65th Payment Dates, if the Cumulative Loss Percentage
for such Payment Date is 2.90% or less, and (iv) for 66th Payment Date and any
Payment Date thereafter, if the Cumulative Loss Percentage for such Payment Date
is 3.25% or less.
"Step Down Rolling Delinquency Test": The Step Down Rolling
Delinquency Test will be met with respect to a Payment Date if the Rolling
Delinquency Percentage for such Payment Date is 8.00% or less.
"Step Down Rolling Loss Test": The Step Down Rolling Loss Test
will be met with respect to a Payment Date if the Rolling Loss Percentage for
such Payment Date is less than 1.00%.
"Step Down Trigger": For any Payment Date after the 30th
Payment Date, the Step Down Trigger will have occurred if each of the Step Down
Cumulative Loss Test, the Step Down Rolling Delinquency Test and the Step Down
Rolling Loss Test is met. In no event will the Step Down Trigger be deemed to
have occurred for the 30th Payment Date or any preceding Payment Date.
"Step Up Cumulative Loss Test": The Step Up Cumulative Loss
Test will be met with respect to a Payment Date as follows (i) for the 1st
through the 12th Payment Dates, if the Cumulative Loss Percentage for such
Payment Date is more than 1.00%, (ii) for the 13th through the 24th Payment
Dates, if the Cumulative Loss Percentage for such Payment Date is more than
1.50%, (iii) for the 25th through the 36th Payment Dates, if the Cumulative Loss
Percentage for such Payment Date is more than 2.15%, (iv) for the 37th through
the 48th Payment Dates, if the Cumulative Loss Percentage for such Payment Date
is more than 2.65%, and (v) for the 49th Payment Date and any Payment Date
thereafter, if the Cumulative Loss Percentage for such Payment Date is more than
3.25%.
"Step Up Rolling Delinquency Test": The Step Up Rolling
Delinquency Test will be met with respect to a Payment Date if the Rolling
Delinquency Percentage for such Payment Date is more than 10.00%.
"Step Up Rolling Loss Test": The Step Up Rolling Loss Test
will be met with respect to a Payment Date if the Rolling Loss Percentage for
such Payment Date is 1.25% or more.
"Step Up Trigger": For any Payment Date, the Step Up Trigger
will have occurred if any one of the Step Up Cumulative Loss Test, the Step Up
Rolling
36
Delinquency Test or the Step Up Rolling Loss Test is met with respect to such
Payment Date.
"Stepped Down Required Subordinated Percentage": For any
Payment Date for which the Step Down Trigger has occurred, a percentage equal to
(i) the percentage equivalent of a fraction, the numerator of which is 3.75% of
the Maximum Collateral Amount, and the denominator of which is the aggregate
Stated Principal Balance of the Mortgage Loans as of such Payment Date, minus
(ii) the percentage equivalent of a fraction, the numerator of which is the
product of (A) the percentage calculated under clause (i) above minus 7.50%,
multiplied by (B) the number of consecutive Payment Dates through and including
the Payment Date for which the Stepped Down Required Subordinated Percentage is
being calculated, up to a maximum of six, for which the Step Down Trigger has
occurred, and the denominator of which is six.
"Subordinated Amount": With respect to any Payment Date, the
excess, if any, of (a) the sum of (i) the aggregate Stated Principal Balances of
the Mortgage Loans immediately following such Payment Date and (ii) the amount
on deposit in the Pre-Funding Account immediately following such Payment Date;
over (b) the Class A Note Principal Balance as of such Payment Date (after
taking into account the payment of the amounts described in clauses (b)(i)
through (iv) of the definition of Principal Distribution Amount on such Payment
Date); provided, however, that such amount shall not be less than zero.
"Subordination Deficiency Amount": With respect to any Payment
Date, the excess, if any, of (a) the Required Subordinated Amount applicable to
such Payment Date over (b) the Subordinated Amount applicable to such Payment
Date prior to taking into account the payment of any Subordination Increase
Amounts on such Payment Date.
