EXHIBIT 4.4
NOVASTAR MORTGAGE, INC.,
as Servicer,
NOVASTAR MORTGAGE FUNDING TRUST, SERIES _______,
as Issuer
___________________________,
as Bond Administrator,
and
___________________________,
as Indenture Trustee
SERVICING AGREEMENT
Dated as of ______________
relating to
NOVASTAR MORTGAGE FUNDING TRUST, SERIES _______
NOVASTAR HOME EQUITY LOAN ASSET-BACKED BONDS, SERIES _______
TABLE OF CONTENTS
Page
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ARTICLE I Definitions.........................................................
Section 1.01. Definitions....................................................
Section 1.02. Other Definitional Provisions..................................
Section 1.03. Interest Calculations..........................................
ARTICLE II REPRESENTATIONS AND WARRANTIES.....................................
Section 2.01. Representations and Warranties Regarding the Servicer..........
Section 2.02. Existence......................................................
Section 2.03. Enforcement of Representations and Warranties..................
ARTICLE III Administration and Servicing of Mortgage Loan.....................
Section 3.01. Servicer to Assure Servicing...................................
Section 3.02. Subservicing Agreements Between Servicer and Subservicers......
Section 3.03. Successor Subservicers.........................................
Section 3.04. Liability of the Servicer......................................
Section 3.05. Assumption or Termination of Subservicing Agreements
by Indenture Trustee...........................................
Section 3.06. Collection of Mortgage Loan Payments...........................
Section 3.07. Withdrawals from the Collection Account........................
Section 3.08. Collection of Taxes, Assessments and Similar Items;
Servicing Accounts.............................................
Section 3.09. Access to Certain Documentation and Information
Regarding the Mortgage Loans...................................
Section 3.10. [Reserved].....................................................
Section 3.11. Maintenance of Hazard Insurance and Fidelity Coverage..........
Section 3.12. Due-on-Sale Clauses; Assumption Agreements.....................
Section 3.13. Realization Upon Defaulted Mortgage Loans......................
Section 3.14. Bond Administrator to Cooperate; Release of Mortgage Files.....
Section 3.15. Servicing Compensation.........................................
Section 3.16. Annual Statements of Compliance................................
Section 3.17. Annual Independent Public Accountants' Servicing Report........
Section 3.18. Optional Purchase of Defaulted Mortgage Loans..................
Section 3.19. Information Required by the Internal Revenue Service Generally
and Reports of Foreclosures and Abandonments of Mortgaged
Property.......................................................
Section 3.20. Purchase of Converted Mortgage Loans...........................
Section 3.21. [Reserved].....................................................
Section 3.22. Servicing and Administrating of the MI Policies................
Section 3.23. Optional Termination of the Bonds..............................
ARTICLE IV Remittance Reports.................................................
Section 4.01. Remittance Reports.............................................
Section 4.02. Advances.......................................................
Section 4.03. Compensating Interest Payments.................................
ARTICLE V The Servicer........................................................
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Section 5.01. Liability of the Servicer......................................
Section 5.02. Merger or Consolidation of, or Assumption of the Obligations
of, the Servicer...............................................
Section 5.03. Limitation on Liability of the Servicer and Others.............
Section 5.04. Servicer Not to Resign.........................................
Section 5.05. Delegation of Duties...........................................
Section 5.06. Servicer to Pay Indenture Trustee's, Bond Administrator's
and Owner Trustee's Fees and Expenses; Indemnification.........
ARTICLE VI Default............................................................
Section 6.01. Servicing Default..............................................
Section 6.02. Indenture Trustee to Act; Appointment of Successor.............
Section 6.03. Notification to Bondholders....................................
Section 6.04. Waiver of Defaults.............................................
ARTICLE VII Miscellaneous Provisions..........................................
Section 7.01. Amendment......................................................
Section 7.02. Governing Law..................................................
Section 7.03. Notices........................................................
Section 7.04. Severability of Provisions.....................................
Section 7.05. Third-Party Beneficiaries......................................
Section 7.06. Counterparts...................................................
Section 7.07. Effect of Headings and Table of Contents.......................
Section 7.08. Termination....................................................
Section 7.09. No Petition....................................................
Section 7.10. No Recourse....................................................
Section 7.11. Limitation of Liability of the Owner Trustee...................
Section 7.12. Renewable 90 Day Term of Servicer..............................
ARTICLE VIII Administrative Duties of the Servicer............................
Section 8.01. Administrative Duties..........................................
Section 8.02. Records........................................................
Section 8.03. Additional Information to be Furnished.........................
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THIS SERVICING AGREEMENT, dated as of ____________ (this "Servicing
Agreement"), among NOVASTAR MORTGAGE, INC., as Servicer (the "Servicer"),
NOVASTAR MORTGAGE FUNDING TRUST, Series _______, as Issuer (the "Issuer"),
________________________________, as Bond Administrator (the "Bond
Administrator"), and ______________________, as Indenture Trustee (the
"Indenture Trustee").
WITNESSETH THAT:
WHEREAS, pursuant to the terms of the Purchase Agreement, the Seller will
sell the Initial Mortgage Loans and the related MI Policies to the Company on
the Closing Date;
WHEREAS, pursuant to the terms of the Trust Agreement, the Company will
sell the Initial Mortgage Loans and the related MI Policies, and assign all of
its rights under the Purchase Agreement, to the Issuer, without recourse, on the
Closing Date;
WHEREAS, pursuant to the terms of the Indenture, the Issuer will pledge the
Initial Mortgage Loans and the related MI Policies, and assign all of its rights
under the Purchase Agreement, to the Indenture Trustee on the Closing Date;
WHEREAS, pursuant to the terms of the Indenture, the Issuer will issue, and
transfer to or at the direction of the Issuer, the Bonds and the Subordinated
Bonds;
WHEREAS, pursuant to the terms of the Trust Agreement, the Issuer will
transfer to the Company the Bonds, the Subordinated Bonds and the Certificates;
WHEREAS, pursuant to the terms of the Underwriting Agreement, the Company
will sell the Bonds to the Underwriter;
WHEREAS, pursuant to the terms of this Servicing Agreement, the Servicer
will service the Mortgage Loans; and
WHEREAS, pursuant to the terms of the Converted Loan Purchase Agreement,
the Converted Loan Purchaser will purchase the Converted Mortgage Loans from the
Issuer.
ARTICLE I
Definitions
Section 1.01. Definitions.
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For all purposes of this Servicing Agreement, except as otherwise
expressly provided herein or unless the context otherwise requires, capitalized
terms not otherwise defined herein shall have the meanings assigned to such
terms in the Definitions contained in Appendix A to the Indenture dated as of
_______________ (the "Indenture") among the Issuer, the Bond Administrator and
the Indenture Trustee, which Definitions are incorporated by reference herein.
All other capitalized terms used herein shall have the meanings specified
herein.
Section 1.02. Other Definitional Provisions.
-----------------------------
(a) All terms defined in this Servicing Agreement shall have the
defined meanings when used in any certificate or other document made or
delivered pursuant hereto unless otherwise defined therein.
(b) As used in this Servicing Agreement and in any certificate or
other document made or delivered pursuant hereto or thereto, accounting terms
not defined in this Servicing Agreement or in any such certificate or other
document, and accounting terms partly defined in this Servicing 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
Servicing 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 Servicing Agreement or in any such
certificate or other document shall control.
(c) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Servicing Agreement shall refer to this Servicing
Agreement as a whole and not to any particular provision of this Servicing
Agreement; Section and Exhibit references contained in this Servicing Agreement
are references to Sections and Exhibits in or to this Servicing Agreement unless
otherwise specified; and the term "including" shall mean "including without
limitation".
(d) The definitions contained in this Servicing Agreement are
applicable to the singular as well as the plural forms of such terms and to the
masculine as well as the feminine and neuter genders of such terms.
(e) Any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented and includes (in the case of agreements or instruments)
references to all attachments thereto and instruments incorporated therein;
references to a Person are also to its permitted successors and assigns.
Section 1.03. Interest Calculations.
---------------------
All calculations of interest hereunder that are made in respect
of the Principal Balance of a Mortgage Loan shall be made in accordance with the
terms of the related Mortgage Note and Mortgage. The calculation of the
Servicing Fee 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 up.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.01. Representations and Warranties Regarding the Servicer.
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The Servicer represents and warrants to the Issuer and for the benefit of
the Indenture Trustee, as pledgee of the Mortgage Loans, the Bond Insurer and
the Bondholders, as of the Closing Date, that:
(a) The Servicer is a corporation duly organized, validly existing
and in good standing under the laws of the State of Virginia and has the
corporate power to own its assets and to transact the business in which it is
currently engaged. The 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 requires
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 Servicer or the validity or enforceability of the Mortgage Loans;
(b) The Servicer has the corporate power and authority to make,
execute, deliver and perform this Servicing Agreement and all of the
transactions contemplated under this Servicing Agreement, and has taken all
necessary corporate action to authorize the execution, delivery and performance
of this Servicing Agreement. When executed and delivered, this Servicing
Agreement will constitute the legal, valid and binding obligation of the
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;
(c) The 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
Servicing Agreement, except for such consent, license, approval or
authorization, or registration or declaration, as shall have been obtained or
filed, as the case may be;
(d) The execution and delivery of this Servicing Agreement and the
performance of the transactions contemplated hereby by the Servicer will not
violate any provision of any existing law or regulation or any order or decree
of any court applicable to the Servicer or any provision of the certificate of
incorporation or bylaws of the Servicer, or constitute a material breach of any
mortgage, indenture, contract or other agreement to which the Servicer is a
party or by which the 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 Servicer threatened, against the Servicer or any of its properties or
with respect to this Servicing Agreement or the Bonds or the Certificates which,
to the knowledge of the Servicer, has a reasonable likelihood of resulting in a
material adverse effect on the transactions contemplated by this Servicing
Agreement.
The foregoing representations and warranties shall survive any
termination of the Servicer hereunder.
Section 2.02. Existence.
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The Issuer will keep in full effect its existence, rights and
franchises as a business trust under the laws of the State of Delaware and will
obtain and preserve its qualification to do business in each jurisdiction in
which such qualification is or shall be necessary to protect the validity and
enforceability of this Servicing Agreement.
Section 2.03. Enforcement of Representations and Warranties.
---------------------------------------------
The Servicer, on behalf of and subject to the direction of the
Bond Administrator on behalf of the Indenture Trustee, as pledgee of the
Mortgage Loans, or the Bond Insurer, shall enforce the representations and
warranties and related obligations for breaches thereof of the Seller pursuant
to the Purchase Agreement. Upon the discovery by the Seller, the Servicer, the
Bond Administrator, the Indenture Trustee, the Issuer, the Owner Trustee or the
Bond Insurer of a breach of any of the representations and warranties made in
the Purchase Agreement, in respect of any Mortgage Loan which materially and
adversely affects the value of the related Mortgage Loan or the interests of the
Bondholders or the Certificateholders or the Bond Insurer, the party discovering
such breach shall give prompt written notice to the other parties. The Servicer
shall promptly notify the Seller of such breach and request that, pursuant to
the terms of the Purchase Agreement, the Seller either (i) cure such breach in
all material respects or (ii) purchase such Mortgage Loan, in each instance in
accordance with the Purchase Agreement; provided that the Seller shall, subject
to the conditions set forth in the Purchase Agreement, have the option to
substitute an Eligible Substitute Mortgage Loan or Eligible Substitute Mortgage
Loans for such Mortgage Loan. Monthly Payments due with respect to Eligible
Substitute Mortgage Loans in the month of substitution shall not be part of the
Trust Estate and will be retained by the Servicer and remitted by the Servicer
to the Seller on the next succeeding Payment Date. For the month of
substitution, distributions to the Payment Account pursuant to the Servicing
Agreement will include the Monthly Payment due on a Deleted Mortgage Loan for
such month and thereafter the Seller shall be entitled to retain all amounts
received in respect of such Deleted Mortgage Loan. The Servicer shall amend or
cause to be amended the Mortgage Loan Schedule to reflect the removal of such
Mortgage Loan and the substitution of the Eligible Substitute Mortgage Loans and
the Servicer shall promptly deliver the amended Mortgage Loan Schedule to the
related Subservicer, if any, the Bond Insurer, the Owner Trustee, the Indenture
Trustee and the Bond Administrator.
In connection with the substitution of one or more Eligible
Substitute Mortgage Loans for one or more Deleted Mortgage Loans, the Servicer
will determine the amount (such amount, a "Substitution Adjustment Amount"), if
any, by which the aggregate principal balance of all such Eligible Substitute
Mortgage Loans as of the date of substitution is less than the aggregate
principal balance of all such Deleted Mortgage Loans (after application of the
principal portion of the Monthly Payments due in the month of substitution that
are to be distributed to the Payment Account in the month of substitution). The
Seller shall pay the Substitution Adjustment Amount to the Servicer and the
Servicer shall deposit such Substitution Adjustment Amount into the Collection
Account upon receipt.
It is understood and agreed that the obligation of the Seller to
cure such breach or purchase or substitute for such Mortgage Loan as to which
such a breach has occurred and is continuing shall constitute the sole remedy
respecting such breach available to the Issuer and the Indenture Trustee, as
pledgee of the Mortgage Loans, against the Seller, except as set forth in
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Section 6.01 of the Purchase Agreement. In connection with the purchase of or
substitution for any such Mortgage Loan by the Seller, the Issuer shall assign
to the Seller all of its right, title and interest in respect of the Purchase
Agreement applicable to such Mortgage Loan. Upon receipt of the Repurchase
Price, or upon completion of such substitution, the Servicer shall notify the
Bond Administrator by certification signed by a Servicing Officer (which
certification shall include a statement to the effect that the Repurchase Price
has been deposited in the Collection Account) and then the Bond Administrator on
behalf of the Indenture Trustee shall deliver the Mortgage Files relating to
such Mortgage Loan to the Servicer, together with all relevant endorsements and
assignments prepared by the Servicer which the Bond Administrator, on behalf of
the Indenture Trustee, shall execute or cause to be executed.
