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SALE AND SERVICING AGREEMENT
Dated as of June 1, 1998
among
EMPIRE FUNDING HOME LOAN OWNER TRUST 1998-2
(Issuer)
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION IV
(Depositor)
EMPIRE FUNDING CORP.
(Transferor and Servicer)
and
U.S. BANK NATIONAL ASSOCIATION
(Indenture Trustee and Grantor Trustee)
EMPIRE FUNDING HOME LOAN OWNER TRUST 1998-2
HOME LOAN ASSET BACKED NOTES
SERIES 1998-2
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TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
Section 1.01 Definitions
Section 1.02 Other Definitional Provisions
ARTICLE II
CONVEYANCE OF THE GRANTOR TRUST CERTIFICATE
Section 2.01 Conveyance of the Grantor Trust Certificate
Section 2.02 Ownership and Possession of Grantor Trust Certificate
Section 2.03 Books and Records; Principal Place of Business
Section 2.04 Delivery of Grantor Trust Certificate; Further Assurances
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01 Representations and Warranties of the Depositor
Section 3.02 Representations and Warranties of the Transferor
Section 3.03 Representations, Warranties and Covenants of the Servicer
Section 3.04 Representations and Warranties Regarding Individual Home Loans
Section 3.05 Purchase and Substitution
ARTICLE IV
ADMINISTRATION AND SERVICING OF THE HOME LOANS
Section 4.01 Duties of the Servicer
Section 4.02 [Reserved]
Section 4.03 Fidelity Bond; Errors and Omissions Insurance
Section 4.04 Filing of Continuation Statements
Section 4.05 [Reserved]
Section 4.06 Subservicing
Section 4.07 Successor Servicers
Section 4.08 Collections from Insurance Policies
Section 4.09 Reports to the Securities and Exchange Commission;
144A Information
Section 4.10 Recovery from Defaulted Home Loans and Liquidated Home Loans
Section 4.11 Title, Management and Disposition of Foreclosure Property
ARTICLE V
ESTABLISHMENT OF TRUST ACCOUNTS
Section 5.01 Collection Account and Note Payment Account
Section 5.02 Certificate Distribution Account
Section 5.03 Trust Accounts; Trust Account Property
Section 5.04 Allocation of Losses
ARTICLE VI
STATEMENTS AND REPORTS; WITHHOLDING
Section 6.01 Statements
Section 6.02 Withholding
ARTICLE VII
GENERAL SERVICING PROCEDURE
Section 7.01 Due-On-Sale; Due-on-Encumbrance
Section 7.02 Release of Home Loan Files
Section 7.03 Servicing Compensation
Section 7.04 Statement as to Compliance and Financial Statements
Section 7.05 Independent Public Accountants' Servicing Report
Section 7.06 Right to Examine Servicer Records
Section 7.07 Reports to the Indenture Trustee; Collection Account Statements
Section 7.08 Financial Statements
ARTICLE VIII
(RESERVED)
ARTICLE IX
THE SERVICER
Section 9.01 Indemnification; Third Party Claims
Section 9.02 Merger or Consolidation of the Servicer
Section 9.03 Limitation on Liability of the Servicer and Others
Section 9.04 Servicer Not to Resign; Assignment
Section 9.05 Relationship of Servicer to the Grantor Trust
and the Grantor Trustee
Section 9.06 Servicer May Own Securities
ARTICLE X
DEFAULT
Section 10.01 Events of Default
Section 10.02 Grantor Trustee to Act; Appointment of Successor
Section 10.03 Waiver of Defaults
Section 10.04 Accounting Upon Termination of Servicer
ARTICLE XI
TERMINATION
Section 11.01 Termination
Section 11.02 Optional Termination
Section 11.03 Notice of Termination
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.01 Acts of Noteholders
Section 12.02 Amendment
Section 12.03 Recordation of Agreement
Section 12.04 Duration of Agreement
Section 12.05 Governing Law
Section 12.06 Notices
Section 12.07 Severability of Provisions
Section 12.08 No Partnership
Section 12.09 Counterparts
Section 12.10 Successors and Assigns
Section 12.11 Headings
Section 12.12 Actions of Securityholders
Section 12.13 Reports to Rating Agencies
Section 12.14 Holders of the Residual Interest Certificates
EXHIBIT A - Home Loan Schedule (available upon request from the Depositor)
EXHIBIT B - Form of Servicer's Monthly Remittance Report to Trustee
(available upon request from the Depositor)
This Sale and Servicing Agreement is entered into effective as of June 1,
1998, among EMPIRE FUNDING HOME LOAN OWNER TRUST 1998-2, a Delaware business
trust (the "Issuer" or the "Owner Trust"), PAINEWEBBER MORTGAGE ACCEPTANCE
CORPORATION IV, a Delaware corporation, as Depositor (the "Depositor"), EMPIRE
FUNDING CORP., an Oklahoma corporation ("Empire Funding"), as Transferor (in
such capacity, the "Transferor") and Servicer (in such capacity, the
"Servicer"), and U.S. BANK NATIONAL ASSOCIATION, a national banking association,
as Indenture Trustee on behalf of the Noteholders (in such capacity, the
"Indenture Trustee") and as Grantor Trustee on behalf of the holder of the
Grantor Trust Certificate (in such capacity, the "Grantor Trustee").
W I T N E S E T H:
In consideration of the mutual agreements herein contained, the parties
hereto hereby agree as follows for the benefit of each of them and for the
benefit of the holders of the Notes issued under the Indenture, the Residual
Interest Certificates issued under the Owner Trust Agreement and the Grantor
Trust Certificate issued under the Grantor Trust Agreement:
ARTICLE I
DEFINITIONS
Section 1.01 Definitions.
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the meanings specified in this
Article. Unless otherwise specified, all calculations of interest described
herein shall be made on the basis of a 360-day year consisting of twelve 30-day
months, except that with respect to the Class A-1 Notes, calculations of accrued
interest shall be made on the basis of a 360-day year and the actual number of
days elapsed in each Accrual Period.
Accepted Servicing Procedures: Servicing procedures that satisfy the
following: (a) meet at least the same standards the Servicer would follow in
exercising reasonable care in servicing mortgage loans such as the Home Loans
held for its own account; (b) comply with applicable state and federal law; (c)
comply with the provisions of the related Debt Instruments and Mortgages; and
(d) give due consideration to the accepted standards of practice of prudent
consumer loan servicers that service mortgage loans comparable to the Home Loans
and the reliance placed by the Grantor Trust Holders and Securityholders on the
Servicer for the servicing of the Home Loans, but without regard to:
(i) any relationship that the Servicer, any Subservicer or any Affiliate
of the Servicer or any Subservicer may have with the related Obligor;
(ii) the ownership of any Notes or the Residual Interest Certificates by
the Servicer or any Affiliate of the Servicer;
(iii) the Servicer's obligation to make Servicing Advances; or
(iv) the Servicer's or any Subservicer's right to receive compensation for
its services hereunder with respect to any particular transaction.
In determining whether to undertake certain servicing actions with respect
to one or more delinquent or defaulted Home Loans, the Servicer is expected to
consider the reasonable likelihood of (A) recovering an economically significant
amount attributable to the outstanding interest and principal owing on such Home
Loan as a result of such actions, in excess of (B) the costs and expenses to
obtain such recovery (including without limitation any Servicing Advances and,
if applicable, the outstanding indebtedness of all Superior Liens), and in
relation to (C) the expected timing of such recovery therefrom.
Accrual Period: With respect to the Class A-1 Notes, the period beginning
on the Payment Date in the calendar month preceding the month in which the
related Payment Date occurs (or, in the case of the first Payment Date, June 23,
1998) and ending on the day preceding the related Payment Date. With respect to
the other Classes of Notes, the calendar month preceding the month in which the
related Payment Date occurs (or in the case of the first Payment Date, the
period commencing on the Closing Date and ending on the last day of June 1998).
Affiliate: With respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, the term "control", when used with respect
to any specified Person, means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have corresponding meanings.
Agreement: This Sale and Servicing Agreement and all amendments hereof and
supplements hereto.
Allocable Loss Amount: With respect to each Payment Date after the Initial
Undercollateralization Amount has been reduced to zero, the excess, if any, of
(a) the aggregate of the Class Principal Balances of all Classes of Notes (after
giving effect to all payments on such Payment Date) over (b) the Pool Principal
Balance as of the end of the preceding Due Period. With respect to each Payment
Date prior to the Payment Date on which the Undercollateralization Amount is
reduced to zero, zero.
Allocable Loss Amount Priority: With respect to any Payment Date,
sequentially, to the Class B-2 Notes, the Class B-1 Notes, the Class M-2 Notes
and the Class M-1 Notes, in that order.
Assignment of Mortgage: With respect to each Home Loan (other than an
Unsecured Home Loan), an assignment, notice of transfer or equivalent instrument
sufficient under the laws of the jurisdiction wherein the related Mortgaged
Property is located to reflect or record the sale of the related Home Loan which
assignment, notice of transfer or equivalent instrument may be in the form of
one or more blanket assignments covering Mortgages secured by Mortgaged
Properties located in the same county, if permitted by law.
Available Collection Amount: With respect to any Payment Date, an amount
without duplication equal to the sum of: (i) all amounts received on the Home
Loans or required to be paid by the Servicer or the Transferor during the
related Due Period (exclusive of amounts not required to be deposited by the
Servicer in the Collection Account pursuant to Section 5.01(b)(1) hereof and
amounts permitted to be withdrawn by the Indenture Trustee from the Collection
Account pursuant to Section 5.01(b)(3) hereof) as reduced by any portion thereof
that may not be withdrawn therefrom pursuant to an order of a United States
bankruptcy court of competent jurisdiction imposing a stay pursuant to section
362 of the United States Bankruptcy Code; (ii) any and all income or gain from
investments in the Collection Account, Note Payment Account and Certificate
Distribution Account; (iii) upon exercise of optional termination of the Notes
pursuant to Section 11.02 hereof, the Termination Price; and (iv) the Purchase
Price paid for any Home Loans purchased pursuant to Section 3.05 hereof prior to
the related Determination Date and the Substitution Adjustment to be deposited
in the Collection Account in connection with any substitution, in each case
prior to the related Determination Date.
Available Payment Amount: With respect to any Payment Date, the Available
Collection Amount minus the amount required to be paid from the Note Payment
Account pursuant to Section 5.01(c)(i).
Business Day: Any day other than (i) a Saturday or Sunday, or (ii) a day on
which banking institutions in The City of New York or in the city in which the
corporate trust office of the Indenture Trustee or Grantor Trustee is located or
the city in which the Servicer's servicing operations are located and are
authorized or obligated by law or executive order to be closed.
Certificate Distribution Account: The account designated as such,
established and maintained pursuant to Section 5.02 hereof.
Certificate Register: The register established pursuant to Section 3.4 of
the Owner Trust Agreement.
Certificateholder: A holder of a Residual Interest Certificate.
Class: With respect to the Notes, all Notes bearing the same class
designation.
Class A Notes: Collectively the Class ▇-▇, ▇▇▇▇▇ ▇-▇, Class A-3, Class A-4,
Class A-5, Class A-6 and Class A-IO Notes.
Class A-1 Note, Class A-2 Note, Class A-3 Note, Class A-4 Note, Class A-5
Note, Class A-6 Note, Class A-IO Note, Class M-1 Note, Class M-2 Note, Class B-1
Note and Class B-2 Note: The respective meanings assigned thereto in the
Indenture.
Class A-6 Lockout Excess Spread Payment Amount: For any Payment Date will
be the lesser of (a) the product of (i) 0% until and including the Payment Date
in June 2003 and 100% thereafter and (ii) the product of (A) a fraction, the
numerator of which is the Class Principal Balance of the Class A-6 Notes
immediately prior to such Payment Date and the denominator of which is the
aggregate Class Principal Balance of all Classes of Class A Notes (other than
the Class A-IO Notes) immediately prior to such Payment Date and (B) the amount
of Excess Spread equal to the Overcollateralization Deficiency Amount, if any,
that would be necessary to reduce the aggregate Class Principal Balance of the
Class A Notes (other than the Class A-IO Notes) (after giving effect to the
application of payments of the Regular Payment Amount), to the Senior Optimal
Principal Balance for such Payment Date, and (b) an amount equal to the
outstanding Class Principal Balance of the Class A-6 Notes.
Class A-6 Lockout Regular Payment Amount: For any Payment Date will be the
lesser of (a) the product of (i) 0% until and including the Payment Date in June
2003 and 100% thereafter and (ii) the product of (A) a fraction, the numerator
of which is the Class Principal Balance of the Class A-6 Notes immediately prior
to such Payment Date and the denominator of which is the aggregate Class
Principal Balance of all Classes of Class A Notes (other than the Class A-IO
Notes) immediately prior to such Payment Date and (B) the amount of Regular
Payment Amount remaining after all payments of interest on the Notes have been
made on such Payment Date necessary to reduce the aggregate Class Principal
Balance of the Class A Notes (other than the Class A-IO Notes) to the Senior
Optimal Principal Balance for such Payment Date, and (b) an amount equal to the
outstanding Class Principal Balance of the Class A-6 Notes.
Class B-1 Optimal Principal Balance: With respect to any Payment Date prior
to the Stepdown Date, zero; and with respect to any other Payment Date, the Pool
Principal Balance as of the related Determination Date minus the sum of (i) the
aggregate Class Principal Balance of the Class A Notes and the Mezzanine Notes
(after taking into account any payments made on such Payment Date in reduction
of the Class Principal Balances of the Classes of Class A Notes and Mezzanine
Notes) and (ii) the greater of (x) the sum of (1) 6.060% of the Pool Principal
Balance as of the related Determination Date and (2) the Overcollateralization
Target Amount for such Payment Date (calculated without giving effect to the
proviso in the definition thereof) and (y) 0.50% of the Original Pool Principal
Balance; provided, however, that such amount shall never be less than zero or
greater than the Original Class Principal Balance of the Class B-1 Notes.
Class B-2 Optimal Principal Balance: With respect to any Payment Date prior
to the Stepdown Date, zero; and with respect to any other Payment Date, the Pool
Principal Balance as of the related Determination Date minus the sum of (i) the
aggregate Class Principal Balance of the Class A Notes, the Mezzanine Notes and
the Class B-1 Notes (after taking into account any payments made on such Payment
Date in reduction of the Class Principal Balances of the Classes of Class A
Notes, Mezzanine Notes and Class B-1 Notes) and (ii) the Overcollateralization
Target Amount for such Payment Date; provided, however, that such amount shall
never be less than zero or greater than the Original Class Principal Balance of
the Class B-2 Notes.
Class Factor: With respect to each Class and any date of determination, the
then applicable Class Principal Balance or Class Notional Balance of such Class
divided by the Original Class Principal Balance or initial Class Notional
Balance thereof.
Class M-1 Optimal Principal Balance: With respect to any Payment Date prior
to the Stepdown Date, zero; and with respect to any other Payment Date, the Pool
Principal Balance as of the related Determination Date minus the sum of (i) the
aggregate Class Principal Balance of the Class A Notes (after taking into
account payments made on such Payment Date in reduction of the Class Principal
Balances of the Classes of Class A Notes) and (ii) the greater of (x) the sum of
(1) 37.875% of the Pool Principal Balance as of the related Determination Date
and (2) the Overcollateralization Target Amount for such Payment Date
(calculated without giving effect to the proviso in the definition thereof) and
(y) 0.50% of the Original Pool Principal Balance; provided, however, that such
amount shall never be less than zero or greater than the Original Class
Principal Balance of the Class M-1 Notes.
Class M-2 Optimal Principal Balance: With respect to any Payment Date prior
to the Stepdown Date, zero; with respect to any other Payment Date, the Pool
Principal Balance as of the related Determination Date minus the sum of (i) the
aggregate Class Principal Balance of the Class A Notes (after taking into
account any payments made on such Payment Date in reduction of the Class
Principal Balances of the Classes of Class A Notes) plus the Class Principal
Balance of the Class M-1 Notes (after taking into account any payments made on
such Payment Date in reduction of the Class Principal Balance of the Class M-1
Notes) and (ii) the greater of (x) the sum of (1) 23.230% of the Pool Principal
Balance as of the related Determination Date and (2) the Overcollateralization
Target Amount for such Payment Date (without giving effect to the proviso in the
definition thereof) and (y) 0.50% of the Original Pool Principal Balance;
provided, however, that such amount shall never be less than zero or greater
than the Original Class Principal Balance of the Class M-2 Notes.
Class Notional Balance: With respect to each Payment Date and the Class
A-IO Notes, through and including August 25, 2000, the Class Principal Balance
of the Class A Notes on the immediately preceding Payment Date, or, in the case
of the first Payment Date, on the Closing Date; with respect to each Payment
Date after August 25, 2000, zero.
Class Principal Balance: With respect to each Class of Notes other than the
Class A-IO Notes and as of any date of determination, the Original Class
Principal Balance of such Class reduced by the sum of (i) all amounts previously
distributed in respect of principal of such Class on all previous Payment Dates
and (ii) with respect to the Class M-1, Class M-2, Class B-1 and Class B-2
Notes, all Allocable Loss Amounts applied in reduction of principal of such
Classes on all previous Payment Dates.
Clean-up Call Date: The first Payment Date on which the Pool Principal
Balance declines to 10% or less of the Original Pool Principal Balance.
Closing Date: June 23, 1998.
Code: The Internal Revenue Code of 1986, as amended from time to time, and
Treasury Regulations promulgated thereunder.
Collection Account: The account designated as such, established and
maintained by the Servicer, for the benefit of the Grantor Trust Holder, in
accordance with Section 5.01 hereof.
Combination Loan: A loan, including an Unsecured Home Loan, the proceeds of
which were used by the Obligor in combination to finance property improvements
and for debt consolidation, cash out refinancing or other purposes.
Combined Loan-to-Value Ratio: With respect to any Home Loan (other than an
Unsecured Home Loan), the fraction, expressed as a percentage, the numerator of
which is the principal balance of such Home Loan at origination plus, in the
case of a junior lien Home Loan, the aggregate outstanding principal balance of
each related Superior Lien on the date of origination of such Home Loan, and the
denominator of which is the value as determined pursuant to the Transferor's
underwriting guidelines of the related Mortgaged Property at the time of
origination of such Home Loan.
Credit Score: The credit evaluation scoring methodology developed by Fair,
▇▇▇▇▇ and Company.
Custodial Agreement: The custodial agreement dated as of June 1, 1998 by
and among the Depositor, Empire Funding, as the Transferor and the Servicer, and
U.S. Bank National Association, a national banking association, as the custodian
and the Grantor Trustee, providing for the retention of the applicable Grantor
Trustee's Home Loan Files by such custodian on behalf of the Grantor Trustee.
Custodian: Any custodian appointed by the Grantor Trustee pursuant to the
Custodial Agreement, which custodian shall not be affiliated with the Servicer,
the Transferor, any Subservicer or the Depositor. U.S. Bank National
Association, shall be the initial Custodian pursuant to the terms of the
Custodial Agreement.
Custodian Fee: If applicable, the annual fee payable to any Custodian,
calculated and payable monthly on each Payment Date pursuant to Section
5.01(c)(i) hereof equal to the fee, if any, set forth in the Custodial
Agreement.
Custodian's Final Certification: As defined in Section 2.06(c) of the
Grantor Trust Agreement.
Custodian's Initial Certification: As defined in Section 2.06(a) of the
Grantor Trust Agreement.
Custodian's Updated Certification: As defined in Section 2.06(c) of the
Grantor Trust Agreement.
Cut-Off Date: The close of business on May 31, 1998.
DCR: Duff & ▇▇▇▇▇▇ Credit Rating Co.
Debt Consolidation Loan: A loan, including any Unsecured Home Loan, the
proceeds of which were primarily used by the related Obligor for debt
consolidation or cash out refinance purposes or for purposes other than to
finance property improvements.
Debt Instrument: The note or other evidence of indebtedness evidencing the
indebtedness of an Obligor under a Home Loan.
Defaulted Home Loan: With respect to any date of determination, any Home
Loan, including, without limitation, any Liquidated Home Loan with respect to
which any of the following has occurred as of the end of the preceding Due
Period: (a) foreclosure or similar proceedings have been commenced; (b) any
portion of a Monthly Payment becomes 180 days past due by the related Obligor;
or (c) the Servicer or any Subservicer has determined in good faith and in
accordance with the Accepted Servicing Procedures that such Home Loan is in
default for a period in excess of 30 days or imminent default and that such
default or imminent default involves the nonpayment of any Monthly Payment or a
default which has or would have a material adverse affect on such Home Loan.
Defective Home Loan: As defined in Section 3.05 hereof.
Deleted Home Loan: A Home Loan replaced or to be replaced by one or more
than one Qualified Substitute Home Loan.
Delinquent: A Home Loan is "Delinquent" if any Monthly Payment due thereon
is not made by the close of business on the day such Monthly Payment is
scheduled to be paid; provided, that such Home Loan shall not be "Delinquent" if
the Monthly Payment for such Home Loan has been modified pursuant to a Chapter
13 bankruptcy proceeding by the Obligor and such modified Monthly Payment due
thereon is made by the close of business on the day such modified Monthly
Payment is scheduled to be paid. A Home Loan is "30 days Delinquent" if such
Monthly Payment has not been received by the close of business on the
corresponding day of the month immediately succeeding the month in which such
Monthly Payment was due or, if there is no such corresponding day (e.g., as when
a 30-day month follows a 31-day month in which a payment was due on the 31st day
of such month), then on the last day of such immediately succeeding month. The
determination of whether a Home Loan is "60 days Delinquent," "90 days
Delinquent", etc. shall be made in like manner.
Delivery: When used with respect to Trust Account Property means:
(a) with respect to bankers' acceptances, commercial paper,
negotiable certificates of deposit and other obligations that
constitute "instruments" within the meaning of Section 9-105(1)(i) of
the UCC and are susceptible of physical delivery, transfer thereof to
the Indenture Trustee or its nominee or custodian by physical delivery
to the Indenture Trustee or its nominee or custodian endorsed to, or
registered in the name of, the Indenture Trustee or its nominee or
custodian or endorsed in blank, and, with respect to a certificated
security (as defined in Section 8-102 of the UCC), transfer thereof (i)
by delivery of such certificated security endorsed to, or registered in
the name of, the Indenture Trustee or its nominee or custodian or
endorsed in blank to a financial intermediary (as defined in Section
8-313 of the UCC) and the making by such financial intermediary of
entries on its books and records identifying such certificated
securities as belonging to the Indenture Trustee or its nominee or
custodian and the sending by such financial intermediary of a
confirmation of the purchase of such certificated security by the
Indenture Trustee or its nominee or custodian, or (ii) by delivery
thereof to a "clearing corporation" (as defined in Section 8-102(3) of
the UCC) and the making by such clearing corporation of appropriate
entries on its books reducing the appropriate securities account of the
transferor and increasing the appropriate securities account of a
financial intermediary by the amount of such certificated security, the
identification by the clearing corporation of the certificated
securities for the sole and exclusive account of the financial
intermediary, the maintenance of such certificated securities by such
clearing corporation or a "custodian bank" (as defined in Section
8-102(4) of the UCC) or the nominee of either subject to the clearing
corporation's exclusive control, the sending of a confirmation by the
financial intermediary of the purchase by the Indenture Trustee or its
nominee or custodian of such securities and the making by such
financial intermediary of entries on its books and records identifying
such certificated securities as belonging to the Indenture Trustee or
its nominee or custodian (all of the foregoing, "Physical Property")
and, in any event, any such Physical Property in registered form shall
be in the name of the Indenture Trustee or its nominee or custodian;
and such additional or alternative procedures as may hereafter become
appropriate to effect the complete transfer of ownership of any such
Trust Account Property (as defined herein) to the Indenture Trustee or
its nominee or custodian, consistent with changes in applicable law or
regulations or the interpretation thereof;
(b) with respect to any securities issued by the U.S.
Treasury, FNMA or FHLMC that is a book-entry security held through the
Federal Reserve System pursuant to federal book-entry regulations, the
following procedures, all in accordance with applicable law, including
applicable federal regulations and Articles 8 and 9 of the UCC: the
making by a Federal Reserve Bank of an appropriate entry crediting such
Trust Account Property to an account of a financial intermediary that
is also a "participant" pursuant to applicable federal regulations; the
making by such financial intermediary of entries in its books and
records crediting such book-entry security held through the Federal
Reserve System pursuant to federal book-entry regulations to the
securities account of the Indenture Trustee or its nominee or custodian
and indicating that such custodian holds such Trust Account Property
solely as agent for the Indenture Trustee or its nominee or custodian
and the sending by such financial intermediary of confirmation of the
purchase by the Indenture Trustee or its nominee or custodian of such
book-entry security; and such additional or alternative procedures as
may hereafter become appropriate to effect complete transfer of
ownership of any such Trust Account Property to the Indenture Trustee
or its nominee or custodian, consistent with changes in applicable law
or regulations or the interpretation thereof including, without
limitation, Article 8 of the UCC; and
(c) with respect to any item of Trust Account Property that is
an uncertificated security under Article 8 of the UCC and that is not
governed by clause (b) above, registration on the books and records of
the issuer thereof in the name of the financial intermediary, the
sending of a confirmation by the financial intermediary of the purchase
by the Indenture Trustee or its nominee or custodian of such
uncertificated security, and the making by such financial intermediary
of entries on its books and records identifying such uncertificated
certificates as belonging to the Indenture Trustee or its nominee or
custodian.
Denomination: With respect to a Note, the portion of the Original Class
Principal Balance represented by such Note as specified on the face thereof.
Depositor: PaineWebber Mortgage Acceptance Corporation IV, a Delaware
corporation, and any successor thereto.
Determination Date: With respect to any Payment Date, the 14th calendar day
of the month in which such Payment Date occurs or if such day is not a Business
Day, the immediately preceding Business Day.
Due Date: The day of the month on which the Monthly Payment is due from the
Obligor on a Home Loan.
Due Period: With respect to any Determination Date or Payment Date, the
calendar month immediately preceding such Determination Date or Payment Date, as
the case may be.
Eligible Account: At any time, an account which is any of the following:
(i) an account maintained with a depository institution (A) the long-term debt
obligations of which are at such time rated by each Rating Agency in one of
their two highest long-term rating categories or (B) the short-term debt
obligations of which are then rated by each Rating Agency in their highest
short-term rating category; (ii) an account the deposits in which are fully
insured by either the Bank Insurance Fund or the Savings Association Insurance
Fund of the FDIC; (iii) a trust account (which shall be a "segregated trust
account") maintained with the corporate trust department of a federal or state
chartered depository institution or trust company with trust powers and acting
in its fiduciary capacity for the benefit of the Indenture Trustee and the
Issuer, which depository institution or trust company shall have capital and
surplus of not less than $50,000,000; or (iv) an account that will not cause any
Rating Agency to downgrade or withdraw its then-current rating(s) assigned to
the Notes, as evidenced in writing by such Rating Agency. (Each reference in
this definition of "Eligible Account" to the Rating Agency shall be construed as
a reference to S&P, Fitch and DCR).
Eligible Servicer: A Person that (i) has demonstrated the ability
professionally and competently to service a portfolio of mortgage loans similar
to the Home Loans and (ii) has a net worth calculated in accordance with GAAP of
at least $500,000.
Empire Funding: Empire Funding Corp., an Oklahoma corporation.
Event of Default: As described in Section 10.01 hereof.
Excess Spread: With respect to any Payment Date, the excess of (a) the
Available Payment Amount over (b) the Regular Payment Amount.
FDIC: The Federal Deposit Insurance Corporation and any successor thereto.
FHLMC: The Federal Home Loan Mortgage Corporation and any successor
thereto.
Fidelity Bond: As described in Section 4.03 hereof.
Fitch: Fitch IBCA, Inc. or any successor thereto.
FNMA: The Federal National Mortgage Association and any successor thereto.
Foreclosed Loan: As of any date of determination, any Home Loan that has
been discharged as a result of (i) the completion of foreclosure or comparable
proceedings; (ii) the Grantor Trustee's acceptance of the deed or other evidence
of title to any related Mortgaged Property in lieu of foreclosure or other
comparable proceeding; or (iii) the acquisition by the Grantor Trustee of title
to any related Mortgaged Property by operation of law.
Foreclosure Property: Any real property securing a Foreclosed Loan that has
been acquired by the Servicer through foreclosure, deed in lieu of foreclosure
or similar proceedings in respect of the related Home Loan.
GAAP: Generally accepted accounting principles as in effect in the United
States.
Grantor Trust: Empire Funding Grantor Trust 1998-2, formed pursuant to the
Grantor Trust Agreement.
Grantor Trust Agreement: The Grantor Trust Agreement dated as of June 1,
1998, among PaineWebber Mortgage Acceptance Corporation IV, as Depositor, Empire
Funding and the Grantor Trustee.
Grantor Trust Certificate: The trust certificate issued by the Grantor
Trust evidencing an undivided beneficial ownership interest of 100% of the
Grantor Trust.
Grantor Trust Holder: Any holder of the Grantor Trust Certificate.
Grantor Trustee: U.S. Bank National Association, a national banking
association, as Grantor Trustee under the Grantor Trust Agreement, or any
successor Grantor Trustee hereunder.
Grantor Trustee Fee: As to any Payment Date, $0.00.
Grantor Trustee's Home Loan File: As defined in Section 2.05(a) of the
Grantor Trust Agreement.