"Subordination Increase Amount": With respect to any Payment
Date, the lesser of (a) the Subordination Deficiency Amount as of such Payment
Date (after taking into account the payment of the Principal Distribution
Amount, on such Payment Date, exclusive of the payment of any Subordination
Increase Amount) and (b) the amount of Net Monthly Excess Cashflow on such
Payment Date as reduced by any Cumulative Insurance Payments or payments
allocated to the Overcollateralization Deficit; provided, however, that prior to
the earlier of (i) the December 1998 Payment Date and (ii) such time as the
aggregate amount distributed pursuant to Section 8.3(a)(vi) of the Indenture
equals or exceeds $1,500,000, the Subordination Increase Amount shall be deemed
to be zero.
"Subordination Reduction Amount": With respect to any Payment
Date, an amount equal to the lesser of (a) the Excess Subordinated Amount and
(b) the sum of the amounts available for distribution specified in clauses
(b)(i) through (iii) of the definition of Principal Distribution Amount.
37
"Sub-Servicer": Any Person with which the Servicer has entered
into a Sub-Servicing Agreement and which meets the qualifications of a
Sub-Servicer pursuant to Section 3.02 of the Sale and Servicing Agreement.
"Sub-Servicing Account": An account established by a
Sub-Servicer which meets the requirements set forth in Section 3.08 of the Sale
and Servicing Agreement and is otherwise acceptable to the Servicer.
"Sub-Servicing Agreement": The written contract between the
Servicer and a Sub-Servicer relating to servicing and administration of certain
Mortgage Loans as provided in Section 3.02 of the Sale and Servicing Agreement.
"Substitution Shortfall Amount": As defined in Section 2.05(d)
of the Sale and Servicing Agreement.
"Tax Returns": The federal income tax return on Internal
Revenue Service Form 1120-REIT or any successor forms, to be filed on behalf of
the Trust due to its classification as a REIT under the REIT Provisions,
together with any and all other information reports or returns that may be
required to be furnished to the Certificateholders or filed with the Internal
Revenue Service or any other governmental taxing authority under any applicable
provisions of federal, state or local tax laws.
"Telerate Page 3750": The display currently so designated on
the Dow ▇▇▇▇▇ Telerate Service (or such other page as may replace that page on
that service for the purpose of displaying comparable rates or prices).
"Termination Date": The latest of (i) the termination of the
Policy and the return of the Policy to the Insurer for cancellation, (ii) the
date on which the Indenture Trustee shall have received payment and performance
of all Insurer Trust Secured obligations and (iii) the date on which the
Indenture Trustee shall have received payment and performance of all Indenture
Trustee Trust Secured Obligations.
"Transfer": Any direct or indirect transfer, sale, pledge,
hypothecation, or other form of assignment of any Ownership Interest in a
Certificate or a Note, as the case may be.
"Transferee": Any Person who is acquiring by Transfer any
Ownership Interest in a Security.
"Transferor": Any Person who is disposing by Transfer of any
Ownership Interest in a Certificate or Note, as the case may be.
"Treasury Regulations": Regulations, including proposed or
temporary regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
"Trust": The trust established by the Trust Agreement.
38
"Trust Accounts": The Pre-Funding Account, the Redemption
Account, the Collection Account, the Distribution Account, the Interest Coverage
Account and the Expense Account.
"Trust Agreement": The Trust Agreement dated as of November
26, 1997 between the Sponsor and the Owner Trustee relating to the establishment
of the Trust, together with the Appointment of Additional Trustee Agreement.
"Trust Indenture Act" or "TIA": The Trust Indenture Act of
1939, as amended and as in force on the date hereof, unless otherwise
specifically provided.
"Trust Interest": A beneficial interest in the Trust
representing a portion of the aggregate beneficial interests in the Trust of all
Certificateholders.