ARTICLE III
Administration and Servicing of Mortgage Loans
Section 3.01. Servicer to Assure Servicing.
----------------------------
(a) The Servicer shall supervise, or take such actions as are
necessary to ensure, the servicing and administration of the Mortgage Loans and
any REO Property in accordance with this Servicing Agreement and its normal
servicing practices, which generally shall conform to the standards of an
institution prudently servicing mortgage loans for its own account and shall
have full authority to do anything it reasonably deems appropriate or desirable
in connection with such servicing and administration. With the consent of the
Bond Insurer, the Servicer may perform its responsibilities relating to
servicing through other agents or independent contractors, but shall not thereby
be released from any of its responsibilities as hereinafter set forth. Subject
to Section 3.06(b), the authority of the Servicer, in its capacity as Servicer,
and any Subservicer acting on its behalf, shall include, without limitation, the
power to (i) consult with and advise any Subservicer regarding administration of
a related Mortgage Loan, (ii) approve any recommendation by a Subservicer to
foreclose on a related Mortgage Loan, (iii) supervise the filing and collection
of insurance claims and take or cause to be taken such actions on behalf of the
insured Person thereunder as shall be reasonably necessary to prevent the denial
of coverage thereunder, and (iv) effectuate foreclosure or other conversion of
the ownership of the Mortgaged Property securing a related Mortgage Loan,
including the employment of attorneys, the institution of legal proceedings, the
collection of deficiency judgments, the acceptance of compromise proposals and
any other matter pertaining to a delinquent Mortgage Loan. The authority of the
Servicer shall include, in addition, the power on behalf of the Bondholders, the
Indenture Trustee, the Bond Insurer or any of them to (i) execute and deliver
customary consents or waivers and other instruments and documents, (ii) upon
receiving the consent of the Bond Insurer, consent to transfer of any related
Mortgaged Property and assumptions of the related Mortgage Notes and Security
Instruments (in the manner provided in this Servicing Agreement) and (iii)
collect any Insurance Proceeds and Liquidation Proceeds. Without limiting the
generality of the foregoing, the Servicer and any Subservicer acting on its
behalf may, and is hereby authorized, and empowered by the Indenture Trustee
when the Servicer believes it is reasonably necessary in its best judgment in
order to comply with its servicing duties hereunder, to execute and deliver, on
behalf of itself, the Bondholders, the Indenture Trustee, the Bond Insurer or
any of them, any instruments of satisfaction, cancellation, partial or full
release, discharge and all other comparable instruments, with respect to the
related
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Mortgage Loans, the insurance policies and the accounts related thereto, and the
Mortgaged Properties. The Servicer may exercise this power in its own name or in
the name of a Subservicer. The Servicer will not waive any prepayment penalties
without the consent of the Bond Insurer.
The Servicer, in such capacity, may not consent to the placing of
a lien senior to that of the Mortgage on the related Mortgaged Property.
The relationship of the Servicer (and of any successor to the
Servicer as servicer under this Servicing Agreement) to the Issuer and the
Indenture Trustee under this Servicing Agreement is intended by the parties to
be that of an independent contractor and not that of a joint venturer, partner
or agent.
(b) Notwithstanding the provisions of Subsection 3.01(a), the
Servicer shall not take any action inconsistent with the interests of the
Indenture Trustee, the Bond Insurer or the Bondholders or with the rights and
interests of the Indenture Trustee, the Bond Insurer or the Bondholders under
this Servicing Agreement.
(c) The Bond Administrator shall furnish or shall cause the
Indenture Trustee to furnish the Servicer with any powers of attorney and other
documents in form as provided to it necessary or appropriate to enable the
Servicer to service and administer the related Mortgage Loans and REO Property
and the Bond Administrator and the Indenture Trustee shall not be liable for the
actions of the Servicer or any Subservicers under such powers of attorney.
Section 3.02. Subservicing Agreements Between Servicer and Subservicers.
---------------------------------------------------------
(a) With the consent of the Bond Insurer, the Servicer may enter
into Subservicing Agreements with Subservicers for the servicing and
administration of the Mortgage Loans and for the performance of any and all
other activities of the Servicer hereunder. Each Subservicer shall be either (i)
an institution the accounts of which are insured by the FDIC or (ii) another
entity that engages in the business of originating or servicing mortgage loans
comparable to the Mortgage Loans, and in either case shall be authorized to
transact business in the state or states in which the related Mortgaged
Properties it is to service are situated, if and to the extent required by
applicable law to enable the Subservicer to perform its obligations hereunder
and under the Subservicing Agreement. Any Subservicing Agreement entered into by
the Servicer shall include the provision that such Agreement may be immediately
terminated (i) (x) with cause and without any termination fee by the Servicer
hereunder and/or (y) without cause, in which case the Servicer shall be solely
responsible for any termination fee or penalty resulting therefrom and (ii) at
the option of the Bond Insurer upon the termination or resignation of the
Servicer hereunder, in which case the Servicer shall be solely responsible for
any termination fee or penalty resulting therefrom. In addition, each
Subservicing Agreement shall provide for servicing of the Mortgage Loans
consistent with the terms of this Servicing Agreement. With the consent of the
Bond Insurer, the Servicer and the Subservicers may enter into Subservicing
Agreements and make amendments to the Subservicing Agreements or enter into
different forms of Subservicing Agreements providing for, among other things,
the delegation by the Servicer to a Subservicer of additional duties regarding
the administration of the Mortgage Loans; provided, however, that any such
amendments or different forms shall be consistent with and not violate
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the provisions of this Servicing Agreement, and that no such amendment or
different form shall be made or entered into which could be reasonably expected
to be materially adverse to the interests of the Bond Insurer or the
Bondholders, without the consent of the Bond Insurer or, if a Bond Insurer
Default exists, the holders of at least ___% of the aggregate Bond Principal
Balance of the Outstanding Bonds.
(b) As part of its servicing activities hereunder, the Servicer,
for the benefit of the Indenture Trustee, the Bond Insurer and the Bondholders,
shall enforce the obligations of each Subservicer under the related Subservicing
Agreement. Such enforcement, including, without limitation, the legal
prosecution of claims, termination of Subservicing Agreements and the pursuit of
other appropriate remedies, shall be in such form and carried out to such an
extent and at such time as the Servicer, in its good faith business judgment,
would require were it the owner of the related Mortgage Loans. The Servicer
shall pay the costs of such enforcement at its own expense, but shall be
reimbursed therefor only (i) from a general recovery resulting from such
enforcement only to the extent, if any, that such recovery exceeds all amounts
due in respect of the related Mortgage Loan or (ii) from a specific recovery of
costs, expenses or attorneys' fees against the party against whom such
enforcement is directed.
Section 3.03. Successor Subservicers.
----------------------
With the consent of the Bond Insurer, the Servicer shall be
entitled to terminate any Subservicing Agreement that may exist in accordance
with the terms and conditions of such Subservicing Agreement and without any
limitation by virtue of this Servicing Agreement; provided, however, that upon
termination, the Servicer shall either act as servicer of the related Mortgage
Loans or enter into an appropriate contract with a successor Subservicer
reasonably acceptable to the Bond Administrator on behalf of the Indenture
Trustee, and the Bond Insurer pursuant to which such successor Subservicer will
be bound by all relevant terms of the related Subservicing Agreement pertaining
to the servicing of such Mortgage Loans.
Section 3.04. Liability of the Servicer.
-------------------------
(a) Notwithstanding any Subservicing Agreement, any of the
provisions of this Servicing Agreement relating to agreements or arrangements
between the Servicer and a Subservicer or reference to actions taken through a
Subservicer or otherwise, the Servicer shall under all circumstances remain
obligated and primarily liable to the Bond Administrator, the Indenture Trustee,
the Bondholders and the Bond Insurer for the servicing and administering of the
Mortgage Loans and any REO Property in accordance with this Servicing Agreement.
The obligations and liability of the Servicer shall not be diminished by virtue
of Subservicing Agreements or by virtue of indemnification of the Servicer by
any Subservicer, or any other Person. The obligations and liability of the
Servicer shall remain of the same nature and under the same terms and conditions
as if the Servicer alone were servicing and administering the related Mortgage
Loans. The Servicer shall, however, be entitled to enter into indemnification
agreements with any Subservicer or other Person and nothing in this Servicing
Agreement shall be deemed to limit or modify such indemnification. For the
purposes of this Servicing Agreement, the Servicer shall be deemed to have
received any payment on a Mortgage Loan on the date the Subservicer received
such payment.
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(b) Any Subservicing Agreement that may be entered into and any
transactions or services relating to the Mortgage Loans involving a Subservicer
in its capacity as such and not as an originator shall be deemed to be between
the Subservicer and the Servicer alone, and the Bond Administrator, the
Indenture Trustee, the Bond Insurer and the Bondholders shall not be deemed
parties thereto and shall have no claims, rights, obligations, duties or
liabilities with respect to the Subservicer except as set forth in Section 3.15.
Section 3.05. Assumption or Termination of Subservicing Agreements by Indenture
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Trustee.
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(a) If the Indenture Trustee or its designee as the successor
Servicer, shall assume the servicing obligations of the Servicer in accordance
with Section 6.02 below, the Indenture Trustee, to the extent necessary to
permit the Indenture Trustee to carry out the provisions of Section 6.02 with
respect to the Mortgage Loans, shall succeed to all of the rights and
obligations of the Servicer under each of the Subservicing Agreements. In such
event, the Indenture Trustee or its designee as the successor Servicer shall be
deemed to have assumed all of the Servicer's rights and obligations therein and
to have replaced the Servicer as a party to such Subservicing Agreements to the
same extent as if such Subservicing Agreements had been assigned to the
Indenture Trustee or its designee as a successor Servicer, except that the
Indenture Trustee or its designee as a successor Servicer shall not be deemed to
have assumed any obligations or liabilities of the Servicer arising prior to
such assumption or as a result of the Indenture Trustee's terminating any
Subservicer upon the Indenture Trustee becoming successor Servicer and the
Servicer shall not thereby be relieved of any liability or obligations under
such Subservicing Agreements arising prior to such assumption or as a result of
the Indenture Trustee's terminating any Subservicer upon the Indenture Trustee
becoming successor Servicer.
(b) In the event that the Indenture Trustee or its designee as
successor Servicer for the Indenture Trustee assumes the servicing obligations
of the Servicer under Section 6.02, upon the request of the Indenture Trustee or
such designee as successor Servicer, the Servicer shall at its own expense
deliver to the Indenture Trustee, or at its written request to such designee,
originals or, if originals are not available, photocopies of all documents,
files and records, electronic or otherwise, relating to the Subservicing
Agreements and the related Mortgage Loans or REO Property then being serviced
and an accounting of amounts collected and held by it, if any, and will
otherwise cooperate and use its reasonable efforts to effect the orderly and
efficient transfer of the Subservicing Agreements, or responsibilities hereunder
to the Indenture Trustee, or at its written request to such designee as
successor Servicer.
Section 3.06. Collection of Mortgage Loan Payments.
------------------------------------
(a) The Servicer will coordinate and monitor remittances by
Subservicers to it with respect to the Mortgage Loans in accordance with this
Servicing Agreement.
(b) The Servicer shall make its best reasonable efforts to collect
or cause to be collected all payments required under the terms and provisions of
the Mortgage Loans and shall follow, and use its best reasonable efforts to
cause Subservicers to follow, collection procedures comparable to the collection
procedures of prudent mortgage lenders servicing mortgage loans for their own
account to the extent such procedures shall be consistent with this Servicing
Agreement. Consistent with the foregoing, the Servicer or the related
Subservicer may in its
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discretion (i) waive or permit to be waived any late payment charge, prepayment
charge (with the consent of the Bond Insurer), assumption fee, or any penalty
interest in connection with the prepayment of a Mortgage Loan and (ii) suspend
or reduce or permit to be suspended or reduced regular monthly payments for a
period of up to six months, or arrange or permit an arrangement with a Mortgagor
for a scheduled liquidation of delinquencies; provided, however, that the
Servicer or the related Subservicer may permit the foregoing only if it
believes, in good faith, that recoveries of Monthly Payments will be maximized;
provided further, however, that the Servicer may not without the prior written
consent of the MI Insurer and the Bond Insurer permit any waiver, modification
or variance which would (a) change the loan rate, (b) forgive any payment of
principal or interest, (c) lessen the lien priority or (d) extend the final
maturity date of a Mortgage Loan past 12 months after the original maturity date
on such Mortgage Loan. In the event the Servicer or related Subservicer shall
consent to the deferment of the due dates for payments due on a Mortgage Note,
the Servicer shall nonetheless make an Advance or shall cause the related
Subservicer to make an advance to the same extent as if such installment were
due, owing and delinquent and had not been deferred through liquidation of the
Mortgaged Property; provided, however, that the obligation of the Servicer or
the related Subservicer to make an Advance shall apply only to the extent that
the Servicer believes, in good faith, that such advances are not Nonrecoverable
Advances.
(c) Within five Business Days after the Servicer has determined
that all amounts which it expects to recover from or on account of a Liquidated
Mortgage Loan have been recovered and that no further Liquidation Proceeds will
be received in connection therewith, the Servicer shall provide to (i) the Bond
Administrator a certificate of a Servicing Officer that such Mortgage Loan
became a Liquidated Mortgage Loan as of the date of such determination and (ii)
the Bond Insurer and the Bond Administrator a Liquidation Report in the form
attached hereto as Exhibit C.
