EXHIBIT 99.1
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EXECUTION COPY
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SALE AND SERVICING AGREEMENT
Dated as of November 14, 2002
among
HFC REVOLVING CORPORATION
(Depositor)
HOUSEHOLD HOME EQUITY LOAN TRUST 2002-4
(Trust)
HOUSEHOLD FINANCE CORPORATION
(Master Servicer)
and
BANK ONE, NATIONAL ASSOCIATION
(Indenture Trustee)
Household Home Equity Loan Trust 2002-4
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Table of Contents
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ARTICLE I. DEFINITIONS...............................................................2
SECTION 1.01 Definitions.........................................................2
SECTION 1.02 Other Definitional Provisions......................................20
SECTION 1.03 Interest Calculations..............................................21
ARTICLE II. Conveyance of Home Equity Loans; Tax Treatment...........................22
SECTION 2.01 Acknowledgment; Conveyance of Home Equity Loans; Custody
of Mortgage Files..................................................22
SECTION 2.02 Acceptance by Indenture Trustee; Repurchase of Home
Equity Loans; Conveyance of Eligible Substitute Home
Equity Loans.......................................................26
SECTION 2.03 Representations, Warranties and Covenants of the Master
Servicer...........................................................28
SECTION 2.04 Representations and Warranties of the Depositor
Regarding this Agreement and the Home Equity Loans;
Repurchases and Substitutions......................................29
SECTION 2.05 Tax Treatment......................................................34
ARTICLE III. ADMINISTRATION AND SERVICING OF HOME EQUITY LOANS........................35
SECTION 3.01 The Master Servicer................................................35
SECTION 3.02 Collection of Certain Home Equity Loan Payments....................38
SECTION 3.03 Withdrawals from the Collection Account............................40
SECTION 3.04 Maintenance of Hazard Insurance; Property Protection
Expenses...........................................................41
SECTION 3.05 Assumption and Modification Agreements.............................42
SECTION 3.06 Realization Upon Defaulted Home Equity Loans.......................42
SECTION 3.07 [Reserved].........................................................43
SECTION 3.08 Indenture Trustee to Cooperate.....................................43
SECTION 3.09 Servicing Compensation; Payment of Certain Expenses by
Master Servicer....................................................44
SECTION 3.10 Annual Statement as to Compliance..................................44
SECTION 3.11 Annual Servicing Report............................................44
SECTION 3.12 Access to Certain Documentation and Information
Regarding the Home Equity Loans....................................45
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SECTION 3.13 Maintenance of Certain Servicing Insurance Policies................45
SECTION 3.14 Reports to the Securities and Exchange Commission..................45
SECTION 3.15 [Reserved].........................................................45
SECTION 3.16 Information Required by the Internal Revenue Service
Generally and Reports of Foreclosures and Abandonments
of Mortgaged Property..............................................46
SECTION 3.17 Additional Covenants of HFC........................................46
SECTION 3.18 Servicing Certificate..............................................47
ARTICLE IV. INSURER..................................................................50
SECTION 4.01 Claims upon the Note Guaranty Insurance Policy.....................50
SECTION 4.02 Effect of Payments by the Insurer; Subrogation.....................51
SECTION 4.03 Insurer's Rights Regarding Actions, Proceedings or
Investigations.....................................................51
ARTICLE V. PRIORITY OF PAYMENTS; STATEMENTS TO NOTEHOLDERS; RIGHTS OF
NOTEHOLDERS..............................................................53
SECTION 5.01 Payments...........................................................53
SECTION 5.02 Calculation of LIBOR and the Formula Rate..........................54
SECTION 5.03 Statements to Noteholders..........................................55
ARTICLE VI. THE MASTER SERVICER AND THE DEPOSITOR....................................59
SECTION 6.01 Liability of the Master Servicer and the Depositor.................59
SECTION 6.02 Merger or Consolidation of, or Assumption of the
Obligations of, the Master Servicer or the Depositor...............59
SECTION 6.03 Limitation on Liability of the Master Servicer, the
Depositor and Others...............................................59
SECTION 6.04 Master Servicer Not to Resign......................................60
SECTION 6.05 Delegation of Duties...............................................60
ARTICLE VII. MASTER SERVICER TERMINATION.....,,.......................................62
SECTION 7.01 Master Servicer Termination Events.....,,,,,.......................62
SECTION 7.02 Indenture Trustee to Act; Appointment of Successor.................63
SECTION 7.03 Waiver of Defaults.................................................65
SECTION 7.04 Notification to Noteholders........................................65
ARTICLE VIII. TERMINATION..............................................................66
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SECTION 8.01 Termination........................................................66
ARTICLE IX. MISCELLANEOUS PROVISIONS.................................................69
SECTION 9.01 Amendment..........................................................69
SECTION 9.02 Recordation of Agreement...........................................70
SECTION 9.03 Duration of Agreement..............................................70
SECTION 9.04 Governing Law......................................................70
SECTION 9.05 Notices............................................................71
SECTION 9.06 Severability of Provisions.........................................71
SECTION 9.07 No Partnership.....................................................71
SECTION 9.08 Counterparts.......................................................71
SECTION 9.09 Successors and Assigns.............................................71
SECTION 9.10 Headings...........................................................72
SECTION 9.11 Indenture Trustee..................................................72
SECTION 9.12 Inconsistencies Among Transaction Documents........................72
SECTION 9.13 Rights of the Insurer to Exercise Rights of Noteholders............72
SECTION 9.14 Limitation on Voting of Preferred Stock............................72
SECTION 9.15 Perfection Representations.........................................72
SECTION 9.16 Limitation of Liability............................................73
SECTION 9.17 Inspection of Mortgage Files.......................................73
SECTION 9.18 Consent of Insurer.................................................73
ARTICLE X. MISCELLANEOUS PROVISIONS.................................................74
SECTION 10.01 Administrative Duties..............................................74
SECTION 10.02 Records............................................................76
SECTION 10.03 Additional Information to be Furnished to the Trust................76
EXHIBITS
SCHEDULE 1 Perfection Representations, Warranties and Covenants
EXHIBIT A Home Equity Loan Schedule
EXHIBIT B [Reserved]
EXHIBIT C [Reserved]
EXHIBIT D [Reserved]
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EXHIBIT E Form of Notes
EXHIBIT F Specimen of the Note Guaranty Insurance Policy
This Sale and Servicing Agreement (the "Agreement") is entered into
effective as of November 14, 2002, among Home Equity Loan Trust 2002-4, a
Delaware statutory trust (the "Trust"), HFC Revolving Corporation, a Delaware
corporation, as depositor (the "Depositor"), Household Finance Corporation, a
Delaware corporation, as master servicer (the "Master Servicer"), and Bank
One, National Association, a national banking association, as Indenture
Trustee on behalf of the Noteholders (in such capacity, the "Indenture
Trustee").
PRELIMINARY STATEMENT
WHEREAS, the Trust desires to purchase from the Depositor a pool of
Home Equity Loans which were acquired by the Depositor from various sellers;
WHEREAS, the Depositor, concurrently with the execution of this
Agreement, purchased the Home Equity Loans from the sellers pursuant to the
Home Equity Loan Purchase Agreement;
WHEREAS, the Master Servicer is willing to service such Home Equity
Loans in accordance with the terms of this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto hereby agree as follows:
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ARTICLE I.
DEFINITIONS
SECTION 1.01 Definitions. Whenever used in this Agreement, the
following words and phrases, unless the context otherwise requires, shall have
the meanings specified in this Article.
Accrual Period: As to the Notes, for the initial Payment Date is the
period from and including the Closing Date through and including the day
immediately preceding the initial Payment Date, and for each Payment Date
thereafter is the period from and including the Payment Date in the month
immediately preceding the month in which the Payment Date occurs and ending on
and including the day immediately preceding the Payment Date.
Adjustment Fraction: As to any Payment Date, a fraction of which the
numerator is the Pool Balance as of the first day of the related Collection
Period and the denominator is the Note Principal Amount as of such Payment
Date (without giving effect to any payments of principal made on such Payment
Date).
Affiliate: With respect to any Person, any other Person controlling,
controlled by or under common control with such Person. For purposes of this
definition, "control" means the power to direct the management and policies of
a Person, directly or indirectly, whether through ownership of voting
securities, by contract or otherwise and "controlling" and "controlled" shall
have meanings correlative to the foregoing.
Agreement: This Sale and Servicing Agreement and all amendments hereof
and supplements hereto.
Appraised Value: As to any Home Equity Loan, the appraised value of
the related Mortgaged Property based upon the appraisal used by the applicable
Seller at the time of origination of such Home Equity Loan (or any mortgage
loan made by the Seller on the Mortgaged Property that the Home Equity Loan
replaced); provided that if the Home Equity Loan was originated simultaneously
with or not more than 12 months after another mortgage was placed on the
related Mortgaged Property, the lesser of the Appraised Value at origination
of the other mortgage and the sales price, if any, of the related Mortgaged
Property.
Assignment of Mortgage: With respect to any Mortgage, an assignment,
notice of transfer or equivalent instrument, in recordable form, sufficient
under the laws of the jurisdiction in which the related Mortgaged Property is
located to reflect the sale of the Mortgage to the Indenture Trustee, which
assignment, notice of transfer or equivalent instrument may be in the form of
one or more blanket assignments covering the Home Equity Loans secured by
Mortgaged Properties located in the same jurisdiction.
Auction Date. As defined in Section 8.01(c).
Available Funds Cap: With respect to any Payment Date, a per annum
rate equal to the product of (i) the excess, if any, of (A) the product of (x)
the weighted average of the Net Loan Rates of each Home Equity Loan, in each
case outstanding as of the first day of the related Collection Period, and (y)
the Adjustment Fraction for such payment date, over (B) 0.75% per
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annum, and (ii) a fraction, the numerator of which is 30 and the denominator
of which is the number of days in the related Accrual Period.
Available Payment Amount: As to any Payment Date, the sum, without
duplication, of all amounts described in clauses (i) through (iv), inclusive,
of Section 3.02(b) received by the Master Servicer with respect to the related
Collection Period and deposited in the Collection Account.
Base Targeted Overcollateralization Amount: An amount equal to 9.75%
of the Cut-Off Date Pool Balance.
BIF: The Bank Insurance Fund, as from time to time constituted,
created under the Financial Institutions Reform, Recovery and Enhancement Act
of 1989, or if at any time after the execution of this instrument the Bank
Insurance Fund is not existing and performing duties now assigned to it, the
body performing such duties on such date.
Book-Entry Note: Any Note registered in the name of the Depository or
its nominee, ownership of which is reflected on the books of the Depository or
on the books of a Person maintaining an account with such Depository (directly
or as an indirect participant in accordance with the rules of such
Depository).
Business Day: Any day other than (i) a Saturday or a Sunday or (ii) a
day on which banking institutions in the State of New York or Illinois are
required or authorized by law to be closed.
Charge Off Amount: As to any Charged Off Home Equity Loan and
Collection Period, an amount equal to the amount of the Principal Balance that
the Master Servicer has charged off on its servicing records during such
Collection Period.
Charged Off Home Equity Loan: A defaulted Home Equity Loan that is not
a Liquidated Home Equity Loan and as to which (i) collection procedures are
ongoing and (ii) the Master Servicer has charged off all or a portion of the
related Principal Balance.
Closing Date: November 14, 2002.
Code: The Internal Revenue Code of 1986, as amended from time to time,
and any Treasury Regulations promulgated thereunder.
Collection Account: The custodial account or accounts created and
maintained for the benefit of the Noteholders, the Ownership Interest and the
Insurer pursuant to Section 3.02(b). The Collection Account shall be an
Eligible Account.
Collection Period: As to any Payment Date and Home Equity Loan, the
calendar month immediately preceding the month in which such Payment Date
occurs, except that with respect to the initial Payment Date, the Collection
Period is the period from the Cut-Off Date to November 30, 2002.
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Combined Loan-to-Value Ratio or CLTV: As to each Home Equity Loan, a
ratio, expressed as a percentage, the numerator of which is the sum of (a) the
original Principal Balance of the Home Equity Loan and (b) the aggregate
unpaid principal balance, at the time of origination of the Home Equity Loan,
of all other mortgage loans, if any, secured by liens senior to that Home
Equity Loan on the related Mortgaged Property, and the denominator of which is
the Appraised Value of the Mortgaged Property.
Corporate Trust Office: As defined in the Indenture.
Cumulative Loss Percentage: As to any Collection Period, the fraction
(expressed as a percentage) obtained by dividing (i) the Cumulative Realized
Losses, by (ii) the Cut-Off Date Pool Balance.
Cumulative Loss Percentage Trigger: As to any Collection Period, means
(i) for the first twelve (12) Collection Periods, 0.75%; (ii) for the
thirteenth (13th) Collection Period through and including the twenty-fourth
(24th) Collection Period, 2.00%; (iii) for the twenty-fifth (25th) Collection
Period through and including the thirty-sixth (36th) Collection Period, 3.50%;
(iv) for the thirty-seventh (37th) Collection Period through and including the
forty-eighth (48th) Collection Period, 5.00%; (v) for the forty-ninth (49th)
Collection Period through and including the sixtieth (60th) Collection Period,
6.50%; and (vi) for the sixty-first (61st) Collection Period and each
Collection Period thereafter, 8.00%.
Cumulative Realized Losses: With respect to the Home Equity Loans and
any Collection Period, the sum of the aggregate Realized Losses on the Home
Equity Loans from the Cut-Off Date through the last day of related Collection
Period.
Current Interest: As to the Notes and any Payment Date, the interest
accrued at the Note Rate during the Accrual Period on the aggregate Note
Principal Amount as of the beginning of the Accrual Period.
Cut-Off Date: As to a Home Equity Loan, the close of business on
November 6, 2002.
Cut-Off Date Pool Balance: The aggregate of the Cut-Off Date Principal
Balances of the Home Equity Loans.
Cut-Off Date Principal Balance: As to any Home Equity Loan, the unpaid
principal balance thereof as of the Cut-Off Date or, as to any Eligible
Substitute Home Equity Loan, as of the date of substitution of such Eligible
Substitute Home Equity Loan.
Defective Home Equity Loan: Any Home Equity Loan subject to repurchase
or substitution pursuant to Section 2.02 or 2.04.
Deficiency Amount: As defined in the Note Guaranty Insurance Policy,
the sum of (i) with respect to any Payment Date, the amount by which the
Current Interest plus the Interest Carry Forward Amount with respect to the
Notes exceeds the amount on deposit in the Collection Account available for
interest payments to the Noteholders on such Payment Date and (ii)(a) with
respect to any Payment Date that is not the Final Scheduled Payment Date, the
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Overcollateralization Deficit Amount or (b) with respect to the Final
Scheduled Payment Date, the Note Principal Amount to the extent otherwise not
paid on such date.
Definitive Notes: As defined in the Indenture.
Delaware Trustee: The Bank of New York (Delaware), as Delaware trustee
under the Trust Agreement, and any successor Delaware trustee under the Trust
Agreement appointed in accordance with the terms thereof.
Deposit Date: As to any Payment Date, the Business Day immediately
preceding such Payment Date.
Deposit Event: The lowering of the Master Servicer's short-term debt
rating below "P-1" by ▇▇▇▇▇'▇, "A-1" by Standard & Poor's or "F1" by Fitch or
any time in which HFC shall cease to be the Master Servicer.
Depositor: HFC Revolving Corporation, a Delaware corporation.
Depository: The initial Depository shall be The Depository Trust
Company, the nominee of which is Cede & Co., as the registered Holder of Notes
evidencing $846,640,000 in initial aggregate principal amount of the Notes.
The Depository shall at all times be a "clearing corporation" as defined in
Section 8-102(a)(5) of the UCC of the State of New York.
Depository Participant: A broker, dealer, bank or other financial
institution or other Person for whom from time to time the Depository effects
book-entry transfers and pledges of securities deposited with the Depository.
Determination Date: As to any Payment Date, the second Business Day
prior to such Payment Date.
Distributable Excess Cashflow: As to any Payment Date, the lesser of
(i) the Excess Cashflow for such Payment Date and (ii) the Interim
Overcollateralization Deficiency, if any, for such Payment Date.
Electronic Ledger: The electronic master record of home equity loans
(including the Home Equity Loans) maintained by the Master Servicer.
Eligible Account: An account that is either (i) maintained with a
depository institution whose short-term debt obligations at the time of any
deposit therein are rated in the highest short-term debt rating category by
the Rating Agencies, (ii) an account or accounts maintained with a depository
institution with a long-term unsecured debt rating by each Rating Agency that
is at least investment grade, provided that the deposits in such account or
accounts are fully insured by either the BIF or the SAIF, (iii) a segregated
trust account maintained on the corporate trust side with the Indenture
Trustee in its fiduciary capacity, or (iv) an account otherwise acceptable to
each Rating Agency, as evidenced by a letter to such effect from each such
Rating Agency to the Indenture Trustee and the Insurer, without reduction or
withdrawal of the then-current ratings of the Notes without taking into
account the existence of the Note Guaranty Insurance Policy.
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Eligible Substitute Home Equity Loan: A Home Equity Loan substituted
(a) by the Depositor or the Master Servicer for a Defective Home Equity Loan
pursuant to Section 2.02(a) or 2.04 or (b) by the Master Servicer pursuant to
Section 2.02(b), which on the date of such substitution must
(i) have a Principal Balance not substantially greater or less
than the Principal Balance of such Defective Home Equity Loan or such
elected substituted Home Equity Loan;
(ii) have a current Loan Rate of not less than the Loan Rate of
the Defective Home Equity Loan or elected substituted Home Equity Loan
and not more than 500 basis points in excess thereof;
(iii) have a (A) remaining term to maturity not more than six
months earlier or later than the remaining term to maturity of the
Defective Home Equity Loan or elected substituted Home Equity Loan and
(B) maturity date not later than the Final Scheduled Payment Date;
(iv) comply with the representations and warranties set forth
in Section 2.04(b), to the extent such representations and warranties
do not pertain exclusively to the Home Equity Loans transferred on the
Closing Date;
(v) have a Combined Loan-to-Value Ratio that is not greater
than the Combined Loan-to-Value Ratio of the Defective Home Equity
Loan or elected substituted Home Equity Loan as of the date of
origination of such Defective Home Equity Loan or elected substituted
Home Equity Loan;
(vi) have a lien position at least equal to the lien position
of the Mortgage relating to the Defective Home Equity Loan or elected
substituted Home Equity Loan; and
(vii) be the obligation of a Mortgagor whose credit profile is
substantially similar to that of the Mortgagor under the Defective
Home Equity Loan or elected substituted Home Equity Loan,
provided, however, that with respect to (i) through (vii) above, a home equity
loan may qualify as an Eligible Substitute Home Equity Loan if each of the
Rating Agencies confirms such substitution.
ERISA: The Employee Retirement Income Security Act of 1974, as amended.
Event of Default: As defined in the Indenture.
Excess Cashflow: With respect to any Payment Date, the positive
excess, if any, of (a) the Available Payment Amount for such Payment Date over
(b) the aggregate of amounts required to be paid pursuant to subclauses (i)
through (iii) of Section 5.01(a) herein on such Payment Date.
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Excess Spread: With respect to any Payment Date, the excess (if any)
of (a) the aggregate interest received for the related Collection Period, with
respect to the Home Equity Loans at their respective Net Loan Rates over (b)
the interest accrued on the Notes at the Formula Rate during the related
Accrual Period.
▇▇▇▇▇▇ ▇▇▇: ▇▇▇▇▇▇ ▇▇▇, formerly known as The Federal National
Mortgage Association, or any successor thereto.
FDIC: The Federal Deposit Insurance Corporation and any successor
thereto.
Final Scheduled Payment Date: The Payment Date in October 2032.
Fitch: Fitch, Inc., or its successor in interest.
Foreclosure Profit: As to any Liquidated Home Equity Loan, the amount,
if any, by which (i) the aggregate of its Liquidation Proceeds less
Liquidation Expenses exceeds (ii) the Principal Balance thereof immediately
prior to the final recovery of its Liquidation Proceeds, together with the sum
of (x) accrued and unpaid interest thereon at the applicable Loan Rate from
the date interest was last paid through the date of receipt of the final
Liquidation Proceeds and (y) the related Charge Off Amounts.
Formula Rate: With respect to the Notes and any Accrual Period, a per
annum rate equal to the sum of (i) LIBOR for such Accrual Period and (ii) the
Note Margin for such Accrual Period.
HFC: Household Finance Corporation, a Delaware corporation, and its
successors.
Home Equity Loan: Such of the home equity loans (together with the
related Mortgage Notes and Mortgages) transferred and assigned to the Trust
pursuant to Section 2.01 and pursuant to the Transfer Agreement, together with
the Related Documents, as from time to time are held as a part of the Trust,
the home equity loans originally so held being identified in the Home Equity
Loan Schedule delivered on the Closing Date. As applicable, the term Home
Equity Loan shall be deemed to refer to the Mortgaged Property that has been
converted to ownership by the Master Servicer prior to the final recovery of
related Liquidation Proceeds.
Home Equity Loan Purchase Agreement: The home equity loan purchase
agreement dated November 14, 2002 between the Depositor and the Sellers
pursuant to which the Sellers convey to the Depositor all of their right,
title and interest in and to the unpaid Principal Balance of the Home Equity
Loans, including all interest and principal payments in respect thereof
received on or after the Cut-Off Date, and certain other rights with respect
to the collateral supporting the Home Equity Loans.
Home Equity Loan Schedule: As to any date, the schedule of Home Equity
Loans, including any Eligible Substitute Home Equity Loans, included in the
Trust on such date. The initial Home Equity Loan Schedule is the schedule
delivered by the Depositor to the Indenture Trustee on the Closing Date and
delivered as Exhibit A hereto, which schedule may be in the form of a computer
file or an electronic or magnetic tape and sets forth as to each Home Equity
Loan (i) the account number, (ii) the Cut-Off Date Principal Balance, (iii)
the Loan Rate, (iv) the
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lien position of the related Mortgage and (v) the CLTV. The Home Equity Loan
Schedule will be amended from time to time to reflect the removal of Home
Equity Loans and the addition of any Eligible Substitute Home Equity Loans to
the Trust, and when so amended shall include the information set forth above
with respect to each Eligible Substitute Home Equity Loan as of its related
date of substitution.
Indemnification Agreement: The Indemnification Agreement dated as of
November 14, 2002 among the Master Servicer, the Depositer, the underwriters
named therein and the Insurer, including any amendments and supplements
thereto in accordance with the terms thereof.
Indenture: The Indenture dated November 14, 2002 between the Issuer
and the Indenture Trustee.
Indenture Trustee: Bank One, National Association, a national banking
association, as Indenture Trustee under the Indenture or any successor
indenture trustee under the Indenture appointed in accordance with such
agreement.
Indenture Trustee's Statement to Noteholders: As defined in Section
5.03.
Initial Home Equity Loan: Each Home Equity Loan transferred and
assigned to the Trust on the Closing Date.
Initial Targeted Overcollateralization Amount: An amount equal to the
excess of the Cut-Off Date Pool Balance over the Original Note Principal
Amount.
Insurance and Indemnity Agreement: The Insurance and Indemnity
Agreement dated as of November 14, 2002 among the Indenture Trustee, the
Issuer, the Master Servicer, the Depositor and the Insurer, including any
amendments and supplements thereto in accordance with the terms thereof.
Insurance Proceeds: Proceeds paid by any insurer (other than the
Insurer pursuant to the Note Guaranty Insurance Policy) pursuant to any
insurance policy covering a Home Equity Loan, or by the Master Servicer
pursuant to the last sentence of Section 3.04, net of any component thereof
covering any expenses incurred by or on behalf of the Master Servicer in
connection with obtaining such Insurance Proceeds and exclusive of any portion
thereof that is applied to the restoration or repair of the related Mortgaged
Property, released to the Mortgagor in accordance with the Master Servicer's
normal servicing procedures or required to be paid to any holder of a mortgage
senior to such Home Equity Loan.
Insured Amounts: As of any Payment Date, any Deficiency Amount for
such Payment Date plus any Preference Amount for such Payment Date.
Insurer: Ambac Assurance Corporation, a Wisconsin stock insurance
corporation, and its successors and assigns.
Insurer Default: Any failure by the Insurer to make a payment required
under the Note Guaranty Insurance Policy in accordance with its terms.
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Interest Carry Forward Amount: As to the Notes and any Payment Date,
the sum of (x) the amount, if any, by which (i) the sum of the Current
Interest and all prior unpaid Interest Carry Forward Amounts for such Notes as
of the immediately preceding Payment Date exceeded (ii) the amount of the
actual payment with respect to interest made to such Notes on such Payment
Date plus (y) interest on such amount calculated for the related Accrual
Period at the Note Rate.
Interest Collections: As to any Payment Date, the sum, without
duplication of:
(i) the portion allocable to interest of all scheduled monthly
payments on the Home Equity Loans received during the related Collection
Period, minus the Servicing Fee for the related Collection Period;
(ii) all Net Liquidation Proceeds actually collected by the Master
Servicer during the related Collection Period (to the extent such Net
Liquidation Proceeds relate to interest and including Recovered Charge Off
Amounts);
(iii) the interest portion of the Purchase Price for any Home Equity
Loan repurchased from the Trust pursuant to the terms of this Agreement during
the related Collection Period;
(iv) the interest portion of all Substitution Adjustment Amounts with
respect to the related Collection Period; and
(v) to the extent advanced by the Master Servicer pursuant to Section
3.01(f) and not previously distributed, the amount of any Skip-A-Pay Advance
deposited by the Master Servicer into the Collection Account with respect to
such Payment Date.