"Trust Servicer": Emergent Mortgage Corp. in its capacity as
Trust Servicer under the Trust Services Agreement.
"Trust Property": The segregated pool of assets subject
hereto, constituting the primary trust created hereby and to be administered
hereunder, consisting of: (i) such Mortgage Loans as from time to time are
subject to this Agreement, together with the Mortgage Files relating thereto,
and together with all collections thereon and proceeds thereof, (ii) any REO
Property, together with all collections thereon and proceeds thereof, (iii) the
Indenture Trustee's rights with respect to the Mortgage Loans under all
insurance policies required to be maintained pursuant to this Agreement and any
proceeds thereof, (iv) the Depositor's rights under the Unaffiliated Seller's
Agreement (including any security interest created thereby), (v) the Collection
Account, the Distribution Account, any REO Account and the Expense Account and
such assets that are deposited therein from time to time and any investments
thereof, (vi) any amounts on deposit in the Pre-Funding Account and the
Redemption Account, and (vii) the Indenture Trustee's rights under the Policy,
together with any and all income, proceeds and payments with respect thereto.
Notwithstanding the foregoing, however, the Trust Property specifically excludes
all payments and other collections of principal and interest on the Mortgage
Loans received on or before the Cut-off Date.
"Trust Services Agreement": The Trust Services Agreement,
dated as of December 23, 1997, between the Trust and the Trust Servicer,
providing for the provision of certain services to the Trust by the Trust
Servicer.
"Unaffiliated Seller's Agreement": The agreement dated as of
December 1, 1997 among the Sponsor, the Depositor and Emergent Group and
providing for the sale of the Mortgage Loans from the Sponsor to the Depositor.
"Underwriting Agreement": The Underwriting Agreement dated
December 4, 1997 among the Trust, the Depositor and Prudential Securities
Incorporated relating to the issuance and sale of the Notes.
"Uninsured Cause": Any cause of damage to a Mortgaged Property
such that the complete restoration of such property is not fully reimbursable by
the hazard
39
insurance policies required to be maintained pursuant to Section 3.16 of the
Sale and Servicing Agreement.
"United States Person": A citizen or resident of the United
States, a corporation, partnership or other entity created or organized in, or
under the laws of, the United States or any political subdivision thereof, or an
estate or trust whose income from sources without the United States is
includible in gross income for United States federal income tax purposes
regardless of its connection with the conduct of a trade or business within the
United States. The term "United States" shall have the meaning set forth in
Section 7701 of the Code.
"Value": With respect to any Mortgaged Property, the lesser of
(i) the lesser of (a) the value thereof as determined by an appraisal made for
the originator of the Mortgage Loan at the time of origination of the Mortgage
Loan by an appraiser who met the minimum requirements of FNMA and FHLMC, and (b)
the value thereof as determined by a review appraisal conducted by the Sponsor
in the event any such review appraisal determines an appraised value ten percent
or more lower than the value thereof as determined by the appraisal referred to
in clause (i)(a) above and (ii) the purchase price paid for the related
Mortgaged Property by the Mortgagor with the proceeds of the Mortgage Loan;
provided, however, in the case of a Refinanced Mortgage Loan, such value of the
Mortgaged Property is based solely upon the lesser of (1) the value determined
by an appraisal made for the originator of such Refinanced Mortgage Loan at the
time of origination of such Refinanced Mortgage Loan by an appraiser who met the
minimum requirements of FNMA and FHLMC and (2) the value thereof as determined
by a review appraisal conducted by the Sponsor in the event any such review
appraisal determines an appraised value ten percent or more lower than the value
thereof as determined by the appraisal referred to in clause (ii)(l) above.
"Voting Rights": The voting rights hereunder of Holders of the
Notes or, so long as no Insurer Default shall have occurred and be continuing,
of the Insurer in the place and stead of the Holders of the Notes, as provided
in the Sale and Servicing Agreement and the Indenture.
