EXHIBIT 4.1
EXECUTION COPY
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HEADLANDS MORTGAGE SECURITIES INC.,
Sponsor,
HEADLANDS MORTGAGE COMPANY,
Servicer,
HEADLANDS HOME EQUITY LOAN TRUST 1999-1,
Issuer,
and
BANK ONE, NATIONAL ASSOCIATION
Indenture Trustee
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SALE AND SERVICING AGREEMENT
Dated as of September 1, 1999
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Home Equity Loan Asset-Backed Notes
Series 1999-1
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TABLE OF CONTENTS
Page
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ARTICLE I DEFINITIONS....................................................................................1
Section 1.01. Definitions..................................................................................1
Section 1.02. Other Definitional Provisions................................................................1
Section 1.03. Interest Calculations........................................................................2
ARTICLE II CONVEYANCE OF MORTGAGE LOANS; ORIGINAL ISSUANCE OF NOTES; TAX TREATMENT........................2
Section 2.01. Conveyance of Mortgage Loans; Retention of Obligation to Fund Advances Under Credit
Line Agreements..............................................................................2
Section 2.02. Further Encumbrance of Trust Property........................................................6
Section 2.03. Representations and Warranties Regarding the Servicer and the Sponsor........................6
Section 2.04. Representations and Warranties of the Sponsor Regarding the Mortgage Loans;
Retransfer of Certain Mortgage Loans.........................................................8
Section 2.05. Covenants of the Sponsor....................................................................10
Section 2.06. Retransfers of Mortgage Loans at Election of Sponsor........................................17
Section 2.07. Execution and Authentication of Notes.......................................................18
Section 2.08. Tax Treatment...............................................................................19
ARTICLE III ADMINISTRATION AND SERVICING OF MORTGAGE LOANS................................................20
Section 3.01. The Servicer................................................................................20
Section 3.02. Collection of Certain Mortgage Loan Payments................................................21
Section 3.03. Withdrawals from the Collection Account.....................................................21
Section 3.04. Maintenance of Hazard Insurance; Property Protection Expenses...............................23
Section 3.05. Assumption and Modification Agreements......................................................23
Section 3.06. Realization Upon Defaulted Mortgage Loans; Repurchase of Certain Mortgage Loans.............24
Section 3.07. Indenture Trustee to Cooperate..............................................................24
Section 3.08. Servicing Compensation; Payment of Certain Expenses by Servicer.............................25
Section 3.09. Annual Statement as to Compliance...........................................................26
Section 3.10. Annual Servicing Report.....................................................................26
Section 3.11. Annual Opinion of Counsel...................................................................27
Section 3.12. Access to Certain Documentation and Information Regarding the Mortgage Loans................27
Section 3.13. Maintenance of Certain Servicing Insurance Policies.........................................28
Section 3.14. Reports to the Securities and Exchange Commission...........................................28
Section 3.15. Tax Returns.................................................................................28
Section 3.16. Information Required by the Internal Revenue Service Generally and Reports of
Foreclosures and Abandonments of Mortgaged Property.........................................28
ARTICLE IV SERVICING CERTIFICATE.........................................................................29
Section 4.01. Servicing Certificate.......................................................................29
Section 4.02. Reserve Fund................................................................................30
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ARTICLE V THE SERVICER AND THE SPONSOR..................................................................31
Section 5.01. Liability of the Servicer and the Sponsor...................................................31
Section 5.02. Merger or Consolidation of, or Assumption of the Obligations of, the Servicer or
the Sponsor.................................................................................31
Section 5.03. Limitation on Liability of the Servicer and Others..........................................31
Section 5.04. Servicer Not to Resign......................................................................32
Section 5.05. Delegation of Duties........................................................................32
Section 5.06. Indemnification of the Trust by the Servicer................................................32
Section 5.07. Indemnification of the Trust by the Sponsor.................................................33
Section 5.08. Limitation on Liability of the Sponsor......................................................33
ARTICLE VI SERVICING TERMINATION.........................................................................34
Section 6.01. Events of Servicing Termination.............................................................34
Section 6.02. Indenture Trustee to Act; Appointment of Successor..........................................35
Section 6.03. Notification to Securityholders.............................................................36
ARTICLE VII TERMINATION...................................................................................37
Section 7.01. Termination.................................................................................37
ARTICLE VIII ADMINISTRATIVE DUTIES OF THE SERVICER.........................................................38
Section 8.01. Administrative Duties.......................................................................38
Section 8.02. Records.....................................................................................40
Section 8.03. Additional Information to be Furnished to the Issuer........................................40
ARTICLE IX MISCELLANEOUS PROVISIONS......................................................................40
Section 9.01. Amendment...................................................................................40
Section 9.02. Recordation of Agreement....................................................................42
Section 9.03. Limitation on Rights of Noteholders.........................................................42
Section 9.04. Governing Law...............................................................................43
Section 9.05. Notices.....................................................................................43
Section 9.06. Severability of Provisions..................................................................43
Section 9.07. Assignment..................................................................................43
Section 9.08. Third-Party Beneficiaries...................................................................43
Section 9.09. Counterparts................................................................................43
Section 9.10. Effect of Headings and Table of Contents....................................................44
Section 9.11. Insurance Agreement.........................................................................44
Section 9.12. Nonpetition Covenant........................................................................44
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EXHIBITS
EXHIBIT A: MORTGAGE LOAN SCHEDULE..........................................A-1
EXHIBIT B: FORM OF OPINION OF COUNSEL......................................B-1
EXHIBIT C: OFFICER'S CERTIFICATES..........................................C-1
EXHIBIT D: FORM OF CREDIT LINE AGREEMENT...................................D-1
EXHIBIT E: FORM OF MORTGAGE NOTE (SECOND LIEN).............................E-1
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SALE AND SERVICING AGREEMENT, dated as of September 1, 1999,
(the "Agreement") among HEADLANDS HOME EQUITY LOAN TRUST 1999-1, a Delaware
business trust (the "Issuer"), HEADLANDS MORTGAGE SECURITIES INC., a Delaware
corporation (the "Sponsor"), HEADLANDS MORTGAGE COMPANY, a California
corporation (the "Servicer"), and BANK ONE, NATIONAL ASSOCIATION, a national
banking association (the "Indenture Trustee")
WHEREAS, the Issuer desires to purchase a portfolio of
Mortgage Loans arising in connection with Loan Agreements acquired by Headlands
Mortgage Company;
WHEREAS, the Sponsor has purchased such Mortgage Loans from
Headlands Mortgage Company and is willing to sell such Mortgage Loans to the
Issuer;
WHEREAS, such Mortgage Loans consist of certain home equity
revolving lines of credit (the "HELOC Mortgage Loans") and certain second lien,
closed-end mortgage loans (the "Closed End Mortgage Loans");
WHEREAS, the Servicer is willing to service all such Mortgage
Loans;
NOW, THEREFORE, in consideration of the promises and mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. All capitalized terms used in this Agreement
and not otherwise defined herein, shall have the meanings assigned thereto in
Annex A to the Indenture dated as of September 1, 1999, between the Issuer and
the Indenture Trustee, as the same may be amended and supplemented from time to
time.
Section 1.02. Other Definitional Provisions.
(a) All terms defined in this Agreement shall have the defined meanings
when used in any instrument governed hereby and in any certificate or other
document made or delivered pursuant hereto unless otherwise defined therein.
(b) As used in this Agreement, in any instrument governed hereby 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 instrument,
certificate or other document, and accounting terms partly defined in this
Agreement or in any such instrument, certificate or other document to the extent
not defined, shall have the respective meanings given to them under generally
accepted accounting principles as in effect on the date of this Agreement or any
such instrument, certificate or other document, as applicable. To the extent
that the definitions of accounting terms in this Agreement or in any such
instrument, certificate or other document are inconsistent with the meanings of
such terms under generally accepted accounting principles, the
definitions contained in this Agreement or in any such instrument, certificate
or other document shall control.
(c) Any agreement, instrument or statute defined or referred to herein
or in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
Section 1.03. Interest Calculations. All calculations of interest
hereunder that are made in respect of the Principal Balance of a Mortgage Loan
shall be made on a daily basis using a 365-day year. All calculations of
interest on the Notes shall be made on the basis of the actual number of days in
an Interest Period and a year assumed to consist of 360 days. The calculation of
the Servicing Fee shall be made on the basis of the actual number of days
elapsed in a 360-day year. All dollar amounts calculated hereunder shall be
rounded to the nearest ▇▇▇▇▇ with one-half of one ▇▇▇▇▇ being rounded down.
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF NOTES;
TAX TREATMENT
Section 2.01. Conveyance of Mortgage Loans; Retention of Obligation to
Fund Advances Under Credit Line Agreements.. (a) In consideration of the
Issuer's delivery to or upon the order of the Sponsor on the Closing Date of the
net proceeds from the sale of the Notes and Certificates and the other amounts
to be distributed from time to time to the Sponsor in accordance with the terms
of this Agreement, the Sponsor, concurrently with the execution and delivery of
this Agreement, hereby sells, transfers, assigns, sets over and otherwise
conveys to the Issuer, without recourse (subject to Sections 2.03 and 2.05), all
of its right, title and interest in and to (i) each Mortgage Loan, including its
Principal Balance (any Additional Balances related thereto) and all collections
in respect thereof received after the Cut-Off Date (excluding Interest
Collection due on or prior to the Cut-Off Date); (ii) property that secured a
Mortgage Loan that is acquired by foreclosure or deed in lieu of foreclosure;
(iii) all of the Sponsor's rights under the Purchase Agreement (including all
representations and warranties of the Company contained therein); (iv) the
Sponsor's rights under the hazard insurance policies; (v) the Reserve Fund; (vi)
the Policies; and (vii) any proceeds of the foregoing and all other assets
included or to be included in the Trust for the benefit of Securityholders and
the Insurer; provided, however, neither the Indenture Trustee nor the Trust
assumes the obligation under any Credit Line Agreement that provides for the
funding of future advances to the Mortgagor thereunder, and neither the Trust
nor the Indenture Trustee shall be obligated or permitted to fund any such
future advances. With respect to the HELOC Mortgage Loans, Additional Balances
shall be part of the related Principal Balance and are hereby transferred to the
Trust on the Closing Date pursuant to this Section 2.01, and therefore part of
the Trust Property. On or prior to the Closing Date, the Sponsor shall cause the
Insurer to deliver the Policies to the Indenture Trustee for the benefit of the
Noteholders. It is the intention of the Sponsor that the transfer and assignment
contemplated by this Agreement shall constitute a sale of the Mortgage Loans and
other Trust Property from
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the Sponsor to the Issuer and that such sale should constitute a valid transfer
and assignment of the Mortgage Loans and other Trust Property to the Issuer and
the beneficial interest in and title to the Mortgage Loans and the other Trust
Property shall not be part of the Sponsor's estate in the event of the filing of
a bankruptcy petition by or against the Sponsor under any bankruptcy law. In the
event that, notwithstanding the intent of the Sponsor, the transfer and
assignment contemplated hereby is held not to be a sale, this Agreement shall
constitute a grant of a security interest in the property referred to in this
Section 2.01 for the benefit of the Securityholders and the Insurer.
(b) Each of the Company and the Sponsor agrees to take or cause to be
taken such actions and execute such documents (including, without limitation,
the filing of all necessary continuation statements for the UCC-1 financing
statements filed in the States of California and Delaware, respectively, (which
shall have been filed on or as of the Closing Date) describing the Cut-Off Date
Principal Balances and Additional Balances and naming (i) the Company as debtor
and the Sponsor as secured party, and (ii) the Sponsor as debtor and the Issuer
as secured party and any amendments to UCC-1 financing statements required to
reflect a change in the name or corporate structure of the Company or the
Sponsor or the filing of any additional UCC-1 financing statements due to the
change in the principal office of the Company or the Sponsor (within 10 days of
any event necessitating such filing) as are necessary to perfect and protect the
Noteholders' and Insurer's interests in each Cut-Off Date Principal Balance and
Additional Balance and the proceeds thereof (other than maintaining possession
by the Indenture Trustee of the Mortgage Loans and the Mortgage Files).
(c) In connection with such transfer and assignment, the Servicer shall
deliver to the Indenture Trustee the following documents or instruments (each a
"Related Document" and together for each Mortgage Loan, the "Mortgage File")
with respect to each Mortgage Loan on the Closing Date:
(i) the original Mortgage Note endorsed in blank;
(ii) an original Assignment of Mortgage in blank in recordable
form;
(iii) the original recorded Mortgage or, if, in connection with any
Mortgage Loan, the original recorded Mortgage with evidence of
recording thereon cannot be delivered on or prior to the Closing Date
because of a delay caused by the public recording office where such
original Mortgage has been delivered for recordation or because such
original Mortgage has been lost, the Sponsor shall deliver or cause to
be delivered to the Indenture Trustee, a true and correct copy of such
Mortgage, together with (i) in the case of a delay caused by the public
recording office, an Officer's Certificate of the Sponsor stating that
such original Mortgage has been dispatched to the appropriate public
recording official or (ii) in the case of an original Mortgage that has
been lost, a certificate by the appropriate county recording office
where such Mortgage is recorded;
(iv) if applicable, the original intervening assignments, if any
("Intervening Assignments"), with evidence of recording thereon,
showing a complete chain of title to the Mortgage from the originator
to the Indenture Trustee or, if any such original
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Intervening Assignment has not been returned from the applicable
recording office or has been lost, a true and correct copy thereof,
together with (i) in the case of a delay caused by the public recording
office, an Officer's Certificate of the Sponsor stating that such
original Intervening Assignment has been dispatched to the appropriate
public recording official for recordation or (ii) in the case of an
original Intervening Assignment that has been lost, a certificate by
the appropriate county recording office where such Mortgage is
recorded;
(v) either a title policy, a title search or guaranty title with
respect to the related Mortgaged Property;
(vi) the original of any guaranty executed in connection with the
Mortgage Note;
(vii) the original of each assumption, modification, consolidation
or substitution agreement, if any, relating to the Mortgage Loans; and
(viii) any security agreement, chattel mortgage or equivalent
instrument executed in connection with the Mortgage;
provided, however, that as to any Mortgage Loan, if (a) as evidenced by an
Opinion of Counsel delivered to and in form and substance satisfactory to the
Indenture Trustee and the Insurer, (x) an optical image or other representation
of the Related Documents specified in clauses (i) through (viii) above are
enforceable in the relevant jurisdictions to the same extent as the original of
such document and (y) such optical image or other representation does not impair
the ability of an owner of such Mortgage Loan to transfer its interest in such
Mortgage Loan, and (b) the retention of such documents in such format will not
result in a reduction in the then current rating of the Notes, without regard to
the Policies, such optical image or other representation may be delivered by the
Servicer, to the Indenture Trustee in lieu of the physical documents specified
above.
The Sponsor hereby confirms to the Indenture Trustee that it has caused
the portions of the Electronic Ledgers relating to the Mortgage Loans as of the
Closing Date to be clearly and unambiguously marked, and has made, or will make,
the appropriate entries in its general accounting records to indicate that such
Mortgage Loans have been transferred to the Trust. The Servicer hereby confirms
to the Indenture Trustee that it has clearly and unambiguously made appropriate
entries in its general accounting records indicating that such Mortgage Loans
constitute part of the Trust and are serviced by it on behalf of the Trust in
accordance with the terms hereof.
(d) Notwithstanding the characterization of the Notes as debt for
Federal, state and local income and franchise tax purposes, the parties hereto
intend to treat the transfer of the Mortgage Loans to the Trust as provided
herein as a sale, for certain non-tax purposes, of all the Sponsor's right,
title and interest in and to the Mortgage Loans, whether now existing or
hereafter created, and the other property described above and all proceeds
thereof. In the event such transfer is deemed not to be a sale for such
purposes, the Sponsor grants to the Trust, a security interest in all of such
party's right, title and interest in, to and under the Mortgage Loans, whether
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now existing or hereafter created, and the other property described above and
all proceeds thereof; and this Agreement shall constitute a security agreement
under applicable law.