Home Loan: Any Debt Consolidation Loan or Combination Loan that is included
in the Home Loan Pool. As applicable, a Home Loan shall be deemed to refer to
the related Debt Instrument, the Mortgage (except with respect to any Unsecured
Home Loans) and any related Foreclosure Property, and shall include, among other
items, all Monthly Payments with a Due Date on or after the Cut-Off Date, except
that the Transferor shall retain 73% of the interest collected thereon during
the first Due Period.
Home Loan File: As to each Home Loan, the Grantor Trustee's Home Loan File
and the Servicer's Home Loan File.
Home Loan Interest Rate: The fixed annual rate of interest borne by a Debt
Instrument, as shown on the related Home Loan Schedule as the same may be
modified by the Servicer in accordance with Section 4.01(c) or 4.10 hereof.
Home Loan Pool: The pool of Home Loans conveyed to the Grantor Trustee
pursuant to the Grantor Trust Agreement on the Closing Date, together with the
rights and obligations of a holder thereof, and the payments thereon and
proceeds therefrom received after the applicable Cut-Off Date, as identified on
the Home Loan Schedule annexed hereto as Exhibit A.
Home Loan Purchase Agreement: The Home Loan Purchase Agreement between the
Transferor and the Depositor, dated as of June 1, 1998.
Home Loan Schedule: The schedule of Home Loans set forth on Exhibit A
attached hereto, as amended or supplemented from time to time specifying, with
respect to each Home Loan, the following information: (i) the Transferor's Home
Loan number; (ii) the Obligor's name and the street address; (iii) the current
principal balance; (iv) the original principal amount with respect to any Home
Loan originated by the Transferor and the principal amount purchased by the
Transferor with respect to a Home Loan acquired by the Transferor subsequent to
its origination; (v) any related Combined Loan-to-Value Ratio as of the date of
the origination of the related Home Loan; (vi) the paid through date; (vii) the
Home Loan Interest Rate; (viii) the final maturity date under the Debt
Instrument; (ix) the Monthly Payment; (x) the occupancy status of the Mortgaged
Property, if any; (xi) the lien priority of the Mortgage, if any; (xii) the
original term of the Debt Instrument; (xiii) the Credit Score, if applicable;
and (xiv) the debt to income ratio of the related Obligor.
Indenture: The Indenture, dated as of June 1, 1998, between the Issuer and
the Indenture Trustee.
Indenture Trustee: U.S. Bank National Association, a national banking
association, as Indenture Trustee under the Indenture and this Agreement acting
on behalf of the Noteholders, or any successor indenture trustee under the
Indenture or this Agreement.
Indenture Trustee Fee: As to any Payment Date, the greater of (a)
one-twelfth of the Indenture Trustee Fee Rate times the Pool Principal Balance
as of the opening of business on the first day of the calendar month preceding
the calendar month of such Payment Date (or, with respect to the first Payment
Date, the Original Pool Principal Balance) and (b) one-twelfth of $10,000.
Indenture Trustee Fee Rate: 0.0065% per annum.
Independent: When used with respect to any specified Person, such Person
(i) is in fact independent of the Transferor, the Servicer, the Depositor or any
of their respective Affiliates, (ii) does not have any direct financial interest
in, or any material indirect financial interest in, any of the Transferor, the
Servicer, the Depositor or any of their respective Affiliates and (iii) is not
connected with any of the Transferor, the Servicer, the Depositor or any of
their respective Affiliates, as an officer, employee, promoter, underwriter,
trustee, partner, director or Person performing similar functions; provided,
however, that a Person shall not fail to be Independent of the Transferor, the
Servicer, the Depositor or any of their respective Affiliates merely because
such Person is the beneficial owner of 1% or less of any class of securities
issued by the Transferor, the Servicer, the Depositor or any of their respective
Affiliates, as the case may be.
Independent Accountants: A firm of nationally recognized certified public
accountants which is Independent.
Insurance Policies: With respect to any Mortgaged Property, any related
insurance policy.
Insurance Proceeds: With respect to any Mortgaged Property, all amounts
collected in respect of Insurance Policies and not required to be applied to the
restoration of any such Mortgaged Property or paid to the related Obligor.
LIBOR: With respect to each Accrual Period (other than the initial Accrual
Period) and each Class of LIBOR Notes, the rate for United States dollar
deposits for one month that appears on the Telerate Screen Page 3750 as of 11:00
a.m., London time, on the related LIBOR Determination Date. If such rate does
not appear on such page (or such other page as may replace that page on that
service, or if such service is no longer offered, such other service for
displaying LIBOR or comparable rates as may be reasonably selected by the
Indenture Trustee), LIBOR for the applicable Accrual Period will be the
Reference Bank Rate. If no such quotations can be obtained by the Indenture
Trustee and no Reference Bank Rate is available, LIBOR will be LIBOR applicable
to the preceding Accrual Period. LIBOR for the initial Accrual Period will be
5.64844% per annum.
LIBOR Business Day: Any day on which banks are open for dealing in foreign
currency and exchange in London and New York City.
LIBOR Determination Date: With respect to each Accrual Period (other than
the first Accrual Period), the second LIBOR Business Day before the first day of
such Accrual Period, as determined by the Indenture Trustee.
LIBOR Notes: The Class A-1 Notes.
Liquidated Home Loan: With respect to any date of determination, any
Foreclosure Property or any Home Loan in respect of which a Monthly Payment is
in excess of 30 days past due and as to which the Servicer has determined that
all amounts which it reasonably and in good faith expects to collect have been
recovered from or on account of such Home Loan or the related Foreclosure
Property; provided, however, that in any event such Home Loan or the related
Foreclosure Property shall be deemed uncollectible and therefore be a Liquidated
Home Loan upon the earliest to occur of: (i) the liquidation or disposition of
such Home Loan or the related Foreclosure Property; (ii) the determination by
the Servicer in accordance with the Accepted Servicing Procedures that there is
no reasonable likelihood of (A) recovering an economically significant amount
attributable to the outstanding interest and principal owing on such Home Loan
from either the related Mortgaged Property or the Obligor, in excess of (B) the
costs and expenses to obtain such recovery (including without limitation any
Servicing Advances and, if applicable, the outstanding indebtedness of all
Superior Liens), and in relation to (C) the expected timing of such recovery
therefrom, or (iii) the date on which any portion of a Monthly Payment on any
Home Loan is in excess of 180 days past due.
Liquidation Proceeds: With respect to a Liquidated Home Loan, any cash
amounts received in connection with the liquidation or disposition of such
Liquidated Home Loan, whether through trustee's sale, foreclosure sale or other
disposition, any cash amounts received in connection with the management of the
Foreclosure Properties from Foreclosed Home Loans and any other amounts required
to be deposited in the Collection Account pursuant to Section 5.01(b) hereof, in
each case other than Insurance Proceeds and Released Mortgaged Property
Proceeds.
Loss Reimbursement Deficiency: With respect to any Payment Date and the
Class M-1 Notes, Class M-2 Notes, Class B-1 Notes or the Class B-2 Notes, the
amount of Allocable Loss Amounts applied to the reduction of the Class Principal
Balance of such Class and not reimbursed pursuant to Section 5.01 hereof as of
such Payment Date plus interest accrued on the unreimbursed portion thereof at
the applicable Note Interest Rate through the end of the Due Period immediately
preceding such Payment Date; provided, however, that no interest shall accrue on
any amount of such accrued and unpaid interest.
Majority Noteholders: Until such time as the sum of the Class Principal
Balances of all Classes of Notes has been reduced to zero, the holder or holders
of in excess of 50% of the Class Principal Balance of all Classes of Notes.
Majority Residual Interestholders: The holder or holders of in excess of
50% of the Residual Interest.
Maturity Date means, with respect to each Class of Notes, the applicable
maturity date set forth below:
Class Maturity Date
----- -------------
▇-▇ ▇▇▇ ▇▇, ▇▇▇▇
▇-▇ May 25, 2012
A-3 November 25, 2013
▇-▇ ▇▇▇▇▇ ▇▇, ▇▇▇▇
▇-▇ June 25, 2024
A-6 June 25, 2024
A-IO June 25, 2024
M-1 June 25, 2024
M-2 June 25, 2024
▇-▇ ▇▇▇▇ ▇▇, ▇▇▇▇
▇-▇ June 25, 2024
Mezzanine Noteholders' Interest Carry-Forward Amount: With respect to any
Payment Date, the excess, if any, of (A) the Mezzanine Noteholders' Monthly
Interest Payment Amount for the preceding Payment Date plus any outstanding
Mezzanine Noteholders' Interest Carry-Forward Amount for preceding Payment
Dates, over (B) the amount in respect of interest that is actually deposited in
the Note Payment Account on such preceding Payment Date net of the Senior
Noteholders' Interest Payment Amount for such preceding Payment Date; it being
understood that the interest of the Class M-1 Noteholders in the Mezzanine
Noteholders' Interest Carry-Forward Amount is senior to that of the Class M-2
Noteholders.
Mezzanine Noteholders' Interest Payment Amount: With respect to any Payment
Date, the sum of the Mezzanine Noteholders' Monthly Interest Payment Amount for
such Payment Date and the Mezzanine Noteholders' Interest Carry-Forward Amount
for such Payment Date.
Mezzanine Noteholders' Monthly Interest Payment Amount: With respect to
each Payment Date and the Classes of Mezzanine Notes, the interest accrued
during the related Accrual Period at the respective Note Interest Rates on the
respective Class Principal Balances of such Classes immediately preceding such
Payment Date (or, in the case of the first Payment Date, on the Closing Date)
after giving effect to all payments of principal to the holders of such Classes
of Notes on or prior to such preceding Payment Date.
Mezzanine Notes: The Class M-1 Notes and Class M-2 Notes.
Monthly Cut-Off Date: The last day of any calendar month and, with respect
to any Payment Date, the last day of the calendar month immediately preceding
such Payment Date.
Monthly Payment: The scheduled monthly payment of principal and/or interest
required to be made by an Obligor on the related Home Loan, as set forth in the
related Debt Instrument.
Mortgage: The mortgage, deed of trust or other security instrument creating
a lien in accordance with applicable law on a Mortgaged Property to secure the
Debt Instrument which evidences a Home Loan (other than any Unsecured Home
Loan).
Mortgaged Property: The real property encumbered by the Mortgage which
secures the Debt Instrument evidencing a Home Loan (other than an Unsecured Home
Loan).
Mortgaged Property States: Each state in which any Mortgaged Property
securing a Home Loan is located as set forth in the Home Loan Schedule.
Multiplier: The Multiplier will initially equal 1.7 and may from time to
time be permanently modified to a lesser amount (including zero) in the event
that the Issuer shall have delivered to the Indenture Trustee written
confirmation from each Rating Agency that the rating assigned by it to each
Class of Notes which it originally rated will not be downgraded or withdrawn as
a result of such reduction.
Net Delinquency Calculation Amount: With respect to any Payment Date, the
excess, if any, of (x) the product of the Multiplier and the Six-Month Rolling
Delinquency Average over (y) the aggregate of the amounts of Excess Spread for
the three preceding Payment Dates.
Net Liquidation Proceeds: With respect to any Payment Date, Liquidation
Proceeds received during the related Due Period, net of any reimbursements to
the Servicer made from such amounts for the following: (i) any unreimbursed
Servicing Compensation; (ii) Servicing Advances (including Nonrecoverable
Servicing Advances) made and any other fees and expenses paid in connection with
the foreclosure, conservation and liquidation of the related Liquidated Home
Loans or Foreclosure Properties pursuant to Sections 4.10 or 4.11 hereof; and
(iii) the accrued interest on all reimbursements under the preceding clause (ii)
from the date of the advance or payment by the Servicer to the date of
reimbursement and at the rate equal to the Servicer's cost of funds.
Net Loan Losses: With respect to any Defaulted Home Loan that is subject to
a modification pursuant to Section 4.10 hereof or pursuant to a legal proceeding
(including a Chapter 13 bankruptcy proceeding), an amount equal to the portion
of the Principal Balance, if any, released in connection with such modification.
Net Loan Rate: With respect to each Home Loan, the related Home Loan
Interest Rate, less the sum of (i) the Servicing Fee Rate and (ii) the Indenture
Trustee Fee Rate.
Net Weighted Average Rate: With respect to any Payment Date, a rate per
annum equal to the weighted average (by principal balance) of the Home Loan
Interest Rates as of the first day of the related Due Period less 1.008%.
Nonrecoverable Servicing Advance: With respect to any Defaulted Home Loan
or any Foreclosure Property, any Servicing Advance previously made and not
reimbursed from late or other fee collections, Liquidation Proceeds, Insurance
Proceeds or the Released Mortgaged Property Proceeds following the liquidation
or disposition of such Defaulted Home Loan or Foreclosure Property, as evidenced
by an Officer's Certificate delivered to the Indenture Trustee.
Note: Any of the Senior Notes, the Mezzanine Notes or the Subordinate
Notes.
Note Interest Rate: With respect to each Class of Notes, the annual rate of
interest payable to the holders of such Class of Notes, as specified below:
Class Note Interest Rate(1)
----- ---------------------
Class A-1 Floating Rate (2)
Class A-2 6.28%
Class A-3 6.39%
Class A-4 6.53%
Class A-5 6.96%
Class A-6 6.72%
Class A-IO 5.09%
Class M-1 6.99%
Class M-2 7.43%
Class B-1 9.03%
Class B-2 9.21%
(1) Commencing on the first day of the Accrual Period in which the
Clean-up Call Date occurs, the Note Interest Rate shall be
increased by 0.50% per annum.
(2) Interest will accrue on the Class A-1 Notes during each
Accrual Period at a per annum interest rate equal to LIBOR for
the related LIBOR Determination Date plus 0.06%, subject to a
maximum rate equal to 12.0%. The Note Interest Rate applicable
to the Class A-1 Notes for the initial Accrual Period will be
approximately 5.70844% per annum.
Note Payment Account: The Eligible Account established and maintained
pursuant to Section 5.01(a)(2) hereof.
Note Redemption Amount: As of any date of determination, an amount without
duplication equal to the sum of (i) the then outstanding Class Principal
Balances of the Classes of Notes (other than the Class A-IO Notes) plus all
accrued and unpaid interest thereon, (ii) all accrued and unpaid interest on the
Class Notional Balance of the Class A-IO Notes, (iii) all accrued and unpaid
interest on the Class A-IO Notes as a result of a reduction of the Class
Principal Balance of the Class A-IO Notes occurring prior to August 25 2000,
(iv) any Trust Fees and Expenses due and unpaid on such date and (v) any
Servicing Advance Reimbursement Amount.
Noteholder: A holder of a Note.
Noteholders' Interest Payment Amount: The sum of the Senior Noteholders'
Interest Payment Amount, the Mezzanine Noteholders' Interest Payment Amount and
the Subordinate Noteholders' Interest Payment Amount.
Obligor: Each obligor on a Debt Instrument.
Officer's Certificate: A certificate delivered to the Indenture Trustee or
the Issuer signed by the President or a Vice President or an Assistant Vice
President of the Depositor, the Servicer or the Transferor, in each case, as
required by this Agreement.
Opinion of Counsel: A written opinion of counsel (who is acceptable to the
Rating Agencies), who may be employed by the Transferor, the Servicer, the
Depositor or any of their respective Affiliates.
Original Class Principal Balance: With respect to the Classes of Notes, as
follows: Class A-1: $57,666,000; Class A-2: $56,904,000; Class A-3: $23,089,000;
Class A-4: $36,212,000; Class A-5: $22,516,500; Class A-6: $19,500,000; Class
M-1: $30,300,000; Class M-2: $21,967,500; Class B-1: $25,755,000; and Class B-2:
$9,090,000. The Class A-IO will not have an Original Class Principal Balance.
Original Pool Principal Balance: $300,000,152 which is the Pool Principal
Balance as of the Cut-Off Date.
Outstanding: As defined in the Indenture.
Overcollateralization Amount: With respect to any Payment Date after the
initial Undercollateralization Amount has been reduced to zero, the amount equal
to the excess of (A) the Pool Principal Balance as of the end of the preceding
Due Period, over (B) the aggregate of the Class Principal Balances of the Notes
(after giving effect to the payments made on such date pursuant to Section
5.01(d) hereof). Prior to the reduction of the initial Undercollateralization
Amount to zero, the Overcollateralization Amount shall be zero.
Overcollateralization Deficiency Amount: With respect to any Payment Date,
the excess, if any, of the Overcollateralization Target Amount over the
Overcollateralization Amount (after giving effect to all prior payments on the
Classes of Notes and to any prior distribution on the Residual Interest
Certificates on such Payment Date pursuant to Section 5.01(d) hereof).
Overcollateralization Target Amount: (I) With respect to any Payment Date
occurring prior to the Stepdown Date, an amount equal to the greater of (x) 3.5%
of the Original Pool Principal Balance and (y) the Net Delinquency Calculation
Amount; and (II) with respect to any other Payment Date, an amount equal to the
greater of (x) 7.0% of the Pool Principal Balance as of the end of the related
Due Period and (y) the Net Delinquency Calculation Amount; provided, however,
that the Overcollateralization Target Amount shall in no event be less than
0.50% of the Original Pool Principal Balance or greater than the sum of the
aggregate Class Principal Balances of all Classes of Notes, provided, however,
if the sum of the aggregate Class Principal Balances of all Classes of Notes is
less than 0.50% of the Original Pool Principal Balance, the
Overcollateralization Target Amount may be less than 0.50% of the Original Pool
Principal Balance but shall in no event be greater than the sum of the aggregate
Class Principal Balances of all Classes of Notes.
Owner Trust: The Issuer.
Owner Trust Agreement: The Owner Trust Agreement dated as of June 1, 1998,
among the Depositor, the Company, the Owner Trustee and U.S. Bank National
Association.
Owner Trust Estate: The assets subject to this Agreement, the Owner Trust
Agreement and the Indenture and assigned to the Issuer, which assets consist of:
(i) the contribution of $1 referred to in Section 2.5 of the Owner Trust
Agreement, (ii) the Grantor Trust Certificate, (iii) all payments on and
distributions in respect of the Grantor Trust Certificate, (iv) all right, title
and interest of the Depositor in and to the Collection Account (such account was
collaterally assigned to the Depositor by the Grantor Trustee in connection with
the conveyance of the Grantor Trust Certificate to the Depositor pursuant to the
Grantor Trust Agreement), (v) such assets and funds as are from time to time
deposited in the Trust Accounts, including amounts on deposit in such accounts
which are invested in Permitted Investments, and (vi) all proceeds of every kind
and nature whatsoever in respect of any or all of the foregoing.
Owner Trustee: Wilmington Trust Company, as owner trustee under the Owner
Trust Agreement, and any successor owner trustee under the Owner Trust
Agreement.
Owner Trustee Fee: The annual fee of $4,000 in equal monthly installments
to the Servicer which shall in turn pay such $4,000 to the Owner Trustee on the
Payment Date occurring in June each year during the term of this Agreement
commencing in June 1999; provided, however, that the initial Owner Trustee fee
shall be paid by the Transferor on the Closing Date.
Ownership Interest: As to any Note, any ownership or security interest in
such Note, including any interest in such Note as the holder thereof and any
other interest therein, whether direct or indirect, legal or beneficial, as
owner or as pledgee.
Payment Date: The 25th day of any month or if such 25th day is not a
Business Day, the first Business Day immediately following such day, commencing
in July 1998.
Payment Statement: As defined in Section 6.01 hereof.
Percentage Interest: As defined in the Owner Trust Agreement.
Permitted Investments: Each of the following:
(1) obligations of, or guaranteed as to principal and interest
by, the United States or any agency or instrumentality thereof when
such obligations are backed by the full faith and credit of the United
States;
(2) a repurchase agreement that satisfies the following
criteria: (A) it must be between the Indenture Trustee and either (x)
primary dealers on the Federal Reserve reporting dealer list which are
rated one of the two highest ratings for long-term unsecured debt
obligations by each Rating Agency or (y) banks rated in the highest
categories for long-term unsecured debt obligations by each Rating
Agency; and (B) it must be in writing and include the following terms:
(a) the securities acceptable for transfer are either (i) direct U.S.
government obligations or (ii) obligations of a federal agency that are
backed by the full faith and credit of the U.S. government or by FNMA
or FHLMC; (b) a term no greater than 60 days for any repurchase
transaction; (c) the collateral must be delivered to the Indenture
Trustee or a third party custodian acting as agent for the Indenture
Trustee by appropriate book entries and confirmation statements, and
must have been delivered before or simultaneously with payment (i.e.,
perfection by possession of certificated securities); and (d) the
securities sold thereunder must be valued weekly, marked-to-market at
current market price plus accrued interest and the value of the
collateral must be equal to at least 104% of the amount of cash
transferred by the Indenture Trustee under the repurchase agreement
and, if the value of the securities held as collateral declines to an
amount below 104% of the cash transferred by the Indenture Trustee plus
accrued interest (i.e., a margin call), then additional cash and/or
acceptable securities must be transferred to the Indenture Trustee to
satisfy such margin call; provided, however, that if the securities
used as collateral are obligations of FNMA or FHLMC, then the value of
the securities held as collateral must equal at least 105% of the cash
transferred by the Indenture Trustee under such repurchase agreement;
(3) certificates of deposit, time deposits and bankers
acceptances of any United States depository institution or trust
company incorporated under the laws of the United States or any state,
including the Indenture Trustee; provided, however, that the debt
obligations of such depository institution or trust company at the date
of the acquisition thereof have been rated by each Rating Agency in the
highest long-term rating categories;
(4) deposits, including deposits with the Indenture Trustee,
which are fully insured by the Bank Insurance Fund or the Savings
Association Insurance Fund of the FDIC, as the case may be;
(5) commercial paper of any corporation incorporated under the
laws of the United States or any state thereof, including corporate
Affiliates of the Indenture Trustee, which at the date of acquisition
is rated by each Rating Agency in its highest short-term rating
category and which has an original maturity of not more than 365 days;
(6) debt obligations rated by each Rating Agency at the time
at which the investment is made in its highest long-term rating
category (or those investments specified in (3) above with depository
institutions which have debt obligations rated by each Rating Agency in
the highest long-term rating categories);
(7) money market funds which are rated by each Rating Agency
at the time at which the investment is made in its highest long-term
rating category, any such money market funds which provide for demand
withdrawals being conclusively deemed to satisfy any maturity
requirements for Permitted Investments set forth in this Agreement; or
(8) any other demand, money market or time deposit obligation,
security or investment as may be acceptable to each Rating Agency at
the time at which the investment is made;
provided, however, that no instrument described in the foregoing subparagraphs
shall evidence either the right to receive (a) only interest with respect to the
obligations underlying such instrument or (b) both principal and interest
payments derived from obligations underlying such instrument where the interest
and principal payments with respect to such instrument provide a yield to
maturity at par greater than 120% of the yield to maturity at par of the
underlying obligations; and provided, further, that no instrument described in
the foregoing subparagraphs may be purchased at a price greater than par if such
instrument may be prepaid or called at a price less than its purchase price
prior to stated maturity.
Each reference in this definition of "Permitted Investments" to the Rating
Agency shall be construed, in the case of each subparagraph above referring to
each Rating Agency, as a reference to each of S&P, Fitch and DCR.
Person: Any individual, corporation, partnership, joint venture, limited
liability company, association, joint-stock company, trust, estate, national
banking association, unincorporated organization or government or any agency or
political subdivision thereof.
Physical Property: As defined in the definition of "Delivery" above.
Pool Principal Balance: With respect to any date of determination, the
aggregate Principal Balances of the Home Loans as of the end of the preceding
Due Period; provided, however, that the Pool Principal Balance on any Payment
Date on which the Termination Price is to be paid to Noteholders will be deemed
to have been equal to zero as of such date.
Principal Balance: With respect to any Home Loan or related Foreclosure
Property, (i) at the Cut-Off Date, the outstanding unpaid principal balance of
the Home Loan as of the Cut-Off Date and (ii) with respect to any date of
determination, the outstanding unpaid principal balance of the Home Loan as of
the last day of the preceding Due Period (after giving effect to all payments
received thereon and the allocation of any Net Loan Losses with respect thereto
for a Defaulted Home Loan which relates to such Due Period), without giving
effect to amounts received in respect of such Home Loan or related Foreclosure
Property after such Due Period; provided, however, that any Liquidated Home Loan
shall have a Principal Balance of zero.
Principal Prepayment: With respect to any Home Loan and any Due Period, any
principal amount received on a Home Loan in excess of the principal of the
Monthly Payment due in such Due Period.
Private Placement Memorandum: The Private Placement Memorandum to be
prepared by the Depositor in connection with the Class B-2 Notes.
Prospectus: The Depositor's final Prospectus dated May 22, 1998 as
supplemented by the Prospectus Supplement dated June 18, 1998.
Prospectus Supplement: The Prospectus Supplement dated June 18, 1998 to be
prepared by the Depositor in connection with the issuance and sale of the Class
▇-▇, ▇▇▇▇▇ ▇-▇, Class A-3, Class A-4, Class A-5, Class A-6, Class A-IO, Class
M-1, Class M-2 and Class B-1 Notes.
Purchase Price: With respect to a Defective Home Loan, the Principal
Balance thereof as of the date of purchase, plus all accrued and unpaid interest
on such Defective Home Loan to and including the date of repurchase computed at
the applicable Home Loan Interest Rate, plus the amount of any unreimbursed
Servicing Advances made by the Servicer with respect to such Defective Home Loan
(after deducting therefrom any amounts received in respect of such repurchased
Defective Home Loan and being held in the Collection Account for future
distribution to the extent such amounts represent recoveries of principal not
yet applied to reduce the related Principal Balance or interest (net of the
Servicing Fee) for the period from and after the date of repurchase).
PWRES: ▇▇▇▇▇ ▇▇▇▇▇▇ Real Estate Securities Inc., a Delaware corporation.
Qualified Substitute Home Loan: A home loan or home loans substituted for a
Deleted Home Loan pursuant to Section 2.06 of the Grantor Trust Agreement or
Section 3.05 hereof, which (i) has or have an interest rate or rates of (a) not
more than 0.50 percentage points less than the Home Loan Interest Rate for the
Deleted Home Loan, and (b) not more than 2.0 percentage points greater than the
Home Loan Interest Rate for the Deleted Home Loan, (ii) matures or mature not
more than one year than, and not more than one year earlier, than the maturity
date of Deleted Home Loan, has a maturity date no later than June 2023 and an
original term to maturity of less than or equal to 25 years, (iii) has or have a
principal balance or principal balances (after application of all payments
received on or prior to the date of substitution) equal to or less than the
Principal Balance or Balances of the Deleted Home Loan or Loans as of such date,
(iv) has a Credit Score not less than the Credit Score of the Deleted Home Loan,
(v) has or have a lien priority equal or superior to that of the Deleted Home
Loan or Loans, (vi) has or have a borrower or borrowers with a debt-to-income
ratio no higher than the debt-to-income ratio of the Obligor with respect to the
Deleted Loan, and (vii) complies or comply as of the date of substitution with
each representation and warranty set forth in Section 3.04 hereof and is or are
not more than 29 days delinquent as of the date of substitution for such Deleted
Home Loan or Loans. For purposes of determining whether multiple mortgage loans
proposed to be substituted for one or more Deleted Home Loans pursuant to
Section 2.06 of the Grantor Trust Agreement or Section 3.05 hereof are in fact
"Qualified Substitute Home Loans" as provided above, the criteria specified in
clauses (i), (iv) and (vi) above may be considered on an aggregate or weighted
average basis, rather than on a loan-by-loan basis (i.e., so long as the
weighted average Home Loan Interest Rate of any loans proposed to be substituted
is not more than 0.50 percentage points less than the Home Loan Interest Rate
for the designated Deleted Home Loan or Loans and not more than two percentage
points greater than the Home Loan Interest Rate for the designated Deleted Home
Loan or Loans, the requirements of clause (i) above would be deemed satisfied).
Rating Agencies: S&P, Fitch and DCR. If no such organization or successor
is any longer in existence, "Rating Agency" shall be a nationally recognized
statistical rating organization or other comparable person designated by the
Servicer, notice of which designation shall have been given to the Indenture
Trustee and the Issuer.
Ratings: The ratings initially assigned to the Notes by the Rating
Agencies, as evidenced by letters from the Rating Agencies.
Record Date: With respect to each Payment Date, the close of business on
the last Business Day of the month immediately preceding the month in which such
Payment Date occurs.
Reference Bank Rate: With respect to any Accrual Period, the arithmetic
mean (rounded upwards, if necessary, to the nearest one sixteenth of a percent)
of the offered rates for United States dollar deposits for one month that are
offered by the Reference Banks as of 11:00 a.m., New York City time, on the
second LIBOR Business Day prior to the first day of such Accrual Period to prime
banks in the London interbank market for a period of one month in amounts
approximately equal to the outstanding Class Principal Balance of the Class A-1
Notes, provided that at least two such Reference Banks provide such rate. If
fewer than two offered rates appear, the Reference Bank Rate will be arithmetic
mean of the rates quoted by one or more major banks in New York City, selected
by the Indenture Trustee, as of 11:00 a.m., New York City time, on such date for
loans in U.S. Dollars to leading European Banks for a period of one month in
amounts approximately equal to the outstanding Class Principal Balance of the
Class A-1 Notes. If no such quotation can be obtained, the Reference Bank Rate
will be the Reference Bank Rate applicable to the preceding Accrual Period.
