Exhibit 99.1
EXECUTION
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SALE AND SERVICING AGREEMENT
Dated as of July 3, 2002
among
HOUSEHOLD MORTGAGE FUNDING CORPORATION III
(Depositor)
HOUSEHOLD MORTGAGE LOAN TRUST 2002-HC1
(Trust)
HOUSEHOLD FINANCE CORPORATION
(Master Servicer)
and
JPMORGAN CHASE BANK
(Indenture Trustee)
Household Mortgage Loan Trust 2002-HC1
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Table of Contents
Page
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ARTICLE I. DEFINITIONS .......................................................................5
Section 1.01 Definitions .............................................................5
Section 1.02 Other Definitional Provisions. .........................................22
Section 1.03 Interest Calculations ..................................................23
ARTICLE II. Conveyance of Mortgage Loans; Tax Treatment ......................................24
Section 2.01 Acknowledgment; Conveyance of Mortgage Loans; Custody of
Mortgage Files .........................................................24
Section 2.02 Acceptance by Indenture Trustee; Repurchase of Mortgage
Loans; Conveyance of Eligible Substitute Mortgage Loans ................28
Section 2.03 Representations, Warranties and Covenants of the Master
Servicer ...............................................................29
Section 2.04 Representations and Warranties of the Depositor Regarding
this Agreement and the Mortgage Loans; Repurchases and
Substitutions ..........................................................31
Section 2.05 Tax Treatment ..........................................................36
ARTICLE III. ADMINISTRATION AND SERVICING OF MORTGAGE LOANS ...................................36
Section 3.01 The Master Servicer ....................................................36
Section 3.02 Collection of Certain Mortgage Loan Payments ...........................39
Section 3.03 Withdrawals from the Collection Account ................................41
Section 3.04 Maintenance of Hazard Insurance; Property Protection
Expenses ...............................................................42
Section 3.05 Assumption and Modification Agreements .................................43
Section 3.06 Realization Upon Defaulted Mortgage Loans ..............................43
Section 3.07 [Reserved] .............................................................44
Section 3.08 Indenture Trustee to Cooperate .........................................44
Section 3.09 Servicing Compensation; Payment of Certain Expenses by
Master Servicer ........................................................45
Section 3.10 Annual Statement as to Compliance ......................................46
Section 3.11 Annual Servicing Report ................................................46
Section 3.12 Access to Certain Documentation and Information Regarding
the Mortgage Loans .....................................................46
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Section 3.13 Maintenance of Certain Servicing Insurance Policies ....................47
Section 3.14 Reports to the Securities and Exchange Commission ......................47
Section 3.15 [Reserved] .............................................................47
Section 3.16 Information Required by the Internal Revenue Service
Generally and Reports of Foreclosures and Abandonments of
Mortgaged Property .....................................................47
Section 3.17 Additional Covenants of HFC ............................................48
Section 3.18 Servicing Certificate ..................................................48
ARTICLE IV. [RESERVED] .......................................................................51
ARTICLE V. PRIORITY OF PAYMENTS; STATEMENTS TO NOTEHOLDERS;
RIGHTS OF NOTEHOLDERS ............................................................51
Section 5.01 Payments ...............................................................51
Section 5.02 Calculation of LIBOR, the Class A Formula Rate and the Class
M Formula Rate .........................................................53
Section 5.03 Statements to Noteholders ..............................................54
ARTICLE VI. THE MASTER SERVICER AND THE DEPOSITOR ............................................58
Section 6.01 Liability of the Master Servicer and the Depositor .....................58
Section 6.02 Merger or Consolidation of, or Assumption of the Obligations
of, the Master Servicer or the Depositor ...............................58
Section 6.03 Limitation on Liability of the Master Servicer, the Depositor
and Others .............................................................58
Section 6.04 Master Servicer Not to Resign ..........................................59
Section 6.05 Delegation of Duties ...................................................59
ARTICLE VII. MASTER SERVICER TERMINATION ......................................................60
Section 7.01 Master Servicer Termination Events .....................................60
Section 7.02 Indenture Trustee to Act; Appointment of Successor .....................61
Section 7.03 Waiver of Defaults .....................................................63
Section 7.04 Notification to Noteholders ............................................63
ARTICLE VIII. TERMINATION ......................................................................63
Section 8.01 Termination ............................................................63
ARTICLE IX. MISCELLANEOUS PROVISIONS .........................................................66
Section 9.01 Amendment ..............................................................66
Section 9.02 Recordation of Agreement ...............................................68
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Section 9.03 Duration of Agreement ..................................................68
Section 9.04 Governing Law ..........................................................68
Section 9.05 Notices ................................................................68
Section 9.06 Severability of Provisions .............................................69
Section 9.07 No Partnership .........................................................69
Section 9.08 Counterparts ...........................................................69
Section 9.09 Successors and Assigns .................................................69
Section 9.10 Headings ...............................................................69
Section 9.11 Indenture Trustee ......................................................69
Section 9.12 Inconsistencies Among Transaction Documents ............................69
Section 9.13 [RESERVED] .............................................................70
Section 9.14 Limitation on Voting of Preferred Stock ................................70
Section 9.15 Perfection Representations .............................................70
Section 9.16 Limitation of Liability ................................................70
Section 9.17 Inspection of Mortgage Files ...........................................70
ARTICLE X. ADMINISTRATION PROVISIONS ........................................................70
Section 10.01 Administrative Duties ..................................................70
Section 10.02 Records ................................................................73
Section 10.03 Additional Information to be Furnished to the Trust ....................73
EXHIBITS
SCHEDULE 1 Perfection Representations, Warranties and Covenants
EXHIBIT A Mortgage Loan Schedule
EXHIBIT B [Reserved]
EXHIBIT C [Reserved]
EXHIBIT D Form of Class A Note
EXHIBIT E Form of Class M Note
EXHIBIT F Auction Procedures
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This
Sale and Servicing Agreement (the "Agreement") is entered into
effective as of July 3, 2002, among Household Mortgage Loan Trust 2002-HC1, a
Delaware business trust (the "Trust"), Household Mortgage Funding Corporation
III, a Delaware corporation, as depositor (the "Depositor"), Household Finance
Corporation, a Delaware corporation, as master servicer (the "Master Servicer"),
and ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ Bank, a New York banking corporation, as Indenture Trustee
on behalf of the Noteholders (in such capacity, the "Indenture Trustee").
PRELIMINARY STATEMENT
WHEREAS, the Trust desires to purchase from the Depositor a pool of
Mortgage Loans which were acquired by the Depositor from various sellers;
WHEREAS, the Depositor, concurrently with the execution of this Agreement,
purchased the Mortgage Loans from the sellers pursuant to the Mortgage Loan
Purchase Agreement;
WHEREAS, the Master Servicer is willing to service such Mortgage Loans in
accordance with the terms of this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements herein contained,
the parties hereto hereby agree as follows:
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ARTICLE I. DEFINITIONS
Section 1.01 DEFINITIONS. Whenever used in this Agreement, the following
words and phrases, unless the context otherwise requires, shall have the
meanings specified in this Article.
ACCRUAL PERIOD: As to the Class A and Class M Notes, for the initial
Payment Date is the period from and including the Closing Date through and
including the day immediately preceding the initial Payment Date, and for each
Payment Date thereafter is the period from and including the Payment Date in the
month immediately preceding the month in which the Payment Date occurs and
ending on and including the day immediately preceding the Payment Date.
ADDITIONAL PRINCIPAL REDUCTION AMOUNT: As to any Payment Date, an amount
equal to the excess, if any, of (x) the Principal Reduction Amount over (y) the
Principal Payment Amount.
AFFILIATE: With respect to any Person, any other Person controlling,
controlled by or under common control with such Person. For purposes of this
definition, "control" means the power to direct the management and policies of a
Person, directly or indirectly, whether through ownership of voting securities,
by contract or otherwise and "controlling" and "controlled" shall have meanings
correlative to the foregoing.
AGREEMENT: This
Sale and Servicing Agreement and all amendments hereof and
supplements hereto.
APPRAISED VALUE: As to any Mortgage Loan, the appraised value of the
related Mortgaged Property based upon the appraisal used in connection with the
origination of such Mortgage Loan; PROVIDED that the appraisal was obtained
within six months of origination; and PROVIDED FURTHER, that where the related
Mortgage Property was purchased within 12 months after Mortgage Loan
origination, the appraisal of such Mortgage Property at the time of purchase may
be used.
ASSIGNMENT OF MORTGAGE: With respect to any Mortgage, an assignment, notice
of transfer or equivalent instrument, in recordable form, sufficient under the
laws of the jurisdiction in which the related Mortgaged Property is located to
reflect the sale of the Mortgage to the Indenture Trustee, which assignment,
notice of transfer or equivalent instrument may be in the form of one or more
blanket assignments covering the Mortgage Loans secured by Mortgaged Properties
located in the same jurisdiction.
AUCTION DATE: As defined in Section 8.01(c).
AVAILABLE FUNDS CAP: With respect to any Payment Date, a per annum rate
equal to the weighted average of the Net Loan Rates of each Mortgage Loan, in
each case outstanding as of the first day of the related Collection Period,
multiplied by a fraction of which the numerator is 30 and the denominator is the
number of days in the related Accrual Period.
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AVAILABLE PAYMENT AMOUNT: As to any Payment Date, the sum, without
duplication, of all amounts described in clauses (i) through (iv), inclusive, of
Section 3.02(b) received by the Master Servicer with respect to the related
Collection Period and deposited in the Collection Account.
BIF: The Bank Insurance Fund, as from time to time constituted, created
under the Financial Institutions Reform, Recovery and Enhancement Act of 1989,
or if at any time after the execution of this instrument the Bank Insurance Fund
is not existing and performing duties now assigned to it, the body performing
such duties on such date.
BOOK-ENTRY NOTE: Any Class A or Class M Note registered in the name of the
Depository or its nominee, ownership of which is reflected on the books of the
Depository or on the books of a Person maintaining an account with such
Depository (directly or as an indirect participant in accordance with the rules
of such Depository).
BUSINESS DAY: Any day other than (i) a Saturday or a Sunday or (ii) a day
on which banking institutions in the State of New York or
Illinois are required
or authorized by law to be closed.
CHARGE OFF AMOUNT: As to any Charged Off Mortgage Loan and Collection
Period, an amount equal to the amount of the Principal Balance that the Master
Servicer has charged off on its servicing records during such Collection Period.
CHARGED OFF MORTGAGE LOAN: A defaulted Mortgage Loan that is not a
Liquidated Mortgage Loan and as to which (i) collection procedures are ongoing
and (ii) the Master Servicer has charged off all or a portion of the related
Principal Balance.
CLASS: Either the Class A or Class M Notes.
CLASS A FORMULA RATE: With respect to the Class A Notes and any Accrual
Period, a per annum rate equal to LIBOR plus 0.30%.
CLASS A NOTE: Any Note designated as a Class A Note on the face thereof,
substantially in the form of Exhibit D hereto.
CLASS A NOTEHOLDER: A Holder of a Class A Note.
CLASS A NOTE RATE: With respect to any Payment Date and Accrual Period, the
lesser of (i) the Class A Formula Rate and (ii) the Available Funds Cap for such
Payment Date.
CLASS A SUPPLEMENTAL INTEREST AMOUNT: As of any Payment Date, the sum of
(i) the excess, if any, of (a) interest due on the Class A Notes at the Class A
Formula Rate over (b) interest due on the Class A Notes at an interest rate
equal to the Available Funds Cap, (ii) any Class A Supplemental Interest Amount
remaining unpaid from prior Payment Dates and (iii) interest on the amount in
clause (ii) at the Class A Formula Rate.
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CLASS M FORMULA RATE: With respect to the Class M Notes and any Accrual
Period, a per annum rate equal to LIBOR plus 0.65%.
CLASS M NOTE: Any Note designated as a Class M Note on the face thereof,
substantially in the form of Exhibit E hereto.
CLASS M NOTEHOLDER: A Holder of a Class M Note.
CLASS M NOTE RATE: With respect to any Payment Date and Accrual Period, the
lesser of (i) the Class M Formula Rate and (ii) the Available Funds Cap for such
Payment Date.
CLASS M SUPPLEMENTAL INTEREST AMOUNT: As of any Payment Date, the sum of
(i) the excess, if any, of (a) interest due on the Class M Notes at the Class M
Formula Rate over (b) interest due on the Class M Notes at an interest rate
equal to the Available Funds Cap, (ii) any Class M Supplemental Interest Amount
remaining unpaid from prior Payment Dates and (iii) interest on the amount in
clause (ii) at the Class M Formula Rate.
CLOSING DATE: July 3, 2002.
CODE: The Internal Revenue Code of 1986, as amended from time to time, and
any Treasury Regulations promulgated thereunder.
COLLECTION ACCOUNT: The custodial account or accounts created and
maintained for the benefit of the Noteholders and the Ownership Interest
pursuant to Section 3.02(b). The Collection Account shall be an Eligible
Account.
COLLECTION PERIOD: As to any Payment Date and Mortgage Loan, the calendar
month immediately preceding the month in which such Payment Date occurs, except
that with respect to the initial Payment Date, the Collection Period is the
period from the Cut-Off Date to July 31, 2002.
CORPORATE TRUST OFFICE: As defined in the Indenture.
CURRENT INTEREST: As to the Class A and Class M Notes and any Payment Date,
the interest accrued at the applicable Note Rate during the applicable Accrual
Period on the aggregate Note Principal Amount of such Class of Notes as of the
beginning of the Accrual Period.
CUT-OFF DATE: As to a Mortgage Loan, the close of business on June 23,
2002.
CUT-OFF DATE POOL BALANCE: The aggregate of the Cut-Off Date Principal
Balances of the Mortgage Loans.
CUT-OFF DATE PRINCIPAL BALANCE: As to any Mortgage Loan, the unpaid
principal balance thereof as of the Cut-Off Date or, as to any Eligible
Substitute Mortgage Loan, as of the date of substitution of such Eligible
Substitute Mortgage Loan.
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DEFECTIVE MORTGAGE LOAN: Any Mortgage Loan subject to repurchase or
substitution pursuant to Section 2.02 or 2.04.
DEFINITIVE NOTES: As defined in the Indenture.
DEPOSIT DATE: As to any Payment Date, the Business Day immediately
preceding such Payment Date.
DEPOSIT EVENT: The lowering of the Master Servicer's short-term debt rating
below "P-1" by ▇▇▇▇▇'▇, "A-1" by Standard & Poor's or "F1" by Fitch or any time
in which HFC shall cease to be the Master Servicer.
DEPOSITOR: Household Mortgage Funding Corporation III, a Delaware
corporation.
DEPOSITORY: The initial Depository shall be The Depository Trust Company,
the nominee of which is Cede & Co., as the registered Holder of Notes,
evidencing $892,791,000 in initial aggregate principal amount of the Class A
Notes and evidencing $158,216,000 in initial aggregate principal amount of the
Class M Notes. The Depository shall at all times be a "clearing corporation" as
defined in Section 8-102(a)(5) of the UCC of the State of New York.
DEPOSITORY PARTICIPANT: A broker, dealer, bank or other financial
institution or other Person for whom from time to time the Depository effects
book-entry transfers and pledges of securities deposited with the Depository.
DETERMINATION DATE: As to any Payment Date, the second Business Day prior
to such Payment Date.
ELECTRONIC LEDGER: The electronic master record of mortgage loans
(including the Mortgage Loans) maintained by the Master Servicer.
ELIGIBLE ACCOUNT: An account that is either (i) maintained with a
depository institution whose short-term debt obligations at the time of any
deposit therein are rated in the highest short-term debt rating category by the
Rating Agencies, (ii) an account or accounts maintained with a depository
institution with a long-term unsecured debt rating by each Rating Agency that is
at least investment grade, PROVIDED that the deposits in such account or
accounts are fully insured by either the BIF or the SAIF, (iii) a segregated
trust account maintained with the Indenture Trustee in its fiduciary capacity,
or (iv) an account otherwise acceptable to each Rating Agency, as evidenced by a
letter to such effect from each such Rating Agency to the Indenture Trustee,
without reduction or withdrawal of the then-current ratings of the Class A or
Class M Notes.
ELIGIBLE SUBSTITUTE MORTGAGE LOAN: A Mortgage Loan substituted (a) by the
Depositor or the Master Servicer for a Defective Mortgage Loan pursuant to
Section 2.02(a) or 2.04 or (b) by the Master Servicer pursuant to Section
2.02(b), which on the date of such substitution must
(i) have a Principal Balance not substantially greater or less than
the Principal Balance of such Defective Mortgage Loan or such elected
substituted Mortgage Loan;
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(ii) have (i) a current Loan Rate of not less than the Loan Rate of
the Defective Mortgage Loan or elected substituted Mortgage Loan and not
more than 500 basis points in excess thereof (ii) in the case of an
adjustable rate Mortgage Loan, the same Index as such Defective Mortgage
Loan or such elected substituted Mortgage Loan and (iii) the same Loan Rate
Classification as such Defective Mortgage Loan or such elected substituted
Mortgage Loan;
(iii) have a remaining term to maturity not more than six months
earlier or later than the remaining term to maturity of the Defective
Mortgage Loan or elected substituted Mortgage Loan;
(iv) comply with the representations and warranties set forth in
Section 2.04(b), to the extent such representations and warranties do not
pertain exclusively to the Mortgage Loans transferred on the Closing Date;
(v) have a Loan-to-Value Ratio that is not greater than the
Loan-to-Value Ratio of the Defective Mortgage Loan or elected substituted
Mortgage Loan as of the date of origination of such Defective Mortgage Loan
or elected substituted Mortgage Loan; and
(vi) be the obligation of a Mortgagor whose credit profile is
substantially similar to that of the Mortgagor under the Defective Mortgage
Loan or elected substituted Mortgage Loan,
PROVIDED, HOWEVER, that with respect to (i) through (vi) above, a Mortgage Loan
may qualify as an Eligible Substitute Mortgage Loan if each of the Rating
Agencies consents to such substitution.
ENHANCEMENT PERCENTAGE: As to any Payment Date, the percentage obtained by
dividing (x) the Interim Overcollateralization Amount by (y) the Pool Balance as
of the last day of the related Collection Period.
ERISA: The Employee Retirement Income Security Act of 1974, as amended.
EVENT OF DEFAULT: As defined in the Indenture.
EXTRA PRINCIPAL PAYMENT AMOUNT: As to any Payment Date, the lesser of (x)
the Monthly Excess Cashflow and (y) the Interim Overcollateralization
Deficiency.
▇▇▇▇▇▇ ▇▇▇: ▇▇▇▇▇▇ ▇▇▇, formerly known as The Federal National Mortgage
Association, or any successor thereto.
FDIC: The Federal Deposit Insurance Corporation and any successor thereto.
FINAL SCHEDULED PAYMENT DATE: With respect to the Class A and Class M
Notes, the Payment Date in occurring in May 2032.
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FITCH: Fitch Ratings, or its successor in interest.
FORECLOSURE PROFIT: As to any Liquidated Mortgage Loan, the amount, if any,
by which (i) the aggregate of its Liquidation Proceeds less Liquidation Expenses
exceeds (ii) the Principal Balance thereof immediately prior to the final
recovery of its Liquidation Proceeds, together with the sum of (x) accrued and
unpaid interest thereon at the applicable Loan Rate from the date interest was
last paid through the date of receipt of the final Liquidation Proceeds and (y)
the related Charge Off Amounts.
HFC: Household Finance Corporation, a Delaware corporation, and its
successors.
INDENTURE: The Indenture dated as of July 3, 2002 between the Issuer and
the Indenture Trustee.
INDEX: As to each adjustable rate Mortgage Loan, the index from time to
time in effect for the adjustment of the Loan Rate set forth as such on the
related Mortgage Note.
INDENTURE TRUSTEE: JPMorgan Chase Bank, a New York banking corporation, as
Indenture Trustee under the Indenture or any successor indenture trustee under
the Indenture appointed in accordance with such agreement.
INDENTURE TRUSTEE'S STATEMENT TO NOTEHOLDERS: As defined in Section 5.03.
INITIAL MORTGAGE LOAN: Each Mortgage Loan transferred and assigned to the
Trust on the Closing Date.
INSURANCE PROCEEDS: Proceeds paid by any insurer pursuant to any insurance
policy covering a Mortgage Loan, or by the Master Servicer pursuant to the last
sentence of Section 3.04, net of any component thereof covering any expenses
incurred by or on behalf of the Master Servicer in connection with obtaining
such Insurance Proceeds and exclusive of any portion thereof that is applied to
the restoration or repair of the related Mortgaged Property, released to the
Mortgagor in accordance with the Master Servicer's normal servicing procedures
or required to be paid to any holder of a mortgage senior to such Mortgage Loan.
INTEREST CARRY FORWARD AMOUNT: As to the Class A or Class M Notes and any
Payment Date, the sum of (x) the amount, if any, by which (i) the sum of the
Current Interest and all prior unpaid Interest Carry Forward Amounts for such
Class as of the immediately preceding Payment Date exceeded (ii) the amount of
the actual payment with respect to interest made to such Class on such Payment
Date plus (y) interest on such amount calculated for the related Accrual Period
at the related Note Rate in effect with respect to such Class.
INTEREST COLLECTIONS: As to any Payment Date, the sum, without duplication
of:
(i) the portion allocable to interest of all scheduled monthly payments
on the Mortgage Loans received during the related Collection Period, minus the
Servicing Fee for the related Collection Period;
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(ii) all Net Liquidation Proceeds actually collected by the Master
Servicer during the related Collection Period (to the extent such Net
Liquidation Proceeds relate to interest and including Recovered Charge Off
Amounts);
(iii) the interest portion of the Purchase Price for any Mortgage Loan
repurchased from the Trust pursuant to the terms of this Agreement during the
related Collection Period;
(iv) the interest portion of all Substitution Adjustment Amounts with
respect to the related Collection Period; and
(v) to the extent advanced by the Master Servicer pursuant to Section
3.01(f) and not previously distributed, the amount of any Skip-A-Pay Advance
deposited by the Master Servicer into the Collection Account with respect to
such Payment Date.
INTERIM OVERCOLLATERALIZATION AMOUNT: As to any Payment Date, the excess,
if any, of (x) the Pool Balance as of the last day of the preceding Collection
Period over (y) (i) the aggregate Note Principal Amount of all Class A and Class
M Notes (before taking into account any payments of principal on such Payment
Date) less (ii) the Principal Collections for such Payment Date.
INTERIM OVERCOLLATERALIZATION DEFICIENCY: As to any Payment Date, the
excess, if any, of (x) the Targeted Overcollateralization Amount over (y) the
Interim Overcollateralization Amount.
ISSUER: Household Mortgage Loan Trust 2002-HC1.
LIBOR: The per annum rate established by the Indenture Trustee in
accordance with Section 5.02.
LIBOR BUSINESS DAY: Any day on which dealings in United States dollars are
transacted in the London interbank market.
LIBOR DETERMINATION DATE: As to any Payment Date, the second LIBOR Business
Day before the first day of the related Accrual Period.
LIEN: Any mortgage, deed of trust, pledge, conveyance, hypothecation,
assignment, participation, deposit arrangement, encumbrance, lien (statutory or
other), preference, priority right or interest or other security agreement or
preferential arrangement of any kind or nature whatsoever, including, without
limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing or the filing of any financing statement under the UCC (other than any
such financing statement filed for informational purposes only) or comparable
law of any jurisdiction to evidence any of the foregoing.
LIQUIDATED MORTGAGE LOAN: As to any Payment Date, any Mortgage Loan in
respect of which the Master Servicer has determined as of the end of the related
Collection Period that all
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Liquidation Proceeds which it expects to recover on such Mortgage Loan have been
recovered (exclusive of any possibility of a deficiency judgment).
LIQUIDATION EXPENSES: Out-of-pocket expenses (exclusive of overhead) that
are incurred by the Master Servicer in connection with the liquidation of any
Mortgage Loan and not recovered under any insurance policy, such expenses
including, without limitation, reasonable legal fees and expenses, any
unreimbursed amount expended pursuant to Section 3.06 (including, without
limitation, amounts advanced to correct defaults on any mortgage loan that is
senior to such Mortgage Loan and amounts advanced to keep current or pay off a
mortgage loan that is senior to such Mortgage Loan) with respect to the related
Mortgage Loan and any related and unreimbursed expenditures for real estate
property taxes, mechanics liens, title perfection, property management or for
property restoration, preservation or insurance against casualty loss or damage.
LIQUIDATION PROCEEDS: Proceeds (including Insurance Proceeds) received in
connection with the liquidation of any Mortgage Loan, whether through trustee's
sale, foreclosure sale or otherwise.
LOAN-TO-VALUE RATIO or LTV: As to each Mortgage Loan, a ratio, expressed as
a percentage, the numerator of which is the original Principal Balance of the
Mortgage Loan, and the denominator of which is the Appraised Value of the
Mortgaged Property.
LOAN RATE: As to any Mortgage Loan and day, the per annum rate of interest
applicable under the related Mortgage Note to the calculation of interest for
such day on the Principal Balance.