(d) The Servicer shall establish a segregated account in the name
of the Indenture Trustee (the "Collection Account"), which shall be an Eligible
Account, in which the Servicer shall deposit or cause to be deposited any
amounts representing payments on and any collections in respect of the Mortgage
Loans received by it after the Cut-Off Date or, with respect to the Subsequent
Mortgage Loans, the Subsequent Cut-off Date (other than in respect of the
payments referred to in the following paragraph) within two Business Days
following receipt thereof, including the following payments and collections
received or made by it (without duplication):
(i) all payments of principal or interest on the Mortgage
Loans received by the Servicer directly from Mortgagors or from the respective
Subservicer;
(ii) the aggregate Repurchase Price of the Mortgage Loans
purchased by the Servicer pursuant to Section 3.18 or by the Converted Loan
Purchaser, pursuant to Section 3.20;
(iii) Net Liquidation Proceeds;
(iv) all proceeds of any Mortgage Loans repurchased by the
Seller pursuant to the Purchase Agreement, and all Substitution Adjustment
Amounts required to be
9
deposited in connection with the substitution of an Eligible Substitute Mortgage
Loan pursuant to the Purchase Agreement;
(v) Insurance Proceeds, other than Net Liquidation Proceeds,
and MI Insurance Proceeds resulting from any insurance policy maintained on a
Mortgaged Property;
(vi) any Advance and any Compensating Interest payments;
(vii) any other amounts received by the Servicer, including all
Foreclosure Profits, assumption fees, prepayment penalties and any other fees
that are required to be deposited in the Collection Account pursuant to this
Servicing Agreement.
provided, however, that with respect to each Due Period, the Servicer shall be
permitted to retain from payments in respect of interest on the Mortgage Loans,
the Servicing Fee for such Due Period. The foregoing requirements respecting
deposits to the Collection Account are exclusive, it being understood that,
without limiting the generality of the foregoing, the Servicer need not deposit
in the Collection Account late payment charges payable by Mortgagors, as further
described in Section 3.15, or amounts received by the Subservicer for the
accounts of Mortgagors for application towards the payment of taxes, insurance
premiums, assessments and similar items. In the event any amount not required
to be deposited in the Collection Account is so deposited, the Servicer may at
any time (prior to being terminated under this Servicing Agreement) withdraw
such amount from the Collection Account, any provision herein to the contrary
notwithstanding. The Servicer shall keep records that accurately reflect the
funds on deposit in the Collection Account that have been identified by it as
being attributable to the Mortgage Loans and shall hold all collections in the
Collection Account for the benefit of the Owner Trustee, the Indenture Trustee,
the Bondholders and the Bond Insurer, as their interests may appear.
Funds in the Collection Account may be invested in Eligible
Investments, but shall not be commingled with the Servicer's own funds or
general assets or with funds respecting payments on mortgage loans or with any
other funds not related to the Bonds. Income earned on such Eligible Investments
shall be for the account of the Servicer.
(e) The Servicer will require each Subservicer to hold all funds
constituting collections on the Mortgage Loans, pending remittance thereof to
the Servicer, in one or more accounts in the name of the Indenture Trustee
meeting the requirements of an Eligible Account, and such funds shall not be
invested. The Subservicer shall segregate and hold all funds collected and
received pursuant to each Mortgage Loan separate and apart from any of its own
funds and general assets and any other funds. Each Subservicer shall make
remittances to the Servicer no later than one Business Day following receipt
thereof and the Servicer shall deposit any such remittances received from any
Subservicer within one Business Day following receipt by the Servicer.
Section 3.07. Withdrawals from the Collection Account.
---------------------------------------
10
(a) The Servicer shall, from time to time as provided herein, make
withdrawals from the Collection Account of amounts on deposit therein pursuant
to Section 3.06 that are attributable to the Mortgage Loans for the following
purposes (without duplication):
(i) to deposit in the Payment Account, by the fourth Business Day
prior to each Payment Date, all collections on the Mortgage Loans required to be
distributed from the Payment Account on a Payment Date;
(ii) to the extent deposited to the Collection Account, to reimburse
itself or the related Subservicer for previously unreimbursed expenses incurred
in maintaining individual insurance policies pursuant to Section 3.11, or
Liquidation Expenses, paid pursuant to Section 3.13, such withdrawal right being
limited to amounts received on particular Mortgage Loans (other than any
Repurchase Price in respect thereof) which represent late recoveries of the
payments for which such advances were made, or from related Liquidation
Proceeds;
(iii) to pay to itself out of each payment received on account of
interest on a Mortgage Loan as contemplated by Section 3.15, an amount equal to
the related Servicing Fee (to the extent not retained pursuant to Section 3.06)
and to pay the Indenture Trustee an amount equal to the Back-up Servicing Fee;
(iv) to pay to itself or the Seller, with respect to any Mortgage
Loan or property acquired in respect thereof that has been purchased by the
Seller, the Servicer or other entity, all amounts received thereon and not
required to be distributed to Bondholders as of the date on which the related
Repurchase Price is determined;
(v) to reimburse the Servicer or any Subservicer for any
unreimbursed Advance of its own funds or any unreimbursed advance of such
Subservicer's own funds, the right of the Servicer or a Subservicer to
reimbursement pursuant to this subclause (v) being limited to amounts received
on a particular Mortgage Loan (including, for this purpose, the Repurchase Price
therefor, Insurance Proceeds and Liquidation Proceeds) which represent late
payments or recoveries of the principal of or interest on such Mortgage Loan
respecting which such Advance or advance was made;
(vi) to reimburse the Servicer or any Subservicer from Insurance
Proceeds or Liquidation Proceeds relating to a particular Mortgage Loan for
amounts expended by the Servicer or such Subservicer pursuant to Section 3.13 in
good faith in connection with the restoration of the related Mortgage Property
which was damaged by the uninsured cause or in connection with the liquidation
of such Mortgage Loan;
(vii) to reimburse the Servicer or any Subservicer for any
unreimbursed Nonrecoverable Advance previously made, and otherwise not
reimbursed pursuant to this Subsection 3.07(a);
(viii) to pay the Owner Trustee the Owner Trustee Fee;
(ix) to withdraw any other amount deposited in the Collection
Account that was not required to be deposited therein pursuant to Section 3.06;
11
(x) to reimburse the Servicer for costs associated with the
environmental report specified in Section 3.13(c);
(xi) to clear and terminate the Collection Account upon a
termination pursuant to Section 7.08;
(xii) to pay to the Servicer income earned on Eligible Investments in
the Collection Account;
(xiii) to pay to the MI Insurer the monthly MI Premium due under each
MI Policy from payments received (or Advances made) on account of interest due
on the related Mortgage Loan; and
(xiv) to make an Advance with respect to a delinquent Mortgage Loan
from funds held in the Collection Account as contemplated by Section 4.02,
provided that the amount withdrawn for such an Advance is immediately deposited
into the Payment Account.
Withdrawals made pursuant to clause (xiii) shall be made on a first priority
basis. In connection with withdrawals pursuant to clauses (ii), (iii), (iv),
(v) and (vi), the Servicer's entitlement thereto is limited to collections or
other recoveries on the related Mortgage Loan, and the Servicer shall keep and
maintain separate accounting, on a Mortgage Loan by Mortgage Loan basis, for the
purpose of justifying any withdrawal from the Collection Account pursuant to
such clauses.
(b) Notwithstanding the provisions of this Section 3.07, the Servicer
may, but is not required to, allow the Subservicers to deduct from amounts
received by them or from the related account maintained by a Subservicer, prior
to deposit in the Collection Account, any portion to which such Subservicers are
entitled as reimbursement of any reimbursable Advances made by such
Subservicers.
Section 3.08. Collection of Taxes, Assessments and Similar Items; Servicing
-------------------------------------------------------------
Accounts.
--------
(a) The Servicer shall establish and maintain or cause the related
Subservicer to establish and maintain, one or more Servicing Accounts. The
Servicer or a Subservicer will deposit and retain therein all collections from
the Mortgagors for the payment of taxes, assessments, insurance premiums, or
comparable items as agent of the Mortgagors.
(b) The deposits in the Servicing Accounts shall be held in trust by the
Servicer or a Subservicer (and its successors and assigns) in the name of the
Indenture Trustee. Such Servicing Accounts shall be Eligible Accounts and, if
permitted by applicable law, invested in Eligible Investments held in trust by
the Servicer or a Subservicer as described above and maturing, or be subject to
redemption or withdrawal, no later than the date on which such funds are
required to be withdrawn, and in no event later than 45 days after the date of
investment; withdrawals of amounts from the Servicing Accounts may be made only
to effect timely payment of taxes, assessments, insurance premiums, or
comparable items, to reimburse the Servicer or a Subservicer for any advances
made with respect to such items, to refund to any Mortgagors any sums as may be
determined to be overages, to pay interest, if required, to Mortgagors on
balances in the Servicing Accounts or to clear and terminate the Servicing
12
Accounts at or any time after the termination of this Servicing Agreement.
Amounts received from Mortgagors for deposit into the Servicing Accounts shall
be deposited in the Servicing Accounts by the Servicer within two days of
receipt. The Servicer shall advance from its own funds amounts needed to pay
items payable from the Servicing Accounts if the Servicer reasonably believes
that such amounts are recoverable from the related Mortgagor. The Servicer shall
comply with all laws relating to the Servicing Accounts, including laws relating
to payment of interest on the Servicing Accounts. If interest earned by the
Servicer on the Servicing Accounts is not sufficient to pay required interest on
the Servicing Accounts, the Servicer shall pay the difference from its own
funds. The Servicing Accounts shall not be the property of the Issuer.
Section 3.09. Access to Certain Documentation and Information Regarding the
-------------------------------------------------------------
Mortgage Loans.
--------------
The Servicer shall provide, and shall cause any Subservicer to provide, to
the Bond Administrator, the Indenture Trustee, the Owner Trustee and the Bond
Insurer access to the documentation regarding the related Mortgage Loans and REO
Property and to the Bondholders, the FDIC, and the supervisory agents and
examiners of the FDIC (to which the Bond Administrator and the Indenture Trustee
shall also provide) access to the documentation regarding the related Mortgage
Loans required by applicable regulations, such access being afforded without
charge but only upon reasonable request and during normal business hours at the
offices of the Servicer or the Subservicers that are designated by these
entities; provided, however, that, unless otherwise required by law, the Bond
Administrator, the Indenture Trustee, the Servicer or the Subservicer shall not
be required to provide access to such documentation if the provision thereof
would violate the legal right to privacy of any Mortgagor; provided, further,
however, that the Bond Administrator, the Indenture Trustee, the Bond Insurer
and the Owner Trustee shall coordinate their requests for such access so as not
to impose an unreasonable burden on, or cause an unreasonable interruption of,
the business of the Servicer or any Subservicer. The Servicer, the Subservicers,
the Indenture Trustee and the Bond Administrator shall allow representatives of
the above entities to photocopy any of the documentation and shall provide
equipment for that purpose at a charge that covers their own actual out-of-
pocket costs.
Section 3.10. [Reserved]
--------
Section 3.11. Maintenance of Hazard Insurance and Fidelity Coverage.
-----------------------------------------------------
(a) The Servicer shall maintain and keep, or cause each Subservicer to
maintain and keep, with respect to each Mortgage Loan and each REO Property, in
full force and effect hazard insurance (fire insurance with extended coverage)
equal to at least the lesser of the Principal Balance of the Mortgage Loan (or
the combined Principal Balance owing on such Mortgage Loan and any mortgage loan
senior to such Mortgage Loan) or the current replacement cost of the Mortgaged
Property, and containing a standard mortgagee clause, provided, however, that
the amount of hazard insurance may not be less than the amount necessary to
prevent loss due to the application of any co-insurance provision of the related
policy. Unless applicable state law requires a higher deductible, the
deductible on such hazard insurance policy may be no more than $1,500 or 1% of
the applicable amount of coverage, whichever is less. In the case of a
condominium unit or a unit in a planned unit development, the required hazard
insurance shall
13
take the form of a multi-peril policy covering the entire condominium project or
planned unit development, in an amount equal to at least 100% of the insurable
value based on replacement cost. If the Servicer shall obtain and maintain a
blanket policy consistent with its general mortgage servicing activities from an
insurer acceptable to the Bond Insurer insuring against hazard losses on all of
the Mortgage Loans, it shall conclusively be deemed to have satisfied its
obligations as set forth in this Section 3.11(a), it being understood and agreed
that such policy may contain a deductible clause, in which case the Servicer
shall, in the event that there shall not have been maintained on the related
Mortgaged Property a policy complying with this Section 3.11(a) 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 without any right of reimbursement. Any such
deposit by the Servicer shall be made on the last Business Day of the Due Period
in the month in which payments under any such policy would have been deposited
in the Collection Account. In connection with its activities as servicer of the
Mortgage Loans, the Servicer agrees to present, on behalf of itself, the Issuer,
and the Indenture Trustee, claims under any such blanket policy.
(b) Any amounts collected by the Servicer or a Subservicer under any such
hazard insurance policy (other than amounts to be applied to the restoration or
repair of the Mortgaged Property or amounts released to the Mortgagor in
accordance with the Servicer's or a Subservicer's normal servicing procedures,
the Mortgage Note, the Security Instrument or applicable law) shall be deposited
in the Collection Account.
(c) Any cost incurred by a Servicer or a Subservicer in maintaining any
such individual hazard insurance policies shall not be added to the amount owing
under the Mortgage Loan for the purpose of calculating monthly distributions to
Bondholders, notwithstanding that the terms of the Mortgage Loan so permit. Such
costs of maintaining individual hazard insurance policies shall be recoverable
by the Servicer or a Subservicer out of related late payments by the Mortgagor
or out of Insurance Proceeds or Liquidation Proceeds or by the Servicer from the
Repurchase Price, to the extent permitted by Section 3.07.
(d) No earthquake or other additional insurance is to be required of any
Mortgagor or maintained on property acquired with respect to a Security
Instrument other than pursuant to such applicable laws and regulations as shall
at any time be in force and shall require such additional insurance. When, at
the time of origination of the Mortgage Loan or at any subsequent time, the
Mortgaged Property is located in a federally designated special flood hazard
area, the Servicer shall use its best reasonable efforts to cause with respect
to the Mortgage Loans and each REO Property flood insurance (to the extent
available and in accordance with mortgage servicing industry practice) to be
maintained. Such flood insurance shall cover the Mortgaged Property, including
all items taken into account in arriving at the Appraised Value on which the
Mortgage Loan was based, and shall be in an amount equal to the lesser of (i)
the Principal Balance of the related Mortgage Loan and (ii) the minimum amount
required under the terms of coverage to compensate for any damage or loss on a
replacement cost basis, but not more than the maximum amount of such insurance
available for the related Mortgaged Property under either the regular or
emergency programs of the National Flood Insurance Program (assuming that the
area in which such Mortgaged Property is located is participating in such
program). Unless applicable state law requires a higher deductible, the
deductible on such flood insurance may not exceed $1,500 or 1% of the applicable
amount of coverage, whichever is less.