(e) Within 90 days following delivery of the Mortgage Files to the
Indenture Trustee pursuant to this Section, the Indenture Trustee shall review
each such Mortgage File to ascertain that all required documents set forth in
this Section 2.01 have been executed and received, and that such documents
relate to the Mortgage Loans identified on the Mortgage Loan Schedule and in so
doing the Indenture Trustee may rely on the purported due execution and
genuineness of any signature thereon. If within such 90-day period the Indenture
Trustee finds any document constituting a part of a Mortgage File not to have
been executed or received or to be unrelated to the Mortgage Loans identified in
said Mortgage Loan Schedule or, if in the course of its review, the Indenture
Trustee determines that such Mortgage File is otherwise defective in any
material respect, the Indenture Trustee shall promptly upon the conclusion of
its review notify the Sponsor and the Insurer, and the Sponsor shall have a
period of 90 days after such notice within which to correct or cure any such
defect.
The Indenture Trustee shall have no responsibility for reviewing any
Mortgage File except as expressly provided in this Section 2.01. In reviewing
any Mortgage File pursuant to this Section, the Indenture Trustee shall have no
responsibility for determining whether any document is valid and binding,
whether the text of any assignment or endorsement is in proper or recordable
form (except, if applicable, to determine if the Indenture Trustee is the
assignee or endorsee), whether any document has been recorded in accordance with
the requirements of any applicable jurisdiction, or whether a blanket assignment
is permitted in any applicable jurisdiction, whether any Person executing any
document is authorized to do so or whether any signature thereon is genuine, but
shall only be required to determine whether a document has been executed, that
it appears to be what it purports to be, and, where applicable, that it purports
to be recorded.
(f) The Sponsor shall take all necessary steps to prepare and submit
for recordation an Assignment or Mortgage in the name of the Indenture Trustee
for each Mortgage Loan within 30 days after the Closing Date.
(g) The Sponsor shall sell, assign, transfer, set over and otherwise
convey without recourse to the Indenture Trustee all right, title and interest
of the Sponsor in and to any Eligible Substitute Mortgage Loan delivered to the
Indenture Trustee on behalf of the Trust by the Sponsor pursuant to Section 2.03
or Section 2.05 hereof and all its right, title and interest to principal
collected and interest accruing on such Eligible Substitute Mortgage Loan on and
after the applicable Substitute Cut-Off Date; provided, however, that the
Sponsor shall reserve and retain all right, title and interest in and to
payments of interest due on such Eligible Substitute Mortgage Loan prior to the
applicable Substitute Cut-Off Date; provided, further, however, that neither the
Trust nor the Indenture Trustee shall be obligated to fund any future advances
to the related Mortgagor under such Eligible Substitute Mortgage Loan.
In connection with any transfer and assignment of an Eligible
Substitute Mortgage Loan to the Indenture Trustee on behalf of the Trust, the
Sponsor agrees to cause to be delivered to the Indenture Trustee the items
described in Section 2.01(c) on the date of such transfer and
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assignment or, if a later delivery time is permitted by Section 2.01(c), then no
later than such later delivery time.
(h) Each Defective Mortgage Loan that is required to be repurchased or
substituted pursuant to the provisions this Agreement or the Purchase Agreement
shall, upon such repurchase or substitution in accordance with the provisions
hereof, be released from the Trust and from the lien created by the Indenture.
As to each Mortgage Loan released from the Trust in connection with the
repurchase thereof or the conveyance of an Eligible Substitute Mortgage Loan
therefor, the Indenture Trustee will transfer, assign, set over and otherwise
convey without recourse, to or upon the order of the Sponsor, all of its right,
title and interest in and to such released Mortgage Loan and all the Trust's
right title and interest to principal collected and interest accruing on such
released Mortgage Loan on and after the first day of the calendar month in which
such Mortgage Loan is released; the applicable; provided, however, that the
Trust shall reserve and retain all right, title and interest in and to payments
of principal and interest collected on such released Mortgage Loan prior to such
date.
Section 2.02. Further Encumbrance of Trust Property.
(a) Immediately upon the conveyance to the Trust by the Sponsor of any
item of the Trust Property pursuant to Section 2.01, all right, title and
interest of the Sponsor in and to such item of Trust Property shall terminate,
and all such right, title and interest shall vest in the Trust, in accordance
with the Trust Agreement and Sections 3802 and 3805 of the Delaware Business
Trust Act (12 Del. Code, Section 3801 et seq.).
(b) Immediately upon the vesting of the Trust Property in the Trust,
the Trust shall have the sole right to pledge or otherwise encumber, such Trust
Property. Pursuant to the Indenture and contemporaneously with such property
vesting in the Trust pursuant to (a) above, the Trust shall grant a security
interest in the Trust Property to secure the repayment of the Notes. The
Certificates shall represent the beneficial ownership interest in the Trust
Property, and the Certificateholders shall be entitled to receive distributions
with respect thereto as set forth herein.
(c) Prior to the payment in full on the Notes, the payment of all
amounts due to the Insurer under the Insurance Agreement, the termination of the
Policies (as defined therein) and the surrender of the Policies by the Indenture
Trustee to the Insurer, the Indenture Trustee shall hold the Trust Property on
behalf of the Noteholders and the Insurer. Following the payment in full of the
Notes and the release and discharge of the Indenture, all covenants of the
Issuer under Article III of the Indenture shall, until payment in full of the
Certificates, remain as covenants of the Issuer for the benefit of the
Certificateholders, enforceable by the Certificateholders to the same extent as
such covenants were enforceable by the Noteholders prior to the discharge of the
Indenture. Any rights of the Indenture Trustee under Article III of the
Indenture, following the discharge of the Indenture, shall vest in the
Certificateholders.
Section 2.03. Acceptance by Indenture Trustee; Certain Substitution of
Mortgage Loans
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(a) The Indenture Trustee shall, at such time as there are no
Securities outstanding and all sums due to (i) the Indenture Trustee or any
agent or counsel thereof pursuant to the Indenture, (ii) the Indenture Trustee
pursuant to this Agreement and (iii) the Insurer pursuant to the Insurance
Agreement, have been paid, release any remaining portion of the Trust Property
to the Sponsor; provided, that the release of the Reserve fund is subject to
Section 2.05 of the Insurance Agreement.
(b) The Trust hereby acknowledges its receipt of the Policies and the
Mortgage Loans, and declares that the Indenture Trustee holds and will hold such
instrument, and to the extent that any documents are delivered to it pursuant to
Section 2.01, will hold such documents, and all amounts received by it
thereunder and hereunder, in trust, upon the terms herein set forth, for the use
and benefit of all present and future Securityholders and the Insurer. If the
time to cure any defect in respect of any Mortgage Loan of which the Indenture
Trustee has notified the Sponsor following the review pursuant to Section 2.01
has expired or if at any time any loss is suffered by the Indenture Trustee on
behalf of the Noteholders or the Insurer, in respect of any Mortgage Loan as a
result of (i) a defect in any document constituting a part of its Mortgage File
or (ii) an Assignment of Mortgage to the Indenture Trustee not having been
recorded as required by Section 2.01, then on the next succeeding Business Day
(i) substitute in lieu of such Mortgage Loan all Eligible Substitute Mortgage
Loans and, deliver the Substitution Amount applicable thereto to the Servicer
for deposit in the Collection Account or (ii) purchase such Mortgage Loan at a
purchase price equal to the Loan Purchase Price thereof, which purchase price
shall be delivered to the Servicer for deposit in the Collection Account. Upon
receipt of any Mortgage Loan or of written notification signed by a Servicing
Officer to the effect that the Loan Purchase Price in respect of a Defective
Mortgage Loan has been deposited into the Collection Account, then as promptly
as practicable, the Indenture Trustee shall execute such documents and
instruments of transfer presented by the Sponsor, in each case without recourse,
representation or warranty, and take such other actions as shall reasonably be
requested by the Sponsor to effect such transfer by the Trust of such Defective
Mortgage Loan pursuant to this Section. It is understood and agreed that the
obligation of the Sponsor to accept a transfer of a Defective Mortgage Loan and
to either convey an Eligible Substitute Mortgage Loan or to make a deposit of
any related Loan Purchase Price into the Collection Account shall constitute the
sole remedy respecting such defect available to Noteholders and the Indenture
Trustee against the Sponsor.
(c) As to any Eligible Substitute Mortgage Loan, the Sponsor shall, if
required to deliver any such Eligible Substitute Mortgage Loan, deliver to the
Indenture Trustee with respect to such Eligible Substitute Mortgage Loan such
documents and agreements as are required to be held by the Indenture Trustee in
accordance with Section 2.01. For any Collection Period during which the Sponsor
substitutes one or more Eligible Substitute Mortgage Loan, the Servicer shall
determine the Substitution Amount which amount shall be deposited by the Sponsor
in the Collection Account at the time of substitution. All amounts received in
respect of the Eligible Substitute Mortgage Loan during the Collection Period in
which the circumstances giving rise to such substitution occur shall not be a
part of the Trust and shall not be deposited by the Servicer in the Collection
Account. All amounts received by the Servicer during the Collection Period in
which the circumstances giving rise to such substitution occur in respect of any
Defective Mortgage Loan so removed by the Trust shall be deposited by the
Servicer in the Collection Account. Upon such substitution, the Eligible
Substitute Mortgage Loan shall be subject to the terms of this Agreement in all
respects, and the Sponsor shall be deemed (i) to have made with
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respect to such Eligible Substitute Mortgage Loan as of the date of
substitution, the covenants, representations and warranties set forth in Section
2.05 and (ii) to have certified that such Mortgage Loan is an Eligible
Substitute Mortgage Loan. The procedures applied by the Sponsor in selecting
each Eligible Substitute Mortgage Loan shall not be materially adverse to the
interests of the Indenture Trustee, the Noteholders or the Insurer.
The Servicer, promptly following the transfer of a Defective Mortgage
Loan from or to the Trust pursuant to this Section, shall amend the Mortgage
Loan Schedule and make appropriate entries in its general account records to
reflect such transfer. The Servicer shall, following such retransfer,
appropriately ▇▇▇▇ its records to indicate that it is no longer servicing such
Mortgage Loan on behalf of the Trust. The Sponsor, promptly following such
transfer, shall appropriately ▇▇▇▇ its Electronic Ledger and make appropriate
entries in its general account records to reflect such transfer.
Section 2.04. Representations and Warranties Regarding the Servicer and
the Sponsor. (a) The Servicer represents and warrants to the Indenture Trustee
and the Insurer that as of the Closing Date:
(i) The Servicer is a California corporation, validly existing and
in good standing under the laws of the State of California, and has the
corporate power to own its assets and to transact the business in which
it is currently engaged. The Servicer is duly qualified to do business
as a foreign corporation and is in good standing in each jurisdiction
in which the character of the business transacted by it or any
properties owned or leased by it requires such qualification and in
which the failure so to qualify would have a material adverse effect on
the business, properties, assets, or condition (financial or other) of
the Servicer;
(ii) The Servicer has the power and authority to make, execute,
deliver and perform this Agreement and all of the transactions
contemplated under this Agreement, and has taken all necessary
corporate action to authorize the execution, delivery and performance
of this Agreement. When executed and delivered, this Agreement will
constitute the legal, valid and binding obligation of the Servicer
enforceable in accordance with its terms, except as enforcement of such
terms may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by the availability of equitable
remedies;
(iii) The Servicer is not required to obtain the consent of any
other party or any consent, license, approval or authorization from, or
registration or declaration with, any governmental authority, bureau or
agency in connection with the execution, delivery, performance,
validity or enforceability of this Agreement, except for such consent,
license, approval or authorization, or registration or declaration, as
shall have been obtained or filed, as the case may be, prior to the
Closing Date;
(iv) The execution, delivery and performance of this Agreement by
the Servicer will not violate any provision of any existing law or
regulation or any order or decree of any court applicable to the
Servicer or any provision of the Certificate of Incorporation or Bylaws
of the Servicer, or constitute a material breach of any mortgage,
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indenture, contract or other agreement to which the Servicer is a party
or by which the Servicer may be bound; and
(v) No litigation or administrative proceeding of or before any
court, tribunal or governmental body is currently pending, or to the
knowledge of the Servicer threatened, against the Servicer or any of
its properties or with respect to this Agreement or the Notes.
The representations and warranties set forth in this Section 2.04(a) shall
survive the sale and assignment of the Mortgage Loans to the Trust. Upon
discovery of a breach of any representations and warranties which materially and
adversely affects the interests of the Noteholders or the Insurer, the person
discovering such breach shall give prompt written notice to the other parties
and to the Insurer. Within 90 days of its discovery or its receipt of notice of
breach, or, with the prior written consent of a Responsible Officer of the
Indenture Trustee and the Insurer such longer period specified in such consent,
the Servicer shall cure such breach in all material respects.
(b) The Sponsor represents and warrants to the Indenture Trustee and
the Insurer that as of the Closing Date:
(i) The Sponsor is a Delaware corporation, validly existing and in
good standing under the laws of the State of Delaware, and has the
statutory power to own its assets and to transact the business in which
it is currently engaged. The Sponsor is duly qualified to do business
as a foreign limited liability company and is in good standing in each
jurisdiction in which the character of the business transacted by it or
any properties owned or leased by it requires such qualification and in
which the failure so to qualify would have a material adverse effect on
the business, properties, assets, or condition (financial or other) of
the Sponsor;
(ii) The Sponsor has the power and authority to make, execute,
deliver and perform this Agreement and all of the transactions
contemplated under this Agreement, and has taken all necessary
corporate action to authorize the execution, delivery and performance
of this Agreement. When executed and delivered, this Agreement will
constitute the legal, valid and binding obligation of the Sponsor
enforceable in accordance with its terms, except as enforcement of such
terms may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by the availability of equitable
remedies;
(iii) The Sponsor is not required to obtain the consent of any
other party or any consent, license, approval or authorization from, or
registration or declaration with, any governmental authority, bureau or
agency in connection with the execution, delivery, performance,
validity or enforceability of this Agreement;
(iv) The execution, delivery and performance of this Agreement by
the Sponsor will not violate any provision of any existing law or
regulation or any order or decree of any court applicable to the
Sponsor or any provision of the Certificate of Incorporation or bylaws
of the Sponsor, or constitute a material breach of any mortgage,
9
indenture, contract or other agreement to which the Sponsor is a party
or by which the Sponsor may be bound; and
(v) No litigation or administrative proceeding of or before any
court, tribunal or governmental body is currently pending, or to the
knowledge of the Sponsor threatened, against the Sponsor or any of its
properties or with respect to this Agreement or the Notes.
The representations and warranties set forth in this Section 2.04(b) shall
survive the sale and assignment of the Mortgage Loans to the Trust. Upon
discovery of a breach of any representations and warranties which materially and
adversely affects the interests of the Noteholders or the Insurer, the person
discovering such breach shall give prompt written notice to the other parties
and to the Insurer. Within 90 days of its discovery or its receipt of notice of
breach, or, with the prior written consent of a Responsible Officer of the
Indenture Trustee and the Insurer, such longer period specified in such consent,
the Sponsor shall cure such breach in all material respects.
Section 2.05. Representations and Warranties of the Sponsor Regarding
the Mortgage Loans; Retransfer of Certain Mortgage Loans.
