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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event
Reported) March 10, 1997
FINANCIAL ASSET SECURITIES CORP., (as depositor under the Sale and
Servicing Agreement, dated as of
February 1, 1997, relating to the Mego Mortgage Home Loan Owner Trust
1997-1, Home Loan Asset Backed Notes and Certificates).
FINANCIAL ASSET SECURITIES CORP.
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(Exact name of registrant as specified in its charter)
Delaware 333-10273 06-1442101
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(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
600 Steamboat Road
Greenwich, Connecticut 06830
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(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code (203) 625-2700
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Item 5. Other Events.
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On March 10, 1997, Financial Asset Securities Corp. entered into a Sale
and Servicing Agreement dated as of February 1, 1997 (the "Sale and Servicing
Agreement"), by among Mego Mortgage Home Loan Owner Trust 1997-1, as issuer,
Financial Asset Securities Corp., as depositor, Mego Mortgage Corporation, as
seller, servicer and claims administrator, Norwest Bank Minnesota, N.A., as
master servicer, and First Trust of New York, National Association, as
indenture trustee, as co-owner trustee and as contract of insurance holder.
The Sale and Servicing Agreement is annexed hereto as Exhibit 1.
On March 10, 1997, Financial Asset Securities Corp. entered into a Trust
Agreement dated as of February 1, 1997 (the "Trust Agreement"), by and among
Financial Asset Securities corp., as depositor, Mego Mortgage Corporation,
Wilmington Trust Company, as owner trustee First Trust of New York, National
Association, as co-owner trustee. The Trust Agreement is annexed hereto as
Exhibit 2.
On March 10, 1997, Mego Mortgage Home Loan Owner Trust 1997-1 (the
"Issuer") entered into an Indenture dated as of February 1, 1997 (the
"Indenture"), with First Trust of New York, National Association, as
indenture trustee. The Indenture is annexed hereto as Exhibit 3.
Item 7. Financial Statements, Pro Forma Financial
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Information and Exhibits.
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(a) Not applicable.
(b) Not applicable.
(c) Exhibits:
1. Sale and Servicing Agreement
2. Trust Agreement
3. Indenture
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FINANCIAL ASSET SECURITIES CORP.
By: /s/ John Anderson
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John Anderson
Dated: May 5, 1997
Exhibit Index
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Exhibit Page
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1. Sale and Servicing Agreement
2. Trust Agreement
3. Indenture
EXHIBIT 1
Execution Copy
SALE AND SERVICING AGREEMENT
Dated as of February 1, 1997
among
MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-1
(Issuer)
FINANCIAL ASSET SECURITIES CORP.
(Depositor)
MEGO MORTGAGE CORPORATION
(Seller, Servicer and Claims Administrator)
NORWEST BANK MINNESOTA, N.A.
(Master Servicer)
and
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION
(Indenture Trustee, Co-Owner Trustee and Contract of Insurance Holder)
MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-1
HOME LOAN ASSET-BACKED SECURITIES
SERIES 1997-1
TABLE OF CONTENTS
Page
----
ARTICLE I.
DEFINITIONS
Section 1.01 Definitions . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02 Other Definitional Provisions . . . . . . . . . . . . . . 31
Section 1.03 Interest Calculations . . . . . . . . . . . . . . . . . . 32
ARTICLE II.
CONVEYANCE OF THE HOME LOANS
Section 2.01 Conveyance of the Home Loans. . . . . . . . . . . . . . . 33
Section 2.02 Reserved . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 2.03 Ownership and Possession of Home Loan Files . . . . . . . 33
Section 2.04 Books and Records . . . . . . . . . . . . . . . . . . . . 34
Section 2.05 Delivery of Home Loan Documents . . . . . . . . . . . . . 34
Section 2.06 Acceptance by Indenture Trustee of the Home Loans; Certain
5 Substitutions; Initial Certification by Custodian. . . . . 37
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
Section 3.01 Representations and Warranties of the Depositor
Section 3.02 Representations, Warranties and Covenants of the Master
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 3.03 Representations and Warranties of Mego . . . . . . . . . . 43
Section 3.04 (Reserved) . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 3.05 Purchase and Substitution . . . . . . . . . . . . . . . . 54
ARTICLE IV.
ADMINISTRATION AND SERVICING OF HOME LOANS;
CLAIMS ADMINISTRATION
Section 4.01 Servicing Standard . . . . . . . . . . . . . . . . . . . . 58
Section 4.02 Servicing Arrangements . . . . . . . . . . . . . . . . . . 59
Section 4.03 Servicing Record . . . . . . . . . . . . . . . . . . . . . 60
Section 4.04 Annual Statement as to Compliance; Notice of Event
of Default . . . . . . . . . . . . . . . . . . . . . . . 64
Section 4.05 Annual Independent Accountants' Report; Servicer Review
Report . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 4.06 Access to Certain Documentation and Information Regarding
Home Loans . . . . . . . . . . . . . . . . . . . . . . . 66
Section 4.07 (Reserved) . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 4.08 Advances . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 4.09 Reimbursement of Interest Advances and Foreclosure
Advances . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 4.10. Modifications, Waivers, Amendments and Consents . . . . . 69
Section 4.11. Due-On-Sale; Due-on-Encumbrance . . . . . . . . . . . . . 69
Section 4.12. Claim for FHA Insurance and Foreclosure . . . . . . . . . 70
Section 4.13. Sale of Foreclosed Properties . . . . . . . . . . . . . . 75
Section 4.14. Management of Real Estate Owned . . . . . . . . . . . . . 76
Section 4.15. Inspections . . . . . . . . . . . . . . . . . . . . . . . 77
Section 4.16. Maintenance of Insurance . . . . . . . . . . . . . . . . . 77
Section 4.17. Release of Files . . . . . . . . . . . . . . . . . . . . . 79
Section 4.18. Filing of Continuation Statements . . . . . . . . . . . . 80
Section 4.19. Fidelity Bond . . . . . . . . . . . . . . . . . . . . . . 80
Section 4.20. Errors and Omissions Insurance . . . . . . . . . . . . . . 80
ARTICLE V.
ESTABLISHMENT OF TRUST ACCOUNTS
Section 5.01 Collection Account and Note Distribution Account . . . . . 81
Section 5.02 Claims Under Guaranty Policy . . . . . . . . . . . . . . . 85
Section 5.03 Certificate Distribution Account . . . . . . . . . . . . . 87
Section 5.04 Trust Accounts; Trust Account Property . . . . . . . . . . 89
ARTICLE VI.
STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS
Section 6.01 Master Servicing Certificate. . . . . . . . . . . . . . . 92
Section 6.02 Statement to Securityholders . . . . . . . . . . . . . . . 92
ARTICLE VII.
CONCERNING THE CONTRACT OF INSURANCE HOLDER
Section 7.01 Compliance with Title I and Filing of FHA Claims . . . . . 93
Section 7.02. Contract of Insurance Holder . . . . . . . . . . . . . . . 94
ARTICLE VIII.
(Reserved)
ARTICLE IX.
THE MASTER SERVICER
Section 9.01 Indemnification; Third Party Claims . . . . . . . . . . . 97
Section 9.02 Merger or Consolidation of the Master Servicer . . . . . . 97
Section 9.03 Limitation on Liability of the Master Servicer and Others 98
Section 9.04 Master Servicer Not to Resign; Assignment . . . . . . . . 98
Section 9.05 Relationship of Master Servicer to Issuer and the Indenture
Trustee . . .. . . . . . . . . . . . . . . . . . . . . 99
Section 9.06 Master Servicer May Own Notes . . . . . . . . . . . . . . 99
ARTICLE X.
DEFAULT
Section 10.01 Events of Default . . . . . . . . . . . . . . . . . . . . 100
Section 10.02 Consequences of an Event of Default . . . . . . . . . . . 102
Section 10.03 Appointment of Successor . . . . . . . . . . . . . . . . . 103
Section 10.04 Notification to Certificateholders . . . . . . . . . . . . 103
Section 10.05 Waiver of Past Defaults . . . . . . . . . . . . . . . . . 103
ARTICLE XI.
TERMINATION
Section 11.01 Termination . . . . . . . . . . . . . . . . . . . . . . . 105
Section 11.02 Notice of Termination . . . . . . . . . . . . . . . . . . 106
ARTICLE XII.
MISCELLANEOUS PROVISIONS
Section 12.01 Acts of Securityholders . . . . . . . . . . . . . . . . . 107
Section 12.02 Amendment . . . . . . . . . . . . . . . . . . . . . . . . 107
Section 12.03 Recordation of Agreement . . . . . . . . . . . . . . . . . 108
Section 12.04 Duration of Agreement . . . . . . . . . . . . . . . . . . 108
Section 12.05 Governing Law . . . . . . . . . . . . . . . . . . . . . . 108
Section 12.06 Notices . . . . . . . . . . . . . . . . . . . . . . . . . 108
Section 12.07 Severability of Provisions . . . . . . . . . . . . . . . . 109
Section 12.08 No Partnership . . . . . . . . . . . . . . . . . . . . . . 109
Section 12.09 Counterparts . . . . . . . . . . . . . . . . . . . . . . . 109
Section 12.10 Successors and Assigns . . . . . . . . . . . . . . . . . . 110
Section 12.11 Headings . . . . . . . . . . . . . . . . . . . . . . . . . 110
Section 12.12 Actions of Securityholders . . . . . . . . . . . . . . . . 110
Section 12.13 Reports to Rating Agencies. . . . . . . . . . . . . . . . 110
Section 12.14 Grant of Securityholder Rights to Securities Insurer . . . 111
Section 12.15 Third Party Beneficiary . . . . . . . . . . . . . . . . . 112
Section 12.16 Holders of the Residual Interest Instruments . . . . . . . 112
Section 12.17 Inconsistencies Among Transaction Documents . . . . . . . 112
EXHIBITS
EXHIBIT A Home Loan Schedule
EXHIBIT B Form of Master Servicer Certificate
EXHIBIT C Form of Monthly Statement to Securityholders
EXHIBIT D Underwriting Guidelines
EXHIBIT E Form of Servicing Agreement
This Sale and Servicing Agreement is entered into effective as of
February 1, 1997, among MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-1, a
Delaware business trust (the "Issuer" or the "Trust"), FINANCIAL ASSET
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SECURITIES CORP., a Delaware corporation, as Depositor (the "Depositor"),
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MEGO MORTGAGE CORPORATION, a Delaware corporation ("Mego"), as Seller (in
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such capacity, the "Seller"), Servicer (in such capacity, the "Servicer")
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and Claims Administrator (in such capacity, the "Claims Administrator"),
NORWEST BANK MINNESOTA, N.A., as Master Servicer (the "Master Servicer"), and
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION, a national banking
association, as Indenture Trustee on behalf of the Noteholders (in such
capacity, the "Indenture Trustee"), as Co-Owner Trustee on behalf of the
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Certificateholders (in such capacity, the "Co-Owner Trustee") and as
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Contract of Insurance Holder (in such capacity, the "Contract of Insurance
Holder").
PRELIMINARY STATEMENT
WHEREAS, the Issuer desires to purchase a pool of Home Loans which were
originated or purchased by the Seller and sold to the Depositor in the
ordinary course of business of the Seller;
WHEREAS, the Depositor is willing to purchase from the Seller and sell
such Home Loans to the Issuer; and
WHEREAS, the Master Servicer is willing to service such Home 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:
ARTICLE I.
DEFINITIONS
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Section 1.01 Definitions. Whenever used in this Agreement, the
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following words and phrases, unless the context otherwise requires, shall
have the meanings specified in this Article.
Agreement: This Sale and Servicing Agreement and all amendments
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hereof and supplements hereto.
Amount Available. With respect to any Distribution Date and the
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related Determination Date, an amount equal to the sum of (i) the Collected
Amount in respect of such Distribution Date, plus (ii) Insured Payments, if
any, received by the Indenture Trustee with respect to such Distribution
Date.
Annual Default Percentage (Three Month Average). With respect to any
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Determination Date, the average of the percentage equivalents of the
fractions for each of the three immediately preceding Due Periods, the
numerator of which is the product of (i) the aggregate of the Principal
Balances of all Home Loans that became Credit Support Multiple Defaulted
Loans during the Due Period immediately prior to uch Home Loans becoming
Credit Support Multiple Defaulted Loans times (ii) 12, and the denominator
of which is the Pool Principal Balance of the Home Loans as of the end of
such Due Period.
Assignment of Mortgage: With respect to each Home Loan secured by a
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Mortgage, an assignment, notice of transfer or equivalent instrument
sufficient under the laws of the jurisdiction wherein the related Property is
located to reflect of record the sale of the related Home Loan to the Trust
as follows: "First Trust of New York, National Association, as Indenture
Trustee and Co-Owner Trustee for the Mego Mortgage Home Loan Owner Trust
1997-1".
Business Day: Any day other than (i) a Saturday or Sunday, or (ii) a
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day on which banking institutions in New York City or in the city in which
the Securities Insurer or the Corporate Trust Office of the Indenture Trustee
is located or the city in which the Master Servicer's or Servicer's servicing
operations are located and are authorized or obligated by law or executive
order to be closed.
Certificate(s): Any one of the Class S Certificates or the Residual
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Interest Instruments, or both.
Certificate Distribution Account: The account established and
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maintained pursuant to Section 5.03.
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Certificateholder: A holder of any Certificate.
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Certificate Register: The register established pursuant to Section
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3.4 of the Trust Agreement.
Civil Relief Act Interest Shortfall: With respect to any
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Distribution Date, for any Home Loan as to which there has been a reduction
in the amount of interest collectible thereon for the most recently ended Due
Period as a result of the application of the Soldiers' and Sailors' Civil
Relief Act of 1940, as amended (the "Civil Relief Act"), the amount by which
(i) interest collectible on such Home Loan during such Due Period is less
than (ii) one month's interest on the Principal Balance of such Home Loan at
the Home Loan Interest Rate for such Home Loan before giving effect to the
application of the Civil Relief Act.
Class: With respect to the Notes, all Notes bearing the same class
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designation, and with respect to the Certificates, the Certificates with the
same class designation.
Class A-1 Final Scheduled Distribution Date: March 25, 2023.
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Class A-2 Final Scheduled Distribution Date: March 25, 2023.
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Class A-3 Final Scheduled Distribution Date: March 25, 2023.
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Class A-4 Final Scheduled Distribution Date: March 25, 2023.
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Class A-1 Note: Any Class A-1 Note in the form attached to the
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Indenture as Exhibit A-1.
Class A-2 Note: Any Class A-2 Note in the form attached to the
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Indenture as Exhibit A-2.
Class A-3 Note: Any Class A-3 Note in the form attached to the
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Indenture as Exhibit A-3.
Class A-4 Note: Any Class A-4 Note in the form attached to the
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Indenture as Exhibit A-4.
Class Principal Balance: With respect to each Class of Notes and as
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of any date of determination, the Original Class Principal Balance of each
such Class reduced by all amounts previously distributed to Noteholders of
such Class in reduction of the principal balance of such Class on all
previous Distribution Dates pursuant to Section 5.01(c).
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Class S Certificate: Any Class S Certificate in the form attached to
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the Trust Agreement as Exhibit A.
Class S Certificate Rate: 0.50% per annum.
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Class S Interest Distribution. With respect to any Distribution Date
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and the Class S Certificates, the sum of (i) the Class S Monthly Interest
Amount and (ii) the Class S Interest Shortfall for such Distribution Date.
Class S Interest Shortfall. With respect to the Class S Certificates
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and any Distribution Date, the excess of the Class S Monthly Interest Amount
for the preceding Distribution Date and any outstanding Class S Interest
Shortfall on such preceding Distribution Date, over the amount in respect of
interest that is actually distributed to the Class S Certificateholders on
such preceding Distribution Date plus (b) interest on such excess, to the
extent permitted by law, at the Certificate Rate from such preceding
Distribution Date through the current Distribution Date.
Class S Monthly Interest Amount. With respect to any Distribution
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Date and the Class S Certificates, 30 days of interest at the Class S
Certificate Rate, on the Class S Notional Amount for such Distribution Date,
reduced by an amount equal to such Class' pro rata share (based on the amount
of interest to which such Class would have otherwise been entitled) of the
sum of (i) Civil Relief Act Interest Shortfall and (ii) the Net Prepayment
Interest Shortfall, if any, in each case for such Distribution Date.
Class S Notional Amount. As to any Distribution Date and the Class S
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Certificates, the Pool Principal Balance of the Home Loans as of the opening
of business on the first day of the calendar month preceding the calendar
month of such Distribution Date (i.e., if the Distribution Date is June 25,
the first day of the calendar month preceding the calendar month of such
Distribution Date is May 1), or in the case of the first Distribution Date,
the Initial Pool Principal Balance.
Closing Date: March 10, 1997.
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Code: The Internal Revenue Code of 1986, as amended from time to
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time, and Treasury Regulations promulgated thereunder.
Collateral Performance Percentages: The Annual Default Percentage
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(Three Month Average), the 30+ Delinquency Percentage (Rolling Three Month),
the 60+ Day Delinquency (Rolling Three Month) and the Cumulative Default
Percentage.
Collected Amount. With respect to any Determination Date or the
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Distribution Date, the sum of the amount on deposit in the Note Distribution
Account on such Determination Date plus the amounts required to be deposited
into the Note Distribution Account pursuant to Sections 3.05, 5.01(a)(3) and
5.01(b)(1).
Collection Account: The account denominated as a Collection Account
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and maintained or caused to be maintained by the Indenture Trustee pursuant
to Section 5.01.
Contract of Insurance Holder: First Trust of New York, National
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Association, its successors in interest, and any successor thereto pursuant
to the terms of this Agreement.
Contract of Insurance: The contract of insurance under Title I
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covering the FHA Loans held under the name First Trust of New York, National
Association, or any successor thereto, as Contract of Insurance Holder
hereunder.
Corporate Trust Office: The office of the Indenture Trustee at which
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any particular time its corporate business shall be principally administered,
located on the Closing Date at First Trust of New York, National Association,
180 East 5th Street, St. Paul, Minnesota 55101, Attention: Structured
Finance.
Co-Owner Trustee: First Trust of New York, National Association, a
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national banking association, in its capacity as the Co-Owner Trustee under
the Trust Agreement acting on behalf of the Securitiesholders, or any
successor co-owner trustee under the Trust Agreement.
Credit Support Multiple Defaulted Loan. A Home Loan with respect to
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which (a) a claim has been submitted to the FHA in respect of such Loan
pursuant to the Contract of Insurance, (b) foreclosure proceedings have been
commenced on the related Property, (c) any portion of a Monthly Payment is
more than 180 calendar days past due and unpaid by the Obligor; or (d) the
Servicer has determined in accordance with customary servicing practices,
that the Home Loan is uncollectible.
Cumulative Default Percentage. As of any Determination Date, the
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aggregate of the Principal Balances of all Credit Support Multiple Defaulted
Loans (immediately prior to such Home Loans becoming Credit Support Multiple
Defaulted Loans) as of the prior Monthly Cut-Off Date since the Closing Date,
divided by the aggregate of the Initial Pool Principal Balance.
Custodial Agreement: The custodial agreement dated as of February 1,
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1997 by and between the Issuer, the Depositor, Mego, as the Seller and the
Servicer, the Indenture Trustee, and First Trust of New York, National
Association, a national banking association, as the Custodian, and any
subsequent custodial agreement, in similar form and substance, providing for
the retention of the Indenture Trustee's Home Loan Files by the Custodian on
behalf of the Indenture Trustee.
Custodian: Any custodian acceptable to the Securities Insurer and
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appointed by the Indenture Trustee pursuant to the Custodial Agreement, which
shall not be affiliated with the Servicer, the Seller, any Servicer, or the
Depositor. First Trust National Association shall be the initial Custodian
pursuant to the terms of the Custodial Agreement.
Cut-Off Date: With respect to any Home Loan, either the opening of
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business on February 1, 1997 or if such Home Loan is originated on or after
February 1, 1997, such Home Loan's date of origination.
Debt Instrument: The note or other evidence of indebtedness
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evidencing the indebtedness of an Obligor under a Home Loan.
Defaulted Home Loan: A Home Loan with respect to which: (i) a claim
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has been paid or finally rejected pursuant to the Contract of Insurance, (ii)
the Property has been repossessed and sold, or (iii) any portion of a Monthly
Payment is more than 180 calendar days past due (without giving effect to any
grace period).
Defective Home Loan: A Home Loan required to be repurchased pursuant
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to Section 3.05 hereof.
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Deficiency Amount: As to any Distribution Date, an amount equal to
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the sum of (a) the amount by which the Interest Distribution Amount for such
Distribution Date exceeds the amount on deposit in the Note Distribution
Account available to be distributed therefor on such Distribution Date and
(b) the Noteholders' Guaranteed Principal Distribution Amount for such
Distribution Date.
Delivery: When used with respect to Trust Account Property means:
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(a) with respect to bankers' acceptances, commercial paper,
negotiable certificates of deposit and other obligations that constitute
"instruments" within the meaning of Section 9-105(1)(i) of the UCC and
are susceptible of physical delivery, transfer thereof to the Indenture
Trustee or its nominee or custodian by physical delivery to the
Indenture Trustee or its nominee or custodian endorsed to, or registered
in the name of, the Indenture Trustee or its nominee or custodian or
endorsed in blank, and, with respect to a certificated security (as
defined in Section 8-102 of the UCC) transfer thereof (i) by delivery of
such certificated security endorsed to, or registered in the name of,
the Indenture Trustee or its nominee or custodian or endorsed in blank
to a financial intermediary (as defined in Section 8-313 of the UCC) and
the making by such financial intermediary of entries on its books and
records identifying such certificated securities as belonging to the
Indenture Trustee or its nominee or custodian and the sending by such
financial intermediary of a confirmation of the purchase of such
certificated security by the Indenture Trustee or its nominee or
custodian, or (ii) by delivery thereof to a "clearing corporation" (as
defined in Section 8-102(3) of the UCC) and the making by such clearing
corporation of appropriate entries on its books reducing the appropriate
securities account of the transferor and increasing the appropriate
securities account of a financial intermediary by the amount of such
certificated security, the identification by the clearing corporation of
the certificated securities for the sole and exclusive account of the
financial intermediary, the maintenance of such certificated securities
by such clearing corporation or a "custodian bank" (as defined in
Section 8-102(4) of the UCC) or the nominee of either subject to the
clearing corporation's exclusive control, the sending of a confirmation
by the financial intermediary of the purchase by the Indenture Trustee
or its nominee or custodian of such securities and the making by such
financial intermediary of entries on its books and records identifying
such certificated securities as belonging to the Indenture Trustee or
its nominee or custodian (all of the foregoing, "Physical Property"),
and, in any event, any such Physical Property in registered form shall
be in the name of the Indenture Trustee or its nominee or custodian;
and such additional or alternative procedures as may hereafter become
appropriate to effect the complete transfer of ownership of any such
Trust Account Property (as defined herein) to the Indenture Trustee or
its nominee or custodian, consistent with changes in applicable law or
regulations or the interpretation thereof;
(b) with respect to any securities issued by the U.S. Treasury,
FNMA or FHLMC that is a book-entry security held through the Federal
Reserve System pursuant to federal book-entry regulations, the following
procedures, all in accordance with applicable law, including applicable
federal regulations and Articles 8 and 9 of the UCC: book-entry
registration of such Trust Account Property to an appropriate book-entry
account maintained with a Federal Reserve Bank by a financial
intermediary that is also a "depository" pursuant to applicable federal
regulations and issuance by such financial intermediary of a deposit
advice or other written confirmation of such book-entry registration to
the Indenture Trustee or its nominee or custodian of the purchase by the
Indenture Trustee or its nominee or custodian of such book-entry
securities; the making by such financial intermediary of entries in its
books and records identifying such book-entry security held through the
Federal Reserve System pursuant to federal book-entry regulations as
belonging to the Indenture Trustee or its nominee or custodian and
indicating that such custodian holds such Trust Account Property solely
as agent for the Indenture Trustee or its nominee or custodian; and such
additional or alternative procedures as may hereafter become appropriate
to effect complete transfer of ownership of any such Trust Account
Property to the Indenture Trustee or its nominee or custodian,
consistent with changes in applicable law or regulations or the
interpretation thereof; and
(c) with respect to any item of Trust Account Property that is an
uncertificated security under Article 8 of the UCC and that is not
governed by clause (b) above, registration on the books and records of
the issuer thereof in the name of the financial intermediary, the
sending of a confirmation by the financial intermediary of the purchase
by the Indenture Trustee or its nominee or custodian of such
uncertificated security, the making by such financial intermediary of
entries on its books and records identifying such uncertificated
certificates as belonging to the Indenture Trustee or its nominee or
custodian.
Depositor: Financial Asset Securities Corp., a Delaware corporation,
---------
and any successor thereto.
Determination Date: With respect to any Distribution Date, the fifth
------------------
Business Day preceding such Distribution Date.
Distributable Excess Spread: As to any Distribution Date, the lesser
---------------------------
of (i) the amount of Excess Spread for such Distribution Date and (ii) the
portion of Excess Spread required to be distributed pursuant to Section
5.01(c)(vi) such that the Overcollateralization Amount for such Distribution
Date is equal to the Required OC Amount for such Distribution Date.
Distribution Date: The 25th day of any month or if such 25th day is
-----------------
not a Business Day, the first Business Day immediately following such day,
commencing in March 1997.
DTC: The Depository Trust Company.
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Due Date: With respect to any Monthly Payment, the date on which
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such Monthly Payment is required to be paid pursuant to the related Debt
Instrument.
Due Period: With respect to any Determination Date or Distribution
----------
Date, the calendar month immediately preceding such Determination Date or
Distribution Date, as the case may be.
Early Termination Notice Date. Any date on which the Pool Principal
-----------------------------
Balance is less than 10% of the Initial Principal Balance.
Eligible Account: At any time, an account which is any of the
----------------
following: (i) A segregated trust account that is maintained with the
corporate trust department of a depository institution acceptable to the
Securities Insurer (so long as a Securities Insurer Default shall not have
occurred and be continuing), or (ii) a segregated direct deposit account
maintained with a depository institution or trust company organized under the
laws of the United States of America, or any of the States thereof, or the
District of Columbia, having a certificate of deposit, short term deposit or
commercial paper rating of at least A-1+ by Standard & Poor's and P-1 by
Moody's and (so long as a Securities Insurer Default shall not have occurred
and be continuing) acceptable to the Securities Insurer.
Eligible Servicer: A Person that (i) is servicing a portfolio of
-----------------
Title I mortgage loans, (ii) is legally qualified to service, and is capable
of servicing, the FHA Loans and has all licenses required to service Title I
mortgage loans, (iii) has demonstrated the ability professionally and
competently to service a portfolio of FHA insured mortgage loans similar to
the FHA Loans with reasonable skill and care, (iv) has a net worth calculated
in accordance with generally accepted accounting principles of at least
$500,000 and (v) if other than Mego, is acceptable to the Securities Insurer.
Event of Default: As described in Section 10.01 hereof.
---------------- -------------
Excess Claim Amount: With respect to any Distribution Date, an
-------------------
amount equal to (A) 90% of the excess of (x) claims paid under the Contract
of Insurance in respect of the FHA Loans over (y) the Trust Designated
Insurance Amount less (B) the amount deposited to the FHA Reserve Fund on
previous Distribution Dates.
Excess Spread. With respect to any Distribution Date, the positive
-------------
excess, if any, of (x) the Collected Amount with respect to such Distribution
Date over (y) the amount required to be distributed pursuant to priorities
(i) through (v) of Section 5.01(c) on such Distribution Date.
FDIC: The Federal Deposit Insurance Corporation and any successor
----
thereto.
FHA. The Federal Housing Administration and any successor thereto.
---
FHA Insurance. Insurance issued by FHA pursuant to Title I of the
-------------
National Housing Act of 1934, as amended.
FHA Insurance Coverage Insufficiency. At the time of a prospective
------------------------------------
claim for reimbursement under the Contract of Insurance for an FHA Loan
pursuant to Section 4.12, the amount by which the sum of all claims
previously paid by the FHA in respect of all FHA Loans and the amount
expected to be received in respect of such prospective claim for such FHA
Loan exceeds the Trust Designated Insurance Amount.
FHA Insurance Coverage Reserve Account. The account established by
--------------------------------------
the FHA pursuant to the Contract of Insurance which is adjusted and
maintained under Title I (see 24 C.F.R. 201.32(a)).
FHA Insurance Payment Amount. With respect to any Distribution Date
----------------------------
and with respect to an FHA Loan for which an insurance claim has been made by
the Contract of Insurance Holder or the Claims Administrator and paid by the
FHA or rejected, in part, by the FHA, an amount equal to the sum of such of
the following as are appropriate: (i) the amount, if any, received from the
FHA, (ii) with respect to claims rejected in part, the amount, if any,
received from Mego or the Master Servicer
pursuant to Section 4.12 and (iii) the amount received from the sale of FHA
Pending Claims sold pursuant to Section 11.01(b).
FHA Loans. The Home Loans designated as FHA Loans on the Home Loan
---------
Schedule.
FHA Pending Claims. As defined in Section 11.01(b).
------------------
FHA Premium Account. The account which is an Eligible Account
-------------------
established and maintained by the Indenture Trustee pursuant to
Section 5.01(a)(4).
FHA Premium Account Deposit. With respect to any Distribution Date,
---------------------------
an amount equal to the greater of (i) 1/12 times .75% times the aggregate
Principal Balance of all FHA Loans other than Invoiced Loans as of the first
day of the calendar month preceding the month of such Distribution Date (or
the aggregate Principal Balance of such Loans as of the applicable Cut-Off
Date with respect to the first Distribution Date) and (ii) the positive
excess, if any, of (A) the projected amount of premium and other charges due
under the Contract of Insurance for the next succeeding Due Period over (B)
the balance in the FHA Premium Account as of the related Determination Date.
FHA Reserve Amount. As to each FHA Loan, 10% of the Principal
------------------
Balance as of the Cut-Off Date of such FHA Loan.
FHA Reserve Fund. The account which is an Eligible Account
----------------
denominated as the FHA Reserve Fund to be established by the Indenture
Trustee pursuant to Section 5.01(a)(3) hereof.
FHLMC: The Federal Home Loan Mortgage Corporation and any successor
-----
thereto.
FICO Score: The credit evaluation scoring methodology developed by
----------
Fair, Isaac and Company.
Final Date. The later of:
----------
(i) two years after the last insurance claim with respect to
an FHA Loan filed with the FHA was certified for payment by FHA, or
(ii) the final settlement date with respect to any insurance
claim for an FHA Loan rejected by the FHA.
Final Scheduled Distribution Date: With respect to the Class A-1
---------------------------------
Notes, the Class A-2 Notes, the Class A-3 Notes and the Class A-4 Notes,
March 25, 2023.
FNMA: The Federal National Mortgage Association and any successor
----
thereto.
Foreclosure Advances: As defined in Section 4.08(b).
--------------------
Foreclosed Loan. As of any date of determination, any Mortgage Loan,
---------------
other than a Mortgage Loan for which a claim is pending under the Contract of
Insurance, that has been discharged as a result of (i) the completion of
foreclosure or comparable proceedings; (ii) the Owner Trustee's acceptance of
the deed or other evidence of title to the related Property in lieu of
foreclosure or other comparable proceeding; or (iii) the acquisition by the
Owner Trustee of title to the related Property by operation of law.
Foreclosed Property. With respect to any Mortgage Loan, any Property
-------------------
acquired by the Trust as a result of:
(i) the completion of foreclosure or comparable proceedings
with respect to the related Mortgage Loan;
(ii) the Co-Owner Trustee's acceptance of the deed or other
evidence of title to the related Property in lieu of foreclosure or
other proceeding with respect to the related Loan; or
(iii) the acquisition by the Co-Owner Trustee of title thereto
by operation of law.
Grant: As defined in the Indenture.
-----
Guaranty Policy. That certain guaranty insurance policy for the
---------------
Insured Securities, dated March 10, 1997, and issued by the Securities
Insurer to the Indenture Trustee and guaranteeing payment of any Insured
Payment.
HUD: The United States Department of Housing and Urban Development
---
and any successor thereto.
Home Loan: An individual Home Loan that is conveyed to the Issuer
---------
pursuant to this Agreement on the Closing Date, together with the rights and
obligations of a holder thereof and payments thereon and proceeds therefrom
received after the Cut-off Date, the Home Loans subject to this Agreement
being identified on the Home Loan Schedule annexed hereto as Exhibit A.
- ---------
Home Loan File: The Indenture Trustee's Home Loan File and the
--------------
Servicer's Home Loan File.
Home Loan Interest Rate: The fixed annual rate of interest borne by
-----------------------
a Debt Instrument, as shown on the related Home Loan Schedule (not including
any amounts payable as premium for FHA Insurance with respect to Invoiced
Loans).
Home Loan Pool: The pool of Home Loans.
--------------
Home Loan Purchase Agreement: The home loan purchase agreement
----------------------------
between the Seller, as seller, and the Depositor, as purchaser, dated as of
February 1, 1997.
Home Loan Schedule: The schedule of Home Loans specifying with
------------------
respect to each Home Loan, the information set forth on Exhibit A attached
hereto, as amended or supplemented from time to time.
Indemnification Agreement: The Indemnification Agreement, dated as
-------------------------
of March 7, 1997, by and among the Securities Insurer, the Seller and
Greenwich Capital Markets, Inc., as Underwriter.
Indenture: The Indenture, dated as of February 1, 1997, between the
---------
Issuer and the Indenture Trustee.
Indenture Trustee: First Trust of New York, National Association, a
-----------------
national banking association, as Indenture Trustee under the Indenture and
this Agreement acting on behalf of the Noteholders, or any successor
indenture trustee under the Indenture and this Agreement.
Indenture Trustee Fee: With respect to any Distribution Date, the
---------------------
greater of (A) one-twelfth of 0.0375% times the Pool Principal Balance of the
Home Loans as of the opening of business on the first day of the calendar
month preceding the calendar month of such Distribution Date (or, with
respect to the first Distribution Date, the Initial Pool Principal Balance);
and (B) $667.
Indenture Trustee's Home Loan File: As defined in Section 2.05.
---------------------------------- ------------
Independent. When used with respect to any specified Person, such
-----------
Person (i) is in fact independent of Mego, the Master Servicer, the Depositor
or any of their respective affiliates, (ii) does not have any direct
financial interest in or any material indirect financial interest in any of
Mego, the Master Servicer, the Depositor or any of their respective
affiliates and (iii) is not connected with any of Mego, the Master Servicer,
the Depositor or any of their respective affiliates, as an officer, employee,
promoter, underwriter, trustee, partner, director or Person performing
similar functions; provided, however, that a Person shall not fail to be
-------- -------
Independent of Mego, the Master Servicer, the Depositor or any of their
respective affiliates merely because such Person is the beneficial owner
of 1% or less of any class of securities issued by Mego, the Master Servicer,
the Depositor or any of their respective affiliates, as the case may be.
Independent Accountants. A firm of nationally recognized certified
-----------------------
public accountants which is Independent.
Initial Pool Principal Balance: $89,696,622, which is the Pool
------------------------------
Principal Balance as of the Cut-Off Date.
Insurance Agreement: The Insurance Agreement, dated as of February
-------------------
1, 1997, between the Securities Insurer, Mego, as the Seller, Servicer and
Claims Administrator, Mego Mortgage Home Loan Acceptance Corporation, as
affiliated holder, the Depositor, the Issuer, the Master Servicer, the
Indenture Trustee, as Indenture Trustee, Co-Owner Trustee and Contract of
Insurance Holder and Greenwich Capital Financial Products, Inc.
Insurance Policies. With respect to any Property, any related
------------------
insurance policy other than the Contract of Insurance or the Guaranty Policy.
Insurance Proceeds. With respect to any Property, all amounts
------------------
collected in respect of Insurance Policies and not required to be applied to
the restoration of the related Property or paid to the related Obligor.
Insurance Record. The record established and maintained by the
----------------
Claims Administrator (in a manner consistent with the Title I provisions set
forth in 24 C.F.R. Section 201.32) setting forth the FHA insurance coverage
attributable to the FHA Loans hereunder. To the extent consistent with
adjustments pursuant to Title I to the FHA Insurance Coverage Reserve
Account, the Insurance Record shall be reduced by the amount of claims
approved for payment by the FHA with respect to any FHA Loan or Related
Series Loan after the date of transfer of the related FHA reserve account to
the Contract of Insurance Holder.
Insured Payment: With respect to the Guaranty Policy, the sum of (i)
---------------
as of any Distribution Date, any Deficiency Amount and (ii) any unpaid
Preference Amount.
Insured Securities: Each of the Class A-1 Notes, the Class A-2 Notes,
------------------
the Class A-3, the Class A-4 Notes and the Class S Certificates.
Interest Advance: As defined in Section 4.08(a).
----------------
Interest Distribution Amount: On any Distribution Date, the sum of
----------------------------
the Noteholders' Interest Distributable Amount for each Class of Notes and
the Class S Interest Distribution for such Distribution Date.
Invoiced Loan. An FHA Loan with respect to which the related Obligor
-------------
is required to pay the premium on FHA Insurance with respect to such FHA
Loan.
Issuer: The Trust.
------
Late Payment Rate. For any Distribution Date, the lesser of (i) the
-----------------
rate of interest, as it is publicly announced by Citibank, N.A., as its prime
rate (any change in such prime rate of interest to be effective on the date
such change is announced by Citibank, N.A.) plus 2% and (ii) the maximum rate
permissible under any applicable law limiting interest rates. The Late
Payment Rate shall be computed on the basis of a year of 365 days calculating
the actual number of days elapsed.
Majority Securityholders: Subject to Section 12.14, (i) until such
------------------------ -------------
time as the sum of the Class Principal Balances of all Classes of Notes has
been reduced to zero, the holder or holders of in excess of 50% of the Class
Principal Balance of all Classes of Notes (accordingly, the holders of the
Certificates shall be excluded from any rights or actions of the Majority
Securityholders during such period); and (ii) thereafter, the holder or
holders of in excess of 50% of the Percentage Interest of the Residual
Interest Instruments.
Master Servicer. Norwest Bank Minnesota, N.A., a national banking
---------------
association, its successors in interest or any successor master servicer
appointed as herein provided.
Master Servicer Certificate: As defined in Section 6.01.
---------------------------
Master Servicer Fee. With respect to any Distribution Date, 1/12
-------------------
times 0.08% times the Pool Principal Balance as of the opening of business on
the first day of the month preceding the month of such Distribution Date (or,
with respect to the first Distribution Date, the Initial Pool Principal
Balance).
Master Servicer Termination Event. Any event specified in
---------------------------------
Section 10.01.
Master Servicing Officer. Any officer of the Master Servicer
------------------------
responsible for the administration and servicing of the Home Loans whose name
and specimen signature appears on a list of servicing officers furnished to
the Indenture Trustee by the Master Servicer, as such list may from time to
time be amended.
Maturity Date. With respect to any Home Loan and as of any date of
-------------
determination, the date on which the last payment of principal is due and
payable under the related Debt Instrument.
Monthly Cut-Off Date: The last day of any calendar month, and with
--------------------
respect to any Distribution Date, the last day of the calendar month
immediately preceding such Distribution Date.
Monthly Payment: With respect to any Home Loan and any Due Period,
---------------
the payment of principal and interest due in such Due Period from the Obligor
pursuant to the related Debt Instrument (as amended or modified, if
applicable, pursuant to Section 4.10). The Monthly Payment related to a
Determination Date or a Distribution Date shall be the Monthly Payment due
for the next preceding Due Period.
Moody's: Moody's Investors Service, Inc. or any successor thereto.
-------
Mortgage. With respect to any Mortgage Loan, the mortgage, deed of
--------
trust or other instrument creating a mortgage lien (and in a title theory
state the document conveying title to the Property as security for the
related Loan) or other security interest on the related Property.
Mortgage Loan. As of any date of determination, each of the Home
-------------
Loans, secured by an interest in a Property, transferred and assigned to the
Indenture Trustee pursuant to Section 2.01(a).
Mortgagee or Obligee. With respect to any Home Loan as of any date
--------------------
of determination, the holder of the related Debt Instrument and any related
Mortgage as of such date.
Mortgagor or Obligor. With respect to any Home Loan, the obligor(s)
--------------------
on the related Debt Instrument.
Net Loan Rate. With respect to each Home Loan, the related Home Loan
-------------
Interest Rate, less the rate at which the Servicer Fee is calculated.
Net Prepayment Interest Shortfall: As to any Distribution Date, the
---------------------------------
amount by which aggregate Prepayment Interest Shortfalls during the preceding
Due Period exceed the Servicer Fee for such Distribution Date.
Non-FHA Loans: The Home Loans designated as Non-FHA Loans on the
-------------
Home Loan Schedule.
Nonrecoverable Advances. With respect to any Home Loan, (i) any
-----------------------
Interest Advance previously made and not reimbursed pursuant to Section
5.01(c)(i)(c), or (ii) an Interest Advance proposed to be made in respect of
a Home Loan which, in the good faith business judgment of the Master
Servicer, as evidenced by an Officer's Certificate delivered to the
Securities Insurer, Mego and the Indenture Trustee no later than the Business
Day following such determination, would not be recoverable ultimately
from the Payments received in subsequent Due Periods in respect of that Home
Loan.
Note(s): One or more of the Class A-1 Notes, the Class A-2 Notes,
-------
the Class A-3 Notes or Class A-4 Notes.
Note Distribution Account: The account established and maintained
-------------------------
pursuant to Section 5.01(a)(2).
------------------
Noteholder: A holder of a Note.
----------
Noteholders' Distributable Amount: With respect to any Distribution
---------------------------------
Date and each Class of Notes, the sum of the Noteholders' Principal
Distributable Amount and the Noteholders' Interest Distributable Amount.
Noteholders' Guaranteed Principal Distribution Amount. With respect
-----------------------------------------------------
to any Distribution Date, the positive excess, if any, of (i) the aggregate
Class Principal Balances of the Notes as of such Distribution Date (taking
into account the amount of the distributions required to be distributed
pursuant to Section 5.01(c)(iii) on such Distribution Date) over (ii) the
Pool Principal Balance as of the end of the related Due Period; provided,
--------
that on the Final Scheduled Distribution Date for any Class of Notes,
- ----
the Noteholders' Guaranteed Principal Distribution Amount for such Class of
Notes shall equal the amount necessary to reduce the Class Principal Balance
thereof to zero (taking into account the amount of the distributions required
to be paid on such Class of Notes pursuant to Section 5.01(c)(iii) on such
Final Scheduled Distribution Date).
Noteholders' Interest Carry-Forward Amount: With respect to any
------------------------------------------
Distribution Date and each Class of Notes, the sum of (i) excess of (A) the
applicable Noteholders' Monthly Interest Distributable Amount for the
preceding Distribution Date and any outstanding Noteholders' Interest Carry-
Forward Amount for such Class on such preceding Distribution Date, over (B)
the amount in respect of interest that is actually paid on such Class of
Notes on such preceding Distribution Date plus (ii) interest on such excess,
to the extent permitted by law, at the applicable Note Interest Rate from
such preceding Distribution Date through the current Distribution Date.
Noteholders' Interest Distributable Amount: With respect to each
------------------------------------------
Distribution Date and each Class of Notes, the sum of the applicable
Noteholders' Monthly Interest Distributable Amount and the applicable
Noteholders' Interest Carry-Forward Amount for such Class of Notes, if any,
for such Distribution Date.
Noteholders' Monthly Interest Distributable Amount: With respect to
--------------------------------------------------
each Distribution Date and each Class of Notes, the amount of thirty (30)
days' accrued interest at the respective Interest Rate for such Class of
Notes on the Class Principal Balance of such Class immediately preceding
such Distribution Date (or, in the case of the first Distribution Date, on
the Closing Date) after giving effect to all payments of principal to the
Noteholders of such Class on or prior to the immediately preceding
Distribution Date, in each case reduced by an amount equal to such Class'
pro rata share (based on the amount of interest to which such Class would
have otherwise been entitled) of the sum of (i) Civil Relief Act Interest
Shortfall and (ii) the Net Prepayment Interest Shortfall, if any, in
each case for such Distribution Date.
Noteholders' Monthly Principal Distributable Amount: With respect to
---------------------------------------------------
each Distribution Date, the amount equal to the sum of the following amounts
(without duplication) with respect to the immediately preceding Due Period:
(i) that portion of all Payments received on Home Loans allocable to
principal, including all full and partial principal prepayments (excluding
such payments in respect of such Home Loans that became Defaulted Home Loans
on or prior to the end of the preceding Due Period), (ii) the Principal
Balance as of the end of the immediately preceding Due Period of each Home
Loan that became a Defaulted Home Loan for the first time during the such Due
Period, (iii) the portion of the Purchase Price allocable to principal of all
Defective Loans with respect to such Due Period and the portion of the
purchase amount, if any, set forth in 11.01(b) allocable to principal with
respect to the Home Loans, (iv) any Substitution Adjustments deposited to the
Note Distribution Account pursuant to Section 3.05 on the previous
Determination Date, and (v) the amount of Distributable Excess Spread, if
any, in respect of such Distribution Date.
Noteholders' Principal Distributable Amount: With respect to any
-------------------------------------------
Distribution Date, the sum of the Noteholders' Monthly Principal
Distributable Amount for such Distribution Date and the Noteholders'
Principal Carry-Forward Amount as of the close of the preceding Distribution
Date; provided, however, that the Noteholders' Principal Distributable Amount
on any Distribution Date shall not exceed the outstanding principal balance
of the Notes; and provided, further, that (i) the Noteholders' Principal
Distributable Amount on the Class A-1 Final Scheduled Distribution Date shall
not be less than the amount that is necessary (after giving effect to other
amounts to be deposited in the Note Distribution Account on such Distribution
Date and allocable to principal) to reduce the outstanding Class Principal
Balance of the Class A-1 Notes to zero; (ii) the Noteholders' Principal
Distributable Amount on the Class A-2 Final Scheduled Distribution Date shall
not be less than the amount that is necessary (after giving effect to other
amounts to be deposited in the Note Distribution Account on such Distribution
Date and allocable to principal) to reduce the outstanding Class Principal
Balance of the Class A-2 Notes to zero, (iii) the Noteholders' Principal
Distributable Amount on the Class A-3 Final Scheduled Distribution Date shall
not be less than the amount that is necessary (after giving effect to other
amounts to be deposited in the Note Distribution Account on such Distribution
Date and allocable to principal) to reduce the outstanding Class
Principal Balance of the Class A-3 Notes to zero, and (iv) the Noteholders'
Principal Distributable Amount on the Class A-4 Final Scheduled Distribution
Date shall not be less than the amount that is necessary (after giving effect
to other amounts to be deposited in the Note Distribution Account on such
Distribution Date and allocable to principal) to reduce the outstanding Class
Principal Balance of the Class A-4 Notes to zero.
Noteholders' Principal Carry-Forward Amount: As of the close of any
-------------------------------------------
Distribution Date, the excess of (A) the Noteholders' Monthly Principal
Distributable Amount and any outstanding Noteholders' Principal Carry-Forward
Amount from the preceding Distribution Dates, over (B) the amount in respect
of principal that is actually paid on the Notes on such preceding
Distribution Date.
Note Interest Rate: With respect to each Class of Notes, the per
------------------
annum rate of interest payable to the holders of such Class of Notes. The
Note Interest Rate with respect to the Class A-1 Notes is equal to 6.57% per
annum; the Note Interest Rate with respect to the Class A-2 Notes is equal to
6.75% per annum; and the Note Interest Rate with respect to the Class A-3
Notes is equal to 6.94% per annum; and the Note Interest Rate with respect to
Class A-4 Notes is equal to 7.33% per annum.
Note Register: The register established pursuant to Section 2.3 of
-------------
the Indenture.
Obligee: See Mortgagee.
-------
Obligor: See Mortgagor.
-------
OC Floor: The product of 1% times the Initial Pool Principal Balance,
--------
which product is equal to $896,966.
OC Multiple. As to any Distribution Date, the highest OC Multiple
-----------
based upon the data set forth in the Master Servicer's Certificate for such
Distribution Date as set forth in the following chart:
<TABLE>
<CAPTION>
30+ Day 60+ Day Annual Default
OC Delinquency Percentage Delinquency Percentage %
Multiple (Rolling 3 Month) (Rolling 3 Month) (3 Month Average)
<S> <C> <C>
1.00 0.00% to 7.99% 0.00% to 3.49% 0.00% to 4.99%
1.25 8.00% to 8.99% 3.50% to 4.99% 5.00% to 5.99%
1.50 9.00% to 11.99% 5.00% to 6.99% 6.00% to 6.99%
2.50 >=12.00% >=7.00% >=7.00%
CUMULATIVE DEFAULT PERCENTAGE
Months/*/ Months 0 Months -
0-12 0-24 Maturity
2.50 >5.0% >8.0% >12.0%
</TABLE>
_______________________
/
*/ Month 0 is March, 1997.
OC Reduction Date. shall be the later of (i) the Distribution Date
-----------------
occurring in April 2000 and (ii) the Distribution Date on which the Pool
Principal Balance of the Home Loans for such Distribution Date is equal to or
less than one-half of the Initial Pool Principal Balance provided, no OC
Reduction Date shall occur if there has been an OC Multiple greater than 1.00
on any of the three (3) previous Distribution Dates.
Officer's Certificate: A certificate signed by (i) any Master
---------------------
Servicing Officer or (ii) the Chairman of the Board, the Vice Chairman of the
Board, the President, a Vice President, an Assistant Vice President, the
Treasurer, the Secretary or one of the Assistant Treasurers or Assistant
Secretaries of the Depositor or Mego, as the case may be, as required by this
Agreement.
Opinion of Counsel. A written opinion of counsel (who is acceptable
------------------
to the Securities Insurer and the Rating Agencies),
who may be employed by Mego, the Master Servicer, the Depositor or any of
their respective affiliates.
Original Class Principal Balance: In the case of the Class A-1
--------------------------------
Notes, $23,300,000; in the case of the Class A-2 Notes, $25,950,000; in the
case of the Class A-3 Notes, $10,300,000; and in the case of the Class A-4
Notes, $26,603,605.
Other Fees. With respect to any Distribution Date, (i) amounts in
----------
respect of fees and expenses due to any provider of services to the Trust,
except the Indenture Trustee, the Master Servicer, the Servicer, the Claims
Administrator, the Contract of Insurance Holder and also except any Person,
the fees of which are required by this Agreement to be paid by the Master
Servicer, the Servicer, the Claims Administrator, the Contract of Insurance
Holder or the Trustee, but including such amounts payable to the successor
Master Servicer pursuant to Section 10.03(c); (ii) any taxes assessed against
the Trust; and (iii) the reasonable transition expenses of a successor Master
Servicer incurred in acting as successor Master Servicer.
Overcollateralization Amount: As of any Distribution Date the
----------------------------
amount, if any, by which the Pool Principal Balance as of the end of the
related Due Period exceeds the Class Principal Balances of the Notes after
giving effect to payments of principal to be made on such Distribution Date.
Ownership Interest: As to any Security, any ownership or security
------------------
interest in such Security, including any interest in such Security as the
holder thereof and any other interest therein, whether direct or indirect,
legal or beneficial, as owner or as pledgee.
Owner Trustee: Wilmington Trust Company, as owner trustee under the
-------------
Trust Agreement, and any successor owner trustee under the Trust Agreement.
Owner Trustee Fee: The annual fee of $4,000 payable to the Owner
-----------------
Trustee on the Distribution Date occurring in March each year during the term
of this Agreement commencing in March 1998; provided that the initial Owner
Trustee Fee shall be paid on the Closing Date.
Payment: With respect to any Home Loan or the related Foreclosed
-------
Property and any Determination Date, all amounts received or collected on
account of principal and interest by or on behalf of the Master Servicer
during the preceding Due Period in respect of such Home Loan or Foreclosed
Property from whatever source, including without limitation, amounts received
or collected from, or representing:
(i) the related Obligor;
(ii) the application to amounts due on such Home Loan (or, in
the case of any Foreclosed Property, to amounts previously due on the
related Foreclosed Loan) of any related Insurance Proceeds, any related
condemnation awards or settlements or any payments made by any related
guarantor or third-party credit-support provider;
(iii) FHA Insurance Payment Amounts with respect to such Home
Loan;
(iv) the operation or sale of the related Foreclosed Property;
(v) the Purchase Price with respect to such Home Loan; or
(vi) amounts deposited into the Note Distribution Account
pursuant to Section 11.01(b);
provided, however, that any amount the Servicer shall be entitled to retain
as additional servicer compensation pursuant to Section 6.05(a) of the
Servicing Agreement shall be excluded from the calculation of Payment.
Percentage Interest: As defined in the Trust Agreement.
-------------------
Permitted Investments: Each of the following:
---------------------
(a) Direct obligations of the United States of America (including
obligations issued or held in book-entry form on the books of the Department
of the Treasury, and CATS and TIGRS) or obligations the principal of and
interest on which are unconditionally guaranteed by the United States of
America.
(b) Bonds, debentures, notes or other evidence of indebtedness
issued or guaranteed by any of the following federal agencies and provided
such obligations are backed by the full faith and credit of the United States
of America (stripped securities are only permitted if they have been stripped
by the agency itself):
1. U.S. Export-Import Bank (Eximbank)
----------------------------------
A. Direct obligations or fully guaranteed certificates of
beneficial ownership
2. Farmers Home Administration (FmHA)
----------------------------------
A. Certificates of beneficial ownership
3. Federal Financing Bank
----------------------
4. Federal Housing Administration (FHA)
------------------------------------
A. Debentures
5. General Services Administration
-------------------------------
A. Participation certificates
6. U.S. Maritime Administration
----------------------------
A. Guaranteed Title XI financing
7. U.S. Department of Housing and Urban Development (HUD)
------------------------------------------------------
A. Project Notes
B. Local Authority Bonds
C. New Communities Debentures - U.S. government guaranteed
debentures
D. U.S. Public Housing Notes and Bonds - U.S. government
guaranteed public housing notes and bonds
(c) Bonds, debentures, notes or other evidence of indebtedness
issued or guaranteed by any of the following non-full faith and credit U.S.
government agencies that are rated by both Rating Agencies in one of the top
two long-term rating categories (stripped securities are only permitted if
they have been stripped by the agency itself):
1. Federal Home Loan Bank System
-----------------------------
A. Senior debt obligations
2. Federal Home Loan Mortgage Corporation (FHLMC)
----------------------------------------------
A. Participation Certificates
B. Senior debt obligations
3. Federal National Mortgage Association (FNMA)
--------------------------------------------
A. Mortgage-backed securities and senior debt obligations
4. Student Loan Marketing Association
----------------------------------
A. Senior debt obligations
5. Resolution Funding Corp. obligations
------------------------------------
6. Farm Credit System
------------------
A. Consolidated systemwide bonds and notes
(d) Money market funds registered under the Investment Company Act
of 1940, as amended, whose shares are registered under the Securities Act,
and having a rating by Standard & Poor's of AAAm-G; AAAm; or AAm and a rating
by Moody's of Aaa.
(e) Certificates of deposit secured at all times by collateral
described in (a) and/or (b) above. Such certificates must be issued by
commercial banks, savings and loan associations or mutual savings banks which
have a short term rating by Moody's of P-1. The collateral must be held by a
third party and the Indenture Trustee must have a perfected first security
interest in the collateral.
(f) Certificates of deposit, savings accounts, deposit accounts or
money market deposits which are fully insured by FDIC, including BIF and
SAIF.
(g) Investment agreements, including guaranteed investment
contracts, acceptable to the Securities Insurer and each Rating Agency.
(h) Commercial paper rated "Prime - 1" by Moody's and "A-1" or
better by Standard & Poor's.
(i) Bonds or notes issued by any state or municipality which are
rated by Moody's and Standard & Poor's in one of the two highest long term
rating categories assigned by such agencies.
(j) Federal funds or bankers acceptances with a maximum term of
one year of any bank which has an unsecured, uninsured and unguaranteed
obligation rating of "Prime - 1" by Moody's and "A-1" or "A" or better by
S&P.
(k) Repurchase agreements providing for the transfer of securities
from a dealer bank or securities firm (seller/borrower) to the Trust
(buyer/lender), and the transfer of cash from the Trust to the dealer bank or
securities firm with an agreement that the dealer bank or securities firm
will repay the cash plus a yield to the Trust in exchange for the securities
at a specified date.
Repurchase agreements ("repos") must satisfy the following criteria
or be approved by the Securities Insurer.
1. Repos must be between the Trust and a dealer bank or
----------------------------------------------------
securities firm which are:
- -------------------------
A. Primary dealers on the Federal Reserve reporting
---------------
dealer list which are rated A or better by Standard & Poor's and P-1 by
Moody's, or
B. Banks rated "A" or above by Standard & Poor's and P-1
-----
by Moody's.
2. The written repo contract trust must include the following:
----------------------------------------------------------
A. Securities which are acceptable for transfer are:
------------------------------------------------
(1) Direct U.S. governments, or
(2) Federal agencies backed by the full faith and credit
of the U.S. government (or FNMA or FHLMC) other than
mortgage backed securities.
B. The term of the repo may be up to 30 days
-----------------------------------------
C. The collateral must be delivered to the Indenture Trustee
or third party acting as agent for the Indenture Trustee
before/simultaneous with payment (perfection by
possession of certificated securities).
D. Valuation of Collateral
-----------------------
(1) The securities must be valued weekly, marked-to
-----------------------------------------------
market at current market price plus accrued interest.
- ------ ----
(a) The value of collateral must be equal to 104% of the
amount of cash transferred by the Trust to the
dealer bank or security firm under the repo plus
accrued interest. If the value of securities held
as collateral slips below 104% of the value of the
cash transferred by the Trust, then additional cash
and/or acceptable securities must be transferred.
If, however, the securities used as collateral are
FNMA or FHLMC, then the value of collateral must
equal 105%.
3. Legal opinion which must be delivered to the Indenture
------------------------------------------------------
Trustee:
- -------
a. Repo meets guidelines under state law for legal
investment of public funds.
Each reference in this definition of "Permitted Investments" to the
Rating Agency shall be construed, in the case of each subparagraph above
referring to each Rating Agency, as a reference to Standard & Poor's and
Moody's.
Person: Any individual, corporation, partnership, joint venture,
------
limited liability company, association, joint-stock company, trust, national
banking association, unincorporated
organization or government or any agency or political subdivision thereof.
Physical Property: As defined in the definition of "Delivery" above.
-----------------
Pool Principal Balance: With respect to any date of determination,
----------------------
the sum of the Principal Balances for all Home Loans.
Preference Amount: Any amount previously distributed to the holder
-----------------
of an Insured Security that is recoverable and sought to be recovered as a
voidable preference by a trustee in bankruptcy pursuant to the United States
Bankruptcy Code, in accordance with a final, non-appealable order of a court
having competent jurisdiction.
Premium: The premium, payable monthly, that is specified in the
-------
Commitment Letter issued by the Securities Insurer with respect to the Notes
and the Certificates.
Prepayment Interest Shortfall: As to any Home Loan and Principal
-----------------------------
Prepayment, the amount by which one month's interest at the related Home Loan
Interest Rate (or such lower rate as may be in effect from a Home Loan
because of the application of the Civil Relief Act) minus the rate at which
the Servicing Fee is calculated on such Principal Prepayment exceeds the
amount of interest paid by the Mortgagor in connection with such Principal
Prepayment.
Principal Balance: With respect to any Home Loan, and for any date
-----------------
of determination, the Principal Balance of such Home Loan as of the Cut-Off
Date reduced by all amounts previously received or collected in respect of
principal on such Home Loan on or subsequent to the Cut-Off Date for such
Home Loan; provided, that with respect to any Defaulted Home Loan, the
--------
Principal Balance shall be zero immediately after the Due Period in which such
Home Loan becomes a Defaulted Home Loan.
Principal Prepayment: Any payment or other receipt of principal in
--------------------
full due on a Home Loan made by an Obligor which is received in advance of
the scheduled Maturity Date of such Home Loan.
Property: The property (real, personal or mixed) encumbered by the
--------
Mortgage which secures the Debt Instrument evidencing a secured Home Loan.
Prospectus: The Depositor's final Prospectus, dated March 7, 1997,
----------
as supplemented by the Prospectus Supplement.
Prospectus Supplement: The Prospectus Supplement dated as of March
---------------------
7, 1997, prepared by the Seller and the Depositor in connection with the
issuance and sale of the Securities.
Purchase Price: With respect to a Home Loan, means the Principal
--------------
Balance of such Home Loan as of the date of purchase, plus unpaid accrued
interest at the related Home Loan Interest Rate to the last day of the month
in which such purchase occurs (without regard to any Interest Advance that
may have been made with respect to such Home Loan).
Qualified Substitute Home Loan: A Home Loan: (i) having
------------------------------
characteristics such that the representations and warranties made pursuant to
Section 3.03(b) with respect to the Home Loans are true and correct as of the
date of substitution with respect to such Loan; (ii) each Monthly Payment
with respect to such Home Loan shall be greater than or equal to the Monthly
Payments due in the same Due Period on the Loan for which such Qualified
Substitute Home Loan is being substituted; (iii) the Maturity Date with
respect to such Home Loan shall be no later than the Maturity Date of the
Loan for which such Qualified Substitute Home Loan is being substituted; (iv)
as of the date of substitution, the Principal Balance of such Home Loan is
less than or equal to (but not more than 1% less than) the Principal Balance
of the Home Loan for which such Qualified Substitute Home Loan is being
substituted; (v) the Home Loan Interest Rate with respect to such Home Loan
is at least equal to the Home Loan Interest Rate of the Home Loan for which
such Qualified Substitute Home Loan is being substituted and (vi) the FICO
score for such Home Loan must not be less than ten points of the FICO score
for such Home Loan for which such Qualified Substitute Home Loan is being
substituted; provided however, in the event more than one Qualified
-------- -------
Substitute Home Loan is being substituted for one or more Defective Home
Loans on any date, in which case (i) the weighted average Home Loan Interest
Rate for such Qualified Substitute Home Loans must equal or exceed the
weighted average Home Loan Interest Rate of the Defective Home Loans
immediately prior to giving effect to the substitution, in each case weighted
on the basis of the outstanding Principal Balance of such loans as of such
day, (ii) the sum of the Monthly Payments with respect to such Qualified
Substitute Home Loans shall be greater than or equal to the Monthly Payments
due in the same Due Period on the Defective Home Loans for which a
substitution is being made, and (iii) as of the date of substitution, the
aggregate Principal Balances of such Qualified Substitute Home Loans are
less than or equal to (but not more than 1% less than) the aggregate
Principal Balances of the Defective Home Loans for which such a substitution
is being made.
Rating Agency or Rating Agencies: Either or both of (i) Standard &
--------------------------------
Poor's, or (ii) Moody's, provided that when the terms Rating Agency or Rating
Agencies are used in reference to the Insured Securities, such terms shall
mean one or both of Standard & Poor's or Moody's. If no such organization
or successor is any longer in existence, "Rating Agency" shall be a nationally
recognized statistical rating organization or other comparable person
designated by the Issuer and approved by the Securities Insurer, notice of
which designation shall have been given to the Indenture Trustee, the
Securities Insurer, the Issuer and the Master Servicer.
Ratings: The ratings initially assigned to the Notes and the
-------
Certificates by the Rating Agencies, as evidenced by letters from the Rating
Agencies.
Record Date: With respect to each Distribution Date, the close of
-----------
business on the last Business Day of the month immediately preceding the
month in which such Distribution Date occurs.
Rejected Claim. With respect to any FHA Loan, a claim for payment
--------------
made to the FHA under the Contract of Insurance that has been finally
rejected after all appeals with FHA have been exhausted for any reason
(including a rejection of a previously paid claim and a demand by the FHA of
a return of the FHA Insurance Payment Amount for the related FHA Loan) other
than a refusal or rejection due to clerical error in computing the claim
amount or because the amount of the FHA Insurance Coverage Reserve Account as
shown in the Insurance Record is zero.
Related Series. Means (i) the Trust, (ii) Mego Mortgage Home Loan
--------------
Trust 1996-3, (iii) Mego Mortgage FHA Title I Loan Trust 1996-2, (iv) Mego
Mortgage FHA Title I Loan Trust 1996-1, and (v) each of the subsequent series
of trusts, of which the Indenture Trustee is the trustee and the Securities
Insurer is the certificate insurer, to which Related Series Loans are sold
directly or indirectly by Mego, established pursuant to pooling and servicing
agreements.
Related Series Loans. Means FHA Title I loans included in the
--------------------
Related Series which: (i) are sold by Mego, directly or indirectly, to a
trust and (ii) the Title I insurance coverage attributable to which is made
available to cover claims with respect to the FHA Loans and the Related
Series Loans in each other Related Series by virtue of terms relating to the
administration of the FHA Insurance Coverage Reserve Account substantially
similar to the terms hereof.
Required OC Amount: With respect to each Distribution Date, the
------------------
greater of (a) the OC Floor or (b) the product of (i) the OC Multiple for
such Distribution Date and (ii)(x) if such Distribution Date is prior to the
OC Reduction Date, the product of 7.90% and the Initial Pool Principal
Balance, or (y) if such Distribution Date is on or after the OC Reduction
Date, the lesser of (A) the product of 7.90% times the Initial Pool Principal
Balance and (B) the product of 15.80% times the Pool Principal Balance of the
Home Loans as of such Distribution Date, or such lower amount as may be
established by the Securities Insurer in its sole discretion after notice to
and written approval by the Rating Agencies.
Residual Interest Instruments: The Certificates representing the
-----------------------------
interest which represents the right to the amount remaining, if any, after
all prior distributions have been made under this Agreement, the Indenture
and the Trust Agreement on each Distribution Date and certain other rights to
receive amounts hereunder and under the Trust Agreement.
Responsible Officer: When used with respect to the Indenture
-------------------
Trustee, any officer within the Corporate Trust Office of the Indenture
Trustee, including any Vice President, Assistant Vice President, Secretary,
Assistant Secretary or any other officer of the Indenture Trustee customarily
performing functions similar to those performed by any of the above
designated officers and also, with respect to a particular matter, any other
officer to whom such matter is referred because of such officer's knowledge
of and familiarity with the particular subject. When used with respect to
the Issuer, any officer in the Corporate Trust Administration Department of
the Owner Trustee with direct responsibility for the administration of the
Trust Agreement and this Agreement on behalf of the Issuer. When used with
respect to the Depositor, the Seller, the Master Servicer, or the Custodian,
the President or any Vice President, Assistant Vice President, 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
Enforcement 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.
Securities: The Notes and/or the Certificates, as applicable.
----------
Securities Act. The Securities Act of 1933, as amended.
--------------
Securities Insurer: MBIA Insurance Corporation, as issuer of the
------------------
Guaranty Policy, and its successors and assigns.
Securities Insurer Commitment: As defined in Section 3.04(a) hereof.