14
(e) If insurance has not been maintained complying with Subsections 3.11
(a) and (d) and there shall have been a loss which would have been covered by
such insurance had it been maintained, the Servicer shall pay, or cause the
related Subservicer to pay, for any necessary repairs without any right of
reimbursement.
(f) The Servicer shall present, or cause the related Subservicer to
present, claims under any related hazard insurance or flood insurance policy.
(g) The Servicer shall obtain and maintain at its own expense, and shall
cause each Subservicer to obtain and maintain at its own expense, and for the
duration of this Servicing Agreement, a blanket fidelity bond and an errors and
omissions insurance policy covering the Servicer's and such Subservicer's
officers, employees and other persons acting on its behalf in connection with
its activities under this Servicing Agreement. The amount of coverage shall be
consistent with industry standards but in an amount not less than presently
maintained by the Servicer. The Servicer shall promptly notify the Bond
Administrator, the Indenture Trustee and the Bond Insurer of any material change
in the terms of such bond or policy. The Servicer shall provide annually to the
Bond Administrator, the Indenture Trustee and the Bond Insurer a certificate of
insurance that such bond and policy are in effect. If any such bond or policy
ceases to be in effect, the Servicer shall, to the extent possible, give the
Bond Administrator, the Indenture Trustee and the Bond Insurer ten days' notice
prior to any such cessation and shall use its reasonable best efforts to obtain
a comparable replacement bond or policy, as the case may be. Any amounts
relating to the Mortgage Loans collected under such bond or policy shall be
deposited in the Collection Account.
Section 3.12. Due-on-Sale Clauses; Assumption Agreements.
------------------------------------------
(a) In any case in which the Servicer is notified by any Mortgagor or
Subservicer that a Mortgaged Property relating to a Mortgage Loan has been or is
about to be conveyed by the Mortgagor, the Servicer shall enforce, or shall
instruct such Subservicer to enforce, any due-on-sale clause contained in the
related Security Instrument to the extent permitted under the terms of the
related Mortgage Note and by applicable law. The Servicer or the related
Subservicer may repurchase a Mortgage Loan at the Repurchase Price when the
Servicer requires acceleration of the Mortgage Loan, but only if the Servicer is
satisfied, as evidenced by an Officer's Certificate delivered to the Bond
Administrator, the Indenture Trustee and the Bond Insurer, that such Mortgage
Loan is in default or default is reasonably foreseeable. If the Servicer
reasonably believes that such due-on-sale clause cannot be enforced under
applicable law or if the Mortgage Loan does not contain a due-on-sale clause,
the Servicer is authorized, and may authorize any Subservicer, to consent to a
conveyance subject to the lien of the Mortgage, and, with the consent of the MI
Insurer, if applicable, to take or enter into an assumption agreement from or
with the Person to whom such property has been or is about to be conveyed,
pursuant to which such Person becomes liable under the related Mortgage Note and
unless prohibited by applicable state law, such Mortgagor remains liable
thereon, on condition, however, that the related Mortgage Loan shall continue to
be covered by a hazard policy. In connection with any such assumption, no
material term of the related Mortgage Note may be changed. The Servicer shall
notify the Bond Administrator, the Indenture Trustee and the Bond Insurer,
whenever possible, before the completion of such assumption agreement, and shall
forward to the Bond Administrator the original copy of such assumption
agreement, which copy shall be added by the
15
Bond Administrator to the related Mortgage File and which shall, for all
purposes, be considered a part of such Mortgage File to the same extent as all
other documents and instruments constituting a part thereof.
(b) Notwithstanding the foregoing paragraph or any other provision of this
Servicing Agreement, the Servicer shall not be deemed to be in default, breach
or any other violation of its obligations hereunder by reason of any assumption
of a Mortgage Loan by operation of law or any conveyance by the Mortgagor of the
related Mortgaged Property or assumption of a Mortgage Loan which the Servicer
reasonably believes it may be restricted by law from preventing, for any reason
whatsoever or if the exercise of such right would impair or threaten to impair
any recovery under any applicable insurance policy.
Section 3.13. Realization Upon Defaulted Mortgage Loans.
-----------------------------------------
(a) The Servicer shall, or shall direct the related Subservicer to,
foreclose upon or otherwise comparably convert the ownership of properties
securing any Mortgage Loans that come into and continue in default and as to
which no satisfactory arrangements can be made for collection of delinquent
payments pursuant to Section 3.06, except that the Servicer shall not, and shall
not direct the related Subservicer to, foreclose upon or otherwise comparably
convert a Mortgaged Property if there is evidence of toxic waste or other
environmental hazards thereon unless the Servicer follows the procedures in
Subsection (c) below. In connection with such foreclosure or other conversion,
the Servicer in conjunction with the related Subservicer, if any, shall use its
best reasonable efforts to preserve REO Property and to realize upon defaulted
Mortgage Loans in such manner as to maximize the receipt of principal and
interest by the Bondholders, taking into account, among other things, the timing
of foreclosure and the considerations set forth in Subsection 3.13(b). The
foregoing is subject to the proviso that the Servicer shall not be required to
expend its own funds in connection with any foreclosure or towards the
restoration of any property unless it determines in good faith (i) that such
restoration or foreclosure will increase the proceeds of liquidation of the
Mortgage Loan to Bondholders after reimbursement to itself for such expenses and
(ii) that such expenses will be recoverable to it either through Liquidation
Proceeds (respecting which it shall have priority for purposes of reimbursements
from the Collection Account pursuant to Section 3.07) or through Insurance
Proceeds (respecting which it shall have similar priority). The Servicer shall
be responsible for all costs and expenses constituting Liquidation Expenses
incurred by it in any such proceedings; provided, however, that it shall be
entitled to reimbursement thereof (as well as its normal servicing compensation)
as set forth in Section 3.07. Any income from or other funds (net of any income
taxes) generated by REO Property shall be deemed for purposes of this Servicing
Agreement to be Liquidation Proceeds.
Any subsequent collections with respect to any Liquidated Mortgage
Loan shall be deposited to the Collection Account. For purposes of determining
the amount of any Liquidation Proceeds or Insurance Proceeds, or other
unscheduled collections, the Servicer may take into account any estimated
additional Liquidation Expenses expected to be incurred in connection with the
related defaulted Mortgage Loan.
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 be issued to the Indenture Trustee
16
and held by the Bond Administrator, who shall hold the same on behalf of
Indenture Trustee and the Issuer in accordance with the Indenture.
Notwithstanding any such acquisition of title and cancellation of the related
Mortgage Loan, such Mortgaged Property shall (except as otherwise expressly
provided herein) be considered to be an outstanding Mortgage Loan held as an
asset of the Issuer until such time as such property shall be sold.
(b) The Servicer shall not acquire any real property (or any personal
property incident to such real property) on behalf of the Trust Estate except in
connection with a default or reasonably foreseeable default of a Mortgage Loan.
In the event that the Servicer acquires any real property (or personal property
incident to such real property) on behalf of the Trust Estate in connection with
a default or imminent default of a Mortgage Loan, such property shall be
disposed of by the Servicer on behalf of the Trust Estate within two years after
its acquisition on behalf of the Trust Estate.
(c) With respect to any Mortgage Loan as to which the Servicer or a
Subservicer has received notice of, or has actual knowledge of, the presence of
any toxic or hazardous substance on the Mortgaged Property, the Servicer shall
promptly notify the Bond Administrator, the Indenture Trustee, the Owner Trustee
and the Bond Insurer and shall act in accordance with any such directions and
instructions provided by the Bond Insurer, or if a Bond Insurer Default exists,
by the Bond Administrator on behalf of, and after consulting with, the Indenture
Trustee, as pledgee of the Issuer. Notwithstanding the preceding sentence of
this Section 3.13(c), with respect to any Mortgage Loan described by such
sentence, the Servicer shall, if requested by the Bond Insurer, obtain and
deliver to the Issuer, the Bond Administrator, the Indenture Trustee, and the
Bond Insurer an environmental audit report prepared by a Person who regularly
conducts environmental audits using customary industry standards. The Servicer
shall be entitled to reimbursement for such report pursuant to Section 3.07. If
the Bond Insurer or Bond Administrator on behalf of the Indenture Trustee, as
applicable, has not provided directions and instructions to the Servicer in
connection with any such Mortgage Loan within 30 days of a request by the
Servicer for such directions and instructions, then the Servicer shall take such
action as it deems to be in the best economic interest of the Trust Estate
(other than proceeding against the Mortgaged Property) and is hereby authorized
at such time as it deems appropriate to release such Mortgaged Property from the
lien of the related Mortgage. The parties hereto acknowledge that the Servicer
shall not obtain on behalf of the Issuer a deed as a result or in lieu of
foreclosure, and shall not otherwise acquire possession of or title to, or
commence any proceedings to acquire possession of or title to, or take any other
action with respect to, any Mortgaged Property, if the Owner Trustee as such and
in its individual capacity could reasonably be considered to be a responsible
party for any liability arising from the presence of any toxic or hazardous
substance on the Mortgaged Property, unless the Owner Trustee as such and in its
individual capacity has been indemnified to its reasonable satisfaction against
such liability.
Section 3.14. Bond Administrator to Cooperate; Release of Mortgage Files.
----------------------------------------------------------
(a) Upon payment in full of any Mortgage Loan, the Servicer will
immediately notify the Bond Administrator and the Indenture Trustee by a
certification signed by a Servicing Officer (which certification shall include a
statement to the effect that all amounts received in connection with such
payment which are required to be deposited in the Collection Account have been
so deposited) and shall request delivery to the Servicer or Subservicer, as the
case may be,
17
of the Mortgage File. Upon receipt of such certification and request, the Bond
Administrator on behalf of the Indenture Trustee shall promptly cause to be
released the related Mortgage File to the Servicer or Subservicer and execute
and deliver to the Servicer, without recourse, the request for reconveyance,
deed of reconveyance or release or satisfaction of mortgage or such instrument
releasing the lien of the Security Instrument (furnished by the Servicer),
together with the Mortgage Note with written evidence of cancellation thereon.
(b) From time to time as is appropriate, for the servicing or foreclosure
of any Mortgage Loan or collection under an insurance policy, the Servicer may
deliver to the Bond Administrator a Request for Release signed by a Servicing
Officer on behalf of the Servicer in substantially the form attached as Exhibit
B hereto. Upon receipt of the Request for Release, the Bond Administrator on
behalf of the Indenture Trustee shall deliver the Mortgage File or any document
therein to the Servicer or Subservicer, as the case may be, as bailee for the
Indenture Trustee.
(c) The Servicer shall cause each Mortgage File or any document therein
released pursuant to Subsection 3.14(b) to be returned to the Bond Administrator
when the need therefor no longer exists, and in any event within 21 days of the
Servicer's receipt thereof, unless the Mortgage Loan has become a Liquidated
Mortgage Loan and the Liquidation Proceeds relating to the Mortgage Loan have
been deposited in the Collection Account or such Mortgage File is being used to
pursue foreclosure or other legal proceedings. Prior to return of a Mortgage
File or any document to the Bond Administrator, the Servicer, the related
insurer or Subservicer to whom such file or document was delivered shall retain
such file or document in its respective control as bailee for the Bond
Administrator on behalf of the Indenture Trustee unless the Mortgage File or
such document has been delivered to an attorney, or to a public trustee or other
public official as required by law, to initiate or pursue legal action or other
proceedings for the foreclosure of the Mortgaged Property either judicially or
non-judicially, and the Servicer has delivered to the Bond Administrator and the
Indenture Trustee, a certificate of a Servicing Officer certifying as to the
name and address of the Person to which such Mortgage File or such document was
delivered and the purpose or purposes of such delivery. If a Mortgage Loan
becomes a Liquidated Mortgage Loan, the Bond Administrator on behalf of the
Indenture Trustee shall deliver the Request for Release with respect thereto to
the Servicer upon deposit of the related Liquidation Proceeds in the Collection
Account.
(d) The Bond Administrator on behalf of the Indenture Trustee shall
execute and deliver or cause to be executed and delivered to the Servicer any
court pleadings, requests for trustee's sale or other documents necessary to (i)
the foreclosure or trustee's sale with respect to a Mortgaged Property; (ii) any
legal action brought to obtain judgment against any Mortgagor on the Mortgage
Note or Security Instrument; (iii) obtain a deficiency judgment against the
Mortgagor; or (iv) enforce any other rights or remedies provided by the Mortgage
Note or Security Instrument or otherwise available at law or equity. Together
with such documents or pleadings the Servicer shall deliver to the Bond
Administrator and the Indenture Trustee a certificate of a Servicing Officer in
which it requests the Bond Administrator on behalf of the Indenture Trustee to
execute or cause to be executed the pleadings or documents. The certificate
shall certify and explain the reasons for which the pleadings or documents are
required. It shall further certify that the Indenture Trustee's or the Bond
Administrator's execution and delivery of the pleadings or documents will not
invalidate any insurance coverage under the insurance
18
policies or invalidate or otherwise affect the lien of the Security Instrument,
except for the termination of such a lien upon completion of the foreclosure or
trustee's sale.
Section 3.15. Servicing Compensation.
----------------------
(a) As compensation for its activities hereunder, the Servicer shall be
entitled to receive the Servicing Fee (out of which it will pay the Indenture
Trustee) from full payments of accrued interest on each Mortgage Loan. The
Servicer shall be solely responsible for paying any and all fees with respect to
a Subservicer, and the Indenture Trustee and the Trust Estate shall not bear any
fees, expenses or other costs directly associated with any Subservicer.