(a) The Sponsor hereby makes the following representations and
warranties on which the Issuer is deemed to have relied in acquiring the
Mortgage Loans and upon which the Insurer is deemed to rely in issuing the
Policies. Such representations and warranties speak as of the execution and
delivery of this Agreement and as of the Closing Date, but shall survive the
sale, transfer, and assignment of the Mortgage Loans to the Issuer and the
pledge thereof to the Indenture Trustee pursuant to the Indenture,
(i) As of the Closing Date (or, with respect to any Eligible
Substitute Mortgage Loans, as of the applicable Transfer Date or, with
respect to any HELOC Mortgage Loan, as of the date any Additional
Balance is created), the information set forth in the Mortgage Loan
Schedule for such Mortgage Loans is true and correct in all material
respects;
(ii) Each Mortgage Loan is being serviced by the Servicer or a
Person controlling, controlled by or under common control with the
Servicer and qualified to service mortgage loans;
(iii) The applicable Cut-Off Date Principal Balance has not been
assigned or pledged, and the Sponsor is the sole owner and holder of
such Cut-Off Date Principal Balance free and clear of any and all
liens, claims, encumbrances, participation interests, equities,
pledges, charges or security interests of any nature, and has full
right and authority, under all governmental and regulatory bodies
having jurisdiction over the ownership of the applicable Mortgage
Loans, to sell, assign or transfer the same pursuant to this Agreement;
(iv) As of the Closing Date (or as of the applicable Transfer Date
with respect to any Eligible Substitute Mortgage Loans), the Mortgage
Loans have not been assigned or pledged, and the Sponsor is the sole
owner and holder of such Mortgage
10
Loans free and clear of any and all liens, claims, encumbrances,
participation interests, equities, pledges, charges or security
interests of any nature, and has full right and authority, under all
governmental and regulatory bodies having jurisdiction over the
ownership of the applicable Mortgage Loans, to sell and assign the same
pursuant to this Agreement;
(v) As of the Closing Date (or as of the applicable Transfer Date
with respect to any Eligible Substitute Mortgage Loans), the related
Mortgage is a valid and subsisting first or second lien, as set forth
on the Mortgage Loan Schedule with respect to each related Mortgaged
Property, and as of the applicable Cut-Off Date the related Mortgaged
Property is free and clear of all encumbrances and liens having
priority over the first or second lien, as applicable, of such Mortgage
except for liens for (i) real estate taxes and special assessments not
yet delinquent; (ii) any first mortgage loan secured by such Mortgaged
Property and specified on the Mortgage Loan Schedule; (iii) covenants,
conditions and restrictions, rights of way, easements and other matters
of public record as of the date of recording that are acceptable to
mortgage lending institutions generally; and (iv) other matters to
which like properties are commonly subject which do not materially
interfere with the benefits of the security intended to be provided by
such Mortgage;
(vi) As of the Closing Date (or as of the applicable Transfer Date
with respect to any Eligible Substitute Mortgage Loans), there is no
valid offset, defense or counterclaim of any obligor under any Loan
Agreement or Mortgage;
(vii) To the best knowledge of the Sponsor, as of the Closing Date
(or as of and the applicable Transfer Date with respect to any Eligible
Substitute Mortgage Loans), there is no delinquent recording or other
tax or fee or assessment lien against any related Mortgaged Property;
(viii) As of the Closing Date (or as of the applicable Transfer
Date with respect to any Eligible Substitute Mortgage Loans), there is
no proceeding pending or, to the best knowledge of the Sponsor,
threatened for the total or partial condemnation of the related
Mortgaged Property, and such property is free of material damage;
(ix) To the best knowledge of the Sponsor, as of the Closing Date
(or as of the applicable Transfer Date with respect to any Eligible
Substitute Mortgage Loans), there are no mechanics' or similar liens or
claims which have been filed for work, labor or material affecting the
related Mortgaged Property which are, or may be, liens prior or equal
to the lien of the related Mortgage, except liens which are fully
insured against by the title insurance policy referred to in clause
(xiv);
(x) No Minimum Monthly Payment is more than 89 days delinquent
(measured on a contractual basis);
(xi) As of the Closing Date (or as of the applicable Transfer Date
with respect to any Eligible Substitute Mortgage Loans), for each
Mortgage Loans, the related
11
Mortgage File contains each of the documents and instruments specified
to be included therein;
(xii) The related Loan Agreement and the related Mortgage at
origination complied in all material respects with applicable state and
federal laws, including, without limitation, usury, truth-in-lending,
real estate settlement procedures, consumer credit protection, equal
credit opportunity or disclosure laws applicable to the Mortgage Loans;
(xiii) On the Closing Date and, to the extent not already included
in such filing, on the applicable Transfer Date with respect to any
Eligible Substitute Mortgage Loans, the Sponsor has filed UCC-1
financing statements with respect to such Mortgage Loans.
(xiv) Either a lender's title insurance policy or binder was issued
on the date of origination of the Mortgage Loans and each such policy
is valid and remains in full force and effect, or a title search or
guaranty of title customary in the relevant jurisdiction was obtained
with respect to a Mortgage Loans as to which no title insurance policy
or binder was issued;
(xv) As of the Closing Date (or as of the applicable Transfer Date
with respect to any Eligible Substitute Mortgage Loans), none of the
Mortgaged Properties is a mobile home or a manufactured housing unit;
(xvi) As of the Cut-Off Date no more than (a) 0.84% of the Pool I
Mortgage Loans (by Cut-Off Date Pool I Balance) and (b) 3.50% of the
Pool II Mortgage Loans (by Cut-Off Date Pool II Balance), are secured
by Mortgaged Properties located in one United States postal zip code;
(xvii) The Combined Loan-to-Value Ratio for each Pool I Mortgage
Loan was not in excess of 100% and the Combined Loan-to-Value Ratio for
each Pool II Mortgage Loan was not in excess of 100%;
(xviii) Each Pool I Mortgage Loan substantially conforms to certain
loan origination standards with respect to loan balances as of the date
of origination set forth by the Federal National Mortgage Association.
(xix) No selection procedure reasonably believed by the Sponsor to
be adverse to the interests of the Securityholders or the Insurer was
utilized in selecting the Mortgage Loans;
(xx) The Sponsor has not transferred the Mortgage Loans to the
Trust with any intent to hinder, delay or defraud any of its creditors;
(xxi) The Minimum Monthly Payment with respect to any Mortgage Loan
is not less than the interest accrued at the applicable Loan Rate on
the average daily Principal Balance during the interest period relating
to the date on which such Minimum Monthly Payment is due;
12
(xxii) As of the Closing Date (or as of the applicable Transfer
Date with respect to any Eligible Substitute Mortgage Loans), each Loan
Agreement and each Mortgage Loans is an enforceable obligation of the
related Mortgagor, except as the enforceability thereof may be limited
by the bankruptcy, insolvency or similar laws affecting creditors'
rights generally;
(xxiii) As of the Closing Date (or as of the applicable Transfer
Date with respect to any Eligible Substitute Mortgage Loans), there has
been no default of any senior mortgage loan related to a Mortgaged
Property that has not been cured by a party other than the Servicer;
(xxiv) The terms of each Mortgage Note and each Mortgage have not
been impaired, altered or modified in any respect, except by a written
instrument which (if such instrument is secured by real property) has
been recorded, if necessary, to protect the interest of the Noteholders
and which has been delivered to the Indenture Trustee. The substance of
any such alteration or modification is reflected on the related
Mortgage Loan Schedule and has been approved by the primary mortgage
guaranty insurer, if any;
(xxv) The definition of "prime rate" in each Credit Line Agreement
relating to a HELOC Mortgage Loan does not differ materially from the
definition in the form of Credit Line Agreement in Exhibit D;
(xxvi) The weighted average remaining term to maturity of the Pool
I Mortgage Loans on a contractual basis as of the Cut-Off Date is
approximately 202 months and for the Pool II Mortgage Loans is
approximately 208 months. On each date that the Loan Rates relating to
HELOC Mortgage Loans have been adjusted, interest rate adjustments on
the HELOC Mortgage Loans were made in compliance with the related
Mortgages and Credit Line Agreement and applicable law. Over the term
of each HELOC Mortgage Loan, the Loan Rate may not exceed the related
Loan Rate Cap, if any. With respect to the Pool I HELOC Mortgage Loans,
the weighted average Loan Rate Cap is approximately 18.000%. With
respect to the Pool II HELOC Mortgage Loans, the weighted average Loan
Rate Cap is approximately 18.000%. With respect to the Pool I HELOC
Mortgage Loans, the margins range between -1.00% and 7.00% and the
weighted average margin is approximately 3.321% as of the Cut-Off Date.
With respect to the Pool II HELOC Mortgage Loans, the margins range
between 0.000% and 6.250% and the weighted average margin is
approximately 2.982% as of the Cut-Off Date. As of the Cut-Off Date,
the Loan Rates on the Pool I Mortgage Loans range between 5.875% and
14.250% and the Loan Rates on the Pool II Mortgage Loans range between
5.875% and 13.750% and the weighted average Loan Rate is approximately
8.796% for Pool I and 8.245% for Pool II;
(xxvii) As of the Closing Date (or as of the applicable Transfer
Date with respect to any Substitute Mortgage Loans), each Mortgaged
Property consists of a single parcel of real property with a
one-to-four unit single family residence erected thereon, or an
individual condominium unit, planned unit development unit;
13
(xxviii) No more than 29.36% (by Cut-Off Date Pool I Balance) of
the Pool I Mortgage Loans are secured by real property improved by
individual condominium units, planned development units or two-to-four
family residences erected thereon, and approximately 70.64% (by Cut-Off
Date Pool I Balance) of the Pool I Mortgage Loans are secured by real
property with a one-family residence erected thereon;
No more than 24.49% (by Cut-Off Date Pool II Balance) of the Pool
II Mortgage Loans are secured by real property improved by individual
condominium units, planned development units, or two-to-four family
residences erected thereon, and approximately 75.51% (by Cut-Off Date
Pool II Balance) of the Pool II Mortgage Loans are secured by real
property with a one-family residence erected thereon;
(xxix) Each Mortgage Note evidencing a Closed End Mortgage Loan is
comprised of one original promissory note and each such promissory note
constitutes an "instrument" for purposes of Section 9-105(1)(i) of the
UCC;
(xxx) The Credit Limits on the Pool I HELOC Mortgage Loans range
between $8,500 and $495,000 with an average of approximately $50,597.
The Credit Limits on the Pool II HELOC Mortgage Loans range between
$9,000 and $500,000 with an average of approximately $128,377. The
Principal Balances on the Pool I HELOC Mortgage Loans range between $0
and $180,000 with an average of approximately $37,651. The Principal
Balances on the Pool II HELOC Mortgage Loans range between $0 and
$496,355 with an average of approximately $116,937. The Principal
Balances on the Pool I Closed End Mortgage Loans range between $4,989
and $150,000 with an average of approximately $37,655. The Principal
Balances on the Pool II Closed End Mortgage Loans range between $13,000
and $300,000 with an average of approximately $95,962. The average
Credit Limit Utilization Rate (weighted by credit line) of the Pool I
HELOC Mortgage Loans is approximately 71.84% and of the Pool II HELOC
Mortgage Loans is approximately 90.37%;
(xxxi) 100% of the Mortgage Loans are second liens, and either (A)
no consent for each Mortgage Loan was required by the holder of the
related senior lien prior to the making of such Mortgage Loan or (B)
such consent has been obtained and is contained in the related Mortgage
File;
(xxxii) This Agreement constitutes a valid transfer and assignment
to the Trust of all right, title and interest of the Sponsor in and to
the Cut-Off Date Principal Balances with respect to the applicable
Mortgage Loans, all monies due or to become due with respect thereto
and all proceeds of such Cut-Off Date Principal Balances with respect
to the Mortgage Loans and such funds as are from time to time deposited
in the Collection Account (excluding any investment earnings thereon)
and all other property specified in the definition of "Trust" as being
part of the corpus of the Trust conveyed to the Trust, and upon payment
for the Additional Balances, will constitute a valid transfer and
assignment to the Indenture Trustee of all right, title and interest of
the Sponsor in and to the Additional Balances, all monies due or to
become due with respect thereto, and all proceeds of such Additional
Balances and all other property specified in the definition of "Trust"
relating to the Additional Balances;
14
(xxxiii) No Mortgagor is insolvent or bankrupt as of the Closing
Date (or as of the applicable Transfer Date with respect to any
Eligible Substitute Mortgage Loans);
(xxxiv) Each Mortgage contains customary and enforceable provisions
which render the rights and remedies of the holder thereof adequate for
the realization against the related Mortgaged Property of the benefits
of the security, including (A) in the case of a Mortgage designated as
a deed of trust, by trustee's sale and (B) otherwise by judicial
foreclosure;
(xxxv) The proceeds of each Closed End Mortgage Loan have been
fully disbursed, and there is no obligation on the part of the mortgage
to make future advances thereunder. Any and all requirements as to
completion of any on-site or off-site improvements and as to
disbursements of any escrow funds therefor have been complied with. All
costs, fees and expenses incurred in making or closing or recording
such Closed End Mortgage Loans were paid;
(xxxvi) As of the Closing Date (or as of the applicable Transfer
Date with respect to any Eligible Substitute Mortgage Loan), there is
no default, breach, violation or event of acceleration existing under
any Mortgage or the related Mortgage Note and no event 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; and the Sponsor has not waived any default, breach,
violation or event of acceleration;
(xxxvii) To the best knowledge of the Sponsor, all parties to the
Mortgage Note and the Mortgage had legal capacity to execute the
Mortgage Note and the Mortgage and each Mortgage Note and Mortgage have
been duly and properly executed by such parties;
(xxxviii) As of the Cut-Off Date no more than 0.56% of the
Principal Balance of the Pool I Mortgage Loans nor more than 0.38% of
the Principal Balance of the Pool II Mortgage Loans represents Mortgage
Loans with respect to which the related Mortgagor had a Credit Score of
600 or less at the time of origination or whose Credit Score was
unavailable.
(xxxix) As of the Closing Date, no Mortgagor has been released, in
whole or in part, except in connection with an assumption agreement
which has been approved by the applicable title insurer (to the extent
required by such title insurer) and which is part of the Mortgage File
delivered to the Indenture Trustee;
(xl) At the time of origination of each Mortgage Loan, the related
prior lien was not more than 30 days delinquent;
(xli) All required inspections, licenses and certificates with
respect to the use and occupancy of all occupied portions of all
property securing the Mortgages have been made, obtained or issued, as
applicable;
(xlii) With respect to each Mortgage Loan, the related prior lien
does not provide for negative amortization;
15
(xliii) With respect to each Mortgage Loan, the maturity date of
the Mortgage Loan is prior to the maturity date of the related prior
lien if such prior lien provides for a balloon payment;
(xliv) Each Pool I Mortgage Loan is secured by a property having an
appraised value as of origination of $3,500,000 or less and each Pool
II Mortgage Loan is secured by a property having an appraised value as
of origination of $5,650,000 or less;
(xlv) With respect to each Mortgage Loan, the improvements upon
each Mortgaged Property are covered by a valid and existing hazard
insurance policy with a carrier generally acceptable to the Servicer
that provides for fire and extended coverage representing coverage not
less than (a) the Credit Limit of such HELOC Mortgage Loan or (b) the
Cut-Off Date Principal Balance of such Closed End Mortgage Loan or (c)
the maximum insurable value of the Mortgaged Property.
With respect to the representations and warranties set forth in this Section
2.05 that are made to the best of the Sponsor's knowledge or as to which the
Sponsor has no knowledge, if it is discovered by the Sponsor, the Servicer, the
Insurer or a Responsible Officer of the Indenture Trustee that the substance of
such representation and warranty is inaccurate and such inaccuracy materially
and adversely affects the value of the related Mortgage Loan then,
notwithstanding the Sponsor's lack of knowledge with respect to the substance of
such representation and warranty being inaccurate at the time the representation
or warranty was made, such inaccuracy shall be deemed a breach of the applicable
representation or warranty.
(b) It is understood and agreed that the representations and warranties
set forth in this Section 2.05 shall survive delivery of the respective Mortgage
Files to the Indenture Trustee pursuant to Section 2.01 and the termination of
the rights and obligations of the Servicer pursuant to Section 5.04 or 6.02.
Upon discovery by the Sponsor, the Servicer, the Insurer or a Responsible
Officer of the Indenture Trustee of a breach of any of the foregoing
representations and warranties, without regard to any limitation set forth
therein concerning the knowledge of the Sponsor as to the facts stated therein,
which materially and adversely affects the interests of the Trust or the
Noteholders or the Insurer in the related Mortgage Loans, the party discovering
such breach shall give prompt written notice to the other parties and the
Insurer. Within 90 days of its discovery or its receipt of notice of such
breach, the Sponsor shall use all reasonable efforts to cure such breach in all
material respects or shall, not later than the Business Day next preceding the
Payment Date in the month following the Collection Period in which any such cure
period expired (or such later date that is acceptable to the Indenture Trustee
and the Insurer as evidenced by their written consents), either (a) accept a
transfer of such Mortgage Loan from the Trust or (b) substitute an Eligible
Substitute Mortgage Loan, each in the same manner and subject to the same
conditions as set forth in Section 2.03; provided, however, that the cure for
any breach of a representation and warranty relating to the characteristics of
the Mortgage Loans in the aggregate shall be a repurchase of or substitution for
only the Mortgage Loans necessary to cause such characteristics to be in
compliance with the related representation and warranty. Upon accepting such
transfer and making any required deposit into the Collection Account or
substitution of an Eligible Substitute Mortgage Loans, as the case may be, the
Sponsor shall be entitled to receive an instrument of assignment or transfer
from the Indenture Trustee to the same
16
extent as set forth in Section 2.03 with respect to the transfer of Mortgage
Loans under that Section.