----------------------------- ---------------
Securities Insurer Default: The existence and continuance of any of
--------------------------
the following:
(a) the Securities Insurer fails to make a payment required
under the Guaranty Policy in accordance with its terms; or
(b) (i) the entry by a court having jurisdiction in the
premises of (A) a decree or order for relief in respect of the
Securities Insurer in an involuntary case or proceeding under any
applicable United States federal or state bankruptcy, insolvency,
rehabilitation, reorganization or other similar law or (B) a decree
or order adjudging the Securities Insurer a bankrupt or insolvent,
or approving as properly filed a petition seeking reorganization,
rehabilitation, arrangement, adjustment or composition of or in
respect of the Securities Insurer under any applicable United
States federal or state law, or appointing a custodian, receiver,
liquidator, rehabilitator, assignee, trustee, sequestrator or other
similar official of the Securities Insurer or of any substantial
part of its property, or ordering the winding-up or liquidation of
its affairs, and the continuance of any such decree or order for
relief or any such other decree or order unstayed and in effect for
a period of 60 consecutive days; or (ii) the commencement by the
Securities Insurer of a voluntary case or proceeding under any
applicable United States federal or state bankruptcy, insolvency,
reorganization or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent, or the
consent by the Securities Insurer to the entry of a decree or order
for relief in respect of the Securities Insurer in an involuntary
case or proceeding under any applicable United States federal or
state bankruptcy, insolvency, reorganization or other similar law
or to the commencement of any bankruptcy or insolvency case or
proceeding against the Securities Insurer, or the filing by the
Securities Insurer of a petition or answer or consent seeking
reorganization or relief under any applicable United States federal
or state law, or the consent by the Securities Insurer to the
filing of such petition or to the appointment of or the taking
possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Securities Insurer or of
any substantial part of its property, or the making by the
Securities Insurer of an assignment for the benefit of its
creditors, or the failure by the Securities Insurer to pay debts
generally as they become due, or the admission by the Securities
Insurer in writing of its inability to pay its debts generally as
they become due, or the taking of corporate action by the
Securities Insurer in furtherance of any such action.
Securities Insurer Reimbursement Amount: As of any Distribution Date,
---------------------------------------
the sum of (x) (i) Insured Payments previously received by theIndenture Trustee
and not previously re-paid to the
Securities Insurer pursuant to Section 5.03(c) hereof plus (ii) interest
accrued on such Insured Payment not previously repaid calculated at the Late
Payment Rate from the date the Indenture Trustee received such Insured
Payment and (y) (i) the amount of any Premium not paid on the date due and
(ii) interest on such amount at the Late Payment Rate. The Securities
Insurer shall notify the Indenture Trustee and the Owner Trustee of the
amount of any Securities Insurer Reimbursement Amount.
Securityholder: A holder of a Note or Certificate, as applicable;
--------------
provided that the exercise of any rights by such holder shall be subject to
Section 12.14.
- -------------
Seller: Mego, in its capacity as the transferor hereunder.
------
Series or Series 1997-1: Mego Mortgage Home Loan Asset Backed
------ -------------
Securities, Series 1997-1.
Servicer: Mego, in its capacity as the servicer hereunder, or any
--------
other Eligible Servicer with whom the Master Servicer has entered into a
Servicing Agreement pursuant to Section 4.02.
Servicer Fee. With respect to any Distribution Date, 1/12 times
------------
1.00% times the Pool Principal Balance, as of the opening of business on the
first day of the month preceding the month of such Distribution Date (or,
with respect to the first Distribution Date, the Initial Pool Principal
Balance), reduced by the aggregate Prepayment Interest Shortfall for the
related Due Period.
Servicer Review Report. As defined in Section 4.05(d).
----------------------
Servicer Termination Event. With respect to the Servicing Agreement,
--------------------------
the events specified in Section 7.02 therein.
Servicer's Home Loan Files: As defined in Section 2.05(b).
--------------------------
Servicing Agreement: The servicing agreement dated as of February 1,
-------------------
1997 between Mego, as Servicer, the Master Servicer, the Indenture Trustee
and the Trust and any other agreement entered into in accordance with Section
4.02.
Standard & Poor's: Standard & Poor's Ratings Group, a division of The
-----------------
McGraw-Hill Companies, Inc., or any successor thereto.
Servicing Record. The records for each Home Loan maintained by the
----------------
Master Servicer pursuant to Section 4.03.
Servicing Standard. The standard set forth in Section 4.01(a).
------------------
60+ Day Delinquent Loan. With respect to any Determination Date or
-----------------------
related Distribution Date, a Home Loan, other than a Credit Support Multiple
Defaulted Loan, with respect to which any portion of a Monthly Payment is, as
of the prior Monthly Cut-Off Date, 61 days or more past due (without giving
effect to any grace period) and unpaid by the Obligor.
60+ Delinquency Percentage (Rolling Three Month). With respect to
------------------------------------------------
any Determination Date, the average of the percentage equivalents of the
fractions determined for each of the three immediately preceding Due Periods
the numerator of each of which is equal to the aggregate Principal Balance of
Home Loans that are 60+ Day Delinquent Loans as of the end of such Due Period
and the denominator of which is the Pool Principal Balance as of the end of
such Due Period.
Substitution Adjustment Amount: The meaning assigned to such term in
------------------------------
Section 3.05.
Substitution Date: As defined in Section 3.05.
-----------------
Termination Date: The earlier of (a) the Distribution Date in March
----------------
2023 and (b) the Distribution Date next following the Monthly Cut-Off Date
coinciding with or next following the date of the liquidation or disposition
of the last asset held by the Trust pursuant to Sections 4.13 or 11.01.
30+ Day Delinquent Loan. With respect to any Determination Date or
-----------------------
related Distribution Date, a Home Loan, other than a Credit Support Multiple
Defaulted Loan, with respect to which any portion of a Monthly Payment is, as
of the prior Monthly Cut-Off Date, 31 days or more past due (without giving
effect to any grace period) and unpaid by the Obligor.
30+ Delinquency Percentage (Rolling Three Month). With respect to
------------------------------------------------
any Determination Date, the average of the percentage equivalents of the
fractions determined for each of the three immediately preceding Due Periods
the numerator of which is equal to the aggregate Principal Balance of Home
Loans that are 30+ Day Delinquent Loans as of the end of such Due Period, and
the denominator of which is the Pool Principal Balance of the Home Loans as
of the end of such Due Period.
Title Document. The evidence of title to or ownership of the
--------------
Property required by Title I. (See 24 C.F.R. 201.26(a)(1) and 201.20).
Title I. Section 2 of Title I of the National Housing Act of 1934,
-------
as amended, and the rules and regulations promulgated thereunder as each may
be amended from time to time and any successor statute, rules or regulations
thereto.
Transaction Documents. This Agreement, the Home Loan Purchase
---------------------
Agreement, the Trust Agreement, the Servicing Agreement, the Custodial
Agreement, the Indenture, the Administration Agreement, the Insurance
Agreement and the Indemnification Agreement.
Trust: The Issuer.
-----
Trust Account Property: The Trust Accounts, all amounts and
----------------------
investments held from time to time in any Trust Account and all proceeds of
the foregoing.
Trust Accounts: The Note Distribution Account, the Certificate
--------------
Distribution Account, the Collection Account and the FHA Premium Account.
Trust Agreement: The Trust Agreement dated as of February 1, 1997,
---------------
among the Depositor, the Co-Owner Trustee, the Owner Trustee and Mego
Mortgage Corporation.
Trust Designated Insurance Amount: $2,194,698 or such greater amount
---------------------------------
approved in advance in writing by the Securities Insurer.
Trust Estate: The assets subject to this Agreement, the Trust
------------
Agreement and the Indenture and assigned to the Indenture Trustee, which
assets consist of: (i) such Home Loans as from time to time are subject to
this Agreement, including Qualified Substitute Home Loans added to the Trust
from time to time, together with the Servicer's Home Loan Files and the
Indenture Trustee's Home Loan Files relating thereto and all proceeds
thereof, (ii) the Mortgages and security interests in Properties, (iii) all
payments received on or with respect to the Home Loans after the applicable
Cut-Off Date, (iv) the rights to FHA Insurance reserves attributable to the
FHA Loans as of the Cut-Off Date, (v) such assets as from time to time are
identified as Foreclosed Property, (vi) such assets and funds as are from
time to time deposited in the Collection Account, the Note Distribution
Account, the Certificate Distribution Account and the FHA Reserve Account,
including amounts on deposit in such accounts which are invested in Permitted
Investments, (vii) the Issuer's rights under the Insurance Policies and any
Insurance Proceeds, and (viii) all right, title and interest of the Depositor
in and to the obligations of the Seller under the Home Loan Purchase
Agreement in which the Depositor acquired the Home Loans from the Seller.
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.
(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 term "including" shall mean "including without
limitation."
(e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such terms.
(f) Any agreement, instrument or statute defined or referred to herein
or in any instrument or certificate delivered in connection herewith means
such agreement, instrument or statute as from time to time amended, modified
or supplemented and includes (in the case of agreements or instruments)
references to all attachments thereto and instruments incorporated therein;
references to a Person are also to its permitted successors and assigns.
Section 1.03 Interest Calculations.
---------------------
All calculations of accrued interest on the Home Loans, the Notes, the
Certificates and accrued fees shall be made on the basis of a 360-day year
consisting of twelve 30-day months.
ARTICLE II.
CONVEYANCE OF THE HOME LOANS
----------------------------
Section 2.01 Conveyance of the Home Loans.
----------------------------
(a) As of the Closing Date, in consideration of the Issuer's delivery
of the Notes and Certificates to the Depositor or its designee, upon the
order of the Depositor, the Depositor, as of the Closing Date and
concurrently with the execution and delivery hereof, does hereby sell,
transfer, assign, set over and otherwise convey to the Issuer, without
recourse, but subject to the other terms and provisions of this Agreement,
all of the right, title and interest of the Depositor in and to the Trust
Estate. The foregoing sale, transfer, assignment, set over and conveyance
does not and is not intended to result in a creation or an assumption by the
Issuer of any obligation of the Depositor, the Seller or any other person in
connection with the Trust Estate or under any agreement or instrument
relating thereto except as specifically set forth herein.
(b) As of the Closing Date, the Issuer acknowledges the conveyance to
it of the Trust Estate, including from the Depositor all right, title and
interest of the Depositor in and to the Trust Estate, receipt of which is
hereby acknowledged by the Issuer, and the acceptance of which is made in
good faith and without notice or knowledge of any adverse claims or liens.
Concurrently with such delivery and in exchange therefor, the Issuer has
pledged to the Indenture Trustee the Trust Estate and the Indenture Trustee,
pursuant to the written instructions of the Issuer, has executed and caused
to be authenticated and delivered the Notes to the Depositor or its designee,
upon the order of the Issuer. In addition, concurrently with such delivery
and in exchange therefor, the Owner Trustee, pursuant to the instructions of
the Depositor, has executed (not in its individual capacity, but solely as
Owner Trustee on behalf of the Issuer) and caused to be authenticated and
delivered the Certificates to the Depositor or its designee, upon the order
of the Depositor.
Section 2.02 Reserved.
--------
Section 2.03 Ownership and Possession of Home Loan Files.
-------------------------------------------
Upon the issuance of the Securities, with respect to the Home Loans, the
ownership of each Debt Instrument, the related Mortgage and the contents of
the related Servicer's Home Loan File and the Indenture Trustee's Home Loan
File shall be vested in the Owner Trustee and the Co-Owner Trustee and
pledged to the Indenture Trustee for the benefit of the Noteholders and the
Securities Insurer, although possession of the Servicer's Home Loan Files
(other than items required to be maintained in the Indenture Trustee's Home
Loan Files) on behalf of and for the benefit of the Securityholders and the
Securities Insurer shall remain with Mego, and the Custodian shall take
possession of the Indenture Trustee's Home Loan Files as contemplated in
Section 2.06.
- ------------
Section 2.04 Books and Records.
-----------------
The sale of each Home Loan shall be reflected on the Depositor's or the
Seller's, as the case may be, balance sheets and other financial statements
as a sale of assets by the Depositor or the Seller, as the case may be, under
generally accepted accounting principles ("GAAP"). The Master Servicer shall
----
maintain, or cause to be maintained pursuant to Section 4.03, a complete set
of books and records for each Home Loan which shall be clearly marked to
reflect the ownership of each Home Loan by the Owner Trustee and the Co-Owner
Trustee and the pledge to the Indenture Trustee for the benefit of the
Securityholders and the Securities Insurer.
It is the intention of the parties hereto that the transfers and
assignments contemplated by this Agreement shall constitute a sale of the
Home Loans and the other property specified in Section 2.01(a) from the
Depositor to the Trust and such property shall not be property of the
Depositor. If the assignment and transfer of the Home Loans and the other
property specified in this Section 2.01(a) to the Owner Trustee and Co-Owner
Trustee pursuant to this Agreement or the conveyance of the Home Loans or any
of such other property to the Owner Trustee and Co-Owner Trustee is held or
deemed not to be a sale or is held or deemed to be a pledge of security for a
loan, the Depositor intends that the rights and obligations of the parties
shall be established pursuant to the terms of the Agreement and that, in such
event, (i) the Depositor shall be deemed to have granted and does hereby
grant to the Owner Trustee and Co-Owner Trustee a first priority security
interest in the entire right, title and interest of the Depositor in and to
the Home Loans and all other property conveyed to the Owner Trustee and Co-
Owner Trustee pursuant to Section 2.01 and all proceeds thereof, and (ii)
this Agreement shall constitute a security agreement under applicable law.
Within five days of the Closing Date, the Depositor shall cause to be filed
UCC-1 financing statements naming the Owner Trustee and Co-Owner Trustee as
"secured parties" and describing the Home Loans being sold by the Depositor
to the Trust with the office of the Secretary of State of the State in which
the Depositor is located.
Section 2.05 Delivery of Home Loan Documents.
-------------------------------
(a) With respect to each Home Loan, on the Closing Date the Seller and
the Depositor have delivered or caused to be delivered to the Custodian as
the designated agent of the Indenture Trustee each of the following documents
(collectively, the "Indenture Trustee's Home Loan Files"):
----------------------------------
(i) The original Debt Instrument, showing a complete chain of
endorsements or assignments from the named payee to the Trust and
endorsed as follows: "Pay to the order of First Trust of New York,
National Association, as Indenture Trustee and Co-Owner Trustee for Mego
Mortgage Home Loan Owner Trust 1997-1, without recourse";
(ii) If such Home Loan is a Mortgage Loan, the original
Mortgage with evidence of recording indicated thereon (except that a
true copy thereof certified by an appropriate public official may be
substituted); provided, however, that if the Mortgage with evidence
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of recording thereon cannot be delivered concurrently with the execution
and delivery of this Agreement solely because of a delay caused by the
public recording office where such Mortgage has been delivered for
recordation, there shall be delivered to the Indenture Trustee a copy of
such Mortgage certified as a true copy in an Officer's Certificate which
shall certify that such Mortgage has been delivered to the appropriate
public recording office for recordation, and there shall be promptly
delivered to the Indenture Trustee such Mortgage with evidence of
recording indicated thereon upon receipt thereof from the public recording
official (or a true copy thereof certified by an appropriate public
official may be delivered to the Indenture Trustee);
(iii) If such Home Loan is a Mortgage Loan, the original
Assignment of Mortgage, in recordable form. Such assignments may be
blanket assignments, to the extent such assignments are effective under
applicable law, for Mortgages covering Mortgaged Properties situated
within the same county. If the Assignment of Mortgage is in blanket
form an assignment of Mortgage need not be included in the individual
Home Loan File;
(iv) If such Home Loan is a Mortgage Loan, all original
intermediate assignments of the Mortgage, showing a complete chain of
assignments from the named mortgagee to the assignor to the Indenture
Trustee, with evidence of recording thereon (or true copies thereof
certified by appropriate public officials may be substituted); provided,
--------
however, that if the intermediate assignments of mortgage with evidence
-------
of recording thereon cannot be delivered concurrently with the
execution and delivery of this Agreement solely because of a delay caused
by the public recording office where such assignments of Mortgage have
been delivered for recordation, there shall be delivered to the
Indenture Trustee a copy of each such assignment of Mortgage certified
as a true copy in an Officer's Certificate of Mego, which shall certify
that each such assignment of Mortgage has been delivered to the
appropriate public recording office for recordation, and there shall be
promptly delivered to the Indenture Trustee such assignments of Mortgage
with evidence of recording indicated thereon upon its receipt thereof
from the public recording official (or true copies thereof certified by
an appropriate public official may be delivered to the Indenture
Trustee);
(v) An original of each assumption or modification agreement,
if any, relating to such Home Loan.
(b) With respect to each Home Loan, on the Closing Date, the Seller and
the Depositor have delivered or caused to be delivered to Mego, as the
designated agent of the Indenture Trustee each of the following documents
(collectively, the "Servicer's Home Loan Files"): (A) If such Home Loan is an
FHA Loan, an original or copy of notice signed by the Obligor acknowledging
HUD insurance, (B) an original or copy of truth-in-lending disclosure, (C) an
original or copy of the credit application, (D) an original or copy of the
consumer credit report, (E) an original or copy of verification of employment
and income, or verification of self-employment income, (F) if such Home Loan
is an FHA Loan, an original or copy of evidence of the Obligor's interest in
the Property, (G) an original or copy of contract of work or written
description with cost estimates, (H)(i) if such Home Loan is an FHA Loan
either (a) an original or copy of the completion certificate or an original
or copy of notice of non-compliance, if applicable or (b) an original or copy
of report of inspection of improvements to the Property or an original or
copy of notice of non-compliance, if applicable, or (ii) if such Home Loan is
a Non-FHA Loan in respect of a home improvement, an original or copy of
report of inspection of improvements to the Property, (I) to the extent not
included in (C), an original or a copy of a written verification that the
Mortgagor at the time of origination was not more than 30 days delinquent on
any senior mortgage or deed of trust on the Property, (J) (i) if such Home
Loan is an FHA Loan for which an appraisal is required pursuant to the
applicable regulations, an original or a copy of an appraisal of the Property
as of the time of origination of such FHA Loan or (ii) if such Home Loan is a
Non-FHA Loan and secured by a Mortgage, (a) if the original principal balance
is greater than $25,000 but less than $50,000, a copy of the HUD-1 or HUD 1-A
Closing Statement indicating the sale price, or an existing Uniform
Residential Appraisal Report, or a Drive-by Appraisal documented on Freddie
Mac form 704, or a tax assessment, or (b) if the original principal balance
exceeds $50,000, a full Uniform Residential Appraisal Report prepared by a
national appraisal firm, (K) an original or a copy of a title search as of
the time of origination with respect to the Property, and (L) if such Home
Loan is an FHA Loan, any other documents required for the submission of a
claim with respect to such FHA Loan to the FHA.
(c) Mego, at the direction of the Depositor, concurrently with the
execution and delivery hereof, has delivered to the Indenture Trustee cash in
an amount equal to (i) the accrued annual FHA premium due on each FHA Loan to
the applicable Cut-Off Date, and (ii) the amount of FHA premium collected in
respect of the Invoiced Loans after the applicable Cut-Off Date. The
Indenture Trustee shall distribute the amount referred to in clause (i) of
the previous sentence into the FHA Premium Account and shall distribute the
amount referred to in clause (ii) of the previous sentence into the Note
Distribution Account.
(d) The Indenture Trustee shall cause the Custodian to take and
maintain continuous physical possession of the Indenture Trustee's Home Loan
Files in the State of Minnesota, and in connection therewith, shall act
solely as agent for the holders of the Securities and the Securities Insurer
in accordance with the terms hereof and not as agent for Mego or any other
party.
(e) In addition to the documents delivered to the Indenture Trustee
pursuant to Section 2.01, on or prior to the Closing Date, the Guaranty
Policy will be delivered to the Indenture Trustee for the benefit of the
Holders of the Securities (other than the holders of the Residual Interest
Instruments).
(f) Within 60 days of the Closing Date, Mego, at its own expense, shall
cause the Indenture Trustee to record each Assignment of Mortgage (which may
be a blanket assignment if permitted by applicable law) in the appropriate
real property or other records; provided, however, the Indenture Trustee need
not cause to be recorded any such Assignment of Mortgage which relates to a
Mortgage Loan in any jurisdiction under the laws of which, as evidenced by an
Opinion of Counsel delivered by Mego (at Mego's expense) to the Indenture
Trustee, the Securities Insurer and the Rating Agencies, the recordation of
such Assignment of Mortgage is not necessary to protect the Indenture
Trustee's interest in the related Mortgage Loan. With respect to any
Assignment of Mortgage as to which the related recording information is
unavailable within 60 days following the Closing Date, such Assignment of
Mortgage shall be submitted for recording within 30 days after receipt of
such information but in no event later than one year after the Closing Date.
The Indenture Trustee shall be required to retain a copy of each Assignment
of Mortgage submitted for recording. In the event that any such Assignment
of Mortgage is lost or returned unrecorded because of a defect therein, Mego
shall promptly prepare a substitute Assignment of Mortgage or cure such
defect, as the case may be, and thereafter the Indenture Trustee shall be
required to submit each such Assignment of Mortgage Loan for recording.
Section 2.06 Acceptance by Indenture Trustee of the Home Loans;
--------------------------------------------------
Certain Substitutions; Initial Certification by Custodian.
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(a) The Indenture Trustee agrees to cause the Custodian to execute and
deliver on the Closing Date an acknowledgment of receipt of the Indenture
Trustee's Home Loan File for each Home Loan. The Indenture Trustee declares
that it will cause the Custodian to hold such documents and any amendments,
replacements or supplements thereto, as well as any other assets included in
the Trust Estate and delivered to the Custodian in trust, upon and subject to
the conditions set forth herein for the benefit of the Securityholders and
the Securities Insurer in good faith and without notice of any adverse claims
or liens. The Indenture Trustee agrees, for the benefit of the
Securityholders and the Securities Insurer, to cause the Custodian to review
each Indenture Trustee's Home Loan File within 45 days after the Closing Date
(or, with respect to any Qualified Substitute Home Loan, within 45 days after
the conveyance of the related Home Loan to the Trust) and to cause the
Custodian to deliver to the Seller, the Depositor, the Indenture Trustee, the
Issuer, the Securities Insurer and the Master Servicer a certification to the
effect that, as to each Home Loan listed in the Home Loan Schedule (other
than any Home Loan paid in full or any Home Loan specifically identified in
such certification as not covered by such certification), (i) all documents
required to be delivered to the Indenture Trustee pursuant to this Agreement
are in its possession or in the possession of the Custodian on its behalf
(other than as expressly permitted in Section 2.05), (ii) all
------------
documents delivered by the Depositor and the Seller to the Custodian pursuant
to Section 2.05 have been reviewed by the Custodian and have not
------------
been mutilated or damaged and appear regular on their face (handwritten
additions, changes or corrections shall not constitute irregularities if
initialed by the Obligor) and relate to such Home Loan, (iii) based on the
examination of the Custodian on behalf of the Indenture Trustee, and only as
to the foregoing documents, the information set forth on the Home Loan
Schedule accurately reflects the information set forth in the Indenture
Trustee's Home Loan File and (iv) each Debt Instrument has been endorsed as
provided in Section 2.05. Neither the Issuer nor the Custodian shall
------------
be under any duty or obligation (i) to inspect, review or examine any such
documents, instruments, certificates or other papers to determine that they
are genuine, enforceable, or appropriate for the represented purpose or that
they are other than what they purport to be on their face or (ii) to
determine whether any Indenture Trustee's Home Loan File should include any
of the documents specified in Section 2.05(a)(v).
(b) The Servicer's Home Loan File shall be held in the custody of Mego
for the benefit of, and as agent for, the Securityholders and the Indenture
Trustee as the owner thereof and the Securities Insurer. It is intended that
by Mego's agreement pursuant to this Section 2.06(b) the Indenture Trustee
shall be deemed to have possession of the Servicer's Home Loan Files for
purposes of Section 9-305 of the Uniform Commercial Code of the State in
which such documents or instruments are located. Mego shall promptly report
to the Indenture Trustee and the Securities Insurer any failure by it to hold
the Servicer's Home Loan File as herein provided and shall promptly take
appropriate action to remedy any such failure. In acting as custodian of
such documents and instruments, Mego agrees not to assert any legal or
beneficial ownership interest in the Home Loans or such documents or
instruments. Mego agrees to indemnify the Securityholders, the Securities
Insurer and the Indenture Trustee for any and all liabilities, obligations,
losses, damages, payments, costs, or expenses of any kind whatsoever which
may be imposed on, incurred by or asserted against the Securityholders, the
Securities Insurer or the Indenture Trustee as the result of any act or
omission by Mego relating to the maintenance and custody of such documents or
instruments which have been delivered to Mego; provided, however, that Mego
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will not be liable for any portion of any such amount resulting from the
negligence or
misconduct of any Securityholder, the Securities Insurer or the Indenture
Trustee and provided, further, that Mego will not be liable for any
-------- -------
portion of any such amount resulting from Mego's compliance with any
instructions or directions consistent with this Agreement issued to Mego by
the Indenture Trustee. The Indenture Trustee shall have no duty to monitor
or otherwise oversee Mego's performance as custodian hereunder.
(c) Upon determination by the Master Servicer, the Securities Insurer,
the Depositor, Mego or the Indenture Trustee that any document constituting a
part of any Home Loan File was not delivered to the Indenture Trustee or,
with respect to any document constituting the Servicer's Home Loan File, to
Mego, as custodian for the Indenture Trustee, the Securities Insurer and
Securityholders, by the time required hereby (which in the case of (A) a
failure to deliver a recorded mortgage or recorded assignment pursuant to
Section 2.05(a)(ii) or (a)(iv) (only under the circumstances in which a delay
is caused by the public recording office and an Officer's Certificate is
required to be provided thereunder) shall be the 20 month anniversary of the
Closing Date, (B) failure to deliver a completion certificate or inspection
report pursuant to Section 2.05(b)(H)(i) shall be the 14 month anniversary of
the Closing Date (C) a failure to deliver an inspection report pursuant to
Section 2.05(b)(H)(ii) shall be the 12 month anniversary of the Closing Date,
(D) a failure to deliver each other document constituting a part of any
Indenture Trustee's Home Loan File shall be the Closing Date and (E) a
failure to deliver each document (other than those described in clause (B)
above) specified in Section 2.05(b) shall be 45 Business Days after the
Closing Date) to be so delivered or was defective in any material respect
when delivered to the Indenture Trustee, the party identifying any of the
foregoing shall give prompt written notice to the other parties and the
Securities Insurer. Nothing contained herein shall require the Indenture
Trustee to undertake any independent investigation or to make any review of
any Home Loan File other than as provided for in this Section 2.06. Mego,
upon receipt of such notice, shall comply with the cure, substitution and
repurchase provisions of Section 3.05 hereof.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 3.01 Representations and Warranties of the Depositor.
-----------------------------------------------
The Depositor hereby represents, warrants and covenants with and to the
Issuer, and the Indenture Trustee, on behalf of the Securityholders, and the
Master Servicer, as of the Closing Date:
(a) The Depositor is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Delaware and has all
licenses necessary to carry on its business as now being conducted. The
Depositor has the power and authority to execute and deliver this Agreement
and to perform in accordance herewith; the execution, delivery and
performance of this Agreement (including all instruments of transfer to be
delivered pursuant to this Agreement) by the Depositor and the consummation
of the transactions contemplated hereby have been duly and validly authorized
by all necessary action of the Depositor; this Agreement evidences the valid,
binding and enforceable obligation of the Depositor; and all requisite action
has been taken by the Depositor to make this Agreement valid, binding and
enforceable upon the Depositor in accordance with its terms, subject to the
effect of bankruptcy, insolvency, reorganization, moratorium and other,
similar laws relating to or affecting creditors' rights generally or the
application of equitable principles in any proceeding, whether at law or in
equity;
(b) The consummation of the transactions contemplated by this Agreement
will not result in (i) the breach of any terms or provisions of the Articles
of Incorporation or Bylaws of the Depositor, (ii) the breach of any term or
provision of, or conflict with or constitute a default under or result in the
acceleration of any obligation under, any material agreement, indenture or
loan or credit agreement or other material instrument to which the Depositor,
or its property is subject, or (iii) the violation of any law, rule,
regulation, order, judgment or decree to which the Depositor or its
respective property is subject;
(c) The Depositor is not in default with respect to any order or decree
of any court or any order, regulation or demand of any federal, state,
municipal or other governmental agency, which default might have consequences
that would materially and adversely affect the condition (financial or
otherwise) or operations of the Depositor or its properties or might have
consequences that would materially and adversely affect its performance
hereunder.
Section 3.02 Representations, Warranties and Covenants of the
------------------------------------------------
Master Servicer.
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The Master Servicer hereby represents, warrants and covenants with and
to the Depositor, the Issuer, Mego, the Indenture Trustee, the Securities
Insurer and the Securityholders as of the Closing Date:
(a) The Master Servicer is a national banking association duly
organized and validly existing under the laws of the United States of
America, with full power and authority to own its properties and conduct its
business as such properties are presently owned and such business is
presently conducted;
(b) The Master Servicer has the full power and authority to execute,
deliver and perform, and to enter into and consummate all transactions
contemplated by this Agreement and each other Transaction Document to which
it is a party, has duly authorized the execution, delivery and performance of
this Agreement and each other Transaction Document to which it is a party,
has duly executed and delivered this Agreement and each other Transaction
Document to which it is a party, and this Agreement and each other
Transaction Document to which it is a party, when duly authorized, executed
and delivered by the other parties thereto, will constitute a legal, valid
and binding obligation of the Master Servicer, enforceable against it in
accordance with its terms;
(c) Neither the execution and delivery of this Agreement or any other
Transaction Document to which the Master Servicer is a party, the
consummation of the transactions required of the Master Servicer herein or
therein, nor the fulfillment of or compliance with the terms and conditions
of this Agreement or any other Transaction Document to which the Master
Servicer is a party will conflict with or result in a breach of any of the
terms, conditions or provisions of the Master Servicer's charter or bylaws or
any legal restriction or any material agreement or instrument to which the
Master Servicer is now a party or by which it is bound, or which would
adversely affect the administration of the Trust as contemplated hereby, or
constitute a material default or result in an acceleration under any of the
foregoing, or result in the violation of any law, rule, regulation, order,
judgment or decree to which the Master Servicer or its property is subject;
(d) The Master Servicer is not in default, and the execution and
delivery of this Agreement and each other Transaction Document to which it is
a party and its performance of and compliance with the terms hereof and
thereof will not constitute a violation of, any law, any order or decree of
any court, or any order, regulation or demand of any federal, state or local
governmental or regulatory authority;
(e) No action, suit or other proceeding or investigation is pending or,
to the Master Servicer's knowledge, threatened before any court or any
federal, state or local governmental or regulatory authority (A) asserting
the invalidity of this Agreement or any other Transaction Document to which
the Master Servicer is a party, (B) seeking to prevent the consummation of
any of the transactions contemplated by this Agreement or any other Trans-
action Document to which the Master Servicer is a party, or (C) seeking any
determination or ruling that would materially and adversely affect the
ability of the Master Servicer to perform its obligations under this
Agreement or any other Transaction Document to which the Master Servicer is a
party (including any threatened or pending action, suit, proceeding or
investigation which might result in the suspension, revocation or
modification of the Contract of Insurance);
(f) No consent, approval, authorization or order of, registration or
filing with or notice to, any court or any federal, state or local government
or regulatory authority is required for the execution, delivery and
performance by the Master Servicer of this Agreement or any other Transaction
Document to which the Master Servicer is a party (other than those that have
been obtained or will be obtained prior to the Closing Date);
(g) Neither this Agreement nor any other Transaction Document to which
the Master Servicer is a party nor any statement, report or other document
furnished or to be furnished by the Master Servicer pursuant to this
Agreement or any other Transaction Document to which the Master Servicer is a
party or in connection with the transactions contemplated hereby and thereby
contains any untrue statement of material fact or omits to state a material
fact necessary to make the statements contained herein or therein not
misleading;
(h) The statements contained in the section of the Prospectus
Supplement entitled "The Master Servicer" which describe the Master Servicer
are true and correct in all material respects, and such section of the
Prospectus Supplement does not contain any untrue statement of a material
fact with respect to the Master Servicer and does not omit to state a
material fact necessary to make the statements contained therein with respect
to the Master Servicer not misleading;
(i) The Master Servicer is solvent, and the Master Servicer will not be
rendered insolvent as a result of the performance of its obligations pursuant
to this Agreement and any other Transaction Document to which the Master
Servicer is a party;
(j) The Servicing Agreement conforms to the requirements for a
Servicing Agreement contained in this Agreement;
(k) Each FHA Loan will be serviced by the Master Servicer and the
Servicer in compliance with Title I and all other applicable laws;
(l) The Master Servicer, or an affiliate thereof that has been
previously approved by the Securities Insurer, the primary business of which
is the servicing of home loans such as the Home Loans, is an Eligible
Servicer, and the Master Servicer or such affiliate possesses all state and
federal licenses necessary for servicing the Home Loans in accordance with
this Agreement;
(m) The Master Servicer has not waived any default, breach, violation
or event of acceleration existing under any Debt Instrument or the related
Mortgage;
(n) The Master Servicer will cause to be performed any and all acts
required to be performed by the Master Servicer or Servicer to preserve the
rights and remedies of the Trust and the Indenture Trustee in any Insurance
Policies applicable to the Home Loans or with respect to any FHA Loan, any
Insurance Policy required to be maintained pursuant to Title I, including,
without limitation, in each case, any necessary notifications of insurers,
assignments of policies or interests therein, and establishments of co-
insured, joint loss payee and mortgagee rights in favor of the Trust and the
Indenture Trustee;
(o) The Master Servicer shall comply with, and shall service, or cause
to be serviced, each Home Loan, in accordance with all applicable laws, and,
in particular, in accordance with any applicable provisions of the National
Housing Act, as amended and supplemented, all rules and regulations issued
thereunder, and all administrative publications published pursuant thereto
including, in the case of the FHA Loans, all FHA requirements of FHA Title I
loans; and
(p) The Master Servicer agrees that, so long as it shall continue to
serve in the capacity contemplated under the terms of this Agreement, it
shall remain in good standing under the laws governing its creation and
existence and qualified under the laws of each state in which it is necessary
to perform its obligations under this Agreement or in which the nature of its
business requires such qualification, it shall maintain or cause an affiliate
previously approved of by the Securities Insurer to maintain all licenses,
permits and other approvals required by any law or regulations, including,
without limitation Title I, as may be necessary to perform its obligations
under this Agreement and to retain all rights to service the Loans, and it
shall not dissolve or otherwise dispose of all or substantially all of its
assets.
It is understood and agreed that the representations and warranties set
forth in this Section 3.02 shall survive the issuance and delivery of the
Securities and shall be continuing as long as any Security shall be
outstanding or this Agreement has not been terminated.
Section 3.03 Representations and Warranties of Mego.
--------------------------------------
(a) The Seller hereby represents and warrants to the Depositor, the
Issuer, the Indenture Trustee, the Master Servicer, the Securities Insurer
and the Securityholders, that as of the Closing Date:
(i) Mego is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. Mego is
duly qualified to do business, is in good standing and has obtained all
necessary licenses, permits, charters, registrations and approvals
(together, "approvals") necessary for the conduct of its business as
currently conducted and the performance of its obligations under the
Transaction Documents, in each jurisdiction in which the failure to be
so qualified or to obtain such approvals would render any Transaction
Document unenforceable in any respect or would have a material adverse
effect upon the Transaction;
(ii) Mego has full power and authority to execute, deliver and
perform, and to enter into and consummate all transactions required of
it by this Agreement and each other Transaction Document to which it is
a party; has duly authorized the execution, delivery and performance of
this Agreement and each other Transaction Document to which it is a
party; has duly executed and delivered this Agreement and each other
Transaction Document to which it is a party; when duly authorized,
executed and delivered by the other parties hereto, this Agreement and
each other Transaction Document to which it is a party will constitute a
legal, valid and binding obligation of Mego enforceable against it in
accordance with its terms, except as such enforceability may be limited
by general principles of equity (whether considered in a proceeding at
law or in equity);
(iii) Neither the execution and delivery of this Agreement or
any of the other Transaction Documents to which Mego is a party, the
consummation of the transactions required of it herein or under any
other Transaction Document, nor the fulfillment of or compliance with
the terms and conditions of this Agreement or any of the other
Transaction Documents will conflict with or result in a breach of any of
the terms, conditions or provisions of Mego's charter or by-laws or any
legal restriction or any material agreement or instrument to which Mego
is now a party or by which it is bound, or which would adversely affect
the creation and administration of the Trust as contemplated hereby, or
constitute a material default or result in an acceleration under any of
the foregoing, or result in the violation of any law, rule, regulation,
order, judgment or decree to which Mego or its respective property is
subject;
(iv) There is no action, suit, proceeding, investigation or
litigation pending against Mego or, to its knowledge, threatened, which,
if determined adversely to Mego, would materially adversely affect the
sale of the Loans, the issuance of the Certificates, the execution,
delivery or enforceability of this Agreement or any other Transaction
Document, or which would have a material adverse affect on the financial
condition of Mego;
(v) No consent, approval, authorization or order of any court
or governmental agency or body is required for: (a) the execution,
delivery and performance by Mego of, or compliance by Mego with, this
Agreement, (b) the transfer of all FHA insurance reserves relating to
the FHA Loans to the Contract of Insurance Holder, (c) the issuance of
the Certificates, (d) the sale of the Home Loans under the Home Loan
Purchase Agreement or (e) the consummation of the transactions required
of it by this Agreement, except: (A) such as shall have been obtained
before the Closing Date, (B) the transfer of the FHA insurance reserves
by the FHA to the Contract of Insurance Holder with respect to the FHA
Loans as to which an FHA case number has not been assigned as of the
Closing Date, and (C) such as may be required under state securities or
"Blue Sky" laws in connection with the sale of the Certificates by the
Underwriter;
(vi) Mego is not in default with respect to any order or
decree of any court or any order, regulation or demand of any federal,
state, municipal or governmental agency, which default might have
consequences that would materially and adversely affect the condition
(financial or other) or operations of Mego or its properties or might
have consequences that would materially and adversely affect its
performance hereunder;
(vii) Mego received fair consideration and reasonably
equivalent value in exchange for the sale of the Home Loans to the
Depositor;
(viii) HUD has approved in writing the transfer to the Contract
of Insurance Holder of the FHA Reserve Amount relating to each FHA Loan
and all actions have been taken by Mego (other than the filing of the
Transfer of Note Report Form 27030 with HUD) and all required consents
have been obtained (other than approval upon HUD's receipt of such
Transfer of Note Report), in either case, necessary to effect transfer
to the Contract of Insurance Holder of the FHA Reserve Amount relating
to each FHA Loan (except for FHA Loans with respect to which a case
number has not been assigned as of the Closing Date). The FHA Reserve
Amounts with respect to the FHA Loans transferred to the Contract of
Insurance Holder both prior to and following the transfer of the FHA
Loans to the Co-Owner Trustee and Owner Trustee will be available to
satisfy claims with respect to such FHA Loans. The amount in the FHA
Insurance Coverage Reserve Account, together with all amounts to be
requested for transfer with respect to the FHA Loans, will equal
$19,166,521.61. The amount to be requested for transfer with respect
to the FHA Loans is $2,194,698, which is the sum of approximately 10% of
the aggregate of the Principal Balances of the FHA Loans as of the
Cut-Off Date;
(ix) Mego is a non-supervised lender in good standing with HUD
under 24 CFR Section 202.5 and is authorized to originate, purchase,
hold, service and/or sell loans insured under 24 CFR Part 201 pursuant
to a valid contract of insurance, Number 70497-00003;
(x) Mego has transferred the Home Loans without any intent to
hinder, delay or defraud any of its creditors;
(b) Mego hereby agrees for the benefit of the Depositor, the Issuer,
the Indenture Trustee, the Securities Insurer and the Securityholders that
the failure of any of the following representations and warranties to be true
and correct as to any Home Loan (and the related Debt Instrument and
Mortgage, if applicable) as of the Cut-Off Date for such Home Loan, or such
later date if so specified in such representation and warranty, gives rise to
the remedy specified in Section 3.05;
(i) The information pertaining to each Home Loan set forth in
the Home Loan Schedule was true and correct in all material respects as
of the Cut-Off Date;
(ii) As of the Closing Date at least 99.5% of the Home Loans
(by aggregate Initial Pool Principal Balance) are between 0 and 30 days
past due and not more than 0.5% of the Home Loans (by aggregate Initial
Principal Balance) are between 31 and 60 days past due (without giving
effect to any grace period); Mego has not advanced funds, induced,
solicited or knowingly received any advance of funds from a party other
than the Obligor, directly or indirectly, for the payment of any amount
required by the Home Loan;
(iii) The terms of the Debt Instrument and any related Mortgage
contain the entire agreement of the parties and have not been impaired,
waived, altered or modified in any respect, except by written instruments
reflected in the related File and recorded, if necessary, to maintain the
lien priority of the any related Mortgage; if such Home Loan is an FHA
Loan the substance of each such waiver, alteration and modification has
been approved by the FHA to the extent required under Title I; no other
instrument of waiver, alteration, expansion or modification has been
executed, and no Obligor has been released, in whole or in part, except
in connection with an assumption agreement which assumption agreement is
part of the related Home Loan File and the payment terms of which are
reflected in the related Home Loan Schedule and; if such Home Loan is an
FHA Loan, has been approved by the FHA to the extent required under
Title I;
(iv) The Debt Instrument and any related Mortgage are not
subject to any set-off, claims, counterclaim or defense and will not
have such in the future with respect to the goods and services provided
under the Debt Instrument, including the defense of usury or of fraud in
the inducement, nor will the operation of any of the terms of the Debt
Instrument and any related Mortgage, or the exercise of any right
thereunder, render such Debt Instrument or Mortgage unenforceable, in
whole or in part, or subject to any right of rescission, set-off,
counterclaim or defense, including the defense of usury, and no such
right of rescission, set-off, counterclaim or defense has been asserted
with respect thereto;
(v) Any and all requirements of any federal, state or local
law applicable to the Home Loan (including any law applicable to the
origination, servicing and collection practices with respect thereto)
have been complied with;
(vi) No Debt Instrument or Mortgage has been satisfied,
cancelled, rescinded or subordinated, in whole or part; and Mego has not
waived the performance by the Obligor of any action, if the Obligor's
failure to perform such action would cause the Debt Instrument or
Mortgage Loan to be in default, except as otherwise permitted by clause
(iii); and with respect to a Mortgage Loan, the related Property has not
been released from the lien of the Mortgage, in whole or in part, nor
has any instrument been executed that would effect any such
satisfaction, subordination, release, cancellation or rescission;
(vii) Each related Mortgage is a valid, subsisting and
enforceable lien on the related Property, including the land and all
buildings on the Property;
(viii) The Debt Instrument and any related Mortgage are genuine
and each is the legal, valid and binding obligation of the maker
thereof, enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization
or other similar laws affecting creditors' rights in general and by
general principles of equity;
(ix) To Mego's best knowledge, all parties to the Debt
Instrument and any related Mortgage had legal capacity at the time to
enter into the Home Loan and to execute and deliver the Debt Instrument
and any related Mortgage, and the Debt Instrument and any related
Mortgage have been duly and properly executed by such parties;
(x) As of the applicable Cut-Off Date, the proceeds of the
Home Loan have been fully disbursed and there is no requirement for
future advances thereunder, and any and all applicable requirements set
forth in the Home Loan documents have been complied with; the Obligor is
not entitled to any refund of any amounts paid or due under the Debt
Instrument or any related Mortgage;
(xi) Immediately prior to the sale, transfer and assignment to
the Depositor, Mego will have good and indefeasible legal title to the
Home Loan, the related Debt Instrument and any related Mortgage and the
full right to transfer such Home Loan, the related Debt Instrument and
any related Mortgage, and Mego will have been the sole owner thereof,
subject to no liens, pledges, charges, mortgages, encumbrances or rights
of others, except for such liens as will be released simultaneously with
the transfer and assignment of the Home Loans to the Depositor (and the
Home Loan File will contain no evidence inconsistent with the
foregoing); and immediately upon the sale, transfer and assignment
contemplated by the Home Loan Purchase Agreement, the Depositor will
hold good title to, and be the sole owner of each Home Loan, the related
Debt Instrument and any related Mortgage, free of all liens, pledges,
charges, mortgages, encumbrances or rights of others;
(xii) Except for those Home Loans referred to in Section
3.03(b)(ii) above that are delinquent as of the Closing Date, there is
no default, breach, violation or event of acceleration existing under
the Home Loan, the related Debt Instrument and any related Mortgage and
there is no event which, with the passage of time or with notice and the
expiration of any grace or cure period, would constitute a default,
breach, violation or event of acceleration and neither Mego nor its
predecessors have waived any default, breach, violation or event of
acceleration;
(xiii) The Debt Instrument and any related Mortgage contain
customary and enforceable provisions such as to render the rights and
remedies of the holder thereof adequate for the realization against the
Property of the benefits of the security provided thereby, including,
(A) in the case of any Mortgage designated as a deed of trust, by
trustee's sale, and (B) otherwise by judicial foreclosure;
(xiv) Each FHA Loan is an FHA Title I property improvement loan
(as defined in 24 C.F.R. Section 201.2) underwritten and originated by
Mego in accordance with FHA requirements for the Title I Loan program as
set forth in 24 C.F.R. Parts 201 and 202, and Mego has transmitted a
loan report with respect to such FHA Loan to FHA so that such FHA Loan
will be included in the Title I program;
(xv) Each Home Loan is a fixed rate loan; the Debt Instrument
shall mature within not more than (a) for an FHA Loan, 20 years and 32
days and (b) for a Non-FHA Loan, 25 years, from the date of origination
of the Home Loan; the Debt Instrument is payable in substantially equal
Monthly Payments, with interest payable in arrears, and requires a
Monthly Payment which is sufficient to fully amortize the original
principal balance over the original term and to pay interest at the
related Home Loan Interest Rate; interest on each Home Loan is
calculated on the basis of a 360 day year consisting of twelve 30-day
months, and the Debt Instrument does not provide for any extension of
the original term;
(xvi) The related Debt Instrument is not and has not been
secured by any collateral except, in the case of a Mortgage Loan, the
lien of the corresponding Mortgage;
(xvii) With respect to any Mortgage Loan, if the related
Mortgage constitutes a deed of trust, a trustee, duly qualified under
applicable law to serve as such, has been properly designated and
currently so serves and is named in the Mortgage, or a valid
substitution of trustee has been recorded, and no extraordinary fees or
expenses are or will become payable to the trustee under the deed of
trust, except in connection with default proceedings and a trustee's
sale after default by the Obligor;
(xviii) With respect to any Mortgage Loan, Mego has no knowledge
of any circumstances or conditions not reflected in the representations
set forth herein, or in the Home Loan Schedule, or in the related Home
Loan File with respect to the related Mortgage, the related Property or
the Obligor which could reasonably be expected to materially and
adversely affect the value of the related Property, or the
marketability of the Mortgage Loan or to cause the Mortgage Loan to
become delinquent or otherwise in default;
(xix) Assuming no material change to the applicable law or
regulations in effect as of the Closing Date, after the consummation of
the transactions contemplated by this Agreement, the Master Servicer on
behalf of the Trust and the Indenture Trustee will have the ability to
foreclose or otherwise realize upon a Property, if the Home Loan is a
Mortgage Loan, or to enforce the provisions of the related Home Loan
against the Obligor thereunder, if the foreclosure upon any such
Property or enforcement of the provisions of the related Home Loan
against the Obligor are undertaken as set forth in Section 4.12;
(xx) With respect to any FHA Loan that is a Mortgage Loan, the
improvements to the Property relating to such FHA Loan, have been or
shall be completed and inspected by the Servicer within the time period
and to the extent required under the applicable Title I regulations, and
evidence of such inspection shall be placed in the Servicer's Home Loan
File or, if not, a letter of non-compliance shall be delivered to HUD
(with a copy placed in the Servicer's Home Loan File) promptly upon the
completion of such inspection;
(xxi) Each FHA Loan has been originated in compliance with the
provisions of 24 C.F.R. Section 201.20, and, if required by Title I, the
market value of the any related Property has been ascertained in
accordance with the procedures established by HUD;
(xxii) There exists a Home Loan File relating to each Home Loan
and such Home Loan File contains all of the original or certified
documentation listed in Section 2.05 for such Home Loan, subject to
applicable grace periods set forth in 2.06(c). Each Indenture Trustee's
Home Loan File has been delivered to the Custodian and each Servicer's
Home Loan File is being held in trust by Mego for the benefit of, and as
agent for, the Securityholders, the Securities Insurer and the Indenture
Trustee as the owner thereof. Each document included in the Home Loan
File which is required to be executed by the Obligor has been executed
by the Obligor in the appropriate places. With respect to each Mortgage
Loan, the related Assignment of Mortgage to the Indenture Trustee is in
recordable form and is acceptable for recording under the laws of the
jurisdiction in which the Property is located. All blanks on any form
required to be completed have been so completed;
(xxiii) Each FHA Loan is in respect of a home improvement loan or
a retail installment sale contract, and each Property is improved by a
residential dwelling and is not a Home Loan in respect of a manufactured
home or mobile home or the land on which a manufactured home or mobile
home has been placed;
(xxiv) Each FHA Loan was originated by Mego in accordance with
the applicable underwriting criteria established by the FHA and HUD;
each Non-FHA Loan was originated by Mego in accordance with Mego's
"Express 35/Swift 60 Loan Program", "Debt Consolidation 125 Loan
Program", and "Renovator 125 Loan Program" underwriting guidelines, as
applicable, attached hereto as Exhibit D;
(xxv) Any Property securing an FHA Loan is covered by any
insurance required by Title I; if the Property securing any Mortgage
Loan is in an area identified by the Federal Emergency Management Agency
("FEMA") as having special flood hazards, unless the community in which
the area is situated is participating in the National Flood Insurance
Program and the regulations thereunder or less than a year has passed
since FEMA notification regarding such hazards, a flood insurance policy
is in effect with respect to such Property with a generally acceptable
carrier which complies with Section 102(a) of the Flood Disaster
Protection Act of 1973; all improvements upon each Property securing a
Non-FHA Loan are insured by a generally acceptable insurer against loss
by fire hazards of extended coverage and such other hazards as are
customary in the area where the Property is located pursuant to
insurance policies conforming to the requirements of the Agreement; all
such policies contain a standard mortgage clause naming Mego, its
successors and assigns, as loss payee;
(xxvi) All costs, fees and expenses incurred in originating
and closing the Home Loan and in recording any related Mortgage were
paid and the Obligor is not entitled to any refund of any amounts, paid
or due to the Obligee pursuant to the Debt Instrument or any related
Mortgage;
(xxvii) Except for the related FHA Premium Amount, if applicable,
there is no obligation on the part of Mego or any other party other than
the Obligor to make payments with respect to the Home Loan;
(xxviii) At the time of origination of the Home Loan, each related
prior lien, if any, was not 30 or more days delinquent;
(xxix) All parties which have had any interest in the Home Loan,
whether as mortgagee, assignee, pledgee or otherwise, are (or, during
the period in which they held and disposed of such interest, were)
(i) in compliance with any and all applicable licensing requirements of
the laws of the state wherein the Property is located, and (ii) (A)
organized under the laws of such state, or (B) qualified to do business
in such state, or (C) federal savings and loan associations or national
banks having principal offices in such state, or (D) not doing business
in such state;
(xxx) With respect to each Mortgage Loan, the related Mortgage
contains an enforceable provision requiring the consent of the Mortgagee
to assumption of the related Mortgage Loan upon sale of the Property;
(xxxi) With respect to any Mortgage Loan, there is no homestead
or other exemption available to the Mortgagor which would materially
interfere with the right to sell the related Property at a trustee's
sale or the right to foreclose the Mortgage; no relief has been
requested or allowed to the Mortgagor under the Civil Relief Act;
(xxxii) Subject to Section 3.05, each FHA Loan has been submitted
to the FHA for insurance pursuant to the FHA Title I loan program and
each FHA Loan has been or will be assigned a case number by the FHA for
the FHA Title I loan program;
(xxxiii) Subject to Section 3.05, the FHA Reserve Amount with
respect to each FHA Loan, has been or will be transferred to the FHA
Insurance Coverage Reserve Account;
(xxxiv) The related Home Loan File for each Home Loan that is a
Mortgage Loan contains a title document with respect to such Home Loan
reflecting that title to the related Property is vested at least 50% in
the Obligor under such Home Loan;
(xxxv) Each Property (including each residential dwelling
improvement thereon) is free of damage which materially and adversely
affects the value thereof and, if the related Home Loan is an FHA Loan,
impairs the ability to insure the related Home Loan under the Title I
program;
(xxxvi) Each Home Loan was originated in compliance with all
applicable laws and, to the best of Mego's knowledge, no fraud or
misrepresentation was committed by any Person in connection therewith
or, if the related loan is an FHA Loan, in the application for any
insurance required by Title I in relation to such FHA Loan;
(xxxvii) Each Home Loan has been serviced in accordance with all
applicable laws and, to the best of
Mego's knowledge, no fraud or misrepresentation was committed by any
Person in connection therewith;
(xxxviii) The transfer, assignment and conveyance of the Debt
Instruments and the Mortgages by Mego to the Depositor were not subject
to the bulk transfer laws or any similar statutory provisions in effect
in any applicable jurisdiction;
(xxxix) Any Home Loan originated in the State of Texas, was
originated pursuant to either Chapter 3 or Chapter 6 of the Texas
Consumer Credit Code;
(xl) As of the applicable Cut-Off Date, no Obligor is a debtor
under proceedings under the Bankruptcy Code, and no such Obligor has
defaulted in payments on a Home Loan after the filing of such bankruptcy
case, whether under a plan or reorganization or otherwise;
(xli) Mego has not advanced funds, or induced, solicited or
knowingly received any advance of loan payments from a party other than,
with respect to a Mortgage Loan, the owner of the Property subject to
the Mortgage;
(xlii) Mego originated the Home Loans through its network of
dealers and correspondents;
(xliii) Each Home Loan conforms, and all such Home Loans in the
aggregate conform, to the description thereof set forth in the
Prospectus Supplement;
(xliv) With respect to FHA Loans secured by a Mortgage, the
representations and warranties of the Mortgagor in each mortgage loan
application and in connection with the related FHA Loan are true and
correct in all material respects (and it shall be deemed that a breach
is material only if a claim for payment made to the FHA under the
Contract of Insurance in respect of such FHA Loan is a Rejected Claim as
a result of such breach);
(xlv) Each Home Loan either complies with the Home Ownership
and Equity Protection Act of 1994 or is not subject to such act;
(xlvi) Mego has caused to be performed or shall cause to be
performed within 15 Business Days of the Closing Date any and all acts
required to preserve the rights and remedies of the Trust and the
Indenture Trustee in any insurance policies applicable to each Home Loan
or, if such Home Loan is an FHA Loan, only if required by Title I,
including, without limitation, any necessary notifications of insurers,
assignments of policies or interests therein, and establishment of
coinsured, joint loss payee and mortgagee rights in favor of the
Indenture Trustee;
(xlvii) With respect to any Mortgage Loan, to Mego's best
knowledge, there exists no violation of any environmental law (either
local, state or federal), rule or regulation in respect of the Property
which violation has or could have a material adverse effect on the
market value of such Property. Mego has no knowledge of any pending
action or proceeding directly involving the related Property in which
compliance with any environmental law, rule or regulation is in issue;
and, to Mego's best knowledge, nothing further remains to be done to
satisfy in full all requirements of each such law, rule or regulation
constituting a prerequisite to the use and enjoyment of such Property;
(xlviii) Not more than 0.26% of the FHA Loans (by aggregate
Initial Principal Balance) and none of the Non-FHA Loans are secured by
Mortgages on non-owner occupied Mortgaged Properties;
(xlix) On the Closing Date, 55% or more (by aggregate
Principal Balance) of the Home Loans do not constitute "real estate
---
mortgages" for the purpose of Treasury Regulation Section301.7701 under
the Code. For this purpose a Home Loan does not constitute a "real estate
---
mortgage" if:
(i) The Home Loan is not secured by an interest in real
---
property, or
(ii) The Home Loan is not an "obligation principally secured by
---
an interest in real property." For this purpose an "obligation is
principally secured by an interest in real property" if it satisfies either
------
test set out in paragraph (1) or paragraph (2) below.
(1) The 80-percent test. An obligation is principally secured by
an interest in real property if the fair market value of the
interest in real property securing the obligation
(A) was at least equal to 80 percent of the adjusted issue
price of the obligation at the time the obligation was
originated (or, if later, the time the obligation was
significantly modified); or
(B) is at least equal to 80 percent of the adjusted issue
price of the obligation on the Closing Date.
For purposes of this paragraph (1), the fair market value of
the real property interest must be first reduced by the amount
of any lien on the real property interest that is senior to
the obligation being tested, and must be further reduced by a
proportionate amount of any lien that is in parity with the
obligation being tested, in each case before the percentages
set forth in (1)(A) and (1)(B) are determined. The adjusted
issue price of an obligation is its issue price plus the
amount of accrued original issue discount, if any, as of the
date of determination.
(2) Alternative test. An obligation is principally secured by an
interest in real property if substantially all of the proceeds
of the obligation were used to acquire or to improve or
protect an interest in real property that, at the origination
date, is the only security for the obligation. For purposes
of this test, loan guarantees made by the United States or any
state (or any political subdivision, agency, or
instrumentality of the United States or of any state), or
other third party credit enhancement are not viewed as
additional security for a loan. An obligation is not
considered to be secured by property other than real property
solely because the obligor is personally liable on the
obligation. For this purpose only, substantially all of the
proceeds of the obligations means 662/3% or more of the gross
proceeds.
(l) No Home Loan was selected from Mego's assets in a manner which
would cause it to be adversely selected as to credit risk from the pool
of home loans owned by Mego;
(li) With respect to each Home Loan that is not a first mortgage
loan, either (i) no consent for the Home Loan is required by the holder
of the related prior lien or (ii) such consent has been obtained and has
been delivered to the Indenture Trustee;
(lii) Each Home Loan is either a retail installment contract
for goods or services, home improvement loan for goods or services, debt
consolidation loan or a home equity loan. All Home Loans that are not
debt consolidation loans are either retail installment sale contracts
for goods and services or home improvement loans for goods and services
that are either "consumer credit contracts" or "purchase money loans"
as such terms are defined in 16 C.F.R. Part 433.1; and
(liii) Each Debt Instrument is comprised of an original
promissory note and each promissory note constitutes an "instrument" or
"chattel paper" for purposes of Article 9 of the UCC. Each Debt
Instrument has been delivered to the Custodian.
Section 3.04 (Reserved).
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Section 3.05 Purchase and Substitution.
-------------------------
(a) It is understood and agreed that the representations and warranties
set forth in Sections 3.03 shall survive the conveyance of the Home Loans
-------------
to the Issuer, the Grant of the Home Loans to the Indenture Trustee and the
delivery of the Securities to the Securityholders and shall be continuing as
long as any Security is outstanding. Upon discovery by the Depositor, the
Master Servicer, the Seller, the Custodian, the Issuer, the Indenture Trustee,
the Securities Insurer or any Securityholder of a breach of any of such
representations and warranties which materially and adversely affects the
value of the Home Loans or the interest of the Securityholders or the
Securities Insurer, or which materially and adversely affects the interests
of the Securityholders or the Securities Insurer in the related
Home Loan in the case of a representation and warranty relating to a
particular Home Loan (notwithstanding that such representation and warranty
was made to the Seller's best knowledge), the party discovering such breach
shall give prompt written notice to the others. Except with respect to a
breach of the representations made by Mego pursuant to Section 3.03(b)(xxxii)
and (xxxiii), in the event of a determination in Section 2.06(c) or a breach
of a representation and warranty made pursuant to Section 3.03(b) that
materially and adversely affects the interests of the Securityholders or the
Security Insurer in the Home Loan with respect to which such representation
is made or in the Home Loans and a failure within sixty Business Days of
discovery or receipt of notice of such failure to effect a cure of the
circumstances giving rise to such defect, Mego shall be obligated, on the
Monthly Cut-Off Date next succeeding the expiration of such sixty-day period,
to repurchase (or substitute for, to the extent permitted by subsection (b)
below) the affected Home Loan. The Securities Insurer and the Indenture
Trustee on behalf of the Securityholders agree that if an FHA Loan is a
Defective Home Loan because a document is not included in the Servicer's Home
Loan File as of the 60th Business Day after the discovery or receipt of
notice thereof, such defect shall be deemed to be cured if the Indenture
Trustee shall have received during the sixty-day period after such date a
written statement addressed to it from the Director of HUD Title I Insurance
Division that such document would not be required in connection with a claim
for FHA Insurance with respect to such FHA Loan. Except as set forth in
Section 5 of the Indemnification Agreement, it is understood and agreed that
the obligation of Mego to repurchase or substitute any such Home Loan pursuant
to this Section shall constitute the sole remedy against it with respect to
such breach of the foregoing representations or warranties or the existence of
the foregoing conditions. For purposes of calculating Business Days with
respect to a Defective Loan that is an FHA Loan because a document is not
included in the Servicer's Home Loan File in this Section 3.05(a), a Business
Day shall not include any day on which the FHA is officially closed for reasons
other than as specified in the definition of Business Day. With respect to
representations and warranties made by Mego pursuant to Section 3.03(b) that
are made to Mego's best knowledge, if it is discovered by any of the
Depositor, Mego, the Indenture Trustee, the Owner Trustee or the Securities
Insurer that the substance of such representation and warranty is inaccurate
and such inaccuracy materially and adversely affects the value of the related
Loan, notwithstanding Mego's lack of knowledge, such inaccuracy shall be
deemed a breach of the applicable representation and warranty.
With respect to a breach of the representations made by Mego pursuant to
Section 3.03(b)(xxxii) or (xxxiii) if the FHA has not assigned a case number
under the Contract of Insurance to an FHA Loan to indicate that such FHA Loan
is eligible for Title I Insurance coverage under the Contract of Insurance on
or before the 120th day after the Closing Date, Mego shall be obligated, on
the Monthly Cut-Off Date next succeeding such 120th day, to repurchase such
FHA Loan. If the FHA Reserve Amount with respect to an FHA Loan has not been
transferred to the FHA Insurance Coverage Reserve Account on or before the
150th day after the Closing Date, Mego shall be obligated, on the Monthly
Cut-Off Date next succeeding such 150th day, to repurchase such FHA Loan.
The Claims Administrator shall give notice in writing to each of the Master
Servicer, the Securities Insurer, the Depositor, Mego and the Indenture
Trustee, the Owner Trustee of (i) any FHA Loan with respect to which there
has not been assigned a case number under the Contract of Insurance on or
before the 120th day after the Closing Date and (ii) any FHA Loan that has
not been transferred to the FHA Insurance Coverage Reserve Account on or
before the 150th day after the Closing Date. For purposes of calculating
either 120 or 150 days from the Closing Date in this Section 3.05(a), any day
on which the FHA is officially closed for reasons other than such day being a
Saturday, Sunday or a day on which banking institutions in Washington, D.C.
are authorized or obligated by law, executive order or governmental decree to
be closed, shall not be counted in making such calculation.
If Mego is required to repurchase any Home Loan on a Monthly Cut-Off
Date that is not a Business Day, such repurchase shall be made on the last
Business Day preceding such Monthly Cut-Off Date. Any Home Loan required
to be purchased or repurchased pursuant to this Section 3.05(a) is referred
to as a "Defective Home Loan."
(b) Mego shall be obligated to repurchase a Defective Home Loan for the
Purchase Price, payable to the Indenture Trustee in cash on the Monthly Cut-
Off Date specified in Section 3.05(a) above, for deposit in the Note
Distribution Account. Notwithstanding the foregoing, within two years of the
Closing Date, Mego may elect in lieu of the purchase or repurchase of a
Defective Home Loan as provided in this Section 3.05, to substitute, as of
the Monthly Cut-off Date specified in Section 3.05(a), a Qualified Substitute
Home Loan for the Defective Home Loan in accordance with the provisions of
this Section 3.05.
(c) Mego shall notify the Master Servicer, the Indenture Trustee and
the Securities Insurer in writing not less than five Business Days before the
related Determination Date which is on or before the date on which Mego would
otherwise be required to repurchase such Loan pursuant to Section 3.05(a) of
its intention to effect a substitution under this Section. On such
Determination Date (the "Substitution Date"), Mego shall deliver to the
-----------------
Indenture Trustee and the Securities Insurer a list of the Home Loans to be
substituted for by such Qualified Substitute Home Loans, and attaching as an
exhibit a supplemental Home Loan Schedule (the "Supplemental Loan Schedule")
setting forth the same type of information appearing on the Loan Schedule and
representing as to the accuracy thereof. In connection with any substitution
pursuant to this Section 3.05, to the extent that the aggregate Principal
Balance of any Qualified Substitute Home Loan or Home Loans is less than the
aggregate Principal Balance of the corresponding Home Loan or Home Loans as of
the Determination Date on which the substitution is being made, Mego shall
deposit such difference (a "Substitution Adjustment Amount") to the Note
Distribution Account on such date.
(d) Concurrently with the satisfaction of the conditions set forth in
this Section 3.05 and the Grant of such Qualified Substitute Home Loans to
the Indenture Trustee pursuant to Section 3.05(b), Exhibit A to this
Agreement shall be deemed to be amended to exclude all Home Loans being
replaced by such Qualified Substitute Home Loans and to include the
information set forth on the Supplemental Loan Schedule with respect to such
Qualified Substitute Home Loans, and all references in this Agreement to Home
Loans shall include such Qualified Substitute Home Loans and be deemed to be
made on or after the related Substitution Date, as the case may be, as to
such Qualified Substitute Home Loans.
(e) Notwithstanding the provisions of Section 3.05(a), the Securities
Insurer, in its sole discretion, may extend, by not more than 150 days from
the date of the notice described in Section 3.05(a), the sixty-day period
available, pursuant to Section 3.05(a), to Mego to cure the circumstances
giving rise to a defect with respect to any Home Loan described in
Section 3.05.
(f) With respect to all Defective Home Loans or other Home Loans
repurchased by Mego pursuant to this Agreement, upon the deposit of the
Purchase Price therefor to the Note Distribution Account, the Indenture
Trustee shall assign to Mego, without recourse, representation or warranty,
all the Indenture Trustee's right, title and interest in and to such
Defective Home Loans or Home Loans, which right, title and interest were
conveyed to the Indenture Trustee pursuant to Section 2.01, including,
without limitation, the rights to any FHA Insurance reserves attributable to
such Home Loans. The Indenture Trustee shall take any actions as shall be
reasonably requested by Mego to effect the repurchase of any such Home Loans.
ARTICLE IV.
ADMINISTRATION AND SERVICING OF HOME LOANS;
-------------------------------------------
CLAIMS ADMINISTRATION
---------------------
Section 4.01 Servicing Standard.
------------------
(a) The Master Servicer is hereby authorized to act as agent for the
Trust and in such capacity shall manage, service, administer and make
collections on the Home Loans, and perform the other actions required by the
Master Servicer under this Agreement. In performing its obligations
hereunder the Master Servicer shall at all times act in good faith in a
commercially reasonable manner in accordance with all requirements of the FHA
applicable to the servicing of the FHA Loans and otherwise in accordance with
applicable law and the Debt Instruments and Mortgages. The Master Servicer
shall at all times service and administer the FHA Loans in accordance with
Title I, and shall have full power and authority, acting alone and/or through
the Servicer as provided in Section 4.02, subject only to this Agreement, the
respective Home Loans, and, in the case of the FHA Loans, the specific
requirements and prohibitions of Title I, to do any and all things in
connection with such servicing and administration which are consistent with
the manner in which prudent servicers service FHA Title I home improvement
loans and which are consistent with the ordinary practices of prudent
mortgage lending institutions, but without regard to:
(i) any relationship that the Master Servicer, the Servicer
or any affiliate of the Master Servicer or any Servicer may have with
the related Obligor:
(ii) Mego's obligations to repurchase or substitute for a
Defective Home Loan pursuant to Section 3.05(b) or any FHA Loans
pursuant to Section 4.12(b);
(iii) the ownership of any Securities by the Master Servicer or
any affiliate of the Master Servicer;
(iv) the Master Servicer's obligation to make Interest
Advances pursuant to Section 4.08(a), to make Foreclosure Advances
pursuant to Section 4.08(b), or repurchase any FHA Loans pursuant to
Section 4.12; or
(v) the Master Servicer's right to receive compensation for
its services as provided in Section 5.01(c)(i)(b).
