Exhibit 4.1
EXECUTION COPY
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SALE AND SERVICING AGREEMENT
Dated as of November 9, 2005
among
HSBC HOME EQUITY LOAN CORPORATION I
(Depositor)
HSBC HOME EQUITY LOAN TRUST 2005-3
(Trust)
HSBC FINANCE CORPORATION
(Master Servicer)
HSBC BANK USA, NATIONAL ASSOCIATION
(Administrator)
and
U.S. BANK NATIONAL ASSOCIATION
(Indenture Trustee)
HSBC Home Equity Loan Trust 2005-3
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TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS................................................................................2
SECTION 1.01 Definitions........................................................................2
SECTION 1.02 Other Definitional Provisions.....................................................21
SECTION 1.03 Interest Calculations.............................................................22
ARTICLE II. CONVEYANCE OF HOME EQUITY LOANS; TAX TREATMENT............................................23
SECTION 2.01 Acknowledgment; Conveyance of Home Equity Loans; Custody of Mortgage Files........23
SECTION 2.02 Acceptance by Indenture Trustee; Repurchase of Home Equity Loans;
Conveyance of Eligible Substitute Home Equity Loans...............................27
SECTION 2.03 Representations, Warranties and Covenants of the Master Servicer..................29
SECTION 2.04 Representations and Warranties of the Depositor Regarding this Agreement
and the Home Equity Loans; Repurchases and Substitutions..........................30
SECTION 2.05 Tax Treatment.....................................................................35
ARTICLE III. ADMINISTRATION AND SERVICING OF HOME EQUITY LOANS.........................................36
SECTION 3.01 The Master Servicer...............................................................36
SECTION 3.02 Collection of Certain Home Equity Loan Payments...................................39
SECTION 3.03 Withdrawals from the Collection Account...........................................41
SECTION 3.04 Maintenance of Hazard Insurance; Property Protection Expenses.....................42
SECTION 3.05 Assumption and Modification Agreements............................................43
SECTION 3.06 Realization Upon Defaulted Home Equity Loans......................................43
SECTION 3.07 [Reserved]........................................................................44
SECTION 3.08 Indenture Trustee to Cooperate....................................................44
SECTION 3.09 Servicing Compensation; Payment of Certain Expenses by Master Servicer............45
SECTION 3.10 Annual Statement as to Compliance.................................................45
SECTION 3.11 Annual Servicing Report...........................................................46
SECTION 3.12 Access to Certain Documentation and Information Regarding
the Home Equity Loans.............................................................46
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TABLE OF CONTENTS
(continued)
Page
SECTION 3.13 Maintenance of Certain Servicing Insurance Policies...............................47
SECTION 3.14 Reports to the Securities and Exchange Commission.................................47
SECTION 3.15 [Reserved]........................................................................47
SECTION 3.16 Information Required by the Internal Revenue Service Generally and
Reports of Foreclosures and Abandonments of Mortgaged Property....................47
SECTION 3.17 Additional Covenants of HSBC Finance..............................................48
SECTION 3.18 Servicing Certificate.............................................................48
ARTICLE IV. [RESERVED]................................................................................52
ARTICLE V. PRIORITY OF PAYMENTS; STATEMENTS TO NOTEHOLDERS; RIGHTS OF NOTEHOLDERS....................53
SECTION 5.01 Payments..........................................................................53
SECTION 5.02 Calculation of LIBOR, the Formula Rate............................................55
SECTION 5.03 Statements to Noteholders.........................................................56
ARTICLE VI. THE MASTER SERVICER AND THE DEPOSITOR.....................................................58
SECTION 6.01 Liability of the Master Servicer and the Depositor................................58
SECTION 6.02 Merger or Consolidation of, or Assumption of the Obligations of,
the Master Servicer or the Depositor..............................................58
SECTION 6.03 Limitation on Liability of the Master Servicer, the Depositor and Others..........58
SECTION 6.04 Master Servicer Not to Resign.....................................................59
SECTION 6.05 Delegation of Duties..............................................................59
ARTICLE VII. MASTER SERVICER TERMINATION...............................................................60
SECTION 7.01 Master Servicer Termination Events................................................60
SECTION 7.02 Indenture Trustee to Act; Appointment of Successor................................61
SECTION 7.03 Waiver of Defaults................................................................63
SECTION 7.04 Notification to Noteholders.......................................................63
ARTICLE VIII. TERMINATION...............................................................................64
SECTION 8.01 Termination.......................................................................64
ARTICLE IX. MISCELLANEOUS PROVISIONS..................................................................67
SECTION 9.01 Amendment.........................................................................67
SECTION 9.02 Recordation of Agreement..........................................................68
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TABLE OF CONTENTS
(continued)
Page
SECTION 9.03 Duration of Agreement.............................................................68
SECTION 9.04 Governing Law.....................................................................68
SECTION 9.05 Notices...........................................................................69
SECTION 9.06 Severability of Provisions........................................................69
SECTION 9.07 No Partnership....................................................................69
SECTION 9.08 Counterparts......................................................................69
SECTION 9.09 Successors and Assigns............................................................69
SECTION 9.10 Headings..........................................................................70
SECTION 9.11 Rights and Immunities.............................................................70
SECTION 9.12 Inconsistencies Among Transaction Documents.......................................70
SECTION 9.13 [RESERVED]........................................................................70
SECTION 9.14 Limitation on Voting of Preferred Stock...........................................70
SECTION 9.15 Perfection Representations........................................................70
SECTION 9.16 Limitation of Liability...........................................................70
SECTION 9.17 Inspection of Mortgage Files......................................................70
ARTICLE X. ADMINISTRATION OF ISSUER..................................................................72
SECTION 10.01 Administrative Duties.............................................................72
SECTION 10.02 Records...........................................................................74
SECTION 10.03 Additional Information to be Furnished to the Trust...............................74
EXHIBITS
SCHEDULE 1 Perfection Representations, Warranties and Covenants
SCHEDULE 2 Sellers
EXHIBIT A Home Equity Loan Schedule
EXHIBIT B Form of Notes
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This Sale and Servicing Agreement (the "Agreement") is entered into
effective as of November 9, 2005, among HSBC Home Equity Loan Trust 2005-3, a
Delaware statutory trust (the "Trust"), HSBC Home Equity Loan Corporation I, a
Delaware corporation, as depositor (the "Depositor"), HSBC Finance
Corporation, a Delaware corporation, as master servicer (the "Master
Servicer"), HSBC Bank USA, National Association, as administrator (the
"Administrator") and U.S. Bank National Association, a national banking
association, as Indenture Trustee on behalf of the Noteholders (in such
capacity, the "Indenture Trustee").
PRELIMINARY STATEMENT
WHEREAS, the Trust desires to purchase from the Depositor a pool of
Home Equity Loans which were acquired by the Depositor from certain sellers;
WHEREAS, the Depositor, concurrently with the execution of this
Agreement, acquired the Home Equity Loans from certain sellers pursuant to the
Home Equity Loan Purchase Agreement;
WHEREAS, the Master Servicer is willing to service such Home Equity
Loans in accordance with the terms of this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto hereby agree as follows:
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ARTICLE I.
DEFINITIONS
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SECTION 1.01 Definitions. Whenever used in this Agreement, the
following words and phrases, unless the context otherwise requires, shall have
the meanings specified in this Article.
Accrual Period: As to each Payment Date after the initial Payment
Date, the period from and including the Payment Date in the month immediately
preceding the month in which the Payment Date occurs and ending on and
including the day immediately preceding the current Payment Date. As to the
initial Payment Date, the period beginning on the Closing Date and ending on
the day immediately preceding the initial Payment Date.
Additional Principal Reduction Amount: As to any Payment Date, the
outstanding Pool Balance as of the first day of the related Collection Period
less the sum of (x) the outstanding Pool Balance as of the last day of the
related Collection Period and (y) the Principal Collections for such Payment
Date.
Administrator: HSBC Bank USA, National Association, a national
banking association, as Administrator (including its role as Note Registrar
and Paying Agent) under the Indenture and the other Transaction Documents to
which it is a party, or any successor administrator under the Indenture
appointed in accordance with such agreement.
Affiliate: With respect to any Person, any other Person controlling,
controlled by or under common control with such Person. For purposes of this
definition, "control" means the power to direct the management and policies of
a Person, directly or indirectly, whether through ownership of voting
securities, by contract or otherwise and "controlling" and "controlled" shall
have meanings correlative to the foregoing.
Agreement: This Sale and Servicing Agreement and all amendments
hereof and supplements hereto.
Appraised Value: As to any Home Equity Loan, the appraised value of
the related Mortgaged Property based upon the appraisal used by the applicable
Seller at the time of origination of such Home Equity Loan (or any mortgage
loan made by the Seller on the Mortgaged Property that the Home Equity Loan
replaced); provided that if the Home Equity Loan was originated simultaneously
with or not more than 12 months after another mortgage was placed on the
related Mortgaged Property, the lesser of the Appraised Value at origination
of the other mortgage and the sales price, if any, of the related Mortgaged
Property.
Assignment of Mortgage: With respect to any Mortgage, an assignment,
notice of transfer or equivalent instrument, in recordable form, sufficient
under the laws of the jurisdiction in which the related Mortgaged Property is
located to reflect the sale of the Mortgage to the Indenture Trustee, which
assignment, notice of transfer or equivalent instrument may be in the form of
one or more blanket assignments covering the Home Equity Loans secured by
Mortgaged Properties located in the same jurisdiction.
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Auction Date: As defined in Section 8.01(c).
Available Funds Cap: With respect to any Payment Date, a per annum
rate equal to the product of (x) the weighted average of the Net Loan Rates of
each Home Equity Loan, in each case outstanding as of the first day of the
related Collection Period, and (y) a fraction, the numerator of which is 30
and the denominator of which is the number of days in the related Accrual
Period.
Available Payment Amount: As to any Payment Date, the sum, without
duplication, of all amounts described in clauses (i) through (iii), inclusive,
of Section 3.02(b) received by the Master Servicer with respect to the related
Collection Period and deposited in the Collection Account.
BIF: The Bank Insurance Fund, as from time to time constituted,
created under the Financial Institutions Reform, Recovery and Enhancement Act
of 1989, or if at any time after the execution of this instrument the Bank
Insurance Fund is not existing and performing duties now assigned to it, the
body performing such duties on such date.
Book-Entry Note: Any Note registered in the name of the Depository or
its nominee, ownership of which is reflected on the books of the Depository or
on the books of a Person maintaining an account with such Depository (directly
or as an indirect participant in accordance with the rules of such
Depository).
Business Day: Any day other than (i) a Saturday or a Sunday or (ii) a
day on which banking institutions or trust companies in the State of New York
or Illinois are required or authorized by law to be closed.
Charge Off Amount: As to any Charged Off Home Equity Loan and
Collection Period, an amount equal to the amount of the Principal Balance that
the Master Servicer has charged off on its servicing records during such
Collection Period.
Charged Off Home Equity Loan: A defaulted Home Equity Loan that is
not a Liquidated Home Equity Loan and as to which (i) collection procedures
are ongoing and (ii) the Master Servicer has charged off all or a portion of
the related Principal Balance.
Class: Any of the Class ▇-▇, ▇▇▇▇▇ ▇-▇, Class M-1 or Class M-2 Notes.
Class A-1 Formula Rate: With respect to the Class A-1 Notes and any
Accrual Period, a per annum rate equal to LIBOR plus 0.26%.
Class A-1 Note: Any Note designated as a Class A-1 Note on the face
thereof, substantially in the form of Exhibit B hereto.
Class A-1 Noteholder: A Holder of a Class A-1 Note.
Class A-1 Note Rate: With respect to any Payment Date and Accrual
Period, a per annum rate equal to the lesser of (i) the Class A-1 Formula Rate
and (ii) the Available Funds Cap for such Payment Date.
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Class A-1 Supplemental Interest Amount: As of any Payment Date, the
sum of (i) the excess, if any, of (a) interest accrued on the Class A-1 Notes
during the related Collection Period at the Class A-1 Formula Rate over (b)
interest due on the Class A-1 Notes at the Class A-1 Note Rate, (ii) any Class
A-1 Supplemental Interest Amount remaining unpaid from prior Payment Dates and
(iii) interest on the amount in clause (ii) at the Class A-1 Formula Rate.
Class A-2 Formula Rate: With respect to the Class A-2 Notes and any
Accrual Period, a per annum rate equal to LIBOR plus 0.29%.
Class A-2 Note: Any Note designated as a Class A-2 Note on the face
thereof, substantially in the form of Exhibit B hereto.
Class A-2 Noteholder: A Holder of a Class A-2 Note.
Class A-2 Note Rate: With respect to any Payment Date and Accrual
Period, a per annum rate equal to the lesser of (i) the Class A-2 Formula Rate
and (ii) the Available Funds Cap for such Payment Date.
Class A-2 Supplemental Interest Amount: As of any Payment Date, the
sum of (i) the excess, if any, of (a) interest accrued on the Class A-2 Notes
during the related Collection Period at the Class A-2 Formula Rate over (b)
interest due on the Class A-2 Notes at the Class A-2 Note Rate, (ii) any Class
A-2 Supplemental Interest Amount remaining unpaid from prior Payment Dates and
(iii) interest on the amount in clause (ii) at the Class A-2 Formula Rate.
Class M-1 Formula Rate: With respect to the Class M-1 Notes and any
Accrual Period, a per annum rate equal to LIBOR plus 0.42%.
Class M-1 Note: Any Note designated as a Class M-1 Note on the face
thereof, substantially in the form of Exhibit B hereto.
Class M-1 Noteholder: A Holder of a Class M-1 Note.
Class M-1 Note Rate: With respect to any Payment Date and Accrual
Period, a per annum rate equal to the lesser of (i) the Class M-1 Formula Rate
and (ii) the Available Funds Cap for such Payment Date.
Class M-1 Supplemental Interest Amount: As of any Payment Date, the
sum of (i) the excess, if any, of (a) interest accrued on the Class M-1 Notes
during the related Collection Period at the Class M-1 Formula Rate over (b)
interest due on the Class M-1 Notes at the Class M-1 Note Rate, (ii) any Class
M-1 Supplemental Interest Amount remaining unpaid from prior Payment Dates and
(iii) interest on the amount in clause (ii) at the Class M-1 Formula Rate.
Class M-2 Formula Rate: With respect to the Class M-2 Notes and any
Accrual Period, a per annum rate equal to LIBOR plus 0.44%.
Class M-2 Note: Any Note designated as a Class M-2 Note on the face
thereof, substantially in the form of Exhibit B hereto.
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Class M-2 Noteholder: A Holder of a Class M-2 Note.
Class M-2 Note Rate: With respect to any Payment Date and Accrual
Period, a per annum rate equal to the lesser of (i) the Class M-2 Formula Rate
and (ii) the Available Funds Cap for such Payment Date.
Class M-2 Supplemental Interest Amount: As of any Payment Date, the
sum of (i) the excess, if any, of (a) interest accrued on the Class M-2 Notes
during the related Collection Period at the Class M-2 Formula Rate over (b)
interest due on the Class M-2 Notes at the Class M-2 Note Rate, (ii) any Class
M-2 Supplemental Interest Amount remaining unpaid from prior Payment Dates and
(iii) interest on the amount in clause (ii) at the Class M-2 Formula Rate.
Closing Date: November 9, 2005.
Code: The Internal Revenue Code of 1986, as amended from time to
time, and any Treasury Regulations promulgated thereunder.
Collection Account: The custodial account or accounts created and
maintained for the benefit of the Noteholders and the Ownership Interest
pursuant to Section 3.02(b). The Collection Account shall be an Eligible
Account.
Collection Period: As to any Payment Date and Home Equity Loan, the
calendar month immediately preceding the month in which such Payment Date
occurs, except that with respect to the initial Payment Date, the Collection
Period is the period from the Cut-Off Date to and including October 31, 2005.
Combined Exposure: As defined in Section 3.04.
Combined Loan-to-Value Ratio or CLTV: As to each Home Equity Loan, a
ratio, expressed as a percentage, the numerator of which is the sum of (a) the
original Principal Balance of the Home Equity Loan and (b) the aggregate
unpaid principal balance, at the time of origination of the Home Equity Loan,
of all other mortgage loans, if any, secured by liens senior to that Home
Equity Loan on the related Mortgaged Property, and the denominator of which is
the Appraised Value of the Mortgaged Property.
Corporate Trust Office: As defined in the Indenture.
Cumulative Loss Percentage: As to any Collection Period, the fraction
(expressed as a percentage) obtained by dividing (i) the Cumulative Realized
Losses for such Collection Period, by (ii) the Cut-Off Date Pool Balance.
Cumulative Loss Percentage Trigger: As to any Payment Date on or
after the Stepdown Date, means (i) for the November 2008 Payment Date through
the October 2009 Payment Date, 10.25%; (ii) for the November 2009 Payment Date
through the October 2010 Payment Date, 14.25%; (iii) for the November 2010
Payment Date through the October 2011 Payment Date, 17.00%; and for the
November 2011 Payment Date and each Payment Date thereafter, 18.00%.
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Cumulative Realized Losses: With respect to the Home Equity Loans and
any Collection Period, an amount equal to the excess, if any, of (a) the sum
of the aggregate Realized Losses on the Home Equity Loans from the Cut-Off
Date through the last day of such Collection Period over (b) the sum of any
Recovered Charge Off Amounts on the Home Equity Loans from the Cut-Off Date
through the last day of such Collection Period.
Current Interest: As to any Class of Notes and any Payment Date, the
interest accrued at the applicable Note Rate during the applicable Accrual
Period, in each case on the aggregate Note Principal Amount of such Class of
Notes as of the beginning of the Accrual Period.
Cut-Off Date: As to a Home Equity Loan, the close of business on
October 3, 2005.
Cut-Off Date Pool Balance: The aggregate of the Cut-Off Date
Principal Balances of the Home Equity Loans.
Cut-Off Date Principal Balance: As to any Home Equity Loan, the
unpaid principal balance thereof as of the Cut-Off Date or, as to any Eligible
Substitute Home Equity Loan, as of the date of substitution of such Eligible
Substitute Home Equity Loan.
Defective Home Equity Loan: Any Home Equity Loan subject to
repurchase or substitution pursuant to Section 2.02 or 2.04.
Definitive Notes: As defined in the Indenture.
Deposit Account Control Agreement: The Deposit Account Control
Agreement dated as of November 9, 2005 among the Issuer, the Indenture Trustee
and the Administrator.
Deposit Date: As to any Payment Date, the Business Day immediately
preceding such Payment Date.
Deposit Event: The lowering of the Master Servicer's short-term debt
rating below "P-1" by ▇▇▇▇▇'▇, "A-1" by Standard & Poor's or "F1" by Fitch or
any time at which HSBC Finance shall cease to be the Master Servicer.
Depositor: HSBC Home Equity Loan Corporation I, a Delaware
corporation.
Depository: The initial Depository shall be The Depository Trust
Company, the nominee of which is Cede & Co., as the registered Holder of Notes
evidencing $472,350,000 in initial aggregate principal amount of the Class A-1
Notes, $118,000,000 in initial aggregate principal amount of the Class A-2
Notes, $102,450,000 in initial aggregate principal amount of the Class M-1
Notes and $82,950,000 in initial aggregate principal amount of the Class M-2
Notes. The Depository shall at all times be a "clearing corporation" as
defined in Section 8-102(a)(5) of the UCC of the State of New York.
Depository Participant: A broker, dealer, bank or other financial
institution or other Person for whom from time to time the Depository effects
book-entry transfers and pledges of securities deposited with the Depository.
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Determination Date: As to any Payment Date, the second Business Day
prior to such Payment Date.
Electronic Ledger: The electronic master record of home equity loans
(including the Home Equity Loans) maintained by the Master Servicer.
Eligible Account: An account that is either (i) maintained with a
depository institution whose short-term debt obligations at the time of any
deposit therein are rated in the highest short-term debt rating category by
the Rating Agencies, (ii) an account or accounts maintained with a depository
institution with a long-term unsecured debt rating by each Rating Agency that
is at least investment grade, provided that the deposits in such account or
accounts are fully insured by either the BIF or the SAIF, (iii) a segregated
trust account maintained on the corporate trust side with the Indenture
Trustee in its fiduciary capacity or the Administrator in its capacity as
administrator, or (iv) an account otherwise acceptable to each Rating Agency,
as evidenced by a letter to such effect from each such Rating Agency to the
Indenture Trustee and the Administrator, without reduction or withdrawal of
the then-current ratings of any Class of Notes.
Eligible Substitute Home Equity Loan: A Home Equity Loan substituted
(a) by the Depositor or the Master Servicer for a Defective Home Equity Loan
pursuant to Section 2.02(a) or 2.04 or (b) by the Master Servicer pursuant to
Section 2.02(b), which on the date of such substitution must
(i) have a Principal Balance not substantially greater or
less than the Principal Balance of such Defective Home Equity Loan or
such elected substituted Home Equity Loan;
(ii) have a current Loan Rate of not less than the Loan Rate
of the Defective Home Equity Loan or elected substituted Home Equity
Loan and not more than 500 basis points in excess thereof;
(iii) have a (A) remaining term to maturity not more than
six months earlier or later than the remaining term to maturity of
the Defective Home Equity Loan or elected substituted Home Equity
Loan and (B) maturity date not later than the last day of the
Collection Period immediately preceding the month in which the Final
Scheduled Payment Date occurs;
(iv) comply with the representations and warranties set
forth in Section 2.04(b), to the extent such representations and
warranties do not pertain exclusively to the Home Equity Loans
transferred on the Closing Date;
(v) have a Combined Loan-to-Value Ratio that is not greater
than the Combined Loan-to-Value Ratio of the Defective Home Equity
Loan or elected substituted Home Equity Loan as of the date of
origination of such Defective Home Equity Loan or elected substituted
Home Equity Loan;
(vi) have a lien position at least equal to the lien
position of the Mortgage relating to the Defective Home Equity Loan
or elected substituted Home Equity Loan; and
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(vii) be the obligation of a Mortgagor whose credit profile
is substantially similar to that of the Mortgagor under the Defective
Home Equity Loan or elected substituted Home Equity Loan;
provided, however, that with respect to (i) through (vii) above, a home equity
loan may qualify as an Eligible Substitute Home Equity Loan if each of the
Rating Agencies confirms such substitution.
ERISA: The Employee Retirement Income Security Act of 1974, as
amended.
Event of Default: As defined in the Indenture.
Extra Principal Payment Amount: As to any Payment Date, the lesser of
(x) the Monthly Excess Cashflow for such Payment Date and (y) the Interim
Overcollateralization Deficiency, if any, for such Payment Date.
▇▇▇▇▇▇ ▇▇▇: ▇▇▇▇▇▇ ▇▇▇, formerly known as The Federal National
Mortgage Association, or any successor thereto.
FDIC: The Federal Deposit Insurance Corporation and any successor
thereto.
Final Scheduled Payment Date: With respect to the Notes, the Payment
Date occurring in January 2035.
Fitch: Fitch, Inc., or its successor in interest.
Foreclosure Profit: As to any Liquidated Home Equity Loan, the
amount, if any, by which Net Liquidation Proceeds exceeds the sum of (i) the
Principal Balance thereof immediately prior to the final recovery of its
Liquidation Proceeds, (ii) accrued and unpaid interest (including imputed
interest on REO) at the applicable Loan Rate from the date interest was last
paid through the date of receipt of the final Liquidation Proceeds and (iii)
the sum of all related Charge Off Amounts.
Formula Rate: Any of the Class A-1 Formula Rate, the Class A-2
Formula Rate, the Class M-1 Formula Rate or the Class M-2 Formula Rate, as the
context requires.
Home Equity Loan: Such of the home equity loans (together with the
related Mortgage Notes and Mortgages) transferred and assigned to the Trust
pursuant to Section 2.01 and pursuant to the Transfer Agreement together with
the Related Documents, as from time to time are held as a part of the Trust,
the home equity loans originally so held being identified in the Home Equity
Loan Schedule delivered on the Closing Date. As applicable, the term Home
Equity Loan shall be deemed to refer to the Mortgaged Property that has been
converted to ownership by the Master Servicer prior to the final recovery of
related Liquidation Proceeds.
Home Equity Loan Purchase Agreement: The home equity loan purchase
agreement dated November 9, 2005 between the Depositor and the Sellers
pursuant to which the Sellers convey to the Depositor all of their right,
title and interest in and to the unpaid Principal Balances of the Home Equity
Loans, including all interest and principal payments in respect thereof
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received on or after the Cut-Off Date, and certain other rights with respect
to the collateral supporting the Home Equity Loans.
Home Equity Loan Schedule: As to any date, the schedule of Home
Equity Loans, including any Eligible Substitute Home Equity Loans, included in
the Trust on such date. The initial Home Equity Loan Schedule is the schedule
delivered by the Depositor to the Indenture Trustee on the Closing Date and
delivered as Exhibit A hereto, which schedule may be in the form of a computer
file or an electronic or magnetic tape and sets forth as to each Home Equity
Loan (i) the account number, (ii) the Principal Balance, (iii) the Loan Rate,
(iv) the lien position of the related Mortgage and (v) the CLTV. The Home
Equity Loan Schedule will be amended from time to time to reflect the removal
of Home Equity Loans and the addition of any Eligible Substitute Home Equity
Loans to the Trust, and when so amended shall include the information set
forth above with respect to each Eligible Substitute Home Equity Loan as of
its related date of substitution.
HSBC Finance: HSBC Finance Corporation, a Delaware corporation, and
its successors.
Indenture: The Indenture dated November 9, 2005 between the Issuer,
the Indenture Trustee, the Owner Trustee and the Administrator.
Indenture Trustee: U.S. Bank National Association, a banking
association organized under the laws of the United States, as Indenture
Trustee under the Indenture or any successor indenture trustee under the
Indenture appointed in accordance with such agreement.
Initial Home Equity Loan: Each Home Equity Loan transferred and
assigned to the Trust on the Closing Date.