(b) The Servicer may retain additional servicing compensation in the form
of late payment charges, to the extent such charges are collected from the
related Mortgagors and investment earnings on the Collection Account. The
Servicer shall be required to pay all expenses it incurs in connection with
servicing activities under this Servicing Agreement and shall not be entitled in
connection with servicing activities under this Servicing Agreement to
reimbursement except as provided in this Servicing Agreement. Expenses to be
paid by the Servicer without reimbursement under this Subsection 3.15(b) shall
include payment of the expenses of the accountants retained pursuant to Section
3.17.
Section 3.16. Annual Statements of Compliance.
-------------------------------
Within 90 days after December 31 of each year, the Servicer at its own
expense shall deliver to the Bond Administrator, with a copy to the Bond Insurer
and the Indenture Trustee and the Rating Agencies, an Officer's Certificate
stating, as to the signer thereof, that (i) a review of the activities of the
Servicer during the preceding calendar year and of performance under this
Servicing Agreement has been made under such officer's supervision, (ii) to the
best of such officer's knowledge, based on such review, the Servicer has
fulfilled its obligations under this Servicing Agreement in all material
respects for such year, or, if there has been a default in the fulfillment of
any such obligation, specifying each such default known to such officer and the
nature and status thereof including the steps being taken by the Servicer to
remedy such default; (iii) a review of the activities of each Subservicer during
the Subservicer's most recently ended calendar year and its performance under
its Subservicing Agreement has been made under such officer's supervision; and
(iv) to the best of the Servicing Officer's knowledge, based on his review and
the certification of an officer of the Subservicer (unless the Servicing Officer
has reason to believe that reliance on such certification is not justified),
either each Subservicer has performed and fulfilled its duties, responsibilities
and obligations under this Servicing Agreement and its Subservicing Agreement in
all material respects throughout the year, or, if there has been a default in
performance or fulfillment of any such duties, responsibilities or obligations,
specifying the nature and status of each such default known to the Servicing
Officer. Copies of such statements shall be provided by the Servicer to the
Bondholders upon request or by the Bond Administrator at the expense of the
Servicer should the Servicer fail to provide such copies.
19
Section 3.17. Annual Independent Public Accountants' Servicing Report.
-------------------------------------------------------
Within 90 days after December 31 of each year, the Servicer, at its
expense, shall cause a firm of independent public accountants who are members of
the American Institute of Certified Public Accountants and are otherwise
acceptable to the Bond Insurer to furnish a statement to the Servicer, which
will be provided to the Bond Administrator, the Indenture Trustee, the Bond
Insurer and the Rating Agencies, to the effect that, in connection with the
firm's examination of the Servicer's financial statements as of the end of such
calendar year, nothing came to their attention that indicated that the Servicer
was not in compliance with Sections 3.06, 3.07 and 3.08 except for (i) such
exceptions as such firm believes to be immaterial and (ii) such other exceptions
as are set forth in such statement.
(a) Within 90 days after December 31 of each year, the Servicer, at its
expense, shall, and shall cause each Subservicer to cause, a nationally
recognized firm of independent certified public accountants to furnish to the
Servicer or such Subservicer, as the case may be, a report stating that (i) it
has obtained a letter of representation regarding certain matters from the
management of the Servicer or such Subservicer, as the case may be, which
includes an assertion that the Servicer or such Subservicer, as the case may be,
has complied with certain minimum mortgage loan servicing standards identified
in the Uniform Single Attestation Program for Mortgage Bankers established by
the Mortgage Bankers Association of America with respect to the servicing of
first lien conventional single family mortgage loans during the most recently
completed calendar year and (ii) on the basis of an examination conducted by
such firm in accordance with standards established by the American Institute of
Certified Public Accountants, such representation is fairly stated in all
material respects, subject to such exceptions and other qualifications that may
be appropriate. Immediately upon receipt of such report, the Servicer shall or
shall cause each Subservicer to furnish a copy of such report to the Bond
Administrator, the Indenture Trustee, the Rating Agencies and the Bond Insurer.
Section 3.18. Optional Purchase of Defaulted Mortgage Loans.
---------------------------------------------
The Servicer may repurchase any Mortgage Loan delinquent in payment
for a period of 90 days or longer for a price equal to the Repurchase Price;
provided, that the aggregate Principal Balance of Mortgage Loans repurchased by
the Servicer may not exceed, without the consent of the Bond Insurer, ___% of
the sum of the aggregate Principal Balance of the Initial Mortgage Loans as of
the Cut-off Date and the Original Pre-Funded Amount; and provided, further,
that, unless the Bond Insurer consents otherwise, the Servicer must repurchase
such mortgage loans in the reverse order of the respective number of days
delinquent, including foreclosures. The procedure for such repurchase shall be
the same as for repurchase by the Seller under the Purchase Agreement.
Notwithstanding any contrary provision of this Agreement, with respect to any
Mortgage Loan which is not in default or as to which no default is imminent, no
purchase or substitution pursuant to Section 2.03 or this Section 3.18 shall be
made unless the Servicer provides to the Bond Administrator, the Indenture
Trustee, the Owner Trustee and the Bond Insurer an Opinion of Counsel to the
effect that such purchase or substitution would not (i) result in the imposition
of taxes on "prohibited transactions" of the Trust Estate, as defined in Section
860F of the Code or a tax or contributions to the Trust Estate under the REMIC
Provisions, or (ii) cause the Trust Estate to fail to qualify as a REMIC at any
time that any Bonds are outstanding. Any Mortgage Loan to be purchased or
substituted
20
pursuant to this Section 3.18 shall be purchased or substituted (subject to
compliance with this Section 3.18) upon the earlier of (x) the occurrence of a
default or reasonably foreseeable default with respect to such Mortgage Loan or
(y) receipt by the Bond Administrator, the Indenture Trustee, the Owner Trustee
and the Bond Insurer of an Opinion of Counsel to the effect that such purchase
or substitution will not result in the events described in clauses (i) and (ii)
of the preceding sentence.
Section 3.19. Information Required by the Internal Revenue Service Generally
--------------------------------------------------------------
and Reports of Foreclosures and Abandonments of Mortgaged
---------------------------------------------------------
Property.
--------
The Servicer shall prepare and deliver all federal and state
information reports when and as required by all applicable state and federal
income tax laws. In particular, with respect to the requirement under Section
6050J of the Code to the effect that the Servicer or Subservicer shall make
reports of foreclosures and abandonments of any mortgaged property for each year
beginning in 1999, the Servicer or Subservicer shall file reports relating to
each instance occurring during the previous calendar year in which the Servicer
(i) acquires an interest in any Mortgaged Property through foreclosure or other
comparable conversion in full or partial satisfaction of a Mortgage Loan, or
(ii) knows or has reason to know that any Mortgaged Property has been abandoned.
The reports from the Servicer or Subservicer shall be in form and substance
sufficient to meet the reporting requirements imposed by Section 6050J, Section
6050H (reports relating to mortgage interest received) and Section 6050P of the
Code (reports relating to cancellation of indebtedness).
Section 3.20. Purchase of Converted Mortgage Loans.
------------------------------------
Pursuant to the Converted Loan Purchase Agreement, the Converted Loan
Purchaser shall be obligated to purchase from the Issuer any Converted Mortgage
Loans at the Repurchase Price. The Servicer shall promptly notify the Bond
Insurer, the Bond Administrator, the Indenture Trustee and the Converted Loan
Purchaser of each Mortgage Loan which becomes a Converted Mortgage Loan. If the
Converted Loan Purchaser fails to purchase any Converted Loan, the Servicer
shall be terminated and the Indenture Trustee shall be the Servicer and is
obligated to make such purchase under the Converted Loan Purchase Agreement.
Section 3.21. [Reserved]
--------
Section 3.22. Servicing and Administrating of the MI Policies.
-----------------------------------------------
(a) The Servicer shall take all such actions on behalf of the Issuer as
are necessary to service, maintain and administer the MI Policies and to perform
the Issuer's obligations and enforce the Issuer's rights under the MI Policies,
which actions shall conform to the standards of an institution prudently
administering MI Policies for its own account. Except as expressly set forth
herein, the Servicer shall have full authority on behalf of the Issuer to do
anything it reasonably deems appropriate or desirable in connection with the
servicing, maintenance and administration of the MI Policies. The Servicer shall
make its best reasonable efforts to file all insured claims under the MI
Policies and collect from the MI Insurer all Insurance Proceeds due to the
Issuer under the MI Policies. The Servicer shall not take, or permit any
subservicer to take, any action which would result in non-coverage under any
applicable MI Policy of any loss
21
which, but for the actions of the Servicer or Subservicer, would have been
covered thereunder. To the extent coverage is available, the Servicer shall keep
or cause to be kept in full force and effect each such MI Policy for the life of
the Mortgage Loan; provided, however, that if a MI Insurer Insolvency Event has
occurred and is continuing, the Servicer shall, at the direction of the Bond
Insurer, or, if a Bond Insurer Default has occurred and is continuing, may,
terminate the MI Policy on any Mortgage Loan that is not then past due. Unless a
Bond Insurer Default has occurred and is continuing, neither the Servicer, the
Bond Administrator nor the Indenture Trustee shall terminate the MI Policy with
respect to any Mortgage Loan without the prior written consent of the Bond
Insurer. The Servicer shall cooperate with the MI Insurer and shall use its best
efforts to furnish all reasonable aid, evidence and information in the
possession of the Servicer or to which the Servicer has access with respect to
any Mortgage Loan.
(b) The Servicer shall deposit into the Collection Account pursuant to
Section 3.06(d)(v) hereof all MI Insurance Proceeds received from the MI Insurer
under the terms of the MI Policies. The Servicer shall withdraw from the
Collection Account and pay to the MI Insurer pursuant to Section 3.07(a)(xiii)
hereof, the monthly MI Premiums due to the MI Insurer in accordance with the
terms of the MI Insurance Agreement.
(c) Notwithstanding the provisions of Subsection 3.22(a) and (b), the
Servicer shall not take any action in regard to the MI Policies inconsistent
with the interests of the Indenture Trustee, the Bond Insurer or the Bondholders
or with the rights and interests of the Indenture Trustee, the Bond Insurer or
the Bondholders under this Servicing Agreement; provided, however, that payments
of the monthly MI Premiums to the MI Insurer pursuant to Subsection 3.22(b)
above and Section 3.07(a)(xiii) hereof shall be deemed not to be inconsistent
with such interests.
(d) The Issuer and the Bond Administrator on behalf of the Indenture
Trustee shall furnish the Servicer with any powers of attorney and other
documents in form as provided to it necessary or appropriate to enable the
Servicer to service and administer the MI Policies; provided, however, that
neither the Bond Administrator nor the Indenture Trustee shall be liable for the
actions of the Servicer under such powers of attorney.
(e) If at any time during the term of this Agreement, a MI Insurer
Insolvency Event has occurred and is continuing, the Servicer agrees to review,
not less often than monthly, the financial condition of the MI Insurer with a
view towards determining whether recoveries under the MI Policy are jeopardized
for reasons related to the financial condition of the MI Insurer. In such
event, the Servicer may obtain an additional MI Policy or a replacement MI
Policy, the MI Premiums on which would be paid by the Servicer from the
Collection Account pursuant to Section 3.07(a)(xiii) hereof. In the event that
the Servicer is unable to obtain such additional MI Policy or replacement MI
Policy, the Bond Insurer may, after consulting with the Servicer, obtain for the
benefit of the Indenture Trustee, the Bondholders and the Bond Insurer an
additional MI Policy or a replacement MI Policy, the MI Premiums on which would
be paid by the Servicer from the Collection Account pursuant to Section
3.07(a)(xiii) hereof. The Servicer shall cooperate with and assist the Bond
Insurer in obtaining any replacement or additional policy.
22
(f) The Servicer shall give written notice to the MI Insurer of all
"Defaults" and "Early Defaults" (as such terms are defined in the MI Policy)
with respect to the Mortgage Loans or any other notice required to be given
pursuant to the MI policy within the time frames and in the manner provided in
the MI Policy.
(g) The Servicer shall not authorize any assumption agreement with respect
to any Mortgage Loan covered by a MI Policy without the prior written approval
of the MI Insurer.
(h) With respect to each Mortgage Loan covered by a MI Policy, the Servicer
shall initiate foreclosure proceedings or other appropriate proceedings not
later than 6 months after it is permitted to do so hereunder and under the
Mortgage Loan and by applicable law, and shall provide copies of all notices and
pleadings with respect thereto.
(i) With respect to any Mortgage Loan covered by a MI Policy, the Servicer
shall use its best efforts to obtain the MI Insurer's Consent with respect to
any "Approved Sale" (as such term is defined in the MI Policy) of the related
Mortgaged Property.
(j) [reserved]
(k) The Servicer shall furnish to the Bond Insurer copies of all claims
under any MI Policy made by the Servicer to the MI Insurer and all
correspondence between the MI Insurer and the Servicer with respect to claims
under any MI Policy made by the Servicer to the MI Insurer.
(l) The Servicer shall comply with all other terms, conditions or
obligations set forth in any MI Policy.
(m) Following any MI Insurer Insolvency Event (excluding any such event
that results solely under subparagraph (C) of the definition thereof), the Bond
Insurer shall consult with the Servicer regarding whether or not to terminate
the MI Policy with respect to any Mortgage Loan that is not then past due. The
Bond Insurer shall give the Servicer thirty (30) days prior written notice of
its intention to terminate the MI Policy with respect to any Mortgage Loan.
Section 3.23. Optional Termination of the Bonds.