The Master Servicer may take any action hereunder, including exercising
any remedy under any Home Loan, retaining counsel in connection with the
performance of any of its obligations hereunder and instigating litigation to
enforce any obligation of any Obligor, without the consent or approval of the
Indenture Trustee or the Securities Insurer, unless any such consent or
approval is expressly required hereunder or under applicable law.
(b) The Indenture Trustee shall cause the Custodian to execute and
return to the Master Servicer or the Servicer designated in a written
instruction from the Master Servicer to the Indenture Trustee, within 5 days
of the Indenture Trustee's receipt any and all documents or instruments
necessary to maintain the lien created by any Mortgage on the related
Property or any portion thereof, and, within 5 days of request by the Master
Servicer or the Servicer therefor a power of attorney in favor of the
Servicer with respect to any modification, waiver, or amendment to any
document contained in any Home Loan File and any and all instruments of
satisfaction or cancellation, or of partial or full release or discharge, and
all other comparable instruments, with respect to the Home Loans and with
respect to the related Mortgaged Properties prepared and delivered to the
Indenture Trustee by the Master Servicer or any Servicer, all in accordance
with the terms of this Agreement.
(c) The Indenture Trustee shall cause the Custodian to furnish the
Master Servicer or Servicer within 5 days of request of a Master Servicing
Officer therefor any powers of attorney and other documents necessary and
appropriate to carry out its servicing and administrative duties hereunder,
including any documents or powers of attorney necessary to foreclose any Home
Loan. The forms of any such powers or documents shall be appended to such
requests.
(d) The Servicer hereby incorporates by reference the representations,
warranties and covenants made by it in Section 2.02 of the Servicing
Agreement.
Section 4.02 Servicing Arrangements.
----------------------
(a) On or prior to the date hereof, the Master Servicer has entered
into a Servicing Agreement with respect to all of the Home Loans, in
substantially the form of the Form of the Servicing Agreement attached hereto
as Exhibit E with Mego, as Servicer. So long as no Securities Insurer
Default shall have occurred and be continuing, upon the termination of the
Servicing Agreement, the Master Servicer may only appoint or consent to the
appointment or succession of a successor Servicer under the Servicing
Agreement and may only enter into a substitute servicing agreement which is
in form and substance as the Servicing Agreement attached hereto as Exhibit E
(which, with the consent of the Securities Insurer, may differ in material
respects from the Form of Servicing Agreement attached hereto as Exhibit E)
and with a Person acceptable to the Securities Insurer and the Indenture
Trustee. So long as no Securities Insurer Default exists, the Master
Servicer shall not consent to any material amendment, modification or waiver
of the provisions of a Servicing Agreement without the consent of the
Securities Insurer and the Indenture Trustee.
(b) No provision of this Agreement or the Servicing Agreement shall be
deemed to relieve the Master Servicer of any of its duties and obligations to
the Indenture Trustee on behalf of Securityholders and the Securities Insurer
with respect to the servicing and administration of the Home Loans as
provided hereunder; it being understood that the Master Servicer shall be
obligated with respect thereto to the same extent and under the same terms
and conditions as if it alone were performing all duties and obligations set
forth in this Agreement in connection with the collection, servicing and
administration of such Home Loans.
(c) Without limitation of the provisions of Section 4.02(b), the Master
Servicer shall (i) review the servicing reports prepared by the Servicer in
order to ensure the accuracy thereof, (ii) review the reports submitted by
the Servicer to confirm that the Servicer is collecting and appropriately
accounting for Obligor payments of premium on FHA Insurance on Invoiced
Loans, (iii) otherwise monitor the performance by the Servicer under the
Servicing Agreement and notify the Indenture Trustee and the Securities
Insurer of any Servicer Termination Event, and (iv) be obligated to ensure
that the Servicer deposits Payments into the Collection Account. In the
event the Servicer fails to make such deposit, the Master Servicer will
deposit such amounts as set forth in Section 5.01(a)(1).
(d) The Master Servicer agrees that it shall at all times be prepared
(and shall take all steps reasonably required by the Securities Insurer to
ensure such preparation), to perform the obligations of the Servicer if the
Servicer fails to perform its duties and obligations under the Servicing
Agreement.
(e) The Servicing Agreement may provide that the Servicer may retain,
as additional compensation, prepayment penalties, assumption and processing
fees paid by any Obligor and all similar fees customarily associated with the
servicing of the Home Loans, including, but not limited to late charges, paid
by any Obligor.
(f) At the direction of the Securities Insurer, so long as no
Securities Insurer Default exists, the Master Servicer shall terminate the
Servicer upon the occurrence and continuance of Servicer Termination Event
pursuant to the terms of the Servicing Agreement.
(g) Mego, as Servicer, shall provide information to the Master Servicer
monthly in a mutually agreeable format in order to enable the Master Servicer
to independently reconfirm the loan-by-loan reconciliation of the outstanding
Principal Balance of each Home Loan included in such information. The Master
Servicer shall prepare exception reports, if necessary, showing all Principal
Balance differences between the information provided by the Servicer and the
confirmations prepared by the Master Servicer and shall furnish such reports
to the Indenture Trustee for distribution to the Securities Insurer. If
requested by the Securities Insurer, the Servicer shall provide to the
Securities Insurer all information provided to the Master Servicer pursuant to
this Section 4.02(g).
Section 4.03 Servicing Record.
----------------
(a) The Master Servicer shall establish and maintain books and records
for the Home Loans (the "Servicing Record"), in which the Master Servicer
shall record: (i) all Payments received or collected by or on behalf of the
Master Servicer (through the Servicer or otherwise) or received by the
Indenture Trustee in respect of each Home Loan and each Foreclosed Property
and (ii) all amounts owing to the Master Servicer in compensation for
services rendered by the Master Servicer hereunder or in reimbursement of
costs and expenses incurred by the Master Servicer hereunder. In addition,
the Master Servicer shall establish and maintain records for the Insurance
Record (which shall be part of each Servicing Record) in which the Master
Servicer shall record all claims made under the Contract of Insurance, all
payments received by or on behalf of the Contract of Insurance Holder from
the FHA for each such claim and the amount of insurance coverage available in
the Insurance Record.
(b) Except as otherwise provided herein, amounts received or collected
by or on behalf of the Master Servicer or the Indenture Trustee from or on
behalf of any Obligor or in respect of any Foreclosed Property or from FHA
with respect to a claim made under the Contract of Insurance shall be
credited to the Servicing Record:
(i) promptly following direct receipt or direct collection by
the Master Servicer;
(ii) in the case of a Home Loan directly serviced by a
Servicer, promptly following deposit of the receipt or collection in the
related Collection Account; or
(iii) in the case of any amount received directly by the
Indenture Trustee, promptly following the Master Servicer's actual
knowledge of receipt by the Indenture Trustee pursuant to the notice
required by Section 4.12(d) or otherwise;
but in any event not later than the Determination Date next following the
date of receipt or collection by or on behalf of the Master Servicer (through
the Servicer or otherwise) or receipt by the Indenture Trustee. Amounts
received or collected by the Master Servicer in connection with the purchase
or repurchase of any Home Loan or any Foreclosed Property shall be so
recorded on and as of the date of receipt. The Servicing Record shall
separately reflect amounts so received or collected by the Master Servicer
in each Due Period. All Payments from Obligors received on FHA Loans from
or on behalf of an Obligor shall be allocated in accordance with Title I.
(c) The Master Servicer shall credit to the Servicing Record relating
to each Due Period, on a Home Loan-by-Home Loan basis, each of the following
Payments collected or received by or on behalf of the Master Servicer
(through the Servicer or otherwise) or received by the Indenture Trustee in
respect of each Home Loan and each Foreclosed Property:
(i) all payments on account of principal;
(ii) all payments on account of interest;
(iii) all proceeds of the purchase or repurchase of any Home
Loan pursuant to Section 3.05(a) or, with respect to FHA Loans,
Section 4.12(b) and all Substitution Adjustment Amounts;
(iv) all amounts paid by or on behalf of the related Obligor
in respect of Foreclosure Advances previously advanced by the Master
Servicer or the Servicer;
(v) all revenues received or collected in respect of any
Foreclosed Property, including all proceeds of the sale of any
Foreclosed Property pursuant to Section 4.13;
(vi) all proceeds of the sale of the Home Loans and any
Foreclosed Properties pursuant to Section 11.01;
(vii) all FHA Insurance Payment Amounts; and
(viii) all Insurance Proceeds, any condemnation awards or
settlements or any payments made by any related guarantor or third-party
credit-support provider and any and all other amounts received in
respect of Home Loans and not specified above.
(d) Notwithstanding anything to the contrary herein, the Master
Servicer shall not be required to credit to the Servicing Record, and neither
the Master Servicer nor any Securityholder shall have any right or interest
in any amount due or received with respect to any Home Loan or any related
Foreclosed Property subsequent to the date of repurchase of such Home Loan or
Foreclosed Property from the Trust.
(e) The Master Servicer shall separately record in each Servicing
Record the items required to be included in the Master Servicer Certificate
and additionally the following items to the extent not included therein:
(i) on or before each Determination Date, the related unpaid
Master Servicer Fee due the Master Servicer on the next Distribution
Date;
(ii) on or before each Determination Date, all amounts
retained by the Servicer in respect of the preceding Due Period in
respect of amounts due Independent Contractors hired by the Master
Servicer to operate and manage a Foreclosed Property pursuant to
Section 4.14(b);
(iii) on or before each Determination Date, the amount of
unreimbursed Interest Advances in respect of prior Distribution Dates
and the amount which the Master Servicer or the Servicer is entitled to
be reimbursed therefor in accordance with Section 4.08;
(iv) on or before each Determination Date, all amounts due as
of the preceding Monthly Cut-Off Date in reimbursement of Foreclosure
Advances previously advanced by the Master Servicer or the Servicer
(separately identifying the type and amount of each then due);
(v) on or before each Determination Date and based on
information provided to the Master Servicer by the Indenture Trustee,
all Other Fees distributed pursuant to Section 5.01(c)(xi), as
applicable on the next succeeding Distribution Date;
(vi) promptly following each Distribution Date, the aggregate
amount of the Master Servicer Fee and Servicer Fee paid to the Master
Servicer or Servicer, respectively, on such Distribution Date pursuant
to Section 5.01(c)(i)(b) and the aggregate amount of the Indenture
Trustee Fee and Owner Trustee Fee paid to the Indenture Trustee and
Owner Trustee, respectively, on such Distribution Date pursuant to
Section 5.01(c)(i)(d);
(vii) promptly following each Distribution Date, the aggregate
amount of Interest Advances and Foreclosure Advances reimbursed to the
Master Servicer or the Servicer on such Distribution Date;
(viii) on or before each Determination Date, the Principal
Balance of Home Loans that became Defaulted Home Loans during the prior
Due Period;
(ix) on or before each Determination Date, each Collateral
Performance Percentage,
(x) on or before each Determination Date, the amount
deposited into each Collection Account representing payments by the
related Obligors on Invoiced Loans in respect of premium on FHA
Insurance;
(xi) on or before each Determination Date, the amount
remaining in the FHA Insurance Coverage Reserve Account with respect to
all FHA Loans and the Related Series Loans, if any;
(xii) on or before each Determination Date, identification by
loan number, Obligor name, address of Property and Principal Balance of
such Home Loan with respect to which the Master Servicer has requested
that the Indenture Trustee obtain the environmental report required by
Section 4.12 in connection with deciding pursuant to Section 4.12 to
foreclose on or otherwise acquire title to the related Property;
(xiii) on or before each Determination Date, the Principal
Balance of each such Home Loan with respect to which the Master Servicer
has determined under the circumstances described in the penultimate
sentence of Section 4.12(a) that in good faith in accordance with
customary mortgage loan servicing practices that all amounts which it
expects to receive with respect to such Home Loan have been received;
and
(xiv) on or before each Determination Date, any other
information with respect to the Home Loans reasonably required by the
Indenture Trustee or the Securities Insurer to determine the amount
required to be distributed pursuant to Section 5.01(c) and determinable
by the Master Servicer without undue burden from the Servicer or the
items otherwise required to be maintained in each Servicing Record.
(f) On or before each Distribution Date, the Master Servicer will
determine, based on the date of origination of the FHA Loans as set forth in
the Home Loan Schedule, the amount of FHA insurance premium, if any, due on
or prior to the next succeeding Distribution Date with respect to each FHA
Loan. On or before such Distribution Date, the Master Servicer will compare
such amounts with respect to each FHA Loan against amounts invoiced by FHA
with respect to the Contract of Insurance as due on or prior to such next
succeeding Distribution Date and report all discrepancies to the Indenture
Trustee. Mego will assist the Indenture Trustee with the transfer of FHA
Insurance with respect to each FHA Loan to the Contract of Insurance
Holder. The Master Servicer is not responsible for the transfer of FHA
Insurance or the payment of any premium for FHA Insurance.
Section 4.04 Annual Statement as to Compliance; Notice of Event of
-----------------------------------------------------
Default.
- -------
(a) The Master Servicer will deliver to the Indenture Trustee, the
Depositor and the Securities Insurer on or before May 31 of each year,
beginning in 1998 an Officer's Certificate signed by two Responsible Officers
of the Master Servicer stating with respect to the Trust, that:
(i) a review of the activities of the Master Servicer during
the preceding calendar year (or in connection with the first such
Officer's Certificate the period from the Closing Date through the end
of 1997) and of the Master Servicer's performance under this Agreement
with respect to such Trust has been made under the supervision of the
signer of such Officer's Certificate; and
(ii) to the best of such signer's knowledge, based on such
review, the Master Servicer has fulfilled all its obligations under this
Agreement throughout such year (or such portion of such year), or there
has been a default in the fulfillment of any such obligation, in which
case such Officer's Certificate shall specify each such default known to
such signer and the nature and status thereof and what action the Master
Servicer proposes to take with respect thereto.
(b) The Master Servicer shall deliver to the Indenture Trustee, the
Securities Insurer and the Depositor, promptly after having obtained
knowledge thereof, but in no event later than 2 Business Days thereafter,
written notice in an Officer's Certificate of any event which with the giving
of notice or lapse of time, or both, would become an Event of Default under
Section 10.01. Each of Mego, the Depositor, the Securities Insurer, the
Indenture Trustee, the Owner Trustee and the Master Servicer shall deliver to
the other of such Persons promptly after having obtained knowledge thereof,
but in no event later than 2 Business Days thereafter, written notice in an
Officer's Certificate of any event which with the giving of notice or lapse
of time, or both, would become an Event of Default under Section 10.01.
Section 4.05 Annual Independent Accountants' Report; Servicer
------------------------------------------------
Review Report.
- -------------
(a) The Master Servicer shall cause a firm of Independent Accountants,
who may also render other services to the Master Servicer, to deliver to the
Indenture Trustee, Owner Trustee, the Depositor and the Securities Insurer on
or before May 31 (or 150 days after the end of the Master Servicer's fiscal
year) of each year, beginning on the first May 31 (or other applicable date)
after the date that is six months after the Closing Date, with respect to
the twelve months ended the immediately preceding December 31 (or other
applicable date) (or such other period as shall have elapsed from the Closing
Date to the date of such certificate) a report, conducted in accordance with
generally accepted accounting principles (the "Accountant's Report")
including: (i) an opinion on the financial position of the Master Servicer
at the end of its most recent fiscal year, and the results of operations and
changes in financial position of the Master Servicer for such year then ended
on the basis of an examination conducted in accordance with generally accepted
auditing standards, and (ii) a statement to the effect that, based on an
examination of certain specified documents and records relating to the
servicing of the Master Servicer's mortgage loan portfolio or the affiliate
of the Master Servicer principally engaged in the servicing of mortgage loans
conducted in compliance with the audit program for mortgages serviced for FNMA,
the United States Department of Housing and Urban Development Mortgagee Audit
Standards or the Uniform Single Attestation Program for Mortgage Bankers (the
"Applicable Accounting Standards") such firm is of the opinion that such
servicing has been conducted in compliance with the Applicable Accounting
Standards except for such exceptions as such firm shall believe to be
immaterial and such other exceptions as shall be set forth in such statement.
(b) In addition, the Master Servicer will provide a report of a firm of
Independent Accountants which shall state that (1) a review in accordance
with agreed upon procedures (determined by the Securities Insurer) was made
of such number of Master Servicer Certificates which the Independent
Accountants deem necessary to carry out their review of Master Servicer
performance, but in no case less than two and (2) except as disclosed in the
Accountant's Report, no exceptions or errors in the Master Servicer
Certificates so examined were found. The Accountant's Report shall also
indicate that the firm is independent of the Master Servicer within the
meaning of the Code of Professional Ethics of the American Institute of
Certified Public Accountants.
(c) The Master Servicer shall mail a copy of the Servicer Review Report
and any report or statement of the Servicer prepared pursuant to Section 6.04
of the Servicing Agreement to the Indenture Trustee.
(d) (1) The Master Servicer shall, unless otherwise directed by the
Securities Insurer, cause a firm of Independent Accountants chosen with the
consent of the Securities Insurer to review, annually within 90 days after
each anniversary of the Closing Date, in accordance with agreed upon
procedures (determined by the Securities Insurer) the performance of the
Servicer under the Servicing Agreement in order to confirm that the records
of the Servicer accurately reflect collections, delinquencies and other
relevant data with respect to the Loans reported to the Master Servicer for
the purpose of preparation of the Servicing Record, and that such data is
accurately reported to the Master Servicer for reflection in the Servicing
Record. Any exceptions or errors disclosed by such procedures shall be
included in a report delivered to the Master Servicer, the Indenture Trustee,
Owner Trustee and the Securities Insurer (the "Servicer Review Report").
(2) If the Securities Insurer, upon receipt and review of the
Servicer Review Report, determines in its sole discretion that the errors or
exceptions disclosed by the Servicer Review Report warrant further review of
the performance of the Servicer, then the Securities Insurer may, so long as
no Securities Insurer Default exists, direct the Master Servicer to cause
such firm of Independent Accountants to perform such further review with
respect to the performance of Servicer as is reasonably requested by the
Securities Insurer.
(3) In addition to the foregoing, the Securities Insurer may at
any time and from time to time, so long as no Securities Insurer Default
exists, direct the Master Servicer to cause such firm of Independent
Accountants to conduct such additional reviews and prepare such additional
reports with respect to the performance of any Servicer as the Securities
Insurer deems reasonably appropriate.
Section 4.06 Access to Certain Documentation and Information
-----------------------------------------------
Regarding Home Loans.
- --------------------
The Master Servicer shall provide to representatives of the Indenture
Trustee or the Securities Insurer reasonable access to (a) the documentation
regarding the Home Loans and to those employees of the Master Servicer who
are responsible for the performance of the Master Servicer's duties hereunder
and (b) the books of account, records, reports and other papers of the Master
Servicer and to discuss its affairs, finances and accounts with its employees
and Independent accountants for the purpose of reviewing or evaluating the
financial condition of the Master Servicer. The Master Servicer shall
provide such access to any Securityholder only in such cases where the Master
Servicer is required by applicable statutes or regulations (whether applica-
ble to the Master Servicer or to such Securityholder) to permit such
Securityholder to review such documentation. In each case, such access shall
be afforded without charge but only upon reasonable request and during normal
business hours. Nothing in this Section shall derogate from the obligation
of the Master Servicer to observe any applicable law prohibiting disclosure
of information regarding the Obligors, 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. Any Securityholder, by its
acceptance of a Security (or by acquisition of its beneficial interest
therein), shall be deemed to have agreed to keep confidential and not to use
for its own benefit any information obtained by it pursuant to this Section,
except as may be required by applicable law or by any applicable regulatory
authority.
Section 4.07 (Reserved)
Section 4.08 Advances.
--------
(a) With respect to the Home Loans (other than Defaulted Home Loans)
and each Distribution Date, the Master Servicer shall advance from its own
funds and deposit into the Note Distribution Account or from funds on deposit
in the related Collection Account in respect of amounts available for
distribution on future Distribution Dates, no later than the related
Determination Date, the excess, if any, of (i) the aggregate of the portions
of the Monthly Payments due with respect to all Home Loans in the related Due
Period allocable to interest (calculated at a rate equal to the Net Loan
Rate) less any Civil Relief Act Interest Shortfalls over (ii) the aggregate
amount deposited into the Note Distribution Account with respect to all Home
Loans and such Distribution Date and allocated in accordance with Section
4.03(c) to interest (such amounts, "Interest Advances"). Any funds so
applied from funds on deposit in the Collection Account in respect of amounts
available for distribution on future Distribution Dates shall be reimbursed
by the Master Servicer on or before any future Distribution Date to the
extent that funds on deposit in the Note Distribution Account applied in the
order of priority set forth in such Section 5.01(c) would be less than the
amount required to be distributed pursuant to Section 5.01(c) on such dates
as a result of such Interest Advances.
Notwithstanding anything herein to the contrary, no Interest Advance
shall be required to be made hereunder if the Master Servicer determines that
such Interest Advance would, if made, constitute a Nonrecoverable Advance.
(b) The Master Servicer shall advance from its own funds the following
amounts in respect of any Mortgage Loan or Foreclosed Property, as applicable
(collectively, "Foreclosure Advances"):
(i) all third party costs and expenses (including legal fees
and costs and expenses relating to bankruptcy or insolvency proceedings
in respect of any Obligor) associated with the institution of
foreclosure or other similar proceedings in respect of any Home Loan
pursuant to Section 4.12;
(ii) all insurance premiums due and payable in respect of each
Foreclosed Property, prior to the date on which the related Insurance
Policy would otherwise be terminated;
(iii) all real estate taxes and assessments in respect of each
Foreclosed Property that have resulted in the imposition of a lien
thereon, other than amounts that are due but not yet delinquent;
(iv) all costs and expenses necessary to maintain each
Foreclosed Property;
(v) all fees and expenses payable to any Independent
Contractor hired to operate and manage a Foreclosed Property pursuant to
Section 4.14(b); and
(vi) all fees and expenses of any Independent appraiser or
other real estate expert retained by the Indenture Trustee pursuant to
Section 4.13(a).
The Master Servicer shall advance the Foreclosure Advances described in
clauses (i) through (v) above if, but only if, it has approved the
foreclosure or other similar proceeding in writing and the Master Servicer
would make such an advance if it or an affiliate held the affected Mortgage
Loan or Foreclosed Property for its own account and, in the Master Servicer's
good faith judgment, such advance would not constitute a nonrecoverable
advance. In making such assessment with respect to the institution of such
proceedings, the Master Servicer shall not advance funds with respect to a
Mortgage Loan unless the appraised value of the related Property exceeds the
sum of (i) the amounts necessary to satisfy any liens prior to the liens on
Mortgages securing such Mortgage Loan and (ii) the reasonably anticipated
costs of foreclosure or similar proceedings.
Section 4.09 Reimbursement of Interest Advances and Foreclosure
--------------------------------------------------
Advances.
- --------
(a) The Master Servicer shall be entitled to be reimbursed pursuant to
Section 5.01(c) for previously unreimbursed Interest Advances made from its
own funds or any such previously unreimbursed Interest Advance by the
Servicer with respect to a Home Loan on Distribution Dates subsequent to the
Distribution Date in respect of which such Interest Advance was made from
Payments with respect to such Home Loan. If a Home Loan shall become a
Defaulted Home Loan and the Master Servicer shall not have been fully
reimbursed for any such Interest Advances with respect to such Home Loan, the
Master Servicer shall be entitled to be reimbursed for the outstanding amount
of such Interest Advances from unrelated Home Loans pursuant to Section
5.01(c). No interest shall be due to the Master Servicer in respect of any
Interest Advance for any period prior to the reimbursement thereof.
(b) The Master Servicer shall be entitled to be reimbursed pursuant to
Section 5.01(c) from related Payments for Foreclosure Advances advanced on or
prior to the related Monthly Cut-Off Date but only to the extent the Master
Servicer has satisfied the requirements of Section 4.08. No interest shall
be due to the Master Servicer in respect of any Foreclosure Advance for any
period prior to the reimbursement thereof.
(c) The Indenture Trustee shall offset against amounts otherwise
distributable to the Master Servicer pursuant to Section 5.01(c), amounts, if
any, which were required to be deposited in any Collection Account pursuant
to Section 5.01(c) with respect to the related Due Period but which were not
so deposited.
Section 4.10. Modifications, Waivers, Amendments and Consents.
-----------------------------------------------
(a) The Master Servicer shall not agree to any modification, waiver or
amendment of any provision of any Home Loan unless, in the Master Servicer's
good faith judgment, such modification, waiver or amendment (i) would
minimize the loss that might otherwise be experienced with respect to such
Home Loan, and (ii) in the case of any FHA Loan, complies with the
requirements of Title I or is required by Title I and such FHA Loan has
experienced a payment default or a payment default is reasonably foreseeable
by the Master Servicer. The Master Servicer shall agree to subordinate the
position of the security interest in the Property which secures any FHA Loan
upon the Master Servicer's receipt of written approval of HUD to such
subordination or written certification by the Servicer that such proposed
subordination complies with current published HUD requirements and provided
such subordination (i) would permit the Obligor to refinance a senior lien to
take advantage of a lower interest rate or (ii) would permit the Obligor to
extend the term of the senior lien. Notwithstanding the foregoing, at no
time shall the aggregate of the Principal Balances of Home Loans modified,
waived or amended without the prior or subsequent approval of the Securities
Insurer exceed 3% of the aggregate of the Initial Pool Principal Balance and
no modification or amendment of a Home Loan shall involve the execution by
the Obligor of a new Debt Instrument or, with respect to any Mortgage Loan,
of a new Mortgage. At the request of the Master Servicer, the Securities
Insurer, at its discretion, may approve an increase in or waiver of the
percentage referred to in the previous sentence, such approval not to be
unreasonably withheld.
(b) The Master Servicer shall notify the Indenture Trustee and the
Securities Insurer of any modification, waiver or amendment of any provision
of any Home Loan and the date thereof, and shall deliver to the Indenture
Trustee for deposit in the related Home Loan File, an original counterpart
of the agreement relating to such modification, waiver or amendment, promptly
following the execution thereof. Such notice shall state that the conditions
contained in this Section 4.10 have been satisfied.
Section 4.11. Due-On-Sale; Due-on-Encumbrance.
-------------------------------
(a) If any Home Loan contains a provision, in the nature of a "due-on-
sale" clause, which by its terms:
(i) provides that such Home Loan shall (or may at the
Obligee's option) become due and payable upon the sale or other transfer
of an interest in the related Property; or
(ii) provides that such Home Loan may not be assumed without
the consent of the related Obligee in connection with any such sale or
other transfer,
then, for so long as such Home Loan is included in the Trust, the Master
Servicer, on behalf of the Indenture Trustee, shall exercise any right the
Trust or the Indenture Trustee may have as the Obligee of record with respect
to such Home Loan (x) to accelerate the payments thereon, or (y) to withhold
its consent to any such sale or other transfer, in a manner consistent with
the servicing standard set forth in Section 4.01.
(b) If any Home Loan contains a provision, in the nature of a "due-on-
encumbrance" clause, which by its terms:
(i) provides that such Home Loan shall (or may at the
Obligee's option) become due and payable upon the creation of any lien
or other encumbrance on the related Property; or
(ii) requires the consent of the related Obligee to the
creation of any such lien or other encumbrance on the related Property,
then, for so long as such Home Loan is included in the Trust, the Master
Servicer, on behalf of the Trust or the Indenture Trustee, shall exercise any
right the Indenture Trustee may have as the Obligee of record with respect to
such Home Loan (x) to accelerate the payments thereon, or (y) to withhold its
consent to the creation of any such lien or other encumbrance, in a manner
consistent with the servicing standard set forth in Section 4.01.
(c) Nothing in this Section 4.11 shall constitute a waiver of the
Indenture Trustee's right to receive notice of any assumption of a Home Loan,
any sale or other transfer of the related Property or the creation of any
lien or other encumbrance with respect to such Property.
(d) Except as otherwise permitted by Section 4.10, the Master Servicer
shall not agree to modify, waive or amend any term of any Home Loan in
connection with the taking of, or the failure to take, any action pursuant to
this Section 4.11.
Section 4.12. Claim for FHA Insurance and Foreclosure.
---------------------------------------
(a) (x) If any Monthly Payment due under any FHA Loan is not paid when
the same becomes due and payable, or if the Obligor fails to perform any
other covenant or obligation under such FHA Loan and such failure continues
beyond any applicable grace period, the Master Servicer shall take such
action (consistent with Title I, including efforts to cure the default of
such FHA Loan pursuant to 24 C.F.R. Section 201.50) as it shall deem to be in
the best interest of the Trust. If the maturity of the related Note has been
accelerated pursuant to the requirements under Title I following the Master
Servicer's efforts to cure the default of such FHA Loan (and such FHA Loan is
not required to be purchased pursuant to Section 2.04(b)), and (i) if an FHA
Insurance Coverage Insufficiency does not exist at the time, the Claims
Administrator shall initiate, on behalf of the Trust and the Contract of
Insurance Holder, a claim under the Contract of Insurance for reimbursement
for loss on such FHA Loan pursuant to Title I (see 24 C.F.R. Section 201.54),
or (ii) if an FHA Insurance Coverage Insufficiency exists at the time, the
Master Servicer shall determine within 90 days in accordance with Section
4.12(c) whether or not to proceed against the Property securing such FHA
Loan, if such FHA Loan is a Mortgage Loan or against the Obligor, if such FHA
Loan is unsecured, and if thereafter an FHA Insurance Coverage Insufficiency
does not exist, the Claims Administrator may submit a claim under the
Contract of Insurance with respect to such FHA Loan if it has obtained the
prior approval of the Secretary of HUD pursuant to 24 C.F.R. Section 201.51;
or (y) if any Monthly Payment due under any Non-FHA Loan is not paid when the
same is due and payable, or if the Obligor fails to perform any other
covenant or obligation under such Non-FHA Loan and such failure continues
beyond any applicable grace period, the Master Servicer shall take such
action as it shall deem to be in the best interest of the Trust; including
but not limited to proceeding against the Property securing such Non-FHA
Loan.
In the event that in accordance with clauses (a)(x)(ii) and (y) above
the Master Servicer determines not to proceed against the Property or
Obligor, as applicable, on or before the Determination Date following such
determination the Master Servicer shall determine in good faith in accordance
with customary servicing practices that all amounts which it expects
to receive with respect to such Loan have been received. If the Master
Servicer makes such a determination, it shall give notice to such effect
pursuant to Section 4.03(e)(xiv).
(b) If the Claims Administrator initiates a claim for reimbursement for
loss on any FHA Loan under this Section, the Claims Administrator shall
comply with applicable provisions of Title I and diligently pursue such claim
and, in any event, shall initiate such claim no later than the last day
permitted under Title I (see 24 C.F.R. Section 201.54(b)). For purposes of
this Agreement, the term "initiate a claim for reimbursement" shall mean the
filing of the claim application pursuant to the requirements set forth in 24
C.F.R. Section 201.54, including the filing of all related assignments and
documents and materials required for file review. For the purposes of such
filing, the Claims Administrator shall request, and the Co-Owner Trustee
within 5 calendar days of request shall deliver to the Claims Administrator,
the Note and the related Mortgage for such FHA Loan and each other item in
the related File necessary to make such claim. Each Securityholder hereby
consents to the assignment of such FHA Loan for the sole purpose of
initiating a claim under the Contract of Insurance for reimbursement with
respect to such FHA Loan. Pursuant to Section 4.12(i), the Contract of
Insurance Holder shall furnish the Claims Administrator a power of attorney
to file claims under the Contract of Insurance. The Co-Owner Trustee and
Contract of Insurance Holder agree to execute and deliver to the Claims
Administrator, within 5 Business Days of receipt from the Claims
Administrator, all documents, if any, necessary to initiate and file a claim
under the Contract of Insurance for such FHA Loan, which documents shall be
prepared by the Claims Administrator. If any claim to the FHA becomes a
Rejected Claim, upon receipt of the FHA's rejection notice by the Claims
Administrator directly from the FHA or from the Contract of Insurance Holder
pursuant to Section 4.12(e) and a determination by the Claims Administrator
that the rejection was not due to clerical error, then the Claims
Administrator shall promptly notify the Contract of Insurance Holder (if such
notice has not already been given), the Indenture Trustee and the Securities
Insurer of the notice of a Rejected Claim.
If the FHA indicates in writing that the claim is a Rejected Claim due
to reasons other than a failure to service the related FHA Loan in accordance
with Title I after the Closing Date, Mego shall repurchase the FHA Loan on or
before the Monthly Cut-Off Date next following the date of such notice from
the Claims Administrator to repurchase such FHA Loan, either directly from
FHA or from the Trust, for the Purchase Price. If FHA indicates in writing
that the claim is a Rejected Claim due to a failure to service such FHA Loan
in accordance with Title I after the Closing Date, the Claims Administrator
shall immediately notify Mego, the Master Servicer, the Contract of Insurance
Holder, the Trust, the Indenture Trustee and the Securities Insurer of such
determination, and the Master Servicer shall on or before the later to occur
of (i) the next succeeding Monthly Cut-Off Date and (ii) ten Business Days
from the date on which such rejection notice is received by the Claims
Administrator, purchase such FHA Loan either directly from FHA or from the
Trust, for the Purchase Price. In the event that the FHA fails to indicate
in writing why the claim is a Rejected Claim, the Claims Administrator shall
determine why the claim is a Rejected Claim. If the Claims Administrator
determines that the claim is a Rejected Claim for reasons other than a
servicing failure that occurred after the Closing Date, Mego shall be
obligated to repurchase such FHA Loan for the Purchase Price. If the Claims
Administrator determines that the claim is a Rejected Claim due to a
servicing failure that occurred after the Closing Date, the Master Servicer
shall be obligated to repurchase such FHA Loan for the Purchase Price.
Notwithstanding any provisions herein to the contrary, neither Mego nor the
Master Servicer shall be required to repurchase or purchase, as applicable,
any FHA Loan subject to a Rejected Claim as a result of the depletion of the
amount of the FHA Insurance Coverage Reserve Account as shown in the
Insurance Record.
(c) In accordance with the criteria for proceeding against the Property
set forth in Section 4.12(a), with respect to an FHA Loan that is a Mortgage
Loan that has been accelerated pursuant to the requirements of Title I
following the Master Servicer's efforts to cure the default of the FHA Loan,
and with respect to a Non-FHA Loan that is a Mortgage Loan, unless otherwise
prohibited by applicable law or court or administrative order, the Master
Servicer, on behalf of the Trust and the Indenture Trustee, may, at any time,
institute foreclosure proceedings, exercise any power of sale to the extent
permitted by law, obtain a deed in lieu of foreclosure, or otherwise acquire
possession of or title to the related Property, by operation of law or
otherwise.
In accordance with the criteria for proceeding against the Property set
forth in Section 4.12(a), with respect to FHA Loans that are Mortgage Loans
and with respect to the Non-FHA Loans, the Master Servicer shall institute
foreclosure proceedings, repossess, exercise any power of sale to the extent
permitted by law, obtain a deed in lieu of foreclosure, or otherwise acquire
possession of or title to any Property, by operation of law or otherwise only
in the event that in the Master Servicer's reasonable judgement such action
is likely to result in a positive economic benefit to the Trust by creating
net liquidation proceeds (after reimbursement of all amounts owed with
respect to such Home Loan to the Master Servicer or the Servicer) and
provided that, with respect to any Property, prior to taking title thereto,
the Master Servicer has requested that the Indenture Trustee obtain, and the
Indenture Trustee shall have obtained, an environmental review to be
performed on such Property by a company with recognized expertise, the scope
of which is limited to the review of public records and documents for
information regarding whether such Property has on it, under it or is near,
hazardous or toxic material or waste. If such review reveals that such
Property has on it, under it or is near hazardous or toxic material or waste
or reveals any other environmental problem, the Indenture Trustee shall
provide a copy of the related report to the Master Servicer and the
Securities Insurer and title shall be taken to such Property only after
obtaining the written consent of the Securities Insurer.
In connection with any foreclosure proceeding on an FHA Loan, the Master
Servicer shall comply with the requirements under Title I, shall follow such
practices and procedures in a manner which is consistent with the Master
Servicer's procedure for foreclosure with respect to similar FHA Title I
loans held in the Master Servicer's portfolio for its own account or, if
there are no such loans, FHA Title I loans serviced by the Master Servicer
for others. To the extent required by Section 4.08, the Master Servicer
shall advance all necessary and proper Foreclosure Advances until final
disposition of the Foreclosed Property and shall manage such Foreclosed
Property pursuant to Section 4.14. If, in following such foreclosure
procedures, title to the Foreclosed Property is acquired, the deed or
certificate of sale shall be issued to the Co-Owner Trustee and the Indenture
Trustee.
(d) With respect to any FHA Loan, each of the Co-Owner Trustee, Owner
Trustee, Indenture Trustee and the Contract of Insurance Holder shall deposit
in the Note Distribution Account on the day of receipt all amounts received
from the FHA or any other Person with respect to such FHA Loans or any other
assets of the Trust and shall transmit by facsimile, or such other method
requested by the Master Servicer, Claims Administrator or the Securities
Insurer, to the Master Servicer, Claims Administrator and the Securities
Insurer on each such day the letter of transmittal received from the FHA and
any other documents with respect to such receipt. Each of the Co-Owner
Trustee, Owner Trustee, Indenture Trustee and the Contract of Insurance
Holder shall also promptly deliver to the Claims Administrator copies of any
other correspondence received from the FHA or sent to the FHA by the Co-Owner
Trustee, Owner Trustee, Indenture Trustee or the Contract of Insurance
Holder, as the case may be, including, but not limited to, any correspondence
regarding the balance of the FHA Insurance Coverage Reserve Account, premiums
due and claims rejected.
(e) If, prior to the Termination Date, the FHA rejects an insurance
claim, in whole or part, under the Contract of Insurance after previously
paying such insurance claim and the FHA demands that the Contract of
Insurance Holder repurchase such FHA Loan, the Claims Administrator shall
pursue such appeals with the FHA as are reasonable. If the FHA continues to
demand that the Contract of Insurance Holder repurchase such FHA Loan after
the Claims Administrator exhausts such administrative appeals as are
reasonable, then notwithstanding that Mego, the Master Servicer or any other
person is required to repurchase such FHA Loan under this Agreement, the
Claims Administrator shall notify the Contract of Insurance Holder of such
fact and the Contract of Insurance Holder in its capacity as Co-Owner Trustee
and the Indenture Trustee shall repurchase such FHA Loan from funds available
in the Note Distribution Account. The Claims Administrator shall, to the
extent possible, direct the Indenture Trustee to make all such repurchases
of FHA Loans once a month and to repurchase any and all such FHA Loans from
the FHA in that portion of the calendar month after each Distribution Date.
If the Indenture Trustee withdraws any amounts from the Trust for such purpose
between the Determination Date and Distribution Date of any month, the Master
Servicer shall prepare the Master Servicer Certificate provided under
Section 6.01 for such Distribution Date (or promptly revise the Master
Servicer Certificate if already prepared for such Distribution Date) to
reflect such withdrawals as if made on such Determination Date and the
Trustee shall revise its determination pursuant to Section 6.01 accordingly.
To the extent allowed by FHA, Mego may repurchase directly from FHA any FHA
Loan for which an insurance claim has been paid and later rejected by FHA.
If the FHA indicates in writing in connection with its rejection or refusal
to pay a claim that such rejection or refusal is due to other than (i) a
failure to service the FHA Loan in accordance with Title I after the Closing
Date or (ii) the amount in the FHA Insurance Coverage Reserve Account is
insufficient to pay such claim, or if the FHA does not indicate in writing
the reason for its rejection or refusal, Mego shall be liable to reimburse
the Trust for any amounts paid by the Indenture Trustee to the FHA in order
to repurchase such FHA Loan. Subject to Section 4.12(b), if the FHA indicates
in writing, or it is agreed by the Master Servicer, in connection with its
rejection or refusal to pay a claim that such rejection or refusal is due to
a failure to service such Loan in accordance with Title I after the Closing
Date, the Master Servicer shall be liable to reimburse the Trust or Mego for
any amounts paid by the Trust or Mego, as the case may be, to FHA in order
to repurchase FHA Loans for which the FHA has rejected an insurance claim
as a result of a failure to service such FHA Loan in accordance with Title I.
(f) If, after the Termination Date, the FHA rejects an insurance claim,
in whole or part, under the Contract of Insurance after previously paying
such insurance claim and the FHA demands that the Contract of Insurance
Holder repurchase such FHA Loan, the Claims Administrator shall pursue such
appeals with the FHA as are reasonable. If the FHA continues to demand that
the Contract of Insurance Holder repurchase such FHA Loan after the Claims
Administrator exhausts such administrative appeals as are reasonable, then
notwithstanding that Mego or any other person is required to repurchase such
FHA Loan under this Agreement, the Claims Administrator shall notify the
Contract of Insurance Holder of such fact and the Contract of Insurance
Holder shall repurchase such FHA Loan from the FHA. If the FHA indicates
in writing in connection with its rejection or refusal to pay a claim that
such rejection or refusal is due to other than (i) a failure to service the
FHA Loan in accordance with Title I after the Closing Date or (ii) the amount
in the FHA Insurance Coverage Reserve Account is insufficient to pay such
claim, or if FHA does not indicate in writing the reason for its rejection or
refusal, Mego shall be liable to reimburse the Contract of Insurance Holder
for any amounts paid by the Contract of Insurance Holder to the FHA in order
to repurchase such FHA Loan. Subject to Section 4.12(b), if the FHA
indicates in writing, or it is agreed by the Master Servicer, in connection
with its rejection or refusal to pay a claim that such rejection or refusal
is due to a failure to service such FHA Loan in accordance with Title I after
the Closing Date, the Master Servicer shall be liable to reimburse the
Contract of Insurance Holder or Mego for any amounts paid by the Contract of
Insurance Holder or Mego to FHA in order to repurchase FHA Loans for which
the FHA has rejected an insurance claim as a result of a failure to service
such FHA Loan in accordance with Title I.
(g) The Claims Administrator shall be entitled to reimbursement of
expenses associated with the filing of any FHA Insurance claim from and to
the extent that such amounts are reimbursed by HUD.
(h) The Indenture Trustee shall furnish the Claims Administrator or the
Servicer, as applicable, within 5 days of request of the Claims Administrator
or the Servicer therefor any powers of attorney and other documents necessary
and appropriate to carry out its respective duties hereunder, including any
documents or powers of attorney necessary to foreclose or file a claim with
respect to any FHA Loan and to file claims with the FHA under the Contract of
Insurance. The forms of any such powers or documents shall be appended to
such requests. The Contract of Insurance Holder shall furnish the Claims
Administrator or the Servicer, as applicable, within 5 days of request of the
Claims Administrator or the Servicer therefor any powers of attorney and
other documents necessary and appropriate to carry out its administrative
duties pursuant to Section 4.12.
Section 4.13. Sale of Foreclosed Properties.
-----------------------------
(a) The Master Servicer may offer to sell to any Person any Foreclosed
Property, if and when the Master Servicer determines consistent with the
Servicing Standard and that such a sale would be in the best interests of the
Trust, but shall, with respect to the FHA Loans, in any event, so offer to
sell any Foreclosed Property in accordance with the criteria set forth in
Section 4.12 and no later than the time determined by the Master Servicer to
be sufficient to result in the sale of such Foreclosed Property on or prior
to the date specified in Section 4.12(d). The Master Servicer shall give the
Indenture Trustee and the Securities Insurer not less than five days' prior
notice of its intention to sell any Foreclosed Property, and shall accept the
highest bid received from any Person for any Foreclosed Property in an amount
at least equal to the sum of:
(i) the Principal Balance of the related foreclosed Home
Loan, unreimbursed Foreclosure Advances plus the outstanding amount of
any liens superior in priority, if any, to the lien of the foreclosed
Home Loan; and
(ii) all unpaid interest accrued thereon at the related Home
Loan Interest Rate through the date of sale.
In the absence of any such bid, the Master Servicer shall accept the highest
bid received from any Person that is determined to be a fair price for such
Foreclosed Property by the Master Servicer, if the highest bidder is a Person
other than an Interested Person, or by an Independent appraiser retained by
the Master Servicer, if the highest bidder is an Interested Person. In the
absence of any bid determined to be fair as aforesaid, the Master Servicer
shall offer the affected Foreclosed Property for sale to any Person, other
than an Interested Person, in a commercially reasonable manner for a period
of not less than 10 or more than 30 days, and shall accept the highest cash
bid received therefor in excess of the highest bid previously submitted. If
no such bid is received, any Interested Person may resubmit its original bid,
and the Master Servicer shall accept the highest outstanding cash bid,
regardless of from whom received. No Interested Person shall be obligated to
submit a bid to purchase any Foreclosed Property, and notwithstanding
anything to the contrary herein, neither the Indenture Trustee, in its
individual capacity, nor any of its affiliates may bid for or purchase any
Foreclosed Property pursuant hereto.
(b) In determining whether any bid constitutes a fair price for any
Foreclosed Property or to effectuate the payment of a claim under the
Contract of Insurance, the Master Servicer shall take into account, and any
appraiser or other expert in real estate matters shall be instructed to take
into account, as applicable, among other factors, the financial standing of
any tenant of the Foreclosed Property, the physical condition of the
Foreclosed Property, the state of the local and national economies and, with
respect to the FHA Loans which are Mortgage Loans, the Trust's obligation to
dispose of any Foreclosed Property within the time period specified in
Section 4.12(d).
(c) Subject to the provision of Section 4.12, the Master Servicer shall
act on behalf of the Indenture Trustee in negotiating and taking any other
action necessary or appropriate in connection with the sale of any Foreclosed
Property, including the collection of all amounts payable in connection
therewith. Any sale of a Foreclosed Property shall be without recourse to
the Indenture Trustee, the Master Servicer or the Trust, and if consummated
in accordance with the terms of this Agreement, neither the Master Servicer
nor the Indenture Trustee shall have any liability to any Securityholder with
respect to the purchase price therefor accepted by the Master Servicer or the
Indenture Trustee.
Section 4.14. Management of Real Estate Owned.
-------------------------------
(a) If the Trust acquires any Foreclosed Property pursuant to Section
4.12, the Master Servicer shall have full power and authority, subject only
to the specific requirements and prohibitions of this Agreement, to do any
and all things in connection therewith as are consistent with the manner in
which the Master Servicer manages and operates similar property owned by the
Master Servicer or any of its affiliates, all on such terms and for such
period as the Master Servicer deems to be in the best interests of
Securityholders.
(b) The Master Servicer may contract with any Independent Contractor
for the operation and management of any Foreclosed Property, provided
--------
that:
(i) the terms and conditions of any such contract may not be
inconsistent herewith;
(ii) any such contract shall require, or shall be administered
to require, that the Independent Contractor remit all related Payments
to the Master Servicer as soon as practicable, but in no event later
than two Business Days following the receipt thereof by such Independent
Contractor;
(iii) none of the provisions of this Section 4.14(b) relating
to any such contract or to actions taken through any such Independent
Contractor shall be deemed to relieve the Master Servicer of any of its
duties and obligations to the Indenture Trustee for the benefit of
Securityholders with respect to the operation and management of any such
Foreclosed Property; and
(iv) the Master Servicer shall be obligated with respect
thereto to the same extent as if it alone were performing all duties and
obligations in connection with the operation and management of such
Foreclosed Property.
The Master Servicer shall be entitled to enter into any agreement with any
Independent Contractor performing services for it related to its duties and
obligations hereunder for indemnification of the Master Servicer by such
Independent Contractor, and nothing in this Agreement shall be deemed to
limit or modify such indemnification. The Master Servicer shall be solely
liable for all fees owed by it to any such Independent Contractor, but shall
be entitled to be reimbursed for all such fees advanced by it pursuant to
Section 4.08(b)(v) in the manner provided in Section 4.09(b).
Section 4.15. Inspections.
-----------
The Master Servicer shall inspect or cause to be inspected each Property
that secures any Home Loan at such times and in such manner as are consistent
with the servicing standard set forth in Section 4.01.
Section 4.16. Maintenance of Insurance.
------------------------
(a) The Master Servicer shall maintain or cause to be maintained with
respect to each Property securing an FHA Loan such insurance as is required
with respect thereto by Title I. The Master Servicer shall cause to be
maintained for each Foreclosed Property acquired by the Trust such types and
amounts of insurance coverage as the Master Servicer shall deem reasonable.
The Master Servicer shall cause to be maintained for each Non-FHA Loan, fire
and hazard insurance naming Mego as loss payee thereunder providing extended
coverage in an amount which is at least equal to the least of (i) the maximum
insurable value of the improvements securing such Non-FHA Loan from time to
time, (ii) the combined principal balance owing on such Non-FHA Loan and any
mortgage loan senior to such Non-FHA Loan and (iii) the minimum amount
required to compensate for damage or loss on a replacement cost basis. In
cases in which any Property securing a Non-FHA Loan is located in a federally
designated flood area, the hazard insurance to be maintained for the related
Loan shall include flood insurance to the extent such flood insurance is
available and the Master Servicer has determined such insurance to be
necessary in accordance with accepted mortgage loan servicing standards for
mortgage loans similar to the Mortgage Loans. All such flood insurance shall
be in amounts equal to the least of (A) the maximum insurable value of the
improvement securing such Non-FHA Loan, (B) the combined principal balance
owing on such Non-FHA Loan and any mortgage loan senior to such Non-FHA Loan
and (c) the maximum amount of insurance available to the lender under the
National Flood Insurance Act of 1968, as amended.
(b) Any amounts collected by the Master Servicer under any Insurance
Policies, shall be paid over or applied by the Master Servicer as follows:
(i) In the case of amounts received in respect of any Home
Loan:
(A) for the restoration or repair of the affected Property,
in which event such amounts shall be released to the Obligor in
accordance with the terms of the related Debt Instrument or to the
extent not so used, or
(B) in reduction of the Principal Balance of the related Home
Loan, in which event such amounts shall be credited to the related
Servicing Record,
unless the related instruments require a different application, in which case
such amounts shall be applied in the manner provided therein; and
(ii) Subject to Section 4.14, in the case of amounts received
in respect of any Foreclosed Property, for the restoration or repair of
such Foreclosed Property, unless the Master Servicer determines,
consistent with the servicing standard set forth in Section 4.01, that
such restoration or repair is not in the best economic interest of the
Trust, in which event such amounts shall be credited, as of the date of
receipt, to the applicable Servicing Record, as a Payment received from
the operation of such Foreclosed Property.
Section 4.17. Release of Files.
----------------
(a) If with respect to any Home Loan:
(i) the outstanding Principal Balance of such Home Loan plus
all interest accrued thereon shall have been paid;
(ii) the Master Servicer, or the Servicer shall have received,
in escrow, payment in full of such Home Loan in a manner customary for
such purposes;
(iii) such Home Loan has become a Defective Loan and has been
repurchased or a Qualified Substitute Home Loan has been conveyed to the
Trust pursuant to Section 3.05;
(iv) such Home Loan or the related Foreclosed Property has
been sold in connection with the termination of the Trust pursuant to
Section 11.01;
(v) the FHA has paid a claim with respect to such Home Loan
that is an FHA Loan under the Contract of Insurance; or
(vi) the related Foreclosed Property has been sold pursuant to
Section 4.13.
In each such case, the Servicer shall deliver a certificate to the effect
that the Servicer has complied with all of its obligations under the
Servicing Agreement with respect to such Home Loan and requesting that the
Indenture Trustee release to the Servicer the related Home Loan File, then
the Indenture Trustee shall, within three Business Days or such shorter
period as may be required by applicable law, release, or cause the Custodian
to release (unless such Home Loan File has previously been released), the
related Home Loan File to the Servicer and execute and deliver such
instruments of transfer or assignment, in each case without recourse, as
shall be necessary to vest ownership of such Home Loan in the Servicer or
such other Person as may be specified in such certificate, the forms of any
such instrument to be appended to such certificate.
(b) From time to time and as appropriate for the servicing or
foreclosure of any Home Loan or to effectuate the payment of a claim under
the Contract of Insurance, the Indenture Trustee shall, upon request of the
Servicer, release the related File (or any requested portion thereof) to the
Servicer. Such receipt shall obligate the Servicer, to return the File (or
such portion thereof) to the Indenture Trustee when the need therefor by the
Servicer, no longer exists unless any of the conditions specified in
subsection (a) above, is satisfied prior thereto. The Indenture Trustee
shall release such receipt to the Servicer (i) upon the Servicer's return of
the Servicer's Home Loan File (or such portion thereof) to the Indenture
Trustee or (ii) if any of the conditions specified in subsection (a) has been
satisfied, and the Servicer has not yet returned the Servicer's Home Loan
File (or such portion thereof) to the Indenture Trustee, upon receipt of a
certificate certifying that any of such condition has been satisfied.
Section 4.18. Filing of Continuation Statements.
---------------------------------
On or before the fifth anniversary of the filing of any financing
statements by Mego and the Depositor, respectively, with respect to the
assets conveyed to the Trust, Mego and the Depositor shall prepare, have
executed by the necessary parties and file in the proper jurisdictions all
financing and continuation statements necessary to maintain the liens,
security interests, and priorities of such liens and security interests that
have been granted by Mego and the Depositor, respectively, and Mego and the
Depositor shall continue to file on or before each fifth anniversary of the
filing of any financing and continuation statements such additional financing
and continuation statements until the Trust has terminated pursuant to
Section 9.1 of the Trust Agreement. The Indenture Trustee
agrees to cooperate with Mego and the Depositor in preparing, executing and
filing such statements. The Indenture Trustee agrees to notify Mego and the
Depositor on the third Distribution Date prior to each such fifth anniversary
of the requirement to file such financing and continuation statements. The
filing of any such statement with respect to Mego and the Depositor shall not
be construed as any indication of an intent of any party contrary to the
expressed intent set forth in Section 2.04 hereof. If Mego or the Depositor
has ceased to do business whenever any such financing and continuation
statements must be filed or Mego or the Depositor fails to file any such
financing statements or continuation statements at least one month prior to
the expiration thereof, the Indenture Trustee shall perform the services
required under this Section 4.18.
Section 4.19. Fidelity Bond.
-------------
The Master Servicer shall maintain a fidelity bond in such form and
amount as is customary for entities acting as custodian of funds and
documents in respect of loans on behalf of institutional investors.
Section 4.20. Errors and Omissions Insurance.
------------------------------
The Master Servicer shall obtain and maintain at all times during the
term of this Agreement errors and omissions insurance coverage covering the
Master Servicer and its employees issued by a responsible insurance company.
The issuer, policy terms and forms and amounts of coverage, including
applicable deductibles, shall be reasonably satisfactory to the Securities
Insurer and shall be in such form and amount as is customary for entities
acting as master servicers. The Master Servicer agrees to notify the
Securities Insurer in writing within five (5) days of the Master Servicer's
receipt of notice of the cancellation or termination of any such errors and
omissions insurance coverage. The Master Servicer shall provide to the
Securities Insurer upon request written evidence of such insurance coverage.
ARTICLE V.
ESTABLISHMENT OF TRUST ACCOUNTS
-------------------------------
Section 5.01 Collection Account and Note Distribution Account.
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(a) (1) Establishment of Collection Account. The Indenture Trustee
-----------------------------------
has heretofore established or caused to be established and shall hereafter
maintain or cause to be maintained a separate account denominated a
Collection Account, which in each case is and shall continue to be an
Eligible Account in the name of the Indenture Trustee and shall be designated
"First Trust of New York, National Association, as Indenture Trustee in trust
for Mego Mortgage Home Loan Asset Backed Securities, Series 1997-1,
Collection Account." The Master Servicer shall cause all Payments to be
deposited by the Servicer in the Collection Account no later than the second
Business Day following the date of receipt thereof by the Servicer. The
Indenture Trustee shall provide to the Master Servicer and the Servicer a
monthly statement of all activity in the Collection Account. Funds in the
Collection Account shall be invested in accordance with Section 5.04.
(2) Establishment of Note Distribution Account. The Indenture
------------------------------------------
Trustee has heretofore established with itself in its trust capacity at its
corporate trust department for the benefit of Securityholders and the
Securities Insurer an account referred to herein as a Note Distribution
Account. The Indenture Trustee shall at all times maintain the Note
Distribution Account as an Eligible Account and shall cause such account to
be designated "First Trust of New York, National Association, as Indenture
Trustee in trust for Mego Mortgage Home Loan Asset Backed Securities, Series
1997-1 Note Distribution Account."
(3) FHA Reserve Fund. The Indenture Trustee has heretofore
----------------
established or caused to be established and shall hereafter maintain or cause
to be maintained a separate account denominated a FHA Reserve Fund, in the
name of the Indenture Trustee and shall be designated "First Trust of New
York, National Association, as Indenture Trustee of the Mego Mortgage Trusts,
FHA Reserve Fund." The Indenture Trustee shall deposit all amounts required
to be deposited therein pursuant to Section 5.01(c)(x). Amounts on deposit
therein shall be withdrawn by the Indenture Trustee at the direction of the
Securities Insurer and paid or deposited to either the Note Distribution
Account, the distribution account of a Related Series or the holders of the
Residual Interest Instrument. Amounts on deposit in the FHA Reserve Fund
shall be invested in accordance with Section 5.04.
------------
(4) FHA Premium Account. The Indenture Trustee has heretofore
-------------------
established with itself in its trust capacity at its corporate trust
department a segregated trust account referred to herein as
the "FHA Premium Account" for the benefit of the Securityholders and the
Securities Insurer. The Indenture Trustee shall at all times maintain the
FHA Premium Account as an Eligible Account and shall cause such accounts to
be designated as "First Trust of New York, National Association, as Indenture
Trustee for Mego Mortgage Home Loan Asset Backed Securities, Series 1997-1".
No later than the second Business Day preceding each Distribution Date, all
amounts on deposit in the Note Distribution Account and Collection Account
representing payments by Obligors on Invoiced Loans in respect of premium on
FHA Insurance shall be withdrawn by the Indenture Trustee and deposited to
the FHA Premium Account. Any and all moneys transferred to the FHA Premium
Account pursuant to this Section 5.01(a)(4) shall be held by the Indenture
Trustee in the FHA Premium Account subject to disbursement and withdrawal as
herein provided. Amounts deposited to an FHA Premium Account shall be
invested in accordance with Section 5.04. Amounts on deposit in an FHA
Premium Account shall be withdrawn by the Indenture Trustee, in the amounts
required, for application as follows:
(i) to payment to the FHA of any premiums due on the Contract
of Insurance in respect of FHA Loans, in such amounts and on such dates
as directed by the Master Servicer or Mego; the Indenture Trustee shall
apply all amounts on deposit in the related FHA Premium Account to
payment to the FHA of any premiums due under the Contract of Insurance
as invoiced by FHA and, if, in connection with an FHA Loan, the FHA
Insurance with respect to which shall not yet have been transferred to
the Contract of Insurance, Mego instructs the Indenture Trustee to pay
FHA insurance with respect to such FHA Loan to the related contract of
insurance holder, the Indenture Trustee shall make such payment, and
Mego and not the Indenture Trustee shall be liable in the event of the
failure of such funds to be applied to payment of the premium with
respect to such FHA Loan; and
(ii) on the Business Day preceding a Distribution Date that is
also the Termination Date, the Indenture Trustee shall withdraw from
each FHA Premium Account and deposit in the Note Distribution Account
all amounts then on deposit in the FHA Premium Account, whereupon the
FHA Premium Account shall terminate.
(b) Withdrawals from Collection Account. No later than the second
-----------------------------------
Business Day preceding each Distribution Date, the Indenture Trustee shall
withdraw amounts from the Collection Account representing the Payments with
respect to such Distribution Date and deposit such amounts into the Note
Distribution Account and liquidate the Eligible Investments in which such
amounts are invested and distribute all net investment earnings to the
Servicer.
(c) Withdrawals from Note Distribution Account. On each
------------------------------------------
Distribution Date, the Indenture Trustee shall liquidate the Eligible
Investments in which amounts on deposit in the Note Distribution Account are
invested and distribute all net investment earnings to Mego and, to the
extent funds are available in the Note Distribution Account, the Indenture
Trustee (based on the information contained in the Master Servicer
Certificate for such Distribution Date) shall make the following withdrawals
from the Note Distribution Account by 10:00 a.m. (New York City time) on such
Distribution Date, in the following order of priority:
(i) to distribute on such Distribution Date the following
amounts pursuant to the Indenture, from the Collected Amount, in the
following order:
(a) for deposit in the FHA Premium Account, the FHA
Premium Account Deposit for such Distribution Date;
(b) concurrently, to (x) the Master Servicer, the Master
Servicer Fee, (y) the Servicer, the Servicer Fee, and (z) to the
Indenture Trustee, the Indenture Trustee Fee, in each case for such
Distribution Date.
(c) to the Master Servicer or Servicer, any amount in
respect of reimbursement of Interest Advances or Foreclosure
Advances, to which the Master Servicer or any Servicer is entitled
pursuant to Section 4.09 with respect to such Distribution Date and
to the Claims Administrator, amounts in reimbursement of any
expenses, of filing of any FHA Insurance claim pursuant to Section
4.12(g);
(d) to the Owner Trustee, the Owner Trustee Fee, for
such Distribution Date;
(e) beginning with the April 1997 Distribution Date, to
the Securities Insurer, the Premium for such Distribution Date;
(ii) to the holders of each Class of Notes, from the Amount
Available remaining after the application of clause (i), an amount equal
to the applicable Noteholders' Interest Distributable Amount for such
Distribution Date;
(iii) to the holders of each Class of Notes, subject to Section
5.01(e) below, from the Collected Amount remaining after the application
of clauses (i) through (ii) above, the Noteholders' Principal
Distributable Amount (other than the portion constituting Distributable
Excess Spread) for such Distribution Date; provided, however, with respect
to any Distribution Date as to which (a) the Required OC Amount has been
reduced below the Overcollateralization Amount or (b) a full distribution
pursuant to this Section 5.01(c)(iii) would cause the
Overcollateralization
Amount to exceed the Required OC Amount, the amounts to be distributed
pursuant to this Section 5.01(c)(iii) shall be reduced by the amount of
such reduction in the case of clause (a) above and the amount of such
excess in the case of (b) above.
(iv) deposit into the Certificate Distribution Account, for
distribution pursuant to Section 5.03(b) on such Distribution Date,
---------------
from the Amount Available remaining after the application of clauses (i)
through (iii) above, the Class S Interest Distribution for such
Distribution Date;
(v) to the Securities Insurer, from the Collected Amount
after application of clauses (i) through (iv) above, the Securities
Insurer Reimbursement Amount;
(vi) to the holders of each Class of Notes, subject to Section
5.01(e) below, from the Collected Amount after application of clauses
(i) through (v) above, the Distributable Excess Spread for such
Distribution Date;
(vii) to the holders of each Class of Notes, subject to
Section 5.01(e) below, from the Amount Available after application of
clauses (i) through (vi) above, the Noteholders' Guaranteed Principal
Distribution Amount, if any, for such Distribution Date;
(viii) to the Securities Insurer, from the Collected Amount
after application of clauses (i) through (vii) above, any other amounts
owing to the Securities Insurer under the Insurance Agreement;
(ix) to any successor Master Servicer, if any, for such
Distribution Date, from the Collected Amount after application of
clauses (i) through (viii), amounts payable in accordance with Section
10.03(c) in addition to the Master Servicer Fee;
(x) to the FHA Reserve Fund, from the Collected Amount after
application of clauses (i) through (ix), any unpaid Excess Claim Amount;
(xi) to the Person entitled thereto, payments in respect of
Other Fees, from the Collected Amount after application of clauses (i)
through (x); and
(xii) deposit into the Certificate Distribution Account, for
distribution pursuant to Section 5.03(b) on such Distribution Date
---------------
to the holders of the Residual Interest Instrument, any remaining
Collected Amount after application of clauses (i) through (xi) above.
(d) Additional Withdrawals from Collection Account. On the third
----------------------------------------------
Business Day prior to each Distribution Date, the Indenture Trustee, at the
direction of the Master Servicer shall also make the following withdrawals
from the Collection Account, in no particular order of priority:
(i) to withdraw any amount not required to be deposited in
the Collection Account or deposited therein in error; and
(ii) to clear and terminate the Collection Account in
connection with the termination of this Agreement.
(e) As to each Distribution Date, any shortfall in the amount of
interest required to be distributed pursuant to Section 5.01(c)(ii) above,
shall be allocated among each Class of Notes, in proportion to the amount
each such Class would have been entitled to receive in the absence of such
shortfall. As to each Distribution Date, distributions pursuant to Section
5.01(c)(iii), (v) and (vi) shall be made to the Class of Notes as follows:
(i) prior to the occurrence and continuance of a Securities
Insurer Default, sequentially, to the holders of the Class A-1 Notes,
Class A-2 Notes, Class A-3 Notes and Class A-4 Notes, in that order,
until their respective Class Principal Balances have been reduced to
zero; and
(ii) upon the occurrence and continuance of a Securities
Insurer Default and upon the first reduction of the Overcollateraliza-
tion Amount thereafter to zero, concurrently, to the holders of each
Class of Notes then outstanding, pro rata, based upon their respective
Class Principal Balances immediately prior to such Distribution Date.
(f) All distributions made on each Class of Notes on each Distribution
Date will be made on a pro rata basis among the Noteholders of such Class of
record on the preceding Record Date based on the Percentage Interest
represented by their respective Notes, and except as otherwise provided in
the next succeeding sentence, shall be made by wire transfer of immediately
available funds to the account of such Noteholder, if such Noteholder shall
own of record Notes representing at least a $1,000,000 Denomination and shall
have so notified the Indenture Trustee, and otherwise by check mailed, via
first class mail, postage prepaid, to the address of such Noteholder appearing
in the Note Register. Notwithstanding anything to the contrary contained
herein, for purposes of the March 1997 Distribution Date, the holder of
record of all the Notes shall be Greenwich Capital Markets, Inc. The final
distribution on each Note will be made in like manner, but only upon
presentment and surrender of such Note at the location specified in the notice
to Noteholders of such final distribution.
Whenever the Indenture Trustee, based on a Master Servicer Certificate,
expects that the final distribution with respect to a Class of Securities
will be made on the next Distribution Date, the Indenture Trustee shall, as
soon as practicable, mail to each Holder of such Class of Securities as of
the applicable Record Date a notice to the effect that:
(i) the Indenture Trustee expects that the final distribution
with respect to such Class of Securities will be made on such
Distribution Date, and
(ii) no interest shall accrue on such Class of Securities
after such Distribution Date provided that the final distribution
-------- ----
occurs on such Distribution Date.
Section 5.02 Claims Under Guaranty Policy.
----------------------------
(a) The Insured Securities will be insured by the Guaranty Policy
pursuant to the terms set forth therein, notwithstanding any provisions to
the contrary contained in the Indenture or this Agreement. All amounts
received under the Guaranty Policy shall be used solely for the payment to
Securityholders of principal and interest on the Notes and interest on the
Certificates.