Reference Banks: Three money center banks selected by the Indenture
Trustee.
Regular Payment Amount: With respect to any Payment Date, the lesser of (a)
the Available Payment Amount and (b) the sum of (i) the Noteholders' Interest
Payment Amount and (ii) the Regular Principal Payment Amount.
Regular Principal Payment Amount: On each Payment Date, an amount equal to
the lesser of:
(A) the aggregate of the Class Principal Balances of the
Classes of Notes immediately prior to such Payment Date; and
(B) the sum of (i) each scheduled payment of principal
collected by the Servicer in the related Due Period, (ii) all Principal
Prepayments applied by the Servicer during such related Due Period,
(iii) the principal portion of all Net Liquidation Proceeds, Insurance
Proceeds and Released Mortgaged Property Proceeds received during the
related Due Period, (iv) that portion of the Purchase Price of any
repurchased Home Loan which represents principal received prior to the
related Determination Date, (v) the principal portion of any
Substitution Adjustments required to be deposited in the Collection
Account as of the related Determination Date and (vi) on the Payment
Date on which the Issuer and the Grantor Trust are to be terminated
pursuant to Section 11.02 hereof, the Termination Price (net of any
accrued and unpaid interest, Trust Fees and Expenses due and unpaid on
such date and Servicing Advance Reimbursement Amount).
Released Mortgaged Property Proceeds: With respect to any Home Loan (other
than an Unsecured Home Loan), proceeds received by the Servicer in connection
with (i) a taking of an entire Mortgaged Property by exercise of the power of
eminent domain or condemnation or (ii) any release of part of the Mortgaged
Property from the lien of the related Mortgage, whether by partial condemnation,
sale or otherwise; which proceeds in either case are not released to the Obligor
in accordance with applicable law, Accepted Servicing Procedures and this
Agreement.
Residual Interest: The meaning assigned thereto in the Owner Trust
Agreement.
Residual Interest Certificate: The meaning assigned thereto in the Owner
Trust Agreement.
Responsible Officer: When used with respect to the Indenture Trustee or
Grantor Trustee, any officer within the Corporate Trust Office of the Indenture
Trustee or Grantor Trustee, as the case may be, including any Vice President,
Assistant Vice President, Secretary, Assistant Secretary or any other officer of
the Indenture Trustee or Grantor Trustee, as the case may be, customarily
performing functions similar to those performed by any of the above designated
officers and also, with respect to a particular matter, any other officer to
whom such matter is referred because of such officer's knowledge of and
familiarity with the particular subject. When used with respect to the Issuer,
any officer in the Corporate Trust Administration Department of the Owner
Trustee with direct responsibility for the administration of the Owner Trust
Agreement and this Agreement on behalf of the Issuer. When used with respect to
the Depositor, the Transferor, the Servicer or any Custodian, the President or
any Vice President, Assistant Vice President, or any Secretary or Assistant
Secretary.
S&P: Standard and Poor's Ratings Services, or any successor thereto.
Securities: The Notes or Residual Interest Certificates.
Securityholder: Any Noteholder or Certificateholder.
Senior Noteholders' Interest Carry-Forward Amount: With respect to any
Payment Date, the excess, if any, of (A) the Senior Noteholders' Monthly
Interest Payment Amount for the preceding Payment Date plus any outstanding
Senior Noteholders' Interest Carry-Forward Amount for preceding Payment Dates,
over (B) the amount in respect of interest that is actually deposited in the
Note Payment Account on such preceding Payment Date.
Senior Noteholders' Interest Payment Amount: With respect to any Payment
Date, the sum of the Senior Noteholders' Monthly Interest Payment Amount for
such Payment Date and the Senior Noteholders' Interest Carry-Forward Amount for
such Payment Date.
Senior Noteholders' Monthly Interest Payment Amount: With respect to each
Payment Date and the Classes of Class A Notes, the interest accrued during the
related Accrual Period at the respective Note Interest Rates on the respective
Class Principal Balances of such Classes immediately preceding such Payment Date
(or, in the case of the first Payment Date, beginning on the Closing Date) after
giving effect to all payments of principal to the holders of such Classes of
Notes on or prior to such preceding Payment Date and, with respect to each
Payment Date and each Class A-IO Note, the interest accrued during the related
Accrual Period at the respective Note Interest Rate on the applicable Class
Notional Balance of such Class immediately preceding such Payment Date (or, in
the case of the first Payment Date, beginning on the Closing Date) after giving
effect to all payments of principal to the holders of the other Classes of Notes
on or prior to such preceding Payment Date.
Senior Notes: The Class A Notes.
Senior Optimal Principal Balance: With respect to any Payment Date prior to
the Stepdown Date, zero; with respect to any other Payment Date, an amount equal
to the Pool Principal Balance as of the related Determination Date minus the
greater of (a) the sum of (1) 58.075 % of the Pool Principal Balance as of the
related Determination Date and (2) the Overcollateralization Target Amount for
such Payment Date (without giving effect to the proviso in the definition
thereof) and (b) 0.50% of the Original Pool Principal Balance; provided,
however, that such amount shall never be less than zero or greater than the sum
of the Original Class Principal Balances of the Notes.
Series or Series 1998-2: Empire Funding Home Loan Asset Backed Notes,
Series 1998-2.
Servicer: Empire Funding, in its capacity as the servicer hereunder, or any
successor appointed as herein provided.
Servicer Termination Event: The termination of the Servicer pursuant to
Section 10.01(b) hereof.
Servicer's Fiscal Year: January 1st through December 31st of each year.
Servicer's Home Loan Files: In respect of each Home Loan, all documents
customarily included in the Servicer's loan file for the related type of Home
Loan as specifically set forth in Section 2.05(b) of the Grantor Trust
Agreement.
Servicer's Monthly Remittance Report: A report prepared and computed by the
Servicer in substantially the form of Exhibit B attached hereto.
Servicing Advance Reimbursement Amount: With respect to any date of
determination and with respect to the receipt of proceeds from or the
liquidation of a Home Loan for which any Servicing Advances (plus accrued
interest thereon from the date of such advance to the date of reimbursement and
at the rate equal to the Servicer's cost of funds) have been made, the amount of
any such Servicing Advances that have not been reimbursed as of such date,
including Nonrecoverable Servicing Advances.
Servicing Advances: Subject to Section 4.01(b) hereof, all reasonable,
customary and necessary "out of pocket" costs and expenses advanced or paid by
the Servicer with respect to the Home Loans in accordance with the performance
by the Servicer of its servicing obligations hereunder, including, but not
limited to, the costs and expenses for (i) the preservation, restoration and
protection of any related Mortgaged Property, including without limitation
advances in respect of real estate taxes and assessments, (ii) any collection,
enforcement or judicial proceedings, including without limitation foreclosures,
collections and liquidations pursuant to Section 4.10 hereof, (iii) the
conservation, management and sale or other disposition of a Foreclosure Property
pursuant to Section 4.11 hereof, (iv) the preservation of the security for a
Home Loan if any lienholder under a Superior Lien has accelerated or intends to
accelerate the obligations secured by such Superior Lien pursuant to Section
4.10 hereof, and (v) the satisfaction, cancellation, release or discharge of any
Home Loan or any related Mortgage in accordance with this Agreement; provided,
however, that such Servicing Advances (plus accrued interest thereon from the
date of such advance to the date of reimbursement and at the rate equal to the
Servicer's cost of funds) are reimbursable to the Servicer out of the expected
late collections, Liquidation Proceeds, Insurance Proceeds or Released Mortgaged
Property Proceeds for the related Home Loan, Obligor or Mortgaged Property.
Servicing Compensation: The Servicing Fee and other amounts to which the
Servicer is entitled pursuant to Section 7.03 hereof.
Servicing Fee: As to each Home Loan (including any Home Loan that has been
foreclosed and has become a Foreclosure Property, but excluding any Liquidated
Home Loan), the fee payable monthly to the Servicer on each Payment Date, which
shall be the product of 1.00% (100 basis points) and the Principal Balance of
such Home Loan as of the beginning of the immediately preceding Due Period,
divided by 12. The Servicing Fee includes any servicing fees owed or payable to
any Subservicer, which fees shall be paid from the Servicing Fee.
Servicing Officer: Any officer of the Servicer or Subservicer involved in,
or responsible for, the administration and servicing of the Home Loans whose
name and specimen signature appears on a list of servicing officers annexed to
an Officer's Certificate furnished by the Servicer or the Subservicer,
respectively, to the Grantor Trustee and the Indenture Trustee, on behalf of the
Noteholders, as such list may from time to time be amended.
Six-Month Rolling Delinquency Average: With respect to any Payment Date,
the average of the applicable 60-Day Delinquency Amounts for each of the six
immediately preceding Due Periods, where the 60-Day Delinquency Amount for any
Due Period is the aggregate of the Principal Balances of all Home Loans that are
60 or more days delinquent, in foreclosure or Foreclosure Property as of the end
of such Due Period, excluding any Liquidated Home Loan.
Stepdown Date: The first Payment Date occurring after June 2001, as to
which the aggregate of the Class Principal Balances of the Class A Notes after
giving effect to payments of principal as such Payment Date will be able to be
reduced on such Payment Date (such determination to be made by the Indenture
Trustee prior to giving effect to payment of principal on such Payment Date) to
the excess of:
(I) the Pool Principal Balance as of the related
Determination Date over
(II) the greater of
(a) the sum of
(1) 58.075% of the Pool Principal Balance
as of the related Determination Date
and
(2) the Overcollateralization Target
Amount for such Payment Date (such
amount to be calculated (x) without
giving effect to the proviso in the
definition thereof and (y) pursuant
only to clause (II) of the
definition thereof); and
(b) 0.50% of the Original Pool Principal Balance.
Subordinate Noteholders' Interest Carry-Forward Amount: With respect to any
Payment Date, the excess, if any, of (A) the Subordinate Noteholders' Monthly
Interest Payment Amount for the preceding Payment Date plus any outstanding
Subordinate Noteholders' Interest Carry-Forward Amount for preceding Payment
Dates, over (B) the amount in respect of interest that is actually deposited in
the Note Payment Account on such preceding Payment Date net of the Senior
Noteholders' Interest Payment Amount and the Mezzanine Noteholders' Interest
Payment Amount for such preceding Payment Date; it being understood that the
interest of the Class B-1 Noteholders in the Subordinate Noteholders' Interest
Carry-Forward Amount is senior to that of the Class B-2 Noteholders.
Subordinate Noteholders' Interest Payment Amount: With respect to any
Payment Date, the sum of the Subordinate Noteholders' Monthly Interest Payment
Amount for such Payment Date and the Subordinate Noteholders' Interest
Carry-Forward Amount for such Payment Date.
Subordinate Noteholders' Monthly Interest Payment Amount: With respect to
each Payment Date and the Classes of Subordinate Notes, the interest accrued
during the related Accrual Period at the respective Note Interest Rates on the
respective Class Principal Balances of such Classes immediately preceding such
Payment Date (or, in the case of the first Payment Date, on the Closing Date)
after giving effect to all payments of principal to the holders of such Classes
of Notes on or prior to such preceding Payment Date, and in the case of the
Class B-2 Notes, subject to reduction pursuant to Section 5.04(b).
Subordinate Notes: The Class B-1 Notes and Class B-2 Notes.
Subservicer: Any Person with which the Servicer has entered into a
Subservicing Agreement and which is an Eligible Servicer and satisfies any
requirements set forth in Section 4.06(a) hereof in respect of the
qualifications of a Subservicer.
Subservicing Account: An account established by a Subservicer pursuant to a
Subservicing Agreement, which account must be an Eligible Account.
Subservicing Agreement: Any agreement between the Servicer and any
Subservicer relating to subservicing and/or administration of any or all Home
Loans as provided in Section 4.06(a) hereof, copies of which shall be made
available, along with any modifications thereto, to the Issuer, the Grantor
Trustee and the Indenture Trustee.
Substitute Collateral: Any Substitute Collateral as defined in Section
4.10(c) hereof.
Substitution Adjustment: As to any date on which a substitution occurs
pursuant to Sections 2.06 of the Grantor Trust Agreement or Section 3.05 hereof,
the amount, if any, by which (a) the sum of the aggregate principal balance
(after application of principal payments received on or before the date of
substitution) of any Qualified Substitute Home Loans as of the date of
substitution, plus any accrued and unpaid interest thereon to the date of
substitution, is less than (b) the sum of the aggregate of the Principal
Balances, together with accrued and unpaid interest thereon to the date of
substitution, of the related Deleted Home Loans.
Superior Lien: With respect to any Home Loan (other than an Unsecured Home
Loan) which is secured by a lien other than a first priority lien, the mortgage
loan(s) having a superior priority lien on the related Mortgaged Property.
Termination Price: As of any date of determination, an amount without
duplication equal to the greater of (A) the Note Redemption Amount and (B) the
sum of (i) the Principal Balance of each Home Loan included in the Grantor Trust
as of the applicable Monthly Cut-Off Date; (ii) all unpaid interest accrued on
the Principal Balance of each such Home Loan at the related Home Loan Interest
Rate to such Monthly Cut-Off Date; and (iii) the aggregate fair market value of
each Foreclosure Property included in the Grantor Trust on such Monthly Cut-Off
Date, as determined by an Independent appraiser acceptable to the Indenture
Trustee as of a date not more than 30 days prior to such Monthly Cut-Off Date.
Transferor: Empire Funding, in its capacity as the transferor hereunder.
Treasury Regulations: Regulations, including proposed or temporary
regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
Trust: The Issuer.
Trust Account Property: The Trust Accounts, all amounts and investments
held from time to time in the Trust Accounts and all proceeds of the foregoing.
Trust Accounts: The Note Payment Account, the Certificate Distribution
Account and the Collection Account.
Trust Fees and Expenses: As of each Payment Date, an amount equal to the
Servicing Compensation, the Indenture Trustee Fee, the Grantor Trustee Fee, the
Owner Trustee Fee and the Custodian Fee, if any.
UCC: The Uniform Commercial Code as in effect in the State of New York.
Undercollateralization Amount: With respect to any Payment Date, an amount
(not less than zero) equal to the excess, if any, of (a) the aggregate of the
Class Principal Balances of all Classes of Notes, after giving effect to
payments in respect of the Notes and the Residual Interest Certificates on such
Payment Date, over (b) the Pool Principal Balance as of the end of the preceding
Due Period. Notwithstanding the foregoing, on any date after the Payment Date on
which the Undercollateralization Amount is first reduced to zero, such amount
shall be deemed to be zero.
Unsecured Home Loan: Any Home Loan that is evidenced by the related Debt
Instrument and has been underwritten to substantially the same standards as a
secured Home Loan, except that such Home Loan is not secured by a Mortgage.
Section 1.02 Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined herein have the
meanings assigned to them in the Indenture and the Owner Trust Agreement.
(b) All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other document made
or delivered pursuant hereto or thereto, accounting terms not defined in this
Agreement or in any such certificate or other document, and accounting terms
partly defined in this Agreement or in any such certificate or other document to
the extent not defined, shall have the respective meanings given to them under
GAAP. To the extent that the definitions of accounting terms in this Agreement
or in any such certificate or other document are inconsistent with the meanings
of such terms under GAAP, the definitions contained in this Agreement or in any
such certificate or other document shall control.
(d) The words "hereof," "herein," "hereunder" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not to
any particular provision of this Agreement; Article, Section, Schedule and
Exhibit references contained in this Agreement are references to Articles,
Sections, Schedules and Exhibits in or to this Agreement unless otherwise
specified; and the term "including" shall mean "including without limitation."
(e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such terms.
(f) Any agreement, instrument or statute defined or referred to herein or
in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
ARTICLE II
CONVEYANCE OF THE GRANTOR TRUST CERTIFICATE
Section 2.01 Conveyance of the Grantor Trust Certificate.
(a) As of the Closing Date, in consideration of the Issuer's delivery of
the Notes and the Residual Interest Certificates to the Depositor or its
designee, upon the order of the Depositor, the Depositor, as of the Closing Date
and concurrently with the execution and delivery hereof, does hereby sell,
transfer, assign, set over and otherwise convey to the Issuer, without recourse,
but subject to the other terms and provisions of this Agreement, all of the
right, title and interest of the Depositor in and to the Owner Trust Estate. The
foregoing sale, transfer, assignment, set over and conveyance does not, and is
not intended to, result in a creation or an assumption by the Issuer of any
obligation of the Depositor, the Transferor or any other person in connection
with the Owner Trust Estate or under any agreement or instrument relating
thereto except as specifically set forth herein.
(b) As of the Closing Date, the Issuer acknowledges the conveyance to it of
the Owner Trust Estate, including all right, title and interest of the Depositor
in and to the Owner Trust Estate, receipt of which is hereby acknowledged by the
Issuer. Concurrently with such delivery and in exchange therefor, the Issuer has
pledged the Owner Trust Estate to the Indenture Trustee, and the Indenture
Trustee, pursuant to the written instructions of the Issuer, has executed and
caused the Notes to be authenticated and delivered to the Depositor or its
designee, upon the order of the Issuer. In addition, concurrently with such
delivery and in exchange therefor, the Owner Trustee, pursuant to the
instructions of the Depositor, has executed (not in its individual capacity, but
solely as Owner Trustee on behalf of the Issuer) and caused the Residual
Interest Certificates to be authenticated and delivered to the Depositor or its
designee, upon the order of the Depositor.
Section 2.02 Ownership and Possession of Grantor Trust Certificate.
Upon the issuance of the Notes, the ownership of the Grantor Trust
Certificate shall be vested in the Indenture Trustee for the benefit of the
Securityholders.
Section 2.03 Books and Records; Principal Place of Business.
The sale of the Grantor Trust Certificate shall be reflected on the balance
sheets and other financial statements of the Depositor, as a sale of assets by
the Depositor under GAAP.
It is the intention of the parties hereto that the transfers and
assignments contemplated by this Agreement shall constitute a sale of the
Grantor Trust Certificate and the other property specified in Section 2.01(a)
hereof from the Depositor to the Issuer and such property shall not be property
of the Depositor. If the assignment and transfer of the Grantor Trust
Certificate and the other property specified in Section 2.01(a) hereof to the
Owner Trustee pursuant to this Agreement or the conveyance of the Grantor Trust
Certificate or any of such other property to the Owner Trustee is held or deemed
not to be a sale or is held or deemed to be a pledge of security for a loan, the
Depositor intends that the rights and obligations of the parties shall be
established pursuant to the terms of this Agreement and that, in such event, (i)
the Depositor shall be deemed to have granted and does hereby grant to the Owner
Trustee a first priority security interest in the entire right, title and
interest of the Depositor in and to the Grantor Trust Certificate and all other
property conveyed to the Owner Trustee pursuant to Section 2.01 hereof and all
proceeds thereof and (ii) this Agreement shall constitute a security agreement
under applicable law. Within ten (10) days of the Closing Date, the Depositor
shall cause to be filed UCC-1 financing statements naming the Owner Trustee as
"secured parties" and describing the Grantor Trust Certificate being sold by the
Depositor to the Issuer with the office of the Secretary of State of the state
in which the Depositor is located.
Section 2.04 Delivery of Grantor Trust Certificate; Further Assurances.
(a) The Depositor shall, on the Closing Date, upon the order
of the Issuer, deliver or cause to be delivered, the Grantor Trust
Certificate registered in the name of U.S. Bank National Association,
as Indenture Trustee, to the Indenture Trustee for the benefit of the
Noteholders.
(b) The Depositor shall execute and deliver all such other
instruments, documents and certificates and take all such other actions
deemed necessary by the Owner Trustee in connection with, or in
furtherance of, the transactions contemplated hereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01 Representations and Warranties of the Depositor.
The Depositor hereby represents and warrants to the Transferor, the
Servicer, the Grantor Trustee, the Indenture Trustee, the Owner Trustee and the
Noteholders that as of the Closing Date:
(a) The Depositor is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware
and has, and had at all relevant times, full power to own its property,
to carry on its business as currently conducted, to enter into and
perform its obligations under this Agreement and to create the Owner
Trust pursuant to the Owner Trust Agreement;
(b) The execution and delivery of this Agreement by the
Depositor and its performance of and compliance with the terms of this
Agreement will not violate the Depositor's certificate of incorporation
or by-laws or constitute a default (or an event which, with notice or
lapse of time, or both, would constitute a default) under, or result in
the breach or acceleration of, any material contract, agreement or
other instrument to which the Depositor is a party or which may be
applicable to the Depositor or any of its assets;
(c) The Depositor has the full power and authority to enter
into and consummate the transactions contemplated by this Agreement,
has duly authorized the execution, delivery and performance of this
Agreement and has duly executed and delivered this Agreement. This
Agreement, assuming due authorization, execution and delivery by the
Owner Trustee, the Indenture Trustee, the Grantor Trustee, the
Transferor and the Servicer, constitutes a valid, legal and binding
obligation of the Depositor, enforceable against it in accordance with
the terms hereof, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, receivership, moratorium or
other similar laws relating to or affecting the rights of creditors
generally, and by general equity principles (regardless of whether such
enforcement is considered in a proceeding in equity or at law);
(d) The Depositor is not in violation of, and the execution
and delivery of this Agreement by the Depositor and its performance and
compliance with the terms of this Agreement will not constitute a
violation with respect to, any order or decree of any court or any
order or regulation of any federal, state, municipal or governmental
agency having jurisdiction, which violation would materially and
adversely affect the condition (financial or otherwise) or operations
of the Depositor or its properties or materially and adversely affect
the performance of its duties hereunder;
(e) There are no actions or proceedings against, or
investigations of, the Depositor currently pending with regard to which
the Depositor has received service of process and no action or
proceeding against, or investigation of, the Depositor is, to the
knowledge of the Depositor, threatened or otherwise pending before any
court, administrative agency or other tribunal that (A) if determined
adversely, would prohibit its entering into this Agreement or render
the Notes invalid, (B) seek to prevent the issuance of the Notes or the
consummation of any of the transactions contemplated by this Agreement
or (C) if determined adversely, would prohibit or materially and
adversely affect the performance by the Depositor of its obligations
under, or the validity or enforceability of, this Agreement or the
Notes;
(f) No consent, approval, authorization or order of any court
or governmental agency or body is required for the execution, delivery
and performance by the Depositor of, or compliance by the Depositor
with, this Agreement or the Notes, or for the consummation of the
transactions contemplated by this Agreement, except for such consents,
approvals, authorizations and orders, if any, that have been obtained
prior to the Closing Date;
(g) The Depositor is solvent, is able to pay its debts as they
become due and has capital sufficient to carry on its business and its
obligations hereunder; it will not be rendered insolvent by the
execution and delivery of this Agreement or its obligations hereunder;
no petition of bankruptcy (or similar insolvency proceeding) has been
filed by or against the Depositor prior to the date hereof;
(h) The Depositor did not sell (i) the Home Loans to the
Grantor Trustee or (ii) the Grantor Trust Certificate to the Issuer,
with any intent to hinder, delay or defraud any of its creditors; the
Depositor will not be rendered insolvent as a result of the sale of the
Home Loans to the Grantor Trustee and the sale of the Grantor Trust
Certificate to the Issuer;
(i) As of the Closing Date, the Depositor had good title to,
and was the sole beneficial owner of, the Grantor Trust Certificate and
had good and marketable title thereto, free and clear of any lien or
options in favor of, or claims of, any other Person, other than any
such lien released simultaneously with the sale contemplated herein,
and, immediately upon each transfer and assignment herein contemplated,
the Depositor will have delivered to the Issuer good title to, and the
Issuer will be the sole beneficial owner of, the Grantor Trust
Certificate free and clear of any lien or options in favor of, or
claims of, any other Person;
(j) The Grantor Trust Certificate has been validly issued, and
is fully paid and non-assessable and not subject to preemptive rights,
and the Grantor Trust Certificate has been offered, issued and sold in
compliance with all applicable laws and (A) there are no outstanding
rights, options, warrants or agreements for the purchase from, or sale
or issuance, in connection with the Grantor Trust Certificate; (B)
there are no agreements on the part of the Depositor to issue, sell or
distribute the Grantor Trust Certificate; and (C) the Depositor has no
obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any securities or any interest therein or to pay any dividend
or make any distribution in respect of the Grantor Trust Certificate.
(k) The Depositor acquired title to each of the Grantor Trust
Certificate in good faith, without notice of any adverse claim;
(l) No Officers' Certificate, statement, report or other
document prepared by the Depositor and furnished or to be furnished by
it pursuant to this Agreement or in connection with the transactions
contemplated hereby contains any untrue statement of material fact or
omits to state a material fact necessary to make the statements
contained herein or therein not misleading; and
(m) The Depositor is not required to be registered as an
"investment company" under the Investment Company Act of 1940, as
amended.
Section 3.02 Representations and Warranties of the Transferor.
The Transferor hereby represents and warrants to the Servicer, the
Indenture Trustee, the Owner Trustee, the Grantor Trustee, the Noteholders and
the Depositor that as of the Closing Date (except as otherwise specifically
provided herein):
(a) The Transferor is a corporation licensed as a mortgage
lender duly organized, validly existing and in good standing under the
laws of the State of Oklahoma and has and had at all relevant times,
full corporate power to originate or purchase the Home Loans, to own
its property, to carry on its business as presently conducted and to
enter into and perform its obligations under this Agreement;
(b) The execution and delivery of this Agreement by the
Transferor and its performance of and compliance with the terms of this
Agreement will not violate the Transferor's articles of incorporation
or by-laws or constitute a default (or an event which, with notice or
lapse of time, or both, would constitute a default) under, or result in
the breach or acceleration of, any material contract, agreement or
other instrument to which the Transferor is a party or which may be
applicable to the Transferor or any of its assets;
(c) The Transferor has the full power and authority to enter
into and consummate all transactions contemplated by this Agreement to
be consummated by it, has duly authorized the execution, delivery and
performance of this Agreement and has duly executed and delivered this
Agreement. This Agreement, assuming due authorization, execution and
delivery by the Owner Trustee, the Indenture Trustee, the Grantor
Trustee and the Depositor, constitutes a valid, legal and binding
obligation of the Transferor, enforceable against it in accordance with
the terms hereof, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, receivership, moratorium or
other similar laws relating to or affecting the rights of creditors
generally, and by general equity principles (regardless of whether such
enforcement is considered in a proceeding in equity or at law);
(d) The Transferor is not in violation of, and the execution
and delivery of this Agreement by the Transferor and its performance
and compliance with the terms of this Agreement will not constitute a
violation with respect to, any order or decree of any court or any
order or regulation of any federal, state, municipal or governmental
agency having jurisdiction, which violation would materially and
adversely affect the condition (financial or otherwise) or operations
of the Transferor or its properties or materially and adversely affect
the performance of its duties hereunder;
(e) There are no actions or proceedings against, or
investigations of, the Transferor currently pending with regard to
which the Transferor has received service of process and no action or
proceeding against, or investigation of, the Transferor is, to the
knowledge of the Transferor, threatened or otherwise pending, before
any court, administrative agency or other tribunal that (A) if
determined adversely, would prohibit its entering into this Agreement
or render the Notes invalid, (B) seek to prevent the issuance of the
Notes or the consummation of any of the transactions contemplated by
this Agreement or (C) if determined adversely, would prohibit or
materially and adversely affect the sale of the Home Loans to the
Depositor, the performance by the Transferor of its obligations under,
or the validity or enforceability of, this Agreement or the Notes;
(f) No consent, approval, authorization or order of any court
or governmental agency or body is required for: (1) the execution,
delivery and performance by the Transferor of, or compliance by the
Transferor with, this Agreement or the Grantor Trust Agreement, (2) the
issuance of the Notes, (3) the sale of the Home Loans under the Home
Loan Purchase Agreement or (4) the consummation of the transactions
required of it by this Agreement, except such as shall have been
obtained before the Closing Date;
(g) The Transferor acquired title to the Home Loans in good
faith, without notice of any adverse claim;
(h) The collection practices used by the Transferor with
respect to the Home Loans have been, in all material respects, legal,
proper, prudent and customary in the non-conforming mortgage servicing
business;
(i) No Officer's Certificate, statement, report or other
document prepared by the Transferor and furnished or to be furnished by
it pursuant to this Agreement or in connection with the transactions
contemplated hereby contains any untrue statement of material fact or
omits to state a material fact necessary to make the statements
contained herein or therein not misleading;
(j) The Transferor is solvent, is able to pay its debts as
they become due and has capital sufficient to carry on its business and
its obligations hereunder; it will not be rendered insolvent by the
execution and delivery of this Agreement or by the performance of its
obligations hereunder; no petition of bankruptcy (or similar insolvency
proceeding) has been filed by or against the Transferor prior to the
date hereof;
(k) The Prospectus Supplement (other than (i) the statements
set forth in the final paragraph of the cover of the Prospectus
Supplement, (ii) the statements set forth in the seventh paragraph on
page S-3 of the Prospectus Supplement, and (iii) the statements set
forth under the following captions: "SUMMARY - Securities Issued", "-
Priority of Payments", "- Credit Enhancement", "Tax Status", "-ERISA",
"- Legal Investment", "DESCRIPTION OF THE OFFERED NOTES", "DESCRIPTION
OF CREDIT ENHANCEMENT", "FEDERAL INCOME TAX CONSEQUENCES", "ERISA
CONSIDERATIONS", "LEGAL INVESTMENT MATTERS" and "UNDERWRITING" (other
than the last two paragraphs) as to which the Transferor makes no
statement) does not contain an untrue statement of a material fact and
does not omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading;
(l) The Transferor has transferred the Home Loans without any
intent to hinder, delay or defraud any of its creditors; and
(m) The Private Placement Memorandum (other than (i) the
statements set forth in the first sentence of the second paragraph
immediately preceding the final paragraph of the cover of the Private
Placement Memorandum and (ii) the statements under the following
captions: "DESCRIPTION OF THE OFFERED NOTES", "FEDERAL INCOME TAX
CONSEQUENCES", "ERISA CONSIDERATIONS", "LEGAL INVESTMENT
CONSIDERATIONS" and "PLAN OF OFFERING", as to which the Transferor
makes no statement) does not contain an untrue statement of a material
fact and does not omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
It is understood and agreed that the representations and warranties set
forth in this Section 3.02 shall survive delivery of the respective Grantor
Trustee's Home Loan Files to the applicable Custodian (as the agent of the
Grantor Trustee) and shall inure to the benefit of the Securityholders, the
Depositor, the Servicer, the Indenture Trustee, the Owner Trustee, the Grantor
Trustee, the Grantor Trust and the Owner Trust. Upon discovery by any of the
Transferor, the Depositor, the Servicer, the Indenture Trustee, the Grantor
Trustee or the Owner Trustee of a breach of any of the foregoing representations
and warranties that materially and adversely affects the value of any Home Loan
or the interests of the Grantor Trust Holder therein, the party discovering such
breach shall give prompt written notice (but in no event later than two Business
Days following such discovery) to the other parties. The obligations of the
Transferor set forth in Section 3.05 hereof shall constitute the sole remedies
available hereunder to the Securityholders, the Depositor, the Servicer, the
Indenture Trustee, the Grantor Trustee or the Owner Trustee respecting a breach
of the representations and warranties contained in this Section 3.02.