LOAN RATE CLASSIFICATION: As to each fixed rate Mortgage Loan, a fixed Loan
Rate and as to each adjustable rate Mortgage Loan, an adjustable Loan Rate.
MASTER SERVICER: HFC, or its successor in interest, or any successor master
servicer appointed as herein provided.
MASTER SERVICER TERMINATION EVENTS: As defined in Section 7.01.
MAJORITY NOTEHOLDER: The Holder or Holders of Notes representing at least
51% of the aggregate Note Principal Amount of the Class A and Class M Notes.
MERS: Mortgage Electronic Registration Systems, Inc., a corporation
organized and existing under the laws of the State of Delaware, or any successor
thereto.
MERS(R) SYSTEM: The system of recording transfers of Mortgages
electronically maintained by MERS.
MIN: The Mortgage Identification Number for Mortgage Loans registered with
MERS on the MERS(R) System.
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MOM LOAN: With respect to any Mortgage Loan, MERS acting as the mortgagee
of such Mortgage Loan, solely as nominee for the originator of such Mortgage
Loan and its successors and assigns, at the origination thereof.
MONTHLY EXCESS CASHFLOW: As to any Payment Date, the excess, if any, of (i)
the excess, if any, of (x) Interest Collections (for clarity purposes only, net
of any Servicing Fee) over (y) the Current Interest plus the Interest Carry
Forward Amount, if any, of all Class A and Class M Notes (after taking into
account all payments of interest on such Payment Date) plus the Principal Carry
Forward Amount, if any, of all Class A and Class M Notes over (ii) the
Additional Principal Reduction Amount.
MOODY'S: ▇▇▇▇▇'▇ Investors Service, Inc., or any successor thereto.
MORTGAGE: The mortgage, deed of trust or other instrument creating a first
lien on an estate in fee simple interest in real property securing a Mortgage
Loan.
MORTGAGE FILE: The mortgage documents (including without limitation the
related Mortgage Note) listed in Section 2.01 pertaining to a particular
Mortgage Loan and any additional documents required to be added to the Mortgage
File pursuant to this Agreement, which documents may be physical documents or,
pursuant to the terms of Section 2.01, may be optical images or other
representations thereof.
MORTGAGE LOAN: Such of the mortgage loans (together with the related
Mortgage Notes and Mortgages) transferred and assigned to the Trust pursuant to
Section 2.01 and pursuant to the Transfer Agreement, together with the Related
Documents, as from time to time are held as a part of the Trust, the mortgage
loans originally so held being identified in the Mortgage Loan Schedule
delivered on the Closing Date. As applicable, the term Mortgage Loan shall be
deemed to refer to the Mortgaged Property that has been converted to ownership
by the Master Servicer prior to the final recovery of related Liquidation
Proceeds.
MORTGAGE LOAN PURCHASE AGREEMENT: The mortgage loan purchase agreement
dated as of July 3, 2002 between the Depositor and the Sellers pursuant to which
the Sellers convey to the Depositor all of their right, title and interest in
and to the unpaid Principal Balance of the Mortgage Loans, including all
interest and principal payments in respect thereof received on or after the
Cut-Off Date, and certain other rights with respect to the collateral supporting
the Mortgage Loans.
MORTGAGE LOAN SCHEDULE: As to any date, the schedule of Mortgage Loans,
including any Eligible Substitute Mortgage Loans, included in the Trust on such
date. The initial Mortgage Loan Schedule is the schedule delivered by the
Depositor to the Indenture Trustee on the Closing Date and delivered as Exhibit
A hereto, which schedule may be in the form of a computer file or an electronic
or magnetic tape and sets forth as to each Mortgage Loan (i) the account number,
(ii) the Cut-Off Date Principal Balance, (iii) the Loan Rate and (iv) the LTV.
The Mortgage Loan Schedule will be amended from time to time to reflect the
removal of Mortgage Loans and the addition of any Eligible Substitute Mortgage
Loans to the Trust, and when so amended shall include the information set forth
above with respect to each Eligible Substitute Mortgage Loan as of its related
date of substitution.
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MORTGAGE NOTE: As to a Mortgage Loan, the mortgage note or other evidence
of indebtedness under which the related Mortgagor agrees to pay the indebtedness
evidenced thereby and secured by the related Mortgage.
MORTGAGED PROPERTY: The underlying property securing a Mortgage Loan.
MORTGAGOR: The obligor or obligors under a Mortgage.
NET LIQUIDATION PROCEEDS: As to any Liquidated Mortgage Loan, Liquidation
Proceeds less Liquidation Expenses.
NET LOAN RATE: As to any Mortgage Loan, the Loan Rate less the Servicing
Fee Rate.
NOTE: Any Class A Note or Class M Note.
NOTE OWNER: The Person who is the beneficial owner of a Book-Entry Note.
NOTE PRINCIPAL AMOUNT: As to any Class A or Class M Note and any date of
determination, (a) the Original Note Principal Amount less (b) the aggregate of
amounts paid as principal to the Holders of such Class on previous Payment Dates
pursuant to Section 5.01 hereto.
NOTE RATE: Either the Class A Note Rate or the Class M Note Rate, as the
context requires.
NOTE REGISTER AND NOTE REGISTRAR: As defined in the Indenture.
NOTEHOLDER OR HOLDER: The Person in whose name a Note is registered in the
Note Register, except that, solely for the purpose of giving any consent,
direction, waiver or request pursuant to this Agreement, (x) any Note registered
in the name of the Depositor, the Master Servicer or any Person actually known
to a Responsible Officer to be an Affiliate of the Depositor and (y) any Note
for which the Depositor, the Master Servicer or any Person actually known to a
Responsible Officer to be an Affiliate of the Depositor or the Master Servicer
is the Note Owner shall be deemed not to be outstanding (unless to the actual
knowledge of a Responsible Officer (i) the Master Servicer or the Depositor, or
such Affiliate, is acting as trustee or nominee for a Person who is not an
Affiliate of the Depositor or the Master Servicer and who makes the voting
decision with respect to such Note or (ii) the Depositor, or the Master
Servicer, or such Affiliate, is the Note Owner of all the Notes) and the
Percentage Interest evidenced thereby shall not be taken into account in
determining whether the requisite amount of Percentage Interests necessary to
effect any such consent, direction, waiver or request has been obtained.
OFFICER'S CERTIFICATE: A certificate signed by the President, an
Executive Vice President, a Senior Vice President, a Vice President, an
Assistant Vice President, the Treasurer, Assistant Treasurer, Controller or
Assistant Controller of the Master Servicer or the Depositor, as the case may
be, and delivered to the Indenture Trustee.
14
OPINION OF COUNSEL: A written opinion of counsel reasonably acceptable to
the Indenture Trustee, who may be in-house counsel for the Master Servicer (or
its affiliate) or the Depositor (or its affiliate).
ORIGINAL NOTE PRINCIPAL AMOUNT: With respect to the Class A and Class M
Notes, the amount set forth below:
ORIGINAL NOTE PRINCIPAL
CLASS AMOUNT
-------------------- -------------------------------------
A $ 892,791,000
M $ 158,216,000
OVERCOLLATERALIZATION AMOUNT: As to any Payment Date, the excess, if any,
of (x) the Pool Balance as of the last day of the preceding Collection Period
over (y) the aggregate Note Principal Amount of all Class A and Class M Notes
calculated after taking into account all payments in respect of principal on
such Payment Date.
OVERCOLLATERALIZATION RELEASE AMOUNT: As to any Payment Date, the amount
(but not in excess of the Principal Collections for such Payment Date) equal to
the excess, if any, of (i) the Interim Overcollateralization Amount over (ii)
the Targeted Overcollateralization Amount.
OWNER TRUSTEE: U.S. Bank Trust National Association, not in its individual
capacity but solely as owner trustee under the Trust Agreement, and any
successor owner trustee under the Trust Agreement appointed in accordance with
the terms thereof.
OWNERSHIP INTEREST: As defined in the Trust Agreement.
PAYING AGENT: Any paying agent appointed pursuant to the Indenture.
PAYMENT DATE: The 20th day of each month or, if such day is not a Business
Day, then the next Business Day, beginning in August 2002.
PERCENTAGE INTEREST: For purposes of making payments among the Class A and
the Class M Notes, the percentage obtained by dividing the principal
denomination of such Note by the aggregate of the principal denominations of all
Notes of such Class.
PERFECTION REPRESENTATIONS: The representations, warranties and covenants
set forth in Schedule 1 attached hereto.
PERMITTED INVESTMENTS: One or more of the following (excluding any callable
investments purchased at a premium):
(i) direct obligations of, or obligations fully guaranteed as to
timely payment of principal and interest by, the United States or any
agency or instrumentality thereof, PROVIDED that such obligations are
backed by the full faith and credit of the United States;
15
(ii) repurchase agreements on obligations specified in clause (i)
maturing not more than three months from the date of acquisition thereof,
PROVIDED that the short-term unsecured debt obligations of the party
agreeing to repurchase such obligations are at the date of acquisition
rated by each Rating Agency in its highest short-term rating category
(which is "F1" for Fitch, "A-1+" for Standard & Poor's and "P-1" for
Moody's);
(iii) certificates of deposit, time deposits and bankers' acceptances
(which, if ▇▇▇▇▇'▇ is a Rating Agency, shall each have an original maturity
of not more than 90 days and, in the case of bankers' acceptances, shall in
no event have an original maturity of more than 365 days) of any U.S.
depository institution or trust company incorporated under the laws of the
United States or any state thereof and subject to supervision and
examination by federal and/or state banking authorities, PROVIDED that the
unsecured short-term debt obligations of such depository institution or
trust company at the date of acquisition thereof have been rated by each of
Moody's, Standard & Poor's and Fitch in its highest unsecured short-term
debt rating category;
(iv) commercial paper (having original maturities of not more than
270 days) of any corporation incorporated under the laws of the United
States or any state thereof which on the date of acquisition has been rated
by Fitch, Standard & Poor's and Moody's in their highest short-term rating
categories;
(v) short term investment funds sponsored by any trust company or
national banking association incorporated under the laws of the United
States or any state thereof which on the date of acquisition has been rated
by Fitch, Standard & Poor's and Moody's in their respective highest rating
category for long-term unsecured debt, or any other short-term investment
fund the funds in which are invested in securities rated in the highest
rating category by Fitch, Standard & Poor's and Moody's and which mature on
demand or prior to the next Payment Date;
(vi) interests in any money market fund or mutual fund which at the
date of acquisition has a rating of "Aaa" by Moody's and "AAA" by Fitch and
Standard & Poor's or such lower rating as will not result in the
qualification, downgrading or withdrawal of the then current rating
assigned to the Class A or Class M Notes by each Rating Agency; and
(vii) other obligations or securities that are indebtedness in
registered form for U.S. federal income tax purposes and that are
reasonably acceptable to each Rating Agency as a Permitted Investment
hereunder and will not result in a reduction in the then-current rating of
the Class A or Class M Notes, as evidenced by a confirmation or letter to
such effect from such Rating Agency;
PROVIDED that no instrument described hereunder shall evidence either the right
to receive (a) only interest with respect to the obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument if such interest and principal payments provide a
yield to maturity at par greater than 120% of the yield to maturity at par of
the underlying obligations; and PROVIDED, FURTHER, that no instrument described
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hereunder may be purchased at a price greater than par if such instrument may be
prepaid or called at a price less than its purchase price prior to its stated
maturity.
PERSON: Any individual, corporation, partnership, joint venture, limited
partnership, limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
POOL BALANCE: With respect to any date of determination, the aggregate of
the Principal Balances of all Mortgage Loans as of such date.
POOL FACTOR: As to any Payment Date, the percentage, carried to seven
places, obtained by dividing the aggregate Note Principal Amount of the Class A
and Class M Notes for such Payment Date by the aggregate Original Note Principal
Amount of the Class A and Class M Notes.
PREFERRED STOCK: As defined in Section 9.14.
PRINCIPAL BALANCE: As to any Mortgage Loan (other than a Liquidated
Mortgage Loan) and date, the related Cut-Off Date Principal Balance, minus the
sum of (x) all collections credited against the principal balance of such
Mortgage Loan in accordance with the terms of the related Mortgage Note and (y)
any related Charge Off Amounts credited against the principal balance of such
Mortgage Loan prior to such date. For purposes of this definition, a Liquidated
Mortgage Loan shall be deemed to have a Principal Balance equal to the Principal
Balance of the related Mortgage Loan immediately prior to the final recovery of
related Liquidation Proceeds and a Principal Balance of zero thereafter.
PRINCIPAL CARRY FORWARD AMOUNT: As to the Class A or Class M Notes and any
Payment Date, the amount, if any, by which (i) the amounts payable to such Class
pursuant to Section 5.01(a)(iv) and (v) (with respect to the Class A Notes) or
pursuant to Section 5.01(a)(vii) and (viii) (with respect to the Class M Notes),
as applicable, as of the preceding Payment Date exceeded (ii) the amount of the
actual payments made to such Class on such prior Payment Date pursuant to
Section 5.01(a)(iv) and (v) (with respect to the Class A Notes) or pursuant to
Section 5.01(a)(vii) and (viii) (with respect to the Class M Notes), as
applicable.
PRINCIPAL COLLECTIONS: As to any Payment Date, the sum, without
duplication, of:
(i) the principal portion of all scheduled monthly payments on the
Mortgage Loans received by the Master Servicer during the related Collection
Period;
(ii) the principal portion of the Purchase Price for any Mortgage Loan
repurchased from the Trust pursuant to the terms of this Agreement during the
related Collection Period;
(iii) the principal portion of all Substitution Adjustment Amounts with
respect to the related Collection Period;
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(iv) all Net Liquidation Proceeds (excluding Foreclosure Profits and
Recovered Charge Off Amounts) actually received by the Master Servicer during
the related Collection Period (to the extent such Net Liquidation Proceeds
relate to principal); and
(v) the principal portion of all other unscheduled collections on the
Mortgage Loans received by the Master Servicer during the related Collection
Period (including, without limitation, full and partial prepayments of principal
made by the Mortgagors), to the extent not previously distributed.
PRINCIPAL PAYMENT AMOUNT: As to any Payment Date, (i) the Principal
Collections for such Payment Date MINUS (ii) for Payment Dates occurring on and
after the Stepdown Date and for which a Trigger Event is not in effect, the
Overcollateralization Release Amount, if any.
PRINCIPAL REDUCTION AMOUNT: As to any Payment Date, an amount equal to (i)
the excess of (x) the Pool Balance as of the first day of the Collection Period
over (y) the Pool Balance as of the last day of the Collection Period MINUS (ii)
for Payment Dates occurring on and after the Stepdown Date and for which a
Trigger Event is not in effect, the Overcollateralization Release Amount, if
any.
PROSPECTUS SUPPLEMENT: The Prospectus Supplement, dated June 28, 2002, to
the Prospectus, dated June 13, 2002, relating to the offer and sale of the
Notes.
PURCHASE PRICE: As to any Mortgage Loan purchased from the Trust on any
date pursuant to Section 2.02, 2.04 or 3.01 an amount equal to the sum of (i)
the Principal Balance thereof plus any related Charge Off Amount as of the end
of the related Collection Period preceding the date of repurchase, and (ii)
accrued and unpaid interest to the end of such Collection Period computed on a
daily basis at the Net Loan Rate on the Principal Balance outstanding from time
to time.
RATING AGENCIES: ▇▇▇▇▇'▇, Standard & Poor's and Fitch. If such agency or a
successor is no longer in existence, "Rating Agency" shall be such nationally
recognized statistical credit rating agency, or other comparable Person,
designated by the Depositor, notice of which designation shall be given to the
Indenture Trustee. References herein to the highest short term unsecured rating
category of a Rating Agency shall mean "P-1" or better in the case of Moody's,
"A-1+" or better in the case of Standard & Poor's and "F1" in the case of Fitch
and in the case of any other Rating Agency shall mean such equivalent ratings.
References herein to the highest long-term rating category of a Rating Agency
shall mean "AAA" in the case of Fitch and Standard & Poor's and "Aaa" in the
case of Moody's and in the case of any other Rating Agency, such equivalent
rating.
RATINGS: The ratings initially assigned to the Notes by the Rating
Agencies, as evidenced by letters from the Rating Agencies.
RECORD DATE: As to any Payment Date, the Business Day immediately preceding
such Payment Date; PROVIDED, HOWEVER, that if any Notes become Definitive Notes,
the record date for such Notes will be the last Business Day of the month
immediately preceding the month in which the related Payment Date occurs.
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RECOVERED CHARGE OFF AMOUNT: As to any Mortgage Loan that became a
Liquidated Mortgage Loan in a Collection Period, the amount, if any, by which
(i) its Net Liquidation Proceeds that are allocable to principal in accordance
with the related Mortgage Note exceeds (ii) its Principal Balance immediately
prior to foreclosure up to an amount of all related Charge Off Amounts, but in
no event less than zero.
RELATED DOCUMENTS: As defined in Section 2.01(c).
REO: A Mortgaged Property that is acquired by the Trust in a foreclosure or
by grant of deed in lieu of foreclosure.
REQUIRED EXCESS CASHFLOW: As to any Payment Date, means 2.5%, DIVIDED BY
12, MULTIPLIED BY the Pool Balance as of the first day of the related Collection
Period.
RESPONSIBLE OFFICER: With respect to the Indenture Trustee, any officer
assigned to the corporate trust group (or any successor thereto), including any
vice president, assistant vice president, trust officer, assistant secretary or
any other officer of the Indenture Trustee customarily performing functions
similar to those performed by any of the above designated officers and having
direct responsibility for the administration of this Agreement. When used with
respect to the Master Servicer, the President or any Vice President, Assistant
Vice President, Treasurer, Assistant Treasurer or any Secretary or Assistant
Secretary.
SAIF: The Savings Association Insurance Fund, as from time to time
constituted, created under the Financial Institutions Reform, Recovery and
Enhancement Act of 1989, or if at any time after the execution of this
instrument the Savings Association Insurance Fund is not existing and performing
duties now assigned to it, the body performing such duties on such date.
SELLERS: Household Realty Corporation, Household Finance Corporation of
Alabama, Household Finance Corporation of California, Household Finance
Corporation II, Household Finance Corporation III, Beneficial West Virginia,
Inc., Household Finance Realty Corporation of New York, Household Financial
Center Inc., Household Finance Realty Corporation of Nevada, Household Finance
Industrial Loan Company of Iowa, Household Finance Consumer Discount Company,
Household Industrial Finance Company Beneficial Hawaii Inc., Household Financial
Services, Inc. and Mortgage One Corporation, doing business as HFC Mortgage
Company.
SERVICER: As to each Mortgage Loan, the related Seller that sold such
Mortgage Loan to the Depositor pursuant to the Mortgage Loan Purchase Agreement.
SERVICING CERTIFICATE: A certificate completed by and executed on behalf of
the Master Servicer in accordance with Section 3.18.
SERVICING FEE: The fee payable to the Master Servicer pursuant to Section
3.09, equal to 1/12th of the Servicing Fee Rate for each Mortgage Loan in the
Mortgage Loan Schedule MULTIPLIED BY the outstanding Principal Balance of such
Mortgage Loan as of the first day of the related Collection Period.
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SERVICING FEE RATE: A rate equal to 0.50% per annum.
SERVICING OFFICER: Any officer of the Master Servicer or other individual
designated by an officer of the Master Servicer involved in, or responsible for,
the administration and servicing of the Mortgage Loans, whose name and specimen
signature appear on a list of servicing officers furnished to the Indenture
Trustee on the Closing Date by the Master Servicer, as such list may be amended
from time to time.
60 DAY DELINQUENCY PERCENTAGE: As to any Collection Period, (a) the
aggregate of the Principal Balances of all Mortgage Loans that are 60 or more
days contractually delinquent, including those Mortgage Loans in bankruptcy,
foreclosure and REO as of the end of such Collection Period, over (b) the Pool
Balance as of the end of such Collection Period.
60 DAY+ ROLLING AVERAGE: As to any Payment Date, the average of the 60 Day
Delinquency Percentage for each of the three (3) immediately preceding
Collection Periods; PROVIDED, HOWEVER, that for the initial Payment Date, the 60
Day+ Rolling Average shall equal the 60 Day Delinquent Percentage for the
immediately preceding Collection Period and for the second Payment Date, the 60
Day+ Rolling Average shall equal the average of the 60 Day Delinquency
Percentage for the immediately two preceding Collection Periods.
SKIP-A-PAY ADVANCE: For any Collection Period, means the positive result,
if any, of the Required Excess Cashflow on the related Payment Date, MINUS the
Monthly Excess Cashflow on the related Payment Date. For the avoidance of doubt,
if the result of the foregoing calculation is not a positive number, the
Skip-A-Pay Advance for the related Collection Period shall be zero.
SKIP-A-PAY REIMBURSEMENT AMOUNT: As of any Payment Date means, the positive
result, if any, of the Monthly Excess Cashflow on such Payment Date, MINUS the
Required Excess Cashflow on such Payment Date.
STANDARD & POOR'S: Standard & Poor's Ratings Services, a division of The
▇▇▇▇▇▇-▇▇▇▇ Companies, Inc., or any successor thereto.
STATISTICAL CUT-OFF DATE: The close of business on May 31, 2002.
STEPDOWN DATE: The later to occur of:
(i) the earlier to occur of (x) the Payment Date in February 2005 and
(y) the first Payment Date on which the Note Principal Amount of the Class A
Notes and Class M Notes has been reduced to zero, and
(ii) the first Payment Date on which the Pool Balance has been reduced to
50% of the Cut-Off Date Pool Balance.
STEPPED UP ENHANCEMENT LEVEL: As to any Payment Date, one and one-half
(1.5) times the amount of the 60 Day+ Rolling Average.
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SUBSEQUENT CUT-OFF DATE: As to each Eligible Substitute Mortgage Loan, the
close of business on the day designated as the "Subsequent Cut-Off Date" with
respect to the Eligible Substitute Mortgage Loan.
SUBSTITUTION ADJUSTMENT AMOUNT: As to any Defective Mortgage Loan or any
Mortgage Loan for which the Master Servicer elects to substitute pursuant to
Section 2.02(b) and the date on which a substitution thereof occurs pursuant to
Sections 2.02 or 2.04, the sum of:
(i) the excess, if any, of (a) the Principal Balance of such
Defective Mortgage Loan or such elected Mortgage Loan PLUS any related
Charge Off Amount as of the end of the related Collection Period preceding
the date of substitution (after the application of any principal payments
received on such Defective Mortgage Loan or such elected Mortgage Loan on
or before the date of the substitution of the applicable Eligible
Substitute Mortgage Loan or Loans) over (b) the aggregate Principal Balance
of the applicable Eligible Substitute Mortgage Loan or Loans, PLUS
(ii) accrued and unpaid interest to the end of such Collection Period
computed on a daily basis at the Net Loan Rate on the Principal Balance of
such Defective Mortgage Loan or such elected Mortgage Loan outstanding from
time to time.
SUPPLEMENTAL INTEREST AMOUNT: The Class A Supplemental Interest Amount or
Class M Supplemental Interest Amount, as applicable.
TARGETED OVERCOLLATERALIZATION AMOUNT: As to any Payment Date, (x) prior to
the Stepdown Date, 12% of the Cut-Off Date Pool Balance, and (y) on and after
the Stepdown Date and assuming a Trigger Event is not in effect, the greater of
(i) 24% of the Pool Balance as of the last day of the related Collection Period
and (ii) 0.50% of the Cut-Off Date Pool Balance. If a Trigger Event is in effect
on and after the Stepdown Date, the Targeted Overcollateralization Amount shall
be equal to the Targeted Overcollateralization Amount for the immediately
preceding Payment Date.
TERMINATION PRICE: As defined in Section 8.01(b).
TRANSACTION DOCUMENTS: This Agreement, the Mortgage Loan Purchase
Agreement, the Transfer Agreement, the Trust Agreement and the Indenture.
TRANSFER AGREEMENT: The transfer agreement dated as of July 3, 2002 between
the Trust and each Seller pursuant to which the Sellers will assign to the Trust
all of their right, title and interest in and on the Transferred Assets not
otherwise transferred pursuant to the Mortgage Loan Purchase Agreement.
TRANSFER DATE: As to any Mortgage Loan transferred to or retransferred from
the Trust hereunder, the date on which such transfer or retransfer is made under
the terms hereof, which date shall be (i) in the case of the Mortgage Loans
originally listed on the Mortgage Loan Schedule, the Closing Date, and (ii) in
the case of any Eligible Substitute Mortgage Loan, the date on which such
Eligible Substitute Mortgage Loan is conveyed to the Trust under the terms
hereof.
21
TRANSFEROR: The Depositor, or any such permitted holder of the Ownership
Interest.
TRANSFERRED ASSETS: All aspects, rights, title or interests of, in, to or
under the Mortgage Loans that are not otherwise conveyed hereunder pursuant to
Section 2.01, including, without limitation, all agreements, instruments and
other documents evidencing or governing the Mortgagor's obligations under the
Mortgage Loans or otherwise related thereto or establishing or setting forth the
terms and conditions thereof, and any amendments or modifications thereto, and
all property and collateral securing the borrowers obligations thereunder.