---------------------------------
(a) Pursuant to Section 8.07 of the Indenture, the Servicer shall have the
option of purchasing 100% of the Mortgage Loans, causing the redemption of the
Bonds in whole, but not in part, on any Payment Date on or after the Payment
Date on which the aggregate Principal Balance of the Mortgage Loans in all four
Groups is reduced to less than 10% of the Maximum Collateral Amount. The
purchase price for Mortgage Loans in each Group will be an amount sufficient to
pay 100% of the outstanding Bond Principal Balance of each Class of Class A
Bonds and of each of the B Components as of the Payment Date on which the
proposed purchase will take place in accordance with the foregoing, together
with accrued and unpaid interest thereon (and on the Class IO Bonds) at the
related Bond Interest Rate through such Payment Date (including any related
Carry-Forward Amount), plus an amount sufficient to pay in full all amounts
owing to the Bond Insurer, the Bond Administrator and the Indenture Trustee
under the Indenture and the Insurance Agreement and the Servicer under the
Servicing Agreement (which
23
amounts shall be specified in writing upon request of the Issuer by the
Indenture Trustee, the Bond Administrator and the Bond Insurer). Such
termination must constitute a "qualified liquidation" of the REMIC established
by the Issuer under Section 860F of the Code, including without limitation, the
requirement that the qualified liquidation takes place over a period not to
exceed 90 days.
(b) In order to exercise the foregoing option, the Servicer shall,
not less than 30 days prior to the proposed Payment Date on which such
termination is to be made, provide written notice of its exercise of such option
to the Bond Administrator, the Indenture Trustee, the Bond Insurer, the Owner
Trustee and the Issuer. Following receipt of the notice, pursuant to the
foregoing, the Bond Administrator, on behalf of the Indenture Trustee, shall
provide notice to the Bondholders of the final payment on the Bonds, conduct a
qualified liquidation of the Trust Estate and will remit funds from such
liquidation to the Indenture Trustee to be applied to make final payments of
principal and interest on the Bonds.
ARTICLE IV
Remittance Reports
Section 4.01. Remittance Reports.
------------------
On the second Business Day following each Determination Date, the
Servicer shall deliver to the Bond Administrator and the Bond Insurer a report,
prepared as of the close of business on the Determination Date (the
"Determination Date Report"), and shall forward to the Bond Administrator and
the Bond Insurer in the form of computer readable electromagnetic tape or disk a
copy of such report. The Determination Date Report and any written information
supplemental thereto shall include such information with respect to the Mortgage
Loans that is reasonably available to the Servicer and that is required by the
Bond Administrator for purposes of making the calculations and providing the
reports referred to in the Indenture, as set forth in written specifications or
guidelines issued by the Bond Administrator from time to time. Such information
shall include the aggregate amounts required to be withdrawn from the Collection
Account and deposited into the Payment Account pursuant to Section 3.07. Such
information shall also include (a) the number of Mortgage Loans that prepaid in
the previous month; (b) the loan balance of each such Mortgage Loan; (c) whether
a prepayment penalty was applied to such Mortgage Loan; and (d) the amount of
prepayment penalty with respect to each such Mortgage Loan (in each case broken
out by Group). The Servicer agrees to cooperate with the Bond Administrator and
the Bond Insurer in providing all information as is reasonably requested by the
Bond Administrator and the Bond Insurer to prepare the reports required under
the Indenture. The Servicer shall deliver the Determination Date Report to the
Bond Insurer in the CPI S50Y magnetic tape format.
The determination by the Servicer of such amounts shall, in the
absence of obvious error, be presumptively deemed to be correct for all purposes
hereunder and the Owner Trustee, as such and in its individual capacity, and the
Indenture Trustee and the Bond Administrator shall be fully protected in relying
upon the same without any independent check or verification.
24
Section 4.02. Advances.
--------
If any Monthly Payment (together with any advances from the
Subservicers) on a Mortgage Loan that was due on the immediately preceding Due
Date and delinquent on the Determination Date is delinquent other than as a
result of application of the Relief Act, the Servicer will deposit in the
Collection Account not later than the fourth Business Day immediately preceding
the related Payment Date an amount equal to such deficiency net of the related
Servicing Fee for such Mortgage Loan, except to the extent the Servicer
determines any such advance to be nonrecoverable from Liquidation Proceeds,
Insurance Proceeds or future payments on such Mortgage Loan. Subject to the
foregoing and in the absence of such a determination, the Servicer shall
continue to make such advances through the date that the related Mortgaged
Property has, in the judgment of the Servicer, been completely liquidated.
The Servicer may fund an Advance from its own corporate funds,
advances made by any subservicer or funds held in the Collection Account for
future payment or withdrawal.
Advances made from funds held in the Collection Account may be
made by the Servicer from subsequent collections of principal and interest
received on other Mortgage Loans and deposited into the Collection Account.
Advances made from the Collection Account are not limited to subsequent
collections of principal and interest received on the delinquent Mortgage Loan
with respect to which an Advance is made. If on the fourth Business Day prior to
any Payment Date funds in the Collection Account are less than the amount
required to be paid to the Bondholders on such Payment Date, then the Servicer
shall deposit its own funds into the Payment Account in the amount of the lesser
of (i) any unreimbursed Advances previously made by the Servicer with funds held
in the Collection Account or (ii) the shortfall in the Collection Account,
provided, however, that in no event shall the Servicer deposit into the
Collection Account an amount that is less than any shortfall in the Collection
Account attributable to delinquent payments on Mortgage Loans which the Servicer
deems to be recoverable and which has not been covered by an Advance from the
Servicer's own corporate funds or any subservicer's funds. If applicable, on the
fourth Business Day preceding each Payment Date, the Servicer shall present an
Officer's Certificate to the Bond Administrator, the Indenture Trustee and the
Bond Insurer (i) stating that the Servicer elects not to make an Advance in a
stated amount and (ii) detailing the reason it deems the advance to be
nonrecoverable. The Bond Administrator shall forward a copy of such Officer's
Certificate to the Bond Insurer.
Section 4.03. Compensating Interest Payments.
------------------------------
The Servicer shall deposit in the Collection Account not later
than the fourth Business Day preceding the Payment Date an amount equal to the
Compensating Interest related to the related Determination Date. The Servicer
shall not be entitled to any reimbursement of any Compensating Interest payment.
Such Compensating Interest payment shall not relieve the Servicer of its
obligation to pay the Back-up Servicing Fee.
25
ARTICLE V
The Servicer
Section 5.01. Liability of the Servicer.
-------------------------
The Servicer shall be liable in accordance herewith only to the
extent of the obligations specifically imposed upon and undertaken by the
Servicer herein.
Section 5.02. Merger or Consolidation of, or Assumption of the Obligations of,
----------------------------------------------------------------
the Servicer.
------------
Any corporation into which the Servicer may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Servicer shall be a
party, or any corporation succeeding to the business of the Servicer, shall be,
with the consent of the Bond Insurer, the successor of the Servicer, hereunder,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto, anything herein to the contrary notwithstanding.
The Servicer may fully assign all of its rights and delegate its
duties and obligations under this Servicing Agreement; provided, that the Person
accepting such assignment or delegation shall be a Person which is reasonably
satisfactory to the Bond Administrator, the Indenture Trustee (as pledgee of the
Mortgage Loans) and the Bond Insurer (in its sole discretion), is willing to
service the Mortgage Loans and executes and delivers to the Bond Insurer, the
Bond Administrator, the Indenture Trustee and the Issuer an agreement, in form
and substance reasonably satisfactory to the Bond Insurer, the Bond
Administrator, the Indenture Trustee and the Issuer, which contains an
assumption by such Person of the due and punctual performance and observance of
each covenant and condition to be performed or observed by the Servicer under
this Servicing Agreement; provided, further, that each Rating Agency's rating of
the Bonds in effect immediately prior to such assignment and delegation will not
be qualified, reduced, or withdrawn as a result of such assignment and
delegation (as evidenced by a letter to such effect from each Rating Agency)
without taking into account the Bond Insurance Policy.
Section 5.03. Limitation on Liability of the Servicer and Others.
--------------------------------------------------
Neither the Servicer nor any of the directors or officers or
employees or agents of the Servicer shall be under any liability to the Issuer,
the Owner Trustee, the Bond Administrator, the Indenture Trustee, the Bond
Insurer or the Bondholders for any action taken or for refraining from the
taking of any action in good faith pursuant to this Servicing Agreement,
provided, however, that this provision shall not protect the Servicer or any
such Person against any liability which would otherwise be imposed by reason of
its willful misfeasance, bad faith or negligence in the performance of its
duties hereunder or by reason of its reckless disregard of its obligations and
duties hereunder. The Servicer and any director or officer or employee or agent
of the Servicer 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 Servicer and any director or officer or employee or agent of the
Servicer shall be indemnified by the Issuer and held harmless against any loss,
liability or expense incurred in connection with any legal action relating to
this Servicing Agreement or the Bonds, including
26
any amount paid to the Owner Trustee or the Bond Administrator on behalf of the
Indenture Trustee pursuant to Section 5.06(b), other than any loss, liability or
expense related to any specific Mortgage Loan or Mortgage Loans (except as any
such loss, liability or expense shall be otherwise reimbursable pursuant to this
Servicing Agreement) and any loss, liability or expense incurred by reason of
its willful misfeasance, bad faith or negligence in the performance of its
duties hereunder or by reason of its reckless disregard of its obligations and
duties hereunder. The Servicer shall not be under any obligation to appear in,
prosecute or defend any legal action which is not incidental to its duties to
service the Mortgage Loans in accordance with this Servicing Agreement, and
which in its opinion may involve it in any expense or liability; provided,
however, that the Servicer may in its sole discretion undertake any such action
which it may deem necessary or desirable in respect of this Servicing Agreement,
and the rights and duties of the parties hereto and the interests of the
Bondholders hereunder. In such event, the reasonable legal expenses and costs of
such action and any liability resulting therefrom shall be expenses, costs and
liabilities of the Issuer, and the Servicer shall be entitled to be reimbursed
therefor. The Servicer's right to indemnity or reimbursement pursuant to this
Section 5.03 shall survive any resignation or termination of the Servicer
pursuant to Section 5.04 or 6.01 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). Any
reimbursements or indemnification to the Servicer from the Issuer pursuant to
this Section 5.03 shall be payable in the priority set forth in Section
3.05(a)(xi) of the Indenture.
Section 5.04. Servicer Not to Resign.
----------------------
Subject to the provisions of Section 5.02, the 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 (ii) upon satisfaction of the
following conditions: (a) the Servicer has proposed a successor servicer to the
Issuer, the Bond Insurer, the Indenture Trustee and the Bond Administrator in
writing and such proposed successor servicer is reasonably acceptable to the
Issuer, the Indenture Trustee and the Bond Administrator; (b) each Rating Agency
shall have delivered a letter to the Issuer, the Indenture Trustee, the Bond
Insurer and the Bond Administrator prior to the appointment of the successor
servicer stating that the proposed appointment of such successor servicer as
Servicer hereunder will not result in the reduction or withdrawal of the then
current rating of the Bonds or the then current rating of the Bonds without
taking into account the Bond Insurance Policy; and (c) such proposed successor
servicer is acceptable to the Bond Insurer, as evidenced by a letter to the
Issuer, the Servicer, the Indenture Trustee and the Bond Administrator;
provided, however, that no such resignation by the Servicer shall become
effective until such successor servicer or, in the case of (i) above, the
Indenture Trustee or its designee as successor Servicer shall have assumed the
Servicer's responsibilities and obligations hereunder or the Indenture Trustee
or its designee as successor Servicer shall have designated a successor servicer
in accordance with Section 6.02. Any such resignation shall not relieve the
Servicer of responsibility for any of the obligations specified in Sections 6.01
and 6.02 as obligations that survive the resignation or termination of the
Servicer. The Servicer shall have no claim (whether by subrogation or otherwise)
or other action against any Bondholder or the Bond Insurer for any amounts paid
by the Servicer pursuant to any provision of this Servicing Agreement. Any such
determination permitting the resignation of the Servicer shall be evidenced by
an Opinion of Counsel to such effect delivered to the Bond Administrator, the
Indenture Trustee and the Bond Insurer.
27
Section 5.05. Delegation of Duties.
--------------------
In the ordinary course of business, and with the consent of the
Bond Insurer, the 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 the same standards with which the Servicer complies
pursuant to Section 3.01. Such delegation shall not relieve the Servicer of its
liabilities and responsibilities with respect to such duties and shall not
constitute a resignation within the meaning of Section 5.04.
Section 5.06. Servicer to Pay Indenture Trustee's, Bond Administrator's and
-------------------------------------------------------------
Owner Trustee's Fees and Expenses; Indemnification.
--------------------------------------------------
(a) The Servicer covenants and agrees to pay to the Owner Trustee, the
Bond Administrator and any co-trustee of the Indenture Trustee from time to
time, and the Owner Trustee, the Bond Administrator and any such co-trustee
shall be entitled to, reasonable compensation, including all indemnification
payments (which shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust) for all services rendered by each
of them in the execution of the trusts created under the Trust Agreement and the
Indenture and in the exercise and performance of any of the powers and duties
under the Trust Agreement or the Indenture, as the case may be, of the Owner
Trustee, the Bond Administrator, the Indenture Trustee and any co-trustee of the
Indenture Trustee, and the Servicer will pay or reimburse the Owner Trustee, the
Bond Administrator, the Indenture Trustee and any co-trustee upon request for
all reasonable expenses, disbursements and advances incurred or made by the
Owner Trustee, the Bond Administrator, the Indenture Trustee or any co-trustee
of the Indenture Trustee in accordance with any of the provisions of this
Servicing Agreement except any such expense, disbursement or advance as may
arise from its negligence or bad faith.