Insurance Proceeds: Proceeds paid by any insurer pursuant to any
insurance policy covering a Home Equity Loan, or by the Master Servicer
pursuant to the last sentence of Section 3.04, net of any component thereof
covering any expenses incurred by or on behalf of the Master Servicer in
connection with obtaining such Insurance Proceeds and exclusive of any portion
thereof that is applied to the restoration or repair of the related Mortgaged
Property, released to the Mortgagor in accordance with the Master Servicer's
normal servicing procedures or required to be paid to any holder of a mortgage
senior to such Home Equity Loan.
Interest Carry Forward Amount: As to each Class of Notes and any
Payment Date, the sum of (x) the amount, if any, by which (i) the sum of the
Current Interest and the Interest Carry Forward Amount for such Class of Notes
as of the immediately preceding Payment Date exceeded (ii) the amount of the
actual payments in respect to such amounts made to such Class of Notes on such
preceding Payment Date plus (y) interest on such amount calculated for the
related Accrual Period at the related Note Rate.
Interest Collections: As to any Payment Date, the sum, without
duplication, of:
(i) the portion allocable to interest of all scheduled monthly
payments on the Home Equity Loans received during the related Collection
Period;
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(ii) all Net Liquidation Proceeds actually collected by the Master
Servicer during the related Collection Period (to the extent such Net
Liquidation Proceeds relate to interest);
(iii) the interest portion of the Purchase Price for any Home Equity
Loan repurchased from the Trust pursuant to the terms of this Agreement during
the related Collection Period;
(iv) the interest portion of all Substitution Adjustment Amounts with
respect to the related Collection Period;
(v) the interest portion of all other unscheduled collections on the
Home Equity Loans received by the Master Servicer during the related
Collection Period, to the extent not previously distributed; and
(vi) the interest portion of all Insurance Proceeds on any Home
Equity Loan collected by the Master Servicer during the related Collection
Period.
Interim Overcollateralization Amount: As to any Payment Date, the
excess, if any, of (x) the Pool Balance as of the last day of the related
Collection Period over (y) (i) the aggregate Note Principal Amount of all
Classes of Notes (before taking into account any payments of principal on such
Payment Date) less (ii) the sum of (x) the Principal Collections for such
Payment Date, (y) the Additional Principal Reduction Amount to be paid with
respect to such Payment Date and (z) the Principal Carry Forward Amount for
each Class of Notes to be paid with respect to such Payment Date.
Interim Overcollateralization Deficiency: As to any Payment Date, the
excess, if any, of (x) the Targeted Overcollateralization Amount for such
Payment Date over (y) the Interim Overcollateralization Amount for such
Payment Date.
Issuer: HSBC Home Equity Loan Trust 2005-3.
LIBOR: The per annum rate established by the Administrator in
accordance with Section 5.02.
LIBOR Business Day: Any day on which dealings in United States
dollars are transacted in the London interbank market.
LIBOR Determination Date: As to any Payment Date, the second LIBOR
Business Day before the first day of the related Accrual Period.
Lien: Any mortgage, deed of trust, pledge, conveyance, hypothecation,
assignment, participation, deposit arrangement, encumbrance, lien (statutory
or other), preference, priority right or interest or other security agreement
or preferential arrangement of any kind or nature whatsoever, including,
without limitation, any conditional sale or other title retention agreement,
any financing lease having substantially the same economic effect as any of
the foregoing or the filing of any financing statement under the UCC (other
than any such financing statement filed for informational purposes only) or
comparable law of any jurisdiction to evidence any of the foregoing.
10
Liquidated Home Equity Loan: As to any Payment Date, any Home Equity
Loan in respect of which the Master Servicer has determined as of the end of
the related Collection Period that all Liquidation Proceeds which it expects
to recover on such Home Equity Loan have been recovered (exclusive of any
possibility of a deficiency judgment but including any recoveries of Charge
Off Amounts or accrued or imputed interest including, but not limited to,
recoveries related to walks (i.e., instances where the Mortgagor has
voluntarily vacated the Mortgaged Property) or short sales).
Liquidation Expenses: Out-of-pocket expenses (exclusive of overhead)
that are incurred by the Master Servicer in connection with the liquidation of
any Home Equity Loan and not recovered under any insurance policy, such
expenses including, without limitation, reasonable legal fees and expenses,
any unreimbursed amount expended pursuant to Section 3.06 (including, without
limitation, amounts advanced to correct defaults on any mortgage loan that is
senior to such Home Equity Loan and amounts advanced to keep current or pay
off a mortgage loan that is senior to such Home Equity Loan) with respect to
the related Home Equity Loan and any related and unreimbursed expenditures for
real estate property taxes, mechanic's liens, title perfection, property
management or for property restoration, preservation or insurance against loss
or damage.
Liquidation Proceeds: Proceeds (including Insurance Proceeds)
received in connection with the liquidation of any Home Equity Loan, whether
through trustee's sale, foreclosure sale or otherwise, including, but not
limited to, walks (i.e., instances where the Mortgagor has voluntarily vacated
the Mortgaged Property) and short sales.
Loan Rate: As to any Home Equity Loan and day, the per annum rate of
interest applicable under the related Mortgage Note to the calculation of
interest for such day on the Principal Balance (adjusted as required by the
Relief Act and/or any other federal, state or local legislation or
regulation).
Majority Noteholder: The Holder or Holders of Notes representing at
least 51% of the aggregate Note Principal Amount of the Notes.
Master Servicer: HSBC Finance, or its successor in interest, or any
successor master servicer appointed as herein provided.
Master Servicer Termination Events: As defined in Section 7.01.
MERS: Mortgage Electronic Registration Systems, Inc., a corporation
organized and existing under the laws of the State of Delaware, or any
successor thereto.
MERS(R) System: The system of recording transfers of Mortgages
electronically maintained by MERS.
MIN: The Mortgage Identification Number for Home Equity Loans
registered with MERS on the MERS(R) System.
Monthly Excess Cashflow: As to any Payment Date, the excess, if any,
of (i) Net Interest Collections received during the related Collection Period
over (ii) the sum of (x) the Current
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Interest plus the Interest Carry Forward Amount, if any, for each Class of
Notes for such Payment Date (after taking into account all payments of
interest on such Payment Date), (y) the Additional Principal Reduction Amount
for such Payment Date and (z) the Principal Carry Forward Amount for each
Class of Notes for such Payment Date, if any.
Monthly Payment Statement: As defined in Section 5.03.
Moody's: ▇▇▇▇▇'▇ Investors Service, Inc., or any successor thereto.
Mortgage: The mortgage, deed of trust or other instrument creating a
first, second or third lien on an estate in fee simple interest in real
property securing a Home Equity Loan.
Mortgage File: The mortgage documents (including without limitation
the related Mortgage Note) listed in Section 2.01 pertaining to a particular
Home Equity Loan and any additional documents required to be added to the
Mortgage File pursuant to this Agreement, which documents may be physical
documents or, pursuant to the terms of Section 2.01, may be optical images or
other representations thereof.
Mortgage Note: As to a Home Equity Loan, the mortgage note or other
evidence of indebtedness under which the related Mortgagor agrees to pay the
indebtedness evidenced thereby and secured by the related Mortgage.
Mortgaged Property: The underlying property securing a Home Equity
Loan.
Mortgagor: The obligor or obligors under a Mortgage.
Net Interest Collections: As to any Payment Date:
(i) Interest Collections received during the related
Collection Period; less
(ii) prior to the November 2006 Payment Date only if HSBC
Finance or one of its Affiliates is not the Master Servicer, and on
or after the November 2006 Payment Date regardless of whether HSBC
Finance or one of its Affiliates is the Master Servicer, the
Servicing Fee for the related Collection Period; plus
(iii) Recovered Charge Off Amounts actually collected by the
Master Servicer during the related Collection Period; plus
(iv) to the extent advanced by the Master Servicer pursuant
to Section 3.01(f) and not previously distributed, the amount of any
Skip-A-Pay Advance deposited by the Master Servicer into the
Collection Account with respect to such Payment Date; less
(v) the amount of any Skip-A-Pay Reimbursement Amount
withdrawn by the Master Servicer from the Collection Account with
respect to such Payment Date.
Net Liquidation Proceeds: As to any Liquidated Home Equity Loan, an
amount equal to the excess, if any, of (x) Liquidation Proceeds over (y)
Liquidation Expenses.
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Net Loan Rate: As to any Home Equity Loan, the Loan Rate less the
Servicing Fee Rate.
Note: Any Class ▇-▇, ▇▇▇▇▇ ▇-▇, Class M-1 or Class M-2 Note.
Note Owner: The Person who is the beneficial owner of a Book-Entry
Note.
Note Principal Amount: As to any Note and any date of determination,
(a) the Original Note Principal Amount of such Note less (b) the aggregate of
amounts paid as principal to the Holder of such Note on previous Payment Dates
pursuant to Section 5.01 hereto.
Note Rate: Any of the Class A-1 Note Rate, the Class A-2 Note Rate,
the Class M-1 Note Rate or the Class M-2 Note Rate, as the context requires.
Note Register and Note Registrar: As defined in the Indenture.
Noteholder or Holder: The Person in whose name a Note is registered
in the Note Register, except that, solely for the purpose of giving any
consent, direction, waiver or request pursuant to this Agreement or the
Indenture, (x) any Note registered in the name of the Depositor, the Master
Servicer or any Person actually known to a Responsible Officer to be an
Affiliate of the Depositor or the Master Servicer and (y) any Note for which
the Depositor, the Master Servicer or any Person actually known to a
Responsible Officer to be an Affiliate of the Depositor or the Master Servicer
is the Note Owner shall be deemed not to be outstanding (unless to the actual
knowledge of a Responsible Officer (i) the Master Servicer or the Depositor,
or such Affiliate, is acting as trustee or nominee for a Person who is not an
Affiliate of the Depositor or the Master Servicer and who makes the voting
decision with respect to such Note or (ii) the Depositor, or the Master
Servicer, or such Affiliate, is the Note Owner of all the Notes) and the
Percentage Interest evidenced thereby shall not be taken into account in
determining whether the requisite amount of Percentage Interests necessary to
effect any such consent, direction, waiver or request has been obtained.
Officer's Certificate: A certificate signed by the President, an
Executive Vice President, a Senior Vice President, a Vice President, an
Assistant Vice President, the Treasurer, Assistant Treasurer, Controller or
Assistant Controller of the Master Servicer or the Depositor, as the case may
be.
Opinion of Counsel: A written opinion of counsel reasonably
acceptable to the Indenture Trustee or the Administrator, as the case may be,
who may be in-house counsel for the Master Servicer (or its Affiliate).
Original Note Principal Amount: With respect to each Class of Notes,
the amount set forth below:
Original Note Principal
Class Amount
------------------------ ------------------------------------
A-1 $472,350,000
A-2 $118,000,000
M-1 $102,450,000
M-2 $82,950,000
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Overcollateralization Amount: As to any Payment Date, the excess, if
any, of (x) the Pool Balance as of the last day of the related Collection
Period over (y) the aggregate Note Principal Amount of the Notes calculated
after taking into account all payments in respect of principal on such Payment
Date.
Overcollateralization Release Amount: As to any Payment Date, the
amount (but not in excess of Principal Collections for such Payment Date)
equal to the excess, if any, of (i) the Interim Overcollateralization Amount
over (ii) the Targeted Overcollateralization Amount.
Owner Trustee: Chase Bank USA, National Association, as owner trustee
under the Trust Agreement, and any successor owner trustee under the Trust
Agreement appointed in accordance with the terms thereof.
Ownership Interest: As defined in the Trust Agreement.
Paying Agent: Any paying agent appointed pursuant to the Indenture.
Payment Date: The 20th day of each month or, if such day is not a
Business Day, then the next Business Day, beginning in November 2005.
Percentage Interest: As to any Class of Notes, the percentage
obtained by dividing the principal denomination of such Note by the aggregate
of the principal denominations of all Notes of such Class.
Perfection Representations: The representations, warranties and
covenants set forth in Schedule 1 attached hereto.
Permitted Investments: One or more of the following (excluding any
callable investments purchased at a premium):
(i) direct obligations of, or obligations fully guaranteed
as to timely payment of principal and interest by, the United States
or any agency or instrumentality thereof, provided that such
obligations are backed by the full faith and credit of the United
States;
(ii) repurchase agreements on obligations specified in
clause (i) maturing not more than three months from the date of
acquisition thereof, provided that the short-term unsecured debt
obligations of the party agreeing to repurchase such obligations are
at the date of acquisition rated by each Rating Agency in its highest
short-term rating category (which is "F1+" for Fitch, "A-1+" for
Standard & Poor's and "P-1" for Moody's);
(iii) certificates of deposit, time deposits and bankers'
acceptances (which, if ▇▇▇▇▇'▇ is a Rating Agency, shall each have an
original maturity of not more than 90 days and, in the case of
bankers' acceptances, shall in no event have an original maturity of
more than 365 days) of any U.S. depository institution or trust
company incorporated under the laws of the United States or any state
thereof and subject to supervision and examination by federal and/or
state banking authorities, provided that the unsecured
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short-term debt obligations of such depository institution or trust
company at the date of acquisition thereof have been rated by each of
Moody's, Standard & Poor's and Fitch in its highest unsecured
short-term debt rating category;
(iv) commercial paper (having original maturities of not
more than 270 days) of any corporation incorporated under the laws of
the United States or any state thereof which on the date of
acquisition has been rated by Fitch, Standard & Poor's and Moody's in
their highest short-term rating categories;
(v) short term investment funds sponsored by any bank, trust
company or national banking association incorporated under the laws
of the United States or any state thereof which on the date of
acquisition has been rated by Fitch, Standard & Poor's and Moody's in
their respective highest rating category for long-term unsecured
debt, or any other short-term investment fund the funds in which are
invested in securities rated in the highest rating category by Fitch,
Standard & Poor's and Moody's and which mature on demand or prior to
the next Payment Date;
(vi) interests in any money market fund or mutual fund which
at the date of acquisition has a rating of "Aaa" by Moody's, "AAA" by
Fitch, if rated by Fitch, and "AAA" (or "AAAm" or "AAAm-G" with
respect to money market funds) by Standard & Poor's or such lower
rating as will not result in the qualification, downgrading or
withdrawal of the then current rating assigned to any Class of Notes
by each Rating Agency; and
(vii) other obligations or securities that are indebtedness
in registered form for U.S. federal income tax purposes and that are
reasonably acceptable to each Rating Agency as a Permitted Investment
hereunder and will not result in a reduction in the then-current
rating of any Class of Notes, as evidenced by a confirmation or
letter to such effect from such Rating Agency;
provided that no instrument described hereunder shall evidence either the
right to receive (a) only interest with respect to the obligations underlying
such instrument or (b) both principal and interest payments derived from
obligations underlying such instrument if such interest and principal payments
provide a yield to maturity at par greater than 120% of the yield to maturity
at par of the underlying obligations; and provided, further, that no
instrument described hereunder may be purchased at a price greater than par if
such instrument may be prepaid or called at a price less than its purchase
price prior to its stated maturity.
Person: Any individual, corporation, partnership, joint venture,
limited partnership, limited liability company, association, joint-stock
company, trust, unincorporated organization, government or any agency or
political subdivision thereof, or any other entity.
Pool Balance: With respect to any date of determination, the
aggregate of the Principal Balances of all Home Equity Loans as of such date.
Preferred Stock: As defined in Section 9.14.
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Principal Balance: As to any Home Equity Loan (other than a
Liquidated Home Equity Loan) and date, the related Cut-Off Date Principal
Balance, minus the sum of (x) all collections credited against the principal
balance of such Home Equity Loan in accordance with the terms of the related
Mortgage Note and (y) any related Charge Off Amounts credited against the
principal balance of such Home Equity Loan prior to such date. For purposes of
this definition, a Liquidated Home Equity Loan shall be deemed to have a
Principal Balance equal to the Principal Balance of the related Home Equity
Loan immediately prior to the final recovery of related Liquidation Proceeds
and a Principal Balance of zero thereafter.
Principal Carry Forward Amount: As to any Class of Notes and any
Payment Date, the amount, if any, by which (a) the amounts payable to such
Class pursuant to Section 5.01(a) (iv), (v) and (vi) (with respect to the
Class A-1 Notes), Section 5.01(a) (vii), (viii) and (ix) (with respect to the
Class A-2 Notes), Section 5.01(a) (x), (xi) and (xii) (with respect to the
Class M-1 Notes) or Section 5.01(a) (xiii), (xiv) and (xv) (with respect to
the Class M-2 Notes), as applicable, as of the preceding Payment Date exceeded
(b) the amount of the actual payments made to such Class on such prior Payment
Date pursuant to such sections, as applicable.
Principal Collections: As to any Payment Date, the sum, without
duplication, of:
(i) the principal portion of all scheduled monthly payments on the
Home Equity Loans received by the Master Servicer during the related
Collection Period;
(ii) the principal portion of the Purchase Price for any Home Equity
Loan repurchased from the Trust pursuant to the terms of this Agreement during
the related Collection Period;
(iii) the principal portion of all Substitution Adjustment Amounts
with respect to the related Collection Period;
(iv) all Net Liquidation Proceeds allocable to principal (excluding
Foreclosure Profits and Recovered Charge Off Amounts) actually received by the
Master Servicer during the related Collection Period;
(v) the principal portion of all other unscheduled collections on
Home Equity Loans received by the Master Servicer during the related
Collection Period (including, without limitation full and partial prepayment
of principal made by the Mortgagors), to the extent not previously paid; and
(vi) the principal portion of all Insurance Proceeds on any Home
Equity Loan collected by the Master Servicer during the related Collection
Period.
Principal Payment Amount: As to any Payment Date, (i) the Principal
Collections for such Payment Date minus (ii) for Payment Dates occurring on
and after the Stepdown Date and for which a Trigger Event is not in effect,
the Overcollateralization Release Amount, if any.
Purchase Price: As to any Home Equity Loan purchased from the Trust
on any date pursuant to Section 2.02, 2.04 or 3.01 an amount equal to the sum
of (i) the Principal Balance thereof plus any related Charge Off Amount as of
the end of the related Collection Period preceding the date of repurchase,
(ii) accrued and unpaid interest to the end of such Collection
16
Period computed on a daily basis at the Net Loan Rate on the Principal Balance
outstanding from time to time and (iii) any costs and damages incurred by the
Trust with respect to such Home Equity Loan in connection with any violation
by such Home Equity Loan of any "predatory" or "abusive" lending laws.
Rating Agencies: Moody's, Standard & Poor's and Fitch. If such agency
or a successor is no longer in existence, "Rating Agency" shall be such
nationally recognized statistical credit rating agency, or other comparable
Person, designated by the Depositor, notice of which designation shall be
given to the Indenture Trustee and the Administrator. References herein to the
highest short term unsecured rating category of a Rating Agency shall mean
"P-1" or better in the case of Moody's, "A-1+" or better in the case of
Standard & Poor's and "F1+" in the case of Fitch and in the case of any other
Rating Agency shall mean such equivalent ratings. References herein to the
highest long-term rating category of a Rating Agency shall mean "AAA" in the
case of Fitch and Standard & Poor's and "Aaa" in the case of Moody's and in
the case of any other Rating Agency, such equivalent rating.
Realized Loss: With respect to any (i) Charged Off Home Equity Loan
and any Collection Period (other than the Collection Period in which all or a
portion of such Charged Off Home Equity Loan becomes a Liquidated Home Equity
Loan), the related Charge Off Amount and (ii) Liquidated Home Equity Loan, the
excess of the related Principal Balance at the end of the related Collection
Period in which such Home Equity Loan became a Liquidated Home Equity Loan
over the related Net Liquidation Proceeds.
Record Date: As to any Payment Date, the Business Day immediately
preceding such Payment Date; provided, however, that if any Notes become
Definitive Notes, the Record Date for such Notes will be the last Business Day
of the month immediately preceding the month in which the related Payment Date
occurs.
Recovered Charge Off Amount: As to any Home Equity Loan that became a
Liquidated Home Equity Loan during a Collection Period, the amount, if any, by
which (i) the related Net Liquidation Proceeds exceed (ii) its Principal
Balance immediately prior to foreclosure plus unpaid interest thereon, up to
an amount equal to the related Charge Off Amounts, to the extent not
previously recovered. As to any Charged Off Home Equity Loan and any
Collection Period (other than the Collection Period in which all or a portion
of such Charged Off Home Equity Loan becomes a Liquidated Home Equity Loan),
an amount equal to the recovery of any prior Charge Off Amount, to the extent
collected by the Master Servicer, or deposited by the Master Servicer or
Depositor pursuant to Section 2.02 or 2.04, during any Collection Period, to
the extent not previously recovered.
Related Documents: As defined in Section 2.01(c).
REO: A Mortgaged Property that is acquired by the Trust in a
foreclosure or by grant of deed in lieu of foreclosure.
Required Excess Cashflow: As to any Payment Date, means 2.50%,
divided by 12, multiplied by the Pool Balance as of the first day of the
related Collection Period.
17
Responsible Officer: With respect to the Indenture Trustee or the
Administrator, any officer assigned to the corporate trust group (or any
successor thereto), including any vice president, assistant vice president,
trust officer, assistant secretary or any other officer of the Indenture
Trustee or the Administrator, as the case may be, customarily performing
functions similar to those performed by any of the above designated officers,
in each case having direct responsibility for the administration of this
Agreement. When used with respect to any Seller or the Master Servicer, the
President or any Vice President, Assistant Vice President, Treasurer,
Assistant Treasurer or any Secretary or Assistant Secretary.
SAIF: The Savings Association Insurance Fund, as from time to time
constituted, created under the Financial Institutions Reform, Recovery and
Enhancement Act of 1989, or if at any time after the execution of this
instrument the Savings Association Insurance Fund is not existing and
performing duties now assigned to it, the body performing such duties on such
date.
Sellers: The sellers set forth in Schedule 2 attached hereto.
Servicer: As to each Home Equity Loan, the related Seller that sold
such Home Equity Loan to the Depositor pursuant to the Home Equity Loan
Purchase Agreement.
Servicing Certificate: A certificate completed by and executed on
behalf of the Master Servicer in accordance with Section 3.18.
Servicing Fee: The fee payable to the Master Servicer pursuant to
Section 3.09, equal to 1/12th of the Servicing Fee Rate for each Home Equity
Loan in the Home Equity Loan Schedule multiplied by the outstanding Principal
Balance of such Home Equity Loan as of the first day of the related Collection
Period, except with respect to the first calendar month in which the fee
payable shall be multiplied by a fraction the numerator of which is the number
of days from the Cut-Off Date to the last day of the calendar month in which
the Cut-Off Date occurs and the denominator of which is 360.
Servicing Fee Rate: A rate equal to 0.50% per annum.
Servicing Officer: Any officer of the Master Servicer or other
individual designated by an officer of the Master Servicer involved in, or
responsible for, the administration and servicing of the Home Equity Loans,
whose name and specimen signature appear on a list of servicing officers
furnished to the Indenture Trustee and the Administrator on the Closing Date
by the Master Servicer, as such list may be amended from time to time.
Settlement Agreement: The consent decrees entered into between
Household International Inc. and participating States (and agencies of such
States) in accordance with the agreement reached between Household
International Inc. and a multi-state working group of state attorneys general
and regulatory agencies, which became effective on January 19, 2003 and
reflected in the Specified Filing.
Skip-A-Pay Advance: For any Collection Period in which the Master
Servicer has elected to defer a scheduled monthly interest and principal
payment on any Home Equity Loan that is not in default or (in the judgment of
the Master Servicer) for which a default is not imminent, means the positive
result, if any, of the Required Excess Cashflow on the related
18
Payment Date, minus the Monthly Excess Cashflow on the related Payment Date.
For the avoidance of doubt, if the result of the foregoing calculation is not
a positive number, the Skip-A-Pay Advance for the related Collection Period
shall be zero.
Skip-A-Pay Reimbursement Amount: As of any Payment Date means, the
positive result, if any, of the Monthly Excess Cashflow on such Payment Date,
minus the Required Excess Cashflow on such Payment Date.
Specified Filing: The filing by Household International Inc. with the
S.E.C. on Form 8-K dated October 11, 2002.
Standard & Poor's: Standard & Poor's Ratings Services, a division of
The ▇▇▇▇▇▇-▇▇▇▇ Companies, Inc., or any successor thereto.
Stepdown Date: The later to occur of (a) the Payment Date in November
2008 and (b) the first Payment Date on which the Pool Balance has been reduced
to 50.00% of the Cut-Off Date Pool Balance.
Subsequent Cut-Off Date: As to each Eligible Substitute Home Equity
Loan, the close of business on the day designated as the "Subsequent Cut-Off
Date" with respect to the Eligible Substitute Home Equity Loan.
Substitution Adjustment Amount: As to any Defective Home Equity Loan
or any Home Equity Loan for which the Master Servicer elects to substitute
pursuant to Section 2.02(b) and the date on which a substitution thereof
occurs pursuant to Sections 2.02 or 2.04, the sum of:
(i) the excess, if any, of (a) the Principal Balance of such
Defective Home Equity Loan or such elected Home Equity Loan plus any
related Charge Off Amount as of the end of the related Collection
Period preceding the date of substitution (after the application of
any principal payments received on such Defective Home Equity Loan or
such elected Home Equity Loan on or before the date of the
substitution of the applicable Eligible Substitute Home Equity Loan
or Loans) over (b) the aggregate Principal Balance of the applicable
Eligible Substitute Home Equity Loan or Loans, plus
(ii) accrued and unpaid interest to the end of such
Collection Period computed on a daily basis at the Net Loan Rate on
the Principal Balance of such Defective Home Equity Loan or such
elected Home Equity Loan outstanding from time to time, plus
(iii) any costs, expenses and damages incurred by the Trust
resulting from any violation of any "predatory" or "abusive" lending
laws" in connection with such Home Equity Loan.
Supplemental Interest Amount: The Class A-1 Supplemental Interest
Amount, Class A-2 Supplemental Interest Amount, Class M-1 Supplemental
Interest Amount or Class M-2 Supplemental Interest Amount, as applicable.