Interest Payment Amount: With respect to any Payment Date and the
Notes, the sum of (a) the Current Interest for such Notes for such Payment
Date, and (b) any Interest Carry Forward Amount for such Notes for such
Payment Date.
Interim Overcollateralization Amount: As to any Payment Date, the
excess, if any, of (x) the Pool Balance as of the last day of the preceding
Collection Period over (y) (i) the Note Principal Amount (before taking into
account any payments of principal on such Payment Date) less (ii) the
Principal Collections for such Payment Date.
Interim Overcollateralization Deficiency: As to any Payment Date, the
excess, if any, of (x) the Targeted Overcollateralization Amount over (y) the
Interim Overcollateralization Amount.
Issuer: Household Home Equity Loan Trust 2002-4.
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.
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LIBOR Determination Date: As to any Payment Date, the second LIBOR
Business Day before the first day of the related Accrual Period.
Lien: Any mortgage, deed of trust, pledge, conveyance, hypothecation,
assignment, participation, deposit arrangement, encumbrance, lien (statutory
or other), preference, priority right or interest or other security agreement
or preferential arrangement of any kind or nature whatsoever, including,
without limitation, any conditional sale or other title retention agreement,
any financing lease having substantially the same economic effect as any of
the foregoing or the filing of any financing statement under the UCC (other
than any such financing statement filed for informational purposes only) or
comparable law of any jurisdiction to evidence any of the foregoing.
Liquidated Home Equity Loan: As to any Payment Date, any Home Equity
Loan in respect of which the Master Servicer has determined as of the end of
the related Collection Period that all Liquidation Proceeds which it expects
to recover on such Home Equity Loan have been recovered (exclusive of any
possibility of a deficiency judgment).
Liquidation Expenses: Out-of-pocket expenses (exclusive of overhead)
that are incurred by the Master Servicer in connection with the liquidation of
any Home Equity Loan and not recovered under any insurance policy, such
expenses including, without limitation, reasonable legal fees and expenses,
any unreimbursed amount expended pursuant to Section 3.06 (including, without
limitation, amounts advanced to correct defaults on any mortgage loan that is
senior to such Home Equity Loan and amounts advanced to keep current or pay
off a mortgage loan that is senior to such Home Equity Loan) with respect to
the related Home Equity Loan and any related and unreimbursed expenditures for
real estate property taxes, mechanics liens, title perfection, property
management or for property restoration, preservation or insurance against
casualty loss or damage.
Liquidation Proceeds: Proceeds (including Insurance Proceeds) received
in connection with the liquidation of any Home Equity Loan, whether through
trustee's sale, foreclosure sale or otherwise.
Loan Rate: As to any Home Equity Loan and day, the per annum rate of
interest applicable under the related Mortgage Note to the calculation of
interest for such day on the Principal Balance.
Majority Noteholder: The Holder or Holders of Notes representing at
least 51% of the aggregate Note Principal Amount.
Master Servicer: HFC, or its successor in interest, or any successor
master servicer appointed as herein provided.
Master Servicer Termination Events: As defined in Section 7.01.
MERS: Mortgage Electronic Registration Systems, Inc., a corporation
organized and existing under the laws of the State of Delaware, or any
successor thereto.
10
MERS(R) System: The system of recording transfers of Mortgages
electronically maintained by MERS.
MIN: The Mortgage Identification Number for Home Equity Loans
registered with MERS on the MERS(R)System.
MOM Loan: With respect to any Home Equity Loan, MERS acting as the
mortgagee of such Home Equity Loan, solely as nominee for the originator of
such Home Equity Loan and its successors and assigns, at the origination
thereof.
Moody's: ▇▇▇▇▇'▇ Investors Service, Inc., or any successor thereto.
Mortgage: The mortgage, deed of trust or other instrument creating a
first, second or third lien on an estate in fee simple interest in real
property securing a Home Equity Loan.
Mortgage File: The mortgage documents (including without limitation
the related Mortgage Note) listed in Section 2.01 pertaining to a particular
Home Equity Loan and any additional documents required to be added to the
Mortgage File pursuant to this Agreement, which documents may be physical
documents or, pursuant to the terms of Section 2.01, may be optical images or
other representations thereof.
Mortgage Note: As to a Home Equity Loan, the mortgage note or other
evidence of indebtedness under which the related Mortgagor agrees to pay the
indebtedness evidenced thereby and secured by the related Mortgage.
Mortgaged Property: The underlying property securing a Home Equity
Loan.
Mortgagor: The obligor or obligors under a Mortgage.
Net Liquidation Proceeds: As to any Liquidated Home Equity Loan,
Liquidation Proceeds less Liquidation Expenses.
Net Loan Rate: As to any Home Equity Loan, the Loan Rate less (i) the
Servicing Fee Rate and (ii) the annual premium rate of the Insurer set forth
in the Insurance and Indemnity Agreement.
Note: Any Note executed by the Trust and authenticated by the
Indenture Trustee substantially in the form set forth in Exhibit E hereto.
Note Guaranty Insurance Policy: The Certificate Guaranty Insurance
Policy (No. AB0612BE) with respect to the Notes and all endorsements thereto,
if any, dated the Closing Date, issued by the Insurer for the benefit of the
Holders of the Notes, a copy of which is attached hereto as Exhibit F.
Note Margin: With respect to the Notes and any Accrual Period, 0.55%
per annum.
Note Owner: The Person who is the beneficial owner of a Book-Entry
Note.
11
Note Principal Amount: With respect to any date of determination, (a)
the Original Note Principal Amount less (b) the aggregate of amounts paid as
principal to the Noteholders on previous Payment Dates pursuant to Section
5.01 hereto.
Note Rate: With respect to any Payment Date and Accrual Period, the
lesser of (i) the Formula Rate and (ii) the Available Funds Cap for such
Payment Date.
Note Register and Note Registrar: As defined in the Indenture.
Noteholder or Holder: The Person in whose name a Note is registered in
the Note Register, except that, solely for the purpose of giving any consent,
direction, waiver or request pursuant to this Agreement or the Indenture, (x)
any Note registered in the name of the Depositor, the Master Servicer or any
Person actually known to a Responsible Officer to be an Affiliate of the
Depositor (y) any Note for which the Depositor, the Master Servicer or any
Person actually known to a Responsible Officer to be an Affiliate of the
Depositor or the Master Servicer is the Note Owner shall be deemed not to be
outstanding (unless to the actual knowledge of a Responsible Officer (i) the
Master Servicer or the Depositor, or such Affiliate, is acting as trustee or
nominee for a Person who is not an Affiliate of the Depositor or the Master
Servicer and who makes the voting decision with respect to such Note or (ii)
the Depositor, or the Master Servicer, or such Affiliate, is the Note Owner of
all the Notes) and the Percentage Interest evidenced thereby shall not be
taken into account in determining whether the requisite amount of Percentage
Interests necessary to effect any such consent, direction, waiver or request
has been obtained and (z) the Insurer shall be deemed to be the owner of 100%
of the Notes so long as no Insurer Default is then continuing.
Notice for Payment: As defined in Section 4.01.
Officer's Certificate: A certificate signed by the President, an
Executive Vice President, a Senior Vice President, a Vice President, an
Assistant Vice President, the Treasurer, Assistant Treasurer, Controller or
Assistant Controller of the Master Servicer or the Depositor, as the case may
be, and delivered to the Indenture Trustee and the Insurer, as applicable.
Opinion of Counsel: A written opinion of counsel reasonably acceptable
to the Indenture Trustee and the Insurer, who may be in-house counsel for the
Master Servicer (or its affiliate) or the Depositor (or its affiliate), except
with regard to tax matters, bankruptcy matters, the Trust Indenture Act of
1939, security interest matters and as otherwise expressly provided in this
Agreement.
Order: As defined in Section 4.01 hereto.
Original Note Principal Amount: $846,640,000.
Overcollateralization Amount: As to any Payment Date, the excess, if
any, of (x) the Pool Balance as of the last day of the preceding Collection
Period over (y) the Note Principal Amount, calculated after taking into
account all payments in respect of principal on such Payment Date.
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Overcollateralization Deficit Amount: On any Payment Date, the excess,
if any, of (i) the Note Principal Amount on such Payment Date (after taking
into account the payment to the Notes of all principal from sources other than
the Note Guaranty Insurance Policy on such Payment Date) and (ii) the Pool
Balance as of the close of business on the last day of the related Collection
Period.
Overcollateralization Release Amount: As to any Payment Date, the
amount (but not in excess of the Principal Collections for such Payment Date)
equal to the excess, if any, of (i) the Interim Overcollateralization Amount
over (ii) the Targeted Overcollateralization Amount.
Owner Trustee: The Bank of New York, as owner trustee under the Trust
Agreement, and any successor owner trustee under the Trust Agreement appointed
in accordance with the terms thereof.
Ownership Interest: As defined in the Trust Agreement.
Paying Agent: Any paying agent appointed pursuant to the Indenture.
Payment Date: The 20th day of each month or, if such day is not a
Business Day, then the next Business Day, beginning in December 2002.
Percentage Interest: As to the Notes and any date of determination,
the percentage obtained by dividing the principal denomination of such Note by
the aggregate of the principal denominations of all Notes.
Perfection Representations: The representations, warranties and
covenants set forth in Schedule 1 attached hereto.
Permitted Investments: One or more of the following (excluding any
callable investments purchased at a premium):
(i) direct obligations of, or obligations fully guaranteed as
to timely payment of principal and interest by, the United States or
any agency or instrumentality thereof, provided that such obligations
are backed by the full faith and credit of the United States;
(ii) repurchase agreements on obligations specified in clause
(i) maturing not more than three months from the date of acquisition
thereof, provided that the short-term unsecured debt obligations of
the party agreeing to repurchase such obligations are at the date of
acquisition rated by each Rating Agency in its highest short-term
rating category (which is "F1" for Fitch, "A-1+" for Standard & Poor's
and "P-1" for Moody's);
(iii) certificates of deposit, time deposits and bankers'
acceptances (which, if ▇▇▇▇▇'▇ is a Rating Agency, shall each have an
original maturity of not more than 90 days and, in the case of
bankers' acceptances, shall in no event have an original maturity of
more than 365 days) of any U.S. depository institution or trust
company incorporated under the laws of the United States or any state
thereof and subject to supervision and examination by federal and/or
state banking authorities, provided that the unsecured short-term debt
obligations of such depository institution or trust company at the
date of
13
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 which at the date of
acquisition has a rating of "Aaa" by Moody's and "AAA" by Fitch and
Standard & Poor's or such lower rating as will not result in the
qualification, downgrading or withdrawal of the then current rating
assigned to the Notes by each Rating Agency (without taking into
account the existence of the Note Guaranty Insurance Policy); and
(vii) other obligations or securities that are indebtedness in
registered form for U.S. federal income tax purposes and that are
reasonably acceptable to each Rating Agency and the Insurer (so long
as no Insurer Default exists and is continuing) as a Permitted
Investment hereunder and will not result in a reduction in the
then-current rating of the Notes, as evidenced by a confirmation or
letter to such effect from such Rating Agency (without taking into
account the existence of the Note Guaranty Insurance Policy);
provided that no instrument described hereunder shall evidence either the
right to receive (a) only interest with respect to the obligations underlying
such instrument or (b) both principal and interest payments derived from
obligations underlying such instrument if such interest and principal payments
provide a yield to maturity at par greater than 120% of the yield to maturity
at par of the underlying obligations; and provided, further, that no
instrument described hereunder may be purchased at a price greater than par if
such instrument may be prepaid or called at a price less than its purchase
price prior to its stated maturity.
Person: Any individual, corporation, partnership, joint venture,
limited partnership, limited liability company, association, joint-stock
company, trust, unincorporated organization or government or any agency or
political subdivision thereof.
Pool Balance: With respect to any date of determination, the aggregate
of the Principal Balances of all Home Equity Loans as of such date.
Preference Amount: As defined in the Note Guaranty Insurance Policy.
Preferred Stock: As defined in Section 9.14.
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Premium Amount: The premium payable to the Insurer pursuant to the
Insurance and Indemnity Agreement.
Principal Balance: As to any Home Equity Loan (other than a Liquidated
Home Equity Loan) and date, the related Cut-Off Date Principal Balance, minus
the sum of (x) all collections credited against the principal balance of such
Home Equity Loan in accordance with the terms of the related Mortgage Note and
(y) any related Charge Off Amounts credited against the principal balance of
such Home Equity Loan prior to such date. For purposes of this definition, a
Liquidated Home Equity Loan shall be deemed to have a Principal Balance equal
to the Principal Balance of the related Home Equity Loan immediately prior to
the final recovery of related Liquidation Proceeds and a Principal Balance of
zero thereafter.
Principal Collections: As to any Payment Date, the sum, without
duplication, of:
(i) the principal portion of all scheduled monthly payments on the
Home Equity Loans received by the Master Servicer during the related
Collection Period;
(ii) the principal portion of the Purchase Price for any Home Equity
Loan repurchased from the Trust pursuant to the terms of this Agreement during
the related Collection Period;
(iii) the principal portion of all Substitution Adjustment Amounts
with respect to the related Collection Period;
(iv) all Net Liquidation Proceeds (excluding Foreclosure Profits and
Recovered Charge Off Amounts) actually received by the Master Servicer during
the related Collection Period (to the extent such Net Liquidation Proceeds
relate to principal); and
(v) the principal portion of all other unscheduled collections on the
Home Equity Loans received by the Master Servicer during the related
Collection Period (including, without limitation, full and partial prepayments
of principal made by the Mortgagors), to the extent not previously
distributed.
Principal Payment Amount: As to any Payment Date, (i) the Principal
Collections for such Payment Date minus (ii) for Payment Dates occurring on
and after the Stepdown Date, the Overcollateralization Release Amount, if any.
Prospectus Supplement: The Prospectus Supplement, dated November 12,
2002, to the Prospectus, dated August 27, 2002, relating to the offer and sale
of the Notes.
Purchase Price: As to any Home Equity Loan purchased from the Trust on
any date pursuant to Section 2.02, 2.04 or 3.01 an amount equal to the sum of
(i) the Principal Balance thereof plus any related Charge Off Amount as of the
end of the related Collection Period preceding the date of repurchase, and
(ii) accrued and unpaid interest to the end of such Collection Period computed
on a daily basis at the Net Loan Rate on the Principal Balance outstanding
from time to time.
Rating Agencies: Moody's, Standard & Poor's and Fitch. If such agency
or a successor is no longer in existence, "Rating Agency" shall be such
nationally recognized statistical credit
15
rating agency, or other comparable Person, designated by the Depositor
and reasonably acceptable to the Insurer (so long as no Insurer Default exists
and is continuing), notice of which designation shall be given to the
Indenture Trustee. References herein to the highest short term unsecured
rating category of a Rating Agency shall mean "P-1" or better in the case of
Moody's, "A-1+" or better in the case of Standard & Poor's and "F1" in the
case of Fitch and in the case of any other Rating Agency shall mean such
equivalent ratings. References herein to the highest long-term rating category
of a Rating Agency shall mean "AAA" in the case of Fitch and Standard & Poor's
and "Aaa" in the case of Moody's and in the case of any other Rating Agency,
such equivalent rating.
Realized Loss: With respect to (i) any Liquidated Home Equity Loan,
the unrecovered Principal Balance thereof at the end of the related Collection
Period in which such Home Equity Loan became a Liquidated Home Equity Loan and
(ii) any Charged-Off Home Equity Loan, the Charge Off Amount for the related
Collection Period.
Record Date: As to any Payment Date, the Business Day immediately
preceding such Payment Date; provided, however, that if any Notes become
Definitive Notes, the record date for such Notes will be the last Business Day
of the month immediately preceding the month in which the related Payment Date
occurs.
Recovered Charge Off Amount: As to any Home Equity Loan that became a
Liquidated Home Equity Loan in a Collection Period, the amount, if any, by
which (i) its Net Liquidation Proceeds that are allocable to principal in
accordance with the related Mortgage Note exceeds (ii) its Principal Balance
immediately prior to foreclosure up to an amount of all related Charge Off
Amounts, but in no event less than zero.
Reimbursement Amount: The sum of (a) the aggregate unreimbursed amount
of any payments made by the Insurer under the Note Guaranty Insurance Policy,
together with interest on such amount from the date of payment by the Insurer
until paid in full at a rate of interest equal to the Late Payment Rate (as
defined in the Insurance and Indemnity Agreement), (b) all costs and expenses
of the Insurer in connection with any action, proceeding or investigation
affecting the Trust (or the assets of the Trust) or the rights or obligations
of the Insurer hereunder or under the Note Guaranty Insurance Policy or the
Transaction Documents, including (without limitation) any judgment or
settlement entered into affecting the Insurer or the Insurer's interests,
together with interest thereon at a rate equal to the Late Payment Rate and
(c) any other amounts owed to the Insurer under the Insurance and Indemnity
Agreement, together with interest thereon at a rate equal to the Late Payment
Rate.
Related Documents: As defined in Section 2.01(c).
REO: A Mortgaged Property that is acquired by the Trust in a
foreclosure or by grant of deed in lieu of foreclosure.
Required Excess Cashflow: As to any Payment Date, means 2.5%, divided
by 12, multiplied by the Pool Balance as of the first day of the related
Collection Period.
Responsible Officer: With respect to the Indenture Trustee, any
officer assigned to the corporate trust group (or any successor thereto),
including any vice president, assistant vice
16
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 any Seller or the Master Servicer, the President or any Vice
President, Assistant Vice President, Treasurer, Assistant Treasurer or any
Secretary or Assistant Secretary.
SAIF: The Savings Association Insurance Fund, as from time to time
constituted, created under the Financial Institutions Reform, Recovery and
Enhancement Act of 1989, or if at any 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, Household Finance
Corporation of West Virginia, Beneficial West Virginia, Inc., Household
Finance Realty Corporation of New York, Household Financial Center Inc.,
Household Finance Realty Corporation of Nevada, Household Finance Industrial
Loan Company of Iowa, Household Finance Consumer Discount Company, Household
Industrial Finance Company and Mortgage One Corporation, doing business as HFC
Mortgage Company.
Servicer: As to each Home Equity Loan, the related Seller that sold
such Home Equity Loan to the Depositor pursuant to the Home Equity Loan
Purchase Agreement.
Servicing Certificate: A certificate completed by and executed on
behalf of the Master Servicer in accordance with Section 3.18.
Servicing Fee: The fee payable to the Master Servicer pursuant to
Section 3.09, equal to 1/12th of the Servicing Fee Rate for each Home Equity
Loan in the Home Equity Loan Schedule multiplied by the outstanding Principal
Balance of such Home Equity Loan as of the first day of the related Collection
Period, except with respect to the first calendar month in which the fee
payable shall be multiplied by a fraction the numerator of which is the number
of days from the Cut-Off Date to November 30, 2002 and the denominator of
which is the number of days in the calendar month of November 2002.
Servicing Fee Rate: A rate equal to 0.50% per annum.
Servicing Officer: Any officer of the Master Servicer or other
individual designated by an officer of the Master Servicer involved in, or
responsible for, the administration and servicing of the Home Equity Loans,
whose name and specimen signature appear on a list of servicing officers
furnished to the Indenture Trustee (with a copy to the Insurer) on the Closing
Date by the Master Servicer, as such list may be amended from time to time.
Settlement Agreement: The consent decrees to be entered into between
Household International Inc. and participating States (and agencies of such
States) in accordance with the preliminary agreement reached between Household
International Inc. and a multi-state working group of state attorneys general
and regulatory agencies, as announced by Household International Inc. on
October 11, 2002 and reflected in the Specified Filing.
17
Skip-A-Pay Advance: For any Collection Period, means the positive
result, if any, of the Required Excess Cashflow on the related Payment Date,
minus the Excess Cashflow on the related Payment Date. For the avoidance of
doubt, if the result of the foregoing calculation is not a positive number,
the Skip-A-Pay Advance for the related Collection Period shall be zero.
Skip-A-Pay Reimbursement Amount: As of any Payment Date means, the
positive result, if any, of the Excess Cashflow on such Payment Date, minus
the Required Excess Cashflow on such Payment Date.
Specified Filing: The filing by Household International Inc. with the
S.E.C. on Form 8-K dated October 11, 2002.
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 October 20, 2002.
Stepdown Date: The later to occur of (a) the Payment Date in May 2005
and (b) the first Payment Date on which the Pool Balance has been reduced to
50.00% of the Cut-Off Date Pool Balance.
Subsequent Cut-Off Date: As to each Eligible Substitute Home Equity
Loan, the close of business on the day designated as the "Subsequent Cut-Off
Date" with respect to the Eligible Substitute Home Equity Loan.
Substitution Adjustment Amount: As to any Defective Home Equity Loan
or any Home Equity Loan for which the Master Servicer elects to substitute
pursuant to Section 2.02(b) and the date on which a substitution thereof
occurs pursuant to Sections 2.02 or 2.04, the sum of:
(i) the excess, if any, of (a) the Principal Balance of such
Defective Home Equity Loan or such elected Home Equity Loan plus any
related Charge Off Amount as of the end of the related Collection
Period preceding the date of substitution (after the application of
any principal payments received on such Defective Home Equity Loan or
such elected Home Equity Loan on or before the date of the
substitution of the applicable Eligible Substitute Home Equity Loan or
Loans) over (b) the aggregate Principal Balance of the applicable
Eligible Substitute Home Equity Loan or Loans, plus
(ii) accrued and unpaid interest to the end of such Collection
Period computed on a daily basis at the Net Loan Rate on the Principal
Balance of such Defective Home Equity Loan or such elected Home Equity
Loan outstanding from time to time.
Supplemental Interest Amount: As of any Payment Date, the sum of (i)
the excess, if any, of (a) interest due on the Notes at the Formula Rate over
(b) interest due on the Notes at an interest rate equal to the Available Funds
Cap, (ii) any Supplemental Interest Amount remaining unpaid from prior Payment
Dates and (iii) interest on the amount in clause (ii) at the Formula Rate.
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Targeted Overcollateralization Amount:
(a) On the Closing Date, the Targeted Overcollateralization Amount
shall be an amount equal to the Initial Targeted Overcollateralization Amount;
(b) For each Payment Date prior to the Stepdown Date, the Targeted
Overcollateralization Amount shall be an amount equal to the Base Targeted
Overcollateralization Amount;
(c) For each Payment Date occurring on and after the Stepdown Date,
the Targeted Overcollateralization Amount shall be an amount equal to the
greatest of (i) the excess of (A) the aggregate of the Principal Balances of
all Home Equity Loans that are three or more payments contractually
delinquent, such percentage being inclusive of all Home Equity Loans which are
in bankruptcy, in foreclosure and REO, as of the end of the related Collection
Period over (B) ten times the Excess Spread, (ii) 0.50% of the Cut-Off Date
Pool Balance, (iii) the sum of outstanding Principal Balances of the three
largest Home Equity Loans as of the end of the related Collection Period and
(iv) 19.50% of the Pool Balance as of the end of the related Collection
Period.
The Insurer may, in its sole discretion, and at the request of Master
Servicer, modify the definition of Targeted Overcollateralization Amount,
including any of the defined terms contained therein, for the purpose of
reducing or eliminating, in whole or in part, its application, and the
Indenture Trustee, the Owner Trustee and each of the Rating Agencies shall be
notified, in writing, of such modifications prior to the related Payment Date
and such modification shall not result in a downgrading of the then-current
rating on the Notes.
Termination Price: As defined in Section 8.01(b).
Three Payment-Plus Delinquency Percentage: As to any Collection
Period, (a) the aggregate of the Principal Balances of all Home Equity Loans
that are three payments or more contractually delinquent, such percentage
being inclusive of all Home Equity Loans which are in bankruptcy, in
foreclosure and REO as of the end of such Collection Period, over (b) the Pool
Balance as of the end of such Collection Period.
Three Payment-Plus Rolling Average: As to any Payment Date, the
average of the Three Payment-Plus Delinquency Percentage for each of the three
(3) immediately preceding Collection Periods; provided, however, that for the
initial Payment Date, the Three Payment-Plus Rolling Average shall equal the
Three Payment-Plus Delinquency Percentage for the immediately preceding
Collection Period and for the Payment Date occurring in January 2003, the
Three Payment-Plus Rolling Average shall equal the average of the Three
Payment-Plus Delinquency Percentage for each of the two immediately preceding
Collection Periods.
Transaction Documents: This Agreement, the Home Equity Loan Purchase
Agreement, the Transfer Agreement, the Insurance and Indemnity Agreement, the
Indemnification Agreement, the Trust Agreement and the Indenture.
Transfer Agreement: The transfer agreement dated as of November 14,
2002 between the Trust and each Seller pursuant to which the Sellers will
assign to the Trust all of their right, title
19
and interest in and on the Transferred Assets not otherwise transferred
pursuant to the Home Equity Loan Purchase Agreement.
Transfer Date: As to any Home Equity Loan transferred to or
retransferred from the Trust hereunder, the date on which such transfer or
retransfer is made under the terms hereof, which date shall be (i) in the case
of the Home Equity Loans originally listed on the Home Equity Loan Schedule,
the Closing Date, and (ii) in the case of any Eligible Substitute Home Equity
Loan, the date on which such Eligible Substitute Home Equity Loan is conveyed
to the Trust under the terms hereof.