(b) The Servicer agrees to indemnify the Indenture Trustee, the Bond
Administrator and the Owner Trustee (as such and/or in its individual capacity)
for, and to defend and hold, the Indenture Trustee, the Bond Administrator and
the Owner Trustee (as such and/or in its individual capacity), as the case may
be, harmless against, any claim, tax, penalty, loss, liability or expense of any
kind whatsoever, incurred without gross negligence or willful misconduct on the
part of the Indenture Trustee, the Bond Administrator or the Owner Trustee, as
such and/or in its individual capacity, arising out of, or in connection with,
the failure by the Servicer to perform its duties in compliance with this
Servicing Agreement, including the reasonable costs and expenses (including
reasonable legal fees and expenses) of defending itself against any claim in
connection with the exercise or performance of any of its powers or duties under
any Basic Document, provided that:
(i) with respect to any such claim, the Indenture Trustee, the Bond
Administrator or the Owner Trustee (as such and/or in its individual
capacity), as the case may be, shall have given the Servicer written notice
thereof promptly after the Bond Administrator, the Indenture Trustee or
Owner Trustee (as such and/or in its individual capacity), as the case may
be, shall have actual knowledge thereof;
28
(ii) while maintaining control over its own defense, the Indenture
Trustee, the Bond Administrator or Owner Trustee (as such and/or in its
individual capacity), as the case may be, shall cooperate and consult fully
with the Servicer in preparing such defense; and
(iii) notwithstanding anything in this Servicing Agreement to the
contrary, the Servicer shall not be liable for settlement of any claim by
the Indenture Trustee, the Bond Administrator or the Owner Trustee (as such
and/or in its individual capacity), as the case may be, entered into
without the prior consent of the Servicer, which consent shall not be
unreasonably withheld.
No termination of this Servicing Agreement shall affect the
obligations created by this Section 5.06 of the Servicer to indemnify the Bond
Administrator, the Indenture Trustee and the Owner Trustee (as such and/or in
its individual capacity) under the conditions and to the extent set forth
herein. This section shall survive the termination of this Servicing Agreement.
Any amounts to be paid by the Servicer pursuant to this Subsection may not be
paid from the Trust Estate.
Notwithstanding the foregoing, the indemnification provided by the
Servicer in this Section 5.06 shall not pertain to any loss, liability or
expense of the Indenture Trustee, the Bond Administrator or the Owner Trustee
(as such and/or in its individual capacity), including the costs and expenses of
defending itself against any claim, incurred in connection with any actions
taken by the Indenture Trustee, the Bond Administrator or the Owner Trustee (as
such and/or in its individual capacity) at the direction of the Securityholders,
as the case may be, pursuant to the terms of this Servicing Agreement.
(c) The Servicer agrees to indemnify the Issuer in an amount equal to
the amount of any claim made under a MI Policy for which coverage is denied by
the MI Insurer because (and if the MI Insurer's denial of coverage is contested
by the Servicer, a court or arbitrator finally determines that coverage is not
available under the MI Policy because) of the Servicer's failure to abide by the
terms of the MI Policy or the MI Insurance Agreement or the Servicer's failure
to abide by the NFI Underwriting Guidelines or the NFI Servicing Guidelines, as
attached to the MI Insurance Agreement.
(d) In the event the Indenture Trustee becomes the Servicer pursuant
to Section 6.02 hereof, the Indenture Trustee shall not be obligated, in its
individual capacity, to pay any obligation of the Servicer under clause (a), (b)
or (c) above.
ARTICLE VI
Default
Section 6.01. Servicing Default.
-----------------
If any one of the following events (a "Servicing Default") shall
occur and be continuing:
29
(i) Any failure by the Servicer to deposit in the Collection
Account or Payment Account any deposit required to be made under the terms
of this Servicing Agreement, including any Advances and Compensating
Interest, which continues unremedied for a period of three Business Days
after the date upon which written notice of such failure shall have been
given to the Servicer by the Issuer, the Indenture Trustee or the Bond
Administrator or to the Servicer, the Issuer, the Indenture Trustee and the
Bond Administrator by the Bond Insurer; or
(ii) Failure on the part of the Servicer duly to observe or perform
in any material respect any other covenants or agreements of the Servicer
set forth in this Servicing Agreement, which failure, in each case,
materially and adversely affects the interests of Bondholders or the Bond
Insurer or the breach of any representation or warranty of the Servicer in
this Servicing Agreement or in the Insurance Agreement which materially and
adversely affects the interests of the Bondholders or the Bond Insurer, and
which in either case continues unremedied for a period of 30 days after the
date on which written notice of such failure or breach, requiring the same
to be remedied, and stating that such notice is a "Notice of Default"
hereunder, shall have been given to the Servicer by the Issuer, the Bond
Administrator or the Indenture Trustee or to the Servicer, the Issuer, the
Bond Administrator and the Indenture Trustee by the Bond Insurer; or
(iii) The entry against the 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, marshaling
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
(iv) The Servicer shall voluntarily go into liquidation, consent to
the appointment of a conservator, receiver, liquidator or similar person in
any insolvency, readjustment of debt, marshaling of assets and liabilities
or similar proceedings of or relating to the Servicer or of or relating to
all or substantially all of its property, or a decree or order of a court,
agency or supervisory authority having jurisdiction in the premises for the
appointment of a conservator, receiver, liquidator or similar person in any
insolvency, readjustment of debt, marshaling of assets and liabilities or
similar proceedings, or for the winding-up or liquidation of its affairs,
shall have been entered against the Servicer and such decree or order shall
have remained in force undischarged, unbonded or unstayed for a period of
60 days; or the Servicer shall admit in writing its inability to pay its
debts generally as they become due, file a petition to take advantage of
any applicable insolvency or reorganization statute, make an assignment for
the benefit of its creditors or voluntarily suspend payment of its
obligations; or
(v) Any failure by the Servicer to pay when due any amount payable
by it under the terms of the Insurance Agreement which continues unremedied
for a period of three (3) Business Days after the date upon which written
notice of such failure shall have been given to the Servicer by the Bond
Insurer; or
30
(vi) Failure on the part of the Seller or the Servicer to duly
perform in any material respect any covenant or agreement set forth in the
Insurance Agreement, which failure continues unremedied for a period of 30
days after the date on which written notice of such failure, requiring the
same to be remedied, shall have been given to the Bond Administrator, the
Indenture Trustee, the Seller or the Servicer, as the case may be, by the
Bond Insurer; or
(vii) Any other Event of Default under the Insurance Agreement; or
(viii) So long as the Seller is an affiliate, the parent of, under
common control with, or the same company as the Servicer, any failure of
the Seller to repurchase any Mortgage Loan required to be repurchased, or
pay any amount due, pursuant to the Purchase Agreement which continues
unremedied for a period of 30 days after the date upon which written notice
of such failure shall have been given to the Servicer; or
(ix) Failure on the part of the Converted Loan Purchaser to purchase
any Converted Mortgage Loan pursuant to Section 3.20 hereof; or
(x) (A) the Cumulative Loss Percentage (without giving any effect
to coverage provided by any MI Policy) for any period set forth below
exceeds the percentage set forth below:
--------------------------------------------------------------------------------
Period Cumulative Loss %
--------------------------------------------------------------------------------
_____________ -- _________ _____%
--------------------------------------------------------------------------------
_____________ -- _________ _____%
--------------------------------------------------------------------------------
_____________ -- _________ _____%
--------------------------------------------------------------------------------
_____________ -- _________ _____%
--------------------------------------------------------------------------------
_____________ -- _________ _____%
--------------------------------------------------------------------------------
For any period thereafter _____%
--------------------------------------------------------------------------------
(B) Realized Losses on the Mortgage Loans (without giving any effect
to coverage provided by any MI Policy) over any one twelve-month period exceed
_____% of the sum of the aggregate Principal Balances of the Mortgage Loans as
of the first day of such twelve month period; or
(C) the Rolling Delinquency Percentage exceeds _____%; or
(D) (i) NovaStar Financial, Inc. fails to secure long term (1 year or
greater) committed financing facilities of at least $_________________ by
_______________;
(ii) NovaStar Financial, Inc. shall fail to maintain a minimum net
worth of $______________; or
31
(iii) the Converted Loan Purchaser shall fail to purchase any
Converted Mortgage Loan pursuant to the Converted Loan Purchase Agreement;
then, (a) and in every such case, other than that set forth in (v), (vi) or
(vii) hereof, so long as a Servicing Default shall not have been remedied by the
Servicer, either the Issuer, subject to the direction of the Indenture Trustee
as pledgee of the Mortgage Loans, with the consent of the Bond Insurer, or the
Bond Insurer, or if a Bond Insurer Default exists, the holders of at least 51%
of the aggregate Bond Principal Balance of the Bonds, by notice then given in
writing to the Servicer (and to the Bond Administrator, the Indenture Trustee
and the Issuer if given by the Bond Insurer) or (b) in the case of the events
set forth in (v), (vi) or (vii) hereof, the Bond Insurer or, if a Bond Insurer
Default exists, the holders of at least 51% of the aggregate Bond Principal
Balance of the Bonds, may, by notice to the Servicer, terminate all of the
rights and obligations of the Servicer as servicer under this Servicing
Agreement other than its right to receive servicing compensation and expenses
for servicing the Mortgage Loans hereunder during any period prior to the date
of such termination and the Issuer, subject to the direction of the Indenture
Trustee as pledgee of the Mortgage Loans, with the consent of the Bond Insurer,
or the Bond Insurer may exercise any and all other remedies available at law or
equity. Any such notice to the Servicer shall also be given to each Rating
Agency, the Bond Insurer and the Issuer. On or after the receipt by the
Servicer of such written notice or upon the failure of the Servicer to receive
any Servicer Extension Notice contemplated in Section 7.12, all authority and
power of the Servicer under this Servicing Agreement, whether with respect to
the Bonds or the Mortgage Loans or otherwise, shall pass to and be vested in the
Indenture Trustee, pursuant to and under this Section 6.01; and, without
limitation, the Indenture Trustee is hereby authorized and empowered to execute
and deliver, on behalf of the Servicer, as attorney-in-fact or otherwise, any
and all documents and other instruments, and to do or accomplish all other acts
or things necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the transfer and endorsement of each Mortgage
Loan and related documents, or otherwise. The Servicer agrees to cooperate with
the Indenture Trustee in effecting the termination of the responsibilities and
rights of the Servicer hereunder, including, without limitation, the transfer
within one Business Day to the Indenture Trustee the administration by it of all
cash amounts relating to the Mortgage Loans that shall at the time be held by
the Servicer and to be deposited by it in the Collection Account, or that have
been deposited by the Servicer in the Collection Account or thereafter received
by the Servicer with respect to the Mortgage Loans. In addition, the Servicer
agrees promptly (and in any event no later than five Business Days subsequent to
such notice or upon the failure of the Servicer to receive any Servicer
Extension Notice contemplated in Section 7.12) to provide the Indenture Trustee
with all documents and records requested by it to enable it to assume the
Servicer's functions under this Servicing Agreement. All reasonable costs and
expenses (including, but not limited to, attorneys' fees) incurred in connection
with amending this Servicing Agreement to reflect such succession as Servicer
pursuant to this Section 6.01 shall be paid by the predecessor Servicer upon
presentation of reasonable documentation of such costs and expenses. For
purposes of this Section 6.01, neither the Indenture Trustee nor the Bond
Administrator, respectively, shall be deemed to have knowledge of a Servicer
Default unless a Responsible Officer of the Indenture Trustee or the Bond
Administrator, respectively, assigned to and working in the Indenture Trustee's
Corporate Trust Office or the Bond Administrator's Corporate Trust Office,
respectively, has actual knowledge thereof or unless written notice of any event
which is in fact
32
such a Servicer Default is received by a responsible officer of the Indenture
Trustee or the Bond Administrator, respectively, and such notice references the
Bonds or this Servicing Agreement.
Notwithstanding any termination of the activities of the Servicer
hereunder, the Servicer shall be entitled to receive, out of any late collection
of a payment on a Mortgage Loan which was due prior to the notice terminating
the Servicer's rights and obligations hereunder and received after such notice,
that portion to which the Servicer would have been entitled pursuant to Sections
3.07 and 3.15 as well as its Servicing Fee in respect thereof, and any other
amounts payable to the Servicer hereunder the entitlement to which arose prior
to the termination of its activities hereunder.
The Servicer shall immediately notify the Indenture Trustee, the Bond
Administrator, the Bond Insurer and the Owner Trustee in writing of any
Servicing Default.
Section 6.02. Indenture Trustee to Act; Appointment of Successor.
--------------------------------------------------
(a) On and after the time the Servicer receives a notice of
termination pursuant to Section 6.01 or sends a notice pursuant to Section 5.04
or fails to receive any Servicing Extension Notice contemplated by Section 7.12,
the Indenture Trustee (or another successor servicer selected by the Bond
Insurer) on behalf of the Indenture Trustee on behalf of the Bondholders and the
Bond Insurer shall be the successor in all respects to the Servicer in its
capacity as servicer under this Servicing 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 Servicer by the terms and
provisions hereof, including but not limited to the provisions of Article VIII.
Nothing in this Servicing Agreement shall be construed to permit or require the
Indenture Trustee or any other successor Servicer to (i) be responsible or
accountable for any act or omission of the Servicer prior to the issuance of a
notice of termination hereunder, (ii) require or obligate the Indenture Trustee,
in its capacity as successor Servicer, to purchase, repurchase or substitute any
Mortgage Loan, (iii) fund any losses on any Eligible Investment directed by any
other Servicer, or (iv) be responsible for the representations and warranties of
the Servicer; provided, however, that the Indenture Trustee, as successor
Servicer, or any other successor Servicer shall be required to make any required
Advances to the extent that the Servicer failed to make such Advances. As
compensation therefor, the Indenture Trustee or any other successor Servicer
shall be entitled to the Servicing Fee.