Targeted Overcollateralization Amount: As to any Payment Date, (x)
prior to the Stepdown Date, 20.50% of the Cut-Off Date Pool Balance, and (y)
on and after the Stepdown
19
Date and on which a Trigger Event is not in effect, the greater of (i) 41.00%
of the Pool Balance as of the last day of the related Collection Period and
(ii) 1.00% of the Cut-Off Date Pool Balance. If a Trigger Event is in effect
on any Payment Date on or after the Stepdown Date, the Targeted
Overcollateralization Amount for such Payment Date shall be equal to the
Targeted Overcollateralization Amount for the immediately preceding Payment
Date.
Termination Price: As defined in Section 8.01(b).
Transaction Documents: This Agreement, the Home Equity Loan Purchase
Agreement, the Transfer Agreement, the Trust Agreement, the Notes, the Note
Depository Agreement (as defined in the Indenture), the Deposit Account
Control Agreement and the Indenture.
Transfer Agreement: The transfer agreement dated November 9, 2005
between the Trust and the Sellers pursuant to which the Sellers will assign to
the Trust all of their right, title and interest in and to the Transferred
Assets relating to the Home Equity Loans transferred by such Sellers pursuant
to the Home Equity Loan Purchase Agreement, not otherwise transferred pursuant
to the Home Equity Loan Purchase Agreement.
Transfer Date: As to any Home Equity Loan transferred to or
retransferred from the Trust hereunder, the date on which such transfer or
retransfer is made under the terms hereof, which date shall be (i) in the case
of the Home Equity Loans originally listed on the Home Equity Loan Schedule,
the Closing Date, and (ii) in the case of any Eligible Substitute Home Equity
Loan, the date on which such Eligible Substitute Home Equity Loan is conveyed
to the Trust under the terms hereof.
Transferred Assets: All aspects, rights, title or interests of, in,
to or under the Home Equity Loans that are not otherwise conveyed hereunder
pursuant to Section 2.01, including, without limitation, all agreements,
instruments and other documents evidencing or governing the Mortgagor's
obligations under such Home Equity Loans or otherwise related thereto or
establishing or setting forth the terms and conditions thereof, and any
amendments or modifications thereto, and all property and collateral securing
the borrowers obligations thereunder.
Transferor: The Depositor, or any such permitted holder of the
Ownership Interest.
Trigger Event: Will be in effect on any Payment Date on or after the
Stepdown Date on which either (i) the Two Payment-Plus Rolling Average for
such Payment Date equals or exceeds 11.50%, or (ii) the Cumulative Loss
Percentage for such Payment Date exceeds the Cumulative Loss Percentage
Trigger for such Payment Date.
Trust: The trust created by the Trust Agreement, the corpus of which
consists of the Home Equity Loans, such assets as shall from time to time be
identified as deposited in the Collection Account (exclusive of net earnings
thereon), the Mortgage Notes and other Mortgage File documents for the Home
Equity Loans, any property that secured a Home Equity Loan and that has become
REO, the interest of the Depositor in certain hazard insurance policies
maintained by the Mortgagors or the Master Servicer in respect of the Home
Equity Loans, the Collection Account, the proceeds of each of the foregoing
and one share of Preferred Stock of the Depositor.
20
Trust Agreement: The Trust Agreement dated as of November 2, 2005,
and amended and restated as of November 9, 2005 among HSBC Finance
Corporation, the Depositor, the Administrator and the Owner Trustee.
Two Payment-Plus Delinquency Percentage: As to any Collection Period,
(a) the aggregate of the Principal Balances of all Mortgage Loans that are two
(2) or more payments contractually delinquent, including those Mortgage Loans
in bankruptcy, foreclosure and REO as of the end of such Collection Period,
over (b) the Pool Balance as of the end of such Collection Period.
Two Payment-Plus Rolling Average: As to any Payment Date, the average
of the Two Payment-Plus Delinquency Percentage for each of the three (3)
immediately preceding Collection Periods.
UCC: The Uniform Commercial Code, as amended from time to time, as in
effect in any specified jurisdiction.
SECTION 1.02 Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined herein
have the meanings assigned to them in the Indenture and the Trust Agreement,
as applicable.
(b) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Agreement or in any such certificate or other document, and
accounting terms partly defined in this Agreement or in any such certificate
or other document to the extent not defined, shall have the respective
meanings given to them under generally accepted accounting principles. To the
extent that the definitions of accounting terms in this Agreement or in any
such certificate or other document are inconsistent with the meanings of such
terms under generally accepted accounting principles, the definitions
contained in this Agreement or in any such certificate or other document shall
control.
(d) The words "hereof", "herein", "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole
and not to any particular provision of this Agreement; Article, Section,
Schedule and Exhibit references contained in this Agreement are references to
Articles, Sections, Schedules and Exhibits in or to this Agreement unless
otherwise specified; and the terms "including" and "includes" shall mean
"including without limitation."
(e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as
well as to the feminine genders of such terms.
21
(f) Any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented and includes (in the case of agreements or
instruments) references to all attachments thereto and instruments
incorporated therein; references to a Person are also to its permitted
successors and assigns.
SECTION 1.03 Interest Calculations. All calculations of interest
hereunder that are made in respect of the Principal Balance of a Home Equity
Loan shall be made based on the number of days elapsed between the date that
interest was last paid on such Home Equity Loan and the date of receipt of the
related Mortgagor's most current payment. All calculations of interest on any
Class of Notes shall be made on the basis of a 360-day year and the actual
number of days in the related Accrual Period. All dollar amounts calculated
hereunder shall be rounded to the nearest ▇▇▇▇▇ with one-half of one ▇▇▇▇▇
being rounded down.
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ARTICLE II.
CONVEYANCE OF HOME EQUITY LOANS; TAX TREATMENT
----------------------------------------------
SECTION 2.01 Acknowledgment; Conveyance of Home Equity Loans;
Custody of Mortgage Files.
(a) The Depositor, concurrently with the execution and delivery of
this Agreement, does hereby irrevocably transfer, assign, sell, set over and
otherwise convey to the Trust for the benefit of the Noteholders without
recourse (subject to Sections 2.02 and 2.04) (i) all of its right, title and
interest in and to the unpaid principal balance of each Home Equity Loan and
each Eligible Substitute Home Equity Loan, including all Interest Collections
and Principal Collections in respect of any such Home Equity Loan received
after the Cut-Off Date with respect to each Initial Home Equity Loan and after
the Subsequent Cut-Off Date with respect to each Eligible Substitute Home
Equity Loan pursuant to the Home Equity Loan Purchase Agreement; (ii) property
which secured such Home Equity Loan and which has been acquired by foreclosure
or deed in lieu of foreclosure; (iii) its interest in any insurance policies
in respect of the Home Equity Loans (including any Insurance Proceeds); (iv)
all other assets included or to be included in the Trust for the benefit of
the Noteholders and the Transferor; (v) all proceeds of any of the foregoing;
and (vi) one share of the Depositor's Preferred Stock. The parties hereto
acknowledge and agree that it is the policy and intent of the Trust to only
acquire Home Equity Loans consistent with the terms set forth in Section
2.04(b) of this Agreement.
(b) The Depositor agrees to take, or to cause to be taken, such
actions and to execute such documents, including without limitation the filing
of all necessary continuation statements for the UCC-1 financing statement
filed in the State of Delaware (which shall have been filed as promptly as
practicable, but in no event later than 10 days following the effective date
of this Agreement), describing the Home Equity Loans and naming the Depositor
as seller and the Trust as buyer, and any amendments or other filings to the
UCC-1 financing statement required to reflect a change in the applicable UCC,
or a change of the name or corporate structure of the Depositor, as are
necessary to perfect and protect the Noteholders' interests in the Trust
created hereunder, including each Home Equity Loan and the proceeds thereof
(other than delivering to the Indenture Trustee possession of the Mortgage
Files, which possession will, subject to the terms hereof, be maintained by
the Servicers on behalf of the Master Servicer as custodian and bailee for the
Indenture Trustee). The parties hereto intend that the transactions set forth
herein constitute a sale and not a pledge by the Depositor to the Trust of all
the Depositor's right, title and interest in and to the Home Equity Loans and
other Trust property as and to the extent described above. In the event the
transactions set forth herein are characterized as a pledge and not a sale,
the Depositor hereby grants to the Trust a security interest in all of the
Depositor's right, title and interest in, to and under the Home Equity Loans
and such other Trust property, to secure all of the Depositor's obligations
hereunder, and this Agreement shall constitute a security agreement under
applicable law. With respect to the Home Equity Loans sold by each Seller to
the Depositor, the Master Servicer shall cause such Seller to file as promptly
as practicable, but in no event later than ten days following the effective
date of this Agreement, in the appropriate public filing office or offices
UCC-1 financing statements and continuation statements describing such Home
Equity Loans and naming such Seller as seller and the Depositor as buyer,
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to file appropriate continuation statements thereto, to file amendments
thereto in the case of a change in the applicable UCC, name change or change
in corporate structure and to file appropriate additional UCC-1 financing
statements, if any, if such Seller changes its jurisdiction of incorporation.
(c) In connection with such transfer and assignment by the Depositor
and the Master Servicer, acting through the Servicers, the Indenture Trustee
and the Master Servicer hereby acknowledge that the Servicers are holding,
with respect to the Home Equity Loans transferred on the Closing Date, and
will hold, with respect to each Eligible Substitute Home Equity Loan, on and
from the applicable Transfer Date, as custodian and bailee for the Indenture
Trustee, the following documents or instruments with respect to each such Home
Equity Loan (the "Related Documents"):
(i) the original Mortgage Note with all intervening
endorsements showing a complete chain of title from the originator of
such Home Equity Loan to the Seller or a copy of such original
Mortgage Note with an accompanying lost note affidavit;
(ii) the original Mortgage, with evidence of recording
thereon, provided that if the original Mortgage has been delivered
for recording to the appropriate public recording office of the
jurisdiction in which the Mortgaged Property is located but has not
yet been returned to the Seller by such recording office, the Seller
may hold a copy of such original Mortgage;
(iii) originals of any amendments to the Mortgage Note or
Mortgage, any modification or assumption agreements and any previous
assignments of such Home Equity Loan; and
(iv) for each Mortgage Loan registered on the MERS(R) System,
the original assignment into the name of MERS(R) including the related
MIN of the Mortgage Loan;
provided, however, that as to any Home Equity Loan, if, as evidenced by an
Opinion of Counsel delivered to and in form and substance reasonably
satisfactory to the Owner Trustee and the Indenture Trustee, (x) an optical
image or other electronic representation of the related documents specified in
clauses (i) through (iv) above are enforceable in the relevant jurisdictions
to the same extent as the original of such document and (y) such optical image
or other representation does not impair the ability of an owner of such Home
Equity Loan to transfer its interest in such Home Equity Loan, such optical
image or other representation may be held by the Master Servicer, acting
through the Servicers, as custodian and bailee for the Indenture Trustee, in
lieu of the physical documents specified above.
(d) Except as hereinafter provided, the Master Servicer, acting
through the Servicers, shall be entitled to maintain possession of all of the
foregoing documents and instruments, shall not be required to deliver any of
them to the Indenture Trustee or the Owner Trustee and shall not be required
to record an Assignment of Mortgage in favor of the Indenture Trustee or the
Owner Trustee with respect to any Home Equity Loan. In the event, however,
that possession of any of such documents or instruments is required by any
Person (including the Indenture Trustee) acting as successor master servicer
pursuant to Section 6.04 or 7.02 in order to carry out
24
the duties of Master Servicer hereunder, then such successor shall be entitled
to request delivery, at the expense of the Master Servicer, of such documents
or instruments by the Master Servicer and to retain such documents or
instruments for servicing purposes; provided that the Indenture Trustee or
such servicers shall maintain such documents at such offices as may be
required by any regulatory body having jurisdiction over such Home Equity
Loans.
(e) The Master Servicer's right to maintain possession, directly or
through each Servicer, of the related Mortgage Files shall continue so long as
(x) at least two of ▇▇▇▇▇'▇, Standard & Poor's and Fitch assign a long-term
senior unsecured debt rating to HSBC Finance of at least "Baa3", in the case
of ▇▇▇▇▇'▇, "BBB", in the case of Fitch, and "BBB-", in the case of Standard &
Poor's, (or such lower rating acceptable and assigned by at least two of
▇▇▇▇▇'▇, Standard & Poor's and Fitch) and (y) such Servicer remains an
Affiliate of HSBC Finance. At such time as either of the conditions specified
in the preceding sentence is not satisfied, as promptly as practicable, but in
no event more than 90 days thereafter in the case of clause (i) below, 60 days
in the case of clause (ii) below and 60 days in the case of clause (iii)
below, the Master Servicer shall cause each Servicer, at such Servicer's
expense or, to the extent the Servicer fails to pay, the Master Servicer's
expense, to (i) either (x) record an Assignment of Mortgage in favor of the
Trust (which may be a blanket assignment if permitted by applicable law) with
respect to each of the Home Equity Loans being serviced by such Servicer in
the appropriate real property or other records or (y) deliver to the Indenture
Trustee the assignment of such Mortgage in favor of the Trust in form for
recordation, together with an Opinion of Counsel addressed to the Indenture
Trustee to the effect that recording is not required to protect the Trust's
right, title and interest in and to the related Home Equity Loan or to perfect
a first priority security interest in favor of the Trust in the related Home
Equity Loan, which Opinion of Counsel also shall be reasonably acceptable to
each of the Rating Agencies, the Owner Trustee and the Indenture Trustee, (ii)
unless an Opinion of Counsel, reasonably acceptable to the Owner Trustee, the
Indenture Trustee and the Rating Agencies (as evidenced in writing), is
delivered to the Indenture Trustee to the effect that delivery of the Mortgage
Files is not necessary to protect the Trust's right, title and interest in and
to the related Home Equity Loans or to perfect a first priority security
interest in favor of the Trust in the related Home Equity Loans, deliver the
related Mortgage Files to the Indenture Trustee or a custodian on its behalf
to be held by the Indenture Trustee in trust, upon the terms herein set forth,
for the use and benefit of the Trust and all present and future Noteholders,
and the Indenture Trustee or such custodian on its behalf shall retain
possession thereof except to the extent the Master Servicer or Servicers
require any Mortgage Files for normal servicing as contemplated by Section
3.08, and (iii) have a Responsible Officer of the applicable Seller endorse
the original Mortgage Note with respect to each of the Home Equity Loans being
serviced by the Servicer to "Pay to the order of ____________ without
recourse" with all intervening endorsements showing a complete chain of title
from the originator of such Home Equity Loan to the applicable Seller. In the
event that the Servicers or the Master Servicer should fail to prepare,
execute and record any assignments of Mortgages required under this Section
2.01 on a timely basis, the Master Servicer shall cause the Servicers to
appoint the Indenture Trustee as their attorney-in-fact to prepare, execute
and record any assignments of Mortgages requested in writing by the Majority
Noteholders and required under this Section 2.01. Such preparation, execution
and recording shall be at the expense of the Servicers, or to the extent not
paid by the Servicers, the Master Servicer; provided that if the Indenture
Trustee is not reasonably assured of payment of such expenses from the
Servicer or the
25
Master Servicer, the Indenture Trustee may require reasonable indemnity
against such expense as a condition to taking any such action.
(f) Within 90 days following delivery, if any, of the Mortgage Files
to the Indenture Trustee pursuant to the preceding subsection, the Indenture
Trustee or a custodian on its behalf shall review each such Mortgage File to
ascertain that all required documents set forth in this Section 2.01 have been
executed and received and that such documents relate to the Home Equity Loans
identified on the Home Equity Loan Schedule, and in so doing the Indenture
Trustee or such custodian on its behalf may rely on the purported due
execution and genuineness of any signature thereon. If within such 90-day
period the Indenture Trustee or custodian finds any document constituting a
part of a Mortgage File not to have been executed or received or to be
unrelated to the Home Equity Loans identified in said Home Equity Loan
Schedule or, if in the course of its review, the Indenture Trustee or
custodian determines that such Mortgage File is otherwise defective in any
material respect, the Indenture Trustee or custodian shall promptly upon the
conclusion of its review notify the Owner Trustee, the Depositor and the
Master Servicer and the Depositor and the Master Servicer shall have a period
of 90 days after such notice within which to correct or cure any such defect;
provided, however, that if such defect shall not have been corrected or cured
within such 90-day period due to the failure of the related office of real
property or other records to return any document constituting a part of a
Mortgage File, the Depositor or the Master Servicer shall so notify the Owner
Trustee and the Indenture Trustee and the period during which such defect may
be corrected or cured shall be extended for one additional 90-day period.
(g) The Indenture Trustee shall have no responsibility for reviewing
any Mortgage File except as expressly provided in this Section 2.01. In
reviewing any Mortgage File pursuant to this Section 2.01, the Indenture
Trustee shall have no responsibility for determining whether any document is
valid and binding, whether the text of any assignment or endorsement is in
proper or recordable form (except, if applicable, to determine if the Trust is
the assignee or endorsee), whether any document has been recorded in
accordance with the requirements of any applicable jurisdiction, or whether a
blanket assignment is permitted in any applicable jurisdiction, whether any
Person executing any document is authorized to do so or whether any signature
thereon is genuine, but shall only be required to determine whether a document
has been executed, that it appears to be what it purports to be and, where
applicable, that it purports to be recorded.
(h) The Master Servicer hereby confirms to the Indenture Trustee and
the Owner Trustee that on or prior to the Closing Date and on or prior to the
applicable Transfer Date with respect to any Eligible Substitute Home Equity
Loan, the portions of the Electronic Ledger relating to such Home Equity Loans
have been or will have been clearly and unambiguously marked, and the
appropriate entries have been or will have been made in its general accounting
records, to indicate that such Home Equity Loans have been transferred to the
Trust and constitute part of the Trust in accordance with the terms hereof.
(i) In connection with the assignment, pursuant to Section
2.01(e)(i), of any Home Equity Loan registered on the MERS(R) System, the
Master Servicer shall cause each Servicer, at such Servicer's expense or, to
the extent the Servicer fails to pay, the Master Servicer's expense, at the
time specified in the second sentence of Section 2.01(e)(i), to cause the
MERS(R) System to indicate that such Home Equity Loans have been assigned to
the Trust in accordance with this
26
Agreement by including (or deleting, in the case of Home Equity Loans which
are repurchased in accordance with this Agreement) in such computer files (a)
the code "[IDENTIFY TRUST SPECIFIC CODE]" in the field "[IDENTIFY THE FIELD
NAME FOR TRUST]" which identifies the Trust and (b) the code "[IDENTIFY SERIES
SPECIFIC CODE NUMBER]" in the field "Pool Field" which identifies the series
of the Notes issued in connection with such Home Equity Loans. The Master
Servicer agrees that it will not alter the codes referenced in this paragraph
with respect to any Home Equity Loan during the term of this Agreement unless
and until such Home Equity Loan is repurchased in accordance with the terms of
this Agreement, and there is filed any financing statement or amendment
thereof necessary to comply with the New York UCC or the UCC of any applicable
jurisdiction.
SECTION 2.02 Acceptance by Indenture Trustee; Repurchase of Home
Equity Loans; Conveyance of Eligible Substitute Home Equity Loans.
(a) The Indenture Trustee hereby acknowledges receipt of all the
right, title and interest of the Depositor in and to the assets described
Section 2.01(a)(i) through (vi), and all of the right, title and interest of
the Sellers in and to the Transferred Assets pursuant to the Transfer
Agreement, including but not limited to the transfer and assignment of the
Mortgage Notes and the Mortgages, and declares that it holds and will hold
such documents and interests and all amounts received by it in trust, upon the
terms herein set forth, for the use and benefit of the Trust and all present
and future Noteholders. If the time to cure any defect of which the Indenture
Trustee has notified the Depositor and the Master Servicer following the
Indenture Trustee's review of the Home Equity Loan files pursuant to Section
2.01(f) has expired or if any loss is suffered by the Indenture Trustee, on
behalf of the Noteholders, in respect of any Home Equity Loan as a result of
(i) a defect in any document constituting a part of a Mortgage File or (ii)
the related Seller's retention of such Mortgage File or an Assignment of
Mortgage not having been recorded, the Depositor or, to the extent the
Depositor fails to perform, the Master Servicer shall, in the case of a defect
in such document and the Master Servicer shall, in the case of a loss
resulting from such Seller's retention of a Mortgage File or Assignment of
Mortgage not having been recorded, on the Business Day next preceding the
Payment Date in the month following the end of the Collection Period in which
the time to cure such defect expired or such loss occurred, either (i)
repurchase the related Home Equity Loan (a "Defective Home Equity Loan")
(including any property acquired in respect thereof and any insurance policy
or insurance proceeds with respect thereto) from the Trust at a price equal to
the Purchase Price which shall be accomplished by deposit by the Depositor or
the Master Servicer, as applicable, in the Collection Account pursuant to
Section 3.02 on such next preceding Business Day, or (ii) remove such
Defective Home Equity Loan from the Trust and substitute in its place an
Eligible Substitute Home Equity Loan or Loans.
(b) The Master Servicer, in its sole discretion, shall have the
right, but not the obligation, to elect (by written notice sent to the
Indenture Trustee and the Owner Trustee) to substitute in the place of any
Home Equity Loan an Eligible Substitute Home Equity Loan or Loans; provided
that the aggregate Principal Balance as of the related Subsequent Cut-Off Date
of all Eligible Substitute Home Equity Loans substituted pursuant to this
Section shall not exceed 2% of the Cut-Off Date Pool Balance; provided further
that prior to any such substitution the Master Servicer shall give prompt
written notice to each Rating Agency of any such substitution.
27
(c) As to any Eligible Substitute Home Equity Loan or Loans, the
Master Servicer shall cause the related Seller to deliver to the Indenture
Trustee with respect to such Eligible Substitute Home Equity Loan or Loans an
acknowledgment that the related Seller is holding as custodian for the
Indenture Trustee such documents and agreements, if any, as are permitted to
be held by the related Seller in accordance with Section 2.01. An assignment
of the Mortgage in favor of the Trust with respect to such Eligible Substitute
Home Equity Loan or Loans shall be required to be recorded in the appropriate
real property or other records or delivered to the Indenture Trustee with the
Opinion of Counsel referred to in Section 2.01 under the same circumstances
that all other assignments of Mortgage are required to be recorded hereunder.
For any Collection Period during which the Depositor or the Master Servicer
substitutes one or more Eligible Substitute Home Equity Loans, the Master
Servicer shall determine the Substitution Adjustment Amount. The Depositor or
the Master Servicer, as applicable, shall deposit the Substitution Adjustment
Amount in the Collection Account no later than the Business Day immediately
preceding the Payment Date in the month following the end of the Collection
Period in which such substitution occurs. The Master Servicer shall amend the
Home Equity Loan Schedule to reflect the removal of the Defective Home Equity
Loan or Home Equity Loan for which the Master Servicer has made a substitution
election pursuant to Section 2.02(b) from the terms of this Agreement and the
substitution of the Eligible Substitute Home Equity Loan or Loans. Upon such
substitution, the Eligible Substitute Home Equity Loan or Loans shall be
subject to the terms of this Agreement in all respects, and the Depositor
shall be deemed to have made with respect to such Eligible Substitute Home
Equity Loan or Loans, as of the date of substitution, the covenants,
representations and warranties set forth in Section 2.04(b). The Indenture
Trustee shall upon satisfaction of the conditions in this subsection
immediately take any action requested by the Depositor, if any, to effect the
reconveyance of such Defective Home Equity Loan or such Home Equity Loan for
which the Master Servicer has made a substitution election so removed from the
Trust to the Depositor or the Master Servicer, as applicable. The procedures
applied by the Depositor or the Master Servicer in selecting each Eligible
Substitute Home Equity Loan shall not be adverse to the interests of the
Noteholders and shall be comparable to the selection procedures applicable to
the Home Equity Loans originally conveyed hereunder.
(d) Upon receipt by the Indenture Trustee of (i) in the case of a
repurchase, a Servicing Certificate to the effect that the Purchase Price for
any such Defective Home Equity Loan or such Home Equity Loan for which the
Master Servicer has made a substitution election has been so deposited in the
Collection Account or (ii) in the case of a substitution, (A) a Servicing
Certificate to the effect that the Substitution Adjustment Amount, if any, has
been so deposited in the Collection Account and (B) an Officer's Certificate
reciting the transfer and assignment of the Eligible Substitute Home Equity
Loan(s) to the Indenture Trustee and, if required at such time, that the
related Mortgage File(s) for such Eligible Substitute Home Equity Loan(s) have
been delivered to the Indenture Trustee and the assignment(s) of Mortgage have
been recorded, the Indenture Trustee shall execute and deliver such instrument
of transfer or assignment presented to it by the Master Servicer, in each case
without recourse, as shall be necessary to vest in the Depositor or the Master
Servicer, as applicable, legal and beneficial ownership of such Defective Home
Equity Loan or such Home Equity Loan for which the Master Servicer has made a
substitution election (including any property acquired in respect thereof or
proceeds of any insurance policy with respect thereto). It is understood and
agreed that the obligation of the Depositor or the Master Servicer to
repurchase or substitute for (to the extent permitted herein)
28
any Defective Home Equity Loan shall constitute the sole and exclusive remedy
respecting such defect available to Noteholders or the Indenture Trustee
against the Depositor or the Master Servicer, and such obligation on the part
of the Master Servicer shall survive any resignation or termination of the
Master Servicer hereunder.
SECTION 2.03 Representations, Warranties and Covenants of the Master
Servicer. The Master Servicer represents, warrants and covenants that as of
the Closing Date:
(a) The Master Servicer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the corporate power to own its assets and to transact the business in which it
is currently engaged. The Master Servicer is duly qualified to do business as
a foreign corporation and is in good standing in each jurisdiction in which
the character of the business transacted by it or properties owned or leased
by it require such qualification and in which the failure to so qualify would
have a material adverse effect on the business, properties, assets, or
condition (financial or other) of the Master Servicer;
(b) The Master Servicer has the power and authority to make, execute,
deliver and perform its obligations under this Agreement and to perform its
obligations with respect to all of the transactions contemplated under this
Agreement, and has taken all necessary corporate action to authorize the
execution, delivery and performance of its obligations under this Agreement.