(b) (i) On the Determination Date preceding each Distribution Date,
the Indenture Trustee shall determine if a Deficiency Amount exists with
respect to each Class of Insured Securities. If a Deficiency Amount does
exist with respect to a Class of Insured Securities, the Indenture Trustee
shall promptly, but in no event later than 12:00 noon New York City time on
the second Business Day preceding the related Distribution Date, make a claim
under the Guaranty Policy for such Class in accordance with its terms.
(b) (ii) On any date on which the Indenture Trustee receives written
notice from the Holder of a Class of Insured Securities that a Preference
Amount is payable pursuant to the terms of the Guaranty Policy, the Indenture
Trustee shall make a claim for the payment of such Preference Amount and
shall deliver the documents required to be delivered under the Guaranty
Policy to the Securities Insurer with respect thereto in the manner set forth
in the Guaranty Policy.
(c) The Securities Insurer is entitled to the benefit of the following
provisions in the event that an Insured Payment has been made.
Notwithstanding any other provision hereof:
(i) The Indenture Trustee (i) shall receive as attorney-in-
fact of each Securityholder with respect to which a Deficiency Amount
has been determined to exist any Insured Payment from the Securities
Insurer and (ii) shall immediately apply all moneys constituting an
Insured Payment to the payment to Securityholders of principal and
interest on the Notes and Certificates, as applicable, by depositing
such amounts in the Note Distribution Account for Insured Payments
payable on the related Class of Notes or in the Certificate Distribution
Account for Insured Payments payable on the Certificates. All amounts
received under the Guaranty Policy shall be used solely for the payment
to Securityholders of principal and interest on Notes and the
Certificates, as applicable. The Securities Insurer's obligations under
the Guaranty Policy with respect to a particular Insured Payment shall
be discharged to the extent funds equal to the applicable Insured
Payment are received by the Indenture Trustee, whether or not such funds
are properly applied by the Indenture Trustee, the Owner Trustee or Co-
Owner Trustee. The parties hereto recognize that the making of an
Insured Payment does not relieve any of the parties hereto of any
obligation hereunder or under any of the Transaction Documents.
(ii) The parties hereto recognize that, to the extent that the
Securities Insurer makes payments, directly or indirectly, on account of
principal of or interest on the Insured Securities, as applicable, the
Securities Insurer shall be subrogated to the rights of the
Securityholders to receive distributions of principal and interest in
accordance with the terms hereof.
(iii) To the extent the Securities Insurer is owed any
Securities Insurer Reimbursement Amount (including without limitation
any unreimbursed Insured Payments made under the Guaranty Policy plus
interest accrued thereon as provided in the Insurance Agreement), the
Securities Insurer shall be entitled to distributions pursuant to
Section 5.01(c), and the Indenture Trustee shall otherwise treat the
---------------
Securities Insurer as the owner of such rights to distributions of any
Reimbursement Amount.
(iv) The Securities Insurer shall have the right to institute
any suit, action or proceeding at law or in equity under the same terms
as a Securityholder may institute any action.
(d) The Indenture Trustee, as the holder of the Guaranty Policy
providing for the guaranty of the Insured Securities, hereby agrees that with
respect to the Certificates, the Indenture Trustee shall make claims under
the Guaranty Policy at the direction or upon the request of the Owner Trustee
or Co-Owner Trustee to receive Insured Payments distributable to the Class S
Certificateholders as part of the Class S Interest Distribution under this
Agreement.
Section 5.03 Certificate Distribution Account.
--------------------------------
(a) Establishment. No later than the Closing Date, the Indenture
-------------
Trustee, for the benefit of the Securityholders and the Securities Insurer,
will establish and maintain with Indenture Trustee for the benefit of the
Owner Trustee on behalf of the Certificateholders and the Securities Insurer
one or more separate Eligible Accounts, which while the Indenture Trustee
holds such Trust Account shall be entitled "CERTIFICATE DISTRIBUTION ACCOUNT,
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION, AS CO-OWNER TRUSTEE, in trust
for the Mego Mortgage Home Loan Asset Backed Securities, Series 1997-1".
Funds in the Certificate Distribution Account shall be invested in accordance
with Section 5.04.
------------
(b) Distributions. On each Distribution Date, the Indenture Trustee
-------------
shall withdraw from the Note Distribution Account all amounts required to be
deposited in the Certificate Distribution Account with respect to the
preceding Due Period pursuant to Section 5.01(c) and will remit such
---------------
amount to the Owner Trustee or the Co-Owner Trustee for deposit into the
Certificate Distribution Account. On each Distribution Date, the Owner
Trustee or the Co-Owner Trustee shall distribute all amounts on deposit in
the Certificate Distribution Account to the extent of amounts due and unpaid
on the Certificates and to the other parties specified below in the amounts
and in the following order of priority:
(i) to the Certificateholders, the Class S Interest
Distribution; provided, that if there are not sufficient funds in the
Certificate Distribution Account to pay the entire amount of accrued and
unpaid interest then due on the Certificates, the amount in the
Certificate Distribution Account shall be applied to the payment of such
interest on the Certificates pro rata on the basis of the total such
interest due on the Certificates; and
(ii) to the holders of the Residual Interest Instruments, from
any remaining amounts in the Certificate Distribution Account after the
distributions pursuant to item (i) above, any remaining amounts.
(c) All distributions made on the Certificates on each Distribution
Date will be made on a pro rata basis among the Certificateholders of record
on the preceding Record Date based on the Percentage Interest represented by
their respective Certificates, and except as otherwise provided in the next
succeeding sentence, shall be made by wire transfer of immediately available
funds to the account of such Certificateholder, if such Certificateholder
shall own of record Certificates representing at least a 30% Percentage
Interest and shall have so notified the Owner Trustee and Co-Owner Trustee,
and otherwise by check mailed, via first class mail, postage prepaid, to the
address of such Certificateholder appearing in the Certificate Register.
Notwithstanding anything to the contrary contained herein, for purposes of
the March 1997 Distribution Date, the Certificateholder of record shall be
Greenwich Capital Markets, Inc. The final distribution on each Certificate
will be made in like manner, but only upon presentment and surrender of such
Certificate at the location specified in the notice to Certificateholders of
such final distribution.
(d) All distributions made on the Residual Interest Instruments on each
Distribution Date will be made on a pro rata basis among the Residual
Interest Instruments holders of record on the next preceding Record Date
based on the Percentage Interest represented by their respective Residual
Interest Instruments, and except as otherwise provided in the next succeeding
sentence, shall be made by wire transfer of immediately available funds to
the account of such Residual Interest Instruments holder, if such Residual
Interest Instruments Holder shall own of record Residual Interest Instruments
representing at least a 30% Percentage Interest and shall have so notified
the Owner Trustee or Co-Owner Trustee, and otherwise by check mailed, via
first class mail, postage prepaid, to the address of such Residual Interest
Instruments Holder appearing in the Certificate Register. The final
distribution on each Residual Interest Instruments will be made in like
manner, but only upon presentment and surrender of such Residual Interest
Instruments at the location specified in the notice to holders of the
Residual Interest Instruments of such final distribution.
Section 5.04 Trust Accounts; Trust Account Property.
--------------------------------------
(a) Control of Trust Accounts. Each of the Trust Accounts
-------------------------
established hereunder has been pledged by the Issuer to the Indenture Trustee
under the Indenture and shall be subject to the lien of the Indenture. In
addition to the provisions hereunder, each of the Trust Accounts shall also
be established and maintained pursuant to the Indenture. Amounts distributed
from each Trust Account in accordance with the Indenture and this Agreement
shall be released from the lien of the Indenture upon such distribution
thereunder or hereunder. The Indenture Trustee shall possess all right,
title and interest in all funds on deposit from time to time in the Trust
Accounts (other than the Certificate Distribution Account) and in all
proceeds thereof and all such funds, investments, proceeds shall be part of
the Trust Account Property and the Trust Estate. If, at any time, any Trust
Account ceases to be an Eligible Account, the Indenture Trustee (or the
Master Servicer on its behalf) shall within 10 Business Days (or such longer
period, not to exceed 30 calendar days, as to which each Rating Agency may
consent) (i) establish a new Trust Account as an Eligible Account,
(ii) terminate the ineligible Trust Account, and (iii) transfer any cash and
investments from such ineligible Trust Account to such new Trust Account.
With respect to the Trust Accounts (other than the Certificate
Distribution Account), the Indenture Trustee agrees, by its acceptance
hereof, that each such Trust Account shall be subject to the sole and
exclusive custody and control of the Indenture Trustee for the benefit of the
Securityholders, the Securities Insurer and the Issuer, as the case may be,
and the Indenture Trustee shall have sole signature and withdrawal authority
with respect thereto.
In addition to this Agreement and the Indenture, the Certificate
Distribution Account established hereunder also shall be subject to and
established and maintained in accordance with the Trust Agreement. Subject
to rights of the Indenture Trustee hereunder and under the Indenture, the
Owner Trustee and the Co-Owner Trustee shall possess all right, title and
interest for the benefit of the Securityholders and the Securities Insurer in
all funds on deposit from time to time in the Certificate Distribution
Account and in all proceeds thereof (including all income thereon) and all
such funds, investments, proceeds and income shall be part of the Trust
Account Property and the Trust Estate. Subject to the rights of the
Indenture Trustee, the Owner Trustee and Co-Owner Trustee agree, by its
acceptance hereof, that such Certificate Distribution Account shall be
subject to the sole and exclusive custody and control of the Owner Trustee or
Co-Owner Trustee for the benefit of the Issuer and the parties entitled to
distributions therefrom, including without limitation, the Certificateholders
and Securities Insurer, and the Owner Trustee and the Co-Owner Trustee shall
have sole signature and withdrawal authority with respect to the Certificate
Distribution Account. Notwithstanding the preceding, the distribution of
amounts from the Certificate Distribution Account in accordance with
Section 5.03(b) also shall be made for the benefit of the Indenture
- ---------------
Trustee (including without limitation as the named insured under the Guaranty
Policy on behalf of all Securityholders, and with respect to its duties under
the Indenture and this Agreement relating to the Trust Estate), and the
Indenture Trustee (in its capacity as Indenture Trustee) shall have the
right, but not the obligation to take custody and control of the Certificate
Distribution Account and to cause the distribution of amounts therefrom in
the event that the Owner Trustee or Co-Owner Trustee fails to distribute such
amounts in accordance with Section 5.03(b).
---------------
The Master Servicer shall have the power, revocable by the Indenture
Trustee or by the Owner Trustee or Co-Owner Trustee with the consent of the
Indenture Trustee, to instruct the Indenture Trustee, Co-Owner Trustee or
Owner Trustee to make withdrawals and payments from the Trust Accounts for
the purpose of permitting the Master Servicer to carry out its respective
duties hereunder or permitting the Indenture Trustee or Owner Trustee to
carry out its duties herein or under the Indenture or the Trust Agreement, as
applicable.
(b) (1) Investment of Funds. The funds held in any Trust Account
-------------------
may only be invested (to the extent practicable and consistent with any
requirements of the Code) in Permitted Investments, as directed by a
Responsible Officer of Mego in writing. In any case, funds in any Trust
Account must be available for withdrawal without penalty, and any Permitted
Investments and the funds held in any Trust Account, other than the Note
Distribution Account, must mature or otherwise be available for withdrawal,
not later than three (3) Business Days immediately preceding the Distribution
Date next following the date of such investment and shall not be sold or
disposed of prior to its maturity subject to Section 5.04(b)(2) below.
------------------
Amounts deposited to the Note Distribution Account pursuant to Section 5.01(b)
prior to each Distribution Date shall be invested in Eligible Investments
which are overnight investments from the date of deposit to the Business Day
preceding each Distribution Date. All interest and any other investment
earnings on amounts or investments held in any Trust Account shall be
deposited into such Trust Account immediately upon receipt by the Indenture
Trustee, or in the case of the Certificate Distribution Account, the Owner
Trustee or Co-Owner Trustee, as applicable. All Permitted Investments in
which funds in any Trust Account (other than the Certificate Distribution
Account) are invested must be held by or registered in the name of "FIRST
TRUST OF NEW YORK, NATIONAL ASSOCIATION, AS INDENTURE TRUSTEE, in trust for
the Mego Mortgage Home Loan Asset Backed Securities, Series 1997-1".
While the Co-Owner Trustee holds the Certificate Distribution Account, all
Permitted Investments in which funds in the Certificate Distribution Account
are invested shall be held by or registered in the name of "FIRST TRUST OF
NEW YORK, NATIONAL ASSOCIATION, AS CO-OWNER TRUSTEE, in trust for the Mego
Mortgage Home Loan Asset Backed Securities, Series 1997-1".
(b) (2) Insufficiency and Losses in Trust Accounts. If any amounts
------------------------------------------
are needed for disbursement from any Trust Account held by or on behalf of
the Indenture Trustee and sufficient uninvested funds are not available to
make such disbursement, the Indenture Trustee, or Owner Trustee or Co-Owner
Trustee in the case of the Certificate Distribution Account, shall cause to
be sold or otherwise converted to cash a sufficient amount of the investments
in such Trust Account. The Indenture Trustee, or Owner Trustee or Co-Owner
Trustee in the case of the Certificate Distribution Account, shall not be
liable for any investment loss or other charge resulting therefrom, unless
such loss or charge is caused by the failure of the Indenture Trustee or
Owner Trustee or Co-Owner Trustee, respectively, to perform in accordance
with this Section 5.04.
------------
If any losses are realized in connection with any investment in any
Trust Account pursuant to this Agreement and the Indenture, then Mego shall
deposit the amount of such losses (to the extent not offset by income from
other investments in such Trust Account) in such Trust Account immediately
upon the realization of such loss. All interest and any other investment
earnings on amounts held in any Trust Account shall be taxed to the Issuer
and for federal and state income tax purposes the Issuer shall be deemed to
be the owner of each Trust Account.
(c) Subject to Section 6.1 of the Indenture, the Indenture Trustee
shall not in any way be held liable by reason of any insufficiency in any
Trust Account held by the Indenture Trustee resulting from any investment
loss on any Permitted Investment included therein (except to the extent that
the Indenture Trustee is the obligor and has defaulted thereon).
(d) With respect to the Trust Account Property, the Indenture Trustee
acknowledges and agrees that:
(1) any Trust Account Property that is held in deposit accounts
shall be held solely in the Eligible Accounts; and each such Eligible
Account shall be subject to the exclusive custody and control of the
Indenture Trustee, and the Indenture Trustee shall have sole signature
authority with respect thereto;
(2) any Trust Account Property that constitutes Physical Property
shall be delivered to the Indenture Trustee in accordance with paragraph
(a) of the definition of "Delivery" and shall be held, pending maturity
or disposition, solely by the Indenture Trustee or a financial
intermediary (as such term is defined in Section 8-313(4) of the UCC)
acting solely for the Indenture Trustee;
(3) any Trust Account Property that is a book-entry security held
through the Federal Reserve System pursuant to federal book-entry
regulations shall be delivered in accordance with paragraph (b) of the
definition of "Delivery" and shall be maintained by the Indenture
Trustee, pending maturity or disposition, through continued book-entry
registration of such Trust Account Property as described in such
paragraph; and
(4) any Trust Account Property that is an "uncertificated
security" under Article VIII of the UCC and that is not governed by
clause (3) above shall be delivered to the Indenture Trustee in
accordance with paragraph (c) of the definition of "Delivery" and shall
be maintained by the Indenture Trustee, pending maturity or disposition,
through continued registration of the Indenture Trustee's (or its
nominee's) ownership of such security.
ARTICLE VI.
STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS
----------------------------------------------------
Section 6.01 Master Servicing Certificate. On each Determination
----------------------------
Date, the Master Servicer shall deliver to the Indenture Trustee, the Owner
Trustee, Co-Owner Trustee and the Securities Insurer, a certificate
containing the items described in Exhibit B hereto (each, a "Master Servicer
Certificate"), prepared as of the related Determination Date and executed by
a Master Servicing Officer. No later than the Business Day following each
Determination Date, the Master Servicer shall deliver to the Indenture
Trustee and the Securities Insurer, in a format consistent with other
electronic loan level reporting supplied by the Master Servicer in connection
with similar transactions, "loan level" information with respect to the Home
Loans as of the related Determination Date, to the extent that such
information has been provided to the Master Servicer by the Servicer. The
Master Servicer shall revise any Master Servicer Certificate to take into
account any payments of which the Master Servicer is notified made by the
Indenture Trustee to FHA after the related Determination Date and before the
related Distribution Date as provided in Section 4.12(e). The Indenture
Trustee may rely on the Master Servicer Certificate with respect to the
matters set forth therein.
Section 6.02 Statement to Securityholders. On or before the third
----------------------------
Business Day following each Distribution Date, the Indenture Trustee shall
mail: to each Holder of a Security (with a copy to the Securities Insurer and
the Rating Agency) at its address shown on the Certificate Register or Note
Register, as applicable, a statement, based on information set forth in the
Master Servicer Certificate for such Distribution Date, substantially in the
form of Statement to Securityholders attached hereto as Exhibit C,
respectively, together with a copy of such related Master Servicer
Certificate;
ARTICLE VII.
CONCERNING THE CONTRACT OF INSURANCE HOLDER
Section 7.01 Compliance with Title I and Filing of FHA Claims.
------------------------------------------------
(a) The Contract of Insurance Holder shall at all times while any
Securities are outstanding have a valid Contract of Insurance with the FHA
covering the FHA Loans. To the extent applicable to the duties of the
Contract of Insurance Holder hereunder, the Contract of Insurance Holder
shall comply with the requirements of Title I and shall take or refrain from
taking such actions as are necessary or appropriate to maintain a valid
Contract of Insurance for the Trust with the FHA covering the FHA Loans.
(b) If and for so long as the Contract of Insurance covers any loans
other than the FHA Loans, and if HUD shall not have earmarked the coverage of
the Contract of Insurance with respect to the FHA Loans, the Contract of
Insurance Holder covenants and agrees not to submit any claim to FHA with
respect to an FHA Loan if the effect of approval of such claim would result
in the amount of claims paid by the FHA in respect of the FHA Loans to exceed
the Trust Designated Insurance Amount. Notwithstanding the foregoing, the
Claims Administrator shall promptly notify the Owner Trustee, the Indenture
Trustee, the Master Servicer and the Securities Insurer if the amount of
claims submitted to FHA in respect of the FHA Loans under the Contract of
Insurance exceeds the Trust Designated Insurance Amount. As of the Closing
Date and at all times thereafter until the Termination Date, the Contract of
Insurance Holder covenants and agrees that the Contract of Insurance will
only apply to the FHA Loans and Related Series Loans, exclusively, or HUD
shall have agreed pursuant to 24 C.F.R. Section 201.32(d)(1) to "earmark" the
FHA insurance relating to the FHA Loans and Related Series Loans, in a manner
satisfactory to the Securities Insurer, in its sole and absolute discretion.
Mego, as Claims Administrator and Servicer, covenants and agrees that it
shall not take any action that would result in the Contract of Insurance
applying to loans other than the FHA Loans and the Related Series Loans,
exclusively, unless HUD shall have agreed pursuant to 24 C.F.R.
Section201.32(d)(1) to "earmark" the FHA insurance relating to the FHA Loans
and Related Series Loans in a manner satisfactory to the Securities Insurer,
in its sole and absolute discretion.
(c) The Owner Trustee and Co-Owner Trustee hereby appoint Mego Mortgage
Corporation as Claims Administrator and the Indenture Trustee hereby consents
to such appointment. Mego Mortgage Corporation, as Claims Administrator,
shall perform on behalf of the Contract of Insurance Holder the duties
associated with the submission of claims under Title I in connection with
the Contract of Insurance, except to the extent that certain documents must
be signed by the Contract of Insurance Holder (in which case the Contract of
Insurance Holder shall only sign such documents at the direction of the
Claims Administrator) and shall not, in its capacity as Claims Administrator,
take any action or omit to take any action that would cause the Contract of
Insurance Holder to violate this Section 7.01 or otherwise fail to maintain a
valid Contract of Insurance or cause any denial by FHA of an insurance claim
under Title I.
(d) The Contract of Insurance Holder shall not be deemed to have
violated this Section 7.01 and shall otherwise incur no liability hereunder
if any failure to maintain a valid Contract of Insurance or to comply with
the requirements of Title I or any denial by FHA of an insurance claim under
Title I shall have been caused by any act or omission of the Master Servicer
or Claims Administrator in the performance of its duties hereunder. The
Contract of Insurance Holder shall be permitted to, or, if directed by the
Securities Insurer, so long as no Securities Insurer Default exists, shall
replace the Claims Administrator for any failure of the Claims Administrator
to perform its duties hereunder. Any successor Claims Administrator shall be
subject to the prior approval of the Securities Insurer, provided no
Securities Insurer Default is then occurring.
(e) The Contract of Insurance Holder hereby represents and warrants to
the Depositor, the Master Servicer, the Seller, the Owner Trustee, the
Indenture Trustee for the benefit of the Securityholders and the Securities
Insurer that First Trust of New York, National Association is an investing
lender in good standing with HUD having authority to purchase, hold, and sell
loans insured under 24 CFR Part 201, pursuant to a valid Contract of
Insurance, Number 71400 0000 6.
(f) The Seller shall forward to the Indenture Trustee a fully executed
Transfer of Note Report for each FHA Loan within 20 days of the receipt by
the Seller of such FHA Loan's case number under the Contract of Insurance.
The Trustee shall execute each Transfer of Note Report, as buying lender, and
submit such Transfer of Note Report to HUD within 31 days of the transfer of
the FHA Loans to the Trust.
Section 7.02. Contract of Insurance Holder.
----------------------------
(a) The Contract of Insurance Holder shall not resign from the
obligations and duties imposed on it by this Agreement as Contract of
Insurance Holder except (i) upon a determination that by reason of a change
in legal requirements or requirements imposed by the FHA the performance of
its duties under this Agreement would cause it to be in violation of such
legal requirements or FHA imposed requirements in a manner which would result
in a material adverse effect on the Contract of Insurance Holder or cause it
to become ineligible to hold the Contract of Insurance and (ii) the
Securities Insurer (so long as a Securities Insurer Default shall not have
occurred and be continuing) or the Majority Securityholders (if a
Securities Insurer Default shall have occurred and be continuing) does not
elect to waive the obligations of the Contract of Insurance Holder to perform
the duties which render it legally unable to act or to delegate those duties
to another Person or if the circumstances giving rise to such illegality
cannot be waived or delegated. Any such determination permitting the
resignation of the Contract of Insurance Holder shall be evidenced by an
Opinion of Counsel to such effect delivered and acceptable to the Indenture
Trustee and the Securities Insurer. Upon receiving such notice of
resignation, the Contract of Insurance shall be transferred to a qualified
successor with the consent of the Securities Insurer by written instrument,
in duplicate, one copy of which instrument shall be delivered to the
resigning Contract of Insurance Holder and one copy to the successor Contract
of Insurance Holder. Notwithstanding the foregoing, the Contract of
Insurance Holder may resign, with the prior written consent of the Securities
Insurer (so long as a Securities Insurer Default shall not have occurred and
be continuing) or the Majority Securityholders (if a Securities Insurer
Default shall have occurred and be continuing), which may be withheld in its
sole and absolute discretion, upon transfer of the FHA insurance and related
reserves with respect to the FHA Loans and any Related Series Loans to a
contract of insurance held by a successor Contract of Insurance Holder
provided, however, that any Contract of Insurance held by such successor
Contract of Insurance Holder shall satisfy the criteria set forth in Section
7.01(b), and, at the time of succession, shall have an FHA insurance coverage
reserve account balance not less than that of the FHA Insurance Coverage
Reserve Account at the time of succession.
(b) If at any time (i) the Contract of Insurance shall be revoked,
suspended or otherwise terminated, or (ii) the Contract of Insurance Holder
shall become incapable of acting, or shall be adjudged as bankrupt or
insolvent, or a receiver of the Contract of Insurance Holder or of its
property shall be appointed, or any public officer shall take charge or
control of the Contract of Insurance Holder or of its property or affairs for
the purpose of rehabilitation, conservation or liquidation, then, in any such
case the Securities Insurer (so long as a Securities Insurer Default shall
not have occurred and be continuing) or the Majority Securityholders (if a
Securities Insurer Default shall have occurred and be continuing) may remove
the Contract of Insurance Holder and appoint a successor contract of
insurance holder by written instrument, in duplicate, one copy of which
instrument shall be delivered to the Contract of Insurance Holder so removed
and one copy to the successor contract of insurance holder. Upon removal of
the Contract of Insurance Holder, the outgoing Contract of Insurance Holder
shall take any action required to transfer the benefits of the FHA Insurance
Coverage Reserve Account to the successor contract of insurance holder.
(c) Any resignation or removal of the Contract of Insurance Holder and
appointment of a successor contract of insurance holder pursuant to any of
the provisions of this Section 7.02 shall become effective upon acceptance of
appointment by the successor contract of insurance holder.
(d) On or prior to the Closing Date, the Contract of Insurance Holder
shall have instructed FHA to forward all payments in respect of claims under
the Contract of Insurance made to the Contract of Insurance Holder to First
Trust of New York, National Association, as Indenture Trustee and Co-Owner
Trustee. The Contact of Insurance Holder shall provide no further
notification with respect to which such payments shall be directed unless
directed by First Trust of New York, National Association, as Indenture
Trustee.
ARTICLE VIII.
(Reserved)
ARTICLE IX.
THE MASTER SERVICER
-------------------
Section 9.01 Indemnification; Third Party Claims.
-----------------------------------
(a) 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 and the representations made by the Master Servicer.
(b) The Master Servicer shall indemnify, defend and hold harmless the
Trust, the Indenture Trustee, Owner Trustee, the Co-Owner Trustee Mego, the
Depositor and the Securities Insurer, their respective officers, directors,
agents and employees and the Securityholders from and against any and all
costs, expenses, losses, claims, damages, and liabilities to the extent that
such cost, expense, loss, claim, damage or liability arose out of, or was
imposed upon the Trust, Indenture Trustee, the Owner Trustee, the Co-Owner
Trustee, Mego, the Depositor, the Securities Insurer or the Securityholders
through the breach of this Agreement by the Master Servicer, the negligence,
willful misfeasance, or bad faith of the Master Servicer in the performance
of its duties under this Agreement or by reason of reckless disregard of its
obligations and duties under this Agreement. Such indemnification shall
include, without limitation, reasonable fees and expenses of counsel and
expenses of litigation.
Section 9.02 Merger or Consolidation of the Master Servicer.
----------------------------------------------
The Master Servicer shall not merge or consolidate with any other
person, convey, transfer or lease substantially all its assets as an entirety
to another Person, or permit any other Person to become the successor to the
Master Servicer's business unless, after the merger, consolidation,
conveyance, transfer, lease or succession, the successor or surviving entity
(i) shall be an Eligible Servicer, (ii) shall be capable of fulfilling the
duties of the Master Servicer contained in this Agreement and (iii) shall
have a long-term debt rating which is BBB and Baa2 by Standard & Poor's and
Moody's respectively. Any corporation (i) into which the Master Servicer may
be merged or consolidated, (ii) resulting from any merger or consolidation to
which the Master Servicer shall be a party, (iii) which acquires by
conveyance, transfer or lease substantially all of the assets of the Master
Servicer, or (iv) succeeding to the business of the Master Servicer, in any
of the foregoing cases shall execute an agreement of assumption to perform
every obligation of the Master Servicer under this Agreement and, whether or
not such assumption agreement is executed, shall be the successor to the
Master Servicer under this Agreement without the execution or filing of
any paper or any further act on the part of any of the parties to this
Agreement, anything in this Agreement to the contrary notwithstanding;
provided, however, that nothing contained herein shall be deemed to
- -------- -------
release the Master Servicer from any obligation. The Master Servicer shall
provide notice of any merger, consolidation or succession pursuant to this
Section 9.02 to the Owner Trustee, the Indenture Trustee, the Securities
Insurer and each Rating Agency. Notwithstanding the foregoing, as a
condition to the consummation of the transactions referred to in clauses (i)
through (iv) above, (x) immediately after giving effect to such transaction,
no representation or warranty made pursuant to Section 3.02 shall have been
breached (for purposes hereof, such representations and warranties shall
speak as of the date of the consummation of such transaction), and (y) the
Master Servicer shall have delivered to the Owner Trustee, the Indenture
Trustee and the Securities Insurer an Officer's Certificate and an Opinion of
Counsel each stating that such consolidation, merger or succession and such
agreement of assumption comply with this Section 9.02 and that all conditions
precedent, if any, provided for in this Agreement relating to such
transaction have been complied with.
Section 9.03 Limitation on Liability of the Master Servicer and
--------------------------------------------------
Others.
- ------
Neither the Master Servicer nor any of its directors, officers,
employees or agents shall be under any liability to the Trust or to the
Securityholders for any action taken or for refraining from the taking of any
action in good faith pursuant to this Agreement, or for errors in judgment;
provided, however, that this provision shall not protect the Master Servicer
- -------- -------
or any such Person against any breach of warranties, representations or
covenants made herein or any liability which would otherwise be imposed by
reason of willful misfeasance, bad faith or negligence in performing or
failing to perform duties hereunder or by reason of reckless disregard of
obligations and duties hereunder. The Master Servicer and any of its
directors, officers, employees or agents 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.
Section 9.04 Master Servicer Not to Resign; Assignment.
-----------------------------------------
(a) The Master Servicer shall not resign from the obligations and
duties hereby imposed on it except (i) with the consent of the Securities
Insurer and the Rating Agencies or (ii) upon determination that by reason of
a change in legal requirements the performance of its duties under this
Agreement would cause it to be in violation of such legal requirements in a
manner which would result in a material adverse effect on the Master Servicer
and the Securities Insurer (so long as a Securities Insurer Default shall not
have occurred and be continuing) does not elect to waive the obligations of
the Master Servicer to perform the duties which render it legally unable to
act or to delegate those duties to another Person. Any such determination
permitting the resignation of the Master Servicer shall be evidenced by an
Opinion of Counsel to such effect delivered and acceptable to the Indenture
Trustee and the Securities Insurer (unless a Securities Insurer Default shall
have occurred and be continuing). No resignation of the Master Servicer
shall become effective until the Indenture Trustee or a successor servicer
acceptable to the Securities Insurer shall have assumed the Master Servicer's
servicing responsibilities and obligations in accordance with Section 10.02.
(b) Notwithstanding anything to the contrary herein, the Master
Servicer shall remain liable for all liabilities and obligations incurred by
it as Master Servicer hereunder prior to the time that any resignation or
assignment referred to in subsection (a) above or termination under Section
10.01 becomes effective, including the obligation to indemnify the Indenture
Trustee pursuant to Section 9.01(b) hereof.
(c) The Master Servicer agrees to cooperate with any successor Master
Servicer in effecting the transfer of the Master Servicer's servicing
responsibilities and rights hereunder pursuant to subsection (a), including,
without limitation, the transfer to such successor of all relevant records
and documents (including any Home Loan Files in the possession of the Master
Servicer and the Servicing Record) and all amounts credited to the Servicing
Record or thereafter received with respect to the Loans and not otherwise
permitted to be retained by the Master Servicer pursuant to this Agreement.
In addition, the Master Servicer, at its sole cost and expense, shall
prepare, execute and deliver any and all documents and instruments to the
successor Master Servicer including all Home Loan Files in its possession and
do or accomplish all other acts necessary or appropriate to effect such
termination and transfer of servicing responsibilities, including, without
limitation, assisting in obtaining any necessary approval under Title I from
the FHA.
Section 9.05 Relationship of Master Servicer to Issuer and the
-------------------------------------------------
Indenture Trustee.
- -----------------
The relationship of the Master Servicer (and of any successor to the
Master Servicer as servicer under this Agreement) to the Issuer and the
Indenture Trustee under this Agreement is intended by the parties hereto to
be that of an independent contractor and not of a joint venturer, agent or
partner of the Issuer or the Indenture Trustee.
Section 9.06 Master Servicer May Own Notes.
-----------------------------
Each of the Master Servicer and any affiliate of the Master Servicer may
in its individual or any other capacity become the owner or pledgee of Notes
with the same rights as it would have if it were not the Master Servicer or
an affiliate thereof except as otherwise specifically provided herein. Notes
so owned by or pledged to the Master Servicer or such affiliate shall have an
equal and proportionate benefit under the provisions of this Agreement,
without preference, priority, or distinction as among all of the Notes,
provided that any Notes owned by the Master Servicer or any affiliate
thereof, during the time such Notes are owned by them, shall be without
voting rights for any purpose set forth in this Agreement. The Master
Servicer shall notify the Indenture Trustee and the Securities Insurer
promptly after it or any of its affiliates becomes the owner or pledgee of a
Note.
ARTICLE X.
DEFAULT
-------
Section 10.01 Events of Default.
-----------------
For purposes of this Agreement, each of the following shall constitute
an "Event of Default."
(a) (i) failure by the Master Servicer to deposit or cause the Servicer
to deposit all Payments in the related Collection Account no later than the
second Business Day following receipt thereof by the Master Servicer or
Servicer, which failure continues unremedied for two Business Days; (ii)
failure of the Master Servicer to pay when due any amount payable by it under
the Insurance Agreement, which failure continues unremedied for two Business
Days; or (iii) failure of the Master Servicer to pay when due any amount
payable by it under this Agreement and such failure results in a drawing
under the Guaranty Policy; or
(b) failure on the part of the Master Servicer duly to observe or
perform in any material respect any of its other covenants or agreements
contained in this Agreement that continues unremedied for a period of 30 days
after the earlier of (x) the date on which the Master Servicer gives notice
of such failure to the Indenture Trustee or the Securities Insurer pursuant
to Section 4.04(b) and (y) 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 Securities Insurer, or to the Master
Servicer and the Indenture Trustee pursuant to the direction of the Majority
Securityholders; or
(c) failure by the Master Servicer to deliver to the Indenture Trustee
and (so long as a Securities Insurer Default shall not have occurred and be
continuing) the Securities Insurer the Master Servicer Certificate by the
fourth Business Day prior to each Distribution Date, or failure on the part
of the Master Servicer to observe its covenants and agreements set forth in
Section 3.02(o); or
(d) the entry of a decree or order for relief by a court or regulatory
authority having jurisdiction in respect of the Master Servicer in an
involuntary case under the federal bankruptcy laws, as now or hereafter in
effect, or another present or future, federal or state, bankruptcy,
insolvency or similar law, or appointing a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official of the Master
Servicer or of any substantial part of its properties or ordering the winding
up or liquidation of the affairs of the Master Servicer and the continuance
of any such decree or order unstayed and in effect for a period of 60
consecutive days or the commencement of an involuntary case under the federal
bankruptcy laws, as now or hereinafter in effect, or another present or future
federal or state bankruptcy, insolvency or similar law and such case is not
dismissed within 60 days; or
(e) the commencement by the Master Servicer of a voluntary case under
the federal bankruptcy laws, as now or hereinafter in effect, or any other
present or future, federal or state bankruptcy, insolvency or similar law, or
the consent by the Master Servicer to the appointment of or taking possession
by a receiver, liquidator, assignee, trustee, custodian, sequestrator or
other similar official of the Master Servicer or of any substantial part of
its property or the making by the Master Servicer of an assignment for the
benefit of creditors or the failure by the Master Servicer generally to pay
its debts as such debts become due or the taking of corporate action by the
Master Servicer in furtherance of any of the foregoing or the admission in
writing by the Master Servicer of an inability to pay its debts as they
become due; or
(f) any representation, warranty or statement of the Master Servicer
made in this Agreement or any certificate, report or other writing delivered
pursuant hereto shall prove to be incorrect in any material respect as of the
time when the same shall have been made, and the incorrectness of such
representation, warranty or statement has a material adverse effect on the
Trust and, within 30 days of the earlier of (x) the date on which the Master
Servicer gives notice of such failure to the Indenture Trustee or the
Securities Insurer pursuant to Section 4.04(b) and (y) the date on which
written notice thereof shall have been given to the Master Servicer by the
Indenture Trustee or the Securities Insurer (or, if a Securities Insurer
Default shall have occurred and be continuing, written notice thereof shall
have been given by the Majority Securityholders), the circumstances or
condition in respect of which such representation, warranty or statement was
incorrect shall not have been eliminated or otherwise cured; or
(g) failure on the part of the Master Servicer to deposit into the Note
Distribution Account within 3 Business Days following the related
Determination Date any Interest Advance pursuant to Section 4.08; or
(h) the Securities Insurer determines that the performance by the
Master Servicer of its servicing duties hereunder with respect to the Home
Loans is not, in the reasonable opinion of the Securities Insurer after
consultation with the Master Servicer, in conformity with acceptable
standards after considering the following factors: (A) the terms and
conditions of this Agreement, (B) conformity with the Servicing Standards,
(C) the Master Servicer's practices as of the Closing Date, provided that
such practices are either (i) consistent with industry standards for the
servicing of loans similar to the Home Loans or (ii) the Master Servicer's
historical practices and procedures; or
(i) the Master Servicer shall dissolve or liquidate, in whole or in
part, in any material respects except to the extent that any resulting
successor entity is acceptable to the Securities Insurer; or
(j) the long-term debt rating of the Master Servicer shall be reduced
below BBB and Baa2 by Standard & Poor's and Moody's, respectively; or
(k) the Annual Default Percentage (Three Month Average) exceeds 6.5% or
the 60+ Delinquency Percentage (Rolling Three Month) exceeds 6.0%.
Section 10.02 Consequences of an Event of Default.
-----------------------------------
If an Event of Default shall occur and be continuing, the Securities
Insurer (or, if a Securities Insurer Default shall have occurred and be
continuing, the Indenture Trustee at the direction of the Majority
Securityholders), by notice given in writing to the Master Servicer (and to
the Indenture Trustee if given by the Securities Insurer or the
Securityholders) may terminate all of the rights and obligations of the
Master Servicer under this Agreement. On or after the receipt by the Master
Servicer of such written notice, and the appointment of and acceptance by a
successor Master Servicer, all authority, power, obligations and
responsibilities of the Master Servicer under this Agreement, whether with
respect to the Securities or the Trust or otherwise, shall pass to, be vested
in and become obligations and responsibilities of the successor Master
Servicer; provided, however, that the successor Master Servicer shall have no
-------- -------
liability with respect to any obligation which was required to be performed by
the prior Master Servicer prior to the date that the successor Master Servicer
becomes the Master Servicer or any claim of a third party based on any alleged
action or inaction of the prior Master Servicer. The successor Master Servicer
is authorized and empowered by this Agreement to execute and deliver, on behalf
of the prior 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. The prior Master Servicer agrees to cooperate with the
successor Master Servicer in effecting the termination of the
responsibilities and rights of the prior Master Servicer under this
Agreement, including, without limitation, the transfer to the successor
Master Servicer for administration by it of all cash amounts that shall at
the time be held by the prior Master Servicer for deposit, or have been
deposited by the prior Master Servicer, in the Collection Account or
thereafter received with respect to the Home Loans and the delivery to the
successor Master Servicer of all Home Loan Files in the Master Servicer's
possession and a computer tape in readable form containing the Servicing
Record and any other information necessary to enable the successor Master
Servicer to service the Home Loans. If requested by the Securities Insurer
(unless a Securities Insurer Default shall have occurred and be continuing),
the successor Master Servicer shall direct the Obligors to make all payments
under the Home Loans directly to the successor Master Servicer, or to a
lockbox established by the Master Servicer at the direction of the Securities
Insurer (unless a Securities Insurer Default shall have occurred and be
continuing), at the prior Master Servicer's expense. In addition to any
other amounts that are then payable to the terminated Master Servicer under
this Agreement, the terminated Master Servicer shall then be entitled to
receive (to the extent provided by Section 4.08) out of the Collected Amount,
reimbursements for any outstanding Interest Advances made during the period
prior to the notice pursuant to this Section 10.02 which terminates the
obligation and rights of the terminated Master Servicer under this
Agreement. The Indenture Trustee and the successor Master Servicer may set
off and deduct any amounts owed by the terminated Master Servicer from any
amounts payable to the terminated Master Servicer. The terminated Master
Servicer shall grant the Indenture Trustee, the successor Master Servicer
and the Securities Insurer reasonable access to the terminated Master
Servicer's premises at the terminated Master Servicer's expense.
Section 10.03 Appointment of Successor.
------------------------
(a) On or after the time the Master Servicer receives a notice of
termination pursuant to Section 10.02 or upon the resignation of the Master
Servicer pursuant to Section 9.04, the Indenture Trustee shall be the
successor in all respects to the Master Servicer in its capacity as master
servicer under this Agreement and the transactions set forth or provided for
in this Agreement, and shall be subject to all the responsibilities,
restrictions, duties, liabilities and termination provisions relating thereto
placed on the Master Servicer by the terms and provisions of this Agreement.
The Indenture Trustee shall take such action, consistent with this Agreement,
as shall be necessary to effectuate any such succession. If the Indenture
Trustee or any other successor Master Servicer is acting as Master Servicer
hereunder, it shall be subject to termination under Section 10.02 upon the
occurrence of an Event of Default applicable to it as Master Servicer.
(b) Any successor Master Servicer appointed pursuant to the provisions
of this Agreement must be approved by the Securities Insurer (provided no
Securities Insurer Default is then occurring and continuing) and shall
execute, acknowledge and deliver to the Indenture Trustee, the Securities
Insurer and its predecessor Master Servicer an instrument accepting such
appointment hereunder, and thereupon the resignation or removal of the
predecessor Master Servicer shall become effective.
(c) Any successor Master Servicer shall be entitled to such
compensation (whether payable out of the Collected Amount or otherwise) as
the Master Servicer would have been entitled to under the Agreement if the
Master Servicer had not resigned or been terminated hereunder. The
Securities Insurer and a successor Master Servicer may agree on additional
compensation to be paid to such successor Master Servicer in accordance with
Section 5.01(c)(ix). In addition, any successor Master Servicer shall be
entitled, to reasonable transition expenses incurred in acting as successor
Master Servicer pursuant to Section 5.01(c)(ix).
Section 10.04 Notification to Certificateholders.
----------------------------------
Upon any termination of the Master Servicer or appointment of a
successor to the Master Servicer, the Indenture Trustee shall give prompt
written notice thereof to Securityholders at their respective addresses
appearing in the Note Register and Certificate Register.
Section 10.05 Waiver of Past Defaults.
-----------------------
The Securities Insurer (or, if a Securities Insurer Default shall have
occurred and be continuing, the Majority Securityholders) may, on behalf of
all Securityholders, waive any default by the Master Servicer in the
performance of its obligations hereunder and its consequences. Upon any such
waiver of a past default, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been remedied for every
purpose of this Agreement. No such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
ARTICLE XI.
TERMINATION
-----------
Section 11.01 Termination.
-----------
(a) This Agreement shall terminate upon notice to the Indenture Trustee
of either: (a) the later of (i) the satisfaction and discharge of the
Indenture pursuant to Section 4.1 of the Indenture or (ii) the disposition of
all funds with respect to the last Home Loan and the remittance of all funds
due hereunder and the payment of all amounts due and payable to the Indenture
Trustee, the Owner Trustee, the Co-Owner Trustee, the Issuer, the Master
Servicer, the Servicer, the Custodian and the Securities Insurer; or (b) the
mutual consent of the Master Servicer, the Depositor, the Seller, the
Securities Insurer and all Securityholders in writing.
(b) Subject to the provisions of the following sentence, Mego or, if
such option is not exercised by Mego, the Master Servicer may, at its option
(with the prior written consent of the Securities Insurer if such purchase
would result in a claim under the Guaranty Policy), upon not less than thirty
days' prior notice given to the Indenture Trustee at any time on or after the
applicable Early Termination Notice Date, purchase on the Termination Date
specified in such notice, all, but not less than all, the Home Loans, all
claims made under the Contract of Insurance with respect to Home Loans that
are pending with FHA ("FHA Pending Claims") and Foreclosed Properties then
included in the Trust, at a purchase price, payable in cash, equal to the sum
of:
(i) the Principal Balance of each Home Loan included in the
Trust as of such Monthly Cut-Off Date;
(ii) all unpaid interest accrued on the Principal Balance of
each such Loan at the related Net Loan Rate to such Monthly Cut-Off
Date;
(iii) the aggregate fair market value of the FHA Pending Claims
for which a claim has been filed with the FHA included in the Trust on
such Monthly Cut-Off Date, as determined by an Independent appraiser
acceptable to the Indenture Trustee as of a date not more than thirty
days prior to such Monthly Cut-Off Date;
(iv) the aggregate fair market value of each Foreclosed
Property included in the Trust on such Monthly Cut-Off Date, as
determined by an Independent appraiser acceptable to the Trustee as of a
date not more than thirty days prior to such Monthly Cut-Off Date; and
(v) any unreimbursed amounts due to the Securities Insurer
under this Agreement or the Insurance Agreement.
Any amount received from such sale with respect to FHA Pending Claims shall
be considered FHA Insurance Payment Amounts. The expense of any Independent
appraiser required under this Section 11.01(b) shall be a nonreimbursable
expense of Mego. Mego or the Master Servicer shall effect the purchase
referred to in this Section 11.01(b) by deposit of the purchase price into
the Collection Account. The Indenture Trustee shall give written notice of
the Early Termination Notice Date to the Securities Insurer promptly upon the
occurrence thereof.
Section 11.02 Notice of Termination.
---------------------
Notice of termination of this Agreement or of early redemption and
termination of the Securities shall be sent (i) by the Indenture Trustee to
the Noteholders and the Securities Insurer in accordance with Section
-------
2.6(b) of the Indenture and (ii) by the Owner Trustee or Co-Owner Trustee
- ------
to the Certificateholders and the Securities Insurer in accordance with
Section 9.1(d) of the Trust Agreement.
- --------------
ARTICLE XII.
MISCELLANEOUS PROVISIONS
------------------------
Section 12.01 Acts of Securityholders.
-----------------------
Except as otherwise specifically provided herein, whenever
Securityholder action, consent or approval is required under this Agreement,
such action, consent or approval shall be deemed to have been taken or given
on behalf of, and shall be binding upon, all Securityholders if the Majority
Securityholders agree to take such action or give such consent or approval.
Section 12.02 Amendment.
---------
(a) This Agreement may be amended from time to time by the Depositor,
the Master Servicer, the Seller and the Issuer by written agreement with
notice thereof to the Securityholders, without the consent of any of the
Securityholders, but with the consent of the Securities Insurer, to cure any
error or ambiguity, to correct or supplement any provisions hereof which may
be defective or inconsistent with any other provisions hereof or to add any
other provisions with respect to matters or questions arising under this
Agreement; provided, however, that such action will not adversely affect in
any material respect the interests of the Securityholders. An amendment
described above shall be deemed not to adversely affect in any material
respect the interests of the Securityholders if either (i) an opinion of
counsel is obtained to such effect, or (ii) the party requesting the
amendment obtains a letter from each of the Rating Agencies confirming that
the amendment, if made, would not result in the downgrading or withdrawal of
the rating then assigned by the respective Rating Agency to any Class of
Securities then outstanding. Notwithstanding the preceding, the Securities
Insurer shall have the right to modify the definitions relating to the
calculation of the Required O/C Amount without the requirement of an
amendment to this Agreement.
(b) This Agreement may also be amended from time to time by the
Depositor, the Master Servicer, the Seller and the Issuer by written
agreement, with the prior written consent of the Indenture Trustee, the
Majority Securityholders and the Securities Insurer, for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement, or of modifying in any manner the rights of the
Securityholders; provided, however, that no such amendment shall (i) reduce
in any manner the amount of, or delay the timing of, collections of payments
on Home Loans or distributions which are required to be made on any Security,
without the consent of the holders of 100% of each Class of Notes or the
Certificates affected thereby and the Securities Insurer, (ii) adversely
affect in any material respect the interests of the holders of
any Class of Notes or Certificates or the Securities Insurer in any manner
other than as described in (i), without the consent of the holders of 100% of
such Class of Notes or the Certificates or the Securities Insurer,
respectively, or (iii) reduce the percentage of any Class of Notes or the
Certificates, the holders of which are required to consent to any such
amendment, without the consent of the holders of 100% of such Class of Notes
or the Certificates and the Securities Insurer.
(c) It shall not be necessary for the consent of Securityholders under
this Section to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent shall approve the substance thereof.
Prior to the execution of any amendment to this Agreement, the Issuer
shall be entitled to receive and rely upon an opinion of counsel stating that
the execution of such amendment is authorized or permitted by this Agreement.
The Issuer may, but shall not be obligated to, enter into any such amendment
which affects the Issuer's own rights, duties or immunities under this
Agreement.
Section 12.03 Recordation of Agreement.
------------------------
To the extent permitted by applicable law, this Agreement, or a
memorandum thereof if permitted under applicable law, is subject to
recordation in all appropriate public offices for real property records in
all of the counties or other comparable jurisdictions in which any or all of
the Mortgaged Properties are situated, and in any other appropriate public
recording office or elsewhere, such recordation to be effected by the Master
Servicer at the Securityholders' expense on direction of the Majority
Securityholders or the Securities Insurer, but only when accompanied by an
opinion of counsel to the effect that such recordation materially and
beneficially affects the interests of the Securityholders or is necessary for
the administration or servicing of the Home Loans.
Section 12.04 Duration of Agreement.
---------------------
This Agreement shall continue in existence and effect until terminated
as herein provided.
Section 12.05 Governing Law.
-------------
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
Section 12.06 Notices.
-------
All demands, notices and communications hereunder shall be in writing
and shall be deemed to have been duly given if personally delivered at or
mailed by overnight mail, certified mail or registered mail, postage prepaid,
to: (i) in the case of the Depositor, FINANCIAL ASSET SECURITIES CORP., 600
Steamboat Road, Greenwich, Connecticut 06830 Attention: John Anderson, or
such other addresses as may hereafter be furnished to the Securityholders and
the other parties hereto in writing by the Depositor, (ii) in the case of the
Issuer, Mego Mortgage Home Loan Owner Trust 1997-1, c/o Wilmington Trust
Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware
19890, Attention: Emmett R. Harmon, or such other address as may hereafter be
furnished to the Securityholders and the other parties hereto, (iii) in the
case of the Seller, Servicer and Claims Administrator, MEGO MORTGAGE
CORPORATION, 1000 Parkwood Circle, Atlanta, Georgia 30339, Attention: Jeff
Moore, President, or such other address as may hereafter be furnished to the
Securityholders and the other parties hereto, (iv) in the case of the
Securities Insurer, 113 King Street, Armonk, New York 10504, Attention: IPM-
SF, (v) in the case of the Indenture Trustee or Co-Owner Trustee, FIRST TRUST
OF NEW YORK, NATIONAL ASSOCIATION, 180 East Fifth Street, St. Paul, Minnesota
55101, Attention: Structured Finance: Mego 1997-1, (vi) in the case of the
Master Servicer, 11000 Broken Land Parkway, Columbia, Maryland 21044-3562,
Attention: Master Servicing Department, Mego Mortgage Home Loan Owner Trust
1997-1; and (vii) in the case of the Securityholders, as set forth in the
applicable Note Register and Certificate Register. Any such notices shall be
deemed to be effective with respect to any party hereto upon the receipt of
such notice by such party, except that notices to the Securityholders shall
be effective upon mailing or personal delivery.
Section 12.07 Severability of Provisions.
--------------------------
If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be held invalid for any reason whatsoever, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and
shall in no way affect the validity or enforceability of the other covenants,
agreements, provisions or terms of this Agreement.
Section 12.08 No Partnership.
--------------
Nothing herein contained shall be deemed or construed to create any
partnership or joint venture between the parties hereto and the services of
the Master Servicer shall be rendered as an independent contractor.
Section 12.09 Counterparts.
------------
This Agreement may be executed in one or more counterparts and by the
different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed to be an original; such counterparts, together,
shall constitute one and the same Agreement.
Section 12.10 Successors and Assigns.
----------------------
This Agreement shall inure to the benefit of and be binding upon the
Master Servicer, the Seller, the Depositor, the Issuer, the Indenture
Trustee, and the Securityholders and their respective successors and
permitted assigns.
Section 12.11 Headings.
--------
The headings of the various sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed to be part
of this Agreement.
Section 12.12 Actions of Securityholders.
--------------------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Agreement to be given or taken by
Securityholders may be embodied in and evidenced by one or more instruments
of substantially similar tenor signed by such Securityholders in person or by
agent duly appointed in writing; and except as herein otherwise expressly
provided, such action shall become effective when such instrument or
instruments are delivered to the Depositor, the Master Servicer or the
Issuer. Proof of execution of any such instrument or of a writing appointing
any such agent shall be sufficient for any purpose of this Agreement and
conclusive in favor of the Depositor, the Master Servicer and the Issuer if
made in the manner provided in this Section.
(b) The fact and date of the execution by any Securityholder of any
such instrument or writing may be proved in any reasonable manner which the
Depositor, the Master Servicer or the Issuer deems sufficient.
(c) Any request, demand, authorization, direction, notice, consent,
waiver or other act by a Securityholder shall bind every holder of every
Security issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof, in respect of anything done, or omitted to be
done, by the Depositor, the Master Servicer, the Issuer or the Securities
Insurer in reliance thereon, whether or not notation of such action is made
upon such Security.
(d) The Depositor, the Master Servicer or the Issuer may require
additional proof of any matter referred to in this Section 12.12 as it
-------------
shall deem necessary.
Section 12.13 Reports to Rating Agencies.
--------------------------
(a) The Indenture Trustee shall provide to each Rating Agency copies of
statements, reports and notices, to the extent received or prepared by the
Master Servicer hereunder, as follows:
(i) copies of amendments to this Agreement;
(ii) notice of any substitution or repurchase of any Home
Loans;
(iii) notice of any termination, replacement, succession,
merger or consolidation of either the Master Servicer, any Custodian or
the Issuer;
(iv) notice of final payment on the Notes and the
Certificates;
(v) notice of any Event of Default;
(vi) copies of the annual independent auditor's report
delivered pursuant to Section 4.05, and copies of any compliance
------------
reports delivered by the Master Servicer hereunder including Section 4.04;
------------
and
(vii) copies of any Master Servicer's Certificate pursuant to
Section 6.02(b); and
---------------
(b) With respect to the requirement of the Indenture Trustee to provide
statements, reports and notices to the Rating Agencies such statements,
reports and notices shall be delivered to the Rating Agencies at the
following addresses: (i) if to Standard & Poor's, 26 Broadway, 15th Floor,
New York, New York 10004-1064, Attention: Asset-Backed Monitoring
Department; or (ii) if to Moody's, 99 Church Street, Corporate Department -
4th Floor, New York, New York 10007, Attention: Residential Mortgage
Monitoring Department.
Section 12.14 Grant of Securityholder Rights to Securities Insurer.
----------------------------------------------------
In consideration for the guarantee of the Securities by the Securities
Insurer pursuant to the Guaranty Policy, the Securityholders hereby grant to
the Securities Insurer the right to act as the holder of 100% of the
outstanding Insured Securities for the purpose of exercising the rights of
the holders of the Insured Securities under this Agreement without
the consent of any Securityholders, including the voting rights of such
holders, but excluding those rights requiring the consent of all such holders
under Section 12.02(b), and any rights of such holders to distributions
----------------
under Section 8.2 of the Indenture with respect to the Notes and Section 5.03
------------
hereof with respect to the Certificates; provided that the preceding grant of
rights to the Securities Insurer by the Securityholders shall be subject to
Section 12.16. The rights of the Securities Insurer to direct certain actions
- -----------
and consent to certain actions of the Majority Securityholders hereunder will
terminate at such time as the Class Principal Balances of all Classes of Notes
and the Certificate Principal Balance of the Certificates have been reduced to
zero and the Securities Insurer has been reimbursed for all Insured Payments
and any other amounts owed under the Guaranty Policy and Insurance Agreement
and the Securities Insurer has no further obligation under the Guaranty Policy.
Section 12.15 Third Party Beneficiary.
-----------------------
The parties hereto acknowledge that the Securities Insurer is an express
third party beneficiary hereof entitled to enforce any rights reserved to it
hereunder as if it were actually a party hereto.
Section 12.16 Holders of the Residual Interest Instruments.
--------------------------------------------
(a) Any sums to be distributed or otherwise paid hereunder or under the
Trust Agreement to the holders of the Residual Interest Instruments shall be
paid to such holders pro rata based on their percentage holdings
--- ----
in the Residual Interest Instruments;
(b) Where any act or event hereunder is expressed to be subject to the
consent or approval of the holders of the Residual Interest Instruments, such
consent or approval shall be capable of being given by the holder or holders
of not less than 51% of the Percentage Interests of the Residual Interest
Instruments in aggregate.
Section 12.17 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.
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.
MEGO MORTGAGE HOME LOAN OWNER
TRUST 1997-1,
By: Wilmington Trust Company, not in its
individual capacity but solely as Owner
Trustee
By: /s/ Patricia A. Evans
-----------------------------------------
Name: Patricia A. Evans
Title:
FINANCIAL ASSET SECURITIES CORP.,
as Depositor
By: /s/ John Anderson
-----------------------------------------
Name: John Anderson
Title:
MEGO MORTGAGE CORPORATION,
as Seller, Servicer and Claims Administrator
By: /s/ James Belter
-----------------------------------------
Name: James Belter
Title:
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION,
as Indenture Trustee, Co-Owner Trustee and
Contract of Insurance Holder
By: /s/ Edward Kachinski
-----------------------------------------
Name: Edward Kachinski
Title:
NORWEST BANK MINNESOTA, N.A. as Master
Servicer
By: /s/ Michael L. Mayer
-----------------------------------------
Name: Michael L. Mayer
Title:
THE STATE OF ________ )
)
COUNTY OF ________ )
BEFORE ME, 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 WILMINGTON TRUST COMPANY, NOT IN ITS
INDIVIDUAL CAPACITY BUT IN ITS CAPACITY AS OWNER TRUSTEE of MEGO MORTGAGE
HOME LOAN OWNER TRUST 1997-1, as Issuer, 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.
GIVEN UNDER MY HAND AND SEAL OF WILMINGTON TRUST COMPANY, this the ____
day of March, 1997.
--------------------------------------------
Notary Public, State of ________
THE STATE OF ________ )
)
COUNTY OF ________ )
BEFORE ME, 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 FINANCIAL ASSET SECURITIES CORP.,
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.
GIVEN UNDER MY HAND AND SEAL OF FINANCIAL ASSET SECURITIES CORP., this
the ____ day of March, 1997.
--------------------------------------------
Notary Public, State of ________
THE STATE OF ________ )
)
COUNTY OF ________ )
BEFORE ME, the undersigned authority, a Notary Public, on this day
personally appeared _______________________, known to me to be the person and
officer whose name is subscribed to the foregoing instrument and acknowledged
to me that the same was the act of the said MEGO MORTGAGE CORPORATION, as the
Seller, Servicer and Claims Administrator, and that he executed the same as
the act of such corporation for the purposes and consideration therein
expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF MEGO MORTGAGE CORPORATION, this the ____
day of March, 1997.
------------------------------
Notary Public, State of ________
THE STATE OF ________ )
)
COUNTY OF ________ )
BEFORE ME, the undersigned authority, a Notary Public, on this day
personally appeared ____________________, known to me to be the person and
officer whose name is subscribed to the foregoing instrument and acknowledged
to me that the same was the act of the said FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION, a national banking association, as the Indenture Trustee, Co-
Owner Trustee and Contract of Insurance Holder, and that she executed the
same as the act of such entity for the purposes and consideration therein
expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION, this the ____ day of March, 1997.
------------------------------
Notary Public, State of ________
THE STATE OF ________ )
)
COUNTY OF ________ )
BEFORE ME, the undersigned authority, a Notary Public, on this day
personally appeared ____________________, known to me to be the person and
officer whose name is subscribed to the foregoing instrument and acknowledged
to me that the same was the act of the said NORWEST BANK MINNESOTA, N.A., 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.
GIVEN UNDER MY HAND AND SEAL OF NORWEST BANK MINNESOTA, N.A., this the
____ day of March, 1997.
------------------------------
Notary Public, State of ________
EXHIBIT 2
EXECUTION COPY
TRUST AGREEMENT
among
FINANCIAL ASSET SECURITIES CORP.,
as Depositor,
MEGO MORTGAGE CORPORATION,
as the Company,
WILMINGTON TRUST COMPANY,
as Owner Trustee
and
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION,
as Co-Owner Trustee
Dated as of February 1, 1997
MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-1
Home Loan Asset Backed Securities, Series 1997-1
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS
Section 1.1 Capitalized Terms . . . . . . . . . . . . . . . I-1
Section 1.2 Other Definitional Provisions . . . . . . . . . I-5
ARTICLE II
ORGANIZATION
Section 2.1 Name . . . . . . . . . . . . . . . . . . . . . II-1
Section 2.2 Office . . . . . . . . . . . . . . . . . . . . II-1
Section 2.3 Purposes and Powers . . . . . . . . . . . . . II-1
Section 2.4 Appointment of Owner Trustee . . . . . . . . . II-2
Section 2.5 Initial Capital Contribution of Owner Trust
Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . II-2
Section 2.6 Declaration of Trust . . . . . . . . . . . . . II-2
Section 2.7 Title to Trust Property. . . . . . . . . . . . II-2
Section 2.8 Situs of Trust. . . . . . . . . . . . . . . . II-3
Section 2.9 Representations and Warranties of the Depositor
and the Company; Covenant of the Company . . II-3
Section 2.10 Federal Income Tax Allocations . . . . . . . . II-5
ARTICLE III
TRUST CERTIFICATES AND TRANSFER OF INTERESTS
Section 3.1 Initial Ownership . . . . . . . . . . . . . . III-1
Section 3.2 The Trust Certificates . . . . . . . . . . . . III-1
Section 3.3 Execution, Authentication and Delivery of Trust
Certificates . . . . . . . . . . . . . . . . III-1
Section 3.4 Registration of Transfer and Exchange of Trust
Certificates . . . . . . . . . . . . . . . . III-1
Section 3.5 Mutilated, Destroyed, Lost or Stolen Trust
Certificates . . . . . . . . . . . . . . . III-2
Section 3.6 Persons Deemed Owners . . . . . . . . . . . . III-3
Section 3.7 Access to List of Owners' Names and Addresses III-3
Section 3.8 Maintenance of Office or Agency . . . . . . . III-3
Section 3.9 Appointment of Paying Agent . . . . . . . . . III-3
Section 3.10 Restrictions on Transfer of Trust Certificate III-4
ARTICLE IV
ACTIONS BY OWNER TRUSTEE
Section 4.1 Prior Notice to Owners with Respect to Certain
Matters . . . . . . . . . . . . . . . . . . IV-1
Section 4.2 Action by Owners with Respect to Certain
Matters . . . . . . . . . . . . . . . . . . IV-3
Section 4.3 Action by Owners with Respect to Bankruptcy . IV-3
Section 4.4 Restrictions on Owners' Power . . . . . . . . IV-3
Section 4.5 Majority Control . . . . . . . . . . . . . . . IV-3
ARTICLE V
APPLICATION OF TRUST FUNDS; CERTAIN DUTIES
Section 5.1 Establishment of Trust Account . . . . . . . . . V-1
Section 5.2 Application Of Trust Funds . . . . . . . . . . . V-1
Section 5.3 Method of Payment . . . . . . . . . . . . . . . V-2
Section 5.4 Segregation of Moneys; No Interest . . . . . . . V-2
Section 5.5 Accounting and Reports to the Certificateholder,
Owners, the Internal Revenue Service and
Others . . . . . . . . . . . . . . . . . . . V-2
Section 5.6 Signature on Returns; Tax Matters Partner . . . V-3
ARTICLE VI
AUTHORITY AND DUTIES OF OWNER TRUSTEE
Section 6.1 General Authority . . . . . . . . . . . . . . VI-1
Section 6.2 General Duties . . . . . . . . . . . . . . . . VI-1
Section 6.3 Action upon Instruction . . . . . . . . . . . VI-1
Section 6.4 No Duties Except as Specified in this
Agreement, the Transaction Documents
or in Instructions . . . . . . . . . . . . . VI-2
Section 6.5 No Action Except Under Specified Documents or
Instructions . . . . . . . . . . . . . . . . VI-3
Section 6.6 Restrictions . . . . . . . . . . . . . . . . . VI-3
ARTICLE VII
CONCERNING THE OWNER TRUSTEE
Section 7.1 Acceptance of Trusts and Duties . . . . . . . VII-1
Section 7.2 Furnishing of Documents . . . . . . . . . . . VII-2
Section 7.3 Representations and Warranties . . . . . . . . VII-2
Section 7.4 Reliance; Advice of Counsel . . . . . . . . . VII-3
Section 7.5 Not Acting in Individual Capacity. . . . . . VII-4
Section 7.6 Owner Trustee Not Liable for Trust Certificates
or Home Loans . . . . . . . . . . . . . . . . . . . VII-4
Section 7.7 Owner Trustee May Own Trust Certificates and
Notes . . . . . . . . . . . . . . . . . . . VII-4
Section 7.8 Licenses . . . . . . . . . . . . . . . . . . . VII-5
Section 7.9 Rights of Co-Owner Trustee . . . . . . . . . . VII-5
ARTICLE VIII
COMPENSATION OF OWNER TRUSTEE
Section 8.1 Owner Trustee's Fees and Expenses . . . . . VIII-1
Section 8.2 Indemnification . . . . . . . . . . . . . . VIII-1
Section 8.3 Payments to the Owner Trustee . . . . . . . VIII-1
ARTICLE IX
TERMINATION OF TRUST AGREEMENT
Section 9.1 Termination of Trust Agreement. . . . . . . . IX-1
ARTICLE X
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
Section 10.1 Eligibility Requirements for Owner Trustee . . . X-1
Section 10.2 Resignation or Removal of Owner Trustee or Co-
Owner Trustee . . . . . . . . . . . . . . . . . . . X-1
Section 10.3 Successor Owner Trustee or Co-Owner Trustee . . X-2
Section 10.4 Merger or Consolidation of Owner Trustee . . . . X-3
Section 10.5 Appointment of Co-Owner Trustee or Separate
Owner Trustee . . . . . . . . . . . . . . . . . . . X-3
ARTICLE XI
MISCELLANEOUS
Section 11.1 Supplements and Amendments . . . . . . . . . . XI-1
Section 11.2 No Legal Title to Owner Trust Estate in Owners XI-2
Section 11.3 Limitations on Rights of Others . . . . . . . XI-2
Section 11.4 Notices . . . . . . . . . . . . . . . . . . . XI-2
Section 11.5 Severability . . . . . . . . . . . . . . . . . XI-3
Section 11.6 Separate Counterparts . . . . . . . . . . . . XI-3
Section 11.7 Successors and Assigns . . . . . . . . . . . . XI-3
Section 11.8 No Petition . . . . . . . . . . . . . . . . . XI-3
Section 11.9 Covenants of Company . . . . . . . . . . . . . XI-3
Section 11.10 No Recourse . . . . . . . . . . . . . . . . . XI-3
Section 11.11 Headings . . . . . . . . . . . . . . . . . . . XI-4
Section 11.12 GOVERNING LAW . . . . . . . . . . . . . . . . XI-4
Section 11.13 Certificate and Residual Interest Instrument
Transfer Restrictions . . . . . . . . . . . XI-4
Section 11.14 Grant of Certificateholder and Residual
Interest Holder Rights to Securities
Insurer. . . . . . . . . . . . . . . . . . . XI-4
Section 11.15 Third-Party Beneficiary . . . . . . . . . . . XI-5
EXHIBIT A Form of Certificate
EXHIBIT B Form of Residual Interest Instrument
EXHIBIT C Form of Certificate of Trust
TRUST AGREEMENT, dated as of February 1, 1997, among FINANCIAL ASSET
SECURITIES CORP., a Delaware corporation, as Depositor (the "Depositor"),
MEGO MORTGAGE CORPORATION, a Delaware corporation (the "Company"), WILMINGTON
TRUST COMPANY, a Delaware banking corporation, as Owner Trustee (the "Owner
Trustee") and FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION, as Co-Owner
Trustee (the "Co-Owner Trustee").