TRIGGER EVENT: Any Payment Date on which the 60 Day+ Rolling Average equals
or exceeds 75% of the related Enhancement Percentage; PROVIDED, a Trigger Event
shall not be in effect if the Enhancement Percentage equals or exceeds the
Stepped Up Enhancement Level.
TRUST: The trust created by the Trust Agreement, the corpus of which
consists of the Mortgage Loans, such assets as shall from time to time be
identified as deposited in the Collection Account (exclusive of net earnings
thereon), the Mortgage Notes and other Mortgage File documents for the Mortgage
Loans, any property that secured a Mortgage Loan and that has become REO, the
interest of the Depositor in certain hazard insurance policies maintained by the
Mortgagors or the Master Servicer in respect of the Mortgage Loans, the
Collection Account, the proceeds of each of the foregoing and one share of
Preferred Stock of the Depositor.
TRUST AGREEMENT: The Trust Agreement dated as of June 25, 2002, and amended
and restated as of July 3, 2002 among Household Finance Corporation, the
Depositor and the Owner Trustee.
UCC: The Uniform Commercial Code, as amended from time to time, and in
effect in any specified jurisdiction.
Section 1.02 OTHER DEFINITIONAL PROVISIONS.
(a) Capitalized terms used herein and not otherwise defined herein have
the meanings assigned to them in the Indenture and the Trust Agreement, as
applicable.
(b) All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other document
made or delivered pursuant hereto or thereto, accounting terms not defined in
this Agreement or in any such certificate or other document, and accounting
terms partly defined in this Agreement or in any such certificate or other
document to the extent not defined, shall have the respective meanings given to
them under generally accepted accounting principles. To the extent that the
definitions of accounting terms in this Agreement or in any such certificate or
other document are inconsistent with the meanings of such terms under generally
accepted accounting principles, the definitions contained in this Agreement or
in any such certificate or other document shall control.
22
(d) The words "hereof", "herein", "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; Article, Section, Schedule
and Exhibit references contained in this Agreement are references to Articles,
Sections, Schedules and Exhibits in or to this Agreement unless otherwise
specified; and the terms "including" and "includes" shall mean "including
without limitation."
(e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine genders of such terms.
(f) Any agreement, instrument or statute defined or referred to herein
or in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
Section 1.03 INTEREST CALCULATIONS.
All calculations of interest hereunder that are made in respect of the
Principal Balance of a Mortgage Loan shall be made based on the number of days
elapsed between the date that interest was last paid on such Mortgage Loan and
the date of receipt of the related Mortgagor's most current payment. All
calculations of interest on the Class A and Class M Notes shall be made on the
basis of a 360-day year and the actual number of days in the related Accrual
Period. All dollar amounts calculated hereunder shall be rounded to the nearest
▇▇▇▇▇ with one-half of one ▇▇▇▇▇ being rounded down.
23
ARTICLE II.
CONVEYANCE OF MORTGAGE LOANS; TAX TREATMENT
Section 2.01 ACKNOWLEDGMENT; CONVEYANCE OF MORTGAGE LOANS; CUSTODY OF
MORTGAGE FILES.
(a) The Depositor, concurrently with the execution and delivery of this
Agreement, does hereby irrevocably transfer, assign, sell, set over and
otherwise convey to the Trust without recourse (subject to Sections 2.02 and
2.04) (i) all of its right, title and interest in and to the unpaid principal
balance of each Mortgage Loan and each Eligible Substitute Mortgage Loan,
including all Interest Collections and Principal Collections in respect of any
such Mortgage Loan received after the Cut-Off Date with respect to each Initial
Mortgage Loan and after the Subsequent Cut-Off Date with respect to each
Eligible Substitute Mortgage Loan pursuant to the Mortgage Loan Purchase
Agreement; (ii) property which secured such Mortgage Loan and which has been
acquired by foreclosure or deed in lieu of foreclosure; (iii) its interest in
any insurance policies in respect of the Mortgage Loans (including any Insurance
Proceeds); (iv) all other assets included or to be included in the Trust for the
benefit of the Noteholders and the Transferor; (v) all proceeds of any of the
foregoing; and (vi) one share of the Depositor's Preferred Stock.
(b) The Depositor agrees to take, or to cause to be taken, such actions
and to execute such documents (including without limitation the filing of all
necessary continuation statements for the UCC-1 financing statement filed in the
State of
Illinois and the State of Delaware, as applicable (which shall have
been filed as promptly as practicable, but in no event later than 10 days
following the effective date of this Agreement), describing the Mortgage Loans
and naming the Depositor as seller and the Trust as buyer, and any amendments or
other filings to the UCC-1 financing statement required to reflect a change in
the applicable UCC, or a change of the name or corporate structure of the
Depositor, as are necessary to perfect and protect the Noteholders' interests in
the Trust created hereunder, including each Mortgage Loan and the proceeds
thereof (other than delivering to the Indenture Trustee possession of the
Mortgage Files, which possession will, subject to the terms hereof, be
maintained by the Servicers on behalf of the Master Servicer as custodian and
bailee for the Indenture Trustee). The parties hereto intend that the
transactions set forth herein constitute a sale and not a pledge by the
Depositor to the Trust of all the Depositor's right, title and interest in and
to the Mortgage Loans and other Trust property as and to the extent described
above. In the event the transactions set forth herein are characterized as a
pledge and not a sale, the Depositor hereby grants to the Trust a security
interest in all of the Depositor's right, title and interest in, to and under
the Mortgage Loans and such other Trust property, to secure all of the
Depositor's obligations hereunder, and this Agreement shall constitute a
security agreement under applicable law. With respect to the Mortgage Loans sold
by each Seller to the Depositor, the Master Servicer shall cause such Seller to
file as promptly as practicable, but in no event later than ten days following
the effective date of this Agreement, in the appropriate public filing office or
offices UCC-1 financing statements and continuation statements describing such
Mortgage Loans and naming such Seller as seller and the Depositor as buyer, to
file appropriate continuation statements thereto, to file amendments thereto in
the case of a change in the applicable UCC, name change or change in
24
corporate structure and to file appropriate additional UCC-1 financing
statements, if any, if such Seller changes its jurisdiction of incorporation.
(c) In connection with such transfer and assignment by the Depositor and
the Master Servicer, acting through the Servicers, the Indenture Trustee and the
Master Servicer hereby acknowledge that the Servicers are holding, with respect
to the Mortgage Loans transferred on the Closing Date, and will hold, with
respect to each Eligible Substitute Mortgage Loan, on and from the applicable
Transfer Date, as custodian and bailee for the Indenture Trustee, the following
documents or instruments with respect to each such Mortgage Loan (the "Related
Documents"):
(i) the original Mortgage Note with all intervening
endorsements showing a complete chain of title from the
originator of such Mortgage Loan to the Seller or a copy of
such original Mortgage Note with an accompanying lost note
affidavit;
(ii) the original Mortgage, with evidence of recording
thereon, PROVIDED that if the original Mortgage has been
delivered for recording to the appropriate public recording
office of the jurisdiction in which the Mortgaged Property
is located but has not yet been returned to the Seller by
such recording office, the Seller may hold a copy of such
original Mortgage;
(iii) originals of any amendments to the Mortgage Note or
Mortgage, any modification or assumption agreements and any
previous assignments of such Mortgage Loan; and
(iv) for each Mortgage Loan registered on the MERS(R)
System, the original assignment into the name of MERS(R)
including the related MIN of the Mortgage Loan;
PROVIDED, HOWEVER, that as to any Mortgage Loan, if, as evidenced by an Opinion
of Counsel delivered to and in form and substance reasonably satisfactory to the
Owner Trustee and the Indenture Trustee, (x) an optical image or other
electronic representation of the related documents specified in clauses (i)
through (iv) above are enforceable in the relevant jurisdictions to the same
extent as the original of such document and (y) such optical image or other
representation does not impair the ability of an owner of such Mortgage Loan to
transfer its interest in such Mortgage Loan, such optical image or other
representation may be held by the Master Servicer, acting through the Servicers,
as custodian and bailee for the Indenture Trustee, in lieu of the physical
documents specified above.
(d) Except as hereinafter provided, the Master Servicer, acting through
the Servicers, shall be entitled to maintain possession of all of the foregoing
documents and instruments, shall not be required to deliver any of them to the
Indenture Trustee or the Owner Trustee and shall not be required to record an
Assignment of Mortgage in favor of the Indenture Trustee or the Owner Trustee
with respect to any Mortgage Loan. In the event, however, that possession of any
of such documents or instruments is required by any Person (including the
Indenture Trustee)
25
acting as successor master servicer pursuant to Section 6.04 or 7.02 in order to
carry out the duties of Master Servicer hereunder, then such successor shall be
entitled to request delivery, at the expense of the Master Servicer, of such
documents or instruments by the Master Servicer and to retain such documents or
instruments for servicing purposes; PROVIDED that the Indenture Trustee or such
servicers shall maintain such documents at such offices as may be required by
any regulatory body having jurisdiction over such Mortgage Loans.
(e) The Master Servicer's right to maintain possession, directly or
through the Servicers, of the Mortgage Files shall continue so long as (a) at
least two of ▇▇▇▇▇'▇, Standard & Poor's and Fitch assign a long-term senior
unsecured debt rating to HFC of at least "Baa3", in the case of ▇▇▇▇▇'▇, "BBB",
in the case of Fitch, and "BBB-", in the case of Standard & Poor's, (or such
lower rating acceptable and assigned by at least two of ▇▇▇▇▇'▇, Standard &
Poor's and Fitch) and (b) each of the Servicers remains an Affiliate of HFC. At
such time as either of the conditions specified in the preceding sentence is not
satisfied, as promptly as practicable, but in no event more than 90 days
thereafter in the case of clause (i) below and 60 days in the case of clause
(ii) below, the Master Servicer shall cause each Servicer, at such Servicer's
expense or, to the extent the Servicer fails to pay, the Master Servicer's
expense, to (i) either (x) record an Assignment of Mortgage in favor of the
Trust (which may be a blanket assignment if permitted by applicable law) with
respect to each of the Mortgage Loans being serviced by such Servicer in the
appropriate real property or other records or (y) deliver to the Indenture
Trustee the assignment of such Mortgage in favor of the Trust in form for
recordation, together with an Opinion of Counsel addressed to the Indenture
Trustee to the effect that recording is not required to protect the Trust's
right, title and interest in and to the related Mortgage Loan or to perfect a
first priority security interest in favor of the Trust in the related Mortgage
Loan, which Opinion of Counsel also shall be reasonably acceptable to each of
the Rating Agencies (as evidenced in writing), and (ii) unless an Opinion of
Counsel, reasonably acceptable to the Owner Trustee, the Indenture Trustee and
the Rating Agencies (as evidenced in writing), is delivered to the Indenture
Trustee to the effect that delivery of the Mortgage Files is not necessary to
protect the Trust's right, title and interest in and to the related Mortgage
Loans or to perfect a first priority security interest in favor of the Trust in
the related Mortgage Loans, deliver the related Mortgage Files to the Indenture
Trustee to be held by the Indenture Trustee in trust, upon the terms herein set
forth, for the use and benefit of the Trust and all present and future
Noteholders, and the Indenture Trustee shall retain possession thereof except to
the extent the Master Servicer or Servicers require any Mortgage Files for
normal servicing as contemplated by Section 3.08. The Master Servicer shall
cause the Servicers to appoint the Indenture Trustee their attorney-in-fact to
prepare, execute and record any assignments of Mortgages required under this
Section 2.01 in the event that the Servicers or the Master Servicer should fail
to do so on a timely basis.
(f) Within 90 days following delivery, if any, of the Mortgage Files to
the Indenture Trustee pursuant to the preceding subsection, the Indenture
Trustee shall review each such Mortgage File to ascertain that all required
documents set forth in this Section 2.01 have been executed and received and
that such documents relate to the Mortgage Loans identified on the Mortgage Loan
Schedule, and in so doing the Indenture Trustee may rely on the purported due
execution and genuineness of any signature thereon. If within such 90-day period
the Indenture Trustee finds any document constituting a part of a Mortgage File
not to have been executed or received or to be unrelated to the Mortgage Loans
identified in said Mortgage Loan Schedule or,
26
if in the course of its review, the Indenture Trustee determines that such
Mortgage File is otherwise defective in any material respect, the Indenture
Trustee shall promptly upon the conclusion of its review notify the Owner
Trustee, the Depositor and the Master Servicer, the Depositor and the Master
Servicer shall have a period of 90 days after such notice within which to
correct or cure any such defect; PROVIDED, HOWEVER, that if such defect shall
not have been corrected or cured within such 90-day period due to the failure of
the related office of real property or other records to return any document
constituting a part of a Mortgage File, the Depositor or the Master Servicer
shall so notify the Owner Trustee and the Indenture Trustee and the period
during which such defect may be corrected or cured shall be extended for one
additional 90-day period.
(g) The Indenture Trustee shall have no responsibility for reviewing any
Mortgage File except as expressly provided in this Section 2.01. In reviewing
any Mortgage File pursuant to this Section 2.01, the Indenture Trustee shall
have no responsibility for determining whether any document is valid and
binding, whether the text of any assignment or endorsement is in proper or
recordable form (except, if applicable, to determine if the Trust is the
assignee or endorsee), whether any document has been recorded in accordance with
the requirements of any applicable jurisdiction, or whether a blanket assignment
is permitted in any applicable jurisdiction, whether any Person executing any
document is authorized to do so or whether any signature thereon is genuine, but
shall only be required to determine whether a document has been executed, that
it appears to be what it purports to be and, where applicable, that it purports
to be recorded.
(h) The Master Servicer hereby confirms to the Indenture Trustee and the
Owner Trustee that on or prior to the Closing Date and on or prior to the
applicable Transfer Date with respect to any Eligible Substitute Mortgage Loan,
the portions of the Electronic Ledger relating to such Mortgage Loans have been
or will have been clearly and unambiguously marked, and the appropriate entries
have been or will have been made in its general accounting records, to indicate
that such Mortgage Loans have been transferred to the Trust and constitute part
of the Trust in accordance with the terms hereof.
(i) In connection with the assignment, pursuant to Section 2.01(e)(i),
of any Mortgage Loan registered on the MERS(R) System, the Master Servicer shall
cause each Servicer, at such Servicer's expense or, to the extent the Servicer
fails to pay, the Master Servicer's expense, at the time specified in the second
sentence of Section 2.01(e)(i), to cause the MERS(R) System to indicate that
such Mortgage Loans have been assigned to the Trust in accordance with this
Agreement by including (or deleting, in the case of Mortgage Loans which are
repurchased in accordance with this Agreement) in such computer files (a) the
code "[IDENTIFY TRUST SPECIFIC CODE]" in the field "[IDENTIFY THE FIELD NAME FOR
TRUST]" which identifies the Trust and (b) the code "[IDENTIFY SERIES SPECIFIC
CODE NUMBER]" in the field "Pool Field" which identifies the series of the Notes
issued in connection with such Mortgage Loans. The Master Servicer agrees that
it will not alter the codes referenced in this paragraph with respect to any
Mortgage Loan during the term of this Agreement unless and until such Mortgage
Loan is repurchased in accordance with the terms of this Agreement, and there is
filed any financing statement or amendment thereof necessary to comply with the
New York UCC or the UCC of any applicable jurisdiction.
27
Section 2.02 ACCEPTANCE BY INDENTURE TRUSTEE; REPURCHASE OF MORTGAGE
LOANS; CONVEYANCE OF ELIGIBLE SUBSTITUTE MORTGAGE LOANS.
(a) The Indenture Trustee hereby acknowledges receipt of all the right,
title and interest of the Depositor in and to the assets described Section
2.01(a)(i) through (vi), and all of the right, title and interest of the Sellers
in and to the Transferred Assets pursuant to the Transfer Agreement, including
but not limited to the transfer and assignment of the Mortgage Notes and the
Mortgages, and declares that it holds and will hold such documents and interests
and all amounts received by it in trust, upon the terms herein set forth, for
the use and benefit of the Trust and all present and future Noteholders. If the
time to cure any defect of which the Indenture Trustee has notified the
Depositor and the Master Servicer following the Indenture Trustee's review of
the Mortgage Loan files pursuant to Section 2.01 has expired or if any loss is
suffered by the Indenture Trustee, on behalf of the Noteholders, in respect of
any Mortgage Loan as a result of (i) a defect in any document constituting a
part of a Mortgage File or (ii) the related Seller's retention of such Mortgage
File or an Assignment of Mortgage not having been recorded, the Depositor or, to
the extent the Depositor fails to perform, the Master Servicer shall, in the
case of a defect in such document and the Master Servicer shall, in the case of
a loss resulting from such Seller's retention of a Mortgage File or Assignment
of Mortgage not having been recorded, on the Business Day next preceding the
Payment Date in the month following the end of the Collection Period in which
the time to cure such defect expired or such loss occurred, either (i)
repurchase the related Mortgage Loan (a "Defective Mortgage Loan") (including
any property acquired in respect thereof and any insurance policy or insurance
proceeds with respect thereto) from the Trust at a price equal to the Purchase
Price which shall be accomplished by deposit by the Depositor or the Master
Servicer, as applicable, in the Collection Account pursuant to Section 3.02 on
such next preceding Business Day, or (ii) remove such Defective Mortgage Loan
from the Trust and substitute in its place an Eligible Substitute Mortgage Loan
or Loans.
(b) The Master Servicer, in its sole discretion, shall have the right,
but not the obligation, to elect (by written notice sent to the Indenture
Trustee and the Owner Trustee) to substitute in the place of any Mortgage Loan
an Eligible Substitute Mortgage Loan or Loans; PROVIDED that the aggregate
Principal Balance as of the related subsequent Cut-Off Date of all Eligible
Substitute Mortgage Loans substituted pursuant to this Section shall not exceed
30% of the Cut-Off Date Pool Balance; PROVIDED, HOWEVER that prior to any such
substitution the Master Servicer shall give prompt written notice to each Rating
Agency of any such substitution.
(c) As to any Eligible Substitute Mortgage Loan or Loans, the Master
Servicer shall cause the related Seller to deliver to the Indenture Trustee with
respect to such Eligible Substitute Mortgage Loan or Loans an acknowledgment
that the related Seller is holding as custodian for the Indenture Trustee such
documents and agreements, if any, as are permitted to be held by the related
Seller in accordance with Section 2.01. An assignment of the Mortgage in favor
of the Trust with respect to such Eligible Substitute Mortgage Loan or Loans
shall be required to be recorded in the appropriate real property or other
records or delivered to the Indenture Trustee with the Opinion of Counsel
referred to in Section 2.01 under the same circumstances that all other
assignments of Mortgage are required to be recorded hereunder. For any
Collection Period during which the Depositor or the Master Servicer substitutes
one or more
28
Eligible Substitute Mortgage Loans, the Master Servicer shall determine the
Substitution Adjustment Amount. The Depositor or the Master Servicer, as
applicable, shall deposit the Substitution Adjustment Amount in the Collection
Account no later than the Business Day next preceding the Payment Date in the
month following the end of the Collection Period in which such substitution
occurs. The Master Servicer shall amend the Mortgage Loan Schedule to reflect
the removal of the Defective Mortgage Loan or Mortgage Loan for which the Master
Servicer has made a substitution election pursuant to Section 2.02(b) from the
terms of this Agreement and the substitution of the Eligible Substitute Mortgage
Loan or Loans. Upon such substitution, the Eligible Substitute Mortgage Loan or
Loans shall be subject to the terms of this Agreement in all respects, and the
Depositor shall be deemed to have made with respect to such Eligible Substitute
Mortgage Loan or Loans, as of the date of substitution, the covenants,
representations and warranties set forth in Section 2.04(b). The Indenture
Trustee shall upon satisfaction of the conditions in this subsection immediately
take any reasonable action requested by the Depositor, if any, to effect the
reconveyance of such Defective Mortgage Loan or such Mortgage Loan for which the
Master Servicer has made a substitution election so removed from the Trust to
the Depositor or the Master Servicer, as applicable. The procedures applied by
the Depositor or the Master Servicer in selecting each Eligible Substitute
Mortgage Loan shall not be adverse to the interests of the Noteholders and shall
be comparable to the selection procedures applicable to the Mortgage Loans
originally conveyed hereunder.
(d) Upon receipt by the Indenture Trustee of (i) in the case of a
repurchase, a Servicing Certificate to the effect that the Purchase Price for
any such Defective Mortgage Loan or such Mortgage Loan for which the Master
Servicer has made a substitution election has been so deposited in the
Collection Account or (ii) in the case of a substitution, (A) a Servicing
Certificate to the effect that the Substitution Adjustment Amount, if any, has
been so deposited in the Collection Account and (B) an Officer's Certificate
reciting the transfer and assignment of the Eligible Substitute Mortgage Loan(s)
to the Indenture Trustee and, if required at such time, that the related
Mortgage File(s) for such Eligible Substitute Mortgage Loan(s) have been
delivered to the Indenture Trustee and the assignment(s) of Mortgage have been
recorded, the Indenture Trustee shall execute and deliver such instrument of
transfer or assignment presented to it by the Master Servicer, in each case
without recourse, as shall be necessary to vest in the Depositor or the Master
Servicer, as applicable, legal and beneficial ownership of such Defective
Mortgage Loan or such Mortgage Loan for which the Master Servicer has made a
substitution election (including any property acquired in respect thereof or
proceeds of any insurance policy with respect thereto). It is understood and
agreed that the obligation of the Depositor or the Master Servicer to repurchase
or substitute for (to the extent permitted herein) any Defective Mortgage Loan
shall constitute the sole and exclusive remedy respecting such defect available
to Noteholders or the Indenture Trustee against the Depositor or the Master
Servicer, and such obligation on the part of the Master Servicer shall survive
any resignation or termination of the Master Servicer hereunder.
Section 2.03 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE MASTER
SERVICER. The Master Servicer represents, warrants and covenants that as of the
Closing Date:
(a) The Master Servicer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the corporate power to own its assets
29
and to transact the business in which it is currently engaged. The Master
Servicer is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the character of the business
transacted by it or properties owned or leased by it require such qualification
and in which the failure to so qualify would have a material adverse effect on
the business, properties, assets, or condition (financial or other) of the
Master Servicer;
(b) The Master Servicer has the power and authority to make, execute,
deliver and perform its obligations under this Agreement and to perform its
obligations with respect to all of the transactions contemplated under this
Agreement, and has taken all necessary corporate action to authorize the
execution, delivery and performance of its obligations under this Agreement.
When executed and delivered, this Agreement will constitute the legal, valid and
binding obligation of the Master Servicer enforceable in accordance with its
terms, except as enforcement of such terms may be limited by bankruptcy,
insolvency or similar laws affecting the enforcement of creditors' rights
generally and by the availability of equitable remedies (whether in a proceeding
at law or in equity);
(c) The Master Servicer is not required to obtain the consent of any
other Person or any consent, license, approval or authorization from, or
registration or declaration with, any governmental authority, bureau or agency
in connection with the execution, delivery, performance, validity or
enforceability of this Agreement, except for such consents, licenses, approvals
or authorizations, or registrations or declarations, as shall have been obtained
or filed, as the case may be;
(d) The execution and delivery of this Agreement and the performance of
the transactions contemplated hereby by the Master Servicer will not violate any
provision of any existing law or regulation or any order or decree of any court
applicable to the Master Servicer or any provision of the Certificate of
Incorporation or Bylaws of the Master Servicer, or constitute a material breach
of any mortgage, indenture, contract or other agreement to which the Master
Servicer is a party or by which the Master Servicer may be bound; and
(e) No litigation or administrative proceeding of or before any court,
tribunal or governmental body is currently pending, or to the knowledge of the
Master Servicer threatened, against the Master Servicer or any of its properties
or with respect to this Agreement or the Notes which in the opinion of the
Master Servicer has a reasonable likelihood of resulting in a material adverse
effect on the transactions contemplated by this Agreement.
(f) The Master Servicer is a member of MERS in good standing, and will
comply in all material respects with the rules and procedures of MERS in
connection with the servicing of the Mortgage Loans that are registered with
MERS.
The representations and warranties set forth in this Section 2.03 shall
survive the sale and assignment of the Mortgage Loans to the Trust. Upon
discovery of a breach of any representations and warranties which materially and
adversely affects the interests of the Noteholders, the Person discovering such
breach shall give prompt written notice to the other parties. Within 60 days (or
such longer period as permitted by prior written consent of a Responsible
Officer of the Indenture Trustee) of its discovery or its receipt of notice of
such breach, the Master Servicer shall cure such breach in all material
respects.
30
Section 2.04 REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR REGARDING
THIS AGREEMENT AND THE MORTGAGE LOANS; REPURCHASES AND SUBSTITUTIONS.
(a) The Depositor represents and warrants that as of the Closing Date:
(i) The Depositor is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware and has the corporate power to own its assets and
to transact the business in which it is currently engaged.