When executed and delivered, this Agreement will constitute the legal, valid
and binding obligation of the Master Servicer enforceable in accordance with
its terms, except as enforcement of such terms may be limited by bankruptcy,
insolvency or similar laws affecting the enforcement of creditors' rights
generally and by the availability of equitable remedies (whether in a
proceeding at law or in equity);
(c) The Master Servicer is not required to obtain the consent of any
other Person or any consent, license, approval or authorization from, or
registration or declaration with, any governmental authority, bureau or agency
in connection with the execution, delivery, performance, validity or
enforceability of this Agreement, except for such consents, licenses,
approvals or authorizations, or registrations or declarations, as shall have
been obtained or filed, as the case may be;
(d) The execution and delivery of this Agreement and the performance
of the transactions contemplated hereby by the Master Servicer will not
violate any provision of any existing law or regulation or any order or decree
of any court applicable to the Master Servicer or any provision of the
Certificate of Incorporation or Bylaws of the Master Servicer, or constitute a
material breach of any mortgage, indenture, contract or other agreement to
which the Master Servicer is a party or by which the Master Servicer may be
bound; and
(e) No litigation or administrative proceeding of or before any
court, tribunal or governmental body is currently pending, or to the knowledge
of the Master Servicer threatened, against the Master Servicer or any of its
properties or with respect to this Agreement or the Notes which in the opinion
of the Master Servicer has a reasonable likelihood of resulting in a material
adverse effect on the transactions contemplated by this Agreement.
29
(f) The Master Servicer is a member of MERS in good standing, and
will comply in all material respects with the rules and procedures of MERS in
connection with the servicing of the Home Equity Loans that are registered
with MERS.
The representations and warranties set forth in this Section 2.03
shall survive the sale and assignment of the Home Equity Loans to the Trust.
Upon discovery of a breach of any representations and warranties which
materially and adversely affects the interests of the Noteholders, the Person
discovering such breach shall give prompt written notice to the other parties.
Within 60 days (or such longer period as permitted by prior written consent of
a Responsible Officer of the Indenture Trustee) of its discovery or its
receipt of notice of such breach, the Master Servicer shall cure such breach
in all material respects.
SECTION 2.04 Representations and Warranties of the Depositor
Regarding this Agreement and the Home Equity Loans; Repurchases and
Substitutions.
(a) The Depositor represents and warrants that as of the Closing
Date:
(i) The Depositor is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware
and has the corporate power to own its assets and to transact the
business in which it is currently engaged. The Depositor is duly
qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which the character of the business
transacted by it or properties owned or leased by it require such
qualification and in which the failure to so qualify would have a
material adverse effect on the business, properties, assets or
condition (financial or other) of the Depositor;
(ii) The Depositor has the power and authority to make,
execute, deliver and perform its obligations under this Agreement and
to perform its obligations with respect to all of the transactions
contemplated under this Agreement, and has taken all necessary
corporate action to authorize the execution, delivery and performance
of its obligations under this Agreement. When executed and delivered,
this Agreement will constitute the legal, valid and binding
obligation of the Depositor enforceable in accordance with its terms,
except as enforcement of such terms may be limited by bankruptcy,
insolvency or similar laws affecting the enforcement of creditors'
rights generally and by the availability of equitable remedies
(whether in a proceeding at law or in equity);
(iii) The Depositor is not required to obtain the consent of
any other Person or any consent, license, approval or authorization
from, or registration or declaration with, any governmental authority,
bureau or agency in connection with the execution, delivery,
performance, validity or enforceability of this Agreement, except for
such consents, licenses, approvals or authorizations, or registrations
or declarations, as shall have been obtained or filed, as the case may
be;
(iv) The execution and delivery of this Agreement and the
performance of the transactions contemplated hereby by the Depositor
will not violate any provision of any existing law or regulation or
any order or decree of any court applicable to the Depositor or any
provision of the Certificate of Incorporation or Bylaws of the
Depositor, or
30
constitute a material breach of any mortgage, indenture, contract or
other agreement to which the Depositor is a party or by which the
Depositor may be bound; and
(v) No litigation or administrative proceeding of or before
any court, tribunal or governmental body is currently pending, or to
the knowledge of the Depositor threatened, against the Depositor or
any of its properties or with respect to this Agreement which in the
opinion of the Depositor has a reasonable likelihood of resulting in
a material adverse effect on the transactions contemplated by this
Agreement.
(b) The Depositor represents and warrants with respect to each Home
Equity Loan that as of the Closing Date with respect to the Initial Home
Equity Loans and the applicable Transfer Date with respect to any Eligible
Substitute Home Equity Loans (or to the extent expressly stated herein as of
such other time):
(i) This Agreement and the Transfer Agreement constitute a
valid transfer and assignment to the Trust of all right, title and
interest of the Depositor and the Sellers, respectively, in and to
the Home Equity Loans, all monies due or to become due with
respect thereto, all proceeds thereof, such funds as are from time
to time deposited in the Collection Account (excluding any
investment earnings thereon) and all other property specified in
the definition of "Trust" as being part of the corpus of the Trust
conveyed to the Trust by the Depositor;
(ii) The information set forth in the Home Equity Loan
Schedule with respect to such Home Equity Loan is true and correct
in all material respects;
(iii) Immediately prior to the transfer and assignment by
the related Seller to the Depositor and the Trust pursuant to the
Home Equity Loan Purchase Agreement and the Transfer Agreement,
the Home Equity Loan has not been assigned or pledged, and the
related Seller has good and marketable title thereto, and the
related Seller is the sole owner and holder of such Home Equity
Loan free and clear of any and all liens, claims, encumbrances,
participation interests, equities, pledges, charges or security
interests of any nature, and has full right and authority, under
all governmental and regulatory bodies having jurisdiction over
the ownership of such Home Equity Loan, to transfer and assign the
same pursuant to the Home Equity Loan Purchase Agreement and the
Transfer Agreement;
(iv) Immediately prior to the transfer and assignment by the
Depositor to the Trust pursuant to this Agreement, the Home Equity
Loan has not been assigned or pledged, and the Depositor has good
and marketable title thereto, and the Depositor is the sole owner
and holder of such Home Equity Loan free and clear of any and all
liens, claims, encumbrances, participation interests, equities,
pledges, charges or security interests of any nature, and has full
right and authority, under all governmental and regulatory bodies
having jurisdiction over the ownership of such Home Equity Loan,
to transfer and assign the same pursuant to this Agreement;
(v) The related Mortgage is a valid and existing first or
second lien (and, if such Mortgage is a second lien and HSBC
Finance or any of its affiliates originated the
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related first lien mortgage loan, such Mortgage was not originated
within 90 days of such first lien mortgage loan), as set forth on
the Home Equity Loan Schedule with respect to such Home Equity
Loan, on the property therein described, and the related Mortgaged
Property is free and clear of all encumbrances and liens having
priority over the first or second lien, as applicable, of such
Mortgage except for liens for (a) real estate taxes and special
assessments not yet delinquent; (b) any first and, if applicable,
second mortgage loan secured by such Mortgaged Property and
specified on the Home Equity Loan Schedule; (c) covenants,
conditions and restrictions, rights of way, easements and other
matters of public record as of the date of recording that are
acceptable to mortgage lending institutions generally; and (d)
other matters to which like properties are commonly subject which
do not materially interfere with the benefits of the security
intended to be provided by such Mortgage;
(vi) To the best knowledge of the Depositor, each Mortgage
is not subject to any offset, defense or counterclaim of any
obligor under the Mortgage;
(vii) To the best knowledge of the Depositor, there is no
delinquent recording or other tax or fee or assessment lien against
the related Mortgaged Property;
(viii) To the best knowledge of the Depositor, there is no
proceeding pending or threatened for the total or partial
condemnation of the related Mortgaged Property, and such property
is free of material damage and is in good repair;
(ix) There are no mechanics' or similar liens or claims which
have been filed for work, labor or material affecting the related
Mortgaged Property which are, or may be, liens prior or equal to
the lien of the related Mortgage, except (a) liens which are fully
insured against by the title insurance policy referred to in
clause (xiii) or (b) liens which do not materially interfere with
the collection of the Home Equity Loan upon foreclosure or
otherwise;
(x) As of the Cut-Off Date for the Initial Home Equity Loans
(or as of the applicable Transfer Date for any Eligible Substitute
Home Equity Loan), no scheduled monthly payment is more than 30
days delinquent (measured on a contractual basis);
(xi) The related Mortgage File contains each of the documents
and instruments specified to be included therein (including, if
applicable, an appraisal (which may be an appraisal prepared using
a statistical data base));
(xii) [Reserved];
(xiii) The related Mortgage Note and the related Mortgage
at the time they were made complied in all material respects with
applicable local, state and federal laws, including, without
limitation, usury, truth-in-lending, real estate settlement
procedures, consumer credit protection (including, without
limitation, the Home Ownership and Equity Protection Act of 1994
and all other applicable anti-predatory lending laws), equal
credit opportunity or disclosure laws applicable to the Home
Equity Loan;
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(xiv) A lender's title insurance policy or binder was issued
within 60 days of the date of origination of each Home Equity Loan
for home equity loans in excess of $50,000, if secured by a first
lien, or $100,000, if secured by a second lien (in excess of
$75,000, if secured by a first lien in Oklahoma or Texas, or
$100,000, if secured by a first or second lien in Iowa), and each
such policy is valid and remains in full force and effect, and a
title search or other assurance of title customary in the relevant
jurisdiction was obtained with respect to each Home Equity Loan as
to which no title insurance policy or binder was issued;
(xv) The related Mortgaged Property is not a mobile home or
a manufactured housing unit that is not permanently attached to its
foundation;
(xvi) As of the Cut-Off Date, the Combined Loan-to-Value
Ratio for each Initial Home Equity Loan was not in excess of 107%;
(xvii) No selection procedure reasonably believed by the
Depositor to be adverse to the interests of the Noteholders was
utilized in selecting the Home Equity Loan;
(xviii) The Depositor has not transferred the Home Equity
Loans to the Trust with any intent to hinder, delay or defraud any
of its creditors;
(xix) Each Mortgage Note and each Mortgage is in
substantially the form previously provided to the Indenture Trustee
by the Depositor and each Home Equity Loan is an enforceable
obligation of the related Mortgagor;
(xx) The Depositor has not received a notice of default of
any senior mortgage loan with respect to the related Mortgaged
Property that has not been cured by a party other than the related
Seller;
(xxi) The Initial Home Equity Loan does not have an original
term to maturity in excess of 360 months; and the Principal
Balance of which, when included in the Pool Balance (in each case
for the Initial Home Equity Loans as of the Cut-Off Date), would
not cause the weighted average remaining term to maturity of the
Initial Home Equity Loans on a contractual basis to be greater
than 300 months;
(xxii) The related Mortgaged Property consists of a single
parcel of real property with a one-to-four unit single family
residence erected thereon, or an individual condominium unit,
planned unit development unit or townhouse;
(xxiii) The Principal Balance of which, when included in the
Pool Balance (in each case for the Initial Home Equity Loans as of the
Cut-Off Date), would not cause the average Principal Balance of such
Home Equity Loans to be greater than $116,000;
(xxiv) The Principal Balance of which, when included in the
Pool Balance (in each case for the Initial Home Equity Loans as of
the Cut-Off Date), would not cause the weighted average percentage
of the Initial Home Equity Loans secured by first liens to be less
than 93%; and would not cause the weighted average percentage of
the Initial Home Equity Loans secured by second liens to be
greater than 7%;
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(xxv) The Initial Home Equity Loans were originated in
accordance with HSBC Finance's underwriting guidelines and procedures
including full and reduced documentation programs;
(xxvi) No Home Equity Loan is a High Cost Loan or Covered
Loan as defined in Appendix E of Standard & Poor's LEVELS(R)
Glossary Version 5.6 Revised in effect as of the Cut-Off Date and
no Home Equity Loan originated on or after October 1, 2002 through
March 6, 2003 is governed by the Georgia Lending Act;
(xxvii) No Home Equity Loan originated on or after November
27, 2003 is a High-Cost Home Loan, as defined by New Jersey predatory
and abusive lending law effected on November 27, 2003;
(xxviii) No Home Equity Loan is a "high cost home," "high
risk home" or "predatory" loan under any other applicable state,
federal or local law (or similarly classified loan using different
terminology under a law imposing additional legal liability for
residential mortgage loans having high interest rates, points
and/or fees); and
(xxix) With respect to each Mortgage Note, one of the
following has been obtained: an appraisal on Form 1004, an
appraisal on Form 2055 with interior inspection, an appraisal on
any other form of uniform residential appraisal report commonly
known as a full appraisal or a valuation using an automated
valuation model.
(c) It is understood and agreed that the representations and
warranties set forth in this Section 2.04 shall survive the transfer and
assignment of the Home Equity Loans to the Trust and the pledge of the Home
Equity Loans to the Indenture Trustee. Upon discovery by the Depositor, the
Master Servicer, the Owner Trustee or the Indenture Trustee of a breach of any
of the representations and warranties set forth in this Section 2.04, without
regard to any limitation set forth in such representation or warranty
concerning the knowledge of the Depositor as to the facts stated therein,
which materially and adversely affects the interests of the Noteholders or the
Transferor in respect of the Ownership Interest in the related Home Equity
Loan, the person discovering such breach shall give prompt written notice to
the other parties and each Rating Agency. Within 60 days of its discovery or
its receipt of notice of such breach, or, with the prior written consent of a
Responsible Officer of the Indenture Trustee, such longer period not to exceed
90 days as specified in such consent, the Depositor or, as necessary, the
Master Servicer shall cure such breach in all material respects. With regard
to any such breach of the representations and warranties set forth in Section
2.04(b), unless, at the expiration of such 60 day or longer period, such
breach has been cured in all material respects or otherwise does not exist or
continue to exist, the Depositor or the Master Servicer shall, not later than
the Business Day next preceding the Payment Date in the month following the
end of the Collection Period in which any such cure period expired, either (i)
repurchase such Defective Home Equity Loan (including any property acquired in
respect thereof and any insurance policy or insurance proceeds with respect
thereto) or (ii) remove such Home Equity Loan from the Trust and substitute in
its place an Eligible Substitute Home Equity Loan or Loans, in the same manner
and subject to the same conditions as set forth in Section 2.02. Upon making
any such repurchase or substitution the Depositor or the Master Servicer, as
applicable, shall be entitled to receive an instrument of assignment or
transfer from the Indenture Trustee to the same extent as set forth in
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Section 2.02 with respect to the repurchase or replacement of Home Equity
Loans under that Section. It is understood and agreed that the obligation of
the Depositor or the Master Servicer to purchase or substitute for any such
Defective Home Equity Loan (or property acquired in respect thereof) shall
constitute the sole and exclusive remedy against the Depositor or the Master
Servicer respecting such breach of the foregoing representations or warranties
available to Noteholders, the Transferor in respect of the Ownership Interest,
the Owner Trustee or the Indenture Trustee against the Depositor or the Master
Servicer, and such obligation on the part of the Master Servicer shall survive
any resignation or termination of the Master Servicer hereunder.
(d) The Depositor and the Master Servicer, jointly and not severally,
agree to indemnify and hold harmless the Trust against any and all
out-of-pocket financial losses, claims, expenses, damages or liabilities to
which the Trust may become subject, insofar as such out-of-pocket financial
losses, claims, expenses, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any representation or warranty made by
the Depositor in this Section 2.04 on which the Trust has relied, being, or
alleged to be, untrue or incorrect in any material respect. This indemnity
will be in addition to any liability which the Depositor or the Master
Servicer may otherwise have.
(e) Promptly after receipt by the Owner Trustee on behalf of the
Trust of notice of the commencement of any action or proceeding in any way
relating to or arising from this Agreement, the Owner Trustee will notify the
Indenture Trustee, the Depositor and the Master Servicer of the commencement
thereof, but the omission so to notify the party from whom indemnification is
sought (the "Indemnifying Party") will not relieve the Indemnifying Party from
any liability which it may have to the party seeking indemnification (the
"Indemnified Party") except to the extent that the Indemnifying Party is
materially adversely affected by the lack of notice. In case any such action
is brought against the Indemnified Party, and it notifies the Indemnifying
Party of the commencement thereof, the Indemnifying Party will be entitled to
participate in the defense (with the consent of the Indemnified Party which
shall not be unreasonably withheld) of such action at the Indemnifying Party's
expense.
SECTION 2.05 Tax Treatment. It is the intention of the Depositor and
the Noteholders that the Notes will be indebtedness for federal, state and
local income and franchise tax purposes and for purposes of any other tax
imposed on or measured by income. The terms of this Agreement shall be
interpreted to further the intent of the parties hereto. The Depositor, the
Indenture Trustee and each Noteholder (or Note Owner) by acceptance of its
Note (or, in the case of a Note Owner, by virtue of such Note Owner's
acquisition of a beneficial interest therein) agrees to treat the Note (or
beneficial interest therein), for purposes of federal, state and local income
or franchise taxes and any other tax imposed on or measured by income, as
indebtedness secured by the Trust Estate and to report the transactions
contemplated by this Agreement on all applicable tax returns in a manner
consistent with such treatment. Each Noteholder agrees that it will cause any
Note Owner acquiring an interest in any Note through it to comply with this
Agreement as to treatment of the Notes as indebtedness for federal, state and
local income and franchise tax purposes and for purposes of any other tax
imposed on or measured by income. The Master Servicer will prepare and file
all tax reports, if any, required hereunder on behalf of the Trust.
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ARTICLE III.
ADMINISTRATION AND SERVICING OF HOME EQUITY LOANS
-------------------------------------------------
SECTION 3.01 The Master Servicer.
(a) The Master Servicer shall, or shall cause the Servicers to,
service and administer the Home Equity Loans in a manner consistent with the
terms of this Agreement and the Settlement Agreement (to the extent that no
term or provision of the Settlement Agreement (excluding those terms
identified in the Specified Filing) shall adversely affect in any material
respect the interests of the Noteholders) and with general industry practice
and shall have full power and authority, acting alone or through the
Servicers, to do any and all things in connection with such servicing and
administration which it may deem necessary or desirable, it being understood,
however, that the Master Servicer shall at all times remain responsible to the
Indenture Trustee and the Noteholders for the performance of its duties and
obligations hereunder in accordance with the terms hereof. Any amounts
received by the related Servicer in respect of a Home Equity Loan shall be
deemed to have been received by the Master Servicer whether or not actually
received by it. Without limiting the generality of the foregoing, the Master
Servicer shall continue, and is hereby authorized and empowered by the
Indenture Trustee, (i) in its own name or in the name of any Servicer, when
the Master Servicer or the Servicer, as the case may be, believes it
appropriate in its best judgment to register any Home Equity Loan on the
MERS(R) System, or cause the removal from the registration of any Home Equity
Loan on the MERS(R) System, to execute and deliver, on behalf of the Trust,
any and all instruments of assignment and other comparable instruments with
respect to such assignment or re-recording of a Mortgage in the name of MERS,
solely as nominee for the Trust and its successors and assigns, and (ii) to
execute and deliver, on behalf of itself, the Noteholders and the Indenture
Trustee or any of them, any and all instruments of satisfaction or
cancellation, or of partial or full release or discharge and all other
comparable instruments, with respect to the Home Equity Loans and with respect
to the Mortgaged Properties. Upon the written request of the Master Servicer,
the Depositor and the Indenture Trustee shall furnish the Master Servicer with
any powers of attorney and other documents necessary or appropriate to enable
the Master Servicer to carry out its servicing and administrative duties
hereunder. The Master Servicer in such capacity may also consent to the
placing of a proposed lien senior to that of the Mortgage on the related
Mortgaged Property, provided that such proposed lien is not secured by a note
providing for negative amortization and:
(x) (i) the Mortgage relating to the Home Equity Loan was in
a first lien position as of the Cut-Off Date and was in a first lien
position immediately prior to the placement of the proposed senior
lien, and (ii) the ratio of (a) the sum of the Principal Balance of
the Home Equity Loan and the principal balance of the mortgage loan
to be secured by the proposed senior lien to (b) the Appraised Value
of the Mortgaged Property at the time the Home Equity Loan was
originated is not greater than (1) with respect to Home Equity Loans
with an original CLTV of 85% or less, 85%, (2) with respect to Home
Equity Loans with an original CLTV in excess of 85% and not greater
than 95%, 95% and (3) with respect to Home Equity Loans with an
original CLTV in excess of 95% and not greater than 110%, 110%;
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(y) (i) the Mortgage relating to the Home Equity Loan was in
a first or second lien position at the time the related Home Equity
Loan was conveyed to the Trust and, immediately following the
placement of such proposed senior lien, such Mortgage will be in a
second or, if such Mortgage was in a second lien position at the time
the related Home Equity Loan was conveyed to the Trust, a third lien
position and (ii) the principal balance of the mortgage loan to be
secured by the proposed senior lien and the rate at which interest
accrues thereon are no greater than those of the related Home Equity
Loan as of the date it was first conveyed to the Trust; or
(z) the Mortgage relating to the Home Equity Loan was in a
second lien position as of the Cut-Off Date and the proposed senior
lien secures a mortgage loan that refinances an existing first
mortgage loan and the outstanding principal amount of such mortgage
loan immediately following such refinancing and the rate at which
interest accrues thereon are not greater than that of such existing
first mortgage loan at the date the mortgage loan was originated.
(b) If (i) foreclosure proceedings are commenced with respect to any
Home Equity Loan with respect to which the Master Servicer has consented to
the placing of a subsequent senior lien pursuant to clause (x) in Section
3.01(a), or (ii) any loss is suffered by the Indenture Trustee on behalf of
the Noteholders or the Transferor in respect of the Ownership Interest in
respect of any Home Equity Loan as a result of (x) a failure to file on or
within ten days following the effective date of this Agreement the UCC-l
financing statements referred to in Section 2.01 or (y) a failure to publish
on or prior to the Closing Date such notices reflecting the sale of the Home
Equity Loans as are described in Section 3440.1(h) of the California Civil
Code, then the Master Servicer shall repurchase or substitute for any
adversely affected Home Equity Loan on the Business Day preceding the next
Payment Date following the end of the Collection Period during which such
foreclosure proceedings were commenced or such losses were suffered. Such
repurchase or substitution shall be accomplished in the same manner and
subject to the same conditions as set forth in Section 2.02. Upon making any
such repurchase or substitution the Master Servicer shall be entitled to
receive an instrument of assignment or transfer from the Indenture Trustee to
the same extent as set forth in Section 2.02.
(c) Upon the request of a Mortgagor or at the Master Servicer's own
initiative, the Master Servicer (or the related Servicer on behalf of the
Master Servicer) may waive, modify or vary any term of any Home Equity Loan or
consent to the postponement of strict compliance with any such term or in any
manner grant indulgence to any Mortgagor if:
(i) in the Master Servicer's (or such Servicer's) good faith
determination such waiver, modification, postponement or indulgence
will enhance recovery with respect to such Home Equity Loan; and
(ii) the Mortgagor is in default with respect to the Home
Equity Loan, or such default is, in the judgment of the Master
Servicer (or such Servicer) imminent.
(d) Subject to subparagraph (e) below, in addition to the
circumstances described under Section 3.01(c), the Master Servicer (or the
related Servicer on behalf of the Master Servicer) may waive, modify or vary
any term of any Home Equity Loan, if the purpose of such action is
37
to reduce the likelihood of prepayment or of default of such Home Equity Loan,
to increase the likelihood of repayment or repayment upon default of such Home
Equity Loan, to increase the likelihood of repayment in full of or recoveries
under such Home Equity Loan, or to otherwise benefit the Noteholders and the
Transferor in respect of the Ownership Interest, all in the reasonable
judgment of the Master Servicer.
(e) Notwithstanding any provision in this Agreement to the contrary,
the Master Servicer may not defer the scheduled monthly interest and principal
payment on any Home Equity Loan that is not in default or (in the judgment of
the Master Servicer (or the related Servicer on behalf of the Master
Servicer)) for which default is not imminent unless (i) the Master Servicer
elects to make a Skip-A-Pay Advance pursuant to subparagraph (f) below or (ii)
each Rating Agency advises that as a result of such deferment the then current
rating of any Class of Notes will not be withdrawn, suspended or reduced;
provided, however, that the Master Servicer may not defer the scheduled
monthly payment on any Home Equity Loan in reliance on clause (i) above unless
the Master Servicer determines, in its good faith judgment, that such
Skip-A-Pay Advance will be recoverable from future payments on the Home Equity
Loans.
(f) If during any Collection Period the Master Servicer deferred the
scheduled monthly payment on any Home Equity Loan that was not in default or
for which default was not imminent in reliance on clause (i) of subparagraph
(e) above, no later than 12:00 noon Chicago time on each Deposit Date, the
Master Servicer shall deposit into the Collection Account an amount equal to
the Skip-A-Pay Advance for such Collection Period. On each Payment Date, the
Master Servicer shall be entitled to reimburse itself for all previously
unreimbursed Skip-A-Pay Advances from funds on deposit in the Collection
Account, before making any payments to Noteholders pursuant to Section 5.01,
up to an amount equal to the Skip-A-Pay Reimbursement Amount on such Payment
Date; provided, however, that the Skip-A-Pay Reimbursement Amount that the
Master Servicer is entitled to receive on such Payment Date shall be reduced
by the portion of such amount, if any, that was applied to reduce the amount
of funds that the Master Servicer was required to deposit or to cause to be
deposited into the Collection Account on the preceding Deposit Date pursuant
to Section 3.02(b).
(g) The relationship of the Master Servicer (and of any successor to
the Master Servicer as master servicer under this Agreement) to the Indenture
Trustee under this Agreement is intended by the parties to be that of an
independent contractor and not that of a joint venturer, partner or agent.