"Warehouse Liens": The security interests in and liens on the
Trust Property securing the Warehouse Loans.
"Warehouse Loans": Loans and other indebtedness of the
Originator and Emergent Group, under or in respect of (i) the Interim Warehouse
and Security Agreement dated as of March 4, 1997, as amended, among Prudential
Securities Credit Corporation, the Originator and Emergent Group, Inc., (ii) the
Mortgage Loan Warehousing Agreement dated as of March 20, 1997, as amended,
between the Originator and First Union National Bank, and/or (iii) the Mortgage
Loan Warehousing Credit Agreement dated as November 22, 1994, as amended,
between First Union National Bank and Carolina Investors, Inc.
40
EXHIBIT B
[RESERVED]
B-1
EXHIBIT C-1
FORM OF INDENTURE TRUSTEE'S INITIAL CERTIFICATION
__________, 1997
Emergent Home Equity Loan Trust 1997-4
c/o Wilmington Trust Company, as Owner Trustee
▇▇▇▇▇▇ Square North
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: Corporate Trust Office
Prudential Securities Secured
Financing Corporation
▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: Asset-Backed Finance Group
Emergent Mortgage Corp.
▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Re: Sale and Servicing Agreement, dated as of December 1, 1997,
among Emergent Home Equity Loan Trust 1997-4, Prudential
Securities Secured Financing Corporation, Emergent Mortgage
Corp. and First Union National Bank (the "Agreement")
Ladies and Gentlemen:
Pursuant to Section 2.04 of the Agreement, we certify that, as to each
Mortgage Loan listed in the Mortgage Loan Schedule (other than any Mortgage Loan
paid in full or any Mortgage Loan specifically identified in the exception
report annexed hereto as not being covered by this certification), (i) the
Mortgage Note included in each Mortgage File required to be delivered to us
pursuant to the Agreement is in our possession and (ii) such Mortgage Note has
been reviewed by us and appears regular on its face and relates to such Mortgage
Loan.
Attached is the Indenture Trustee's preliminary exceptions in accordance
with Section 2.04 of the Agreement. Capitalized terms used but not otherwise
defined herein shall have the meanings ascribed to them in the Agreement.
The Indenture Trustee has made no independent examination of any documents
contained in each Mortgage File beyond the review specifically required in
C-1-1
the Agreement. The Indenture Trustee makes no representations as to: (i) the
validity, legality, sufficiency, enforceability due authorization, recordability
or genuineness of any of the documents contained in the Mortgage File of any of
the Mortgage Loans identified on the Mortgage Loan Schedule, or (ii) the
collectability, insurability, effectiveness or suitability of any such Mortgage
Loan.
FIRST UNION NATIONAL BANK,
solely in its capacity as Indenture Trustee
and not in its individual capacity
By:____________________________________
Name:__________________________________
Title:_________________________________
▇-▇-▇
▇▇▇▇▇▇▇ ▇-▇
▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇ TRUSTEE'S FINAL CERTIFICATION
_________, 1997
Emergent Home Equity Loan Trust 1997-4
c/o Wilmington Trust Company, as Owner Trustee
▇▇▇▇▇▇ Square North
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: Corporate Trust Office
Prudential Securities Secured
Financing Corporation
▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: Asset-Backed Finance Group
Emergent Mortgage Corp.
▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Re: Sale and Servicing Agreement, dated as of December 1, 1997,
among Emergent Home Equity Loan Trust 1997-4, Prudential
Securities Secured Financing Corporation, Emergent Mortgage
Corp. and First Union National Bank (the "Agreement")
Ladies and Gentlemen:
In accordance with Section 2.04 of the Agreement, the undersigned, as
Indenture Trustee, hereby certifies that as to each Mortgage Loan listed in the
Mortgage Loan Schedule (other than any Mortgage Loan paid in full or listed on
the attachment hereto), it or a Custodian on its behalf has received:
(a) the original recorded Mortgage, and the original recorded power of
attorney, if the Mortgage was executed pursuant to a power of attorney, or a
certified copy thereof in those instances where the public recording office
retains the original or where the original has been lost;
(b) an original recorded Assignment of the Mortgage to the Indenture
Trustee together with the original recorded Assignment or Assignments of the
Mortgage showing a complete chain of assignment from the originator, or a
certified copy of such Assignments in those instances where the public recording
retains the original or where original has been lost; and
(c) the original lender's title insurance policy.
C-2-1
The Indenture Trustee has made no independent examination of any documents
contained in each Mortgage File beyond the review specifically required in the
Agreement. The Indenture Trustee makes no representations as to: (i) the
validity, legality, sufficiency, enforceability or genuineness of any of the
documents contained in the Mortgage File of any of the Mortgage Loans identified
on the Mortgage Loan Schedule, or (ii) the collectability, insurability,
effectiveness or suitability of any such Mortgage Loan.
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the above-captioned Pooling and Servicing
Agreement.
FIRST UNION NATIONAL BANK,
solely in its capacity as Indenture Trustee
and not in its individual capacity
By:____________________________________
Name:__________________________________
Title:_________________________________
C-2-2
EXHIBIT D
FORM OF UNAFFILIATED SELLER'S AGREEMENT
D-1
Exhibit E-1
REQUEST FOR RELEASE
(for Indenture Trustee/Custodian)
Loan Information
Name of Mortgagor:
Servicer
Loan No.:
Indenture Trustee/Custodian
Name: First Union National Bank
Address: ▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Indenture Trustee/Custodian
Mortgage File No.:
Depositor
Name: Prudential Securities Secured
Financing Corporation
Address: ▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Trust
Name: Emergent Home Equity Loan Trust 1997-4
Address: c/o Wilmington Trust Company, Owner Trustee
▇▇▇▇▇▇ Square North
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: Corporate Trust Office
Securities: Emergent Home Equity Loan Asset Backed Notes,
Series 1997-4.
E-1-1
The undersigned Servicer hereby acknowledges that it has received from
First Union National Bank, as Indenture Trustee for the Holders of Emergent Home
Equity Loan Asset Backed Notes, Series 1997-4, the documents referred to below
(the "Documents"). All capitalized terms not otherwise in this Request for
Release shall have the meanings given them in the Sale and Servicing Agreement,
dated as of December 1, 1997, among the Indenture Trustee, the Trust, the
Depositor and the Servicer (the "Sale and Servicing Agreement").
(a) Promissory Note dated __________, 19__, in the original principal sum of
$________, made by ______________, payable to, or endorsed to the order
of, the Indenture Trustee.
(b) Mortgage recorded on ____________________ as instrument no. __________ in
the County Recorder's Office of the County of _______________, State of
_______________ in book/reel/docket _________________ of official records
at page/image ______________.
(c) Deed of Trust recorded on _______________ as instrument no. ___________ in
the County Recorder's Office of the County of _______________, State of
________________ in book/reel/docket ________________ of official records
at page/image _____________.
(d) Assignment of Mortgage or Deed of Trust to the Indenture Trustee, recorded
on ______ as instrument no. _______ in the County Recorder's Office of the
County of ______________, State of ______________ in book/reel/docket
__________ of official records at page/image ______________.
(e) Other documents, including any amendments, assignments or other
assumptions of the Mortgage Note or Mortgage.
(f) __________________________________________
(g) __________________________________________
(h) __________________________________________
(i) __________________________________________
The undersigned Servicer hereby acknowledges and agrees as follows:
(1) The Servicer shall hold and retain possession of the Documents
in trust for the benefit of the Indenture Trustee, solely for the purposes
provided in the Agreement and the Indenture.