Section 3.03 Representations, Warranties and Covenants of the Servicer.
The Servicer hereby represents and warrants to and covenants with the Owner
Trustee, the Indenture Trustee, the Grantor Trustee, the Noteholders, the
Depositor and the Transferor that as of the Closing Date or as of such date
specifically provided herein:
(a) The Servicer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Oklahoma
and is or will be in compliance with the laws of each state in which
any Mortgaged Property is located to the extent necessary to ensure the
enforceability of each Loan in accordance with the terms of this
Agreement;
(b) The execution and delivery of this Agreement by the
Servicer and its performance of and compliance with the terms of this
Agreement will not violate the Servicer's articles of incorporation or
by-laws or constitute a default (or an event which, with notice or
lapse of time, or both, would constitute a default) under, or result in
the breach or acceleration of, any material contract, agreement or
other instrument to which the Servicer is a party or which may be
applicable to the Servicer or any of its assets;
(c) The Servicer has the full power and authority to enter
into and consummate all transactions contemplated by this Agreement,
has duly authorized the execution, delivery and performance of this
Agreement and has duly executed and delivered this Agreement. This
Agreement, assuming due authorization, execution and delivery by the
Indenture Trustee, the Owner Trustee, the Grantor Trustee and the
Depositor, constitutes a valid, legal and binding obligation of the
Servicer, enforceable against it in accordance with the terms hereof,
except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, receivership, moratorium or other similar laws relating
to or affecting the rights of creditors generally, and by general
equity principles (regardless of whether such enforcement is considered
in a proceeding in equity or at law);
(d) The Servicer is not in violation of, and the execution and
delivery of this Agreement by the Servicer and its performance and
compliance with the terms of this Agreement will not constitute a
violation with respect to, any order or decree of any court or any
order or regulation of any federal, state, municipal or governmental
agency having jurisdiction, which violation would materially and
adversely affect the condition (financial or otherwise) or operations
of the Servicer or materially and adversely affect the performance of
its duties hereunder;
(e) There are no actions or proceedings against, or
investigations of, the Servicer currently pending with regard to which
the Servicer has received service of process and no action or
proceeding against, or investigation of, the Servicer is to the
knowledge of the Servicer, threatened or otherwise pending, before any
court, administrative agency or other tribunal that (A) if determined
adversely, would prohibit its entering into this Agreement or render
the Notes invalid, (B) seek to prevent the issuance of the Notes or the
consummation of any of the transactions contemplated by this Agreement
or (C) if determined adversely, would prohibit or materially and
adversely affect the performance by the Servicer of its obligations
under, or the validity or enforceability of, this Agreement or the
Notes;
(f) No consent, approval, authorization or order of any court
or governmental agency or body is required for the execution, delivery
and performance by the Servicer of, or compliance by the Servicer with,
this Agreement or the Notes, or for the consummation of the
transactions contemplated by this Agreement, except for such consents,
approvals, authorizations and orders, if any, that have been obtained
prior to the Closing Date;
(g) The Servicer is duly licensed where required as a
"Licensee" or is otherwise qualified in each state in which it
transacts business and is not in default of such state's applicable
laws, rules and regulations, except where the failure to so qualify or
such default would not have a material adverse effect on the ability of
the Servicer to conduct its business or perform its obligations
hereunder;
(h) The Servicer is an Eligible Servicer and services mortgage
loans in accordance with Accepted Servicing Procedures;
(i) No Officer's Certificate, statement, report or other
document prepared by the Servicer and furnished or to be furnished by
it pursuant to this Agreement or in connection with the transactions
contemplated hereby contains any untrue statement of material fact or
omits to state a material fact necessary to make the statements
contained herein or therein not misleading;
(j) The Servicer is solvent and will not be rendered insolvent
as a result of the performance of its obligations pursuant to this
Agreement;
(k) The Servicer has not waived any default, breach, violation
or event of acceleration existing under any Debt Instrument or any
related Mortgage;
(l) The Servicer will cause to be performed any and all acts
required to be performed by the Servicer to preserve the rights and
remedies of the Grantor Trustee, the Owner Trustee and the Indenture
Trustee in any Insurance Policies applicable to the Home Loans
including, without limitation, in each case, any necessary
notifications of insurers, assignments of policies or interests
therein, and establishments of co-insured, joint loss payee and
mortgagee rights in favor of the Grantor Trustee, the Owner Trustee and
the Indenture Trustee;
(m) The Servicer shall comply with, and shall service, or
cause to be serviced, each Home Loan, in accordance with the Accepted
Servicing Procedures; and
(n) The Servicer agrees that, so long as it shall continue to
serve in the capacity contemplated under the terms of this Agreement,
it shall remain in good standing under the laws governing its creation
and existence and qualified under the laws of each state in which it is
necessary to perform its obligations under this Agreement or in which
the nature of its business requires such qualification; it shall
maintain all licenses, permits and other approvals required by any law
or regulations as may be necessary to perform its obligations under
this Agreement and to retain all rights to service the Loans; and it
shall not dissolve or otherwise dispose of all or substantially all of
its assets.
It is understood and agreed that the representations, warranties and
covenants set forth in this Section 3.03 shall survive delivery of the
respective Grantor Trustee's Home Loan Files to the Indenture Trustee and shall
inure to the benefit of the Depositor, the Noteholders, the Owner Trustee, the
Grantor Trustee and the Indenture Trustee. Upon discovery by any of the
Transferor, the Depositor, the Servicer, the Indenture Trustee, the Grantor
Trustee or the Owner Trustee of a breach of any of the foregoing
representations, warranties and covenants that materially and adversely affects
the value of any Home Loan or the interests of such Person therein, the party
discovering such breach shall give prompt written notice (but in no event later
than two Business Days following such discovery) to the other parties.
Section 3.04 Representations and Warranties Regarding Individual Home
Loans.
The Transferor hereby represents and warrants to the Depositor, the Issuer,
the Indenture Trustee, the Grantor Trustee, the Owner Trustee and the
Noteholders, with respect to each Home Loan as of the Closing Date, except as
otherwise expressly stated:
(a) Loan Information. The information pertaining to each
Home Loan set forth in the Home Loan Schedule was true and correct in
all material respects as of the Cut-Off Date;
(b) Payments Current; No Transferor Advances or Payments. As
of the applicable Cut-Off Date, none of the Home Loans was 30 or more
days past due (without giving effect to any grace period); the
Transferor has not advanced funds, induced, solicited or knowingly
received any advance of funds from a party other than the Obligor,
directly or indirectly, for the payment of any amount required by any
Home Loan and there is no obligation on the part of the Transferor or
any other party other than the Obligor to make payments with respect
to the Home Loan and the Obligor is not entitled to any refund of any
amounts paid or due to the lender pursuant to the Debt Instrument or
any related Mortgage;
(c) No Waiver or Modification. The terms of the Debt
Instrument and any related Mortgage contain the entire agreement of
the parties thereto and have not been impaired, waived, altered or
modified in any respect, except by written instruments reflected in
the related Grantor Trustee's Home Loan File and recorded, if
necessary, to maintain the lien priority of the any related Mortgage;
no instrument of waiver, alteration, expansion or modification has
been executed, and no Obligor has been released, in whole or in part,
except in connection with an assumption agreement which assumption
agreement is part of the related Grantor Trustee's Home Loan File and
the payment terms of which are reflected in the related Home Loan
Schedule;
(d) No Defenses. The Debt Instrument and any related
Mortgage are not subject to any set-off, claims, counterclaim or
defense, including the defense of usury or of fraud in the inducement,
and will not be so subject in the future with respect to the goods and
services provided under the Debt Instrument; and neither the operation
of any of the terms of the Debt Instrument and any related Mortgage,
nor the exercise of any right thereunder, will render such Debt
Instrument or any such Mortgage unenforceable, in whole or in part, or
subject to any right of rescission, set-off, counterclaim or defense,
including the defense of usury, and no such right of rescission,
set-off, counterclaim or defense has been asserted with respect
thereto;
(e) Compliance with Laws. Any and all requirements of any
federal, state or local law applicable to the Home Loan (including any
law applicable to the origination, servicing and collection practices
with respect thereto) have been complied with; and, to the best of the
Transferor's knowledge, no fraud or misrepresentation was committed by
any Person in connection with the origination and servicing of such
Home Loan;
(f) No Satisfaction or Release of Lien. No Debt Instrument
or any related Mortgage has been satisfied, canceled, rescinded or
subordinated, in whole or part; and the Transferor, except as
otherwise permitted by clause (c) of this Section 3.04, has not waived
the performance by the Obligor of any action, if the Obligor's failure
to perform such action would cause the Debt Instrument or Home Loan to
be in default; and, any related Mortgaged Property has not been
released from the lien of any related Mortgage, in whole or in part,
nor has any instrument been executed that would effect any such
satisfaction, subordination, release, cancellation or rescission;
(g) Valid Lien. Any related Mortgage is a valid, subsisting
and enforceable lien on any related Mortgaged Property, including the
land and all buildings on any such Mortgaged Property;
(h) Validity and Enforceability of Loan Documents. The Debt
Instrument and any related Mortgage (i) are genuine and each is the
legal, valid and binding obligation of the maker thereof, enforceable
in accordance with its terms, except as enforceability may be limited
by bankruptcy, insolvency, reorganization or other similar laws
affecting creditors' rights in general and by general principles of
equity and (ii) contain customary and enforceable provisions so as to
render the rights and remedies of the holder thereof adequate for the
realization against any related Mortgaged Property of the benefits of
the security provided thereby, including, (A) in the case of any
related Mortgage designated as a deed of trust, by trustee's sale, and
(B) otherwise by judicial foreclosure;
(i) Capacity of Parties. To the best of the Transferor's
knowledge, all parties to the Debt Instrument and any related Mortgage
had legal capacity at the time to enter into the Home Loan and to
execute and deliver the Debt Instrument and any related Mortgage, and
the Debt Instrument and any related Mortgage have been duly and
properly executed by such parties;
(j) Full Disbursement of Proceeds. As of the applicable
Cut-Off Date, the proceeds of the Home Loan have been fully disbursed
and there is no requirement for future advances thereunder, and any
and all applicable requirements set forth in the Home Loan documents
have been complied with; the Obligor is not entitled to any refund of
any amounts paid or due under the Debt Instrument or any related
Mortgage;
(k) Ownership by Transferor. Immediately prior to the sale,
transfer and assignment to the Depositor, the Transferor will have
good and indefeasible legal title to the Home Loan, the related Debt
Instrument and any related Mortgage and the full right to transfer
such Home Loan, the related Debt Instrument and any related Mortgage,
and the Transferor will have been the sole owner thereof, subject to
no liens, pledges, charges, mortgages, encumbrances or rights of
others, except for such liens as will be released simultaneously with
the transfer and assignment of the Home Loans to the Depositor (and
the Grantor Trustee's Home Loan File will contain no evidence
inconsistent with the foregoing) ; and immediately upon the sale,
transfer and assignment contemplated by the Home Loan Purchase
Agreement, the Depositor will hold good title to, and be the sole
owner of each Home Loan, the related Debt Instrument and any related
Mortgage, free of all liens, pledges, charges, mortgages, encumbrances
or rights of others;
(l) No Defaults. Except for those Home Loans referred to in
clause (b) of this Section 3.04 that are delinquent as of the Cut-Off
Date, there is no default, breach, violation or event of acceleration
known to the Transferor under the Home Loan, the related Debt
Instrument and any related Mortgage and there is no event known to the
Transferor which, with the passage of time or with notice and the
expiration of any grace or cure period, would constitute a default,
breach, violation or event of acceleration thereunder and neither the
Transferor nor its predecessors have waived any such default, breach,
violation or event of acceleration;
(m) [Reserved]
(n) Interest, Term and Amortization. Each Home Loan is a
fixed rate loan; the Debt Instrument shall mature within not more than
25 years from the date of origination of the Home Loan; the Debt
Instrument is payable in substantially equal Monthly Payments, with
interest payable in arrears, and requires a Monthly Payment which is
sufficient to fully amortize the original principal balance over the
original term and to pay interest at the related Home Loan Interest
Rate; interest on each Home Loan is calculated on the basis of a
360-day year consisting of twelve 30-day months, and the Debt
Instrument does not provide for any extension of the original term;
(o) Security. The related Debt Instrument is not and has not
been secured by any collateral except, the lien of any related
Mortgage;
(p) Deed of Trust. If any related Mortgage constitutes a
deed of trust, a trustee, duly qualified under applicable law to serve
as such, has been properly designated and currently so serves and is
named in any such Mortgage, or a valid substitution of trustee has
been recorded, and no extraordinary fees or expenses are or will
become payable to the trustee under the deed of trust, except in
connection with default proceedings and a trustee's sale after default
by the Obligor;
(q) Value and Marketability. The Transferor has no knowledge
of any circumstances or conditions not reflected in the
representations set forth herein, or in the Home Loan Schedule, or in
the related Grantor Trustee's Home Loan File with respect to any
related Mortgage, related Mortgaged Property or the Obligor which
could reasonably be expected to materially and adversely affect the
value of any such Mortgaged Property or the marketability of the Home
Loan or cause the Home Loan to become delinquent or otherwise be in
default;
(r) [Reserved]
(s) Loan Documents and Delivery of Loan File. There exists a
Home Loan File relating to each Home Loan and such Home Loan File
contains all of the original or certified documentation listed in
Section 2.04 hereof for such Home Loan. Each Grantor Trustee's Home
Loan File has been delivered to the applicable Custodian and each
Servicer's Home Loan File is being held in trust by the Servicer for
the benefit of, and as agent for, the Grantor Trust Holder and the
Grantor Trustee as their respective interest appear herein. Each
document included in the Home Loan File which is required to be
executed by the Obligor has been executed by the Obligor in the
appropriate places. With respect to each Home Loan, any related
Assignment of Mortgage to the Grantor Trustee is in recordable form
and is acceptable for recording under the laws of the jurisdiction in
which the related Mortgaged Property is located. All blanks on any
form required to be completed have been so completed;
(t) Mortgaged Property. Any related Mortgaged Property is
improved by a residential dwelling and is not a Home Loan in respect
of a manufactured home or mobile home or the land on which a
manufactured home or mobile home has been placed, unless such
manufactured home or mobile home is treated as real estate under
applicable law;
(u) Underwriting and Origination. Each Home Loan was (i)
underwritten or re-underwritten in accordance with the Transferor's
underwriting guidelines by the Transferor or another lender that has
been granted "delegated underwriting authority" by the Transferor and
(ii) originated by the Transferor or through the Transferor's network
of brokers, dealers and correspondents (including Home Loans acquired
by such correspondents) or through the Transferor's portfolio
acquisition program and (iii) originated no earlier than January 1985;
(v) Flood and Hazard Insurance. If any related Mortgaged
Property securing any Home Loan is in an area identified by the
Federal Emergency Management Agency ("FEMA") as having special flood
hazards, unless the community in which the area is situated is not
participating in the National Flood Insurance Program and the
regulations thereunder or less than a year has passed since FEMA
notification regarding such hazards, a flood insurance policy is in
effect with respect to any related Mortgaged Property with a generally
acceptable carrier which complies with section 102(a) of the Flood
Disaster Protection Act of 1968, as amended; all improvements upon any
related Mortgaged Property securing a Home Loan are insured by a
generally acceptable insurer against loss by fire, hazards of extended
coverage and such other hazards as are customary in the area where any
such Mortgaged Property is located; and with respect to any hazard
insurance on any related Mortgaged Property which has a first lien
priority Mortgage at origination or with respect to any flood
insurance on any related Mortgaged Property, the Transferor has caused
to be performed or shall cause to be performed within a reasonable
time following the Closing Date any and all acts required to preserve
the rights and remedies of the Servicer, on behalf of the Grantor
Trustee, in any such hazard insurance or flood insurance policies
applicable to any such Mortgaged Properties, including without
limitation any necessary notifications of insurers, assignments of
policies or interests therein, and establishment of coinsured, joint
loss payee and mortgagee rights in favor of the Servicer, on behalf of
the Grantor Trustee;
(w) [Reserved]
(x) [Reserved]
(y) Superior Lien. At the time of origination of the Home
Loan (other than an Unsecured Home Loan), each related Superior Lien,
if any, was certified by the Obligor or verified by the applicable
Superior Lien lender as not being 30 or more days delinquent;
(z) Licensing and Qualification. To the best of the
Transferor's knowledge, all parties which have had any interest in the
Home Loan, whether as mortgagee, assignee, pledgee or otherwise, are
(or, during the period in which they held and disposed of such
interest, were) (i) in compliance with any and all applicable
licensing requirements of the laws of the state wherein any related
Mortgaged Property, or with respect to an Unsecured Loan, the related
Obligor is located, and (ii) (A) organized under the laws of such
state, or (B) qualified to do business in such state, or (C) federal
savings and loan associations or national banks having principal
offices in such state, or (D) not doing business in such state;
(aa) Assumption. Any related Mortgage contains an
enforceable provision requiring the consent of the mortgagee to
assumption of the related Home Loan upon sale of any related Mortgaged
Property;
(ab) No Homestead or Relief Act. There is no homestead or
other exemption available to the mortgagor which would materially
interfere with the right to sell any related Mortgaged Property at a
trustee's sale or the right to foreclose any related Mortgage; no
relief has been requested or allowed to the Obligor under the
Soldiers' and Sailors' Civil Relief Act of 1940;
(ac) Ownership of Mortgaged Property. The related Servicer's
Home Loan File for each Home Loan (other than an Unsecured Home Loan)
contains a title document with respect to such Home Loan reflecting
that title to any related Mortgaged Property is vested at least 50% in
the related Obligor;
(ad) No Condemnation or Damage. To the best of the
Transferor's knowledge, each related Mortgaged Property (including
each residential dwelling improvement thereon) is free of damage which
materially and adversely affects the value thereof and there is no
proceeding pending for the total or partial condemnation of any such
Mortgaged Property;
(ae) [Reserved]
(af) [Reserved]
(ag) No Bulk Transfer or Adverse Selection. The transfer,
assignment and conveyance of the Debt Instruments and the related
Mortgages by the Transferor to the Depositor were not subject to the
bulk transfer laws or any similar statutory provisions in effect in
any applicable jurisdiction; no Home Loan was adversely selected as to
credit risk from the pool of home loans owned by the Transferor;
(ah) [Reserved]
(ai) No Current Bankruptcy. As of the applicable Cut-Off
Date, no Obligor is a debtor under proceedings under the United States
Bankruptcy Code, and no Obligor has defaulted in payments on a Home
Loan after the filing of such bankruptcy case, whether under a plan or
reorganization or otherwise;
(aj) [Reserved]
(ak) [Reserved]
(al) [Reserved]
(am) [Reserved]
(an) Environmental Compliance. To the best of the
Transferor's knowledge, any related Mortgaged Property is free from
any and all toxic and hazardous substances and there exists no
violation of any environmental law, rule or regulation (whether local,
state or federal) in respect of any such Mortgaged Property which
violation has or could have a material adverse effect on the market
value of such Mortgaged Property. The Transferor has no knowledge of
any pending action or proceeding directly involving any related
Mortgaged Property in which compliance with any environmental law,
rule or regulation is in issue; and, to the Transferor's best
knowledge, nothing further remains to be done to satisfy in full all
requirements of each such law, rule or regulation constituting a
prerequisite to the use and enjoyment of such Mortgaged Property;
(ao) [Reserved]
(ap) No Taxable Mortgage Pool. With respect to Home Loans,
on the Closing Date, 55% or more (by aggregate Principal Balance) of
the Home Loans do not constitute "real estate mortgages" for the
purpose of Treasury Regulations Section 301.7701(i). For this purpose
a Home Loan does not constitute a "real estate mortgage" if:
(i) The Home Loan is not secured by an interest
in real property, or
(ii) The Home Loan is not an "obligation principally
secured by an interest in real property." For this purpose an
"obligation is principally secured by an interest in real
property" if it satisfies either test set out in paragraph (1)
or paragraph (2) below.
(1) The 80-percent test. An obligation is
principally secured by an interest in real
property if the fair market value of the
interest in real property securing the
obligation (A) was at least equal to 80
percent of the adjusted issue price of the
obligation at the time the obligation was
originated (or, if later, the time the
obligation was significantly modified); or
(B) is at least equal to 80 percent of the
adjusted issue price of the obligation on
the Closing Date.
For purposes of this paragraph (1), the fair market value of
the real property interest must be first reduced by the amount
of any lien on the real property interest that is senior to
the obligation being tested, and must be further reduced by a
proportionate amount of any lien that is in parity with the
obligation being tested, in each case before the percentages
set forth in (1)(A) and (1)(B) are determined. The adjusted
issue price of an obligation is its issue price plus the
amount of accrued original issue discount, if any, as of the
date of determination.
(2) Alternative test. An obligation is
principally secured by an interest in real
property if substantially all of the
proceeds of the obligation were used to
acquire or to improve or protect an interest
in real property that, at the origination
date, is the only security for the
obligation. For purposes of this test, loan
guarantees made by the United States or any
state (or any political subdivision, agency,
or instrumentality of the United States or
of any state), or other third party credit
enhancement are not viewed as additional
security for a loan. An obligation is not
considered to be secured by property other
than real property solely because the
obligor is personally liable on the
obligation. For this purpose only,
substantially all of the proceeds of the
obligations means 66 2/3% or more of the
gross proceeds.
(aq) [Reserved]
(ar) Consent of Superior Lien. With respect to each Home
Loan (other than Unsecured Home Loans) that is not a first lien
mortgage loan, either (i) no consent for the Home Loan was required by
the holder of the related Superior Lien or (ii) such consent has been
obtained and has been delivered to the Indenture Trustee;
(as) Loan Types; Owner Occupied Properties. Each Home Loan
is a Combination Loan, a Debt Consolidation Loan or a home equity loan
and at the time of its origination no Home Loan was secured by a
Mortgage on a non-owner occupied Mortgaged Property;
(at) Debt Instrument. Each Debt Instrument is comprised of
an original promissory note and each promissory note constitutes an
"instrument" or "chattel paper" for purposes of Article 9 of the UCC;
each Debt Instrument has been delivered to the Custodian;
(au) No Encroachment. To the best of the Transferor's
knowledge, all improvements which were considered in determining the
appraised value of any related Mortgaged Property lay wholly within
the boundaries and building restriction lines of any such Mortgaged
Property and no improvements on adjoining properties encroach upon any
such Mortgaged Property. No improvement located on or being part of
the Mortgaged Property is in violation of any applicable zoning law or
regulation;
(av) [Reserved].
(aw) Enforcement Against Originator. In the event that the
Home Loan was originated by an entity (such entity, the "Originator")
other than the Transferor or an affiliate of the Transferor, the
Grantor Trustee and the Indenture Trustee may enforce any remedies for
breach of representations and warranties made by the Transferor with
respect to such Home Loan;
(ax) No Buydown or GPM Loans. The Home Loan does not contain
provisions pursuant to which Monthly Payments are paid or partially
paid with funds deposited in any separate account established by the
Transferor, the Obligor or anyone on behalf of the Obligor, or paid by
any source other than the Obligor nor does it contain any other
similar provisions currently in effect which may constitute a
"buydown" provision. The Home Loan is not a graduated payment Home
Loan and the Home Loan does not have a shared appreciation or other
contingent interest feature; and
(ay) Review of Loan Documents. The Transferor has reviewed
all of the documents constituting the Mortgage File and has made such
inquiries as it deems reasonable under the circumstances to make and
confirm the accuracy of the representations set forth herein.
Section 3.05 Purchase and Substitution.
(a) It is understood and agreed that the representations and warranties set
forth in Section 3.02 and Section 3.04 hereof shall survive the conveyance of
the Home Loans from the Transferor to the Depositor and from the Depositor to
the Grantor Trustee, the conveyance of the Grantor Trust Certificate to the
Issuer, the pledge of the Grantor Trust Certificate to the Indenture Trustee and
the delivery of the Notes to the Noteholders. Upon discovery by the Depositor,
the Servicer, the Transferor, any Custodian, the Issuer, the Indenture Trustee,
the Grantor Trustee, the Owner Trustee or any Securityholder of a breach of any
of the representations and warranties set forth in Section 3.02 and Section 3.04
which materially and adversely affects the value of the Home Loans or the
interests of the Grantor Trustee, the Owner Trustee or the Indenture Trustee in
the related Home Loan (notwithstanding that such representation and warranty was
made to the Transferor's best knowledge), the party discovering such breach
shall give prompt written notice to the others. The Transferor shall within 60
days of the earlier of its discovery or its receipt of notice of any breach of a
representation or warranty, including any breach of the representation set forth
in Section 3.04(ap) hereof as a result of an aggregate of Home Loans which would
not otherwise cause a breach of any other representation or warranty, promptly
cure such breach in all material respects. If within 60 days after the earlier
of the Transferor's discovery of such breach or the Transferor's receiving
notice thereof such breach has not been remedied by the Transferor and such
breach materially and adversely affects the interests of the Grantor Trustee,
the Owner Trustee or the Indenture Trustee in, or the value of, the related Home
Loan (the "Defective Home Loan"), the Transferor shall on or before the
Determination Date next succeeding the end of such 60-day period either (i)
remove such Defective Home Loan from the Grantor Trust (in which case it shall
become a Deleted Home Loan) and substitute one or more Qualified Substitute Home
Loans in the manner and subject to the conditions set forth in this Section 3.05
or (ii) purchase such Defective Home Loan at a purchase price equal to the
Purchase Price by depositing such Purchase Price in the Collection Account. The
Transferor shall provide the Servicer, the Indenture Trustee, the Grantor
Trustee and the Owner Trustee with a certification of a Responsible Officer on
the Determination Date next succeeding the end of such 60-day period indicating
whether the Transferor is purchasing the Defective Home Loan or substituting in
lieu of such Defective Home Loan a Qualified Substitute Home Loan.
Any substitution of Home Loans pursuant to this Section 3.05(a) shall be
accompanied by payment by the Transferor of the Substitution Adjustment, if any,
to be deposited in the Collection Account. For purposes of calculating the
Available Collection Amount for any Payment Date, amounts paid by the Transferor
pursuant to this Section 3.05 in connection with the repurchase or substitution
of any Defective Home Loan that are on deposit in the Collection Account as of
the Determination Date for such Payment Date shall be deemed to have been paid
during the related Due Period and shall be transferred to the Note Payment
Account as part of the Available Collection Amount to be retained therein or
transferred to the Certificate Distribution Account, if applicable, pursuant to
Section 5.01(c) hereof.
In addition to such cure, repurchase or substitution obligation, the
Transferor shall indemnify the Issuer, the Depositor, the Indenture Trustee, the
Grantor Trustee and the Securityholders against any losses, damages, penalties,
fines, forfeitures, reasonable and necessary legal fees and related costs,
judgments, and other costs and expenses resulting from any claim, demand,
defense or assertion based on or grounded upon, or resulting from, a breach by
the Transferor of any of it representations and warranties contained in Section
3.02 and Section 3.04.
(b) In addition to the preceding repurchase obligations, each of the
Transferor and Servicer shall have the option, exercisable in its sole
discretion at any time, (i) to repurchase from the Grantor Trustee any Defaulted
Home Loan or (ii) substitute one or more Qualified Substitute Home Loans for any
Defaulted Home Loan (in which case such Defaulted Home Loan shall become a
Deleted Home Loan); provided, however, that any such repurchase or substitution
of a Defaulted Home Loan pursuant to this Subsection shall be conducted in the
same manner as the repurchase or substitution of a Defective Home Loan pursuant
to this Section 3.05.