Transferor: The Depositor, or any such permitted holder of the
Ownership Interest.
Transferred Assets: All aspects, rights, title or interests of, in, to
or under the Home Equity Loans that are not otherwise conveyed hereunder
pursuant to Section 2.01, including, without limitation, all agreements,
instruments and other documents evidencing or governing the Mortgagor's
obligations under the Home Equity Loans or otherwise related thereto or
establishing or setting forth the terms and conditions thereof, and any
amendments or modifications thereto, and all property and collateral securing
the borrowers obligations thereunder.
Trigger Event: Any Payment Date on which either (i) the Three
Payment-Plus Rolling Average equals or exceeds 8.00% of the Pool Balance as of
the end of the preceding Collection Period or, on or after the Stepdown Date,
7.50% of the Pool Balance as of the end of the preceding Collection Period or
(ii) the Cumulative Loss Percentage for the preceding Collection Period
exceeds the Cumulative Loss Percentage Trigger for such Collection Period.
Trust: The trust created by the Trust Agreement, the corpus of which
consists of the Home Equity Loans, such assets as shall from time to time be
identified as deposited in the Collection Account (exclusive of net earnings
thereon), the Mortgage Notes and other Mortgage File documents for the Home
Equity Loans, any property that secured a Home Equity Loan and that has become
REO, the interest of the Depositor in certain hazard insurance policies
maintained by the Mortgagors or the Master Servicer in respect of the Home
Equity Loans, the Collection Account, the Note Guaranty Insurance Policy, the
proceeds of each of the foregoing and one share of Preferred Stock of the
Depositor.
Trust Agreement: The Trust Agreement dated as of October 17, 2002, and
amended and restated as of November 14, 2002 among Household Finance
Corporation, the Depositor, Bank One, National Association, as co-trustee and
not in its individual capacity, the Delaware Trustee and the Owner Trustee.
UCC: The Uniform Commercial Code, as amended from time to time, as in
effect in any specified jurisdiction.
SECTION 1.02 Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined herein
have the meanings assigned to them in the Indenture and the Trust Agreement,
as applicable.
20
(b) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other document
made or delivered pursuant hereto or thereto, accounting terms not defined in
this Agreement or in any such certificate or other document, and accounting
terms partly defined in this Agreement or in any such certificate or other
document to the extent not defined, shall have the respective meanings given
to them under generally accepted accounting principles. To the extent that the
definitions of accounting terms in this Agreement or in any such certificate
or other document are inconsistent with the meanings of such terms under
generally accepted accounting principles, the definitions contained in this
Agreement or in any such certificate or other document shall control.
(d) The words "hereof", "herein", "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole
and not to any particular provision of this Agreement; Article, Section,
Schedule and Exhibit references contained in this Agreement are references to
Articles, Sections, Schedules and Exhibits in or to this Agreement unless
otherwise specified; and the terms "including" and "includes" shall mean
"including without limitation."
(e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as
well as to the feminine genders of such terms.
(f) Any agreement, instrument or statute defined or referred to herein
or in any instrument or certificate delivered in connection herewith means
such agreement, instrument or statute as from time to time amended, modified
or supplemented and includes (in the case of agreements or instruments)
references to all attachments thereto and instruments incorporated therein;
references to a Person are also to its permitted successors and assigns.
SECTION 1.03 .Interest Calculations. All calculations of interest
hereunder that are made in respect of the Principal Balance of a Home Equity
Loan shall be made based on the number of days elapsed between the date that
interest was last paid on such Home Equity Loan and the date of receipt of the
related Mortgagor's most current payment. All calculations of interest on the
Notes shall be made on the basis of a 360-day year and the actual number of
days in the related Accrual Period. The calculation of the Premium Amount
shall be made on the basis of a 360-day year consisting of twelve 30-day
months. All dollar amounts calculated hereunder shall be rounded to the
nearest ▇▇▇▇▇ with one-half of one ▇▇▇▇▇ being rounded down.
21
ARTICLE II.
Conveyance of Home Equity Loans; Tax Treatment
SECTION 2.01 Acknowledgment; Conveyance of Home Equity Loans; Custody
of Mortgage Files.
(a) The Depositor, concurrently with the execution and delivery of
this Agreement, does hereby irrevocably transfer, assign, sell, set over and
otherwise convey to the Trust for the benefit of the Noteholders and the
Insurer without recourse (subject to Sections 2.02 and 2.04) (i) all of its
right, title and interest in and to the unpaid principal balance of each Home
Equity Loan and each Eligible Substitute Home Equity Loan, including all
Interest Collections and Principal Collections in respect of any such Home
Equity Loan received after the Cut-Off Date with respect to each Initial Home
Equity Loan and after the Subsequent Cut-Off Date with respect to each
Eligible Substitute Home Equity Loan pursuant to the Home Equity Loan Purchase
Agreement; (ii) property which secured such Home Equity Loan and which has
been acquired by foreclosure or deed in lieu of foreclosure; (iii) its
interest in any insurance policies in respect of the Home Equity Loans
(including any Insurance Proceeds); (iv) all other assets included or to be
included in the Trust for the benefit of the Noteholders, the Insurer and the
Transferor; (v) all proceeds of any of the foregoing; and (vi) one share of
the Depositor's Preferred Stock. In addition, on or prior to the Closing Date,
the Depositor shall cause the Insurer to deliver the Note Guaranty Insurance
Policy to the Indenture Trustee.
(b) The Depositor agrees to take, or to cause to be taken, such
actions and to execute such documents, including without limitation the filing
of all necessary continuation statements for the UCC-1 financing statement
filed in the State of Illinois and the State of Delaware, as applicable (which
shall have been filed as promptly as practicable, but in no event later than
10 days following the effective date of this Agreement), describing the Home
Equity Loans and naming the Depositor as seller and the Trust as buyer, and
any amendments or other filings to the UCC-1 financing statement required to
reflect a change in the applicable UCC, or a change of the name or corporate
structure of the Depositor, as are necessary to perfect and protect the
Noteholders' and the Insurer's interests in the Trust created hereunder,
including each Home Equity Loan and the proceeds thereof (other than
delivering to the Indenture Trustee possession of the Mortgage Files, which
possession will, subject to the terms hereof, be maintained by the Servicers
on behalf of the Master Servicer as custodian and bailee for the Indenture
Trustee). The parties hereto intend that the transactions set forth herein
constitute a sale and not a pledge by the Depositor to the Trust of all the
Depositor's right, title and interest in and to the Home Equity Loans and
other Trust property as and to the extent described above. In the event the
transactions set forth herein are characterized as a pledge and not a sale,
the Depositor hereby grants to the Trust a security interest in all of the
Depositor's right, title and interest in, to and under the Home Equity Loans
and such other Trust property, to secure all of the Depositor's obligations
hereunder, and this Agreement shall constitute a security agreement under
applicable law. With respect to the Home Equity Loans sold by each Seller to
the Depositor, the Master Servicer shall cause such Seller to file as promptly
as practicable, but in no event later than ten days following the effective
date of this Agreement, in the appropriate public filing office or offices
UCC-1 financing statements and continuation statements describing such Home
Equity Loans and naming such Seller as seller and the Depositor as buyer, to
file appropriate
22
continuation statements thereto, to file amendments thereto in the case of a
change in the applicable UCC, name change or change in corporate structure and
to file appropriate additional UCC-1 financing statements, if any, if such
Seller changes its jurisdiction of incorporation.
(c) In connection with such transfer and assignment by the Depositor
and the Master Servicer, acting through the Servicers, the Indenture Trustee
and the Master Servicer hereby acknowledge that the Servicers are holding,
with respect to the Home Equity Loans transferred on the Closing Date, and
will hold, with respect to each Eligible Substitute Home Equity Loan, on and
from the applicable Transfer Date, as custodian and bailee for the Indenture
Trustee, the following documents or instruments with respect to each such Home
Equity Loan (the "Related Documents"):
(i) the original Mortgage Note with all intervening endorsements
showing a complete chain of title from the originator of such Home Equity
Loan to the Seller or a copy of such original Mortgage Note with an
accompanying lost note affidavit;
(ii) the original Mortgage, noting the presence of the MIN of the
Home Equity Loan, if the Mortgage is registered on the MERS(R) System,
and language indicating that the Home Equity Loan is a MOM Loan if the
Home Equity Loan is a MOM Loan, with evidence of recording thereon,
provided that if the original Mortgage has been delivered for recording
to the appropriate public recording office of the jurisdiction in which
the Mortgaged Property is located but has not yet been returned to the
Seller by such recording office, the Seller may hold a copy of such
original Mortgage; and
(iii) originals of any amendments to the Mortgage Note or Mortgage,
any modification or assumption agreements and any previous assignments of
such Home Equity Loan;
provided, however, that as to any Home Equity Loan, if, as evidenced by an
Opinion of Counsel delivered to and in form and substance reasonably
satisfactory to the Owner Trustee, the Indenture Trustee and the Insurer, (x)
an optical image or other electronic representation of the related documents
specified in clauses (i) through (iii) above are enforceable in the relevant
jurisdictions to the same extent as the original of such document and (y) such
optical image or other representation does not impair the ability of an owner
of such Home Equity Loan to transfer its interest in such Home Equity Loan,
such optical image or other representation may be held by the Master Servicer,
acting through the Servicers, as custodian and bailee for the Indenture
Trustee, in lieu of the physical documents specified above.
(d) Except as hereinafter provided, the Master Servicer, acting
through the Servicers, shall be entitled to maintain possession of all of the
foregoing documents and instruments, shall not be required to deliver any of
them to the Indenture Trustee or the Owner Trustee and shall not be required
to record an Assignment of Mortgage in favor of the Indenture Trustee or the
Owner Trustee with respect to any Home Equity Loan. In the event, however,
that possession of any of such documents or instruments is required by any
Person (including the Indenture Trustee) acting as successor master servicer
pursuant to Section 6.04 or 7.02 in order to carry out the duties of Master
Servicer hereunder, then such successor shall be entitled to request delivery,
at the expense of the Master Servicer, of such documents or instruments by the
Master Servicer
23
and to retain such documents or instruments for servicing purposes;
provided that the Indenture Trustee or such servicers shall maintain such
documents at such offices as may be required by any regulatory body having
jurisdiction over such Home Equity Loans.
(e) The Master Servicer's right to maintain possession, directly or
through the Servicers, of the Mortgage Files shall continue so long as (x) at
least two of ▇▇▇▇▇'▇, Standard & Poor's and Fitch assign an acceptable minimum
long-term senior unsecured debt rating to HFC of (currently "Baa3", in the
case of ▇▇▇▇▇'▇, "BBB", in the case of Fitch, and "BBB-", in the case of
Standard & Poor's), (or such lower rating acceptable and assigned by at least
two of ▇▇▇▇▇'▇, Standard & Poor's and Fitch and, so long as no Insurer Default
exists and is continuing, acceptable to the Insurer) and (y) each of the
Servicers remains an Affiliate of HFC. At such time as either of the
conditions specified in the preceding sentence is not satisfied, as promptly
as practicable, but in no event more than 90 days thereafter in the case of
clause (i) below, 60 days in the case of clause (ii) below and 60 days in the
case of clause (iii) below, the Master Servicer shall cause each Servicer, at
such Servicer's expense or, to the extent the Servicer fails to pay, the
Master Servicer's expense, to (i) either (x) record an Assignment of Mortgage
in favor of the Trust (which may be a blanket assignment if permitted by
applicable law) with respect to each of the Home Equity Loans being serviced
by such Servicer in the appropriate real property or other records or (y)
deliver to the Indenture Trustee the assignment of such Mortgage in favor of
the Trust in form for recordation, together with an Opinion of Counsel
addressed to the Indenture Trustee and the Insurer to the effect that
recording is not required to protect the Trust's right, title and interest in
and to the related Home Equity Loan or to perfect a first priority security
interest in favor of the Trust in the related Home Equity Loan, which Opinion
of Counsel also shall be reasonably acceptable to each of the Rating Agencies,
the Owner Trustee, the Indenture Trustee and the Insurer (as evidenced in
writing), (ii) unless an Opinion of Counsel, reasonably acceptable to the
Owner Trustee, the Indenture Trustee and the Rating Agencies and the Insurer
(as evidenced in writing), is delivered to the Indenture Trustee and the
Insurer to the effect that delivery of the Mortgage Files is not necessary to
protect the Trust's right, title and interest in and to the related Home
Equity Loans or to perfect a first priority security interest in favor of the
Trust in the related Home Equity Loans, deliver the related Mortgage Files to
the Indenture Trustee to be held by the Indenture Trustee in trust, upon the
terms herein set forth, for the use and benefit of all present and future
Noteholders and the Insurer, and the Indenture Trustee shall retain possession
thereof except to the extent the Master Servicer or Servicers require any
Mortgage Files for normal servicing as contemplated by Section 3.08, and (iii)
have a Responsible Officer of the applicable Seller endorse the original
Mortgage Note with respect to each of the Home Equity Loans being serviced by
the Servicer to "Pay to the order of ____________ without recourse" with all
intervening endorsements showing a complete chain of title from the originator
of such Home Equity Loan to the applicable Seller. The Master Servicer shall
cause the Servicers to appoint the Indenture Trustee their attorney-in-fact to
prepare, execute and record any assignments of Mortgages required under this
Section 2.01 in the event that the Servicers or the Master Servicer should
fail to do so on a timely basis.
(f) Within 90 days following delivery, if any, of the Mortgage Files
to the Indenture Trustee pursuant to the preceding subsection, the Indenture
Trustee shall review each such Mortgage File to ascertain that all required
documents set forth in this Section 2.01 have been executed and received and
that such documents relate to the Home Equity Loans identified on the Home
Equity Loan Schedule, and in so doing the Indenture Trustee may rely on the
24
purported due execution and genuineness of any signature thereon. If within
such 90-day period the Indenture Trustee finds any document constituting a
part of a Mortgage File not to have been executed or received or to be
unrelated to the Home Equity Loans identified in said Home Equity Loan
Schedule or, if in the course of its review, the Indenture Trustee determines
that such Mortgage File is otherwise defective in any material respect, the
Indenture Trustee shall promptly upon the conclusion of its review notify the
Owner Trustee, the Depositor, the Insurer and the Master Servicer, the
Depositor and the Master Servicer shall have a period of 90 days after such
notice within which to correct or cure any such defect; provided, however,
that if such defect shall not have been corrected or cured within such 90-day
period due to the failure of the related office of real property or other
records to return any document constituting a part of a Mortgage File, the
Depositor or the Master Servicer shall so notify the Owner Trustee, the
Indenture Trustee and the Insurer and the period during which such defect may
be corrected or cured shall be extended for one additional 90-day period.
(g) The Indenture Trustee shall have no responsibility for reviewing
any Mortgage File except as expressly provided in this Section 2.01. In
reviewing any Mortgage File pursuant to this Section 2.01, the Indenture
Trustee shall have no responsibility for determining whether any document is
valid and binding, whether the text of any assignment or endorsement is in
proper or recordable form (except, if applicable, to determine if the Trust is
the assignee or endorsee), whether any document has been recorded in
accordance with the requirements of any applicable jurisdiction, or whether a
blanket assignment is permitted in any applicable jurisdiction, whether any
Person executing any document is authorized to do so or whether any signature
thereon is genuine, but shall only be required to determine whether a document
has been executed, that it appears to be what it purports to be and, where
applicable, that it purports to be recorded.
(h) The Master Servicer hereby confirms to the Indenture Trustee, the
Owner Trustee and the Insurer that on or prior to the Closing Date and on or
prior to the applicable Transfer Date with respect to any Eligible Substitute
Home Equity Loan, the portions of the Electronic Ledger relating to such Home
Equity Loans have been or will have been clearly and unambiguously marked, and
the appropriate entries have been or will have been made in its general
accounting records, to indicate that such Home Equity Loans have been
transferred to the Trust and constitute part of the Trust in accordance with
the terms hereof.
(i) In connection with the assignment, pursuant to Section 2.01(e)(i),
of any Home Equity Loan registered on the MERS(R) System, the Master Servicer
shall cause each Servicer, at such Servicer's expense or, to the extent the
Servicer fails to pay, the Master Servicer's expense, at the time specified in
the second sentence of Section 2.01(e)(i), to cause the MERS(R) System to
indicate that such Home Equity Loans have been assigned to the Trust in
accordance with this Agreement by including (or deleting, in the case of Home
Equity Loans which are repurchased in accordance with this Agreement) in such
computer files (a) the code "[IDENTIFY TRUST SPECIFIC CODE]" in the field
"[IDENTIFY THE FIELD NAME FOR TRUST]" which identifies the Trust and (b) the
code "[IDENTIFY SERIES SPECIFIC CODE NUMBER]" in the field "Pool Field" which
identifies the series of the Notes issued in connection with such Home Equity
Loans. The Master Servicer agrees that it will not alter the codes referenced
in this paragraph with respect to any Home Equity Loan during the term of this
Agreement unless and until such Home Equity Loan is repurchased in accordance
with the terms of this Agreement, and
25
there is filed any financing statement or amendment thereof necessary
to comply with the New York UCC or the UCC of any applicable jurisdiction.
SECTION 2.02 Acceptance by Indenture Trustee; Repurchase of Home
Equity Loans; Conveyance of Eligible Substitute Home Equity Loans.
(a) The Indenture Trustee hereby acknowledges receipt of all the
right, title and interest of the Depositor in and to the assets described
Section 2.01(a)(i) through (vi), and all of the right, title and interest of
the Sellers in and to the Transferred Assets pursuant to the Transfer
Agreement, including but not limited to the transfer and assignment of the
Mortgage Notes and the Mortgages, and declares that it holds and will hold
such documents and interests and all amounts received by it in trust, upon the
terms herein set forth, for the use and benefit of the Trust and all present
and future Noteholders and the Insurer. If the time to cure any defect of
which the Indenture Trustee or the Insurer has notified the Depositor, the
Master Servicer and the Insurer following the Indenture Trustee's review of
the Home Equity Loan files pursuant to Section 2.01 has expired or if any loss
is suffered by the Indenture Trustee, on behalf of the Noteholders or the
Insurer, in respect of any Home Equity Loan as a result of (i) a defect in any
document constituting a part of a Mortgage File or (ii) the related Seller's
retention of such Mortgage File or an Assignment of Mortgage not having been
recorded, the Depositor or, to the extent the Depositor fails to perform, the
Master Servicer shall, in the case of a defect in such document and the Master
Servicer shall, in the case of a loss resulting from such Seller's retention
of a Mortgage File or Assignment of Mortgage not having been recorded, on the
Business Day next preceding the Payment Date in the month following the end of
the Collection Period in which the time to cure such defect expired or such
loss occurred, either (i) repurchase the related Home Equity Loan (a
"Defective Home Equity Loan") (including any property acquired in respect
thereof and any insurance policy or insurance proceeds with respect thereto)
from the Trust at a price equal to the Purchase Price which shall be
accomplished by deposit by the Depositor or the Master Servicer, as
applicable, in the Collection Account pursuant to Section 3.02 on such next
preceding Business Day, or (ii) remove such Defective Home Equity Loan from
the Trust and substitute in its place an Eligible Substitute Home Equity Loan
or Loans.
(b) The Master Servicer, in its sole discretion, shall have the right,
but not the obligation, to elect (by written notice sent to the Indenture
Trustee and the Owner Trustee) to substitute in the place of any Home Equity
Loan an Eligible Substitute Home Equity Loan or Loans; provided that the
aggregate Principal Balance as of the related subsequent Cut-Off Date of all
Eligible Substitute Home Equity Loans substituted pursuant to this Section
shall not exceed 30% of the Cut-Off Date Pool Balance; provided further that
prior to any such substitution the Master Servicer shall give prompt written
notice to each Rating Agency and the Insurer of any such substitution.
(c) As to any Eligible Substitute Home Equity Loan or Loans, the
Master Servicer shall cause the related Seller to deliver to the Indenture
Trustee with respect to such Eligible Substitute Home Equity Loan or Loans an
acknowledgment that the related Seller is holding as custodian for the
Indenture Trustee such documents and agreements, if any, as are permitted to
be held by the related Seller in accordance with Section 2.01. An assignment
of the Mortgage in favor of the Trust with respect to such Eligible Substitute
Home Equity Loan or Loans shall be
26
required to be recorded in the appropriate real property or other
records or delivered to the Indenture Trustee with the Opinion of Counsel
referred to in Section 2.01 under the same circumstances that all other
assignments of Mortgage are required to be recorded hereunder. For any
Collection Period during which the Depositor or the Master Servicer
substitutes one or more Eligible Substitute Home Equity Loans, the Master
Servicer shall determine the Substitution Adjustment Amount. The Depositor or
the Master Servicer, as applicable, shall deposit the Substitution Adjustment
Amount in the Collection Account no later than the Business Day immediately
preceding the Payment Date in the month following the end of the Collection
Period in which such substitution occurs. The Master Servicer shall amend the
Home Equity Loan Schedule to reflect the removal of the Defective Home Equity
Loan or Home Equity Loan for which the Master Servicer has made a substitution
election pursuant to Section 2.02(b) from the terms of this Agreement and the
substitution of the Eligible Substitute Home Equity Loan or Loans. Upon such
substitution, the Eligible Substitute Home Equity Loan or Loans shall be
subject to the terms of this Agreement in all respects, and the Depositor
shall be deemed to have made with respect to such Eligible Substitute Home
Equity Loan or Loans, as of the date of substitution, the covenants,
representations and warranties set forth in Section 2.04(b). The Indenture
Trustee shall upon satisfaction of the conditions in this subsection
immediately take any action requested by the Depositor, if any, to effect the
reconveyance of such Defective Home Equity Loan or such Home Equity Loan for
which the Master Servicer has made a substitution election so removed from the
Trust to the Depositor or the Master Servicer, as applicable. The procedures
applied by the Depositor or the Master Servicer in selecting each Eligible
Substitute Home Equity Loan shall not be adverse to the interests of the
Noteholders or, so long as no Insurer Default exists and is continuing, the
Insurer and shall be comparable to the selection procedures applicable to the
Home Equity Loans originally conveyed hereunder.
(d) Upon receipt by the Indenture Trustee of (i) in the case of a
repurchase, a Servicing Certificate to the effect that the Purchase Price for
any such Defective Home Equity Loan or such Home Equity Loan for which the
Master Servicer has made a substitution election has been so deposited in the
Collection Account or (ii) in the case of a substitution, (A) a Servicing
Certificate to the effect that the Substitution Adjustment Amount, if any, has
been so deposited in the Collection Account and (B) an Officer's Certificate
reciting the transfer and assignment of the Eligible Substitute Home Equity
Loan(s) to the Indenture Trustee and, if required at such time, that the
related Mortgage File(s) for such Eligible Substitute Home Equity Loan(s) have
been delivered to the Indenture Trustee and the assignment(s) of Mortgage have
been recorded, the Indenture Trustee shall execute and deliver such instrument
of transfer or assignment presented to it by the Master Servicer, in each case
without recourse, as shall be necessary to vest in the Depositor or the Master
Servicer, as applicable, legal and beneficial ownership of such Defective Home
Equity Loan or such Home Equity Loan for which the Master Servicer has made a
substitution election (including any property acquired in respect thereof or
proceeds of any insurance policy with respect thereto). It is understood and
agreed that the obligation of the Depositor or the Master Servicer to
repurchase or substitute for (to the extent permitted herein) any Defective
Home Equity Loan shall constitute the sole and exclusive remedy respecting
such defect available to Noteholders, the Insurer (except as provided in
Section 3.03 of the Insurance and Indemnity Agreement) or the Indenture
Trustee against the Depositor or the Master Servicer, and such obligation on
the part of the Master Servicer shall survive any resignation or termination
of the Master Servicer hereunder.
27
SECTION 2.03 Representations, Warranties and Covenants of the Master
Servicer. The Master Servicer represents, warrants and covenants that as of
the Closing Date:
(a) The Master Servicer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the corporate power to own its assets and to transact the business in which it
is currently engaged. The Master Servicer is duly qualified to do business as
a foreign corporation and is in good standing in each jurisdiction in which
the character of the business transacted by it or properties owned or leased
by it require such qualification and in which the failure to so qualify would
have a material adverse effect on the business, properties, assets, or
condition (financial or other) of the Master Servicer;
(b) The Master Servicer has the power and authority to make, execute,
deliver and perform its obligations under this Agreement and to perform its
obligations with respect to all of the transactions contemplated under this
Agreement, and has taken all necessary corporate action to authorize the
execution, delivery and performance of its obligations under this Agreement.