(h) In the event that the rights, duties and obligations of the
Master Servicer are terminated hereunder, any successor to the Master Servicer
in its sole discretion may, to the extent permitted by applicable law,
terminate the existing subservicer arrangements with any Servicer or assume
the terminated Master Servicer's rights under such subservicing arrangements
which termination or assumption will not violate the terms of such
arrangements.
(i) Any expenses incurred in connection with the actions described in
Section 3.01(a)(i) shall be borne by the Master Servicer in accordance with
Section 3.09, with no right of reimbursement; provided that if, as a result of
MERS discontinuing or becoming unable to continue operations in connection
with the MERS System, it becomes necessary to remove any Home Equity Loan from
registration on the MERS System and to arrange for the assignment of
38
the related Mortgages to the Trust, then any related expenses shall be
reimbursable to the Master Servicer.
SECTION 3.02 Collection of Certain Home Equity Loan Payments.
(a) The Master Servicer shall make reasonable efforts to collect all
payments called for under the terms and provisions of the Home Equity Loans,
and shall, to the extent such procedures shall be consistent with this
Agreement, follow such collection procedures as it follows with respect to
home equity loans in its servicing portfolio comparable to the Home Equity
Loans. Consistent with, and without limiting the generality of, the foregoing,
the Master Servicer may in its discretion (i) waive any late payment charge or
any assumption fees or other fees that may be collected in the ordinary course
of servicing the Home Equity Loans, (ii) arrange with a Mortgagor a schedule
for the payment of delinquent amounts, so long as such arrangement is
consistent with the Master Servicer's policies with respect to the home equity
loans it owns, (iii) sell the Home Equity Loan at its fair market value to a
third party for collection activity or (iv) reset the delinquency status of a
contractually delinquent Home Equity Loan to current in accordance with the
Master Servicer's customary account management policies and practices.
(b) The Master Servicer shall establish and maintain with the
Administrator a separate trust account (the "Collection Account") titled "HSBC
Bank USA, National Association, as Administrator on behalf of U.S. Bank
National Association, as Indenture Trustee, in trust for the registered
holders of HSBC Home Equity Loan Asset Backed Notes, Series 2005-3". In the
event that a successor Administrator is appointed, a new Collection Account
shall be promptly established at and maintained by such successor
Administrator, and the title of the new Collection Account shall be
"[Successor Administrator], as Administrator on behalf of Indenture Trustee,
in trust for the registered holders of HSBC Home Equity Loan Asset Backed
Notes, Series 2005-3", and any amounts in the old Collection Account shall be
transferred to the new Collection Account. In the event that a successor
Indenture Trustee is appointed as provided in Section 6.8 of the Indenture,
the Collection Account shall be retitled to reflect the name of the successor
Indenture Trustee. The Collection Account shall be an Eligible Account. No
later than 12:00 noon Chicago time on each Deposit Date (or, if a Deposit
Event has occurred and the Master Servicer has not provided credit enhancement
reasonably acceptable to each of the Rating Agencies within two (2) Business
Days following receipt thereof by the Servicers), the Master Servicer shall
deposit or cause to be deposited into the Collection Account the following
payments and collections received or made by it with respect to the Home
Equity Loans (without duplication):
(i) Net Interest Collections on the Home Equity Loans;
(ii) Principal Collections on the Home Equity Loans; and
(iii) amounts required to be paid by the Master Servicer in
connection with the termination of the Trust pursuant to Section 8.01;
provided, however, that so long as a Deposit Event has not occurred (unless
the Master Servicer has provided credit enhancement reasonably acceptable to
each of the Rating Agencies), the
39
amount of funds that the Master Servicer is required to deposit or to cause to
be deposited into the Collection Account on or before such Deposit Date shall
be reduced by the Skip-A-Pay Reimbursement Amount the Master Servicer is
entitled to receive on the next Payment Date; provided further, however, with
respect to any Payment Date, so long as no payments are owed to the
Noteholders on such Payment Date under Section 5.01(a)(xx) hereof, the Master
Servicer shall, if so permitted in writing by the Transferor, only be required
to deposit payments and collections on the Home Equity Loans into the
Collection Account up to the aggregate amount equal to the sum of all amounts
payable on that Payment Date pursuant to Section 5.01(a)(i)-(xviii) hereof,
and if any time prior to that Payment Date the amount of payments and
collections on the Home Equity Loans deposited into the Collection Account
with respect to the related Collection Period exceeds the amount required to
be deposited into the Collection Account in order to make such payments on
such Payment Date, the Master Servicer shall be permitted to direct the
Administrator in writing to withdraw any excess and pay the excess to the
Master Servicer.
The foregoing requirements respecting deposits to the Collection
Account are exclusive, it being understood that, without limiting the
generality of the foregoing, fees (including annual fees) or late charge
penalties payable by Mortgagors, prepayment penalties, or amounts received by
the Master Servicer or a Servicer for the accounts of Mortgagors for
application towards the payment of taxes, insurance premiums, assessments and
similar items for the account of the related Servicer, if any, need not be
deposited in the Collection Account.
(c) The Administrator shall hold amounts deposited in the Collection
Account on behalf of the Indenture Trustee for the benefit of the Noteholders
and on behalf of the Transferor in respect of the Ownership Interest. In
addition, the Master Servicer shall notify the Administrator in writing on
each Determination Date of the amount of payments and collections to be
deposited in the Collection Account with respect to the related Payment Date.
(d) The Master Servicer may cause the institution maintaining the
Collection Account to invest any funds in the Collection Account in Permitted
Investments (including obligations of the Master Servicer or of any of its
Affiliates, if such obligations otherwise qualify as Permitted Investments),
which shall mature or otherwise be available not later than the Business Day
next preceding the Payment Date or on the Payment Date next following the date
of such investment as long as such action does not result in a withdrawal or
downgrading of the then current ratings on the Notes by the Rating Agencies
(except that any investment in an obligation of the institution with which the
Collection Account is maintained may mature on or before 12:00 noon, Chicago
time, on such Payment Date) and shall not be sold or disposed of prior to its
maturity. In the event the Administrator is at any time maintaining the
Collection Account, any request by the Master Servicer to invest funds on
deposit in the Collection Account shall be in writing, shall be delivered to
the Administrator at or before 10:30 A.M., Chicago time, if such investment is
to be made on such day, and shall certify that the requested investment is a
Permitted Investment that matures at or prior to the time required hereby. In
the absence of such investment instructions, the amounts on deposit in the
Collection Account shall remain uninvested. Any such investment shall be
registered in the name of or controlled by the Administrator on behalf of the
Indenture Trustee or in the name of its nominee and to the extent such
investments are certificated they shall be maintained in the possession or
control of the Administrator on behalf of the Indenture Trustee in the state
of its Corporate Trust Office.
40
Except as provided above, all income and gain realized from any such
investment shall be for the benefit of the Master Servicer and shall be
subject to its withdrawal or order from time to time. The amount of any losses
incurred in respect of the principal amount of any such investments shall be
deposited in the Collection Account by the Master Servicer out of its own
funds immediately as realized.
(e) The Administrator is hereby authorized to execute purchases and
sales of Permitted Investments as directed by the Master Servicer through the
facilities of its own trading or capital markets operations. The Administrator
shall send to the Master Servicer statements reflecting the monthly activity
for each such purchase and sale made for the preceding month. Although the
Master Servicer recognizes that it may obtain a broker confirmation or written
monthly statement containing comparable information at no additional cost, the
Master Servicer hereby agrees that confirmations of investments are not
required to be issued by the Administrator for each month in which a monthly
statement is rendered. No statement need be rendered pursuant to the provision
of this subsection if no activity occurred in the account for such month.
SECTION 3.03 Withdrawals from the Collection Account.
(a) The Administrator shall withdraw or cause to be withdrawn funds
from the Collection Account for the following purposes:
(i) On each Payment Date, to make distributions and payments
to the Noteholders and the Transferor in respect of the Ownership
Interest pursuant to Section 5.01;
(ii) From time to time, to make investments in Permitted
Investments and to pay to the Master Servicer all income and gain
earned in respect of Permitted Investments or on funds deposited in
the Collection Account;
(iii) To reimburse the Depositor or the Master Servicer to
the extent permitted by Section 6.03;
(iv) To withdraw any funds deposited in the Collection
Account that were not required to be deposited therein or were
deposited therein in error and to pay such funds to the
appropriate Person;
(v) To pay to the party legally entitled by a final order
of a court of competent jurisdiction in an insolvency proceeding an
amount equal to any preference claim made with respect to amounts
paid with respect to the Home Equity Loans; provided that, if any
such amount is later determined not to be a preference by such court
of competent jurisdiction and is returned to the Master Servicer or
any Servicer, such amount shall be redeposited into the Collection
Account by the Master Servicer;
(vi) To clear and terminate the Collection Account upon the
termination of this Agreement and the Indenture and to pay any amounts
remaining therein to the Transferor in respect of the Ownership
Interest; and
41
(vii) To reimburse the Master Servicer for Skip-A-Pay
Advances to the extent permitted by Section 3.01(f).
(b) If the Master Servicer deposits in the Collection Account any
amount not required to be deposited therein or credited thereto or any amount
in respect of payments by Mortgagors made by checks subsequently returned for
insufficient funds or other reason for non-payment, it may at any time
withdraw such amount from the Collection Account pursuant to Section
3.03(a)(iv), and any such amounts shall not be included in Net Interest
Collections and Principal Collections, any provision herein to the contrary
notwithstanding. Any withdrawal or debit permitted by Section 3.03(a) shall be
accomplished by delivering an Officer's Certificate of the Master Servicer to
the Administrator which describes the purpose of such withdrawal (including,
without limitation, that any such amount was deposited in the Collection
Account in error or, in the case of returned checks, that such amounts were
properly debited, respectively). Upon receipt of any such Officer's
Certificate, the Administrator shall withdraw such amount for the account of
the Master Servicer. All funds deposited by the Master Servicer in the
Collection Account shall be held by the Administrator on behalf of the
Indenture Trustee in trust for the benefit of the Noteholders and the
Transferor in respect of the Ownership Interest, until disbursed in accordance
with Section 5.01 or Section 5.4(b) of the Indenture or withdrawn or debited
in accordance with this Section.
SECTION 3.04 Maintenance of Hazard Insurance; Property Protection
Expenses. Each Home Equity Loan requires that the borrower thereunder maintain
hazard insurance naming the Master Servicer or the related Servicer as loss
payee providing extended coverage in an amount which is at least equal to the
lesser of (i) 100% of the insurable value of the Mortgaged Property or (ii)
the combined principal balance owing on such Home Equity Loan and any mortgage
loan senior to such Home Equity Loan from time to time. The Master Servicer
represents and warrants that it or the applicable Seller verified the
existence of such hazard insurance at the origination of the Home Equity Loan.
The Master Servicer may cause to be maintained for each Home Equity Loan on
which such insurance has lapsed hazard insurance with terms and limits similar
to those described above. Any Insurance Proceeds received by the Master
Servicer shall be deposited in the Collection Account on the Deposit Date in
accordance with Section 3.02(b), subject to withdrawal pursuant to Section
3.03. Any cost incurred by the Master Servicer in maintaining any such
insurance shall not, for the purposes of this Agreement, be added to the
Principal Balance of the Home Equity Loan even if the terms of such Home
Equity Loan so permit. The Master Servicer shall also maintain on property
acquired upon foreclosure, or by grant of deed in lieu of foreclosure, hazard
insurance with extended coverage in an amount which is at least equal to the
lesser of (i) 100% of the insurable value of the Mortgaged Property or (ii)
the combined unpaid principal balance owing on such Home Equity Loan and any
mortgage loans senior to such Home Equity Loans at the time of such
foreclosure or grant of deed in lieu of foreclosure plus accrued interest
thereon. Amounts collected by the Master Servicer under any such policies
shall be deposited in the Collection Account to the extent called for by
Section 3.02. In cases in which any Mortgaged Property is located in a
federally designated flood area, the hazard insurance to be maintained for the
related Home Equity Loan shall include flood insurance. All such flood
insurance shall be in such amounts as are required under applicable guidelines
of ▇▇▇▇▇▇ ▇▇▇. The Master Servicer shall be under no obligation to require
that any Mortgagor maintain earthquake or other additional insurance and shall
be under no obligation itself to maintain any such additional insurance on
property acquired in respect of a
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Home Equity Loan, other than pursuant to such applicable laws and regulations
as shall at any time be in force and as shall require such additional
insurance. As to Mortgaged Properties acquired by the Master Servicer as
provided herein, the Master Servicer may satisfy its obligation set forth in
the sixth sentence of this Section 3.04 by self insuring Mortgaged Properties
for which the aggregate unpaid principal balance of the related Home Equity
Loans plus the outstanding balance of any mortgage loans senior to such Home
Equity Loans at the time title was acquired, plus accrued interest (the
"Combined Exposure"), was less than $250,000 (or such other amount as the
Master Servicer may in good faith determine from time to time) and by causing
hazard policies to be maintained with respect to Mortgaged Properties for
which the Combined Exposure equals or exceeds the self insurance threshold
established from time to time by the Master Servicer by maintaining a blanket
policy consistent with prudent industry standards insuring against hazard
losses on the Mortgaged Properties. Such policy may contain a deductible
clause, in which case the Master Servicer shall, in the event that there shall
not have been maintained on the related Mortgaged Property a policy complying
with the sixth sentence of this Section 3.04, and there shall have been a loss
which would have been covered by such policy, deposit in the Collection
Account the amount not otherwise payable under the blanket policy because of
such deductible clause.
SECTION 3.05 Assumption and Modification Agreements. In any case in
which a Mortgaged Property has been or is about to be conveyed by the
Mortgagor, the Master Servicer shall exercise or refrain from exercising its
right to accelerate the maturity of such Home Equity Loan consistent with the
then-current practice of the Master Servicer and without regard to the
inclusion of such Home Equity Loan in the Trust and not in the Master
Servicer's portfolio. If it elects not to enforce its right to accelerate or
if it is prevented from doing so by applicable law, the Master Servicer (so
long as such action conforms with the Master Servicer's underwriting standards
at the time for new originations) is authorized to take or enter into an
assumption and modification agreement from or with the Person to whom such
Mortgaged Property has been or is about to be conveyed, pursuant to which such
Person becomes liable under the Mortgage Note and, to the extent permitted by
applicable law, the Mortgagor remains liable thereon. The Master Servicer
shall notify the Indenture Trustee that any assumption and modification
agreement has been completed by delivering to the Indenture Trustee an
Officer's Certificate certifying that such agreement is in compliance with
this Section and by forwarding to the applicable Servicer on behalf of the
Depositor or the Indenture Trustee, as applicable, the original copy of such
assumption and modification agreement. Any such assumption and modification
agreement shall, for all purposes, be considered a part of the related
Mortgage File to the same extent as all other documents and instruments
constituting a part thereof. No change in the terms of the related Mortgage
Note may be made by the Master Servicer in connection with any such assumption
to the extent that such change would not be permitted to be made in respect of
the original Mortgage Note pursuant to Section 3.01 unless the conditions
specified in Section 3.01 are satisfied. Any fee collected by the Master
Servicer for entering into any such agreement will be retained by the Master
Servicer as additional servicing compensation.
SECTION 3.06 Realization Upon Defaulted Home Equity Loans.
(a) The Master Servicer (or the Master Servicer together with the
related Seller as called for by the Home Equity Loan Purchase Agreement) shall
foreclose upon or otherwise comparably convert to ownership Mortgaged
Properties securing such of the Home Equity Loans
43
as come into and continue in default when, in the opinion of the Master
Servicer based upon the practices and procedures referred to in the following
sentence, no satisfactory arrangements can be made for collection of
delinquent payments pursuant to Section 3.02; provided that if the Master
Servicer has actual knowledge or reasonably believes that any Mortgaged
Property is affected by hazardous or toxic wastes or substances and that the
acquisition of such Mortgaged Property would not be commercially reasonable,
then the Master Servicer will not cause the Trust to acquire title to such
Mortgaged Property in a foreclosure or similar proceeding. In connection with
such foreclosure or other conversion, the Master Servicer shall follow such
practices (including, in the case of any default on a related senior mortgage
loan, the advancing of funds to correct such default) and procedures as it
shall deem necessary or advisable and as shall be normal and usual in its
general mortgage servicing activities. The foregoing is subject to the proviso
that the Master Servicer shall not be required to expend its own funds in
connection with any foreclosure or towards the correction of any default on a
related senior mortgage loan or restoration of any property unless it shall
determine that such expenditure will increase Net Liquidation Proceeds. The
Master Servicer will be reimbursed out of Liquidation Proceeds for advances of
its own funds to pay Liquidation Expenses before any Net Liquidation Proceeds
are deposited in the Collection Account.
(b) In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall (i) so long as at least two of ▇▇▇▇▇'▇, Standard & Poor's and Fitch
assign a long-term unsecured debt rating to the Master Servicer of at least
"Baa3", in the case of ▇▇▇▇▇'▇, "BBB", in the case of Fitch, and "BBB-" in the
case of Standard & Poor's, be issued in the name of the related Servicer or
(ii) if the rating requirements in clause (i) are not satisfied, be issued to
the Indenture Trustee, or to its nominee on behalf of Noteholders.
SECTION 3.07 [Reserved].
SECTION 3.08 Indenture Trustee to Cooperate.
(a) Upon any payment in full of the Principal Balance of any Home
Equity Loan, the Master Servicer is authorized to execute, pursuant to the
authorization contained in Section 3.01, if the assignments of Mortgage have
been recorded as required hereunder, an instrument of satisfaction regarding
the related Mortgage or written evidence of cancellation thereon and to cause
the removal from the registration on the MERS(R) System of such Mortgage,
which instrument of satisfaction shall be recorded by the Master Servicer if
required by applicable law and be delivered to the Person entitled thereto. It
is understood and agreed that no expenses incurred in connection with such
instrument of satisfaction or transfer shall be reimbursed from amounts
deposited in the Collection Account. If the Indenture Trustee is holding the
Mortgage Files, from time to time and as appropriate for the servicing or
foreclosure of any Home Equity Loan, the Indenture Trustee shall, upon request
of the Master Servicer and delivery to the Indenture Trustee of a trust
receipt signed by a Servicing Officer, release the related Mortgage File to
the Master Servicer, and the Indenture Trustee shall execute such documents as
shall be necessary to the prosecution of any such proceedings or the taking of
other servicing actions. Such trust receipt shall obligate the Master Servicer
to return the Mortgage File to the Indenture Trustee when the need therefor by
the Master Servicer no longer exists unless the Home Equity
44
Loan shall be liquidated, in which case, upon receipt of an Officer's
Certificate of the Master Servicer, the trust receipt shall be released by the
Indenture Trustee to the Master Servicer.
(b) In order to facilitate the foreclosure of the Mortgage securing
any Home Equity Loan that is in default following recordation of the
assignments of Mortgage in accordance with the provisions hereof, the Trust
shall, if the Master Servicer so requests in writing and supplies the Trust
with appropriate forms therefor, assign such Home Equity Loan for the purpose
of collection to the Master Servicer or to the related Servicer (any such
assignment shall unambiguously indicate that the assignment is for the purpose
of collection only), and, upon such assignment, such assignee for collection
will thereupon bring all required actions in its own name and otherwise
enforce the terms of the Home Equity Loan and deposit or credit the Net
Liquidation Proceeds received with respect thereto in the Collection Account.
In the event that all delinquent payments due under any such Home Equity Loan
are paid by the Mortgagor and any other defaults are cured then the assignee
for collection shall promptly reassign such Home Equity Loan to the Indenture
Trustee and return it to the place where the related Mortgage File was being
maintained.
SECTION 3.09 Servicing Compensation; Payment of Certain Expenses by
Master Servicer. So long as HSBC Finance or one of its Affiliates is the
Master Servicer, the Servicing Fee for each Collection Period ending on or
before September 30, 2006 shall be paid pursuant to Section 5.01(a)(xix). The
Master Servicer shall be entitled to receive the Servicing Fee as compensation
for its services in connection with servicing the Home Equity Loans. On any
Payment Date prior to the November 2006 Payment Date when HSBC Finance or one
of its Affiliates is not the Master Servicer or on any Payment Date on and
after the November 2006 Payment Date regardless of whether HSBC Finance or one
of its Affiliates is the Master Servicer, the Servicing Fee for each
Collection Period shall be paid to the Master Servicer out of Interest
Collections prior to their deposit in the Collection Account and shall not be
the responsibility or liability of the Trust, the Owner Trustee, the Indenture
Trustee, the Administrator, the Noteholders or the Transferor in respect of
the Ownership Interest. Additional servicing compensation in the form of late
payment charges or other receipts not required to be deposited in the
Collection Account shall be retained by the Master Servicer. The Master
Servicer shall be required to pay all expenses incurred by it in connection
with its activities hereunder (including payment of Owner Trustee,
Administrator and Indenture Trustee fees, expenses and indemnifications due to
the Indenture Trustee under Section 6.7 of the Indenture, due to the
Administrator under Section 6.16 of the Indenture, and all other fees and
expenses not expressly stated hereunder to be for the account of the
Noteholders and the Transferor in respect of the Ownership Interest) and shall
not be entitled to reimbursement therefor except as specifically provided
herein.
SECTION 3.10 Annual Statement as to Compliance.
(a) The Master Servicer will deliver to the Indenture Trustee and a
copy to each of the Rating Agencies, on or before March 31 of each year,
beginning March 31, 2006, an Officer's Certificate stating that (i) a review
of the activities of the Master Servicer during the preceding calendar year
(or in the case of the Officer's Certificate delivered in 2006, from the
Closing Date) and of its performance under this Agreement has been made under
such officer's supervision and (ii) to the best of such officer's knowledge,
based on such review, the Master
45
Servicer has fulfilled all its material obligations under this Agreement
throughout such year (or in the case of the Officer's Certificate delivered in
2006, from the Closing Date), or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known to such
officer and the nature and status thereof. Copies of such Officer's
Certificate shall be provided by the Master Servicer to any Noteholder upon
written request at the Master Servicer's expense.
(b) The Master Servicer shall deliver to the Indenture Trustee and a
copy to each of the Rating Agencies, promptly after having obtained knowledge
thereof, but in no event later than five Business Days thereafter, written
notice by means of an Officer's Certificate of any event which with the giving
of notice or the lapse of time or both, would become a Master Servicer
Termination Event.
SECTION 3.11 Annual Servicing Report.
(a) On or before March 31 of each year, beginning March 31, 2006, the
Master Servicer at its expense shall cause a firm of nationally recognized
independent public accountants (who may also render other services to the
Master Servicer) to furnish a written report to the Indenture Trustee and the
Administrator, with a copy to each of the Rating Agencies, to the effect that,
for the prior calendar year (or in the case of the report delivered in 2006,
from the Closing Date) (i) such firm has performed procedures in order to
provide a report on the Master Servicer's assertion that the servicing of Home
Equity Loans by the Master Servicer during the relevant period under this
Agreement has been conducted in compliance with the terms and conditions set
forth in this Agreement related to the servicing of the Home Equity Loans and
the reporting thereof and (ii) that the Master Servicer's assertion is fair
and accurate in all material respects.
(b) In the event such firm requires the Indenture Trustee to agree to
the procedures performed by such firm, the Master Servicer shall direct the
Indenture Trustee in writing to so agree; it being understood and agreed that
the Indenture Trustee will deliver such letter of agreement in conclusive
reliance upon the direction of the Master Servicer, and the Indenture Trustee
need not make any independent inquiry or investigation as to, and shall have
no obligation or liability in respect of, the sufficiency, validity or
correctness of such procedures. The Master Servicer also hereby agrees to
reimburse the Indenture Trustee for any cost, expenses or indemnities incurred
as a result of the Indenture Trustee following such direction.
SECTION 3.12 Access to Certain Documentation and Information
Regarding the Home Equity Loans.
(a) The Master Servicer and the Servicers shall provide to the
Indenture Trustee, the Owner Trustee, the Transferor in respect of the
Ownership Interest, the Noteholders that are federally insured savings and
loan associations, the Office of Thrift Supervision, the successor to the
Federal Home Loan Bank Board, the FDIC and the supervisory agents and
examiners of the Office of Thrift Supervision access to the documentation
regarding the Home Equity Loans required by applicable regulations of the
Office of Thrift Supervision and the FDIC (acting as operator of the SAIF or
the BIF), such access being afforded without charge but only upon reasonable
request and during normal business hours at the offices of the Master Servicer
or the Servicers. Nothing in this Section shall derogate from the obligation
of the Master Servicer to
46
observe any applicable law prohibiting disclosure of information regarding the
Mortgagors, and the failure of the Master Servicer to provide access as
provided in this Section as a result of such obligation shall not constitute a
breach of this Section.
(b) No later than the Determination Date preceding the related
Payment Date, the Master Servicer shall supply information in such form as the
Administrator shall reasonably request to the Administrator and the Paying
Agent as is required to enable the Paying Agent or the Administrator, as the
case may be, to make the required payments to Noteholders on such Payment
Date.
SECTION 3.13 Maintenance of Certain Servicing Insurance Policies. The
Master Servicer shall during the term of its service as master servicer
maintain in force (i) a policy or policies of insurance covering errors and
omissions in the performance of its obligations as master servicer hereunder
and (ii) a fidelity bond in respect of its officers, employees or agents. Each
such policy or policies and bond shall, together, comply with the requirements
from time to time of ▇▇▇▇▇▇ ▇▇▇ for Persons performing servicing for mortgage
loans purchased by such association.
SECTION 3.14 Reports to the Securities and Exchange Commission. The
Master Servicer shall, on behalf of the Trust, cause to be filed with the
Securities and Exchange Commission any periodic reports required to be filed
under the provisions of the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Securities and Exchange Commission
thereunder.
SECTION 3.15 [Reserved].
SECTION 3.16 Information Required by the Internal Revenue Service
Generally and Reports of Foreclosures and Abandonments of Mortgaged Property.