I
DEFINITIONS
1.1 Capitalized Terms. For all purposes of this Agreement, the
-----------------
following terms shall have the meanings set forth below:
"Agreement" shall mean this Trust Agreement, as the same may be
---------
amended and supplemented from time to time.
"Administration Agreement" shall mean the Administration Agreement,
------------------------
dated as of February 1, 1997 among the Issuer, the Company, and First Trust
of New York, National Association, as Administrator.
"Administrator" shall mean First Trust of New York, National
-------------
Association, or any successor in interest thereto, in its capacity as
Administrator under the Administration Agreement.
"Benefit Plan" shall have the meaning assigned to such term in
------------
Section 11.12.
- -------------
"Business Trust Statute" shall mean Chapter 38 of Title 12 of the
----------------------
Delaware Code, 12 Del. Code Section 3801 et seq., as the same may be
-- ---
amended from time to time.
"Certificate" shall mean any Class S Certificate; a form of which is
-----------
attached hereto as Exhibit A.
---------
"Certificate Distribution Account" shall have the meaning assigned to
--------------------------------
such term in the Sale and Servicing Agreement.
"Certificate of Trust" shall mean the Certificate of Trust in the
--------------------
form of Exhibit C to be filed for the Trust pursuant to Section 3810(a) of
---------
the Business Trust Statute.
"Certificate Owner" shall mean, with respect to a Book-Entry
-----------------
Certificate, the Person who is the beneficial owner of such Book-Entry
Certificate, as reflected on the books of the Clearing Agency, or on the
books of a Person maintaining an account with such Clearing Agency (directly
as a Clearing Agency Participant or as an indirect participant, in each case
in accordance with the rules of such Clearing Agency).
"Certificate Register" and "Certificate Registrar" shall mean the
-------------------- ---------------------
register mentioned in, and the registrar appointed pursuant to, Section
-------
3.4.
- ---
"Certificateholder" or "Holder" shall mean a Person in whose name a
----------------- ------
Certificate is registered.
"Class Notional Amount" shall have the same meaning as set forth in
---------------------
the Sale and Servicing Agreement with respect to "Class S Notional Amount".
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
----
Treasury Regulations promulgated thereunder.
"Co-Owner Trustee" shall mean First Trust of New York, National
----------------
Association.
"Company" shall mean Mego Mortgage Corporation, a Delaware
-------
corporation.
"Corporate Trust Office" shall mean, with respect to the Owner
----------------------
Trustee, the principal corporate trust office of the Owner Trustee located at
Rodney Square North, 1100 North Market Street, Wilmington, DE 19890-0001,
Attention: Corporate Trust Administration; or at such other address in the
State of Delaware as the Owner Trustee may designate by notice to the Owners
and the Company, or the principal corporate trust office of any successor
Owner Trustee (the address (which shall be in the State of Delaware) of which
the successor owner trustee will notify the Owners and the Company).
"Definitive Certificates" means a certificated form of security that
-----------------------
represents a Certificate or a Residual Interest Instrument.
"ERISA" shall have the meaning assigned thereto in Section 11.12.
----- -------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
"Expenses" shall have the meaning assigned to such term in Section
--------
8.2.
"Indenture" shall mean the Indenture, dated as of February 1, 1997,
---------
by and between the Issuer and the Indenture Trustee.
"Indenture Trustee" means First Trust of New York, National
-----------------
Association, as Indenture Trustee under the Indenture.
"Insurance Agreement" shall mean the Insurance Agreement, dated as of
-------------------
February 1, 1997, among the Issuer, the Depositor, the Affiliated Holder,
Greenwich Capital Financial Products, Inc., the Company as Seller, Servicer
and Claims Administrator, the Master Servicer, the Indenture Trustee as
Indenture Trustee, Co-Owner Trustee and Contract of Insurance Holder and the
Securities Insurer.
"Issuer" shall mean Mego Mortgage Home Loan Owner Trust 1997-1, the
------
Delaware business trust created pursuant to this Agreement.
"Non-permitted Foreign Holder" shall have the meaning set forth in
----------------------------
Section 3.10.
"Non-U.S. Person" shall mean an individual, corporation, partnership
---------------
or other person other than a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, an estate
that is subject to U.S. federal income tax regardless of the source of its
income, or a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more
United States trustees have authority to control all substantial decisions of
the trust..
"Owner" shall mean each Holder of a Certificate and each holder of a
-----
Residual Interest Instrument, as applicable.
"Owner Trust Estate" shall mean the contribution of $1 referred to in
------------------
Section 2.5 and the Trust Estate (as defined in the Indenture).
- -----------
"Owner Trustee" shall mean Wilmington Trust Company, a Delaware
-------------
banking corporation, not in its individual capacity but solely as owner
trustee under this Agreement, and any successor owner trustee hereunder.
"Paying Agent" shall mean the Co-Owner Trustee or any successor in
-------------
interest thereto or any other paying agent or co-paying agent appointed
pursuant to Section 3.9 and authorized by the Issuer to make payments to
-----------
and distributions from the Certificate Distribution Account, including
payment of principal of or interest on the Certificates on behalf of the
Issuer.
"Percentage Interest" shall mean with respect to any Certificate, the
-------------------
portion of the Certificates as a whole evidenced by such single Certificate,
expressed as a percentage rounded to five decimal places, equivalent to a
fraction, the numerator of which is the denomination represented by such
single Certificate and the denominator of which is the original Class
Notional Amount. With respect to each Residual Interest Instrument, the
percentage portion of all of the Residual Interest evidenced thereby as
stated on the face of such Residual Interest Instrument.
"Prospective Owner" shall have the meaning set forth in Section
-----------------
3.10(a).
"Rating Agency Condition" means, with respect to any action to which
-----------------------
a Rating Agency Condition applies, that each Rating Agency shall have been
given 10 days (or such shorter period as is acceptable to each Rating Agency)
prior notice thereof and that each of the Rating Agencies shall have notified
the Seller, the Servicer, the Securities Insurer, the Owner Trustee, Co-Owner
Trustee, and the Issuer in writing that such action will not result in a
reduction or withdrawal of the then current rating of the Notes and
Certificates.
"Record Date" shall mean as to each Distribution Date the last
-----------
Business Day of the month immediately preceding the month in which such
Distribution Date occurs.
"Residual Interest" shall mean the right to receive distributions of
-----------------
Excess Spread, if any, and certain other funds, if any, on each Distribution
Date, pursuant to Sections 5.01(c) and 5.03 of the Sale and Servicing
Agreement.
"Residual Interest Instrument" shall mean an instrument substantially
----------------------------
in the form attached as Exhibit B hereto and evidencing the Residual
---------
Interest.
"Residual Interestholder" shall mean any Holder of a Percentage
-----------------------
Interest of the Residual Interest Instruments.
"Sale and Servicing Agreement" shall mean the Sale and Servicing
----------------------------
Agreement dated as of the date hereof, among the Trust as Issuer, the
Depositor, the Indenture Trustee as Indenture Trustee, Contract of Insurance
Holder and Co-Owner Trustee, Norwest Bank Minnesota, N.A., as Master
Servicer, and the Company, as Seller, Servicer and Claims Administrator.
"Secretary of State" shall mean the Secretary of State of the State
------------------
of Delaware.
"Securities Insurer" shall mean MBIA Insurance Corporation.
------------------
"Securities Insurer Default" shall mean the failure of the Securities
--------------------------
Insurer to make payments under the Guaranty Policy, if such failure has not
been remedied with ten (10) days of notice thereof, or the entry of an order
or decree with respect to the Securities Insurer in any insolvency or
bankruptcy proceedings which remain unstayed or undischarged for 90 days.
"Transaction Documents" shall have the meaning set forth in the Sale
---------------------
and Servicing Agreement.
"Treasury Regulations" shall mean regulations, including proposed or
--------------------
temporary regulations, promulgated under the Code. References herein to
specific provisions of proposed or temporary regulations shall include
analogous provisions of final Treasury Regulations or other successor
Treasury Regulations.
"Trust" shall mean the trust established by this Agreement.
-----
"Trust Certificates" shall mean the Certificates and the Residual
------------------
Interest Instruments, collectively.
"Underwriter" shall mean Greenwich Capital Markets, Inc.
-----------
1.2 Other Definitional Provisions.
-----------------------------
(a) Capitalized terms used herein and not otherwise defined herein
have the meanings assigned to them in the Sale and Servicing
Agreement or, if not defined therein, in the Indenture.
(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; Section and Exhibit references contained in
this Agreement are references to Sections and Exhibits in or
to this Agreement unless otherwise specified; and the term
"including" shall mean "including without limitation".
(e) The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms and to
the masculine as well as to the feminine and neuter genders of
such terms.
(f) Any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in
connection herewith means such agreement, instrument or
statute as from time to time amended, modified or supplemented
and includes (in the case of agreements or instruments)
references to all attachments thereto and instruments
incorporated therein; references to a Person are also to its
permitted successors and assigns.
II
ORGANIZATION
2.1 Name. The Trust created hereby shall be known as "Mego Mortgage
----
Home Loan Owner Trust 1997-1", in which name the Owner Trustee may
conduct the business of the Trust, make and execute contracts and
other instruments on behalf of the Trust and sue and be sued.
2.2 Office. The office of the Trust shall be in care of the Owner
------
Trustee at the Corporate Trust Office or at such other address in
Delaware as the Owner Trustee may designate by written notice to the
Owners, the Securities Insurer, and the Company.
2.3 Purposes and Powers. (a) The purpose of the Trust is to
-------------------
engage in the following activities:
(i) to issue the Notes pursuant to the Indenture and the
Certificates pursuant to this Agreement and to sell such
Notes and such Certificates;
(ii) with the proceeds of the sale of the Notes and the
Certificates, to fund start-up and transactional expenses
of the Trust and to pay the balance to the Depositor and
the Company, as their interests may appear pursuant to
the Sale and Servicing Agreement;
(iii) to assign, grant, transfer, pledge, mortgage and
convey the Trust Estate pursuant to the Indenture
and to hold, manage and distribute to the Owners
pursuant to the terms of the Sale and Servicing
Agreement any portion of the Trust Estate released
from the lien of, and remitted to the Trust pursuant
to, the Indenture;
(iv) to enter into and perform its obligations under the
Transaction Documents to which it is to be a party;
(v) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to
accomplish the foregoing or are incidental thereto or
connected therewith;
(vi) subject to compliance with the Transaction Documents, to
engage in such other activities as may be required in
connection with conservation of the Owner Trust Estate
and the making of distributions to the Owners and the
Noteholders; and
(vii) to issue the Residual Interest Instruments pursuant
to this Agreement.
The Trust is hereby authorized to engage in the foregoing activities. The
Trust shall not engage in any activity other than in connection with the
foregoing or other than as required or authorized by the terms of this
Agreement or the Transaction Documents.
2.4 Appointment of Owner Trustee. The Depositor hereby appoints the
----------------------------
Owner Trustee as trustee of the Trust effective as of the date to
hereof, to have all the rights, powers and duties set forth herein.
2.5 Initial Capital Contribution of Owner Trust Estate. The
--------------------------------------------------
Depositor hereby sells, assigns, transfers, conveys and sets over
to the Owner Trustee, as of the date hereof, the sum of $1. The
Owner Trustee hereby acknowledges receipt in trust from the
Depositor, as of the date hereof, of the foregoing contribution,
which shall constitute the initial Owner Trust Estate and shall be
deposited in the Certificate Distribution Account. The Company
shall pay organizational expenses of the Trust as they may arise or
shall, upon the request of the Owner Trustee, promptly reimburse
the Owner Trustee for any such expenses paid by the Owner Trustee.
2.6 Declaration of Trust. The Owner Trustee hereby declares that it
--------------------
will hold the Owner Trust Estate in trust upon and subject to the
conditions set forth herein for the use and benefit of the Owners,
subject to the obligations of the Trust under the Transaction
Documents. It is the intention of the parties hereto that the
Trust constitute a business trust under the Business Trust Statute
and that this Agreement constitute the governing instrument of such
business trust. It is the intention of the parties hereto that,
solely for income and franchise tax purposes, the Trust shall be
treated as a partnership, with the assets of the partnership being
the Home Loans and other assets held by the Trust, the partners of
the partnership being the holders of the Trust Certificates and the
Notes being non-recourse debt of the partnership. The parties
agree that, unless otherwise required by appropriate tax authorities,
the Trust will file or cause to be filed annual or other necessary
returns, reports and other forms consistent with the characterization
of the Trust as a partnership for such tax purposes. Effective as of
the date hereof, the Owner Trustee shall have all rights, powers and
duties set forth herein and in the Business Trust Statute with
respect to accomplishing the purposes of the Trust.
2.7 Title to Trust Property.
-----------------------
(a) Subject to the Indenture, legal title to all the Owner Trust
Estate shall be vested at all times in the Trust as a separate
legal entity except where applicable law in any jurisdiction
requires title to any part of the Owner Trust Estate to be
vested in a trustee or trustees, in which case title shall be
deemed to be vested in the Owner Trustee, the Co-Owner Trustee
and/or a separate trustee, as the case may be.
(b) The Owners shall not have legal title to any part of the Owner
Trust Estate. No transfer by operation of law or otherwise of
any interest of the Owners shall operate to terminate this
Agreement or the trusts hereunder or entitle any transferee to
an accounting or to the transfer to it of any part of the
Owner Trust Estate.
2.8 Situs of Trust. The Trust will be located and administered in
--------------
the state of Delaware. All bank accounts maintained by the Owner
Trustee on behalf of the Trust shall be located in the State of
Delaware or the State of New York, except with respect to the
Co-Owner Trustee. The Trust shall not have any employees; provided,
--------
however, that nothing herein shall restrict or prohibit the Owner
Trustee from having employees within or without the State of
Delaware. Payments will be received by the Trust only in Delaware
or New York, and payments will be made by the Trust only from
Delaware or New York, except with respect to the Co-Owner Trustee.
The only office of the Trust will be at the Corporate Trust Office
in Delaware.
2.9 Representations and Warranties of the Depositor and the Company;
----------------------------------------------------------------
Covenant of the Company.
-----------------------
(a) The Depositor hereby represents and warrants to the Owner
Trustee, the Co-Owner Trustee and the Securities Insurer that:
(i) The Depositor is a corporation duly organized, validly
existing, and in good standing under the laws of the
State of Delaware and has all licenses necessary to carry
on its business as now being conducted. The Depositor
has the power and authority to execute and deliver this
Agreement and to perform in accordance herewith; the
execution, delivery and performance of this Agreement
(including all instruments of transfer to be delivered
pursuant to this Agreement) by the Depositor and the
consummation of the transactions contemplated hereby have
been duly and validly authorized by all necessary action
of the Depositor; this Agreement evidences the valid,
binding and enforceable obligation of the Depositor; and
all requisite action has been taken by the Depositor to
make this Agreement valid, binding and enforceable upon
the Depositor in accordance with its terms, subject to
the effect of bankruptcy, insolvency, reorganization,
moratorium and other, similar laws relating to or
affecting creditors' rights generally or the application
of equitable principles in any proceeding, whether at law
or in equity.;
(ii) The consummation of the transactions contemplated by this
Agreement will not result in (i) the breach of any terms
or provisions of the Articles of Incorporation or Bylaws
of the Depositor, (ii) the breach of any term or provision
of, or conflict with or constitute a default under or
result in the acceleration of any obligation under, any
material agreement, indenture or loan or credit agreement
or other material instrument to which the Depositor, or its
property is subject, or (iii) the violation of any law,
rule, regulation, order, judgment or decree to which the
Depositor or its respective property is subject;
(iii) The Depositor is not in default with respect to any
order or decree of any court or any order,
regulation or demand of any federal, state,
municipal or other governmental agency, which
default might have consequences that would
materially and adversely affect the condition
(financial or otherwise) or operations of the
Depositor or its properties or might have
consequences that would materially and adversely
affect its performance hereunder.
(b) The Company hereby represents and warrants to the Owner
Trustee, the Co-Owner Trustee and the Securities Insurer that:
(i) The Company is duly organized and validly existing as a
corporation in good standing under the laws of the State
of Delaware, with power and authority to own its
properties and to conduct its business as such properties
are currently owned and such business is presently
conducted.
(ii) The Company is duly qualified to do business as a foreign
corporation in good standing, and has obtained all
necessary licenses and approvals in all jurisdictions in
which the ownership or lease of property or the conduct
of its business shall require such qualifications.
(iii) The Company has the power and authority to execute
and deliver this Agreement and to carry out its
terms; and the execution, delivery and performance
of this Agreement has been duly authorized by the
Company by all necessary corporate action.
(iv) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof do not
conflict with, result in any breach of any of the terms
and provisions of, or constitute (with or without notice
or lapse of time) a default under, the articles of
incorporation or by-laws of the Company, or any
indenture, agreement or other instrument to which the
Company is a party or by which it is bound; nor result in
the creation or imposition of any lien upon any of its
properties pursuant to the terms of any such indenture,
agreement or other instrument (other than pursuant to the
Transaction Documents); nor violate any law or, to the
best of the Company's knowledge, any order, rule or
regulation applicable to the Company of any court or of
any Federal or state regulatory body, administrative
agency or other governmental instrumentality having
jurisdiction over the Company or its properties.
(v) There are no proceedings or investigations pending or, to
the Company's best knowledge, threatened, before any
court, regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the
Company or its properties: (i) asserting the invalidity
of this Agreement, (ii) seeking to prevent the
consummation of any of the transactions contemplated by
this Agreement or (iii) seeking any determination or
ruling that might materially and adversely affect the
performance by the Company of its obligations under, or
the validity or enforceability of, this Agreement.
(c) The Company covenants with the Owner Trustee, the Co-Owner
Trustee and the Securities Insurer that during the continuance
of this Agreement it will comply in all respects with the
provisions of its Certificate of Incorporation in effect from
time to time.
2.10 Federal Income Tax Allocations. Net income of the Trust for any
------------------------------
month, as determined for Federal income tax purposes (and each item of
income, gain, loss and deduction entering into the computation thereof),
shall be allocated to the holders of the Residual Interest Instruments, on a
pro rata basis.
III
TRUST CERTIFICATES AND TRANSFER OF INTERESTS
3.1 Initial Ownership. Upon the formation of the Trust by the
-----------------
contribution by the Depositor pursuant to Section 2.5 and until the
-----------
issuance of the Trust Certificates, the Depositor shall be the sole
Owner of the Trust.
3.2 The Trust Certificates. The Certificates (other than the
----------------------
Residual Interest) shall be issued in minimum denominations of
$100,000 notional amount and in integral multiples of $1,000 in
excess thereof. The Residual Interest Instruments shall not be
issued with a principal or notional amount. The Trust Certificates
shall be executed on behalf of the Trust by manual or facsimile
signature of a Trust Officer of the Owner Trustee or the
Administrator. Trust Certificates bearing the manual or facsimile
signatures of individuals who were, at the time when such signatures
shall have been affixed, authorized to sign on behalf of the
Trust, shall be valid and binding obligations of the Trust,
notwithstanding that such individuals or any of them shall have
ceased to be so authorized prior to the authentication and delivery
of such Trust Certificates or did not hold such offices at the date
of authentication and delivery of such Trust Certificates.
A transferee of a Trust Certificate shall become an Owner, and shall be
entitled to the rights and subject to the obligations of an Owner hereunder
and under the Sale and Servicing Agreement, upon such transferee's acceptance
of a Trust Certificate duly registered in such transferee's name pursuant to
Section 3.4.
- -----------
3.3 Execution, Authentication and Delivery of Trust Certificates.
------------------------------------------------------------
Concurrently with the sale of the Home Loans to the Trust pursuant
to the Sale and Servicing Agreement, the Owner Trustee shall cause
the Certificates, in an aggregate notional amount equal to the
initial Class Notional Amount of the Certificates, and the Residual
Interest Instruments representing 100% of the Percentage Interests
of the Residual Interest to be executed on behalf of the Trust,
authenticated and delivered to or upon the written order of the
Depositor, signed by its chairman of the board, its president or any
vice president, without further corporate action by the Depositor,
in authorized denominations. No Trust Certificate shall entitle its
holder to any benefit under this Agreement, or shall be valid for
any purpose, unless there shall appear on such Trust Certificate a
certificate of authentication substantially in the form set forth in
Exhibits A and B, executed by the Owner Trustee or the Administrator,
----------------
as the Owner Trustee's authenticating agent, by manual or facsimile
signature; such authentication shall constitute conclusive evidence
that such Trust Certificate shall have been duly authenticated and
delivered hereunder. All Trust Certificates shall be dated the date
of their authentication.
3.4 Registration of Transfer and Exchange of Trust Certificates.
-----------------------------------------------------------
The Certificate Registrar shall keep or cause to be kept, at the
office or agency maintained pursuant to Section 3.8, a Certificate
-----------
Register in which, subject to such reasonable regulations as it
may prescribe, the Owner Trustee shall provide for the registration
of Trust Certificates and of transfers and exchanges of Trust
Certificates as herein provided. The Administrator shall be
the initial Certificate Registrar.
Upon surrender for registration of transfer of any Trust Certificate at
the office or agency maintained pursuant to Section 3.8, the Owner
-----------
Trustee shall execute, authenticate and deliver (or shall cause the
Administrator as its authenticating agent to authenticate and deliver), in
the name of the designated transferee or transferees, one or more new Trust
Certificates in authorized denominations of a like aggregate amount dated the
date of authentication by the Owner Trustee or any authenticating agent. At
the option of an Owner, Trust Certificates may be exchanged for other Trust
Certificates of authorized denominations of a like aggregate amount upon
surrender of the Trust Certificates to be exchanged at the office or agency
maintained pursuant to Section 3.8.
-----------
Every Trust Certificate presented or surrendered for registration of
transfer or exchange shall be accompanied by a written instrument of transfer
in form satisfactory to the Owner Trustee and the Certificate Registrar duly
executed by the Owner or his attorney duly authorized in writing. In
addition, each Residual Interest Instrument presented or surrendered for
registration of transfer and exchange must be accompanied by a letter from
the Prospective Owner certifying as to the representations set forth in
Sections 3.10(a) and (b). Each Trust Certificate surrendered for registration
- ------------------------
of transfer or exchange shall be canceled and disposed of by the Owner Trustee
in accordance with its customary practice.
No service charge shall be made for any registration of transfer or
exchange of Trust Certificates, but the Owner Trustee or the Certificate
Registrar may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer or
exchange of Trust Certificates.
The preceding provisions of this Section notwithstanding, the Owner
Trustee shall not make and the Certificate Registrar shall not register
transfer or exchanges of Trust Certificates for a period of 15 days preceding
the due date for any payment with respect to the Trust Certificates.
3.5 Mutilated, Destroyed, Lost or Stolen Trust Certificates. If (a)
-------------------------------------------------------
any mutilated Trust Certificate shall be surrendered to the
Certificate Registrar, or if the Certificate Registrar shall
receive evidence to its satisfaction of the destruction, loss or
theft of any Trust Certificate and (b) there shall be delivered to
the Certificate Registrar and the Owner Trustee such security or
indemnity as may be required by them to save each of them harmless,
then in the absence of notice that such Trust Certificate shall
have been acquired by a bona fide purchaser, the Owner Trustee on
behalf of the Trust shall execute and the Owner Trustee, or the
Administrator as the Owner Trustee's authenticating agent, shall
authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Trust Certificate, a new Trust
Certificate of like tenor and denomination. In connection with the
issuance of any new Trust Certificate under this Section, the Owner
Trustee or the Certificate Registrar may require the payment of a
sum sufficient to cover any tax or other governmental charge that
may be imposed in connection therewith. Any duplicate Trust
Certificate issued pursuant to this Section shall constitute
conclusive evidence of ownership in the Trust, as if originally
issued, whether or not the lost, stolen or destroyed Trust
Certificate shall be found at any time.
3.6 Persons Deemed Owners. Prior to due presentation of a Trust
---------------------
Certificate for registration of transfer, the Owner Trustee or the
Certificate Registrar may treat the Person in whose name any Trust
Certificate shall be registered in the Certificate Register as the
owner of such Trust Certificate for the purpose of receiving
distributions pursuant to Section 5.2 and for all other purposes
-----------
whatsoever, and neither the Owner Trustee nor the Certificate
Registrar shall be bound by any notice to the contrary.
3.7 Access to List of Owners' Names and Addresses. The Certificate
---------------------------------------------
Registrar shall furnish or cause to be furnished to the Master
Servicer, the Servicer, the Depositor and the Indenture Trustee
within 15 days after receipt by the Owner Trustee of a request
therefor from the Master Servicer, the Servicer, the Depositor or
the Indenture Trustee in writing, a list, in such form as the
Master Servicer, the Servicer, the Depositor or the Indenture
Trustee may reasonably require, of the names and addresses of the
Owners as of the most recent Record Date. If three or more
Certificateholders or one or more Holders of Certificates together
evidencing not less than a 25% Percentage Interest in the
Certificates apply in writing to the Owner Trustee, and such
application states that the applicants desire to communicate with
other Certificateholders with respect to their rights under this
Agreement or under the Certificates and such application is
accompanied by a copy of the communication that such applicants
propose to transmit, then the Owner Trustee shall, within five
Business Days after the receipt of such application, afford such
applicants access during normal business hours to the current list
of Certificateholders. Each Owner, by receiving and holding a
Trust Certificate, shall be deemed to have agreed not to hold any
of the Depositor, the Company, the Certificate Registrar or the
Owner Trustee accountable by reason of the disclosure of its name
and address, regardless of the source from which such information
was derived.
3.8 Maintenance of Office or Agency. The Owner Trustee shall
-------------------------------
maintain an office or offices or agency or agencies where Trust
Certificates may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Owner Trustee
in respect of the Trust Certificates and the Transaction Documents
may be served. The Owner Trustee initially designates the
Administrator's office in St. Paul, Minnesota as its principal
corporate trust office for such purposes. The Owner Trustee shall
give prompt written notice to the Company and to the
Certificateholders of any change in the location of the Certificate
Register or any such office or agency.
3.9 Appointment of Paying Agent. The Owner Trustee hereby appoints
----------------------------
the Co-Owner Trustee as Paying Agent under this Agreement. The
Paying Agent shall make distributions to Certificateholders and
Residual Interestholders from the Certificate Distribution Account
pursuant to Section 5.2 hereof and Section 5.01 of the Sale and
-----------
Servicing Agreement and shall report the amounts of such
distributions to the Owner Trustee. The Paying Agent shall have
the revocable power to withdraw funds from the Certificate Distribution
Account for the purpose of making the distributions
referred to above. In the event that the Co-Owner Trustee shall no
longer be the Paying Agent hereunder, the Owner Trustee shall
appoint a successor to act as Paying Agent (which shall be a bank or
trust company) acceptable to the Securities Insurer. The Owner
Trustee shall cause such successor Paying Agent or any additional
Paying Agent appointed by the Owner Trustee to execute and deliver
to the Owner Trustee an instrument in which such successor Paying
Agent or additional Paying Agent shall agree with the Owner Trustee
that as Paying Agent, such successor Paying Agent or additional Pay
in trust for the benefit of the Certificateholders and Residual
Interestholders entitled thereto until such sums shall be paid to
such Owners. The Paying Agent shall return all unclaimed funds to
the Owner Trustee, and upon removal of a Paying Agent, such Paying
Agent shall also return all funds in its possession to the Owner
Trustee. The provisions of Sections 7.1, 7.3, 7.4 and 8.1 shall
------------------------------
apply to the Co-Owner Trustee also in its role as Paying Agent, for
so long as the Co-Owner Trustee shall act as Paying Agent and, to
the extent applicable, to any other paying agent appointed hereunder.
Any reference in this Agreement to the Paying Agent shall include any
co-paying agent unless the context requires otherwise.
Notwithstanding anything herein to the contrary, the Co-Owner Trustee
and the Paying Agent shall be the same entity as the Indenture
Trustee under the Indenture and the Sale and Servicing Agreement,
unless a Securities Insurer Default has occurred and is continuing.
In such event, the Co-Owner Trustee and the Paying Agent shall
resign and the Owner Trustee shall assume the duties and obligations
of the Co-Owner Trustee and the Paying Agent hereunder and under the
Sale and Servicing Agreement; provided, however, that the Indenture
Trustee shall continue to perform its duties as Contract of Insurance
Holder under the Sale and Servicing Agreement. In addition, in such
event, the Indenture Trustee shall agree to continue to make claims
under the Guaranty Policy on behalf of the Owner Trustee for the
benefit of the Certificateholders pursuant to the Sale and Servicing
Agreement.
3.10 Restrictions on Transfer of Trust Certificates.
----------------------------------------------
(a) Neither any Certificate nor any Residual Interest Instrument
may be acquired, by or for the account of (i) an employee benefit plan (as
defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")) that is subject to the provisions of Title I
of ERISA, (ii) a plan described in Section 4975(e)(1) of the Internal
Revenue Code of 1986, as amended, or (iii) any entity, including an
insurance company separate account or general account, whose underlying
assets include plan assets by reason of a plan's investment in the entity
(each, a "Benefit Plan"). By accepting and holding a Trust Certificate,
the Owner thereof shall be deemed to have represented and warranted that
it is not a Benefit Plan.
(b) Each prospective purchaser and any subsequent transferee of a
Trust Certificate (each, a "Prospective Owner"), other than the
-----------------
Company or a wholly-owned subsidiary of the Company, shall represent and
warrant, in writing, to the Owner Trustee and the Certificate Registrar and
any of their respective successors that:
(i) Such Person is (A) a "qualified institutional buyer" as
defined in Rule 144A under the Securities Act of 1933, as amended
(the "Securities Act"), and is aware that the seller of
--------------
such Trust Certificate may be relying on the exemption from the
registration requirements of the Securities Act provided by Rule
144A and is acquiring such Trust Certificate for its own account or
for the account of one or more qualified institutional buyers for
whom it is authorized to act, or (B) a Person involved in the
organization or operation of the Trust or an affiliate of such
Person within the meaning of Rule 3a-7 of the Investment Company Act
of 1940, as amended (including, but not limited to, the Seller or the
Company).
(ii) Such Person understands that such Trust Certificate has
not been and will not be registered under the Securities Act and
may be offered, sold, pledged or otherwise transferred only to a
person whom the seller reasonably believes is (A) a qualified
institutional buyer or (B) a Person involved in the organization or
operation of the Trust or an affiliate of such Person, in a
transaction meeting the requirements of Rule 144A under the
Securities Act and in accordance with any applicable securities
laws of any state of the United States.
(iii) Such Person understands that each Trust Certificate
bears a legend to the following effect:
"(THE RESIDUAL INTEREST IN THE TRUST REPRESENTED BY THIS
RESIDUAL INTEREST INSTRUMENT) (THIS CERTIFICATE) HAS NOT
BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES
LAWS. THIS (RESIDUAL INTEREST) (CERTIFICATE) MAY BE
DIRECTLY OR INDIRECTLY OFFERED OR SOLD OR OTHERWISE
DISPOSED OF (INCLUDING PLEDGED) BY THE HOLDER HEREOF ONLY
TO (I) A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN
RULE 144A UNDER THE ACT, IN A TRANSACTION THAT IS REGISTERED
UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR THAT
IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT
PURSUANT TO RULE 144A OR ((II) A PERSON INVOLVED IN THE
ORGANIZATION OR OPERATION OF THE TRUST OR AN AFFILIATE OF
SUCH A PERSON WITHIN THE MEANING OF RULE 3a-7 OF THE INVESTMENT
COMPANY ACT OF 1940), AS AMENDED (INCLUDING, BUT NOT LIMITED
TO, MEGO MORTGAGE CORPORATION) IN A TRANSACTION THAT IS
REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR
THAT IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT
AND SUCH LAWS. NO PERSON IS OBLIGATED TO REGISTER THIS RESIDUAL
INTEREST INSTRUMENT UNDER THE ACT OR ANY STATE SECURITIES LAWS."
(iv) Such Person shall comply with the provisions of
Section 3.10(b), as applicable, relating to the ERISA
---------------
restrictions with respect to the acceptance or acquisition of such
Residual Interest Instrument.
(c) Each Prospective Owner, other than the Company, shall either:
(i) represent and warrant, in writing, to the Owner Trustee
and the Certificate Registrar and any of their respective
successors that the Prospective Owner is not (A) an "employee
benefit plan" within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or
-----
(B) a "plan" within the meaning of Section 4975(e)(1) of the Code
(any such plan or employee benefit plan, a "Plan") or (C) any
----
entity, including an insurance company separate account or general
account, whose underlying assets include plan assets by reason of a
plan's investment in the entity and is not directly or indirectly
purchasing such Trust Certificate on behalf of, as investment
manager of, as named fiduciary of, as trustee of, or with assets
of a Plan; or
(ii) furnish to the Owner Trustee and the Certificate
Registrar and any of their respective successors an opinion of
counsel acceptable to such persons that (A) the proposed issuance
or transfer of such Trust Certificate to such Prospective Owner
will not cause any assets of the Trust to be deemed assets of a
Plan, or (B) the proposed issuance or transfer of such Trust
Certificate will not cause the Owner Trustee or the Certificate
Registrar or any of their respective successors to be a fiduciary
of a Plan within the meaning of Section 3(21) of ERISA and will not
give rise to a transaction described in Section 406 of ERISA or
Section 4975(c)(1) of the Code for which a statutory or
administrative exemption is unavailable.
(d) By its acceptance of a Residual Interest Instrument, each
Prospective Owner agrees and acknowledges that no legal or beneficial
interest in all or any portion of the Residual Interest Instruments may be
transferred directly or indirectly to an individual, corporation, partnership
or other person unless such transferee is not a Non-U.S. Person (any such
person being referred to herein as a "Non-permitted Foreign Holder"), and any
such purported transfer shall be void and have no effect.
(e) Neither The Owner Trustee nor the Administrator shall execute, or
countersign and deliver, any Trust Certificate in connection with any
transfer thereof unless the transferor shall have provided to the Owner
Trustee or the Administrator a certificate, substantially in the form
attached as Exhibit D to this Agreement, signed by the transferee or a
---------
Non-permitted Foreign Holder, which certificate shall contain the consent of
the transferee to any amendments of this Agreement as may be required to
effectuate further the foregoing restrictions on transfer of any Trust
Certificate to Non-permitted Foreign Holders, and an agreement by the
transferee that it will not transfer any Trust Certificate without providing
to Certificate Registrar on behalf of the Owner Trustee a certificate
substantially in the form attached as Exhibit D to this Agreement.
---------
(f) Each Trust Certificate shall bear an additional legend referring to
the foregoing restrictions contained in paragraphs (c) and (d) above.
(g) The Prospective Owner of a Residual Interest Instrument shall
obtain an opinion of counsel to the effect that, as a matter of Federal
income tax law, such Prospective Owner is permitted to accept the transfer of
a Residual Interest Instrument.
(h) The Residual Interest Instrument may not be transferred without an
Opinion of Counsel to the effect that such transfer would not jeopardize the
tax treatment of the Trust, would not subject the Trust to an entity-level
tax, and would not jeopardize the status of the Notes as debt for all
purposes.
(i) The Trust Certificates shall not be listed for trading on an
established securities market, nor be readily tradeable on a secondary
market, nor be transferable through the substantial equivalent of a secondary
market, nor shall the Issuer be permitted to have more than 100 partners, for
income tax purposes, all within the meaning of Code Section 7704, and its
attendant regulations, as applicable. If requested, in the discretion of the
Owner Trustee, transfer of a Trust Certificate shall be made only if accom-
panied by an opinion of counsel satisfactory to the Owner Trustee or the Co-
Owner Trustee, which opinion of counsel shall not be an expense of the
Issuer, the Owner Trustee, the Servicer or the Seller, to the effect such
transfer will not cause the Issuer to be a publicly traded partnership
taxable as a corporation and will not cause the termination of the Issuer
under the federal income tax rules applicable to partnerships.
nIV
ACTIONS BY OWNER TRUSTEE
4.1 Prior Notice to Owners with Respect to Certain Matters. With
------------------------------------------------------
respect to the following matters, the Owner Trustee shall not take
action, and the Owners shall not direct the Owner Trustee to take
any action, unless at least 30 days before the taking of such
action, the Owner Trustee shall have notified the Owners and the
Securities Insurer in writing of the proposed action and the Owners
and/or the Securities Insurer shall not have notified the Owner
Trustee in writing prior to the 30th day after such notice is given
that such Owners and/or the Securities Insurer have withheld consent
or the Owners have provided alternative direction (any direction by
the Owners shall require the prior consent of the Securities
Insurer):
(a) the initiation of any claim or lawsuit by the Trust (except
claims or lawsuits brought in connection with the collection
of the Home Loans) and the compromise of any action, claim or
lawsuit brought by or against the Trust (except with respect
to the aforementioned claims or lawsuits for collection of the
Home Loans);
(b) the election by the Trust to file an amendment to the
Certificate of Trust (unless such amendment is required to be
filed under the Business Trust Statute);
(c) the amendment or other change to this Agreement or any
Transaction Document in circumstances where the consent of any
Noteholder or the Securities Insurer is required;
(d) the amendment or other change to this Agreement or any
Transaction Document in circumstances where the consent of any
Noteholder or the Securities Insurer is not required and such
amendment materially adversely affects the interest of the
Owners;
(e) the appointment pursuant to the Indenture of a successor Note
Registrar, Paying Agent or Indenture Trustee or pursuant to
this Agreement of a successor Certificate Registrar, or the
consent to the assignment by the Note Registrar, Paying Agent
or Indenture Trustee or Certificate Registrar of its
obligations under the Indenture or this Agreement, as applicable.
(f) the consent to the calling or waiver of any default of any
Transaction Document;
(g) the consent to the assignment by the Indenture Trustee, the
Master Servicer or Servicer of their respective obligations
under any Transaction Document;
(h) except as provided in Article IX hereof, dissolve, terminate
or liquidate the Trust in whole or in part;
(i) merge or consolidate the Trust with or into any other entity,
or convey or transfer all or substantially all of the Trust's
assets to any other entity;
(j) cause the Trust to incur, assume or guaranty any indebtedness
other than the Notes, as set forth in this Agreement;
(k) do any act that conflicts with any other Transaction Document;
(l) do any act which would make it impossible to carry on the
ordinary business of the Trust;
(m) confess a judgment against the Trust;
(n) possess Trust assets, or assign the Trust's right to property,
for other than a Trust purpose;
(o) cause the Trust to lend any funds to any entity; or
(p) change the Trust's purpose and powers from those set forth in
this Trust Agreement.
In addition the Trust shall not commingle its assets with those of any
other entity. The Trust shall maintain its financial and accounting books
and records separate from those of any other entity. Except as expressly set
forth herein, the Trust shall pay its indebtedness, operating expenses from
its own funds, and the Trust shall not pay the indebtedness, operating
expenses and liabilities of any other entity. The Trust shall maintain
appropriate minutes or other records of all appropriate actions and shall
maintain its office separate from the offices of the Company, the Depositor,
and any of their respective affiliates. This Agreement is and shall be the
only agreement among the parties hereto with respect to the creation,
operation and termination of the Trust. For accounting purposes, the Trust
shall be treated as an entity separate and distinct from any Owner. The
pricing and other material terms of all transactions and agreements to which
the Trust is a party shall be intrinsically fair to all parties thereto.
The Owner Trustee shall not have the power, except upon the direction of
the Majority Securityholders with the consent of the Securities Insurer, and
to the extent otherwise consistent with the Transaction Documents, to (i)
remove or replace the Master Servicer, the Servicer or the Indenture Trustee,
(ii) institute proceedings to have the Trust declared or adjudicated a
bankrupt or insolvent, (iii) consent to the institution of bankruptcy or
insolvency proceedings against the Trust, (iv) file a petition or consent to
a petition seeking reorganization or relief on behalf of the Trust under any
applicable federal or state law relating to bankruptcy, (v) consent to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator (or
any similar official) of the Trust or a substantial portion of the property
of the Trust, (vi) make any assignment for the benefit of the Trust's
creditors, (vii) cause the Trust to admit in writing its inability to pay its
debts generally as they become due, or (viii) take any action, or cause the
Trust to take any action, in furtherance of any of the foregoing (any of the
above, a "Bankruptcy Action"). So long as the Indenture and the Insurance
Agreement remain in effect and no Securities Insurer Default exists, no
Certificateholder or Residual Interestholder shall have the power to take,
and shall not take, any Bankruptcy Action with respect to the Trust or direct
the Owner Trustee to take any Bankruptcy Action with respect to the Trust.
4.2 Action by Owners with Respect to Certain Matters. The Owner
-------------------------------------------------
Trustee shall not have the power, except upon the direction of the
Owners and the consent of the Securities Insurer, to (a) remove the
Administrator pursuant to the Administration Agreement, (b) appoint
a successor Administrator pursuant to the Administration Agreement,
(c) remove the Master Servicer pursuant to the Sale and Servicing
Agreement, (d) remove the Servicer pursuant to the Servicing
Agreement, or (e) sell the Home Loans after the termination of the
Indenture. The Owner Trustee shall take the actions referred to in
the preceding sentence only upon written instructions signed by the
Owners and only after obtaining the consent of the Securities
Insurer.
4.3 Action by Owners with Respect to Bankruptcy. The Owner Trustee
-------------------------------------------
shall not have the power to commence a voluntary proceeding in
bankruptcy relating to the Trust without the consent and approval
of the Securities Insurer, the unanimous prior approval of all
Owners and the Securities Insurer and the delivery to the Owner
Trustee by each such Owner of a certificate certifying that such
Owner reasonably believes that the Trust is insolvent.
4.4 Restrictions on Owners' Power. The Owners shall not direct the
-----------------------------
Owner Trustee to take or refrain from taking any action if such
action or inaction would be contrary to any obligation of the
Trust or the Owner Trustee under this Agreement or any of the
Transaction Documents or would be contrary to Section 2.3 nor
-----------
shall the Owner Trustee be obligated to follow any such direction,
if given.
4.5 Majority Control. Except as expressly provided herein, any
----------------
action that may be taken by the Owners under this Agreement may be
taken by (i) the Holders of Certificates evidencing more than a 50%
Percentage Interest in the Certificates and (ii) the Majority
Residual Interestholders. Except as expressly provided herein, any
written notice of the Owners delivered pursuant to this Agreement
shall be effective if signed by Holders of Certificates evidencing
(i) more than a 50% Percentage Interest in the Certificates and
(ii) the Majority Residual Interestholders at the time of the
delivery of such notice.
V
APPLICATION OF TRUST FUNDS; CERTAIN DUTIES
5.1 Establishment of Trust Account. The Owner Trustee shall cause
------------------------------
the Indenture Trustee, to establish and maintain with First Trust
of New York, National Association for the benefit of the Owner
Trustee or Co-Owner Trustee one or more Eligible Accounts which
while the Co-Owner Trustee holds such Trust Account shall be
entitled "CERTIFICATE DISTRIBUTION ACCOUNT, FIRST TRUST OF NEW YORK,
NATIONAL ASSOCIATION, AS CO-OWNER TRUSTEE, IN TRUST FOR THE MEGO
MORTGAGE HOME LOAN ASSET BACKED SECURITIES, SERIES 1997-1". Funds
shall be deposited in the Certificate Distribution Account as
required by the Sale and Servicing Agreement.
All of the right, title and interest of the Co-Owner Trustee or Owner
Trustee in all funds on deposit from time to time in the Certificate
Distribution Account and in all proceeds thereof shall be held for the
benefit of the Owners, the Securities Insurer and such other persons entitled
to distributions therefrom. Except as otherwise expressly provided herein or
in the Sale and Servicing Agreement, the Certificate Distribution Account
shall be under the sole dominion and control of the Owner Trustee or Co-Owner
Trustee for the benefit of the Owners, the Securities Insurer and the
Servicer.
In addition to the foregoing, the Certificate Distribution Account is a
Trust Account under the Sale and Servicing Agreement and constitutes part of
the Trust Estate pledged by the Trust to the Indenture Trustee under the
Indenture. The Certificate Distribution Account shall be subject to and
established and maintained in accordance with the applicable provisions of
the Sale and Servicing Agreement and the Indenture, including, without
limitation, the provisions of Sections 5.01(c) and 5.03 of the Sale and
Servicing Agreement regarding distributions from the Certificate Distribution
Account.
The Company agrees to direct and shall have the sole authority to direct
the Owner Trustee or Co-Owner Trustee, or their successor in interest, as to
the Permitted Investments in which the funds on deposit in the Trust
Accounts (as such term is defined in the Sale and Servicing Agreement) may be
invested.
5.2 Application Of Trust Funds.
--------------------------
(a) On each Distribution Date, the Owner Trustee or Co-Owner
Trustee shall direct the Paying Agent to make the
distributions and payments set forth in Sections 5.01(c) and
5.03 of the Sale and Servicing Agreement from amounts on
deposit in the Note Distribution Account and the Certificate
Distribution Account, respectively.
(b) On or before the third Business Day following each
Distribution Date, the Owner Trustee shall cause the Paying
Agent to send to each Owner the Statement to Securityholders
prepared pursuant to Section 6.02 of
------------
the Sale and Servicing Agreement with respect to such
Distribution Date.
(c) In the event that any withholding tax is imposed on the
Trust's payment (or allocations of income) to an Owner, such
tax shall reduce the amount otherwise distributable to the
Owner in accordance with this Section. The Owner Trustee is
hereby authorized and directed to retain from amounts
otherwise distributable to the Owners sufficient funds for the
payment of any tax that is legally owed by the Trust (but such
authorization shall not prevent the Owner Trustee from
contesting any such tax in appropriate proceedings, and
withholding payment of such tax, if permitted by law, pending
the outcome of such proceedings). The amount of any
withholding tax imposed with respect to an Owner shall be
treated as cash distributed to such Owner at the time it is
withheld by the Trust and remitted to the appropriate taxing
authority. If there is a possibility that withholding tax is
payable with respect to a distribution (such as a distribution
to a non-U.S. Owner), the Owner Trustee may in its sole
discretion withhold such amounts in accordance with this
paragraph (c). In the event that an Owner wishes to apply for
a refund of any such withholding tax, the Owner Trustee shall
reasonably cooperate with such owner in making such claim so
long as such Owner agrees to reimburse the Owner Trustee for
any out-of-pocket expenses incurred.
5.3 Method of Payment. Distributions required to be made to Owners
-----------------
on any Distribution Date shall be made to each Owner of record on the
preceding Record Date in the manner set forth in Section 5.03 of the
Sale and Servicing Agreement.
5.4 Segregation of Moneys; No Interest. Subject to Sections 4.1 and
----------------------------------
5.2, moneys received by the Owner Trustee hereunder and deposited
into the Certificate Distribution Account will be segregated except
to the extent required otherwise by law or the Sale and Servicing
Agreement and shall be invested in Permitted Investments at the
direction of the Company. The Owner Trustee shall not be liable
for payment of any interest in respect of such moneys.
5.5 Accounting and Reports to the Certificateholder, Owners, the
------------------------------------------------------------
Internal Revenue Service and Others. The Owner Trustee shall (a)
-----------------------------------
maintain (or cause to be maintained) the books of the Trust on a
calendar year basis on the accrual method of accounting, and such
books shall be maintained separate from those of any other entity
and reflect the separate interest of the Trust, (b) deliver to each
Owner, as may be required by the Code and applicable Treasury
Regulations, such information as may be required to enable each
Owner to prepare its federal and state income tax returns, (c) file
such tax return relating to the Trust (including a partnership
information return, IRS Form 1065), and make such elections as may
from time to time be required or appropriate under any applicable
state or Federal statute or rule or regulation thereunder so as to
maintain the Trust's characterization as a partnership for Federal
income tax purposes, (d) cause such tax returns to be signed in the
manner required by law and (e) collect or cause to be collected any
withholding tax as described in and in accordance with Section 5.2(c)
--------------
with respect to income or distributions to Owners. The Owner Trustee
shall elect under Section 1278 of the Code to include in income
currently any market discount that accrues with respect to the Home
Loans. The Owner Trustee shall not make the election provided under
Section 754 of the Code.
5.6 Signature on Returns.
--------------------
The Owner Trustee shall sign on behalf of the Trust the tax returns
of the Trust, unless applicable law requires an Owner to sign such documents,
in which case such documents shall be signed by the Company.
VI
AUTHORITY AND DUTIES OF OWNER TRUSTEE
6.1 General Authority. The Owner Trustee is authorized and directed
-----------------
to execute and deliver or cause to be executed and delivered the
Notes, the Trust Certificates and the Transaction Documents to
which the Trust is to be a party and each certificate or other
document attached as an exhibit to or contemplated by the
Transaction Documents to which the Trust is to be a party and any
amendment or other agreement or instrument described in Article III,
in each case, in such form as the Company shall approve, as evidenced
conclusively by the Owner Trustee's execution thereof, and, on behalf
of the Trust, to direct the Indenture Trustee to authenticate and
deliver Classes of Notes in the following aggregate principal
amounts: Class A-1 Notes, $23,300,000; Class A-2 Notes, $25,950,000;
Class A-3 Notes, $10,300,000; and Class A-4 Notes, $26,603,605. The
Administrator on behalf of the Owner Trustee shall authenticate and
deliver the Certificates and the Residual Interest Instruments. In
addition to the foregoing, the Owner Trustee is authorized, but
shall not be obligated, to take all actions required of the Trust,
pursuant to the Transaction Documents.
6.2 General Duties. It shall be the duty of the Owner Trustee:
--------------
(a) to discharge (or cause to be discharged) all of its
responsibilities pursuant to the terms of this Agreement and
the Transaction Documents to which the Trust is a party and to
administer the Trust in the interest of the Owners, subject to
the Transaction Documents and in accordance with the
provisions of this Agreement. Notwithstanding the foregoing,
the Owner Trustee shall be deemed to have discharged its
duties and responsibilities hereunder and under the
Transaction Documents to the extent the Administrator or the
Co-Owner Trustee has agreed in the Administration Agreement or
this Agreement, respectively, to perform any act or to
discharge any duty of the Owner Trustee or the Trust hereunder
or under any Transaction Document, and the Owner Trustee shall
not be held liable for the default or failure of the
Administrator or the Co-Owner Trustee to carry out its
obligations under the Administration Agreement or this
Agreement, respectively; and
(b) to obtain and preserve, the Issuer's qualification to do
business in each jurisdiction in which such qualification is
or shall be necessary to protect the validity and
enforceability of the Indenture, the Notes, the Trust Estate
and each other instrument and agreement included in the Trust
Estate.
6.3 Action upon Instruction.
-----------------------
(a) Subject to Article IV and in accordance with the terms of the
Transaction Documents, the Owners may by written instruction
direct the Owner Trustee in the management of the Trust but
only to the extent consistent with the limited purpose of the
Trust. Such direction may be exercised at any-time by written
instruction of the Owners pursuant to Article IV.
(b) The Owner Trustee shall not be required to take any action
hereunder or under any Transaction Document if the Owner
Trustee shall have reasonably determined, or shall have been
advised by counsel, that such action is likely to result in
liability on the part of the Owner Trustee or is contrary to
the terms hereof or of any Transaction Document or is
otherwise contrary to law.
(c) Whenever the Owner Trustee is unable to decide between
alternative courses of action permitted or required by the
terms of this Agreement or under any Transaction Document, the
Owner Trustee shall promptly give notice (in such form as
shall be appropriate under the circumstances) to the Owners
and the Securities Insurer requesting instruction from the
Owners as to the course of action to be adopted, and to the
extent the Owner Trustee acts in good faith in accordance with
any written instruction of the Owners received, the Owner
Trustee shall not be liable on account of such action to any
Person. If the Owner Trustee shall not have received
appropriate instruction within 10 days of such notice (or
within such shorter period of time as reasonably may be
specified in such notice or may be necessary under the
circumstances) it may, but shall be under no duty to, take or
refrain from taking such action, not inconsistent with this
Agreement or the Transaction Documents, as it shall deem to be
in the best interests of the Owners, and shall have no
liability to any Person for such action or inaction.
(d) In the event that the Owner Trustee is unsure as to the
application of any provision of this Agreement or any
Transaction Document or any such provision is ambiguous as to
its application, or is, or appears to be, in conflict with any
other applicable provision, or in the event that this
Agreement permits any determination by the Owner Trustee or is
silent or is incomplete as to the course of action that the
Owner Trustee is required to take with respect to a particular
set of facts, the Owner Trustee may give notice (in such form
as shall be appropriate under the circumstances) to the Owners
requesting instruction and, to the extent that the Owner
Trustee acts or refrains from acting in good faith in
accordance with any such instruction received, the Owner
Trustee shall not be liable, on account of such action or
inaction, to any Person. If the Owner Trustee shall not have
received appropriate instruction within 10 days of such notice
(or within such shorter period of time as reasonably may be
specified in such notice or may be necessary under
the circumstances) it may, but shall be under no duty to, take
or refrain from taking such action, not inconsistent with this
Agreement or the Transaction Documents, as it shall deem to be
in the best interests of the Owners, and shall have no
liability to any Person for such action or inaction.
6.4 No Duties Except as Specified in this Agreement, the Transaction
----------------------------------------------------------------
Documents or in Instructions. The Owner Trustee shall not have any
----------------------------
duty or obligation to manage, make any payment with respect to,
register, record, sell, dispose of, or otherwise deal with the
Owner Trust Estate, or to otherwise take or refrain from taking any
action under, or in connection with, any document contemplated
hereby to which the Owner Trustee is a party, except as expressly
provided by the terms of this Agreement, any Transaction Document or
in any document or written instruction received by the Owner
Trustee pursuant to Section 6.3; and no implied duties or obligations
-----------
shall be read into this Agreement or any Transaction Document against
the Owner Trustee. The Owner Trustee shall have no responsibility
for filing any financing or continuation statement in any public
office at any time or to otherwise perfect or maintain the perfection
of any security interest or lien granted to it hereunder or to
prepare or file any Securities and Exchange Commission filing for
the Trust or to record this Agreement or any Transaction Document.
The Owner Trustee nevertheless agrees that it will, at its own cost
and expense, promptly take all action as may be necessary to
discharge any liens on any part of the Owner Trust Estate that
result from actions by, or claims against, the Owner Trustee that are
not related to the ownership or the administration of the Owner
Trust Estate.
6.5 No Action Except Under Specified Documents or Instructions. The
----------------------------------------------------------
Owner Trustee shall not manage, control, use, sell, dispose of or
otherwise deal with any part of the Owner Trust Estate except (i)
in accordance with the powers granted to and the authority conferred
upon the Owner Trustee pursuant to this Agreement, (ii) in
accordance with the Transaction Documents and (iii) in accordance
with any document or instruction delivered to the Owner Trustee
pursuant to Section 6.3.
-----------
6.6 Restrictions. The Owner Trustee shall not take any action (a)
------------
that is inconsistent with the purposes of the Trust set forth in
Section 2.3 or (b) that, to the actual knowledge of the Owner
----------
Trustee, would result in the Trust's becoming taxable as a
corporation for Federal income tax purposes. The Owners shall not
direct the Owner Trustee to take action that would violate the
provisions of this Section.
VII
CONCERNING THE OWNER TRUSTEE
7.1 Acceptance of Trusts and Duties. The Owner Trustee accepts the
-------------------------------
trusts hereby created and agrees to perform its duties hereunder
with respect to such trusts but only upon the terms of this
Agreement and the Transaction Documents. The Owner Trustee also
agrees to disburse all moneys actually received by it constituting
part of the Owner Trust Estate upon the terms of the Transaction
Documents and this Agreement. The Owner Trustee shall not be
answerable or accountable hereunder or under any Transaction
Document under any circumstances, except (i) for its own willful
misconduct or gross negligence or (ii) in the case of the inaccuracy
of any representation or warranty contained in Section 7.3
-----------
expressly made by the Owner Trustee. In particular, but not by way
of limitation (and subject to the exceptions set forth in the
preceding sentence):
(a) the Owner Trustee shall not be liable for any error of
judgment made by a responsible officer of the Owner Trustee;
(b) the Owner Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in accordance with
the instructions of the Administrator or the Owners;
(c) no provision of this Agreement or any Transaction Document
shall require the Owner Trustee to expend or risk funds or
otherwise incur any financial liability in the performance of
any of its rights or powers hereunder or under any Transaction
Document if the Owner Trustee shall have reasonable grounds
for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably
assured or provided to it;
(d) under no circumstances shall the Owner Trustee be liable for
indebtedness evidenced by or arising under any of the
Transaction Documents, including the principal of and interest
on the Notes;
(e) the Owner Trustee shall not be responsible for or in respect
of the validity or sufficiency of this Agreement or for the
due execution hereof by the Depositor or the Company or for
the form, character, genuineness, sufficiency, value or
validity of any of the Owner Trust Estate or for or in respect
of the validity or sufficiency of the Transaction Documents,
other than the certificate of authentication on the Trust
Certificates, and the Owner Trustee shall in no event assume
or incur any liability, duty, or obligation to any Noteholder
or to any Owner, other than as expressly provided for herein
and in the Transaction Documents;
(f) the Owner Trustee shall not be liable for the default or
misconduct of the Administrator, the Seller, the Company, the
Indenture Trustee, the Master Servicer or the Servicer under
any of the Transaction Documents or otherwise and the Owner
Trustee shall have no obligation or liability to perform the
obligations of the Trust under this Agreement or the
Transaction Documents that are required to be performed by the
Administrator under the Administration Agreement, the
Indenture Trustee under the Indenture, the Master Servicer
under the Sale and Servicing Agreement, or the Servicer under
the Servicing Agreement; and
(g) the Owner Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Agreement, or to
institute, conduct or defend any litigation under this
Agreement or otherwise or in relation to this Agreement or any
Transaction Document, at the request, order or direction of
any of the Owners, unless such Owners have offered to the
Owner Trustee security or indemnity satisfactory to it against
the costs, expenses and liabilities that may be incurred by
the Owner Trustee therein or thereby. The right of the Owner
Trustee to perform any discretionary act enumerated in this
Agreement or in any Transaction Document shall not be
construed as a duty, and the Owner Trustee shall not be
answerable for other than its gross negligence or willful
misconduct in the performance of any such act provided, that
the Owner Trustee shall be liable for its negligence or
willful misconduct in the event that it assumes the duties and
obligations of the Co-Owner Trustee under the Sale and
Servicing Agreement pursuant to Section 10.5 hereof.
7.2 Furnishing of Documents. The Owner Trustee shall furnish (a) to
-----------------------
the Owners promptly upon receipt of a written request therefor,
duplicates or copies of all reports, notices, requests, demands,
certificates, financial statements and any other instruments
furnished to the Owner Trustee under the Transaction Documents and
(b) to Noteholders promptly upon written request therefor, copies
of the Sale and Servicing Agreement, the Administration Agreement
and the Trust Agreement.
7.3 Representations and Warranties.
------------------------------
(a) The Owner Trustee hereby represents and warrants to the
Depositor and the Company, for the benefit of the Owners,
that:
(i) It is a banking corporation duly organized and validly
existing in good standing under the laws of the State of
Delaware. It has all requisite corporate power and
authority to execute, deliver and perform its obligations
under this Agreement.
(ii) It has taken all corporate action necessary to authorize
the execution and delivery by it of this Agreement, and
this Agreement will be executed and delivered by one of
its officers who is duly authorized to execute and
deliver this Agreement on its behalf.
(iii) Neither the execution nor the delivery by it of this
Agreement nor the consummation by it of the
transactions contemplated hereby nor compliance by
it with any of the terms or provisions hereof will
contravene any Federal or Delaware law, governmental
rule or regulation governing the banking or trust
powers of the Owner Trustee or any judgment or order
binding on it, or constitute any default under its
charter documents or by-laws or any indenture,
mortgage, contract, agreement or instrument to which
it is a party or by which any of its properties may
be bound.
(b) The Co-Owner Trustee hereby represents and warrants to the
Depositor and the Company and the Securities Insurer, for the
benefit of the Owners, that:
(i) It is a national banking association duly organized and
validly existing in good standing under the laws of the
United States. It has all requisite corporate power and
authority to execute, deliver and perform its obligations
under this Agreement.
(ii) It has taken all corporate action necessary to authorize
the execution and delivery by it of this Agreement, and
this Agreement will be executed and delivered by one of
its officers who is duly authorized to execute and
deliver this Agreement on its behalf.
(iii) Neither the execution nor the delivery by it of this
Agreement nor the consummation by it of the
transactions contemplated hereby nor compliance by
it with any of the terms or provisions hereof will
contravene any Federal or Minnesota law,
governmental rule or regulation governing the
banking or trust powers of the Co-Owner Trustee or
any judgment or order binding on it, or constitute
any default under its charter documents or by-laws
or any indenture, mortgage, contract, agreement or
instrument to which it is a party or by which any of
its properties may be bound.
7.4 Reliance; Advice of Counsel.
---------------------------
(a) The Owner Trustee shall incur no liability to anyone in acting
upon any signature, instrument, notice, resolution, request,
consent, order, certificate, report, opinion, bond, or other
document or paper believed by it to be genuine and believed by
it to be signed by the proper party or parties. The Owner
Trustee may accept a certified copy of a resolution of the
board of directors or other governing body of any corporate
party as conclusive evidence that such resolution has been
duly adopted by such body and that the same is in full force
and effect. As to any fact or matter the method of the
determination of which is not specifically prescribed herein,
the Owner Trustee may for all purposes hereof rely on a
certificate, signed by the president or any vice president or
by the treasurer or other authorized officers of the relevant
party, as to such fact or matter and such certificate shall
constitute full protection to the Owner Trustee for any action
taken or omitted to be taken by it in good faith in reliance
thereon.
(b) In the exercise or administration of the trusts hereunder and
in the performance of its duties and obligations under this
Agreement or the Transaction Documents, the Owner Trustee (i)
may act directly or through its agents or attorneys pursuant
to agreements entered into with any of them, and the Owner
Trustee shall not be liable for the conduct or misconduct of
such agents or attorneys if such agents or attorneys shall
have been selected by the Owner Trustee with reasonable care,
and (ii) may consult with counsel, accountants and other
skilled persons to be selected with reasonable care and
employed by it. The Owner Trustee shall not be liable for
anything done, suffered or omitted in good faith by it in
accordance with the written opinion or advice of any such
counsel, accountants or other such persons and not contrary to
this Agreement or any Transaction Document.
7.5 Not Acting in Individual Capacity. Except as provided in this
-----------------------------------
Article VII, in accepting the trusts hereby created Wilmington
Trust Company acts solely as Owner Trustee hereunder and not in its
individual capacity and all Persons having any claim against the
Owner Trustee by reason of the transactions contemplated by this
Agreement or any Transaction Document shall look only to the Owner
Trust Estate for payment or satisfaction thereof.
7.6 Owner Trustee Not Liable for Trust Certificates or Home Loans.
-------------------------------------------------------------
The recitals contained herein and in the Trust Certificates (other
than the signature and countersignature of the Owner Trustee on the
Trust Certificates) shall be taken as the statements of the
Depositor and the Company, and the Owner Trustee assumes no
responsibility for the correctness thereof. The Owner Trustee
makes no representations as to the validity or sufficiency of this
Agreement, of any Transaction Document or of the Trust Certificates
(other than the signature and countersignature of the Owner Trustee
on the Trust Certificates and as specified in Section 7.3) or the
-----------
Notes, or of any Home Loans or related documents. The Owner Trustee
shall at no time have any responsibility or liability for or with
respect to the legality, validity and enforceability of any Home
Loan, or the perfection and priority of any security interest
created by any Home Loan or the maintenance of any such perfection
and priority, or for or with respect to the sufficiency of
the Owner Trust Estate or its ability to generate the payments to be
distributed to Owners under this Agreement or the Noteholders under
the Indenture, including, without limitation: the existence,
condition and ownership of any Property; the existence and
enforceability of any insurance thereon; the existence and contents
of any Home Loan on any computer or other record thereof; the
validity of the assignment of any Home Loan to the Trust or of any
intervening assignment; the completeness of any Home Loan; the
performance or enforcement of any Home Loan; the compliance by the
Depositor, the Company, the Master Servicer or the Servicer with any
warranty or representation made under any Transaction Document or in
any related document or the accuracy of any such warranty or
representation or any action of the Administrator, the Indenture
Trustee, the Master Servicer or the Servicer or any subservicer
taken in the name of the Owner Trustee.
7.7 Owner Trustee May Own Trust Certificates and Notes. The Owner
--------------------------------------------------
Trustee in its individual or any other capacity may become the
owner or pledgee of Trust Certificates or Notes and may deal with
the Depositor, the Company, the Administrator, the Indenture
Trustee and the Servicer in banking transactions with the same
rights as it would have if it were not Owner Trustee.
7.8 Licenses. The Owner Trustee shall cause the Trust to use its
--------
best efforts to obtain and maintain the effectiveness of any
licenses required in connection with this Agreement and the
Transaction Documents and the transactions contemplated hereby
and thereby until such time as the Trust shall terminate in
accordance with the terms hereof.
Section 7.9 Rights of Co-Owner Trustee. The Co-Owner Trustee shall
--------------------------
be entitled to all the rights and benefits conferred upon the Owner Trustee
in Article VII of this Agreement.
VIII
COMPENSATION OF OWNER TRUSTEE
8.1 Owner Trustee's Fees and Expenses. The Owner Trustee shall
---------------------------------
receive as compensation for its services hereunder such fees as
have been separately agreed upon before the date hereof between the
Company and the Owner Trustee, and the Owner Trustee shall be
entitled to be reimbursed by the Company for its other reasonable
expenses hereunder, including the reasonable compensation, expenses
and disbursements of such agents, representatives, experts and
counsel as the Owner Trustee may employ in connection with the
exercise and performance of its rights and its duties hereunder.
8.2 Indemnification. The Company shall be liable as primary
---------------
obligor, and the Servicer as secondary obligor pursuant to the
Administration Agreement, for, and shall indemnify the Owner
Trustee, the Co-Owner Trustee and their successors, assigns, agents
and servants (collectively, the "Indemnified Parties") from and
against, any and all liabilities, obligations, losses, damages,
taxes, claims, actions and suits, and any and all reasonable costs,
expenses and disbursements (including reasonable legal fees and
expenses) of any kind and nature whatsoever (collectively,
"Expenses") which may at any time be imposed on, incurred by, or
asserted against the Owner Trustee or any Indemnified Party in
any way relating to or arising out of this Agreement, the
Transaction Documents, the Owner Trust Estate, the administration
of the Owner Trust Estate or the action or inaction of the Owner
Trustee or the Co-Owner Trustee hereunder, except only that the
Company shall not be liable for or required to indemnify an
Indemnified Party from and against Expenses arising or resulting
from any of the matters described in the third sentence of
Section 7.1 hereof. The indemnities contained in this Section
-----------
shall survive the resignation or termination of the Owner Trustee
or the termination of this Agreement. In any event of any claim,
action or proceeding for which indemnity will be sought pursuant to
this Section, the Owner Trustee's or Co-Owner Trustee's choice of
legal counsel shall be subject to the approval of the Company,
which approval shall not be unreasonably withheld.