When executed and delivered, this Agreement will constitute the legal, valid
and binding obligation of the Master Servicer enforceable in accordance with
its terms, except as enforcement of such terms may be limited by bankruptcy,
insolvency or similar laws affecting the enforcement of creditors' rights
generally and by the availability of equitable remedies (whether in a
proceeding at law or in equity);
(c) The Master Servicer is not required to obtain the consent of any
other Person or any consent, license, approval or authorization from, or
registration or declaration with, any governmental authority, bureau or agency
in connection with the execution, delivery, performance, validity or
enforceability of this Agreement, except for such consents, licenses,
approvals or authorizations, or registrations or declarations, as shall have
been obtained or filed, as the case may be;
(d) The execution and delivery of this Agreement and the performance
of the transactions contemplated hereby by the Master Servicer will not
violate any provision of any existing law or regulation or any order or decree
of any court applicable to the Master Servicer or any provision of the
Certificate of Incorporation or Bylaws of the Master Servicer, or constitute a
material breach of any mortgage, indenture, contract or other agreement to
which the Master Servicer is a party or by which the Master Servicer may be
bound; and
(e) No litigation or administrative proceeding of or before any court,
tribunal or governmental body is currently pending, or to the knowledge of the
Master Servicer threatened, against the Master Servicer or any of its
properties or with respect to this Agreement or the Notes which in the opinion
of the Master Servicer has a reasonable likelihood of resulting in a material
adverse effect on the transactions contemplated by this Agreement.
(f) The Master Servicer is a member of MERS in good standing, and will
comply in all material respects with the rules and procedures of MERS in
connection with the servicing of the Home Equity Loans that are registered
with MERS.
The representations and warranties set forth in this Section 2.03
shall survive the sale and assignment of the Home Equity Loans to the Trust.
Upon discovery of a breach of any
28
representations and warranties which materially and adversely affects
the interests of the Noteholders or the Insurer, the Person discovering such
breach shall give prompt written notice to the other parties and the Insurer.
Within 60 days (or such longer period as permitted by prior written consent of
a Responsible Officer of the Indenture Trustee) of its discovery or its
receipt of notice of such breach, the Master Servicer shall cure such breach
in all material respects.
SECTION 2.04 Representations and Warranties of the Depositor Regarding
this Agreement and the Home Equity Loans; Repurchases and Substitutions.
(a) The Depositor represents and warrants that as of the Closing Date:
(i) The Depositor is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware
and has the corporate power to own its assets and to transact the
business in which it is currently engaged. The Depositor is duly
qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which the character of the business
transacted by it or properties owned or leased by it require such
qualification and in which the failure to so qualify would have a
material adverse effect on the business, properties, assets or
condition (financial or other) of the Depositor;
(ii) The Depositor has the power and authority to make, execute,
deliver and perform its obligations under this Agreement and to
perform its obligations with respect to all of the transactions
contemplated under this Agreement, and has taken all necessary
corporate action to authorize the execution, delivery and performance
of its obligations under this Agreement. When executed and delivered,
this Agreement will constitute the legal, valid and binding obligation
of the Depositor enforceable in accordance with its terms, except as
enforcement of such terms may be limited by bankruptcy, insolvency or
similar laws affecting the enforcement of creditors' rights generally
and by the availability of equitable remedies (whether in a proceeding
at law or in equity);
(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
29
Agreement which in the opinion of the Depositor has a reasonable
likelihood of resulting in a material adverse effect on the
transactions contemplated by this Agreement.
(b) The Depositor represents and warrants with respect to each
Home Equity Loan that as of the Closing Date with respect to the Initial Home
Equity Loans and the applicable Transfer Date with respect to any Eligible
Substitute Home Equity Loans (or to the extent expressly stated herein as of
such other time):
(i) This Agreement and the Transfer Agreement constitute a valid
transfer and assignment to the Trust of all right, title and interest
of the Depositor and the Sellers, respectively, in and to the Home
Equity Loans, all monies due or to become due with respect thereto,
all proceeds thereof, such funds as are from time to time deposited in
the Collection Account (excluding any investment earnings thereon) and
all other property specified in the definition of "Trust" as being
part of the corpus of the Trust conveyed to the Trust by the
Depositor;
(ii) The information set forth in the Home Equity Loan Schedule
with respect to such Home Equity Loan is true and correct in all
material respects;
(iii) Immediately prior to the transfer and assignment by the
related Seller to the Depositor and the Trust pursuant to the Home
Equity Loan Purchase Agreement and the Transfer Agreement, the Home
Equity Loan has not been assigned or pledged, and the related Seller
has good and marketable title thereto, and the related Seller is the
sole owner and holder of such Home Equity Loan free and clear of any
and all liens, claims, encumbrances, participation interests,
equities, pledges, charges or security interests of any nature, and
has full right and authority, under all governmental and regulatory
bodies having jurisdiction over the ownership of such Home Equity
Loan, to transfer and assign the same pursuant to the Home Equity Loan
Purchase Agreement and the Transfer Agreement;
(iv) Immediately prior to the transfer and assignment by the
Depositor to the Trust pursuant to this Agreement, the Home Equity
Loan has not been assigned or pledged, and the Depositor has good and
marketable title thereto, and the Depositor is the sole owner and
holder of such Home Equity Loan free and clear of any and all liens,
claims, encumbrances, participation interests, equities, pledges,
charges or security interests of any nature, and has full right and
authority, under all governmental and regulatory bodies having
jurisdiction over the ownership of such Home Equity Loan, to transfer
and assign the same pursuant to this Agreement;
(v) The related Mortgage is a valid and existing first or second
lien (and, if such Mortgage is a second lien and HFC or any of its
affiliates originated the related first lien mortgage loan, such
Mortgage was not originated within 90 days of such first lien mortgage
loan), as set forth on the Home Equity Loan Schedule with respect to
such Home Equity Loan, on the property therein described, and the
related Mortgaged Property is free and clear of all encumbrances and
liens having priority over the first or second lien, as applicable, of
such Mortgage except for liens for (a) real estate taxes and special
assessments not yet delinquent; (b) any first and, if applicable,
second mortgage
30
loan secured by such Mortgaged Property and specified on the Home
Equity Loan Schedule; (c) covenants, conditions and restrictions,
rights of way, easements and other matters of public record as of
the date of recording that are acceptable to mortgage lending
institutions generally; and (d) other matters to which like
properties are commonly subject which do not materially interfere with
the benefits of the security intended to be provided by such Mortgage;
(vi) To the best knowledge of the Depositor, each Mortgage is not
subject to any offset, defense or counterclaim of any obligor under
the Mortgage;
(vii) To the best knowledge of the Depositor, there is no
delinquent recording or other tax or fee or assessment lien against
the related Mortgaged Property;
(viii) To the best knowledge of the Depositor, there is no
proceeding pending or threatened for the total or partial condemnation
of the related Mortgaged Property, and such property is free of
material damage and is in good repair;
(ix) There are no mechanics' or similar liens or claims which
have been filed for work, labor or material affecting the related
Mortgaged Property which are, or may be, liens prior or equal to the
lien of the related Mortgage, except (a) liens which are fully insured
against by the title insurance policy referred to in clause (xiii) or
(b) liens which do not materially interfere with the collection of the
Home Equity Loan upon foreclosure or otherwise;
(x) As of the Cut-Off Date for the Initial Home Equity Loans (or
as of the applicable Transfer Date for any Eligible Substitute Home
Equity Loan), no scheduled monthly payment is more than 30 days
delinquent (measured on a contractual basis);
(xi) The related Mortgage File contains each of the documents and
instruments specified to be included therein (including, if
applicable, an appraisal (which may be an appraisal prepared using a
statistical data base));
(xii) The related Mortgage Note and the related Mortgage at the
time they were made complied in all material respects with applicable
state and federal laws, including, without limitation, usury,
truth-in-lending, real estate settlement procedures, consumer credit
protection, equal credit opportunity or disclosure laws applicable to
the Home Equity Loan;
(xiii) A lender's title insurance policy or binder was issued on
the date of origination of each Home Equity Loan for home equity loans
in excess of $50,000 (in excess of $75,000 in Oklahoma), and each such
policy is valid and remains in full force and effect, and a title
search or other assurance of title customary in the relevant
jurisdiction was obtained with respect to each Home Equity Loan as to
which no title insurance policy or binder was issued;
(xiv) The related Mortgaged Property is not a mobile home or a
manufactured housing unit that is not permanently attached to its
foundation;
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(xv) The Principal Balance of which, when included in the Pool
Balance (in each case for the Initial Home Equity Loans as of the
Statistical Cut-Off Date), would not cause the aggregate Principal
Balance of the Initial Home Equity Loans that are secured by Mortgaged
Properties located in one United States postal zip code to exceed
0.45%;
(xvi) As of the Statistical Cut-Off Date, the Combined
Loan-to-Value Ratio for each Initial Home Equity Loan was not in
excess of 115%;
(xvii) No selection procedure reasonably believed by the
Depositor to be adverse to the interests of the Noteholders or the
Insurer was utilized in selecting the Home Equity Loan;
(xviii) The Depositor has not transferred the Home Equity Loans
to the Trust with any intent to hinder, delay or defraud any of its
creditors;
(xix) Each Mortgage Note and each Mortgage is in substantially
the form previously provided to the Indenture Trustee by the Depositor
and each Home Equity Loan is an enforceable obligation of the related
Mortgagor;
(xx) The Depositor has not received a notice of default of any
senior mortgage loan with respect to the related Mortgaged Property
that has not been cured by a party other than the related Seller;
(xxi) The Initial Home Equity Loan does not have an original term
to maturity in excess of 360 months; and the Principal Balance of
which, when included in the Pool Balance (in each case for the Initial
Home Equity Loans as of the Statistical Cut-Off Date), would not cause
the weighted average remaining term to maturity of the Initial Home
Equity Loans on a contractual basis to be greater than 307 months;
(xxii) The related Mortgaged Property consists of a single parcel
of real property with a one-to-four unit single family residence
erected thereon, or an individual condominium unit, planned unit
development unit or townhouse;
(xxiii) The Principal Balance of which, when included in the Pool
Balance (in each case for the Initial Home Equity Loans as of the
Statistical Cut-Off Date), would not cause the average Principal
Balance of such Home Equity Loans to be greater than $102,561; and
(xxiv) The Principal Balance of which, when included in the Pool
Balance (in each case for the Initial Home Equity Loans as of the
Cut-Off Date), would not cause the weighted average percentage of the
Initial Home Equity Loans secured by first liens to be less than 89%;
and would not cause the weighted average percentage of the Initial
Home Equity Loans secured by second liens to be greater than 11%.
(c) It is understood and agreed that the representations and
warranties set forth in this Section 2.04 shall survive the transfer and
assignment of the Home Equity Loans to the Trust and the pledge of the Home
Equity Loans to the Indenture Trustee. Upon discovery by the Depositor, the
Master Servicer, the Insurer, the Owner Trustee or the Indenture Trustee of a
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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, the Insurer or the Transferor in respect of the Ownership
Interest in the related Home Equity Loan, the person discovering such breach
shall give prompt written notice to the other parties, the Insurer and each
Rating Agency. Within 60 days of its discovery or its receipt of notice of
such breach, or, with the prior written consent of a Responsible Officer of
the Indenture Trustee and the Insurer (so long as no Insurer Default exists
and is continuing), such longer period not to exceed 90 days specified in such
consent, the Depositor or, as necessary, the Master Servicer shall cure such
breach in all material respects. With regard to any such breach of the
representations and warranties set forth in Section 2.04(b), unless, at the
expiration of such 60 day or longer period, such breach has been cured in all
material respects or otherwise does not exist or continue to exist, the
Depositor or the Master Servicer shall, not later than the Business Day next
preceding the Payment Date in the month following the end of the Collection
Period in which any such cure period expired, either (i) repurchase such
Defective Home Equity Loan (including any property acquired in respect thereof
and any insurance policy or insurance proceeds with respect thereto) or (ii)
remove such Home Equity Loan from the Trust and substitute in its place an
Eligible Substitute Home Equity Loan or Loans, in the same manner and subject
to the same conditions as set forth in Section 2.02. Upon making any such
repurchase or substitution the Depositor or the Master Servicer, as
applicable, shall be entitled to receive an instrument of assignment or
transfer from the Indenture Trustee to the same extent as set forth in Section
2.02 with respect to the repurchase or replacement of Home Equity Loans under
that Section. Subject to Section 2.04(d) and, with respect to the Insurer,
except as provided in Section 3.03 of the Insurance and Indemnity Agreement,
it is understood and agreed that the obligation of the Depositor or the Master
Servicer to purchase or substitute for any such Defective Home Equity Loan (or
property acquired in respect thereof) shall constitute the sole and exclusive
remedy against the Depositor or the Master Servicer respecting such breach of
the foregoing representations or warranties available to Noteholders, the
Transferor in respect of the Ownership Interest, the Insurer, the Owner
Trustee or the Indenture Trustee against the Depositor or the Master Servicer,
and such obligation on the part of the Master Servicer shall survive any
resignation or termination of the Master Servicer hereunder.
(d) The Depositor and the Master Servicer, jointly and not severally,
agree to indemnify and hold harmless the Trust against any and all
out-of-pocket financial losses, claims, expenses, damages or liabilities to
which the Trust may become subject, insofar as such out-of-pocket financial
losses, claims, expenses, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any representation or warranty made by
the Depositor in this Section 2.04 on which the Trust has relied, being, or
alleged to be, untrue or incorrect in any material respect. This indemnity
will be in addition to any liability which the Depositor or the Master
Servicer may otherwise have.
(e) Promptly after receipt by the Owner Trustee on behalf of the Trust
of notice of the commencement of any action or proceeding in any way relating
to or arising from this Agreement, the Owner Trustee will notify the Indenture
Trustee, the Depositor, the Insurer and the Master Servicer of the
commencement thereof, but the omission so to notify the party from whom
indemnification is sought (the "Indemnifying Party") will not relieve the
Indemnifying Party from any liability which it may have to the party seeking
indemnification (the
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"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 Note through it to comply with this
Agreement as to treatment of the Notes as indebtedness for federal, state and
local income and franchise tax purposes and for purposes of any other tax
imposed on or measured by income. The Indenture Trustee will prepare and file
all tax reports, if any, required hereunder on behalf of the Trust.
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ARTICLE III.
ADMINISTRATION AND SERVICING OF HOME EQUITY LOANS
SECTION 3.01 The Master Servicer.
(a) The Master Servicer shall, or shall cause the Servicers to,
service and administer the Home Equity Loans in a manner consistent with the
terms of this Agreement and the Settlement Agreement (to the extent that no
term or provision of the Settlement Agreement (excluding those terms
identified in the Specified Filing) shall adversely affect in any material
respect the interests of the Noteholders or (so long as no Insurer Default
exists and is continuing) the Insurer) and with general industry practice and
shall have full power and authority, acting alone or through the Servicers, to
do any and all things in connection with such servicing and administration
which it may deem necessary or desirable, it being understood, however, that
the Master Servicer shall at all times remain responsible to the Indenture
Trustee, the Noteholders, and to the Insurer (so long as no Insurer Default
exists and is continuing) for the performance of its duties and obligations
hereunder in accordance with the terms hereof. Any amounts received by the
related Servicer in respect of a Home Equity Loan shall be deemed to have been
received by the Master Servicer whether or not actually received by it.
Without limiting the generality of the foregoing, the Master Servicer shall
continue, and is hereby authorized and empowered by the Indenture Trustee, (i)
in its own name or in the name of any Servicer, when the Master Servicer or
the Servicer, as the case may be, believes it appropriate in its best judgment
to register any Home Equity Loan on the MERS(R) System, or cause the removal
from the registration of any Home Equity Loan on the MERS(R) System, to
execute and deliver, on behalf of the Trust, any and all instruments of
assignment and other comparable instruments with respect to such assignment or
re-recording of a Mortgage in the name of MERS, solely as nominee for the
Trust and its successors and assigns, and (ii) to execute and deliver, on
behalf of itself, the Noteholders and the Indenture Trustee or any of them,
any and all instruments of satisfaction or cancellation, or of partial or full
release or discharge and all other comparable instruments, with respect to the
Home Equity Loans and with respect to the Mortgaged Properties. Upon the
written request of the Master Servicer, the Depositor and the Indenture
Trustee shall furnish the Master Servicer with any powers of attorney and
other documents necessary or appropriate to enable the Master Servicer to
carry out its servicing and administrative duties hereunder. The Master
Servicer in such capacity may also consent to the placing of a proposed lien
senior to that of the Mortgage on the related Mortgaged Property, provided
that such proposed lien is not secured by a note providing for negative
amortization and:
(x) (i) the Mortgage relating to the Home Equity Loan was in a
first lien position as of the Cut-Off Date and was in a first lien
position immediately prior to the placement of the proposed senior
lien, and (ii) the ratio of (a) the sum of the Principal Balance of
the Home Equity Loan and the principal balance of the mortgage loan to
be secured by the proposed senior lien to (b) the Appraised Value of
the Mortgaged Property at the time the Home Equity Loan was originated
is not greater than (1) with respect to Home Equity Loans with an
original CLTV of 85% or less, 85%, (2) with respect to Home Equity
Loans with an original CLTV in excess of 85% and not greater than 95%,
95% and (3) with respect to Home Equity Loans with an original CLTV in
excess of 95% and not greater than 115%, 115%;
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(y) (i) the Mortgage relating to the Home Equity Loan was in a
first or second lien position at the time the related Home Equity Loan
was conveyed to the Trust and, immediately following the placement of
such proposed senior lien, such Mortgage will be in a second or, if
such Mortgage was in a second lien position at the time the related
Home Equity Loan was conveyed to the Trust, a third lien position and
(ii) the principal balance of the mortgage loan to be secured by the
proposed senior lien and the rate at which interest accrues thereon
are no greater than those of the related Home Equity Loan as of the
date it was first conveyed to the Trust; or
(z) the Mortgage relating to the Home Equity Loan was in a
second lien position as of the Cut-Off Date and the proposed senior
lien secures a mortgage loan that refinances an existing first
mortgage loan and the outstanding principal amount of such mortgage
loan immediately following such refinancing and the rate at which
interest accrues thereon are not greater than that of such existing
first mortgage loan at the date the mortgage loan was originated.
(b) If (i) foreclosure proceedings are commenced with respect to any
Home Equity Loan with respect to which the Master Servicer has consented to
the placing of a subsequent senior lien pursuant to clause (x) in Section
3.01(a), or (ii) any loss is suffered by the Indenture Trustee on behalf of
the Noteholders, the Insurer or the Transferor in respect of the Ownership
Interest in respect of any Home Equity Loan as a result of (x) a failure to
file on or within ten days following the effective date of this Agreement the
UCC-l financing statements referred to in Section 2.01 or (y) a failure to
publish on or prior to the Closing Date such notices reflecting the sale of
the Home Equity Loans as are described in Section 3440.1(h) of the California
Civil Code, then the Master Servicer shall repurchase or substitute for any
adversely affected Home Equity Loan on the Business Day preceding the next
Payment Date following the end of the Collection Period during which such
foreclosure proceedings were commenced or such losses were suffered. Such
repurchase or substitution shall be accomplished in the same manner and
subject to the same conditions as set forth in Section 2.02. Upon making any
such repurchase or substitution the Master Servicer shall be entitled to
receive an instrument of assignment or transfer from the Indenture Trustee to
the same extent as set forth in Section 2.02.
(c) Upon the request of a Mortgagor or at the Master Servicer's own
initiative, the Master Servicer (or the related Servicer on behalf of the
Master Servicer) may waive, modify or vary any term of any Home Equity Loan or
consent to the postponement of strict compliance with any such term or in any
manner grant indulgence to any Mortgagor if:
(i) in the Master Servicer's (or such Servicer's) good faith
determination such waiver, modification, postponement or indulgence
will enhance recovery with respect to such Home Equity Loan; and
(ii) the Mortgagor is in default with respect to the Home
Equity Loan, or such default is, in the judgment of the Master
Servicer (or such Servicer) imminent.
(d) Subject to subparagraph (e) below, in addition to the
circumstances described under Section 3.01(c), the Master Servicer (or the
related Servicer on behalf of the Master Servicer) may waive, modify or vary
any term of any Home Equity Loan, if the purpose of such action is
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to reduce the likelihood of prepayment or of default of such Home Equity
Loan, to increase the likelihood of repayment or repayment upon default
of such Home Equity Loan, to increase the likelihood of repayment in full of
or recoveries under such Home Equity Loan, or to otherwise benefit the
Noteholders, the Insurer and the Transferor in respect of the Ownership
Interest, all in the reasonable judgment of the Master Servicer.
(e) Notwithstanding any provision in this Agreement to the contrary,
the Master Servicer may not defer the scheduled monthly interest and principal
payment on any Home Equity Loan that is not in default or (in the judgment of
the Master Servicer (or the related Servicer on behalf of the Master
Servicer)) for which default is not imminent unless (i) the Master Servicer
elects to make a Skip-A-Pay Advance pursuant to subparagraph (f) below or (ii)
each Rating Agency advises that as a result of such deferment the then current
rating of the Notes without taking into account the existence of the Note
Guaranty Insurance Policy will not be withdrawn, suspended or reduced;
provided, however, that the Master Servicer may not defer the scheduled
monthly payment on any Home Equity Loan in reliance on clause (i) above unless
the Master Servicer determines, in its good faith judgment, that such
Skip-A-Pay Advance will be recoverable from future payments on the Home Equity
Loans.
(f) If during any Collection Period the Master Servicer deferred the
scheduled monthly payment on any Home Equity Loan that was not in default or
for which default was not imminent in reliance on clause (i) of subparagraph
(e) above, no later than 12:00 noon Chicago time on each Deposit Date, the
Master Servicer shall deposit into the Collection Account an amount equal to
the Skip-A-Pay Advance for such Collection Period. On each Payment Date, the
Master Servicer shall be entitled to reimburse itself for all previously
unreimbursed Skip-A-Pay Advances from funds on deposit in the Collection
Account, before making any payments to Noteholders pursuant to Section 5.01,
up to an amount equal to the Skip-A-Pay Reimbursement Amount on such Payment
Date; provided, however, that the Skip-A-Pay Reimbursement Amount that the
Master Servicer is entitled to receive on such Payment Date shall be reduced
by the portion of such amount, if any, that was applied to reduce the amount
of funds that the Master Servicer was required to deposit or to cause to be
deposited into the Collection Account on the preceding Deposit Date pursuant
to Section 3.02(b).
(g) The relationship of the Master Servicer (and of any successor to
the Master Servicer as master servicer under this Agreement) to the Indenture
Trustee under this Agreement is intended by the parties to be that of an
independent contractor and not that of a joint venturer, partner or agent.
(h) In the event that the rights, duties and obligations of the Master
Servicer are terminated hereunder, any successor to the Master Servicer in its
sole discretion may, to the extent permitted by applicable law, terminate the
existing subservicer arrangements with any Servicer or assume the terminated
Master Servicer's rights under such subservicing arrangements which
termination or assumption will not violate the terms of such arrangements.
(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
37
Home Equity Loan from registration on the MERS System and to arrange for the
assignment of the related Mortgages to the Trust, then any related expenses
shall be reimbursable to the Master Servicer.
SECTION 3.02 Collection of Certain Home Equity Loan Payments.
(a) The Master Servicer shall make reasonable efforts to collect all
payments called for under the terms and provisions of the Home Equity Loans,
and shall, to the extent such procedures shall be consistent with this
Agreement, follow such collection procedures as it follows with respect to
home equity loans in its servicing portfolio comparable to the Home Equity
Loans. Consistent with, and without limiting the generality of, the foregoing,
the Master Servicer may in its discretion (i) waive any late payment charge or
any assumption fees or other fees that may be collected in the ordinary course
of servicing the Home Equity Loans, (ii) arrange with a Mortgagor a schedule
for the payment of delinquent amounts, so long as such arrangement is
consistent with the Master Servicer's policies with respect to the home equity
loans it owns, (iii) sell the Home Equity Loan at its fair market value to a
third party for collection activity or (iv) treat a Home Equity Loan as
current if the Mortgagor has made two scheduled payment (which, for the
purposes of this Section 3.02(a)(iv) only, is in accordance with the Master
Servicer's customary servicing practices and may be less than 100% of the
scheduled payment) to cure the delinquency status of such Home Equity Loan.
(b) The Master Servicer shall establish and maintain with the
Indenture Trustee a separate trust account (the "Collection Account") titled
"Bank One, National Association, as Indenture Trustee, in trust for the
registered holders of Household Home Equity Loan Asset Backed Notes, Series
2002-4". In the event that a successor Indenture Trustee is appointed as
provided in Section 6.8 of the Indenture, a new Collection Account shall be
promptly established at and maintained by such successor Indenture Trustee,
and the title of the new Collection Account shall be "[Successor Indenture
Trustee], as Indenture Trustee, in trust for the registered holders of
Household Home Equity Loan Asset Backed Notes, Series 2002-4", 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 within two Business Days following receipt thereof by
the Servicers (or if a Deposit Event is no longer continuing or if the Master
Servicer has provided credit enhancement reasonably acceptable to each of the
Rating Agencies and, so long as no Insurer Default exists and is continuing,
the Insurer on each Deposit Date) the Master Servicer shall deposit or cause
to be deposited into the Collection Account the following payments and
collections received or made by it with respect to the Home Equity Loans
(without duplication):
(i) Interest Collections (net of any Servicing Fee) on the Home
Equity Loans;
(ii) Principal Collections on the Home Equity Loans;
(iii) Insurance Proceeds (including, for this purpose, any
amount required to be paid by the Master Servicer pursuant to
Section 3.04 and excluding any portion thereof constituting
Principal Collections); and
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(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 is not continuing (unless
the Master Servicer has provided credit enhancement reasonably acceptable to
each of the Rating Agencies and, so long as no Insurer Default exists and is
continuing, the Insurer), the amount of funds that the Master Servicer is
required to deposit or to cause to be deposited into the Collection Account on
or before such Deposit Date shall be reduced by the Skip-A-Pay Reimbursement
Amount the Master Servicer is entitled to receive on the next Payment Date.