The Depositor is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in
which the character of the business transacted by it or
properties owned or leased by it require such qualification
and in which the failure to so qualify would have a material
adverse effect on the business, properties, assets or
condition (financial or other) of the Depositor;
(ii) The Depositor has the power and authority to make,
execute, deliver and perform its obligations under this
Agreement and to perform its obligations with respect to all
of the transactions contemplated under this Agreement, and
has taken all necessary corporate action to authorize the
execution, delivery and performance of its obligations under
this Agreement. When executed and delivered, this Agreement
will constitute the legal, valid and binding obligation of
the Depositor enforceable in accordance with its terms,
except as enforcement of such terms may be limited by
bankruptcy, insolvency or similar laws affecting the
enforcement of creditors' rights generally and by the
availability of equitable remedies (whether in a proceeding
at law or in equity);
(iii) The Depositor is not required to obtain the consent of
any other Person or any consent, license, approval or
authorization from, or registration or declaration with, any
governmental authority, bureau or agency in connection with
the execution, delivery, performance, validity or
enforceability of this Agreement, except for such consents,
licenses, approvals or authorizations, or registrations or
declarations, as shall have been obtained or filed, as the
case may be;
(iv) The execution and delivery of this Agreement and the
performance of the transactions contemplated hereby by the
Depositor will not violate any provision of any existing law
or regulation or any order or decree of any court applicable
to the Depositor or any provision of the Certificate of
Incorporation or Bylaws of the Depositor, or constitute a
material breach of any mortgage, indenture, contract or
other agreement to which the Depositor is a party or by
which the Depositor may be bound; and
(v) No litigation or administrative proceeding of or before
any court, tribunal or governmental body is currently
pending, or to the knowledge of the Depositor threatened,
against the Depositor or any of its properties or with
respect to this Agreement or the Notes which in the opinion
of the
31
Depositor has a reasonable likelihood of resulting in a
material adverse effect on the transactions contemplated by
this Agreement.
(b) The Depositor represents and warrants with respect to each Mortgage
Loan that as of the Closing Date with respect to the Initial Mortgage Loans and
the applicable Transfer Date with respect to any Eligible Substitute Mortgage
Loans (or to the extent expressly stated herein as of such other time).
(i) This Agreement and the Transfer Agreement constitute a
valid transfer and assignment to the Trust of all right,
title and interest of the Depositor and the Sellers,
respectively, in and to the Mortgage Loans, all monies due
or to become due with respect thereto, all proceeds thereof,
such funds as are from time to time deposited in the
Collection Account (excluding any investment earnings
thereon) and all other property specified in the definition
of "Trust" as being part of the corpus of the Trust conveyed
to the Trust by the Depositor;
(ii) The information set forth in the Mortgage Loan Schedule
with respect to such Mortgage Loan is true and correct in
all material respects;
(iii) Immediately prior to the transfer and assignment by
the related Seller to the Depositor and the Trust pursuant
to the Mortgage Loan Purchase Agreement and the Transfer
Agreement, the Mortgage Loan has not been assigned or
pledged by the related Seller, and the related Seller has
good and marketable title thereto, and the related Seller is
the sole owner and holder of such Mortgage Loan free and
clear of any and all liens, claims, encumbrances,
participation interests, equities, pledges, charges or
security interests of any nature, and has full right and
authority, under all governmental and regulatory bodies
having jurisdiction over the ownership of such Mortgage
Loan, to transfer and assign the same pursuant to the
Mortgage Loan Purchase Agreement and the Transfer Agreement;
(iv) Immediately prior to the transfer and assignment by the
Depositor to the Trust pursuant to this Agreement, the
Mortgage Loan has not been assigned or pledged by the
Depositor, and the Depositor has good and marketable title
thereto, and the Depositor is the sole owner and holder of
such Mortgage Loan free and clear of any and all liens,
claims, encumbrances, participation interests, equities,
pledges, charges or security interests of any nature, and
has full right and authority, under all governmental and
regulatory bodies having jurisdiction over the ownership of
such Mortgage Loan, to transfer and assign the same pursuant
to this Agreement;
(v) The related Mortgage is a valid and subsisting first
lien on the related Mortgaged Property, and the related
Mortgaged Property is free and clear of all encumbrances and
liens having priority over the first lien of such
32
Mortgage except for liens for (a) real estate taxes and
special assessments not yet delinquent; (b) covenants,
conditions and restrictions, rights of way, easements and
other matters of public record as of the date of recording
that are acceptable to mortgage lending institutions
generally; and (c) other matters to which like properties
are commonly subject which do not materially interfere with
the benefits of the security intended to be provided by such
Mortgage;
(vi) To the best knowledge of the Depositor, each Mortgage
is not subject to any valid offset, defense, right of
rescission or counterclaim by any obligor under the
Mortgage;
(vii) To the best knowledge of the Depositor, there is no
delinquent recording or other tax or fee or assessment lien
against the related Mortgaged Property;
(viii) To the best knowledge of the Depositor, there is no
proceeding pending or threatened for the total or partial
condemnation of the related Mortgaged Property, and such
property is free of material damage and is in good repair;
(ix) There are no mechanics' or similar liens or claims
which have been filed for work, labor or material affecting
the related Mortgaged Property which are, or may be, liens
prior or equal to the lien of the related Mortgage, except
(a) liens which are fully insured against by the title
insurance policy referred to in clause (xiii) or (b) liens
which do not materially interfere with the collection of the
Mortgage Loan upon foreclosure or otherwise;
(x) As of the Cut-Off Date for the Initial Mortgage Loans
(or as of the applicable Transfer Date for any Eligible
Substitute Mortgage Loan), no scheduled monthly payment is
more than 29 days delinquent (measured on a contractual
basis);
(xi) The related Mortgage File contains each of the
documents and instruments specified to be included therein
(including, if applicable, an appraisal (which may be an
appraisal prepared using a statistical data base));
(xii) The related Mortgage Note and the related Mortgage at
the time they were made complied in all material respects
with applicable local, state and federal laws, including,
without limitation, usury, truth-in-lending, real estate
settlement procedures, consumer credit protection
(including, without limitation, the Home Ownership Equity
Protection Act), equal credit opportunity or disclosure laws
applicable to the Mortgage Loan;
33
(xiii) A lender's title insurance policy or binder was
issued on the date of origination of each Mortgage Loan, and
each such policy is valid and remains in full force and
effect, and a title search or other assurance of title
customary in the relevant jurisdiction was obtained with
respect to each Mortgage Loan as to which no title insurance
policy or binder was issued;
(xiv) The related Mortgaged Property is not a mobile home or
a manufactured housing unit that is not permanently attached
to its foundation;
(xv) The Principal Balance of which, when included in the
Pool Balance (in each case for the Initial Mortgage Loans as
of the Statistical Cut-Off Date), would not cause the
aggregate Principal Balance of the Initial Mortgage Loans
that are secured by Mortgaged Properties located in one
United States postal zip code to exceed 0.17%;
(xvi) As of the Statistical Cut-Off Date, the Loan-to-Value
Ratio for each Initial Mortgage Loan was not in excess of
100.00%;
(xvii) No selection procedure reasonably believed by the
Depositor to be adverse to the interests of the Noteholders
was utilized in selecting the Mortgage Loan;
(xviii) The Depositor has not transferred the Mortgage Loans
to the Trust with any intent to hinder, delay or defraud any
of its creditors;
(xix) Each Mortgage Note and each Mortgage is in
substantially the form previously provided to the Indenture
Trustee by the Depositor and each Mortgage Loan is an
enforceable obligation of the related Mortgagor;
(xx) The Depositor has not received a notice of default of
any senior mortgage loan with respect to the related
Mortgaged Property that has not been cured by a party other
than the related Servicer;
(xxi) The Initial Mortgage Loan does not have an original
term to maturity in excess of 360 months; and the Principal
Balance of which, when included in the Pool Balance (in each
case for the Initial Mortgage Loans as of the Cut-Off Date),
would not cause the weighted average remaining term to
maturity of the Initial Mortgage Loans on a contractual
basis to be greater than 325 months;
(xxii) The related Mortgaged Property consists of a single
parcel of real property with a one-to-four unit single
family residence erected thereon, or an individual
condominium unit or townhouse;
34
(xxiii) The Principal Balance of which, when included in the
Pool Balance (in each case for the Initial Mortgage Loans as
of the Cut-Off Date), would not cause the average Principal
Balance of such Mortgage Loans to be greater than $126,000;
and
(xxiv) each Mortgage Loan was originated directly by or
closed in the name of either: (a) a savings and loan
association, savings bank, commercial bank, credit union,
insurance company, or similar institution which is
supervised and examined by a federal or state authority or
(b) a mortgagee approved by the Secretary of Housing and
Urban Development pursuant to Sections 203 and 211 of the
National Housing Act.
(c) It is understood and agreed that the representations and warranties
set forth in this Section 2.04 shall survive the transfer and assignment of the
Mortgage Loans to the Trust and the pledge of the Mortgage Loans to the
Indenture Trustee. Upon discovery by the Depositor, the Master Servicer, the
Owner Trustee or the Indenture Trustee of a breach of any of the representations
and warranties set forth in this Section 2.04, without regard to any limitation
set forth in such representation or warranty concerning the knowledge of the
Depositor as to the facts stated therein, which materially and adversely affects
the interests of the Noteholders and the Transferor in respect of the Ownership
Interest in the related Mortgage Loan, the person discovering such breach shall
give prompt written notice to the other parties and each Rating Agency. Within
60 days of its discovery or its receipt of notice of such breach, or, with the
prior written consent of a Responsible Officer of the Indenture Trustee, such
longer period not to exceed 90 days specified in such consent, the Depositor or,
as necessary, the Master Servicer shall cure such breach in all material
respects. With regard to any such breach of the representations and warranties
set forth in Section 2.04(b), unless, at the expiration of such 60 day or longer
period, such breach has been cured in all material respects or otherwise does
not exist or continue to exist, the Depositor or the Master Servicer shall, not
later than the Business Day next preceding the Payment Date in the month
following the end of the Collection Period in which any such cure period
expired, either (i) repurchase such Defective Mortgage Loan (including any
property acquired in respect thereof and any insurance policy or insurance
proceeds with respect thereto) or (ii) remove such Mortgage Loan from the Trust
and substitute in its place an Eligible Substitute Mortgage Loan or Loans, in
the same manner and subject to the same conditions as set forth in Section 2.02.
Upon making any such repurchase or substitution the Depositor or the Master
Servicer, as applicable, shall be entitled to receive an instrument of
assignment or transfer from the Indenture Trustee to the same extent as set
forth in Section 2.02 with respect to the repurchase or replacement of Mortgage
Loans under that Section. It is understood and agreed that, subject to Section
2.04(d), the obligation of the Depositor or the Master Servicer to purchase or
substitute for any such Defective Mortgage Loan (or property acquired in respect
thereof) shall constitute the sole and exclusive remedy against the Depositor or
the Master Servicer respecting such breach of the foregoing representations or
warranties available to Noteholders, the Transferor in respect of the Ownership
Interest, the Owner Trustee or the Indenture Trustee against the Depositor or
the Master Servicer, and such obligation on the part of the Master Servicer
shall survive any resignation or termination of the Master Servicer hereunder.
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(d) The Depositor and the Master Servicer, jointly and not severally,
agree to indemnify and hold harmless the Trust against any and all out-of-pocket
financial losses, claims, expenses, damages or liabilities to which the Trust
may become subject, insofar as such out-of-pocket financial losses, claims,
expenses, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any representation or warranty made by the Depositor in this
Section 2.04 on which the Trust has relied, being, or alleged to be, untrue or
incorrect in any material respect. This indemnity will be in addition to any
liability which the Depositor or the Master Servicer may otherwise have.
(e) Promptly after receipt by the Owner Trustee on behalf of the Trust
of written notice of the commencement of any action or proceeding in any way
relating to or arising from this Agreement, the Owner Trustee will notify the
Indenture Trustee, the Depositor and the Master Servicer of the commencement
thereof, but the omission so to notify the party from whom indemnification is
sought (the "Indemnifying Party") will not relieve the Indemnifying Party from
any liability which it may have to the party seeking indemnification (the
"Indemnified Party") except to the extent that the Indemnifying Party is
materially adversely affected by the lack of notice. In case any such action is
brought against the Indemnified Party, and it notifies the Indemnifying Party of
the commencement thereof, the Indemnifying Party will be entitled to participate
in the defense (with the consent of the Indemnified Party which shall not be
unreasonably withheld) of such action at the Indemnifying Party's expense.
Section 2.05 TAX TREATMENT. It is the intention of the Depositor and the
Noteholders that the Notes will be indebtedness for federal, state and local
income and franchise tax purposes and for purposes of any other tax imposed on
or measured by income. The terms of this Agreement shall be interpreted to
further the intent of the parties hereto. The Depositor, the Indenture Trustee
and each Noteholder (or Note Owner) by acceptance of its Note (or, in the case
of a Note Owner, by virtue of such Note Owner's acquisition of a beneficial
interest therein) agrees to treat the Note (or beneficial interest therein), for
purposes of federal, state and local income or franchise taxes and any other tax
imposed on or measured by income, as indebtedness secured by the Trust Estate
and to report the transactions contemplated by this Agreement on all applicable
tax returns in a manner consistent with such treatment. Each Noteholder agrees
that it will cause any Note Owner acquiring an interest in a Class A or Class M
Note through it to comply with this Agreement as to treatment of the Notes as
indebtedness for federal, state and local income and franchise tax purposes and
for purposes of any other tax imposed on or measured by income. The Master
Servicer will prepare and file all tax reports required hereunder on behalf of
the Trust.
ARTICLE III.
ADMINISTRATION AND SERVICING OF MORTGAGE LOANS
Section 3.01 THE MASTER SERVICER.
(a) The Master Servicer shall, or shall cause the Servicers to, service
and administer the Mortgage Loans in a manner consistent with the terms of this
Agreement and with general industry practice and shall have full power and
authority, acting alone or through the Servicers,
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to do any and all things in connection with such servicing and administration
which it may deem necessary or desirable, it being understood, however, that the
Master Servicer shall at all times remain responsible to the Indenture Trustee
and the Noteholders for the performance of its duties and obligations hereunder
in accordance with the terms hereof. Any amounts received by the related
Servicer in respect of a Mortgage Loan shall be deemed to have been received by
the Master Servicer whether or not actually received by it. Without limiting the
generality of the foregoing, the Master Servicer shall continue, and is hereby
authorized and empowered by the Indenture Trustee, (i) in its own name or in the
name of any Servicer, when the Master Servicer or the Servicer, as the case may
be, believes it appropriate in its best judgment to register any Mortgage Loan
on the MERS(R) System, or cause the removal from the registration of any
Mortgage Loan on the MERS(R) System, to execute and deliver, on behalf of the
Trust, any and all instruments of assignment and other comparable instruments
with respect to such assignment or re-recording of a Mortgage in the name of
MERS, solely as nominee for the Trust and its successors and assigns, and (ii)
to execute and deliver, on behalf of itself, the Noteholders and the Indenture
Trustee or any of them, any and all instruments of satisfaction or cancellation,
or of partial or full release or discharge and all other comparable instruments,
with respect to the Mortgage Loans and with respect to the Mortgaged Properties.
Upon the written request of the Master Servicer, the Depositor and the Indenture
Trustee shall furnish the Master Servicer with any powers of attorney and other
documents necessary or appropriate to enable the Master Servicer to carry out
its servicing and administrative duties hereunder.
(b) If (i) foreclosure proceedings are commenced with respect to any
Mortgage Loan with respect to which the Master Servicer has consented to the
placing of a subsequent senior lien pursuant to clause (x) in Section 3.01(a),
or (ii) any loss is suffered by the Indenture Trustee on behalf of the
Noteholders or the Transferor in respect of the Ownership Interest in respect of
any Mortgage Loan as a result of (x) a failure to file on or within ten days
following the effective date of this Agreement the UCC-l financing statements
referred to in Section 2.01 or (y) a failure to publish on or prior to the
Closing Date such notices reflecting the sale of the Mortgage Loans as are
described in Section 3440.1(h) of the California Civil Code, then the Master
Servicer shall repurchase or substitute for any adversely affected Mortgage Loan
on the Business Day preceding the next Payment Date following the end of the
Collection Period during which such foreclosure proceedings were commenced or
such losses were suffered. Such repurchase or substitution shall be accomplished
in the same manner and subject to the same conditions as set forth in Section
2.02. Upon making any such repurchase or substitution the Master Servicer shall
be entitled to receive an instrument of assignment or transfer from the
Indenture Trustee to the same extent as set forth in Section 2.02.
(c) Upon the request of a Mortgagor or at the Master Servicer's own
initiative, the Master Servicer (or the related Servicer on behalf of the Master
Servicer) may waive, modify or vary any term of any Mortgage Loan or consent to
the postponement of strict compliance with any such term or in any manner grant
indulgence to any Mortgagor if:
(i) in the Master Servicer's (or such Servicer's) good faith
determination such waiver, modification, postponement or
indulgence will enhance recovery with respect to such
Mortgage Loan; and
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(ii) the Mortgagor is in default with respect to the
Mortgage Loan, or such default is, in the judgment of the
Master Servicer (or such Servicer) imminent.
(d) Subject to subparagraph (e) below, in addition to the circumstances
described under Section 3.01(c), the Master Servicer (or the related Servicer on
behalf of the Master Servicer) may waive, modify or vary any term of any
Mortgage Loan, if the purpose of such action is to reduce the likelihood of
prepayment or of default of such Mortgage Loan, to increase the likelihood of
repayment or repayment upon default of such Mortgage Loan, to increase the
likelihood of repayment in full of or recoveries under such Mortgage Loan, or to
otherwise benefit the Noteholders and the Transferor in respect of the Ownership
Interest, all in the reasonable judgment of the Master Servicer.
(e) Notwithstanding any provision in this Agreement to the contrary, the
Master Servicer may not defer the scheduled monthly interest and principal
payment on any Mortgage Loan that is not in default or (in the judgment of the
Master Servicer (or the related Servicer on behalf of the Master Servicer)) for
which default is not imminent unless (i) the Master Servicer elects to make a
Skip-A-Pay Advance pursuant to subparagraph (f) below or (ii) each Rating Agency
advises in writing that as a result of such deferment the then current rating of
the Class A and Class M Notes will not be withdrawn, suspended or reduced;
PROVIDED, HOWEVER, that the Master Servicer may not defer the scheduled monthly
payment on any Mortgage Loan in reliance on clause (i) above unless the Master
Servicer determines, in its good faith judgment, that such Skip-A-Pay Advance
will be recoverable from future payments on the Mortgage Loans.
(f) If during any Collection Period the Master Servicer deferred the
scheduled monthly payment on any Mortgage Loan that was not in default or for
which default was not imminent in reliance on clause (i) of subparagraph (e)
above, no later than 12:00 noon Chicago time on each Deposit Date, the Master
Servicer shall deposit into the Collection Account an amount equal to the
Skip-A-Pay Advance for such Collection Period. On each Payment Date, the Master
Servicer shall be entitled to reimburse itself for all previously unreimbursed
Skip-A-Pay Advances from funds on deposit in the Collection Account, before
making any payments to Noteholders pursuant to Section 5.01, up to an amount
equal to the Skip-A-Pay Reimbursement Amount on such Payment Date; PROVIDED,
HOWEVER, that the Skip-A-Pay Reimbursement Amount that the Master Servicer is
entitled to receive on such Payment Date shall be reduced by the portion of such
amount, if any, that was applied to reduce the amount of funds that the Master
Servicer was required to deposit or to cause to be deposited into the Collection
Account on the preceding Deposit Date pursuant to Section 3.02(b).
(g) The relationship of the Master Servicer (and of any successor to the
Master Servicer as master servicer under this Agreement) to the Indenture
Trustee under this Agreement is intended by the parties to be that of an
independent contractor and not that of a joint venturer, partner or agent.
(h) In the event that the rights, duties and obligations of the Master
Servicer are terminated hereunder, any successor to the Master Servicer in its
sole discretion may, to the extent permitted by applicable law, terminate the
existing subservicer arrangements with any
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Servicer or assume the terminated Master Servicer's rights under such
subservicing arrangements which termination or assumption will not violate the
terms of such arrangements. Any termination fees shall be payable by the
outgoing Master Servicer.
(i) Any expenses incurred in connection with the actions described in
Section 3.01(a)(i) shall be borne by the Master Servicer in accordance with
Section 3.09, with no right of reimbursement; PROVIDED that if, as a result of
MERS discontinuing or becoming unable to continue operations in connection with
the MERS System, it becomes necessary to remove any Mortgage Loan from
registration on the MERS System and to arrange for the assignment of the related
Mortgages to the Trust, then any related expenses shall be reimbursable to the
Master Servicer.
Section 3.02 COLLECTION OF CERTAIN MORTGAGE LOAN PAYMENTS.
(a) The Master Servicer shall make reasonable efforts to collect all
payments called for under the terms and provisions of the Mortgage Loans, and
shall, to the extent such procedures shall be consistent with this Agreement,
follow such collection procedures as it follows with respect to mortgage loans
in its servicing portfolio comparable to the Mortgage Loans. Consistent with,
and without limiting the generality of, the foregoing, the Master Servicer may
in its discretion (i) waive any late payment charge or any assumption fees or
other fees that may be collected in the ordinary course of servicing the
Mortgage Loans, (ii) arrange with a Mortgagor a schedule for the payment of
delinquent amounts, so long as such arrangement is consistent with the Master
Servicer's policies with respect to the mortgage loans it owns, (iii) sell the
Mortgage Loan at its fair market value to a third party for collection activity
or (iv) treat a Mortgage Loan as current if the Mortgagor has made two standard
payments in the past 60 days to cure the delinquency status of such Mortgage
Loan.
(b) The Master Servicer shall establish and maintain with the Indenture
Trustee a separate trust account (the "Collection Account") titled "JPMorgan
Chase Bank, as Indenture Trustee, in trust for the registered holders of
Household Mortgage Loan Asset Backed Notes, Series 2002-HC1". In the event that
a successor Indenture Trustee is appointed as provided in Section 6.8 of the
Indenture, a new Collection Account shall be promptly established at and
maintained by such successor Indenture Trustee, and the title of the new
Collection Account shall be "[Successor Indenture Trustee], as Indenture
Trustee, in trust for the registered holders of Household Mortgage Loan Asset
Backed Notes, Series 2002-HC1", and any amounts in the old Collection Account
shall be transferred to the new Collection Account. The Collection Account shall
be an Eligible Account. No later than 12:00 noon Chicago time on each Deposit
Date (or, if a Deposit Event has occurred and the Master Servicer has not
provided credit enhancement reasonably acceptable to each of the Rating
Agencies, within two (2) Business Days following receipt thereof by the
Servicers), the Master Servicer shall deposit or cause to be deposited into the
Collection Account the following payments and collections received or made by it
with respect to the Mortgage Loans (without duplication):
(i) Interest Collections (net of any Servicing Fee) on the
Mortgage Loans;
(ii) Principal Collections on the Mortgage Loans;
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(iii) Insurance Proceeds (including, for this purpose, any
amount required to be paid by the Master Servicer pursuant
to Section 3.04 and excluding any portion thereof
constituting Principal Collections); and
(iv) amounts required to be paid by the Master Servicer in
connection with the termination of the Trust pursuant to
Section 8.01;
PROVIDED, HOWEVER, that so long as a Deposit Event has not occurred (unless the
Master Servicer has provided credit enhancement reasonably acceptable to each of
the Rating Agencies), the amount of funds that the Master Servicer is required
to deposit or to cause to be deposited into the Collection Account on or before
such Deposit Date shall be reduced by the Skip-A-Pay Reimbursement Amount the
Master Servicer is entitled to receive on the next Payment Date.
The foregoing requirements respecting deposits to the Collection Account
are exclusive, it being understood that, without limiting the generality of the
foregoing, fees (including annual fees) or late charge penalties payable by
Mortgagors, prepayment penalties, or amounts received by the Master Servicer or
a Servicer for the accounts of Mortgagors for application towards the payment of
taxes, insurance premiums, assessments and similar items for the account of the
related Servicer, if any, need not be deposited in the Collection Account.
(c) The Indenture Trustee shall hold amounts deposited in the Collection
Account as trustee for the Noteholders and the Transferor in respect of the
Ownership Interest. In addition, the Master Servicer shall notify the Indenture
Trustee in writing on each Determination Date of the amount of payments and
collections to be deposited in the Collection Account with respect to the
related Payment Date.