(c) As to any Deleted Home Loan for which the Transferor substitutes a
Qualified Substitute Home Loan or Loans, the Transferor shall effect such
substitution by delivering to the Indenture Trustee and Grantor Trustee (i) a
certification executed by a Responsible Officer of the Transferor to the effect
that the Substitution Adjustment has been credited to the Collection Account and
(ii) the documents constituting the Grantor Trustee's Home Loan File for such
Qualified Substitute Home Loan or Loans.
The Servicer shall deposit in the Collection Account all payments received
in connection with such Qualified Substitute Home Loan or Loans after the date
of such substitution. Monthly Payments received with respect to Qualified
Substitute Home Loans on or before the date of substitution will be retained by
the Transferor. The Grantor Trustee will be entitled to all payments received on
the Deleted Home Loan on or before the date of substitution and the Transferor
shall thereafter be entitled to retain all amounts subsequently received in
respect of such Deleted Home Loan. The Transferor shall give written notice to
the Grantor Trustee, the Servicer (if the Transferor is not then acting as
such), the Indenture Trustee and Owner Trustee that such substitution has taken
place and the Servicer shall amend the Home Loan Schedule to reflect (i) the
removal of such Deleted Home Loan from the terms of this Agreement and (ii) the
substitution of the Qualified Substitute Home Loan. The Transferor shall
promptly deliver to the Grantor Trustee, the Servicer (if the Transferor is not
then acting as such), the Indenture Trustee and Owner Trustee, a copy of the
amended Home Loan Schedule. Upon such substitution, such Qualified Substitute
Home Loan or Loans shall be subject to the terms of this Agreement in all
respects, and the Transferor shall be deemed to have made with respect to such
Qualified Substitute Home Loan or Loans, as of the date of substitution, the
covenants, representations and warranties set forth in Section 3.02 and Section
3.04 hereof. On the date of such substitution, the Transferor will deposit into
the Collection Account an amount equal to the related Substitution Adjustment,
if any.
(d) With respect to all Defective Home Loans or other Home Loans
repurchased by the Transferor pursuant to this Agreement, upon the deposit of
the Purchase Price therefor into the Collection Account, the Grantor Trustee
shall assign to the Transferor, without recourse, representation or warranty,
all the Grantor Trustee's right, title and interest in and to such Defective
Home Loans or other Home Loans, which right, title and interest were conveyed to
the Grantor Trustee pursuant to the Grantor Trust Agreement. The Grantor Trustee
shall take any actions as shall be reasonably requested by the Transferor to
effect the repurchase of any such Home Loans.
(e) It is understood and agreed that the obligations of the Transferor to
cure or to repurchase or substitute any such Home Loan, and to indemnify for any
breach of any representation or warranty with respect thereto, pursuant to this
Section 3.05 shall constitute the sole remedies against it with respect to such
breach of the foregoing representations or warranties or the existence of the
foregoing conditions. With respect to representations and warranties made by the
Transferor pursuant to Section 3.02 and Section 3.04 hereof that are made to the
Transferor's best knowledge, if it is discovered by any of the Depositor, the
Transferor, the Indenture Trustee, the Grantor Trustee or the Owner Trustee that
the substance of such representation and warranty is inaccurate and such
inaccuracy materially and adversely affects the value of the related Home Loan,
notwithstanding the Transferor's lack of knowledge, such inaccuracy shall be
deemed a breach of the applicable representation and warranty. Any cause of
action against the Transferor relating to or arising out of a defect in a
Grantor Trustee's Home Loan File as contemplated by Section 2.06 of the Grantor
Trust Agreement or against the Transferor relating to or arising out of a breach
of any representations and warranties made in Section 3.02 and Section 3.04
hereof shall accrue as to any Home Loan upon (i) discovery of such defect or
breach by any party and notice thereof to the Transferor or notice thereof by
the Transferor to the Indenture Trustee, (ii) failure by the Transferor to cure
such defect or breach or purchase or substitute such Home Loan as specified
above, and (iii) demand upon the Transferor, as applicable, by the Grantor
Trustee or the Grantor Trust Holder for all amounts payable in respect of such
Home Loan.
(f) Neither the Grantor Trustee, the Owner Trustee nor the Indenture
Trustee shall have any duty to conduct any affirmative investigation other than
as specifically set forth in this Agreement as to the occurrence of any
condition requiring the repurchase or substitution of any Home Loan pursuant to
this Section or the eligibility of any Home Loan for purposes of this Agreement.
(g) In connection with a repurchase or substitution of any Home Loan
pursuant to this Section 3.05, the Servicer shall amend the Home Loan Schedule
to reflect (i) the removal of the applicable Deleted Home Loan from the terms of
this Agreement, and (ii) if applicable, the substitution of the applicable
Qualified Substitute Home Loan. In connection with its monthly reporting here
under, the Servicer shall deliver a copy of the amended Home Loan Schedule to
the Grantor Trustee, the Indenture Trustee and the Transferor.
ARTICLE IV
ADMINISTRATION AND SERVICING OF THE HOME LOANS
Section 4.01 Duties of the Servicer.
(a) Servicing Standard. The Servicer, as an independent contractor, shall
service and administer the Home Loans and shall have full power and authority,
acting alone, to do any and all things in connection with such servicing and
administration which the Servicer may deem necessary or desirable and consistent
with the terms of this Agreement and the Accepted Servicing Procedures.
Notwithstanding anything to the contrary contained herein, the Servicer, in
servicing and administering the Home Loans, shall employ or cause to be employed
procedures (including collection, modification, foreclosure and liquidation
procedures) that conform to the Accepted Servicing Procedures. In performing its
obligations hereunder the Servicer shall at all times act in good faith and in a
commercially reasonable manner. The Servicer shall provide to the Obligors any
reports and statements that are required by applicable state or federal law. The
Servicer has and shall maintain the facilities, procedures and experienced
personnel that are reasonably necessary to comply with the servicing standard
set forth in this Section 4.01(a) and the duties of the Servicer set forth in
this Agreement relating to the servicing and administration of the Home Loans.
(b) Servicing Advances. In accordance with the preceding general servicing
standard, the Servicer, or any Subservicer on behalf of the Servicer, shall make
all Servicing Advances in connection with the servicing of each Home Loan
hereunder. Notwithstanding any provision to the contrary herein, neither the
Servicer nor any Subservicer on behalf of the Servicer shall have any obligation
to advance its own funds (i) for any delinquent scheduled payments of principal
and interest on any Home Loan, (ii) to cure, keep current or, in connection with
any proceeding against the related Mortgaged Property, satisfy the indebtedness
secured by any Superior Liens on such Mortgaged Property. No costs incurred by
the Servicer or any Subservicer in respect of Servicing Advances shall, for the
purposes of distributions in respect of the Grantor Trust Certificate to
Securityholders, be added to the amount owing under the related Home Loan.
Notwithstanding any obligation by the Servicer to make a Servicing Advance
hereunder with respect to a Home Loan, the Servicer shall only make a Servicing
Advance for such Home Loan, if the Servicer, in good faith, determines there is
a reasonable likelihood of (i) recovering such Servicing Advance, together with
any expected future Servicing Advances and any prior Servicing Advances for such
Home Loan, and (ii) recovering an economically significant amount attributable
to the outstanding interest and principal owing on such Home Loan for the
benefit of the Securityholders in excess of the costs and expenses to obtain
such recovery, including without limitation any Servicing Advances therefor and,
if applicable, the outstanding indebtedness of all Superior Liens. Pursuant to
this Agreement the Servicer will be entitled to be reimbursed for any Servicing
Advances, plus any accrued interest thereon from the date of such advance to the
date of reimbursement and at the rate equal to the Servicer's cost of funds,
including any Nonrecoverable Servicing Advance pursuant to Section 5.01(c)
hereof.
(c) Waivers, Modifications and Extensions; Subordination. In
accordance with the servicing standard in Section 4.01(a), the Servicer shall
collect all payments called for under the terms and provisions of the Home
Loans. The Servicer in its discretion may waive or permit to be waived any
penalty interest or any other fee or charge which the Servicer would be entitled
to retain hereunder as servicing compensation and extend the Due Date on a Debt
Instrument for a period (with respect to each payment as to which the Due Date
is extended) not greater than 90 days after the initially scheduled Due Date for
such payment. Notwithstanding anything in this Agreement to the contrary, the
Servicer shall not permit any additional extension or modification with respect
to any Home Loan other than that permitted by the immediately preceding
sentence, unless the Home Loan is a Defaulted Home Loan. (See Section 4.10
hereof for a description of the recovery procedures for Defaulted Home Loans.)
The Servicer may in its discretion enter in subordination agreements with
respect to any Home Loan, provided that the Servicer determines, consistent with
this Agreement and the Accepted Servicing Procedures, that the entering into of
such subordination agreement is in the best interests of the Grantor Trust. The
Servicer may grant a waiver or enter into a subordination agreement with respect
to the refinancing of the indebtedness secured by a Superior Lien on the related
Mortgaged Property, provided that the Obligor is in a better financial or cash
flow position as a result of such refinancing, which may include a reduction in
the Obligor's scheduled monthly payment on the indebtedness secured by such
Superior Lien or the conversion of an adjustable rate loan into a new fixed rate
loan. The Servicer shall notify the Grantor Trustee and the Indenture Trustee of
any modification, waiver or amendment of any provision of any Home Loan and the
date thereof, and shall deliver to the Custodian for deposit in the related
Grantor Trustee's Home Loan File, a true and correct copy or, if available, an
original of the agreement relating to such modification, waiver or amendment
promptly following the execution thereof.
(d) Instruments of Satisfaction or Release. Without limiting the generality
of Section 4.01(c), the Servicer, in its own name or in the name of a
Subservicer, is hereby authorized and empowered, when the Servicer believes it
appropriate in its best judgment, to execute and deliver, on behalf of the
Grantor Trust Holder and the Grantor Trustee or any of them, and upon notice to
the Grantor Trustee, any and all instruments of satisfaction or cancellation or
of partial or full release or discharge, and all other comparable instruments
with respect to the Home Loans and the Mortgaged Properties and to institute
foreclosure proceedings or obtain a deed in lieu of foreclosure so as to convert
the ownership of such properties, and to hold or cause to be held title to such
properties, on behalf of the Grantor Trustee and Grantor Trust Holder.
(e) Powers of Attorney. The Grantor Trustee shall execute, at the written
direction of the Servicer, any limited or special powers of attorney and other
documents reasonably acceptable to the Grantor Trustee to enable the Servicer or
any Subservicer to carry out their servicing and administrative duties
hereunder, including, without limitation, limited or special powers of attorney
with respect to any Foreclosure Property, and the Grantor Trustee shall not be
accountable for the actions of the Servicer or any Subservicers under such
powers of attorney and shall be indemnified by such parties with respect to such
actions.
Section 4.02 [Reserved]
Section 4.03 Fidelity Bond; Errors and Omissions Insurance.
The Servicer shall maintain with a responsible company, and at its own
expense, a blanket fidelity bond and an errors and omissions insurance policy in
such amounts as required by, and satisfying any other requirements of, the
Federal Housing Administration and the FHLMC, with broad coverage on all
officers, employees or other persons acting in any capacity requiring such
persons to handle funds, money, documents or papers relating to the Home Loans
("Servicer Employees"). Any such fidelity bond and errors and omissions
insurance shall protect and insure the Servicer against losses, including losses
resulting from forgery, theft, embezzlement, fraud, errors and omissions and
negligent acts (including acts relating to the origination and servicing of
loans of the same type as the Home Loans) of such Servicer Employees. Such
fidelity bond shall also protect and insure the Servicer against losses in
connection with the release or satisfaction of a Home Loan without having
obtained payment in full of the indebtedness secured thereby. In the event of
any loss of principal or interest on a Home Loan for which reimbursement is
received from the Servicer's fidelity bond or errors and omissions insurance,
the proceeds from any such insurance will be deposited in the Collection
Account. No provision of this Section 4.03 requiring such fidelity bond and
errors and omissions insurance shall diminish or relieve the Servicer from its
duties and obligations as set forth in this Agreement. Upon the request of the
Grantor Trustee or the Indenture Trustee, the Servicer shall cause to be
delivered to the requesting party a certified true copy of such fidelity bond
and insurance policy.
Section 4.04 Filing of Continuation Statements.
On or before the fifth anniversary of the filing of any financing
statements by the Transferor and the Depositor, respectively, with respect to
the assets conveyed to the Grantor Trustee or to the Owner Trust, the Transferor
and the Depositor shall prepare, have executed by the necessary parties and file
in the proper jurisdictions all financing and continuation statements necessary
to maintain the liens, security interests and priorities of such liens and
security interests that have been granted by the Transferor and the Depositor,
respectively, the Transferor and the Depositor shall continue to file on or
before each fifth anniversary of the filing of any financing and continuation
statements such additional financing and continuation statements until the Owner
Trust and Grantor Trust have terminated pursuant to Section 9.1 of the Owner
Trust Agreement and Section 7.01 of the Grantor Trust Agreement, respectively.
The Indenture Trustee and Grantor Trustee agree to cooperate with the Transferor
and the Depositor in preparing, executing and filing such statements. The
Indenture Trustee and Grantor Trustee agree to notify the Transferor and the
Depositor on the third Payment Date prior to each such fifth anniversary of the
requirement that they file such financing and continuation statements. The
filing of any such statement with respect to the Transferor and the Depositor
shall not be construed as any indication of an intent of any party contrary to
the expressed intent set forth in Section 2.03 hereof and Section 2.04 of the
Grantor Trust Agreement. If the Transferor or the Depositor has ceased to do
business whenever any such financing and continuation statements must be filed
or the Transferor or the Depositor fails to file any such financing statements
or continuation statements at least one month prior to the expiration thereof,
each of the Transferor and the Depositor does hereby make, constitute and
appoint the Grantor Trustee its attorney-in-fact, with full power and authority,
to execute and file in its name and on its behalf any such financing statements
or continuation statements required under this Section 4.04 relating to assets
conveyed to the Grantor Trustee and the Depositor does hereby make, constitute
and appoint the Indenture Trustee its attorney-in-fact, with full power and
authority, to execute and file in its name and on its behalf any such financing
statements or continuation statements required under this Section 4.04 relating
to assets conveyed to the Owner Trust.
Section 4.05 [Reserved]
Section 4.06 Subservicing.
(a) Appointment and Termination of Subservicers. The Servicer may enter
into Subservicing Agreements for any servicing and administration of Home Loans
with any institution that is an Eligible Servicer and in compliance with the
laws of each state necessary to enable it to perform its obligations under such
Subservicing Agreement. The Servicer shall give prior written notice to the
Grantor Trustee of the appointment of any Subservicer. The Servicer shall be
entitled to terminate any Subservicing Agreement in accordance with the terms
and conditions of such Subservicing Agreement and to either service the related
Home Loans directly or enter into a Subservicing Agreement with a successor
subservicer which qualifies hereunder.
In the event of termination of any Subservicer, and unless a successor
Subservicer has otherwise been appointed, all servicing obligations of such
Subservicer shall be assumed simultaneously by the Servicer without any
additional act or deed on the part of such Subservicer or the Servicer, and the
Servicer shall service directly the related Home Loans.
Each Subservicing Agreement shall include the provision that such agreement
may be immediately terminated by the Grantor Trustee in the event that the
Servicer shall, for any reason, no longer be the Servicer. In no event shall any
Subservicing Agreement require the Grantor Trustee, as Successor Servicer, for
any reason whatsoever to pay compensation to a Subservicer in order to terminate
such Subservicer.
(b) Servicer Liability. Notwithstanding any Subservicing Agreement, any of
the provisions of this 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 remain obligated and primarily
liable to the Grantor Trustee and the Grantor Trust Holder for the servicing and
administration of the Home Loans in accordance with the provisions of this
Agreement without diminution of such obligation or liability by virtue of such
Subservicing Agreements or arrangements or by virtue of indemnification from the
Subservicer and to the same extent and under the same terms and conditions as if
the Servicer alone were servicing and administering the Home Loans. For purposes
of this Agreement, the Servicer shall be deemed to have received payments on
Home Loans when the Subservicer has actually received such payments and, unless
the context otherwise requires, references in this Agreement to actions taken or
to be taken by the Servicer in servicing the Home Loans include actions taken or
to be taken by a Subservicer on behalf of the Servicer. The Servicer shall be
entitled to enter into any agreement with a Subservicer for indemnification of
the Servicer by such Subservicer, and nothing contained in this Agreement shall
be deemed to limit or modify such indemnification.
(c) Assumption by Successor Servicer. In the event the Servicer shall for
any reason no longer be the Servicer (including by reason of an Event of
Default), the successor Servicer, on behalf of the Grantor Trustee, the
Indenture Trustee, the Securityholders and the Grantor Trust Holder pursuant to
Section 4.07 hereof, shall thereupon assume all of the rights and obligations of
the Servicer under each Subservicing Agreement that the Servicer may have
entered into, unless the successor Servicer elects to terminate any Subservicing
Agreement in accordance with its terms. The successor Servicer shall be deemed
to have assumed all of the Servicer's interest therein and to have replaced the
Servicer as a party to each Subservicing Agreement to the same extent as if the
Subservicing Agreements had been assigned to the assuming party, except that the
Servicer shall not thereby be relieved of any liability or obligations under the
Subservicing Agreements which accrued prior to the transfer of servicing to the
successor Servicer. The Servicer, at its expense and without right of
reimbursement therefor, shall, upon request of the successor Servicer, deliver
to the assuming party all documents and records relating to each Subservicing
Agreement and the Home Loans then being serviced and an accounting of amounts
collected and held by it and otherwise use its best efforts to effect the
orderly and efficient transfer of the Subservicing Agreements to the assuming
party.
(d) Enforcement of Subservicing. As part of its servicing activities
hereunder, the Servicer, for the benefit of the Grantor Trustee, the Grantor
Trust Holder, the Indenture Trustee and the Securityholders, shall enforce the
obligations of each Subservicer under the related Subservicing Agreement. Such
enforcement, including, without limitation, the legal prosecution of claims 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 Home Loans. The
Servicer shall pay the costs of such enforcement at its own expense and shall be
reimbursed therefor only (i) from a general recovery resulting from such
enforcement to the extent, if any, that such recovery exceeds all amounts due in
respect of the related Home Loan or (ii) from a specific recovery of costs,
expenses or attorneys' fees against the party against whom such enforcement is
directed.
(e) Limitations on Parties. Any Subservicing Agreement that may be entered
into and any other transactions or services relating to the Home Loans involving
a Subservicer shall be deemed to be between the Subservicer and the Servicer
alone and none of the Grantor Trustee, the Owner Trustee, the Indenture Trustee,
the Securityholders or the Grantor Trust Holder shall be deemed parties thereto
or shall have any claims, rights, obligations, duties or liabilities with
respect to the Subservicer in its capacity as such, except as set forth in
Section 4.06(c).
(f) Subservicing Account. In those cases where a Subservicer receives or
collects any payments from a Home Loan, the Subservicer will be required to
establish and maintain one or more accounts (collectively, the "Subservicing
Account"). The Subservicing Account shall be an Eligible Account. The
Subservicer will be required to deposit into the Subservicing Account, no later
than the first Business Day after receipt, all proceeds of Home Loans received
by the Subservicer and remit such proceeds to the Servicer for deposit in the
Collection Account not later than the Business Day following receipt thereof by
the Subservicer. Notwithstanding anything in this Subsection to the contrary,
the Subservicer shall only be able to withdraw funds from the Subservicing
Account for the purpose of remitting such funds to the Servicer for deposit into
the Collection Account. The Servicer shall require the Subservicer to cause any
collection agent of the Subservicer to send a copy to the Servicer of each
statement of monthly payments collected by or on behalf of the Subservicer
within five Business Days after the end of every month, and the Servicer shall
compare the information provided in such reports with the deposits made by the
Subservicer into the Collection Account for the same period. The Servicer shall
be deemed to have received payments on the Home Loans on the date on which the
Subservicer has received such payments.
Section 4.07 Successor Servicers.
In the event that the Servicer is terminated pursuant to Section 10.01
hereof, or resigns pursuant to Section 9.04 hereof or otherwise becomes unable
to perform its obligations under this Agreement, the Grantor Trustee will become
the successor servicer or will appoint a successor servicer in accordance with
the provisions of Section 10.02 hereof; provided, however, that any successor
servicer, excluding the Grantor Trustee, shall satisfy the requirements of an
Eligible Servicer and shall be approved by the Rating Agencies.
Section 4.08 Collections from Insurance Policies.
Any amounts collected by the Servicer under any Insurance Policies shall be
paid over or applied by the Servicer as follows:
(i) In the case of amounts received in respect of any Home
Loan:
(A) for the restoration or repair of the
affected Mortgaged Property, in which event
such amounts shall be released to the
Obligor in accordance with the terms of the
related Debt Instrument or Mortgage, or
(B) to the extent not so used, in reduction of
the Principal Balance of the related Home
Loan, in which event such amounts shall be
deposited into the Collection Account,
unless the related Debt Instrument or Mortgage require a
different application, in which case such amounts shall be
applied in the manner provided therein; and
(ii) Subject to Section 4.10 and 4.11(c) hereof, in the case
of amounts received in respect of any Foreclosure Property,
for the restoration or repair of such Foreclosure Property,
unless the Servicer determines, consistent with the servicing
standard set forth in Section 4.01 hereof, that such
restoration or repair is not in the best economic interest of
the Grantor Trust Holder, in which event such amounts shall be
deposited into the Collection Account as a payment received
from the operation of such Foreclosure Property.
Section 4.09 Reports to the Securities and Exchange Commission;
144A Information.
(a) The Indenture Trustee shall, on behalf of the Issuer, cause to be filed
with the Securities and Exchange Commission all monthly reports on Form 8-K and
annual reports on Form 10-K required to be filed under the provisions of the
Securities Exchange Act of 1934, as amended, and the rules and regulations of
the Securities and Exchange Commission thereunder. Upon the request of the
Indenture Trustee, each of the Servicer and the Transferor shall cooperate with
the Indenture Trustee in the preparation of any such report and shall provide to
the Indenture Trustee in a timely manner all such information or documentation
as the Indenture Trustee may reasonably request in connection with the
performance of its duties and obligations under this Section 4.09. The Indenture
Trustee shall indemnify and hold harmless each of the Issuer and the Depositor
for any costs, expenses or liability arising as a result of the failure of the
Indenture Trustee to perform its duties and obligations under this Section 4.09.
(b) The Servicer shall provide to the Indenture Trustee, if requested,
information regarding the Class B-2 Notes and the Home Loans and such other
information as the Indenture Trustee shall be required to deliver to any holder
of a Class B-2 Note and any prospective transferee designated by any such holder
to satisfy the condition of eligibility set forth in Rule 144A(d)(4) under the
Securities Act.
Section 4.10 Recovery from Defaulted Home Loans and Liquidated Home Loans.
(a) General Standard. If any Home Loan becomes a Defaulted Home Loan, then
the Servicer, in accordance with the servicing standard in Section 4.01(a),
shall take such action as it shall deem to be in the best interest of the
Grantor Trust Holder and Securityholders, including but not limited to (i)
repurchasing or substituting such Defaulted Home Loan pursuant to Section 3.05,
(ii) accepting short payoffs or short sales, (iii) entering into assumptions and
modifications, (iv) referring such Defaulted Home Loan to a collection agency or
attorney, or pursuing collection litigation or alternative court proceedings to
foreclosure actions, (v) selling such Defaulted Home Loan to another person, or
(vi) foreclosing or proceeding against the Mortgaged Property securing such
Defaulted Home Loan. The Servicer shall be acting in the best interests of the
Grantor Trust Holder and Securityholders, when the Servicer, in accordance with
the Accepted Servicing Procedures, undertakes actions to collect a Defaulted
Home Loan that have a higher likelihood of a reasonable recovery within a
shorter time period, and foregoes taking actions that have a lower likelihood of
a larger recovery over a longer time period. If with respect to a Defaulted Home
Loan the Servicer decides not to proceed against the Mortgaged Property or
Obligor, as applicable, then the Servicer shall determine in accordance with the
Accepted Servicing Procedures that there is not a reasonable likelihood of (A)
recovering an economically significant amount attributable to the outstanding
interest and principal owing on such Home Loan as a result of such proceeding,
in excess of (B) the costs and expenses to obtain such recovery (including
without limitation any Servicing Advances and, if applicable, the outstanding
indebtedness of all Superior Liens), and in relation to (C) the expected timing
of such recovery therefrom. If the Servicer makes a determination not to proceed
either against the Mortgaged Property or the Obligor, then the Servicer shall
give notice to such effect to the Grantor Trustee and the Indenture Trustee.
Neither the Grantor Trustee, the Indenture Trustee, the Issuer nor the
Depositor shall have any responsibility or obligation to review or verify any
determination or approve any actions, made by the Servicer pursuant to this
Section 4.10.
(b) Modifications of Defaulted Home Loans. Notwithstanding Section 4.01(c)
hereof, in accordance with Section 4.10(a), the Servicer may modify, vary or
waive the terms of any Defaulted Home Loan in a manner that will be likely to
obtain a reasonable recovery of net proceeds therefrom under the circumstances,
including without limitation the deferment or forgiveness of any principal or
interest payments due or to become due thereon; provided, however, that no such
modification, variation or waiver of a Home Loan shall involve the execution by
the related Obligor of a new Debt Instrument. If a Defaulted Home Loan is
modified pursuant to this Section in a manner that releases a portion of the
Principal Balance thereof, then such released amount shall be included as "Net
Loan Losses" hereunder.
(c) Short Sales and Substitutions of Collateral. In accordance with the
Accepted Servicing Procedures, the Servicer may permit an Obligor, who is
selling their Mortgaged Property that constitutes such Obligor's principal
residence and relocating to another location, to substitute as collateral for
the related Home Loan the Obligor's new single family residence in place of the
Mortgaged Property being sold or any other real or personal property of the
Obligor, which may include an interim substitution of personal property pending
the Obligor's acquisition of a new residence. Other than the pledge of any
incident or ancillary personal property in connection with the pledge of real
property, any pledge of personal property by an Obligor as for the related Home
Loan pursuant to this Subsection ("Substitute Collateral") shall be limited to
personal property consisting of one or more of the following types: (1) a
deposit account at any federally insured depository institution; (2) a
certificate of deposit or time deposit of any federally insured depository
institution; or (3) such other types of personal property that have been
approved by the Grantor Trustee, the Indenture Trustee and each Rating Agency as
a form of Substitute Collateral hereunder, which may include an instrument
(within the meaning of Section 9-105(1) of the UCC) or a security (within the
meaning of Section 8-102(1) of the UCC). Under certain circumstances, if such
Obligor has received net proceeds from the sale of the prior residence that will
not be applied to the purchase of the new residence, then the Servicer, in its
discretion, may require that such Obligor either (i) make a partial prepayment
in reduction of the principal balance of the Home Loan, or (ii) place such funds
into a depository account or certificate of deposit as collateral for the
related Home Loan. The Servicer shall undertake all actions, as deemed necessary
or appropriate by the Servicer to effectuate the substitution of any real or
personal property by an Obligor as collateral for the related Home Loan pursuant
to this Subsection and the release of the then existing Mortgaged Property
including all such actions to effectuate: (1) the inclusion of the security
interests in such Substitute Collateral as part of the Grantor Trust Estate; (2)
the delivery to the Custodian for inclusion in the related Grantor Trustee's
Home Loan File of an appropriate security agreement with respect to such
Substitute Collateral (including a new Mortgage with respect to any real
property being substituted); (3) the delivery and pledge of the security
interests in such Substitute Collateral to the Grantor Trustee under the Grantor
Trust Agreement, including the delivery of any substitute Collateral consisting
of primarily personal property in the same manner as provided by the definition
of "Delivery" in Section 1.01 hereof; and (4) any other actions as reasonably
requested by the Grantor Trustee or Indenture Trustee to accomplish such
substitution of Substitute Collateral. In addition, if an Obligor is selling
their Mortgaged Property and the circumstances relating to such sale involve
compensating factors or a distressed situation, in each case as determined
solely by the Servicer, then in accordance with the Accepted Servicing
Procedures the Servicer may: (i) accept a partial prepayment by the Obligor of
the Principal Balance in consideration for a release of the Mortgaged Property
as security for the Home Loan, but with a continuation of the Debt Instrument
and the Home Loan on an unsecured basis (i.e., a "short sale"); or (ii) accept a
settlement involving a partial payment by the Obligor in consideration for the
termination of the Home Loan, the cancellation of the Debt Instrument and the
release of the Mortgaged Property (i.e., a "short pay-off").
(d) Sale and Charge-Off of Defaulted Home Loans. In accordance with Section
4.10(a) hereof, the Servicer, in its discretion, shall have the power and
authority to sell any Defaulted Home Loan or Liquidated Home Loan, on behalf of
the Grantor Trustee for the benefit of the Grantor Trust Holder and the
Securityholders, to one or more Persons in a manner that will be likely to
obtain a reasonable recovery of net proceeds therefrom under the circumstances.
Notwithstanding the preceding sentence, no Affiliate of the Servicer shall have
the right to purchase any Defaulted Home Loan, unless at the time of such
purchase none of the original ratings assigned to the Notes by any Rating Agency
have been downgraded, or if a ratings downgrade has occurred each Rating Agency
consents to such purchase. The purchase price paid for any Defaulted Home Loan
sold to an Affiliate of the Servicer shall not be less than the price that, in
the reasonable judgment of the Servicer, would have been paid for such Defaulted
Home Loan by Person who is not an Affiliate of the Servicer. The Servicer shall
promptly deposit the Net Liquidation Proceeds or Post-Liquidation Proceeds, as
applicable, from the sale of any Defaulted Home Loans or Liquidated Home Loans
into the Collection Account in accordance with Section 5.01 hereof.