The foregoing requirements respecting deposits to the Collection
Account are exclusive, it being understood that, without limiting the
generality of the foregoing, fees (including annual fees) or late charge
penalties payable by Mortgagors, prepayment penalties, or amounts received by
the Master Servicer or a Servicer for the accounts of Mortgagors for
application towards the payment of taxes, insurance premiums, assessments and
similar items for the account of the related Servicer, if any, need not be
deposited in the Collection Account.
(c) The Indenture Trustee shall hold amounts deposited in the
Collection Account as trustee for the Noteholders, the Insurer and the
Transferor in respect of the Ownership Interest. In addition, the Master
Servicer shall notify the Indenture Trustee in writing on each Determination
Date of the amount of payments and collections to be deposited in the
Collection Account with respect to the related Payment Date.
(d) The Master Servicer may cause the institution maintaining the
Collection Account to invest any funds in the Collection Account in Permitted
Investments (including obligations of the Master Servicer or of any of its
affiliates, if such obligations otherwise qualify as Permitted Investments),
which shall mature or otherwise be available not later than the Business Day
next preceding the Payment Date or on the Payment Date next following the date
of such investment as long as such action does not result in a withdrawal or
downgrading of the then current ratings on the Notes by the Rating Agencies
without taking into account the existence of the Note Guaranty Insurance
Policy (except that any investment in an obligation of the institution with
which the Collection Account is maintained may mature on or before 12:00 noon,
Chicago time, on such Payment Date) and shall not be sold or disposed of prior
to its maturity. In the event the Indenture Trustee is at any time maintaining
the Collection Account, any request by the Master Servicer to invest funds on
deposit in the Collection Account shall be in writing, shall be delivered to
the Indenture Trustee at or before 10:30 A.M., Chicago time, if such
investment is to be made on such day, and shall certify that the requested
investment is a Permitted Investment that matures at or prior to the time
required hereby. Any such investment shall be registered in the name of or
controlled by the Indenture Trustee as trustee hereunder or in the name of its
nominee and to the extent such investments are certificated they shall be
maintained in the 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 distributions and payments to
the Insurer, Noteholders and the Transferor in respect of the
Ownership Interest pursuant to Section 5.01;
(ii) From time to time, to make investments in Permitted
Investments and to pay to the Master Servicer all income and gain
earned in respect of Permitted Investments or on funds deposited in
the Collection Account;
(iii) To reimburse the Depositor or the Master Servicer to the
extent permitted by Section 6.03;
(iv) To withdraw any funds deposited in the Collection Account
that were not required to be deposited therein or were deposited
therein in error and to pay such funds to the appropriate Person;
(v) To pay to the party legally entitled by a final order of a
court of competent jurisdiction in an insolvency proceeding an
amount equal to any preference claim made with respect to amounts
paid with respect to the Home Equity Loans; provided that, if any
such amount is later determined not to be a preference by such court
of competent jurisdiction and is returned to the Master Servicer or
any Servicer, such amount shall be redeposited into the Collection
Account by the Master Servicer;
(vi) to clear and terminate the Collection Account upon the
termination of this Agreement and the Indenture and to pay any
amounts remaining therein to the Transferor in respect of the
Ownership Interest; and
(vii) to reimburse the Master Servicer for Skip-A-Pay Advances
to the extent permitted by Section 3.01(f).
(b) If the Master Servicer deposits in the Collection Account any
amount not required to be deposited therein or credited thereto or any amount
in respect of payments by Mortgagors made by checks subsequently returned for
insufficient funds or other reason for non-payment, it
40
may at any time withdraw such amount from the Collection Account pursuant to
Section 3.03(a)(iv), and any such amounts shall not be included in Interest
Collections and Principal Collections, any provision herein to the contrary
notwithstanding. Any withdrawal or debit permitted by Section 3.03(a) may be
accomplished by delivering an Officer's Certificate to the Indenture Trustee
which describes the purpose of such withdrawal (including, without limitation,
that any such amount was deposited in the Collection Account in error or, in
the case of returned checks, that such amounts were properly debited,
respectively). Upon receipt of any such Officer's Certificate, the Indenture
Trustee shall withdraw such amount for the account of the Master Servicer. All
funds deposited by the Master Servicer in the Collection Account shall be held
by the Indenture Trustee in trust for the Noteholders, the Insurer and the
Transferor in respect of the Ownership Interest, until disbursed in accordance
with Section 5.01 or Section 5.4(b) of the Indenture or withdrawn or debited
in accordance with this Section.
SECTION 3.04 Maintenance of Hazard Insurance; Property Protection
Expenses. Each Home Equity Loan requires that the borrower thereunder maintain
hazard insurance naming the Master Servicer or the related Servicer as loss
payee providing extended coverage in an amount which is at least equal to the
lesser of (i) 100% of the insurable value of the Mortgaged Property or (ii)
the combined principal balance owing on such Home Equity Loan and any mortgage
loan senior to such Home Equity Loan from time to time. The Master Servicer
represents and warrants that it or the applicable Seller verified the
existence of such hazard insurance at the origination of the Home Equity Loan.
The Master Servicer shall also maintain on property acquired upon foreclosure,
or by grant of deed in lieu of foreclosure, hazard insurance with extended
coverage in an amount which is at least equal to the lesser of (i) 100% of the
insurable value of the Mortgaged Property or (ii) the combined unpaid
principal balance owing on such Home Equity Loan and any mortgage loans senior
to such Home Equity Loans at the time of such foreclosure or grant of deed in
lieu of foreclosure plus accrued interest thereon. Amounts collected by the
Master Servicer under any such policies shall be deposited in the Collection
Account to the extent called for by Section 3.02. In cases in which any
Mortgaged Property is located in a federally designated flood area, the hazard
insurance to be maintained for the related Home Equity Loan shall include
flood insurance. All such flood insurance shall be in such amounts as are
required under applicable guidelines of ▇▇▇▇▇▇ ▇▇▇. The Master Servicer shall
be under no obligation to require that any Mortgagor maintain earthquake or
other additional insurance and shall be under no obligation itself to maintain
any such additional insurance on property acquired in respect of a Home Equity
Loan, other than pursuant to such applicable laws and regulations as shall at
any time be in force and as shall require such additional insurance. As to
Mortgaged Properties acquired by the Master Servicer as provided herein, the
Master Servicer may satisfy its obligation set forth in the first sentence of
this Section 3.04 by self insuring Mortgaged Properties for which the
aggregate unpaid principal balance of the related Home Equity Loans plus the
outstanding balance of any mortgage loans senior to such Home Equity Loans at
the time title was acquired, plus accrued interest (the "Combined Exposure"),
was less than $500,000 (or such other amount as the Master Servicer may in
good faith determine from time to time) and by causing hazard policies to be
maintained with respect to Mortgaged Properties for which the Combined
Exposure equals or exceeds the self insurance threshold established from time
to time by the Master Servicer by maintaining a blanket policy consistent with
prudent industry standards insuring against hazard losses on the Mortgaged
Properties. Such policy may contain a deductible clause, in which case the
Master Servicer shall, in the event that there shall not have been maintained
on the related Mortgaged Property a policy
41
complying with the first sentence of this Section 3.04, and there shall have
been a loss which would have been covered by such policy, deposit in the
Collection Account the amount not otherwise payable under the blanket policy
because of such deductible clause.
SECTION 3.05 Assumption and Modification Agreements. In any case in
which a Mortgaged Property has been or is about to be conveyed by the
Mortgagor, the Master Servicer shall exercise or refrain from exercising its
right to accelerate the maturity of such Home Equity Loan consistent with the
then-current practice of the Master Servicer and without regard to the
inclusion of such Home Equity Loan in the Trust and not in the Master
Servicer's portfolio. If it elects not to enforce its right to accelerate or
if it is prevented from doing so by applicable law, the Master Servicer (so
long as such action conforms with the Master Servicer's underwriting standards
at the time for new originations) is authorized to take or enter into an
assumption and modification agreement from or with the Person to whom such
Mortgaged Property has been or is about to be conveyed, pursuant to which such
Person becomes liable under the Mortgage Note and, to the extent permitted by
applicable law, the Mortgagor remains liable thereon. The Master Servicer
shall notify the Indenture Trustee that any assumption and modification
agreement has been completed by delivering to the Indenture Trustee (with a
copy to the Insurer) an Officer's Certificate certifying that such agreement
is in compliance with this Section and by forwarding to the applicable
Servicer on behalf of the Depositor or the Indenture Trustee, as applicable,
the original copy of such assumption and modification agreement. Any such
assumption and modification agreement shall, for all purposes, be considered a
part of the related Mortgage File to the same extent as all other documents
and instruments constituting a part thereof. No change in the terms of the
related Mortgage Note may be made by the Master Servicer in connection with
any such assumption to the extent that such change would not be permitted to
be made in respect of the original Mortgage Note pursuant to Section 3.01
unless the conditions specified in Section 3.01 are satisfied. Any fee
collected by the Master Servicer for entering into any such agreement will be
retained by the Master Servicer as additional servicing compensation.
SECTION 3.06 Realization Upon Defaulted Home Equity Loans.
(a) The Master Servicer (or the Master Servicer together with the
related Seller as called for by the Home Equity Loan Purchase Agreement) shall
foreclose upon or otherwise comparably convert to ownership Mortgaged
Properties securing such of the Home Equity Loans as come into and continue in
default when, in the opinion of the Master Servicer based upon the practices
and procedures referred to in the following sentence, no satisfactory
arrangements can be made for collection of delinquent payments pursuant to
Section 3.02; provided that if the Master Servicer has actual knowledge or
reasonably believes that any Mortgaged Property is affected by hazardous or
toxic wastes or substances and that the acquisition of such Mortgaged Property
would not be commercially reasonable, then the Master Servicer will not cause
the Trust to acquire title to such Mortgaged Property in a foreclosure or
similar proceeding. In connection with such foreclosure or other conversion,
the Master Servicer shall follow such practices (including, in the case of any
default on a related senior mortgage loan, the advancing of funds to correct
such default) and procedures as it shall deem necessary or advisable and as
shall be normal and usual in its general mortgage servicing activities. The
foregoing is subject to the proviso that the Master Servicer shall not be
required to expend its own funds in connection with any foreclosure or towards
the correction of any default on a related senior mortgage loan or restoration
of any property unless it shall determine that such expenditure will increase
Net
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Liquidation Proceeds. The Master Servicer will be reimbursed out of
Liquidation Proceeds for advances of its own funds to pay Liquidation Expenses
before any Net Liquidation Proceeds are deposited in the Collection Account.
(b) In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall (i) so long as at least two of ▇▇▇▇▇'▇, Standard & Poor's and Fitch
assign an acceptable minimum long-term unsecured debt rating to the Master
Servicer (currently "Baa3", in the case of ▇▇▇▇▇'▇, "BBB", in the case of
Fitch, and "BBB-" in the case of Standard & Poor's), be issued in the name of
the related Servicer or (ii) if the rating requirements in clause (i) are not
satisfied, be issued to the Indenture Trustee, or to its nominee on behalf of
Noteholders.
SECTION 3.07 [Reserved].
SECTION 3.08 Indenture Trustee to Cooperate.
(a) Upon any payment in full of the Principal Balance of any Home
Equity Loan, the Master Servicer is authorized to execute, pursuant to the
authorization contained in Section 3.01, if the assignments of Mortgage have
been recorded as required hereunder, an instrument of satisfaction regarding
the related Mortgage or written evidence of cancellation thereon and to cause
the removal from the registration on the MERS(R) System of such Mortgage,
which instrument of satisfaction shall be recorded by the Master Servicer if
required by applicable law and be delivered to the Person entitled thereto. It
is understood and agreed that no expenses incurred in connection with such
instrument of satisfaction or transfer shall be reimbursed from amounts
deposited in the Collection Account. If the Indenture Trustee is holding the
Mortgage Files, from time to time and as appropriate for the servicing or
foreclosure of any Home Equity Loan, the Indenture Trustee shall, upon request
of the Master Servicer and delivery to the Indenture Trustee of a trust
receipt signed by a Servicing Officer, release the related Mortgage File to
the Master Servicer, and the Indenture Trustee shall execute such documents as
shall be necessary to the prosecution of any such proceedings or the taking of
other servicing actions. Such trust receipt shall obligate the Master Servicer
to return the Mortgage File to the Indenture Trustee when the need therefor by
the Master Servicer no longer exists unless the Home Equity Loan shall be
liquidated, in which case, upon receipt of an Officer's Certificate of the
Master Servicer, the trust receipt shall be released by the Indenture Trustee
to the Master Servicer.
(b) In order to facilitate the foreclosure of the Mortgage securing
any Home Equity Loan that is in default following recordation of the
assignments of Mortgage in accordance with the provisions hereof, the
Indenture Trustee shall, if the Master Servicer so requests in writing and
supplies the Indenture Trustee with appropriate forms therefor, assign such
Home Equity Loan for the purpose of collection to the Master Servicer or to
the related Servicer (any such assignment shall unambiguously indicate that
the assignment is for the purpose of collection only), and, upon such
assignment, such assignee for collection will thereupon bring all required
actions in its own name and otherwise enforce the terms of the Home Equity
Loan and deposit or credit the Net Liquidation Proceeds received with respect
thereto in the Collection Account. In the event that all delinquent payments
due under any such Home Equity Loan are paid by the Mortgagor and any other
defaults are cured then the assignee for collection shall promptly
43
reassign such Home Equity Loan to the Indenture Trustee and return it to the
place where the related Mortgage File was being maintained.
SECTION 3.09 Servicing Compensation; Payment of Certain Expenses by
Master Servicer. The Master Servicer shall be entitled to receive the
Servicing Fee as compensation for its services in connection with servicing
the Home Equity Loans. The Servicing Fee for each Collection Period shall be
paid to the Master Servicer out of Interest Collections prior to their deposit
in the Collection Account and shall not be the responsibility or liability of
the Trust, the Owner Trustee, the Indenture Trustee, the Insurer, the
Noteholders or the Transferor in respect of the Ownership Interest. Additional
servicing compensation in the form of late payment charges or other receipts
not required to be deposited in the Collection Account shall be retained by
the Master Servicer. The Master Servicer shall be required to pay all expenses
incurred by it in connection with its activities hereunder (including payment
of Owner Trustee, Delaware Trustee and Indenture Trustee fees, expenses and
indemnifications due to the Indenture Trustee under Section 6.7 of the
Indenture and all other fees and expenses not expressly stated hereunder to be
for the account of the Noteholders and the Transferor in respect of the
Ownership Interest) and shall not be entitled to reimbursement therefor except
as specifically provided herein.
SECTION 3.10 Annual Statement as to Compliance.
(a) The Master Servicer will deliver to the Indenture Trustee and a
copy to each of the Rating Agencies and the Insurer, on or before March 31 of
each year, beginning March 31, 2003, an Officer's Certificate stating that (i)
a review of the activities of the Master Servicer during the preceding
calendar year (or in the case of the Officer's Certificate delivered in 2003,
from the Closing Date) and of its performance under this Agreement has been
made under such officer's supervision and (ii) to the best of such officer's
knowledge, based on such review, the Master Servicer has fulfilled all its
material obligations under this Agreement throughout such year (or in the case
of the Officer's Certificate delivered in 2003, from the Closing Date), or, if
there has been a default in the fulfillment of any such obligation, specifying
each such default known to such officer and the nature and status thereof.
Copies of such Officer's Certificate shall be provided by the Master Servicer
to any Noteholder upon written request at the Master Servicer's expense.
(b) The Master Servicer shall deliver to the Indenture Trustee and a
copy to each of the Rating Agencies and the Insurer, promptly after having
obtained knowledge thereof, but in no event later than five Business Days
thereafter, written notice by means of an Officer's Certificate of any event
which with the giving of notice or the lapse of time or both, would become a
Master Servicer Termination Event.
SECTION 3.11 Annual Servicing Report. On or before March 31 of each
year, beginning March 31, 2003, the Master Servicer at its expense shall cause
a firm of nationally recognized independent public accountants (who may also
render other services to the Master Servicer) to furnish a report to the
Indenture Trustee and a copy to each of the Rating Agencies and the Insurer to
the effect that such firm has examined certain documents and records relating
to the servicing of home equity loans by the Master Servicer during the most
recent calendar year (or in the case of the report delivered in 2003, from the
Closing Date) then ended under pooling and servicing agreements or sale and
servicing agreements (including this Agreement)
44
substantially similar to this Agreement and that such examination, which
has been conducted substantially in compliance with the audit guide for
audits of non-supervised mortgagees approved by the Department of Housing and
Urban Development for use by independent public accountants (to the extent
that the procedures in such audit guide are applicable to the servicing
obligations set forth in such agreements), has disclosed no items of
noncompliance with the provisions of this Agreement which, in the opinion of
such firm, are material, except for such items of noncompliance as shall be
set forth in such report.
SECTION 3.12 Access to Certain Documentation and Information Regarding
the Home Equity Loans.
(a) The Master Servicer and the Servicers shall provide to the
Indenture Trustee, the Owner Trustee, the Insurer, the Transferor in respect
of the Ownership Interest, the Noteholders that are federally insured savings
and loan associations, the Office of Thrift Supervision, the successor to the
Federal Home Loan Bank Board, the FDIC and the supervisory agents and
examiners of the Office of Thrift Supervision access to the documentation
regarding the Home Equity Loans required by applicable regulations of the
Office of Thrift Supervision and the FDIC (acting as operator of the SAIF or
the BIF), such access being afforded without charge but only upon reasonable
request and during normal business hours at the offices of the Master Servicer
or the Servicers. Nothing in this Section shall derogate from the obligation
of the Master Servicer to observe any applicable law prohibiting disclosure of
information regarding the Mortgagors, and the failure of the Master Servicer
to provide access as provided in this Section as a result of such obligation
shall not constitute a breach of this Section.
(b) No later than the Determination Date preceding the related Payment
Date, the Master Servicer shall supply information in such form as the
Indenture Trustee shall reasonably request to the Indenture Trustee and the
Paying Agent as is required in the Indenture Trustee's reasonable judgment to
enable the Paying Agent or the Indenture Trustee, as the case may be, to make
the required payments and to furnish the required reports to Noteholders and
the Insurer on such Payment Date.
SECTION 3.13 Maintenance of Certain Servicing Insurance Policies. The
Master Servicer shall during the term of its service as master servicer
maintain in force (i) a policy or policies of insurance covering errors and
omissions in the performance of its obligations as master servicer hereunder
and (ii) a fidelity bond in respect of its officers, employees or agents. Each
such policy or policies and bond shall, together, comply with the requirements
from time to time of ▇▇▇▇▇▇ ▇▇▇ for Persons performing servicing for mortgage
loans purchased by such association.
SECTION 3.14 Reports to the Securities and Exchange Commission. The
Master Servicer shall, on behalf of the Trust, cause to be filed with the
Securities and Exchange Commission any periodic reports required to be filed
under the provisions of the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Securities and Exchange Commission
thereunder.
SECTION 3.15 [Reserved].
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SECTION 3.16 Information Required by the Internal Revenue Service
Generally and Reports of Foreclosures and Abandonments of Mortgaged Property.
The Master Servicer shall prepare and deliver, or cause to be prepared, mailed
and filed all federal and state information reports for the Home Equity Loans
when and as required by all applicable state and federal income tax laws
including, to the extent applicable, returns reporting a cancellation of
indebtedness as prescribed by Section 6050P of the Code. In particular, with
respect to the requirement under Section 6050J of the Code, to the effect that
a lender shall be required to report foreclosures and abandonments of any
mortgaged property for each year beginning in 2003, the Master Servicer shall
prepare, mail and file in a timely fashion each year as required by law
information statements in accordance with the reporting requirements imposed
by Section 6050J with respect to each instance occurring during the previous
calendar year in which the Master Servicer or any Servicer (i) on behalf of
the Indenture Trustee acquired an interest in any Mortgaged Property through
foreclosure or other comparable conversion in full or partial satisfaction of
a Home Equity Loan or (ii) knew or had reason to know that any Mortgaged
Property has been abandoned. The information statements from the Master
Servicer shall be in form and substance sufficient to meet the reporting
requirements imposed by Section 6050J of the Code.
SECTION 3.17 Additional Covenants of HFC. HFC hereby agrees that:
(a) it will maintain its books and records to clearly note the
separate corporate existence of the Depositor, each Servicer and the Master
Servicer;
(b) the Depositor, the Servicers and HFC will share certain overhead
expenses, although the amount the Depositor will be charged for such use will
be based on actual use to the extent practicable and, to the extent such
allocation is not practicable, on a basis reasonably related to use;
(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.
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SECTION 3.18 Servicing Certificate. Not later than each Determination
Date, the Master Servicer shall deliver to the Indenture Trustee, the Paying
Agent, the Insurer and each Rating Agency a Servicing Certificate containing
the information set forth below with respect to the Home Equity Loans on an
aggregate basis as of the end of the preceding Collection Period and such
other information as the Indenture Trustee shall reasonably require (in
written form or the form of computer readable media or such other form as may
be agreed to by the Indenture Trustee, the Master Servicer and (so long as no
Insurer Default exists and is continuing) the Insurer), together with an
Officer's Certificate to the effect that such Servicing Certificate is true
and correct in all material respects, stating the related Collection Period,
Payment Date, the series number of the Notes, the date of this Agreement, and:
(i) the Available Payment Amount for such Payment Date,
separately stating the amount of Interest Collections and Principal
Collections;
(ii) the amount of the payments to Holders of the Notes for such
Payment Date, separately stating the portions thereof allocable to
interest and allocable to principal;
(iii) the amount of any Interest Carry Forward Amount and
Supplemental Interest Amount for the Notes paid on such Payment Date
and the amount of any Interest Carry Forward Amount or Supplemental
Interest Amount for the Notes remaining after giving effect to the
payments on such Payment Date;
(iv) the Note Principal Amount, the Pool Balance as reported in
the prior Indenture Trustee's Statement to Noteholders or, in the case
of the first Determination Date, the Original Note Principal Amount
and the Cut-Off Date Pool Balance;
(v) the number and aggregate Principal Balance of any Home Equity
Loan purchased or substituted by the Depositor or the Master Servicer
with respect to the related Collection Period pursuant to Section
2.02;
(vi) the number and aggregate Principal Balance of any Home
Equity Loan purchased or substituted by the Depositor or the Master
Servicer with respect to the related Collection Period pursuant to
Section 2.04;
(vii) the number and aggregate Principal Balance of any Home
Equity Loan purchased or substituted by the Depositor or the Master
Servicer with respect to the related Collection Period pursuant to
Section 3.01;
(viii) the number and aggregate Principal Balance of any Home
Equity Loan that the Master Servicer has consented to the placement of
a senior lien during the related Collection Period pursuant to Section
3.01(a);
(ix) the amount of any Substitution Adjustment Amounts for such
Payment Date;
(x) the amount of the Insured Amounts, if any, to be paid on the
related Payment Date;
47
(xi) the amount to be paid to the Transferor in respect of the
Ownership Interest for the related Payment Date pursuant to Section
5.01(a)(viii);
(xii) the Note Principal Amount after giving effect to the
payment to be made on the related Payment Date;
(xiii) the Servicing Fee for the related Collection Period and
any accrued amounts thereof that remain unpaid for previous Collection
Periods;
(xiv) the amount of all payments or reimbursements to the Master
Servicer pursuant to Sections 3.03;
(xv) the Overcollateralization Amount, the Interim
Overcollateralization Amount, the Interim Overcollateralization
Deficiency, the Overcollateralization Release Amount, the Targeted
Overcollateralization Amount, the Excess Cashflow and the
Distributable Excess Cashflow for such Payment Date;
(xvi) the amount of Distributable Excess Cashflow to be paid to
the Noteholders on such Payment Date pursuant to Section 5.01(a)(iv)
on such Payment Date;
(xvii) the number of Home Equity Loans outstanding at the
beginning and at the end of the related Collection Period;
(xviii) the Pool Balance as of the end of the related Collection
Period;
(xix) the number and aggregate Principal Balances of Home Equity
Loans (x) as to which one, two or three or more scheduled monthly
payments, respectively, are contractually delinquent, and (y) that
have become REO, in each case as of the end of such Collection Period;
(xx) the unpaid principal amount of all Home Equity Loans that
became Liquidated Home Equity Loans during such Collection Period;
(xxi) the Cumulative Realized Losses on the Home Equity Loans;
(xxii) the book value of any real estate acquired through
foreclosure or grant of a deed in lieu of foreclosure;
(xxiii) the Three Payment-Plus Delinquency Percentage for the
related Collection Period;
(xxiv) the Three Payment-Plus Rolling Average for such Payment
Date;
(xxv) LIBOR for such Payment Date;
(xxvi) whether a Master Servicer Termination Event has occurred
since the prior Determination Date, specifying each such Master
Servicer Termination Event if one has occurred;
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(xxvii) whether an Event of Default has occurred and is
continuing;
(xxviii) the Formula Rate, the Available Funds Cap and the Note
Rate for such Payment Date;
(xxix) the amount of any Skip-A-Pay Advances for the related
Collection Period;
(xxx) the Skip-A-Pay Reimbursement Amount for such Payment Date;
and
(xxxi) the Cumulative Loss Percentage.