(2) The Servicer shall not cause or permit the Documents to become
subject to, or encumbered by, any claim, liens, security interest,
charges, writs of attachment or other impositions nor shall the Servicer
assert or seek to assert any claims or rights of setoff to or against the
Documents or any proceeds thereof.
E-1-2
(3) The Servicer shall return each and every Document previously
requested from the Mortgage File to the Indenture Trustee when the need
therefor no longer exists, unless the Mortgage Loan relating to the
Documents has been liquidated and the proceeds thereof have been remitted
to the Collection Account and except as expressly provided in the
Agreement.
(4) The Documents and any proceeds thereof, including any proceeds
of proceeds, coming into the possession or control of the Servicer shall
at all times be earmarked for the account of the Indenture Trustee, and
the Servicer shall keep the Documents and any proceeds separate and
distinct from all other property in the Servicer's possession, custody or
control.
Dated:
EMERGENT MORTGAGE CORP.
By:______________________________
Name:____________________________
Title:___________________________
E-1-3
EXHIBIT E-2
REQUEST FOR RELEASE
[Mortgage Loans Paid in Full]
OFFICER'S CERTIFICATE AND TRUST RECEIPT
EMERGENT HOME EQUITY LOAN ASSET BACKED NOTES
SERIES 1997-4
____________________________________________ HEREBY CERTIFIES THAT HE/SHE IS AN
OFFICER OF THE SERVICER, HOLDING THE OFFICE SET FORTH BENEATH HIS/HER SIGNATURE,
AND HEREBY FURTHER CERTIFIES AS FOLLOWS:
WITH RESPECT TO THE MORTGAGE LOANS, AS THE TERM IS DEFINED IN THE SALE AND
SERVICING AGREEMENT DESCRIBED IN THE ATTACHED SCHEDULE:
ALL PAYMENTS OF PRINCIPAL, PREMIUM (IF ANY), AND INTEREST HAVE BEEN MADE.
LOAN NUMBER:_____________ BORROWER'S NAME:
COUNTY:
WE HEREBY CERTIFY THAT ALL AMOUNTS RECEIVED IN CONNECTION WITH SUCH PAYMENTS,
WHICH ARE REQUIRED TO BE DEPOSITED IN THE COLLECTION ACCOUNT PURSUANT TO SECTION
3.10 OF THE SALE AND SERVICING AGREEMENT, HAVE BEEN OR WILL BE CREDITED.
DATED:
// VICE PRESIDENT
// ASSISTANT VICE PRESIDENT
E-2-1
EXHIBIT F
PRE-FUNDED MORTGAGE LOAN TRANSFER AGREEMENT
EMERGENT HOME EQUITY LOAN TRUST 1997-4
Emergent Home Equity Loan Trust 1997-4 ("Trust"), Emergent Mortgage Corp.
("Originator"), Emergent Mortgage Holdings Corporation II ("Contributor"),
Emergent Residual Holdings Corp. ("Sponsor"), Prudential Securities Secured
Financing Corporation ("Depositor"), and First Union National Bank, as Indenture
Trustee (the "Indenture Trustee"), pursuant to (i) the Contribution Agreement
and Assignment dated as of December 1, 1997 (the "Originator/Contributor
Contribution Agreement") among Originator, Contributor and Emergent Group, Inc.
("Emergent Group"), (ii) the Contribution Agreement and Assignment dated as of
December 1, 1997 (the "Contributor/Sponsor Contribution Agreement") among the
Contributor, the Sponsor and Emergent Group, (iii) the Unaffiliated Seller's
Agreement dated as of December 1, 1997 (the "Unaffiliated Seller's Agreement")
among Sponsor, Depositor and Emergent Group, and (iv) the Sale and Servicing
Agreement dated as of December 1, 1997 (the "Sale and Servicing Agreement")
among the Trust, the Depositor, the Originator and the Indenture Trustee, hereby
confirm, as of this day of , 1998, their understanding and agreement as follows
with respect to the contribution by the Originator to the Contributor, the
contribution by the Contributor to the Sponsor, the sale by the Sponsor to the
Depositor, and the sale by the Depositor to the Trust of the Mortgage Loans
listed on the attached Mortgage Loan Schedule (the "Pre-Funded Mortgage Loans").