It is understood and agreed that the obligation of the Sponsor to
accept a retransfer of a Mortgage Loan as to which a breach has occurred and is
continuing and to make any required deposit in the Collection Account or to
substitute an Eligible Substitute Mortgage Loan, as the case may be, shall
constitute the sole remedy against the Sponsor respecting such breach available
to Noteholders, the Indenture Trustee on behalf of Noteholders and the Insurer;
provided, however, that the Sponsor shall defend and indemnify the Indenture
Trustee, the Insurer and the Noteholders against all reasonable costs and
expenses, and all losses, damages, claims and liabilities, including reasonable
fees and expenses of counsel and the amount of any settlement entered into with
the consent of the Sponsor (such consent not to be unreasonably withheld), which
may be asserted against or incurred by any of them as a result of any
third-party action arising out of any breach of any such representation and
warranty. Notwithstanding the foregoing, with regard to any breach of the
representation and warranty set forth in Section 2.05(a)(xxix), the sale and
assignment of the affected Mortgage Loans to the Trust shall be deemed void and
the Sponsor shall pay to the Trust the sum of (i) the amount of the related
Principal Balances, plus unpaid accrued interest on each such Principal Balance
at the applicable Loan Rate to the date of payment, (ii) the amount of any loss
suffered by the Noteholders or the Insurer with respect to the affected Mortgage
Loans and (iii) all amounts owing to the Insurer pursuant to the Insurance
Agreement.
Section 2.06. Covenants of the Sponsor. The Sponsor hereby covenants
that:
(a) Security Interests. The Sponsor will not sell, pledge, assign or
transfer to any other Person, or grant, create, incur, assume or suffer to exist
any Lien on any Mortgage Loans, whether now existing or hereafter created, or
any interest therein; the Sponsor will notify the Indenture Trustee and the
Insurer of the existence of any Lien on any Mortgage Loans immediately upon
discovery thereof; and the Sponsor will defend the Trust's right, title and
interest (including the Trust's security interest) in, to and under the Mortgage
Loans, whether now existing or hereafter created, against all claims of third
parties claiming through or under the Sponsor; provided, however, that nothing
in this Section 2.06(a) shall prevent or be deemed to prohibit the Sponsor from
suffering to exist upon any of the Mortgage Loans any Liens for municipal or
other local taxes and other governmental charges if such taxes or governmental
charges shall not at the time be due and payable or if the Sponsor shall
currently be contesting the validity thereof in good faith by appropriate
proceedings and shall have set aside on its books adequate reserves with respect
thereto.
(b) UCC-1 Financing Statements. On the Closing Date and, to the extent
not already included in such filing, on the applicable Transfer Date with
respect to any Eligible Substitute Mortgage Loans, the Sponsor will file UCC-1
financing statements with respect to such Mortgage Loans.
(c) Negative Pledge. The Sponsor hereby agrees not to transfer, assign,
exchange, pledge, finance, hypothecate, grant a security interest in or
otherwise convey the Certificates except in accordance with Sections 5.05 and
6.02 hereof and in accordance with the Insurance Agreement and the Trust
Agreement.
17
(d) Downgrading. The Sponsor will not engage in any activity which
would result in a downgrading or withdrawal of the ratings on the Notes without
regard to the effect of the Policies.
(e) Amendment to Certificate of Incorporation. The Sponsor will not
amend its Certificate of Incorporation without prior written notice to the
Indenture Trustee and the Rating Agencies and the prior written consent of the
Insurer which consent shall not be unreasonably withheld.
(f) Principal Place of Business. The Sponsor's principal place of
business is in California, and the Sponsor will not change its principal place
of business without prior written notice to the Indenture Trustee, the Rating
Agencies and to the Insurer.
Section 2.07. Retransfers of Mortgage Loans at Election of Sponsor.
Subject to the conditions set forth below and Section 8.2 of the Indenture, the
Sponsor may, but shall not be obligated to, require the retransfer of Mortgage
Loans from the Trust to the Sponsor as of the close of business on a Payment
Date (each, a "Retransfer Date"). On the fifth Business Day (the "Retransfer
Notice Date") prior to the Retransfer Date designated in such notice, the
Sponsor shall give the Indenture Trustee, the Insurer and the Servicer a notice
of the proposed retransfer that contains a list of the Mortgage Loans to be
retransferred. Such retransfers of Mortgage Loans in Pool I or Pool II shall be
permitted upon satisfaction of the following conditions:
(i) The applicable Rapid Amortization Period shall not have
commenced;
(ii) On the Retransfer Date, the related Overcollateralization
Amount (after giving effect to the removal from the Trust of the
Mortgage Loans proposed to be retransferred) is at least equal to the
related Specified Overcollateralization Amount;
(iii) The transfer of such Mortgage Loans on any Retransfer Date
during the related Managed Amortization Period shall not, in the
reasonable belief of the Sponsor, cause a Rapid Amortization Event with
respect to the related Class of Notes to occur or an event which with
notice or lapse of time or both would constitute such a Rapid
Amortization Event;
(iv) On or before the Retransfer Date, the Sponsor shall have
delivered to the Indenture Trustee a revised Mortgage Loan Schedule,
reflecting the proposed transfer and the Retransfer Date, and the
Servicer shall have marked the Electronic Ledger to show that the
Mortgage Loans retransferred to the Sponsor are no longer owned by the
Trust;
(v) The Sponsor shall represent and warrant that no selection
procedures reasonably believed by the Sponsor to be adverse to the
interests of the Noteholders or the Insurer were utilized in selecting
the Mortgage Loans to be removed from the Trust;
(vi) In connection with each such retransfer of Mortgage Loans
pursuant to this Section, each Rating Agency shall have received on or
prior to the related Retransfer Notice Date notice of such proposed
retransfer of Mortgage Loans and, prior to the Retransfer Date, shall
have notified the Indenture Trustee and the Insurer in writing that
18
such retransfer of Mortgage Loans would not result in a reduction or
withdrawal of its then current ratings of the Class A-1 Notes without
regard to the Class A-1 Policy or of the Class A-2 Notes without regard
to the Class A-2 Policy; and
(vii) The Sponsor shall have delivered to the Indenture Trustee and
the Insurer an Officer's Certificate certifying that the items set
forth in subparagraphs (i) through (vi), inclusive, have been performed
or are true and correct, as the case may be. The Indenture Trustee may
conclusively rely on such Officer's Certificate, shall have no duty to
make inquiries with regard to the matters set forth therein and shall
incur no liability in so relying.
Upon receiving the requisite information from the Sponsor, the Servicer
shall perform in a timely manner those acts required of it, as specified above.
Upon satisfaction of the above conditions, on the Retransfer Date the Indenture
Trustee shall deliver, or cause to be delivered, to the Sponsor the Mortgage
File for each Mortgage Loan being so transferred, and the Indenture Trustee
shall execute and deliver to the Sponsor such other documents prepared by the
Sponsor as shall be reasonably necessary to transfer such Mortgage Loans to the
Sponsor. Any such retransfer of the Trust's right, title and interest in and to
Mortgage Loans shall be without recourse, representation or warranty by or of
the Indenture Trustee or the Trust to the Sponsor.
Section 2.08. Execution and Authentication of Notes. The Indenture
Trustee, on behalf of the Trust, has caused to be executed, authenticated and
delivered to or upon the order of the Sponsor, in exchange for the Trust,
concurrently with the sale, assignment and conveyance to the Indenture Trustee
of the Trust, Notes representing indebtedness of the Trust in authorized
denominations and the Certificates, evidencing the ownership of the Trust.
Section 2.09. Tax Treatment. It is the intention of the Sponsor and the
Certificateholders that the Notes will be indebtedness of the Sponsor for
federal, state and local income and franchise tax purposes and for purposes of
any other tax imposed on or measured by income. The Sponsor, the Indenture
Trustee and each Noteholder (or Note Owner) by acceptance of its Note (or, in
the case of a Note Owner, by virtue of such Note Owner's acquisition of a
beneficial interest therein) agrees to treat the Notes (or beneficial interest
therein), for purposes of federal, state and local income or franchise taxes and
any other tax imposed on or measured by income, as indebtedness of the Sponsor
secured by the assets of the Trust and to report the transactions contemplated
by this Agreement on all applicable tax returns in a manner consistent with such
treatment. Each Noteholder agrees that it will cause any Note Owner acquiring an
interest in a Note through it to comply with this Agreement as to treatment of
the Notes as indebtedness for federal, state and local income and franchise tax
purposes and for purposes of any other tax imposed on or measured by income. The
Indenture Trustee will prepare and file all tax reports required hereunder
consistent with this Agreement except as may be required by or provided in
Section 3.15.
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ARTICLE III
ADMINISTRATION AND SERVICING
OF MORTGAGE LOANS
Section 3.01. The Servicer.
(a) The Servicer is hereby authorized to act as agent for the Trust and
in such capacity shall manage, service, administer and make collections on the
Mortgage Loans and perform the other actions under this Agreement. The Servicer
shall service and administer the Mortgage Loans in a manner consistent with the
terms of this Agreement and with general industry practice and shall have full
power and authority, acting alone or through a subservicer, to do any and all
things in connection with such servicing and administration which it may deem
necessary or desirable, it being understood, however, that the Servicer shall at
all times remain responsible to the Indenture Trustee, the Securityholders and
the Insurer for the performance of its duties and obligations hereunder in
accordance with the terms hereof. Any amounts received by any subservicer in
respect of a Mortgage Loan shall be deemed to have been received by the Servicer
whether or not actually received by it. Without limiting the generality of the
foregoing, the Servicer shall continue, and is hereby authorized and empowered
by the Trust, to execute and deliver, on behalf of the Trust, any and all
instruments of satisfaction or cancellation, or of partial or full release or
discharge and all other comparable instruments, with respect to the Mortgage
Loans and with respect to the Mortgaged Properties and to make deposits to and
withdrawals from the Collection Account. The Indenture Trustee and the Owner
Trustee shall, upon the written request of a Servicing Officer, furnish the
Servicer with any powers of attorney and other documents necessary or
appropriate to enable the Servicer to carry out its servicing and administrative
duties hereunder. The Servicer in such capacity may also consent to the placing
of a lien senior to that of any Mortgage on the related Mortgaged Property,
provided that
(i) such Mortgage succeeded to a first lien position after the
related Mortgage Loan was conveyed to the Trust and, immediately
following the placement of such senior lien, such Mortgage is in a
second lien position and the outstanding principal amount of the
mortgage loan secured by such subsequent senior lien is no greater than
the outstanding principal amount of the senior mortgage loan secured by
the Mortgaged Property as of the date the related Mortgage Loan was
originated; or
(ii) the Mortgage relating to such Mortgage Loan was in a second
lien position as of the Cut-Off Date and the new senior lien secures a
mortgage loan that refinances an existing first mortgage loan and the
outstanding principal amount of the replacement first mortgage loan
immediately following such refinancing is not greater than the
outstanding principal amount of such existing first mortgage loan at
the date of origination of such Mortgage Loan;
provided, further, that such senior lien does not secure a note that provides
for negative amortization.
The Servicer may also, without prior approval from the Rating Agencies
or the Insurer, increase the Credit Limits on HELOC Mortgage Loans provided that
(i) new appraisals are
20
obtained and the Combined Loan-to-Value Ratios of the HELOC Mortgage Loans after
giving effect to such increase are less than or equal to the Combined
Loan-to-Value Ratios of the Mortgage Loans as of the Cut-Off Date and (ii) such
increases are consistent with the Servicer's credit and collection policies. No
material change or departure from the Servicer's credit and collection policies
with respect to any Mortgage Loans as in effect as of the Closing Date shall be
permitted without the prior written consent of the Insurer.
In addition, the Servicer may agree to changes in the terms of a
Mortgage Loan at the request of the Mortgagor; provided that (i) such changes do
not materially and adversely affect the interests of Securityholders or the
Insurer, (ii) such changes are consistent with prudent and customary business
practice as evidenced by a certificate signed by a Servicing Officer delivered
to the Indenture Trustee and the Insurer and (iii) the Rating Agencies are
promptly notified of the changes.
In addition to the foregoing, the Servicer may solicit Mortgagors to
change any other terms of the related Mortgage Loans; provided that such changes
(i) do not materially and adversely affect the interest of Securityholders or
the Insurer and (ii) are consistent with prudent and customary business practice
as evidenced by a certificate signed by a Servicing Officer delivered to the
Indenture Trustee and the Insurer. Nothing herein shall limit the right of the
Servicer to solicit Mortgagors with respect to new loans (including mortgage
loans) that are not Mortgage Loans.
The relationship of the Servicer (and of any successor to the Servicer
as servicer under this Agreement) to the Indenture Trustee under this Agreement
is intended by the parties to be that of an independent contractor and not that
of a joint venturer, partner or agent.
(b) In the event that the rights, duties and obligations of the
Servicer are terminated hereunder, any successor to the Servicer in its sole
discretion may, to the extent permitted by applicable law, terminate the
existing subservicer arrangements with any subservicer or assume the terminated
Servicer's rights under such subservicing arrangements which termination or
assumption will not violate the terms of such arrangements.
Section 3.02. Collection of Certain Mortgage Loan Payments
(a) Collection of Certain Mortgage Loan Payments. Servicer shall make
reasonable efforts to collect all payments called for under the terms and
provisions of the Mortgage Loans, and shall, to the extent such procedures shall
be consistent with this Agreement, follow such collection procedures as it
follows with respect to home equity loans in its servicing portfolio comparable
to the Mortgage Loans. Consistent with the foregoing, and without limiting the
generality of the foregoing, the Servicer may in its discretion (i) waive any
late payment charge or any assumption fees or other fees which may be collected
in the ordinary course of servicing such Mortgage Loans and (ii) arrange with a
Mortgagor a schedule for the payment of interest due and unpaid; provided that
such arrangement is consistent with the Servicer's policies with respect to the
Mortgage Loans it owns or services; provided, further, that notwithstanding such
arrangement such Mortgage Loans will be included in the information regarding
delinquent Mortgage Loans set forth in the Servicing Certificate and monthly
statement to Noteholders pursuant to Section 4.01.
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(b) The Servicer shall on the Closing Date deposit into the Collection
Account any amounts representing payments on, and any collections in respect of,
the Mortgage Loans received after the Cut-Off Date and prior to the Closing Date
(exclusive of payments in respect of accrued interest due on or prior to such
Cut-Off Date) and thereafter the Servicer, or the Sponsor, as the case may be,
shall deposit into the Collection Account within two Business Days following
receipt thereof the following payments and collections received or made by it
(without duplication):
(i) all collections on and in respect of the Mortgage Loans;
(ii) the amounts, if any, deposited to the Collection Account
pursuant to Section 3.04;
(iii) Net Liquidation Proceeds;
(iv) Insurance Proceeds (including, for this purpose, any amount
required to be credited by the Servicer pursuant to the last sentence
of Section 3.04 and excluding the portion thereof, if any, that has
been applied to the restoration or repair of the related Mortgaged
Property or released to the related Mortgagor in accordance with the
normal servicing procedures of the Servicer);
(v) any amounts required to be deposited therein pursuant to
Section 7.01;
(vi) any amounts drawn under the Policies pursuant to Section 4.02;
provided, however, that with respect to each Collection Period, the Servicer
shall be permitted to retain from payments in respect of interest on the
Mortgage Loans, the Servicing Fee for such Collection Period. The foregoing
requirements respecting deposits to the Collection Account are exclusive, it
being understood that, without limiting the generality of the foregoing, the
Servicer need not deposit in the Collection Account amounts representing
Foreclosure Profits, fees (including annual fees) or late charge penalties
payable by Mortgagors, or amounts received by the Servicer for the accounts of
Mortgagors for application towards the payment of taxes, insurance premiums,
assessments, excess pay off amounts and similar items. The Servicer shall remit
all Foreclosure Profits to the Sponsor.