The Indenture Trustee shall conclusively rely upon the information
contained in a Servicing Certificate for purposes of making payments pursuant
to Section 5.01, shall have no duty to inquire into such information and shall
have no liability in so relying. The format and content of the Servicing
Certificate may be modified by the mutual agreement of the Master Servicer,
the Indenture Trustee and, so long as no Insurer Default exists and is
continuing, the Insurer or as may be required by the rules and regulations of
the Securities and Exchange Commission. The Master Servicer shall give notice
of any such change to the Rating Agencies and the Insurer.
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ARTICLE IV.
INSURER
SECTION 4.01 Claims upon the Note Guaranty Insurance Policy. As soon
as possible, and in no event later than 10:00 a.m. New York City time on the
second Business Day immediately preceding the Payment Date, the Indenture
Trustee shall furnish the Insurer and the Master Servicer with a completed
notice in the form set forth as Exhibit A to the Note Guaranty Insurance
Policy (the "Notice for Payment") in the event that the Insured Amounts for
such Payment Date are greater than zero. The Notice for Payment shall specify
the Insured Amounts and shall constitute a claim for Insured Amounts pursuant
to the Note Guaranty Insurance Policy. Upon receipt of Insured Amounts on
behalf of the Holders of the Notes under the Note Guaranty Insurance Policy,
the Indenture Trustee shall deposit such Insured Amounts in the Collection
Account and shall distribute such Insured Amounts pursuant to Section 5.01.
(a) The Indenture Trustee shall keep a complete and accurate record of
the amount of interest and principal paid in respect of the Notes from moneys
received under the Note Guaranty Insurance Policy. So long as no Insurer
Default exists and is continuing, the Insurer shall have the right to inspect
such records at reasonable times during normal business hours upon four
Business Day's prior written notice to the Indenture Trustee.
(b) The Insurer shall pay any Preference Amount when due to be paid
pursuant to the Order referred to below, but in any event no earlier than the
third Business Day following receipt by the Insurer of (i) a certified copy of
a final, non-appealable order of a court or other body exercising jurisdiction
in such insolvency proceeding to the effect that the Indenture Trustee or the
Noteholder, as applicable, is required to return such Preference Amount paid
during the term of the Note Guaranty Insurance Policy because such payments
were avoided as a preferential transfer or otherwise rescinded or required to
be restored by the Indenture Trustee or the Noteholder (the "Order"), (ii) a
certificate by or on behalf of the Indenture Trustee that the Order has been
entered and is not subject to any stay, (iii) an assignment, in form and
substance satisfactory to the Insurer, duly executed and delivered by the
Indenture Trustee or the Noteholder, as applicable, irrevocably assigning to
the Insurer all rights and claims of the Indenture Trustee or the Noteholder,
as applicable, relating to or arising under the Indenture and this Agreement
against the estate of the Indenture Trustee or otherwise with respect to such
Preference Amount and (iv) a Notice of Nonpayment (attached to the Note
Guaranty Insurance Policy as Exhibit A) appropriately completed and executed
by the Indenture Trustee. Such payment shall be disbursed to the receiver,
conservator, debtor-in-possession or trustee in bankruptcy named in the Order,
and not to the Indenture Trustee or the Noteholder, as applicable, directly,
unless the Indenture Trustee or the Noteholder, as applicable, has made a
payment of the Preference Amount to the court or such receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the Order, in which
case the Insurer will pay the Indenture Trustee on behalf of the Noteholder,
subject to the delivery of (a) the items referred to in clauses (i), (ii),
(iii) and (iv) above to the Insurer and (b) evidence satisfactory to the
Insurer that payment has been made to such court or receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the Order.
Notwithstanding the foregoing two sentences, the Insurer shall not be
obligated to pay any Preference Amount in respect of principal (other than
principal paid in connection with Overcollateralization Deficit Amounts)
except on the Final
50
Scheduled Payment Date or earlier termination of the Trust pursuant to
the terms of the Indenture or this Agreement.
(c) Any amounts received by the Indenture Trustee pursuant to the Note
Guaranty Insurance Policy in respect of the Notes shall be deposited to the
Collection Account for payment pursuant to Section 5.01.
SECTION 4.02 Effect of Payments by the Insurer; Subrogation. Anything
herein to the contrary notwithstanding, solely for the purposes of determining
the Insurer's reimbursement rights as subrogee pursuant to Section 5.01, any
payment with respect to principal of or interest on any of the Notes which are
made with moneys received pursuant to the terms of the Note Guaranty Insurance
Policy, but only to the extent that such payment has not been reimbursed to
the Insurer pursuant to Section 5.01(a)(v), shall not be considered payment of
such Notes, as applicable, from the Trust and shall not result in the payment
of or the provision for the payment of the principal of or interest on such
Notes, as applicable, within the meaning of Section 5.01 herein. The Master
Servicer and the Indenture Trustee acknowledge, and each Holder by its
acceptance of a Note agrees, that without the need for any further action on
the part of the Insurer, the Depositor, the Master Servicer, the Indenture
Trustee or the Note Registrar (a) to the extent the Insurer makes payments,
directly or indirectly, on account of principal of or interest on any Notes to
the Holders of such Notes, the Insurer will be fully subrogated to the rights
of such Holders to receive such principal and interest, as applicable, from
the Trust in accordance with the priorities of payment set forth in Section
5.01, and (b) the Insurer shall be paid such principal and interest but only
from the sources and in the manner provided herein and in the Insurance and
Indemnity Agreement for the payment of such principal and interest.
So long as no Insurer Default exists and is continuing, the Indenture
Trustee and the Master Servicer shall cooperate in all respects with any
reasonable request by the Insurer for action to preserve or enforce the
Insurer's rights or interests under this Agreement without limiting the rights
or affecting the interests of the Holders of the Notes as otherwise set forth
herein.
SECTION 4.03 Insurer's Rights Regarding Actions, Proceedings or
Investigations. Until the Notes have been paid in full, all amounts owed to
the Insurer have been paid in full, the Insurance and Indemnity Agreement has
terminated and the Note Guaranty Insurance Policy has been returned to the
Insurer for cancellation, so long as no Insurer Default exists and is
continuing the following provisions shall apply:
(a) Notwithstanding anything contained herein or in the other
Transaction Documents to the contrary, the Insurer shall have the right to
participate in, or to direct the enforcement or defense of, any action,
proceeding or investigation that could adversely affect the Trust, or the
rights or obligations of the Insurer hereunder or under the Note Guaranty
Insurance Policy or this Agreement or the other Transaction Documents,
including (without limitation) any insolvency or bankruptcy proceeding in
respect of the Trust. All costs and expenses of the Insurer in connection with
such action, proceeding or investigation, including (without limitation) any
judgment or settlement entered into affecting the Insurer or the Insurer's
interests, shall be included in Reimbursement Amount.
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(b) In connection with any action, proceeding or investigation that
could adversely affect the Trust or the rights or obligations of the Insurer
hereunder or under the Note Guaranty Insurance Policy, this Agreement or the
other Transaction Documents, including (without limitation) any insolvency or
bankruptcy proceeding in respect of the Trust, the Trust hereby agrees to
cooperate with the Noteholders, the Insurer and the Transferor.
Notwithstanding any other provision herein or in any of the other Transaction
Documents, the Trust shall not require any bond or indemnification from any
Person for taking of any action at the direction of the Insurer, and the Owner
Trustee shall not be liable to the Insurer or any Noteholders and the
Transferor for any such action that conforms to the direction of the Insurer.
The Owner Trustee's reasonable out-of-pocket costs and expenses (including
attorneys' fees and expenses) with respect to any such action shall be
reimbursed pursuant to Section 8.1 of the Trust Agreement.
(c) Any judgment or settlement entered against or affecting the Trust
or the Owner Trustee, on behalf of the Noteholders, in connection with any
action, proceeding or investigation shall be paid by the Trust pursuant to
Section 5.01.
(d) The Trust hereby agrees to provide to the Insurer prompt written
notice of any action, proceeding or investigation that names the Trust or the
Owner Trustee as a party or that could adversely affect the Trust or the
rights or obligations of the Insurer hereunder or under the Note Guaranty
Insurance Policy, this Agreement or the other Transaction Documents, including
(without limitation) any insolvency or bankruptcy proceeding in respect of the
Master Servicer, the Depositor, any of the Servicers, the Trust or any
affiliate thereof.
(e) Each Noteholder, by acceptance of its Note, the Trust, and the
Owner Trustee agree that Insurer shall have such rights as set forth in this
Section, which are in addition to any rights of the Insurer pursuant to the
other provisions of the Transaction Documents and the Note Guaranty Insurance
Policy, that the rights set forth in this Section may be exercised by the
Insurer, in its sole discretion, without the need for the consent or approval
of any Noteholder, the Trust or the Owner Trustee, notwithstanding any other
provision contained herein or in any of the other Transaction Documents, and
that nothing contained in this Section shall be deemed to be an obligation of
the Insurer to exercise any of the rights provided for herein.
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ARTICLE V.
PRIORITY OF PAYMENTS; STATEMENTS TO
NOTEHOLDERS; RIGHTS OF NOTEHOLDERS
SECTION 5.01 Payments.
(a) Payments of Interest and Principal Collections. Pursuant to
Section 3.1 of the Indenture, on each Payment Date, the Indenture Trustee,
with respect to the Notes, and the Paying Agent, with respect to the Ownership
Interest, shall distribute out of the Collection Account, to the extent of the
Available Payment Amount (except that amounts paid under the Note Guaranty
Insurance Policy shall only be available for payment to Noteholders), the
following amounts and in the following order of priority to the following
Persons (based on the information set forth in the Servicing Certificate):
(i) to the Insurer, the Premium Amount (to the extent not
previously paid by the Master Servicer);
(ii) to the holders of the Notes, an amount equal to the Interest
Payment Amount for the Notes for such Payment Date;
(iii) to the holders of the Notes, the Principal Payment Amount
for such Payment Date until the Note Principal Amount has been reduced
to zero;
(iv) to the holders of the Notes, to the extent of the Available
Payment Amount remaining, the Distributable Excess Cashflow for such
Payment Date until the Note Principal Amount has been reduced to zero;
(v) to the Insurer, any Reimbursement Amounts due and owing to
the Insurer under the Insurance and Indemnity Agreement;
(vi) to the Notes, the Supplemental Interest Amount for such
Payment Date;
(vii) to the Owner Trustee on behalf of the Trust, an amount
sufficient to pay any judgment or settlement affecting the Trust; and
(viii) to the Transferor in respect of the Ownership Interest,
any remaining Available Payment Amount provided, however, that on any
Payment Date after the earlier of (i) the date on which the first
auction conducted by the Indenture Trustee pursuant to Section 8.01(c)
does not produce any bid at least equal to the Termination Price or
(ii) the October 2012 Payment Date, any remaining amount available for
payment pursuant to this Section 5.01(a)(viii) shall instead be paid
to the Notes in reduction of the Note Principal Amount;
provided, that in the event that on a Payment Date an Insurer Default shall
have occurred and be continuing, then the priorities of payments described
above will be adjusted such that payments of any amounts to be paid to the
Insurer will not be paid until the full amount of interest and principal in
accordance with clauses (ii) through (iv) above that are due and required to
be paid
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by the Issuer on the Notes on such Payment Date have been paid; provided,
further that so long as an Insurer Default has occurred and is continuing
the Premium Amount shall be zero; provided, further, that on the Final
Scheduled Payment Date, the amount to be paid pursuant to clause (iii)
above shall be equal to the Note Principal Amount immediately prior to such
Payment Date; and provided, further, that if the Indenture Trustee collects
any money or property pursuant to Article V of the Indenture, the Indenture
Trustee and the Paying Agent shall pay out the money or property as provided
in Section 5.4(b) of the Indenture.
In addition, on each Payment Date, the Indenture Trustee will pay
amounts on deposit in the Collection Account in respect of and to the extent
of any Insured Amounts deposited in the Collection Account in the order of
priority as set forth above in subsections 5.01(a)(ii), 5.01(a)(iii) and, to
the extent of any Overcollateralization Deficit Amount, 5.01(a)(iv).
(b) Method of Payment. The Indenture Trustee shall make payments in
respect of a Payment Date to each Noteholder of record on the related Record
Date (other than as provided in Section 8.01 respecting the final payment) by
check or money order mailed to such Noteholder at the address appearing in the
Note Register, or upon written request by a Noteholder delivered to the
Indenture Trustee at least five Business Days prior to such Record Date, by
wire transfer (but only if such Noteholder is the Depository or such
Noteholder owns of record one or more Notes having principal denominations
aggregating at least $1,000,000), or by such other means of payment as such
Noteholder and the Indenture Trustee shall agree. Payments among Noteholders
shall be made in proportion to the Percentage Interests evidenced by the Notes
held by such Noteholders. The Indenture Trustee, acting in its capacity as
Paying Agent, shall make payments in respect of a Payment Date to the
Transferor of record on the related Record Date, in respect of the Ownership
Interest by wire transfer or by such other means of payment as the Transferor
and the Paying Agent shall agree.
(c) Payments on Book-Entry Notes. Each payment with respect to a
Book-Entry Note shall be paid to the Depository, which shall credit the amount
of such payment to the accounts of its Depository Participants in accordance
with its normal procedures. Each Depository Participant shall be responsible
for disbursing such payment to the Note Owners that it represents and to each
indirect participating brokerage firm (a "brokerage firm" or "indirect
participating firm") for which it acts as agent. Each brokerage firm shall be
responsible for disbursing funds to the Note Owners that it represents. All
such credits and disbursements with respect to a Book-Entry Note are to be
made by the Depository and the Depository Participants in accordance with the
provisions of the Notes. None of the Indenture Trustee, the Paying Agent, the
Note Registrar, the Insurer, the Trust or the Master Servicer shall have any
responsibility therefor except as otherwise provided by applicable law.
SECTION 5.02 Calculation of LIBOR and the Formula Rate.
(a) Calculation of the Formula Rate. On or prior to each LIBOR
Determination Date, the Indenture Trustee shall determine the applicable
Formula Rate for the related Payment Date.
(b) Calculation of LIBOR. Until the Principal Balance of each of the
Notes has been reduced to zero, the Indenture Trustee shall establish LIBOR on
each LIBOR Determination Date as follows:
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(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:
(A) (x) The Indenture Trustee on the LIBOR Determination Date
will request the principal London offices of each of four major
reference banks in the London interbank market, as selected by the
Indenture Trustee, to provide the Indenture Trustee with its offered
quotation for deposits in United States dollars for the upcoming
one-month period, commencing on the second LIBOR Business Day
immediately following such LIBOR Determination Date, to prime banks
in the London interbank market at approximately 11:00 a.m. London
time on such LIBOR Determination Date and in a principal amount
that is representative for a single transaction in United States
dollars in such market at such time. If at least two such
quotations are provided, LIBOR determined on such LIBOR
Determination Date will be the arithmetic mean of such quotations.
(B) (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 deliver a copy of the applicable Servicing Certificate
delivered to the Indenture Trustee pursuant to Section 3.18 to each Noteholder
concurrently with each payment to Noteholders (the "Indenture Trustee's
Statement to Noteholders") containing the information set forth below with
respect to such Payment Date:
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(i) the Available Payment Amount for such Payment Date,
separately stating the amount of Interest Collections and Principal
Collections;
(ii) the amount of the payments to Holders of the Notes for such
Payment Date, separately stating the portions thereof allocable to
interest and allocable to principal;
(iii) the amount of any Interest Carry Forward Amount and
Supplemental Interest Amount for the Notes paid on such Payment Date
and the amount of any Interest Carry Forward Amount or Supplemental
Interest Amount for the Notes remaining after giving effect to the
payments on such Payment Date;
(iv) the Note Principal Amount, the Pool Balance as reported in
the prior Indenture Trustee's Statement to Noteholders or, in the case
of the first Determination Date, the Original Note Principal Amount
and the Cut-Off Date Pool Balance;
(v) the number and aggregate Principal Balance of any Home Equity
Loans purchased by the Depositor or the Master Servicer with respect
to the related Collection Period pursuant to Sections 2.02, 2.04 and
3.01;
(vi) the amount of any Substitution Adjustment Amounts for such
Payment Date;
(vii) the amount of the Insured Amounts, if any, to be made on
the related Payment Date;
(viii) the amount to be paid to the Transferor in respect of the
Ownership Interest for the related Payment Date pursuant to Section
5.01(a)(viii);
(ix) the Note Principal Amount after giving effect to the payment
to be made on the related Payment Date;
(x) the Servicing Fee for the related Collection Period and any
accrued amounts thereof that remain unpaid for previous Collection
Periods;
(xi) the amount of all payments or reimbursements to the Master
Servicer pursuant to Sections 3.03;
(xii) the Overcollateralization Amount, the Interim
Overcollateralization Amount, the Interim Overcollateralization
Deficiency, the Overcollateralization Release Amount, the Targeted
Overcollateralization Amount, the Excess Cashflow and the
Distributable Excess Cashflow for such Payment Date;
(xiii) the amount of Distributable Excess Cashflow to be paid to
the Noteholders on such Payment Date pursuant to Section 5.01(a)(iv)
on such Payment Date;
(xiv) the number of Home Equity Loans outstanding at the
beginning and at the end of the related Collection Period;
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(xv) the Pool Balance as of the end of the related Collection
Period;
(xvi) the number and aggregate Principal Balances of Home Equity
Loans (x) as to which one, two or three or more scheduled monthly
payments, respectively, are contractually delinquent and (y) that have
become REO, in each case as of the end of such Collection Period;
(xvii) the unpaid principal amount of all Home Equity Loans that
became Liquidated Home Equity Loans during such Collection Period;
(xviii) the Cumulative Realized Losses on the Home Equity Loans;
(xix) the book value of any real estate acquired through
foreclosure or grant of a deed in lieu of foreclosure;
(xx) the Three Payment-Plus Delinquency Percentage for the
related Collection Period;
(xxi) the Three Payment-Plus 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 Formula Rate, the Available Funds Cap and the Note Rate
for such Payment Date;
(xxvi) the amount of any Skip-A-Pay Advances for the related
Collection Period;
(xxvii) the Skip-A-Pay Reimbursement Amount for such Payment
Date; and
(xxviii) the Cumulative Loss Percentage.
In the case of information furnished pursuant to clause (ii) above,
the amounts shall be expressed, in a separate section of the report, as a
dollar amount for each Note for each $1,000 original dollar amount as of the
Cut-Off Date.
To the extent that there are inconsistencies between the telecopy of
the Indenture Trustee's Statement to Noteholders and the hard copy thereof,
the Master Servicer may rely upon the latter.
The Indenture Trustee will make the reports referred to in this
section (and, at its option, any additional files containing the same
information in an alternative format) available each month to Noteholders and
other parties to this Agreement via the Indenture Trustee's website, which is
presently located at ▇▇▇.▇▇▇.▇▇▇▇▇▇▇.▇▇▇. Persons that are unable to use the
above
57
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, the Insurer's reinsurers, parent, regulators, liquidity
providers and auditors and to the extent the Seller instructs the Indenture
Trustee in writing to furnish information regarding the Trust or the Home
Equity Loans to third-party information providers. No Person entitled to
receive copies of such reports or tapes or lists of Noteholders shall use the
information therein for the purpose of soliciting the customers of the Seller
or for any other purpose except as set forth in this Agreement.
(d) Within 60 days after the end of each calendar year, the Master
Servicer shall prepare or cause to be prepared and shall forward or give
access to the Indenture Trustee the information set forth in clauses (i) and
(ii) above aggregated for such calendar year. Such obligation of the Master
Servicer shall be deemed to have been satisfied to the extent that
substantially comparable information shall be provided by the Master Servicer
pursuant to any requirements of the Code.
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ARTICLE VI.
THE MASTER SERVICER AND THE DEPOSITOR
SECTION 6.01 Liability of the Master Servicer and the Depositor. The
Master Servicer shall be liable in accordance herewith only to the extent of
the obligations specifically imposed upon and undertaken by the Master
Servicer herein. The Depositor shall be liable in accordance herewith only to
the extent of the obligations specifically imposed upon and undertaken by the
Depositor herein.
SECTION 6.02 Merger or Consolidation of, or Assumption of the
Obligations of, the Master Servicer or the Depositor. Any corporation into
which the Master Servicer or Depositor may be merged or consolidated, or any
corporation resulting from any merger, conversion or consolidation to which
the Master Servicer or the Depositor shall be a party, or any corporation
succeeding to the business of the Master Servicer or the Depositor, shall be
the successor of the Master Servicer or the Depositor, as the case may be,
hereunder, without the execution or filing of any paper or any further act on
the part of any of the parties hereto so long as such entity is investment
grade rated, anything herein to the contrary notwithstanding.
SECTION 6.03 Limitation on Liability of the Master Servicer, the
Depositor and Others. None of the Master Servicer, the Depositor, or any
director, officer, employee or agent of the Master Servicer or the Depositor
shall be under any liability to the Trust or the Noteholders for any action
taken or for refraining from the taking of any action by the Master Servicer
or the Depositor, as applicable, in good faith pursuant to this Agreement, or
for errors in judgment; provided, however, that this provision shall not
protect the Master Servicer, the Depositor or any such person against any
liability which would otherwise be imposed by reason of willful misfeasance,
bad faith or gross negligence in the performance of duties or by reason of
reckless disregard of obligations and duties hereunder, and that this
provision shall not be construed to entitle the Master Servicer to indemnity
in the event that amounts advanced by the Master Servicer to retire any senior
Lien exceed Net Liquidation Proceeds realized with respect to the related Home
Equity Loan. The Master Servicer, the Depositor and any director, officer,
employee or agent of the Master Servicer or the Depositor may rely in good
faith on any document of any kind prima facie properly executed and submitted
by any Person respecting any matters arising hereunder. The Master Servicer,
the Depositor and any director, officer, employee or agent of the Master
Servicer or the Depositor shall be indemnified by the Trust and held harmless
against any loss, liability or expense incurred in connection with any legal
action relating to this Agreement or the Notes, other than any loss, liability
or expense related to any specific Home Equity Loan or Home Equity Loans
(except as any such loss, liability or expense shall be otherwise reimbursable
pursuant to this Agreement) and any loss, liability or expense incurred by
reason of willful misfeasance, bad faith or gross negligence in the
performance of duties hereunder or by reason of reckless disregard of
obligations and duties hereunder. Neither the Master Servicer nor the
Depositor shall be under any obligation to appear in, prosecute or defend any
legal action which is not incidental to its respective duties under this
Agreement, and which in its opinion may involve it in any expense or
liability; provided, however, that the Master Servicer or the Depositor may,
in its sole discretion, undertake any such action which it may deem necessary
or desirable in respect of this Agreement and the rights and duties of the
parties hereto and the interests of the Noteholders and the Insurer hereunder.
In such event, the
59
reasonable legal expenses and costs of such action and any liability resulting
therefrom and any claims by the Master Servicer or the Depositor hereunder for
indemnification shall be expenses, costs and liabilities of the Trust, and the
Master Servicer or the Depositor, as the case may be, shall be entitled to be
reimbursed therefor and indemnified pursuant to the terms hereof from amounts
deposited in the Collection Account as provided by Section 3.03. The Master
Servicer's and the Depositor's right to indemnity or reimbursement pursuant to
this Section shall survive any resignation or termination of the Master
Servicer pursuant to Section 6.04 or 7.01 with respect to any losses,
expenses, costs or liabilities arising prior to such resignation or
termination (or arising from events that occurred prior to such resignation or
termination). The Master Servicer shall have no claim (whether by subrogation
or otherwise) or other action against any Noteholder or the Insurer for any
amounts paid by the Master Servicer pursuant to any provision of this
Agreement.
SECTION 6.04 Master Servicer Not to Resign. Subject to the provisions
of Section 6.02, the Master Servicer shall not resign from the obligations and
duties hereby imposed on it except (i) upon determination that the performance
of its obligations or duties hereunder are no longer permissible under
applicable law or are in material conflict by reason of applicable law with
any other activities carried on by it or its subsidiaries or Affiliates, the
other activities of the Master Servicer so causing such a conflict being of a
type and nature carried on by the Master Servicer or its subsidiaries or
Affiliates at the date of this Agreement or (ii) upon satisfaction of the
following conditions: (a) the Master Servicer has proposed a successor
servicer to the Indenture Trustee in writing and such proposed successor
servicer is reasonably acceptable to the Indenture Trustee and, so long as no
Insurer Default exists and is continuing, the Insurer; (b) each Rating Agency
shall have confirmed to the Indenture Trustee that the appointment of such
proposed successor servicer as Master Servicer hereunder will not result in
the reduction or withdrawal of the then-current rating of the Notes without
taking into account the existence of the Note Guaranty Insurance Policy; and
(c) such proposed successor servicer has agreed in writing to assume the
obligations of Master Servicer hereunder and the Master Servicer has delivered
to the Indenture Trustee and the Insurer an Opinion of Counsel to the effect
that all conditions precedent to the resignation of the Master Servicer and
the appointment of and acceptance by the proposed successor servicer have been
satisfied; provided, however, that in the case of clause (i) above no such
resignation by the Master Servicer shall become effective until the Indenture
Trustee shall have assumed the Master Servicer's responsibilities and
obligations hereunder or the Indenture Trustee shall have designated a
successor servicer in accordance with Section 7.02. Any such resignation shall
not relieve the Master Servicer of responsibility for any of the obligations
specified in Sections 7.01 and 7.02 as obligations that survive the
resignation or termination of the Master Servicer. Any such determination
permitting the resignation of the Master Servicer pursuant to clause (i) above
shall be evidenced by an Opinion of Counsel to such effect delivered to the
Indenture Trustee and the Insurer.