The Originator hereby irrevocably contributes to the Contributor (subject
to any Warehouse Liens thereon) without recourse (except as otherwise explicitly
provided for in Originator/Contributor Contribution Agreement, the
Contributor/Sponsor Contribution Agreement, the Unaffiliated Seller's Agreement
and/or the Sale and Servicing Agreement) all of its right, title and interest in
and to the Pre-Funded Mortgage Loans, including, without limitation, the
Mortgages, the Mortgage Files, the Mortgage Notes, all other documents,
materials and properties appurtenant thereto, all interest and principal
collected by the Originator on or with respect to the Pre-Funded Mortgage Loans
on or after the related Cut-off Dates, and all proceeds received on or after
such Cut-off Dates of any related insurance policies. The Originator shall
deliver the original Mortgage Note, Mortgage or mortgage assignment with
evidence of recording thereon and other required documentation in accordance
with the delivery requirements of the Sponsor set forth in Section 2.03 of the
Unaffiliated Seller's Agreement.
The Contributor hereby irrevocably contributes to the Sponsor (subject to
any Warehouse Liens thereon) without recourse (except as otherwise explicitly
provided for in Originator/Contributor Contribution Agreement, the
Contributor/Sponsor Contribution Agreement, the Unaffiliated Seller's Agreement
and/or the Sale and Servicing Agreement) all of its right, title and interest in
and to the Pre-Funded Mortgage Loans, including, without limitation, the
Mortgages, the
F-1
Mortgage Files, the Mortgage Notes, all other documents, materials and
properties appurtenant thereto, all interest and principal collected by the
Originator on or with respect to the Pre-Funded Mortgage Loans on or after the
related Cut-off Dates, and all proceeds received on or after such Cut-off Dates
of any related insurance policies. The Contributor shall deliver the original
Mortgage Note, Mortgage or mortgage assignment with evidence of recording
thereon and other required documentation in accordance with the delivery
requirements of the Sponsor set forth in Section 2.03 of the Unaffiliated
Seller's Agreement.
The Sponsor does hereby irrevocably sell to the Depositor (subject to the
Warehouse Liens) without recourse (except as otherwise explicitly provided for
in the Originator/Contributor Contribution Agreement, the Contributor/Sponsor
Contribution Agreement, the Unaffiliated Seller's Agreement and/or the Sale and
Servicing Agreement) all of its right, title and interest in and to the
Pre-Funded Mortgage Loans, including, without limitation, the Mortgages, the
Mortgage Files, the Mortgage Notes, all other documents, materials and
properties appurtenant thereto, all interest and principal collected by the
Sponsor on or with respect to the Pre-Funded Mortgage Loans on or after the
related Cut-off Dates and all proceeds received on or after such Cut-off Dates
of any related insurance policies. The Sponsor shall deliver the original
Mortgage Note, Mortgage or mortgage assignment with evidence of recording
thereon and other required documentation in accordance Section 2.03 of the
Unaffiliated Seller's Agreement.
The Depositor does hereby irrevocably sell to the Trust without recourse
(except as otherwise explicitly provided for in the Originator/Contributor
Contribution Agreement, the Contributor/Sponsor Contribution Agreement, the
Unaffiliated Seller's Agreement and/or the Sale and Servicing Agreement) all of
its right, title and interest in and to the Pre-Funded Mortgage Loans,
including, without limitation, the Mortgages, the Mortgage Files, Mortgages
Notes, all other documents, materials and properties appurtenant thereto, all
interest and principal collected by the Depositor on or with respect to the
Pre-Funded Mortgage Loans on or after the related Cut-off Dates and all proceeds
received on or after such Cut-off Dates of any related insurance policies. The
Depositor shall deliver the original Mortgage or mortgage assignment with
evidence of recording thereon and other required documentation in accordance
with the terms set forth in Section 2.03 of the Sale and Servicing Agreement.