The Indenture Trustee shall hold amounts deposited in the Collection
Account as trustee for the Noteholders and for the Insurer. The Servicer shall
notify the Indenture Trustee and the Insurer in writing on each Determination
Date of the amount of payments and collections in the Collection Account
allocable to Interest Collections and Principal Collections for the related
Payment Date. Following such notification, the Servicer shall be entitled to
withdraw from the Collection Account and retain any amounts that constitute
income and gain realized from the investment of such payments and collections.
At the direction of the Servicer, the Indenture Trustee shall invest
funds in the Collection Account in Eligible Investments. All income and gain
realized from any investment in Eligible Investments of funds in the Collection
Account shall be for the benefit of the Servicer and shall be subject to its
withdrawal from time to time. The amount of any losses incurred in respect of
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the principal amount of any such investments shall be deposited in the
Collection Account by the Servicer out of its own funds immediately as realized.
Section 3.03. Withdrawals from the Collection Account. From time to
time, withdrawals may be made from the Collection Account by the Servicer for
the following purposes:
(i) If not received by the Servicer pursuant to Section 3.02(b), to
the Servicer as payment for its Servicing Fee pursuant to Section 3.08;
(ii) To pay to the Servicer amounts on deposit in the Collection
Account that are not to be included in the distributions and payments
pursuant to Section 8.6 of the Indenture to the extent provided by the
second to the last and the last paragraph of Section 3.02(b);
(iii) To make or to permit the Paying Agent to make distributions
and payments pursuant to Section 8.6 of the Indenture;
(iv) Prior to the Collection Period preceding the Rapid
Amortization Commencement Date, to pay to the Sponsor the amount of any
Additional Balances as and when created during the related Collection
Period; provided, that the aggregate amount so paid to the Sponsor in
respect of Additional Balances at any time during any Collection Period
shall not exceed the amount of Principal Collections theretofore
received for such Collection Period;
(v) To pay to the Servicer any Liquidation Expenses not reimbursed
prior to the deposit of Net Liquidation Proceeds to the Collection
Account;
(vi) Upon termination of the Trust, to make any payments required
by Section 7.01.
If the Servicer deposits in the Collection Account any amount not
required to be deposited therein or any amount in respect of payments by
Mortgagors made by checks subsequently returned for insufficient funds or other
reason for non-payment it may at any time withdraw such amount from the
Collection Account, and any such amounts shall not be included in the amounts to
be deposited in the Collection Account pursuant to Section 3.02(b), any
provision herein to the contrary notwithstanding.
Section 3.04. Maintenance of Hazard Insurance; Property Protection
Expenses. The Servicer shall cause to be maintained for each Mortgage Loan
hazard insurance naming the Servicer or the related subservicer as loss payee
thereunder providing extended coverage in an amount which is at least equal to
the lesser of (i) the maximum insurable value of the improvements securing such
Mortgage Loan from time to time or (ii) the combined principal balance owing on
such Mortgage Loan and any mortgage loan senior to such Mortgage Loan from time
to time. The Servicer shall also maintain on property acquired upon foreclosure,
or by deed in lieu of foreclosure, hazard insurance with extended coverage in an
amount which is at least equal to the lesser of (i) the maximum insurable value
from time to time of the improvements which are a part of such property or (ii)
the combined principal balance owing on
23
such Mortgage Loan and any mortgage loan senior to such Mortgage Loan at the
time of such foreclosure or deed in lieu of foreclosure plus accrued interest
and the good-faith estimate of the Servicer of related Liquidation Expenses to
be incurred in connection therewith. Amounts collected by the Servicer under any
such policies shall be deposited in the Collection Account to the extent called
for by Section 3.02. In cases in which any Mortgaged Property is located in a
federally designated flood area, the hazard insurance to be maintained for the
related Mortgage Loan shall include flood insurance. All such flood insurance
shall be in such amounts as are required under applicable guidelines of the
Federal Flood Emergency Act. The Servicer shall be under no obligation to
require that any Mortgagor maintain earthquake or other additional insurance and
shall be under no obligation itself to maintain any such additional insurance on
property acquired in respect of a Mortgage Loan, other than pursuant to such
applicable laws and regulations as shall at any time be in force and as shall
require such additional insurance. If the Servicer shall obtain and maintain a
blanket policy consistent with prudent industry standards insuring against
hazard losses on all of the Mortgage Loans in an aggregate amount prudent under
industry standards, it shall conclusively be deemed to have satisfied its
obligations as set forth in the first sentence of this Section 3.04 and if there
shall have been a loss which would have been covered by such policy, deposit in
the Collection Account, as the case may be, the amount not otherwise payable
under the blanket policy because of any deductible clause.
Section 3.05. Assumption and Modification Agreements. In any case in
which a Mortgaged Property has been or is about to be conveyed by the Mortgagor,
the Servicer shall exercise its right to accelerate the maturity of such
Mortgage Loan consistent with the then current practice of the Servicer and
without regard to the inclusion of such Mortgage Loan in the Trust. If it elects
not to enforce its right to accelerate or if it is prevented from doing so by
applicable law, the Servicer (so long as such action conforms with the
underwriting standards generally acceptable in the industry at the time for new
origination) is authorized to take or enter into an assumption and modification
agreement from or with the Person to whom such Mortgaged Property has been or is
about to be conveyed, pursuant to which such Person becomes liable under the
Loan Agreement and, to the extent permitted by applicable law, the Mortgagor
remains liable thereon. The Servicer shall notify the Indenture Trustee that any
assumption and modification agreement has been completed by delivering to the
Indenture Trustee an Officer's Certificate signed by a Servicing Officer
certifying that such agreement is in compliance with this Section 3.05 and by
forwarding to the Indenture Trustee the original copy of such assumption and
modification agreement. Any such assumption and modification agreement shall,
for all purposes, be considered a part of the related Mortgage File to the same
extent as all other documents and instruments constituting a part thereof. No
change in the terms of the related Loan Agreement may be made by the Servicer in
connection with any such assumption to the extent that such change would not be
permitted to be made in respect of the original Loan Agreement pursuant to the
fourth paragraph of Section 3.01(a). Any fee collected by the Servicer for
entering into any such agreement will be retained by the Servicer as additional
servicing compensation.
Section 3.06. Realization Upon Defaulted Mortgage Loans; Repurchase of
Certain Mortgage Loans. The Servicer shall foreclose upon or otherwise
comparably convert to ownership Mortgaged Properties securing such of the
Mortgage Loans as come into and continue in default when, in the opinion of the
Servicer based upon the practices and procedures referred to in the following
sentence, no satisfactory arrangements can be made for collection of
24
delinquent payments pursuant to Section 3.02; provided, that if the Servicer has
actual knowledge or reasonably believes that any Mortgaged Property is affected
by hazardous or toxic wastes or substances and that the acquisition of such
Mortgaged Property would not be commercially reasonable, then the Servicer will
not cause the Trust to acquire title to such Mortgaged Property in a foreclosure
or similar proceeding. In connection with such foreclosure or other conversion,
the Servicer shall follow such practices (including, in the case of any default
on a related senior mortgage loan, the advancing of funds to correct such
default) and procedures as it shall deem necessary or advisable and as shall be
normal and usual in its general mortgage servicing activities. The foregoing is
subject to the proviso that the Servicer shall not be required to incur any
Liquidation Expenses or to otherwise expend its own funds in connection with any
foreclosure or towards the correction of any default on a related senior
mortgage loan or restoration of any property unless it shall determine that such
expenditure will increase Net Liquidation Proceeds.
In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall be issued to the Indenture Trustee, or to its nominee on behalf of the
Trust.
The Servicer, in its sole discretion, shall have the right but not the
obligation to purchase for its own account from the Trust any Mortgage Loan
which is 91 days or more delinquent. The price for any Mortgage Loan purchased
hereunder (which shall be at a purchase price equal to the Loan Purchase Price
thereof), shall be deposited in the Collection Account and the Indenture
Trustee, upon receipt of a certificate from the Servicer in the form of Exhibit
C-1 hereto, shall release or cause to be released to the Servicer the related
Mortgage File and shall execute and deliver such instruments of transfer or
assignment prepared by the Servicer, in each case without recourse,
representation or warranty, as shall be necessary to vest in the purchaser of
such Mortgage Loans any Mortgage Loans released pursuant hereto and the Servicer
shall succeed to all the Indenture Trustee's right, title and interest in and to
such Mortgage Loans and all security and documents related thereto. Such
assignment shall be an assignment outright and not for security. The Servicer
shall thereupon own such Mortgage Loans, and all security and documents, free of
any further obligation to the Indenture Trustee, the Insurer or the
Securityholders with respect thereto.
Section 3.07. Indenture Trustee to Cooperate. On or before each Payment
Date, the Servicer will notify the Indenture Trustee of the payment in full of
the Principal Balance of any Mortgage Loan during the preceding Collection
Period, which notification shall be by a certification (which certification
shall include a statement to the effect that all amounts received in connection
with such payment which are required to be deposited in the Collection Account
pursuant to Section 3.02 have been so deposited or credited) of a Servicing
Officer. Upon any such payment in full, the Servicer is authorized to execute,
pursuant to the authorization contained in Section 3.01, if the assignments of
Mortgage have been recorded as required hereunder, an instrument of satisfaction
regarding the related Mortgage, which instrument of satisfaction shall be
recorded by the Servicer if required by applicable law and be delivered to the
Person entitled thereto. It is understood and agreed that no expenses incurred
in connection with such instrument of satisfaction or transfer shall be
reimbursed from amounts deposited in the Collection Account. If the Indenture
Trustee is holding the Mortgage Files, from time to time and as appropriate for
the servicing or foreclosure of any Mortgage Loan, or in connection
25
with the payment in full of the Principal Balance of any Mortgage Loan shall,
upon request of the Servicer and delivery to the Indenture Trustee of a Request
for Release substantially in the form attached hereto as Exhibit C signed by a
Servicing Officer, release the related Mortgage File to the Servicer and the
Indenture Trustee shall execute such documents, in the forms provided by the
Servicer, as shall be necessary to the prosecution of any such proceedings or
the taking of other servicing actions. Such trust receipt shall obligate the
Servicer to return the Mortgage File to the Indenture Trustee when the need
therefor by the Servicer no longer exists unless the Mortgage Loan shall be
liquidated, in which case, upon receipt of a certificate of a Servicing Officer
similar to that hereinabove specified, the trust receipt shall be released by
the Indenture Trustee.
In order to facilitate the foreclosure of the Mortgage securing any
Mortgage Loan that is in default following recordation of the Assignments of
Mortgage in accordance with the provisions hereof, the Indenture Trustee shall,
if so requested in writing by the Servicer, execute an appropriate assignment in
the form provided to the Indenture Trustee by the Servicer to assign such
Mortgage Loan for the purpose of collection to the Servicer or to the related
subservicer (any such assignment shall unambiguously indicate that the
assignment is for the purpose of collection only), and, upon such assignment,
the Servicer will thereupon bring all required actions in its own name and
otherwise enforce the terms of the Mortgage Loan and deposit the Net Liquidation
Proceeds, exclusive of Foreclosure Profits, received with respect thereto in the
Collection Account. In the event that all delinquent payments due under any such
Mortgage Loan are paid by the Mortgagor and any other defaults are cured, then
the Servicer shall promptly reassign such Mortgage Loan to the Indenture Trustee
and return the related Mortgage File to the place where it was being maintained.
Section 3.08. Servicing Compensation; Payment of Certain Expenses by
Servicer. The Servicer shall be entitled to receive the Servicing Fee pursuant
to Section 3.03 as compensation for its services in connection with servicing
the Mortgage Loans. Moreover, additional servicing compensation in the form of
late payment charges or other receipts not required to be deposited in the
Collection Account (other than Foreclosure Profits) shall be retained by the
Servicer. The Servicer shall be required to pay all expenses incurred by it in
connection with its activities hereunder (including payment of all other fees
and expenses not expressly stated hereunder to be for the account of the
Securityholders) and shall not be entitled to reimbursement therefor except as
specifically provided herein. Liquidation Expenses are reimbursable to the
Servicer solely from related Liquidation Proceeds.
Section 3.09. Annual Statement as to Compliance.
(a) The Servicer will deliver to the Indenture Trustee, the Insurer and
the Rating Agencies, on or before March 31 of each year, beginning March 31,
2000, an Officer's Certificate stating that (i) a review of the activities of
the Servicer during the preceding fiscal year (or such shorter period as is
applicable in the case of the first report) and of its performance under this
Agreement has been made under such officer's supervision and (ii) to the best of
such officer's knowledge, based on such review, the Servicer has fulfilled all
of its material obligations under this Agreement throughout such fiscal 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.
26
(b) The Servicer shall deliver to the Indenture Trustee, the Insurer
and each of the Rating Agencies, promptly after having obtained knowledge
thereof, but in no event later than five Business Days thereafter, written
notice by means of an Officer's Certificate of any event which with the giving
of notice or the lapse of time or both, would become an Event of Servicing
Termination.
Section 3.10. Annual Servicing Report. On or before March 31 of each
year, beginning March 31, 2000, the Servicer, at its expense, shall cause a firm
of nationally recognized independent public accountants (who may also render
other services to the Servicer) to furnish a report to the Indenture Trustee,
the Insurer and each Rating Agency to the effect that such firm has examined
certain documents and records relating to the servicing of mortgage loans during
the most recent fiscal year then ended under pooling and servicing agreements
(substantially similar to this Agreement, including this Agreement), that such
examination was conducted substantially in compliance with the audit guide for
audits of non-supervised mortgagees approved by the Department of Housing and
Urban Development for use by independent public accountants (to the extent that
the procedures in such audit guide are applicable to the servicing obligations
set forth in such agreements) and that such examination has disclosed no items
of noncompliance with the provisions of this Agreement which, in the opinion of
such firm, are material, except for such items of noncompliance as shall be set
forth in such report.
Section 3.11. Annual Opinion of Counsel. On or before March 31 of each
year, beginning March 31, 2000, the Sponsor, at its expense, shall deliver to
the Indenture Trustee and the Insurer the applicable Opinion of Counsel
specified in Exhibit B hereto.
Section 3.12. Access to Certain Documentation and Information Regarding
the Mortgage Loans.
(a) Servicer shall provide to the Indenture Trustee, the Insurer, any
Noteholders that are federally insured savings and loan associations, the Office
of Thrift Supervision, successor to the Federal Home Loan Bank Board, the FDIC
and the supervisory agents and examiners of the Office of Thrift Supervision
access to the documentation regarding the Mortgage Loans required by applicable
regulations of the Office of Thrift Supervision and the FDIC (acting as operator
of the SAIF or the BIF), such access being afforded without charge but only upon
reasonable request and during normal business hours at the offices of the
Servicer. Nothing in this Section 3.12 shall derogate from the obligation of the
Servicer to observe any applicable law prohibiting disclosure of information
regarding the Mortgagors and the failure of the Servicer to provide access as
provided in this Section 3.12 as a result of such obligation shall not
constitute a breach of this Section 3.12.
(b) The Servicer shall supply information in such form as the Indenture
Trustee shall reasonably request to the Indenture Trustee and the Paying Agent,
on or before the start of the Determination Date preceding the related Payment
Date, as is required in the Indenture Trustee's reasonable judgment to enable
the Paying Agent or the Indenture Trustee, as the case may be, to make required
distributions and to furnish the required reports to Noteholders and to make any
claim under the Policies.
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Section 3.13. Maintenance of Certain Servicing Insurance Policies. The
Servicer shall during the term of its service as servicer maintain in force (i)
a policy or policies of insurance covering errors and omissions in the
performance of its obligations as master servicer hereunder and (ii) a fidelity
bond in respect of its officers, employees or agents. Each such policy or
policies and bond together shall comply with the requirements from time to time
of the Federal National Mortgage Association for persons performing servicing
for mortgage loans purchased by such Association.
Section 3.14. Reports to the Securities and Exchange Commission. The
Indenture Trustee shall, on behalf of the Trust, cause to be filed with the
Securities and Exchange Commission any periodic reports required to be filed
under the provisions of the Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Securities and Exchange Commission thereunder. Upon
the request of the Indenture Trustee, each of the Servicer and the Sponsor 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.