(d) The Master Servicer may cause the institution maintaining the
Collection Account to invest any funds in the Collection Account in Permitted
Investments (including obligations of the Master Servicer or of any of its
affiliates, if such obligations otherwise qualify as Permitted Investments),
which shall mature or otherwise be available not later than the Business Day
next preceding the Payment Date and shall not be sold or disposed of prior to
its maturity. In the event the Indenture Trustee is at any time maintaining the
Collection Account, any request by the Master Servicer to invest funds on
deposit in the Collection Account shall be in writing, shall be delivered to the
Indenture Trustee at or before 10:30 A.M., Chicago time, if such investment is
to be made on such day, and shall certify that the requested investment is a
Permitted Investment that matures at or prior to the time required hereby. In
the absence of investment instructions, amounts on deposit in the Collection
Account shall be uninvested. Any such investment shall be registered in the name
of or controlled by the Indenture Trustee as trustee hereunder or in the name of
its nominee and to the extent such investments are certificated they shall be
maintained in the possession or control of the Indenture Trustee in the state of
its Corporate Trust Office. Except as provided above, all income and gain
realized from any such investment shall be for the benefit of the Master
Servicer and shall be subject to its withdrawal or order from time to time. The
amount of any losses incurred in respect of the principal amount of any such
investments shall be deposited in the Collection Account by the Master Servicer
out of its own funds immediately as realized.
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(e) The Indenture Trustee is hereby authorized to execute purchases and
sales of Permitted Investments as directed by the Master Servicer through the
facilities of its own trading or capital markets operations. The Indenture
Trustee shall send to the Master Servicer statements reflecting the monthly
activity for each such purchase and sale made for the preceding month. Although
the Master Servicer recognizes that it may obtain a broker confirmation or
written monthly statement containing comparable information at no additional
cost, the Master Servicer hereby agrees that confirmations of investments are
not required to be issued by the Indenture Trustee for each month in which a
monthly statement is rendered. No statement need be rendered pursuant to the
provision of this subsection if no activity occurred in the account for such
month.
Section 3.03 WITHDRAWALS FROM THE COLLECTION ACCOUNT.
(a) The Indenture Trustee shall withdraw or cause to be withdrawn funds
from the Collection Account for the following purposes:
(i) On each Payment Date, to make payments to the
Noteholders and the Transferor in respect of the Ownership
Interest pursuant to Section 5.01;
(ii) From time to time, to make investments in Permitted
Investments and to pay to the Master Servicer all income and
gain earned in respect of Permitted Investments or on funds
deposited in the Collection Account;
(iii) To reimburse the Depositor or the Master Servicer to
the extent permitted by Section 6.03;
(iv) To withdraw any funds deposited in the Collection
Account that were not required to be deposited therein or
were deposited therein in error and to pay such funds to the
appropriate Person;
(v) To pay to the party legally entitled by a final order of
a court of competent jurisdiction in an insolvency
proceeding an amount equal to any preference claim made with
respect to amounts paid with respect to the Mortgage Loans;
PROVIDED that, if any such amount is later determined not to
be a preference by such court of competent jurisdiction and
is returned to the Master Servicer or any Servicer, such
amount shall be redeposited into the Collection Account by
the Master Servicer;
(vi) to clear and terminate the Collection Account upon the
termination of this Agreement and to pay any amounts
remaining therein to the Transferor in respect of the
Ownership Interest; and
(vii) to reimburse the Master Servicer for Skip-A-Pay
Advances to the extent permitted by Section 3.01(f).
(b) If the Master Servicer deposits in the Collection Account any amount
not required to be deposited therein or credited thereto or any amount in
respect of payments by
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Mortgagors made by checks subsequently returned for insufficient funds or other
reason for nonpayment, it may at any time withdraw such amount from the
Collection Account pursuant to Section 3.03(a)(iv), and any such amounts shall
not be included in Interest Collections and Principal Collections, any provision
herein to the contrary notwithstanding. Any withdrawal or debit permitted by
Section 3.03(a) may be accomplished by delivering an Officer's Certificate to
the Indenture Trustee which describes the purpose of such withdrawal (including,
without limitation, that any such amount was deposited in the Collection Account
in error or, in the case of returned checks, that such amounts were properly
debited, respectively). Upon receipt of any such Officer's Certificate, the
Indenture Trustee shall withdraw such amount for the account of the Master
Servicer. All funds deposited by the Master Servicer in the Collection Account
shall be held by the Indenture Trustee in trust for the Noteholders and the
Transferor in respect of the Ownership Interest, until disbursed in accordance
with Section 5.01 or Section 5.4(b) of the Indenture or withdrawn or debited in
accordance with this Section.
Section 3.04 MAINTENANCE OF HAZARD INSURANCE; PROPERTY PROTECTION
EXPENSES. Each Mortgage Loan requires that the borrower thereunder maintain
hazard insurance naming the Master Servicer or the related Servicer as loss
payee providing extended coverage in an amount which is at least equal to the
lesser of (i) 100% of the insurable value of the Mortgaged Property or (ii) the
combined principal balance owing on such Mortgage Loan and any mortgage loan
senior to such Mortgage Loan from time to time. The Master Servicer represents
and warrants that it or the applicable Seller verified the existence of such
hazard insurance at the origination of the Mortgage Loan. The Master Servicer
shall also maintain on property acquired upon foreclosure, or by grant of deed
in lieu of foreclosure, hazard insurance with extended coverage in an amount
which is at least equal to the lesser of (i) 100% of the insurable value of the
Mortgaged Property or (ii) the combined unpaid principal balance owing on such
Mortgage Loan and any mortgage loans senior to such Mortgage Loans at the time
of such foreclosure or grant of deed in lieu of foreclosure PLUS accrued
interest thereon. Amounts collected by the Master Servicer under any such
policies shall be deposited in the Collection Account to the extent called for
by Section 3.02. In cases in which any Mortgaged Property is located in a
federally designated flood area, the hazard insurance to be maintained for the
related Mortgage Loan shall include flood insurance. All such flood insurance
shall be in such amounts as are required under applicable guidelines of ▇▇▇▇▇▇
▇▇▇. The Master Servicer shall be under no obligation to require that any
Mortgagor maintain earthquake or other additional insurance and shall be under
no obligation itself to maintain any such additional insurance on property
acquired in respect of a Mortgage Loan, other than pursuant to such applicable
laws and regulations as shall at any time be in force and as shall require such
additional insurance. As to Mortgaged Properties acquired by the Master Servicer
as provided herein, the Master Servicer may satisfy its obligation set forth in
the first sentence of this Section 3.04 by self insuring Mortgaged Properties
for which the aggregate unpaid principal balance of the related Mortgage Loans
PLUS the outstanding balance of any mortgage loans senior to such Mortgage Loans
at the time title was acquired, PLUS accrued interest (the "Combined Exposure"),
was less than $500,000 (or such other amount as the Master Servicer may in good
faith determine from time to time) and by causing hazard policies to be
maintained with respect to Mortgaged Properties for which the Combined Exposure
equals or exceeds the self insurance threshold established from time to time by
the Master Servicer by maintaining a blanket policy consistent with prudent
industry standards insuring against hazard losses on the Mortgaged Properties.
Such policy may contain a deductible clause, in which case
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the Master Servicer shall, in the event that there shall not have been
maintained on the related Mortgaged Property a policy complying with the first
sentence of this Section 3.04, and there shall have been a loss which would have
been covered by such policy, deposit in the Collection Account the amount not
otherwise payable under the blanket policy because of such deductible clause.
Section 3.05 ASSUMPTION AND MODIFICATION AGREEMENTS. In any case in which
a Mortgaged Property has been or is about to be conveyed by the Mortgagor, the
Master Servicer shall exercise or refrain from exercising its right to
accelerate the maturity of such Mortgage Loan consistent with the then-current
practice of the Master Servicer and without regard to the inclusion of such
Mortgage Loan in the Trust and not in the Master Servicer's portfolio. If it
elects not to enforce its right to accelerate or if it is prevented from doing
so by applicable law, the Master Servicer (so long as such action conforms with
the Master Servicer's underwriting standards at the time for new originations)
is authorized to take or enter into an assumption and modification agreement
from or with the Person to whom such Mortgaged Property has been or is about to
be conveyed, pursuant to which such Person becomes liable under the Mortgage
Note and, to the extent permitted by applicable law, the Mortgagor remains
liable thereon. The Master Servicer shall notify the Indenture Trustee that any
assumption and modification agreement has been completed by delivering to the
Indenture Trustee an Officer's Certificate certifying that such agreement is in
compliance with this Section and by forwarding to the applicable Servicer on
behalf of the Depositor or the Indenture Trustee, as applicable, the original
copy of such assumption and modification agreement. Any such assumption and
modification agreement shall, for all purposes, be considered a part of the
related Mortgage File to the same extent as all other documents and instruments
constituting a part thereof. No change in the terms of the related Mortgage Note
may be made by the Master Servicer in connection with any such assumption to the
extent that such change would not be permitted to be made in respect of the
original Mortgage Note pursuant to Section 3.01 unless the conditions specified
in Section 3.01 are satisfied. Any fee collected by the Master Servicer for
entering into any such agreement will be retained by the Master Servicer as
additional servicing compensation.
Section 3.06 REALIZATION UPON DEFAULTED MORTGAGE LOANS.
(a) The Master Servicer (or the Master Servicer together with the related
Seller as called for by the Mortgage Loan Purchase Agreement) shall foreclose
upon or otherwise comparably convert to ownership Mortgaged Properties securing
such of the Mortgage Loans as come into and continue in default when, in the
opinion of the Master Servicer based upon the practices and procedures referred
to in the following sentence, no satisfactory arrangements can be made for
collection of delinquent payments pursuant to Section 3.02; PROVIDED that if the
Master Servicer has actual knowledge or reasonably believes that any Mortgaged
Property is affected by hazardous or toxic wastes or substances and that the
acquisition of such Mortgaged Property would not be commercially reasonable,
then the Master Servicer will not cause the Trust to acquire title to such
Mortgaged Property in a foreclosure or similar proceeding. In connection with
such foreclosure or other conversion, the Master Servicer shall follow such
practices (including, in the case of any default on a related senior mortgage
loan, the advancing of funds to correct such default) and procedures as it shall
deem necessary or advisable and as shall be normal and usual in its general
mortgage servicing activities. The foregoing is subject to
43
the proviso that the Master Servicer shall not be required to expend its own
funds in connection with any foreclosure or towards the correction of any
default on a related senior mortgage loan or restoration of any property unless
it shall determine that such expenditure will increase Net Liquidation Proceeds.
The Master Servicer will be reimbursed out of Liquidation Proceeds for advances
of its own funds to pay Liquidation Expenses before any Net Liquidation Proceeds
are deposited in the Collection Account.
(b) In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall (i) so long as at least two of ▇▇▇▇▇'▇, Standard & Poor's and Fitch assign
a long-term unsecured debt rating to the Master Servicer of at least "Baa3", in
the case of ▇▇▇▇▇'▇, "BBB", in the case of Fitch, and "BBB-" in the case of
Standard & Poor's, be issued in the name of the related Servicer or (ii) if the
rating requirements in clause (i) are not satisfied, be issued to the Indenture
Trustee, or to its nominee on behalf of Noteholders.
Section 3.07 [RESERVED].
Section 3.08 INDENTURE TRUSTEE TO COOPERATE.
(a) Upon any payment in full of the Principal Balance of any Mortgage
Loan, the Master Servicer is authorized to execute, pursuant to the
authorization contained in Section 3.01, if the assignments of Mortgage have
been recorded as required hereunder, an instrument of satisfaction regarding the
related Mortgage or written evidence of cancellation thereon and to cause the
removal from the registration on the MERS(R) System of such Mortgage, which
instrument of satisfaction shall be recorded by the Master Servicer if required
by applicable law and be delivered to the Person entitled thereto. It is
understood and agreed that no expenses incurred in connection with such
instrument of satisfaction or transfer shall be reimbursed from amounts
deposited in the Collection Account. If the Indenture Trustee is holding the
Mortgage Files, from time to time and as appropriate for the servicing or
foreclosure of any Mortgage Loan, the Indenture Trustee shall, upon request of
the Master Servicer and delivery to the Indenture Trustee of a trust receipt
signed by a Servicing Officer, release the related Mortgage File to the Master
Servicer, and the Indenture Trustee shall execute such documents as shall be
necessary to the prosecution of any such proceedings or the taking of other
servicing actions. Such trust receipt shall obligate the Master Servicer to
return the Mortgage File to the Indenture Trustee when the need therefor by the
Master Servicer no longer exists unless the Mortgage Loan shall be liquidated,
in which case, upon receipt of an Officer's Certificate of the Master Servicer,
the trust receipt shall be released by the Indenture Trustee to the Master
Servicer.
(b) In order to facilitate the foreclosure of the Mortgage securing any
Mortgage Loan that is in default following recordation of the assignments of
Mortgage in accordance with the provisions hereof, the Trust shall, if the
Master Servicer so requests in writing and supplies the Trust with appropriate
forms therefor, assign such Mortgage Loan for the purpose of collection to the
Master Servicer or to the related Servicer (any such assignment shall
unambiguously indicate that the assignment is for the purpose of collection
only), and, upon such assignment, such assignee for collection will thereupon
bring all required actions in its own name and otherwise enforce the terms of
the Mortgage Loan and deposit or credit the Net
44
Liquidation Proceeds received with respect thereto in the Collection Account. In
the event that all delinquent payments due under any such Mortgage Loan are paid
by the Mortgagor and any other defaults are cured then the assignee for
collection shall promptly reassign such Mortgage Loan to the Indenture Trustee
and return it to the place where the related Mortgage File was being maintained.
Section 3.09 SERVICING COMPENSATION; PAYMENT OF CERTAIN EXPENSES BY
MASTER SERVICER.
(a) The Master Servicer shall be entitled to receive the Servicing Fee as
compensation for its services in connection with servicing the Mortgage Loans.
The Servicing Fee for each Collection Period shall be paid to the Master
Servicer out of Interest Collections prior to their deposit in the Collection
Account and shall not be the responsibility or liability of the Trust, the Owner
Trustee, the Indenture Trustee, the Class A or Class M Noteholders or the
Transferor in respect of the Ownership Interest. Additional servicing
compensation in the form of late payment charges or other receipts not required
to be deposited in the Collection Account shall be retained by the Master
Servicer. The Master Servicer shall be required to pay all expenses incurred by
it in connection with its activities hereunder (including payment of Owner
Trustee and Indenture Trustee fees, expenses and indemnifications due to the
Indenture Trustee under Section 3.09(b) below and all other fees and expenses
not expressly stated hereunder to be for the account of the Noteholders and the
Transferor in respect of the Ownership Interest) and shall not be entitled to
reimbursement therefor except as specifically provided herein.
(b) The Master Servicer shall, out of the Servicing Fee, pay to the
Indenture Trustee from time to time as compensation for its services a fee
previously agreed to by the Master Servicer and the Indenture Trustee. The
Indenture Trustee's compensation shall not be limited by any law on compensation
of a trustee of an express trust. The Master Servicer shall reimburse the
Indenture Trustee for all reasonable out-of-pocket expenses incurred or made by
it, including costs of collection, in addition to the compensation for its
services. Such expenses shall include the reasonable compensation and expenses,
disbursements and advances of the Indenture Trustee's agents, counsel,
accountants and experts. The Master Servicer shall indemnify the Indenture
Trustee against any and all loss, liability or expense (including attorneys'
fees) incurred by it in connection with the administration of the trust created
pursuant to the Indenture and the performance of its duties hereunder and under
the Indenture. The Indenture Trustee shall notify the Master Servicer promptly
of any claim for which it may seek indemnity. Failure by the Indenture Trustee
to so notify the Master Servicer shall not relieve the Master Servicer of its
obligations hereunder. The Master Servicer shall defend any such claim and the
Indenture Trustee may have separate counsel and the Master Servicer shall pay
the fees and expenses of such counsel. The Indenture Trustee shall not be
entitled to any such reimbursement of any expense or to indemnification against
any loss, liability or expense incurred by the Indenture Trustee through the
Indenture Trustee's own willful misconduct, negligence or bad faith. The
indemnification obligations of the Master Servicer set forth in this Section
3.09(b) shall survive the resignation and removal of the Indenture Trustee and
the discharge of the Indenture. The Indenture Trustee shall be entitled to
retain and reimburse itself from any amounts payable to the Transferor pursuant
to Section 5.01(a)(xii) in respect of the Ownership Interest to the extent that
45
the Master Servicer has failed to pay any amounts owing to the Indenture Trustee
pursuant to this Section 3.09(b).
Section 3.10 ANNUAL STATEMENT AS TO COMPLIANCE.
(a) The Master Servicer will deliver to the Indenture Trustee and a copy
to each of the Rating Agencies, on or before March 31 of each year, beginning
March 31, 2003, an Officer's Certificate stating that (i) a review of the
activities of the Master Servicer during the preceding calendar year (or in the
case of the Officer's Certificate delivered in 2003, from the Closing Date) and
of its performance under this Agreement has been made under such officer's
supervision and (ii) to the best of such officer's knowledge, based on such
review, the Master Servicer has fulfilled all its material obligations under
this Agreement throughout such year (or in the case of the Officer's Certificate
delivered in 2003, from the Closing Date), or, if there has been a default in
the fulfillment of any such obligation, specifying each such default known to
such officer and the nature and status thereof. Copies of such Officer's
Certificate shall be provided by the Master Servicer to any Noteholder upon
written request at the Master Servicer's expense.
(b) The Master Servicer shall deliver to the Indenture Trustee and a copy
to each of the Rating Agencies, promptly after having obtained knowledge
thereof, but in no event later than five Business Days thereafter, written
notice by means of an Officer's Certificate of any event which with the giving
of notice or the lapse of time or both, would become a Master Servicer
Termination Event.
Section 3.11 ANNUAL SERVICING REPORT. On or before March 31 of each year,
beginning March 31, 2003, the Master Servicer at its expense shall cause a firm
of nationally recognized independent public accountants (who may also render
other services to the Master Servicer) to furnish a report to the Indenture
Trustee and a copy to each of the Rating Agencies to the effect that such firm
has examined certain documents and records relating to the servicing of mortgage
loans by the Master Servicer during the most recent calendar year (or in the
case of the report delivered in 2003, from the Closing Date) then ended under
pooling and servicing agreements or
sale and servicing agreements (including
this Agreement) substantially similar to this Agreement and that such
examination, which has been conducted substantially in compliance with the audit
guide for audits of non-supervised mortgagees approved by the Department of
Housing and Urban Development for use by independent public accountants (to the
extent that the procedures in such audit guide are applicable to the servicing
obligations set forth in such agreements), has disclosed no items of
noncompliance with the provisions of this Agreement which, in the opinion of
such firm, are material, except for such items of noncompliance as shall be set
forth in such report.
Section 3.12 ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION REGARDING
THE MORTGAGE LOANS.
(a) The Master Servicer and the Servicers shall provide to the Indenture
Trustee, the Owner Trustee, the Transferor in respect of the Ownership Interest,
the Class A and Class M Noteholders that are federally insured savings and loan
associations, the Office of Thrift
46
Supervision, the successor to the Federal Home Loan Bank Board, the FDIC and the
supervisory agents and examiners of the Office of Thrift Supervision access to
the documentation regarding the Mortgage Loans required by applicable
regulations of the Office of Thrift Supervision and the FDIC (acting as operator
of the SAIF or the BIF), such access being afforded without charge but only upon
reasonable request and during normal business hours at the offices of the Master
Servicer or the Servicers. Nothing in this Section shall derogate from the
obligation of the Master Servicer to observe any applicable law prohibiting
disclosure of information regarding the Mortgagors, and the failure of the
Master Servicer to provide access as provided in this Section as a result of
such obligation shall not constitute a breach of this Section.
(b) No later than the Determination Date preceding the related Payment
Date, the Master Servicer shall supply information in such form as the Indenture
Trustee shall reasonably request to the Indenture Trustee and the Paying Agent
as is required in the Indenture Trustee's reasonable judgment to enable the
Paying Agent or the Indenture Trustee, as the case may be, to make the required
payments and to furnish the required reports to Noteholders on such Payment
Date.
Section 3.13 MAINTENANCE OF CERTAIN SERVICING INSURANCE POLICIES. The
Master Servicer shall during the term of its service as master servicer maintain
in force (i) a policy or policies of insurance covering errors and omissions in
the performance of its obligations as master servicer hereunder and (ii) a
fidelity bond in respect of its officers, employees or agents. Each such policy
or policies and bond shall, together, comply with the requirements from time to
time of ▇▇▇▇▇▇ ▇▇▇ for Persons performing servicing for mortgage loans purchased
by such association.
Section 3.14 REPORTS TO THE SECURITIES AND EXCHANGE COMMISSION. The
Master Servicer shall, on behalf of the Trust, cause to be filed with the
Securities and Exchange Commission any periodic reports required to be filed
under the provisions of the Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Securities and Exchange Commission thereunder.
Section 3.15 [RESERVED].
Section 3.16 INFORMATION REQUIRED BY THE INTERNAL REVENUE SERVICE
GENERALLY AND REPORTS OF FORECLOSURES AND ABANDONMENTS OF MORTGAGED PROPERTY.
The Master Servicer shall prepare and deliver, or cause to be prepared, mailed
and filed all federal and state information reports for the Mortgage Loans when
and as required by all applicable state and federal income tax laws including,
to the extent applicable, returns reporting a cancellation of indebtedness as
prescribed by Section 6050P of the Code. In particular, with respect to the
requirement under Section 6050J of the Code, to the effect that a lender shall
be required to report foreclosures and abandonments of any mortgaged property
for each year beginning in 2003, the Master Servicer shall prepare, mail and
file in a timely fashion each year as required by law information statements in
accordance with the reporting requirements imposed by Section 6050J with respect
to each instance occurring during the previous calendar year in which the Master
Servicer or any Servicer (i) on behalf of the Indenture Trustee acquired an
interest in any Mortgaged Property through foreclosure or other comparable
conversion in full or partial satisfaction of a Mortgage Loan or (ii) knew or
had reason to know that any Mortgaged Property has been abandoned. The
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information statements from the Master Servicer shall be in form and substance
sufficient to meet the reporting requirements imposed by Section 6050J of the
Code.
Section 3.17 ADDITIONAL COVENANTS OF HFC. HFC hereby agrees that:
(a) it will maintain its books and records to clearly note the separate
corporate existence of the Depositor, each Servicer and the Master Servicer;
(b) the Depositor, the Servicers and HFC will share certain overhead
expenses, although the amount the Depositor will be charged for such use will be
based on actual use to the extent practicable and, to the extent such allocation
is not practicable, on a basis reasonably related to use;
(c) separate financial records will be maintained to reflect the assets
and liabilities of the Depositor, HFC and each Servicer, which financial records
are and will be subject to audit by independent public accountants at the
reasonable request of the Board of Directors of the Depositor, HFC or such
Servicer, as the case may be;
(d) except as permitted hereunder, there will be no commingling of the
assets of the Depositor with the assets of HFC or any Servicer. All demand
deposit accounts and other bank accounts of the Depositor will be maintained
separately from those of HFC and the Servicers. Monetary transactions between
the Depositor and HFC or any Servicer are and will continue to be properly
reflected in their respective financial records;
(e) HFC at all times will recognize, and will take all steps within its
power to maintain, the corporate existence of the Depositor and Servicers as
being separate and apart from its own corporate existence and will not refer to
the Depositor or any Servicer as a department or division of HFC; and
(f) Except as otherwise expressly provided herein, the Depositor and HFC
will not guaranty or advance the proceeds for payment of any obligations of the
Trust.
Section 3.18 SERVICING CERTIFICATE. Not later than each Determination
Date, the Master Servicer shall deliver to the Indenture Trustee, the Paying
Agent and each Rating Agency a Servicing Certificate containing the information
set forth below with respect to the Mortgage Loans on an aggregate basis as of
the end of the preceding Collection Period and such other information as the
Indenture Trustee shall reasonably require (in written form or the form of
computer readable media or such other form as may be agreed to by the Indenture
Trustee and the Master Servicer), together with an Officer's Certificate to the
effect that such Servicing Certificate is true and correct in all material
respects, stating the related Collection Period, Payment Date, the series number
of the Notes, the date of this Agreement, and:
(i) the Available Payment Amount for such Payment Date,
separately stating the amount of Interest Collections and
Principal Collections;
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(ii) the amount of the payments to Holders of the Class A
and Class M Notes for such Payment Date, separately stating
the portions thereof allocable to interest and allocable to
principal;
(iii) the amount of any Interest Carry Forward Amount and
Supplemental Interest Amount for each Class of Notes paid on
such Payment Date and the amount of any Interest Carry
Forward Amount or Supplemental Interest Amount for each
Class of Notes remaining after giving effect to the payments
on such Payment Date;
(iv) the amount of any Extra Principal Payment Amount for
such Payment Date;
(v) the Principal Payment Amount for such Payment Date,
separately stating the components thereof;
(vi) the Principal Carry Forward Amount for each Class for
such Payment Date and the amount of any Principal Carry
Forward Amount for each Class remaining after giving effect
to the payments on such Payment Date;
(vii) the Note Principal Amount of each Class of Notes and
the Pool Factor, the Pool Balance as reported in the prior
Indenture Trustee's Statement to Noteholders or, in the case
of the first Determination Date, the Original Note Principal
Amount for each Class and the Cut-Off Date Pool Balance;
(viii) the number and aggregate Principal Balance of any
Mortgage Loan purchased or substituted by the Depositor or
the Master Servicer with respect to the related Collection
Period pursuant to Section 2.02;
(ix) the number and aggregate Principal Balance of any
Mortgage Loan purchased or substituted by the Depositor or
the Master Servicer with respect to the related Collection
Period pursuant to Section 2.04;
(x) the number and aggregate Principal Balance of any
Mortgage Loan purchased or substituted by the Depositor or
the Master Servicer with respect to the related Collection
Period pursuant to Section 3.01;
(xi) the amount of any Substitution Adjustment Amounts for
such Payment Date;
(xii) the amount to be paid to the Transferor in respect of
the Ownership Interest for the related Payment Date pursuant
to Section 5.01(a)(xii);
(xiii) the Note Principal Amount for each Class of Notes and
the Pool Factor after giving effect to the payment to be
made on the related Payment Date;
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(xiv) the Servicing Fee for the related Collection Period
and any accrued amounts thereof that remain unpaid for
previous Collection Periods;
(xv) the Overcollateralization Amount, the Interim
Overcollateralization Amount, the Interim
Overcollateralization Deficiency, the Overcollateralization
Release Amount, the Targeted Overcollateralization Amount
and the Monthly Excess Cashflow for such Payment Date;
(xvi) the number of Mortgage Loans outstanding at the
beginning and at the end of the related Collection Period;
(xvii) the Pool Balance as of the end of the related
Collection Period;
(xviii) the number and aggregate Principal Balances of
Mortgage Loans (x) as to which the scheduled monthly payment
is contractually delinquent for 30-59 days, 60-89 days and
90 or more days, respectively and (y) that have become REO,
in each case as of the end of such Collection Period;
(xix) the book value (within the meaning of 12 C.F.R.