The Trust hereby grants to the Indenture Trustee (subject to any Warehouse
Liens thereon), for the benefit of the Trust Secured Parties, all of the Trust's
right, title and interest in and to the Pre-Funded Mortgage Loans, including,
without limitation, the Mortgages, the Mortgage Files, Mortgages Notes, all
other documents, materials and properties appurtenant thereto, all interest and
principal collected by the Depositor on or with respect to the Pre-Funded
Mortgage Loans on or after the related Cut-off Dates and all proceeds received
on or after such Cut-off Dates of any related insurance policies.
The expenses and costs relating to the transfers of the Pre-Funded
Mortgage Loans contemplated hereby shall be borne by the Sponsor.
F-2
The Originator, the Contributor and the Sponsor hereby affirm the
representations and warranties made by each of them set forth in the
Originator/Contributor Contribution Agreement, the Contributor/Sponsor
Contribution Agreement and the Unaffiliated Seller's Agreement, respectively,
that relate to the Pre-Funded Mortgage Loans on and as of the date hereof. The
Originator, the Contributor and the Sponsor each hereby deliver notice and
confirm that each of the conditions set forth in Section 2.02(c) of the Sale and
Servicing Agreement are satisfied on and as of the date hereof in respect of the
Pre-Funded Mortgage Loans.
The Depositor hereby affirms each of its representations and warranties
set forth in the Unaffiliated Seller's Agreement that relate to the Pre-Funded
Mortgage Loans on and as of the date hereof. The Depositor hereby delivers
notice and confirms that each of the conditions set forth in Section 2.02(c) of
the Sale and Servicing Agreement are satisfied as of the date hereof in respect
of the Pre-Funded Mortgage Loans.
The Trust hereby affirms each of its representations and warranties set
forth in the Indenture that relate to the Pre-Funded Mortgage Loans on and as of
the date hereof.
Additional terms of sale are attached hereto as Attachment A.
To the extent permitted by applicable law, this Pre-Funded Mortgage Loan
Transfer 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 counties or other comparable jurisdictions in which any or all of
the properties subject to the Mortgages are situated, and in any other
appropriate public recording office or elsewhere, such recordation to be
effected by the Servicer at the Noteholders' expense, but only upon the
direction of the Indenture Trustee accompanied by an opinion of counsel to the
effect that such recordation materially and beneficially affects the interests
of the Noteholders.
Capitalized terms used herein but not defined herein shall have the
meanings ascribed thereto in the Sale and Servicing Agreement.
This Pre-Funded Mortgage Loan Transfer Agreement shall be construed in
accordance with the laws of the State of New York and the obligations, rights
and remedies of the parties hereunder shall be determined in accordance with
such laws, without giving effect to the principles of conflicts of laws.
This Pre-Funded Mortgage Loan Transfer 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.
Terms capitalized herein and not otherwise defined herein shall have the
respective meanings ascribed thereto in the Sale and Servicing Agreement.
F-3
EMERGENT HOME EQUITY LOAN
TRUST 1997-4
By: WILMINGTON TRUST COMPANY,
not in its individual capacity
but solely as Owner Trustee
By:________________________________
Name:
Title:
EMERGENT MORTGAGE CORP.
By:________________________________
Name:
Title:
PRUDENTIAL SECURITIES SECURED
FINANCING CORPORATION
By:________________________________
Name:
Title:
FIRST UNION NATIONAL BANK,
as Indenture Trustee
By:________________________________
Name:
Title:
F-4
ATTACHMENTS
A. Additional Terms of Sale
B. Mortgage Loan Schedule
F-5
Schedule 1
MORTGAGE LOAN SCHEDULE