Section 3.15. Tax Returns. In accordance with Section 2.09 hereof, the
Servicer shall prepare and file any Federal, State or local income and franchise
tax return for the Trust as well as any other applicable return and apply for a
taxpayer identification number on behalf of the Trust as provided in Article V
of the Trust Agreement, including, without limitation, forms 1099 and 1065. The
Sponsor shall treat the Mortgage Loans as its property for all Federal, State or
local tax purposes and shall report all income earned thereon (including amounts
payable as fees to the Servicer) as its income for income tax purposes. In the
event the Trust shall be required pursuant to an audit or administrative
proceeding or change in applicable regulations to file Federal, State or local
tax returns, the Servicer shall prepare and file or shall cause to be prepared
and filed any tax returns required to be filed by the Trust; the Indenture
Trustee shall promptly sign such returns and deliver such returns after
signature to the Servicer and such returns shall be filed by the Servicer. The
Indenture Trustee shall also prepare or shall cause to be prepared all tax
information required by law to be distributed to Noteholders. In no event shall
the Indenture Trustee or the Servicer be liable for any liabilities, costs or
expenses of the Trust, the Noteholders, the Certificateholders or the Note
Owners arising under any tax law, including, without limitation, Federal, state
or local income and franchise or excise taxes or any other tax imposed on or
measured by income (or any interest or penalty with respect thereto or arising
from a failure to comply therewith).
Section 3.16. Information Required by the Internal Revenue Service
Generally and Reports of Foreclosures and Abandonments of Mortgaged Property.
The Servicer shall prepare and deliver all federal and state information reports
when and as required by all applicable state and federal income tax laws. In
particular, with respect to the requirement under Section 6050J of the Code to
the effect that the Servicer shall make reports of foreclosures and abandonments
of any mortgaged property for each year beginning in 2000, the Servicer shall
file reports relating to each instance occurring during the previous calendar
year in which the Servicer (i) on behalf of the Indenture Trustee acquires an
interest in any Mortgaged Property through foreclosure or other comparable
conversion in full or partial satisfaction of a Mortgage Loan, or (ii) knows or
has reason to know that any Mortgaged Property has been abandoned. The reports
28
from the Servicer shall be in form and substance sufficient to meet the
reporting requirements imposed by Section 6050J.
ARTICLE IV
SERVICING CERTIFICATE
Section 4.01. Servicing Certificate. Not later than each Determination
Date, the Servicer shall deliver (a) to the Indenture Trustee, the Statement to
each Class of Noteholders required to be prepared pursuant to Section 8.7 of the
Indenture and (b) to the Indenture Trustee, the Sponsor, the Paying Agent, the
Insurer and each Rating Agency a Servicing Certificate (in written form or the
form of computer readable media or such other form as may be agreed to by the
Indenture Trustee and the Servicer), together with an Officer's Certificate to
the effect that such Servicing Certificate is true and correct in all material
respects, stating the related Collection Period, Payment Date, the series number
of the Notes, the date of this Agreement, and:
(i) the aggregate amount of collections received on the Mortgage
Loans on or prior to the Determination Date in respect of such
Collection Period;
(ii) the aggregate amount of (a) Interest Collections and (b)
Principal Collections for such Collection Period;
(iii) the Class A-1 Note Rate and the Class A-2 Note Rate;
(iv) the amount, if any, of such Class A-1 Interest Payment Amount
or Class A-2 Interest Payment Amount that is not payable on account of
insufficient Noteholders' Interest Collections;
(v) the Accelerated Principal Payments to be distributed pursuant
to Section 8.6(d)(viii) of the Indenture;
(vi) the Principal Collections for such Payment Date, separately
stating the components thereof;
(vii) any accrued and unpaid Servicing Fees for previous Collection
Periods and the Servicing Fee for such Collection Period;
(viii) the related Pool Balance for each Pool as of the end of the
preceding Collection Period and as of the end of the second preceding
Collection Period;
(ix) the Class A-1 Note Principal Balance and the Class A-2 Note
Principal Balance and related Pool Factor after giving effect to the
distribution on such Payment Date;
(x) the aggregate amount of Additional Balances created during the
previous Collection Period;
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(xi) the number and aggregate Principal Balances of Mortgage Loans
(x) as to which the Minimum Monthly Payment is delinquent for 30-59
days, 60-89 days and 90 or more days, respectively and (y) that have
become REO, in each case as of the end of the preceding Collection
Period;
(xii) whether a Rapid Amortization Event has occurred since the
prior Determination Date, specifying each such Rapid Amortization Event
if one has occurred;
(xiii) whether an Event of Servicing Termination has occurred since
the prior Determination Date, specifying each such Event of Servicing
Termination if one has occurred;
(xiv) the amount to be distributed to the Insurer pursuant to
Section 8.6(d)(ii) and Section 8.6(d)(vi) of the Indenture, stated
separately;
(xv) the amount to be distributed to the Reserve Fund pursuant to
Section 8.6(d)(ix) of the Indenture;
(xvi) Insured Payments, if any, for such Payment Date including any
related Deficiency Amount and any related Preference Amount;
(xvii) the amount to be distributed to the related
Certificateholders pursuant to Section 8.6(d)(xiii) of the Indenture;
(xviii) the amount to be paid to the Servicer pursuant to Section
8.6(d)(x) of the Indenture;
(xix) the total amount of funds on deposit in the Reserve Fund;
(xx) the related Overcollateralization Amount after giving effect
to the distribution to be made on such Payment Date;
(xxi) the number and Principal Balances of any Mortgage Loans
retransferred to the Sponsor pursuant to Section 2.07.
The Indenture Trustee shall conclusively rely upon the information contained in
a Servicing Certificate for purposes of making distributions pursuant to Section
8.6 of the Indenture, shall have no duty to inquire into such information and
shall have no liability in so relying. The format and content of the Servicing
Certificate may be modified by the mutual agreement of the Servicer, the
Indenture Trustee and the Insurer. The Servicer shall give notice of any such
change to the Rating Agencies.
Section 4.02. Reserve Fund.
(a) Amounts on deposit in the Reserve Fund will, at the direction of
the Servicer, be invested in Eligible Investments maturing no later than the day
before the next Payment Date.
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All income and gain realized from any investment of funds in the
Reserve Fund shall be considered part of the Reserve Fund until released
pursuant to the Indenture. Following that point all earnings shall go to the
Sponsor. The Sponsor will report for Federal, state and local income tax
purposes the income, if any, represented by the Reserve Fund.
(b) Following the termination of the Trust pursuant to Section 7.01
hereof, the Indenture Trustee shall withdraw all amounts then on deposit in the
Reserve Fund pursuant to the Indenture.
ARTICLE V
THE SERVICER AND THE SPONSOR
Section 5.01. Liability of the Servicer and the Sponsor. The Servicer
shall be liable in accordance herewith only to the extent of the obligations
specifically imposed upon and undertaken by the Servicer herein. The Sponsor
shall be liable in accordance herewith only to the extent of the obligations
specifically imposed upon and undertaken by the Sponsor.
Section 5.02. Merger or Consolidation of, or Assumption of the
Obligations of, the Servicer or the Sponsor. Any corporation into which the
Servicer or the Sponsor may be merged or consolidated, or any corporation
resulting from any merger, conversion or consolidation to which the Servicer or
the Sponsor shall be a party, or any corporation succeeding to the business of
the Servicer or the Sponsor, shall be the successor of the Servicer or the
Sponsor, as the case may be, hereunder, without the execution or filing of any
paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding.
Section 5.03. Limitation on Liability of the Servicer and Others.
Neither the Servicer nor any of the directors or officers or employees or agents
of the Servicer shall be under any liability to the Trust or the Securityholders
for any action taken or for refraining from the taking of any action by the
Servicer in good faith pursuant to this Agreement, or for errors in judgment;
provided, however, that this provision shall not protect the Servicer or any
such Person against any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or gross negligence in the performance of duties
of the Servicer or by reason of reckless disregard of obligations and duties of
the Servicer hereunder. The Servicer and any director or officer or employee or
agent of the Servicer may rely in good faith on any document of any kind prima
facie properly executed and submitted by any Person respecting any matters
arising hereunder. The Servicer and any director or officer or employee or agent
of the Servicer shall be indemnified by the Trust and held harmless against any
loss, liability or expense incurred in connection with any legal action relating
to this Agreement or the Notes, other than any loss, liability or expense
related to any specific Mortgage Loan (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 its willful misfeasance, bad
faith or gross negligence in the performance of duties hereunder or by reason of
its reckless disregard of obligations and duties hereunder. The Servicer shall
not be under any obligation to appear in, prosecute or defend any legal action
which is not incidental to duties to service the Mortgage Loans in accordance
with this Agreement, and which in its opinion may involve it in any expense or
liability; provided, however, that the Servicer may in its sole discretion
undertake any such action which it may
31
deem necessary or desirable in respect of this Agreement, and the rights and
duties of the parties hereto and the interests of the Securityholders hereunder.
In such event, the reasonable legal expenses and costs of such action and any
liability resulting therefrom shall be expenses, costs and liabilities of the
Trust and the Servicer shall only be entitled to be reimbursed therefor pursuant
to Section 8.6(d)(x) of the Indenture. The Servicer's right to indemnity or
reimbursement pursuant to this Section 5.03 shall survive any resignation or
termination of the Servicer pursuant to Section 5.04 or 6.01 with respect to any
losses, expenses, costs or liabilities arising prior to such resignation or
termination (or arising from events that occurred prior to such resignation or
termination).
Section 5.04. Servicer Not to Resign. Subject to the provisions of
Section 5.02, the Servicer shall not resign from the obligations and duties
hereby imposed on it except (i) upon determination that the performance of its
obligations or duties hereunder are no longer permissible under applicable law
or are in material conflict by reason of applicable law with any other
activities carried on by it or its subsidiaries or Affiliates, the other
activities of the Servicer so causing such a conflict being of a type and nature
carried on by the Servicer or its subsidiaries or Affiliates at the date of this
Agreement or (ii) upon satisfaction of the following conditions: (a) the
Servicer has proposed a successor servicer to the Indenture Trustee and the
Insurer in writing and such proposed successor servicer is reasonably acceptable
to the Indenture Trustee; (b) each Rating Agency shall have delivered a letter
to the Indenture Trustee and the Insurer prior to the appointment of the
successor servicer stating that the proposed appointment of such successor
servicer as Servicer hereunder will not result in the qualification, reduction
or withdrawal of the then current rating of the Notes without regard to the
Policies; and (c) such proposed successor servicer is reasonably acceptable to
the Insurer, as evidenced by a letter to the Indenture Trustee; provided,
however, that no such resignation by the Servicer shall become effective until
the Indenture Trustee or successor servicer designated by the Servicer as
provided above shall have assumed the Servicer's responsibilities and
obligations hereunder or the Indenture Trustee shall have designated a successor
servicer in accordance with Section 6.02. Any such resignation shall not relieve
the Servicer of responsibility for any of the obligations specified in Sections
6.01 and 6.02 as obligations that survive the resignation or termination of the
Servicer. Any such determination permitting the resignation of the Servicer
pursuant to clause (i) above shall be evidenced by an Opinion of Counsel to such
effect delivered to the Indenture Trustee and the Insurer. The Servicer shall
have no claim (whether by subrogation or otherwise) or other action against any
Securityholder for any amounts paid by the Servicer pursuant to any provision of
this Agreement.
Section 5.05. Delegation of Duties. In the ordinary course of business,
the Servicer at any time may delegate any of its duties hereunder to any Person,
including any of its Affiliates, or any subservicer referred to in Section 3.01,
who agrees to conduct such duties in accordance with standards comparable to
those with which the Servicer complies pursuant to Section 3.01. Such delegation
shall not relieve the Servicer of its liabilities and responsibilities with
respect to such duties and shall not constitute a resignation within the meaning
of Section 5.04.
Section 5.06. Indemnification of the Trust by the Servicer. The
Servicer shall indemnify and hold harmless the Trust, the Owner Trustee and the
Indenture Trustee from and against any loss, liability, expense, damage or
injury suffered or sustained by reason of the
32
Servicer's activities or omissions in servicing or administering the Mortgage
Loans that are not in accordance with this Agreement, including, but not limited
to, any judgment, award, settlement, reasonable attorneys' fees and other costs
or expenses incurred in connection with the defense of any actual or threatened
action, proceeding or claim. Any such indemnification shall not be payable from
the assets of the Trust. The provisions of this indemnity shall run directly to
and be enforceable by an injured party subject to the limitations hereof. The
provisions of this Section 5.06 shall survive termination of this Agreement.
Section 5.07. Indemnification of the Trust by the Sponsor.
Notwithstanding anything to the contrary contained herein, the Sponsor (i)
agrees to be liable directly to the injured party for the entire amount of any
losses, claims, damages, liabilities and expenses of the Trust (other than those
attributable to a Noteholder as a result of defaults on the Mortgage Loans) to
the extent that the Sponsor would be liable if the Trust were a partnership
under the Delaware Revised Uniform Limited Partnership Act in which the Sponsor
was a general partner and (ii) shall indemnify and hold harmless the Trust, the
Owner Trustee and the Indenture Trustee from and against any loss, liability,
expense, damage, claim or injury (other than those attributable to a Noteholder
as a result of defaults on the Mortgage Loans) arising out of or based on this
Agreement by reason of any acts, omissions, or alleged acts or omissions arising
out of activities of the Trust, the Owner Trustee or the Indenture Trustee, or
the actions of the Servicer, including, but not limited to, amounts payable to
the Servicer pursuant to Section 5.03, any judgment, award, settlement,
reasonable attorneys' fees and other costs or expenses incurred in connection
with the defense of any actual or threatened action, proceeding or claim;
provided that the Sponsor shall not indemnify the Owner Trustee or the Indenture
Trustee (but shall indemnify any other injured party) if such loss, liability,
expense, damage or injury is due to the Owner Trustee's or the Indenture
Trustee's willful malfeasance, bad faith or gross negligence or by reason of the
Owner Trustee's or the Indenture Trustee's reckless disregard of its obligations
hereunder. The provisions of this indemnity shall run directly to and be
enforceable by an injured party subject to the limitations hereof.
Section 5.08. Limitation on Liability of the Sponsor. None of the
directors or officers or employees or agents of the Sponsor shall be under any
liability to the Trust, the Owner Trustee or the Indenture Trustee or the
Securityholders, it being expressly understood that all such liability is
expressly waived and released as a condition of, and as consideration for, the
execution of this Agreement and the issuance of the Notes; provided, however,
that this provision shall not protect any such Person against any liability
which would otherwise be imposed by reason of willful misfeasance, bad faith or
gross negligence in the performance of the duties hereunder. Except as provided
in Section 5.07, the Sponsor shall not be under any liability to the Trust, the
Owner Trustee or the Indenture Trustee or the Securityholders for any action
taken or for refraining from the taking of any action in its capacity as Sponsor
pursuant to this Agreement whether arising from express or implied duties under
this Agreement; provided, however, that this provision shall not protect the
Sponsor against any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of reckless disregard of its obligations and duties
hereunder. The Sponsor and any director or officer or employee or agent of the
Sponsor may rely in good faith on any document of any kind prima facie properly
executed and submitted by any Person respecting any matters arising hereunder.