(e) Defaulted Superior Liens. If the Servicer is notified that any
lienholder under a Superior Lien has accelerated or intends to accelerate the
obligations secured by such Superior Lien, or has declared or intends to declare
a default under the related mortgage or the promissory note secured thereby, or
has filed or intends to file an election to have any Mortgaged Property sold or
foreclosed, then, in accordance with the Section 4.10(a) hereof and on behalf of
the Grantor Trust and the Grantor Trustee, the Servicer shall take all
reasonable actions that are necessary to protect the interests of the Grantor
Trust Holder and/or to preserve the security of the related Home Loan. The
Servicer shall promptly notify the Grantor Trustee if it determines not to take
action with respect to such Superior Lien.
(f) Foreclosure Actions. In accordance with the criteria for proceeding
against the Mortgaged Property set forth in Section 4.10(a) hereof, unless
otherwise prohibited by applicable law or court or administrative order, the
Servicer, on behalf of the Grantor Trust Holders, may, at any time, institute
foreclosure proceedings to the extent permitted by law, exercise any power of
sale to the extent permitted by law, obtain a deed in lieu of foreclosure, or
otherwise acquire possession of or title to the related Mortgaged Property, by
operation of law or otherwise. In accordance with Section 4.10(a) hereof, and
(i) in the case of any Mortgage in a first lien position the Servicer shall, or
(ii) in the case of any Mortgage in a subordinate lien position the Servicer
shall have the option to, institute foreclosure proceedings, repossess, exercise
any power of sale to the extent permitted by law, obtain a deed in lieu of
foreclosure or otherwise acquire possession of or title to any Mortgaged
Property, by operation of law or otherwise; provided, however, that in each case
the Servicer shall have determined there is a reasonable likelihood of (A)
recovering an economically significant amount attributable to the outstanding
interest and principal owing on such Home Loan as a result of such actions, in
excess of (B) the costs and expenses to obtain such recovery (including without
limitation any Servicing Advances and, if applicable, the outstanding
indebtedness of all Superior Liens), and in relation to (C) the expected timing
of such recovery therefrom.
Prior to acquiring any Foreclosure Property, however, the Servicer shall
cause a review to be performed, in accordance with the Accepted Servicing
Procedures, on the related Mortgaged Property by a company such as Equifax, Inc.
or Toxicheck, and the scope of such review shall be limited to the review of
public records and documents for indications that such Mortgaged Property has on
it, has under it, or is near hazardous or toxic material or waste. If such
review reveals that the Mortgaged Property has on it, under it or is near
hazardous or toxic material or waste or reveals any other environmental problem,
and the Servicer decides to proceed with the acquisition of such Mortgaged
Property, then the Servicer shall provide to the Grantor Trustee and the
Indenture Trustee an Officer's Certificate with a copy of the related report
that substantiates such decision. Such Officer's Certificate shall provide that
based on an analysis of all available information in the report (including
potential clean up costs and liability claims) at the time it is the best
judgment of the Responsible Officer making such certification that such
foreclosure shall increase Net Liquidation Proceeds to the Grantor Trust. Upon
the receipt of any such Officer's Certificate, the Grantor Trustee, in its
reasonable discretion, shall determine whether to take tile to such Mortgaged
Property. The Grantor Trustee shall promptly forward such report and Officer's
Certificate to the Grantor Trust Holder.
(f) Powers of Attorney. The Grantor Trustee shall furnish the Servicer,
within 5 days after request of the Servicer therefor, any powers of attorney and
other documents necessary and appropriate to carry out its duties under Sections
4.10 and 4.11 hereof, including any documents or powers of attorney necessary to
foreclose any Mortgage. The forms of any such powers or documents shall be
appended to such requests.
(g) Post Liquidation Proceeds. During any Due Period occurring after a Home
Loan becomes a Liquidated Home Loan, the Servicer shall deposit into the
Collection Account any proceeds received by it with respect to such Liquidated
Home Loan or the related Foreclosure Property ("Post-Liquidation Proceeds").
Section 4.11 Title, Management and Disposition of Foreclosure Property.
(a) General Standard. If any Mortgaged Property is acquired in foreclosure
or by deed in lieu of foreclosure (a "Foreclosure Property") pursuant to Section
4.10, the deed or certificate of sale shall be taken in the name of the Grantor
Trustee for the benefit of the Grantor Trust Holder. The Servicer, or its
agents, shall manage, conserve, protect, operate, market, sell and liquidate
each Foreclosure Property for the Grantor Trustee and the Grantor Trust Holder
solely for the purpose of the prudent and prompt disposition and sale of such
Foreclosure Property in accordance with the Accepted Servicing Procedures. The
Servicer shall be responsible for all costs and expenses incurred by it with
respect to any Foreclosure Property; provided, however, that such costs and
expenses will be recoverable as Servicing Advances by the Servicer as
contemplated herein.
(b) Sale of Foreclosure Property. The Servicer may offer to sell to any
Person any Foreclosure Property, if and when the Servicer determines, in a
manner consistent with the Accepted Servicing Procedures, that such a sale would
be in the best interests of the Grantor Trust. The Servicer shall give the
Grantor Trustee and the Indenture Trustee notice of its intention to sell any
Foreclosure Property and shall accept the highest bid received from any Person
that is determined to be a fair price for such Foreclosure Property by the
Servicer, if the highest bidder is a Person other than an Affiliate of the
Servicer, or by an Independent appraiser retained by the Servicer, if the
highest bidder is an Affiliate of the Servicer. In the absence of any bid
determined to be fair as aforesaid, the Servicer shall offer the affected
Foreclosure Property for sale to any Person, other than an Affiliate of the
Servicer, in a commercially reasonable manner for a period of not less than 10
or more than 30 days, and shall accept the highest cash bid received therefor in
excess of the highest bid previously submitted. If no such bid is received, any
Affiliate of the Servicer may resubmit its original bid and the Servicer shall
accept the highest outstanding cash bid, regardless of from whom received. No
Affiliate of the Servicer shall be obligated to submit a bid to purchase any
Foreclosure Property and, notwithstanding anything to the contrary herein,
neither the Grantor Trustee, the Owner Trustee or the Indenture Trustee, in its
individual capacity, nor any of its Affiliates may bid for or purchase any
Foreclosure Property pursuant hereto.
Subject to the provisions of Section 4.10 hereof, the Servicer shall act on
behalf of the Grantor Trustee in negotiating and taking any other action
necessary or appropriate in connection with the sale of any Foreclosure
Property, including the collection of all amounts payable in connection
therewith. Any sale of a Foreclosure Property shall be without recourse to the
Grantor Trustee, the Servicer or the Grantor Trust and, if consummated in
accordance with the terms of this Agreement, neither the Servicer nor the
Grantor Trustee shall have any liability to any Grantor Trust Holder or
Securityholder with respect to the purchase price therefor accepted by the
Servicer or the Grantor Trustee.
(c) Restoration of Foreclosure Property. If a Foreclosure Property has
suffered damage and the complete restoration of such property is not fully
reimbursable by the proceeds from any hazard insurance policies, then the
Servicer shall not be required to make any Servicing Advance for the restoration
of such Foreclosure Property, unless in the reasonable judgment of the Servicer,
as evidenced by an Officer's Certificate, such restoration is likely to increase
the net proceeds from the liquidation of the related Home Loan after
reimbursement for all Servicing Advances. (See also Section 4.08 regarding
collections from insurance policies.)
(d) Contracting for Operation of Foreclosure Property. In accordance with
the Accepted Servicing Procedures, the Servicer may contract with any
independent contractor for the operation, management, marketing or sale of any
Foreclosure Property; provided, however, that the terms and conditions of any
such contract shall not be inconsistent with this Agreement; provided further
that none of the provisions of this Section 4.11 relating to any such contract
or to actions taken through any such independent contractor shall be deemed to
relieve the Servicer of any of its duties and obligations hereunder with respect
to the operation, management, marketing or sale of any such Foreclosure
Property. The Servicer shall be entitled to enter into any agreement with any
independent contractor performing services for it related to its duties and
obligations hereunder for indemnification of the Servicer by such independent
contractor, and nothing in this Agreement shall be deemed to limit or modify
such indemnification. The Servicer shall not be liable for any fees owed by it
to any such independent contractor and any amounts so expended shall be deemed
Servicing Advances.
ARTICLE V
ESTABLISHMENT OF TRUST ACCOUNTS
Section 5.01 Collection Account and Note Payment Account.
(a) (1) Establishment of Collection Account. The Servicer, for the
benefit of the Grantor Trust Holder, shall cause to be established and
maintained one or more Collection Accounts (collectively, the
"Collection Account"), which shall be separate Eligible Accounts and
may be interest-bearing, entitled "Collection Account, U.S. Bank
National Association, as Indenture Trustee, in trust for the Empire
Funding Home Loan Asset Backed Notes, Series 1998-2". The Collection
Account may be maintained with the Indenture Trustee or any other
depository institution which satisfies the requirements set forth in
the definition of Eligible Account. The creation of any Collection
Account other than one maintained with the Indenture Trustee shall be
evidenced by a letter agreement between the Servicer and the
depository institution acceptable to the Indenture Trustee. A copy of
such letter agreement shall be furnished to the Indenture Trustee and,
upon request of any Grantor Trust Holder, to such Grantor Trust
Holder. Funds in the Collection Account shall be invested in
accordance with Section 5.03 hereof.
The Collection Account shall be established, as of the Closing Date, with
the Indenture Trustee as an Eligible Account pursuant to the definition thereof.
The Collection Account may, upon written notice to the Grantor Trustee and the
Indenture Trustee, be transferred to a different depository institution so long
as such transfer is to an Eligible Account acceptable to the Indenture Trustee.
The Depositor hereby collaterally assigns the Collection Account to the Issuer
in connection with the sale of the Grantor Trust Certificate to the Issuer
hereunder.
(2) Establishment of Note Payment Account. No later than the
Closing Date, the Servicer, for the benefit of the Noteholders, shall
cause to be established and maintained with the Indenture Trustee one
or more Note Payment Accounts (collectively, the "Note Payment
Account"), which shall be separate Eligible Accounts and may be
interest-bearing, entitled "Note Payment Account, U.S. Bank National
Association, as Indenture Trustee, in trust for the Empire Funding
Home Loan Asset Backed Notes, Series 1998-2". Funds in the Note
Payment Account shall be invested in accordance with Section 5.03
hereof.
(b) (1) Deposits to Collection Account. The Servicer shall use its
best efforts to deposit or cause to be deposited (without
duplication), within two (2) Business Days after receipt thereof, into
the Collection Account and retain therein in trust for the benefit of
the Grantor Trust Holder:
(i) all payments of principal and interest on the Home Loans
collected after the Cut-Off Date, including any amounts required
to be deposited in the Collection Account pursuant to Section
2.07(b)(vii)(B)(IV) of the Grantor Trust Agreement, but excluding
73% of the interest collected on the Home Loans during the first
Due Period, which shall be retained by the Transferor;
(ii) all Net Liquidation Proceeds pursuant to Section 4.11
hereof;
(iii) all Insurance Proceeds;
(iv) all Released Mortgaged Property Proceeds;
(v) any amounts payable in connection with the repurchase of
any Home Loan and the amount of any Substitution Adjustment
pursuant to Section 2.06 of the Grantor Trust Agreement and
Section 3.05 hereof;
(vi) the deposit of the Termination Price under Section
11.01 hereof; and
(vii) interest and gains on funds held in the Collection
Account.
The Servicer shall be entitled to retain and not deposit into the
Collection Account any amounts received with respect to a Home Loan that
constitute additional servicing compensation pursuant to Section 7.03 hereof,
and such amounts retained by the Servicer during a Due Period shall be excluded
from the calculation of the Servicing Compensation that is distributable to the
Servicer from the Note Payment Account on the next Payment Date following such
Due Period.
(2) Deposits to Note Payment Account. On the second Business Day
prior to each Payment Date, the Indenture Trustee (based on
information provided by the Servicer for such Payment Date) shall
withdraw from the Collection Account the Available Collection Amount
as a distribution in respect of the Grantor Trust Certificate pursuant
to Section 5.02 of the Grantor Trust Agreement and deposit such into
the Note Payment Account for such Payment Date.
(3) Withdrawals from Collection Account. The Indenture Trustee,
at the direction of the Servicer, shall also make the following
withdrawals from the Collection Account, in no particular order of
priority:
(i) to withdraw any amount not required to be deposited
in the Collection Account or deposited therein in error;
(ii) to withdraw any Servicing Advance Reimbursement
Amounts;
(iii) to clear and terminate the Collection Account in
connection with the termination of this Agreement; and
(iv) to make the payments set forth in Section 9.01(e)
hereof.
(c) Withdrawals from Note Payment Account. To the extent funds are
available in the Note Payment Account, the Indenture Trustee (based on the
information provided by the Servicer contained in the Servicer's Monthly
Remittance Report for such Payment Date) shall make withdrawals therefrom by
9:00 a.m. (New York City time) on each Payment Date, for application in the
following order of priority:
(i) to distribute on such Payment Date the following
amounts pursuant to the Indenture in the following order: (a) to
the Servicer on behalf of the Grantor Trustee, an amount equal to
(i) the Servicing Compensation (net of any amounts retained prior
to deposit into the Collection Account pursuant to subsection
(b)(1) above) and all unpaid Servicing Compensation from prior
Payment Dates and (ii) all Nonrecoverable Servicing Advances not
previously reimbursed, (b) to the Indenture Trustee, an amount
equal to the Indenture Trustee Fee and all unpaid Indenture
Trustee Fees from prior Payment Dates, (c) to the Owner Trustee,
an amount equal to the Owner Trustee Fee and all unpaid Owner
Trustee Fees from prior Due Periods, (d) to the Custodian on
behalf of the Grantor Trustee, an amount equal to the Custodian
Fee, if any, and all unpaid Custodian Fees from prior Payment
Dates, and (e) to the Grantor Trustee, an amount equal to the
Grantor Trustee Fee, if any, and all unpaid Grantor Trustee Fees
from prior Payment Dates; and
(ii) to deposit into the Certificate Distribution
Account the applicable portions of the Available Payment Amount
distributable in respect of the Residual Interest calculated
pursuant to subsections (d) and (e) of this Section 5.01 on such
Payment Date.
Notwithstanding that the Notes have been paid in full, the Indenture
Trustee and the Servicer shall continue to maintain the Collection Account and
the Note Payment Account hereunder until the Class Principal Balance of each
Class of Notes has been reduced to zero.
(d) On each Payment Date, the Indenture Trustee (based on the information
provided by the Servicer contained in the Servicer's Monthly Remittance Report
for such Payment Date) shall distribute the Regular Payment Amount from the Note
Payment Account (in the case of all amounts distributable to Noteholders) and
from the Certificate Distribution Account (in the case of all amounts
distributable to Certificateholders), in the following order of priority:
(i) to the holders of the Senior Notes pro rata, their
respective portions of the Senior Noteholders Interest Payment
Amount for such Payment Date;
(ii) sequentially, to the holders of the Class M-1 and
Class M-2 Notes, in that order, their respective portions of the
Mezzanine Noteholders' Interest Payment Amount for such Payment
Date;
(iii) sequentially, to the holders of the Class B-1 and
Class B-2 Notes, in that order, their respective portions of the
Subordinate Noteholders' Interest Payment Amount for such Payment
Date;
(iv) (a) to pay principal of the Class A-6 Notes in an
amount equal to the Class A-6 Lockout Regular Payment Amount and
then (b) sequentially, to pay principal of the Class A-1, Class
A-2, Class A-3, Class A-4, Class A-5 and Class A-6 Notes, in that
order, until the respective Class Principal Balances thereof are
reduced to zero, the amount necessary to reduce the aggregate
Class Principal Balance of such Class A Notes (other than the
Class A-IO Notes) to the Senior Optimal Principal Balance for
such Payment Date; provided, however, that notwithstanding the
payment priorities set forth in clauses (a) and (b) above, on
each Payment Date occurring on or after the reduction of the
Class Principal Balances of the Class M-1 Notes, Class M-2 Notes,
Class B-1 Notes and Class B-2 Notes to zero through the
application of Allocable Loss Amounts, payments shall be made
among the then outstanding Class A Notes (other than the Class
A-IO Notes) pro rata based on their respective Class Principal
Balances and not in accordance with the priorities set forth in
clauses (a) and (b) above;
(v) sequentially, to pay principal of the Class M-1
Notes and Class M-2 Notes in that order, the amount necessary to
reduce the Class Principal Balances thereof to the Class M-1
Optimal Principal Balance and the Class M-2 Optimal Principal
Balance, respectively, for such Payment Date;
(vi) sequentially, to pay principal of the Class B-1
and Class B-2 Notes, in that order, the amount necessary to
reduce the Class Principal Balances thereof to the Class B-1
Optimal Principal Balance and the Class B-2 Optimal Principal
Balance, respectively, for such Payment Date;
(vii) to the appropriate Class of Notes, an amount
equal to the Overcollateralization Deficiency Amount, if any, in
the priorities and amounts specified in Section 5.01(e) hereof
(after giving effect to payments made pursuant to clauses (i)
through (vi) above), and thereafter sequentially, to the Class
M-1 Notes, Class M-2 Notes, Class B-1 and the Class B-2 Notes, in
that order, until their respective Loss Reimbursement
Deficiencies, if any, have been paid in full (first, to the
reimbursement of Allocable Loss Amounts, until completely
reimbursed and then, to any accrued interest thereon); and
(ix) any remaining amount to the holders of the
Residual Interest Certificates.
(e) On each Payment Date, the Indenture Trustee (based on the information
provided by the Servicer contained in the Servicer's Monthly Remittance Report
for such Payment Date) shall distribute the Excess Spread, if any, in the
following order of priority (in each case after giving effect to all payments
specified in Section 5.01(d) hereof):
(i) in an amount up to the Overcollateralization Deficiency Amount,
if any, as follows:
(A) to pay principal of the Class A-6 Notes in an amount equal
to the Class A-6 Lockout Excess Spread Payment Amount and
then
(B) as follows:
(a) sequentially, to pay principal of the Class ▇-▇, ▇▇▇▇▇
▇-▇, Class A-3, Class A-4 Notes, Class A-5 Notes and
Class A-6 Notes, in that order, until the respective
Class Principal Balances thereof are reduced to zero
and until the aggregate of their Class Principal
Balances have been reduced to the Senior Optimal
Principal Balance for such Payment Date;
(b) sequentially, to pay principal of the Class M-1 Notes
and Class M-2 Notes, in that order, until the
respective Class Principal Balances thereof have been
reduced to the Class M-1 Optimal Principal Balance and
Class M-2 Optimal Principal Balance, respectively, for
such Payment Date; and
(c) sequentially, to pay principal of the Class B-1 Notes
and Class B-2 Notes, until the respective Class
Principal Balances thereof have been reduced to the
Class B-1 Optimal Principal Balance and the Class B-2
Optimal Principal Balance for such Payment Date; and
(ii) sequentially, to the Class M-1 Notes, the Class M-2 Notes, Class
B-1 Notes and the Class B-2 Notes, in that order, until their
respective Loss Reimbursement Deficiencies, if any, have been
paid in full (in the case of the Class M-1 Notes and Class M-2
Notes: first, to the reimbursement of Allocable Loss Amounts
until completely reimbursed and, then, to any accrued interest
thereon);
(iii) to the Class A-IO Notes, for any amounts payable on account of
interest that would have been payable on the Class Notional
Balance thereof but for the reduction, if any, of such Class
Notional Balance prior to August 25, 2000; and
(iv) any remaining amount to the holders of the Residual Interest
Certificates.
Section 5.02 Certificate Distribution Account.
(a) Establishment of Certificate Distribution Account. No later than the
Closing Date, the Servicer, for the benefit of the Certificateholders, shall
cause to be established and maintained with the Indenture Trustee for the
benefit of the Owner Trustee on behalf of the Certificateholders one or more
Certificate Distribution Accounts (collectively, the "Certificate Distribution
Account"), which shall be separate Eligible Accounts and may be
interest-bearing, entitled "Certificate Distribution Account, U.S. Bank National
Association, as Indenture Trustee, in trust for the Empire Funding Home Loan
Owner Trust Series 1998-2". Funds in the Certificate Distribution Account shall
be invested in accordance with Section 5.03 hereof.
(b) Distributions. On each Payment Date the Indenture Trustee shall
withdraw from the Note Payment Account all amounts required to be deposited into
the Certificate Distribution Account with respect to such Payment Date pursuant
to Section 5.01(c)(ii) hereof and, on behalf of the Owner Trustee, shall deposit
such amounts into the Certificate Distribution Account. The Indenture Trustee
shall make payments of all remaining amounts on deposit in the Note Payment
Account to the holders of the Notes to the extent of amounts due and unpaid on
the Notes for principal thereof and interest thereon. The Indenture Trustee, on
behalf of the Owner Trustee shall distribute all amounts on deposit in the
Certificate Distribution Account to the holders of the Residual Interest
Certificates.
(c) All payments made on each Class of Notes on each Payment Date will be
made on a pro rata basis among the Noteholders of record of such Class of Notes
on the next preceding Record Date based on the Percentage Interest represented
by their respective Notes, without preference or priority of any kind, and,
except as otherwise provided in the next succeeding sentence, shall be made by
wire transfer of immediately available funds to the account of such Noteholder,
if such Noteholder shall own of record Notes in original Denominations
aggregating at least $250,000 and shall have so notified the Indenture Trustee,
and otherwise by check mailed to the address of such Noteholder appearing in the
Notes Register. The final payment on each Note will be made in like manner, but
only upon presentment and surrender of such Note at the location specified in
the notice to Noteholders of such final payment.
(d) All distributions made on the Residual Interest Certificates on each
Payment Date will be made pro rata among the holders of the Residual Interest
Certificates of record on the next preceding Record Date based on their
percentage holdings in the Residual Interest, without preference or priority of
any kind, and, except as otherwise provided in the next succeeding sentence,
shall be made by wire transfer of immediately available funds to the account of
each such holder, if such holder shall own of record a Residual Interest
Certificate in an original denomination aggregating at least a 50% holding of
the Residual Interest and shall have so notified the Indenture Trustee at least
5 Business Days prior thereto, and otherwise by check mailed to the address of
such Residual Interest holder appearing in the Certificate Register. The final
distribution on each Residual Interest Certificate will be made in like manner,
but only upon presentment and surrender of such Residual Interest Certificate at
the location specified in the notice to holders of the Residual Interest
Certificates of such final distribution. Any amount distributed to the holders
of the Residual Interest Certificates on any Payment Date shall not be subject
to any claim or interest of holders of the other Classes of Notes.
Section 5.03 Trust Accounts; Trust Account Property.
(a) Control of Trust Accounts. Each of the Trust Accounts (or interests
therein) established hereunder has been pledged by the Issuer to the Indenture
Trustee under the Indenture and shall be subject to the lien of the Indenture.
In addition to the provisions hereunder, each of the Trust Accounts shall also
be established and maintained pursuant to the Indenture. Amounts distributed
from each Trust Account in accordance with the Indenture and this Agreement
shall be released from the lien of the Indenture upon such distribution
thereunder or hereunder. The Indenture Trustee shall possess all right, title
and interest in and to all funds on deposit from time to time in the Trust
Accounts (other than the Certificate Distribution Account) and in all proceeds
thereof (including all income thereon) and all such funds, investments, proceeds
and income shall be part of the Trust Account Property and the Owner Trust
Estate. If, at any time, any Trust Account ceases to be an Eligible Account, the
Indenture Trustee (or the Servicer on its behalf) shall, within ten Business
Days (or such longer period, not to exceed 30 calendar days, as to which each
Rating Agency may consent) (i) establish a new Trust Account as an Eligible
Account, (ii) terminate the ineligible Trust Account, and (iii) transfer any
cash and investments from such ineligible Trust Account to such new Trust
Account.
With respect to the Trust Accounts (other than the Certificate Distribution
Account), the Indenture Trustee agrees, by its acceptance hereof, that each such
Trust Account shall be subject to the sole and exclusive custody and control of
the Indenture Trustee (in the case of the Collection Account, on behalf of the
Grantor Trustee) for the benefit of the Noteholders and the Issuer, as the case
may be, and the Indenture Trustee shall have sole signature and withdrawal
authority with respect thereto.
In addition to this Agreement and the Indenture, the Certificate
Distribution Account established hereunder shall also be subject to and
established and maintained in accordance with the Owner Trust Agreement. Subject
to rights of the Indenture Trustee hereunder and under the Indenture, the Owner
Trustee shall possess for the benefit of the Certificateholders all right, title
and interest in all funds on deposit from time to time in the Certificate
Distribution Account and in all proceeds thereof (including all income thereon)
and all such funds, investments, proceeds and income shall be part of the Trust
Account Property and the Owner Trust Estate. Subject to the rights of the
Indenture Trustee, the Owner Trustee agrees, by its acceptance hereof, that such
Certificate Distribution Account shall be subject to the sole and exclusive
custody and control of the Owner Trustee for the benefit of the Issuer and the
parties entitled to payments and distributions therefrom, including, without
limitation, the Certificateholders, and the Owner Trustee shall have sole
signature and withdrawal authority with respect to the Certificate Distribution
Account. Notwithstanding the preceding, the distribution of amounts from the
Certificate Distribution Account in accordance with Section 5.01(c)(ii) hereof
shall also be made for the benefit of the Indenture Trustee (including without
limitation with respect to its duties under the Indenture and this Agreement
relating to the Owner Trust Estate), and the Indenture Trustee (in its capacity
as Indenture Trustee) shall have the right, but not the obligation, to take
custody and control of the Certificate Distribution Account and to cause the
distribution of amounts therefrom in the event that the Owner Trustee fails to
distribute such amounts in accordance with subsections (c) and (d) of Section
5.02.
The Servicer shall have the power, revocable by the Indenture Trustee or by
the Owner Trustee with the consent of the Indenture Trustee, to instruct the
Indenture Trustee or Owner Trustee to make withdrawals and payments from the
Trust Accounts for the purpose of permitting the Servicer to carry out its
duties hereunder or permitting the Indenture Trustee or Owner Trustee to carry
out their respective duties herein or under the Indenture, the Owner Trust
Agreement or the Grantor Trust Agreement, as applicable.
(b) (1) Investment of Funds. So long as no Event of Default
shall have occurred and be continuing, the funds held in any Trust
Account may be invested (to the extent practicable and consistent with
any requirements of the Code) in Permitted Investments, as directed by
the Transferor in writing or by telephone or facsimile transmission
confirmed in writing by the Servicer. In any case, funds in any Trust
Account must be available for withdrawal without penalty, and any
Permitted Investments must mature or otherwise be available for
withdrawal, not later than the Business Day immediately preceding the
Payment Date next following the date of such investment and shall not
be sold or disposed of prior to its maturity subject to subsection
(b)(2) of this Section. All interest and any other investment earnings
on amounts or investments held in any Trust Account shall be deposited
into such Trust Account immediately upon receipt by the Indenture
Trustee. All Permitted Investments in which funds in any Trust Account
(other than the Certificate Distribution Account) are invested must be
held by or registered in the name of "U.S. Bank National Association,
as Indenture Trustee, in trust for the Empire Funding Home Loan Asset
Backed Notes, Series 1998-2". While the Indenture Trustee holds the
Certificate Distribution Account, on behalf of the Owner Trustee, all
Permitted Investments in which funds in the Certificate Distribution
Account are invested shall be held by or registered in the name of
"U.S. Bank National Association, on behalf of the Owner Trustee, in
trust for the Empire Funding Home Loan Asset Backed Notes, Series
1998-2".
(2) Insufficiency and Losses in Trust Accounts. If any amounts
are needed for disbursement from any Trust Account held by or on behalf
of the Indenture Trustee and sufficient uninvested funds are not
available to make such disbursement, the Indenture Trustee shall cause
to be sold or otherwise converted to cash a sufficient amount of the
investments in such Trust Account. The Indenture Trustee shall not be
liable for any investment loss or other charge resulting therefrom,
unless such loss or charge is caused by the failure of the Indenture
Trustee or Owner Trustee, respectively, to perform in accordance with
this Section 5.03.
If any losses are realized in connection with any investment in any Trust
Account pursuant to this Agreement and the Indenture, then the Transferor shall
deposit the amount of such losses (to the extent not offset by income from other
investments in such Trust Account) into such Trust Account immediately upon the
realization of such loss. All interest and any other investment earnings on
amounts held in any Trust Account shall be the income of the Issuer (or, when
there is a single beneficial owner of a Residual Interest Certificate, such
owner), and for federal and state income tax purposes the Issuer (or such single
beneficial owner) shall be the owner (or beneficial owner in the case of the
Collection Account).
(c) Subject to section 6.01 of the Indenture, the Indenture Trustee shall
not in any way be held liable by reason of any insufficiency in any Trust
Account held by the Indenture Trustee resulting from any investment loss on any
Permitted Investment included therein (except to the extent that the Indenture
Trustee is the obligor and has defaulted thereon).