SECTION 6.05 Delegation of Duties. In the ordinary course of business,
the Master Servicer at any time may delegate any of its duties hereunder to
any Person, including any of its Affiliates, who agrees to conduct such duties
in accordance with standards comparable to those with which the Master
Servicer complies pursuant to Section 3.01. Such delegation shall not relieve
the Master Servicer of its liabilities and responsibilities with respect to
such duties and shall not constitute a resignation within the meaning of
Section 6.04. The Master Servicer shall provide each Rating Agency, the
Insurer and the Indenture Trustee with written notice prior to
60
the delegation of any of its duties to any Person other than any of
the Master Servicer's Affiliates or their respective successors and assigns.
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ARTICLE VII.
MASTER SERVICER TERMINATION
SECTION 7.01 Master Servicer Termination Events.
If any one of the following events ("Master Servicer Termination
Events") shall occur and be continuing:
(a) Any failure by the Master Servicer to deposit in the Collection
Account any deposit required to be made under the terms of this Agreement
which continues unremedied for a period of five (5) Business Days after the
date upon which written notice of such failure shall have been given to the
Master Servicer by the Indenture Trustee or the Depositor, or to the Master
Servicer, the Depositor and the Indenture Trustee by (i) the Insurer, so long
as no Insurer Default exists and is continuing, or (ii) during the existence
of an Insurer Default, the Majority Noteholder (without the consent of the
Insurer so long as an Insurer Default is continuing); or
(b) Any failure on the part of the Master Servicer duly to observe or
perform in any material respect any other covenants or agreements of the
Master Servicer set forth in the Notes or in this Agreement (including
covenants in Section 2.03), which failure (A) materially and adversely affects
the interests of Noteholders or, so long as no Insurer Default exists and is
continuing, the Insurer and (B) continues unremedied for a period of sixty
(60) days after the date on which written notice of such failure, requiring
the same to be remedied, shall have been given to the Master Servicer by the
Indenture Trustee or the Depositor, or to the Master Servicer, the Depositor
and the Indenture Trustee by (i) the Insurer, so long as no Insurer Default
exists and is continuing, or (ii) during the existence of an Insurer Default,
the Majority Noteholder (without the consent of the Insurer so long as an
Insurer Default is continuing); or
(c) The entry against the Master Servicer of a decree or order by a
court or agency or supervisory authority having jurisdiction in the premises
for the appointment of a trustee, conservator, receiver or liquidator in any
insolvency, conservatorship, receivership, readjustment of debt, marshalling
of assets and liabilities or similar proceedings, or for the winding up or
liquidation of its affairs, and the continuance of any such decree or order
unstayed and in effect for a period of 60 consecutive days; or
(d) The consent by the Master Servicer to the appointment of a
trustee, conservator, receiver or liquidator in any insolvency,
conservatorship, receivership, readjustment of debt, marshalling of assets and
liabilities or similar proceedings of or relating to the Master Servicer or of
or relating to substantially all of its property; or the Master Servicer shall
admit in writing its inability to pay its debts generally as they become due,
file a petition to take advantage of any applicable insolvency or
reorganization statute, make an assignment for the benefit of its creditors,
or voluntarily suspend payment of its obligations; or
(e) a Trigger Event shall have occurred;
then, and in each and every case, so long as a Master Servicer Termination
Event shall not have been remedied by the Master Servicer, either the
Indenture Trustee, the Insurer, so long as no Insurer Default is continuing or
the Depositor may, and at the direction of (i) the Insurer, so long
62
as no Insurer Default is existing, or (ii) the Majority Noteholder (without
the consent of the Insurer so long as Insurer Default exists and is
continuing), the Indenture Trustee shall, by notice then given in writing to
the Master Servicer, the Depositor, the Insurer and the Indenture Trustee, as
applicable, terminate all of the rights and obligations of the Master Servicer
as master servicer under this Agreement; provided, however, that the
responsibilities and duties of the initial Master Servicer with respect to the
purchase of Home Equity Loans pursuant to Sections 2.02, 2.04(c) and 3.01
shall not terminate. Any such notice to the Master Servicer shall also be
given to each Rating Agency. On or after the receipt by the Master Servicer of
such written notice, all authority and power of, and all benefits accruing to,
the Master Servicer under this Agreement, whether with respect to the Notes or
the Home Equity Loans or otherwise, shall pass to and be vested in the
Indenture Trustee or, if a successor Master Servicer has been appointed under
Section 7.02, such successor Master Servicer pursuant to and under this
Section 7.01; and, without limitation, the Indenture Trustee is hereby
authorized and empowered to execute and deliver, on behalf of the Master
Servicer, as attorney-in-fact or otherwise, any and all documents and other
instruments, and to do or accomplish all other acts or things necessary or
appropriate to effect the purposes of such notice of termination, whether to
complete the transfer and endorsement of each Home Equity Loan and related
documents, or otherwise. The Master Servicer agrees to cooperate with the
Indenture Trustee in effecting the termination of the responsibilities and
rights of the Master Servicer hereunder, including, without limitation, the
transfer to the Indenture Trustee for the administration by it of all cash
amounts that shall at the time be held by the terminated Master Servicer and
to be deposited by it in the Collection Account, or that have been deposited
by the terminated Master Servicer in the Collection Account or thereafter
received by the terminated Master Servicer with respect to the Home Equity
Loans, and the recordation of Assignments of Mortgages to the Trust if MERS is
not the mortgagee of a Home Equity Loan or otherwise in accordance with
Section 7.02(c).
Notwithstanding the foregoing, a delay in or failure of performance
under Section 7.01(a) for a period of five (5) Business Days or under Section
7.01(b) for a period of sixty (60) days, shall not constitute a Master
Servicer Termination Event if such delay or failure could not be prevented by
the exercise of reasonable diligence by the Master Servicer and such delay or
failure was caused by an act of God, acts of declared or undeclared war,
public disorder, terrorism, rebellion or sabotage, epidemics, landslides,
lightning, fire, hurricanes, earthquakes, floods or similar causes. The
preceding sentence shall not relieve the Master Servicer from using its best
efforts to perform its obligations in a timely manner in accordance with the
terms of this Agreement, and the Master Servicer shall provide the Indenture
Trustee, the Depositor, the Insurer and the Noteholders with an Officer's
Certificate giving prompt notice of such failure or delay by it, together with
a description of its efforts to so perform its obligations. The Master
Servicer shall immediately notify the Indenture Trustee, the Insurer and each
Rating Agency in writing of any Master Servicer Termination Events.
SECTION 7.02 Indenture Trustee to Act; Appointment of Successor.
(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;
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provided, however, that the responsibilities and duties of HFC as Master
Servicer with respect to the purchase of the Home Equity Loans pursuant to
Sections 2.02, 2.04(c) and 3.01 shall not terminate. As compensation therefor,
the Indenture Trustee shall be entitled to such compensation as the Master
Servicer would have been entitled to hereunder if no such notice of
termination had been given. Notwithstanding the above, (i) if the Indenture
Trustee is unwilling to act as successor Master Servicer, or (ii) if the
Indenture Trustee is legally unable so to act, the Indenture Trustee may (in
the situation described in clause (i)) or shall (in the situation described in
clause (ii)) appoint, or petition a court of competent jurisdiction to
appoint, any housing and home finance institution or other mortgage loan or
home equity loan servicer having all licenses and permits required in order to
perform its obligations hereunder and a net worth of not less than $50,000,000
as the successor to the Master Servicer hereunder in the assumption of all or
any part of the responsibilities, duties or liabilities of the Master Servicer
hereunder; provided that the appointment of any such successor Master Servicer
will not result in the qualification, reduction or withdrawal of the
then-current rating assigned to the Notes by the Rating Agencies without
taking into account the existence of the Note Guaranty Insurance Policy, as
evidenced by a writing to such effect delivered to the Indenture Trustee and
the Insurer, and (so long as no Insurer Default exists and is continuing) any
successor Master Servicer appointed hereunder shall be reasonably acceptable
to the Insurer, as evidenced in writing to the Indenture Trustee, the
Depositor and the successor Master Servicer by the Insurer. Pending
appointment of a successor to the Master Servicer hereunder, unless the
Indenture Trustee is prohibited by law from so acting, the Indenture Trustee
shall act in such capacity as hereinabove provided. In connection with such
appointment and assumption, the successor shall be entitled to receive
compensation out of payments on Home Equity Loans in an amount equal to the
compensation which the Master Servicer would otherwise have received pursuant
to Section 3.09 (or such lesser compensation as the Indenture Trustee and such
successor shall agree). The Indenture Trustee and such successor shall take
such action, consistent with this Agreement, as shall be necessary to
effectuate any such succession.
(b) Any successor, including the Indenture Trustee, to the Master
Servicer as master servicer shall during the term of its service as master
servicer (i) continue to service and administer the Home Equity Loans for the
benefit of Noteholders and the Insurer and (ii) maintain in force a policy or
policies of insurance covering errors and omissions in the performance of its
obligations as Master Servicer hereunder and a fidelity bond in respect of its
officers, employees and agents to the same extent as the Master Servicer is so
required pursuant to Section 3.13. The appointment of a successor Master
Servicer shall not affect any liability of the predecessor Master Servicer
which may have arisen under this Agreement prior to its termination as Master
Servicer (including, without limitation, any deductible under an insurance
policy pursuant to Section 3.04), nor shall any successor Master Servicer be
liable for any acts or omissions of the predecessor Master Servicer or for any
breach by such Master Servicer or the Depositor of any of their
representations or warranties contained herein or in any related document or
agreement.
(c) In connection with the termination or resignation of the Master
Servicer hereunder, either (i) the successor Master Servicer, including the
Indenture Trustee if the Indenture Trustee is acting as successor Master
Servicer, shall represent and warrant that it is a member of MERS in good
standing and shall agree to comply in all material respects with the rules and
procedures of MERS in connection with the servicing of the Home Equity Loans
that are registered with
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MERS, in which case the predecessor Master Servicer shall cooperate
with the successor Master Servicer in causing MERS to revise its records to
reflect the transfer of servicing to the successor Master Servicer as
necessary under MERS' rules and regulations, or (ii) the predecessor Master
Servicer shall cooperate with the successor Master Servicer in causing MERS to
execute and deliver an Assignment of Mortgage in recordable form to transfer
the Mortgage from MERS to the Trust and to execute and deliver such other
notices, documents and other instruments as may be necessary or desirable to
effect a transfer of such Home Equity Loan or servicing of such Home Equity
Loan on the MERS(R) System to the successor Master Servicer. The predecessor
Master Servicer shall file or cause to be filed any such assignment in the
appropriate recording office. The predecessor Master Servicer shall bear any
and all fees of MERS, costs of preparing any Assignments of Mortgage, and fees
and costs of filing any assignments of Mortgage that may be required under
this subsection (c). The successor Master Servicer shall cause such assignment
to be delivered to the Indenture Trustee promptly upon receipt of the original
with evidence of recording thereon or a copy certified by the public recording
office in which such Assignment of Mortgage was recorded.
SECTION 7.03 Waiver of Defaults. So long as no Insurer Default exists
and is continuing, the Insurer, or the Majority Noteholder with the consent of
the Insurer (which consent shall not be unreasonably withheld), may, on behalf
of all Noteholders, waive any events permitting removal of the Master Servicer
as master servicer pursuant to this Article VII, provided, however, that the
Insurer and the Majority Noteholder may not waive a default in making a
required payment on a Note without the consent of each Holder of such Note.
Upon any waiver of a past default, such default shall cease to exist and any
Master Servicer Termination Event arising therefrom shall be deemed to have
been remedied for every purpose of this Agreement. No such waiver shall extend
to any subsequent or other default or impair any right consequent thereto
except to the extent expressly so waived. Notice of any such waiver shall be
given by the Indenture Trustee to the Rating Agencies.
SECTION 7.04 Notification to Noteholders. Upon any termination or
appointment of a successor to the Master Servicer pursuant to this Article VII
or Section 6.04 above, the Indenture Trustee shall give prompt written notice
thereof to the Noteholders at their respective addresses appearing in the Note
Register, the Insurer and each Rating Agency.
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ARTICLE VIII.
TERMINATION
SECTION 8.01 Termination.
(a) The respective obligations and responsibilities of the Depositor,
the Seller, the Master Servicer, the Trust and the Indenture Trustee created
hereby (other than the obligation of the Indenture Trustee to make certain
payments to Noteholders after the Final Scheduled Payment Date and the
obligation of the Master Servicer to send certain notices as hereinafter set
forth) shall terminate upon notice to the Indenture Trustee of the later of
(A) payment in full of all amounts owing to the Insurer unless the Insurer
shall otherwise consent and (B) the earliest of (i) the final payment or other
liquidation of the last Home Equity Loan remaining in the Trust; (ii) the sale
of the Home Equity Loans as described in Section 10.2 of the Indenture and the
corresponding redemption of the Notes, (iii) the optional purchase by the
Master Servicer of the Home Equity Loans as described below in this Section
8.01 and (iv) the Payment Date in October 2032.
(b) The Master Servicer may, at its option, terminate this Agreement
on any Payment Date on or after the Payment Date on which the Note Principal
Amount is less than or equal to 20% of the Original Note Principal Amount
after giving effect to all payments on such Payment Date by purchasing, on the
next succeeding Payment Date, all of the outstanding Home Equity Loans and REO
Properties at a price (the "Termination Price") equal the greatest of (A) the
sum of (x) 100% of the Principal Balance of each Home Equity Loan (other than
any Home Equity Loan as to which title to the underlying Mortgaged Property
has been acquired and whose fair market value is included pursuant to clause
(y) below) as of the first day of the Collection Period preceding the Payment
Date upon which the proceeds of any repurchase are to be paid and (y) the fair
market value of such acquired property (as determined by the Master Servicer
as of the close of business on the third Business Day next preceding the date
upon which notice of any such termination is furnished to Noteholders pursuant
to Section 8.01(e)) plus, in each case, one month's interest at the applicable
Net Loan Rate on the Principal Balance of each Home Equity Loan (including any
Home Equity Loan as to which title to the underlying Mortgaged Property has
been acquired), (B) the aggregate fair market value (as determined by the
Master Servicer as of the close of business on such third preceding Business
Day) of all of the assets of the Trust, and (C) the Note Principal Amount,
together with any unpaid Interest Carry Forward Amounts and Supplemental
Interest Amounts, plus one month's interest on such Note Principal Amount and
any unpaid Interest Carry Forward Amounts and Supplemental Interest Amounts at
the Formula Rate, plus all Reimbursement Amounts due and owing to the Insurer.
Any such purchase shall be accomplished by deposit into the Collection
Account on the Determination Date before such Payment Date of the Termination
Price.
(c) If the Master Servicer does not repurchase all of the Home Equity
Loans pursuant to Section 8.01(b) above within three (3) months of the first
Payment Date upon which such repurchase option may occur, then promptly on the
following Payment Date the Indenture Trustee shall begin a process for
soliciting bids in connection with an auction of the Home Equity Loans for an
auction to occur on or before the next succeeding Payment Date (the "First
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Auction Date") and, if necessary, any date after the First Auction Date (the
"Subsequent Action Date" and together with the First Auction Date, the
"Auction Date"). The Indenture Trustee shall provide the Master Servicer
written notice of such auctions at least ten (10) Business Days prior to the
applicable Auction Date. The auctions shall be conducted as follows:
(i) If at least two bids are received, the Indenture Trustee
shall solicit and resolicit new bids from all participating bidders
until only one bid remains or the remaining bidders decline to
resubmit bids. The Indenture Trustee shall accept the highest of
such remaining bids if it is equal to or in excess of the
Termination Price. If less than two bids are received or the highest
bid after the resolicitation process is completed is not equal to or
in excess of the Termination Price, the Indenture Trustee shall not
consummate such sale. If a bid equaling the Termination Price is
received, then the Indenture Trustee may, and if so requested by the
Master Servicer shall, consult with a financial advisor, which may
be an underwriter of the Notes, to determine if the fair market
value of the Home Equity Loans and related property has been
offered.
(ii) If the first auction conducted by the Indenture Trustee
does not produce any bid at least equal to the Termination Price,
then the Indenture Trustee shall, beginning on the Payment Date
occurring approximately three months after the Auction Date for the
failed first auction, commence another auction in accordance with
the requirements of this subsection (c). If such second auction does
not produce any bid at least equal to the Termination Price, then
the Indenture Trustee shall, beginning on the Payment Date occurring
approximately three months after the Auction Date for the failed
second auction, commence another auction in accordance with the
requirements of this subsection (c), and shall continue to conduct
similar auctions approximately every three months thereafter until
the earliest of (i) delivery by the Master Servicer of notice of
exercise of its repurchase option pursuant to Section 8.01(b) above,
(ii) receipt by the Indenture Trustee of a bid meeting the
conditions specified in the preceding paragraph, or (iii) the
Payment Date on which the Principal Balance of all the Home Equity
Loans is reduced to zero.
(d) If the Indenture Trustee receives a bid meeting the conditions
specified in subsection (c), then the Indenture Trustee shall release, or
cause to be released, to the winning bidder, upon payment of the bid purchase
price and satisfaction of any other terms and conditions of the auction sale,
the Mortgage Files pertaining to the Home Equity Loans being purchased and the
Trust and the Indenture Trustee shall take such other actions as the winning
bidder may reasonably request to effect the transfer of the Home Equity Loans
by the Trust to the winning bidder.
(e) Notice of any termination, specifying the Payment Date (which
shall be a date that would otherwise be a Payment Date) upon which the
Noteholders may surrender their Notes to the Indenture Trustee for payment of
the final payment and cancellation, shall be given promptly by the Indenture
Trustee (upon receipt of written directions from the Master Servicer, if the
Master Servicer is exercising its right to transfer of the Home Equity Loans,
given not later than the first day of the month preceding the month of such
final payment) to the Insurer and to the Master Servicer by letter to the
Noteholders mailed not earlier than the 15th day and not later than the 25th
day of the month next preceding the month of such final payment specifying (i)
the
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Payment Date upon which final payment of the Notes will be made upon
presentation and surrender of Notes at the office or agency of the Indenture
Trustee therein designated, (ii) the amount of any such final payment and
(iii) that the Record Date otherwise applicable to such Payment Date is not
applicable, payments being made only upon presentation and surrender of the
Notes at the office or agency of the Indenture Trustee therein specified.
(f) Upon presentation and surrender of the Notes, the Indenture
Trustee shall cause to be paid to the Holders of the Notes on the Payment Date
for such final payment, in proportion to the Percentage Interests of their
respective Notes and to the extent that funds are available for such purpose,
an amount equal to the amount required to be paid to Noteholders pursuant to
Section 5.01 for such Payment Date. On the final Payment Date prior to having
made the payments called for above, the Indenture Trustee shall, based upon
the information set forth in the Servicing Certificate for such Payment Date,
withdraw from the Collection Account and remit to the Insurer the lesser of
(x) the amount available for payment on such final Payment Date, net of any
portion thereof necessary to pay the Noteholders pursuant to Section 5.01(a)
and due and unpaid Skip-A-Pay Advances and Servicing Fees, and (y) the unpaid
amounts due and owing to the Insurer pursuant to the Insurance and Indemnity
Agreement.
(g) In the event that all of the Noteholders shall not surrender their
Notes for final payment and cancellation on or before such final Payment Date,
the Indenture Trustee shall promptly following such date cause all funds in
the Collection Account not paid in final payment to Noteholders, to be
withdrawn therefrom and credited to the remaining Noteholders by depositing
such funds in a separate escrow account for the benefit of such Noteholders,
and the Master Servicer (if the Master Servicer has exercised its right to
purchase the Home Equity Loans) or the Indenture Trustee (in any other case)
shall give a second written notice to the remaining Noteholders to surrender
their Notes for cancellation and receive the final payment with respect
thereto. If within nine months after the second notice all the Notes shall not
have been surrendered for cancellation, (i) all unclaimed funds will be paid
to the Insurer to the extent such funds represent reimbursement of a
Reimbursement Amount and (ii) the Ownership Interest will be entitled to all
remaining unclaimed funds and other assets which remain subject hereto, and
the Indenture Trustee upon transfer of such funds shall be discharged of any
responsibility for such funds and the Noteholders shall look to the holder of
the Ownership Interest for payment.
(h) Upon payment of all amounts owed under the Note Guaranty Insurance
Policy and cancellation of the Notes, the Indenture Trustee shall provide the
Insurer notice of cancellation of the Notes and surrender the Note Guaranty
Insurance Policy to the Insurer.
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ARTICLE IX.
MISCELLANEOUS PROVISIONS
SECTION 9.01 Amendment.
(a) This Agreement may be amended from time to time by the Depositor,
the Master Servicer, the Trust and the Indenture Trustee by written agreement,
without the consent of any of the Noteholders, but, so long as no Insurer
Default exists and is continuing, only with the consent of the Insurer (which
consent shall not be unreasonably withheld) (i) to cure any ambiguity, (ii) to
correct or supplement any provisions herein that may be inconsistent with any
other provisions herein or to correct any error, (iii) to add to the duties of
the Depositor, the Indenture Trustee or the Master Servicer, (iv) to add,
amend or modify any other provisions with respect to matters or questions
arising under this Agreement or the Note Guaranty Insurance Policy, as the
case may be, which shall not be inconsistent with the provisions of this
Agreement, (v) to add or amend any provisions of this Agreement as required by
any Rating Agency or any other nationally recognized statistical rating agency
in order to maintain or improve any rating of the Notes (it being understood
that, after obtaining the ratings in effect on the Closing Date, neither the
Indenture Trustee, the Depositor nor the Master Servicer is obligated to
obtain, maintain or improve any such rating), (vi) to comply with any
requirement imposed by changes in accounting policies that do not materially
impact the Notes, or (vii) to comply with any requirements imposed by the
Code; provided, however, that as evidenced by an Opinion of Counsel (at the
expense of the party requesting such amendment) in each case (other than a
case arising under clause (vi) or (vii)) such action shall not adversely
affect in any material respect the interest of any Noteholder or (so long as
no Insurer Default exists and is continuing) the Insurer, and provided,
further, that the amendment shall not be deemed to adversely affect in any
material respect the interests of the Noteholder or (so long as no Insurer
Default exists and is continuing) the Insurer, and no Opinion of Counsel to
that effect shall be required if the Person requesting the amendment obtains a
letter from each Rating Agency stating that the amendment would not result in
the downgrading or withdrawal of the respective ratings then assigned to the
Notes without regard to the Note Guaranty Insurance Policy.
(b) This Agreement also may be amended from time to time by the Master
Servicer, the Depositor, the Trust and the Indenture Trustee, with the consent
of the Majority Noteholder, and (so long as no Insurer Default exists and is
continuing) with the consent of the Insurer (which consent shall not be
unreasonably withheld), for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement
or of modifying in any manner the rights of the Noteholders or the Transferor
in respect of the Ownership Interest; provided, however, that no such
amendment shall (i) reduce in any manner the amount of, or delay the timing
of, payments on the Notes or distributions or payments under the Note Guaranty
Insurance Policy which are required to be made on the Notes without the
consent of the Holder of such Notes or (ii) reduce the aforesaid percentage
required to consent to any such amendment, without the consent of the Holders
of all Notes then outstanding.
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
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incurring taxes imposed under the Code and notice of the conclusion
expressed in such Opinion of Counsel shall be included with any such
solicitation. An amendment made with the consent of all Noteholders and the
Insurer and executed in accordance with this Section 9.01 shall be permitted
or authorized by this Agreement notwithstanding that such Opinion of Counsel
may conclude that such amendment would create a material risk of the Trust
incurring taxes imposed under the Code.
Prior to the execution of any such amendment, the Indenture Trustee
shall furnish written notification of the substance of such amendment to each
Rating Agency. In addition, promptly after the execution of any such amendment
made with the consent of the Noteholders, the Indenture Trustee shall furnish
written notification of the substance of such amendment to each Noteholder and
fully executed original counterparts of the instruments effecting such
amendment to the Insurer.
(c) It shall not be necessary for the consent of Noteholders under
this Section 9.01 to approve the particular form of any proposed amendment,
but it shall be sufficient if such consent shall approve the substance
thereof. The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Noteholders shall be subject to such
reasonable requirements as the Indenture Trustee may prescribe.
Prior to the execution of any amendment to this Agreement, each of the
Indenture Trustee, the Owner Trustee and the Insurer shall be entitled to
receive and conclusively rely upon an Opinion of Counsel stating that the
execution of such amendment is authorized or permitted by this Agreement and
all conditions precedent to the execution of such amendment have been met. The
Indenture Trustee may, but shall not be obligated to, enter into any such
amendment which affects the Indenture Trustee's own rights, duties,
indemnities or immunities under this Agreement.
SECTION 9.02 Recordation of Agreement. To the extent permitted by
applicable law, this Agreement, or a memorandum thereof if permitted under
applicable law, is subject to recordation in all appropriate public offices
for real property records in all of the counties or other comparable
jurisdictions in which any or all of the Mortgaged Properties are situated,
and in any other appropriate public recording office or elsewhere, such
recordation to be effected by the Master Servicer at the Noteholders' expense
on direction of the Indenture Trustee, the Insurer or the Majority Noteholder,
but only when accompanied by an opinion of counsel delivered to the Indenture
Trustee, the Owner Trustee and the Insurer to the effect that such recordation
materially and beneficially affects the interests of the Noteholders or the
Insurer (so long as no Insurer Default exists and is continuing) or is
necessary for the administration or servicing of the Home Equity Loans.