(b) Notwithstanding the above, if the Indenture Trustee (or
another successor servicer selected by the Bond Insurer) is legally unable to so
act, or if the Bond Insurer so elects, the Bond Administrator shall become the
successor Servicer, subject to the same rights accorded to the Indenture Trustee
under Section 6.01 and this Section 6.02. If the Bond Administrator is legally
unable to so act, the Bond Administrator may appoint or petition a court of
competent jurisdiction to appoint any established housing and home finance
institution, bank or other mortgage loan servicer having a net worth of not less
than $______________ as the successor to the Servicer hereunder in the
assumption of all or any part of the responsibilities, duties or liabilities of
the Servicer hereunder; provided, that any such successor Servicer shall be
acceptable to the Bond Insurer, as evidenced by the Bond Insurer's prior written
consent and provided further that the appointment of any such successor Servicer
will not result in the qualification, reduction or withdrawal of the ratings
assigned to the Bonds by the Rating
33
Agencies or the ratings assigned to the Bonds without taking into account the
Bond Insurance Policy. Pending appointment of a successor to the Servicer
hereunder, unless the Bond Administrator is prohibited by law from so acting,
the Bond Administrator shall act in such capacity (including the obligations of
the Servicer to make Advances) as hereinabove provided. In connection with such
appointment and assumption, the successor shall be entitled to receive
compensation out of payments on Mortgage Loans in an amount equal to the greater
of the compensation which the Servicer or the Indenture Trustee would otherwise
have received pursuant to Section 3.15 (or such lesser or greater compensation
as the Bond Administrator and such successor shall agree; provided, however,
that any greater compensation shall only be payable from amounts that otherwise
would be distributed to the holders of the Subordinated Bonds). The appointment
of a successor Servicer shall not affect any liability of the predecessor
Servicer which may have arisen under this Servicing Agreement prior to its
termination as Servicer (including, without limitation, the obligation to
purchase Mortgage Loans pursuant to Section 3.01, to pay any deductible under an
insurance policy pursuant to Section 3.11 or to indemnify the Bond Administrator
and the Indenture Trustee pursuant to Section 5.06), nor shall any successor
Servicer be liable for any acts or omissions of the predecessor Servicer or for
any breach by such Servicer of any of its representations or warranties
contained herein or in any related document or agreement. The Indenture Trustee
and such successor shall take such action, consistent with this Servicing
Agreement, as shall be necessary to effectuate any such succession.
(c) Any successor, to the Servicer shall during the term of its
service as servicer (i) continue to service and administer the Mortgage Loans on
behalf of the Indenture Trustee for the benefit of the Bondholders and the Bond
Insurer and (ii) maintain in force a policy or policies of insurance covering
errors and omissions in the performance of its obligations as Servicer hereunder
and a fidelity bond in respect of its officers, employees and agents to the same
extent as the Servicer is so required pursuant to Section 3.11.
(d) Any successor Servicer, shall not be deemed to be in default
or to have breached its duties hereunder if the predecessor Servicer shall fail
to deliver any required deposit to the Collection Account or otherwise cooperate
with any required servicing transfer or succession hereunder.
Section 6.03. Notification to Bondholders.
---------------------------
Upon any termination or appointment of a successor to the
Servicer pursuant to this Article VI or Section 5.04, the Bond Administrator
shall give prompt written notice thereof to the Bondholders, the Bond Insurer,
the Indenture Trustee, the Owner Trustee, the Issuer and each Rating Agency.
Section 6.04. Waiver of Defaults.
------------------
The Bond Administrator, on behalf of the Indenture Trustee, shall
transmit by mail to all Bondholders and the Bond Insurer, within 5 days after
the occurrence of any Servicing Default known to the Bond Administrator, unless
such Servicing Default shall have been cured, notice of each such Servicing
Default hereunder known to the Bond Administrator. The Bond Insurer or, if a
Bond Insurer Default exists, the holders of at least 51% of the
34
aggregate Bond Principal Balance of the Bonds may waive any default by the
Servicer in the performance of its obligations hereunder and the consequences
thereof, except a default in the making of or the causing to be made any
required distribution on the Bonds. No such waiver shall extend to any
subsequent or other default or impair any right consequent thereon except to the
extent expressly so waived. The Servicer shall give notice of any such waiver to
the Rating Agencies.
ARTICLE VII
Miscellaneous Provisions
Section 7.01. Amendment.
---------
This Servicing Agreement may be amended from time to time by the
parties hereto with the prior written consent of the Bond Insurer, provided that
any amendment be accompanied by a letter from the Rating Agencies to the effect
that the amendment will not result in the downgrading or withdrawal of the
rating then assigned to the Bonds or the rating then assigned to the Bonds
without taking into account the Bond Insurance Policy.
Section 7.02. Governing Law.
-------------
THIS SERVICING AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF ________ AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF
THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 7.03. 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 certified mail, return receipt requested, or sent by reputable
overnight courier service to:
(a) in the case of the Servicer:
NovaStar Mortgage, Inc.
▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇, Senior Vice President
(b) in the case of the Bond Insurer:
_______________________________
_______________________________
_______________________________
Attention:_____________________
35
(c) in the case of Rating Agencies:
[▇▇▇▇▇'▇ Investors Service Inc.
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ___________________]
[Standard & Poor's
▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ___________________]
(d) in the case of the Owner Trustee:
__________________________________
__________________________________
__________________________________
Attention: _______________________
(e) in the case of the Issuer:
c/o NovaStar Mortgage, Inc.
NovaStar Mortgage Funding Trust, Series_________
▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Vice President
(f) in the case of the Bond Administrator:
__________________________________
__________________________________
__________________________________
Attention: _______________________
(g) in the case of the Indenture Trustee:
__________________________________
__________________________________
__________________________________
Attention: _______________________
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 Bondholder shall be
36
given by first class mail, postage prepaid, at the address of such Bondholder as
shown in the Certificate Register. Any notice so mailed within the time
prescribed in this Servicing Agreement shall be conclusively presumed to have
been duly given, whether or not the Bondholder receives such notice. Any notice
or other document required to be delivered or mailed by the Indenture Trustee to
any Rating Agency shall be given on a reasonable efforts basis and only as a
matter of courtesy and accommodation and the Indenture Trustee shall have no
liability for failure to deliver such notice or document to any Rating Agency.
Section 7.04. Severability of Provisions.
--------------------------
If any one or more of the covenants, agreements, provisions or
terms of this Servicing Agreement shall be for any reason whatsoever held
invalid, then such covenants, agreements, provisions or terms shall be deemed
severable from the remaining covenants, agreements, provisions or terms of this
Servicing Agreement and shall in no way affect the validity or enforceability of
the other provisions of this Servicing Agreement or of the Bonds or the rights
of the Bondholders thereof.
Section 7.05. Third-Party Beneficiaries.
-------------------------
This Servicing Agreement will inure to the benefit of and be
binding upon the parties hereto, the Bondholders, the Bond Insurer, the Owner
Trustee and their respective successors and permitted assigns. Except as
otherwise provided in this Servicing Agreement, no other Person will have any
right or obligation hereunder. The Bond Administrator on behalf of the Indenture
Trustee shall have the right to exercise all rights of the Issuer under this
Agreement.
Section 7.06. Counterparts.
------------
This instrument may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
Section 7.07. Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein and the Table of Contents
are for convenience only and shall not affect the construction hereof.
Section 7.08. Termination.
-----------
Except with respect to obligations of the Servicer relating to
any representations and warranties or indemnities made by it in this Agreement,
the respective obligations and responsibilities of the Servicer and the Issuer
created hereby shall terminate upon the satisfaction and discharge of the
Indenture pursuant to Section 4.10 thereof.
Section 7.09. No Petition.
-----------
The Servicer, by entering into this Servicing Agreement, hereby
covenants and agrees that it will not at any time institute against the Issuer
or the Company, or join any
37
institution against the Issuer or the Company, any bankruptcy proceedings under
any United States federal or state bankruptcy or similar law in connection with
any obligations of the Issuer or the Company. This section shall survive the
termination of this Servicing Agreement by one year.
Section 7.10. No Recourse.
-----------
The Servicer acknowledges that no recourse may be had against the
Issuer, except as may be expressly set forth in this Servicing Agreement.
Section 7.11. Limitation of Liability of the Owner Trustee.
--------------------------------------------
Notwithstanding any other provision herein or elsewhere, this
Servicing Agreement has been executed and delivered by ________________________,
not in its individual capacity, but solely in its capacity as Owner Trustee of
the Issuer and in no event shall ________________________ or the Owner Trustee
have any liability in respect of the representations, warranties, or obligations
of the Issuer hereunder, as to all of which recourse shall be had solely to the
assets of the Trust, and for all purposes of this Servicing Agreement, the Owner
Trustee and ________________________ shall be entitled to the benefits of the
Trust Agreement.
Section 7.12. Renewable 90 Day Term of Servicer.
---------------------------------
(a) The Servicer hereby covenants and agrees to act as servicer under
this Agreement for an initial term commencing on the Closing Date and expiring
on ______________ (the "Initial Term"). Thereafter, the Initial Term may be
extended for additional 90 calendar day terms, in the sole discretion of the
Bond Insurer, by written notice (each, a "Servicer Extension Notice") of the
Bond Insurer to the Servicer. Each such Servicer Extension Notice, if any, shall
be delivered by the Bond Insurer to the other parties to this Agreement. The
Servicer hereby agrees that, as of the date hereof and upon its receipt of any
Servicer Extension Notice, the Servicer shall be bound for the duration of the
Initial Term and the term covered by any such Servicer Extension Notice to act
as the Servicer, subject to and in accordance with the other provisions of this
Agreement. The Servicer agrees that if, as of the tenth day prior to the last
day of any such servicing term, the Servicer shall not have received a Servicer
Extension Notice from the Bond Insurer, the Servicer shall, within five days
thereafter, give written notice of such non-receipt to the Bond Insurer and the
Indenture Trustee. The failure of the Bond Insurer to deliver a Servicer
Extension Notice by the end of any such 90 calendar day term shall result in the
automatic termination of the Servicer.
ARTICLE VIII
Administrative Duties of the Servicer
Section 8.01. Administrative Duties.
---------------------
(a) Duties with Respect to the Indenture. The Servicer shall perform
all its duties and the duties of the Issuer under the Indenture. In addition,
the Servicer shall consult with the Owner Trustee as the Servicer deems
appropriate regarding the duties of the Issuer under the
38
Indenture. The 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 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 Servicer shall take all necessary action
that is the duty of the Issuer to take pursuant to the Indenture.
(b) Duties with Respect to the Issuer.
(i) In addition to the duties of the Servicer set forth in
this Servicing Agreement or any of the Basic Documents, the 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
Servicing Agreement or any of the Basic Documents or under state and
federal tax and securities laws, and at the request of the Owner Trustee
or the Bond Insurer shall take all appropriate action that it is the
duty of the Issuer to take pursuant to this Servicing Agreement or any
of the Basic Documents. In accordance with the directions of the Issuer,
the Bond Insurer or the Owner Trustee, the Servicer shall administer,
perform or supervise the performance of such other activities in
connection with the Bonds (including the Basic Documents) as are not
covered by any of the foregoing provisions and as are expressly
requested by the Issuer, the Bond Insurer or the Owner Trustee and are
reasonably within the capability of the Servicer.
(ii) Notwithstanding anything in this Servicing Agreement or
any of the Basic Documents to the contrary, the Servicer shall be
responsible for promptly notifying the Owner Trustee and the Bond
Insurer in the event that any withholding tax is imposed on the Issuer's
payments (or allocations of income) to a Certificateholder as
contemplated in Section 5.03 of the Trust Agreement. Any such notice
shall be in writing and specify the amount of any withholding tax
required to be withheld by the Owner Trustee pursuant to such provision.
(iii) In carrying out the foregoing duties or any of its other
obligations under this Servicing Agreement, the 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 Servicer's opinion, no less favorable to the Issuer in
any material respect than with terms made available to unrelated third-
parties.
(c) Tax Matters. The Servicer shall provide such services as are
reasonably necessary to assist the Issuer or the Bond Administrator, as
applicable, in the preparation of tax returns and information reports as
provided in Section 5.03 of the Trust Agreement.
(d) Non-Ministerial Matters. With respect to matters that in the
reasonable judgment of the Servicer are non-ministerial, the Servicer shall not
take any action pursuant to
39
this Article VIII unless within a reasonable time before the taking of such
action, the Servicer shall have notified the Owner Trustee, the Bond Insurer and
the Bond Administrator, of the proposed action and the Owner Trustee, the
Indenture Trustee, the Bond Insurer and, with respect to items (A), (B), (C) and
(D) below, the Bond Administrator shall not have withheld consent or provided an
alternative direction. For the purpose of the preceding sentence, "non-
ministerial matters" shall include:
(A) the amendment of or any supplement to the Indenture;
(B) the initiation of any claim or lawsuit by the Issuer and the
compromise of any action, claim or lawsuit brought by or against the Issuer
(other than in connection with the collection of the Mortgage Loans);
(C) the amendment, change or modification of this Servicing
Agreement or any of the Basic Documents;
(D) the appointment of successor Certificate Paying Agents and
successor Indenture Trustees pursuant to the Indenture or the appointment of
successor Servicers or the consent to the assignment by the Certificate
Registrar, Paying Agent, Bond Administrator or Indenture Trustee of its
obligations under the Indenture; and
(E) the removal of the Indenture Trustee or the Bond
Administrator.
Section 8.02. Records.
-------
The Servicer shall maintain appropriate books of account and
records relating to services performed under this Servicing Agreement, which
books of account and records shall be accessible for inspection by the Issuer,
Indenture Trustee and the Bond Insurer upon reasonable request and at any time
during normal business hours.
Section 8.03. Additional Information to be Furnished.
--------------------------------------
The Servicer shall furnish to the Issuer, the Bond Administrator,
the Indenture Trustee and the Bond Insurer from time to time such additional
information regarding the Bonds as the Issuer, the Bond Administrator, the
Indenture Trustee or the Bond Insurer shall reasonably request.
40
IN WITNESS WHEREOF, the Servicer, the Bond Administrator, the Indenture
Trustee and the Issuer have caused this Servicing Agreement to be duly executed
by their respective officers or representatives all as of the day and year first
above written.
NOVASTAR MORTGAGE, INC.
By: _______________________________________
Name:
Title:
NOVASTAR MORTGAGE FUNDING TRUST,
SERIES _________, as Issuer
By: _______________________________________
not in its individual capacity but
solely as Owner Trustee
By: _______________________________________
Name:
Title:
___________________________________________
as Bond Administrator
By: _______________________________________
Name:
Title:
___________________________________________
not in its individual capacity but solely
as Indenture Trustee
By: _______________________________________
Name:
Title:
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