8.3 Payments to the Owner Trustee. Any amounts paid to the Owner
-----------------------------
Trustee pursuant to this Article VIII shall be deemed not to be a
part of the Owner Trust Estate immediately after such payment.
IX
TERMINATION OF TRUST AGREEMENT
9.1 Termination of Trust Agreement.
------------------------------
(a) This Agreement (other than Article VIII) and the Trust shall
terminate and be of no further force or effect on the earlier
of (i) the satisfaction and discharge of the Indenture
pursuant to Section 4.01 of the Indenture and the termination
of the Sale and Servicing Agreement and (ii) the expiration of
21 years from the death of the last survivor of the
descendants of Joseph P. Kennedy (the late ambassador of the
United States to the Court of St. James's) alive on the date
hereof. The bankruptcy, liquidation, dissolution, death or
incapacity of any Owner shall not (x) operate to terminate
this Agreement or the Trust, nor (y) entitle such Owner's
legal representatives or heirs to claim an accounting or to
take any action or proceeding in any court for a partition or
winding up of all or any part of the Trust or Owner Trust
Estate nor (z) otherwise affect the rights, obligations and
liabilities of the parties hereto.
(b) The Certificates shall be subject to an early redemption or
termination at the option of the Company, the Master Servicer
or the Securities Insurer in the manner and subject to the
provisions of Section 11.01 of the Sale and Servicing
Agreement.
(c) Except as provided in Sections 9.1(a) and (b) above, none
-----------------------
of the Depositor, the Company, the Securities Insurer nor
any Owner shall be entitled to revoke or terminate the Trust.
(d) Notice of any termination of the Trust, specifying the
Distribution Date upon which the Certificateholders shall
surrender their Certificates to the Paying Agent for payment
of the final distributions and cancellation, shall be given by
the Owner Trustee to the Certificateholders, the Securities
Insurer and the Rating Agencies mailed within five Business
Days of receipt by the Owner Trustee of notice of such
termination pursuant to Section 9.1(a) or (b) above, which
-------------- ---
notice given by the Owner Trustee shall state (i) the
Distribution Date upon or with respect to which final payment
of the Certificates shall be made upon presentation and
surrender of the Certificates at the office of the Paying
Agent therein designated, (ii) the amount of any such final
payment and (iii) that the Record Date otherwise applicable to
such Distribution Date is not applicable, payments being made
only upon presentation and surrender of the Trust Certificates
at the office of the Paying Agent therein specified. The Owner
Trustee shall give such notice to the Certificate Registrar (if
other than the Owner Trustee) and the Paying Agent at the time
such notice is given to Certificateholders. Upon presentation
and surrender of the Certificates, the Paying Agent shall cause
to be distributed to Certificateholders amounts distributable
on such Distribution Date pursuant to Sections 5.01(c) and 5.03
-------------------------
of the Sale and Servicing Agreement.
In the event that all of the Certificateholders shall not surrender
their Trust Certificates for cancellation within six months after the date
specified in the above mentioned written notice, the Co-Owner Trustee shall -
give a second written notice to the remaining Certificateholders to surrender
their Trust Certificates for cancellation and receive the final distribution
with respect thereto. If within one year after the second notice all the
Trust Certificates shall not have been surrendered for cancellation, the Co-
Owner Trustee may take appropriate steps, or may appoint an agent to take
appropriate steps, to contact the remaining Certificateholders concerning
surrender of their Trust Certificates, and the cost thereof shall be paid out
of the funds and other assets that shall remain subject to this Agreement.
Any funds remaining in the Trust after exhaustion of such remedies shall be
distributed by the Co-Owner Trustee to the Residual Interestholders on a pro
rata basis.
(e) Upon the winding up of the Trust and its termination, the
Owner Trustee shall cause the Certificate of Trust to be
canceled by filing a certificate of cancellation with the
Secretary of State in accordance with the provisions of
Section 3820 of the Business Trust Statute.
X
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
10.1 Eligibility Requirements for Owner Trustee. The Owner Trustee
------------------------------------------
shall at all times be a corporation satisfying the provisions of
Section 3807(a) of the Business Trust Statute; authorized to
exercise corporate powers; having a combined capital and surplus of
at least $50,000,000 and subject to supervision or examination by
Federal or state authorities; and having (or having a parent which
has) a long-term rating of at least "A-1" by Standard & Poor's and
"Baa3" by Moody's and being acceptable to the Securities Insurer.
If such corporation shall publish reports of condition at least
annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purpose of this
Section, the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. In case at
any time the Owner Trustee shall cease to be eligible in accordance
with the provisions of this Section, the Owner Trustee shall resign
immediately in the manner and with the effect specified in
Section 10.2.
-----------
10.2 Resignation or Removal of Owner Trustee or Co-Owner Trustee.
-----------------------------------------------------------
The Owner Trustee or Co-Owner Trustee may at any time resign and
be discharged from the trusts hereby created by giving written
notice thereof to the Administrator, the Indenture Trustee, the
Securities Insurer and the Company. Upon receiving such notice
of resignation, the Administrator shall promptly appoint a
successor Owner Trustee or Co-Owner Trustee (acceptable to the
Securities Insurer) by written instrument, in duplicate, one copy
of which instrument shall be delivered to the resigning Owner
Trustee and one copy to the successor Owner Trustee or Co-Owner
Trustee. If no successor Owner Trustee or Co-Owner Trustee shall
have been so appointed and have accepted appointment within 30
days after the giving of such notice of resignation, the resigning
Owner Trustee or Co-Owner Trustee or the Securities Insurer may
petition any court of competent jurisdiction for the appointment of
a successor Owner Trustee or Co-Owner Trustee.
If at any time the Owner Trustee or Co-Owner Trustee shall cease to be
eligible in accordance with the provisions of Section 10.1 and shall
------------
fail to resign after written request therefor by the Administrator, or if at
any time the Owner Trustee or Co-Owner Trustee shall be legally unable to
act, or shall be adjudged bankrupt or insolvent, or a receiver of the Owner
Trustee or Co-Owner Trustee or of its property shall be appointed, or any
public officer shall take charge or control of the Owner Trustee or Co-Owner
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then the Securities Insurer, or the
Administrator with the consent of the Securities Insurer, may remove the
Owner Trustee or Co-Owner Trustee. If the Administrator or the Securities
Insurer shall remove the Owner Trustee or Co-Owner Trustee under the
authority of the immediately preceding sentence, the Securities Insurer, or
the Administrator with the consent of the Securities Insurer, shall promptly
appoint a successor Owner Trustee or Co-Owner Trustee by
written instrument in duplicate, one copy of which instrument shall be
delivered to the outgoing Owner Trustee or Co-Owner Trustee so removed and
one copy to the successor Owner Trustee or Co-Owner Trustee and payment of
all fees owed to the outgoing Owner Trustee or Co-Owner Trustee.
Any resignation or removal of the Owner Trustee or Co-Owner Trustee and
appointment of a successor Owner Trustee or Co-Owner Trustee pursuant to any
of the provisions of this Section shall not become effective until (i)
acceptance of appointment by the successor Owner Trustee or Co-Owner Trustee
pursuant to Section 10.3 written approval by the Securities
------------
Insurer and payment of all fees and expenses owed to the outgoing Owner
Trustee or Co-Owner Trustee. The Administrator shall provide notice of such
resignation or removal of the Owner Trustee or Co-Owner Trustee to each of
the Rating Agencies and the Securities Insurer.
10.3 Successor Owner Trustee or Co-Owner Trustee. Any successor
-------------------------------------------
Owner Trustee or Co-Owner Trustee appointed pursuant to Section
10.2 shall execute, acknowledge and deliver to the Administrator,
the Securities Insurer and to its predecessor Owner Trustee or
Co-Owner Trustee an instrument accepting such appointment under
this Agreement, and thereupon the - resignation or removal of the
predecessor Owner Trustee or Co-Owner Trustee shall become
effective and such successor Owner Trustee or Co-Owner Trustee (if
acceptable to the Securities Insurer), without any further act,
deed or conveyance, shall become fully vested with all the rights,
owers, duties, and obligations of its predecessor under this
Agreement, with like effect as if originally named as Owner Trustee
or Co-Owner Trustee. The predecessor Owner Trustee or Co-Owner
Trustee shall upon payment of its fees and expenses deliver to the
successor Owner Trustee or Co-Owner Trustee all documents and
statements and monies held by it under this Agreement; and the
Administrator and the predecessor Owner Trustee or Co-Owner
Trustee shall execute and deliver such instruments and do such
other things as may reasonably be required for fully and certainly
vesting and confirming in the successor Owner Trustee or Co-Owner
Trustee all such rights, powers, duties, and obligations.
No successor Owner Trustee or Co-Owner Trustee shall accept appointment
as provided in this Section unless at the time of such acceptance such
successor Owner Trustee or Co-Owner Trustee shall be eligible pursuant to
Section 10.1.
- ------------
Upon acceptance of appointment by a successor Owner Trustee or Co-Owner
Trustee pursuant to this Section, the Administrator shall mail notice of the
successor of such Owner Trustee or Co-Owner Trustee to all Owners, the
Indenture Trustee, the Noteholders, the Securities Insurer and the Rating
Agencies. If the Administrator fails to mail such notice within 10 days
after acceptance of appointment by the successor Owner Trustee or Co-Owner
Trustee, the successor Owner Trustee or Co-Owner Trustee shall cause such
notice to be mailed at the expense of the Administrator.
10.4 Merger or Consolidation of Owner Trustee. Any corporation into
----------------------------------------
which the Owner Trustee may be merged or converted or with which
it may be consolidated or any corporation resulting from any merger,
conversion or consolidation to which the Owner Trustee shall be a
party, or any corporation succeeding to all or substantially all of
the corporate trust business of the Owner Trustee, shall be the
successor of the Owner Trustee hereunder, provided such corporation
shall be eligible pursuant to Section 10.1, without the execution
--------
or filing of any instrument or any further act on the part of any
of the parties hereto, anything herein to the contrary
notwithstanding; provided further that the Owner Trustee shall mail
-------- -------
notice of such merger or consolidation to the Rating Agencies.
10.5 Appointment of Co-Owner Trustee or Separate Owner Trustee.
---------------------------------------------------------
Notwithstanding any other provisions of this Agreement, at any time,
for the purpose of meeting any legal requirements of any jurisdiction
in which any part of the Owner Trust Estate or any Mortgaged Property
may at the time be located, and for the purpose of performing certain
duties and obligations of the Owner Trustee with respect to the Trust
and the Certificates under the Sale and Servicing Agreement, the
Administrator and the Owner Trustee acting jointly shall have the
power and shall execute and deliver all instruments to appoint one or
more Persons approved by the Owner Trustee and acceptable to the
Securities Insurer to act as co-owner trustee, jointly with the Owner
Trustee, or separate owner trustee or separate owner trustees, of all
or any part of the Owner Trust Estate, and to vest in such Person, in
such capacity, such title to the Trust, or any part thereof, and,
subject to the other provisions of this Section, such powers, duties,
obligations, rights and trusts as the Administrator, the Securities
Insurer and the Owner Trustee may consider necessary or desirable.
If the Administrator shall not have joined in such appointment
within 25 days after the receipt by it of a request so to do, the
Owner Trustee (with the consent of the Securities Insurer) shall
have the power to make such appointment. No Co-Owner Trustee or
separate Owner Trustee under this Section 10.5 shall be required to
meet the terms of eligibility as a successor trustee pursuant to
Section 10.1 and no notice of the appointment of any co-owner
------------
trustee or separate Owner Trustee shall be required pursuant to
Section 10.3.
----
The Owner Trustee hereby appoints the Indenture Trustee as Co-Owner
Trustee for the purpose of (i) establishing and maintaining the Certificate
Distribution Account and making the distributions therefrom to the Persons
entitled thereto pursuant to Sections 5.01(c) and 5.03 of the Sale and
Servicing Agreement and (ii) holding the Contract of Insurance on behalf of
the Trust, facilitating claims under the Contract of Insurance and for
purposes of holding record ownership of each FHA Loan. The Owner Trustee and
the Co-Owner Trustee each agree that upon the occurrence and continuation of
a Securities Insurer Default, the Co-Owner Trustee shall resign and the Owner
Trustee shall assume the duties and obligations of the Co-Owner Trustee under
the Sale and Servicing Agreement (other than its duties as Contract of
Insurance Holder thereunder) and this Agreement, including without
limitation, the obligations of the Co-Owner Trustee as Paying Agent pursuant
to Section 3.9 hereof.
-----------
Each separate owner trustee and co-owner trustee shall, to the extent
permitted by law, be appointed and act subject to the following provision and
conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Owner Trustee shall be conferred upon
and exercised or performed by the Owner Trustee and such
separate owner trustee or co-owner trustee jointly (it
being understood that such separate owner trustee or co-
owner trustee is not authorized to act separately without
the Owner Trustee joining in such act), except to the
extent that under any law of any jurisdiction in which
any particular act or acts are to be performed, the Owner
Trustee shall be incompetent or unqualified to perform
such act or acts, in which event such rights, powers,
duties, and obligations (including the holding of title
to the Trust or any portion thereof in any such
jurisdiction) shall be exercised and performed singly by
such separate owner trustee or co-owner trustee but
solely at the direction of the Owner Trustee; provided
that
--------
Co-Owner Trustee, in performing its duties and obligations under the Sale and
Servicing Agreement, may act separately in its capacity as Co-Owner Trustee
without the Owner Trustee joining in such Acts.
(ii) no owner trustee under this Agreement shall be personally
liable by reason of any act or omission of any other
owner trustee under this Agreement; and
(iii) The Administrator and the Owner Trustee acting
jointly may at any time accept the resignation of or
remove any separate owner trustee or co-owner
trustee.
Any notice, request or other writing given to the Owner Trustee shall be
deemed to have been given to the separate owner trustees and co-owner
trustees, as if given to each of them. Every instrument appointing any
separate owner trustee or co-owner trustee, other than this Agreement, shall
refer to this Agreement and to the conditions of this Article. Each separate
owner trustee and co-owner trustee, upon its acceptance of appointment, shall
be vested with the estates specified in its instrument of appointment, either
jointly with the Owner Trustee or separately, as may be provided therein,
subject to all the provisions of this Agreement, specifically including every
provision of this Agreement relating to the conduct of, affecting the
liability of, or affording protection to, the Owner Trustee. Each such
instrument shall be filed with the Owner Trustee and a copy thereof given to
the Administrator.
Any separate owner trustee or co-owner trustee may at any time appoint
the Owner Trustee as its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or
in respect of this Agreement on its behalf and in its name. If any separate
owner trustee or co-owner trustee shall die, become incapable of acting,
resign or be removed, all of its estates, properties, rights, remedies and
trusts shall vest in and be exercised by the Owner Trustee, to the extent
permitted by law, without the appointment of a new or successor trustee.
The Co-Owner Trustee, in its capacity as Co-Owner Trustee, shall not
have any rights, duties or obligations except as expressly provided in this
Agreement and the Sale and Servicing Agreement.
XI
MISCELLANEOUS
11.1 Supplements and Amendments. This Agreement may be amended by
--------------------------
the Depositor, the Company and the Owner Trustee, with the prior consent of
the Securities Insurer, and with prior written notice to the Rating Agencies
and the Securities Insurer, but without the consent of any of the Noteholders
or the Owners or the Indenture Trustee, to cure any ambiguity, to correct or
supplement any provisions in this Agreement or for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
in this Agreement or of modifying in any manner the rights of the Noteholders
or the Owners provided, however, that
-------- -------
such action shall not adversely affect in any material respect the interests
of any Noteholder or Owner or the rights of the Securities Insurer. An
amendment described above shall be deemed not to adversely affect in any
material respect the interests of any Noteholder or Owner if (i) an opinion
of counsel is obtained to such effect, and (ii) the party requesting the
amendment satisfies the Rating Agency Condition with respect to such
amendment.
This Agreement may also be amended from time to time by the Depositor,
the Company and the Owner Trustee, with the prior written consent of the
Rating Agencies and with the prior written consent of the Indenture Trustee,
the Securities Insurer, the Holders (as defined in the Indenture) of Notes
evidencing more than 50% of the Percentage Interests in the Notes, the
Holders of Certificates evidencing more than 50% of the Percentage Interests
in the Certificates and the Majority Residual Interestholders, 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 Owners; provided, however, that no such
amendment shall (a) increase or reduce in
any manner the amount of, or accelerate or delay the timing of, collections
of payments on the Home Loans or distributions that shall be required to be
made for the benefit of the Noteholders or the Certificateholders or the
Securities Insurer (b) reduce the aforesaid percentage of the Outstanding
Amount of the Notes and the Class Notional Balance of the Certificates or the
Percentage Interests required to consent to any such amendment, in either
case of clause (a) or (b) without the consent of the holders of all the
outstanding Notes and Certificates and the Securities Insurer, and in the
case of clause (b) without the consent of the holders of all the outstanding
Residual Interest Instruments.
Promptly after the execution of any such amendment or consent, the Owner
Trustee shall furnish written notification of the substance of such amendment
or consent to each Certificateholder, the Indenture Trustee, the Securities
Insurer and each of the Rating Agencies.
It shall not be necessary for the consent of Owners, the Noteholders or
the Indenture Trustee pursuant to this Section to approve the particular form
of any proposed amendment or consent, but it shall be sufficient if such
consent shall approve the substance thereof. The
manner of obtaining such consents (and any other consents of Owners provided
for in this Agreement or in any other Transaction Document) and of evidencing
the authorization of the execution thereof by Certificateholders shall be
subject to such reasonable requirements as the Owner Trustee may prescribe.
Promptly after the execution of any amendment to the Certificate of
Trust, the Owner Trustee shall cause the filing of such amendment with the
Secretary of State.
Prior to the execution of any amendment to this Agreement or the
Certificate of Trust, the Owner Trustee shall be entitled to receive and rely
upon an Opinion of Counsel stating that the execution of such amendment is
authorized or permitted by this Agreement. The Owner Trustee may, but shall
not be obligated to, enter into any such amendment which affects the Owner
Trustee's own rights, duties or immunities under this Agreement or otherwise.
11.2 No Legal Title to Owner Trust Estate in Owners. The Owners
----------------------------- ----------------
shall not have legal title to any part of the Owner Trust Estate. The Owners
shall be entitled to receive distributions with respect to their undivided
ownership interest therein only in accordance with Articles V and IX. No
transfer, by operation of law or otherwise, of any right, title, or interest
of the Owners to and in their ownership interest in the Owner Trust Estate
shall operate to terminate this Agreement or the trusts hereunder or entitle
any transferee to an accounting or to the transfer to it of legal title to
any part of the Owner Trust Estate.
11.3 Limitations on Rights of Others. The provisions of this
-------------------------------
Agreement are solely for the benefit of the Owner Trustee, the Co-Owner
Trustee, the Depositor, the Company, the Owners, the Administrator, the
Securities Insurer and, to the extent expressly provided herein, the
Indenture Trustee and the Noteholders, and nothing in this Agreement, whether
express or implied, shall be construed to give to any other Person any legal
or equitable right, remedy or claim in the Owner Trust Estate or under or in
respect of this Agreement or any covenants, conditions or provisions
contained herein.
11.4 Notices. (a) Unless otherwise expressly specified or permitted
-------
by the terms hereof, all notices shall be in writing and shall be deemed
given upon receipt by the intended recipient or three Business Days after
mailing if mailed by certified mail, postage prepaid (except that notice to
the Owner Trustee shall be deemed given only upon actual receipt by the Owner
Trustee), at the following addresses: (i) if to the Owner Trustee, its
Corporate Trust Office; (ii) if to the Depositor, Financial Asset Securities
Corp., 600 Steamboat Road, Greenwich, Connecticut 06830, Attention: John
Anderson, Senior Vice President; (iii) if to the Company, Mego Mortgage
Corporation, 1000 Parkwood Circle, Suite 500 Atlanta, Georgia 30339,
Attention: Jeff S. Moore, President; (iv) if to the Securities Insurer, MBIA
Insurance Corporation, 113 King Street, Armonk, New York 10504, Attention:
IPM-SF, telephone: 914-765-3810, confirmation: 914-765-3781; (v) if to the
Co-Owner Trustee, First Trust of New York, National Association, 180 East
Fifth Street, St. Paul, Minnesota 55101, Attention: Structured Finance/Mego
Mortgage 1997-1 Corporate Trust Department; or, as to each such party, at such
other address as shall be designated by such party in a written notice to
each other party.
(b) Any notice required or permitted to be given to an Owner shall be
given by first-class mail, postage prepaid, at the address of such Owner as
shown in the Certificate 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 Owner receives such notice.
11.5 Severability. Any provision of this Agreement that is
------------
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
11.6 Separate Counterparts. This Agreement may be executed by the
---------------------
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
11.7 Successors and Assigns. All covenants and agreements contained
----------------------
herein shall be binding upon, and inure to the benefit of, the Depositor, the
Company, the Securities Insurer, the Owner Trustee, the Co-Owner Trustee and
its successors and each owner and its successors and permitted assigns, all
as herein provided. Any request, notice, direction, consent, waiver or other
instrument or action by an Owner shall bind the successors and assigns of
such Owner.
11.8 No Petition. The Owner Trustee, by entering into this
-----------
Agreement, each Owner, by accepting a Trust Certificate, and the Indenture
Trustee and each Noteholder by accepting the benefits of this Agreement,
hereby covenant and agree that they will not at any time institute against
the Company, any wholly-owned subsidiary of the Company, the Depositor or the
Trust, or join in any institution against the Company, any wholly-owned
subsidiary of the Company, or the Trust of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other proceedings
under any United States Federal or state bankruptcy or law in connection with
any obligations relating to the Trust Certificates, the Notes, this Agreement
or any of the Transaction Documents.
11.9 Covenants of Company. The Company shall not institute at any
--------------------
time any Bankruptcy proceeding against the Trust or any wholly-owned
subsidiary of the Company, under any United States Federal or state
bankruptcy or similar law in connection with any obligations relating to the
Trust Certificates, the Notes, the Trust Agreement or any of the Transaction
Documents.
11.10 No Recourse. Each Owner by accepting a Trust Certificate
-----------
acknowledges that such Owner's Trust Certificate represents a beneficial
interest in the Trust only and does not represent an interest in or an
obligation of the Seller, the Servicer, the Company, the Depositor, the
Administrator, the Owner Trustee, the Co-Owner Trustee or any Affiliate
thereof and no recourse may be had against such parties or their assets,
except as may be expressly set forth or contemplated in this Agreement, the
Trust Certificates or the Transaction Documents.
11.11 Headings. The headings of the various Articles and
--------
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
11.12 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
11.13 Section 11.13 (Reserved).
------------------------
11.14 Grant of Certificateholder and Residual Interest Holder
-------------------------------------------------------
Rights to Securities Insurer.
- ----------------------------
(a) In consideration for the guarantee of the Certificates by the
Securities Insurer pursuant to the Guaranty Policy, the
Certificateholders hereby grant to the Securities Insurer the
right to act as the Holder of 100% of the outstanding
Certificates for the purpose of exercising the rights of the
Certificateholders under this Agreement without the consent of
the Certificateholders, including the voting rights of such
holders hereunder, but excluding those rights requiring the
consent of all such Holders under Section 11.1 and any rights
of such Holders to distributions under Sections 5.01(c) and
5.03 of the Sale and Servicing Agreement; provided that the
preceding grant of rights to the Securities Insurer by the
Certificateholders shall be subject to Section 11.16.
-------------
(b) In consideration for the issuance of the Residual Interest
Instruments and for the guarantee of the Certificates by the
Securities Insurer pursuant to the Guaranty Policy, the
holders of the Residual Interest Instruments hereby grant to
the Securities Insurer the right to act as the holder of 100%
of the Residual Interest Instruments for the purpose of
exercising the rights of the holders of the Residual Interest
under this Agreement, including the voting rights of such
holders hereunder, but excluding those rights requiring the
consent of all such holders under Section 11.1 and any rights
of such holders to Distributions under Sections 5.01(c) and
5.03 of the Sale and Servicing Agreement; provided that the
preceding grant of rights to the Securities Insurer by the
holders of the Residual Interest shall be subject to Section
11.15.
(c) The rights of the Securities Insurer to direct certain actions
and consent to certain actions of the Certificateholders
hereunder will terminate at
such time as the Notional Balance of the Certificates has been
reduced to zero and the Securities Insurer has been reimbursed
for all Guaranteed Payments and any other amounts owed under
the Guaranty Policy and the Insurance Agreement and the
Securities Insurer has no further obligation under the
Guaranty Policy.
11.15 Third-Party Beneficiary. The parties hereto acknowledge
-----------------------
that the Securities Insurer is an express third party beneficiary hereof
entitled to enforce any rights reserved to it hereunder as if it were
actually a party hereto.
11.16 Suspension and Termination of Securities Insurer's Rights.
---------------------------------------------------------
(a) During the continuation of a Securities Insurer Default,
rights granted or reserved to the Securities Insurer hereunder
shall vest instead in the Owners; provided that the Securities
Insurer shall be entitled to any distributions in
reimbursement of the Securities Insurer Reimbursement Amount,
and the Securities Insurer shall retain those rights under
Section 11.1 to consent to any amendment of this Agreement.
------------
At such time as either (i) the Class Notional Amount has been
reduced to zero or (ii) the Guaranty Policy has been terminated and in either
case of (i) or (ii) the Securities Insurer has been reimbursed for all
Guaranteed Payments and any other amounts owed under the Guaranty Policy and
the Insurance Agreement (and the Securities Insurer no longer has any
obligation under the Guaranty Policy, except for breach thereof by the
Securities Insurer), then the rights and benefits granted or reserved to the
Securities Insurer hereunder (including the rights to direct certain actions
and receive certain notices) shall terminate and the Owner shall be entitled
to the exercise of such rights and to receive such benefits of the Securities
Insurer following such termination to the extent that such rights and
benefits are applicable to the Owners.
11.17 Inconsistencies with Sale and Servicing Agreement.
-------------------------------------------------
In the event certain provisions of this Agreement conflict with the
provisions of the Sale and Servicing Agreement, the parties hereto agree that
the provisions of the Sale and Servicing Agreement shall be controlling.
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement
to be duly executed by their respective officers hereunto duly authorized, as
of the day and year first above written.
FINANCIAL ASSET SECURITIES CORP.,
Depositor
By: /s/ John Anderson
------------------------------------
Name: John Anderson
Title:
MEGO MORTGAGE CORPORATION
By: /s/ James Belter
------------------------------------
Name: James Belter
Title:
WILMINGTON TRUST COMPANY,
not in its individual capacity but
solely as Owner Trustee
By: /s/ Patricia A. Evans
------------------------------------
Name: Patricia A. Evans
Title:
FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION, not in its individual capacity
but solely as Co-Owner Trustee and Paying
Agent
By: /s/ Edward Kachinski
------------------------------------
Name: Edward Kachinski
Title:
THIS CERTIFICATE DOES NOT REPRESENT AN INTEREST IN OR OBLIGATION OF
FINANCIAL ASSET SECURITIES CORP., MEGO MORTGAGE CORPORATION OR ANY OF THEIR
RESPECTIVE AFFILIATES, EXCEPT TO THE EXTENT DESCRIBED BELOW.
MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-1
____% HOME LOAN ASSET BACKED CERTIFICATE
evidencing a (fractional undivided interest) in the Trust, as defined below,
the property of which includes a pool of Home Loans sold to the Trust by
Financial Asset Securities Corp.
NUMBER:______ FRACTIONAL UNDIVIDED INTEREST: __________/_________th
CUSIP NO. ______ ___
(See Reverse Pages for certain definitions)
THIS CERTIFIES THAT___________ is the registered owner of a
_________/__________th nonassessable, fully-paid, fractional undivided
interest in MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-1 (the "Trust") formed
by Financial Asset Securities Corp., a Delaware corporation (the "Seller").
The Trust was created pursuant to a Trust Agreement dated as of February
1, 1997 (as amended and supplemented from time to time, the "Trust
Agreement"), among the Seller, Financial Asset Securities Corp., a Delaware
corporation (the "Company"), Wilmington Trust Company, as owner trustee (the
"Owner Trustee") and First Trust of New York National Association, as Co-
Owner Trustee (the "Co-Owner Trustee"), a summary of certain of the pertinent
provisions of which is set forth below. To the extent not otherwise defined
herein, the capitalized terms used herein have the meanings assigned to them
in the Trust Agreement or the Sale and Servicing Agreement dated as of
February 1, 1997 (as amended and supplemented from time to time, the "Sale
and Servicing Agreement"), among the Trust, the Seller, Mego Mortgage
Corporation, as servicer (the "Servicer") and the Co-Owner Trustee, as
applicable.
This Certificate is one of the duly authorized Certificates designated
as "Mego Mortgage Home Loan Asset Backed Certificates, Series 1997-1" (herein
called the "Certificates") issued under the Trust Agreement. Also issued
under an Indenture dated as of February 1, 1997, between the Trust and First
Trust of New York, National Association, as Indenture Trustee, are the _____
classes of Notes designated as "Mego Mortgage Asset Backed Notes, Series
1997-1, Class A-1, Class A-2, Class A-3 and Class A-4 (collectively, the
"Notes"). This Certificate is issued under and is subject to the terms,
provisions and conditions of the Trust Agreement to which Trust Agreement the
holder of this Certificate by virtue of the acceptance hereof assents and by
which such holder is bound. Payments of interest on this Certificate shall
be made by First Trust of New York,
National Association, in its capacity as Co-Owner Trustee under the Sale and
Servicing Agreement. The property of the Trust includes a pool of Initial
Home Loans and Subsequent Home Loans (collectively, the "Home Loans"), all
monies due thereunder on or after the respective Cut-off Dates thereof,
certain bank accounts and the proceeds thereof, proceeds from claims on
certain insurance policies and certain other rights under the Trust Agreement
and the Sale and Servicing Agreement and all proceeds of the foregoing. The
rights of the holders of the Certificates are subordinated to the rights of
the holders of the Notes, as set forth in the Sale and Servicing Agreement
and the Indenture.
Under the Trust Agreement, there will be distributed on the 25th day of
each month or, if such 25th day is not a Business Day, the next Business Day,
(each, a "Distribution Date"), commencing in March, 1997, to the person in
whose name this Certificate is registered at the close of business on the
last Business Day of the month immediately preceding the month in which each
Distribution Date occurs (the "Record Date") such Certificateholder's
fractional undivided interest in the Certificateholder Distributable Amount
to Certificateholders on such Distribution Date pursuant to Section 5.01 of
the Sale and Servicing Agreement.
The holder of this Certificate acknowledges and agrees that its rights
to receive distributions in respect of this Certificate are subordinated to
the rights of the Noteholders as described in the Sale and Servicing
Agreement and the Indenture.
It is the intent of the Seller, the Company, the Servicer and the
Certificateholders that, for purposes of Federal, state and local income and
single business tax and any other income taxes, the Trust will be treated as
a partnership and the Certificateholders (including the Company) will be
treated as partners in that partnership. The Company and the other
Certificateholders by acceptance of a Certificate, agree to treat, and to
take no action inconsistent with the treatment of, the Certificates for such
tax purposes as partnership interests in the Trust.
Each Certificateholder or Certificate Owner, by its acceptance of a
Certificate or, in the case of a Certificate Owner, a beneficial interest in
a Certificate, covenants and agrees that such Certificateholder or
Certificate Owner, as the case may be, will not at any time institute against
the Company, or join in any institution against the Company of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings, or other proceedings under any United States Federal or state
bankruptcy or similar law in connection with any obligations relating to the
Certificates, the Notes, the Trust Agreement or any of the Transaction
Documents.
Distributions on this Certificate will be made as provided in the Trust
Agreement, and the Indenture by the Indenture Trustee by wire transfer or
check mailed to the Certificateholder of record in the Certificate Register
without the presentation or surrender of this Certificate or the making of
any notation hereon, except that
with respect to Certificates registered on the Record Date in the name of the
nominee of the Clearing Agency (initially, such nominee to be Cede & Co.),
payments will be made by wire transfer in immediately available funds to the
account designated by such nominee. Except as otherwise provided in the
Trust Agreement and notwithstanding the above, the final distribution on this
Certificate will be made after due notice by the Co-Owner Trustee of the
pendency of such distribution and only upon presentation and surrender of
this Certificate at the office or agency maintained for the purpose by the
Co-Owner Trustee in the Borough of Manhattan, The City of New York.
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
(Remainder of page intentionally left blank)
Unless the certificate of authentication hereon shall have been executed
by an authorized officer of the Owner Trustee, by manual or facsimile
signature, this Certificate shall not entitle the holder hereof to any
benefit under the Trust Agreement or the Sale and Servicing Agreement or be
valid for any purpose.
THIS TRUST CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS,
AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAWS.
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not in
its individual capacity, has caused this Certificate to be duly executed.
MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-1
By: Wilmington Trust Company, not in its
individual capacity but solely as Owner
Trustee under the Trust Agreement
By:
-----------------------------------------
Authorized Signatory
DATED:_________________
CERTIFICATE OF AUTHENTICATION
This is one of the Certificates referred to in the within-mentioned
Trust Agreement.
FIRST TRUST ON NEW YORK, NATIONAL
ASSOCIATION, as Authenticating Agent
By:
---------------------------------------
Authorized Signatory
(REVERSE OF TRUST CERTIFICATE)
The Certificates do not represent an obligation of, or an interest in,
the Seller, the Servicer, the Company, the Depositor, the Owner Trustee, the
Co-Owner Trustee or any affiliates of any of them and no recourse may be had
against such parties or their assets, except as may be expressly set forth or
contemplated herein or in the Trust Agreement or the Transaction Documents.
In addition, this Certificate is not guaranteed by any governmental agency or
instrumentality and is limited in right of payment to certain collections and
recoveries respecting the Home Loans (and certain other amounts), all as more
specifically set forth herein, in the Sale and Servicing Agreement and in the
Indenture. A copy of each of the Sale and Servicing Agreement, the Indenture
and the Trust Agreement may be examined during normal business hours at the
principal office of the Seller, and at such other places, if any, designated
by the Seller, by any Certificateholder upon written request.
MBIA Insurance Corporation, as the Securities Insurer, has issued a
Guaranty Policy in the name of the Indenture Trustee for the benefit of the
Certificateholders, which policy guarantees payments on each Distribution
Date to the Indenture Trustee for the benefit of the Certificateholders of
the related Certificateholders' Interest Distributable Amount then payable on
the Certificates. Unless a Securities Insurer Default shall be continuing,
the Securities Insurer shall be deemed to be the Holder of 100% of the
outstanding Certificates for the purpose of exercising the rights, including
voting rights, of the Certificateholders under the Trust Agreement and the
Sale and Servicing Agreement. In addition, on each Distribution Date, after
the Certificateholders have been paid all amounts to which they are entitled,
the Securities Insurer will be entitled to be reimbursed for any unreimbursed
Guaranteed Payments and any other amounts owed under the Guaranty Policy.
The Trust Agreement permits, with certain exceptions therein provided,
the amendment thereof and the modification of the rights and obligations of
the Seller and the Company and the rights of the Certificateholders under the
Trust Agreement at any time by the Seller, the Company and the Owner Trustee
with the consent of the holders of the Notes and the Certificates each voting
as a class evidencing not less than a majority of the outstanding Notes and
the Class Notional Balance of the Certificates. Any such consent by the
holder of this Certificate shall be conclusive and binding on such holder and
on all future holders of this Certificate and of any Certificate issued upon
the transfer hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent is made upon this Certificate. The Trust Agreement
also permits the amendment thereof, in certain limited circumstances, without
the consent of the holders of any of the Certificates.
As provided in the Trust Agreement and subject to certain limitations
therein set forth, the transfer of this Certificate is registerable in the
Certificate Register upon surrender of this Certificate for registration of
transfer at the offices or agencies of the Certificate Registrar maintained
by the Co-Owner Trustee in the Borough of Manhattan, The City of New York,
accompanied by a written instrument of transfer in form satisfactory to the
Co-Owner Trustee and the Certificate Registrar duly executed by the holder
hereof or such holder's attorney duly
authorized in writing, and thereupon one or more new Certificates of
authorized denominations evidencing the same aggregate interest in the Trust
will be issued to the designated transferee. The initial Certificate
Registrar appointed under the Trust Agreement is the Co-Owner Trustee.
The Certificates are issuable only as registered Certificates without
coupons in denominations of $100,000 and in integral multiples of $1,000 in
excess thereof. As provided in the Trust Agreement and subject to certain
limitations therein set forth, Certificates are exchangeable for new
Certificates of authorized denominations evidencing the same aggregate
denomination, as requested by the holder surrendering the same. No service
charge will be made for any such registration of transfer or exchange, but
the Co-Owner Trustee or the Certificate Registrar may require payment of a
sum sufficient to cover any tax or governmental charge payable in connection
therewith.
The Owner Trustee, the Co-Owner Trustee, the Certificate Registrar and
any agent of the Owner Trustee, the Co-Owner Trustee or the Certificate
Registrar may treat the person in whose name this Certificate is registered
as the owner hereof for all purposes and none of the Owner Trustee, the Co-
Owner Trustee, the Certificate Registrar or any such agent shall be affected
by any notice to the contrary.
The obligations and responsibilities created by the Trust Agreement and
the Trust created thereby and the Sale and Servicing Agreement shall
terminate eighteen months after the payment to Certificateholders of all
amounts required to be paid to them pursuant to the Trust Agreement and the
Sale and Servicing Agreement and the disposition of all property held as part
of the Trust. The Majority Residual Interestholders may at their option
purchase the corpus of the Trust at a price specified in the Sale and
Servicing Agreement, and such purchase of the Home Loans and other property
of the Trust will effect early retirement of the Certificates; however, such
right of purchase is exercisable only on a Distribution Date on which the
Pool Principal Balance is less than or equal to 10% of the Original Pool
Principal Balance of the Home Loans.
The Certificates may not be acquired by (a) an employee benefit plan (as
defined in Section 3(3) of ERISA) that is subject to the provisions of Title
I of ERISA, (b) a plan described in Section 4975(e)(1) of the Code or (c) any
entity, including an insurance company separate account, whose underlying
assets include plan assets by reason of a plan's investment in the entity
(each, a "Benefit Plan"). By accepting and holding this Certificate, the
Holder hereof shall be deemed to have represented and warranted that it is
not a Benefit Plan.
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
- --------------------------------------------------------------------------
(Please print or type name and address, including postal zip code, of
assignee)
- --------------------------------------------------------------------------
the within Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing
Attorney to
- -------------------------------------------------------
transfer said Certificate on the books of the Certificate Registrar, with
full power of substitution in the premises.
Dated:
--------------
*/
---------------------------------------
Signature Guaranteed:
*/
---------------------------------------
- ---------------
*/ NOTICE: The signature to this assignment must correspond with the
- -
name as it appears upon the face of the within Certificate in every
particular, without alteration, enlargement or any change whatever. Such
signature must be guaranteed by a member firm of the New York Stock Exchange
or a commercial bank or trust company.
EXHIBIT A-2
TO THE TRUST AGREEMENT
(FORM OF CERTIFICATE ISSUED TO THE COMPANY)
EXHIBIT B
TO THE TRUST AGREEMENT
(FORM OF RESIDUAL INTEREST INSTRUMENT)
THE RESIDUAL INTEREST IN THE TRUST REPRESENTED BY THIS RESIDUAL INTEREST
INSTRUMENT HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. THIS RESIDUAL
INTEREST MAY BE DIRECTLY OR INDIRECTLY OFFERED OR SOLD OR OTHERWISE DISPOSED
OF (INCLUDING PLEDGED) BY THE HOLDER HEREOF ONLY TO (I) A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE ACT, IN A TRANSACTION
THAT IS REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR THAT
IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT PURSUANT TO RULE 144A
OR (II) A PERSON INVOLVED IN THE ORGANIZATION OR OPERATION OF THE TRUST OR AN
AFFILIATE OF SUCH A PERSON WITHIN THE MEANING OF RULE 3A-7 OF THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED (INCLUDING, BUT NOT LIMITED TO, MEGO MORTGAGE
CORPORATION) IN A TRANSACTION THAT IS REGISTERED UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS OR THAT IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF
THE ACT AND SUCH LAWS. NO PERSON IS OBLIGATED TO REGISTER THIS RESIDUAL
INTEREST UNDER THE ACT OR ANY STATE SECURITIES LAWS.
NO TRANSFER OF THIS RESIDUAL INTEREST INSTRUMENT OR ANY BENEFICIAL INTEREST
THEREIN SHALL BE MADE TO ANY PERSON UNLESS THE OWNER TRUSTEE HAS RECEIVED A
CERTIFICATE FROM THE TRANSFEREE TO THE EFFECT THAT SUCH TRANSFEREE (I) IS NOT
A PERSON WHICH IS AN EMPLOYEE BENEFIT PLAN, TRUST OR ACCOUNT SUBJECT TO TITLE
I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
("ERISA") OR SECTION 4975 OF THE CODE OR A GOVERNMENTAL PLAN, DEFINED IN
SECTION 3(32) OF ERISA SUBJECT TO ANY FEDERAL, STATE OR LOCAL LAW WHICH IS,
TO A MATERIAL EXTENT, SIMILAR TO THE FOREGOING PROVISIONS OF ERISA OR THE
CODE (ANY SUCH PERSON BEING A "PLAN") AND (II) IS NOT AN ENTITY, INCLUDING AN
INSURANCE COMPANY SEPARATE ACCOUNT OR GENERAL ACCOUNT, WHOSE UNDERLYING
ASSETS INCLUDE PLAN ASSETS BY REASON OF A PLAN'S INVESTMENT IN THE ENTITY.
(THIS AGREEMENT IS NONTRANSFERABLE. NOTWITHSTANDING ANYTHING HEREIN OR IN
THE TRUST AGREEMENT TO THE CONTRARY, ANY ATTEMPTED TRANSFER OF THIS RESIDUAL
INTEREST INSTRUMENT SHALL BE NULL AND VOID FOR ALL PURPOSES.)
MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-1
RESIDUAL INTEREST CERTIFICATE
No. _____
THIS CERTIFIES THAT __________________________________ (the "Owner") is
the registered owner of a _____% residual interest in MEGO MORTGAGE HOME LOAN
OWNER TRUST 1997-1 (the "Trust") existing under the laws of the State of
Delaware and created pursuant to the Trust Agreement dated as of February 1,
1997 (the "Trust Agreement") between FINANCIAL ASSET SECURITIES CORP., as
Depositor, MEGO MORTGAGE CORPORATION, as the Company, WILMINGTON TRUST
COMPANY, not in its individual capacity but solely in its fiduciary capacity
as owner trustee under the Trust Agreement (the "Owner Trustee") and First
Trust of New York, National Association, as Co-Owner Trustee (the "Co-Owner
Trustee"). Initially capitalized terms used but not defined herein have the
meanings assigned to them in the Trust Agreement. The Owner Trustee, on
behalf of the Issuer and not in its individual capacity, has executed this
Residual Interest Instrument by one of its duly authorized signatories as set
forth below. This Residual Interest Instrument is one of the Residual
Interest Instruments referred to in the Trust Agreement and is issued under
and is subject to the terms, provisions and conditions of the Trust Agreement
to which the holder of this Residual Interest Instrument by virtue of the
acceptance hereof agrees and by which the holder hereof is bound. Reference
is hereby made to the Trust Agreement and the Sale and Servicing Agreement
for the rights of the holder of this Residual Interest Instrument, as well as
for the terms and conditions of the Trust created by the Trust Agreement.
The holder, by its acceptance hereof, agrees not to transfer this
Residual Interest Instrument (except in accordance with terms and provisions
of the Agreement).
THIS RESIDUAL INTEREST INSTRUMENT SHALL BE CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW
PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not in
its individual capacity, has caused this Residual Interest Instrument to be
duly executed.
MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-1
By: Wilmington Trust Company, not in its
individual capacity but solely as Owner
Trustee under the Trust Agreement
By:
-----------------------------------------
Authorized Signatory
DATED:_________________
CERTIFICATE OF AUTHENTICATION
This is one of the Residual Interest referred to in the within-mentioned
Agreement.
FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION, as Authenticating Agent
By:
----------------------------------
Authorized Signatory
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
- --------------------------------------------------------------------------
(Please print or type name and address, including postal zip code, of
assignee)
- --------------------------------------------------------------------------
the within Instrument, and all rights thereunder, hereby irrevocably
constituting and appointing
Attorney to
- -------------------------------------------------------
transfer said Instrument on the books of the Certificate Registrar, with full
power of substitution in the premises.
Dated:
--------------
*/
---------------------------------------
Signature Guaranteed:
*/
---------------------------------------
- ---------------
*/ NOTICE: The signature to this assignment must correspond with the
- -
name as it appears upon the face of the within Certificate in every
particular, without alteration, enlargement or any change whatever. Such
signature must be guaranteed by a member firm of the New York Stock Exchange
or a commercial bank or trust company.
EXHIBIT C
TO THE TRUST AGREEMENT
CERTIFICATE OF TRUST OF
MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-1
--------------------------------------------
THIS Certificate of Trust of MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-1
(the "Trust"), dated as of February 1, 1997, is being duly executed and filed
by Wilmington Trust Company, a Delaware banking corporation, as trustee, to
form a business trust under the Delaware Business Trust Act (12 Del. Code,
---------
Section 3801 et seq.).
-- ---
1. Name. The name of the business trust formed hereby is MEGO
----
MORTGAGE HOME LOAN OWNER TRUST 1997-1.
2. Delaware Trustee. The name and business address of the trustee
----------------
of the Trust in the State of Delaware is Wilmington Trust Company of Rodney
Square North, 1100 North Market Street, Wilmington, Delaware 19890.
Attention:___________.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the
Trust, has executed this Certificate of Trust as of the date first above
written.
Wilmington Trust Company, not in its
individual capacity but solely as Owner
Trustee under a Trust Agreement dated
as of February 1, 1997.
By:
-------------------------------------------
Name:
Title:
Exhibit 3
Execution Copy
INDENTURE
between
MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-1,
as Issuer
and
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION,
as Indenture Trustee
Dated as of February 1, 1997
MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-1
Home Loan Asset Backed Securities,
Series 1997-1
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS
SECTION 1.1 (a) Definitions . . . . . . . . . . . . . . . . . I-1
SECTION 1.2 Incorporation by Reference of Trust Indenture Act .I-8
SECTION 1.3 Rules of Construction . . . . . . . . . . . . . . I-8
ARTICLE II
THE NOTES
SECTION 2.1 Form . . . . . . . . . . . . . . . . . . . . . . II-1
SECTION 2.2 Execution, Authentication, Delivery and Dating . II-1
SECTION 2.3 Registration; Registration of Transfer and
Exchange . . . . . . . . . . . . . . . . . . . II-2
SECTION 2.4 Mutilated, Destroyed, Lost or Stolen Notes . . . II-3
SECTION 2.5 Persons Deemed Owner . . . . . . . . . . . . . . II-4
SECTION 2.6 Payment of Principal and Interest; Defaulted
Interest . . . . . . . . . . . . . . . . . . . II-4
SECTION 2.7 Cancellation . . . . . . . . . . . . . . . . . . II-5
SECTION 2.8 Conditions Precedent to the Authentication
and the Initial Issuance of Notes . . . . . . . II-5
SECTION 2.9 Release of Trust Estate . . . . . . . . . . . . II-7
SECTION 2.10 Book-Entry Notes . . . . . . . . . . . . . . . . II-8
SECTION 2.11 Notices to Clearing Agency . . . . . . . . . . . II-9
SECTION 2.12 Definitive Notes . . . . . . . . . . . . . . . . II-9
SECTION 2.13 Tax Treatment . . . . . . . . . . . . . . . . . II-9
ARTICLE III
COVENANTS
SECTION 3.1 Payment of Principal and Interest . . . . . . . III-1
SECTION 3.2 Maintenance of Office or Agency . . . . . . . . III-1
SECTION 3.3 Money for Payments To Be Held in Trust . . . . . III-1
SECTION 3.4 Existence . . . . . . . . . . . . . . . . . . . III-3
SECTION 3.5 Protection of Trust Estate . . . . . . . . . . . III-3
SECTION 3.6 Annual Opinions as to Trust Estate . . . . . . . III-4
SECTION 3.7 Performance of Obligations; Servicing of
Home Loans . . . . . . . . . . . . . . . . . . III-4
SECTION 3.8 Negative Covenants . . . . . . . . . . . . . . . III-6
SECTION 3.9 Annual Statement as to Compliance . . . . . . . III-7
SECTION 3.10 Covenants of the Issuer . . . . . . . . . . . . III-7
SECTION 3.11 Servicer's Obligations . . . . . . . . . . . . . III-8
SECTION 3.12 Restricted Payments . . . . . . . . . . . . . . III-8
SECTION 3.14 Notice of Events of Default . . . . . . . . . . III-8
SECTION 3.15 Further Instruments and Acts . . . . . . . . . . III-8
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.1 Satisfaction and Discharge of Indenture . . . . IV-1
SECTION 4.2 Application of Trust Money . . . . . . . . . . . IV-2
SECTION 4.3 Repayment of Moneys Held by Paying Agent . . . . IV-2
ARTICLE V
REMEDIES
SECTION 5.1 Events of Default . . . . . . . . . . . . . . . . V-1
SECTION 5.2 Acceleration of Maturity; Rescission and
Annulment. . . . . . . . . . . . . . . . . . . . . V-2
SECTION 5.3 Collection of Indebtedness and Suits for
Enforcement by Indenture Trustee . . . . . . . . . V-3
SECTION 5.4 Remedies; Priorities . . . . . . . . . . . . . . . V-5
SECTION 5.5 Optional Preservation of the Trust Estate . . . . V-7
SECTION 5.6 Limitation of Suits . . . . . . . . . . . . . . . V-7
SECTION 5.7 Unconditional Rights of Noteholders To
Receive Principal and Interest . . . . . . . . . . V-8
SECTION 5.8 Restoration of Rights and Remedies . . . . . . . . V-8
SECTION 5.9 Rights and Remedies Cumulative . . . . . . . . . . V-8
SECTION 5.10 Delay or Omission Not a Waiver . . . . . . . . . . V-8
SECTION 5.11 Control by Noteholders . . . . . . . . . . . . . . V-9
SECTION 5.12 Waiver of Past Defaults . . . . . . . . . . . . . V-9
SECTION 5.13 Undertaking for Costs . . . . . . . . . . . . . V-10
SECTION 5.14 Waiver of Stay or Extension Laws . . . . . . . . V-10
SECTION 5.15 Action on Notes . . . . . . . . . . . . . . . . V-10
SECTION 5.16 Performance and Enforcement of Certain
Obligations. . . . . . . . . . . . . . . . . . . V-10
ARTICLE VI
THE INDENTURE TRUSTEE
SECTION 6.1 Duties of Indenture Trustee . . . . . . . . . . VI-1
SECTION 6.2 Rights of Indenture Trustee . . . . . . . . . . VI-2
SECTION 6.3 Individual Rights of Indenture Trustee . . . . . VI-3
SECTION 6.4 Indenture Trustee's Disclaimer . . . . . . . . . VI-3
SECTION 6.5 Notice of Defaults . . . . . . . . . . . . . . . VI-3
SECTION 6.6 Reports by Indenture Trustee to Holders . . . . VI-3
SECTION 6.7 Compensation and Indemnity . . . . . . . . . . . VI-3
SECTION 6.8 Replacement of Indenture Trustee . . . . . . . . VI-4
SECTION 6.9 Successor Indenture Trustee by Merger . . . . . VI-5
SECTION 6.10 Appointment of Co-Indenture Trustee or
Separate Indenture Trustee . . . . . . . . . . VI-5
SECTION 6.11 Eligibility; Disqualification . . . . . . . . . VI-6
SECTION 6.12 Preferential Collection of Claims Against Issuer VI-7
ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
SECTION 7.1 Issuer To Furnish Indenture Trustee Names
and Addresses of Noteholders . . . . . . . . . . VII-1
SECTION 7.2 Preservation of Information;
Communications to Noteholders. . . . . . . . . . VII-1
SECTION 7.3 Reports by Issuer . . . . . . . . . . . . . . . VII-1
SECTION 7.4 Reports by Indenture Trustee . . . . . . . . . . VII-2
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
SECTION 8.1 Collection of Money . . . . . . . . . . . . . VIII-1
SECTION 8.2 Trust Accounts; Distributions . . . . . . . . VIII-1
SECTION 8.3 General Provisions Regarding Accounts . . . . VIII-2
SECTION 8.4 Master Servicer's Monthly Statements. . . . . VIII-3
SECTION 8.5 Release of Trust Estate . . . . . . . . . . . VIII-3
SECTION 8.6 Opinion of Counsel . . . . . . . . . . . . . . VIII-4
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.1 Supplemental Indentures Without Consent
of Noteholders . . . . . . . . . . . . . . IX-1
SECTION 9.2 Supplemental Indentures with Consent of
Noteholders . . . . . . . . . . . . . . . . . .. IX-2
SECTION 9.3 Execution of Supplemental Indentures . . . . . . IX-3
SECTION 9.4 Effect of Supplemental Indenture . . . . . . . . IX-3
SECTION 9.5 Conformity with Trust Indenture Act . . . . . . IX-4
SECTION 9.6 Reference in Notes to Supplemental Indentures . IX-4
ARTICLE X
REDEMPTION OF NOTES
SECTION 10.1 Redemption . . . . . . . . . . . . . . . . . . . X-1
SECTION 10.2 Form of Redemption Notice . . . . . . . . . . . . X-1
SECTION 10.3 Notes Payable on Termination Date . . . . . . . . X-2
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Compliance Certificates and Opinions, etc. . . XI-1
SECTION 11.2 Form of Documents Delivered to Indenture
Trustee . . . . . . . . . . . . . . . . . . . . XI-2
SECTION 11.3 Acts of Noteholders . . . . . . . . . . . . . . XI-3
SECTION 11.4 Notices . . . . . . . . . . . . . . . . . . . . XI-3
SECTION 11.5 Notices to Noteholders; Waiver . . . . . . . . XI-4
SECTION 11.6 (RESERVED) . . . . . . . . . . . . . . . . . . XI-4
SECTION 11.7 Conflict with Trust Indenture Act . . . . . . . XI-4
SECTION 11.8 Effect of Headings and Table of Contents . . . XI-5
SECTION 11.9 Successors and Assigns . . . . . . . . . . . . XI-5
SECTION 11.10 Separability . . . . . . . . . . . . . . . . . XI-5
SECTION 11.11 Benefits of Indenture . . . . . . . . . . . . . XI-5
SECTION 11.12 Legal Holidays . . . . . . . . . . . . . . . . XI-5
SECTION 11.13 GOVERNING LAW . . . . . . . . . . . . . . . . . XI-5
SECTION 11.14 Counterparts . . . . . . . . . . . . . . . . . XI-5
SECTION 11.15 Recording of Indenture . . . . . . . . . . . . XI-5
SECTION 11.16 Trust Obligation . . . . . . . . . . . . . . . XI-6
SECTION 11.17 No Petition . . . . . . . . . . . . . . . . . . XI-6
SECTION 11.18 Inspection . . . . . . . . . . . . . . . . . . XI-6
EXHIBITS
--------
SCHEDULE A - Schedule of Home Loans
EXHIBIT A - Form of Notes
INDENTURE dated as of February 1, 1997, between MEGO MORTGAGE HOME LOAN
OWNER TRUST 1997-1, a Delaware business trust (the "Issuer"), and FIRST
------
TRUST OF NEW YORK, NATIONAL ASSOCIATION, a national banking corporation, as
trustee and not in its individual capacity (the "Indenture Trustee").
-----------------
Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the holders of the Issuer's Class A-1 6.57%
Home Loan Asset Backed Notes (the "Class A-1 Notes"), Class A-2 6.75% Home
---------------
Loan Asset Backed Notes (the "Class A-2 Notes"), Class A-3 6.94% Home Loan
---------------
Asset Backed Notes (the "Class A-3 Notes"), Class A-4 7.33% Home Loan Asset
---------------
Backed Notes (the "Class A-4 Notes" and, together with the Class A-1, Class
---------------
A-2 and Class A-3 Notes, the "Notes"):
-----
GRANTING CLAUSE
Subject to the terms of this Indenture, the Issuer hereby Grants to the
Indenture Trustee at the Closing Date, as Indenture Trustee for the benefit
of the holders of the Notes, all of the Issuer's right, title and interest in
and to: (i) the Trust Estate (as defined in the Sale and Servicing
Agreement); (ii) all right, title and interest of the Issuer in the Sale and
Servicing Agreement (including the Issuer's right to cause the Seller to
repurchase Home Loans from the Issuer under certain circumstances described
therein); (iii) all present and future claims, demands, causes of action and
chooses in action in respect of any or all of the foregoing and all payments
on or under and all proceeds of every kind and nature whatsoever in respect
of any or all of the foregoing, including all proceeds of the
conversion thereof, voluntary or involuntary, into cash or other liquid
property, all cash proceeds, accounts, accounts receivable, notes, drafts,
acceptances, chattel paper, checks, deposit accounts, insurance proceeds,
condemnation awards, rights to payment of any and every kind and other forms
of obligations and receivables, instruments and other property which at any
time constitute all or part of or are included in the proceeds of any of the
foregoing; (iv) all funds on deposit from time to time in the Trust Accounts
(including the Certificate Distribution Account) and (v) all other property
of the Trust from time to time (collectively, the "Collateral").
----------
The foregoing Grant is made in trust to secure the payment of principal
of and interest on, and any other amounts owing in respect of, the Notes,
equally and ratably without prejudice, priority or distinction, and to secure
compliance with the provisions of this Indenture, all as provided in this
Indenture.
The Indenture Trustee, as Indenture Trustee on behalf of the holders of
the Notes, acknowledges such Grant, accepts the trusts hereunder in good
faith and without notice of any adverse claim or liens and agrees to perform
its duties required in this Indenture to the best of its ability to the end
that the interests of the holders of the Notes may be adequately and
effectively protected. The Indenture Trustee agrees and acknowledges that
the Indenture Trustee's Home Loan Files will be held by the Custodian for the
benefit of the Indenture Trustee in St. Paul, Minnesota. The Indenture
Trustee further agrees and acknowledges that each other item of Collateral
that is physically delivered to the Indenture Trustee will be held by the
Indenture Trustee or the Custodian, as the case may be, in St. Paul,
Minnesota.
I
DEFINITIONS
1.1 (a) Definitions. For all purposes of this Indenture, except as
-----------
otherwise expressly provided herein or unless the context otherwise requires,
capitalized terms not otherwise defined herein shall have the meanings
assigned to such terms in the Sale and Servicing Agreement. All other
capitalized terms used herein shall have the meanings specified herein.
"Act" has the meaning specified in Section 11.3(a).
--- ---------------
"Administration Agreement" means the Administration Agreement dated as
------------------------
of February 1, 1997, among the Administrator, the Issuer and the Indenture
Trustee.
"Administrator" means First Bank National Association, a national
-------------
banking association, or any successor Administrator under the Administration
Agreement.
"Affiliate" means, with respect to any specified Person, any other
---------
Person controlling or controlled by or under common control with such
specified Person. For the purposes of this definition, "control" when used
with respect to any Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Authorized Officer" means, with respect to the Issuer, any officer of
------------------
the Owner Trustee who is authorized to act for the Owner Trustee in matters
relating to the Issuer and who is identified on the list of Authorized
Officers delivered by the Owner Trustee to the Indenture Trustee on the
Closing Date (as such list may be modified or supplemented from time to time
thereafter) and, so long as the Administration Agreement is in effect, any
Assistant Vice President or more senior officer of the Administrator who is
authorized to act for the Administrator in matters relating to the Issuer and
to be acted upon by the Administrator pursuant to the Administration
Agreement and who is identified on the list of Authorized Officers delivered
by the Administrator to the Indenture Trustee on the Closing Date (as such
list may be modified or supplemented from time to time thereafter).
"Book-Entry Notes" means a beneficial interest in the Class A-1, Class
----------------
A-2, Class A-3 or Class A-4 Notes, ownership and transfers of which shall be
made through book entries by a Clearing Agency as described in Section 2.10.
------------
"Business Day" means any day other than (i) a Saturday or a Sunday, or
------------
(ii) a day on which banking institutions in New York City or the city in
which the principal office of the Securities Insurer, the city in which the
Master Servicer's or Servicer's servicing operations are located or in the
city in which the corporate trust office of the Indenture Trustee is located
are authorized or obligated by law or executive order to be closed.
"Certificate of Trust" means the certificate of trust of the Issuer
--------------------
substantially in the form of Exhibit C to the Trust Agreement.
---------
"Class A-1 Notes", "Class A-2 Notes", "Class A-3 Notes" and "Class A-4
--------------- ---------------- ----------------
Notes" shall each have the meaning assigned thereto on the second preceding
page hereof.
"Clearing Agency" means an organization registered as a "clearing
---------------
agency" pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant" means a broker, dealer, bank, other
---------------------------
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with
the Clearing Agency.
"Closing Date" means March 10, 1997.
------------
"Code" means the Internal Revenue Code of 1986, as amended from time to
----
time, and Treasury Regulations promulgated thereunder.
"Collateral" has the meaning specified in the Granting Clause of this
----------
Indenture.
"Collected Amount" shall have the meaning set forth in the Sale and
----------------
Servicing Agreement.
"Company" means Mego Mortgage Corporation, a Delaware corporation or any
-------
successor in interest thereto.
"Corporate Trust Office" means the principal office of the Indenture
----------------------
Trustee at
which at any particular time its corporate trust business shall be
administered, which office at date of execution of this Agreement is located
at 180 East Fifth Street, St. Paul, Minnesota 55101; Attention: Structured
Finance/Mego 1997-1, or at such other address as the Indenture Trustee may
designate from time to time by notice to the Noteholders and the Issuer, or
the principal corporate trust office of any successor Indenture Trustee at
the address designated by such successor Indenture Trustee by notice to the
Noteholders and the Issuer.
"Default" means any occurrence that is, or with notice or the lapse of
-------
time or both would become, an Event of Default.
"Definitive Notes" has the meaning specified in Section 2.12.
---------------- ------------
"Depositor" shall mean Financial Asset Securities Corp., a Delaware
---------
corporation, in its capacity as depositor under the Sale and Servicing
Agreement, and its successor in interest.
"Depository Institution" means any depository institution or trust
----------------------
company, including the Indenture Trustee, that (a) is incorporated under the
laws of the United States of America or any State thereof, (b) is subject to
supervision and examination by federal or state banking authorities and
(c) has outstanding unsecured commercial paper or other short-term unsecured
debt obligations that are rated A-1 by S&P and P-1 by Moody's (or comparable
ratings if S&P and Moody's are not the Rating Agencies).
"Distribution Date" means the 25th day of any month or if such 25th day
-----------------
is not a Business Day, the first Business Day immediately following such day,
commencing in March 1997.
"Due Period" means, with respect to any Distribution Date and any class
----------
of Notes, the calendar month immediately preceding the month of such
Distribution Date.
"Event of Default" has the meaning specified in Section 5.1.
---------------- -----------
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Executive Officer" means, with respect to any corporation, the Chief
-----------------
Executive Officer, Chief Operating Officer, Chief Financial Officer,
President, Executive Vice President, any Vice President, the Secretary or the
Treasurer of such corporation; and with respect to any partnership, any
general partner thereof.
"Final Scheduled Distribution Date" means, with respect to each Class
---------------------------------
of Notes, March 25, 2023.
"Grant" means mortgage, pledge, bargain, sell, warrant, alienate,
-----
remise, release, convey, assign, transfer, create, and grant a lien upon and
a security interest in and right of set-off against, deposit, set over and
confirm pursuant to this Indenture. A Grant of the Collateral or of any
other agreement or instrument shall include all rights, powers and options
(but none of the obligations) of the granting party thereunder, including the
immediate and continuing right to claim for, collect, receive and give
receipt for principal and interest payments in respect of the Collateral and
all other moneys payable thereunder, to give and receive notices and other
communications, to make waivers or
other agreements, to exercise all rights and options, to bring Proceedings in
the name of the granting party or otherwise, and generally to do and receive
anything that the granting party is or may be entitled to do or receive
thereunder or with respect thereto.
"Holder" or "Noteholder" means the Person in whose name a Note is
------ ----------
registered on the Note Register; provided that the exercise of any rights of
such Holder or Noteholder under this Indenture shall at all times be subject
to Section 11.19 hereto.
-------------
"Indenture Trust Estate" or "Trust Estate" means all money, instruments,
---------------------- ------------
rights and other property that are subject or intended to be subject to the
lien and security interest of this Indenture for the benefit of the
Noteholders (including, without limitation, all Collateral Granted to the
Indenture Trustee pursuant to the Granting Clause), including all proceeds
thereof.
"Indenture Trustee" means First Trust of New York, National Association,
-----------------
a national banking corporation, as Indenture Trustee under this Indenture, or
any successor Indenture Trustee under this Indenture.
"Independent" means, when used with respect to any specified Person,
-----------
that the Person (a) is in fact independent of the Issuer, any other obligor
on the Notes, the Seller and any Affiliate of any of the foregoing Persons,
(b) does not have any direct financial interest or any material indirect
financial interest in the Issuer, any such other obligor, the Seller or any
Affiliate of any of the foregoing Persons and (c) is not connected with the
Issuer, any such other obligor, the Seller or any Affiliate of any of the
foregoing Persons as an officer, employee, promoter, underwriter, trustee,
partner, director or person performing similar functions.
"Independent Certificate" means a certificate or opinion to be delivered
-----------------------
to the Indenture Trustee under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 11.1, made by an
------------
Independent appraiser or other expert appointed by an Issuer Order and
approved by the Indenture Trustee in the exercise of reasonable care, and
such opinion or certificate shall state that the signer has read the
definition of "Independent" in this Indenture and that the signer is
Independent within the meaning thereof.
"Interest Distribution Amount" means, on any Distribution Date, the sum
----------------------------
of (i) the Noteholders' Interest Distributable Amount and (ii) the Class S
Interest Distribution.
"Issuer" means Mego Mortgage Home Loan Owner Trust 1997-1 until a
------
successor replaces it and, thereafter, means the successor and, for purposes
of any provision contained herein and required by the TIA, each other obligor
on the Notes.
"Issuer Order" and "Issuer Request" mean a written order or request
------------ --------------
signed in the name of the Issuer by any one of its Authorized Officers and
delivered to the Indenture Trustee.
"Moody's" means Moody's Investor Service, Inc., or any successor
-------
thereto.
"Note" means a Class A-1 Note, a Class A-2 Note, a Class A-3 Note or a
----
Class A-4 Note, as applicable.
"Note Depository Agreement" means the agreement dated March 10, 1997,
-------------------------
among the Issuer, the Administrator, the Indenture Trustee and The Depository
Trust Company, as the initial Clearing Agency, relating to the Book Entry
Notes.
"Note Distribution Account" shall have the meaning set forth in the Sale
-------------------------
and Servicing Agreement.
"Note Interest Rate" means, with respect to any Class of Notes, the
------------------
applicable per annum rate specified for such Class in the second paragraph of
this Indenture (computed on the basis of a 360-day year assumed to consist of
twelve 30-day months):
"Note Owner" means, with respect to a Book-Entry Note, the Person who
----------
is the beneficial owner of such Book-Entry Note, as reflected on the books of
the Clearing Agency or on the books of a Person maintaining an account with
such Clearing Agency (directly as a Clearing Agency Participant or as an
indirect participant, in each case in accordance with the rules of such
Clearing Agency).