SECTION 9.03 Duration of Agreement. This Agreement shall continue in
existence and effect until terminated as herein provided.
SECTION 9.04 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
70
DETERMINED IN ACCORDANCE WITH SUCH LAWS, WITHOUT GIVING EFFECT TO PRINCIPLES OF
CONFLICTS OF LAW.
SECTION 9.05 Notices. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered at or mailed by overnight mail, certified mail or
registered mail, postage prepaid, to (a) in the case of the Depositor or the
Master Servicer, ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
Attention: Treasurer, (b) in the case of the Indenture Trustee, at the
Corporate Trust Office, Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, (c) in the case of the
Owner Trustee, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇,
Attention: Asset Backed Securities, (d) in the case of Moody's, ABS Monitoring
Department, ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, (e) in the case of
Standard & Poor's, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇,
Attention: Structured Finance Surveillance, (f) in the case of Fitch, ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: RMBS
Surveillance Department and (g) in the case of the Insurer, Ambac Assurance
Corporation, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention:
Consumer Asset-Backed Securities Group, Telephone Number (▇▇▇) ▇▇▇-▇▇▇▇ and
Telecopier Number (▇▇▇) ▇▇▇-▇▇▇▇, or, as to each party, at such other address
as shall be designated by such party in a written notice to each other party.
Any notice required or permitted to be mailed to a Noteholder shall be given
by first class mail, postage prepaid, at the address of such Holder as shown
in the Note Register. Any notice so mailed within the time prescribed in this
Agreement shall be conclusively presumed to have been duly given, whether or
not the Noteholder receives such notice.
SECTION 9.06 Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be held
invalid for any reason whatsoever, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity
or enforceability of the other covenants, agreements, provisions or terms of
this Agreement.
SECTION 9.07 No Partnership. Nothing herein contained shall be deemed
or construed to create any partnership or joint venture between the parties
hereto and the services of the Master Servicer shall be rendered as an
independent contractor.
SECTION 9.08 Counterparts. This Agreement may be executed in one or
more counterparts and by the different parties hereto on separate
counterparts, each of which, when so executed, shall be deemed to be an
original; such counterparts, together, shall constitute one and the same
Agreement.
SECTION 9.09 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the Depositor, the Master Servicer, the Seller,
the Trust, the Indenture Trustee and the Noteholders and their respective
successors and permitted assigns. The Insurer is an express third party
beneficiary of this Agreement.
The parties hereto hereby agree that all rights of the Trust under
this Agreement are pledged by the Trust to the Indenture Trustee under the
Indenture, and that the Indenture Trustee
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on behalf of the Noteholders and, so long as no Insurer Default exists and is
continuing, the Insurer has the right to directly enforce all rights of the
Trust under this Agreement.
SECTION 9.10 Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not
be deemed to be part of this Agreement.
SECTION 9.11 Indenture Trustee. All privileges, rights and immunities
given to the Indenture Trustee in the Indenture are hereby extended to and
applicable to the Indenture Trustee's obligations hereunder.
SECTION 9.12 Inconsistencies Among Transaction Documents. In the event
certain provisions of a Transaction Document conflict with the provisions of
this Sale and Servicing Agreement, the parties hereto agree that the
provisions of this Sale and Servicing Agreement shall be controlling.
SECTION 9.13 Rights of the Insurer to Exercise Rights of Noteholders.
By accepting its Note, each Noteholder agrees that unless an Insurer Default
exists and is continuing, the Insurer shall have the right to exercise all
rights of the Noteholders as specified under this Agreement without any
further consent of the Noteholders; provided that
(i) any direction provided by the Insurer shall not be in
conflict with any rule of law or with any of the Transaction
Documents; and
(ii) the Trust and the Indenture Trustee may take any other
action deemed proper by the Trust or the Indenture that is not
inconsistent with any direction;
provided, however, that the Trust or the Indenture Trustee need not
take any action that is determined might involve it in liability or
might materially adversely affect the rights of any Noteholders not
consenting to an action.
Notwithstanding any other provision of this Agreement, any right conferred to
the Insurer hereunder shall be suspended and shall run to the benefit of the
Noteholders during any period in which there exists an Insurer Default.
SECTION 9.14 Limitation on Voting of Preferred Stock. The Indenture
Trustee shall hold all of the preferred stock ("Preferred Stock") of the
Depositor in trust, for the benefit of the Noteholders and the Insurer, and
shall vote such stock only pursuant to the written instructions of the Insurer
(so long as no Insurer Default has occurred and is continuing) or the Majority
Noteholder (so long as an Insurer Default has occurred and is continuing). The
Indenture Trustee shall not permit a transfer of any of the Preferred Stock to
HFC or any of its Affiliates. Concurrently with any transfer of the Home
Equity Loans to the Master Servicer pursuant to Section 8.01, the Indenture
Trustee shall transfer to the Depositor for cancellation all shares of
Preferred Stock held by the Indenture Trustee.
SECTION 9.15 Perfection Representations. The Perfection
Representations shall be a part of this Agreement for all purposes.
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SECTION 9.16 Limitation of Liability. It is understood by each party
hereto that the sole recourse of each party hereto in respect of the
obligations of the Trust hereunder and under the other Transaction Documents
to which it is a party shall be to the assets of the Trust. In addition, The
Bank of New York ("BNY") is entering into this Agreement and the other
Transaction Documents to which the Trust is a party solely in its capacity as
trustee under the Trust Agreement and not in its individual capacity and in no
case shall BNY (or any Person acting as successor trustee under the Trust
Agreement) be personally liable for or on account of any of the statements,
representations, warranties, covenants or obligations stated to be those of
the Trust hereunder or thereunder, all such liability, if any, being expressly
waived by the parties hereto and any person claiming by, through or under such
party.
SECTION 9.17 Inspection of Mortgage Files. Following the time that the
Mortgage Files have been delivered to the Indenture Trustee upon reasonable
prior notice and during regular business hours, the Indenture Trustee shall
permit representatives of applicable state regulatory agencies to inspect the
Mortgage Files on the Indenture Trustee's premises or shall provide such
documents at such places required by state regulations, including the offices
of the Servicers. Any loss incurred by the Indenture Trustee in fulfilling
such obligations shall be paid by the Master Servicer.
SECTION 9.18 Consent of Insurer. Unless otherwise specified, whenever
in this Agreement the taking of any action, giving of any instruction or
direction, exercise of any right or remedy or effectiveness of any amendment
is conditioned upon the approval of, acceptance by or consent of the Insurer
(whether written or otherwise), such approval, acceptance or consent
requirement shall be waived so long as an Insurer Default exists and is
continuing; provided, however, that regardless of whether an Insurer Default
has occurred and is continuing, the foregoing provision shall not be construed
so as to deny any right of the Insurer under this Agreement to receive any
Reimbursement Amounts due and owing to it under the Insurance and Indemnity
Agreement.
73
ARTICLE X.
MISCELLANEOUS PROVISIONS
SECTION 10.01 Administrative Duties.
(a) Duties with Respect to the Indenture. The Master Servicer shall
perform all its duties and the duties of the Issuer under the Indenture. In
addition, the Master Servicer shall consult with the Owner Trustee as the
Master Servicer deems appropriate regarding the duties of the Issuer under the
Indenture. The Master Servicer shall monitor the performance of the Issuer and
shall advise the Owner Trustee when action is necessary to comply with the
Issuer's duties under the Indenture. The Master Servicer shall prepare for
execution by the Issuer or shall cause the preparation by other appropriate
Persons of all such documents, reports, filings, instruments, certificates and
opinions as it shall be the duty of the Issuer to prepare, file or deliver
pursuant to the Indenture. In furtherance of the foregoing, the Master
Servicer shall take all necessary action that is the duty of the Issuer to
take pursuant to the Indenture, including, without limitation, pursuant to
Sections 3.1, 3.3, 3.4, 3.5, 3.6, 3.7, 3.9, 3.16, 3.17, 7.3, 8.6, 9.2, 9.3,
11.1 and 11.15 of the Indenture.
(b) Duties with Respect to the Issuer.
(i) In addition to the duties of the Master Servicer set forth
in this Agreement or any of the Transaction Documents, the Master
Servicer shall perform such calculations and shall prepare for
execution by the Issuer or the Owner Trustee, or shall cause the
preparation by other appropriate Persons of all such documents,
reports, filings, instruments, certificates and opinions as it shall
be the duty of the Issuer or the Owner Trustee, to prepare, file or
deliver pursuant to this Agreement or any of the Transaction
Documents or under state and federal tax and securities laws, and at
the request of the Owner Trustee shall take all appropriate action
that it is the duty of the Issuer to take pursuant to this Agreement
or any of the Transaction Documents, including, without limitation,
pursuant to Sections 2.6 of the Trust Agreement. In accordance with
the directions of the Issuer or the Owner Trustee, the Master
Servicer shall administer, perform or supervise the performance of
such other activities in connection with the Owner Trust Estate
(including the Transaction Documents) as are not covered by any of
the foregoing provisions and as are expressly requested by the
Issuer or the Owner Trustee and are reasonably within the capability
of the Master Servicer.
(ii) Notwithstanding anything in this Agreement or any of the
Transaction Documents to the contrary, the Master Servicer shall be
responsible for promptly notifying the Owner Trustee, the Insurer
and the Indenture Trustee in the event that any withholding tax is
imposed on the Issuer's payments (or allocations of income) to a
Transferor as contemplated by 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
74
the duties of the Issuer or the Depositor set forth in Section 5.5 of
the Trust Agreement with respect to, among other things, accounting
and reports to the Transferor (as defined in the Trust Agreement);
provided, however, that once prepared by the Master Servicer, the
Depositor shall retain responsibility under the Trust Agreement for
the distribution of the Schedule K-1s, if any, necessary to enable the
Transferor to prepare its federal and state income tax returns.
(iv) The Master Servicer shall perform the duties of the
Depositor specified in Section 10.2 of the Trust Agreement required
to be performed in connection with the resignation or removal of the
Owner Trustee, and any other duties expressly required to be
performed by the Master Servicer under this Agreement or any of the
Transaction Documents.
(v) The Master Servicer, on behalf of the Depositor, shall
direct the Issuer to request the tender of all or a portion of the
Notes in accordance with the Indenture or this Agreement.
(vi) In carrying out the foregoing duties or any of its other
obligations under this Agreement, the Master Servicer may enter into
transactions with or otherwise deal with any of its Affiliates;
provided, however, that the terms of any such transactions or
dealings shall be in accordance with any directions received from
the Issuer and shall be, in the Master Servicer's opinion, no less
favorable to the Issuer in any material respect.
(vii) The Master Servicer shall take all necessary action that
is the duty of the Issuer to take pursuant to Section 7.8 of the
Trust Agreement.
(c) Tax Matters. The Master Servicer shall prepare and file, or cause
to be prepared and filed, on behalf of the Depositor, all required tax
returns, tax elections, financial statements and such annual or other reports
of the Issuer as are necessary for preparation of tax reports as provided in
Article V of the Trust Agreement, including without limitation Form 1099. All
tax returns will be signed by the Depositor.
(d) Non-Ministerial Matters. With respect to matters that in the
reasonable judgment of the Master Servicer are non-ministerial, the Master
Servicer shall not take any action pursuant to this Article X unless within a
reasonable time before the taking of such action, the Master Servicer shall
have notified the Owner Trustee and the Indenture Trustee of the proposed
action and the Owner Trustee and the Indenture Trustee shall not have withheld
consent or provided an alternative direction. For the purpose of the preceding
sentence, "non-ministerial matters" shall include
(i) the initiation of any claim or lawsuit by the Issuer and,
subject to the rights of the Insurer under Section 4.03, the
compromise of any action, claim or lawsuit brought by or against the
Issuer (other than in connection with the collection of the Home
Equity Loans);
(ii) the appointment of successor Note Registrars, successor
Note Paying Agents and successor Indenture Trustees pursuant to the
Indenture or the consent to the
75
assignment by the Note Registrar, Note Paying Agent or Indenture
Trustee of its obligations under the Indenture; and
(iii) the removal of the Indenture Trustee.
(e) Exceptions. Notwithstanding anything to the contrary in this
Agreement, except as expressly provided herein or in the Transaction
Documents, the Master Servicer, in its capacity hereunder, shall not be
obligated to, and shall not, (1) make any payments to the Noteholders or the
Transferor under the Transaction Documents, (2) sell any of the assets of the
Trust, (3) take any other action that the Issuer directs the Master Servicer
not to take on its behalf or (4) in connection with its duties hereunder
assume any indemnification obligation of any other Person.
(f) Neither the Indenture Trustee nor any successor Master Servicer
shall be responsible for any obligations or duties of a predecessor Master
Servicer under this Section 10.1.
SECTION 10.02 Records. The Master Servicer shall maintain appropriate
books of account and records relating to services performed under this
Agreement, which books of account and records shall be accessible for
inspection by the Issuer and the Indenture Trustee at any time during normal
business hours.
SECTION 10.03 Additional Information to be Furnished to the Trust. The
Master Servicer shall furnish to the Issuer and the Indenture Trustee, from
time to time such additional information regarding the Owner Trust Estate as
the Issuer and the Indenture Trustee shall reasonably request.
76
IN WITNESS WHEREOF, the following have caused their names to be signed
by their respective officers thereunto duly authorized, as of the day and year
first above written, to this Sale and Servicing Agreement.
HOUSEHOLD HOME EQUITY LOAN TRUST 2002-4,
By: The Bank of New York, not in its individual
capacity but solely as Owner Trustee
By: /s/ ▇▇▇▇▇ ▇▇▇
--------------------------------------------
Name: ▇▇▇▇▇ ▇▇▇
Title: Assistant Treasurer
S-1
HOUSEHOLD FINANCE CORPORATION,
as Master Servicer
By: /s/ ▇.▇. ▇▇▇▇, ▇▇.
--------------------------------------------
Name: ▇.▇. ▇▇▇▇, ▇▇.
Title: Vice President and Treasurer
S-2
HFC REVOLVING CORPORATION,
as Depositor
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Vice President and Assistant
Treasurer
S-3
BANK ONE, NATIONAL ASSOCIATION,
as Indenture Trustee
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Vice President
S-4
THE STATE OF NY )
)
COUNTY OF KINGS )
BEFORE ME, on 11/12/02, the undersigned authority, a Notary Public, on
this day personally appeared ▇▇▇▇▇ ▇▇▇, known to me to be a person and officer
whose name is subscribed to the foregoing instrument and acknowledged to me
that the same was the act of the said The Bank of New York not in its
individual capacity but in its capacity as Owner Trustee of HOUSEHOLD HOME
EQUITY LOAN TRUST 2002-4, 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.
▇▇▇▇▇▇▇ ▇. Clan
----------------------------------
Notary Public, State of NY
S-5
THE STATE OF ILLINOIS )
)
COUNTY OF ▇▇▇▇ )
BEFORE ME, on November 14, 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.
▇▇▇▇▇ ▇▇▇▇▇
----------------------------------
Notary Public, State of Illinois
S-6
THE STATE OF ILLINOIS )
)
COUNTY OF ▇▇▇▇ )
BEFORE ME, on November 14, 2002, the undersigned authority, a Notary
Public, on this day personally appeared ▇.▇. ▇▇▇▇▇, known to me to be a person
and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said HFC Revolving
Corporation, as the Depositor, and that he executed the same as the act of
such corporation for the purpose and consideration therein expressed, and in
the capacity therein stated.
▇▇▇▇▇ ▇▇▇▇▇
-----------------------------------
Notary Public, State of Illinois
S-7
THE STATE OF ILLINOIS )
)
COUNTY OF ▇▇▇▇ )
BEFORE ME, on November 14, 2002, the undersigned authority, a Notary
Public, on this day personally appeared ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, known to me to be
the person and officer whose name is subscribed to the foregoing instrument
and acknowledged to me that the same was the act of the said Bank One,
National Association, as Indenture Trustee, and that he executed the same as
the act of such corporation for the purposes and consideration therein
expressed, and in the capacity therein stated.
▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------------
Notary Public, State of Illinois
S-8
SCHEDULE 1
----------
PERFECTION REPRESENTATIONS, WARRANTIES AND COVENANTS
The Depositor hereby represents, warrants, and covenants to the Indenture
Trustee and the Insurer as to itself and the Sellers as follows on the Closing
Date and on each Payment Date thereafter:
General
1. This Agreement creates a valid and continuing security interest (as
defined in the applicable UCC) in the Home Equity Loans in favor of the
Indenture Trustee, and the Indenture creates a valid and continuing security
interest (as defined in the applicable UCC), each of which security interest
is prior to all other Liens, and is enforceable as such as against creditors
of and purchasers from the Depositor.
2. The Home Equity Loans constitute "general intangibles" or "instruments"
within the meaning of the applicable UCC.
3. The Collection Account and all subaccounts thereof constitute either a
deposit account or a securities account.
4. To the extent that payments and collections received or made with respect
to the Home Equity Loans constitute securities entitlements, such payments and
collections have been and will have been credited to the Collection Account.
The securities intermediary for the Collection Account has agreed to treat all
assets credited to the Collection Account as "financial assets" within the
meaning of the applicable UCC.
Creation
5. The Depositor owns and has good and marketable title to the Home Equity
Loans free and clear of any Lien, claim or encumbrance of any Person,
excepting only liens for taxes, assessments or similar governmental charges or
levies incurred in the ordinary course of business that are not yet due and
payable or as to which any applicable grace period shall not have expired, or
that are being contested in good faith by proper proceedings and for which
adequate reserves have been established, but only so long as foreclosure with
respect to such a lien is not imminent and the use and value of the property
to which the Lien attaches is not impaired during the pendency of such
proceeding.
6. The Depositor has received all consents and approvals to the sale of the
Home Equity Loans hereunder to the Trust required by the terms of the Home
Equity Loans that constitute instruments.
7. To the extent the Collection Account or subaccounts thereof constitute
securities entitlements, certificated securities or uncertificated securities,
the Depositor has received all consents and approvals required to transfer to
the Indenture Trustee its interest and rights in the Collection Account
hereunder.
1-1
Perfection
8. The Depositor has caused or will have caused, within ten days after the
effective date of this Agreement, the filing of all appropriate financing
statements in the proper filing office in the appropriate jurisdictions under
applicable law in order to perfect the sale of the Home Equity Loans from the
Depositor to the Trust, the security interest in the Home Equity Loans granted
to the Trust hereunder, the pledge of the Home Equity Loans from the Trust to
the Indenture Trustee, and the security interest in the Home Equity Loans
granted to the Indenture Trustee under the Indenture.
9. With respect to the Collection Account and all subaccounts that constitute
deposit accounts, either:
(i) the Depositor has delivered to the Indenture Trustee a
fully-executed agreement pursuant to which the bank maintaining the
deposit accounts has agreed to comply with all instructions originated
by the Indenture Trustee directing disposition of the funds in the
Collection Account without further consent by the Depositor; or
(ii) the Depositor has taken all steps necessary to cause the
Indenture Trustee to become the account holder of the Collection
Account.
10. With respect to the Collection Account or subaccounts thereof that
constitute securities accounts or securities entitlements, either:
(i) the Depositor has caused or will have caused, within ten days
after the effective date of this Agreement, the filing of all
appropriate financing statements in the proper filing office in the
appropriate jurisdictions under applicable law in order to perfect the
security interest in the Collection Account granted by the Depositor
to the Trust and by the Trust to the Indenture Trustee; or
(ii) the Depositor has delivered to the Indenture Trustee a
fully-executed agreement pursuant to which the securities intermediary
has agreed to comply with all instructions originated by the Indenture
Trustee relating to the Collection Account without further consent by
the Depositor; or
(iii) the Depositor has taken all steps necessary to cause the
securities intermediary to identify in its records the Indenture
Trustee as the person having a security entitlement against the
securities intermediary in the Collection Account.
Priority
11. Other than the transfer of the Transferred Assets to the Trust under the
Transfer Agreement, the transfer of the Home Equity Loans to the Depositor
under the Home Equity Loan Purchase Agreement, and the transfer of the Home
Equity Loans to the Trust pursuant to this Agreement, neither the Depositor
nor the Sellers have pledged, assigned, sold, granted a security interest in,
or otherwise conveyed any of the Home Equity Loans. Neither the Depositor nor
the Sellers have authorized the filing of, or are aware of any financing
statements against the Depositor or any of the Sellers that include a
description of collateral covering the Home Equity
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 Home Equity Loans. To the Depositor's
knowledge, none of the instruments that constitute or evidence the Home Equity
Loans has any marks or notations indicating that they have been pledged,
assigned or otherwise conveyed to any Person other than the Trust. All
financing statements filed or to be filed against the Depositor and the
Sellers in favor of the Indenture Trustee in connection herewith describing
the Home Equity Loans contain a statement to the following effect: "A purchase
of or security interest in any collateral described in this financing
statement will violate the rights of the Indenture Trustee."
14. Neither the Collection Account nor any subaccount thereof is in the name
of any person other than the Depositor or the Indenture Trustee as trustee
under the Indenture or in the name of its nominee. The Depositor has not
consented for the securities intermediary of the Collection Account to comply
with entitlement orders of any person other than the Indenture Trustee.
15. Survival of Perfection Representations. Notwithstanding any other
provision of this Agreement or any other transaction document, the Perfection
Representations contained in this Schedule shall be continuing, and remain in
full force and effect (notwithstanding any replacement of the Master Servicer
or termination of the Master Servicer's rights to act as such) until such time
as all obligations under this Agreement have been finally and fully paid and
performed.
16. No Waiver. The parties to this Agreement (i) shall not, without obtaining
a confirmation of the then-current rating of the Notes without taking into
account the existence of the Note Guaranty Insurance Policy and consent of the
Insurer (so long as no Insurer Default exists and is continuing), waive any of
the Perfection Representations, and (ii) shall provide the Rating Agencies and
the Insurer (so long as no Insurer Default exists and is continuing) with
prompt written notice of any breach of the Perfection Representations, and
shall not, without obtaining a confirmation of the then-current rating of the
Notes without taking into account the existence of the Note Guaranty Insurance
Policy (as determined after any adjustment or withdrawal of the ratings
following notice of such breach) and consent of the Insurer (so long as no
Insurer Default exists and is continuing) waive a breach of any of the
Perfection Representations.
17. Master Servicer to Maintain Perfection and Priority. The Master Servicer
covenants that, in order to evidence the interests of the Depositor, the
Trust, the Insurer and the Indenture Trustee under this Agreement, the Master
Servicer shall take such action, or execute and deliver such instruments
(other than effecting a Filing (as defined below), unless such Filing is
effected in accordance with this paragraph) as may be necessary or advisable
(including, without limitation, such actions as are requested by the Indenture
Trustee) to maintain and perfect, as a first priority interest, the Indenture
Trustee's security interest in the Home Equity Loans. The Master Servicer
shall, from time to time and within the time limits established by law,
prepare and present to the Indenture Trustee for the Indenture Trustee to
authorize (based in reliance on
1-3
the Opinion of Counsel hereinafter provided for) the Master Servicer to file,
all financing statements, amendments, continuations, initial financing
statements in lieu of a continuation statement, terminations, partial
terminations, releases or partial releases, or any other filings necessary or
advisable to continue, maintain and perfect the Indenture Trustee's security
interest in the Home Equity Loans as a first-priority interest (each a
"Filing"). The Master Servicer shall present each such Filing to the Indenture
Trustee and the Insurer together with (x) an Opinion of Counsel to the effect
that such Filing is (i) consistent with grant of the security interest to the
Trust pursuant to Section 2.01 of this Agreement and the grant of the security
interest to the Indenture Trustee pursuant to the Indenture, (ii) satisfies
all requirements and conditions to such Filing in this Agreement and (iii)
satisfies the requirements for a Filing of such type under the Uniform
Commercial Code in the applicable jurisdiction (or if the Uniform Commercial
Code does not apply, the applicable statute governing the perfection of
security interests), and (y) a form of authorization for the Indenture
Trustee's signature. Upon receipt of such Opinion of Counsel and form of
authorization, the Indenture Trustee shall promptly authorize in writing the
Master Servicer to, and the Master Servicer shall, effect such Filing under
the Uniform Commercial Code without the signature of the Depositor or the
Trust or the Indenture Trustee where allowed by applicable law.
Notwithstanding anything else in the transaction documents to the contrary,
the Master Servicer shall not have any authority to effect a Filing without
obtaining written authorization from the Indenture Trustee.
1-4
EXHIBIT A
---------
HOME EQUITY LOAN SCHEDULE
[ON FILE WITH SIDLEY ▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇ LLP]
A-1
EXHIBIT B
---------
[RESERVED]
B-1
EXHIBIT C
---------
[RESERVED]
C-1
EXHIBIT D
---------
[RESERVED]
D-1
EXHIBIT E
---------
FORM OF NOTES
[Attached as Exhibit A to the Indenture]
E-1
EXHIBIT F
---------
SPECIMEN OF THE NOTE GUARANTY INSURANCE POLICY
[FILED AS EXHIBIT 99.4 TO FORM 8-K DATED NOVEMBER 14, 2002]
F-1