The Master Servicer shall prepare and deliver, or cause to be prepared, mailed
and filed all federal and state information reports for the Home Equity Loans
when and as required by all applicable state and federal income tax laws
including, to the extent applicable, returns reporting a cancellation of
indebtedness as prescribed by Section 6050P of the Code. In particular, with
respect to the requirement under Section 6050J of the Code, to the effect that
a lender shall be required to report foreclosures and abandonments of any
mortgaged property for each year beginning in 2005, the Master Servicer shall
prepare, mail and file in a timely fashion each year as required by law
information statements in accordance with the reporting requirements imposed
by Section 6050J with respect to each instance occurring during the previous
calendar year in which the Master Servicer or any Servicer (i) on behalf of
the Indenture Trustee acquired an interest in any Mortgaged Property through
foreclosure or other comparable conversion in full or partial satisfaction of
a Home Equity Loan or (ii) knew or had reason to know that any Mortgaged
Property has been abandoned. The information statements from the Master
Servicer shall be in form and substance sufficient to meet the reporting
requirements imposed by Section 6050J of the Code.
47
SECTION 3.17 Additional Covenants of HSBC Finance. HSBC Finance
hereby agrees that:
(a) it will maintain its books and records to clearly note the
separate corporate existence of the Depositor, each Servicer and the Master
Servicer;
(b) the Depositor, the Servicers and HSBC Finance will share certain
overhead expenses, although the amount the Depositor will be charged for such
use will be based on actual use to the extent practicable and, to the extent
such allocation is not practicable, on a basis reasonably related to use;
(c) separate financial records will be maintained to reflect the
assets and liabilities of the Depositor, HSBC Finance and each Servicer, which
financial records are and will be subject to audit by independent public
accountants at the reasonable request of the Board of Directors of the
Depositor, HSBC Finance or such Servicer, as the case may be;
(d) except as permitted hereunder, there will be no commingling of
the assets of the Depositor with the assets of HSBC Finance or any Servicer.
All demand deposit accounts and other bank accounts of the Depositor will be
maintained separately from those of HSBC Finance and the Servicers. Monetary
transactions between the Depositor and HSBC Finance or any Servicer are and
will continue to be properly reflected in their respective financial records;
(e) HSBC Finance at all times will recognize, and will take all steps
within its power to maintain, the corporate existence of the Depositor and
Servicers as being separate and apart from its own corporate existence and
will not refer to the Depositor or any Servicer as a department or division of
HSBC Finance; and
(f) Except as otherwise expressly provided herein, the Depositor and
HSBC Finance will not guaranty or advance the proceeds for payment of any
obligations of the Trust.
SECTION 3.18 Servicing Certificate. Not later than each Determination
Date, the Master Servicer shall deliver to the Indenture Trustee, the
Administrator, the Paying Agent and each Rating Agency a Servicing Certificate
containing the information set forth below with respect to the Home Equity
Loans on an aggregate basis as of the end of the preceding Collection Period
(in written form or the form of computer readable media or such other form as
may be agreed to by the Administrator and the Master Servicer), together with
an Officer's Certificate to the effect that such Servicing Certificate is true
and correct in all material respects, stating the related Collection Period,
Payment Date, the series number of the Notes, the date of this Agreement, and:
(i) the Available Payment Amount for such Payment Date,
separately stating the amount of Interest Collections and Principal
Collections;
(ii) the amount of the payments due to Holders of the each
Class of Notes for such Payment Date, separately stating the portions
thereof allocable to interest and allocable to principal;
48
(iii) the amount of any Interest Carry Forward Amount and
Supplemental Interest Amount for each Class of Notes paid on such
Payment Date and the amount of any Interest Carry Forward Amount or
Supplemental Interest Amount for each Class of Notes remaining after
giving effect to the payments on such Payment Date;
(iv) the amount of any Extra Principal Payment Amount for
such Payment Date, including the amounts payable in respect thereof
to each Class of Notes on such Payment Date;
(v) the Principal Payment Amount for such Payment Date,
separately stating the components thereof, including in each case the
amounts payable in respect thereof to each Class of Notes on such
Payment Date;
(vi) the Principal Carry Forward Amount for each Class of
Notes for such Payment Date and the amount of any Principal Carry
Forward Amount for each Class of Notes remaining after giving
effect to the payments on such Payment Date;
(vii) the Note Principal Amount of each Class of Notes, the
Pool Balance as reported in the prior Monthly Payment Statement
or, in the case of the first Determination Date, the Original Note
Principal Amount for each Class of Notes and the Cut-Off Date Pool
Balance;
(viii) the number and aggregate Principal Balance of any
Home Equity Loan purchased or substituted by the Depositor or the
Master Servicer with respect to the related Collection Period
pursuant to Section 2.02;
(ix) the number and aggregate Principal Balance of any Home
Equity Loan purchased or substituted by the Depositor or the
Master Servicer with respect to the related Collection Period
pursuant to Section 2.04;
(x) the number and aggregate Principal Balance of any Home
Equity Loan purchased or substituted by the Depositor or the
Master Servicer with respect to the related Collection Period
pursuant to Section 3.01;
(xi) the number and aggregate Principal Balance of any Home
Equity Loan that the Master Servicer has consented to the
placement of a senior lien during the related Collection Period
pursuant to Section 3.01(a);
(xii) the amount of any Substitution Adjustment Amounts for
such Payment Date;
(xiii) the amount to be paid to the Transferor in respect of
the Ownership Interest for the related Payment Date pursuant to
Section 5.01(a)(xx);
(xiv) the Note Principal Amount for each Class of Notes
after giving effect to the payment to be made on the related Payment
Date;
49
(xv) the Servicing Fee for the related Collection Period and
any accrued amounts thereof that remain unpaid for previous Collection
Periods;
(xvi) the amount of all payments or reimbursements to the
Master Servicer pursuant to Sections 3.03(ii) through (vii);
(xvii) the Overcollateralization Amount, the Interim
Overcollateralization Amount, the Interim Overcollateralization
Deficiency, the Overcollateralization Release Amount, the Targeted
Overcollateralization Amount, and the Monthly Excess Cashflow for
such Payment Date;
(xviii) the number of Home Equity Loans outstanding at the
beginning and at the end of the related Collection Period;
(xix) the Pool Balance as of the end of the related
Collection Period;
(xx) the number and aggregate Principal Balances of Home
Equity Loans (x) as to which one, two or three or more scheduled
monthly payments, respectively, are contractually delinquent, and
(y) that have become REO, in each case as of the end of such
Collection Period;
(xxi) the unpaid principal amount of all Home Equity Loans
that became Liquidated Home Equity Loans during such Collection
Period;
(xxii) the Cumulative Realized Losses on the Home Equity
Loans for the related Collection Period;
(xxiii) the Two Payment-Plus Delinquency Percentage for the
related Collection Period;
(xxiv) the Two Payment-Plus Rolling Average for such Payment
Date;
(xxv) LIBOR for such Payment Date;
(xxvi) whether a Master Servicer Termination Event has
occurred since the prior Determination Date, specifying each such
Master Servicer Termination Event if one has occurred;
(xxvii) whether an Event of Default has occurred and is
continuing;
(xxviii) the Class A-1 Formula Rate, Class A-1 Note Rate,
Class A-2 Formula Rate, Class A-2 Note Rate, Class M-1 Formula Rate,
Class M-1 Note Rate, Class M-2 Formula Rate, Class M-2 Note Rate and
the Available Funds Cap for such Payment Date;
(xxix) the amount of any Skip-A-Pay Advances for the related
Collection Period;
(xxx) the Skip-A-Pay Reimbursement Amount for such Payment
Date;
50
(xxxi) the Cumulative Loss Percentage for the related
Collection Period;
(xxxii) whether a Trigger Event has occurred and is
continuing; and
(xxxiii) such other information as is required by the Code
and regulations thereunder to be made available to Holders of any
Class of the Notes.
The Administrator, the Indenture Trustee and the Paying Agent shall
conclusively rely upon the information contained in a Servicing Certificate
for purposes of making payments pursuant to the terms of this Agreement, shall
have no duty to inquire into such information and shall have no liability in
so relying. The format and content of the Servicing Certificate may be
modified by the mutual agreement of the Master Servicer and the Administrator
or as may be required by the rules and regulations of the Securities and
Exchange Commission. The Master Servicer shall give notice of any such change
to the Rating Agencies.
51
ARTICLE IV.
[RESERVED]
52
ARTICLE V.
PRIORITY OF PAYMENTS; STATEMENTS TO
-----------------------------------
NOTEHOLDERS; RIGHTS OF NOTEHOLDERS
----------------------------------
SECTION 5.01 Payments.
(a) Payments of Net Interest Collections and Principal Collections.
Pursuant to Section 3.1 of the Indenture, on each Payment Date, the Paying
Agent, with respect to the Notes and the Ownership Interest, shall distribute
out of the Collection Account, to the extent of the Available Payment Amount,
the following amounts and in the following order of priority to the following
Persons (in accordance with the information set forth in the Servicing
Certificate):
(i) to the Class A-1 Notes and the Class A-2 Notes, pro rata,
the Current Interest plus the Interest Carry Forward Amount with
respect to each such Class of Notes for such Payment Date;
(ii) to the Class M-1 Notes, the Current Interest plus the
Interest Carry Forward Amount with respect to the Class M-1 Notes for
such Payment Date;
(iii) to the Class M-2 Notes, the Current Interest plus the
Interest Carry Forward Amount with respect to the Class M-2 Notes for
such Payment Date;
(iv) to the Class A-1 Notes until the Note Principal Amount
of the Class A-1 Notes has been reduced to zero, 60.889461811% of the
Principal Payment Amount for such Payment Date;
(v) to the Class A-1 Notes, the Principal Carry Forward
Amount with respect to the Class A-1 Notes for such Payment Date;
(vi) to the Class A-1 Notes until the Note Principal Amount
of the Class A-1 Notes has been reduced to zero, 60.889461811% of the
Additional Principal Reduction Amount for such Payment Date;
(vii) to the Class A-2 Notes until the Note Principal Amount
of the Class A-2 Notes has been reduced to zero, 15.211086046% of the
Principal Payment Amount for such Payment Date;
(viii) to the Class A-2 Notes, the Principal Carry Forward
Amount with respect to the Class A-2 Notes for such Payment Date;
(ix) to the Class A-2 Notes until the Note Principal Amount
of the Class A-2 Notes has been reduced to zero, 15.211086046% of the
Additional Principal Reduction Amount for such Payment Date;
(x) to the Class M-1 Notes until the Note Principal Amount
of the Class M-1 Notes has been reduced to zero, 13.206574283% of
the Principal Payment Amount for such Payment Date;
(xi) to the Class M-1 Notes, the Principal Carry Forward
Amount with respect to the Class M-1 Notes for such Payment Date;
53
(xii) to the Class M-1 Notes until the Note Principal Amount
of the Class M-1 Notes has been reduced to zero, 13.206574283% of the
Additional Principal Reduction Amount for such Payment Date;
(xiii) to the Class M-2 Notes until the Note Principal Amount
of the Class M-2 Notes has been reduced to zero, 10.692877860% of the
Principal Payment Amount for such Payment Date;
(xiv) to the Class M-2 Notes, the Principal Carry Forward
Amount with respect to the Class M-2 Notes for such Payment Date;
(xv) to the Class M-2 Notes until the Note Principal Amount
of the Class M-2 Notes has been reduced to zero, 10.692877860% of the
Additional Principal Reduction Amount for such Payment Date;
(xvi) concurrently, to the Class A-1 Notes, Class A-2 Notes,
Class M-1 Notes and Class M-2 Notes until the Note Principal Amount
of each such Class of Notes has been reduced to zero, 60.889461811%,
15.211086046%, 13.206574283% and 10.692877860% of the Extra Principal
Payment Amount for such Payment Date, respectively;
(xvii) to the Class A-1 Notes, Class A-2 Notes, Class M-1
Notes and Class M-2 Notes, pro rata based on unpaid Supplemental
Interest Amounts, the outstanding Supplemental Interest Amount for
such Class and for such Payment Date;
(xviii) to the Owner Trustee on behalf of the Trust, an
amount sufficient to pay any judgment or settlement affecting the
Trust;
(xix) so long as HSBC Finance or one of its Affiliates is
the Master Servicer, to the Master Servicer, all accrued and unpaid
Servicing Fees for each Collection Period ending prior to the
Collection Period ending on October 31, 2006; and
(xx) to the Transferor in respect of the Ownership Interest,
any remaining Available Payment Amount; provided, however, that on
any Payment Date after the earlier of (i) the date on which the
first auction conducted by the Indenture Trustee, or an agent of
the Indenture Trustee, pursuant to Section 8.01(c) does not
produce any bid at least equal to the Termination Price or (ii)
the October 2015 Payment Date, any remaining amount available for
payment pursuant to this Section 5.01(a)(xx) shall instead be paid
concurrently, 60.889461811% to the Class A-1 Notes, 15.211086046%
to the Class A-2 Notes, 13.206574283% to the Class M-1 Notes and
10.692877860% to the Class M-2 Notes, in reduction of the
applicable Note Principal Amount of each Class;
provided, that if the Indenture Trustee or the Administrator collects
any money or property pursuant to Article V of the Indenture, the Indenture
Trustee, the Administrator and the Paying Agent shall pay out the money or
property as provided in Section 5.4(b) of the Indenture; provided, further,
that to the extent the Note Principal Amount of any Class of Notes has been
reduced to zero, then 100% of any applicable amounts described above will be
paid to the Class of Notes with the immediately subordinate payment priority
until the Note Principal Amount of such Class of Notes has been reduced to
zero; and provided, further, that if on the Business Day immediately preceding
any Payment Date the Master Servicer does not deposit funds into the
54
Collection Account relating to amounts payable on that Payment Date pursuant
to Section 5.01(a)(xix) through (xx) above, then on that Payment Date the
Master Servicer shall, from payments and collections on the Home Equity Loans
received by the Master Servicer during the related Collection Period and not
deposited into the Collection Account, (i) pay to itself all amounts, if any,
payable pursuant to Section 5.01(a)(xix) above and (ii) pay to the Transferor
all amounts, if any, payable to the Transferor pursuant to Section 5.01(a)(xx)
above.
(b) Method of Payment. The Administrator or the Paying Agent shall
make payments in respect of a Payment Date to each Noteholder of record on the
related Record Date (other than as provided in Section 8.01 respecting the
final payment) by wire transfer, or upon prior written request by a Noteholder
delivered to the Administrator at least five Business Days prior to such
Record Date, by check or money order mailed to such Noteholder at the address
appearing in the Note Register, or by such other means of payment as such
Noteholder and the Administrator shall agree. Payments among Noteholders shall
be made in proportion to the Percentage Interests evidenced by the Notes held
by such Noteholders. The Administrator, acting in its capacity as Paying
Agent, shall make payments in respect of a Payment Date to the Transferor of
record on the related Record Date, in respect of the Ownership Interest by
wire transfer or by such other means of payment as the Transferor and the
Paying Agent shall agree; provided, that if such payments are being paid
directly to the Transferor by the Master Servicer in accordance with Section
5.01(a) above, then such payments shall be made by wire transfer or by such
other means of payment as the Transferor and the Master Servicer shall agree.
(c) Payments on Book-Entry Notes. Each payment with respect to a
Book-Entry Note shall be paid to the Depository, which shall credit the amount
of such payment to the accounts of its Depository Participants in accordance
with its normal procedures. Each Depository Participant shall be responsible
for disbursing such payment to the Note Owners that it represents and to each
indirect participating brokerage firm (a "brokerage firm" or "indirect
participating firm") for which it acts as agent. Each brokerage firm shall be
responsible for disbursing funds to the Note Owners that it represents. All
such credits and disbursements with respect to a Book-Entry Note are to be
made by the Depository and the Depository Participants in accordance with the
provisions of the applicable Class of Notes. None of the Indenture Trustee,
the Administrator, the Paying Agent, the Note Registrar, the Trust or the
Master Servicer shall have any responsibility therefor except as otherwise
provided by applicable law.
SECTION 5.02 Calculation of LIBOR, the Formula Rate.
(a) Calculation of the Formula Rate. On or prior to each LIBOR
Determination Date, the Master Servicer shall determine the Formula Rate for
each Class of Notes for the related Payment Date based on the determination of
LIBOR made by the Administrator as set forth in this Section 5.02.
(b) Calculation of LIBOR. Until the Principal Balance of each Class
of the Notes has been reduced to zero, the Administrator shall establish LIBOR
on each LIBOR Determination Date as follows:
55
(i) If on such LIBOR Determination Date a rate for United
States dollar deposits for one month appears on the Dow ▇▇▇▇▇ Telerate
System, page 3750, LIBOR for the next Accrual Period shall be equal
to such rate as of 11:00 A.M., London time;
(ii) If such rate does not appear on such page (or such
other page as may replace that page on that service, or if such
service is no longer offered, such other service for displaying LIBOR
or comparable rates as may be selected by the Administrator after
consultation with the Master Servicer), the rate shall be determined
as follows:
(x) The Administrator on the LIBOR Determination Date will
request the principal London offices of each of four major
reference banks in the London interbank market, as selected
by the Administrator, to provide the Administrator with its
offered quotation for deposits in United States dollars for
the upcoming one-month period, commencing on the second
LIBOR Business Day immediately following such LIBOR
Determination Date, to prime banks in the London interbank
market at approximately 11:00 a.m. London time on such LIBOR
Determination Date and in a principal amount that is
representative for a single transaction in United States
dollars in such market at such time. If at least two such
quotations are provided, LIBOR determined on such LIBOR
Determination Date will be the arithmetic mean of such
quotations.
(y) If fewer than two quotations are provided, LIBOR
determined on such LIBOR Determination Date will be the
arithmetic mean of the rates quoted at approximately 11:00
a.m. in New York City on such LIBOR Determination Date by
three major banks in New York City selected by the
Administrator for one-month United States dollar loans to
leading European banks, in a principal amount that is
representative for a single transaction in United States
dollars in such market at such time; provided, however, that
if the banks so selected by the Administrator are not
quoting as mentioned in this sentence, LIBOR determined on
such LIBOR Determination Date will continue to be LIBOR as
then currently in effect on such LIBOR Determination Date.
(iii) The establishment of LIBOR on each LIBOR Determination
Date by the Administrator and the Master Servicer's calculation of
the rate of interest applicable to the Notes for the related Accrual
Period shall (in the absence of manifest error) be final and binding.
The Administrator shall, upon determination of LIBOR for the relevant
Accrual Period, inform the Master Servicer (at the facsimile number
given to the Administrator in writing) of such rates.
SECTION 5.03 Statements to Noteholders. (a) On each Payment Date, the
Master Servicer shall deliver a copy of the applicable Servicing Certificate
delivered to the Administrator pursuant to Section 3.18 to each Noteholder
concurrently with each payment to Noteholders (the "Monthly Payment
Statement").
In the case of information furnished pursuant to clauses (ii) and
(iii) of Section 3.18, the amounts shall be expressed, in a separate section
of the report, as a dollar amount per Class A-1
56
Note, Class A-2 Note, Class M-1 Note or Class M-2 Note, as applicable, for
each Note for each $1,000 original dollar amount as of the Cut-Off Date.
The Master Servicer will make the reports referred to in this section
(and, at its option, any additional files containing the same information in
an alternative format) available each month to Noteholders and other parties
to this Agreement via the Master Servicer's website, which is presently
located at ▇▇▇.▇▇▇▇▇▇▇.▇▇▇/▇▇▇▇_▇▇▇▇▇▇▇/▇▇▇. Persons that are unable to use
the above website are entitled to have a paper copy mailed to them via first
class mail by requesting a paper copy in a written request addressed to the
Master Servicer at the address listed in Section 9.05. The Master Servicer
shall have the right to change the way the reports referred to in this section
are distributed in order to make such distribution more convenient and/or more
accessible to the above parties and to the Noteholders. The Master Servicer
shall provide timely and adequate notification to the Administrator, who shall
thereupon provide a copy of such notification to the Noteholders, regarding
any such change.
(b) The Administrator shall prepare or cause to be prepared (in a
manner consistent with the treatment of the Notes as indebtedness of the
Trust, or as may be otherwise required by Section 3.16 herein) Internal
Revenue Service Form 1099 (or any successor form) and any other tax forms
required to be filed or furnished to Noteholders in respect of payments by the
Administrator (or the Paying Agent) on the Notes and shall file and distribute
such forms as required by law.
(c) Reports and computer tapes furnished by the Master Servicer
pursuant to this Agreement shall be deemed confidential and of a proprietary
nature, and shall not be copied or distributed except to the extent provided
in this Agreement and to the extent required by law or to the Rating Agencies,
the Depositor and to the extent the Master Servicer instructs the
Administrator in writing to furnish information regarding the Trust or the
Home Equity Loans to third-party information providers. No Person entitled to
receive copies of such reports or tapes or lists of Noteholders shall use the
information therein for the purpose of soliciting the customers of the Seller
or for any other purpose except as set forth in this Agreement.
(d) On or before February 28 of each year, the Master Servicer shall
prepare or cause to be prepared and shall forward or give access to the
Administrator the information set forth in clauses (i) and (ii) of Section
3.18 aggregated for such calendar year. Such obligation of the Master Servicer
shall be deemed to have been satisfied to the extent that substantially
comparable information shall be provided by the Master Servicer pursuant to
any requirements of the Code.
57
ARTICLE VI.
THE MASTER SERVICER AND THE DEPOSITOR
-------------------------------------
SECTION 6.01 Liability of the Master Servicer and the Depositor. The
Master Servicer shall be liable in accordance herewith only to the extent of
the obligations specifically imposed upon and undertaken by the Master
Servicer herein. The Depositor shall be liable in accordance herewith only to
the extent of the obligations specifically imposed upon and undertaken by the
Depositor herein.
SECTION 6.02 Merger or Consolidation of, or Assumption of the
Obligations of, the Master Servicer or the Depositor. Any corporation into
which the Master Servicer or Depositor may be merged or consolidated, or any
corporation resulting from any merger, conversion or consolidation to which
the Master Servicer or the Depositor shall be a party, or any corporation
succeeding to the business of the Master Servicer or the Depositor, shall be
the successor of the Master Servicer or the Depositor, as the case may be,
hereunder, without the execution or filing of any paper or any further act on
the part of any of the parties hereto so long as such entity is investment
grade rated, anything herein to the contrary notwithstanding.
SECTION 6.03 Limitation on Liability of the Master Servicer, the
Depositor and Others. None of the Master Servicer, the Depositor, or any
director, officer, employee or agent of the Master Servicer or the Depositor
shall be under any liability to the Trust or the Noteholders for any action
taken or for refraining from the taking of any action by the Master Servicer
or the Depositor, as applicable, in good faith pursuant to this Agreement, or
for errors in judgment; provided, however, that this provision shall not
protect the Master Servicer, the Depositor or any such person against any
liability which would otherwise be imposed by reason of willful misfeasance,
bad faith or gross negligence in the performance of duties or by reason of
reckless disregard of obligations and duties hereunder, and that this
provision shall not be construed to entitle the Master Servicer to indemnity
in the event that amounts advanced by the Master Servicer to retire any senior
Lien exceed Net Liquidation Proceeds realized with respect to the related Home
Equity Loan. The Master Servicer, the Depositor and any director, officer,
employee or agent of the Master Servicer or the Depositor may rely in good
faith on any document of any kind prima facie properly executed and submitted
by any Person respecting any matters arising hereunder. The Master Servicer,
the Depositor and any director, officer, employee or agent of the Master
Servicer or the Depositor shall be indemnified by the Trust and held harmless
against any loss, liability or expense incurred in connection with any legal
action relating to this Agreement or the Notes, other than any loss, liability
or expense related to any specific Home Equity Loan or Home Equity Loans
(except as any such loss, liability or expense shall be otherwise reimbursable
pursuant to this Agreement) and any loss, liability or expense incurred by
reason of willful misfeasance, bad faith or gross negligence in the
performance of duties hereunder or by reason of reckless disregard of
obligations and duties hereunder. Neither the Master Servicer nor the
Depositor shall be under any obligation to appear in, prosecute or defend any
legal action which is not incidental to its respective duties under this
Agreement, and which in its opinion may involve it in any expense or
liability; provided, however, that the Master Servicer or the Depositor may,
in its sole discretion, undertake any such action which it may deem necessary
or desirable in respect of this Agreement and the rights and duties of the
58
parties hereto and the interests of the Noteholders hereunder. In such event,
the reasonable legal expenses and costs of such action and any liability
resulting therefrom and any claims by the Master Servicer or the Depositor
hereunder for indemnification shall be expenses, costs and liabilities of the
Trust, and the Master Servicer or the Depositor, as the case may be, shall be
entitled to be reimbursed therefor and indemnified pursuant to the terms
hereof from amounts deposited in the Collection Account as provided by Section
3.03. The Master Servicer's and the Depositor's right to indemnity or
reimbursement pursuant to this Section shall survive any resignation or
termination of the Master Servicer pursuant to Section 6.04 or 7.01 with
respect to any losses, expenses, costs or liabilities arising prior to such
resignation or termination (or arising from events that occurred prior to such
resignation or termination). The Master Servicer shall have no claim (whether
by subrogation or otherwise) or other action against any Noteholder for any
amounts paid by the Master Servicer pursuant to any provision of this
Agreement.