"Note Register" and "Note Registrar" have the respective meanings
------------- --------------
specified in Section 2.3.
-----------
"Officer's Certificate" means a certificate signed by any Authorized
---------------------
Officer of the Issuer or the Administrator, under the circumstances described
in, and otherwise complying with, the applicable requirements of Section
-------
11.1, and delivered to the Indenture Trustee. Unless otherwise specified,
- ----
any reference in this Indenture to an Officer's Certificate shall be to an
Officer's Certificate of any Authorized Officer of the Issuer or the
Administrator.
"Opinion of Counsel" means one or more written opinions of counsel who
------------------
may, except as otherwise expressly provided in this Indenture, be employees
of or counsel to the Issuer and who shall be satisfactory to the Indenture
Trustee and the Securities Insurer, and which opinion or opinions shall be
addressed to the Indenture Trustee, as Indenture Trustee, and the Securities
Insurer and shall comply with any applicable requirements of Section 11.1 and
------------
shall be in form and substance satisfactory to the Indenture Trustee and the
Securities Insurer.
"Outstanding" means, with respect to any Note and as of the date of
-----------
determination, any Note theretofore authenticated and delivered under this
Indenture except:
(i) Notes theretofore canceled by the Note Registrar or
delivered to the Note Registrar for cancellation;
(ii) Notes or portions thereof the payment for which money in
the necessary amount has been theretofore deposited with
the Indenture Trustee or any Paying Agent in trust for
the Holders of such Notes
(provided, however, that if such Notes are to be
redeemed, notice of such redemption has been duly given
pursuant to this Indenture or provision for such notice
has been made, satisfactory to the Indenture Trustee);
(iii) Notes in exchange for or in lieu of which other
Notes have been authenticated and delivered pursuant
to this Indenture unless proof satisfactory to the
Indenture Trustee is presented that any such Notes
are held by a bona fide purchaser; provided, that in
determining whether the Holders of the requisite
Outstanding Amount of the Notes have given any
request, demand, authorization, direction, notice,
consent, or waiver hereunder or under any Basic Document,
Notes owned by the Issuer, any other obligor upon the
Notes, the Seller or any Affiliate of any of the
foregoing Persons shall be disregarded and deemed not to
be Outstanding, except that, in determining whether the
Indenture Trustee shall be protected in relying upon any
such request, demand, authorization, direction, notice,
consent, or waiver, only Notes that the Indenture Trustee
knows to be so owned shall be so disregarded. Notes so
owned that have been
pledged in good faith may be regarded as Outstanding if
the pledgee establishes to the satisfaction of the
Indenture Trustee the pledgee's right so to act with
respect to such Notes and that the pledgee is not the
Issuer, any other obligor upon the Notes, the Seller or
any Affiliate of any of the foregoing Persons; and
(iv) Notes for which the related Final Maturity Date has
occurred.
"Outstanding Amount" means the aggregate principal amount of all Notes,
------------------
or Class of Notes, as applicable, Outstanding at the date of determination.
"Owner Trustee" means Wilmington Trust Company, not in its individual
-------------
capacity but solely as Owner Trustee under the Trust Agreement, or any
successor Owner Trustee under the Trust Agreement.
"Paying Agent" means the Indenture Trustee or any other Person that
------------
meets the eligibility standards for the Indenture Trustee specified in
Section 6.11 and is authorized by the Issuer to make payments to and
- ------------
distributions from the Note Distribution Account, including payment of
principal of or interest on the Notes on behalf of the Issuer.
"Payment Date" means any Distribution Date.
------------
"Person" means any individual, corporation, estate, partnership, joint
------
venture, association, joint stock company, trust (including any beneficiary
thereof), unincorporated organization, limited liability company, limited
liability partnership, or government or any agency or political subdivision
thereof.
"Predecessor Note" means, with respect to any particular Note, every
----------------
previous Note evidencing all or a portion of the same debt as that evidenced
by such particular Note; and, for the purpose of this definition, any Note
authenticated and delivered under Section 2.4 in lieu of a mutilated, lost,
-----------
destroyed or stolen Note shall be deemed to evidence the same debt as the
mutilated, lost, destroyed or stolen Note.
"Proceeding" means any suit in equity, action at law or other judicial
----------
or administrative proceeding.
"Rating Agency Condition" means, with respect to any action to which a
-----------------------
Rating Agency Condition applies, that each Rating Agency shall have been
given 10 days (or
such shorter period as is acceptable to each Rating Agency) prior notice
thereof and that each of the Rating Agencies shall have notified the Seller,
the Servicer and the Issuer in writing that such action will not result in a
reduction or withdrawal of the then current rating of the Notes.
"Rating Agency" means either or both of (i) Standard & Poor's or (ii)
-------------
Moody's. If no such organization or successor is any longer in existence,
"Rating Agency" shall be a nationally recognized statistical rating
organization or other comparable Person designated by the Securities Insurer,
notice of which designation shall be given to the Issuer, the Indenture
Trustee, the Owner Trustee and the Servicer.
"Record Date" means, as to each Distribution Date, the last Business Day
-----------
of the month immediately preceding the month in which such Distribution Date
occurs.
"Redemption Price" means, for each Class of Notes, in the case of a
----------------
redemption of the Notes pursuant to Section 10.1, an amount equal to the
------------
unpaid principal amount of such Class of the Notes plus accrued and unpaid
interest thereon at the respective Note Interest Rate for such Class of Notes
to but excluding the Termination Date.
"Registered Holder" means the Person in whose name a Note is registered
-----------------
on the Note Register on the applicable Record Date.
"Responsible Officer" means, with respect to the Indenture Trustee, any
-------------------
officer within the Corporate Trust Office of the Indenture Trustee, including
any Vice President, Assistant Vice President, Assistant Treasurer, Assistant
Secretary or any other
officer of the Indenture Trustee customarily performing functions similar to
those performed by any of the above designated officers and also, with
respect to a particular matter, any other officer to whom such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject.
"Sale and Servicing Agreement" means the Sale and Servicing Agreement
----------------------------
dated as of February 1, 1997, among the Issuer, Mego Mortgage Corporation as
Seller, Servicer and Claims Administrator, the Depositor, Norwest Bank
Minnesota, N.A. as Master Servicer, and First Trust of New York, National
Association, as Indenture Trustee, Co-Owner Trustee and Contract of Insurance
Holder.
"Schedule of Home Loans" means the listing of the Home Loans set forth
----------------------
in Schedule A, as supplemented as of any date on which a Deleted Home Loan
----------
has been repurchased from the Trust or substituted with a Qualified
Substitute Home Loan pursuant to Section 3.05 of the Sale and Servicing
------------
Agreement.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Seller" shall mean Mego Mortgage Corporation, in its capacity as seller
------
under the Sale and Servicing Agreement, and its successor in interest.
"Servicer" shall mean Mego Mortgage Corporation, in its capacity as
--------
servicer under the Sale and Servicing Agreement, and any Successor Servicer
thereunder.
"Standard & Poor's means Standard & Poor's Ratings Group, a division of
-----------------
The McGraw-Hill Companies, Inc.
"State" means any one of the 50 States of the United States of America
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or the District of Columbia.
"Successor Master Servicer" has the meaning specified in Section 3.7(e).
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"Transaction Documents" has the meaning set forth in the Sale and
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Servicing Agreement.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939 as
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in force on the date hereof, unless otherwise specifically provided.
"UCC" means, unless the context otherwise requires, the Uniform
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Commercial Code, as in effect in the relevant jurisdiction, as amended from
time to time.
(b) Except as otherwise specified herein or as the context may
otherwise require, capitalized terms used but not otherwise defined herein
have the respective meanings set forth in the Sale and Servicing Agreement
for all purposes of this Indenture.
1.2 Incorporation by Reference of Trust Indenture Act. Whenever this
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Indenture refers to a provision of the TIA, the provision is incorporated by
reference in and made a part of this Indenture. The following TIA terms used
in this Indenture have the following meanings:
"Commission" means the Securities and Exchange Commission.
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"indenture securities" means the Notes.
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"indenture security holder" means a Noteholder.
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"indenture to be qualified" means this Indenture.
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"indenture trustee" or "institutional trustee" means the Indenture
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Trustee.
"obligor" on the indenture securities means the Issuer and any other
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obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined in the TIA,
defined by TIA reference to another statute or defined by Commission rule
have the meaning assigned to them by such definitions.
1.3 Rules of Construction.
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Unless the context otherwise requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted
accounting principles as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
(v) words in the singular include the plural and words in the
plural include the singular; and
(vi) 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
(as provided in such agreements) 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.
II
THE NOTES
2.1 Form. The Notes shall be designated as the "MEGO MORTGAGE HOME
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LOAN OWNER TRUST 1997-1 Home Loan Asset Backed Notes, Series 1997-1". Each
Class of Notes shall be in substantially the form set forth in Exhibit A with
such appropriate insertions, omissions, substitutions and other variations as
are required or permitted by this Indenture, and may have such letters,
numbers or other marks of identification and such legends or endorsements
placed thereon as may, consistently herewith, be determined by the officers
executing such Notes, as evidenced by their execution thereof. Any portion
of the text of any Note may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Note.
The Definitive Notes shall be typewritten, printed, lithographed or
engraved or produced by any combination of these methods, all as determined
by the officers executing such Notes, as evidenced by their execution of such
Notes.
Each Note shall be dated the date of its authentication. The terms of
the Notes are set forth in Exhibit A. The terms of each
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Class of Notes are part of the terms of this Indenture.
2.2 Execution, Authentication, Delivery and Dating. The Notes shall
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be executed on behalf of the Issuer by an Authorized Officer of the Owner
Trustee or the Administrator. The signature of any such Authorized Officer
on the Notes may be manual or facsimile.
Notes bearing the manual or facsimile signature of individuals who were
at any time Authorized Officers of the Owner Trustee or the Administrator
shall bind the Issuer, notwithstanding that such individuals or any of them
have ceased to hold such offices prior to the authentication and delivery of
such Notes or did not hold such offices at the date of such Notes.
Subject to the satisfaction of the conditions set forth in Section 2.8,
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the Indenture Trustee shall upon issuer order, authenticate and deliver the
four Classes of Notes for original issue in the following principal amounts:
Class A-1, $23,300,000; Class A-2, $25,950,000; Class A-3, $10,300,000; and
Class A-4, $26,603,605. The aggregate principal amount of the Classes of
Notes outstanding at any time may not exceed such respective amounts.
The Notes that are authenticated and delivered by the Indenture Trustee
to or upon the order of the Issuer on the Closing Date shall be dated March
10, 1997. All other Notes that are authenticated after the Closing Date for
any other purpose under the Indenture shall be dated the date of their
authentication. The Notes shall be issuable as registered Notes in the
minimum denomination $1,000 and integral multiples of $1.00 in excess
thereof.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Note shall be
conclusive evidence, and the only evidence, that such Note has been duly
authenticated and delivered hereunder.
2.3 Registration; Registration of Transfer and Exchange. The Issuer
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shall cause to be kept a register (the "Note Register") in which, subject to
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such reasonable regulations as it may prescribe, the Issuer shall provide for
the registration of Notes and the registration of transfers of Notes. The
Indenture Trustee initially shall be the "Note Registrar" for the purpose of
registering Notes and transfers of Notes as herein provided. Upon any
resignation of any Note Registrar, the Issuer shall promptly appoint a
successor or, if it elects not to make such an appointment, assume the duties
of Note Registrar.
If a Person other than the Indenture Trustee is appointed by the Issuer
as Note Registrar, the Issuer will give the Indenture
Trustee prompt written notice of the appointment of such Note Registrar and
of the location, and any change in the location, of the Note Register, and
the Indenture Trustee shall have the right to inspect the Note Register at
all reasonable times and to obtain copies thereof, and the Indenture Trustee
shall have the right to rely upon a certificate executed on behalf of the
Note Registrar by an Executive Officer thereof as to the names and addresses
of the Holders of the Notes and the principal amounts and number of such
Notes.
Upon surrender for registration of transfer of any Note at the office or
agency of the Issuer to be maintained as provided in Section 3.2, the
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Issuer shall execute, and the Indenture Trustee shall authenticate and the
Noteholder shall obtain from the Indenture Trustee, in the name of the
designated transferee or transferees, one or more new Notes of the same Class
in any authorized denominations, of a like aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other Notes of
the same Class in any authorized denominations, of a like aggregate principal
amount, upon surrender of the Notes to be exchanged at such office or agency.
Whenever any Notes are so surrendered for exchange, the Issuer shall execute,
and the Indenture Trustee shall authenticate and the Noteholder shall obtain
from the Indenture Trustee, the Notes which the Noteholder making the
exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange of Notes
shall be the valid obligations of the Issuer, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed by, or be accompanied by a written instrument
of transfer in form satisfactory to the Indenture Trustee duly executed by,
the Holder thereof or such Holder's attorney duly authorized in writing, with
such signature guaranteed by an "eligible guarantor institution" meeting the
requirements of the Note Registrar, which requirements include membership or
participation in the Securities Transfer Agent's Medallion Program ("STAMP")
or such other "signature guarantee program" as may be determined by the Note
Registrar in addition to, or in substitution for, STAMP, all in accordance
with the Exchange Act.
No service charge shall be made to a Holder for any registration of
transfer or exchange of Notes, but the Issuer may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration of transfer or exchange of Notes, other
than exchanges pursuant to Section 2.4 or Section 9.6 not involving any
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transfer.
The preceding provisions of this Section notwithstanding, the Issuer
shall not be required to make and the Note Registrar need not register
transfers or exchanges of Notes selected for redemption or of any Note for a
period of 15 days preceding the due date for any payment with respect to such
Note.
2.4 Mutilated, Destroyed, Lost or Stolen Notes. If (i) any mutilated
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Note is surrendered
to the Indenture Trustee, or the Indenture Trustee receives
evidence to its satisfaction of the destruction, loss or theft of
any Note, and (ii) there is delivered to the Indenture Trustee such
security or indemnity as may be reasonably required by it to hold
the Issuer and the Indenture Trustee harmless, then, in the absence
of notice to the Issuer, the Note Registrar or the Indenture
Trustee that such Note has been acquired by a bona fide purchaser,
and an Authorized Officer of the Owner Trustee or the Administrator
on behalf of the Issuer shall execute, and upon its request the
Indenture Trustee shall authenticate and deliver, in exchange for
or in lieu of any such mutilated, destroyed, lost or stolen Note, a
replacement Note of the same Class; provided, however, that if any
such destroyed, lost or stolen Note, but not a mutilated Note,
shall have become or within seven days shall be due and payable, or
shall have been called for redemption, instead of issuing a
replacement Note, the Issuer may pay such destroyed, lost or stolen
Note when so due or payable or upon the Termination Date without
surrender thereof. If, after the delivery of such replacement Note
or payment of a destroyed, lost or stolen Note
pursuant to the proviso to the preceding sentence, a bona fide
purchaser of the original Note in lieu of which such replacement
Note was issued presents for payment such original Note, the Issuer
and the Indenture Trustee shall be entitled to recover such
replacement Note (or such payment) from the Person to whom it was
delivered or any Person taking such replacement Note from such
Person to whom such replacement Note was delivered or any assignee
of such Person, except a bona fide purchaser, and shall be entitled
to recover upon the security or indemnity provided therefor to the
extent of any loss, damage, cost or expense incurred by the Issuer
or the Indenture Trustee in connection therewith.
Upon the issuance of any replacement Note under this Section, the Issuer
may require the payment by the Holder of such Note, other than the Securities
Insurer, of a sum sufficient to cover any tax or other governmental charge
that may be imposed in relation thereto and any other reasonable expenses
(including the fees and expenses of the Indenture Trustee) connected
therewith.
Every replacement Note issued pursuant to this Section in replacement of
any mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Issuer, whether or not the
mutilated, destroyed, lost or stolen Note shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture equally
and proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes.
2.5 Persons Deemed Owner. Prior to due presentment for registration
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of transfer of any Note, the Issuer, the Securities Insurer, the Indenture
Trustee and any agent of the Issuer, the Securities Insurer or the Indenture
Trustee may treat the Person in whose name any Note is registered (as of the
day of determination) as the owner of such Note for the purpose of receiving
payments of principal of and interest, if any, on such Note and for all other
purposes whatsoever, whether or not such Note be overdue, and none of the
Issuer, the Securities Insurer, the Indenture Trustee or any agent of the
Issuer or the Indenture Trustee shall be affected by notice to the contrary.
2.6 Payment of Principal and Interest; Defaulted Interest.
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(a) Each class of Notes shall accrue interest at the related Note
Interest Rate and such interest shall be payable on each Distribution Date as
specified therein in
Exhibit A hereto, subject to Section 3.1. Any installment of interest or
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principal, if any, payable on any Note that is punctually paid or duly
provided for by the Issuer on the applicable Distribution Date shall be paid
to the Person in whose name such Note (or one or more Predecessor Notes) is
registered on the Record Date by check mailed first-class postage prepaid to
such Person's address as it appears on the Note Register on such Record Date,
except that, unless Definitive Notes have been issued pursuant to Section
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2.12, with respect to Notes registered on the Record Date in the name of the
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nominee of the Clearing Agency (initially, such nominee to be Cede & Co.),
payment will be made by wire transfer in immediately available funds to the
account designated by such nominee and except for the final installment of
principal payable with respect to such Note on a Distribution Date or on the
applicable Maturity Date for such Class of Notes (and except for the
Termination Price for any Note called for redemption pursuant to Section
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10.1), which shall be payable as provided below. The funds represented by
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any such checks returned undelivered shall be held in accordance with Section
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3.3.
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(b) The principal of each Note shall be payable in installments on each
Distribution Date as provided in the forms of the Notes set forth in Exhibit
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A hereto. Notwithstanding the foregoing, the entire unpaid principal amount
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of the Notes of a Class of Notes shall be due and payable, if not previously
paid, on the earlier of (i) the Maturity Date of such Class, (ii) the
Termination Date or (iii) the date on which an Event of Default shall have
occurred and be continuing, if the Indenture Trustee or the Holders of Notes
representing not less than a majority of the Outstanding Amount of the
Notes have declared the Notes to be immediately due and payable in the manner
provided in Section 5.2. All principal payments on each Class of Notes shall
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be made pro rata to the Noteholders of such Class entitled thereto. The
Indenture Trustee shall notify the Person in whose name a Note is registered
at the close of business on the Record Date preceding the Distribution Date
on which the Issuer expects that the final installment of principal of and
interest on such Note will be paid. Such notice shall be mailed or
transmitted by facsimile prior to such final Distribution Date and shall
specify that such final installment will be payable only upon presentation
and surrender of such Note and shall specify the place where such Note may be
presented and surrendered for payment of such installment. A copy of such
form of notice shall be sent to the Securities Insurer by the Indenture
Trustee. Notices in connection with redemptions of Notes shall be mailed to
Noteholders as provided in Section 10.2.
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2.7 Cancellation. All Notes surrendered for payment, registration of
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transfer, exchange or redemption shall, if surrendered to any Person other
than the Indenture Trustee, be delivered to the Indenture Trustee and shall
be promptly canceled by the Indenture Trustee. The Issuer may at any time
deliver to the Indenture Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Issuer may have acquired in
any manner whatsoever, and all Notes so delivered shall be
promptly canceled by the Indenture Trustee. No Notes shall be
authenticated in lieu of or in exchange for any Notes canceled as
provided in this Section, except as expressly permitted by this
Indenture. All canceled Notes may be held or disposed of by the
Indenture Trustee in accordance with its standard retention or
disposal policy as in effect at the time unless the Issuer shall
direct by an Issuer Order that they be destroyed or returned to it;
provided, that such Issuer Order is timely and the Notes have not
been previously disposed of by the Indenture Trustee.
2.8 Conditions Precedent to the Authentication and the Initial Issuance
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of Notes. The Notes may be authenticated by the Indenture Trustee, upon
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Issuer Request and upon receipt by the Indenture Trustee of the following:
(a) An Issuer Order authorizing the execution and authentication of
such Notes by the Issuer.
(b) All of the items of Trust Estate which shall be delivered to the
Indenture Trustee or its designee.
(c) An executed counterpart of the Trust Agreement.
(d) Opinions of Counsel addressed to the Indenture Trustee and the
Securities Insurer to the effect that:
(i) all instruments furnished to the Indenture Trustee as
conditions precedent to the authentication of the Notes
by the Indenture Trustee pursuant to the Indenture
conform to the requirements of this Indenture and
constitute all the documents required to be delivered
hereunder for the Indenture Trustee to authenticate the
Notes;
(ii) all conditions precedent provided for in this Indenture
relating to the authentication of the Notes have been
complied with;
(iii) the Owner Trustee has power and
authority to execute, deliver and perform its obligations
under the Trust Agreement;
(iv) the Issuer has been duly formed is validly existing as a
business trust under the laws of the State of Delaware,
12 Del. C. Section 3801, et seq., and has power,
authority and legal right to execute and deliver this
Indenture, the Administration Agreement, the Insurance
Agreement and the Sale and Servicing Agreement;
(v) assuming due authorization, execution and delivery
thereof by the Indenture Trustee, the Indenture is the
valid, legal and binding obligation of the Issuer,
enforceable in
accordance with its terms, subject to bankruptcy,
insolvency, reorganization, arrangement, moratorium,
fraudulent or preferential conveyance and other similar
laws of general application affecting the rights of
creditors generally and to general principles of equity
(regardless of whether such enforcement is considered in
a proceeding in equity or at law);
(vi) the Notes, when executed and authenticated as provided
herein and delivered against payment therefor, will be
the valid, legal and binding obligations of the Issuer
pursuant to the terms of this Indenture,
entitled to the benefits of this Indenture, and will be
enforceable in accordance with their terms, subject to
bankruptcy, insolvency, reorganization, arrangement,
moratorium, fraudulent or preferential conveyance and
other similar laws of general application affecting the
rights of creditors generally and to general principles
of equity (regardless of whether such enforcement is
considered in a proceeding in equity or at law);
(vii) the Trust Agreement authorizes the Issuer to Grant
the Trust Estate to the Indenture Trustee as
security for the Notes and the
Owner Trustee has taken all necessary action under the
Trust Agreement to Grant the Trust Estate to the
Indenture Trustee;
(viii) this Indenture has been duly qualified under the
Trust Indenture Act of 1939;
(ix) this Indenture, together with the Grant of the Trust
Estate to the Indenture Trustee, creates a valid security
interest in the Trust Estate in favor of the Indenture
Trustee for the benefit of the Noteholders;
(x) such action has been taken with respect to delivery of
possession of the Trust Estate, and with respect to the
execution and filing of this Indenture and any
financing statements as are necessary to make effective
and to perfect a first priority security interest created
by this Indenture in the Trust Estate in favor of the
Indenture Trustee, except that with respect to the Debt
Instruments, possession of such Debt Instruments must be
maintained by the Indenture Trustee or an agent of the
Indenture Trustee (other than the Issuer or an Affiliate
of the Issuer) or a "securities intermediary," as defined
in Section 8.102 of the UCC, as agent of the Indenture
Trustee; and
(xi) no authorization, approval or consent of any
governmental body having jurisdiction in the premises
which has not been obtained by the Issuer is required to
be obtained by the Issuer for the valid issuance and
delivery of the Notes, except that no opinion need be
expressed with respect to any such authorizations,
approvals or consents as may be required under any state
securities "blue sky" laws.
(e) An Officer's Certificate complying with the requirements of
Section 11.1 and stating that:
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(i) the Issuer is not in Default under this Indenture and the
issuance of the Notes applied for will not result in any breach of any
of the terms, conditions or provisions of, or constitute a default
under, the Trust Agreement, any indenture, mortgage, deed of trust or
other agreement or instrument to which the Issuer is a party or by which
it is bound, or any order of any court or administrative agency entered
in any proceeding to which the Issuer is a party or by
which it may be bound or to which it may be subject, and that all
conditions precedent provided in this Indenture relating to the
authentication and delivery of the Notes applied for have been complied
with;
(ii) the Issuer is the owner of all of the Home Loans, has not
assigned any interest or participation in the Home Loans (or, if any
such interest or participation has been assigned, it has been released)
and has the right to Grant all of the Home Loans to the Indenture
Trustee;
(iii) the Issuer has Granted to the Indenture Trustee all of
its right, title, and interest in the Trust Estate, and has delivered or
caused the same to be delivered to the Indenture Trustee;
(iv) attached thereto are true and correct copies of letters signed
by Moody's and S&P confirming that each Class of the Notes and the
Certificates have been rated "Aaa" and "AAA" by Moody's and S&P,
respectively; and
(v) all conditions precedent provided for in this Indenture
relating to the authentication of the Notes have been complied with.
2.9 Release of Trust Estate. (a) Except as otherwise provided in
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subsections (b) and (c) hereof and Section 11.1 and the terms of the
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Transaction Documents, the Indenture Trustee shall release property
from the lien of this Indenture only upon receipt of an Issuer Request
accompanied by an Officer's Certificate, an Opinion of Counsel and
Independent Certificates in accordance with TIA Sections 314(c) and 314(d)(l)
or an Opinion of Counsel in lieu of such Independent Certificates to the
effect that the TIA does not require any such Independent Certificates.
(b) The Servicer, on behalf of the Issuer, shall be entitled to obtain
a release from the lien of this Indenture for any Home Loan and the related
Mortgaged Property at any time in accordance with the provisions of Section
4.17 of the Sale and Servicing Agreement have been met.
(c) The Indenture Trustee shall, if requested by the Servicer,
temporarily release or cause the Custodian to temporarily release to the
Servicer the Indenture Trustee's Home Loan File pursuant to the provisions of
Section 4.17(b) of the Sale and Servicing Agreement upon compliance by the
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Servicer of the provisions thereof provided that the Indenture Trustee's Home
Loan File shall have been stamped to signify the Issuer's pledge to the
Indenture Trustee under the Indenture.
2.10 Book-Entry Notes. The Notes, upon original issuance, will be
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issued in the form of typewritten Notes representing the Book-Entry Notes, to
be delivered to The Depository
Trust Company, the initial Clearing Agency or its custodian, by, or
on behalf of, the Issuer. The Book-Entry Notes shall be registered
initially on the Note Register in the name of Cede & Co., the
nominee of the initial Clearing Agency, and no Owner thereof will
receive a definitive Note representing such Note Owner's interest
in such Note, except as provided in Section 2.12.
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Unless and until definitive, fully registered Notes (the "Definitive Notes")
have been issued to such Note Owners pursuant to Section 2.12:
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(i) the provisions of this Section shall be in full force and
effect;
(ii) the Note Registrar and the Indenture Trustee shall be
entitled to deal with the Clearing Agency for all
purposes of this Indenture (including the payment of
principal of and interest on the Notes and the giving of
instructions or
directions hereunder) as the sole holder of the Notes,
and shall have no obligation to the Note Owners;
(iii) to the extent that the provisions of this Section
conflict with any other provisions of this
Indenture, the provisions of this Section shall
control;
(iv) the rights of Note Owners shall be exercised only through
the Clearing Agency and shall be limited to those
established by law and agreements between such Note
Owners and the Clearing Agency and/or the Clearing Agency
Participants pursuant to the Note Depository
Agreement. Unless and until Definitive Notes are issued
pursuant to Section 2.12, the initial Clearing Agency
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will make book-entry transfers among the Clearing Agency Participants and
receive and transmit payments of principal of and interest on the Notes to
such Clearing Agency Participants; and
(v) whenever this Indenture requires or permits actions to be
taken based upon instructions or directions of Holders of
Notes evidencing a specified percentage of the
Outstanding Amount of the Notes, the Clearing
Agency shall be deemed to represent such percentage only
to the extent that it has received instructions to such
effect from Note Owners and/or Clearing Agency
Participants owning or representing, respectively, such
required percentage of the beneficial interest in the
Notes and has delivered such instructions to the
Indenture Trustee.
2.11 Notices to Clearing Agency. Whenever a notice or other
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communication to the Noteholders is required under this Indenture, unless and
until Definitive Notes shall have been issued to such Note Owners pursuant to
Section 2.12, the Indenture Trustee shall give all such notices and
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communications specified herein to be given to Holders of the Notes to the
Clearing Agency, and shall have no obligation to such Note Owners.
2.12 Definitive Notes. If (i) the Administrator advises the Indenture
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Trustee in writing that the Clearing Agency is no longer willing or able to
properly discharge its responsibilities with respect to the Book-Entry Notes
and the Administrator is unable to locate a qualified successor, (ii) the
Administrator at its option advises the Indenture Trustee in writing that it
elects to terminate the book-entry system through the Clearing Agency or
(iii) after the occurrence of an Event of Default, Owners of the Book-Entry
Notes representing beneficial interests aggregating at least a majority of
the Outstanding Amount of such Notes advise the Clearing Agency in writing
that the continuation of a book-entry system through the Clearing Agency is
no longer in the best interests of such Note Owners, then the Clearing Agency
shall notify all Note Owners and the Indenture Trustee of the occurrence of
such event and of the availability of Definitive Notes to Note Owners
requesting the same. Upon surrender to the Indenture Trustee of the
typewritten Notes representing the Book-Entry Notes by the Clearing Agency,
accompanied by registration instructions, the Issuer shall execute and the
Indenture Trustee shall
authenticate the Definitive Notes in accordance with the
instructions of the Clearing Agency. None of the Issuer, the Note
Registrar or the Indenture Trustee shall be liable for any delay in
delivery of such instructions and may conclusively rely on, and
shall be protected in relying on, such instructions. Upon the
issuance of Definitive Notes, the Indenture Trustee shall recognize
the Holders of the Definitive Notes as Noteholders.
2.13 Tax Treatment. The Issuer has entered into this Indenture, and the
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Notes will be issued, with the intention that, for all tax purposes, the
Notes will qualify as indebtedness of the Issuer secured by the Trust Estate.
The Issuer, by entering into this Indenture, and each Noteholder, by its
acceptance of a Note (and each Note Owner by its acceptance of an interest in
the applicable Book-Entry Note), agree to treat the Notes for all purposes as
indebtedness of the Issuer.
III
COVENANTS
3.1 Payment of Principal and Interest. The Issuer will duly and
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punctually pay (or will cause to be duly and punctually paid) the principal
of and interest, if any, on the Notes in accordance with the terms of the
Notes and this Indenture. Without limiting the foregoing, the Indenture
Trustee shall, pursuant to Section 5.01(c) of the Sale and Servicing
Agreement, distribute all amounts on deposit in the Note Distribution Account
on each Distribution Date deposited therein pursuant to the Sale and
Servicing Agreement, and held therein for distribution to the Noteholders (i)
for the benefit of the Class A-1 Notes, to the Class A-1 Noteholders, (ii)
for the benefit of the Class A-2 Notes, to the Class A-2 Noteholders, (iii)
for the benefit of the Class A-3 Notes, to the Class A-3 Noteholders and (iv)
for the benefit of the Class A-4 Notes, to the Class A-4 Noteholders.
Amounts properly withheld under the Code by any Person from a payment to any
Noteholder of interest and/or principal shall be considered as having been
paid by the Issuer to such Noteholder for all purposes of this Indenture.
The Notes shall be non-recourse obligations of the Issuer and shall be
limited in right of payment to amounts available from the Trust Estate and
any amounts received by the Indenture Trustee under the Guaranty Policy in
respect of the Notes, as provided in this Indenture. The Issuer shall not
otherwise be liable for payments on the Notes. If any other provision of
this Indenture shall be deemed to conflict with the provisions of this
Section 3.1, the provisions of this Section 3.1 shall control.
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3.2 Maintenance of Office or Agency. The Issuer will or will cause the
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Administrator to maintain in St. Paul, Minnesota, an office or agency where
Notes may be surrendered for registration of transfer or exchange, and where
notices and demands to or upon the Issuer in respect of the Notes and this
Indenture may be served. The Issuer hereby initially appoints the
Administrator to serve as its agent for the foregoing purposes and to serve
as Paying Agent with respect to the Notes and the Certificates. The Issuer
will give prompt written notice to the Indenture Trustee of the location, and
of any change in the location, of any such office or agency. If at any time
the Issuer shall fail to maintain any such office or agency or shall fail to
furnish the Indenture Trustee with the address thereof, such surrenders,
notices and demands may be made or served at the Corporate Trust Office, and
the Issuer hereby appoints the Indenture Trustee as its agent to receive all
such surrenders, notices and demands.
3.3 Money for Payments To Be Held in Trust. As provided in Section
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8.2(a) and (b), all payments of amounts due and payable with respect to any
Notes that are to be made from amounts withdrawn from the Collection Account
and the Note Distribution Account pursuant to Section 8.2(c) shall be made
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on behalf of the Issuer by the Indenture Trustee or by the Paying Agent, and
no amounts so withdrawn from the Collection Account and the Note Distribution
Account for payments of Notes shall be paid over to the Issuer except as
provided in this Section.
Any Paying Agent shall be appointed by Issuer Order with written notice
thereof to the Indenture Trustee and the Securities Insurer. Any Paying
Agent appointed by the Issuer shall be a Person who would be eligible to be
Indenture Trustee hereunder as provided in Section 6.11. The Issuer shall
------------
not appoint any Paying Agent (other than the Indenture Trustee) which is not,
at the time of such appointment, a Depository Institution.
The Issuer will cause each Paying Agent other than the Administrator to
execute and deliver to the Indenture Trustee an instrument in which such
Paying Agent shall
agree with the Indenture Trustee (and if the Indenture Trustee acts as Paying
Agent, it hereby so agrees), subject to the provisions of this Section, that
such Paying Agent will:
(i) hold all sums held by it for the payment of amounts due
with respect to the Notes in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to
such Persons or otherwise disposed of as herein provided
and pay such sums to such Persons as herein provided;
(ii) give the Indenture Trustee and the Securities Insurer
notice of any default by the Issuer (or any other obligor
upon the Notes) of which it has actual knowledge in the
making of any payment required to be made with respect to
the Notes;
(iii) at any time during the continuance of any such
default, upon the written request of the Indenture
Trustee, forthwith pay to the Indenture Trustee all
sums so held in trust by such Paying Agent;
(iv) immediately resign as a Paying Agent and forthwith pay to
the Indenture Trustee all sums held by it in trust for
the payment of Notes if at any time it ceases to meet the
standards required to be met by a Paying Agent at the
time of its appointment; and
(v) comply with all requirements of
the Code with respect to the withholding from any
payments made by it on any Notes of any applicable
withholding taxes imposed thereon and with respect to any
applicable reporting requirements in connection
therewith; provided, however, that with respect to
withholding and reporting requirements applicable to
original issue discount (if any) on the Notes, the Issuer
shall have first provided the calculations pertaining
thereto to the Indenture Trustee.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by
Issuer Order direct any Paying Agent to pay to the Indenture Trustee all sums
held in trust by such Paying Agent, such sums
to be held by the Indenture Trustee upon the same trusts as those upon which
the sums were held by such Paying Agent; and upon such payment by any Paying
Agent to the Indenture Trustee, such Paying Agent shall be released from all
further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds or abandoned
property, any money held by the Indenture Trustee or any Paying Agent in
trust for the payment of any amount due with respect to any Note and
remaining unclaimed for two years after such amount has become due and
payable shall be discharged from such trust and be paid to the Issuer on
Issuer Request; and the Holder of such Note shall thereafter, as an unsecured
general creditor, look only to the Issuer for payment thereof (but only to
the extent of the amounts so paid to the Issuer), and all liability of the
Indenture Trustee or such Paying Agent with respect to such trust money shall
thereupon cease; provided, however, that the Indenture Trustee or such Paying
Agent, before being required to make any such repayment, shall at the expense
and direction of the Issuer cause to be published once, in a newspaper
published in the English language, customarily published on each Business Day
and of general circulation in The City of New York, notice that such money
remains unclaimed and that, after a date specified therein, which shall not
be less than 30 days from the date of such publication, any unclaimed balance
of such money then remaining will be repaid to the Issuer. The Indenture
Trustee shall also adopt and employ, at the expense and direction of the
Issuer, any other reasonable means of notification of such repayment
(including, but not limited to, mailing notice of such repayment to Holders
whose Notes have been
called but have not been surrendered for redemption or whose right to or
interest in moneys due and payable but not claimed is determinable from the
records of the Indenture Trustee or of any Paying Agent, at the last address
of record for each such Holder).
3.4 Existence.
---------
(a) Subject to Section 3.4(b), the Issuer will keep in full effect its
--------------
existence, rights and franchises as a business trust under the laws of the
State of Delaware (unless it becomes, or any successor Issuer hereunder is or
becomes, organized under the laws of any other State or of the United States
of America, in which case the Issuer will keep in full effect its existence,
rights and franchises under the laws of such other jurisdiction) and will
obtain and preserve its qualification to do business in each jurisdiction in
which such qualification is or shall be necessary to protect the validity and
enforceability of this Indenture, the Notes and the Trust Estate.
(b) Any successor to the Owner Trustee appointed pursuant to Section
10.2 of the Trust Agreement shall be the successor Owner Trustee under this
Indenture without the execution or filing of any paper, instrument or further
act to be done on the part of the parties hereto.
(c) Upon any consolidation or merger of or other succession to the
Owner Trustee, the Person succeeding to the Owner Trustee under the Trust
Agreement may exercise every right and power of the Owner Trustee under this
Indenture with the same effect as if such Person had been named as the Owner
Trustee herein.
3.5 Protection of Trust Estate. The Issuer will from time to time and
--------------------------
upon the direction of the Securities Insurer execute and deliver all such
supplements and amendments hereto and all such financing statements,
continuation statements, instruments of further assurance and other
instruments, and will take such other action necessary or advisable to:
(i) provide further assurance with respect to the Grant of
all or any portion of the Trust Estate;
(ii) maintain or preserve the lien and security interest (and
the priority thereof) of this Indenture or carry out more
effectively the purposes hereof;
(iii) perfect, publish notice of or protect the validity
of any Grant made or to be made by this Indenture;
(iv) enforce any rights with respect to the Trust Estate; or
(v) preserve and defend title to the Trust Estate and the
rights of the Indenture Trustee, the Noteholders and the
Securities Insurer in such Trust Estate against the
claims of all persons and parties.
The Issuer hereby designates the Administrator its agent and
attorney-in-fact to execute any financing statement, continuation statement
or other instrument required to be executed pursuant to this Section 3.5.
-----------
3.6 Annual Opinions as to Trust Estate.
----------------------------------
On or before February 15 in each calendar year, beginning in 1998, the
Issuer shall furnish to the Indenture Trustee an Opinion of Counsel either
stating that, in the opinion of such counsel, such action has been taken with
respect to the recording, filing, re-recording and refiling of this
Indenture, any indentures supplemental hereto and any other requisite
documents and with respect to the execution and filing of any financing
statements and continuation statements as is
necessary to maintain the lien and security interest created by this
Indenture and reciting the details of such action or stating that in the
opinion of such counsel no such action is necessary to maintain such lien and
security interest. Such Opinion of Counsel shall also describe the
recording, filing, re-recording and refiling of this Indenture, any
indentures supplemental hereto and any other requisite documents and the
execution and filing of any financing statements and continuation statements
that will, in the opinion of such counsel, be required to maintain the lien
and security interest of this Indenture until February 15th of the following
calendar year.
3.7 Performance of Obligations; Servicing of Home Loans.
---------------------------------------------------
(a) The Issuer will not take any action and will use its best efforts
not to permit any action to be taken by others that would release any Person
from any of such Person's material covenants or obligations under any
instrument or agreement included in the Trust Estate or that would result in
the amendment, hypothecation, subordination, termination or discharge of, or
impair the validity or effectiveness of, any such instrument or agreement,
except as expressly provided in this Indenture, the Sale and Servicing
Agreement or such other instrument or agreement.
(b) The Issuer may contract with or otherwise obtain the assistance of
other Persons (including, without limitation, the Administrator under the
Administration Agreement) to assist it in performing its duties under this
Indenture, and any performance of such duties by a Person identified to the
Indenture Trustee and the Securities Insurer in an Officer's Certificate of
the Issuer shall be deemed to be action taken by the Issuer. Initially, the
Issuer has contracted with the Servicer and the Administrator to assist the
Issuer in performing its duties under this Indenture. The Administrator must
at all times be the same person as the Indenture Trustee.
(c) The Issuer will punctually perform and observe all of its
obligations and agreements contained in this Indenture, the Transaction
Documents and in the instruments and agreements included in the Trust Estate,
including but not limited to (i) filing or causing to be filed all UCC
financing statements and continuation statements required to be filed by the
terms of this Indenture and the Sale and Servicing Agreement and (ii)
recording or causing to be recorded all Mortgages, assignments of mortgage,
all intervening assignments of mortgage and all assumption and modification
agreements required to be recorded by the terms of the Sale and Servicing
Agreement, in accordance with and within the time periods provided for in
this Indenture and/or the Sale and Servicing Agreement, as applicable.
Except as otherwise expressly provided therein, the Issuer shall not waive,
amend, modify, supplement or terminate any Basic Document or any provision
thereof without the consent of the Indenture Trustee, the Securities Insurer,
and the Holders of at least a majority of the Outstanding Amount of the
Notes.
(d) If the Issuer shall have knowledge of the occurrence of an Event of
Default under the Sale and Servicing Agreement, the Issuer shall promptly
notify the Indenture Trustee, the Securities Insurer, the Seller and the
Rating Agencies thereof, and shall specify in such notice the action, if
any, the Issuer is taking with respect of such default. If such an Event of
Default shall arise from the failure of the Servicer to perform any of its
duties or obligations under the Sale and Servicing Agreement with respect to
the Home Loans, the Issuer shall take all reasonable steps available to it to
remedy such failure.
(e) As promptly as possible after the giving of notice of termination
to the Master Servicer of the Master Servicer's rights and powers pursuant to
Section 10.02 of the Sale and Servicing Agreement, a successor master
servicer (the "Successor Master Servicer") shall be appointed pursuant to
Section 10.03 of the Sale and Servicing Agreement. If the Indenture Trustee
shall succeed to the Master Servicer's duties as servicer of the Home Loans
as provided herein, it shall do so in its individual capacity and not in its
capacity as Indenture Trustee and, accordingly, the provisions of Article VI
----------
hereof shall be inapplicable to the Indenture Trustee in its duties as
successor Master Servicer and the servicing of the Home Loans. In case the
Indenture Trustee shall become successor Master Servicer under the Sale and
Servicing Agreement, the Indenture Trustee shall be entitled to appoint as
Master Servicer any one of its Affiliates, provided that it shall be fully
liable for the actions and omissions of such Affiliate in such capacity as
Successor Master Servicer.
(f) Without derogating from the absolute nature of the assignment
granted to the Indenture Trustee under this Indenture or the rights of the
Indenture Trustee hereunder, the Issuer agrees (i) that it will not, without
the prior written consent of the Indenture Trustee and the Securities
Insurer, or, if a Securities Insurer Default has occurred and is
continuing, the Holders of at least a majority in Outstanding Amount of the
Notes, amend, modify, waive, supplement, terminate or surrender, or agree to
any amendment, modification, supplement, termination, waiver or surrender of,
the terms of any Trust Estate (except to the extent otherwise provided in the
Sale and Servicing Agreement) or the Transaction Documents, or waive timely
performance or observance by the Master Servicer or the Seller under the Sale
and Servicing Agreement; and (ii) that any such amendment shall not (A)
increase or reduce in any manner the amount of, or accelerate or delay the
timing of, distributions that are required to be made for the benefit of the
Noteholders or (B) reduce the aforesaid percentage of the Notes that is
required to consent to any such amendment, without the consent of the Holders
of all the outstanding Notes. If any such amendment, modification,
supplement or waiver shall be so consented to by the Indenture Trustee and
the Securities Insurer or, if a Securities Insurer Default has occurred and
is continuing, such Holders, the Issuer agrees, promptly following a request
by the Indenture Trustee or the Securities Insurer to do so, to execute and
deliver, in its own name and at its own expense, such agreements,
instruments, consents and other documents as the Indenture Trustee may deem
necessary or appropriate in the circumstances.
3.8 Negative Covenants. So long as any Notes are Outstanding, the
------------------
Issuer shall not:
(i) except as expressly permitted by this Indenture, the Home
Loan Purchase
Agreement or the Sale and Servicing Agreement, sell,
transfer, exchange or otherwise dispose of any of the
properties or assets of the Issuer, including those
included in the Trust Estate, unless directed to do so by
the Indenture Trustee or the Securities Insurer;
(ii) claim any credit on, or make any deduction from the
principal or interest payable in respect of, the Notes
(other than amounts properly withheld from such payments
under the Code) or assert any claim against any present or
former Noteholder by reason of the payment of the taxes
levied or assessed upon any part of the Trust Estate;
(iii) engage in any business or activity other than as
permitted by the Trust Agreement or other than in
connection with, or relating to, the issuance of
Notes pursuant to this Indenture, or amend the Trust
Agreement as in effect on the Closing Date other
than in accordance with Section 11.1 thereof,
------------
(iv) issue debt obligations under any other indenture;
(v) incur or assume any indebtedness or guaranty any
indebtedness of any Person, except for such indebtedness
as may be incurred by the Issuer in connection with
the issuance of the Notes pursuant to this Indenture;
(vi) dissolve or liquidate in whole or in part or merge or
consolidate with any other Person;
(vii) (A) permit the validity or effectiveness of this
Indenture to be impaired, or permit the lien of this
Indenture to be amended, hypothecated, subordinated,
terminated or discharged, or permit any Person to be
released from any covenants or obligations with
respect to the Notes under this Indenture except as
may be expressly permitted hereby, (B) permit any
lien, charge, excise, claim, security interest,
mortgage or
other encumbrance (other than the lien of this
Indenture) to be created on or extend to or otherwise
arise upon or burden the Trust Estate or any part thereof
or any interest therein or the proceeds thereof (other
than tax liens, mechanics' liens and other liens that
arise by operation of law, in each case on any of the
Mortgaged Properties and arising solely as a result of an
action or omission of the related Obligor) or (C) permit
the lien of this Indenture not to constitute a valid
first priority (other than with respect to any such tax,
mechanics' or other lien) security interest in the Trust
Estate;
(viii) remove the Administrator without cause unless the
Rating Agency Condition shall have been satisfied in
connection with such removal; or
(ix) take any other action or fail to take any action which
may cause the Issuer to be taxable as (a) an association
pursuant to Section 7701 of the Code and the
corresponding regulations or (b) as a taxable mortgage
pool pursuant to Section 7701(i) of the Code and the
corresponding regulations.
3.9 Annual Statement as to Compliance. The Issuer will deliver to the
---------------------------------
Indenture Trustee and the Securities Insurer, within 120 days after the end
of each fiscal year of the Issuer (commencing with the
fiscal year 1998), an Officer's Certificate stating, as to the
Authorized Officer signing such Officer's Certificate, that:
(i) a review of the activities of the Issuer during such year
and of its performance under this Indenture has been made
under such Authorized Officer's supervision; and
(ii) to the best of such Authorized Officer's knowledge, based
on such review, the Issuer has complied with all
conditions and covenants under this Indenture throughout
such year, or, if there has been a default in its
compliance with any such condition or covenant,
specifying each such default known to such Authorized
Officer and the nature and status thereof.
3.10 Covenants of the Issuer.
-----------------------
All covenants of the Issuer in this Indenture are covenants of the
Issuer and are not covenants of the Owner Trustee or the Co-Owner Trustee.
The Owner Trustee is, and any successor Owner Trustee under the Trust
Agreement will be, entering into this Indenture solely as Owner Trustee under
the Trust Agreement and not in its respective individual capacity, and in no
case whatsoever shall the Owner Trustee or any such successor Owner Trustee
be personally liable on, or for any loss in respect of, any of the
statements, representations, warranties or obligations of the Issuer
hereunder, as to all of which the parties hereto agree to look solely to the
property of the Issuer.
3.11 Servicer's Obligations. The Issuer shall cause the Master Servicer
----------------------
to comply with Sections 5.01, 6.01 and Article IX of the Sale and Servicing
------------------- ----------
Agreement.
3.12 Restricted Payments. The Issuer shall not, directly or indirectly,
-------------------
(i) pay any dividend or make any distribution (by reduction of capital or
otherwise), whether in cash, property, securities or a combination thereof,
to the Owner Trustee or any owner of a beneficial interest in the Issuer or
otherwise with
respect to any ownership or equity interest or security in or of
the Issuer or to the Servicer, (ii) redeem, purchase, retire or
otherwise acquire for value any such ownership or equity interest
or security or (iii) set aside or otherwise segregate any amounts
for any such purpose; provided, however, that the Issuer may make,
or cause to be made, (x) distributions to the Servicer, the
Indenture Trustee, the Owner Trustee, the Securityholders and the
holders of the Residual Interest as contemplated by, and to the
extent funds are available for such purpose under, the Sale and
Servicing Agreement or the Trust Agreement and (y) payments to the
Indenture Trustee pursuant to Section 1(a)(ii) of the
Administration Agreement. The Issuer will not, directly or
indirectly, make or cause to be made payments to or distributions
from the Collection Account except in accordance with this
Indenture and the Transaction Documents.
3.13 Treatment of Notes as Debt for All Purposes.
-------------------------------------------
The Issuer shall, and shall cause the Administrator to, treat the Notes
as indebtedness for all purposes.
3.14 Notice of Events of Default. The Issuer shall give the
---------------------------
Indenture Trustee, the Securities Insurer, the Seller and the
Rating Agencies prompt written notice of each Event of Default
hereunder, each default on the part of the Master Servicer, the
Servicer or the Seller of its obligations under the Sale and
Servicing Agreement and each default on the part of the Depositor
or the Seller of its obligations under the Home Loan Purchase
Agreement.
3.15 Further Instruments and Acts. Upon request of the Indenture
----------------------------
Trustee or the Securities Insurer, the Issuer will execute and deliver such
further instruments and do such further acts as may be reasonably necessary
or proper to carry out more effectively the purpose of this Indenture.
IV
SATISFACTION AND DISCHARGE
4.1 Satisfaction and Discharge of Indenture. This Indenture shall
---------------------------------------
cease to be of further effect with respect to the Notes (except as to (i)
rights of registration of transfer and exchange, (ii) substitution of
mutilated, destroyed, lost or stolen Notes, (iii) rights of Noteholders to
receive payments of principal thereof and interest thereon, (iv) Sections
--------
3.3, 3.4, 3.5, 3.8 and 3.10 hereof, (v) the rights, obligations and
- ---------------------------
immunities of the Indenture Trustee hereunder (including the rights of the
Indenture Trustee under Section 6.7 and the obligations of the Indenture
-----------
Trustee under Section 4.2) and (vi) the rights of Noteholders as
-----------
beneficiaries hereof with respect to the property so deposited with the
Indenture Trustee payable to all or any of them), and the Indenture Trustee,
on demand of and at the expense of the Issuer, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture with
respect to the Notes, when all of the following have occurred:
(A) either
(1) all Notes theretofore authenticated and delivered
(other than (i) Notes that have been destroyed,
lost or stolen and that have been replaced or
paid as provided in Section 2.4 and (ii) Notes
-----------
for whose payment money has theretofore been
deposited in trust or segregated and held in
trust by the Issuer and thereafter repaid to the
Issuer or discharged from such trust, as provided
in Section 3.3) have been delivered to the
-----------
Indenture Trustee for cancellation; or
(2) all Notes not theretofore delivered to the
Indenture Trustee for cancellation
a. have become due and payable,
b. will become due and payable within one
year following the Maturity Date of the
Class A-4 Notes, or
c. are to be called for redemption within one
year under arrangements satisfactory to
the Indenture Trustee for the giving of
notice of redemption by the Indenture
Trustee in the name, and at the expense,
of the Issuer,
and the Issuer, in the case of a., b. or c. above, has irrevocably
deposited or caused to be irrevocably deposited with the Indenture Trustee
cash or direct obligations of or obligations guaranteed by the United States
of America (which will mature prior to the date such amounts are payable), in
trust for such purpose, in an amount sufficient to pay and discharge the
entire indebtedness on such Notes not theretofore delivered to the Indenture
Trustee for cancellation when due to the applicable Maturity Date of such
Class of Notes or Termination Date (if Notes shall have been called for
redemption pursuant to Section 10.1), as the case may be;
------------
(B) the later of (a) eighteen months after payment in
full of all outstanding obligations under the
Securities, (b) the payment in full of all unpaid
Trust Fees and Expenses and all sums
owing to the Securities Insurer under the Insurance
Agreement and (c) the date on which the Issuer has
paid or caused to be paid all other sums payable
hereunder by the Issuer; and
(C) the Issuer has delivered to the Indenture Trustee an
Officer's Certificate, an Opinion
of Counsel and (if required by the TIA or the
Indenture Trustee) an Independent Certificate from a
firm of certified public accountants, each meeting
the applicable requirements of Section
-------
11.1(a) and, subject to Section 11.2, each stating that all conditions
- ------- ------------
precedent herein provided
for relating to the satisfaction and discharge of
this Indenture with respect to the Notes have been
complied with.
4.2 Application of Trust Money. All moneys deposited with the
--------------------------
Indenture Trustee pursuant to Sections 3.3 and 4.1 hereof shall be held in
---------------------
trust and applied by it, in accordance with the provisions of the Notes and
this Indenture, to the payment, either directly or through any Paying Agent,
as the Indenture Trustee may determine, to the Holders of the particular
Notes for the payment or redemption of which such moneys have been deposited
with the Indenture Trustee, of all sums due and to become due thereon for
principal and interest; but such moneys need not be segregated from other
funds except to the extent required herein or in the Sale and Servicing
Agreement or required by law.
4.3 Repayment of Moneys Held by Paying Agent. In connection with the
----------------------------------------
satisfaction and discharge of this Indenture with respect to the Notes, all
moneys then held by any Paying Agent other than the Indenture Trustee under
the provisions of this Indenture with respect to such Notes shall, upon
demand of the Issuer, be paid to the Indenture Trustee to be held and applied
according to Section 3.3 and thereupon such Paying Agent shall be released
-----------
from all further liability with respect to such moneys.
V
REMEDIES
5.1 Events of Default. "Event of Default,"wherever used herein, means
-----------------
any one of the following events (whatever the reason for such Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(a) default in the payment of any interest on any Note when the same
becomes due and payable; or
(b) default in the payment of the principal of or any installment of
the principal of any Note when the same becomes due and payable; or
(c) default in the observance or performance of any covenant or
agreement of the Issuer made in this Indenture (other than a covenant or
agreement, a default in the observance or performance of which is elsewhere
in this Section specifically dealt with), or any representation or warranty
of the Issuer made in this Indenture, the Insurance Agreement, the Sale and
Servicing Agreement or in any certificate or other writing delivered pursuant
hereto or in connection herewith proving to have been incorrect in any
material respect as of the time when the same shall have been made, and such
default shall continue or not be cured, or the circumstance or condition in
respect of which such
misrepresentation or warranty was incorrect shall not have been eliminated or
otherwise cured, for a period of 30 days after there shall have been given,
by registered or certified mail, to the Issuer by the Indenture Trustee or to
the Issuer and the Indenture Trustee by the Holders of at least 25% of the
Outstanding Amount of the Notes, a written notice specifying such default or
incorrect representation or warranty and requiring it to be remedied and
stating that such notice is a notice of Default hereunder; or
(d) default in the observance or performance of any covenant or
agreement of the Company made in the Trust Agreement or any representation or
warranty of the Company made in the Trust Agreement, proving to have been
incorrect in any material respect as of the time when the same shall have
been made, and such default shall continue or not be cured, or the
circumstance or condition in respect of which such misrepresentation or
warranty was incorrect shall not have been eliminated or otherwise cured, for
a period of 30 days after there shall have been given, by registered or
certified mail, to the Issuer by the Indenture Trustee or to the Issuer and
the Indenture Trustee by the Holders of at least 25% of the Outstanding
Amount of the Notes, a written notice specifying such default or incorrect
representation or warranty and requiring it to be remedied and stating that
such notice is a notice of Default hereunder;
(e) the filing of a decree or order for relief by a court having
jurisdiction in the premises in respect of the Issuer or any substantial part
of the Trust Estate in an involuntary case under any applicable federal or
state bankruptcy, insolvency or other similar law now or hereafter in effect,
or
appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator
or similar official of the Issuer or for any substantial part of the Trust
Estate, or ordering the winding-up or liquidation of the Issuer's affairs,
and such decree or order shall remain unstayed and in effect for a period of
60 consecutive days; or
(f) the commencement by the Issuer of a voluntary case under any
applicable federal or state bankruptcy, insolvency or other similar law now
or hereafter in effect, or the consent by the Issuer to the entry of an order
for relief in an involuntary case under any such law, or the consent by the
Issuer to the appointment or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the Issuer
or for any substantial part of the Trust Estate, or the making by the Issuer
of any general assignment for the benefit of creditors, or the failure by the
Issuer generally to pay its debts as such debts become due, or the taking of
any action by the Issuer in furtherance of any of the foregoing.
The Issuer shall deliver to the Indenture Trustee, the Securities
Insurer and the Seller within five days after the occurrence thereof, written
notice in the form of an Officer's Certificate of any event which with the
giving of notice and the lapse of time would become an Event of Default under
clauses (c) and (d) above, its status and what action the Issuer is taking
- --------------------
or proposes to take with respect thereto.
5.2 Acceleration of Maturity; Rescission and Annulment. If an Event
--------------------------------------------------
of Default should occur and be continuing, then
and in every such case the Indenture Trustee, at the direction or
upon the prior written consent of the Securities Insurer or the
Holders of Notes representing not less than a majority of the
Outstanding Amount of the Notes may declare all the Notes to be
immediately due and payable, by a notice in writing to the Issuer
(and to the Indenture Trustee if given by Noteholders), and upon
any such declaration the unpaid principal amount of such Notes,
together with accrued and unpaid interest thereon through the date
of acceleration, shall become immediately due and payable.
At any time after such declaration of acceleration of maturity has been
made and before a judgment or decree for payment of the money due has been
obtained by the Indenture Trustee as hereinafter in this Article V provided,
---------
the Holders of Notes representing a majority of the Outstanding Amount of the
Notes, by written notice to the Issuer and the Indenture Trustee, may rescind
and annul such declaration and its consequences if:
(a) the Issuer has paid or deposited with the Indenture
Trustee a sum sufficient to pay:
1. all payments of principal of and interest
on all Notes and all other amounts that would then be due
hereunder or upon such Notes if the Event of Default giving
rise to such acceleration had not occurred; and
2. all sums paid or advanced by the Indenture Trustee hereunder
and the reasonable compensation, expenses, disbursements and
advances of the Indenture Trustee and its agents and counsel;
and
(b) all Events of Default, other than the nonpayment of the
principal of the Notes that has become due solely by such
acceleration, have been cured or waived as provided in
Section 5.12.
------------
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
5.3 Collection of Indebtedness and Suits for Enforcement by Indenture
-----------------------------------------------------------------
Trustee.
- -------
(a) The Issuer covenants that if (i) default is made in the payment of
any interest on any Note when the same becomes due and payable, and such
default continues for a period of five days, or (ii) default is made in the
payment of the principal of or any installment of the principal of any Note
when the same becomes due and payable, the Issuer will, upon demand of the
Indenture Trustee and at the direction of the Securities Insurer, pay to the
Indenture Trustee, for the benefit of the Holders of the Notes and the
Securities Insurer, the whole amount then due and payable on such Notes for
principal and interest, with interest upon the overdue principal and, to the
extent payment at such rate of interest shall be legally enforceable, upon
overdue installments of interest at the rate borne by the Notes and in
addition thereto such further amount as shall be sufficient to cover the
costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Indenture Trustee and the
Securities Insurer and their respective agents and counsel.
(b) In case the Issuer shall fail forthwith to pay such amounts upon
such demand, the Indenture Trustee, in its own name and as trustee of an
express trust, shall at the direction of the Securities Insurer, and if a
Securities Insurer Default has occurred and is continuing, the Indenture
Trustee may and shall at the direction of the majority of the Holders of the
Notes, institute a Proceeding for the collection of the sums so due and
unpaid, and may prosecute such Proceeding to judgment or final decree, and
may enforce the same against the Issuer or other obligor upon such Notes and
collect in the manner provided by law out of the property of the Issuer or
other obligor upon such Notes, wherever situated, the moneys adjudged or
decreed to be payable.
(c) If an Event of Default occurs and is continuing, the Indenture
Trustee shall, at the direction of the Securities Insurer, and if a
Securities Insurer Default has occurred and is continuing, the Indenture
Trustee may and shall at the direction of the majority of the Holders of the
Notes, as more particularly provided in Section 5.4, in its discretion,
-----------
proceed to protect and enforce its rights and the rights of the Securities
Insurer and the Noteholders, by such appropriate Proceedings as the Indenture
Trustee shall deem most effective to protect and enforce any such rights,
whether for the specific enforcement of any covenant or agreement in this
Indenture or in aid of the exercise of any power granted herein, or to
enforce any other proper remedy or legal or equitable right vested in the
Indenture Trustee by this Indenture or by law.
(d) In case there shall be pending, relative to the Issuer or any other
obligor upon the Notes or any Person having or claiming an ownership interest
in the Trust Estate, Proceedings under Title 11 of the United States Code or
any other applicable federal or state bankruptcy, insolvency or other similar
law, or in case a receiver, assignee or trustee in bankruptcy or
reorganization, liquidator, sequestrator or similar official shall have been
appointed for or taken possession of the Issuer or its property or such other
obligor or Person, or in case of any other comparable judicial Proceedings
relative to the Issuer or other
obligor upon the Notes, or to the creditors or property of the Issuer or such
other obligor, the Indenture Trustee, irrespective of whether the principal
of any Notes shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Indenture Trustee
shall have made any demand pursuant to the provisions of this Section, shall
be entitled and empowered, upon the direction of the Securities Insurer, by
intervention in such Proceedings or otherwise:
(i)to file and prove a claim or claims for the whole amount of principal
and interest owing and unpaid in respect of the Notes and to file such
other papers or documents as may be necessary or advisable in order to
have the claims of the Indenture Trustee (including any claim for
reasonable compensation to the Indenture Trustee, each predecessor
Indenture Trustee and the Securities Insurer, and their respective
agents, attorneys and counsel, and for reimbursement of all expenses and
liabilities incurred, and all advances made, by the Indenture Trustee
and each predecessor Indenture Trustee (except as a result of negligence
or bad faith), the Securities Insurer and of the Noteholders allowed in
such Proceedings;
(ii)unless prohibited by applicable law and regulations, to vote on
behalf of the Holders of Notes in any election of a trustee, a standby
trustee or Person performing similar functions in any such Proceedings;
(iii)to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute all amounts received
with respect to the claims of the Noteholders, the Securities Insurer
and the Indenture Trustee on their behalf; and
(iv)to file such proofs of claim and other papers or documents as may be
necessary or advisable in order to have the claims of the Indenture
Trustee, the Securities Insurer or the Holders of Notes allowed in any
judicial proceedings relative to the Issuer, its creditors and its
property; and any trustee, receiver, liquidator, custodian or other
similar official in any such Proceeding is hereby authorized by each of
such Noteholders and the Securities Insurer to make payments to the
Indenture Trustee and, in the event that the Indenture Trustee shall
consent to the making of payments directly to such Noteholders and the
Securities Insurer, to pay to the Indenture Trustee such amounts as
shall be sufficient to cover reasonable compensation to the Indenture
Trustee, each predecessor Indenture Trustee and their respective agents,
attorneys and counsel, and all other expenses and liabilities incurred,
and all advances made, by the Indenture Trustee and each predecessor
Indenture Trustee except as a result of negligence or bad faith.
(e) Nothing herein contained shall be deemed to authorize the Indenture
Trustee to authorize or consent to or vote for or accept or adopt on behalf
of any Noteholder or the Securities Insurer any plan of reorganization,
arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof or the
Securities Insurer or to authorize the Indenture Trustee to vote in respect
of the claim of any Noteholder in any such proceeding except, as aforesaid,
to vote for the election of a trustee in bankruptcy or similar Person.
(f) All rights of action and of asserting claims under this Indenture,
or under any of the Notes, may be enforced by the Indenture Trustee without
the possession of any of the Notes or the production thereof in any trial or
other Proceedings relative thereto, and any such action or Proceedings
instituted by the Indenture Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment, subject to the
payment of the expenses, disbursements and compensation of the Indenture
Trustee, each predecessor Indenture Trustee and their respective agents and
attorneys, shall be for the ratable benefit of the Holders of the Notes and
the Securities Insurer.
(g) In any Proceedings brought by the Indenture Trustee (and also any
Proceedings involving the interpretation of any provision of this Indenture
to which the Indenture Trustee shall be a party), the Indenture Trustee shall
be held to represent all the Noteholders, and it shall not be necessary to
make any Noteholder a party to any such Proceedings.
5.4 Remedies; Priorities.
--------------------
(a) If an Event of Default shall have occurred and be continuing, the
Indenture Trustee shall, at the direction of the Securities Insurer, and if a
Securities Insurer Default has occurred and is continuing, the Indenture
Trustee may and at the direction of
a majority of the Holders of the Notes shall do one or more of the following
(subject to Section 5.5):
-----------
(i)institute Proceedings in its own name and as trustee of an express
trust for the collection of all amounts then payable on the Notes or
under this Indenture with respect thereto, whether by declaration or
otherwise, enforce any judgment obtained, and collect from the Issuer
and any other obligor upon such Notes moneys adjudged due;
(ii)institute Proceedings from time to time for the complete or partial
foreclosure of this Indenture with respect to the Trust Estate;
(iii)exercise any remedies of a secured party under the UCC and take any
other appropriate action to protect and enforce the rights and remedies
of the Indenture Trustee, the Securities Insurer or the Noteholders; and
(iv)sell the Trust Estate or any portion thereof or rights or interest
therein in a commercially reasonable manner, at one or more public or
private sales called and conducted in any manner permitted by law;
provided, however, that the Indenture Trustee may not sell or otherwise
liquidate the Trust Estate following an Event of Default, unless (A) the
Holders of 100% of the Outstanding Amount of the Notes consent thereto,
(B) the proceeds of such sale or liquidation distributable to the
Noteholders are sufficient to discharge in full all amounts then due and
unpaid upon such Notes for
principal and interest or (C) the Indenture Trustee determines that the
Trust Estate will not continue to provide sufficient funds for the
payment of principal of and interest on the Notes as they would have
become due if the Notes had not been declared due and payable, and the
Indenture Trustee obtains the consent of Holders of 66-2/3% of the
Outstanding Amount of the Notes. In determining such sufficiency or
insufficiency with respect to clause (B) and (C), the Indenture Trustee
may, but need not, obtain and rely upon an opinion of an Independent
investment banking or accounting firm of national reputation as to the
feasibility of such proposed action and as to the sufficiency of the
Trust Estate for such purpose.