(d) With respect to the Trust Account Property, the Indenture Trustee
acknowledges and agrees that:
(1) any Trust Account Property that is held in deposit
accounts shall be held solely in the Eligible Accounts, subject to the
last sentence of subsection (a) of this Section 5.03; and each such
Eligible Account shall be subject to the sole and exclusive dominion,
custody and control of the Indenture Trustee; and, without limitation
on the foregoing, the Indenture Trustee shall have sole signature
authority with respect thereto;
(2) any Trust Account Property that constitutes Physical
Property shall be delivered to the Indenture Trustee in accordance with
paragraph (a) of the definition of "Delivery" in Section 1.1 hereof and
shall be held, pending maturity or disposition, solely by the Indenture
Trustee or a financial intermediary (as such term is defined in section
8-313(4) of the UCC) acting solely for the Indenture Trustee;
(3) any Trust Account Property that is a book-entry security
held through the Federal Reserve System pursuant to federal book-entry
regulations shall be delivered in accordance with paragraph (b) of the
definition of "Delivery" in Section 1.1 hereof and shall be maintained
by the Indenture Trustee, pending maturity or disposition, through
continued book-entry registration of such Trust Account Property as
described in such paragraph; and
(4) any Trust Account Property that is an "uncertificated
security" under Article VIII of the UCC and that is not governed by
clause (3) above shall be delivered to the Indenture Trustee in
accordance with paragraph (c) of the definition of "Delivery" in
Section 1.1 hereof and shall be maintained by the Indenture Trustee,
pending maturity or disposition, through continued registration of the
Indenture Trustee's (or its nominee's) ownership of such security.
(e) The Servicer shall have the power, revocable by the Indenture Trustee
or by the Issuer with the consent of the Indenture Trustee, to instruct the
Indenture Trustee to make withdrawals and payments from the Trust Accounts for
the purpose of permitting the Servicer or the Issuer to carry out their
respective duties hereunder or permitting the Indenture Trustee to carry out its
duties under the Indenture.
Section 5.04 Allocation of Losses.
(a) In the event that Net Liquidation Proceeds, Insurance Proceeds or
Released Mortgaged Property Proceeds on a Liquidated Home Loan are less than the
related Principal Balance plus accrued interest thereon, or any Obligor makes a
partial payment of any Monthly Payment due on a Home Loan, such Net Liquidation
Proceeds, Insurance Proceeds, Released Mortgaged Property Proceeds or partial
payment shall be applied to payment of the related Debt Instrument, first, to
interest accrued at the Home Loan Interest Rate and, then, to principal.
(b) On any Payment Date, any Allocable Loss Amounts shall be applied to the
reduction of the Class Principal Balances of the Class B-2, the Class B-1 Notes,
the Class M-1 Notes and Class M-2 Notes in accordance with the Allocable Loss
Amount Priority; provided however, on the date on which the Class Principal
Balance of the Class B-2 Notes would be reduced to zero by the allocation of
losses on the Home Loans pursuant to this Section 5.04(b), such losses will be
applied to reduce the Subordinate Noteholders' Monthly Interest Payment Amount
with respect to the Class B-2 Notes to zero prior to the allocation of such
losses to the Class Principal Balance of the Class B-1 Notes.
ARTICLE VI
STATEMENTS AND REPORTS; WITHHOLDING
Section 6.01 Statements.
(a) No later than each Determination Date, the Servicer shall deliver to
the Indenture Trustee by facsimile, the receipt and legibility of which shall be
confirmed by telephone, and with hard copy thereof to be delivered no later than
one (1) Business Day after such Determination Date, the Servicer's Monthly
Remittance Report, setting forth the date of such Report (day, month and year),
the name of the Issuer (i.e. "Empire Funding Home Loan Owner Trust 1998-2"), the
Series designation of the Notes (i.e. "Series 1998-2") and the date of this
Agreement, all in substantially the form set out in Exhibit B hereto.
Furthermore, no later than each Determination Date, the Servicer shall deliver
to the Indenture Trustee a magnetic tape or computer disk providing such
information regarding the Servicer's activities in servicing the Home Loans
during the related Due Period as the Indenture Trustee may reasonably require.
(b) On each Payment Date, Indenture Trustee shall distribute, based on
information provided by the Servicer, a monthly statement (the "Payment
Statement") to the Depositor, the Securityholders and the Rating Agencies,
stating the date of original issuance of the Notes (day, month and year), the
name of the Issuer (i.e. "Empire Funding Home Loan Owner Trust 1998-2"), the
Series designation of the Notes (i.e., "Series 1998-2"), the date of this
Agreement and the following information:
(i) the Available Collection Amount and Available Payment Amount
for the related Payment Date;
(ii) the Class Principal Balance or Class Notional Balance of
each Class of Notes before and after giving effect to payments made to the
holders of such Notes on such Payment Date, and the Pool Principal Balance
as of the first and last day of the related Due Period;
(iii) the Class Factor with respect to each Class of the Notes
then outstanding;
(iv) the amount of principal, if any, and interest to be
distributed to each Class of Notes on the related Payment Date;
(v) with respect to each Class of Notes, the Optimal Principal
Balance thereof;
(vi) the Overcollateralization Deficiency Amount, and any amount
to be distributed to the Noteholders or the holders of the Residual
Interest on such Payment Date;
(vii) the Servicing Compensation, the Indenture Trustee Fee, the
Grantor Trustee Fee, the Owner Trustee Fee and, the Custodian Fee, if any,
for such Payment Date;
(viii) the Overcollateralization Amount (or
Undercollateralization Amount) on such Payment Date, the
Overcollateralization Target Amount as of such Payment Date, the Net Loan
Losses incurred during the related Due Period, the cumulative Net Loan
Losses as of such Payment Date, the Allocable Loss Amount for such Payment
Date, the application of the Allocable Loss Amount Priority for such
Payment Date and any amounts of Loss Reimbursement Deficiency reimbursed on
such Payment Date;
(ix) the weighted average maturity of the Home Loans and the
weighted average Home Loan Interest Rate of the Home Loans;
(x) certain performance information, including, without
limitation, delinquency and foreclosure information with respect to the
Home Loans and 60-Day Delinquency Amounts (as defined in the definition of
"Six-Month Rolling Delinquency Average" in Section 1.01 hereof), as set
forth in the Servicer's Monthly Remittance Report;
(xi) the number of and aggregate Principal Balance of all Home
Loans in foreclosure proceedings and the percent of the aggregate Principal
Balances of such Home Loans to the aggregate Principal Balances of all Home
Loans, all as of the close of business on the last day of the related Due
Period;
(xii) the number of and the aggregate Principal Balance of the
Home Loans in bankruptcy proceedings and the percent of the aggregate
Principal Balances of such Home Loans to the aggregate Principal Balances
of all Home Loans, all as of the close of business on the last day of the
related Due Period;
(xiii) the number of Foreclosure Properties, the aggregate
Principal Balance of the related Home Loans, the book value of such
Foreclosure Properties and the percent of the aggregate Principal Balances
of such Home Loans to the aggregate Principal Balances of all Home Loans,
all as of the close of business on the last day of the related Due Period;
(xiv) during the related Due Period (and cumulatively, from the
Closing Date through the most current Due Period), the number and aggregate
Principal Balance of Home Loans for each of the following: (A) that became
Defaulted Home Loans, (B) that became Liquidated Home Loans, (C) that
became Deleted Home Loans pursuant to Section 3.05 hereof as a result of
such Deleted Home Loans being Defective Home Loans, and (D) that became
Deleted Home loans pursuant to Section 3.05 hereof as a result of such
Deleted Home Loans being Defaulted Home Loans or a Home Loan in default or
imminent default, including the foregoing amounts by loan type (i.e.,
Combination Loans, or Debt Consolidation Loans);
(xv) the scheduled principal payments and the principal
prepayments received with respect to the Home Loans during the Due Period;
and
(xvi) the number and aggregate Principal Balance of Home Loans
that were 30, 60 or 90 days Delinquent as of the close of business on the
last day of the related Due Period.
In the case of information furnished to Securityholders pursuant to
subclause (b)(iv) of this Section 6.01, the amounts shall be expressed as a
dollar amount per Note with a $1,000 Denomination.
All reports prepared by the Indenture Trustee of the withdrawals from and
deposits in the Collection Account will be based in whole or in part upon the
information provided to the Indenture Trustee by the Servicer, and the Indenture
Trustee may fully rely upon and shall have no liability with respect to such
information provided by the Servicer.
(c) Within a reasonable period of time after the end of each calendar year,
the Indenture Trustee shall prepare and distribute to each Person who at any
time during the calendar year was a Noteholder such information as is reasonably
necessary to provide to such Person a statement containing the information set
forth in subclauses (b)(iv) of this Section 6.01, aggregated for such calendar
year or applicable portion thereof during which such Person was a Noteholder.
(d) On each Payment Date, the Indenture Trustee shall forward to The
Depository Trust Company and to the holders of the Residual Interest
Certificates a copy of the Payment Statement in respect of such Payment Date and
a statement setting forth the amounts actually distributed to such holders of
the Residual Interest Certificates on such Payment Date, together with such
other information as the Indenture Trustee deems necessary or appropriate.
(e) Within a reasonable period of time after the end of each calendar year,
the Indenture Trustee shall prepare and distribute to each Person who at any
time during the calendar year was a holder of Residual Interest Certificates, if
requested in writing by such Person, a statement containing the information
provided pursuant to the previous paragraph aggregated for such calendar year or
applicable portion thereof during which such Person was a holder of Residual
Interest Certificates.
(f) The Indenture Trustee shall forward to each Noteholder and each holder
of a Residual Interest Certificate, during the term of this Agreement, such
periodic, special or other reports, including information tax returns or reports
required with respect to the Notes and the Residual Interest Certificates, as
shall be necessary, reasonable, or appropriate with respect to the Noteholders
or the holders of Residual Interest Certificates, or otherwise with respect to
the purposes of this Agreement, all such reports or information in the case of
the Residual Interest Certificates to be provided by and in accordance with such
applicable instructions and directions as the Majority Residual Interestholders
may reasonably require.
(g) Reports and computer tapes furnished by the Servicer and the Indenture
Trustee pursuant to this Agreement shall be deemed confidential and of a
proprietary nature and shall not be copied or distributed except in connection
with the purposes and requirements of this Agreement. No Person entitled to
receive copies of such reports or tapes shall use the information therein for
the purpose of soliciting the customers of the Depositor or the Servicer or for
any other purpose except as set forth in this Agreement.
Section 6.02 Withholding.
The Indenture Trustee shall comply with all requirements of the Code, and
applicable state and local laws, with respect to the withholding from any
payments made to any Noteholder of any applicable withholding taxes imposed
thereon and with respect to any applicable reporting requirements in connection
therewith, giving due effect to any applicable exemptions from such withholding
and effective certifications or forms provided by the recipient. Any amounts
withheld pursuant to this Section 6.02 shall be deemed to have been paid to the
Noteholders for all purposes of this Agreement or the Indenture.
ARTICLE VII
GENERAL SERVICING PROCEDURE
Section 7.01 Due-On-Sale; Due-on-Encumbrance.
(a) If any Home Loan contains a provision, in the nature of a "due-on-
sale" clause, which by its terms:
(i) provides that such Home Loan shall (or may at the related
lender's option) become due and payable upon the sale or other transfer of
an interest in any related Mortgaged Property; or
(ii) provides that such Home Loan may not be assumed without the
consent of the related lender in connection with any such sale or other
transfer,
then, for so long as such Home Loan is included in the Grantor Trust, the
Servicer, on behalf of the Grantor Trustee, shall exercise any right the Grantor
Trustee may have as the lender of record with respect to such Home Loan (x) to
accelerate the payments thereon or (y) to withhold its consent to any such sale
or other transfer, in a manner consistent with the Accepted Servicing Procedures
and subject to Section 4.10 or 7.01(c) hereof.
(b) If any Home Loan contains a provision in the nature of a "due-on-
encumbrance" clause, which by its terms:
(i) provides that such Home Loan shall (or may at the related
lender's option) become due and payable upon the creation of any lien or
other encumbrance on any related Mortgaged Property; or
(ii) requires the consent of the related lender to the creation
of any such lien or other encumbrance on any related Mortgaged Property,
then, for so long as such Home Loan is included in the Grantor Trust, the
Servicer, on behalf of the Grantor Trustee, shall exercise any right the Grantor
Trustee may have as the lender of record with respect to such Home Loan (x) to
accelerate the payments thereon or (y) to withhold its consent to the creation
of any such lien or other encumbrance, in a manner consistent with the Accepted
Servicing Standards and subject to Section 4.10 or 7.01(c) hereof.
(c) If a Home Loan does not contain a "due-on-sale" clause or such clause
is reasonably believed by the Servicer not to be enforceable under applicable
law, then the Servicer shall enter into an assumption and modification agreement
with the Person to whom any related Mortgaged Property has been or is about to
be conveyed, pursuant to which such person becomes liable under the Debt
Instrument and, unless prohibited by applicable law or the Home Loan documents,
the Obligor remains liable thereon. In accordance with the Accepted Servicing
Procedures, the Servicer shall have the authority to enter into a substitution
of liability agreement with such person, pursuant to which the original Obligor
is released from liability and such Person is substituted as Obligor and becomes
liable under the Debt Instrument. The Servicer shall notify the Custodian that
any such substitution or assumption agreement has been completed by forwarding
to the Custodian a true and correct copy or, if available, an original of such
substitution or assumption agreement, which copy or original shall be added by
the Custodian to the related Grantor Trustee's Home Loan File. In connection
with any assumption or substitution agreement entered into pursuant to this
Section 7.01(c) hereof, the Servicer shall not change the Home Loan Interest
Rate or the Monthly Payment, defer or forgive the payment of principal or
interest, reduce the outstanding principal amount or extend the final maturity
date on such Home Loan. Any fee collected by the Servicer for consenting to any
such conveyance or entering into an assumption or substitution agreement shall
be retained by or paid to the Servicer as additional Servicing Compensation.
Notwithstanding the foregoing paragraph or any other provision of this
Agreement, the Servicer shall not be deemed to be in default, breach or any
other violation of its obligations hereunder by reason of any assumption of a
Home Loan by operation of law or any assumption which the Servicer may be
restricted by law from preventing, for any reason whatsoever.
(d) Nothing in this Section 7.01 shall constitute a waiver of the Grantor
Trustee's right to receive notice of any assumption of a Home Loan, any sale or
other transfer of the related Mortgaged Property or the creation of any lien or
other encumbrance with respect to such Mortgaged Property.
Section 7.02 Release of Home Loan Files.
(a) If with respect to any Home Loan:
(i) the outstanding Principal Balance of such Home Loan plus all
interest accrued thereon shall have been paid;
(ii) the Servicer shall have received, in escrow, payment in full
of such Home Loan in a manner customary for such purposes;
(iii) such Home Loan has become a Defective Loan and has been
repurchased or a Qualified Substitute Home Loan has been conveyed to the
Grantor Trustee pursuant to Section 3.05 hereof;
(iv) such Home Loan or the related Foreclosure Property has been
sold in connection with the termination of the Issuer and the Grantor Trust
pursuant to Section 11.01 hereof; or
(v) such Home Loan is a Defaulted Home Loan or a Liquidated Home
Loan that is liquidated or disposed of pursuant to Section 4.10 hereof or
the related Foreclosure Property has been sold pursuant to Section 4.11
hereof;
then in each such case, the Servicer shall deliver an Officer's Certificate to
the effect that the Servicer has complied with all of its obligations under this
Agreement with respect to such Home Loan and requesting that the Grantor Trustee
release to the Servicer the related Grantor Trustee's Home Loan File. Upon the
receipt of such Officer's Certificate, the Grantor Trustee shall, within five
Business Days or such shorter period as may be required by applicable law,
release, or cause the applicable Custodian to release (unless such Grantor
Trustee's Home Loan File has previously been released), the related Grantor
Trustee's Home Loan File to the Servicer and execute and deliver such
instruments of transfer or assignment, in each case without recourse, as shall
be necessary to vest ownership of such Home Loan in the Servicer or such other
Person as may be specified in such certificate, the forms of any such instrument
to be appended to such certificate.
(b) If a temporary release of the Grantor Trustee's Home Loan File is
necessary or appropriate for the servicing (which may include any modification
or foreclosure) of any Home Loan, then upon the request of the Servicer pursuant
to Section 3(b) of the Custodial Agreement the Grantor Trustee shall release the
related Grantor Trustee's Home Loan File (or any requested portion thereof) to
the Servicer.
Section 7.03 Servicing Compensation.
As compensation for its services hereunder, the Servicer shall be entitled
to receive from the Collection Account the Servicing Fee (which Servicing Fee is
an expense of the Grantor Trust), out of which the Servicer shall pay any
servicing fees owed or payable to it or any Subservicer. Additional servicing
compensation in the form of assumption fees, modification fees, and other
administrative fees, insufficient funds charges, amounts remitted pursuant to
Section 7.01 hereof and late payment charges shall be part of the Servicing
Compensation payable to the Servicer hereunder and shall be paid either by the
Servicer retaining such additional servicing compensation prior to deposit in
the Collection Account pursuant to Section 5.01(b)(1) hereof or, if deposited in
the Collection Account, as part of the Servicing Compensation withdrawn from the
Note Payment Account pursuant to Section 5.01(c)(1) hereof.
The Servicer shall be required to pay all expenses incurred by it in
connection with its servicing activities hereunder and shall not be entitled to
reimbursement therefor except as specifically provided for herein. The
Transferor also agrees to pay (i) all reasonable costs and expenses incurred by
any successor Servicer or the Grantor Trustee in replacing the Servicer in the
event of a default by the Servicer in the performance of its duties under the
terms and conditions of this Agreement and (ii) the annual monitoring fees of
the Rating Agencies.
Section 7.04 Statement as to Compliance and Financial Statements.
The Servicer will deliver to the Indenture Trustee, the Grantor Trustee,
the Depositor and the Rating Agencies not later than 90 days following the end
of each fiscal year of the Servicer (beginning in 1999), an Officer's
Certificate stating that (i) a review of the activities of the Servicer during
the preceding year and of performance under this Agreement has been made under
such officer's supervision and (ii) to the best of such officer's knowledge,
based on such review, the Servicer has fulfilled all of its obligations under
this Agreement throughout such year, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known to such
officer and the nature and status thereof and what action the Servicer proposes
to take with respect thereto.
Contemporaneously with the submission of the Officer's Certificate required
by the preceding paragraph, the Servicer shall deliver to the Indenture Trustee
and the Grantor Trustee a copy of its annual audited financial statements
prepared in the ordinary course of business. The Servicer shall, upon the
request of the Depositor, deliver to such party any unaudited quarterly
financial statements of the Servicer.
The Servicer agrees to make available to the Depositor on a reasonable
basis a knowledgeable officer of the Servicer for the purpose of answering
reasonable questions respecting recent developments affecting the Servicer or
the financial statements of the Servicer and to permit the Depositor on
reasonable notice to inspect the Servicer's servicing facilities during normal
business hours for the purpose of satisfying the Depositor that the Servicer has
the ability to service the Home Loans in accordance with this Agreement.
The Servicer shall also furnish and certify to the requesting party such
other information as to (i) its organization, activities and personnel relating
to the performance of the obligations of the Servicer hereunder, (ii) its
financial condition, (iii) the Home Loans and (iv) the performance of the
obligations of any Subservicer under the related Subservicing Agreement, in each
case as the Indenture Trustee, the Grantor Trustee or the Depositor may
reasonably request from time to time.
Section 7.05 Independent Public Accountants' Servicing Report.
Not later than 90 days following the end of each fiscal year of the
Servicer (beginning with fiscal year 1999), the Servicer at its expense shall
cause any nationally recognized firm of Independent Certified Public Accountants
(which may also render other services to the Servicer) to furnish a statement to
the Indenture Trustee, the Grantor Trustee, the Rating Agencies and the
Depositor to the effect that such firm has examined certain documents and
records relating to the servicing of the Home Loans under this Agreement or of
mortgage loans under pooling or sale and servicing agreements (including the
Home Loans and this Agreement) substantially similar to one another (such
statement to have attached thereto a schedule setting forth the pooling or sale
and servicing agreements covered thereby) and that, on the basis of such
examination conducted substantially in compliance with the Uniform Single
Attestation Program for Mortgage Bankers or the Audit Program for Mortgages
serviced for FHLMC, such firm confirms that such servicing has been conducted in
compliance with such pooling or sale and servicing agreements except for such
significant exceptions or errors in records that, in the opinion of such firm,
the Uniform Single Attestation Program for Mortgage Bankers or the Attestation
Program for Mortgages serviced for FHLMC requires it to report, each of which
errors and omissions shall be specified in such statement. In rendering such
statement, such firm may rely, as to matters relating to direct servicing of
mortgage loans by Subservicers, upon comparable statements for examinations
conducted substantially in compliance with the Uniform Single Attestation
Program for Mortgage Bankers or the Audit Program for Mortgages serviced for
FHLMC (rendered within one year of such statement) of independent public
accountants with respect to the related Subservicer.
Section 7.06 Right to Examine Servicer Records.
Each Securityholder, Grantor Trust Holder, the Indenture Trustee, the
Grantor Trustee, the Owner Trustee, Depositor and each of their respective
agents shall have the right upon reasonable prior notice, during normal business
hours and as often as reasonably required, to examine, audit and copy, at the
expense of the Person making such examination, any and all of the books, records
or other information of the Servicer (including without limitation any
Subservicer to the extent provided in the related Subservicing Agreement),
whether held by the Servicer or by another on behalf of the Servicer, which may
be relevant to the performance or observance by the Servicer of the terms,
covenants or conditions of this Agreement. In the case of the supervisory agents
and examiners of the Issuer, the Indenture Trustee, the Grantor Trustee, the
Owner Trustee, the Grantor Trust Holder and the Securityholders, access to the
documentation regarding the Home Loans required by applicable state and federal
regulations shall be afforded without charge but only upon reasonable request
and during normal business hours at the offices of the Servicer designated by
it. Each Securityholder, Grantor Trust Holder, the Indenture Trustee, the
Grantor Trustee and the Owner Trustee agree that any information obtained
pursuant to the terms of this Agreement shall be held confidential.
The Servicer also agrees to make available on a reasonable basis to the
Securityholders or any prospective Securityholder a knowledgeable financial or
accounting officer for the purpose of answering reasonable questions respecting
recent developments affecting the Servicer or the financial statements of the
Servicer and to permit the Securityholders and any prospective Securityholder to
inspect the Servicer's servicing facilities during normal business hours for the
purpose of satisfying the Securityholders and such prospective Securityholder
that the Servicer has the ability to service the Home Loans in accordance with
this Agreement.
Section 7.07 Reports to the Indenture Trustee;
Collection Account Statements.
If the Collection Account is not maintained with the Indenture Trustee,
then not later than 25 days after each Record Date, the Servicer shall forward
to the Indenture Trustee a statement, certified by a Servicing Officer, setting
forth the status of the Collection Account as of the close of business on the
preceding Record Date and showing, for the period covered by such statement, the
aggregate of deposits into the Collection Account for each category of deposit
specified in Section 5.01(b)(1) hereof, the aggregate of withdrawals from the
Collection Account for each category of withdrawal specified in Section
5.01(b)(2) and (3) hereof, in each case, for the related Due Period.
Section 7.08 Financial Statements.
The Servicer understands that, in connection with the transfer of the
Notes, Noteholders may request that the Servicer make available to the
Noteholders and to prospective Noteholders annual audited financial statements
of the Servicer for one or more of the most recently completed five fiscal years
for which such statements are available, which request shall not be unreasonably
denied.
ARTICLE VIII
(RESERVED)
ARTICLE IX
THE SERVICER
Section 9.01 Indemnification; Third Party Claims.
(a) The Servicer shall indemnify the Transferor, the Owner Trustee, the
Issuer, the Grantor Trust, the Depositor, the Grantor Trustee and the Indenture
Trustee (each an "Indemnified Party") and hold harmless each of them against any
and all claims, losses, damages, penalties, fines, forfeitures, reasonable legal
fees and related costs, judgments, and other costs and expenses resulting from
any claim, demand, defense or assertion based on or grounded upon, or resulting
from, a breach of any of the Servicer's representations and warranties and
covenants contained in this Agreement or in any way relating to the failure of
the Servicer to perform its duties and service the Home Loans in compliance with
the terms of this Agreement; provided, however, that if the Servicer is not
liable pursuant to the provisions of Section 9.01(d) hereof for its failure to
perform its duties and service the Home Loans in compliance with the terms of
this Agreement, then the provisions of this Section 9.01 shall have no force and
effect with respect to such failure.
(b) The Transferor, the Depositor, the Grantor Trustee, the Owner Trustee
or the Indenture Trustee, as the case may be, shall promptly notify the Servicer
if a claim is made by a third party with respect to a breach of any of the
Servicer's representations and warranties and covenants contained in this
Agreement or in any way relating to the failure of the Servicer to perform its
duties and service the Home Loans in compliance with the terms of this
Agreement. The Servicer shall promptly notify the Indenture Trustee, the Grantor
Trustee, the Owner Trustee and the Depositor of any claim of which it has been
notified pursuant to this Section 9.01 by a Person other than the Depositor,
and, in any event, shall promptly notify the Depositor of its intended course of
action with respect to any claim.
(c) The Servicer shall be entitled to participate in and, upon notice to
the Indemnified Party, assume the defense of any such action or claim in
reasonable cooperation with, and with the reasonable cooperation of, the
Indemnified Party. The Indemnified Party will have the right to employ its own
counsel in any such action in addition to the counsel of the Servicer, but the
fees and expenses of such counsel will be at the expense of such Indemnified
Party, unless (i) the employment of counsel by the Indemnified Party at its
expense has been authorized in writing by the Servicer, (ii) the Servicer has
not in fact employed counsel to assume the defense of such action within a
reasonable time after receiving notice of the commencement of the action, or
(iii) the named parties to any such action or proceeding (including any
impleaded parties) include both the Servicer and one or more Indemnified
Parties, and the Indemnified Parties shall have been advised by counsel that
there may be one or more legal defenses available to them which are different
from or additional to those available to the Servicer. The Servicer shall not be
liable for any settlement of any such claim or action unless the Servicer shall
have consented thereto or be in default on its obligations hereunder. Any
failure by an Indemnified Party to comply with the provisions of this Section
9.01 shall relieve the Servicer of liability only if such failure is materially
prejudicial to the position of the Servicer and then only to the extent of such
prejudice.
(d) None of the Transferor, the Depositor, the Servicer or any of the
directors, officers, employees or agents of the Transferor, the Depositor or the
Servicer, or members or Affiliates of the Depositor shall be under any liability
to the Issuer or the Securityholders for any action taken, or for refraining
from the taking of any action, in good faith pursuant to this Agreement, or for
errors in judgment; provided, however, that this provision shall not protect the
Transferor, the Depositor, the Servicer or any such person against the remedies
provided herein for the breach of any warranties, representations or covenants
made herein, or against any specific liability imposed on the Transferor, the
Depositor or the Servicer herein, or against any liability which would otherwise
be imposed by reason of willful misfeasance, bad faith or negligence in the
performance of the duties of the Servicer, the Depositor or the Transferor, as
the case may be, or by reason of reckless disregard of the obligations and
duties of the Servicer, the Depositor or the Transferor, as the case may be,
hereunder. The Transferor, the Depositor, the Servicer and any director,
officer, employee or agent of the Transferor, the Depositor or the Servicer, or
any member or Affiliate of the Depositor may rely in good faith on any document
of any kind which, prima facie, is properly executed and submitted by any Person
respecting any matters arising hereunder.
(e) The Servicer, the Transferor and the Depositor and any director,
officer, employee or agent of the Servicer, the Transferor or the Depositor
shall be indemnified by the Issuer and held harmless against any loss, liability
or expense incurred in connection with any audit, controversy or judicial
proceeding relating to a governmental taxing authority or any legal action
relating to this Agreement or the Securities, other than any loss, liability or
expense related to any specific Home Loan or Home Loans (except as any such
loss, liability or expense shall be otherwise reimbursable pursuant to this
Agreement) and any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or negligence in the performance of duties hereunder or
by reason of reckless disregard of obligations and duties hereunder. Except as
otherwise provided herein, none of the Transferor, the Depositor or the Servicer
shall be under any obligation to appear in, prosecute or defend any legal action
that is not related to its respective duties under this Agreement; provided,
however, that, except as otherwise provided herein, any of the Transferor, the
Depositor or the Servicer may, with the prior consent of the Indenture Trustee,
in its discretion undertake any such action which it may deem necessary or
desirable with respect to this Agreement and the rights and duties of the
parties hereto and the interests of the Securityholders hereunder. In such
event, the legal expenses and costs of such action and any liability resulting
therefrom shall be expenses, costs and liabilities of the Issuer, and the
Transferor, the Depositor and the Servicer shall be entitled to be reimbursed
therefor out of the Collection Account.
Section 9.02 Merger or Consolidation of the Servicer.
The Servicer shall keep in full effect its existence, rights and franchises
as a corporation, and will obtain and preserve its qualification to do business
as a foreign corporation and maintain such other licenses and permits in each
jurisdiction necessary to protect the validity and enforceability of this
Agreement or any of the Home Loans and to perform its duties under this
Agreement; provided, however, that the Servicer may merge or consolidate with
any other corporation upon the satisfaction of the conditions set forth in the
following paragraph.
Any Person into which the Servicer may be merged or consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Servicer shall be a party, or any Person succeeding to the business of the
Servicer, shall be an Eligible Servicer and shall be the successor of the
Servicer, as applicable 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 shall send notice of any such merger,
conversion, consolidation or succession to the Indenture Trustee, the Grantor
Trustee and the Issuer.