SECTION 6.04 Master Servicer Not to Resign. Subject to the provisions
of Section 6.02, the Master Servicer shall not resign from the obligations and
duties hereby imposed on it except (i) upon determination that the performance
of its obligations or duties hereunder are no longer permissible under
applicable law or are in material conflict by reason of applicable law with
any other activities carried on by it or its subsidiaries or Affiliates, the
other activities of the Master Servicer so causing such a conflict being of a
type and nature carried on by the Master Servicer or its subsidiaries or
Affiliates at the date of this Agreement or (ii) upon satisfaction of the
following conditions: (a) the Master Servicer has proposed a successor
servicer to the Indenture Trustee in writing and such proposed successor
servicer is reasonably acceptable to the Indenture Trustee; (b) each Rating
Agency shall have confirmed to the Indenture Trustee that the appointment of
such proposed successor servicer as Master Servicer hereunder will not result
in the reduction or withdrawal of the then-current rating of any Class of
Notes; and (c) such proposed successor servicer has agreed in writing to
assume the obligations of Master Servicer hereunder and the Master Servicer
has delivered to the Indenture Trustee an Opinion of Counsel to the effect
that all conditions precedent to the resignation of the Master Servicer and
the appointment of and acceptance by the proposed successor servicer have been
satisfied; provided, however, that in the case of clause (i) above no such
resignation by the Master Servicer shall become effective until the Indenture
Trustee shall have assumed the Master Servicer's responsibilities and
obligations hereunder or the Indenture Trustee shall have designated a
successor servicer in accordance with Section 7.02. Any such resignation shall
not relieve the Master Servicer of responsibility for any of the obligations
specified in Sections 7.01 and 7.02 as obligations that survive the
resignation or termination of the Master Servicer. Any such determination
permitting the resignation of the Master Servicer pursuant to clause (i) above
shall be evidenced by an Opinion of Counsel to such effect delivered to the
Indenture Trustee.
SECTION 6.05 Delegation of Duties. In the ordinary course of
business, the Master Servicer at any time may delegate any of its duties
hereunder to any Person, including any of its Affiliates, who agrees to
conduct such duties in accordance with standards comparable to those with
which the Master Servicer complies pursuant to Section 3.01. Such delegation
shall not relieve the Master Servicer of its liabilities and responsibilities
with respect to such duties and shall not constitute a resignation within the
meaning of Section 6.04. The Master Servicer shall provide each Rating Agency,
the Owner Trustee and the Indenture Trustee with written notice prior to the
delegation of any of its duties to any Person other than any of the Master
Servicer's Affiliates or their respective successors and assigns.
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ARTICLE VII.
MASTER SERVICER TERMINATION
---------------------------
SECTION 7.01 Master Servicer Termination Events.
If any one of the following events ("Master Servicer Termination
Events") shall occur and be continuing:
(a) Any failure by the Master Servicer to deposit in the Collection
Account any deposit required to be made under the terms of this Agreement
which continues unremedied for a period of five (5) Business Days after the
date upon which written notice of such failure shall have been given to the
Master Servicer by the Indenture Trustee, the Administrator or the Depositor,
or to the Master Servicer, the Depositor, the Indenture Trustee and the
Administrator by the Majority Noteholder; or
(b) Any failure on the part of the Master Servicer duly to observe or
perform in any material respect any other covenants or agreements of the
Master Servicer set forth in the Notes or in this Agreement (including
covenants in Section 2.03), which failure (A) materially and adversely affects
the interests of Noteholders and (B) continues unremedied for a period of
sixty (60) days after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to the Master
Servicer by the Indenture Trustee or the Depositor, or to the Master Servicer,
the Depositor and the Indenture Trustee by the Majority Noteholder; or
(c) The entry against the Master Servicer of a decree or order by a
court or agency or supervisory authority having jurisdiction in the premises
for the appointment of a trustee, conservator, receiver or liquidator in any
insolvency, conservatorship, receivership, readjustment of debt, marshalling
of assets and liabilities or similar proceedings, or for the winding up or
liquidation of its affairs, and the continuance of any such decree or order
unstayed and in effect for a period of 60 consecutive days; or
(d) The consent by the Master Servicer to the appointment of a
trustee, conservator, receiver or liquidator in any insolvency,
conservatorship, receivership, readjustment of debt, marshalling of assets and
liabilities or similar proceedings of or relating to the Master Servicer or of
or relating to substantially all of its property; or the Master Servicer shall
admit in writing its inability to pay its debts generally as they become due,
file a petition to take advantage of any applicable insolvency or
reorganization statute, make an assignment for the benefit of its creditors,
or voluntarily suspend payment of its obligations;
then, and in each and every case, so long as a Master Servicer Termination
Event shall not have been remedied by the Master Servicer, either the
Indenture Trustee or the Depositor may, and at the direction of the Majority
Noteholder, the Indenture Trustee shall, by notice then given in writing to
the Master Servicer, the Depositor and the Indenture Trustee, as applicable,
terminate all of the rights and obligations of the Master Servicer as master
servicer under this Agreement; provided, however, that the responsibilities
and duties of the initial Master Servicer with respect
60
to the purchase of Home Equity Loans pursuant to Sections 2.02, 2.04(c) and
3.01 shall not terminate. Any such notice to the Master Servicer shall also be
given to each Rating Agency. On or after the receipt by the Master Servicer of
such written notice, all authority and power of, and all benefits accruing to,
the Master Servicer under this Agreement, whether with respect to the Notes or
the Home Equity Loans or otherwise, shall pass to and be vested in the
Indenture Trustee or, if a successor Master Servicer has been appointed under
Section 7.02, such successor Master Servicer pursuant to and under this
Section 7.01; and, without limitation, the Indenture Trustee is hereby
authorized and empowered to execute and deliver, on behalf of the Master
Servicer, as attorney-in-fact or otherwise, any and all documents and other
instruments, and to do or accomplish all other acts or things necessary or
appropriate to effect the purposes of such notice of termination, whether to
complete the transfer and endorsement of each Home Equity Loan and related
documents, or otherwise. The Master Servicer agrees to cooperate with the
Indenture Trustee in effecting the termination of the responsibilities and
rights of the Master Servicer hereunder, including, without limitation, the
transfer to the Indenture Trustee for the administration by it of all cash
amounts that shall at the time be held by the terminated Master Servicer and
to be deposited by it in the Collection Account, or that have been deposited
by the terminated Master Servicer in the Collection Account or thereafter
received by the terminated Master Servicer with respect to the Home Equity
Loans, and the recordation of Assignments of Mortgages to the Trust if MERS is
not the mortgagee of a Home Equity Loan or otherwise in accordance with
Section 7.02(c).
Notwithstanding the foregoing, a delay in or failure of performance
under Section 7.01(a) for a period of five (5) Business Days or under Section
7.01(b) for a period of sixty (60) days, shall not constitute a Master
Servicer Termination Event if such delay or failure could not be prevented by
the exercise of reasonable diligence by the Master Servicer and such delay or
failure was caused by an act of God, acts of declared or undeclared war,
public disorder, terrorism, rebellion or sabotage, epidemics, landslides,
lightning, fire, hurricanes, earthquakes, floods or similar causes. The
preceding sentence shall not relieve the Master Servicer from using its best
efforts to perform its obligations in a timely manner in accordance with the
terms of this Agreement, and the Master Servicer shall provide the Indenture
Trustee, the Depositor and the Noteholders with an Officer's Certificate
giving prompt notice of such failure or delay by it, together with a
description of its efforts to so perform its obligations. The Master Servicer
shall immediately notify the Indenture Trustee and each Rating Agency in
writing of any Master Servicer Termination Events.
SECTION 7.02 Indenture Trustee to Act; Appointment of Successor.
(a) On and after the time the Master Servicer resigns pursuant to
Section 6.04(i) or receives a notice of termination pursuant to Section 7.01,
the Indenture Trustee shall be the successor in all respects to the Master
Servicer in its capacity as servicer under this Agreement and the transactions
set forth or provided for herein and shall be subject to all the
responsibilities, duties and liabilities relating thereto placed on the Master
Servicer by the terms and provisions hereof; provided, however, that the
responsibilities and duties of HSBC Finance as Master Servicer with respect to
the purchase of the Home Equity Loans pursuant to Sections 2.02, 2.04(c), 3.01
and the indemnification obligation pursuant to Section 2.04(d) shall not
terminate. As compensation therefor, the Indenture Trustee shall be entitled
to such compensation as the Master Servicer would have been entitled to
hereunder if no such notice of termination had been
61
given. Notwithstanding the above, (i) if the Indenture Trustee is unwilling to
act as successor Master Servicer, or (ii) if the Indenture Trustee is legally
unable so to act, the Indenture Trustee may (in the situation described in
clause (i)) or shall (in the situation described in clause (ii)) appoint, or
petition a court of competent jurisdiction to appoint, any housing and home
finance institution or other mortgage loan or home equity loan servicer having
all licenses and permits required in order to perform its obligations
hereunder and a net worth of not less than $50,000,000 as the successor to the
Master Servicer hereunder in the assumption of all or any part of the
responsibilities, duties or liabilities of the Master Servicer hereunder;
provided that the appointment of any such successor Master Servicer will not
result in the qualification, reduction or withdrawal of the then-current
rating assigned to any Class of Notes by the Rating Agencies, as evidenced by
a writing to such effect delivered to the Indenture Trustee, and any successor
Master Servicer appointed hereunder shall be reasonably acceptable to the
Depositor. Pending appointment of a successor to the Master Servicer
hereunder, unless the Indenture Trustee is prohibited by law from so acting,
the Indenture Trustee shall act in such capacity as hereinabove provided. In
connection with such appointment and assumption, the successor shall be
entitled to receive compensation out of payments on Home Equity Loans in an
amount equal to the compensation which the Master Servicer would otherwise
have received pursuant to Section 3.09 (or such lesser compensation as the
Indenture Trustee and such successor shall agree). The Indenture Trustee and
such successor shall take such action, consistent with this Agreement, as
shall be necessary to effectuate any such succession. All costs incurred in
transferring the servicing to a successor servicer shall be paid by the Master
Servicer.
(b) Any successor, including the Indenture Trustee, to the Master
Servicer as master servicer shall during the term of its service as master
servicer (i) continue to service and administer the Home Equity Loans for the
benefit of Noteholders and (ii) maintain in force a policy or policies of
insurance covering errors and omissions in the performance of its obligations
as Master Servicer hereunder and a fidelity bond in respect of its officers,
employees and agents to the same extent as the Master Servicer is so required
pursuant to Section 3.13. The appointment of a successor Master Servicer shall
not affect any liability of the predecessor Master Servicer which may have
arisen under this Agreement prior to its termination as Master Servicer
(including, without limitation, any deductible under an insurance policy
pursuant to Section 3.04), nor shall any successor Master Servicer be liable
for any acts or omissions of the predecessor Master Servicer or for any breach
by such Master Servicer or the Depositor of any of their representations or
warranties contained herein or in any related document or agreement.
(c) In connection with the termination or resignation of the Master
Servicer hereunder, either (i) the successor Master Servicer, including the
Indenture Trustee if the Indenture Trustee is acting as successor Master
Servicer, shall represent and warrant that it is a member of MERS in good
standing and shall agree to comply in all material respects with the rules and
procedures of MERS in connection with the servicing of the Home Equity Loans
that are registered with MERS, in which case the predecessor Master Servicer
shall cooperate with the successor Master Servicer in causing MERS to revise
its records to reflect the transfer of servicing to the successor Master
Servicer as necessary under MERS' rules and regulations, or (ii) the
predecessor Master Servicer shall cooperate with the successor Master Servicer
in causing MERS to execute and deliver an Assignment of Mortgage in recordable
form to transfer the Mortgage from MERS to the Trust and to execute and
deliver such other notices, documents and other instruments as may be
necessary or desirable to effect a transfer of such Home Equity Loan or
servicing of such
62
Home Equity Loan on the MERS(R) System to the successor Master Servicer. The
predecessor Master Servicer shall file or cause to be filed any such
assignment in the appropriate recording office. The predecessor Master
Servicer shall bear any and all fees of MERS, costs of preparing any
Assignments of Mortgage, and fees and costs of filing any assignments of
Mortgage that may be required under this subsection (c). The successor Master
Servicer shall cause such assignment to be delivered to the Indenture Trustee
promptly upon receipt of the original with evidence of recording thereon or a
copy certified by the public recording office in which such Assignment of
Mortgage was recorded.
SECTION 7.03 Waiver of Defaults. The Majority Noteholder may, on
behalf of all Noteholders, waive any events permitting removal of the Master
Servicer as master servicer pursuant to this Article VII, provided, however,
that the Majority Noteholder may not waive a default in making a required
payment on a Note without the consent of each Holder of such Note. Upon any
waiver of a past default, such default shall cease to exist and any Master
Servicer Termination Event arising therefrom shall be deemed to have been
remedied for every purpose of this Agreement. No such waiver shall extend to
any subsequent or other default or impair any right consequent thereto except
to the extent expressly so waived. Notice of any such waiver shall be given by
the Indenture Trustee to the Rating Agencies.
SECTION 7.04 Notification to Noteholders. Upon any termination or
appointment of a successor to the Master Servicer pursuant to this Article VII
or Section 6.04 above, the Indenture Trustee shall give prompt written notice
thereof to the Noteholders at their respective addresses appearing in the Note
Register and each Rating Agency.
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ARTICLE VIII.
TERMINATION
-----------
SECTION 8.01 Termination.
(a) The respective obligations and responsibilities of the Depositor,
the Seller, the Master Servicer, the Trust, the Administrator and the
Indenture Trustee created hereby (other than the obligation of the
Administrator and the Indenture Trustee to make certain payments to
Noteholders after the Final Scheduled Payment Date and the obligation of the
Master Servicer to send certain notices as hereinafter set forth) shall
terminate upon notice to the Indenture Trustee and the Administrator of the
earliest of (i) the final payment or other liquidation of the last Home Equity
Loan remaining in the Trust; (ii) the sale of the Home Equity Loans as
described in Section 10.2 of the Indenture and the corresponding redemption of
the Notes, (iii) the optional purchase by the Master Servicer of the Home
Equity Loans as described below in this Section 8.01 and (iv) the Payment Date
in October 2015.
(b) The Master Servicer may, at its option, terminate this Agreement
on any Payment Date following the first Payment Date on which the aggregate
Note Principal Amount of all Classes of Notes (after giving effect to payments
made on such Payment Date) is less than or equal to 15% of the aggregate
Original Note Principal Amount of all Classes of Notes by purchasing, on such
next succeeding Payment Date, all of the outstanding Home Equity Loans and REO
Properties at a price (the "Termination Price") equal to the greater of (A)
the aggregate fair market value (as determined by the Master Servicer as of
the close of business on the last Business Day of the prior Collection Period)
of all of the assets of the Trust, or (B) the sum of (i) the aggregate Note
Principal Amount of all Classes of Notes, (ii) one month's interest on such
Note Principal Amounts at the applicable Note Rate, (iii) any unpaid Interest
Carry Forward Amounts, and (iv) any unpaid Supplemental Interest Amounts.
Any such purchase shall be accomplished by deposit into the
Collection Account on the Deposit Date before such Payment Date of the
Termination Price.
(c) If the Master Servicer does not repurchase all of the Home Equity
Loans pursuant to Section 8.01(b) above within three (3) months of the first
Payment Date upon which such repurchase option may occur, then promptly on the
following Payment Date the Indenture Trustee shall, on its own behalf or
through the use of an agent, and in either case at the expense of the Master
Servicer, begin a process for soliciting bids in connection with an auction of
the Home Equity Loans for an auction to occur on or before the next succeeding
Payment Date (the "First Auction Date") and, if necessary, any date after the
First Auction Date (the "Subsequent Auction Date" and together with the First
Auction Date, the "Auction Date"). The Indenture Trustee shall provide the
Master Servicer written notice of such auctions at least ten (10) Business
Days prior to the applicable Auction Date. The auctions shall be conducted at
the expense of the Master Servicer and as follows:
(i) If at least two bids are received, the Indenture Trustee,
or an agent of the Indenture Trustee, shall solicit and resolicit new
bids from all participating bidders until
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only one bid remains or the remaining bidders decline to resubmit
bids. The Indenture Trustee, or an agent of the Indenture Trustee,
shall accept the highest of such remaining bids if it is equal to
or in excess of the Termination Price. If less than two bids are
received or the highest bid after the resolicitation process is
completed is not equal to or in excess of the Termination Price,
the Indenture Trustee, or an agent of the Indenture Trustee, shall
not consummate such sale. If a bid equaling the Termination Price
is received, then the Indenture Trustee, or an agent of the
Indenture Trustee, may, and if so requested by the Master Servicer
shall, consult with a financial advisor (at the expense of the
Master Servicer), which may be an underwriter of the Notes, to
determine if the fair market value of the Home Equity Loans and
related property has been offered.
(ii) If the first auction conducted by the Indenture Trustee,
or an agent of the Indenture Trustee, does not produce any bid at
least equal to the Termination Price, then the Indenture Trustee,
or an agent of the Indenture Trustee, shall, beginning on the
Payment Date occurring approximately three months after the
Auction Date for the failed first auction, commence another
auction in accordance with the requirements of this subsection
(c). If such second auction does not produce any bid at least
equal to the Termination Price, then the Indenture Trustee, or an
agent of the Indenture Trustee, shall, beginning on the Payment
Date occurring approximately three months after the Auction Date
for the failed second auction, commence another auction in
accordance with the requirements of this subsection (c), and shall
continue to conduct similar auctions approximately every three
months thereafter until the earliest of (i) delivery by the Master
Servicer of notice of exercise of its repurchase option pursuant
to Section 8.01(b) above, (ii) receipt by the Indenture Trustee,
or an agent of the Indenture Trustee, of a bid meeting the
conditions specified in the preceding paragraph, or (iii) the
Payment Date on which the Principal Balance of all the Home Equity
Loans is reduced to zero.
(d) If the Indenture Trustee, or an agent of the Indenture Trustee,
receives a bid meeting the conditions specified in subsection (c), then the
Indenture Trustee shall release, or cause to be released, to the winning
bidder, upon payment of the bid purchase price and satisfaction of any other
terms and conditions of the auction sale, the Mortgage Files pertaining to the
Home Equity Loans being purchased and the Trust and the Indenture Trustee
shall take such other actions as the winning bidder may reasonably request to
effect the transfer of the Home Equity Loans by the Trust to the winning
bidder.
(e) Notice of any termination, specifying the Payment Date (which
shall be a date that would otherwise be a Payment Date) upon which the
Noteholders may surrender their Notes to the Administrator for payment of the
final payment and cancellation, shall be given promptly by the Administrator
(upon receipt of written directions from the Master Servicer, if the Master
Servicer is exercising its right to transfer of the Home Equity Loans, or the
Indenture Trustee, which notice is given not later than the first day of the
month preceding the month of such final payment) to the Noteholders by letter
mailed not earlier than the 15th day and not later than the 25th day of the
month next preceding the month of such final payment specifying (i) the
Payment Date upon which final payment of the Notes will be made upon
presentation and surrender of Notes at the office or agency of the
Administrator therein designated, (ii) the amount of any such final payment
and (iii) that the Record Date otherwise applicable to such
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Payment Date is not applicable, payments being made only upon presentation and
surrender of the Notes at the office or agency of the Administrator therein
specified.
(f) Upon presentation and surrender of the Notes, the Administrator,
in accordance with the written directions of the Master Servicer, shall cause
to be paid to the Noteholders on the Payment Date for such final payment, in
proportion to their respective Percentage Interests an amount equal to (i) as
to any Class of Notes, the sum of (A) such Class' appropriate share of the
Principal Payment Amount, (B) one month's interest at the related Note Rate,
(C) any Interest Carry Forward Amounts and (D) any Supplemental Interest
Amounts and (ii) as to Transferor in respect of the Ownership Interest, the
amount which remains on deposit in the Collection Account (other than the
amounts retained to meet claims) after application pursuant to clause (i)
above.
(g) In the event that all of the Noteholders shall not surrender
their Notes for final payment and cancellation on or before the Final
Scheduled Payment Date, the Administrator shall promptly following such date
cause all funds in the Collection Account not paid in final payment to
Noteholders, to be withdrawn therefrom and credited to the remaining
Noteholders by depositing such funds in a separate escrow account for the
benefit of such Noteholders, and the Master Servicer (if the Master Servicer
has exercised its right to purchase the Home Equity Loans) or the
Administrator, on behalf of the Indenture Trustee, (in any other case) shall
give a second written notice to the remaining Noteholders to surrender their
Notes for cancellation and receive the final payment with respect thereto. If
within nine months after the second notice all the Notes shall not have been
surrendered for cancellation, the Ownership Interest will be entitled to all
remaining unclaimed funds and other assets which remain subject hereto, and
the Administrator upon transfer of such funds at the written request of the
Transferor shall be discharged of any responsibility for such funds and the
Noteholders shall look to the holder of the Ownership Interest for payment.
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ARTICLE IX.
MISCELLANEOUS PROVISIONS
------------------------
SECTION 9.01 Amendment.
(a) This Agreement may be amended from time to time by the Depositor,
the Master Servicer, the Trust, the Administrator and the Indenture Trustee by
written agreement, without the consent of any of the Noteholders (i) to cure
any ambiguity, (ii) to correct or supplement any provisions herein that may be
inconsistent with any other provisions herein or to correct any error, (iii)
to add to the duties of the Depositor, the Indenture Trustee, the
Administrator or the Master Servicer, (iv) to add, amend or modify any other
provisions with respect to matters or questions arising under this Agreement
which shall not be inconsistent with the provisions of this Agreement, (v) to
add or amend any provisions of this Agreement as required by any Rating Agency
or any other nationally recognized statistical rating agency in order to
maintain or improve any rating of any Class of Notes (it being understood
that, after obtaining the ratings in effect on the Closing Date, neither the
Indenture Trustee, the Administrator, the Depositor nor the Master Servicer is
obligated to obtain, maintain or improve any such rating), (vi) to comply with
any requirement imposed by changes in accounting policies that do not
materially impact the Notes, or (vii) to comply with any requirements imposed
by the Code; provided, however, that as evidenced by an Opinion of Counsel (a
copy of which shall be delivered to the Indenture Trustee and the
Administrator) (at the expense of the party requesting such amendment) in each
case (other than a case arising under clause (vi) or (vii)) such action shall
not adversely affect in any material respect the interest of any Noteholder,
and provided, further, that the amendment shall not be deemed to adversely
affect in any material respect the interests of Noteholders and no Opinion of
Counsel to that effect shall be required, if the Person requesting the
amendment obtains a letter from each Rating Agency stating that the amendment
would not result in the downgrading or withdrawal of the respective ratings
then assigned to any Class of Notes.
(b) This Agreement also may be amended from time to time by the
Master Servicer, the Depositor, the Trust, the Administrator and the Indenture
Trustee, with the consent of the Holders of the Class or Classes of Notes that
are affected by such amendment, evidencing Percentage Interests aggregating
not less than 51% in Percentage Interests of each such Class or in the case of
an amendment that affects all Classes, the Majority Noteholder, for the
purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Agreement or of modifying in any manner the
rights of the Noteholders or the Transferor in respect of the Ownership
Interest; provided, however, that no such amendment shall (i) reduce in any
manner the amount of, or delay the timing of, payments on any Note without the
consent of the Holder of such Note or (ii) reduce the aforesaid percentage
required to consent to any such amendment, or (iii) result in a downgrading of
the ratings of any Class of Notes without the consent of all Holders of each
Class of Notes affected thereby.
Prior to the solicitation of consent of Noteholders in connection
with any such amendment, the party seeking such amendment shall furnish the
Indenture Trustee and the Administrator with an Opinion of Counsel stating
whether such amendment would create a material risk of the Trust incurring
taxes imposed under the Code and notice of the conclusion
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expressed in such Opinion of Counsel shall be included with any such
solicitation. An amendment made with the consent of all Noteholders and
executed in accordance with this Section 9.01 shall be permitted or authorized
by this Agreement notwithstanding that such Opinion of Counsel may conclude
that such amendment would create a material risk of the Trust incurring taxes
imposed under the Code.
Prior to the execution of any such amendment, the Indenture Trustee
shall furnish 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
Noteholders, the Indenture Trustee shall furnish written notification
of the substance of such amendment to each applicable Noteholder.
(c) It shall not be necessary for the consent of Noteholders under
this Section 9.01 to approve the particular form of any proposed amendment,
but it shall be sufficient if such consent shall approve the substance
thereof. The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Noteholders shall be subject to such
reasonable requirements as the Indenture Trustee may prescribe.
Prior to the execution of any amendment to this Agreement, each of
the Indenture Trustee, the Administrator and the Owner Trustee shall be
entitled to receive and conclusively rely upon an Opinion of Counsel stating
that the execution of such amendment is authorized or permitted by this
Agreement and all conditions precedent to the execution of such amendment have
been met. The Indenture Trustee and the Administrator may, but shall not be
obligated to, enter into any such amendment which affects the Indenture
Trustee's or the Administrator's, as the case may be, own rights, duties,
indemnities or immunities under this Agreement.
SECTION 9.02 Recordation of Agreement. To the extent permitted by
applicable law, this Agreement, or a memorandum thereof if permitted under
applicable law, is subject to recordation in all appropriate public offices
for real property records in all of the counties or other comparable
jurisdictions in which any or all of the Mortgaged Properties are situated,
and in any other appropriate public recording office or elsewhere, such
recordation to be effected by the Master Servicer at the Noteholders' expense
on direction of the Indenture Trustee or the Majority Noteholder, but only
when accompanied by an Opinion of Counsel delivered to the Indenture Trustee
and the Owner Trustee to the effect that such recordation materially and
beneficially affects the interests of the Noteholders or is necessary for the
administration or servicing of the Home Equity Loans.
SECTION 9.03 Duration of Agreement. This Agreement shall continue in
existence and effect until terminated as herein provided.
SECTION 9.04 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH
SUCH LAWS, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
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SECTION 9.05 Notices. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered at or mailed by overnight mail, certified mail or
registered mail, postage prepaid (except that notice to the Administrator
shall be deemed given only upon actual receipt by the Administrator), to (a)
in the case of the Depositor or the Master Servicer, ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: Treasurer, (b) in the case of the
Indenture Trustee, at the Corporate Trust Office, (c) in the case of the
Administrator, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention:
Corporate Trust, (d) in the case of the Owner Trustee, Chase Bank USA,
National Association, ▇/▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ Rd., Building
4 - 3rd Floor, Newark, Delaware 19713, Attention: Worldwide Securities
Services, (e) in the case of Moody's, ABS Monitoring Department, ▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, (f) in the case of Standard & Poor's, ▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: Structured
Finance Surveillance, and (g) in the case of Fitch, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: RMBS Surveillance Department
or, as to each party, at such other address as shall be designated by such
party in a written notice to each other party. Any notice required or
permitted to be mailed to a Noteholder shall be given by first class mail,
postage prepaid, at the address of such Holder as shown in the Note Register.