Section 571.13 or comparable provision) of any real estate
acquired through foreclosure or grant of a deed in lieu of
foreclosure;
(xx) whether a Trigger Event has occurred or is continuing;
(xxi) the 60 Day Delinquency Percentage for the related
Collection Period;
(xxii) the 60 Day+ Plus Rolling Average for such Payment
Date;
(xxiii) LIBOR for such Payment Date;
(xxiv) whether a Master Servicer Termination Event has
occurred since the prior Determination Date, specifying each
such Master Servicer Termination Event if one has occurred;
(xxv) the Class A Formula Rate, Class A Note Rate, Class M
Formula Rate, Class M Note Rate and the Available Funds Cap
for such Payment Date;
(xxvi) the amount of any Skip-A-Pay Advances for the related
Collection Period;
(xxvii) the Skip-A-Pay Reimbursement Amount for such Payment
Date;
(xxviii) such other information as is required by the Code
and regulations thereunder to be made available to Holders
of the Class A and Class M Notes; and
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(xxix) whether an Event of Default has occurred and is
continuing.
The Indenture Trustee shall conclusively rely upon the information
contained in a Servicing Certificate for purposes of making payments pursuant to
Section 5.01, shall have no duty to inquire into such information and shall have
no liability in so relying. The format and content of the Servicing Certificate
may be modified by the mutual agreement of the Master Servicer and the Indenture
Trustee or as may be required by the rules and regulations of the Securities and
Exchange Commission. The Master Servicer shall give notice of any such change to
the Rating Agencies.
ARTICLE IV.
[RESERVED]
ARTICLE V.
PRIORITY OF PAYMENTS; STATEMENTS TO
NOTEHOLDERS; RIGHTS OF NOTEHOLDERS
Section 5.01 PAYMENTS.
(a) PAYMENTS OF INTEREST AND PRINCIPAL COLLECTIONS. Pursuant to
Section 3.1 of the Indenture, on each Payment Date, the Indenture Trustee, with
respect to the Notes, and the Paying Agent, with respect to the Ownership
Interest, shall distribute out of the Collection Account, to the extent of the
Available Payment Amount, the following amounts and in the following order of
priority to the following Persons (based on the information set forth in the
Servicing Certificate):
(i) to the Class A Notes, the Current Interest plus the
Interest Carry Forward Amount with respect to the Class A
Notes;
(ii) to the Class M Notes, the Current Interest plus the
Interest Carry Forward Amount with respect to the Class M
Notes;
(iii) to the Class A Notes until the Note Principal Amount
of such Class A Notes has been reduced to zero, 84.94624679%
of the Principal Payment Amount;
(iv) to the Class A Notes, the Principal Carry Forward
Amount with respect to the Class A Notes;
(v) to the Class A Notes until the Note Principal Amount of
such Class A Notes has been reduced to zero, 84.94624679% of
the Additional Principal Reduction Amount;
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(vi) to the Class M Notes until the Note Principal Amount of
such Class M Notes has been reduced to zero, 15.05375321% of
the Principal Payment Amount;
(vii) to the Class M Notes, the Principal Carry Forward
Amount with respect to the Class M Notes;
(viii) to the Class M Notes until the Note Principal Amount
of such Class M Notes has been reduced to zero, 15.05375321%
of the Additional Principal Reduction Amount;
(ix) concurrently, to the Class A Notes and to the Class M
Notes until the Note Principal Amount of each such Class A
and Class M Notes has been reduced to zero, 84.94624679% of
the Extra Principal Payment Amount to the Class A Notes and
15.05375321% of the Extra Principal Payment Amount to the
Class M Notes;
(x) the Class A and Class M Notes, pro rata, according to
the outstanding Class A Supplemental Interest Amount and
Class M Supplemental Interest Amount, the outstanding Class
A Supplemental Interest Amount and the outstanding Class M
Supplemental Interest Amount;
(xi) to the Owner Trustee on behalf of the Trust, an amount
sufficient to pay any judgment or settlement affecting the
Trust; and
(xii) to the Transferor in respect of the Ownership
Interest, any remaining Available Payment Amount; PROVIDED,
HOWEVER, that on any Payment Date after the earlier of (i)
the date on which the first auction conducted by the
Indenture Trustee pursuant to Section 8.01(c) does not
produce any bid at least equal to the Termination Price or
(ii) the July 2012 Payment Date, any remaining amount
available for payment pursuant to this Section 5.01(a)(xii)
shall instead be paid concurrently, 84.94624679% to the
Class A Notes and 15.05375321% to the Class M Notes, in
reduction of the applicable Note Principal Amount of each
Class.
PROVIDED, that if the Indenture Trustee collects any money or property pursuant
to Article V of the Indenture, the Indenture Trustee and the Paying Agent shall
pay out the money or property as provided in Section 5.4(b) of the Indenture;
and PROVIDED, FURTHER, that to the extent the Note Principal Amount of the Class
A Notes has been reduced to zero, then 100% of any applicable amounts described
above will be paid to the Class M Notes until the Note Principal Amount of the
Class M Notes has been reduced to zero.
(b) METHOD OF PAYMENT. The Indenture Trustee shall make payments in
respect of a Payment Date to each Noteholder of record on the related Record
Date (other than as provided in Section 8.01 respecting the final payment) by
check or money order mailed to such Noteholder at the address appearing in the
Note Register, or upon written request by a Noteholder delivered to the
Indenture Trustee at least five Business Days prior to such Record Date, by wire
transfer (but
52
only if such Noteholder is the Depository or such Noteholder owns of record one
or more Class of Notes having principal denominations aggregating at least
$5,000,000), or by such other means of payment as such Noteholder and the
Indenture Trustee shall agree. Payments among Noteholders shall be made in
proportion to the Percentage Interests evidenced by the Notes held by such
Noteholders. The Indenture Trustee, acting in its capacity as Paying Agent,
shall make payments in respect of a Payment Date to the Transferor of record on
the related Record Date, in respect of the Ownership Interest by wire transfer
or by such other means of payment as the Transferor and the Paying Agent shall
agree.
(c) PAYMENTS ON BOOK-ENTRY NOTES. Each payment with respect to a
Book-Entry Note shall be paid to the Depository, which shall credit the amount
of such payment to the accounts of its Depository Participants in accordance
with its normal procedures. Each Depository Participant shall be responsible for
disbursing such payment to the Note Owners that it represents and to each
indirect participating brokerage firm (a "brokerage firm" or "indirect
participating firm") for which it acts as agent. Each brokerage firm shall be
responsible for disbursing funds to the Note Owners that it represents. All such
credits and disbursements with respect to a Book-Entry Note are to be made by
the Depository and the Depository Participants in accordance with the provisions
of the Class A or Class M Notes. None of the Indenture Trustee, the Paying
Agent, the Note Registrar, the Trust or the Master Servicer shall have any
responsibility therefor except as otherwise provided by applicable law.
Section 5.02 CALCULATION OF LIBOR, THE CLASS A FORMULA RATE AND THE
CLASS M FORMULA RATE.
(a) CALCULATION OF THE CLASS A FORMULA RATE AND THE CLASS M FORMULA RATE.
On or prior to each LIBOR Determination Date, the Indenture Trustee shall
determine the Class A Formula Rate and Class M Formula Rate for the related
Payment Date.
(b) CALCULATION OF LIBOR. Until the Principal Balance of each Class of the
Notes has been reduced to zero, the Indenture Trustee shall establish LIBOR on
each LIBOR Determination Date as follows:
(i) If on such LIBOR Determination Date a rate for United
States dollar deposits for one month appears on the Dow
▇▇▇▇▇ Telerate System, page 3750, LIBOR for the next Accrual
Period shall be equal to such rate as of 11:00 A.M., London
time;
(ii) If such rate does not appear on such page (or such
other page as may replace that page on that service, or if
such service is no longer offered, such other service for
displaying LIBOR or comparable rates as may be selected by
the Indenture Trustee after consultation with the Master
Servicer), the rate shall be determined as follows:
(x) The Indenture Trustee on the LIBOR Determination
Date will request the principal London offices of
each of four major reference banks in the London
interbank market, as selected by the Indenture
Trustee, to provide the Indenture Trustee with its
offered
53
quotation for deposits in United States dollars for
the upcoming one-month period, commencing on the
second LIBOR Business Day immediately following such
LIBOR Determination Date, to prime banks in the
London interbank market at approximately 11:00 a.m.
London time on such LIBOR Determination Date and in
a principal amount that is representative for a
single transaction in United States dollars in such
market at such time. If at least two such quotations
are provided, LIBOR determined on such LIBOR
Determination Date will be the arithmetic mean of
such quotations.
(y) If fewer than two quotations are provided, LIBOR
determined on such LIBOR Determination Date will be
the arithmetic mean of the rates quoted at
approximately 11:00 a.m. in New York City on such
LIBOR Determination Date by three major banks in New
York City selected by the Indenture Trustee for
one-month United States dollar loans to leading
European banks, in a principal amount that is
representative for a single transaction in United
States dollars in such market at such time;
provided, however, that if the banks so selected by
the Indenture Trustee are not quoting as mentioned
in this sentence, LIBOR determined on such LIBOR
Determination Date will continue to be LIBOR as then
currently in effect on such LIBOR Determination
Date.
(iii) The establishment of LIBOR on each LIBOR Determination
Date by the Indenture Trustee and the Indenture Trustee's
calculation of the rate of interest applicable to the Notes
for the related Accrual Period shall (in the absence of
manifest error) be final and binding. The Indenture Trustee
shall, upon determination of LIBOR for the relevant Accrual
Period, inform the Master Servicer (at the facsimile number
given to the Indenture Trustee in writing) of such rates.
Section 5.03 STATEMENTS TO NOTEHOLDERS. (a) On each Payment Date, the
Indenture Trustee shall make available a copy of the applicable Servicing
Certificate delivered to the Indenture Trustee pursuant to Section 3.18 to each
Noteholder concurrently with each payment to Noteholders (the "Indenture
Trustee's Statement to Noteholders") containing the information set forth below
with respect to such Payment Date:
(i) the Available Payment Amount for such Payment Date,
separately stating the amount of Interest Collections and
Principal Collections;
(ii) the amount of the payments to Holders of the Class A
and Class M Notes for such Payment Date, separately stating
the portions thereof allocable to interest and allocable to
principal;
(iii) the amount of any Interest Carry Forward Amount and
Supplemental Interest Amount for each Class paid on such
Payment Date and the amount of any Interest Carry Forward
Amount or Supplemental Interest
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Amount for each Class remaining after giving effect to the
payments on such Payment Date;
(iv) the amount of any Extra Principal Payment Amount for
such Payment Date;
(v) the Principal Payment Amount for such Payment Date,
separately stating the components thereof;
(vi) the Principal Carry Forward Amount for each Class for
such Payment Date and the amount of any Principal Carry
Forward Amount for each Class remaining after giving effect
to the payments on each Payment Date;
(vii) the Note Principal Amount of each Class of Notes and
the Pool Factor, the Pool Balance as reported in the prior
Indenture Trustee's Statement to Noteholders or, in the case
of the first Determination Date, the Original Note Principal
Amount of each Class and the Cut-Off Date Pool Balance;
(viii) the number and aggregate Principal Balance of any
Mortgage Loans purchased by the Depositor or the Master
Servicer with respect to the related Collection Period
pursuant to Sections 2.02, 2.04 and 3.01;
(ix) the amount of any Substitution Adjustment Amounts for
such Payment Date;
(x) the amount to be paid to the Transferor in respect of
the Ownership Interest for the related Payment Date pursuant
to Section 5.01(a)(xii);
(xi) the Note Principal Amount of each Class of Notes and
the Pool Factor after giving effect to the payment to be
made on the related Payment Date;
(xii) the Servicing Fee for the related Collection Period
and any accrued amounts thereof that remain unpaid for
previous Collection Periods;
(xiii) the Overcollateralization Amount, the Interim
Overcollateralization Amount, the Interim
Overcollateralization Deficiency, the Overcollateralization
Release Amount, the Targeted Overcollateralization Amount,
and the Monthly Excess Cashflow for such Payment Date;
(xiv) the number of Mortgage Loans outstanding at the
beginning and at the end of the related Collection Period;
(xv) the Pool Balance as of the end of the related
Collection Period;
55
(xvi) the number and aggregate Principal Balances of
Mortgage Loans (x) as to which the scheduled monthly payment
is contractually delinquent for 30-59 days, 60-89 days and
90 or more days, respectively and (y) that have become REO,
in each case as of the end of such Collection Period;
(xvii) the book value (within the meaning of 12 C.F.R.
Section 571.13 or comparable provision) of any real estate
acquired through foreclosure or grant of a deed in lieu of
foreclosure;
(xviii) whether a Trigger Event has occurred or is
continuing;
(xix) such other information as is required by the Code and
regulations thereunder to be made available to Holders of
the Class A and Class M Notes;
(xx) the 60 Day Delinquency Percentage for the related
Collection Period;
(xxi) the 60 Day+ Rolling Average for such Payment Date;
(xxii) LIBOR for such Payment Date;
(xxiii) whether a Master Servicer Termination Event has
occurred since the prior Determination Date, specifying each
such Master Servicer Termination Event if one has occurred;
(xxiv) whether an Event of Default has occurred and is
continuing;
(xxv) the Class A Formula Rate, the Class A Note Rate, the
Class M Formula Rate, the Class M Note Rate and the
Available Funds Cap for such Payment Date;
(xxvi) the amount of any Skip-A-Pay Advances for the related
Collection Period; and
(xxvii) the Skip-A-Pay Reimbursement Amount for such Payment
Date.
In the case of information furnished pursuant to clauses (ii) and (iii)
above, the amounts shall be expressed, in a separate section of the report, as a
dollar amount per Class A Note or Class M Note, as applicable, for each Note for
each $1,000 original dollar amount as of the Cut-Off Date.
To the extent that there are inconsistencies between the telecopy of the
Indenture Trustee's Statement to Noteholders and the hard copy thereof, the
Master Servicer may rely upon latter.
The Indenture Trustee will make the reports referred to in this section
(and, at its option, any additional files containing the same information in an
alternative format) available each month to Noteholders and other parties to
this Agreement via the Indenture Trustee's website,
56
which is presently located at ▇▇▇.▇▇▇▇▇▇▇▇.▇▇▇/▇▇▇▇▇▇. Persons that are unable
to use the above website are entitled to have a paper copy mailed to them via
first class mail by calling the Indenture Trustee at (▇▇▇) ▇▇▇-▇▇▇▇. The
Indenture Trustee shall have the right to change the way the reports referred to
in this section are distributed in order to make such distribution more
convenient and/or more accessible to the above parties and to the Noteholders.
The Indenture Trustee shall provide timely and adequate notification to all
above parties and to the Noteholders regarding any such change.
(b) The Indenture Trustee shall prepare or cause to be prepared (in a
manner consistent with the treatment of the Notes as indebtedness of the Trust,
or as may be otherwise required by Section 3.16 herein) Internal Revenue Service
Form 1099 (or any successor form) and any other tax forms required to be filed
or furnished to Noteholders in respect of payments by the Indenture Trustee (or
the Paying Agent) on the Notes and shall file and distribute such forms as
required by law.
(c) Reports and computer tapes furnished by the Master Servicer pursuant
to this Agreement shall be deemed confidential and of a proprietary nature, and
shall not be copied or distributed except to the extent provided in this
Agreement and to the extent required by law or to the Rating Agencies, the
Depositor and to the extent the Master Servicer instructs the Indenture Trustee
in writing to furnish information regarding the Trust or the Mortgage Loans to
third-party information providers. No Person entitled to receive copies of such
reports or tapes or lists of Noteholders shall use the information therein for
the purpose of soliciting the customers of the Seller or for any other purpose
except as set forth in this Agreement.
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ARTICLE VI.
THE MASTER SERVICER AND THE DEPOSITOR
Section 6.01 LIABILITY OF THE MASTER SERVICER AND THE DEPOSITOR. The
Master Servicer shall be liable in accordance herewith only to the extent of the
obligations specifically imposed upon and undertaken by the Master Servicer
herein. The Depositor shall be liable in accordance herewith only to the extent
of the obligations specifically imposed upon and undertaken by the Depositor
herein.
Section 6.02 MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE OBLIGATIONS
OF, THE MASTER SERVICER OR THE DEPOSITOR. Any corporation into which the Master
Servicer or Depositor may be merged or consolidated, or any corporation
resulting from any merger, conversion or consolidation to which the Master
Servicer or the Depositor shall be a party, or any corporation succeeding to the
business of the Master Servicer or the Depositor, shall be the successor of the
Master Servicer or the Depositor, as the case may be, hereunder, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding.
Section 6.03 LIMITATION ON LIABILITY OF THE MASTER SERVICER, THE
DEPOSITOR AND OTHERS. None of the Master Servicer, the Depositor, or any
director, officer, employee or agent of the Master Servicer or the Depositor
shall be under any liability to the Trust or the Noteholders for any action
taken or for refraining from the taking of any action by the Master Servicer or
the Depositor, as applicable, in good faith pursuant to this Agreement, or for
errors in judgment; PROVIDED, HOWEVER, that this provision shall not protect the
Master Servicer, the Depositor or any such person against any liability which
would otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence in the performance of duties or by reason of reckless disregard of
obligations and duties hereunder, and that this provision shall not be construed
to entitle the Master Servicer to indemnity in the event that amounts advanced
by the Master Servicer to retire any senior Lien exceed Net Liquidation Proceeds
realized with respect to the related Mortgage Loan. The Master Servicer, the
Depositor and any director, officer, employee or agent of the Master Servicer or
the Depositor may rely in good faith on any document of any kind PRIMA FACIE
properly executed and submitted by any Person respecting any matters arising
hereunder. The Master Servicer, the Depositor and any director, officer,
employee or agent of the Master Servicer or the Depositor shall be indemnified
by the Trust and held harmless against any loss, liability or expense incurred
in connection with any legal action relating to this Agreement or the Notes,
other than any loss, liability or expense related to any specific Mortgage Loan
or Mortgage Loans (except as any such loss, liability or expense shall be
otherwise reimbursable pursuant to this Agreement) and any loss, liability or
expense incurred by reason of willful misfeasance, bad faith or gross negligence
in the performance of duties hereunder or by reason of reckless disregard of
obligations and duties hereunder. Neither the Master Servicer nor the Depositor
shall be under any obligation to appear in, prosecute or defend any legal action
which is not incidental to its respective duties under this Agreement, and which
in its opinion may involve it in any expense or liability; PROVIDED, HOWEVER,
that the Master Servicer or the Depositor may, in its sole discretion, undertake
any such action which it may deem necessary or
58
desirable in respect of this Agreement and the rights and duties of the parties
hereto and the interests of the Noteholders hereunder. In such event, the
reasonable legal expenses and costs of such action and any liability resulting
therefrom and any claims by the Master Servicer or the Depositor hereunder for
indemnification shall be expenses, costs and liabilities of the Trust, and the
Master Servicer or the Depositor, as the case may be, shall be entitled to be
reimbursed therefor and indemnified pursuant to the terms hereof from amounts
deposited in the Collection Account as provided by Section 3.03. The Master
Servicer's and the Depositor's right to indemnity or reimbursement pursuant to
this Section shall survive any resignation or termination of the Master Servicer
pursuant to Section 6.04 or 7.01 with respect to any losses, expenses, costs or
liabilities arising prior to such resignation or termination (or arising from
events that occurred prior to such resignation or termination). The Master
Servicer shall have no claim (whether by subrogation or otherwise) or other
action against any Noteholder for any amounts paid by the Master Servicer
pursuant to any provision of this Agreement.
Section 6.04 MASTER SERVICER NOT TO RESIGN. Subject to the provisions of
Section 6.02, the Master Servicer shall not resign from the obligations and
duties hereby imposed on it except (i) upon determination that the performance
of its obligations or duties hereunder are no longer permissible under
applicable law or are in material conflict by reason of applicable law with any
other activities carried on by it or its subsidiaries or Affiliates, the other
activities of the Master Servicer so causing such a conflict being of a type and
nature carried on by the Master Servicer or its subsidiaries or Affiliates at
the date of this Agreement or (ii) upon satisfaction of the following
conditions: (a) the Master Servicer has proposed a successor servicer to the
Indenture Trustee in writing and such proposed successor servicer is reasonably
acceptable to the Indenture Trustee; (b) each Rating Agency shall have confirmed
to the Indenture Trustee that the appointment of such proposed successor
servicer as Master Servicer hereunder will not result in the reduction or
withdrawal of the then-current rating of the Class A or Class M Notes; and (c)
such proposed successor servicer has agreed in writing to assume the obligations
of Master Servicer hereunder and the Master Servicer has delivered to the
Indenture Trustee an Opinion of Counsel to the effect that all conditions
precedent to the resignation of the Master Servicer and the appointment of and
acceptance by the proposed successor servicer have been satisfied; PROVIDED,
HOWEVER, that in the case of clause (i) above no such resignation by the Master
Servicer shall become effective until the Indenture Trustee shall have assumed
the Master Servicer's responsibilities and obligations hereunder or the
Indenture Trustee shall have designated a successor servicer in accordance with
Section 7.02. Any such resignation shall not relieve the Master Servicer of
responsibility for any of the obligations specified in Sections 7.01 and 7.02 as
obligations that survive the resignation or termination of the Master Servicer.
Any such determination permitting the resignation of the Master Servicer
pursuant to clause (i) above shall be evidenced by an Opinion of Counsel to such
effect delivered to the Indenture Trustee.
Section 6.05 DELEGATION OF DUTIES. In the ordinary course of business,
the Master Servicer at any time may delegate any of its duties hereunder to any
Person, including any of its Affiliates, who agrees to conduct such duties in
accordance with standards comparable to those with which the Master Servicer
complies pursuant to Section 3.01. Such delegation shall not relieve the Master
Servicer of its liabilities and responsibilities with respect to such duties and
shall not constitute a resignation within the meaning of Section 6.04. The
Master Servicer shall provide each Rating Agency and the Indenture Trustee with
written notice prior to the delegation
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of any of its duties to any Person other than any of the Master Servicer's
Affiliates or their respective successors and assigns.
ARTICLE VII.
MASTER SERVICER TERMINATION
Section 7.01 MASTER SERVICER TERMINATION EVENTS.