Section 9.03 Limitation on Liability of the Servicer and Others.
The Servicer and any director, officer, employee or agent of the Servicer
may rely on any document of any kind which it in good faith reasonably believes
to be genuine and to have been adopted or signed by the proper authorities
respecting any matters arising hereunder. Subject to the terms of Section 9.01
hereof, the Servicer shall have no obligation to appear with respect to,
prosecute or defend any legal action which is not incidental to the Servicer's
duty to service the Home Loans in accordance with this Agreement.
Section 9.04 Servicer Not to Resign; Assignment.
The Servicer shall not resign from the obligations and duties hereby
imposed on it except (a) with the consent of the Grantor Trustee and Indenture
Trustee or (b) upon determination that its duties hereunder are no longer
permissible under applicable law. Any such determination pursuant to clause (b)
of the preceding sentence permitting the resignation of the Servicer shall be
evidenced by an independent opinion of counsel to such effect delivered (at the
expense of the Servicer) to the Grantor Trustee and the Indenture Trustee. No
resignation of the Servicer shall become effective until the Grantor Trustee or
a successor servicer, appointed pursuant to the provisions of Section 10.02
hereof and satisfying the requirements of Section 4.07 hereof with respect to
the qualifications of a successor Servicer, shall have assumed the Servicer's
responsibilities, duties, liabilities (other than those liabilities arising
prior to the appointment of such successor) and obligations under this
Agreement.
Except as expressly provided herein, the Servicer shall not assign or
transfer any of its rights, benefits or privileges hereunder to any other
Person, or delegate to or subcontract with, or authorize or appoint any other
Person to perform any of the duties, covenants or obligations to be performed by
the Servicer hereunder and any agreement, instrument or act purporting to effect
any such assignment, transfer, delegation or appointment shall be void.
The Servicer agrees to cooperate with any successor Servicer in effecting
the transfer of the Servicer's servicing responsibilities and rights hereunder
pursuant to the first paragraph of this Section 9.04, including, without
limitation, the transfer to such successor of all relevant records and documents
(including any Home Loan Files in the possession of the Servicer) and all
amounts received with respect to the Home Loans and not otherwise permitted to
be retained by the Servicer pursuant to this Agreement. In addition, the
Servicer, at its sole cost and expense, shall prepare, execute and deliver any
and all documents and instruments to the successor Servicer including all Home
Loan Files in its possession and do or accomplish all other acts necessary or
appropriate to effect such termination and transfer of servicing
responsibilities.
Section 9.05 Relationship of Servicer to the Grantor Trust and the Grantor
Trustee.
The relationship of the Servicer (and of any successor to the Servicer as
servicer under this Agreement) to the Grantor Trust and the Grantor Trustee
under this Agreement is intended by the parties hereto to be that of an
independent contractor and not of a joint venturer, agent or partner of the
Issuer or the Indenture Trustee.
Section 9.06 Servicer May Own Securities.
Each of the Servicer and any Affiliate of the Servicer may in its
individual or any other capacity become the owner or pledgee of Securities with
the same rights as it would have if it were not the Servicer or an Affiliate
thereof except as otherwise specifically provided herein. Securities so owned by
or pledged to the Servicer or such Affiliate shall have an equal and
proportionate benefit under the provisions of this Agreement, without
preference, priority, or distinction as among all of the Securities; provided,
however, that any Securities owned by the Servicer or any Affiliate thereof,
during the time such Securities are owned by them, shall be without voting
rights for any purpose set forth in this Agreement. The Servicer shall notify
the Indenture Trustee promptly after it or any of its Affiliates becomes the
owner or pledgee of a Security.
ARTICLE X
DEFAULT
Section 10.01 Events of Default.
In case one or more of the following Events of Default by the Servicer
shall occur and be continuing, that is to say:
(i) any failure by the Servicer to deposit in the Collection
Account in accordance with Section 5.01(b) hereof any payments in respect
of the Home Loans received by the Servicer no later than the second
Business Day following the day on which such payments were received; or
(ii) failure by the Servicer duly to observe or perform, in any
material respect, any other covenants, obligations or agreements of the
Servicer as set forth in this 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 and stating that such notice is
a "Notice of Default" hereunder, shall have been given (a) to the Servicer
by the Indenture Trustee, the Grantor Trustee or the Issuer, or (b) to the
Servicer, the Indenture Trustee, the Grantor Trustee or the Issuer by the
Majority Noteholders; or
(iii) a decree or order of a court or agency or supervisory
authority having jurisdiction for the appointment of a conservator or
receiver or liquidator 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 or
unstayed for a period of 60 days; or
(iv) the Servicer shall consent to the appointment of a
conservator or receiver or liquidator 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
the Servicer's property; or
(v) the Servicer shall admit in writing its inability to pay its
debts as they become due, file a petition to take advantage of any
applicable insolvency or reorganization statute, make an assignment for the
benefit of its creditors, or voluntarily suspend payment of its
obligations; or
(vi) the Majority Noteholders and the Grantor Trust Holder (A)
shall receive notice from the Servicer that the Servicer is no longer able
to discharge its duties under this Agreement or (B) shall determine, in
their reasonable judgment and based upon published reports (including wire
services), which they reasonably believe in good faith to be reliable,
that:
a) the Servicer has experienced a material adverse change in
its business, assets, liabilities, operations, condition
(financial or otherwise) or prospects,
b) the Servicer has defaulted on any of its material
obligations, or
c) the Servicer has ceased to conduct its business in the
ordinary course, or
d) as of any Determination Date, the total Expected Loan
Loss Percentage (as defined below) exceeds (1) up to the fifth
(5th) anniversary of the May 31, 1998 Cut-Off Date, 22.0%, or (2)
thereafter 33.0% (where the "Expected Loan Loss Percentage" shall
be the sum of (A) the cumulative Net Loan Losses divided by the
Original Pool Principal Balance, plus (B) 25% of the aggregate
Principal Balance of the Home Loans which are then more than 30
but less than 60 days delinquent divided by the Original Pool
Principal Balance, plus (C) 50% of the aggregate Principal
Balance of the Home Loans which are then more than 60 but less
than 90 days delinquent divided by the Original Pool Principal
Balance, plus (D) 100% of the aggregate Principal Balance of the
Home Loans which are then more than 90 days delinquent divided by
the Original Pool Principal Balance);
then, and in each and every such case, so long as an Event of Default shall not
have been remedied, the Indenture Trustee, the Grantor Trustee, the Grantor
Trust Holder or the Majority Noteholders, by notice in writing to the Servicer
may, in addition to whatever rights such Person may have at law or in equity to
damages, including injunctive relief and specific performance, may terminate all
the rights and obligations of the Servicer under this Agreement and in and to
the Home Loans and the proceeds thereof, as servicer under this Agreement. Upon
receipt by the Servicer of such written notice, all authority and power of the
Servicer under this Agreement, whether with respect to the Home Loans or
otherwise, shall, subject to Section 10.02 hereof, pass to and be vested in a
successor servicer, or the Grantor Trustee if a successor servicer cannot be
retained in a timely manner, and the successor servicer, or Grantor Trustee, as
applicable, 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 do or cause to be done all other acts or things necessary
or appropriate to effect the purposes of such notice of termination, including,
but not limited to, the transfer and endorsement or assignment of the Home Loans
and related documents. The Servicer agrees to cooperate with the successor
servicer in effecting the termination of the Servicer's responsibilities and
rights hereunder, including, without limitation, the transfer to the successor
servicer for administration by it of all amounts which shall at the time be
credited by the Servicer to each Collection Account or thereafter received with
respect to the Home Loans.
Section 10.02 Grantor Trustee to Act; Appointment of Successor.
On and after the date the Servicer receives a notice of termination
pursuant to Section 10.01 hereof, or the Grantor Trustee receives the
resignation of the Servicer evidenced by an Opinion of Counsel or accompanied by
the consents required by Section 9.04 hereof, or the Servicer is removed as
servicer pursuant to this Article X, then, subject to Section 4.07 hereof, the
Grantor Trustee shall appoint a successor servicer to be the successor in all
respects to the Servicer in its capacity as Servicer under this Agreement and
the transactions set forth or provided for herein and shall be subject to all
the responsibilities, duties and liabilities relating thereto placed on the
Servicer by the terms and provisions hereof; provided, however, that the
successor servicer shall not be liable for any actions of any servicer prior to
it; and, provided further, that if a successor servicer cannot be retained in a
timely manner, the Grantor Trustee shall act as successor Servicer. In the event
the Grantor Trustee assumes the responsibilities of the Servicer pursuant to
this Section 10.02, the Grantor Trustee will make reasonable efforts consistent
with applicable law to become licensed, qualified and in good standing in each
Mortgaged Property State the laws of which require licensing or qualification in
order to perform its obligations as Servicer hereunder or, alternatively, shall
retain an agent that is so licensed, qualified and in good standing in any such
Mortgaged Property State.
In the case that the Grantor Trustee serves as successor servicer, the
Grantor Trustee in such capacity shall not be liable for any servicing of the
Home Loans prior to its date of appointment and shall not be subject to any
obligations to repurchase any Home Loans. The successor servicer shall be
obligated to make Servicing Advances hereunder. As compensation therefor, the
successor servicer appointed pursuant to the following paragraph, shall be
entitled to all funds relating to the Home Loans which the Servicer would have
been entitled to receive from the Note Payment Account pursuant to Section
5.01(c) hereof as if the Servicer had continued to act as servicer hereunder,
together with other Servicing Compensation in the form of assumption fees, late
payment charges or otherwise as provided in Section 7.03 hereof. The Servicer
shall not be entitled to any termination fee if it is terminated pursuant to
Section 10.01 hereof but shall be entitled to any accrued and unpaid Servicing
Fee to the date of termination.
Any collections received by the Servicer after removal or resignation shall
be endorsed by it to the Grantor Trustee or the Indenture Trustee, as assignee
of the Grantor Trust Certificate, and remitted directly to the Grantor Trustee
or the Indenture Trustee or, at the direction of the Grantor Trustee or the
Indenture Trustee, to the successor servicer. The compensation of any successor
servicer (including, without limitation, the Grantor Trustee) so appointed shall
be the Servicing Fee, together with other Servicing Compensation provided for
herein. In the event the Grantor Trustee is required to solicit bids to appoint
a successor servicer, the Grantor Trustee shall solicit, by public announcement,
bids from Eligible Servicers. Such public announcement shall specify that the
successor servicer shall be entitled to the full amount of the Servicing Fee and
Servicing Compensation provided for herein. Within 30 days after any such public
announcement, the Grantor Trustee shall negotiate and effect the sale, transfer
and assignment of the servicing rights and responsibilities hereunder to the
qualified party submitting the highest qualifying bid. The Grantor Trustee shall
deduct from any sum received by the Grantor Trustee from the successor to the
Servicer in respect of such sale, transfer and assignment all costs and expenses
of any public announcement and of any sale, transfer and assignment of the
servicing rights and responsibilities hereunder and the amount of any unpaid
Servicing Fees and unreimbursed Servicing Advances made by the Grantor Trustee.
After such deductions, the remainder of such sum shall be paid by the Grantor
Trustee to the Servicer at the time of such sale, transfer and assignment to the
Servicer's successor. The Grantor Trustee, any Custodian, the Servicer and any
such successor servicer shall take such action, consistent with this Agreement,
as shall be necessary to effect any such succession. The Servicer agrees to
cooperate with the Grantor Trustee and any successor servicer in effecting the
termination of the Servicer's servicing responsibilities and rights hereunder
and shall promptly provide the Grantor Trustee or such successor servicer, as
applicable, all documents and records reasonably requested by it to enable it to
assume the Servicer's functions hereunder and shall promptly also transfer to
the Grantor Trustee or the Indenture Trustee, as assignee of the Grantor Trust
Certificate, or such successor servicer, as applicable, all amounts which then
have been or should have been deposited in any Trust Account maintained by the
Servicer or which are thereafter received with respect to the Home Loans.
Neither the Grantor Trustee nor any other successor servicer shall be held
liable by reason of any failure to make, or any delay in making, any payment or
distribution hereunder or any portion thereof caused by (i) the failure of the
Servicer to deliver, or any delay in delivering, cash, documents or records to
it or (ii) restrictions imposed by any regulatory authority having jurisdiction
over the Servicer hereunder. No appointment of a successor to the Servicer
hereunder shall be effective until written notice of such proposed appointment
shall have been provided by the Grantor Trustee to the Indenture Trustee, each
Securityholder, each Grantor Trust Holder, the Owner Trustee and the Depositor
and, except in the case of the appointment of the Grantor Trustee as successor
to the Servicer (when no consent shall be required), the Depositor, the Grantor
Trust Holder and the Majority Noteholders shall have consented thereto.
Pending appointment of a successor to the Servicer hereunder, the Grantor
Trustee shall act as servicer hereunder as hereinabove provided. In connection
with such appointment and assumption, the Grantor Trustee may make such
arrangements for the compensation of such successor servicer out of payments on
the Home Loans as it and such successor servicer shall agree; provided, however,
that no such compensation shall be in excess of that permitted the Servicer
pursuant to Section 7.03 hereof, together with other Servicing Compensation in
the form of assumption fees, late payment charges or otherwise as provided in
this Agreement.
Section 10.03 Waiver of Defaults.
The Majority Noteholders may waive any events permitting removal of the
Servicer as servicer pursuant to this Article X; provided, however, that the
Majority Noteholders may not waive a default in making a required payment on a
Note or distribution on a Residual Interest Certificate without the consent of
the related Noteholder or holder of the Residual Interest Certificate. Upon any
waiver of a past default, such default shall cease to exist and any Event of
Default arising therefrom shall be deemed to have been remedied for every
purpose of this Agreement. No such waiver shall extend to any subsequent or
other default or impair any right consequent thereto except to the extent
expressly so waived.
Section 10.04 Accounting Upon Termination of Servicer.
Upon termination of the Servicer under this Article X, the Servicer shall,
at its own expense:
(a) deliver to its successor or, if none shall yet have been appointed, to
the Indenture Trustee the funds in any Trust Account maintained by the Servicer;
(b) deliver to its successor or, if none shall yet have been appointed, to
the Grantor Trustee all Home Loan Files and related documents and statements
held by it hereunder and a Home Loan portfolio computer tape;
(c) deliver to its successor or, if none shall yet have been appointed, to
the Grantor Trustee, the Indenture Trustee, the Grantor Trust Holder and the
Securityholders a full accounting of all funds, including a statement showing
the Monthly Payments collected by it and a statement of monies held in trust by
it for payments or charges with respect to the Home Loans; and
(d) execute and deliver such instruments and perform all acts reasonably
requested in order to effect the orderly and efficient transfer of servicing of
the Home Loans to its successor and to more fully and definitively vest in such
successor all rights, powers, duties, responsibilities, obligations and
liabilities of the Servicer under this Agreement.
ARTICLE XI
TERMINATION
Section 11.01 Termination.
This Agreement shall terminate upon notice to the Indenture Trustee of
either: (a)the later of (i) the satisfaction and discharge of the Indenture and
the provisions thereof or (ii) the disposition of all funds with respect to the
last Home Loan and the remittance of all funds due hereunder and the payment of
all amounts due and payable to the Indenture Trustee, the Grantor Trustee, the
Owner Trustee, the Issuer and any Custodian; or (b) the mutual consent of the
Servicer, the Depositor, the Transferor and all Securityholders in writing.
Section 11.02 Optional Termination.
The Majority Residual Interestholders may, at their option, effect an early
termination of the Issuer and the Grantor Trust on or after any Payment Date on
which the Pool Principal Balance declines to 10% or less of the Original Pool
Principal Balance. The Majority Residual Interestholders shall effect such early
termination by providing notice thereof to the Indenture Trustee, the Grantor
Trustee and Owner Trustee and by purchasing all of the Home Loans from the
Grantor Trustee at a purchase price, payable in cash, equal to or greater than
the Termination Price. The expense of any Independent appraiser required under
this Section 11.02 shall be a nonreimbursable expense of Majority Residual
Interestholders.
Any such early termination by the Majority Residual Interestholders shall
be accomplished by depositing into the Collection Account on the third Business
Day prior to the Payment Date on which the purchase is to occur the amount of
the Termination Price to be paid. The Termination Price and any amounts then on
deposit in the Collection Account (other than any amounts not required to have
been deposited therein pursuant to Section 5.01(b)(1) hereof and any amounts
withdrawable therefrom by the Indenture Trustee pursuant to Section 5.01(b)(3)
hereof) shall be transferred to the Note Payment Account pursuant to Section
5.01(b)(2) hereof as a terminating distribution in respect of the Grantor Trust
Certificate pursuant to Section 5.02 of the Grantor Trust Agreement for payment
to Noteholders on the succeeding Payment Date; and any amounts received with
respect to the Home Loans and Foreclosure Properties subsequent to the Due
Period immediately preceding such final Payment Date shall belong to the
purchaser thereof. For purposes of calculating the Available Payment Amount for
such final Payment Date, amounts transferred to the Note Payment Account
immediately preceding such final Payment Date shall in all cases be deemed to
have been received during the related Due Period, and amounts so transferred
shall be applied pursuant to Section 5.01(d) and (e) hereof.
Section 11.03 Notice of Termination.
Notice of termination of this Agreement or of early redemption and
termination of the Issuer and the Grantor Trust shall be sent (i) by the
Indenture Trustee to the Noteholders in accordance with section 10.02 of the
Indenture, (ii) by the Owner Trustee to the Certificateholders in accordance
with section 9.1(d) of the Owner Trust Agreement, and (iii) by the Grantor
Trustee to the Grantor Trust Holder in accordance with Section 7.02 of the
Grantor Trust Agreement.
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.01 Acts of Noteholders.
Except as otherwise specifically provided herein, whenever action, consent
or approval of the Securityholders is required under this Agreement, such
action, consent or approval shall be deemed to have been taken or given on
behalf of, and shall be binding upon, all Securityholders if the Majority
Securityholders agree to take such action or give such consent or approval.
Section 12.02 Amendment.
(a) This Agreement may be amended from time to time by the Depositor, the
Servicer, the Transferor, the Indenture Trustee, the Grantor Trustee and the
Issuer by written agreement with notice thereof to the Securityholders, without
the consent of any of the Securityholders, to cure any error or ambiguity, to
correct or supplement any provisions hereof which may be defective or
inconsistent with any other provisions hereof or to add any other provisions
with respect to matters or questions arising under this Agreement; provided,
however, that such action will not adversely affect in any material respect the
interests of the Securityholders. An amendment described above shall be deemed
not to adversely affect in any material respect the interests of the
Securityholders if either (i) an Opinion of Counsel is obtained to such effect
and (ii) the party requesting the amendment obtains a letter from each of the
Rating Agencies confirming that the amendment, if made, would not result in the
downgrading or withdrawal of the rating then assigned by the respective Rating
Agency to any Class of Notes then outstanding.
(b) This Agreement may also be amended from time to time by the Depositor,
the Servicer, the Transferor, the Indenture Trustee, the Grantor Trustee and the
Issuer by written agreement, with the prior written consent of the Majority
Noteholders, for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of this Agreement, or of modifying
in any manner the rights of the Securityholders; provided, however, that no such
amendment shall (i) reduce in any manner the amount of, or delay the timing of,
collections of payments on Home Loans or distributions which are required to be
made on any Security, without the consent of the holders of 100% of each Class
of Notes affected thereby, (ii) adversely affect in any material respect the
interests of the holders of any Class of Notes in any manner other than as
described in clause (i), without the consent of the holders of 100% of such
Class of Notes, or (iii) reduce the percentage of any Class of Notes, the
consent of which is required for any such amendment, without the consent of the
holders of 100% of such Class of Notes.
(c) It shall not be necessary for the consent of Securityholders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent shall approve the substance thereof.
Prior to the execution of any amendment to this Agreement, the Issuer, the
Grantor Trustee and the Indenture Trustee shall be entitled to receive and rely
upon an Opinion of Counsel stating that the execution of such amendment is
authorized or permitted by this Agreement. The Issuer, the Grantor Trustee and
the Indenture Trustee may, but shall not be obligated to, enter into any such
amendment which affects the Issuer's own rights, duties or immunities of the
Issuer, the Grantor Trustee or the Indenture Trustee, as the case may be, under
this Agreement.
Section 12.03 Recordation of Agreement.
To the extent permitted by applicable law, this Agreement, or a memorandum
thereof if permitted under applicable law, is subject to recordation in all
appropriate public offices for real property records in all of the counties or
other comparable jurisdictions in which any or all of the Mortgaged Properties
are situated, and in any other appropriate public recording office or elsewhere,
such recordation to be effected by the Servicer at the Noteholders' expense on
direction of the Majority Noteholders but only when accompanied by an Opinion of
Counsel to the effect that such recordation materially and beneficially affects
the interests of the Noteholders or is necessary for the administration or
servicing of the Home Loans.
Section 12.04 Duration of Agreement.
This Agreement shall continue in existence and effect until terminated as
herein provided.
Section 12.05 Governing Law.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAW.
Section 12.06 Notices.
All demands, notices and communications hereunder shall be in writing and
shall be deemed to have been duly given if personally delivered at or mailed by
overnight mail, certified mail or registered mail, postage prepaid, to: (i) in
the case of the Depositor, PaineWebber Mortgage Acceptance Corporation IV, ▇▇▇▇
▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇ ▇▇▇▇▇▇, Esq.,
or such other addresses as may hereafter be furnished to the Securityholders and
the other parties hereto in writing by the Depositor; (ii) in the case of the
Issuer, at Empire Funding Home Loan Owner Trust 1998-2, c/o Wilmington Trust
Company, ▇▇▇▇▇▇ Square North, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇, Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, or such other address as may hereafter be
furnished to the Securityholders and the other parties hereto; (iii) in the case
of the Transferor and Servicer, Empire Funding Corp., ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ or such other address as may
hereafter be furnished to the Securityholders and the other parties hereto in
writing by the Servicer or the Transferor; (iv) in the case of the Indenture
Trustee and Grantor Trustee, U.S. Bank National Association, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇. ▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇; Attention: Structured Finance/Empire Funding
1998-2; and (v) in the case of the Securityholders, as set forth in the
applicable Note Register. Any such notices shall be deemed to be effective with
respect to any party hereto upon the receipt of such notice by such party,
except that notices to the Securityholders shall be effective upon mailing or
personal delivery.
Section 12.07 Severability of Provisions.
If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be held invalid for any reason whatsoever, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the other covenants,
agreements, provisions or terms of this Agreement.
Section 12.08 No Partnership.
Nothing herein contained shall be deemed or construed to create any
partnership or joint venture between the parties hereto and the services of the
Servicer shall be rendered as an independent contractor.
Section 12.09 Counterparts.
This Agreement may be executed in one or more counterparts and by the
different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed to be an original; such counterparts, together, shall
constitute one and the same Agreement.
Section 12.10 Successors and Assigns.
This Agreement shall inure to the benefit of and be binding upon the
Servicer, the Transferor, the Depositor, the Indenture Trustee, the Grantor
Trustee, the Issuer, the Noteholders and the Grantor Trust Holder and their
respective successors and permitted assigns.
Section 12.11 Headings.
The headings of the various sections of this Agreement have been inserted
for convenience of reference only and shall not be deemed to be part of this
Agreement.
Section 12.12 Actions of Securityholders.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Agreement to be given or taken by
Securityholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Securityholders in person or by agent
duly appointed in writing; and except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Depositor, the Servicer or the Issuer. Proof of execution of
any such instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Agreement and conclusive in favor of the
Depositor, the Servicer and the Issuer if made in the manner provided in this
Section 12.12.
(b) The fact and date of the execution by any Securityholder of any such
instrument or writing may be proved in any reasonable manner which the
Depositor, the Servicer or the Issuer deems sufficient.
(c) Any request, demand, authorization, direction, notice, consent, waiver
or other act by a Securityholder shall bind every holder of every Security
issued upon the registration of transfer thereof or in exchange therefor or in
lieu thereof, in respect of anything done, or omitted to be done, by the
Depositor, the Servicer or the Issuer in reliance thereon, whether or not
notation of such action is made upon such Security.
(d) The Depositor, the Servicer or the Issuer may require additional proof
of any matter referred to in this Section 12.12 as it shall deem necessary.
Section 12.13 Reports to Rating Agencies.
(a) The Indenture Trustee shall provide to each Rating Agency copies of
statements, reports and notices, to the extent received or prepared in
connection herewith, as follows:
(i) copies of amendments to this Agreement;
(ii) notice of any substitution or repurchase of any Home Loans;
(iii) notice of any termination, replacement, succession, merger
or consolidation of the Servicer, any Custodian or the Issuer;
(iv) notice of final payment on the Notes;
(v) notice of any Event of Default;
(vi) copies of the annual independent accountants' report
delivered pursuant to Section 7.05 hereof, and copies of any compliance
reports delivered by the Servicer including under Section 7.04 hereof; and
(vii) copies of any Payment Date Statement pursuant to Section
6.01(b) hereof.
(b) With respect to the requirement of the Indenture Trustee to provide
statements, reports and notices to the Rating Agencies, such statements, reports
and notices shall be delivered to the Rating Agencies at the following
addresses: (i) if to S&P, ▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇▇▇, Attention:
Residential Mortgage Group, (ii) if to Duff & ▇▇▇▇▇▇, ▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: MBS Monitoring, or (iii) if to
Fitch IBCA, Inc., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention:
Asset Backed Surveillance Department.
Section 12.14 Holders of the Residual Interest Certificates.
(a) Any sums to be distributed or otherwise paid hereunder or under the
Owner Trust Agreement to the holders of the Residual Interest Certificates shall
be paid to such holders pro rata based on their percentage holdings in the
Residual Interest;
(b) Where any act or event hereunder is expressed to be subject to the
consent or approval of the holders of the Residual Interest Certificates, such
consent or approval shall be capable of being given by the holder or holders of
not less than 51% of the Residual Interest in aggregate.
Section 12.15 Year 2000 Compliance. Each of the Servicer and the Indenture
Trustee shall undertake to obtain certifications from each of their software
vendors that their respective computer systems will be year 2000 compliant by
August 31, 1999.
IN WITNESS WHEREOF, the Issuer, the Depositor, the Transferor, the
Servicer, the Grantor Trustee and the Indenture Trustee have caused their names
to be signed by their respective officers thereunto duly authorized, as of the
day and year first above written, to this Sale and Servicing Agreement.
EMPIRE FUNDING HOME LOAN OWNER
TRUST 1998-2,
By: Wilmington Trust Company, not in its
individual capacity but solely as
Owner Trustee
By: ____________________________________
Name:
Title:
PAINEWEBBER MORTGAGE ACCEPTANCE
CORPORATION IV, as Depositor
By: ____________________________________
Name:
Title:
EMPIRE FUNDING CORP., as Transferor and
Servicer
By:_____________________________________
Name:
Title:
U.S. BANK NATIONAL ASSOCIATION, as
Indenture Trustee and Grantor Trustee
By: ____________________________________
Name:
Title:
THE STATE OF ___________ )
)
COUNTY OF ______________ )
BEFORE ME, the undersigned authority, a Notary Public, on this _____ day of
June 1998 personally appeared _______________, known to me to be a person and
officer whose name is subscribed to the foregoing instrument and acknowledged to
me that the same was the act of the said WILMINGTON TRUST COMPANY, not in its
individual capacity but in its capacity as Owner Trustee of EMPIRE FUNDING HOME
LOAN OWNER TRUST 1998-2 as Issuer, and that she executed the same as the act of
such corporation for the purpose and consideration therein expressed, and in the
capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF WILMINGTON TRUST COMPANY, this the ____ day
of June, 1998.
______________________________________
Notary Public, State of ______________
THE STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
BEFORE ME, the undersigned authority, a Notary Public, on this _____ day of
June 1998 personally appeared _______________, known to me to be a person and
officer whose name is subscribed to the foregoing instrument and acknowledged to
me that the same was the act of the said PAINEWEBBER MORTGAGE ACCEPTANCE
CORPORATION IV, as the Depositor, and that he/she executed the same as the act
of such corporation for the purpose and consideration therein expressed, and in
the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION
IV, this the ____ day of June, 1998.
__________________________________________
Notary Public, State of __________________
THE STATE OF ___________ )
)
COUNTY OF ______________ )
BEFORE ME, the undersigned authority, a Notary Public, on this [__] day of
June 1998 personally appeared _______________________, known to me to be the
person and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said EMPIRE FUNDING CORP.,
as the Transferor and Servicer, and that he executed the same as the act of such
corporation for the purposes and consideration therein expressed, and in the
capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF EMPIRE FUNDING CORP., this the [____] day
of June, 1998.
_______________________________________
Notary Public, State of _______________
THE STATE OF ___________ )
)
COUNTY OF ______________ )
BEFORE ME, the undersigned authority, a Notary Public, on this [__] day of
June 1998 personally appeared ____________________, known to me to be the person
and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said U.S. BANK NATIONAL
ASSOCIATION, a national banking association, as the Indenture Trustee and
Grantor Trustee, and that she executed the same as the act of such entity for
the purposes and consideration therein expressed, and in the capacity therein
stated.
GIVEN UNDER MY HAND AND SEAL OF U.S. BANK NATIONAL ASSOCIATION, this the
[__] day of June, 1998.
________________________________________
Notary Public, State of ________________