Any notice so mailed within the time prescribed in this Agreement shall be
conclusively presumed to have been duly given, whether or not the Noteholder
receives such notice.
SECTION 9.06 Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be held
invalid for any reason whatsoever, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity
or enforceability of the other covenants, agreements, provisions or terms of
this Agreement.
SECTION 9.07 No Partnership. Nothing herein contained shall be deemed
or construed to create any partnership or joint venture between the parties
hereto and the services of the Master Servicer shall be rendered as an
independent contractor.
SECTION 9.08 Counterparts. This Agreement may be executed in one or
more counterparts and by the different parties hereto on separate
counterparts, each of which, when so executed, shall be deemed to be an
original; such counterparts, together, shall constitute one and the same
Agreement.
SECTION 9.09 Successors and Assigns. This Agreement shall inure to
the benefit of and be binding upon the Depositor, the Master Servicer, each
Seller, the Trust, the Indenture Trustee and the Noteholders and their
respective successors and permitted assigns.
The parties hereto hereby agree that all rights of the Trust under
this Agreement are pledged by the Trust to the Indenture Trustee under the
Indenture, and that the Indenture Trustee on behalf of the Noteholders has the
right to directly enforce all rights of the Trust under this Agreement.
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SECTION 9.10 Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not
be deemed to be part of this Agreement.
SECTION 9.11 Rights and Immunities. All privileges, rights and
immunities given to each of the Indenture Trustee and the Administrator in the
Indenture are hereby extended to and applicable to the Indenture Trustee's and
the Administrator's obligations, respectively, hereunder. Without limiting the
foregoing, for all purposes of this Agreement, in the performance of any
duties or obligations of the Administrator hereunder, the Administrator shall
be entitled to the benefits of the terms and provisions of Article VI of the
Indenture. The Master Servicer agrees to the provisions of Sections 6.15 and
6.16 of the Indenture, including the indemnification provided therein.
SECTION 9.12 Inconsistencies Among Transaction Documents. In the
event certain provisions of a Transaction Document conflict with the
provisions of this Sale and Servicing Agreement, the parties hereto agree that
the provisions of this Sale and Servicing Agreement shall be controlling.
SECTION 9.13 [RESERVED].
SECTION 9.14 Limitation on Voting of Preferred Stock. The Indenture
Trustee shall hold all of the preferred stock ("Preferred Stock") of the
Depositor in trust, for the benefit of the Noteholders, and during the
continuance of a Master Servicer Termination Event, shall vote such stock only
pursuant to the written instructions of the Majority Noteholder. The Indenture
Trustee shall not permit a transfer of any of the Preferred Stock to HSBC
Finance or any of its Affiliates. Concurrently with any transfer of the Home
Equity Loans to the Master Servicer pursuant to Section 8.01, the Indenture
Trustee shall transfer to the Depositor for cancellation all shares of
Preferred Stock held by the Indenture Trustee.
SECTION 9.15 Perfection Representations. The Perfection
Representations shall be a part of this Agreement for all purposes.
SECTION 9.16 Limitation of Liability. It is understood by each party
hereto that the sole recourse of each party hereto in respect of the
obligations of the Trust hereunder and under the other Transaction Documents
to which it is a party shall be to the assets of the Trust. In addition, Chase
Bank USA, National Association ("Chase") is entering into this Agreement and
the other Transaction Documents to which the Trust is a party solely in its
capacity as trustee under the Trust Agreement and not in its individual
capacity and in no case shall Chase (or any Person acting as successor trustee
under the Trust Agreement) be personally liable for or on account of any of
the statements, representations, warranties, covenants or obligations stated
to be those of the Trust hereunder or thereunder, all such liability, if any,
being expressly waived by the parties hereto and any person claiming by,
through or under such party.
SECTION 9.17 Inspection of Mortgage Files. Following the time that
the Mortgage Files have been delivered to the Indenture Trustee upon
reasonable prior notice and during regular business hours, the Indenture
Trustee shall permit representatives of applicable state regulatory agencies
to inspect the Mortgage Files on the Indenture Trustee's premises or shall
70
provide such documents at such places required by state regulations, including
the offices of the Servicers. Any loss incurred by the Indenture Trustee in
fulfilling such obligations shall be paid by the Master Servicer.
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ARTICLE X.
ADMINISTRATION OF ISSUER
------------------------
SECTION 10.01 Administrative Duties.
(a) Duties with Respect to the Indenture. The Master Servicer shall
perform all its duties and the duties of the Issuer under the Indenture. In
addition, the Master Servicer shall consult with the Owner Trustee as the
Master Servicer deems appropriate regarding the duties of the Issuer under the
Indenture. The Master Servicer shall monitor the performance of the Issuer and
shall advise the Owner Trustee when action is necessary to comply with the
Issuer's duties under the Indenture. The Master Servicer shall prepare for
execution by the Issuer or shall cause the preparation by other appropriate
Persons of all such documents, reports, filings, instruments, certificates and
opinions as it shall be the duty of the Issuer to prepare, file or deliver
pursuant to the Indenture. In furtherance of the foregoing, the Master
Servicer shall take all necessary action that is the duty of the Issuer to
take pursuant to the Indenture, including, without limitation, pursuant to
Sections 3.1, 3.3, 3.4, 3.5, 3.6, 3.7, 3.9, 3.16, 3.17, 7.3, 8.6, 9.2, 9.3,
11.1 and 11.15 of the Indenture.
(b) Duties with Respect to the Issuer.
(i) In addition to the duties of the Master Servicer set
forth in this Agreement or any of the Transaction Documents, the
Master Servicer shall perform such calculations and shall prepare
for execution by the Issuer or the Owner Trustee, or shall cause
the preparation by other appropriate Persons of all such
documents, reports, filings, instruments, certificates and
opinions as it shall be the duty of the Issuer or the Owner
Trustee, to prepare, file or deliver pursuant to this Agreement or
any of the Transaction Documents or under state and federal tax
and securities laws, and shall take all appropriate action that it
is the duty of the Issuer or the Owner Trustee to take pursuant to
this Agreement or any of the Transaction Documents, including,
without limitation, pursuant to Section 2.8 of the Trust
Agreement. In accordance with the directions of the Issuer or the
Owner Trustee, the Master Servicer shall administer, perform or
supervise the performance of such other activities in connection
with the Owner Trust Estate (as defined in the Trust Agreement)
(including the Transaction Documents) as are not covered by any of
the foregoing provisions and as are expressly requested by the
Issuer or the Owner Trustee and are reasonably within the
capability of the Master Servicer.
(ii) Notwithstanding anything in this Agreement or any of
the Transaction Documents to the contrary, the Master Servicer
shall be responsible for promptly notifying the Owner Trustee, the
Indenture Trustee and the Administrator in the event that any
withholding tax is imposed on the Issuer's payments (or
allocations of income) to a Transferor as contemplated by this
Agreement. Any such notice shall be in writing and specify the
amount of any withholding tax required to be withheld by the Owner
Trustee, the Indenture Trustee or the Administrator pursuant to
such provision.
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(iii) Notwithstanding anything in this Agreement or the
Transaction Documents to the contrary, the Master Servicer shall
be responsible for performance of the duties of the Issuer or the
Depositor set forth in Section 5.5 of the Trust Agreement with
respect to, among other things, accounting and reports to the
Transferor (as defined in the Trust Agreement); provided, however,
that once prepared by the Master Servicer, the Depositor shall
retain responsibility under the Trust Agreement for the
distribution of the Schedule K-1s, if any, necessary to enable the
Transferor to prepare its federal and state income tax returns.
(iv) The Master Servicer shall perform the duties of the
Depositor specified in Section 10.2 of the Trust Agreement
required to be performed in connection with the resignation or
removal of the Owner Trustee, and any other duties expressly
required to be performed by the Master Servicer under this
Agreement or any of the Transaction Documents.
(v) The Master Servicer, on behalf of the Depositor, shall
direct the Issuer to request the tender of all or a portion of the
Notes in accordance with the Indenture or this Agreement.
(vi) In carrying out the foregoing duties or any of its
other obligations under this Agreement, the Master Servicer may
enter into transactions with or otherwise deal with any of its
Affiliates; provided, however, that the terms of any such
transactions or dealings shall be in accordance with any
directions received from the Issuer and shall be, in the Master
Servicer's opinion, no less favorable to the Issuer in any
material respect.
(vii) The Master Servicer shall take all necessary action
that is the duty of the Issuer to take pursuant to Section 7.8 of
the Trust Agreement.
(c) Tax Matters. The Master Servicer shall prepare and file, or cause
to be prepared and filed, on behalf of the Depositor, all required tax
returns, tax elections, financial statements and such annual or other reports
of the Issuer as are necessary for preparation of tax reports as provided in
Article V of the Trust Agreement, including without limitation Form 1099. All
tax returns will be signed by the Depositor.
(d) Non-Ministerial Matters. With respect to matters that in the
reasonable judgment of the Master Servicer are non-ministerial, the Master
Servicer shall not take any action pursuant to this Article X unless within a
reasonable time before the taking of such action, the Master Servicer shall
have notified the Owner Trustee and the Indenture Trustee of the proposed
action and the Owner Trustee and the Indenture Trustee shall not have withheld
consent or provided an alternative direction. For the purpose of the preceding
sentence, "non-ministerial matters" shall include:
(i) the initiation of any claim or lawsuit by the Issuer and
the compromise of any action, claim or lawsuit brought by or against
the Issuer (other than in connection with the collection of the Home
Equity Loans);
(ii) the appointment of successor Note Registrars, successor
Note Paying Agents, successor Administrators and successor Indenture
Trustees pursuant to the
73
Indenture or the consent to the assignment by the Note Registrar,
Note Paying Agent, Administrator or Indenture Trustee of its
obligations under the Indenture; and
(iii) the removal of the Indenture Trustee.
(e) Exceptions. Notwithstanding anything to the contrary in this
Agreement, except as expressly provided herein or in the Transaction
Documents, the Master Servicer, in its capacity hereunder, shall not be
obligated to, and shall not, (1) make any payments to the Noteholders or the
Transferor under the Transaction Documents, (2) sell any of the assets of the
Trust, (3) take any other action that the Issuer directs the Master Servicer
not to take on its behalf or (4) in connection with its duties hereunder
assume any indemnification obligation of any other Person.
(f) Neither the Indenture Trustee nor any successor Master Servicer
shall be responsible for any obligations or duties of a predecessor Master
Servicer under this Section 10.1.
SECTION 10.02 Records. The Master Servicer shall maintain appropriate
books of account and records relating to services performed under this
Agreement, which books of account and records shall be accessible for
inspection by the Issuer and the Indenture Trustee at any time during normal
business hours.
SECTION 10.03 Additional Information to be Furnished to the Trust.
The Master Servicer shall furnish to the Issuer, the Administrator and the
Indenture Trustee, from time to time such additional information regarding the
Owner Trust Estate as the Issuer, the Administrator and the Indenture Trustee
shall reasonably request.
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IN WITNESS WHEREOF, the following have caused their names to be
signed by their respective officers thereunto duly authorized, as of the day
and year first above written, to this Sale and Servicing Agreement.
HSBC HOME EQUITY LOAN TRUST 2005-3, as Trust
By: Chase Bank USA, National Association,
not in its individual capacity but solely
as Owner Trustee
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice President
S-1 Signature Pages to
Sale and Servicing Agreement
HSBC FINANCE CORPORATION,
as Master Servicer
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice President and Assistant Treasurer
S-2 Signature Pages to
Sale and Servicing Agreement
HSBC HOME EQUITY LOAN CORPORATION I,
as Depositor
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice President and Assistant Treasurer
S-3 Signature Pages to
Sale and Servicing Agreement
HSBC BANK USA, NATIONAL ASSOCIATION,
as Administrator
By: /s/ ▇▇▇▇▇ ▇▇▇
------------------------------------------
Name: ▇▇▇▇▇ ▇▇▇
Title: Vice President
S-4 Signature Pages to
Sale and Servicing Agreement
U.S. BANK NATIONAL ASSOCIATION,
not in its individual capacity, but
solely as Indenture Trustee
By: /s/ ▇▇▇▇▇▇▇▇ ▇. Child
------------------------------------------
Name: ▇▇▇▇▇▇▇▇ ▇. Child
Title: Vice President
S-5 Signature Pages to
Sale and Servicing Agreement
THE STATE OF DELAWARE )
)
COUNTY OF NEW CASTLE )
BEFORE ME, on November 4, 2005, the undersigned authority, a Notary
Public, on this day personally appeared ▇▇▇▇ ▇. ▇▇▇▇▇▇, known to me to be
a person and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said Chase Bank USA,
National Association not in its individual capacity but in its capacity as
Owner Trustee of HSBC Home Equity Loan Trust 2005-3, as the Trust, and that he
executed the same as the act of such corporation for the purpose and
consideration therein expressed, and in the capacity therein stated.
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------------------
Notary Public, State of Delaware
S-6
THE STATE OF ILLINOIS )
)
COUNTY OF ▇▇▇▇ )
BEFORE ME, on November 7, 2005, the undersigned authority,
a Notary Public, on this day personally appeared ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, known
to me to be a person and officer whose name is subscribed to the foregoing
instrument and acknowledged to me that the same was the act of the said HSBC
Finance Corporation, as the Master Servicer, and that he executed the same as
the act of such corporation for the purpose and consideration therein
expressed, and in the capacity therein stated.
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------------------
Notary Public, State of Illinois
S-7
THE STATE OF ILLINOIS )
)
COUNTY OF ▇▇▇▇ )
BEFORE ME, on November 7, 2005, the undersigned authority, a
Notary Public, on this day personally appeared ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, known
to me to be a person and officer whose name is subscribed to the foregoing
instrument and acknowledged to me that the same was the act of the said HSBC
Home Equity Loan Corporation I, as the Depositor, and that he executed the
same as the act of such corporation for the purpose and consideration therein
expressed, and in the capacity therein stated.
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------------------
Notary Public, State of Illinois
▇-▇
▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇ )
)
COUNTY OF NEW YORK )
BEFORE ME, on November 9, 2005, the undersigned authority,
a Notary Public, on this day personally appeared ▇▇▇▇▇ ▇▇▇, known to me to be
a person and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said HSBC Bank USA,
National Association, as the Administrator, and that he executed the same as
the act of such corporation for the purpose and consideration therein
expressed, and in the capacity therein stated.
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------------------------
Notary Public, State of New York
S-9
THE STATE OF ILLINOIS )
)
COUNTY OF ▇▇▇▇ )
BEFORE ME, on November 7, 2005, the undersigned authority,
a Notary Public, on this day personally appeared ▇▇▇▇▇▇▇▇ ▇. Child,
known to me to be the person and officer whose name is subscribed to the
foregoing instrument and acknowledged to me that the same was the act of the
said U.S. Bank National Association, not in its individual capacity, but
solely as Indenture Trustee, and that he executed the same as the act of such
corporation for the purposes and consideration therein expressed, and in the
capacity therein stated.
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------------------
Notary Public, State of Illinois
S-10
SCHEDULE 1
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PERFECTION REPRESENTATIONS, WARRANTIES AND COVENANTS
The Depositor hereby represents, warrants, and covenants to the Indenture
Trustee as to itself and the Sellers as follows on the Closing Date and on
each Payment Date thereafter:
General
-------
1. This Agreement creates a valid and continuing security interest (as
defined in the applicable UCC) in the Home Equity Loans in favor of the
Indenture Trustee, and the Indenture creates a valid and continuing security
interest (as defined in the applicable UCC), each of which security interest
is prior to all other Liens, and is enforceable as such as against creditors
of and purchasers from the Depositor.
2. The Home Equity Loans constitute "general intangibles" or "instruments"
within the meaning of the applicable UCC.
3. The Collection Account and all subaccounts thereof constitute either a
deposit account or a securities account.
4. To the extent that payments and collections received or made with
respect to the Home Equity Loans constitute securities entitlements, such
payments and collections have been and will have been credited to the
Collection Account. The securities intermediary for the Collection Account has
agreed to treat all assets credited to the Collection Account as "financial
assets" within the meaning of the applicable UCC.
Creation
--------
5. The Depositor owns and has good and marketable title to the Home Equity
Loans free and clear of any Lien, claim or encumbrance of any Person,
excepting only liens for taxes, assessments or similar governmental charges or
levies incurred in the ordinary course of business that are not yet due and
payable or as to which any applicable grace period shall not have expired, or
that are being contested in good faith by proper proceedings and for which
adequate reserves have been established, but only so long as foreclosure with
respect to such a lien is not imminent and the use and value of the property
to which the Lien attaches is not impaired during the pendency of such
proceeding.
6. The Depositor has received all consents and approvals to the sale of
the Home Equity Loans hereunder to the Trust required by the terms of the Home
Equity Loans that constitute instruments.
7. To the extent the Collection Account or subaccounts thereof constitute
securities entitlements, certificated securities or uncertificated securities,
the Depositor has received all consents and approvals required to transfer to
the Indenture Trustee its interest and rights in the Collection Account
hereunder.
1-1
Perfection
----------
8. The Depositor has caused or will have caused, within ten days after
the effective date of this Agreement, the filing of all appropriate financing
statements in the proper filing office in the appropriate jurisdictions under
applicable law in order to perfect the sale of the Home Equity Loans from the
Depositor to the Trust, the security interest in the Home Equity Loans granted
to the Trust hereunder, the pledge of the Home Equity Loans from the Trust to
the Indenture Trustee, and the security interest in the Home Equity Loans
granted to the Indenture Trustee under the Indenture.
9. With respect to the Collection Account and all subaccounts that
constitute deposit accounts, either:
(i) the Depositor has delivered to the Indenture Trustee a
fully-executed agreement pursuant to which the bank maintaining the
deposit accounts has agreed to comply with all instructions
originated by the Indenture Trustee directing disposition of the
funds in the Collection Account without further consent by the
Depositor; or
(ii) the Depositor has taken all steps necessary to cause the
Indenture Trustee to become the account holder of the Collection
Account.
10. With respect to the Collection Account or subaccounts thereof that
constitute securities accounts or securities entitlements, either:
(i) the Depositor has caused or will have caused, within ten days
after the effective date of this Agreement, the filing of all
appropriate financing statements in the proper filing office in the
appropriate jurisdictions under applicable law in order to perfect
the security interest in the Collection Account granted by the
Depositor to the Trust and by the Trust to the Indenture Trustee; or
(ii) the Depositor has delivered to the Indenture Trustee a
fully-executed agreement pursuant to which the securities
intermediary has agreed to comply with all instructions originated by
the Indenture Trustee relating to the Collection Account without
further consent by the Depositor; or
(iii) the Depositor has taken all steps necessary to cause the
securities intermediary to identify in its records the Indenture
Trustee as the person having a security entitlement against the
securities intermediary in the Collection Account.
Priority
--------
11. Other than the transfer of the Transferred Assets to the Trust under
the Transfer Agreement, the transfer of the Home Equity Loans to the Depositor
under the Home Equity Loan Purchase Agreement and the transfer of the Home
Equity Loans to the Trust pursuant to this Agreement, neither the Depositor
nor the Sellers have pledged, assigned, sold, granted a security interest in,
or otherwise conveyed any of the Home Equity Loans. Neither the Depositor nor
the Sellers have authorized the filing of, or are aware of any financing
statements against the Depositor or any of the Sellers that include a
description of collateral covering the Home Equity
1-2
Loans other than any financing statement relating to the security interest
granted to the Indenture Trustee hereunder or that has been terminated.
12. The Depositor is not aware of any judgment, ERISA or tax lien filings
against either the Depositor or any of the Sellers.
13. The Sellers have in their possession all original copies of the
Mortgage Notes that constitute or evidence the Home Equity Loans. To the
Depositor's knowledge, none of the instruments that constitute or evidence the
Home Equity Loans has any marks or notations indicating that they have been
pledged, assigned or otherwise conveyed to any Person other than the Trust.
All financing statements filed or to be filed against the Depositor and the
Sellers in favor of the Indenture Trustee in connection herewith describing
the Home Equity Loans contain a statement to the following effect: "A purchase
of or security interest in any collateral described in this financing
statement will violate the rights of the Indenture Trustee."
14. Neither the Collection Account nor any subaccount thereof is in the
name of any person other than the Depositor or the Indenture Trustee as
trustee under the Indenture or in the name of its nominee. The Depositor has
not consented for the securities intermediary of the Collection Account to
comply with entitlement orders of any person other than the Indenture Trustee.
15. Survival of Perfection Representations. Notwithstanding any other
provision of this Agreement or any other transaction document, the Perfection
Representations contained in this Schedule shall be continuing, and remain in
full force and effect (notwithstanding any replacement of the Master Servicer
or Indenture Trustee or termination of the Master Servicer's or Indenture
Trustee's rights to act as such) until such time as all obligations under this
Agreement have been finally and fully paid and performed.
16. No Waiver. The parties to this Agreement (i) shall not, without
obtaining a confirmation of the then-current rating of the Notes, waive any of
the Perfection Representations, and (ii) shall provide the Rating Agencies
with prompt written notice of any breach of the Perfection Representations,
and shall not, without obtaining a confirmation of the then-current rating of
the Notes (as determined after any adjustment or withdrawal of the ratings
following notice of such breach) waive a breach of any of the Perfection
Representations.
17. Master Servicer to Maintain Perfection and Priority. The Master
Servicer covenants that, in order to evidence the interests of the Depositor,
the Trust and the Indenture Trustee under this Agreement, the Master Servicer
shall take such action, or execute and deliver such instruments (other than
effecting a Filing (as defined below), unless such Filing is effected in
accordance with this paragraph) as may be necessary or advisable (including,
without limitation, such actions as are requested by the Indenture Trustee) to
maintain and perfect, as a first priority interest, the Indenture Trustee's
security interest in the Home Equity Loans. The Master Servicer shall, from
time to time and within the time limits established by law, prepare and
present to the Indenture Trustee for the Indenture Trustee to authorize (based
in reliance on the Opinion of Counsel hereinafter provided for) the Master
Servicer to file, all financing statements, amendments, continuations, initial
financing statements in lieu of a continuation statement, terminations,
partial terminations, releases or partial releases, or any other filings
necessary or advisable to continue, maintain and perfect the Indenture
Trustee's security interest in the Home
1-3
Equity Loans as a first-priority interest (each a "Filing"). The Master
Servicer shall present each such Filing to the Indenture Trustee together with
(x) an Opinion of Counsel to the effect that such Filing is (i) consistent
with grant of the security interest to the Trust pursuant to Section 2.01 of
this Agreement and the grant of the security interest to the Indenture Trustee
pursuant to the Indenture, (ii) satisfies all requirements and conditions to
such Filing in this Agreement and (iii) satisfies the requirements for a
Filing of such type under the Uniform Commercial Code in the applicable
jurisdiction (or if the Uniform Commercial Code does not apply, the applicable
statute governing the perfection of security interests), and (y) a form of
authorization for the Indenture Trustee's signature. Upon receipt of such
Opinion of Counsel and form of authorization, the Indenture Trustee shall
promptly authorize in writing the Master Servicer to, and the Master Servicer
shall, effect such Filing under the Uniform Commercial Code without the
signature of the Depositor or the Trust or the Indenture Trustee where allowed
by applicable law. Notwithstanding anything else in the transaction documents
to the contrary, the Master Servicer shall not have any authority to effect a
Filing without obtaining written authorization from the Indenture Trustee.
1-4
SCHEDULE 2
----------
SELLERS
Beneficial California Inc.
Beneficial Consumer Discount Company
Beneficial Delaware Inc.
Beneficial Florida Inc.
Beneficial Hawaii Inc.
Beneficial Homeowner Service Corporation
Beneficial Indiana Inc.
Beneficial Iowa Inc.
Beneficial Kentucky Inc.
Beneficial Loan & Thrift Co.
Beneficial Maine Inc.
Beneficial Massachusetts Inc.
Beneficial Michigan Inc.
Beneficial Montana Inc.
Beneficial Mortgage Co. of Arizona
Beneficial Mortgage Co. of Colorado
Beneficial Mortgage Co. of Connecticut
Beneficial Mortgage Co. of Georgia
Beneficial Mortgage Co. of Idaho
Beneficial Mortgage Co. of Kansas, Inc.
Beneficial Mortgage Co. of Louisiana
Beneficial Mortgage Co. of Maryland
Beneficial Mortgage Co. of Missouri, Inc.
Beneficial Mortgage Co. of Nevada
Beneficial Mortgage Co. of New Hampshire
Beneficial Mortgage Co. of North Carolina
Beneficial Mortgage Co. of Rhode Island
Beneficial Mortgage Co. of South Carolina
Beneficial Mortgage Co. of Utah
Beneficial Mortgage Co. of Virginia
Beneficial Mortgage Corporation
Beneficial Nebraska Inc.
Beneficial New Jersey Inc.
Beneficial New Mexico Inc.
Beneficial Ohio Inc.
Beneficial Oklahoma Inc.
Beneficial Oregon Inc.
Beneficial South Dakota Inc.
Beneficial Tennessee Inc.
Beneficial Texas Inc.
Beneficial Washington Inc.
2-1
Beneficial West Virginia, Inc.
Beneficial Wisconsin Inc.
Beneficial Wyoming Inc.
Household Finance Consumer Discount Company
Household Finance Corporation II
Household Finance Corporation III
Household Finance Corporation of Alabama
Household Finance Corporation of California
Household Finance Corporation of West Virginia
Household Finance Industrial Loan Company of Iowa
Household Finance Realty Corporation of Nevada
Household Finance Realty Corporation of New York
Household Financial Center Inc.
Household Industrial Finance Company
Household Realty Corporation
Mortgage One Corporation
2-2
EXHIBIT A
---------
HOME EQUITY LOAN SCHEDULE
[On file with the Indenture Trustee]
A-1
EXHIBIT B
---------
FORM OF NOTES
[Attached as Exhibit A to the Indenture]
B-1