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ARTICLE VI
SERVICING TERMINATION
Section 6.01. Events of Servicing Termination. If any one of the
following events ("Events of Servicing Termination") shall occur and be
continuing:
(i) Any failure by the Servicer to deposit in the Collection
Account any deposit required to be made under the terms of this
Agreement which continues unremedied for a period of five Business Days
after the date upon which written notice of such failure shall have
been given to the Servicer by the Indenture Trustee or to the Servicer
and the Indenture Trustee by the Insurer or Holders of Notes evidencing
more than 25% of the Principal Balance of the Notes instruct otherwise;
or
(ii) Failure on the part of the Servicer duly to observe or perform
in any material respect any other covenants or agreements of the
Servicer set forth in the Notes or in this Agreement, which failure
continues unremedied for a period of 60 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 to the Servicer by the Indenture Trustee or to the Servicer
and the Indenture Trustee by the Insurer or the Holders of Notes
evidencing Percentage Interests aggregating not less than 25%; or
(iii) The entry against the Servicer of a decree or order by a
court or agency or supervisory authority having jurisdiction in the
premises for the appointment of a trustee, conservator, receiver or
liquidator in any insolvency, conservatorship, receivership,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings, or for the winding up or liquidation of its affairs, and
the continuance of any such decree or order unstayed and in effect for
a period of 60 consecutive days; or
(iv) The consent by the Servicer to the appointment of a trustee,
conservator, receiver or liquidator in any insolvency, conservatorship,
receivership, readjustment of debt, marshalling of assets and
liabilities or similar proceedings of or relating to the Servicer or of
or relating to substantially all of its property; or the Servicer shall
admit in writing its inability to pay its debts generally as they
become due, file a petition to take advantage of any applicable
insolvency or reorganization statute, make an assignment for the
benefit of its creditors, or voluntarily suspend payment of its
obligations;
(v) the occurrence of an Event of Servicer Termination under the
Insurance Agreement.
then, and in each and every such case, so long as an Event of Servicing
Termination shall not have been remedied by the Servicer, either the Indenture
Trustee, the Insurer or the Holders of Notes evidencing more than 50% of the
Outstanding Amount of the Notes instruct otherwise, in each case with the
consent of the Insurer, or the Insurer, by notice then given in writing to the
Servicer (and to the Indenture Trustee if given by the Insurer or the Holders of
Notes) may
34
terminate all of the rights and obligations of the Servicer as servicer under
this Agreement. Upon the occurrence of a Servicer Termination Delinquency Rate
Trigger or Servicer Termination Loss Trigger as those terms are defined in the
Insurance Agreement, the Insurer may, in its reasonable discretion, terminate
all of the rights and obligations of the Servicer pursuant to the terms hereof.
Any such notice to the Servicer shall also be given to each Rating Agency and
the Insurer. On or after the receipt by the Servicer of such written notice, all
authority and power of the Servicer under this Agreement, whether with respect
to the Notes or the Mortgage Loans or otherwise, shall pass to and be vested in
the Indenture Trustee pursuant to and under this Section 6.01; and, without
limitation, the Indenture Trustee is hereby authorized and empowered to execute
and deliver, on behalf of the Servicer, as attorney-in-fact or otherwise, any
and all documents and other instruments, and to do or accomplish all other acts
or things necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the transfer and endorsement of each Mortgage
Loan and related documents, or otherwise. The Servicer agrees to cooperate with
the Indenture Trustee in effecting the termination of the responsibilities and
rights of the Servicer hereunder, including, without limitation, the transfer to
the Indenture Trustee for the administration by it of all cash amounts that
shall at the time be held by the Servicer and to be deposited by it in the
Collection Account, or that have been deposited by the Servicer in the
Collection Account or thereafter received by the Servicer with respect to the
Mortgage Loans. All reasonable costs and expenses (including attorneys' fees)
incurred in connection with amending this Agreement to reflect such succession
as Servicer pursuant to this Section 6.01 shall be paid by the predecessor
Servicer (or if the predecessor Servicer is the Indenture Trustee, the initial
Servicer) upon presentation of reasonable documentation of such costs and
expenses.
Notwithstanding the foregoing, a delay in or failure of performance
under Section 6.01(i) for a period of two Business Days or under Section
6.01(ii) for a period of 60 days, shall not constitute an Event of Servicing
Termination if such delay or failure could not be prevented by the exercise of
reasonable diligence by the Servicer and such delay or failure was caused by an
act of God or the public enemy, acts of declared or undeclared war, public
disorder, rebellion or sabotage, epidemics, landslides, lightning, fire,
hurricanes, earthquakes, floods or similar causes. The preceding sentence shall
not relieve the Servicer from using its best efforts to perform its respective
obligations in a timely manner in accordance with the terms of this Agreement
and the Servicer shall provide the Indenture Trustee, the Sponsor, the Insurer
and the Noteholders and Certificateholders with an Officer's Certificate giving
prompt notice of such failure or delay by it, together with a description of its
efforts to so perform its obligations. The Servicer shall immediately notify the
Indenture Trustee and the Insurer in writing of any Events of Servicing
Termination.
Section 6.02. Indenture Trustee to Act; Appointment of Successor.
(a) On and after the time the Servicer receives a notice of termination
pursuant to Section 6.01 or resigns pursuant to Section 5.04, the Indenture
Trustee shall be the successor in all respects to the Servicer in its capacity
as servicer under this Agreement and the transactions set forth or provided for
herein and shall be subject to all the responsibilities, duties and liabilities
relating thereto placed on the Servicer by the terms and provisions hereof.
Notwithstanding the above, if the Indenture Trustee becomes the Servicer
hereunder, it shall have no responsibility or obligation (i) of repurchase or
substitution with respect to any
35
Mortgage Loan, (ii) with respect to any representation or warranty of the
Servicer, and (iii) for any act or omission of either a predecessor or successor
Servicer other than the Indenture Trustee. As compensation therefor, the
Indenture Trustee shall be entitled to such compensation as the Servicer would
have been entitled to hereunder if no such notice of termination had been given.
In addition, the Indenture Trustee will be entitled to compensation with respect
to its expenses in connection with conversion of certain information, documents
and record keeping, as provided in Section 6.7 and 6.8 of the Indenture.
Notwithstanding the above, (i) if the Indenture Trustee is unwilling to act as
successor Servicer, or (ii) if the Indenture Trustee is legally unable so to
act, the Indenture Trustee may with the consent of the Insurer (in the situation
described in clause (i)) or shall (in the situation described in clause (ii))
appoint or petition a court of competent jurisdiction to appoint, any
established housing and home finance institution, bank or other mortgage loan or
home equity loan servicer with all licenses and permits required to perform its
obligations under this Agreement and having a net worth of not less than
$15,000,000 as the successor to the Servicer hereunder in the assumption of all
or any part of the responsibilities, duties or liabilities of the Servicer
hereunder; provided that any such successor Servicer shall be acceptable to the
Insurer, as evidenced by the Insurer's prior written consent, which consent
shall not be unreasonably withheld; and provided, further, that the appointment
of any such successor Servicer will not result in the qualification, reduction
or withdrawal of the ratings assigned to the Notes by the Rating Agencies
without regard to the Policies. Pending appointment of a successor to the
Servicer hereunder, unless the Indenture Trustee is prohibited by law from so
acting, the Indenture Trustee shall act in such capacity as hereinabove
provided. In connection with such appointment and assumption, the successor
shall be entitled to receive compensation out of payments on Mortgage Loans in
an amount equal to the compensation which the Servicer would otherwise have
received pursuant to Section 3.08 (or such lesser compensation as the Indenture
Trustee and such successor shall agree). The Indenture Trustee and such
successor shall take such action, consistent with this Agreement, as shall be
necessary to effectuate any such succession.
(b) Any successor, including the Indenture Trustee, to the Servicer as
servicer shall during the term of its service as servicer (i) continue to
service and administer the Mortgage Loans for the benefit of Securityholders and
the Insurer and (ii) maintain in force a Policies or policies of insurance
covering errors and omissions in the performance of its obligations as Servicer
hereunder and a fidelity bond in respect of its officers, employees and agents
to the same extent as the Servicer is so required pursuant to Section 3.13. The
appointment of a successor Servicer shall not affect any liability of the
predecessor Servicer which may have arisen under this Agreement prior to its
termination as Servicer (including, without limitation, any deductible under an
Insurance Policy pursuant to Section 3.04), nor shall any successor Servicer be
liable for any acts or omissions of the predecessor Servicer or for any breach
by such Servicer of any of its representations or warranties contained herein.
Section 6.03. Notification to Securityholders. Upon any termination or
appointment of a successor to the Servicer pursuant to this Article VI or
Section 5.04, the Indenture Trustee shall give prompt written notice thereof to
the Securityholders at their respective addresses appearing in the Note
Register, the Certificate Register, the Insurer and each Rating Agency.
36
ARTICLE VII
TERMINATION
Section 7.01. Termination.
(a) The respective obligations and responsibilities of the Servicer,
the Sponsor and the Indenture Trustee created hereby (other than the obligation
of the Indenture Trustee to make certain payments to Noteholders after the final
Payment Date and the obligation of the Servicer to send certain notices as
hereinafter set forth) shall terminate upon the last action required to be taken
by the Indenture Trustee on the final Payment Date pursuant to this Article VII
following the later of (A) the Payment Date following payment in full of all
amounts owing to the Insurer and (B) the earliest of (i) the transfer, under the
conditions specified in Section 7.01(b), to the Sponsor of the Noteholders'
interest on each Mortgage Loan and all property acquired in respect of any
Mortgage Loans remaining in the Trust for an amount equal to the sum of (w) the
sum of the Class A-1 Note Principal Balance and the Class A-2 Note Principal
Balance, (x) the sum of accrued and unpaid Class A-1 Interest Payment Amount and
Class A-2 Interest Payment Amount through the day preceding the final Payment
Date, and (y) interest accrued on any Unpaid Class A-1 Note Interest Shortfall
or Unpaid Class A-2 Note Interest Shortfall to the extent legally permissible,
and all amounts due and owing the Insurer pursuant to the Insurance Agreement
and Section 8.6 of the Indenture, (ii) the day following the Payment Date on
which the distribution made to Noteholders has reduced the Class A-1 Note
Principal Balance and the Class A-2 Note Principal Balance to zero and no other
amounts are owed to the Noteholders hereunder pursuant to the Insurance
Agreement and Section 8.6 of the Indenture, (iii) the final payment or other
liquidation of the last Mortgage Loan remaining in the Trust (including, without
limitation, the disposition of the Mortgage Loans pursuant to Section 5.4 of the
Indenture) or the disposition of all property acquired upon foreclosure or deed
in lieu of foreclosure of any Mortgage Loan and (iv) the Payment Date in
September 2025; provided, however, that in no event shall the trust created
hereby continue beyond the expiration of 21 years from the date of death of the
last surviving descendants of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, the late ambassador of the
United States to the Court of St. ▇▇▇▇▇, living on the date hereof. Upon
termination in accordance with clause (a)(B)(i) of this Section 7.01, the
Indenture Trustee shall execute such documents and instruments of transfer
presented by the Sponsor, in each case without recourse, representation or
warranty, and take such other actions as the Sponsor may reasonably request to
effect the transfer of the Mortgage Loans to the Sponsor.
(b) (i) The Sponsor shall have the right to exercise the option to
effect the transfer to the Sponsor of each Pool I Mortgage Loan
pursuant to Section 7.01(a) (B) above on any Payment Date on or after
the Payment Date immediately prior to which the Class A-1 Note
Principal Balance is less than ten percent (10%) of the Original Class
A-1 Note Principal Balance and all amounts due and owing to the Insurer
for unpaid premiums and unreimbursed draws on the Class A-1 Policy and
all other amounts due and owing to the Insurer pursuant to the
Insurance Agreement, together with interest thereon as provided under
the Insurance Agreement, have been paid.
(ii) The Sponsor shall have the right to exercise the option to
effect the transfer to the Sponsor of each Pool II Mortgage Loan
pursuant to Section 7.01(a)(B)
37
above on any Payment Date on or after the Payment Date immediately
prior to which the Class A-2 Note Principal Balance is less than ten
percent (10%) of the Original Class A-2 Note Principal Balance and all
amounts due and owing to the Insurer for unpaid premiums and
unreimbursed draws on the Class A-2 Policy and all other amounts due
and owing to the Insurer pursuant to the Insurance Agreement, together
with interest thereon as provided under the Insurance Agreement, have
been paid.
(c) The Sponsor, at its expense, shall prepare and deliver to the
Indenture Trustee for execution, at the time the related Mortgage Loans
are to be released to the Sponsor, appropriate documents assigning each
such Mortgage Loan from the Indenture Trustee to the Sponsor and shall
promptly record such assignments.
(d) The Sponsor shall not exercise its right to repurchase the
Mortgage Loans pursuant to Section 7.01(b) hereof if such repurchase
would result in a draw on the related Policy, without the consent of
the Insurer, which consent shall not be unreasonably withheld.
ARTICLE VIII
ADMINISTRATIVE DUTIES OF THE SERVICER
Section 8.01. Administrative Duties.
(a) Duties with Respect to the Indenture. The Servicer shall perform
all its duties and the duties of the Issuer under the Indenture. In addition,
the Servicer shall consult with the Owner Trustee as the Servicer deems
appropriate regarding the duties of the Issuer under the Indenture. The Servicer
shall monitor the performance of the Issuer and shall advise the Owner Trustee
when action is necessary to comply with the Issuer's duties under the Indenture.
The Servicer shall prepare for execution by the Issuer or shall cause the
preparation by other appropriate Persons of all such documents, reports,
filings, instruments, certificates and opinions as it shall be the duty of the
Issuer to prepare, file or deliver pursuant to the Indenture. In furtherance of
the foregoing, the Servicer shall take all necessary action that is the duty of
the Issuer to take pursuant to the Indenture.
(b) Duties with Respect to the Issuer.
(i) In addition to the duties of the Servicer set forth in this
Agreement or any of the Basic Documents, the Servicer shall perform
such calculations and shall prepare for execution by the Issuer or the
Owner Trustee or shall cause the preparation by other appropriate
Persons of all such documents, reports, filings, instruments,
certificates and opinions as it shall be the duty of the Issuer or the
Owner Trustee to prepare, file or deliver pursuant to this Agreement or
any of the Basic Documents or under state and federal tax and
securities laws, and at the request of the Owner Trustee shall take all
appropriate action that it is the duty of the Issuer to take pursuant
to this Agreement or any of the Basic Documents, including, without
limitation, pursuant to Sections 2.6 and 2.11 of the Trust Agreement.
In accordance with the directions of the Issuer or the Owner Trustee,
the Servicer shall administer, perform or supervise the performance of
such other activities in connection with the Mortgage Loans (including
the Basic
38
Documents) as are not covered by any of the foregoing provisions and as
are expressly requested by the Issuer or the Owner Trustee and are
reasonably within the capability of the Servicer.
(ii) Notwithstanding anything in this Agreement or any of the Basic
Documents to the contrary, the Servicer shall be responsible for
promptly notifying the Owner Trustee and the Indenture Trustee and the
Insurer in the event that any withholding tax is imposed on the
Issuer's payments (or allocations of income) to a Certificateholder (as
defined in the Trust Agreement) as contemplated by this Agreement. Any
such notice shall be in writing and specify the amount of any
withholding tax required to be withheld by the Owner Trustee or the
Indenture Trustee pursuant to such provision.
(iii) Notwithstanding anything in this Agreement or the Basic
Documents to the contrary, the Servicer shall be responsible for
performance of the duties of the Issuer or the Sponsor set forth in
Section 5.1(a), (b), (c) and (d) of the Trust Agreement with respect
to, among other things, accounting and reports to Certificateholders
(as defined in the Trust Agreement).
(iv) The Servicer shall perform the duties of the Sponsor specified
in Section 10.2 of the Trust Agreement required to be performed in
connection with the resignation or removal of the Owner Trustee, and
any other duties expressly required to be performed by the Servicer
under this Agreement or any of the Basic Documents.
(v) In carrying out the foregoing duties or any of its other
obligations under this Agreement, the Servicer may enter into
transactions with or otherwise deal with any of its Affiliates;
provided, however, that the terms of any such transactions or dealings
shall be in accordance with any directions received from the Issuer and
shall be, in the Servicer's opinion, no less favorable to the Issuer in
any material respect.
(c) Non-Ministerial Matters. With respect to matters that in the
reasonable judgment of the Servicer are non-ministerial, the Servicer shall not
take any action pursuant to this Article VIII unless within a reasonable time
before the taking of such action, the Servicer shall have notified the Owner
Trustee and the Insurer of the proposed action and the Owner Trustee and the
Insurer shall not have withheld consent or provided an alternative direction.