If any one of the following events ("Master Servicer Termination Events")
shall occur and be continuing:
(a) Any failure by the Master Servicer to deposit in the Collection
Account any deposit required to be made under the terms of this Agreement which
continues unremedied for a period of five (5) Business Days after the date upon
which written notice of such failure shall have been given to the Master
Servicer by the Indenture Trustee or the Depositor, or to the Master Servicer,
the Depositor and the Indenture Trustee by the Majority Noteholders; or
(b) Any failure on the part of the Master Servicer duly to observe or
perform in any material respect any other covenants or agreements of the Master
Servicer set forth in the Notes or in this Agreement, which failure (A)
materially and adversely affects the interests of Noteholders and (B) continues
unremedied for a period of sixty (60) days after the date on which written
notice of such failure, requiring the same to be remedied, shall have been given
to the Master Servicer by the Indenture Trustee or the Depositor, or to the
Master Servicer, the Depositor and the Indenture Trustee by the Majority
Noteholders; or
(c) The entry against the Master Servicer of a decree or order by a court
or agency or supervisory authority having jurisdiction in the premises for the
appointment of a trustee, conservator, receiver or liquidator in any insolvency,
conservatorship, receivership, readjustment of debt, marshalling of assets and
liabilities or similar proceedings, or for the winding up or liquidation of its
affairs, and the continuance of any such decree or order unstayed and in effect
for a period of 60 consecutive days; or
(d) The consent by the Master Servicer to the appointment of a trustee,
conservator, receiver or liquidator in any insolvency, conservatorship,
receivership, readjustment of debt, marshalling of assets and liabilities or
similar proceedings of or relating to the Master Servicer or of or relating to
substantially all of its property; or the Master Servicer shall admit in writing
its inability to pay its debts generally as they become due, file a petition to
take advantage of any applicable insolvency or reorganization statute, make an
assignment for the benefit of its creditors, or voluntarily suspend payment of
its obligations;
then, and in each and every case, so long as a Master Servicer Termination Event
shall not have been remedied by the Master Servicer, either the Indenture
Trustee or the Depositor may, and at the direction of the Majority Noteholders,
the Indenture Trustee shall, by notice then given in writing to the Master
Servicer, the Depositor and the Indenture Trustee, as applicable, terminate all
of the rights and obligations of the Master Servicer as master servicer under
this Agreement; PROVIDED, HOWEVER, that the responsibilities and duties of the
initial Master Servicer with respect
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to the purchase of Mortgage Loans pursuant to Sections 2.02, 2.04(c) and 3.01
shall not terminate. Any such notice to the Master Servicer shall also be given
to each Rating Agency. On or after the receipt by the Master Servicer of such
written notice, all authority and power of, and all benefits accruing to, the
Master Servicer under this Agreement, whether with respect to the Notes or the
Mortgage Loans or otherwise, shall pass to and be vested in the Indenture
Trustee or, if a successor Master Servicer has been appointed under Section
7.02, such successor Master Servicer pursuant to and under this Section 7.01;
and, without limitation, the Indenture Trustee is hereby authorized and
empowered to execute and deliver, on behalf of the Master Servicer, as attorney-
in-fact or otherwise, any and all documents and other instruments, and to do or
accomplish all other acts or things necessary or appropriate to effect the
purposes of such notice of termination, whether to complete the transfer and
endorsement of each Mortgage Loan and related documents, or otherwise. The
Master Servicer agrees to cooperate with the Indenture Trustee in effecting the
termination of the responsibilities and rights of the Master Servicer hereunder,
including, without limitation, the transfer to the Indenture Trustee for the
administration by it of all cash amounts that shall at the time be held by the
terminated Master Servicer and to be deposited by it in the Collection Account,
or that have been deposited by the terminated Master Servicer in the Collection
Account or thereafter received by the terminated Master Servicer with respect to
the Mortgage Loans, and the recordation of Assignments of Mortgages to the Trust
if MERS is not the mortgagee of a Mortgage Loan or otherwise in accordance with
Section 7.02(c). The Indenture Trustee or other successor servicer shall not be
responsible for delays attributable to the Master Servicer's failure to deliver
information, defects in the information provided by the Master Servicer or other
circumstances beyond the control of the Indenture Trustee or other successor
servicer.
Notwithstanding the foregoing, a delay in or failure of performance under
Section 7.01(a) for a period of five (5) Business Days or under Section 7.01(b)
for a period of sixty (60) days, shall not constitute a Master Servicer
Termination Event if such delay or failure could not be prevented by the
exercise of reasonable diligence by the Master Servicer and such delay or
failure was caused by an act of God, acts of declared or undeclared war, public
disorder, terrorism, rebellion or sabotage, epidemics, landslides, lightning,
fire, hurricanes, earthquakes, floods or similar causes. The preceding sentence
shall not relieve the Master Servicer from using its best efforts to perform its
obligations in a timely manner in accordance with the terms of this Agreement,
and the Master Servicer shall provide the Indenture Trustee, the Depositor and
the Noteholders with an Officer's Certificate giving prompt notice of such
failure or delay by it, together with a description of its efforts to so perform
its obligations. The Master Servicer shall immediately notify the Indenture
Trustee and each Rating Agency in writing of any Master Servicer Termination
Events.
Section 7.02 INDENTURE TRUSTEE TO ACT; APPOINTMENT OF SUCCESSOR.
(a) On and after the time the Master Servicer receives a notice of
resignation or termination pursuant to Section 6.04 or 7.01, the Indenture
Trustee shall be the successor in all respects to the Master Servicer in its
capacity as servicer under this Agreement and the transactions set forth or
provided for herein and shall be subject to all the responsibilities, duties and
liabilities relating thereto placed on the Master Servicer by the terms and
provisions hereof; PROVIDED, HOWEVER, that the responsibilities and duties of
HFC as Master Servicer with respect to
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the purchase of the Mortgage Loans pursuant to Sections 2.02, 2.04(c) and 3.01
and the indemnification obligation pursuant to Section 2.04(d) shall remain an
obligation of HFC and shall not become an obligation of the Indenture Trustee or
any other successor servicer. As compensation therefor, the Indenture Trustee
shall be entitled to such compensation as the Master Servicer would have been
entitled to hereunder if no such notice of termination had been given.
Notwithstanding the above, (i) if the Indenture Trustee is unwilling to act as
successor Master Servicer, or (ii) if the Indenture Trustee is legally unable so
to act, the Indenture Trustee may (in the situation described in clause (i)) or
shall (in the situation described in clause (ii)) appoint, or petition a court
of competent jurisdiction to appoint, any housing and home finance institution
or other mortgage loan or mortgage loan servicer having all licenses and permits
required in order to perform its obligations hereunder and a net worth of not
less than $50,000,000 as the successor to the Master Servicer hereunder in the
assumption of all or any part of the responsibilities, duties or liabilities of
the Master Servicer hereunder; PROVIDED that the appointment of any such
successor Master Servicer will not result in the qualification, reduction or
withdrawal of the then-current rating assigned to either the Class A or Class M
Notes by the Rating Agencies, as evidenced by a writing to such effect delivered
to the Indenture Trustee, and any successor Master Servicer appointed hereunder
shall be reasonably acceptable to the Depositor. Pending appointment of a
successor to the Master Servicer hereunder, unless the Indenture Trustee is
prohibited by law from so acting, the Indenture Trustee shall act in such
capacity as hereinabove provided. In connection with such appointment and
assumption, the successor shall be entitled to receive compensation out of
payments on Mortgage Loans in an amount equal to the compensation which the
Master Servicer would otherwise have received pursuant to Section 3.09 (or such
lesser compensation as the Indenture Trustee and such successor shall agree).
The Indenture Trustee and such successor shall take such action, consistent with
this Agreement, as shall be necessary to effectuate any such succession. All
costs incurred in transferring the servicing to a successor servicer shall be
paid by the outgoing Master Servicer.
(b) Any successor, including the Indenture Trustee, to the Master Servicer
as master servicer shall during the term of its service as master servicer (i)
continue to service and administer the Mortgage Loans for the benefit of
Noteholders and (ii) maintain in force a policy or policies of insurance
covering errors and omissions in the performance of its obligations as Master
Servicer hereunder and a fidelity bond in respect of its officers, employees and
agents to the same extent as the Master Servicer is so required pursuant to
Section 3.13. The appointment of a successor Master Servicer shall not affect
any liability of the predecessor Master Servicer which may have arisen under
this Agreement prior to its termination as Master Servicer (including, without
limitation, any deductible under an insurance policy pursuant to Section 3.04),
nor shall any successor Master Servicer be liable for any acts or omissions of
the predecessor Master Servicer or for any breach by such Master Servicer or the
Depositor of any of their representations or warranties contained herein or in
any related document or agreement.
(c) In connection with the termination or resignation of the Master
Servicer hereunder, either (i) the successor Master Servicer, including the
Indenture Trustee if the Indenture Trustee is acting as successor Master
Servicer, shall represent and warrant that it is a member of MERS in good
standing and shall agree to comply in all material respects with the rules and
procedures of MERS in connection with the servicing of the Mortgage Loans that
are
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registered with MERS, in which case the predecessor Master Servicer shall
cooperate with the successor Master Servicer in causing MERS to revise its
records to reflect the transfer of servicing to the successor Master Servicer as
necessary under MERS' rules and regulations, or (ii) the predecessor Master
Servicer shall cooperate with the successor Master Servicer in causing MERS to
execute and deliver an Assignment of Mortgage in recordable form to transfer the
Mortgage from MERS to the Trust and to execute and deliver such other notices,
documents and other instruments as may be necessary or desirable to effect a
transfer of such Mortgage Loan or servicing of such Mortgage Loan on the MERS(R)
System to the successor Master Servicer. The predecessor Master Servicer shall
file or cause to be filed any such assignment in the appropriate recording
office. The predecessor Master Servicer shall bear any and all fees of MERS,
costs of preparing any Assignments of Mortgage, and fees and costs of filing any
assignments of Mortgage that may be required under this subsection (c). The
successor Master Servicer shall cause such assignment to be delivered to the
Indenture Trustee promptly upon receipt of the original with evidence of
recording thereon or a copy certified by the public recording office in which
such Assignment of Mortgage was recorded.
Section 7.03 WAIVER OF DEFAULTS. The Majority Noteholders may, on behalf
of all Noteholders, waive any events permitting removal of the Master Servicer
as master servicer pursuant to this Article VII, PROVIDED, HOWEVER, that the
Majority Noteholders may not waive a default in making a required payment on a
Note without the consent of each Holder of such Note. Upon any waiver of a past
default, such default shall cease to exist and any Master Servicer Termination
Event arising therefrom shall be deemed to have been remedied for every purpose
of this Agreement. No such waiver shall extend to any subsequent or other
default or impair any right consequent thereto except to the extent expressly so
waived. Notice of any such waiver shall be given by the Indenture Trustee to the
Rating Agencies.
Section 7.04 NOTIFICATION TO NOTEHOLDERS. Upon any termination or
appointment of a successor to the Master Servicer pursuant to this Article VII
or Section 6.04 above, the Indenture Trustee shall give prompt written notice
thereof to the Noteholders at their respective addresses appearing in the Note
Register and each Rating Agency.
ARTICLE VIII.
TERMINATION
Section 8.01 TERMINATION.
(a) The respective obligations and responsibilities of the Depositor, the
Seller, the Master Servicer, the Trust and the Indenture Trustee created hereby
(other than the obligation of the Indenture Trustee to make certain payments to
Noteholders after the Final Scheduled Payment Date and the obligation of the
Master Servicer to send certain notices as hereinafter set forth) shall
terminate upon notice to the Indenture Trustee of the earliest of (i) the final
payment or other liquidation of the last Mortgage Loan remaining in the Trust;
(ii) the sale of the Mortgage Loans as described in Section 10.2 of the
Indenture and the corresponding redemption of the Notes, (iii) the optional
purchase of the Mortgage Loans as described below in this Section 8.01 and (iv)
the Payment Date in May 2032.
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(b) The Master Servicer may, at its option, terminate this Agreement on
any Payment Date on or after the Payment Date on which the sum of the Note
Principal Amount of the Class A and Class M Notes (after giving effect to
payments made on such Payment Date) is less than or equal to 15% of the sum of
the Original Note Principal Amount of the Class A and Class M Notes by
purchasing, on the next succeeding Payment Date, all of the outstanding Mortgage
Loans and REO Properties at a price (the "Termination Price") equal the greatest
of (A) the sum of (x) 100% of the Principal Balance of each Mortgage Loan (other
than any Mortgage Loan as to which title to the underlying Mortgaged Property
has been acquired and whose fair market value is included pursuant to clause (y)
below) as of the first day of the Collection Period preceding the Payment Date
upon which the proceeds of any repurchase are to be distributed and (y) the fair
market value of such acquired property (as determined by the Master Servicer as
of the close of business on the third Business Day next preceding the date upon
which notice of any such termination is furnished to Noteholders pursuant to
Section 8.01(e)) PLUS, in each case, one month's interest at the applicable Net
Loan Rate on the Principal Balance of each Mortgage Loan (including any Mortgage
Loan as to which title to the underlying Mortgaged Property has been acquired),
(B) the aggregate fair market value (as determined by the Master Servicer as of
the close of business on such third preceding Business Day) of all of the assets
of the Trust, or (C) the sum of the Note Principal Amount of the Class A and
Class M Notes, together with any unpaid Interest Carry Forward Amounts and
Supplemental Interest Amounts allocable to such Classes, PLUS one month's
interest on such Note Principal Amount and any unpaid Interest Carry Forward
Amounts and Supplemental Interest Amounts at the Class A Formula Rate or Class M
Formula Rate, as applicable.
Any such purchase shall be accomplished by deposit into the Collection
Account on the Determination Date before such Payment Date of the Termination
Price.
(c) If the Master Servicer does not repurchase all of the Mortgage Loans
pursuant to Section 8.01(b) above within three (3) months of the first Payment
Date upon which such repurchase option may occur, then promptly on the following
Payment Date the Indenture Trustee shall, at the expense of the Master Servicer,
begin a process for soliciting bids in connection with an auction of the
Mortgage Loans for an auction to occur on or before the next succeeding Payment
Date (the "First Auction Date" and, if necessary, any date after the First
Auction Date (the "Subsequent Auction Date" and together with the First Auction
Date, the "Auction Date"). The Indenture Trustee shall provide the Master
Servicer written notice of such auctions at least ten (10) Business Days prior
to the applicable Auction Date. The auctions shall be conducted as follows and
in accordance with the auction procedures set forth in Exhibit F:
(i) If at least two bids are received, the Indenture Trustee shall
solicit and resolicit new bids from all participating bidders until only
one bid remains or the remaining bidders decline to resubmit bids. The
Indenture Trustee shall accept the highest of such remaining bids if it is
equal to or in excess of the Termination Price. If less than two bids are
received or the highest bid after the resolicitation process is completed
is not equal to or in excess of the Termination Price, the Indenture
Trustee shall not consummate such sale. If a bid equaling the Termination
Price is received, then the Indenture Trustee may, and if so requested by
the Master Servicer shall, consult with a financial advisor (at the expense
of the Master Servicer), which may be an underwriter
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of the Notes, to determine if the fair market value of the Mortgage Loans
and related property has been offered. The Indenture Trustee may
conclusively rely on such advice and shall be protected in so relying.
(ii) If the first auction conducted by the Indenture Trustee does not
produce any bid at least equal to the Termination Price, then the Indenture
Trustee shall, beginning on the Payment Date occurring approximately three
months after the Auction Date for the failed first auction, commence
another auction in accordance with the requirements of this subsection (c).
If such second auction does not produce any bid at least equal to the
Termination Price, then the Indenture Trustee shall, beginning on the
Payment Date occurring approximately three months after the Auction Date
for the failed second auction, commence another auction in accordance with
the requirements of this subsection (c), and shall continue to conduct
similar auctions approximately every three months thereafter until the
earliest of (i) delivery by the Master Servicer of notice of exercise of
its repurchase option pursuant to Section 8.01(b) above, (ii) receipt by
the Indenture Trustee of a bid meeting the conditions specified in the
preceding paragraph, or (iii) the Payment Date on which the Principal
Balance of all the Mortgage Loans is reduced to zero.
(d) If the Indenture Trustee receives a bid meeting the conditions
specified in subsection (c), then the Indenture Trustee shall release, or cause
to be released, to the winning bidder, upon payment of the bid purchase price
and satisfaction of any other terms and conditions of the auction sale, the
Mortgage Files pertaining to the Mortgage Loans being purchased and the Trust
and the Indenture Trustee shall take such other actions as the winning bidder
may reasonably request to effect the transfer of the Mortgage Loans by the Trust
to the winning bidder.
(e) Notice of any termination, specifying the Payment Date (which shall be
a date that would otherwise be a Payment Date) upon which the Noteholders may
surrender their Notes to the Indenture Trustee for payment of the final payment
and cancellation, shall be given promptly by the Indenture Trustee (upon receipt
of written directions from the Master Servicer, if the Master Servicer is
exercising its right to transfer of the Mortgage Loans, given not later than the
first day of the month preceding the month of such final payment) by letter to
the Noteholders mailed not earlier than the 15th day and not later than the 25th
day of the month next preceding the month of such final payment specifying (i)
the Payment Date upon which final payment of the Notes will be made upon
presentation and surrender of Notes at the office or agency of the Indenture
Trustee therein designated, (ii) the amount of any such final payment and (iii)
that the Record Date otherwise applicable to such Payment Date is not
applicable, payments being made only upon presentation and surrender of the
Notes at the office or agency of the Indenture Trustee therein specified.
(f) Upon presentation and surrender of the Notes, the Indenture Trustee
shall cause to be paid to the Noteholders on the Payment Date for such final
payment, in proportion to their respective Percentage Interests an amount equal
to (i) as to the Class A or Class M Notes, such Class' appropriate share of the
Principal Payment Amount, any Interest Carry Forward Amounts and one month's
interest at the related Note Rate on such Note Principal Amount and (ii) as to
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Transferor in respect of the Ownership Interest, the amount which remains on
deposit in the Collection Account (other than the amounts retained to meet
claims) after application pursuant to clause (i) above.
(g) In the event that all of the Noteholders shall not surrender their
Notes for final payment and cancellation on or before such Final Scheduled
Payment Date, the Indenture Trustee shall promptly following such date cause all
funds in the Collection Account not paid in final payment to Noteholders, to be
withdrawn therefrom and credited to the remaining Noteholders by depositing such
funds in a separate escrow account for the benefit of such Noteholders, and the
Master Servicer (if the Master Servicer has exercised its right to purchase the
Mortgage Loans) or the Indenture Trustee (in any other case) shall give a second
written notice to the remaining Noteholders to surrender their Notes for
cancellation and receive the final payment with respect thereto. If within nine
months after the second notice all the Notes shall not have been surrendered for
cancellation, the Ownership Interest will be entitled to all remaining unclaimed
funds and other assets which remain subject hereto, and the Indenture Trustee
upon transfer of such funds shall be discharged of any responsibility for such
funds and the Noteholders shall look to the holder of the Ownership Interest for
payment.
ARTICLE IX.
MISCELLANEOUS PROVISIONS
Section 9.01 AMENDMENT.
(a) This Agreement may be amended from time to time by the Depositor, the
Master Servicer, the Trust and the Indenture Trustee by written agreement, in
each case without the consent of any of the Noteholders (i) to cure any
ambiguity, (ii) to correct any defective provisions or to correct or supplement
any provisions herein that may be inconsistent with any other provisions herein,
(iii) to add to the duties of the Depositor, the Indenture Trustee or the Master
Servicer, (iv) to add, amend or modify any other provisions with respect to
matters or questions arising under this Agreement which shall not be
inconsistent with the provisions of this Agreement, (v) to add or amend any
provisions of this Agreement as required by any Rating Agency or any other
nationally recognized statistical rating agency in order to maintain or improve
any rating of the Class A and Class M Notes (it being understood that, after
obtaining the ratings in effect on the Closing Date, neither the Indenture
Trustee, the Depositor nor the Master Servicer is obligated to obtain, maintain
or improve any such rating), (vi) to comply with any requirement imposed by
changes in accounting policies that do not materially impact the Notes, or (vii)
to comply with any requirements imposed by the Code; PROVIDED, HOWEVER, that as
evidenced by an Opinion of Counsel (a copy of which shall be delivered to the
Indenture Trustee and each Rating Agency) (at the expense of the party
requesting such amendment) in each case (other than a case arising under clause
(vii)) such action shall not adversely affect in any material respect the
interest of any Class A and Class M Noteholders, and PROVIDED, FURTHER, that the
amendment shall not be deemed to adversely affect in any material respect the
interests of the Class A and Class M Noteholder, and no Opinion of Counsel to
that effect shall be required if the Person requesting the amendment obtains a
letter from each Rating Agency stating that the
66
amendment would not result in the downgrading or withdrawal of the respective
ratings then assigned to the Class A and Class M Notes.
(b) This Agreement also may be amended from time to time by the Master
Servicer, the Depositor, the Trust and the Indenture Trustee, with the consent
of the Holders of the Class A or Class M Notes which are affected by such
amendment, evidencing Percentage Interests aggregating not less than 51% in
Percentage Interests of such Class or in the case of an amendment which affects
all classes, the Majority Noteholders, for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of this
Agreement or of modifying in any manner the rights of the Noteholders or the
Transferor in respect of the Ownership Interest; PROVIDED, HOWEVER, that no such
amendment shall (i) reduce in any manner the amount of, or delay the timing of,
payments on any Class A or Class M Note without the consent of the Holder of
such Note or (ii) reduce the aforesaid percentage required to consent to any
such amendment, or (iii) create a material risk of the Trust incurring taxes
imposed under the Code or of the Class A Notes or Class M Notes not being
treated as indebtedness under the Code, or (iv) result in a downgrading of the
ratings of the Class A or Class M Notes without the consent of the Holders of
all Classes of Notes then outstanding or each Class of Notes affected thereby.
Prior to the solicitation of consent of Noteholders in connection with any
such amendment, the party seeking such amendment shall furnish the Indenture
Trustee with an Opinion of Counsel stating whether such amendment would create a
material risk of the Trust incurring taxes imposed under the Code and notice of
the conclusion expressed in such Opinion of Counsel shall be included with any
such solicitation. An amendment made with the consent of all Noteholders and
executed in accordance with this Section 9.01 shall be permitted or authorized
by this Agreement notwithstanding that such Opinion of Counsel may conclude that
such amendment would create a material risk of the Trust incurring taxes imposed
under the Code.
Prior to the execution of any such amendment, the Indenture Trustee shall
furnish a copy of such amendment to each Rating Agency. In addition, promptly
after the execution of any such amendment made with the consent of the Class A
and/or Class M Noteholders, the Indenture Trustee shall furnish a copy of such
amendment to each applicable Noteholder.
(c) It shall not be necessary for the consent of Noteholders under this
Section 9.01 to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents and of evidencing the authorization of the
execution thereof by Noteholders shall be subject to such reasonable
requirements as the Indenture Trustee may prescribe.
Prior to the execution of any amendment to this Agreement, each of the
Indenture Trustee and the Owner Trustee shall be entitled to receive and
conclusively rely upon an Opinion of Counsel stating that the execution of such
amendment is authorized or permitted by this Agreement and all conditions
precedent to the execution of such amendment have been met. The Indenture
Trustee may, but shall not be obligated to, enter into any such amendment which
67
affects the Indenture Trustee's own rights, duties, indemnities or immunities
under this Agreement.
Section 9.02 RECORDATION OF AGREEMENT.
To the extent permitted by applicable law, this Agreement, or a memorandum
thereof if permitted under applicable law, is subject to recordation in all
appropriate public offices for real property records in all of the counties or
other comparable jurisdictions in which any or all of the Mortgaged Properties
are situated, and in any other appropriate public recording office or elsewhere,
such recordation to be effected by the Master Servicer at the Noteholders'
expense on direction of the Indenture Trustee or the Majority Noteholders, but
only when accompanied by an opinion of counsel delivered to the Indenture
Trustee and the Owner Trustee to the effect that such recordation materially and
beneficially affects the interests of the Noteholders or is necessary for the
administration or servicing of the Mortgage Loans.
Section 9.03 DURATION OF AGREEMENT.
This Agreement shall continue in existence and effect until terminated as
herein provided.
Section 9.04 GOVERNING LAW.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF
ILLINOIS AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAW.
Section 9.05 NOTICES.
All demands, notices and communications hereunder shall be in writing and
shall be deemed to have been duly given if personally delivered at or mailed by
overnight mail, certified mail or registered mail, postage prepaid, to (a) in
the case of the Depositor or the Master Servicer, ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: Treasurer, (b) in the case of the Indenture
Trustee, at the Corporate Trust Office, Attention: Institutional Trust
Services/Household 2002-HC1, (c) in the case of the Owner Trustee, U.S. Bank
Trust National Association, ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇, Attention: Corporate Trust Services; with a copy to: U.S. Bank National
Association, ▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
Attention: Corporate Trust Services, (d) in the case of ▇▇▇▇▇'▇, ABS Monitoring
Department, ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, (e) in the case of
Standard & Poor's, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇,
Attention: Structured Finance Surveillance, and (f) in the case of Fitch, ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: RMBS
Surveillance Department, or, as to each party, at such other address as shall be
designated by such party in a written notice to each other party. Any notice
required or permitted to be mailed to a Noteholder shall be given by first class
mail, postage prepaid, at the address of such Holder as shown in the Note
Register. Any
68
notice so mailed within the time prescribed in this Agreement shall be
conclusively presumed to have been duly given, whether or not the Noteholder
receives such notice.
Section 9.06 SEVERABILITY OF PROVISIONS.
If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be held invalid for any reason whatsoever, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the other covenants,
agreements, provisions or terms of this Agreement.
Section 9.07 NO PARTNERSHIP.
Nothing herein contained shall be deemed or construed to create any
partnership or joint venture between the parties hereto and the services of the
Master Servicer shall be rendered as an independent contractor.
Section 9.08 COUNTERPARTS.