(b) If the Indenture Trustee collects any money or property pursuant to
this Article V, it shall pay out the money or property in the following
---------
order:
FIRST: to the Indenture Trustee for the Indenture Trustee Fee then
due and any costs or expenses incurred by it in connection with the
enforcement of the remedies provided for in this Article V and to the
Owner Trustee for the Owner Trustee Fee then due;
SECOND: any amounts payable to the Master Servicer pursuant to
Section 5.01(c)(i)(c) of the Sale and Servicing Agreement;
THIRD: to the Securities Insurer for the Premium then due and
unpaid;
FOURTH: to the Master Servicer for the Master Servicing Fee then
due and unpaid;
FIFTH: to the Servicer for the Servicing Fee then due and unpaid;
SIXTH: to the Noteholders for amounts due and unpaid on the Notes
for interest (including any premium), pro rata, according to the amounts
due and payable on the Notes for interest (including any premium);
SEVENTH: to the Noteholders for amounts due and unpaid on the Notes
for principal, pro rata, among the Holders of each Class of Notes
according to the amounts due and payable and in the order and priority
set forth in Section 5.01(c) of the Sale and Servicing Agreement, until
the Class Principal Balance of each such Class is reduced to zero;
EIGHTH: to the Owner Trustee or Co-Owner Trustee, as applicable,
for amounts required to be distributed to the Certificateholders
pursuant to the Trust Agreement;
NINTH: to the Securities Insurer for any amounts then due and
payable under the Insurance Agreement;
TENTH: to the Servicer for any amounts then due and payable as the
Servicing Advance Reimbursement Amount under the Sale and Servicing
Agreement; and
ELEVENTH: to the Owner Trustee or Co-Owner Trustee, as applicable,
for any amounts to be distributed, pro rata, to the holders of the
Residual Interest.
The Indenture Trustee may fix a record date and payment date for any
payment to be made to the Noteholders pursuant to this Section. At least 15
days before such record date, the Indenture Trustee shall mail to each
Noteholder, the Securities Insurer and the Issuer a notice that states the
record date, the payment date and the amount to be paid.
5.5 Optional Preservation of the Trust Estate. If the Notes have been
-----------------------------------------
declared to be due and payable under Section 5.2 following an Event of
-----------
Default and such declaration and its consequences have not been rescinded and
annulled, the Indenture Trustee may, but need not, elect to maintain
possession of the Trust Estate. It is the desire of the parties hereto and
the Noteholders that there be at all times sufficient funds for the payment
of principal of and interest on the Notes, and the Indenture Trustee shall
take such desire into account when determining whether or not to maintain
possession of the Trust Estate. In determining whether to maintain
possession of the Trust Estate, the Indenture Trustee may, but need not,
obtain and rely upon an opinion of an Independent investment banking or
accounting firm of national reputation as to the feasibility of
such proposed action and as to the sufficiency of the Trust Estate
for such purpose.
5.6 Limitation of Suits. No Holder of any Note shall have any right
-------------------
to institute any Proceeding, judicial or otherwise, with respect to this
Indenture or for the appointment of a receiver or trustee, or for any other
remedy hereunder for so long as a Securities Insurer Default has not occurred
or is not continuing and if a Securities Insurer Default has occurred and is
continuing, unless:
(a) such Holder has previously given written notice to the Indenture
Trustee of a continuing Event of Default;
(b) the Holders of not less than 25% of the Outstanding Amount of the
Notes have made written request to the Indenture Trustee to institute such
Proceeding in respect of such Event of Default in its own name as Indenture
Trustee hereunder;
(c) such Holder or Holders have offered to the Indenture Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in complying with such request;
(d) the Indenture Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute such Proceedings; and
(e) no direction inconsistent with such written request has been given
to the Indenture Trustee during such 60-day period by the Holders of a
majority of the Outstanding Amount of the Notes.
It is understood and intended that no one or more Holders of Notes shall
have any right in any manner whatever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders of Notes or to obtain or to seek to obtain priority or
preference over any other Holders or to enforce any right under this
Indenture, except in the manner herein provided.
In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Holders of
Notes, each representing less than a majority of the Outstanding Amount of
the Notes, the Indenture Trustee in its sole discretion may determine what
action, if any, shall be taken, notwithstanding any other provisions of this
Indenture.
5.7 Unconditional Rights of Noteholders To Receive Principal and
------------------------------------------------------------
Interest. Notwithstanding any other provisions in this Indenture, the Holder
- --------
of any Note shall have the right, which is absolute and unconditional, to
receive payment of the principal of and interest, if any, on such Note on or
after the applicable Maturity Date thereof expressed in such Note or in this
Indenture (or, in the case of redemption, on or after the Termination Date)
and to
institute suit for the enforcement of any such payment, and such
right shall not be impaired without the consent of such Holder.
5.8 Restoration of Rights and Remedies. If the Indenture Trustee, the
----------------------------------
Securities Insurer or any Noteholder has instituted any Proceeding to enforce
any right or remedy under this Indenture and such Proceeding has been
discontinued or abandoned for any reason or has been determined adversely to
the Indenture Trustee, the Securities Insurer or to such Noteholder, then and
in every such case the Issuer, the Indenture Trustee, the Securities Insurer
and the Noteholders shall, subject to any determination in such Proceeding,
be restored severally and respectively to their former positions hereunder,
and thereafter all rights and remedies of the Indenture Trustee and the
Noteholders shall continue as though no such Proceeding had been instituted.
5.9 Rights and Remedies Cumulative. No right or remedy herein
------------------------------
conferred upon or reserved to the Indenture Trustee, the Securities Insurer
or to the Noteholders is intended to be exclusive of any other right or
remedy, and
every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion
or employment of any other appropriate right or remedy.
5.10 Delay or Omission Not a Waiver. No delay or omission of the
------------------------------
Indenture Trustee, the Securities Insurer or any Holder of any Note to
exercise any right or remedy accruing upon any Default or Event of Default
shall impair any such right or remedy or constitute a waiver of any such
Default or Event of Default or an acquiescence therein. Every right and
remedy given by this Article V or by law to the Indenture Trustee, the
Securities Insurer or to the Noteholders may be exercised from time to time,
and as often as may be deemed expedient, by the Indenture Trustee, the
Securities Insurer or by the Noteholders, as the case may be, subject, in
each case, however, to the right of the Securities Insurer to control any
such right and remedy, except as provided in Section 11.21.
-------------
5.11 Control by Noteholders. The Holders of a majority of the
----------------------
Outstanding Amount of the Notes shall have the right to direct the time,
method and place of conducting any Proceeding for any remedy available to the
Indenture Trustee with respect to the Notes or exercising any trust or power
conferred on the Indenture Trustee; provided that:
(a) such direction shall not be in conflict with any rule of law or
with this Indenture;
(b) subject to the express terms of Section 5.4, any direction to the
-----------
Indenture Trustee to sell or liquidate the Trust Estate shall be by Holders
of Notes representing not less than 100% of the Outstanding Amount of the
Notes;
(c) if the conditions set forth in Section 5.5 have been satisfied and
-----------
the Indenture Trustee elects to retain the Trust Estate pursuant to such
Section, then any direction to the Indenture Trustee by Holders of Notes
representing less than 100% of the Outstanding Amount of the Notes to sell or
liquidate the Trust Estate shall be of no force and effect; and
(d) the Indenture Trustee may take any other action deemed proper by
the Indenture Trustee that is not inconsistent with such direction.
Notwithstanding the rights of the Securities Insurer and the Noteholders
set forth in this Section, subject to Section 6.1, the Indenture Trustee need
-----------
not take any action that it determines might involve it in liability or might
materially adversely affect the rights of any Noteholders not consenting to
such action.
5.12 Waiver of Past Defaults. Prior to the declaration of the
-----------------------
acceleration of the maturity of the Notes as provided in Section 5.2, the
-----------
Holders of Notes representing not less than a majority of the Outstanding
Amount of the Notes may waive any past Default or Event of Default and its
consequences except a Default (a) in the payment of principal of or interest
on any of the Notes or (b) in respect of a covenant or provision hereof that
cannot be modified or amended without the consent of the Securities Insurer
or the Holder of each Note, as applicable. In the case of any such waiver,
the Issuer, the Indenture Trustee, the Securities Insurer and the Holders of
the Notes shall be restored to their former positions and rights hereunder,
respectively; but no such waiver shall extend to any subsequent or other
Default or impair any right consequent thereto.
Upon any such waiver, such Default shall cease to exist and be deemed to
have been cured and not to have occurred, and any Event of Default arising
therefrom shall be
deemed to have been cured and not to have occurred, for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Default
or Event of Default or impair any right consequent thereto.
5.13 Undertaking for Costs. All parties to this Indenture agree, and
---------------------
each Holder of any Note by such Holder's acceptance thereof shall be deemed
to have agreed, that any court may in its discretion require, in any suit for
the enforcement of any right or remedy under this Indenture, or in any suit
against the Indenture Trustee for any action taken, suffered or omitted by it
as Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to (a) any suit instituted by the
Indenture Trustee or the Securities Insurer, (b) any suit instituted by any
Noteholder, or group of Noteholders, in each case holding in the aggregate
more than 10% of the Outstanding Amount of the Notes or (c) any suit
instituted by any Noteholder for the enforcement of the payment of principal
of or interest on any Note on or after the respective due dates expressed
in such Note and in this Indenture (or, in the case of redemption, on or
after the Termination Date).
5.14 Waiver of Stay or Extension Laws. The Issuer covenants (to the
--------------------------------
extent that it may lawfully do so) that it will not at any time insist upon,
or plead or in any manner whatsoever, claim or take the benefit or advantage
of, any stay or extension law wherever enacted, now or at any time hereafter
in force, that may affect the covenants or the performance of this Indenture;
and the Issuer (to the extent that it may lawfully do so) hereby expressly
waives all benefit or advantage of any such law, and covenants that it will
not hinder, delay or impede the execution of any power herein granted to the
Indenture Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.
5.15 Action on Notes. The Indenture Trustee's right to seek and recover
---------------
judgment on the Notes or under this Indenture shall not be affected by the
seeking, obtaining or application of any other relief under or with respect
to this Indenture. Neither the lien of this Indenture nor any rights or
remedies of the Indenture Trustee or the Noteholders shall be impaired by
the recovery of any judgment by the Indenture Trustee against the Issuer or
by the levy of any execution under such judgment upon any portion of the
Trust Estate or upon any of the assets of the Issuer. Any money or
property collected by the Indenture Trustee shall be applied in accordance
with Section 5.4(b).
--------------
5.16 Performance and Enforcement of Certain Obligations.
--------------------------------------------------
(a) Promptly following a request from the Indenture Trustee to do so
and at the Administrator's expense (and will be reimbursed to the
Administrator pursuant to the Administration Agreement), the Issuer shall
take all such lawful action as the Indenture Trustee may request to compel or
secure the performance and observance by the Seller and the Master Servicer,
as applicable, of each of their obligations to the Issuer under or in
connection with the Sale and Servicing Agreement or by the Seller of its
obligations under or in connection with the Home Loan Purchase Agreement, and
to exercise any and all rights, remedies, powers and privileges lawfully
available to the Issuer under or in connection with the Sale and Servicing
Agreement to the extent and in the manner directed by the Indenture Trustee,
including the transmission of notices of default on the part of the Seller or
the Master Servicer thereunder and the institution of legal or administrative
actions or proceedings to
compel or secure performance by the Seller or the Master Servicer of each of
their obligations under the Sale and Servicing Agreement.
(b) If an Event of Default has occurred and is continuing, the
Indenture Trustee may, and at the direction (which direction shall be in
writing or by telephone, confirmed in writing promptly thereafter) of the
Holders of 66-2/3% of the Outstanding Amount of the Notes shall, exercise all
rights, remedies, powers, privileges and claims of the Issuer against the
Seller or the Master Servicer under or in connection with the Sale and
Servicing Agreement, or against the Seller under or in connection with the
Home Loan Purchase Agreement, including the right or power to take any action
to compel or secure performance or observance by the Seller, the Master
Servicer or the Servicer, as the case may be, of each of their obligations to
the Issuer thereunder and to give any consent, request, notice, direction,
approval, extension, or waiver under the Sale and Servicing Agreement or the
Home Loan Purchase Agreement, as the case may be, and any right of the Issuer
to take such action shall be suspended.
VI
THE INDENTURE TRUSTEE
6.1 Duties of Indenture Trustee.
---------------------------
(a) If an Event of Default has occurred and is continuing, the
Indenture Trustee shall exercise the rights and powers vested in it by this
Indenture and use the same degree of care and skill in their exercise as a
prudent person would exercise or use under the circumstances in the conduct
of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i)the Indenture Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture and no implied
covenants or obligations shall be read into this Indenture against the
Indenture Trustee; and
(ii)in the absence of bad faith on its part, the Indenture Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Indenture Trustee and conforming to the requirements of this Indenture;
however, the Indenture Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this Indenture.
(c) The Indenture Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section;
(ii) the Indenture Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer unless it is proved that
the Indenture Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Indenture Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 5.11.
------------
(d) Every provision of this Indenture that in any way relates to the
Indenture Trustee is subject to paragraphs (a), (b), (c) and (g) of this
--------------------------------
Section.
(e) The Indenture Trustee shall not be liable for interest on any money
received by it except as the Indenture Trustee may agree in writing with the
Issuer.
(f) Money held in trust by the Indenture Trustee shall be segregated
from other funds except to the extent permitted by law or the terms of this
Indenture or the Sale and Servicing Agreement.
(g) No provision of this Indenture shall require the Indenture Trustee
to expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that
repayment of such funds or adequate indemnity against such risk or liability
is not reasonably assured to it; provided, however, that the Indenture
-------- -------
Trustee shall not refuse or fail to perform any of its duties hereunder
solely as a result of nonpayment of its normal fees and expenses and further
provided that nothing in this Section 6.1(g) shall be construed to limit the
--------------
exercise by the Indenture Trustee of any right or remedy permitted under this
Indenture or otherwise in the event of the Issuer's failure to pay the
Indenture Trustee's fees and expenses pursuant to Section 6.7. In determining
-----------
that such repayment or indemnity is not reasonably assured to it, the
Indenture Trustee must consider not only the likelihood of repayment or
indemnity by or on behalf of the Issuer but also the likelihood of repayment
or indemnity from amounts payable to it from the Trust Estate pursuant to
Section 6.7.
- -----------
(h) The Indenture Trustee shall challenge any attempt at substantive
consolidation of the assets and liabilities of the Issuer with those of any
Owner (as the term "Owner" is defined in the Trust Agreement).
(i) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Indenture Trustee
shall be subject to the provisions of this Section and to the provisions of
the TIA.
6.2 Rights of Indenture Trustee.
---------------------------
(a) The Indenture Trustee may rely on any document believed by it to
be genuine and to have been signed or presented by the proper person. The
Indenture Trustee need not investigate any fact or matter stated in the
document.
(b) Before the Indenture Trustee acts or refrains from acting, it may
require an Officer's Certificate or an Opinion of Counsel. The Indenture
Trustee shall not be liable for any action it takes or omits to take in good
faith in reliance on an Officer's Certificate or Opinion of Counsel.
(c) The Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee.
(d) The Indenture Trustee shall not be liable for (i) any action it
takes or omits to take in good faith which it believes to be authorized or
within its rights or powers; provided, however, that such action or omission
by the Indenture Trustee does not constitute willful misconduct, negligence
or bad faith; or (ii) any willful misconduct or gross negligence on the part
of the Custodian.
(e) The Indenture Trustee may consult with counsel, and the advice or
opinion of counsel with respect to legal matters relating to this Indenture
and the Notes shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it
hereunder in good faith and in accordance with the advice or opinion of such
counsel.
6.3 Individual Rights of Indenture Trustee. The Indenture Trustee in
--------------------------------------
its individual or any other capacity may become the owner or pledgee of Notes
and may otherwise deal with the Issuer or its Affiliates with the same rights
it would have if it were not Indenture Trustee. Any Paying Agent, Note
Registrar, co-registrar or co-paying agent may do the same with like rights.
However, the Indenture Trustee must comply with Sections 6.11 and 6.12.
----------------------
6.4 Indenture Trustee's Disclaimer. The Indenture Trustee shall not
------------------------------
be responsible for and makes no representation as to the validity or adequacy
of this Indenture or the Notes, shall not be accountable for the Issuer's use
of the proceeds from the Notes, or responsible for any statement of the
Issuer in the Indenture or in any document issued in connection with the sale
of the Notes or in the Notes other than the Indenture Trustee's certificate
of authentication.
6.5 Notice of Defaults. If a Default occurs and is continuing and if
------------------
it is known to a Responsible Officer of the Indenture Trustee, the Indenture
Trustee shall mail to
the Securities Insurer and each Noteholder, the Master Servicer and
the Seller notice of the Default within 30 days after it occurs.
Except in the case of a Default in payment of principal of or
interest on any Note (including payments pursuant to the mandatory
redemption provisions of such Note), the Indenture Trustee may
withhold the notice if and so long as a committee of its
Responsible Officers in good faith determines that withholding the
notice is in the interests of Noteholders.
6.6 Reports by Indenture Trustee to Holders. The Indenture Trustee
---------------------------------------
shall deliver to each Noteholder such information as may be required to
enable such holder to prepare its federal and state income tax returns.
6.7 Compensation and Indemnity. As compensation for its services
--------------------------
hereunder, the Indenture Trustee shall be entitled to receive, on each
Distribution Date, the Indenture Trustee's Fee pursuant to Section 5.01 of
the Sale and Servicing Agreement (which compensation shall not be limited by
any law on compensation of a trustee of an express trust) and shall be
entitled to reimbursement for all reasonable out-of-pocket expenses incurred
or made by it, including costs of collection,
in addition to the compensation for its services. Such expenses
shall include the reasonable compensation and expenses,
disbursements and advances of the Indenture Trustee's agents,
counsel, accountants and experts. The Issuer agrees to cause the
Seller to indemnify the Trust Estate and the Indenture Trustee
against any and all loss, liability or expense (including
attorneys' fees) incurred by it in connection with the
administration of this trust and the performance of its duties
hereunder. The Indenture Trustee shall notify the Issuer and the
Servicer promptly of any claim for which it may seek indemnity.
Failure by the Indenture Trustee to so notify the Issuer and the
Servicer shall not relieve the Issuer of its obligations hereunder.
The Issuer shall or shall cause the Servicer to defend any such
claim, and the Indenture Trustee may have separate counsel and the
Issuer shall or shall cause the Servicer to pay the fees and
expenses of such counsel. Neither the Issuer nor the Servicer need
reimburse any expense or indemnify against any loss, liability or
expense incurred by the Indenture Trustee through the Indenture
Trustee's own willful misconduct, negligence or bad faith.
The Issuer's payment obligations to the Indenture Trustee pursuant to
this Section shall survive the discharge of this Indenture. When the
Indenture Trustee incurs expenses after the occurrence of a Default specified
in Section 5.1(e) or (f) with respect to the Issuer, the expenses are
---------------------
intended to constitute expenses of administration under Title 11 of the
United States Code or any other applicable federal or state bankruptcy,
insolvency or similar law.
6.8 Replacement of Indenture Trustee. No resignation or removal of the
--------------------------------
Indenture Trustee and no appointment of a successor Indenture Trustee shall
become effective until the acceptance of appointment by the successor
Indenture Trustee pursuant to this Section. The Indenture Trustee may resign
at any time by so notifying the Issuer and the Securities Insurer. The
Holders of a majority in Outstanding Amount of the Notes may remove the
Indenture Trustee by so notifying the Indenture Trustee and may appoint a
successor Indenture Trustee. The Issuer shall remove the Indenture Trustee
upon the prior written consent of the Securities Insurer if:
(a) the Indenture Trustee fails to comply with Section 6.11;
------------
(b) the Indenture Trustee is adjudged a bankrupt or insolvent;
(c) a receiver or other public officer takes charge of the Indenture
Trustee or its property; or
(d) the Indenture Trustee otherwise becomes incapable of acting.
If the Indenture Trustee resigns or is removed or if a vacancy exists in
the office of Indenture Trustee for any reason (the Indenture Trustee in such
event being referred to herein as the retiring Indenture Trustee), the Issuer
shall promptly appoint a successor Indenture Trustee acceptable to the
Securities Insurer.
A successor Indenture Trustee shall deliver a written acceptance of its
appointment to the retiring Indenture Trustee, the Securities Insurer and to
the Issuer. Thereupon the resignation or removal of the retiring Indenture
Trustee shall become effective, and the successor Indenture Trustee shall
have all the rights, powers and duties of the Indenture Trustee under this
Indenture. The successor Indenture Trustee shall mail a notice of its
succession to Noteholders. The retiring Indenture Trustee shall promptly
transfer all property held by it as Indenture Trustee to the successor
Indenture Trustee.
If a successor Indenture Trustee does not take office within 60 days
after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Issuer or the Holders of a majority in Outstanding
Amount of the Notes may petition any court of competent jurisdiction for the
appointment of a successor Indenture Trustee.
If the Indenture Trustee fails to comply with Section 6.11, any
------------
Noteholder
may petition any court of competent jurisdiction for the removal of the
Indenture Trustee and the appointment of a successor Indenture Trustee.
Notwithstanding the replacement of the Indenture Trustee pursuant to
this Section, the Issuer's and the Administrator's obligations under Section
-------
6.7 shall continue for the benefit of the retiring Indenture Trustee.
- ---
6.9 Successor Indenture Trustee by Merger. If the Indenture Trustee
-------------------------------------
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Indenture Trustee; provided, that such
corporation or banking association shall be otherwise qualified and eligible
under Section 6.11. The Indenture Trustee shall provide the Securities
------------
Insurer and the Rating Agencies prior written notice of any such transaction.
In case at the time such successor or successors by merger, conversion
or consolidation to the Indenture Trustee shall succeed to the trusts created
by this Indenture any of the Notes shall have been authenticated but not
delivered, any such successor to the Indenture Trustee may adopt the
certificate of authentication of any predecessor trustee, and deliver such
Notes so authenticated; and in case at that time any of the Notes shall not
have been authenticated, any successor to the
Indenture Trustee may authenticate such Notes either in the name of any
predecessor hereunder or in the name of the successor to the Indenture
Trustee; and in all such cases such certificates shall have the full force
which it is anywhere in the Notes or in this Indenture provided that the
certificate of the Indenture Trustee shall have.
6.10 Appointment of Co-Indenture Trustee or Separate Indenture Trustee.
-----------------------------------------------------------------
(a) Notwithstanding any other provisions of this Indenture, at any
time, for the purpose of meeting any legal requirement of any jurisdiction in
which any part of the Trust Estate may at the time be located, the Indenture
Trustee shall have the power, with the prior written consent of the
Securities Insurer, and may execute and deliver all instruments to appoint
one or more Persons to act as a co-trustee or co-trustees, or separate
trustee or separate trustees, of all or any part of the Trust, and to vest in
such Person or Persons, in such capacity and for the benefit of the
Noteholders, such title to the Trust Estate, or any part hereof, and, subject
to the other provisions of this Section, such powers, duties, obligations,
rights and trusts as the Indenture Trustee may consider necessary or
desirable. No co-trustee or separate trustee hereunder shall be required to
meet the terms of eligibility as a successor trustee under Section 6.11 and
------------
no notice to Noteholders of the appointment of any co-trustee or separate
trustee shall be required under Section 6.8 hereof; provided that the
-----------
Indenture Trustee shall deliver notice of any such co-trustee or separate
trustee to the Securities Insurer.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by
law, be appointed and act subject to the following provisions and conditions:
(i)all rights, powers, duties and obligations conferred or imposed upon the
Indenture Trustee shall be conferred or imposed upon and exercised or
performed by the Indenture Trustee and such separate trustee or co-trustee
jointly (it being understood that such separate trustee or co-trustee is not
authorized to act separately without the Indenture Trustee joining in such
act), except to the extent that under any law of any jurisdiction in which
any particular act or acts are to be performed the Indenture Trustee shall be
incompetent or unqualified to perform such act or acts, in which event such
rights, powers, duties and obligations (including the holding of title to the
Trust Estate or any portion thereof in any such jurisdiction) shall be
exercised and performed singly by such separate trustee or co-trustee, but
solely at the direction of the Indenture Trustee;
(ii)no trustee hereunder shall be personally liable by reason of any act or
omission of any other trustee hereunder; and
(iii)the Indenture Trustee may at any time accept the resignation of or
remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Indenture Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement
and the conditions of this Article VI. Each separate trustee and co-trustee,
----------
upon its acceptance of the trusts conferred, shall be vested with the estates
or property specified in
its instrument of appointment, jointly with the Indenture Trustee, subject to
all the provisions of this Indenture, specifically including every provision
of this Indenture relating to the conduct of, affecting the liability of, or
affording protection to, the Indenture Trustee. Every such instrument shall
be filed with the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute the
Indenture Trustee its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or
in respect of this Agreement on its behalf and in its name. If any separate
trustee or co-trustee shall die, become incapable of acting, resign or be
removed, all of its estates, properties, rights, remedies and trusts shall
vest in and be exercised by the Indenture Trustee, to the extent permitted by
law, without the appointment of a new or successor trustee.
6.11 Eligibility; Disqualification. The Indenture Trustee shall at all
-----------------------------
times satisfy the requirements of TIA Section 310(a). The Indenture Trustee
shall have a combined capital and surplus of at least $50,000,000 as set
forth in its most recent published annual report of condition and it or its
parent shall have a long-term debt rating of A/3/ or better by Moody's or
shall otherwise be acceptable to Moody's. The Indenture Trustee shall comply
with TIA Section 310(b), including the optional provision permitted by the
second sentence of TIA
Section 310(b)(9); provided, however, that there shall be excluded
from the operation of TIA Section 310(b)(1) any indenture or
indentures under which other securities of the Issuer are
outstanding if the requirements for such exclusion set forth in TIA
Section 310(b)(1) are met.
6.12 Preferential Collection of Claims Against Issuer. The Indenture
------------------------------------------------
Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). An Indenture Trustee who has
resigned or been removed shall be subject to TIA Section 311(a) to the extent
indicated.
VII
NOTEHOLDERS' LISTS AND REPORTS
7.1 Issuer To Furnish Indenture Trustee Names and Addresses of
----------------------------------------------------------
Noteholders. The Issuer will furnish or cause to be furnished to the
- -----------
Indenture Trustee (a) not more than five days after the earlier of (i) each
Record Date and (ii) three months after the last Record Date, a list, in such
form as the Indenture Trustee may reasonably require, of the names and
addresses of the Holders of Notes as of such Record Date, (b) at such other
times as the Indenture Trustee may request in writing, within 30 days after
receipt by the Issuer of any such request, a list of similar form and content
as of a date not more than 10 days prior to the time such list is furnished;
provided, however, that so long as the Indenture Trustee is the Note
Registrar, no such list shall be required to be furnished.
7.2 Preservation of Information; Communications to Noteholders.
----------------------------------------------------------
(a) The Indenture Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of the Holders of Notes
contained in the most recent list furnished to the Indenture Trustee as
provided in Section 7.1 and the names and addresses of Holders of Notes
-----------
received by the
Indenture Trustee in its capacity as Note Registrar. The Indenture Trustee
may destroy any list furnished to it as provided in such Section 7.1 upon
-----------
receipt of a new list so furnished.
(b) Noteholders may communicate pursuant to TIA Section 312(b) with
other Noteholders with respect to their rights under this Indenture or under
the Notes.
(c) The Issuer, the Indenture Trustee and the Note Registrar shall have
the protection of TIA Section 312(c).
7.3 Reports by Issuer.
-----------------
(a) The Issuer shall:
(i)file with the Indenture Trustee and the Securities Insurer, within 15 days
after the Issuer is required to file the same with the Commission, copies of
the annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the Commission may from
time to time by rules and regulations prescribe) that the Issuer may be
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act;
(ii)file with the Indenture Trustee and the Securities Insurer and the
Commission in accordance with the rules and regulations prescribed from time
to time by the Commission such additional information, documents and reports
with respect to compliance by the Issuer with the conditions and covenants of
this Indenture as may be required from time to time by such rules and
regulations; and
(iii)supply to the Indenture Trustee (and the Indenture Trustee shall
transmit by mail to all Noteholders described in TIA Section 313(c)) such
summaries of any information, documents and reports required to be filed by
the Issuer pursuant to clauses (i) and (ii) of this Section 7.3(a) and by
--------------
rules and regulations prescribed from time to time by the Commission.
(b) Unless the Issuer otherwise determines, the fiscal year of the
Issuer shall end on December 31 of each year.
7.4 Reports by Indenture Trustee. If required by TIA Section 313(a),
----------------------------
within 60 days after each February 1, beginning with February 1, 1998, the
Indenture Trustee shall mail to the Securities Insurer and to each Noteholder
as required by TIA Section 313(c) a brief report dated as of such date that
complies with TIA Section 313(a). The Indenture Trustee also shall comply
with TIA Section 313(b).
A copy of each report at the time of its mailing to Noteholders shall be
filed by the Indenture Trustee with the Commission and each securities
exchange, if any, on which the Notes are listed. The Issuer shall notify the
Indenture Trustee if and when the Notes are listed on any securities
exchange.
VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
8.1 Collection of Money.
-------------------
(a) General. Except as otherwise expressly provided herein, the
-------
Indenture Trustee may demand payment or delivery of, and shall receive and
collect, directly and without intervention or assistance of any fiscal agent
or other intermediary, all money and other property payable to or receivable
by the Indenture Trustee pursuant to this Indenture. The Indenture Trustee
shall apply all such money received by it as provided in this Indenture.
Except as otherwise expressly provided in this Indenture, if any default
occurs in the making of any payment or performance under any agreement or
instrument that is part of the Trust Estate, the Indenture Trustee may, and
upon written request of the Securities Insurer shall, take such action as
may be appropriate to enforce such payment or performance, including the
institution and prosecution of appropriate Proceedings. Any such action
shall be without prejudice to any right to claim a Default or Event of
Default under this Indenture and any right to proceed thereafter as provided
in Article V.
---------
(b) Claims Under Guaranty Policy. The Notes and the Certificates will
----------------------------
be insured by the Guaranty Policy pursuant to the terms set forth therein,
notwithstanding any provisions to the contrary contained in this Indenture or
the Sale and Servicing Agreement. All amounts received under the Guaranty
Policy shall be used solely for the payment to Securityholders of principal
and interest on the Notes and the Certificates.
8.2 Trust Accounts; Distributions.
-----------------------------
(a) On or prior to the Closing Date, the Indenture Trustee shall
establish and maintain or cause to be established and maintained, in the name
of the Indenture Trustee for the benefit of the Noteholders, or the Co-Owner
Trustee for the benefit of the Certificateholders, the Trust Accounts as
provided in ARTICLE V of the Sale and Servicing Agreement. The Indenture
---------
Trustee or Co-Owner Trustee shall deposit amounts into the Trust Accounts in
accordance with the terms hereof, the Sale and Servicing Agreement and the
Master Servicer's Certificate.
(b) On or before the second Business Day prior to each Distribution
Date, the Indenture Trustee shall withdraw from the Collection Account, the
Collected Amount, if any, with respect to the preceding Due Period pursuant
to Section 5.01(c) of the Sale and Servicing Agreement and will deposit such
amount into the Note Distribution Account. No later than the second Business
Day prior to each Distribution Date, to the extent funds are available in the
Note Distribution Account, the Indenture Trustee shall either retain funds in
the Note Distribution Account or make the withdrawals from the Note
Distribution Account and deposits into the other Trust Accounts for
distribution on such Distribution Date as required pursuant to Section
5.01(c) of the Sale and Servicing Agreement.
(c) On each Distribution Date and Termination Date, to the extent funds
are available in the Note Distribution Account, the Indenture Trustee shall
make the
distributions and payments in the amounts and in the priority set forth in
Section 5.01(c) of the Sale and Servicing Agreement (except as otherwise
provided in Section 5.4(b):
--------------
(d) On each Distribution Date and the Termination Date, to the extent
of the interest of the Indenture Trustee in the Certificate Distribution
Account (as described in Section 5.03(a) of the Sale and Servicing
Agreement), the Indenture Trustee hereby authorizes the Owner Trustee, the
Co-Owner Trustee or the Paying Agent, as applicable, to make the
distributions from the Certificate Distribution Account as required pursuant
to Sections 5.01(c) and 5.03 of the Sale and Servicing Agreement.
(e) The Indenture Trustee shall make claims under the Guaranty Policy
pursuant to Section 5.02 of the Sale and Servicing Agreement and in
accordance with the Guaranty Policy. The Indenture Trustee shall deposit any
Insured Payment received from the Security Insurer in the Note Distribution
Account for the portion of the Insured Payment payable on the related Class
of Notes or in the Certificate Distribution Account for the portion of the
Insured Payment payable on the related Certificates. For claims under the
Guaranty Policy for a Deficiency Amount, on the related Distribution Date,
the Indenture Trustee shall distribute such amount based upon the portion of
the Interest Distribution Amount payable on the related Class of Notes to the
Holders of such Class of Notes and payable on the related Certificates to
such Certificateholders and the Noteholder's Guaranteed Principal
Distribution Amount payable to the Noteholders in accordance with the terms
of the Sale and Servicing Agreement. For claims under the Guaranty Policy
for a
Preference Amount, the Indenture Trustee shall distribute such amount in
accordance with the terms of the Guaranty Policy. All amounts received under
the Guaranty Policy shall be used solely for the payment to Securityholders
of principal and interest on the related Class of Notes and the Certificates,
as applicable.
8.3 General Provisions Regarding Accounts.
-------------------------------------
(a) So long as no Default or Event of Default shall have occurred and
be continuing, all or a portion of the funds in the Trust Accounts shall be
invested in Permitted Investments and reinvested by the Indenture Trustee at
the direction of Mego in accordance with the provisions of ARTICLE V of the
---------
Sale and Servicing Agreement. All income or other gain from investments of
moneys deposited in the Trust Accounts shall be deposited by the Indenture
Trustee into the Note Distribution Account, and any loss resulting from such
investments shall be charged to such account. Mego will not direct the
Indenture Trustee to make any investment of any funds or to sell any
investment held in any of the Trust Accounts unless the security interest
Granted and perfected in such account will continue to be perfected in such
investment or the proceeds of such sale, in either case without any further
action by any Person, and, in connection with any direction to the Indenture
Trustee to make any such investment or sale, if requested by the Indenture
Trustee, Mego shall deliver to the Indenture Trustee an Opinion of Counsel,
acceptable to the Indenture Trustee, to such effect.
(b) Subject to Section 6.1(c), the Indenture Trustee shall not in any
--------------
way be held
liable by reason of any insufficiency in any of the Trust Accounts resulting
from any loss on any Eligible Investment included therein except for losses
attributable to the Indenture Trustee's failure to make payments on such
Permitted Investments issued by the Indenture Trustee, in its commercial
capacity as principal obligor and not as trustee, in accordance with their
terms.
(c) If (i) Mego shall have failed to give investment directions for any
funds on deposit in the Trust Accounts to the Indenture Trustee by 11:00 a.m.
Eastern Time (or such other time as may be agreed by the Issuer and Indenture
Trustee) on any Business Day or (ii) a Default or Event of Default shall have
occurred and be continuing with respect to the Notes but the Notes shall not
have been declared due and payable pursuant to Section 5.2 or (iii) if such
-----------
Notes shall have been declared due and payable following an Event of Default,
amounts collected or receivable from the Trust Estate are being applied in
accordance with Section 5.5 as if there had not been such a declaration, then
-----------
the Indenture Trustee shall, to the fullest extent practicable, invest and
reinvest funds in the Trust Accounts in one or more Permitted Investments.
8.4 Master Servicer's Monthly Statements.
------------------------------------
On each Distribution Date, the Indenture Trustee shall deliver the
Master Servicer's Certificate (as defined in the Sale and Servicing
Agreement) with respect to such Distribution Date to DTC, the Rating
Agencies, and the Securities Insurer.
8.5 Release of Trust Estate.
-----------------------
(a) Subject to the payment of its fees and expenses pursuant to Section
-------
6.7, the Indenture Trustee may, and when required by the provisions of this
- ---
Indenture shall, execute instruments to release property from the lien of
this Indenture, or convey the Indenture Trustee's interest in the same, in a
manner and under circumstances that are not inconsistent with the provisions
of this Indenture. No party relying upon an instrument executed by the
Indenture Trustee as provided in this Article VIII shall be bound to
------------
ascertain the Indenture Trustee's authority, inquire into the satisfaction of
any conditions precedent or see to the application of any moneys.
(b) The Indenture Trustee shall, at such time as there are no Notes
Outstanding and all sums due to (i) the Certificateholders pursuant to
Section 5.01(c) of the Sale and Servicing Agreement and (ii) the Servicer,
the Securities Insurer, the Indenture Trustee, the Owner Trustee, and the
Master Servicer have been paid, release any remaining portion of the Trust
Estate that secured the Notes from the lien of this Indenture and release to
the Issuer or any other Person entitled thereto any funds then on deposit in
the Trust Accounts. The Indenture Trustee shall release property from the
lien of this Indenture pursuant to this Subsection (b) only upon receipt of
--------------
an Issuer Request accompanied by an Officer's Certificate, an Opinion of
Counsel and (if required by the TIA) Independent Certificates in accordance
with TIA Sections 314(c) and 314(d)(1) meeting the applicable requirements of
Section 11.1.
------------
8.6 Opinion of Counsel. The Indenture Trustee and the Securities
------------------
Insurer shall receive at least seven days notice when
requested by the Issuer to take any action pursuant to
Section 8.5(a), accompanied by copies of any instruments involved,
- --------------
and the Indenture Trustee shall also require, as a condition to such action,
an Opinion of Counsel, in form and substance satisfactory to the Indenture
Trustee, stating the legal effect of any such action, outlining the steps
required to complete the same, and concluding that all conditions precedent
to the taking of such action have been complied with and such action will not
materially and adversely impair the security for the Notes or the rights of
the Noteholders in contravention of the provisions of this Indenture;
provided, however, that such Opinion of Counsel shall not be required to
express an opinion as to the fair value of the Trust Estate. Counsel
rendering any such opinion may rely, without independent investigation, on
the accuracy and validity of any certificate or other instrument delivered to
the Indenture Trustee in connection with any such action.
IX
SUPPLEMENTAL INDENTURES
9.1 Supplemental Indentures Without Consent of Noteholders.
------------------------------------------------------
(a) Without the consent of the Holders of any Notes but with prior
notice to the Rating Agencies and with the prior written consent of the
Securities Insurer, the Issuer and the Indenture Trustee, when authorized by
an Issuer Order, at any time and from time to time, may enter into one or
more indentures supplemental hereto (which shall conform to the provisions of
the Trust Indenture Act as in force at the date of the execution thereof), in
form satisfactory to the Indenture Trustee, for any of the following
purposes:
(i)to correct or amplify the description of any property at any time subject
to the lien of this Indenture, or better to assure, convey and confirm unto
the Indenture Trustee any property subject or required to be subjected to the
lien of this Indenture, or to subject to the lien of this Indenture
additional property;
(ii)to evidence the succession, in compliance with the applicable provisions
hereof, of another person to the Issuer, and the assumption by any such
successor of the covenants of the Issuer herein and in the Notes contained;
(iii)to add to the covenants of the Issuer, for the benefit of the Holders of
the Notes, or to surrender any right or power herein conferred upon the
Issuer;
(iv)to convey, transfer, assign, mortgage or pledge any property to or with
the Indenture Trustee;
(v)to cure any ambiguity, to correct or supplement any provision herein or in
any supplemental indenture that may be inconsistent with any other provision
herein or in any supplemental indenture or to make any other provisions with
respect to matters or questions arising under this Indenture or in any
supplemental indenture; provided, that such action shall not adversely affect
the interests of the Holders of the Notes;
(vi)to evidence and provide for the acceptance of the appointment hereunder
by a successor trustee with respect to the Notes and to add to or change any
of the provisions of this Indenture as shall be necessary to facilitate the
administration of the trusts hereunder by more than one trustee, pursuant to
the requirements of Article VI; or
----------
(vii)to modify, eliminate or add to the provisions of this Indenture to such
extent as shall be necessary to effect the qualification of this Indenture
under the TIA or under any similar federal statute hereafter enacted and to
add to this Indenture such other provisions as may be expressly required by
the TIA.
The Indenture Trustee is hereby authorized to join in the execution of
any such supplemental indenture and to make any further appropriate
agreements and stipulations that may be therein contained.
(b) The Issuer and the Indenture Trustee, with the prior written
consent of the Securities Insurer, when authorized by an Issuer Order, may,
also without the consent of any of the Holders of the Notes but with prior
consent of the Rating Agencies, enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to, or changing
in any manner or eliminating any of the provisions of, this Indenture or of
modifying in any manner the rights of the Holders of the Notes under this
Indenture; provided, however, that such action shall not, as evidenced by (i)
an Opinion of Counsel or (ii) satisfaction of the Rating Agency Condition,
adversely affect in any material respect the interests of any Noteholder.
9.2 Supplemental Indentures with Consent of Noteholders. The Issuer
---------------------------------------------------
and the Indenture Trustee, when authorized by an Issuer Order, also may, with
prior consent of the Rating Agencies and the Securities Insurer and with the
consent of the Holders of not less than a majority of the Outstanding Amount
of the Notes, by Act of such Holders delivered to the Issuer and the
Indenture Trustee, enter into an indenture or indentures supplemental hereto
for the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, this Indenture or of modifying in any
manner the rights of the Holders of the Notes under this Indenture; provided,
however, that no such supplemental indenture shall, without the consent of
the Securities Insurer and the Holder of each Outstanding Note affected
thereby if such Holder is adversely affected thereby:
(a) change the date of payment of any installment of principal of or
interest on any Note, or reduce the principal amount thereof, the interest
rate thereon or the Redemption Price with respect thereto, change the
provisions of this Indenture relating to the application of collections on,
or the proceeds of the sale of, the Trust Estate to payment of principal of
or interest on the Notes, or change any place of payment where, or the coin
or currency in which, any Note or the interest thereon is payable, or impair
the right to institute suit for the enforcement of the provisions of this
Indenture requiring the application of funds available therefor, as provided
in Article V, to the payment of any such amount due on the Notes on or after
the respective due dates thereof (or, in the case of redemption, on or after
the Termination Date);
(b) reduce the percentage of the Outstanding Amount of the Notes, the
consent of the Holders of which is required for any such supplemental
indenture, or the consent of the Holders of which is required for any waiver
of compliance with certain provisions of this Indenture or certain defaults
hereunder and their consequences provided for in this Indenture;
(c) modify or alter the provisions of the proviso to the definition of
the term "Outstanding";
(d) reduce the percentage of the Outstanding Amount of the Notes
required to direct the Indenture Trustee to direct the Issuer to sell or
liquidate the Trust Estate pursuant to Section 5.4;
-----------
(e) modify any provision of this Section except to increase any
percentage specified herein or to provide that certain additional provisions
of this Indenture or the Transaction Documents cannot be modified or waived
without the consent of the Holder of each Outstanding Note affected thereby;
(f) modify any of the provisions of this Indenture in such manner as to
affect the calculation of the amount of any payment of interest or principal
due on any Note on any Distribution Date (including the calculation of any of
the individual components of such calculation) or to affect the rights of the
Holders of Notes to the benefit of any provisions for the mandatory
redemption of the Notes contained herein; or
(g) permit the creation of any lien ranking prior to or on a parity
with the lien of this Indenture with respect to any part of the Trust Estate
or, except as otherwise permitted or contemplated herein, terminate the lien
of this Indenture on any property at any time subject hereto or deprive the
Holder of any Note of the security provided by the lien of this Indenture.
The Indenture Trustee may in its discretion determine whether or not any
Notes would be affected by any supplemental indenture and any such
determination shall be conclusive upon the Holders of all Notes, whether
theretofore or thereafter authenticated and delivered hereunder. The
Indenture Trustee shall not be liable for any such determination made in good
faith.
In connection with requesting the consent of the Noteholders pursuant to
this Section, the Indenture Trustee shall mail to the Holders of the Notes to
which such
amendment or supplemental indenture relates a notice setting forth in general
terms the substance of such supplemental indenture. It shall not be necessary
for any Act of Noteholders under this Section to approve the particular form
of any proposed supplemental indenture, but it shall be sufficient if such
Act shall approve the substance thereof.
9.3 Execution of Supplemental Indentures. In executing, or permitting
------------------------------------
the additional trusts created by, any supplemental indenture permitted by
this Article IX or the modification thereby of the trusts created by this
Indenture, the Indenture Trustee shall be entitled to receive, and subject to
Sections 6.1 and 6.2, shall be fully protected in relying upon, an Opinion
- --------------------
of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Indenture Trustee may, but
shall not be obligated to, enter into any such supplemental indenture that
affects the Indenture Trustee's own rights, duties, liabilities or immunities
under this Indenture or otherwise.
9.4 Effect of Supplemental Indenture. Upon the execution of any
--------------------------------
supplemental indenture pursuant to the provisions hereof, this Indenture
shall be and shall be deemed to be modified and amended in accordance
therewith with respect to the Notes affected
thereby, and the respective rights, limitations of rights,
obligations, duties, liabilities and immunities under this
Indenture of the Indenture Trustee, the Issuer and the Holders of
the Notes shall thereafter be determined, exercised and enforced
hereunder subject in all respects to such modifications and
amendments, and all the terms and conditions of any such
supplemental indenture shall be and be deemed to be part of the
terms and conditions of this Indenture for any and all purposes.
9.5 Conformity with Trust Indenture Act. Every amendment of this
-----------------------------------
Indenture and every supplemental indenture executed pursuant to this Article
-------
IX shall conform to the requirements of the Trust Indenture Act as then in
- --
effect so long as this Indenture shall then be qualified under the Trust
Indenture Act.
9.6 Reference in Notes to Supplemental Indentures. Notes authenticated
---------------------------------------------
and delivered after the execution of any supplemental indenture pursuant to
this Article IX may, and if required by the Indenture Trustee shall, bear a
----------
notation in form approved by the Indenture Trustee as to any matter provided
for in such supplemental indenture. If the
Issuer or the Indenture Trustee shall so determine, new Notes so
modified as to conform, in the opinion of the Indenture Trustee and
the Issuer, to any such supplemental indenture may be prepared and
executed by the Issuer and authenticated and delivered by the
Indenture Trustee in exchange for Outstanding Notes.
9.7 Amendments to Trust Agreement.
-----------------------------
Subject to Section 11.1 of the Trust Agreement, the Indenture Trustee
shall, upon Issuer Order, consent to any proposed amendment to the Trust
Agreement or an amendment to or waiver of any provision of any other document
relating to the Trust Agreement, such consent to be given without the
necessity of obtaining the consent of the Holders of any Notes upon
satisfaction of the requirements under Section 11.1 of the Trust Agreement.
Nothing in this Section shall be construed to require that any Person
obtain the consent of the Indenture Trustee to any amendment or waiver or any
provision of any document where the making of such amendment or the giving of
such waiver without obtaining the consent of the Indenture Trustee is not
prohibited by this Indenture or by the terms of the document that is the
subject of the proposed amendment or waiver.
X
REDEMPTION OF NOTES
10.1 Redemption.
----------
Either Mego or the Master Servicer may effect an early redemption of the
Notes on or after any Distribution Date on which the Pool Principal Balance
declines to 10% or less of the Pool Principal Balance as of the Cut-Off Date
pursuant to the provisions of Section 11.01(b) of the Sale and Servicing
Agreement.
If neither Mego nor the Master Servicer elects to effect an early
redemption as provided in the last paragraph, the Securities Insurer may, at
its option, effect such an early redemption.
The Master Servicer or the Issuer shall furnish the Rating Agencies and
the Securities Insurer notice of any such redemption in accordance with
Section 10.2.
- ------------
10.2 Form of Redemption Notice.
-------------------------
(a) Notice of redemption under Section 10.1 shall be given by the
------------
Indenture Trustee by first-class mail, postage prepaid, or by facsimile
mailed or transmitted not later than 10 days prior to the applicable
Termination Date to each Holder of Notes, as of the close of business on the
Record Date preceding the applicable Termination Date, at such Holder's
address or facsimile number appearing in the Note Register.
All notices of redemption shall state:
(i)the Termination Date;
(ii)the Redemption Price; and
(iii)the place where such Notes are to be surrendered for payment of the
Redemption Price (which shall be the office or agency of the Issuer to be
maintained as provided in Section 3.2).
-----------
Notice of redemption of the Notes shall be given by the Indenture
Trustee in the name of the Issuer and at the expense of the Servicer.
Failure to give notice of redemption, or any defect therein, to any Holder of
any Note shall not impair or affect the validity of the redemption of any
other Note.
10.3 Notes Payable on Termination Date; Provision for Payment of
-----------------------------------------------------------
Indenture Trustee and Securities Insurer. The Notes or portions thereof to
- ----------------------------------------
be redeemed shall, following notice of redemption as required by Section 10.2
------------
(in the case of redemption pursuant to Section 10.1), on the Termination Date
------------
become due and payable at the Redemption Price and (unless the Issuer shall
default in the payment of the Redemption Price) no interest shall accrue on
the Redemption Price for any period after the date to which accrued interest
is calculated for purposes of calculating the Redemption Price. The Issuer
may not redeem the Notes unless, (i) all outstanding obligations under the
Notes have been paid in full and (ii) the Indenture Trustee has been paid all
amounts to which it is entitled hereunder and the Securities Insurer
has been paid all Securities Insurer Reimbursement Amounts to which it is
entitled as of the applicable Termination Date.
XI
MISCELLANEOUS
11.1 Compliance Certificates and Opinions, etc.
------------------------------------------
(a) Upon any application or request by the Issuer to the Indenture
Trustee to take any action under any provision of this Indenture, the Issuer
shall furnish to the Indenture Trustee (i) an Officer's Certificate stating
that all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with, (ii) an Opinion of
Counsel stating that in the opinion of such counsel all such conditions
precedent, if any, have been complied with and (iii) (if required by the TIA)
an Independent Certificate from a firm of certified public accountants
meeting the applicable requirements of this Section, except that, in the case
of any such application or request as to which the furnishing of such
documents is specifically required by any provision of this Indenture, no
additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include:
(1) a statement that each signatory of such
certificate or opinion has read or has caused
to be read such covenant or condition and the
definitions herein relating thereto;
(2) a brief statement as to the nature and scope of
the examination or investigation upon which the
statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such
signatory, such signatory
has made such examination or investigation as
is necessary to enable such signatory to
express an informed opinion as to whether or
not such covenant or condition has been
complied with; and
(4) a statement as to whether, in the opinion of each
such signatory, such condition or covenant has
been complied with.
(b) (i) Prior to the deposit of any Collateral or other property or
securities with the Indenture Trustee that is to be made the
basis for the release of any property or securities subject to the lien of
this Indenture, the Issuer shall, in addition to any obligation imposed in
Section 11.1(a) or elsewhere in this Indenture, furnish to the Indenture
- ---------------
Trustee an Officer's Certificate certifying or stating the opinion of each
person signing such certificate as to the fair value (within 90 days of such
deposit) to the Issuer of the Collateral or other property or securities to
be so deposited.
(ii) Whenever the Issuer is required to furnish to the Indenture
Trustee an Officer's Certificate certifying or stating the opinion of any
signer thereof as to the matters described in clause (i) above, the Issuer
shall also deliver to the Indenture Trustee an Independent Certificate as to
the same matters, if the fair value to the Issuer of the securities to be so
deposited and of all other such securities made the basis of any such
withdrawal or release since the commencement of the then-current fiscal year
of the Issuer, as set forth in the certificates delivered pursuant to clause
(i) above and this clause (ii), is 10% or more of the aggregate Class
Principal Balance of the Notes, but such a certificate need not be furnished
with respect to any securities so deposited, if the fair value thereof to the
Issuer as set forth in the related Officer's Certificate is less than $25,000
or less than one percent of the aggregate Class Principal Balance of the
Notes.
(iii) Whenever any property or securities are to be released
from the lien of this Indenture, the Issuer shall also furnish to the
Indenture Trustee an Officer's Certificate certifying or stating the opinion
of each person signing such certificate as to the fair value (within 90 days
of such release) of
the property or securities proposed to be released and stating that in the
opinion of such person the proposed release will not impair the security
under this Indenture in contravention of the provisions hereof.
(iv) Whenever the Issuer is required to furnish to the Indenture
Trustee an Officer's Certificate certifying or stating the opinion of any
signer thereof as to the matters described in clause (iii) above, the Issuer
shall also furnish to the Indenture Trustee an Independent Certificate as to
the same matters if the fair value of the property or securities and of all
other property or securities released from the lien of this Indenture since
the commencement of the then-current calendar year, as set forth in the
certificates required by clause (ii) above and this clause (iv), equals 10%
or more of the aggregate Class Principal Balance of the Notes, but such
certificate need not be furnished in the case of any release of property or
securities if the fair value thereof as set forth in the related Officer's
Certificate is less than $25,000 or less than one percent of the then
aggregate Class Principal Balance of the Notes.
11.2 Form of Documents Delivered to Indenture Trustee. In any case
------------------------------------------------
where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters
be certified by, or covered by the opinion of, only one such Person, or that
they be so certified or covered by only one document, but one such Person may
certify or give an opinion with respect to some matters and one or more other
such Persons as to other matters, and any such Person may certify or give
an opinion as to such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Issuer may be
based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which such officer's
certificate or opinion is based are erroneous. Any such certificate of an
Authorized Officer or Opinion of Counsel may be based, insofar as it relates
to factual matters, upon a certificate or opinion of, or representations by,
an officer or officers of the Master Servicer, the Seller, the Issuer or the
Administrator, stating that the information with respect to such factual
matters is in the possession of the Master Servicer, the Seller, the Issuer
or the Administrator, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or
representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the
Issuer shall deliver any document as a condition of the granting of
such application, or as evidence of the Issuer's compliance with any term
hereof, it is intended that the truth and accuracy, at the time of the
granting of such application or at the effective date of such certificate or
report (as the case may be), of the facts and opinions stated in such
document shall in such case be conditions precedent to the right of the
Issuer to have such application granted or to the sufficiency of such
certificate or report. The foregoing shall not, however, be construed to
affect the Indenture Trustee's right to rely upon the truth and accuracy of
any statement or opinion contained in any such document as provided in
Article VI.
- ----------
11.3 Acts of Noteholders.
-------------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Noteholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Noteholders in person or by agents
duly appointed in writing; and except as herein otherwise expressly provided
such action shall become effective when such instrument or instruments are
delivered to the Indenture Trustee, and, where it is hereby expressly
required, to the Issuer. Such instrument or instruments (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as
the "Act" of the Noteholders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent
shall be sufficient for any purpose of this Indenture and (subject to Section
-------
6.1) conclusive in favor of the Indenture Trustee and the Issuer, if made in
- ---
the manner provided in this Section.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Indenture Trustee
deems sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Notes shall bind the Holder of
every Note issued upon the registration thereof or in exchange therefor or in
lieu thereof, in respect of anything done, omitted or suffered to be done by
the Indenture Trustee or the Issuer in reliance thereon, whether or not
notation of such action is made upon such Note.
11.4 Notices. Any request, demand, authorization, direction, notice,
-------
consent, waiver or Act of Noteholders or other documents provided or
permitted by this Indenture shall be in writing and if such request, demand,
authorization, direction, notice, consent, waiver or act of Noteholders is to
be made upon, given or furnished to or filed with:
(a) the Indenture Trustee by any Noteholder or by the Issuer shall be
sufficient for every purpose hereunder if made, given, furnished or filed in
writing to or with the Indenture Trustee at its Corporate Trust Office, or
(b) the Issuer by the Indenture Trustee or by any Noteholder shall be
sufficient for every purpose hereunder if in
writing and mailed first-class, postage prepaid to the Issuer addressed to:
Mego Mortgage Home Loan Owner Trust 1997-1, in care of Wilmington Trust
Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware
19890, Attention: Emmett R. Harmon, or at any other address previously
furnished in writing to the Indenture Trustee by the Issuer or the
Administrator. The Issuer shall promptly transmit any notice received by it
from the Noteholders to the Indenture Trustee.
Notices required to be given to the Rating Agencies by the Issuer, the
Indenture Trustee or the Owner Trustee shall be in writing, personally
delivered or mailed by certified mail, return receipt requested, to (i) in
the case of Moody's, at the following address: Moody's Investors Service,
Inc., Residential Mortgage Monitoring Department, 99 Church Street, New York,
New York 10007, and (ii) in the case of Standard & Poor's, at the following
address: Standard & Poor's Ratings Group, 26 Broadway (15th Floor), New York,
New York 10004, Attention of Asset Backed Surveillance Department; or as to
each of the foregoing, at such other address as shall be designated by
written notice to the other parties.
Notices required to be given to the Securities Insurer by the Issuer,
the Indenture Trustee or the Owner Trustee shall be in writing, personally
delivered or mailed by certified mail, return receipt requested, to the
following address: MBIA Insurance Corporation, 113 King Street, Armonk, New
York 10504, Attention: Insured Portfolio Management - Structured Finance
(IPM-SF), or at such other address as shall be designated by written notice
to the other parties.
11.5 Notices to Noteholders; Waiver. Where this Indenture provides for
------------------------------
notice to Noteholders of any event, such notice shall be sufficiently given
(unless otherwise herein expressly provided) if in writing and mailed,
first-class, postage prepaid to each Noteholder affected by such event, at
his address as it appears on the Note Register, not later than the latest
date, and not earlier than the earliest date, prescribed for the giving of
such notice. In any case where notice to Noteholders is given by mail,
neither the failure to mail such notice nor any defect in any notice so
mailed to any particular Noteholder shall affect the sufficiency of such
notice with respect to other Noteholders, and any notice that is mailed in
the manner herein provided shall conclusively be presumed to have been duly
given.
Where this Indenture provides for notice in any manner, such notice may
be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Indenture
Trustee but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a result
of a strike, work stoppage or similar activity, it shall be
impractical to mail notice of any event to Noteholders when such notice is
required to be given pursuant to any provision of this Indenture, then any
manner of giving such notice as shall be satisfactory to the Indenture
Trustee shall be deemed to be a sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies, failure
to give such notice shall not affect any other rights or obligations created
hereunder, and shall not under any circumstance constitute a Default or Event
of Default.
11.6 (RESERVED).
11.7 Conflict with Trust Indenture Act. If any provision hereof limits,
---------------------------------
qualifies or conflicts with another provision hereof that is required to be
included in this Indenture by any of the provisions of the Trust Indenture
Act, such required provision shall control.
The provisions of TIA Sections 310 through 317 that impose duties on any
person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this
Indenture, whether or not physically contained herein.
11.8 Effect of Headings and Table of Contents. The Article and Section
----------------------------------------
headings herein and the Table of Contents are for convenience only and shall
not affect the construction hereof.
11.9 Successors and Assigns. All covenants and agreements in this
----------------------
Indenture and the Notes by the Issuer shall bind its successors and assigns,
whether so expressed or not. All agreements of the Indenture Trustee in this
Indenture shall bind its successors, co-trustees and agents.
11.10 Separability. In case any provision in this Indenture or in
------------
the Notes shall be invalid, illegal or unenforceable, the validity, legality,
and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
11.11 Benefits of Indenture. Nothing in this Indenture or in the
---------------------
Notes, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder, and the Noteholders, and any other
party secured hereunder, and any other Person with an ownership interest in
any part of the Trust Estate, any benefit or any legal or equitable right,
remedy or claim under this Indenture, except that the Securities Insurer is
an express third party beneficiary to this Indenture as provided in Section
-------
11.20.
- -----
11.12 Legal Holidays. In any case where the date on which any
--------------
payment is due shall not be a
Business Day, then (notwithstanding any other provision of the
Notes or this Indenture) payment need not be made on such date, but
may be made on the next succeeding Business Day with the same force
and effect as if made on the date on which nominally due, and no
interest shall accrue for the period from and after any such
nominal date.
11.13 GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
11.14 Counterparts. This Indenture may be executed in any number
------------
of counterparts, each of which so executed shall be deemed to be an original,
but all such counterparts shall together constitute but one and the same
instrument.
11.15 Recording of Indenture. If this Indenture is subject to
----------------------
recording in any appropriate public recording offices, such
recording is to be effected by the Issuer and at its expense
accompanied by an Opinion of Counsel (which may be counsel to the
Indenture Trustee or any other counsel reasonably acceptable to the
Indenture Trustee) to the effect that such recording is necessary
either for the protection of the Noteholders or any other Person
secured hereunder or for the enforcement of any right or remedy
granted to the Indenture Trustee under this Indenture.
11.16 Trust Obligation. No recourse may be taken, directly or
----------------
indirectly, with respect to the obligations of the Issuer, the Owner Trustee
or the Indenture Trustee on the Notes or under this Indenture or any
certificate or other writing delivered in connection herewith or therewith,
against (i) the Indenture Trustee or the Owner Trustee in its individual
capacity, (ii) any owner of a beneficial interest in the Issuer or (iii) any
partner, owner, beneficiary, agent, officer, director, employee or agent of
the Indenture Trustee or the Owner Trustee in its individual capacity, any
holder of a beneficial interest in the Issuer, the Owner Trustee or the
Indenture Trustee or of any successor or assign of the Indenture Trustee or
the Owner Trustee in its individual capacity, except as any such Person may
have expressly agreed (it being understood that the Indenture
Trustee and the Owner Trustee have no such obligations in their
individual capacity) and except that any such partner, owner or
beneficiary shall be fully liable, to the extent provided by
applicable law, for any unpaid consideration for stock, unpaid
capital contribution or failure to pay any installment or call
owing to such entity. For all purposes of this Indenture, in the
performance of any duties or obligations of the Issuer hereunder,
the Owner Trustee shall be subject to, and entitled to the benefits of, the
terms and provisions of Article VI, VII and VIII of the Trust Agreement.
------------------------
11.17 No Petition. The Indenture Trustee, by entering into this
-----------
Indenture, and each Noteholder, by accepting a Note, hereby covenant and
agree that they will not at any time institute against the Seller (and any
wholly-owned subsidiary thereof), the Depositor, the Master Servicer, the
Servicer or the Issuer, or join in any institution against the Seller (and
any wholly-owned subsidiary thereof), the Depositor, the Master Servicer, the
Servicer or the Issuer of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other
proceedings under any United States federal or state bankruptcy or
similar law in connection with any obligations relating to the
Notes, this Indenture or any of the Transaction Documents.
11.18 Inspection. The Issuer agrees that, on reasonable prior
----------
notice, it will permit any representative of the Indenture Trustee or the
Securities Insurer, during the Issuer's normal business hours, to examine all
the books of account, records, reports and other papers of the Issuer, to
make copies and extracts therefrom, to cause such books to be audited by
Independent certified public accountants, and to discuss the Issuer's
affairs, finances and accounts with the Issuer's officers, employees, and
Independent certified public accountants, all at such reasonable times and as
often as may be reasonably requested. The Indenture Trustee shall and shall
cause its representatives to hold in confidence all such information except
to the extent disclosure may be required by law (and all reasonable
applications for confidential treatment are unavailing) and except to the
extent that the Indenture Trustee may reasonably determine that such
disclosure is consistent with its obligations hereunder.
11.19 Grant of Noteholder Rights to Securities Insurer. In
------------------------------------------------
consideration for the guarantee of the Notes by the Securities Insurer
pursuant to the Guaranty Policy, the Noteholders hereby grant to the
Securities Insurer the right to act as the holder of 100% of the outstanding
Notes for the purpose of exercising the rights of the Holders of the Notes
hereunder, including the voting rights of such Holders, but excluding those
rights requiring the consent of all such Holders under Section 9.2 and any
-----------
rights of such Holders to distributions under Section 8.2 hereof; provided
-----------
that the preceding grant of rights to the Securities Insurer by the
Noteholders shall be subject to Section 11.21 hereof. The rights of the
-------------
Securities Insurer to direct certain actions and consent to certain actions
of the Noteholders hereunder will terminate at such time as the Class
Principal Balances of all Classes of Notes have been reduced to zero and the
Securities Insurer has been reimbursed for all Insured Payments and any other
amounts owed under the Guaranty Policy and the Insurance Agreement and the
Securities Insurer has no further obligation under the Guaranty Policy.
11.20 Third Party Beneficiary. The parties hereto acknowledge that
-----------------------
each of the Securities Insurer and the Master Servicer (for purposes of the
redemption right under Section 10.1) is an express third party beneficiary
hereof entitled to enforce any rights reserved to it hereunder as if it were
actually a party hereto.
11.21 Suspension and Termination of Securities Insurer's Rights.
---------------------------------------------------------
(a) During the continuation of a Securities Insurer Default, rights
granted or reserved to the Securities Insurer hereunder shall vest instead in
the Noteholders; provided that the Securities Insurer shall be entitled to
any distributions in reimbursement of the Securities Insurer Reimbursement
Amount, and the Securities Insurer shall retain those rights under Section
-------
9.2 hereof to consent to any supplement to this Indenture.
- ---
(b) At such time as either (i) the Class Principal Balances of each
Class of Notes have been reduced to zero or (ii) the Guaranty Policy has been
terminated following a Securities Insurer Default, and in either case of (i)
or (ii) the Securities Insurer has been reimbursed for all Insured Payments
and any other amounts owed under the Guaranty Policy and the Insurance
Agreement (and the Securities Insurer no longer has any obligation under the
Guaranty Policy, except for breach thereof by the Securities Insurer), then
the rights and benefits granted or
reserved to the Securities Insurer hereunder (including the rights to direct
certain actions and receive certain notices) shall terminate and the
Noteholders shall be entitled to the exercise of such rights and to receive
such benefits of the Securities Insurer following such termination to the
extent that such rights and benefits are applicable to the Noteholders.
11.22 Conflicts of Interest. In performing its duties as
---------------------
Administrator pursuant to the Administration Agreement, the Indenture Trustee
shall not be liable for any potential conflict of interest related to its
performance as Indenture Trustee hereunder.
11.23 Inconsistencies With the Sale and Servicing Agreement. In the
-----------------------------------------------------
event certain provisions of this Agreement conflict with the provisions of
the Sale and Servicing Agreement, the parties hereto agree that the
provisions of the Sale and Servicing Agreement shall be controlling.
IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused
this Indenture to be duly executed by their respective officers, thereunto
duly authorized and duly attested, all as of the day and year first above
written.
MEGO MORTGAGE HOME LOAN
OWNER TRUST 1997-1
By: Wilmington Trust Company
not in its individual capacity but
solely as Owner Trustee
By: /s/ Patricia A. Evans
-------------------------------------
Name: Patricia A. Evans
Title:
FIRST TRUST OF NEW YORK,
NATIONAL ASSOCIATION,
as Indenture Trustee
By: /s/ Edward Kachinski
-------------------------------------
Name: Edward Kachinski
Title:
STATE OF NEW YORK
COUNTY OF NEW YORK
BEFORE ME, the undersigned authority, a Notary Public in and for said
county and state, on this day personally appeared _______________, known to
me to be the person and officer whose name is subscribed to the foregoing
instrument and acknowledged to me that the same was the act of the said
WILMINGTON TRUST COMPANY, not in its individual capacity, but solely as Owner
Trustee on behalf of MEGO MORTGAGE HOME LOAN OWNER TRUST 1997-1, a Delaware
business trust, and that such person executed the same as the act of said
business trust for the purpose and consideration therein expressed, and in
the capacities therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 10th day of March, 1997.
--------------------------------------------
Notary Public in and for the State of New York
(Seal)
My commission expires:
- --------------------
STATE OF NEW YORK
COUNTY OF NEW YORK
BEFORE ME, the undersigned authority, a Notary Public in and for said
county and state, on this day personally appeared ____________________, known
to me to be the person and officer whose name is subscribed to the foregoing
instrument and acknowledged to me that the same was the act of FIRST TRUST OF
NEW YORK, NATIONAL ASSOCIATION, a national banking association, and that such
person executed the same as the act of said corporation for the purpose and
consideration therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 10th day of March, 1997.
--------------------------------------------
Notary Public in and for the State of New York
(Seal)
My commission expires:
- --------------------
SCHEDULE A