For the purpose of the preceding sentence, "non-ministerial matters" shall
include:
(A) the amendment of or any supplement to the Indenture;
(B) the initiation of any claim or lawsuit by the Issuer and the
compromise of any action, claim or lawsuit brought by or against the
Issuer (other than in connection with the collection of the Mortgage
Loans);
(C) the amendment, change or modification of this Agreement or any
of the Basic Documents;
(D) the appointment of successor Note Registrars, successor Paying
Agents and successor Indenture Trustees pursuant to the Indenture or
the appointment of
39
Successor Servicers or the consent to the assignment by the Note
Registrar, Paying Agent or Indenture Trustee of its obligations under
the Indenture; and
(E) the removal of the Indenture Trustee.
(d) Exceptions. Notwithstanding anything to the contrary in this
Agreement, except as expressly provided herein or in the other Basic Documents,
the Servicer, in its capacity hereunder, shall not be obligated to, and shall
not, (1) make any payments to the Noteholders or Certificateholders under the
Basic Documents, (2) sell the Trust Property pursuant to Section 5.4 of the
Indenture, (3) take any other action that the Issuer directs the Servicer not to
take on its behalf or (4) in connection with its duties hereunder assume any
indemnification obligation of any other Person.
(e) The Indenture Trustee or any successor Servicer shall not be
responsible for any obligations or duties of the Servicer under Section 8.01.
Section 8.02. Records. The Servicer shall maintain appropriate books of
account and records relating to services performed under this Agreement, which
books of account and records shall be accessible for inspection by the Issuer
and the Indenture Trustee at any time during normal business hours.
Section 8.03. Additional Information to be Furnished to the Issuer. The
Servicer shall furnish to the Issuer and the Indenture Trustee from time to time
such additional information regarding the Mortgage Loans as the Issuer and the
Indenture Trustee shall reasonably request.
ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 9.01. Amendment. This Agreement may be amended from time to
time by agreement among the Sponsor, the Servicer, and the Indenture Trustee, in
each case without notice to or the consent of any of the Noteholders or
Certificateholders, but only with the consent of the Insurer (which consent
shall not be unreasonably withheld), (i) to cure any ambiguity, (ii) to correct
any defective provisions or to correct or supplement any provisions herein that
may be inconsistent with any other provisions herein, (iii) to add to the duties
of the Sponsor or the Servicer, (iv) to add any other provisions with respect to
matters or questions arising under this Agreement or the Policies, as the case
may be, which shall not be inconsistent with the provisions of this Agreement,
(v) to add or amend any provisions of this Agreement as required by any Rating
Agency or any other nationally recognized statistical rating organization in
order to maintain or improve any rating of the Notes (it being understood that,
after obtaining the ratings in effect on the Closing Date, neither the Indenture
Trustee, the Sponsor nor the Servicer is obligated to obtain, maintain or
improve any such rating) or (vi) to comply with any requirement imposed by the
Code; provided, however, that such action shall not, as evidenced by an Opinion
of Counsel, materially and adversely affect the interests of any Noteholder or
any Certificateholder or the Insurer; and provided, further, that the amendment
shall be deemed not to adversely affect in any material respect the interests of
the Noteholders and the
40
Certificateholders and no opinion referred to in the preceding proviso shall be
required to be delivered if the Person requesting the amendment obtains a letter
from each Rating Agency stating that the amendment would not result in the
downgrading or withdrawal of the respective ratings then assigned to the Notes
without regard to the Policies.
This Agreement also may be amended from time to time by agreement among
the Servicer, the Sponsor and the Indenture Trustee, with the consent of the
Insurer and the Holders of the Notes evidencing more than 50% of the Outstanding
Amount of the Notes instruct otherwise and the Holders of the Certificates
evidencing more than 50% of the percentage interest in the Certificates (which
consent of such Holders of Notes and Certificates given pursuant to this Section
9.01 or pursuant to any other provision of this Agreement shall be conclusive
and binding on such Holder and all future Holders of such securities and of any
security issued upon the transfer thereof or in exchange thereof or in lieu
thereof whether or not notation of such consent is made upon the security) for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Agreement or of modifying in any manner the rights
of the Noteholders or the Certificateholders; provided, however, that no such
amendment shall (i) reduce in any manner the amount of, or delay the timing of,
payments on the Notes or distributions or payments under the Policies which are
required to be made on any Note without the consent of the Holder of such Note
or (ii) reduce the aforesaid percentage required to consent to any such
amendment, without the consent of the Holders of all then outstanding Notes and
Certificates or (iii) adversely effect in any material respect the interests of
the Insurer.
Following the execution and delivery of any such amendment hereto or to
the Policies, either the Sponsor, if the Sponsor requested the amendment, or the
Servicer, if the Servicer requested the amendment, shall reimburse the Insurer
for the reasonable out-of-pocket costs and expenses incurred by the Insurer in
connection with such amendment.
Prior to the execution of any such amendment, the party hereto
requesting any such amendment shall furnish written notification of the
substance of such amendment to each Rating Agency. In addition, promptly after
the execution of any such amendment made with the consent of the Noteholders,
the Indenture Trustee shall furnish written notification of the substance of
such amendment to each Noteholder and fully executed original counterparts of
the instruments effecting such amendment to the Insurer.
It shall not be necessary for the consent of Noteholders under this
Section 9.01 to approve the particular form of any proposed amendment or
consent, but it shall be sufficient if such consent shall approve the substance
thereof. The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Securityholders shall be subject to
such reasonable requirements as the Indenture Trustee may prescribe.
In executing any amendment permitted by this Section 9.01, the
Indenture Trustee shall be entitled to receive, and shall be fully protected in
relying upon, an Opinion of Counsel stating that such amendment is authorized or
permitted hereby and that all conditions precedent to the execution and delivery
of such amendment have been satisfied. The Indenture Trustee may, but shall not
be obligated to, enter into any such amendment which affects the Indenture
Trustee's own rights, duties or immunities under this Agreement or otherwise.
41
Section 9.02. Recordation of Agreement. This Agreement is subject to
recordation in all appropriate public offices for real property records in all
the counties or other comparable jurisdictions in which any or all of the
properties subject to the Mortgages are situated, and in any other appropriate
public recording office or elsewhere, such recordation to be effected by the
Indenture Trustee, but only upon direction of Noteholders accompanied by an
Opinion of Counsel to the effect that such recordation materially and
beneficially affects the interests of Noteholders. The Noteholders requesting
such recordation shall bear all costs and expenses of such recordation. The
Indenture Trustee shall have no obligation to ascertain whether such recordation
so affects the interests of the Noteholders.
For the purpose of facilitating the recordation of this Agreement as
herein provided and for other purposes, this Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts shall
be deemed to be an original, and such counterparts shall constitute but one and
the same instrument.
Section 9.03. Limitation on Rights of Noteholders. No Noteholder shall
have any right to vote (except as provided in Sections 6.01, 7.01, and 9.01
herein and Section 5.4 of the Indenture) or in any manner otherwise control the
operation and management of the Trust, or the obligations of the parties hereto,
nor shall anything herein set forth, or contained in the terms of the Notes, be
construed so as to constitute the Noteholders from time to time as partners or
members of an association; nor shall any Noteholder be under any liability to
any third person by reason of any action taken by the parties to this Agreement
pursuant to any provision hereof.
No Noteholder shall have any right by virtue or by availing itself of
any provisions of this Agreement to institute any suit, action or proceeding in
equity or at law upon or under or with respect to this Agreement, unless such
Holder previously shall have given to the Indenture Trustee a written notice of
default and of the continuance thereof, as hereinbefore provided, and unless
also the Holders of Notes evidencing more than 50% of the Outstanding Amount of
the Notes shall have made written request upon the Indenture Trustee to
institute such action, suit or proceeding in its own name as Indenture Trustee
hereunder and shall have offered to the Indenture Trustee such reasonable
indemnity as it may require against the costs, expenses and liabilities to be
incurred therein or thereby, and the Indenture Trustee, for 60 days after its
receipt of such notice, request and offer of indemnity, shall have neglected or
refused to institute any such action, suit or proceeding; it being understood
and intended, and being expressly covenanted by each Noteholder with every other
Noteholder and the Indenture Trustee, that no one or more Holders of Notes shall
have any right in any manner whatever by virtue or by availing itself or
themselves of any provisions of this Agreement to affect, disturb or prejudice
the rights of the Holders of any other of the Notes, or to obtain or seek to
obtain priority over or preference to any other such Holder, or to enforce any
right under this Agreement, except in the manner herein provided and for the
equal, ratable and common benefit of all Noteholders. For the protection and
enforcement of the provisions of this Section 9.03, each and every Noteholder
and the Indenture Trustee shall be entitled to such relief as can be given
either at law or in equity.
By accepting its Note, each Noteholder agrees that unless a Insurer
Default exists, the Insurer shall have the right to exercise all rights of the
Noteholder under this Agreement without any further consent of the Noteholder.
42
Section 9.04. 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.
Section 9.05. Notices. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered at or mailed by certified mail, return receipt requested,
to (a) in the case of the Sponsor, Headlands Mortgage Securities Inc., ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇
▇. ▇▇▇▇, (b) in the case of the Servicer, Headlands Mortgage Company, ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, (c) in the case of the Indenture Trustee, at the Corporate
Trust Office, (d) in the case of the Insurer, Ambac Assurance Structured
Finance, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇, Attention: Managing
Director (telecopy number (▇▇▇) ▇▇▇-▇▇▇▇ or (▇▇▇) ▇▇▇-▇▇▇▇), (e) in the case of
▇▇▇▇▇'▇, Residential Loan Monitoring Group, 4th Floor, ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, and (f) in the case of Standard & Poor's, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or, as to each party, at such other address as shall
be designated by such party in a written notice to each other party. Any notice
required or permitted to be mailed to a Noteholder shall be given by first class
mail, postage prepaid, at the address of such Holder as shown in the Note
Register. Any notice so mailed within the time prescribed in this Agreement
shall be conclusively presumed to have been duly given, whether or not the
Securityholder receives such notice. Any notice or other document required to be
delivered or mailed by the Indenture Trustee to any Rating Agency shall be given
on a best efforts basis and only as a matter of courtesy and accommodation and
the Indenture Trustee shall have no liability for failure to deliver such notice
or document to any Rating Agency.
Section 9.06. Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Notes or the
rights of the Holders thereof.
Section 9.07. Assignment. Notwithstanding anything to the contrary
contained herein, except as provided in Sections 5.02 and 5.04, this Agreement
may not be assigned by the Sponsor or the Servicer without the prior written
consent of the Insurer and Holders of the Notes evidencing Percentage Interests
aggregating not less than 66%.
Section 9.08. Third-Party Beneficiaries. This Agreement will inure to
the benefit of and be binding upon the parties hereto, the Certificateholders,
the Note Owners, the Insurer and their respective successors and permitted
assigns. Except as otherwise provided in this Agreement, no other Person will
have any right or obligation hereunder.
Section 9.09. Counterparts. This instrument may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
43
Section 9.10. Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
Section 9.11. Insurance Agreement. The Indenture Trustee is authorized
and directed to execute and deliver the Insurance Agreement and to perform the
obligations of the Indenture Trustee thereunder.
Section 9.12. Nonpetition Covenant. Until one year plus one day shall
have elapsed since the termination of the Trust in accordance with Section 7.01,
none of the Sponsor, the Company, the Servicer, nor the Indenture Trustee shall
petition or otherwise invoke the process of any court or government authority
for the purpose of commencing or sustaining a case against the Sponsor or the
Trust under any federal or state bankruptcy, insolvency or similar law or
appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or
other similar official of the Sponsor or the Trust or any substantial part of
its property, or ordering the winding up or liquidation of the affairs of the
Sponsor or the Trust.
44
IN WITNESS WHEREOF, the Sponsor, the Servicer and the Indenture Trustee
have caused this Agreement to be duly executed by their respective officers all
as of the day and year first above written.
HEADLANDS MORTGAGE SECURITIES INC.,
as Sponsor
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Title: Vice President
HEADLANDS MORTGAGE COMPANY,
as Company and Servicer
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Executive Vice President
BANK ONE, NATIONAL ASSOCIATION,
as Indenture Trustee
By: /s/ ▇. ▇▇▇▇▇▇
Name: ▇. ▇▇▇▇▇▇
Title: Vice President
HEADLANDS HOME EQUITY LOAN TRUST
1999-1, as Issuer
By: Wilmington Trust Company, not in its
individual capacity but solely as Owner
Trustee
By: /s/ W. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Name: W. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Title: Assistant Vice President
[Sale and Servicing Agreement]
EXHIBIT A
---------
MORTGAGE LOAN SCHEDULE
[On file with ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ LLP]
A-1
EXHIBIT B
---------
FORM OF OPINION OF COUNSEL
WITH RESPECT TO SECTION 3.11 OF THE
SALES AND SERVICING AGREEMENT
The opinions set forth below may be subject to all the qualifications,
assumptions, limitations and exceptions taken or made in the opinions of counsel
to the Company delivered on the Closing Date. Unless otherwise indicated, all
capitalized terms used herein shall have the meanings ascribed to them in the
Sale and Servicing Agreement dated as of September 1, 1999 among Headlands
Mortgage Company (the "Company" and the "Servicer"), Headlands Mortgage
Securities Inc. (the "Sponsor") and Bank One, National Association, as Indenture
Trustee. Terms used but not defined herein shall have the meaning given to such
terms in the above-referenced Sale and Servicing Agreement.
The Indenture Trustee has a valid perfected first priority security interest
with respect to the Sponsor's right, title and interest in and to the Mortgage
Loans (including all Eligible Substitute Mortgage Loans).
B-1
EXHIBIT C-1
-----------
OFFICER'S CERTIFICATE
REQUEST BY THE SERVICER FOR PERMANENT
RELEASE OF MORTGAGE LOANS AND MORTGAGE FILE
-------------------------------------------
TO: Bank One, National Association,
as Indenture Trustee
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Corporate Trust Office
Gentlemen:
In connection with the payment in full of the Mortgage Loans held by you as
Indenture Trustee, under the Sale and Servicing Agreement dated as of September
1, 1999 among Headlands Mortgage Company, as Servicer, Headlands Mortgage
Securities Inc., as Sponsor, and you, as Indenture Trustee, the undersigned
requests the release of the Mortgage Loans and the Mortgage Files for the
Mortgage Loans identified in the schedule attached to this Request.
The undersigned hereby certifies that any and all payments received on the
Mortgage Loans identified in the schedule attached to this Request which are
required to be deposited in the Collection Account pursuant to Section 3.02 of
such Sale and Servicing Agreement have been so deposited.
HEADLANDS MORTGAGE COMPANY,
as Servicer
By: _______________________________
_______________________________
_______________________________
Name: ___________________________
___________________________
Title: ___________________________
___________________________
___________________________
Date: ___________________________
___________________________
___________________________
C-1-1
ACKNOWLEDGED BY:
BANK ONE, NATIONAL ASSOCIATION,
as Indenture Trustee
By: _______________________________
Name: ___________________________
Title: ___________________________
Date: ___________________________
C-1-2
EXHIBIT C-2
-----------
OFFICER'S CERTIFICATE
---------------------
REQUEST BY THE SERVICER FOR TEMPORARY
RELEASE OF MORTGAGE LOANS AND MORTGAGE FILES
--------------------------------------------
TO: Bank One, National Association,
as Indenture Trustee
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Corporate Trust Office
Gentlemen:
In connection with the administration of the Mortgage Loans held by you as
Indenture Trustee, under the Sale and Servicing Agreement dated as of September
1, 1999 among Headlands Mortgage Company, as Servicer, Headlands Mortgage
Securities Inc., as Sponsor, and you, as Indenture Trustee, the undersigned
requests the temporary release of the Mortgage Loans and the related Mortgage
Files for the Mortgage Loans identified in the schedule attached to this
Request.
HEADLANDS MORTGAGE COMPANY,
as Servicer
By: _______________________________
_______________________________
_______________________________
Name: ___________________________
___________________________
Title: ___________________________
___________________________
___________________________
Date: ___________________________
___________________________
___________________________
ACKNOWLEDGED BY:
BANK ONE, NATIONAL ASSOCIATION,
as Indenture Trustee
By: _______________________________
Name: ___________________________
Title: ___________________________
Date: ___________________________
C-2-1
EXHIBIT D
---------
FORM OF CREDIT LINE AGREEMENT
D-1
EXHIBIT E
---------
FORM OF MORTGAGE NOTE FOR
SECOND LIEN MORTGAGE LOANS
E-1