This Agreement may be executed in one or more counterparts and by the
different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed to be an original; such counterparts, together, shall
constitute one and the same Agreement.
Section 9.09 SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding upon the
Depositor, the Master Servicer, the Seller, the Trust, the Indenture Trustee and
the Noteholders and their respective successors and permitted assigns.
The parties hereto hereby agree that all rights of the Trust under this
Agreement are pledged by the Trust to the Indenture Trustee under the Indenture,
and that the Indenture Trustee on behalf of the Noteholders has the right to
directly enforce all rights of the Trust under this Agreement.
Section 9.10 HEADINGS.
The headings of the various sections of this Agreement have been inserted
for convenience of reference only and shall not be deemed to be part of this
Agreement.
Section 9.11 INDENTURE TRUSTEE.
All privileges, rights and immunities given to the Indenture Trustee in the
Indenture are hereby extended to and applicable to the Indenture Trustee's
obligations hereunder.
Section 9.12 INCONSISTENCIES AMONG TRANSACTION DOCUMENTS.
In the event certain provisions of a Transaction Document conflict with the
provisions of this
Sale and Servicing Agreement, the parties hereto agree that
the provisions of this Sale and
69
Servicing Agreement shall be controlling (other than provisions governing the
internal affairs of the Trust, which shall be governed by the Trust Agreement).
Section 9.13 [RESERVED].
Section 9.14 LIMITATION ON VOTING OF PREFERRED STOCK. The Indenture
Trustee shall hold all of the preferred stock ("Preferred Stock") of the
Depositor in trust, for the benefit of the Noteholders, and, during the
continuance of a Master Servicer Termination Event, shall vote such stock only
pursuant to the written instructions of the Majority Noteholders. The Indenture
Trustee shall not permit a transfer of any of the Preferred Stock to HFC or any
of its Affiliates. Concurrently with any transfer of the Mortgage Loans to the
Master Servicer pursuant to Section 8.01, the Indenture Trustee shall transfer
to the Depositor for cancellation all shares of Preferred Stock held by the
Indenture Trustee.
Section 9.15 PERFECTION REPRESENTATIONS. The Perfection Representations
shall be a part of this Agreement for all purposes.
Section 9.16 LIMITATION OF LIABILITY. It is understood by each party
hereto that the sole recourse of each party hereto in respect of the obligations
of the Trust hereunder and under the other Transaction Documents to which it is
a party shall be to the assets of the Trust. In addition, U.S. Bank Trust
National Association ("U.S. Bank") is entering into this Agreement and the other
Transaction Documents to which the Trust is a party solely in its capacity as
trustee under the Trust Agreement and not in its individual capacity and in no
case shall U.S. Bank (or any Person acting as successor trustee under the Trust
Agreement) be personally liable for or on account of any of the statements,
representations, warranties, covenants or obligations stated to be those of the
Trust hereunder or thereunder, all such liability, if any, being expressly
waived by the parties hereto and any person claiming by, through or under such
party.
Section 9.17 INSPECTION OF MORTGAGE FILES. Following the time that the
Mortgage Files have been delivered to the Indenture Trustee upon reasonable
prior notice and during regular business hours, the Indenture Trustee shall
permit representatives of applicable state regulatory agencies to inspect the
Mortgage Files on the Indenture Trustee's premises or shall provide such
documents at such places required by state regulations, including the offices of
the Servicers. Any costs incurred by the Indenture Trustee in fulfilling such
obligations shall be paid by the Master Servicer.
ARTICLE X.
ADMINISTRATION PROVISIONS
Section 10.01 ADMINISTRATIVE DUTIES.
(a) DUTIES WITH RESPECT TO THE INDENTURE. The Master Servicer shall
perform all its duties and the duties of the Issuer under the Indenture. In
addition, the Master Servicer shall consult with the Owner Trustee as the Master
Servicer deems appropriate regarding the duties of the Issuer under the
Indenture. The Master Servicer shall monitor the performance of the Issuer and
shall advise the Owner Trustee when action is necessary to comply with the
Issuer's duties
70
under the Indenture. The Master Servicer shall prepare for execution by the
Issuer or shall cause the preparation by other appropriate Persons of all such
documents, reports, filings, instruments, certificates and opinions as it shall
be the duty of the Issuer to prepare, file or deliver pursuant to the Indenture.
In furtherance of the foregoing, the Master Servicer shall take all necessary
action that is the duty of the Issuer to take pursuant to the Indenture,
including, without limitation, pursuant to Sections 3.1, 3.3, 3.4, 3.5, 3.6,
3.7, 3.9, 3.16, 3.17, 7.3, 8.6, 9.2, 9.3, 11.1 and 11.15 of the Indenture.
(b) Duties with Respect to the Issuer.
(i) In addition to the duties of the Master Servicer set
forth in this Agreement or any of the Transaction Documents,
the Master Servicer shall perform such calculations and
shall prepare for execution by the Issuer or the Owner
Trustee, or shall cause the preparation by other appropriate
Persons of all such documents, reports, filings,
instruments, certificates and opinions as it shall be the
duty of the Issuer or the Owner Trustee, to prepare, file or
deliver pursuant to this Agreement or any of the Transaction
Documents or under state and federal tax and securities
laws, and shall take all appropriate action that it is the
duty of the Issuer to take pursuant to this Agreement or any
of the Transaction Documents, including, without limitation,
pursuant to Sections 2.6 of the Trust Agreement. In
accordance with the directions of the Issuer or the Owner
Trustee, the Master Servicer shall administer, perform or
supervise the performance of such other activities in
connection with the Owner Trust Estate (including the
Transaction Documents) as are not covered by any of the
foregoing provisions and as are expressly requested by the
Issuer or the Owner Trustee and are reasonably within the
capability of the Master Servicer.
(ii) Notwithstanding anything in this Agreement or any of
the Transaction Documents to the contrary, the Master
Servicer shall be responsible for promptly notifying the
Owner Trustee and the Indenture Trustee in the event that
any withholding tax is imposed on the Issuer's payments (or
allocations of income) to a Transferor as contemplated by
this Agreement. Any such notice shall be in writing and
specify the amount of any withholding tax required to be
withheld by the Owner Trustee or the Indenture Trustee
pursuant to such provision.
(iii) Notwithstanding anything in this Agreement or the
Transaction Documents to the contrary, the Master Servicer
shall be responsible for performance of the duties of the
Issuer or the Depositor set forth in Section 5.5 of the
Trust Agreement with respect to, among other things,
accounting and reports to the Transferor (as defined in the
Trust Agreement); PROVIDED, HOWEVER, that once prepared by
the Master Servicer, the Depositor shall retain
responsibility under the Trust
71
Agreement for the distribution of the Schedule K-1s
necessary to enable the Transferor to prepare its federal
and state income tax returns.
(iv) The Master Servicer shall perform the duties of the
Depositor specified in Section 10.2 of the Trust Agreement
required to be performed in connection with the resignation
or removal of the Owner Trustee, and any other duties
expressly required to be performed by the Master Servicer
under this Agreement or any of the Transaction Documents.
(v) The Master Servicer, on behalf of the Depositor, shall
direct the Issuer to request the tender of all or a portion
of the Notes in accordance with the Indenture or this
Agreement.
(vi) In carrying out the foregoing duties or any of its
other obligations under this Agreement, the Master Servicer
may enter into transactions with or otherwise deal with any
of its Affiliates; PROVIDED, HOWEVER, that the terms of any
such transactions or dealings shall be in accordance with
any directions received from the Issuer and shall be, in the
Master Servicer's opinion, no less favorable to the Issuer
in any material respect.
(vii) The Master Servicer shall take all necessary action
that is the duty of the Owner Trustee or Issuer to take
pursuant to Section 7.8 of the Trust Agreement.
(c) TAX MATTERS. The Master Servicer shall prepare and file, or cause to
be prepared and filed, on behalf of the Depositor, all required tax returns, tax
elections, financial statements and such annual or other reports of the Issuer
as are necessary for preparation of tax reports as provided in Article V of the
Trust Agreement, including without limitation form 1099. All tax returns will be
signed by the Depositor.
(d) NON-MINISTERIAL MATTERS. With respect to matters that in the
reasonable judgment of the Master Servicer are non-ministerial, the Master
Servicer shall not take any action pursuant to this Article X unless within a
reasonable time before the taking of such action, the Master Servicer shall have
notified the Owner Trustee and the Indenture Trustee of the proposed action and
the Owner Trustee and the Indenture Trustee shall not have withheld consent or
provided an alternative direction. For the purpose of the preceding sentence,
"non-ministerial matters" shall include
(i) the initiation of any claim or lawsuit by the Issuer and
the compromise of any action, claim or lawsuit brought by or
against the Issuer (other than in connection with the
collection of the Mortgage Loans);
(ii) the appointment of successor Note Registrars, successor
Note Paying Agents and successor Indenture Trustees pursuant
to the Indenture or the consent to the assignment by the
Note Registrar, Note Paying Agent or Indenture Trustee of
its obligations under the Indenture; and
72
(iii) the removal of the Indenture Trustee.
(e) EXCEPTIONS. Notwithstanding anything to the contrary in this
Agreement, except as expressly provided herein or in the Transaction Documents,
the Master Servicer, in its capacity hereunder, shall not be obligated to, and
shall not, (1) make any payments to the Noteholders or the Transferor under the
Transaction Documents, (2) sell any of the assets of the Trust, (3) take any
other action that the Issuer directs the Master Servicer not to take on its
behalf or (4) in connection with its duties hereunder assume any indemnification
obligation of any other Person.
(f) Neither the Indenture Trustee nor any successor Master Servicer shall
be responsible for any obligations or duties of a predecessor Master Servicer
under this Section 10.1.
Section 10.02 RECORDS. The Master Servicer shall maintain appropriate
books of account and records relating to services performed under this
Agreement, which books of account and records shall be accessible for inspection
by the Issuer and the Indenture Trustee at any time during normal business
hours.
Section 10.03 ADDITIONAL INFORMATION TO BE FURNISHED TO THE TRUST. The
Master Servicer shall furnish to the Issuer and the Indenture Trustee, from time
to time such additional information regarding the Owner Trust Estate as the
Issuer and the Indenture Trustee shall reasonably request.
73
IN WITNESS WHEREOF, the following have caused their names to be signed by
their respective officers thereunto duly authorized, as of the day and year
first above written, to this
Sale and Servicing Agreement.
HOUSEHOLD MORTGAGE LOAN TRUST 2002-HC1,
By: U.S. BANK TRUST NATIONAL ASSOCIATION,
not in its individual capacity but solely
as Owner Trustee
By: /s/ ▇▇▇▇▇▇▇▇ ▇. Child
---------------------------------------
Name: ▇▇▇▇▇▇▇▇ ▇. Child
Title: Vice President
S-1
HOUSEHOLD FINANCE CORPORATION,
as Master Servicer
By: /s/ ▇.▇. ▇▇▇▇, ▇▇.
------------------------------------
Name: ▇.▇. ▇▇▇▇, ▇▇.
Title: Vice President and Treasurer
S-2
HOUSEHOLD MORTGAGE FUNDING
CORPORATION III,
as Depositor
By: /s/ ▇.▇. ▇▇▇▇▇
---------------------------------
Name: ▇.▇. ▇▇▇▇▇
Title: Vice President and Assistant
Treasurer
S-3
JPMORGAN CHASE BANK,
not in its individual capacity but solely
as Indenture Trustee
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇
Title: Assistant Vice President
S-4
THE STATE OF
Illinois )
)
COUNTY OF ▇▇▇▇ )
BEFORE ME, on July 2, 2002, the undersigned authority, a Notary Public,
on this day personally appeared ▇▇▇▇▇▇▇▇ ▇. Child, known to me to be a person
and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said U.S. Bank Trust
National Association not in its individual capacity but in its capacity as
Owner Trustee of HOUSEHOLD MORTGAGE LOAN TRUST 2002-HC1, as the Trust, and
that he executed the same as the act of such corporation for the purpose and
consideration therein expressed, and in the capacity therein stated.
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-------------------
Notary Public, State of
Illinois
S-5
THE STATE OF
Illinois )
)
COUNTY OF ▇▇▇▇ )
BEFORE ME, on July 3, 2002, the undersigned authority, a Notary Public,
on this day personally appeared ▇.▇. ▇▇▇▇, ▇▇., known to me to be a person
and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said Household Finance
Corporation, as the Master Servicer, and that he executed the same as the act
of such corporation for the purpose and consideration therein expressed, and
in the capacity therein stated.
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------
Notary Public, State of
Illinois
S-6
THE STATE OF
Illinois )
)
COUNTY OF ▇▇▇▇ )
BEFORE ME, on July 3, 2002, the undersigned authority, a Notary Public,
on this day personally appeared ▇.▇. ▇▇▇▇▇, known to me to be a person and
officer whose name is subscribed to the foregoing instrument and acknowledged
to me that the same was the act of the said Household Mortgage Funding
Corporation III, as the Depositor, and that he executed the same as the act
of such corporation for the purpose and consideration therein expressed, and
in the capacity therein stated.
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------
Notary Public, State of
Illinois
▇-▇
▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇ )
)
COUNTY OF New York )
BEFORE ME, on July 3, 2002, the undersigned authority, a Notary Public,
on this day personally appeared ▇▇▇▇▇▇ ▇. ▇▇▇▇, known to me to be the person
and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said JPMorgan Chase Bank, as
Indenture Trustee, and that he executed the same as the act of such corporation
for the purposes and consideration therein expressed, and in the capacity
therein stated.
/s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------
Notary Public, State of New York
S-8
SCHEDULE 1
PERFECTION REPRESENTATIONS, WARRANTIES AND COVENANTS
The Depositor hereby represents, warrants, and covenants to the Indenture
Trustee as to itself and the Sellers as follows on the Closing Date and on each
Payment Date thereafter:
GENERAL
1. This Agreement creates a valid and continuing security interest (as defined
in the applicable UCC) in the Mortgage Loans in favor of the Indenture Trustee,
and the Indenture creates a valid and continuing security interest (as defined
in the applicable UCC), each of which security interest is prior to all other
Liens, and is enforceable as such as against creditors of and purchasers from
the Depositor.
2. The Mortgage Loans constitute "general intangibles" or "instruments" within
the meaning of the applicable UCC.
3. The Collection Account and all subaccounts thereof constitute either a
deposit account or a securities account.
4. To the extent that payments and collections received or made with respect
to the Mortgage Loans constitute securities entitlements, such payments and
collections have been and will have been credited to the Collection Account. The
securities intermediary for the Collection Account has agreed to treat all
assets credited to the Collection Account as "financial assets" within the
meaning of the applicable UCC.
CREATION
5. The Depositor owns and has good and marketable title to the Mortgage Loans
free and clear of any Lien, claim or encumbrance of any Person, excepting only
liens for taxes, assessments or similar governmental charges or levies incurred
in the ordinary course of business that are not yet due and payable or as to
which any applicable grace period shall not have expired, or that are being
contested in good faith by proper proceedings and for which adequate reserves
have been established, but only so long as foreclosure with respect to such a
lien is not imminent and the use and value of the property to which the Lien
attaches is not impaired during the pendency of such proceeding.
6. The Depositor has received all consents and approvals to the sale of the
Mortgage Loans hereunder to the Trust required by the terms of the Mortgage
Loans that constitute instruments.
7. To the extent the Collection Account or subaccounts thereof constitute
securities entitlements, certificated securities or uncertificated securities,
the Depositor has received all consents and approvals required to transfer to
the Indenture Trustee its interest and rights in the Collection Account
hereunder.
1-1
PERFECTION
8. The Depositor has caused or will have caused, within ten days after the
effective date of this Agreement, the filing of all appropriate financing
statements in the proper filing office in the appropriate jurisdictions under
applicable law in order to perfect the sale of the Mortgage Loans from the
Depositor to the Trust, the security interest in the Mortgage Loans granted to
the Trust hereunder, the pledge of the Mortgage Loans from the Trust to the
Indenture Trustee, and the security interest in the Mortgage Loans granted to
the Indenture Trustee under the Indenture.
9. With respect to the Collection Account and all subaccounts that constitute
deposit accounts, either:
(i) the Depositor has delivered to the Indenture Trustee a fully-executed
agreement pursuant to which the bank maintaining the deposit accounts has
agreed to comply with all instructions originated by the Indenture Trustee
directing disposition of the funds in the Collection Account without
further consent by the Depositor; or
(ii) the Depositor has taken all steps necessary to cause the Indenture
Trustee to become the account holder of the Collection Account.
10. With respect to the Collection Account or subaccounts thereof that
constitute securities accounts or securities entitlements, either:
(i) the Depositor has caused or will have caused, within ten days after the
effective date of this Agreement, the filing of all appropriate financing
statements in the proper filing office in the appropriate jurisdictions
under applicable law in order to perfect the security interest in the
Collection Account granted by the Depositor to the Trust and by the Trust
to the Indenture Trustee; or
(ii) the Depositor has delivered to the Indenture Trustee a fully-executed
agreement pursuant to which the securities intermediary has agreed to
comply with all instructions originated by the Indenture Trustee relating
to the Collection Account without further consent by the Depositor; or
(iii) the Depositor has taken all steps necessary to cause the securities
intermediary to identify in its records the Indenture Trustee as the person
having a security entitlement against the securities intermediary in the
Collection Account.
PRIORITY
11. Other than the transfer of the Transferred Assets to the Trust under the
Transfer Agreement, the transfer of the Mortgage Loans to the Depositor under
the Mortgage Loan Purchase Agreement and the transfer of the Mortgage Loans to
the Trust pursuant to this Agreement, neither the Depositor nor the Sellers have
pledged, assigned, sold, granted a security interest in, or otherwise conveyed
any of the Mortgage Loans. Neither the Depositor nor the Sellers have authorized
the filing of, or are aware of any financing statements against the Depositor or
any of the Sellers that include a description of collateral covering the
Mortgage
1-2
Loans other than any financing statement relating to the security interest
granted to the Indenture Trustee hereunder or that has been terminated.
12. The Depositor is not aware of any judgment, ERISA or tax lien filings
against either the Depositor or any of the Sellers.
13. The Sellers have in their possession all original copies of the Mortgage
Notes that constitute or evidence the Mortgage Loans. To the Depositor's
knowledge, none of the instruments that constitute or evidence the Mortgage
Loans has any marks or notations indicating that they have been pledged,
assigned or otherwise conveyed to any Person other than the Trust. All financing
statements filed or to be filed against the Depositor and the Sellers in favor
of the Indenture Trustee in connection herewith describing the Mortgage Loans
contain a statement to the following effect: "A purchase of or security interest
in any collateral described in this financing statement will violate the rights
of the Indenture Trustee."
14. Neither the Collection Account nor any subaccount thereof is in the name of
any person other than the Depositor or the Indenture Trustee as trustee under
the Indenture or in the name of its nominee. The Depositor has not consented for
the securities intermediary of the Collection Account to comply with entitlement
orders of any person other than the Indenture Trustee.
15. SURVIVAL OF PERFECTION REPRESENTATIONS. Notwithstanding any other provision
of this Agreement or any other transaction document, the Perfection
Representations contained in this Schedule shall be continuing, and remain in
full force and effect (notwithstanding any replacement of the Master Servicer or
termination of the Master Servicer's rights to act as such) until such time as
all obligations under this Agreement have been finally and fully paid and
performed.
16. NO WAIVER. The parties to this Agreement (i) shall not, without obtaining a
confirmation of the then-current rating of the Notes, waive any of the
Perfection Representations, and (ii) shall provide the Rating Agencies with
prompt written notice of any breach of the Perfection Representations, and shall
not, without obtaining a confirmation of the then-current rating of the Notes
(as determined after any adjustment or withdrawal of the ratings following
notice of such breach) waive a breach of any of the Perfection Representations.
17. MASTER SERVICER TO MAINTAIN PERFECTION AND PRIORITY. The Master Servicer
covenants that, in order to evidence the interests of the Depositor, the Trust
and the Indenture Trustee under this Agreement, the Master Servicer shall take
such action, or execute and deliver such instruments (other than effecting a
Filing (as defined below), unless such Filing is effected in accordance with
this paragraph) as may be necessary or advisable (including, without limitation,
such actions as are requested by the Indenture Trustee) to maintain and perfect,
as a first priority interest, the Indenture Trustee's security interest in the
Mortgage Loans. The Master Servicer shall, from time to time and within the time
limits established by law, prepare and present to the Indenture Trustee for the
Indenture Trustee to authorize (based in reliance on the Opinion of Counsel
hereinafter provided for) the Master Servicer to file, all financing statements,
amendments, continuations, initial financing statements in lieu of a
continuation statement, terminations, partial terminations, releases or partial
releases, or any other filings necessary or advisable to continue, maintain and
perfect the Indenture Trustee's security interest in the
1-3
Mortgage Loans as a first-priority interest (each a "Filing"). The Master
Servicer shall present each such Filing to the Indenture Trustee together with
(x) an Opinion of Counsel to the effect that such Filing is (i) consistent with
grant of the security interest to the Trust pursuant to Section 2.01 of this
Agreement and the grant of the security interest to the Indenture Trustee
pursuant to the Indenture, (ii) satisfies all requirements and conditions to
such Filing in this Agreement and (iii) satisfies the requirements for a Filing
of such type under the Uniform Commercial Code in the applicable jurisdiction
(or if the Uniform Commercial Code does not apply, the applicable statute
governing the perfection of security interests), and (y) a form of authorization
for the Indenture Trustee's signature. Upon receipt of such Opinion of Counsel
and form of authorization, the Indenture Trustee shall promptly authorize in
writing the Master Servicer to, and the Master Servicer shall, effect such
Filing under the Uniform Commercial Code without the signature of the Depositor
or the Trust or the Indenture Trustee where allowed by applicable law.
Notwithstanding anything else in the transaction documents to the contrary, the
Master Servicer shall not have any authority to effect a Filing without
obtaining written authorization from the Indenture Trustee.
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EXHIBIT A
MORTGAGE LOAN SCHEDULE
A-1
EXHIBIT B
[RESERVED]
B-1
EXHIBIT C
[RESERVED]
C-1
EXHIBIT D
FORM OF CLASS A NOTE
[Attached as Exhibit A to Indenture]
D-1
EXHIBIT E
FORM OF CLASS M NOTE
[Attached as Exhibit B to Indenture]
E-1
EXHIBIT F
AUCTION PROCEDURES
The following sets forth the auction procedures to be followed in
connection with the
Sale and Servicing Agreement (the "Agreement"), dated as of
July 3, 2002 and the Indenture (the "Indenture") dated as of July 3, 2002.
Capitalized terms used herein that are not otherwise defined shall have the
meanings described thereto in the Agreement and the Indenture.
1. Pursuant to Section 8.01 of the Agreement and Section 10.2 of the
Indenture, the Master Servicer on behalf of the Indenture Trustee, and
after consultation with the Indenture Trustee, will initiate general
auction procedures which may consist of the following: (i) prepare a
general solicitation package along with a confidentiality agreement; (ii)
derive a list of a minimum of two (2) bidders (the "Advisors") in a
commercially reasonable manner; (iii) initiate contact with all Advisors;
(iv) send a confidentiality agreement to all Advisors; and (v) upon receipt
of a signed confidentiality agreement, send solicitation packages to all
Advisors.
2. The general solicitation package may include but in any event will not be
limited to: (i) the Agreement; (ii) a copy of all monthly Indenture Trustee
reports or electronic access thereto; (iii) a form of a Mortgage Loan
Purchase Agreement acceptable to the Indenture Trustee and Master Servicer
(The Mortgage Loans and other property included in the Trust Fund will be
offered and sold on an "as is, where is" basis, without any representation
or warranty, expressed or implied, of any kind and without recourse to, or
guaranty by, the Indenture Trustee.); (iv) a description of (a) the
Termination Price as set forth in the Agreement if the auction sale is
conducted pursuant to Section 8.01 of the Agreement or (b) the Mandatory
Redemption Price if the auction sale is conducted pursuant to Section 10.2
of the Indenture; (v) a formal bidsheet as determined by the Indenture
Trustee and Master Servicer; (vi) a detailed timetable (which shall
include, but not be limited to, the provisions and dates for preliminary
bids, due diligence and final bids); and (vii) a data tape of the Mortgage
Loans as of the related Collection Period reflecting substantially the same
data attributes used in the Prospecutus Supplement dated June 28, 2002.
3. Any Advisor may participate in the auction sale as a principal so long as
it does not solicit any other third party bids. Any Advisor acting as
principal will submit a bid directly to the Indenture Trustee. Any Advisor
acting as agent will submit a third party bid to the Indenture Trustee net
of any amounts deemed to satisfy the Advisor's fee (the "Advisor's Fee").
4. The Indenture Trustee shall abide by the detailed timetable determined at
each auction sale. The detailed timetable will be determined approximately
ten (10) days prior to each auction sale and shall be determined by the
Master Servicer with the consent of the Indenture Trustee, which consent
shall not be unreasonably withheld, within reasonable market conditions at
the time of the auction sale.
F-1